INCOTERMS®2010 Rules

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Incoterms 2010

Incoterms 2010, devised and published by the International Chamber of Commerce, are three-letter terms identifying rules of international sales.

• EXW Ex Works• FCA Free Carrier• CPT Carriage Paid To• CIP Carriage & Ins Paid To• DAT Delivered at Terminal• DAP Delivered at Place• DDP Delivered Duty Paid

Omni-modal: Rules for any mode or modes of transportation

• FAS Free Alongside Ship• FOB Free On Board• CFR Cost & Freight• CIF Cost, Ins, & Freight

Marine Only: Rules for sea and inland waterway transport

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Specify responsibility of seller and buyer

for tasks involved in the sale of goods.

Serve as a checklist

regarding risks, responsibilities and obligations for sellers and

buyers.

Assign transportation and insurance commitments.

Determine export and

import custom processing.

Incoterms 2010 provide a way for sellers and buyers clearly communicate the responsibilities and transfer of risk between the seller and the buyer.

Import and export transactions involve many service providers and government agencies. (For example, domestic/foreign/international transportation carriers, warehouses, forwarders, brokers, government agencies, insurance companies, etc)

Incoterms 2010 are used to:

Incoterms 2010

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“E” Term

• Seller has the least financial responsibility, with the buyer having the most. The seller is responsible for:Making the goods available at the designated premises for pickup by the buyer or buyer's

designated transportation carrier. Packaging and marking for shipment in such manner as to protect the cargo from the rigors of the

intended transportation. Providing the buyer with a commercial invoice and packing list. Rendering such additional assistance with information and documents as buyer requests, at buyer’s

expense.• Upon release of the goods to the buyer, or buyer's carrier, the seller has no further financial

responsibilities. All costs and risks of transportation transfer to the buyer.

EXW: Ex Works

Note: With a US export, the seller is still the USPPI and (with very few exceptions) responsible for export licensing.

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“F” Terms

• The seller is responsible for delivering the goods to the nominated carrier designated by the buyer at a specific location.

• The seller is responsible for export packaging, export clearance, and carriage loading.• There are three “F” terms with varying degrees of responsibility.

“F” terms increase sellers risks and responsibilities in comparison to EXW.

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“F” Terms (cont.)

FCA – Free Carrier• Seller is responsible for all tasks up to and including

loading and stowing cargo on the conveyance arranged by the seller.

FAS – Free Alongside Ship (sea or inland waterway only)• Applies to non-containerized cargo. Seller is

responsible for delivering non-containerized cargo alongside ship.

FOB – Free on Board (sea or inland waterway only)• Applies to non-containerized cargo. Seller is

responsible for loading, but not stowing, non-containerized cargo onto the vessel arranged by the buyer. This term is not appropriate for containerized cargo because containers are delivered to container/rail yard or terminal and are not loaded on board once handed over to the carrier.

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“C” Terms

•The seller’s risk of loss or damage to the cargo transfers to the buyer at a different time than their cost responsibilities.

•The seller is responsible for arranging and paying for all tasks up to the named place of delivery (normally an airport, port, or other designated place in the country of destination.)

With all “C” terms:

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“C” Terms (cont.)

CFR - Cost and Freight (sea or inland

waterway only)

• Risk transfers to buyer after cargo is loaded on board the vessel in the origin country.

CIF – Cost, Insurance Freight (sea or inland

waterway only)

• In addition to other responsibilities, the seller must also arrange and pay for marine cargo insurance.

• Risk transfers from the seller to the buyer after the goods have been loaded on board the vessel in the country of origin.

CPT – Carriage Paid To

• The seller carries the risk of loss or damage until they deliver the goods to the international carrier at which time the risk transfers to the buyer.

CIP – Carriage, Insurance Paid To

• In addition to other responsibilities, the seller must also arrange and pay for cargo insurance.

• The seller carried the risk of loss or damage until they deliver the goods to the international carrier at which time the risk transfers to the buyer.

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“D” Terms

• The seller is responsible for all tasks up to, and including, goods’ arrival at the designated delivery point in the destination country.

• The risk transfers from the seller to the buyer at the same time as delivery of the goods to the detonated place.

With “D” terms, the seller bears the majority of the costs and risks of an export/import shipment.

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“D” Terms

DDP – Delivered Duty PaidSeller additional takes on risk, responsibility, and costs of destination customs clearance, including

payment of any applicable duties and taxes.

DAP – Delivered at Place

Seller is responsible for delivering the goods to the agreed upon place (other than the transportation carrier’s terminal).

DAT – Delivered at Terminal Unloaded

The seller’s responsibility ends and risk transfers to the buyer once the transportation carrier makes the cargo available at its destination port/terminal/airport.

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Seller’s Obligation Under All Incoterms

Provide Goods – seller must provide goods in accordance with the sales contract.

Package and Mark Goods –seller is obligated to package the goods in the manner appropriate for their transport. The seller is also obligated to mark the packages appropriately.

Provide Documents – seller must provide commercial invoice and any other documents required for export/import formalities.

Pre-Shipment Inspection – in the case that a pre-shipment inspection is required by destination, the seller must assist the buyer in completing the inspection if requested to do so.

Delivery –seller is obligated to deliver the goods by placing them at the disposal of the buyer at the named point or named place of delivery or port of delivery.

Notify Buyer of Delivery – seller must always communicate with the buyer regarding delivery of the goods.

Export Formalities – seller is responsible for export formalities with the exception of EXW in which case the responsibility, cost, and risk fall on the buyer.

Provide Information – at some level under each incoterm the seller is responsible for providing assistance/information to the buyer upon request from the buyer.

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Buyer’s Obligation Under All Incoterms

Pay for Goods – buyer must provide payment for goods in accordance with the sales contract.

Pre-Shipment Inspection – in the case that a pre-shipment inspection is required by destination, the buyer is responsible for working with seller to arrange inspection and pay costs associated with the inspection.

Accept Delivery –buyer must accept delivery of the goods as detailed by the incoterm and sales contract.

Proof of Delivery – depending on the incoterm, buyer must accept seller’s proof of delivery or buyer must provide receipt for delivery to the seller.

Import Formalities – buyer is responsible for import formalities including, but not limited to, customs clearance and import license/permit with one exception, DDP term. With DDP, the buyer is responsible for assisting the seller with these tasks if seller requests and at the seller’s expense and risk.

Provide Information – at some level under each incoterm the buyer is responsible for providing assistance/information to the seller upon request from the seller.

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Incoterms Don’t Do…

Don’t address transfer of title or ownership of the goods!• Ownership should be addressed in the contract, if it is not, then it may become subject to applicable law• If no Incoterm is specified, the transaction defaults subject to the UCC, Which may contradict foreign law• Ownership in foreign trade is usually determined by other factors such as negotiable documents.

Don’t directly deal with revenue recognition• GAAP (Generally Accepted Accounting Principles), IFRS (International Financial Reporting Standards) and other rules,

however, do touch on issues specifically dealt with by the Incoterms, such as control, delivery and risk transfer.

Don’t use “ship’s rail” as a delivery point for CFR, CIF and FOB any more• This delivery point should be defined in the contract or sales agreement _ (What defines loaded on board?)

Don’t define how packages are to be stowed within a container

Don’t automatically apply if not specified in the contract of sale – Don’t assume!

Don’t specify the type of loading or unloading used in various forms of transport .

Don’t deal with remedies for breach of contract.

Don’t constitute payment terms

Note: Incoterms are not lawTR/03/16 (05/11/18)

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Highlights for MAIL Operations

Mallory is not privy to the Sales Contract for the majority of shipments handled by the company. There can be stipulations in the contract that override or alter the seller’s and buyer’s obligations. It’s important to keep this in mind when dealing withIncoterms.

Under EXW the seller is NOT obligated to perform export clearance, but has an obligation to assist the buyer with information at the buyer’s request, risk and expense.•One exception – US regulations holds seller responsible for export formalities, including but not limited to, Electronic Export Information (EEI) filing, export

authorizations/license, etc.

Under EXW, FCA, FAS and FOB, the buyer is responsible for arranging transportation from the delivery place.

Under “C” and “D” terms, the seller is responsible for transportation to destination.

Under EXW, FCA, CPT, DAT, DAP, DDP, FAS, FOB, & CFR the seller is NOT obligated to contract the insurance based solely on the incoterm.

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MAIL Incoterm Policy

Incoterms must be clearly indicated on commercial documents and/or we must have written instructions from our clients for what Incoterms apply.

Mallory cannot advise, assume, or give guidance to clients regarding incoterms.

Incoterms reported in the system must match incoterms found on commercial documents and/or written instructions from the client.

Deductions or Additions to commercial invoice totals cannot be determined by Incoterm alone, we must receive written instructions from the client prior to

adding any charges to or taking any deductions against total commercial values.

Clients needing assistance understanding incoterms or commercial values may be referred to M-Pact.

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Questions?

compliance@mallorygroup.com

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