incoterms and chartering terms

7/22/2019 Incoterms and Chartering Terms

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Prashant Bhaskar

International Trade Terms

Learn ing objectives

• discuss why international contracts of sale

are very challenging

• discuss how clarity and transparency in

trading terms benefit the exporter and

importer

• outline the main INCOTERMS 2000

• describe the main terms used in maritime

trade

• explain why traders use terms other than

the INCOTERMS.

Topics

The contract of sale

The INCOTERMS

• Meaning of E, F, C, and D terms

• Interpretation of terms

• Responsibilities and obligations of

buyers and sellers

Hybrid terms

• Chartering and trading terms



Prashant Bhaskar


What are the most obvious problems?

- Clarity and certainty

Solution?

- INCOTERMS •International Commercial Terms

•Developed by ICC

•Current version 2000



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http://resources.alibaba.com/article/107/From_Seller_to_Buyer_a_flow_diagram_of_Incoterms_2000.htm

E term:Seller’s minimum obligation

F terms:Seller hands over goods to a

nominated carrier free of risk and

expense to buyer

C terms:Seller must bear certain costs

even after the critical point for

division of risk

D terms:Goods must arrive at a stateddestination

INCOTERMS – the abbreviations



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INCOTERMS

Group E departureEXW Ex Works (… named place)

Group F Main carriage unpaid

FCA Free Carrier (…named place)

FAS Free Alongside Ship (…named place)FOB Free On Board (…named port of shipment)

Group C Main Carriage Paid

CFR Cost and Freight (…named port of destination)

CIF Cost Insurance and Freight (…named port of destination)CPT Carriage Paid To (…named place of destination)CIP Carriage Insurance Paid To (…named place of destination)

Group D Arrival

DAF Delivered at Frontier (…named place)DES Delivered Ex Ship (…named port of destination)

DEQ Delivered Ex Quay (…named port of destination)DDU Delivered Duty Unpaid (…named place of destination)DDP Delivered Duty Paid (…named place of destination)



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Seller’s Obligations Buyer’s obligations

A1 Provision of goods in conformity with the

contract

B1 Payment of the price

A2 Licences, authorisation and formalities B1 Licences, authorisation and formalities

A3 Contract of carriage and insurance B3 Contract of carriage

A4 Delivery B4 Taking delivery

A5 Transfer of risks B5 Transfer of risks

A6 Division of costs B6 Division of costs

A7 Notice to the buyer B7 Notice to the seller

A8 Proof of delivery, transport documents or

equivalent electronic message

B8 Proof of delivery

A9 Checking- packaging-marking B9 Inspection of goods

A10 Other obligations B10 Other obligations

Grouping of obligations under 10 headings

(Source: Ramberg 1999, pp. 52 –65)


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E TermEXW(Ex WORKS…..named place)

Carriage:

Arranged by buyer

Risk transfer:When goods are at

buyer’s disposal

Cost transfer:

When goods are at

buyer’s disposal

http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf



F TermsFCA(Free CArrier …..named place)

Carriage:

Arranged by buyer (or

seller on buyer’s behalf)

Risk transfer:

When goods have been

delivered to carrier at the

named place

Cost transfer:When goods have been

delivered to carrier at

named place




F TermsFAS(Free Along Side Ship…..named

port of shipment)

Carriage:

Arranged by buyer

Risk transfer:

When goods have been

placed alongside ship

Cost transfer:When goods have been

placed alongside ship




F TermsFOB(Free On Board…..named port of

shipment)

Carriage:

Arranged by buyer

Risk transfer:When goods pass the

ship’s rails

Cost transfer:

When goods pass the

ship’s rails




C TermsCFR(Cost and FReight…..named port

of destination)

Carriage:

Arranged by seller


ship’s rails

Cost transfer:

At port of destination

(but buyer liable for costs

that are not on seller’s

account under COC)




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C TermsCIF(Cost, Insurance and

Freight…..named port ofdestination)

Carriage:

Arranged by seller +

insurance


ship’s rails

Cost transfer:

At port of destination



account under COC)




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C TermsCPT(Carriage Paid To…..named place

of destination)

Carriage:

Arranged by seller

Risk transfer:When goods are

delivered to the carrier

Cost transfer:

At place of destination



account under COC)




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C TermsCIP(Carriage and Insurance Paid

to…..named place of destination)

Carriage:

Arranged by seller +

insurance

Risk transfer:

When goods are

delivered to carrier

Cost transfer:

At place of destination



account under COC)




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D TermsDAF(Delivered At Frontier…..named

place)

Carriage:

Arranged by seller

Risk transfer:When goods are

delivered at frontier

Cost transfer:

When goods are delivered

at frontier




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D TermsDES(Delivered Ex Ship…..named port

of destination)

Carriage:

Arranged by seller

Risk transfer:When goods are placed

at the disposal of buyer

on board the ship

Cost transfer:

When goods are placed atthe disposal of buyer on

board the ship




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D TermsDEQ(Delivered Ex Quay…..named

port of destination)

Carriage:

Arranged by seller



on the quay

Cost transfer:

When goods are placed at

the disposal of buyer on the

quay




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D TermsDDU(Delivered Duty Unpaid…..named

place of destination)

Carriage:

Arranged by seller



Cost transfer:


the disposal of buyer




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D TermsDDP(Delivered Duty Paid…..named

place of destination)

Carriage:

Arranged by seller



Cost transfer:


the disposal of buyer




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http://www.bas-hk.com/bas/download/pdf/inco.pdf



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Any mode of transport

Group E EXW Ex Works (... named place)

Group F FCA Free Carrier (... named place)

Group C CPTCarriage Paid To (... named place of

destination)

CIPCarriage and Insurance Paid To (...

named place of destination)

Group D DAF Delivered At Frontier (... named place)

DDU Delivered Duty Unpaid (... namedplace of destination)

DDPDelivered Duty Paid (... named place

of destination)

Maritime and inland waterway transport only

Group F FASFree Alongside Ship (... named port of

shipment)

FOBFree On Board (... named port ofshipment)

Group C CFR Cost and Freight (... named port ofdestination)

CIFCost, Insurance and Freight (... named

port of destination)

Group D DESDES Delivered Ex Ship (... named portof destination)

DEQDelivered Ex Quay (... named port ofdestination)

Transport modes

http://users.raketnet.nl/incoterms/incoterms/exw.htm

http://users.raketnet.nl/incoterms/incoterms/fca.htm

http://users.raketnet.nl/incoterms/incoterms/cpt.htm

http://users.raketnet.nl/incoterms/incoterms/cip.htm

http://users.raketnet.nl/incoterms/incoterms/daf.htm

http://users.raketnet.nl/incoterms/incoterms/ddu.htm

http://users.raketnet.nl/incoterms/incoterms/ddp.htm

http://users.raketnet.nl/incoterms/incoterms/fas.htm

http://users.raketnet.nl/incoterms/incoterms/fob.htm

http://users.raketnet.nl/incoterms/incoterms/cfr.htm

http://users.raketnet.nl/incoterms/incoterms/cif.htm

http://users.raketnet.nl/incoterms/incoterms/des.htm

http://users.raketnet.nl/incoterms/incoterms/deq.htm

http://users.raketnet.nl/incoterms/incoterms/deq.htm

http://users.raketnet.nl/incoterms/incoterms/des.htm

http://users.raketnet.nl/incoterms/incoterms/cif.htm

http://users.raketnet.nl/incoterms/incoterms/cfr.htm

http://users.raketnet.nl/incoterms/incoterms/fob.htm

http://users.raketnet.nl/incoterms/incoterms/fas.htm

http://users.raketnet.nl/incoterms/incoterms/ddp.htm

http://users.raketnet.nl/incoterms/incoterms/ddu.htm

http://users.raketnet.nl/incoterms/incoterms/daf.htm

http://users.raketnet.nl/incoterms/incoterms/cip.htm

http://users.raketnet.nl/incoterms/incoterms/cpt.htm

http://users.raketnet.nl/incoterms/incoterms/fca.htm

http://users.raketnet.nl/incoterms/incoterms/exw.htm



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INCOTERM DELIVERY

PLACE

WHO PAYS

MAIN

CARRIAGE?

WHO PAYS

INSURANCE?

WHEN IT IS

USEFUL?

FOB

CFR

FAS

FCA

CPT

Activity



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Hybrid Terms

•Give agreed meaning to an INCOTERM subject to customary interpretation

•Usually made up of INCOTERM trading term and shipping term

Eg:

FOB ST Free On Board Stowed

CFR FO Cost and Freight Free Out

CFR LT Cost and Freight Liner Terms



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Chartering and trading

•Time charter

•Voyage charter

Demurrage

Dispatch

Who, between the charterer (exporter or importer) and the shipowner,

bears the responsibility (and costs) of loading, stowing and unloading of

the vessel?

If the charterer is responsible, how much time must the shipowner allowthe charterer to load and unload the vessel?



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Chartering Terms

FIFO: Free In Free Out—The loading (IN) and discharging (OUT) is

FREE of cost to shipowner. The charterer is responsible for both

loading and unloading costs.

FILO: Free In Liner Out—The loading is the charterer’s responsibilitybut the unloading is the shipowner’s responsibility.

LT BENDS—Liner Terms Both Ends—the shipowner is responsible for

loading and discharging at both ends.



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Time for loading/discharging

Eg:

LOAD RATE: 2500 MT per wwdshexeiu

DISCH. RATE: 3000 MT per wwdshinc

2500 MT per wwdshexeiu: 2500 MT per Weather Working Day Sunday and

Holidays Excluded Even If Used

3000 MT per wwdshinc: 3000 MT per Weather Working Day Sunday and

Holiday Included



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Trading term Loadingresponsibility

Charteringcontract

Unloadingresponsibility

FOB ????(Custom) Importer Importer

FOB ST Exporter Importer Importer

CFR Exporter Exporter ???(custom)

CFR LT Exporter Exporter Exporter

CFR FO Exporter Exporter Importer

Chartering Term Loading responsibility Unloading

responsibility

Liner terms Shipowner Shipowner

FIFO Charterer Charterer

LIFO Shipowner Charterer

FILO Charterer shipowner

Trading and chartering terms



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Exporter and Charterer Charters vessels

Loads vessel at load port

Pays demurrage/collects despatch at load port

Importer Unloads vessel and pays

demurrage/collects despatch

Shipowner CharterpartyFIFO

CFR FO

Eg: Trading contract and hybrid term



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We covered:


The INCOTERMS

• Meaning of E, F, C, and D terms

• Interpretation of terms

• Responsibilities and obligations of

buyers and sellers

Hybrid terms

• Chartering and trading terms



P h t Bh k

Activity

Group 1 : List 3 most favorable INCOTERMS for exporters

Group 2 : List 3 least favorable INCOTERMS for exporters

Group 3 : List 3 most favorable INCOTERMS for importers

Group 4 : List 3 least favorable INCOTERMS for importers

Give reasons for your answers

incoterms and chartering terms

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