TERMS OF TRADE(International Logistics)

Group No. 1Tushar RhodeTarun SharmaShivam Seth

Niladri Sekhar Jyoti

15th December 2013

Steps of International Logistics

MainInternational Transportatio

n

4

Handling Inbound

CustomsClearance

Duties

FinalTransportation

Unloading

Packing

Loading PreliminaryTransportation

Customs Clearancefor Export

HandlingOutbound

Insurance

1

2 3

5

6

7

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Key Issues

• Major Steps in the whole process:– Clearance of goods for export and import– Organizing the transport of goods (multimodal)– Handling (leading/unloading) of goods at pt of transfer– Insurance against damage/loss during transit

• Issues Involved:– Who will carry out which all activities– Who will pay for which of those tasks– Who bears the ownership of the goods in each step (remember, ownership = risk of the goods)

Making it Clear between You & Me• All issues must be clarified in the contract• However, that itself is a challenge:

– Describing all the terms is lengthy process - and it does need contractual expertise

– Description can create ambiguity – different parties can have different interpretation

– It takes a lot of time to clarify and bring everyone on the same page, in case ambiguity arises

• Fortunately, a set of standardized terms of trade was created in 1963 by the Int. Chamber of Commerce

• Evolved into 11 Incoterms (2010*) - 3 letter acronyms (Abbreviation for International commercial terms)

NOTE: Our text book is updated with Incoterms 2000 only

Evolution: from 2000 to 2010• EXW – Ex Works

• FCA – Free Carrier• FAS – Free Alongside Ship• FOB – Free On Board

• CFR – Cost and Freight• CIF – Cost, Insurance & Freight• CPT – Carriage Paid To• CIP – Carriage & Insurance Paid To

• DEQ – Delivered Ex Quay • DES – Delivered Ex Ship• DAF – Delivered at Frontier• DDU – Delivered Duty Unpaid• DDP – Delivered Duty Paid

• EXW – Ex Works

• FCA – Free Carrier• FAS – Free Alongside Ship• FOB – Free On Board

• CFR – Cost and Freight• CIF – Cost, Insurance & Freight• CPT – Carriage Paid To• CIP – Carriage & Insurance Paid To

• DAT – Delivered At Terminal• DAP – Delivered At Place• DDP – Delivered Duty Paid

Marine Restricted Omni-Modal

11 Incoterms - Characteristics

• Every Incoterm has– A scope: The type of products for which it can be used– A modality: The mode of transport for which it can be used– A syntax: The way it has to be stated on invoices and

paperwork

• Every Incoterm defines:– The responsibilities of the exporter– The responsibilities of the importer– A specific transfer point at which the responsibilities

for the goods shifts from the exporter to the importer

Incoterms 2010

• EXWORKS

• VENDOR • BUYER

• FREE CARRIER

• FAS

• FOB

• CFR• CIF

• (Maritime only)• (Maritime only)

• Group E:• EXW – Ex Works: at vendor’s plant• Group F:

• FCA – Free Carrier: Land carrier• FAS – Free Alongside Ship: At the shipping port• FOB – Free On Board: On the Vessel. Maritime only.• Group C:

• CFR – Cost and Freight: At the arrival port (On board). Doesn’t include insurance. Maritime• CIF – Cost Insurance and Freight: At the arrival port (On board). Includes insurance. Maritime

• CPT – Carriage Paid To: Same as CFR but used for land/air freight• CIP – Carriage and Insurance Paid To: Same as CIF but used for land/air freight

• Group D:• DAP – Delivered at Place: Multimodal / Land carrier• DAT – Delivered at Terminal: Same as DAP but the shipper is

• responsible for the load.

• The buyer is responsible for the load.

• DDP – Delivered Duty Paid: At the buyer’s plant (Insurance, cost and• freight included (Door to Door).

• DAP • DAT • DDP

• Tax Control

• Warehouse

• (Almacén Fiscal)

• Buyer Plant

• Vendor Plant

• (Maritime only)

• (Maritime only)

EX WORKS (EXW) …(named place)

• Named place is where the shipment originates – usually the seller’s premises

• Seller must have goods available and packaged when promised

• Buyer must arrange pre-carriage, export clearance, main carriage, import clearance and on carriage

• Neither party is required to insure• Transport Mode: All

Free Carrier (FCA)…(named place)

• Named place is either the place where the shipment originates such as the seller’s premises or another place agreed within the seller’s country

• Seller is to have goods available and packaged when promised, load collecting vehicle, pre-carriage and export clearance

• Buyer must unload delivering vehicle, main carriage, import clearance and on carriage

• Neither party is required to insure• Transport mode: All modes

Free Alongside Ship (FAS)…(named port)

• Named port is alongside a vessel at port on the seller’s side

• Seller is to deliver goods, export packed alongside the buyer-designated vessel at the port on the seller’s side along with export clearance

• Buyer loads vessel, arranges main carriage, import clearance and on carriage

• Neither party is required to insure• Transport Mode: Vessel Only

Free on Board (FOB)…(named port)

• Named port is loaded on a vessel at a port on the seller’s side

• Seller delivers the goods on board the buyer-designated vessel at the port on the seller’s side along with export clearance

• Buyer arranges main carriage, import clearance and on carriage

• Neither party is required to insure• Transport mode: Vessel Only

Cost & Freight (CFR)…(named port)

• Named port is on the buyer’s side• Seller delivers goods export packed on board the seller’s

designated vessel at the port on the seller’s side, pays transportation costs to the agreed port on buyer’s side, and arranges export clearance

• Buyer arranges vessel unloading, import clearance and on carriage

• Neither party is required to insure• Transport Mode: Vessel Only

Carriage Paid To (CPT)…(named place)

• Named place on buyer’s side• Seller delivers goods export packed to the carrier for

transportation to the named place of destination and will pay all transportation costs thereto along with arranging export clearance

• Buyer arranges import clearance and on carriage • Neither party is required to insure• Transport mode: All modes

Cost, Insurance and Freight (CIF)…(named port)

• Named port is on buyer’s side• Seller delivers goods export packed on board the seller’s-

designated vessel at port on seller’s side, pays all transportation costs to agreed port on the buyer’s side and arranges export clearance

• Buyer arranges import clearance and on carriage• Seller must provide at least minimum coverage• Transport Mode: Vessel Only

Cost, Insurance Paid (CIP)…(named place)

• Named place on buyer’s side• Seller delivers goods export packed to the carrier for

transportation to the named place of destination and pays all transport costs thereto along with arranging export clearance

• Buyer arranges import clearance and on carriage• Seller must provide at least minimum insurance coverage• Transport Mode: All Modes

Delivered at Terminal (DAT)…(named place)

• Named place at terminal on buyer’s side (a terminal at the destination port or a terminal not far beyond the destination port where it’s yet to be cleared by Customs)

• Seller arranges export clearance and delivers goods export packed to the named destination terminal, pays all transport costs thereto and unloads

• Buyer arranges import clearance and on carriage• Neither party is required to insure• Transport Mode: All Modes

Delivered at Place (DAP)…(named place)

• Named place on buyer’s side• Seller arranges export clearance, delivers export packed

goods to the named place of destination and pays all transportation costs thereto

• Buyer arranges import clearance and on carriage• Neither party is required to insure• Transport mode: All Modes

Delivered Duty Paid (DDP)…(named place)

• Named place is on buyer’s side• Seller arranges export clearance, delivers export packed

goods cleared for import at the named destination and pays all transportation costs thereto

• Buyer possibly responsible for unloading, on carriage• Neither party is required to insure• Transport Mode: All Modes

Incoterms 2010• Seller’s Responsibility Matrix:

• Transition to 2010 Rules:– Existing contracts (even if performance continues into 2011)

• Continue to apply 2000 edition– Contracts entered into before Jan 2011

• Should specify which version will apply– Contracts entered into beginning in Jan 2011

• 2010 will apply

Advice on Usage

• Usage—use the phrase “Incoterms 2010” after the rule and named place– Clarifies that 2000 version does not apply

• Usage—ensure you are naming the right location– EXW, FCA, FAS, FOB, DAT, DAP, DDP = place of delivery– CPT, CIP, CFR, CIF= place of desination

• Be careful modifying Incoterms Rules– If you do modify rules (not advised), ensure contract

clarifies what you are modifying and what you are not

Electronic Data Interchange• For a number of Incoterms, there is no transport document

that is issued at the point where the responsibility shifts from the exporter to the importer (for example, a Bill of Lading).

• Electronic Data Interchange has attempted to solve this problem.

• Whenever there is no transport document possible, the exporter can still send an EDI “notice” to the importer, which acts as a proof of delivery for both parties. The exporter has a record of the notification sent, and the importer knows unambiguously when the goods were delivered to the quay or when they arrived in port.

APPENDIX 1 – Incoterms 2000 Groups

• 2000 division of rules by seller’s obligation– E (Make goods available at own premises)– F (Deliver goods to a carrier appointed by buyer)– C (Contract for carriage without assuming risk of

loss during shipment)– D (Bear all costs and risks needed to bring goods

to place of destination)• But, remember rules are split by mode of

transport

APPENDIX 2 – Terms not in use!• DAF – Delivered at Frontier (named place of delivery)

– This term can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier.

• DES – Delivered Ex Ship (named port of delivery)– Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the named port of

destination and the goods made available for unloading to the buyer. The seller pays the same freight and insurance costs as he would under a CIF arrangement. Unlike CFR and CIF terms, the seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the named port. Costs for unloading the goods and any duties, taxes, etc. are for the Buyer. A commonly used term in shipping bulk commodities, such as coal, grain, dry chemicals; and where the seller either owns or has chartered, their own vessel.

• DEQ – Delivered Ex Quay (named port of delivery)– This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the port of

discharge.

• DDU – Delivered Duty Unpaid (named place of destination)– This term means that the seller delivers the goods to the buyer to the named place of destination in the contract of

sale. A transaction in international trade where the seller is responsible for making a safe delivery of goods to a named destination, paying all transportation expenses but not the duty. The seller bears the risks and costs associated with supplying the goods to the delivery location, where the buyer becomes responsible for paying the duty and other customs clearing expenses.

APPENDIX 3 - References

• www.iccwbo.org• www.wikipedia.org