INCOTERMS FOR NEWBIES
The newbies articles are for beginners, if you know your Incoterms, don’t waste your time here ?
For the others, Incoterms are the backbone of every contracts. They dictated the rules, costs and responsibilities between buyers and sellers. There is 11 Incoterm 2010 – below a quick explanation of each, followed by a little QUIQUIQUIZZZZZZ!
- EXW Ex Works
“Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e.,works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.
- FCA Free Carrier
“Free Carrier” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
- CPT Carriage Paid To
“Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
- CIP Carriage And Insurance Paid To
“Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”
- DAT Delivered At Terminal
“Delivered at Terminal” means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes a place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.
- DAP Delivered At Place
“Delivered at Place” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.
- DDP Delivered Duty Paid
“Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.
RULES FOR WATERWAY TRANSPORT
- FAS Free Alongside Ship
“Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.
- FOB Free On Board
“Free On Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.
- CFR Cost and Freight
“Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. the seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
- CIF Cost, Insurance and Freight
“Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”
Source ICC https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-rules-2010/
So, let’s do a little QOUUUUIIIIZZZ !
You are a sugar mill in North of France. You sell a truck of 24mt of sugar to pastry maker in Spain. Which INCOTERM make no sense ?
A) You sell CFR, Barcelona, Spain
B) You sell DAP, Barcelona, Spain
C) You sell EXW, factory, France
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A) is the wrong answer – CFR is used only for waterway – In that case CPT would be correct
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You are a trader, you buy a vessel of 60’000mt of wheat from Romania for a grain mill in Turkey
Which INCOTERM make no sense ?
A) You buy FOB Constanta, Romania & You sell CIF, Mersin, Turkey
B) You buy CIF Mersin, Turkey & You sell CIF Mersin, Turkey
C) You buy EXW Mersin, Turkey & You sell CIF Mersin, Turkey
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C) is wrong – an EXW sells cannot imply a transport of the good. EXW, will only appear EXW farmgate, EXW factory, EXW seller’s premise, got it ? 😉
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250mt of rice is moved from a field in Thailand to the consumer in Mali.
Farmer => Exporter => Trader => Importer => Wholesaler
Which chain is wrong ?
A)
Farmer sells EXW, field to an exporter
Exporter sells FOB, Bangkok port to a trader
Trader sells CIF, Dakar, Senegal to an Importer
Importer sells DDP Bamako, Mali to a wholesaler
B)
Farmer sells EXW, field to an exporter
Exporter sells FOB, Bangkok port to a trader
Trader sells FOB, Bangkok port to an Importer
Importer sells EXW, Dakar warehouse to a wholesaler
C)
Farmer sells EXW, field to an exporter
Exporter sells CIF, Bangkok port to a trader
Trader sells FOB, Dakar, Senegal to an Importer
Importer sells EXW, Dakar warehouse to a wholesaler
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C) is wrong – The Exporter sells the good from Thailand so there is no seafreight involve.
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