An in-depth presentation about International Commercial Terms that helps you understand this trade standard with the aid of intuitive pictures, charts and graphical interpretations.

1. INCOTERMS
Guta Mihai Alexandru
Gaspar George Dan
Ghergu Andrei Catalin
in using
Trends

2. What does INCOTERM stand for ?
‣ Def : The
word
INCOTERM
is
an
abbreviation
for
International
Commercial
Terms
which
provide
a
common
set
of
rules
used
for
defining
the
responsibilities
of
sellers
and
buyers
in
the
delivery
of
goods
under
sales
contracts.
‣ They
are
widely
used
in
international
commercial
transactions.

3. Are they
important ?

4. For sure !
but...

5. Why is that ?
‣ Set
international
rules
for
commonly
used
terms
in
foreign
trade
‣ Define
obligations
of
both
parties
involved
in
the
transaction
‣ Determine
the
distribution
&
transfer
of
risks
regarding
the
goods
delivered
from
seller
to
buyer
‣ State
the
clear
sharing
of
expenses
between
the
parties
during
transport
Because they :
So...

6. When and where did they appear ?
‣ First
conceived
by
International
Chamber
of
Commerce
(ICC)
in
1921
and
implemented
starting
from
1936,
since
they
have
been
updated
6
times
in
order
to
keep
pace
with
the
evolution
of
international
trade.
‣ In
1923,
a
Trade
Terms
Committee
developed
the
first
6
rules
:
FOB,
FAS,
FOT,
FOR,
Free
Delivered
CIF
and
C&F,
as
the
precursor
for
what
would
later
be
known
as
INCOTERM
rules.

7. Revising the INCOTERMS
‣ In
order
to
keep
up
with
the
continuous
evolution
of
commercial
practices,
types
of
goods
and
transport
and
international
law,
INCOTERMS
need
to
be
regularly
updated
by
specialised
experts.
‣ Some
significant
revisions
:
1980
-­‐
FCA
was
introduced,
for
dealing
with
cases
where
the
reception
point
was
no
longer
the
ship's
rail,
but
a
point
on
land
where
goods
were
stored
in
a
container
followed by...

8. ‣ 1990
-­‐
the
seller
was
permitted
to
provide
the
proof
of
delivery
electronically
by
EDI-­‐messages
instead
of
paper
documentation
‣ 2000
-­‐
export
clearance
and
other
formalities
under
FAS
are
placed
on
the
seller
(previously
buyer)
-­‐
in
FCA,
it
became
the
seller's
obligation
to
load
the
goods
on
the
buyer's
vehicle
or
the
buyer's
obligation
to
receive
the
seller's
arriving
vehicle
unloaded

9. Updating INCOTERMS every 10 years -
The
answer
is
Yes
-­‐
because
of
the
rapid
expansion
of
world
trade
and
the
continuous
changes
in
international
market's
structure,
the
same
rules
cannot
be
applied
effectively
in
any
circumstances
without
considering
the
new
factors
and
influences
that
might
occur.
The
most
recent
key
drivers
include
:
‣
a
need
for
improved
cargo
security
‣ changes
in
the
Uniform
Commercial
Code
in
2004
resulting
in
a
deletion
of
US
shipment
and
delivery
terms
‣ new
trends
in
global
transportation
...is it necessary ?

10. General all types of transport
• EXW
• FCA
• CPT
• CIP
!
!
• FAS
• FOB
• CFR
• CIF
INCOTERMS 2010 - latest revision
What is new ?
Entered
into
force
1st
January
2011,
containing
the
following
amendments:
‣ reduction
from
13
to
11
terms
by
replacing
4
delivery
terms
:
DEQ,
DAF,
DES,
DDU
with
2
new
ones
:
DAT(Delivery
at
Terminal)
and
DAP(Delivery
at
Place)
‣ terms
grouped
in
2
categories,
according
to
the
means
of
transport
used
:
Special sea & inland waterway
• DAT
• DAP
• DDP

11. More changes...
‣ transfer
of
risks
'on
board'
in
INCOTERMS
FOB,
CFR,
CIF
while
in
previous
INCOTERMS
2000,
the
risk
passed
when
the
goods
were
off
'the
ship's
rail'
‣ goods
in
containers
can
be
delivered
only
using
Incoterms
for
any
mode
of
transport
but
not
sea
Incoterms
‣ security
related
information
must
be
provided
by
the
seller
who
has
the
obligation
to
assist
the
buyer
concerning
the
safety
of
goods,
all
costs
being
borne,
however
by
the
buyer.

12. How INCOTERMS evolved
1936
EXW
FOR
FAS
FOB
CFR
CIF
EXQ
EXS
2000
EXW CIP
FCA DAF
FOB DES
CFR DEQ
CIF DDU
CPT DDP
2010
EXW CIP
FCA DAP
FAS DAT
FOB DDP
CFR
CIF
CPT
Beginning Present
R e v i s i n g

13. I Rules for any mode of transport

14. EXW (Ex Works)
‣ delivers
goods
at
his
own
premises
(factory/warehouse)
‣ minimal
obligations,
risks
&costs
‣ responsible
for
loading
goods
onto
carrier
and
all
other
transport
cost,
duties
and
insurance
‣ clearance
of
goods
for
export
‣ bears
the
whole
risk
on
his
own
Seller Buyer
minimal
costs
&
risks
for
exporter
lowest
service
offered
loss
of
competitiveness

15. FCA (Free Carrier)
‣ completes
and
bears
costs
of
export
clearance
and
obtaining
necessary
documents
‣ delivers
goods
at
agreed
place
to
carrier
‣ liable
for
the
load
if
delivery
is
made
on
his
premises
‣ import
clearance
formalities
‣ responsible
for
unload
if
delivery
occurs
in
a
facility
or
transport
infrastructure
Seller Buyer
flexible,
various
delivery
points
any
type
of
cargo
and
different
payment
methods
best
suited
for
goods
transported
in
containers

16. CPT (Carriage Paid To)
‣ contracts
and
pays
transport
to
the
buyer's
country
delivery
place
‣ completes
formalities
and
bears
export
customs
clearance
costs
‣ risk
of
transport
is
transferred
when
the
goods
are
delivered
to
the
first
carrier
in
the
seller's
country
‣ supports
transport
costs
starting
from
the
moment
goods
have
reached
the
place
of
delivery
in
his
country
‣ import
clearance
costs
and
formalities
‣ supports
the
transport
risk
since
the
goods
have
been
delivered
to
1st
carrier
and
the
insurance
for
international
transport
Seller Buyer

17. CIP (Carriage and Insurance Paid To)
‣ bears
the
same
costs
and
obligations
as
in
case
of
CPT
+
the
obligation
of
hiring
insurance
to
cover
the
buyer's
risk
during
international
transport
‣ contracts
the
insurance
and
pays
the
premium
‣ beneficiary
of
the
insurance
paid
by
the
seller
‣ must
take
into
account
that
the
buyer
is
obliged
only
to
a
minimum
coverage
insurance
‣ he
needs
to
agree
with
the
seller
to
hire
additional
insurance
if
he
wants
a
larger
coverage
Seller Buyer

18. DAT (Delivery at Terminal)
‣ delivers
goods
unloaded
at
a
port
terminal
or
another
place
of
destination
in
the
buyer's
country
‣ complete
the
formalities
and
bear
costs
of
customs
clearance
for
export
‣ transport
risk
passes
to
the
buyer
at
the
time
of
delivery
to
destination
country
‣ import
customs
clearance
and
tariffs
paid
‣ clearly
mention
the
specific
point
chosen
for
delivery
Seller Buyer

19. DAP (Delivery at Place)
‣ delivers
goods
ready
for
unloading
in
the
country
of
destination,
in
a
place
other
than
a
transport
terminal,
such
as
the
buyer's
premises
or
a
place
nearby
‣ risk
is
transferred
to
buyer
in
the
same
place
where
goods
are
delivered
‣ complete
formalities
and
bear
export
clearance
costs
‣ pays
the
costs
of
import
clearance
customs
Seller Buyer
useful
for
sales
between
countries
of
same
economic
area
(EU)
as
there
are
no
import
customs

20. DDP (Delivery Duty Paid)
‣ delivers
goods
ready
for
unloading
in
the
country
of
destination,
usually
at
buyer's
premises
‣ all
costs
and
risks
borne
by
seller
‣ customs
clearance
of
export
and
import
also
covered
by
seller
‣ any
import
tax,
including
VAT
are
paid
by
the
seller
‣ only
cost
he
assumes
is
the
unloading
of
goods
at
delivery
place
‣ if
the
parties
agree
in
the
contract
of
sale,
the
VAT
or
other
taxes
can
be
paid
by
the
buyer,
in
what
is
known
as
a
variant
of
DDP,
called
'DDP
VAT
unpaid'
Seller Buyer

21. II Special INCOTERMS for sea transport

22. FAS (Free Alongside Ship)
‣ delivers
the
goods
placing
them
alongside
the
ship
chosen
by
the
buyer
‣ export
clearance
must
be
covered
by
the
seller
‣ responsible
for
loading
the
goods
on
the
ship
‣ must
have
very
good
knowledge
of
the
practices
in
the
port
of
shipment
Seller Buyer
only
used
for
certain
commodities
and
materials
that
are
not
packed
and
cannot
be
individualised
(grain,
timber,
minerals,
etc.)
delivery
is
done
in
ports
with
specialised
terminals

23. FOB (Free on Board)
‣ delivers
goods
by
placing
them
on
board
of
the
ship
named
by
the
buyer
‣ covers
the
terminal
costs
and
export
clearance
‣ assumes
the
transportation
risk
after
the
goods
have
been
delivered
on
board
of
the
ship
Seller Buyer
oldest
Incoterm
and
one
of
the
most
widely
used
preferably
used
with
bulk,
heavy
loads
and
in
case
of
complex
goods
(machinery)
whose
loading
involves
certain
risks

24. CFR (Cost and Freight)
‣ delivers
the
goods
on
board
of
a
ship
but
he
also
pays
the
cost
of
freight
to
the
destination
point
‣ covers
terminal
cost
and
export
clearance
‣ the
risk
is
transferred
to
the
buyer
after
the
goods
had
reached
the
board
of
the
ship
‣ must
hire
an
insurance
for
transport
from
the
port
of
shipment
to
the
destination,
as
the
seller
is
not
obliged
to
do
this
Seller Buyer
used
mainly
for
large
volumes
of
general
cargo

25. CIF (Cost, Insurance and Freight)
‣ same
obligations
that
CFR
implies
+
seller
is
obliged
to
hire
insurance
for
transport
covering
at
least
the
way
from
the
port
of
shipping
to
the
port
of
destination
‣ insurance
shall
cover
the
price
of
the
contract
+
10%
‣ he
might
want
to
hire
additional
insurance,
as
the
seller
is
only
obliged
to
purchase
a
minimum
coverage
insurance
Seller Buyer
used
for
general
cargo
of
consumer
or
industrial
products
of
high
value
CIF
value
is
used
in
most
of
the
customs
to
apply
tariffs
and
import
taxes,
facilitating
the
clearance
of
goods
for
export

26. After so many types of terms...
Here
is
a
simple
diagram
summarising
the
extent
of
costs
&
risks
covered
by
each
of
the
11
INCOTERMS
that
have
just
been
presented
:

27. And a more detailed Bar Chart :

28. Using INCOTERMS correctly
Following
the
three
letters
of
the
appropriate
chose
term
with
the
exact
destination
place
to
which
the
delivery
of
goods
is
to
be
made,
and
afterwards
the
expression
'Incoterms
2010'
by...
Such as : FCA Port of New Orleans, USA, Incoterms 2010
Or
CIPTianjin airport, China, Incoterms 2010
will certainly...

29. Benefit all the parties involved
INCOTERMS
have
become
an
essential
framework
in
daily
language
of
trade,
providing
clear
rules
and
guidance
to
importers,
exporters,
lawyers,
forwarders,
insurers,
carriers
and
mainly e v e r y b o d y
taking part in international trade transactions.
as
leading to :

30. However, if used incorrectly
Your
contract
may
be
ambiguous,
lacking
some
important
details
or
even
impossible
to
perform,
causing
lots
of
misunderstandings
and
prejudices
which can turn into...
and eventually
cause. . .

31. Undesirable effects
such as
or
So...

32. As Eric Ambler stated
' International business may conduct its
operations with scraps of paper, but the
ink it uses is human blood '
thus
in
order
to
practice
commercial
trade
in
a
successful
and
profitable
manner,
you
need
a
deep
understanding
of
all
factors
involved
as
well
as
a
careful
fulfilment
of
the
required
procedures
for
defining
and
avoiding
/
minimising
unnecessary
risks,
obligations
or
costs
And that is where ...

33. INCOTERMS have proven their
essentially useful part in daily
l a n g u a g e o f t r a d e