World Trade Practices Chapter 14 FCL= full container load LCL= less than full container load (door to door)

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1 Logistics Containerized Cargo Twenty-Foot Equivalent Units (intermodal shipping container) 1 TEU 20 long container 2 TEUs per 40 long container World Trade Practices Chapter 14 FCL= full container load LCL= less than full container load (door to door) 2 Specialized Containers RoRo Bulk Reefers Side Loading Open top Ventilated Insulated Flat rack Non-containerized 3 4 Air Containers Movement from Ship Can be owned and loaded by airline Some companies choose to own the units for ease of loading and security issues 5 6 College of Business, University of Northern Iowa 1

2 Airport Codes World Air Codes Usaircode Leonards guide Customs Trade Partners Against Terrorism Validation process Security profile 7 8 INCO Terms What are INCOTERMS? ICC Publishing Inc. Publication # 560 ISBN: terms of sale created for use in international sales transactions Created by International Chamber of Commerce Translated into 20 languages Widely understood by experienced foreign traders Periodically updated ALWAYS accompanied by geographic location 9 10 WHERE Transfer of risk takes place WHAT Cost factors are included WHO Reference cards for quick review Has responsibility for forwarder and carrier selection WHAT Documents each party must provide College of Business, University of Northern Iowa 2

3 INCOTERMS are not: Four Groupings Law- need to identify in sales agreement All inclusive Made to be used in U.S. Domestic sales Use the UCC terms instead Conveyors of title Solutions for all potential foreign trade challenges E reflects departure point F Main carriage (freight) unpaid C Main carriage paid D Arrival point EXW (ExWorks) EXW- Exworks (named place) Departure Terms Buyer Possession at the seller s premises Little risk of transport to seller ONLY term seller is not responsible for export clearance. Example: EXW Parkersburg, Iowa Seller makes goods available at premises to the buyer (factory or warehouse) Not responsible for lading goods on vehicle provided by buyer Loading is potential conflict with union rules Very difficult for buyer to handle U.S. export clearance Buyer bears all costs and risks involve in movement of goods Minimum obligation for the seller Transfer of risks at seller s facility Group F FAS Main Carriage is unpaid Buyer selects carrier and pays for the freight Free Alongside Ship Risk remains with seller until the product is in the port ready to load onto the ship College of Business, University of Northern Iowa 3

4 FAS Free Along Ship (named port of shipment) FCA Example: FAS Port of Milwaukee Seller fulfills his obligation once the goods have been placed alongside the vessel either by delivery on the pier or by bringing alongside via other conveyance. Costs beyond delivery point are buyer s Export clearance is now a seller obligation under INCOTERMS 200. Can only be used for marine or inland waterway transport. Transfer of risk occurs when seller delivers to the vessel designated by the buyer. Free Carrier Buyer chooses a delivery location Transfers of title and risk occurs at buyers chosen site FCA Free Carrier (named place) FOB Example: FCA Port of Charleston FCA Waterloo Airport ALO Seller fulfills delivery responsibility when goods, cleared for export, are loaded on the means of transport by the buyer chosen carrier at the seller s premises, or delivered to the terminal of the buyer s appointed carrier, forwarder or other appointed party. (Simplified 2000 version) Costs of delivery to the first carrier or person are for seller. All costs beyond first delivery are for buyer. Transfer of risk takes place when seller delivers to the carrier or person determined by the buyer. Free on Board As soon as the cargo passes over the side of the ship, risk and title are transferred FOB Free on Board (Named Port of Shipment) Group C Example: FOB Port of Tema FOB USS Iowa, Port of San Diego Seller fulfills his obligation when goods have passed over the ship s rail at the named port of shipment Costs beyond ship s rail at the named port of shipment are responsibility of buyer Seller is required to clear the goods for export Can only be used for marine or inland transport. When the ship s rail provides no purpose (such as RORO) use FCA term Transfer of risk occurs when cargo passes ship s rail Main Carriage is Paid Freight is prepaid Seller selects carrier College of Business, University of Northern Iowa 4

5 CFR CFR Cost and Freight (named port of Destination) Cost and Freight Paid Seller arranges for transport Example: CFR Singapore Seller pays costs and freight necessary to bring goods to named port of destination Buyer pays costs beyond destination port Can only be used for marine or inland waterway transport. When the ship s rail provides no purpose (such as RORO) use CPT term Transfer of risk occurs when cargo passes ship s rail CIF CIF Cost, Insurance, Freight (named port of transportation) Cost Insurance Freight Marine insurance obligation of seller Example: CIF Hamburg, Germany Seller has same obligations as CFR Additional seller obligation includes contracting for marine insurance against buyer s risk of loss or damage of goods during the carriage. Seller is only required to obtain minimum coverage Can only be used for marine or inland waterway transport. When the ship s rail provides no purpose (such as RORO) use CIP term CPT CPT Carriage Paid to (named place of Destination) Carriage Paid to a particular point 29 Example: CPT Heathrow Airport CPT Accra, Ghana Similar to CFR term Used for any mode of transport including intermodal Seller fulfills responsibility when goods have been delivered to the carrier Seller responsible for export clearance, fees and carriage costs up to named destination place Transfer of risk takes place when goods are delivered to the first carrier. 30 College of Business, University of Northern Iowa 5

6 CIP CIP Carriage & Insurance Paid (named place of destination) Carriage and Insurance Paid to a certain point Marine insurance obligation of seller Similar to CIF term Seller has same obligations under the CPT with addition of insurance responsibilities of CIF Arrival Terms Group D Seller Delivers to a Destination Point 33 Delivered at frontier Delivered to an accessible site Cleared for export but not cleared for import Can be used for multimodal, but designed primarily for truck/rail transport Example: DAF Laredo, Texas- Seller responsible for cost and risk of cargo to Laredo, Texas border crossing- buyer assumes risk and cost when freight crosses U.S. border. DAF 34 DAF Delivered at Frontier (named place) DES Example: DAF Laredo, Texas DAF Canadian Border Seller fulfills obligations to deliver when goods have made available (cleared for export) at named point and place at the frontier But before customs border of adjoining country DAF term primarily for goods transported by rail or road, but can be used for any mode of transport Transfer of risks occurs when goods have been transferred at the frontier. 35 Delivered to Ex-Ship Seller arranges carriage Risk transfers when buyer has access (on ship) 36 College of Business, University of Northern Iowa 6

7 DES Delivered Ex Ship (named port of destination) DEQ Example: DES Hamburg, Germany Seller fulfills his obligation to the deliver when the goods have been made available to the buyer on board the ship but uncleared for import at the named port of destination Seller bears all costs and risks involved in bringing the goods to this point. Can only be used for marine or inland waterway transport Transfer of risk takes place when vessel arrives at destination port Delivered Ex- Quay Carriage arranged by seller Risk transfers to seller when good are place at disposal of the buyer on the quay DEQ Delivered Ex Quay Duty Paid (named port of destination) Example: DEQ Hamburg, Germany Seller fulfills obligation when goods have been made available on the quay of at the port of destination, cleared for importation. Seller bears all costs including duties, taxes, and other charges and risks to deliver the goods to port unloaded. Import clearance is now a buyer obligation under INCOTERMS Can only be used for marine and inland waterway transport. 39 Delivered Duty Unpaid Delivered cleared through customs Import documentation and duty responsibility with buyer DDU 40 DDU Delivered Duty Unpaid (named place of destination) Example: DDU Toronto, Canada Seller fulfills obligation to deliver when goods have been made available at the named place in the country of importation Seller bears all costs involved in bringing the goods to this point EXCLUDING duties, taxes, and other official charges payable upon importation, as well as the costs and risks of carrying out customs formalities. Used for all modes of transport Transfer of risk takes place when goods delivered to destination point not cleared by customs or duty paid. 41 Delivered Duty Paid Delivered cleared through customs Import documentation and duty responsibility with seller DDP 42 College of Business, University of Northern Iowa 7

8 DDP Delivered Duty Paid (named place of destination) Example: DDP Duseldorf, Germany Seller fulfills obligation to deliver when goods have been made available at the named place in the country of importation. Seller bears all costs and risks INCLUDING duties, taxes, and other charges of delivering the goods, cleared for importation. This term should not be used if seller is not able to directly or indirectly obtain and import license. Used for all modes of transport DDP represents the MAXIMUM risk to the seller. 43 ANY MODE OF TRANSPORTATION EXW (named place) Usually seller s place FCA (named place) Seller s place with door/door transport Buyer appointed carrier s terminal on seller s side CPT (named destination) Somewhere on buyer s side CIP (named destination) Somewhere on buyer s side DAF (named place) A border location DDU (named destination) Somewhere on buyer s side DDP (named destination) Somewhere on buyer s side 44 Marine and Inland Waterway transport only FAS (named port of shipment) A port on the seller s side FOB (named port of shipment) A port on the seller s side CFR (named port of destination) A port on the buyer s side CIF (named port of destination) A port on the buyer s side DES (name port of destination) Usually used for charters A port on the buyer s side DEQ (duty paid) (name port of destination) A pier on the buyer s side (unloaded) 45 Ocean Transport Breakbulk/LCL EXW FAS FOB CFR CIF DES DEQ INCOTERMS Ocean Transport FCL/RoRo/LCL EXW FCA CPT CIP DDU DDP Air Transport EXW FCA CPT CIP DDU DDP Truck/Rail Transport EXW FCA CPT CIP DAF DDU DDP DELIVERY POINT Risk Transfer Seller s premises Risk tranfers at pickup Seller delivers shipment to carrier selected by buyer Risk transfers at delivery Seller delivers to carrier selected by seller. Seller pays shipping to destination location Risk transfers when carrier has possession Seller delivers shipment to foreign destination Risk transfers at foreign destination delivery location 46 Questions 1. What mode of transportation? If ocean transport, what type of shipment? 2. What Delivery Point? 3. What specific INCOTERMS trade term will be selected? 4. What is place and geographic location? Example: 1) Air 2) Delivery Point F 3) FCA 4) Warehouse, Chicago, IL Buyer Country Factors to Consider Method of shipment Type of cargo Payment method Origin of shipment Easiest term College of Business, University of Northern Iowa 8

9 Buyer Country Indirect export buyers usually require delivery to a Domestic point EXW, FCA, FAS, FOB are most common Buyer designates main carrier and freight collect Use F terms unless carrier restricts freight collect Common when selling to government entities 49 Country requirements or restrictions must be followed to avoid any penalties! If main carriage must be prepaid eliminates utilization of E or F groups If regulations require marine insurance must be with a insurance company in buyer s country Restricts use of CIF or CIP 50 Method of Shipment Type of Cargo Terms used specifically for marine or inland waterway only Terms used for all modes DAF used for all modes, but generally for rail or truck with delivery obligations at Frontier FCL, RoRo, LCL delivered to carrier s terminal Eliminates FAS, FOB, CFR, CIF, DEQ, and DES Hazardous materials restrict mode of transportation EXW shouldn t be used for products with validated licenses Payment Method Origin of Shipment EXW, FCA, FAS, FOB for less than a container Allows buyer to select carrier and freight forwarder Seller should control shipment to ensure service providers perform on its behalf Sellers may be in better position to select routing if buyer unfamiliar with inland freight procedures. Sellers may be in better position to negotiate rates of transport College of Business, University of Northern Iowa 9

10 Easiest Term Is the buyer experienced in trading with home country? What terms are your competitors offering? Do you cover the risks of quoting freight costs? 55 College of Business, University of Northern Iowa 10

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