CHAPTER 2
INCOTERMS
INCOTERMS
Incoterms Incoterms
Overview 2020 Summary
2010
What are incoterms?
Overview of
The versions of Incoterms
Incoterms
Incoterms 2010 & 2020
Incoterms is an abbreviation for
INCOTERMS International Commercial Terms
Incoterms are a set of rules which
define the responsibilities of sellers and
buyers for the delivery of goods under
sales contracts.
“Incoterms
Incoterms are published by the
International Chamber of Commerce
(ICC) and are widely used in
international commercial transactions
VERSIONS OF INCOTERMS
Incoterms 1936
Incoterms 1957
Incoterms 1967
Incoterms 1976
Incoterms 1980
Incoterms 1990
Incoterms 2000
Incoterms 2010
• Incoterms 2020
THE 5 BASIC QUESTIONS:
WHAT, HOW,
WHERE, WHO, AND WHY?
• What are the Incoterms' rules?
• How are the Incoterms’ rules properly used?
• Where do you find the Incoterms' rules?
• Who is bound by the Incoterms rules?
• Why should importers and exporters use the Incoterms rules?
WHAT ARE INCOTERMS USED FOR?
• Incoterms provide a common set of rules to clarify responsibilities of sellers and
buyers for the delivery of goods under sales contracts.
• Incoterms apportion transportation costs and responsibilities associated with the
delivery of goods between buyers and sellers and reflect modern-day
transportation practices.
• Incoterms significantly reduce misunderstandings among traders and thereby
minimize trade disputes and litigation
Cấu trúc một thương vụ TMQT
Bank
Money Money
The seller Transporter The buyer
Goods Goods
How to use Incoterms rules?
• Incorporate the Incoterms rules into your sale contract
• Choose the appropriate Incoterms rule
• Specify your place or port as precisely as possible
• When applying Incoterms, two parties may agree to add other
terms that are contrary to the Incoterms.
• ICC is not an arbitrator who settles disputes between two parties.
• Incoterms rules do not give you a complete sale contract
Where do you find the Incoterms' rules?
• The Incoterms' rules are found in international sale contracts and any of the
common documents that may evidence such contracts, such as a pro forma invoice
or purchase order.
• The Incoterms" rules are creatures of contract, not legislation. The Incoterms' rules
apply to a contract whenever the parties can demonstrate that they both intended
the Incoterms® rules to apply. That is why it is important to explicitly incorporate
the Incoterms® rules.
Who is bound by the Incoterms rules?
• The Incoterms rules govern certain responsibilities between the seller and the
buyer under the contract of sale; they should not be confused with the allocation
of responsibilities between the shipper, carrier and consignee under the contract of
carriage.
Why should importers and exporters use the
Incoterms rules?
INCOTERMS
2010
Classification of the 11 Incoterms 2010 rules
Rules for any mode or modes of transport:
EXW, FCA, CPT, CIP, DAT, DAP, DDP
Rules for sea and inland waterway transport:
FAS, FOB, CFR, CIF
INCOTERMS 2000
Less Less
responsible responsible and
and risk 1) Class E risk
2) Class F
The seller The buyer
3) Class C
4) Class D
More More
responsible responsible
and risk and risk
Structure in Incoterms rule
The seller’s obligations The buyer’s obligations
A1. General obligations of the seller B1.General obligations of the buyer
A2. Licences, authorizations, security clearances B2. Licences, authorizations, security clearances
and other formalities and other formalities
A3. Contracts of carriage and insurance B3. Contracts of carriage and insurance
A4. Delivery B4. Taking delivery
A5. Transfer of risks B5. Transfer of risks
A6. Allocation of costs B6. Allocation of costs
A7. Notices to the buyer B7. Notices to the seller
A8. Delivery document B8. Delivery document
A9. Checking – Packaging - Marking B9. Inspection of goods
A10. Assistance with information and related costs B10. Assistance with information and related costs
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There are five important questions that we have to answer for each rule:
1. Where deliver?
2. How to transfer of risks and allocation of costs?
3. Who has obligation to make a contract of carriage and insurance?
4. Who has obligation to carry out all customs formalities for the export and import
of the goods?
5. At the place of delivery, Are the goods loaded on or unloaded vehicle?
EXW (insert named place of delivery) Incoterms 2010
Ex Works
EXW
• Delivery at the seller’s premises.
• At the place of delivery, all costs and risk are transferred from the
seller to the buyer.
• Both the seller and the buyer have no obligation to make a contract
of carriage and insurance.
• The goods are not loaded on any collecting vehicle.
• The buyer carries out all customs formalities for the export and
import of the goods.
FCA (insert named place of delivery) Incoterms 2010
Free Carrier
FCA
1. The seller must deliver the goods to the carrier or another person nominated by the
buyer at the agreed point.
2. At the place of delivery, all costs and risk are transferred from the seller to the buyer.
3. The seller has no obligation to the buyer to make a contract of carriage. The buyer must
contract at its own expense for the carriage of the goods from the named place of
delivery.
4. Both the seller and the buyer have no obligation to make a contract of insurance.
5. The seller carries out all customs formalities for the export of the goods. The buyer
carries out all customs formalities for the import of the goods.
FCA
• There can be 3 types of places of receipt: seller facilities, freight forwarder facilities or
port/airport.
• If the named place is the seller’s premises, the goods have been loaded on the means of
transport provided by the buyer. In any other case, the goods are on the seller’s means of
transport ready for unloading.
• FCA is one of the most favorable term when the buyer wants to have control of costs at
origin and international transportation through a nominated freight forwarder.
• FCA is commonly used in conjunction with a Forwarder Cargo Receipt, a document that
proves that cargo has been received by a forwarder
FAS (insert named port of shipment) Incoterms 2010
Free Alongside Ship
The seller’s
premises
FAS
1. The seller must deliver the goods either by placing them alongside the ship nominated
by the buyer at the port of loading.
2. At the place of delivery, all costs and risk are transferred from the seller to the buyer.
3. The seller has no obligation to the buyer to make a contract of carriage. The buyer must
contract at its own expense for the carriage of the goods from the named place of
delivery.
4. Both the seller and the buyer have no obligation to make a contract of insurance.
5. The seller carries out all customs formalities for the export of the goods. The buyer
carries out all customs formalities for the import of the goods.
FOB (insert named port of shipment) Incoterms 2010
Free on Board
The seller’s
premises
FOB
1. The seller must deliver the goods either by placing them on board the vessel nominated
by the buyer at the port of loading.
2. At the place of delivery, all costs and risk are transferred from the seller to the buyer.
3. The seller has no obligation to the buyer to make a contract of carriage. The buyer must
contract at its own expense for the carriage of the goods from the named place of
delivery.
4. Both the seller and the buyer have no obligation to make a contract of insurance.
5. The seller carries out all customs formalities for the export of the goods. The buyer
carries out all customs formalities for the import of the goods.
CFR (insert named port of destination) Incoterms 2010
Cost and Freight
Cost: - freight
- cost of loaded at port of loading
- cost of unloaded at port of destination
CFR
1. The seller must deliver the goods either by placing them on board the vessel nominated
by the buyer at the port of loading.
2. At the place of delivery, all risk are transferred from the seller to the buyer.
3. The seller must pay:
- all costs relating to the goods until they have been delivered
- the freight and all other costs: costs of loading the goods on board and any charges
for unloading at the agreed port of discharge that were for the seller’s account under the
contract of carriage
4. The seller must make a contract for the carriage of the goods from the port of loading to
the port of discharge.
5. Both the seller and the buyer have no obligation to make a contract of insurance.
6. The seller carries out all customs formalities for the export of the goods. The buyer
CIF (insert named port of destination) Incoterms 2010
Cost, Insurance and Freight
CIF
1. The seller must deliver the goods either by placing them on board the vessel nominated by the buyer at
the port of loading.
2. At the place of delivery, all risk are transferred from the seller to the buyer.
3. The seller must pay:
- all costs relating to the goods until they have been delivered
- the freight and all other costs: costs of loading the goods on board and any charges for unloading at
the agreed port of discharge that were for the seller’s account under the contract of carriage
- the costs of insurance
4. The seller must make a contract for the carriage of the goods from the port of loading to the port of
discharge.
5. The seller must obtain cargo insurance complying at least with the minimum cover provided by Clause C of
the Institute Cargo Clauses or any similar clauses.
6. The seller carries out all customs formalities for the export of the goods. The buyer carries out all customs
formalities for the import of the goods.
CPT (insert named place of destination) Incoterms 2010
Carriage Paid To
CPT
1. The seller must deliver the goods to the nominated carrier at the agreed place of shipment at origin.
2. At the place of delivery, all risk are transferred from the seller to the buyer.
3. The seller must pay:
- all costs relating to the goods until they have been delivered
- the freight and all other costs: costs of loading the goods and any charges for unloading at the place
of destination that were for the seller’s account under the contract of carriage
4. The seller must make a contract for the carriage of the goods from the place of delivery to the place of
destination.
5. Both the seller and the buyer have no obligation to make a contract of insurance.
6. The seller carries out all customs formalities for the export of the goods. The buyer carries out all customs
formalities for the import of the goods.
CPT - example
Monitor from China to Indonesia:
CPT Customer Warehouse, Jakata, Indonesia.
Seller, a reputable electronics company, sells Monitors to Jakarta via ocean. Seller pays for freight from origin
to a warehouse located in Jakarta and unloads goods. Buyer is responsible for insure goods from origin until
Jakarta warehouse. In this scenario, even it would be more convenient and easy for buyer to arrange
transportation from port of destination to Jakarta warehouse, sellers is in charge of this segment of
transportation and expenses via a destination forwarder or a contract of carriage which include all expenses.
Additionally, buyer pays for customs clearance plus duties and taxes.
CIP (insert named place of destination) Incoterms 2010
Carriage and insurance paid to
CIP
1. The seller must deliver the goods to the nominated carrier at the agreed place of shipment at origin
2. At the place of delivery, all risk are transferred from the seller to the buyer.
3. The seller must pay:
- all costs relating to the goods until they have been delivered
- the freight and all other costs: costs of loading the goods and any charges for unloading at the place
of destination that were for the seller’s account under the contract of carriage
- the costs of insurance
4. The seller must make a contract for the carriage of the goods from the port of loading to the port of
discharge.
5. The seller must obtain cargo insurance complying at least with the minimum cover provided by Clause C of
the Institute Cargo Clauses or any similar clauses.
6. The seller carries out all customs formalities for the export of the goods. The buyer carries out all customs
formalities for the import of the goods.
CIP - example
Mobile phones to Taiwan to Australia
CIP Keilor Park warehouse of Mobile Distributors, Melbourne, Australia
In this scenario, mobile phones will be shipped by air from Taiwan to Melbourne Airport, after customs
clearance, a destination forwarder nominated by seller will transport goods until Mobile Distributor’s
warehouse. Destination terminal handling charges at airport and transfers fees at destination airport are under
the account of seller. Seller arranges insurance. Buyer pays for customs clearance and duties.
DAT (insert named place of destination) Incoterms 2010
Delivered at Terminal
DAT
1. The seller must unload the goods from the arriving means of transport and must then deliver them by
placing them at the disposal of the buyer at the named terminal (at the port of place of destination).
2. At the place of delivery, all risk are transferred from the seller to the buyer.
3. The seller must pay:
- all costs relating to the goods until they have been delivered
4. The seller must contract at its own expense for the carriage of the goods to the named terminal at the
agreed port or place of destination.
5. The seller and the buyer has no obligation to the buyer to make a contract of insurance.
6. The seller carries out all customs formalities for the export of the goods. The buyer carries out all customs
formalities for the import of the goods.
DAT - example
Ocean Cargo:
DAT Singapore Port, Pier 10, Singapore
Air Cargo:
DAT Swissport Terminal, Frankfurt, Germany
DAP (insert named place of destination) Incoterms 2010
Delivered at Place
DAP
1. The seller must deliver the goods by placing them at the disposal of the buyer on the arriving means of
transport ready for unloading at the agreed point. goods are in means of transportation
2. At the place of delivery, all risk are transferred from the seller to the buyer.
3. The seller must pay:
- all costs relating to the goods until they have been delivered
- any charges for unloading at the place of destination that were for the seller’s account under the
contract of carriage
4. The seller must contract at its own expense for the carriage of the goods to the named place of
destination or to the agreed point.
5. The seller and the buyer has no obligation to the buyer to make a contract of insurance.
6. The seller carries out all customs formalities for the export of the goods. The buyer carries out all customs
formalities for the import of the goods.
DDP (insert named place of destination) Incoterms 2010
Delivered Duty Paid
DDP
1. The seller must deliver the goods by placing them at the disposal of the buyer on the arriving means of
transport ready for unloading at the agreed point.
2. At the place of delivery, all risk are transferred from the seller to the buyer.
3. The seller must pay:
- all costs relating to the goods until they have been delivered
- any charges for unloading at the place of destination that were for the seller’s account under the
contract of carriage
- the costs of customs formalities necessary for export and import as well as all duties, taxes and
other charges payable upon export and import and the costs for their transport through any country prior to
delivery.
4. The seller must contract at its own expense for the carriage of the goods to the named place of
destination or to the agreed point.
5. The seller and the buyer has no obligation to the buyer to make a contract of insurance.
6. The seller carries out all customs formalities for the export and import of the goods.
What are the key changes in Incoterms® 2020?
1/ Why has the FCA Incoterms® rule been revised?
• Free Carrier (FCA) has been revised for Incoterms® 2020 to cater to a situation where
goods are sold FCA for carriage by sea and buyer or seller (or either party’s bank)
requests a bill of lading with an on-board notation. FCA in article A6/B6 now provides for
the parties to agree that the buyer will instruct the carrier to issue an on-board bill of
lading to the seller once the goods have been loaded on board, and for the seller then to
tender the document to the buyer (often through the banks).
What are the key changes in Incoterms® 2020?
Where are the costs listed in Incoterms® 2020?
• Within Incoterms® 2020, all costs associated with a given Incoterms rule now
appear at article A9/B9 of that rule, allowing users to see the full list of expected
costs at a glance. In addition to the aggregated presentation, the costs associated
with each item – for example, carriage (article A4/B4) or export clearance (article
A7/B7) – still appear in the respective articles to accommodate a user who wants
to focus on a specific aspect of the sale transaction.
What are the key changes in Incoterms® 2020?
What are the different levels of insurance coverage in CIF and CIP?
• The Incoterms® 2020 rules provide for different levels of insurance coverage in
the Cost Insurance and Freight (CIF) rule and Carriage and Insurance Paid To
(CIP) rule.
• Under the CIF Incoterms® rule, which is reserved for use in maritime trade and is
often used in commodity trading, the Institute Cargo Clauses (C) remains the
default level of coverage, giving parties the option to agree to a higher level of
insurance cover. Taking into account feedback from global users, the CIP
Incoterms® rule now requires a higher level of cover, compliant with the Institute
Cargo Clauses (A) or similar clauses.
What are the key changes in Incoterms® 2020?
How does Incoterms® 2020 account for arranging carriage?
• Incoterms® 2020 recognizes that not all commercial trade transactions from the
seller to the buyer are conducted by a third-party carrier. In some cases,
transactions are conducted without a third-party carrier at all, such as a seller using
its own means of transportation, or a buyer using its own vehicle to collect goods.
What are the key changes in Incoterms® 2020?
Is the Incoterms® rule DPU new?
• No, simply renamed and moved to more accurately reflect the content of the rule.
The former Delivered at Terminal (DAT) has been changed to Delivered at Place
Unloaded (DPU) to emphasize that the place of destination can be any place and
not just a “terminal”, and to underscore the sole difference from Delivered at Place
Unloaded (DPU) – under DAP the seller does not unload the goods, under DPU,
the seller does unload the goods.
• And since delivery under DAP happens before unloading, Incoterms®
2020 presents the newly named DPU after DAP.
Revise
1. A price agreed on CIF basic:
a. Includes freight charges up to the port of unloading
b. Doesn’t include the freight charges
c. Includes the freight charges up to the importer’s works
d. Includes freight charges up to the port of loading
Revise
2. The seller must pay the costs and freight and insurance to bring goods
to the port of destination. Maritime transport only.
3. The seller pays for carriage to the named place of destination. Risk
transfers to buyer upon handing goods over to the first carrier.
4. A shipping contract in which risk of loss passes to buyer when goods
are placed alongside vessel used for transportation.
5. The seller pays for carriage to the named place, except for costs related
to import clearance and assumes all risks prior to the point that the
goods are ready for unloading by the buyer.
Revise
6. The goods are unloading at the terminal
7. The seller loads the goods onto the vessel as instructed by the buyer. Cost
and risk are divided. The seller clears the goods for export. Applies to maritime
and inland waterway transport only but not for shipping containers.
8. Which term in Incoterms 2010 is chosen? How to incorporate to contract?
- The supplier delivers the cargo in Shanghai
- The cargo is ready for exporting (but not yet exported)
- The importer must book shipping from Shanghai
- The importer pays for all expenses that occur after the cargo leaves Shanghai.
This includes, but is not limited to sea freight charges, customs, VAT, inland
transportation and port duties.
Revise
9. – The supplier delivers the cargo to Amsterdam
- The cargo is ready for importing (but not legally imported)
- The importer pays for all expenses that occur upon arrival in Amsterdam. This includes,
but is not limited to customs, VAT, inland transportation and port duties.
10. – The buyer order the goods from the supplier, according to FOB terms.
- The supplier books transportation from the factory, to the buyers freight forwarder in
Shenzhen. They also take care of the export clearance process and fill out the documents.
- The cargo arrives in the forwarders warehouse in Shenzhen. The buyer book a DAP
shipment and freight insurance.
- The forwarder invoice the buyer for the freight cost, port charges in Los Angeles,
insurance and inland transportation – all the way to the buyer’s address. Hence, the buyer
is aware of the full cost before the goods depart China.
- The forwarder ships the cargo to Los Angeles, where the goods are cleared for customs.
The import duties and other taxes are paid via the forwarder.
- The cargo is finally delivered to the buyers address in the US.
Case study 1
• A company manufactures large tanks at its production site in Germany
and sells them to a customer in Switzerland. The buyer and seller have
agreed "CPT Zürich Incoterms® 2010" as delivery conditions. The
company employs a service provider to transport the tanks to
Switzerland. During transportation the tanks are damaged and the
customer refuses to accept them. He demands the delivery of new
tanks.
• Is responsibility for the damage to the tanks to be borne by the buyer
or seller? Can the buyer refuse to pay for the goods despite the
damage?
Case study 2
• The company imports precious stones and metals to the United States
from different countries. The company is currently using CIF (Cost,
Insurance and Freight) Air Freight, Company Facility, as a term of the
international sale. The buyer also requests the Seller to arrange both
transport and insurance from the point of shipment to the buyer’s
facility and pay customs duties in the United States.
• Analyzing the buyer’s choice of Incoterms rule. Giving advise for the
client.
Case study 3
• The exporter sent cargo (steel) to the buyer in CIF condition, Incoterms
2010. Before the shipment, he did an inspection and everything was ok.
The captain signed a clean Bill of Lading. The problem was that, when
the cargo arrived at port of destination, the buyer concluded that the
cargo were wet. The buyer is trying not to pay the cargo because of
damages.
• Analyzing this case?
Case study 4
The seller and the buyer made a contract on CIF term Incoterms 2010.
Port of loading is Amsterdam Port. Port of discharge is Haiphong Port. On
the way, the vessel met a rough sea so part of the goods got lost. When
the vessel came Haiphong port, the buyer refused to receive the goods.
Was the buyer right or not right?
• Analyzing this case?
Case study 5
• The contract signed between Company A (the seller) and Company B
(the buyer) on FOB term. After that, the issuing bank issued letter of
credit in which one of required documents was Bill of Lading with
“Freight Prepaid”. But, the seller did not check L/C carefully and
delivered the goods with marking “Collect freight charges” in Bill of
Lading. The issuing bank refused to pay to Company B.
• Analyzing this case?
Case study 6
• Hoang Long company imports computer products from Eurozone.
Hoang Long company suggests DDP rule in Incoterms 2010. Exporter
does not agree because he does not have experiences to carry out
custom formalities for importing goods to Vietnam. Exporter suggest
CIP rule in Incoterms 2010.
• Analyzing this case? Which rule should two parties choose?
