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Chapter Four

Chapter Four. Commercial Terms Used in International Trade. INCOTERMS : IN ternational CO mmercial TERMS.

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Chapter Four

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  1. Chapter Four Commercial Terms Used in International Trade

  2. INCOTERMS : INternational COmmercial TERMS • “INCOTERMS define the mutual obligations of seller and buyer arising from the movement of goods under an international contract from the standpoint of risks, costs and documents” UNCTAD, 1990

  3. What are they? • Set of international rules for the interpretation of the most commonly used foreign trade terms

  4. Why are they Important? • Reduce the uncertainty caused by trade practices in different countries. • Simplify the negotiations involved in international commerce. • Ensure common understanding of obligations

  5. The Categories Incoterms Code Ex works EXW Free carrier FCA Free alongside ship FAS Free on board FOB Cost & freight CFR Cost, insurance & freight CIF Carriage paid to CPT Carriage and insurance paid to CIP Delivered duty paid DDP Delivered at Place DAP Delivered at Terminal DAT E Terms F Terms C Terms D Terms

  6. The Steps of Global Logistics Customs Clearance for Export 3 4 2 Handling Outbound Loading Preliminary Transportation 1 5 Packing 6 Insurance Main International Transportation Customs Clearance Duties 7 9 10 8 11 Final Transportation Handling Inbound Unloading

  7. Acronym (…named location) Acronym dictates mode and where the lines are drawn Export Clearance Import Clearance SELLER BUYER Goods PRE -CARRIAGE MAIN CARRIAGE ON-CARRIAGE Seller’s Risk Seller’s Cost

  8. Export Clearance Import Clearance SELLER BUYER Goods PRE -CARRIAGE MAIN CARRIAGE ON-CARRIAGE Seller’s Risk Seller’s Cost E Terms: Departure • EXW (named place) Under E-terms, the seller minimizes his risk by only making the goods available at his own premises.

  9. EXW = Ex Works • The seller fulfills his obligation to deliver when he has made the goods available at his premises to the buyer. • The seller is not responsible for loading the goods on the vehicle provided by the buyer • The seller is not responsible for clearing the goods for export, unless agreed. • The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination.

  10. Group F: Main Carriage Not Paid by Seller • FAS - Free Alongside Ship • FCA - Free CArrier • FOB - Free On Board Under F-terms, the seller arranges and pays for pre-carriage in the country of export. Including export clearance under FCA and FOB

  11. FAS (…named port of shipment) • Seller • delivers goods alongside ship • evidence of delivery Export Clearance Import Clearance SELLER BUYER Goods PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE Seller’s Risk • Buyer • export documents • nominates carrier, • contracts carriage • pays freight Seller’s Cost

  12. FCA (…named place) • Seller • clears export customs, • delivers goods to carrier • evidence of delivery Export Clearance Import Clearance SELLER BUYER Goods PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE Seller’s Risk • Buyer • nominates carrier, • contracts carriage • pays freight Seller’s Cost

  13. FOB (…named port of shipment) • Seller • clears export customs, • delivers and loads goods on ship • evidence of delivery Export Clearance Import Clearance SELLER BUYER Goods PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE Seller’s Risk • Buyer • nominates carrier, • contracts carriage • pays freight Seller’s Cost

  14. Group C: Main Carriage Paid by Seller • CFR - Cost & Freight • CIF - Cost, Insurance & Freight • CPT - Carriage Paid To • CIP - Carriage & Insurance Paid to Under C-terms, the seller arranges and pays for the main carriage but without assuming the risk of the main carriage.

  15. CFR (…named port of destination) Export Clearance Import Clearance SELLER BUYER Goods PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE Seller’s Risk Seller’s Cost

  16. CIF (…named port of destination) Export Clearance Import Clearance SELLER BUYER Goods PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE Seller’s Risk Seller’s Cost + Insurance

  17. Ocean vs Other • Ocean Terms Other Terms • CFR CPT • CIF CIP

  18. Group D: Arrival • DDP - Delivered Duty Paid • DAP - Delivered at Place • DAT - Delivered at Terminal Under D-terms, the seller’s cost/risk is maximized because he must make the goods available at the agreed destination. Including import clearance under DDP

  19. DDP (…named port of destination) Export Clearance Import Clearance SELLER Goods PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE Seller’s Risk Seller’s Cost

  20. DAT (…named port of destination) Export Clearance Import Clearance SELLER BUYER Goods PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE Seller’s Risk Seller’s Cost

  21. DAP (…named port of destination) Export Clearance Import Clearance SELLER BUYER Goods PRE-CARRIAGE MAIN CARRIAGE ON-CARRIAGE Seller’s Risk Seller’s Cost

  22. Quick Quiz

  23. IncoTerms & “Price”

  24. Sources • www.wto.org • www.icc.org • UNCTAD at United Nations • Local Chambers of Commerce • International Chamber of Commerce - New York City Office

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