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INCOTERMS

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INCOTERMS 2000
y Published by International chamber of Commerce in 1936. y Used in International commercial transactions. y Purpose is to provide a set of international rules for the

interpretation of the most commonly used trade terms. y Used to divide transaction cost and responsibilities between buyer and seller

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Incoterms Purpose and Scope


y Pricing terms, shipping terms, sales terms. y Apply to international trade. y Define the rights and obligation of the parties to the

contract of sale with respect to the delivery of goods sold.

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Four Groups of Incoterms


1) E group 2) F group 3) C group 4) D group

EXW EX WORKS (named place)


y The E-term is the term in which the sellers

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

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EXW
Ex Works (named place)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents destination: Formalities Arrival Frontier/ Terminal/Quay Buyers Risks

Buyer/ Importer Premises

Sellers Risks

Sellers Cost

Buyers Cost

Incoterms

y The F terms require the seller to deliver goods

for carriage as instructed by the buyer. y FCA y FAS y FOB

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FCA FREE CARRIER (named place)

y Seller delivers when goods, cleared for export, to

the carrier nominated by the buyer at a named place. y Term may be used irrespective of the mode of transport. y Seller obligated to load goods on arriving vehicle if it arrives at the sellers premises. y Seller not obliged to unload goods from his vehicle.

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FCA
Free Carrier(named place)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents Arrival destination: Formalities Frontier/ Terminal/Quay

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

FAS -FREE ALONGSIDE SHIP (named port of shipment)

y The seller must place the goods alongside the

ship at the named port y Seller obliged to clear goods for export. y The buyer bears all costs and risks of loss or damage to the goods from that moment. y Terms can be used for sea or inland waterway transport only.
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FAS
Free Alongside(named place)
SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Port of Arrival

Delivery at named place of destination: Frontier/ Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

FOB FREE ON BOARD (named port of shipment)

y The seller must load the goods on board the ship

nominated by the buyer, cost and risk being divided at ship's rail. y The buyer bears all costs and risks of loss or damage to the goods from that point. y Term can be used for sea or inland waterway transport only.

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FOB
Free On Board(named port of shipment)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents Arrival destination: Formalities Frontier/ Terminal/Quay

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

Incoterms 2000
y The C terms require the seller to contract for y y y y

carriage at his expense to a specified point. CFR CIF CPT CIP

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CFR COST AND FREIGHT (named port of destination)

y Seller must pay the costs and freight to bring the

goods to the port of destination but the buyer bears the risk of loss and additional costs occurring after delivery. y Term can be used for sea or inland waterway transport. y If intent is not to deliver goods across the ships rail, use CPT

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CFR
Cost and Freight (named port of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Port of named place of Arrival destination: Frontier/ Terminal/Quay Buyers Risks

Import Documents Formalities

Buyer/ Importer Premises

Sellers Risks

Sellers Cost

Buyers Cost

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

y The seller pays the costs and freight necessary to bring

goods to port of destination, but the buyer bears the risk of loss and additional costs occurring after delivery. y The seller procures marine insurance, against buyers risk of loss. y Term can be used for sea or inland waterway transport. y If intent is not to deliver goods across the ships rail, use CIP.

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CIF
Cost, Insurance and Freight (named port of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Port of named place of Arrival destination: Frontier/ Terminal/Quay Buyers Risks

Import Documents Formalities

Buyer/ Importer Premises

Sellers Risks

Sellers Costs

Buyers Cost

CPT CARRIAGE PAID TO (named place of destination)

y Seller delivers the goods, cleared for export, to the

carrier. y The seller pays the costs of carriage necessary to bring goods to named destination, but the buyer bears the risk of loss and additional costs occurring after delivery. y Term may be used irrespective of mode of transport.
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CPT
Carriage Paid To (named port of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Port of named place of Arrival destination: Frontier/ Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Sellers Risks

Buyers Risks

Sellers Cost

Buyers Costs

CIP CARRIAGE AND INSURANCE PAID TO (named place of destination)

y Seller delivers the goods, cleared for export, to the carrier. y The seller pays the costs of carriage to named destination,

but the buyer bears the risk of loss and additional costs occurring after delivery. y The seller procures insurance against buyers risk of loss. y Term may be used irrespective of mode of transport.

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CIP
Carriage and Insurance Paid To (named port of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Port of named place of Arrival destination: Frontier/ Terminal/Quay Buyers Risks

Import Documents Formalities

Buyer/ Importer Premises

Sellers Risks

Sellers Cost

Buyers Cost

Inco terms 2000


y The D terms require the seller to take the goods

all the way to destination at the border or within the country of import. y DAF y DES y DEQ y DDU y DDP

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DAF DELIVERED AT FRONTIER (named place)

y This term can be used when the goods are transported by

rail and road. y The seller pays for transportation to the named place of delivery at the frontier. y The buyer arranges for customs clearance and pays for transportation from the frontier to his factory.

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DAF
Delivered At Frontier(named place)
SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Port of Arrival

Delivery at named place of destination: Frontier/ Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

DES DELIVERED EX SHIP (named port of destination)


y Where goods are delivered ex ship, the passing of risk

y y y y

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. 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. Term used only for delivery by sea.
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DES
Delivered exShip(named port of destination)
SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Port of Arrival

Delivery at named place of destination: Frontier/ Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

DEQ DELIVERED EX QUAY (named port of destination)

y This is similar to DES. y The passing of risk does not occur until the goods have

been unloaded at the port of destination. y Seller bears all costs and risks to bring goods to the named port of destination and discharging the goods on the quay. y Term used only for delivery by sea.

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DEQ
Delivered Ex Quay(named port of destination)
SELLER BUYER

Seller/ Exporter Premises

Export Documents Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Port of Arrival

Delivery at named place of destination: Frontier/ Terminal/Quay

Import Documents Formalities

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

DDU DELIVERED DUTY UNPAID (named place of destination)

y Seller delivers the goods to the buyer to the named place of

destination in the contract of sale y Seller bears all costs and risks (except duty) to bring goods to the named place of destination. y Term may be used irrespective of mode of transport. y If delivery is to take place at the port, quay or on board a vessel, DES or DEQ should be used.

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DDU
Delivered Duty Unpaid(named place of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents Arrival destination: Formalities Frontier/ Terminal/Quay

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

DDP DELIVERED DUTY PAID (named place of destination)


y Seller delivers goods to the buyer, cleared for import, and

not unloaded, at the named place of destination.


y Seller bears all costs and risks, including import duty, to

bring goods to the named place of destination.


y Term may be used irrespective of mode of transport. If

delivery is to take place at the port, quay or on board a vessel, DES or DEQ should be used.
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DDP
Delivered Duty Paid(named place of destination)
SELLER BUYER

Seller/ Export Exporter Documents Premises Formalities

Delivered at named place of: Frontier/ Terminal/ Quay

Loading Port of Shipment

Onboard Ship Rail Plane Ships Ships Rail Rail

Discharging Delivery at Import Port of named place of Documents Arrival destination: Formalities Frontier/ Terminal/Quay

Buyer/ Importer Premises

Sellers Risks

Buyers Risks Buyers Cost

Sellers Cost

Letter of Credit
y The letter of credit can also be source of payment for a

transaction, meaning that redeeming the letter of credit will pay an exporter. y Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. In such cases the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits applies. y The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client.
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Document against Payment


The exporter ships the goods, and then gives the documents (including the bill of lading necessary to claim the goods at the foreign port) to his bank, which will forward them to a bank in the buyer's country, along with instructions on how to collect the money from the buyer.
y Document against Acceptance

Instructions given by an exporter to a bank that the documents attached to the draft for collection are deliverable to the drawee only against his or her acceptance of the draft.
y

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In Summary
y Buyers Objective: maximize control of supply chain, use

FOB, FCA, or FAS y INCOTERMS are negotiable! y INCOTERMS should appear on all commercial documents. y The five terms-DAF,DES,DEQ,DDU and DDP have been declared obsolete and would be replaced by three new terms DAT (Delivered at Terminal), DAP (Delivered at Place), and DDP (Delivered Duty Paid) by Jan 01,2011.

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THANKS FOR YOUR ATTENTION

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