ontario international transport and logistics section 8: incoterms2010

Ontario

International Transport and logistics

Section 8: Incoterms2010

The INCOTERMS

What is an INternational COmmercial TERM ?

• Since 1936, terms used by the member countries of the International Chamber of Commerce (ICC). Latest revision was in 2000.

• The INCOTERMS are a tentative for mutual agreement between two (2) parties with standardized interpretations.

• The INCOTERMS are recognized worldwide when incorporated in a commercial agreement.

WHY THE INCOTERMS® 2010

• DOMESTIC USE: The INCOTERMS are also used more and more in national and domestic transactions (where no borders are involved).Example: European Union, Canada, USA, etc.

• USA: Desire of the USA to harmonize their commerce with the rest of the world by using the INCOTERMS internationally… and nationally.

WHY THE INCOTERMS® 2010

• ELECTRONIC DOCUMENTATION: Use of the electronic documents as official documents, with acknoledgement of parties.

• SECURITY requirements at loading and unloading sites, at terminals, on route.

• Disapearing of the crane movement in the risk aspect.

THE INCOTERMS

Determines the obligations of the parties:• A: The SELLER must...• B: The BUYER must...

• ROLE 1: Stipulates who is responsible of:

• Organizing transportation, insurance, loading and delivery.

THE INCOTERMS

• ROLE 2: Establish transfer on who:. Pays for transportation;. Assumes risk of cargo while in

transit._______________

The choice of INCOTERMS will depend on the sellers tolerance to risk: ‘I am ready to go to...’

The INCOTERM should be part of the conversation in the

negociation!

• The INCOTERMS are not laws and do not transfer the cargo ownership.

• Once indicated, the INCOTERM is part of the agreement and has legal power.

The INCOTERM should be part of the conversation in the

negociation!

• The INCOTERM should be mentioned right at the start, in the negociation phase between the seller and the buyer. Then, be part of the agreement and\or the purchase order. Example: ‘The rule of Incoterm chosen is DAT Antwerp, Incoterms® 2010’.

• It is not an obligation to use an INCOTERM. However, if complications would occur in transit, this would avoid disputes and the famous...‘I thought that ..’

DIFFERENCES: INCOTERMS 2000 and INCOTERMS® 2010

• SIMPLIFIED: Now 11 INCOTERMS instead of 13, which 7 for all modes of transport and 4 for the maritime / waterways transportation.

• 4 Incoterms disappears and are replaced by 2 new ones: DAT replaces DEQ, while DAP replaces DAS, DES, DDU.

DIFFERENCES: INCOTERMS 2000 and INCOTERMS® 2010

INCOTERMS still regrouped in 4 groups: Group E: Departure = EXW Group F: Main Carriage Unpaid = FCA, FOB, FAS Group C: Main Carriage Paid = CIP, CPT, CIF, CFR Group D: Deliver = DAT, DAP, DDP

• In the official INCOTERMS®2010 book, obligations from the seller are clearly identified by articles A-1 to A-10, while the obligations from the buyer, just like a mirror, are identified by articles B-1 to B-10

Complete informations and interpretations are found in the book published by The International Chamber of Commerce

www.iccbooks.com

ICC Publication No. 715E, 2010 Edition

DETERMINIG THE SHARE OF RESPONSIBILITIES

A1: General obligations from the seller, as the preparation of paper or electronic documentation

A2: Licenses, authorizations, security fees and other formalities

A3: Transport contract and insurance

A4: Delivery A5: Risk transfer

B1: General obligations from the buyer

B2: Licenses, autorizations, security fees and other formalities

B3: Transport contract and insurance

B4: Taking posession B5: Risk transfer

DETERMINING THE SHARE OF RESPONSIBILITIES

A6: Share of costs (Avoiding double charges $)

A7: Buyer notice A8: Documentation to

prepare and submit A9: Visual verification,

security, packaging, labelling, bracing

A10: Support at transaction, informations

B6: Share of costs (Avoiding double charges $)

B7: Seller notice B8: Proof of delivery, paper

or electronic B9: Visual inspection of the

merchandize

B10: Support at transaction, informations

The 11 Incoterms®2010

7 RULES FOR ALL MODES OF TRANSPORT

4 RULES FOR OCEAN AND WATER WAYSTRANSPORT

EXWEx-Works

FAS Free Alongside Ship

FCAFree Carrier

FOBFree On Board

CPTCarriage Paid To

CFRCost and Freight

CIPCarriage and insurance Paid To

CIFCost, Insurance, Freight

DATDelivery at TerminalDAPDelivery at PlaceDDPDelivered Duty Paid

WHICH INCOTERM TO USE TO REDUCE RISK?

Origin: Where is the merchandise coming from?

City? Region? Interior transportation (inland)?

Destination: Where is the merchandise going?

Port? Interior transportation? Client? Warehouse?

Which types of transportation will be used?Ocean? Air? Rail? Road? Multimodal?Necessary handling?Manual? Lift truck? Crane?What is the merchandise?Heavy? Fragile? Perishable? Value $?

Wrapping?

(Incoterm)

FCA

How to draft an Incoterm?

A complete Incoterm includes an anglophone acronym of 3 letters. Ideally, MUST be followed of precisions concerning

place of delivery or destination

(Location)

1234,Park Avenue,Montréal

(Specific instructions)

, Incoterms®2010

Indicates the responsibilities of the parties involvedi

ii.

iii.

Indicates the place of transfer of responsibilities

Additional informations (optional) + Incoterms®2010

Multi-Modal Incoterms

EXW

FCACPTCIP

DAT DAP DDP

EXW FCA

DDPCPTCIPDAP

DAT

CO$T

Douane

INCOTERMS MULTIMODAL TRANSPORTATION (7)

RISK

Douane

EXW

Ex-Works

The seller makes the goods available at his premises. The buyer is responsible for all charges.

Example: EXW plant Boucherville, QC, Incoterms®2010

EXW (Ex-Works) * Suggested for domestic shipments

COST PAID by RISK by

Loading at origin Buyer Buyer

Local transport Buyer Buyer

Local transport contract Buyer Buyer

Documentation Seller* Buyer

Export fees and docs Buyer Buyer

Loading at carriers terminal Buyer Buyer

Cargo insurance Optionnal Optionnal

International transport Buyer Buyer

Terminal fees Buyer Buyer

Customs clearance Buyer Buyer

Import fees and taxes Buyer Buyer

Destination local transportation Buyer Buyer

PARTICULARS for EXW

• ICC suggest to avoid when there is an export passage formality. Prioritize it for domestic transportation.

• Support to the buyer:Like indicated in A2 / B2:‘Where applicable, the seller must provide the buyer, at the buyer’s request, risk and expense, assistance in obtaining pany export licence (ex. B-13 for Canada), or other official authorization necessary for the export of the goods (ex. controlled goods for defence products in Canada).

PARTICULARS for EXW

• Delivery:Like stipulated in A4:In the case of the Incoterm used ‘EXW company dock, Southampton, UK’, where the seller has multiple locations:‘If no specific point has been agreed, within the named place of delivery, and if there are several points available, the seller may select the point that best suits its purpose. The seller must deliver the goods on the agreed date or within the agreed period.

EXERCICE: EXW no 1

Example: SELLER – Loading the cargo

The trucker arrives at your plant to pick up the cargo of it’s customer. Once verifications done (ID + proof of pick-up), you indicate the driver that he/she has to load the cargo him/herself.

Q1. By indicating this, does the seller respect the Incoterm?

Q2. If your shipping personnel helps the driver by loading and the lift truck fall on the side and damages the cargo, who is responsible?

Q3. What precautions / indications can you give your shipping department to be compliant and protect my interest?

EXERCICE: EXW no 1 - ANSWERS

Example: SELLER – Loading the cargo

The trucker arrives at your plant to pick up the cargo of it’s customer. Once verifications done (ID + proof of pick-up), you indicate the driver that he/she has to load the cargo him/herself.

Q1. By indicating this, does the seller respect the Incoterm? YES

Q2. If your shipping personnel helps the driver by loading and the lift truck fall on the side and damages the cargo, who is responsible? BUYER

Q3. What precautions / indications can you give your shipping department to be compliant and protect my interest? IDENTIFYING SKIDS / PALLETS

FCA

FREE CARRIER

The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place.

Example: FCA, 1234 Manheim, Munchen, GE, QC, Incoterms®2010

FCA (Free Carrier) *Suggested by ICC for export

COST for FCA PAID by: RISK by:

Loading at origin Seller Seller

Local transport Seller* Seller*

Local transport contract Seller Seller

Documentation Seller -

Export fees and docs Seller -

Unoading at carriers terminal Buyer Buyer


International transport Buyer Buyer

Terminal fees Buyer Buyer




PARTICULARS FCA

• Minimal obligation for international exchanges.

• The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. Can be more than one place. Specify.

• Guidance note, p.25:‘If the parties intend to deliver the goods at the seller’s premise, they should identify INDICATE THE ADDRESS of those premises as the named place of delivery. If, on the other hand, the parties intend the goods to be delivered at another place, they MUST identify a different specific place of delivery’.

EXERCICE: FCAThe seller is a sports clothing manufacturer in Sudbury, ON. The identified Incoterm in the transaction is FCA, Billy Transport, Incoterms®2010.Looking on the web, the seller sees that Billy Transport have offices in North Bay, Orilla and Mississauga.The seller delivers to Billy Transport in North Bay.

Q1. Did the seller fulfilled it’s obligations stated by the chosen Incoterms? YES

Q2. The buyer is not happy. He ‘assumed’ that the cargo would be available for his forwarder at the Toronto airport and asked Billy Transport to bring evertyhing to Mississauga and bill the seller.Is the buyer required to pay? NO

As indicated at A4, page 28:If no specific point has been notified buy the buyer under B7 within the named place of delivery, and if there are several points available, the seller may select the point that best suit its purpose.

CPT

CARRIAGE PAID TO

The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier. No insurance.

Example: CPT warehouse Linde, Santiago, Chile, Incoterms®2010

CPT (Carriage paid to)

COST for CPT PAID by: RISK by:


Local transport Seller Seller




Loading at carriers terminal Seller Buyer


International transport Seller Buyer

Terminal fees Seller Buyer




CIPCARRIAGE AND INSURANCE PAID (named

place of destination)Seller pays for carriage and insurance to the named

destination point, but risk passes when the goods are handed over to the first carrier.

Example: CIP Terminal, Hong Kong, Incoterms®2010

CIP (Carriage and insured paid to)COST FOR CIP PAID by: RISK by:






Loading at carriers terminal Seller Buyer

Cargo insurance Seller Buyer

International transport Seller Buyer

Terminal fees Seller* Buyer




EXERCICE: CPT / CIP

You are exporting electronic equipement by container from Shanghai, China to Liuk, Belgium, to your client warehouse.

You DO NOT want to assume the risk of damage while in transit.

Q1. Wich Incoterm(s) will you choose?

Q2. If your client ask you to insure the cargo, witch Incoterm(s) are you going to use?

EXERCICE: CPT / CIP

You are exporting electronic equipement by container from Shanghai, China to Liuk, Belgium, to your client warehouse.

You DO NOT want to assume the risk of damage while in transit.

Q1. Wich Incoterm(s) will you choose?CPT Liuk, Belgium, Incoterms®2010

Q2. If your client ask you to insure the cargo, witch Incoterm(s) are you going to use?CIP Liuk, Belgique, Incoterms®2010

DAT (New)

DELIVERED AT TERMINAL

Delivery occurs when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at the named terminal.

OCEAN TERMINAL

Example: DAT Le Havre, France, Incoterms®2010

DAT (Delivery at Terminal) - Replaces DEQCOST for DAT PAID by: RISK by:






Loading at carriers terminal Seller Seller


International transport Seller Seller

Terminal fees Seller Seller




DAP (New)

DELIVERED AT PLACE

Delivery occurs when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination.

DESTINATION

Example: DAP, 5 rue du collège, Lyon, France, Incoterms®2010

DAP (Delivery at Place)

COST for DAP PAID by: RISK by:






Loading at carriers terminal Seller Seller


International transport Seller Seller

Terminal fees Seller Seller



Destination local transportation Seller* Seller*

EXERCICE: DAT / DAP

Q1. Who between the seller and the buyer should assume the terminal fees in DAT Incoterms®2010 ?

Q2. Indicate the right Incoterms:You are exporting soap by container from

Auckland, NZ to Montevideo, Uruguay. Your client will take care of the cargo at the terminal in the port of destination.

A) Without assuming the risks of international transportation;

B) By assuming the risk of international transportation;

Q3. Witch Incoterm to use for a delivery by truck from Barrie, ON to Laredo, TX.

DAT Laredo, TX or DAP Laredo, TX or DDP Laredo, TX?

EXERCICE: DAT / DAP

Q1. Who between the seller and the buyer should assume the terminal fees in DAT Incoterms®2010 ? SELLER

Q2. Indicate the right Incoterms:You are exporting soap by container from

Auckland, NZ to Montevideo, Uruguay. Your client will take care of the cargo at the terminal in the port of destination.

A) Without assuming the risks of international transportation; CPT, Montevideo, Uruguay, Incoterms®2010

B) By assuming the risk of international transportation; DAT, Montevideo, Uruguay, Incoterms®2010

Q3. Witch Incoterm to use for a delivery by truck from Barrie, ON to Laredo, TX.

DAT Laredo, TX or DAP Laredo, TX or DDP Laredo, TX?

DDP

DELIVERY AND DUTIES PAIDThis term means that the seller pays for

all transportation costs and bears all risk until the goods have been delivered and pays the duties.

Example: DDP client, Warsaw, Poland, Incoterms®2010

DDP (Delivery duty paid)The seller pays FOR EVERYTHING, including

brokerage fees, the duties and the taxes!!!

As sellers, use a freight forwarder to support you.

You DON’T KNOW the players, the transporters, the culture and the business practices in the country of destination.

Potential problems if permits, visas, etc, are required by the import country.

Circumstances TO USE IT: might be useful for samples, low value or low volume merchandise.

4 Maritimes / Waterways Incoterms

FOBCIFCFR

FAS

CFRCIF

CO$T

Customs

INCOTERMS EXCLUSIVE OCEAN (4)

RISK

Customs

FAS FOB

Origin port Destination port

FAS

FREE ALONGSIDE SHIP

(Name loading port)The seller must place the goods

alongside the ship at the named port.

FOB

FREE ON BOARD

(Name loading port)The seller must themself load the goods

on board the ship nominated by the buyer.

Incoterm to use ONLY for transport by ocean or inland waterways.If the ‘crane loading’ movement doesn’t play a role, use FCA.

CFR, COST AND FREIGHT (named destination port)

Seller must pay the costs and freight to bring the goods to the port of destination.

CIF, COST, INSURANCE, FREIGHT (named port of destination)

Seller must pay the costs and freight to bring the goods to the port of destination and must contract minimum insurance coverage for the buyer.

UCC TERMS (Uniform Commercial Codes)

Beside the Incoterms, there is in the United Sates different selling terms that can be used, such as the UCC terms.

Called ‘Terms of sale’ (Terms of sale), they define how we proceed at the sales. Just like the Incoterms, they specify the place where the seller delivers to the buyer, so where the risk is being shared.

All FOB = ‘Free on board’, meaning that the seller loads the transporter.

Still used intra-USA (50 states) and with Canada (called “the domestic market”).

Should be replaced by the Incoterms® 2010.

TERMES UCC (Uniform Commercial Codes):

* Has often better rates.

TERM OF SALE Pays transport

Chooses carrier

Owns cargo Make claims

FOB Origin Buyer Buyer Buyer Buyer

FOB Origin, port paid Seller Seller Buyer Buyer

FOB Origin, port paid, re-billed

Seller Buyer* Buyer Buyer

FOB Destination, due port

Buyer Buyer Seller Seller

FOB destination, port paid

Seller Seller Seller Seller

FOB Destination, due port and authorized (re-billed)

Buyer* Seller Seller Seller

What can happen to your cargo?

DIFFERENCE BETWEEN RESPONSIBILITY OF THE TRANSPORTER AND CARGO INSURANCE

According to the Warsaw convention, the carriers responsibility is limited:

_________________Air: 20$ USD / kgOcean: 500$USD / expedition unitsRoad: 4,41$CAD / kgRail: 0,92$CAD / lbsWarehousing: 0,25$CAD / lbs_________________This is why, in the majority of the cases, it’s good to protect shipments with additional cargo insurance.

And pay attention, even if insurance is ‘included’ in CIF/CIP, verify that it’s adequate since it is minimal: Total lost Vs all risks.

WHY CARGO INSURANCE?

CIF / CIP: To respect the Incoterm as a seller

Protect my interests as a seller or as a buyer

Avoid arguments with transporters and clients and accelerate the claim process

By you forwarder or your insurance company

Always COUNT and manage your risk!

The insurable value of a shipment is defined as is:Value ($) indicated on the commercial statement+ transport fees + 10 %+ taxes (if applicable in country / territory)

IN CONCLUSION• NEGOCIATION: The Incoterm must be part of the

negociation right from the start

• IN WRITING: Must be marked on the agreement, the contract, the purchase order, your price lists (if applicable)

• RISKS: Reduce them to the minimum and use a good forwarder (develop a relationship)

• RESPONSIBILITY: The responsibility of the carriers is very limited

• INSURANCE: Calculate according to the value of

your shipment and make sure that it’s ‘All risks’

• PAYMENTS: Letter of credit

ontario international transport and logistics section 8: incoterms2010

Documents

official incoterms

incoterms role

choice of incoterms

edition slide

incoterms2010 slide

rule of incoterm

group e

commercial agreement