A Practical Approach to Incoterms Presented By: Lori Koss, Logistics Supervisor for Carestream Health, Licensed US Customs Broker.

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1 A Practical Approach to Incoterms 2010 Presented By: Lori Koss, Logistics Supervisor for Carestream Health, Licensed US Customs Broker. Carestream Health, 2014

2 p Incoterms Changes Goal was to simplify Incoterms and incorporate the UCC rules to have one set of terms for both domestic and international shipments. UCC rules differed from Incoterms because UCC terms were primarily domestic terms and can be either shipment or delivery terms. UCC Example: FOB Origin or FOB Destination. Incoterms are used exclusively as either delivery or shipment term. Incoterms determine risk of loss NOT title transfer. Title transfer is determined by CISG law and should be spelled out specifically and separately from the Incoterms in the contract or purchase order.

3 p Incoterms Changes Now only 11 terms versus 13 DAF,DEQ,DES and DDU were deleted in 2010 DEQ and DES were ocean terms rarely used. DAF was used primarily as a truck term intended for border crossing points. DAT was intended to replace DAF.

4 p Incoterms Changes DAT (Deliver at Terminal) was added, unloaded. Terminal includes any place whether covered or not, such as a quay(dock), container yard or road, rail or air cargo terminal you must spell it out. This can go beyond the port of arrival. Intended to replace DEQ,DES, DAF. DAP (Deliver at Place) was added, ready for unloading at the named place of destination, this must be clearly specified and agreed to. Intended to replace DDU and could mean inland delivery once cleared is at the seller s cost.

5 Incoterms Purpose and Structure Indicate to the buyer the costs which the Seller has included in the Seller s pricing. There are 11 Incoterms, 3 letter format and 4 distinct groupings. Incoterms MUST be used with a named point. Incoterms are transport mode specific. Updated every 10 years. Currently Carestream Health, 2014

6 p.6 Incoterms Explanation of Terms Groups EXW FCA CFR DAT FAS CIF DAP FOB CPT DDP CIP

7 p.7 Groups E Group: Departure: EXW F Group: Main Carriage Unpaid: FCA,FAS,FOB. C Group: Main Carriage Paid: CFR,CIF,CPT,CIP. D Group: Arrival :Main Carriage Paid DAT,DAP, and DDP.

8 p.8 Groups NOTE: Each term has a qualifier. E and F Terms are Freight Collect Departure Terms, and buyer pays main carriage. C and D Terms are Freight Prepaid Arrival Terms, and seller pays main carriage.

9 p.9 Incoterms are Mode Specific Sea and Inland Waterway FAS named shipment port FOB named shipment port CFR named destination port CIF named destination port

10 p.10 Incoterms and Transport Modes Continued All Modes Including Multimodal EXW: Seller s premises FCA : Named place/seller CPT : Named destination place CIP : Named destination place DAT : Named terminal/buyer DAP : Named place/buyer DDP : Named place/buyer

11 p.11 Incoterms E Terms

12 p.12 EXW-Ex-Works (Seller s Premises) Freight Collect Cost/Responsibility Seller Buyer 1.Export Packaging Yes No 2.Export Clearance No Yes 3.Pre-carriage loading No Yes 4.Pre-carriage unloading No Yes 5.Main Carriage loading No Yes 6.Main Carriage unloading No Yes 7.Import Clearance No Yes 8.Insurance No Yes

13 p.13 EXW-Ex Works Summary Minimum obligation for seller. Delivery occurs when seller places goods at buyers disposal at seller s premises Risk of Loss transfers from seller to buyer when seller delivers goods to buyer Example: EXW Dock, EXW Rochester

14 p.14 When to Use and Not Use Ex-works USE FOR: For US commercial sales whereby the buyer will pick product up at your dock and obtain their own export license if needed. Consider obtaining an Export Obligation Letter from the buyer. DON T USE FOR: USML /ITAR or Department of Commerce licensable international orders. WHY : International customers can not apply for a license to ship unless they are registered with the State Department or Commerce and hold a valid EIN.

15 p.15 Incoterms 2010 F Terms

16 FCA / FAS / FOB Freight Collect Terms F Group p.16 Cost /Responsibility Seller Buyer 1.Export Packaging Yes No 2.Export Clearance Yes No 3.Pre-Carriage loading Yes No 4.Pre-Carriage unloading FAS/FOB FCA 5.Main Carriage loading FOB FCA/FAS 6.Import Clearance No Yes 7.Insurance No Yes

17 p.17 Incoterms Explanation Freight Collect Terms F Group MAIN CARRIAGE UNPAID (Freight Collect) FCA Free Carrier,named place. FAS Free Alongside Ship at Port. FOB Free on Board at Port F Terms are what is called a routed transaction meaning you still must obtain the export license (DOS/DOC)if applicable AND file AES (Automated Export System) based on the fact that you are still the USPPI (US Principal Party of Interest or Export of Record) but you utilize the buyers Freight Forwarder. This can be problematic from a compliance and letter of credit standpoint.

18 p.18 FCA / FAS / FOB Freight Collect F Term Summary More obligations for seller than EXW. Risk of loss transfers from seller to buyer when seller delivers goods to buyer. DO NOT use for USML or Department of Commerce licensable exports.

19 p.19 Incoterms Explanation C Terms

20 p.20 Incoterms Explanation Prepaid Terms C Group MAIN CARRIAGE PAID CFR: Cost and freight to destination port (ocean) CIF: plus insurance (ocean) CPT: Carriage paid to destination place (air) CIP: CPT plus insurance (air)

21 p.21 CFR / CIF/ CPT / CIP Prepaid Terms Cost/Responsibility Seller Buyer 1.Export Packaging Yes No 2.Export Clearance Yes No 3.Pre-carriage loading Yes No and unloading 4.Main carriage loading Yes No 5.Import Clearance No Yes 6.Insurance CIF CIP No

22 p.22 CFR / CIF / CPT / CIP Prepaid Terms Summary More obligations for seller than EXW,FCA,FAS & FOB. Risk of Loss transfers from seller to buyer when seller delivers goods to buyer. Preferred Incoterms for USML and Department of Commerce licensable exports because you control the export and AES reporting. Also gives you more control in Letter to Credit sales.

23 p.23 CFR / CIF / CPT / CIP Prepaid Terms Summary Does this look right to you? Order comes in with terms CIP (JFK ) stating Freight Collect using the Customer s Freight Forwarder. This really should been FCA JFK but the preferred method would have been CIP Port of Arrival.

24 p.24 Incoterms Explanation D Terms

25 p.25 Incoterms Explanation Prepaid Terms D Group ARRIVAL TERMS DAT: Delivered at Terminal, named place ( includes unloading at the terminal) not insured DAP: Delivered at Place, named place ( ready for unloading) not insured DDP: Delivered duty paid, named place, not insured

26 p.26 DAT/DAP/ DDP Prepaid Freight D Group Cost/Responsibility Seller Buyer 1.Export Packaging Yes No 2.Export Clearance Yes No 3.Pre-carriage loading Yes No 4.Main carriage DAT No Loading/unloading 5.On carriage loading DAP/DDP No 6.On carriage unloading DDP DAP 7.Import Clearance DDP DAP 8.Insurance No No

27 p.27 DAT : Terminal In Detail Deliver 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.¹(not the final place of delivery) Terminal includes, anyplace, whether covered or not such as a quay(dock), warehouse, container yard or road, rail or cargo terminal.

28 p.28 DAP : Place In Detail Delivered at Place means that the seller delivers the goods to the buyer at a named place on an arriving means of transport ready for unloading at the named place of destination. This could mean customer s door if specified and agreed to by the buyer and seller. Clearance formalities are handled by the buyer BUT you could execute a delivery to the customer once the goods have cleared Customs. DAP replaces DDU but you need to be very careful when specifying the named place. If the seller intends on clearing the goods then DDP should be used instead.

29 p.29 DDP DDP in Detail DDP delivery occurs when seller places goods at the buyer s disposal on transport arrival at destination place. Seller is not required to unload goods but MUST clear goods for import. Risk of loss transfers from seller to buyer when seller delivers goods to buyer. There are certain countries you can t ship DDP to because of Customs Regulations in those countries for formal entries. Romania, Portugal, Ecuador, Brazil, most of Latin America do not accept DDP shipments.

30 p.30 When to Use and Not Use DDP USE FOR: Shipments to countries whereby you know your freight forwarder has an agent that can execute a door delivery. Shipments to countries who can accept a DDP shipments. DON T USE: Before checking with your trade compliance or transportation group. For countries where VAT and GST are high ask before you commit. You will NEVER get it back. Unless you are prepared to pay for EVERYTHING.

31 p.31 DDP Prepaid Freight D Group Summary NOTE: Before quoting any customer DDP terms please check with your compliance or transportation department first to see if your freight forwarder has an agent in country who can execute import clearance and inland delivery. Stay Away from DDP unless it is absolutely necessary and has been approved by your compliance or finance department. Know your destination countries applicable taxes & % and whether or not it is allow by Customs before quoting DDP. Keep in mind when DDP is quoted you as the seller are responsible for VAT, Duties and taxes unless otherwise excluded and you pay all of it. There are certain countries you can not do DDP shipments to.

32 p.32 Repairs and No Charge DDP Shipments Don t do it. Why? You are not Inland transportation or customs experts in every country of the world and some countries don t even allow it.

33 p.33 No DDP Why? You don t truly know what you are paying for until it is too late and most times what is done can t be undone.

34 p.34 Things to Keep in Mind Understand your choice of Incoterms and make sure you use them properly. There is no such thing as an FCA Toronto Intl Airport term. For USML or Department of Commerce licensable shipments use the Main carriage paid terms. Groups C and D only. Make sure your quote reflects added costs for freight, insurance and duties and taxes depending on the Incoterms used. Be careful using the DDP arrival term, in some countries VAT and duties can be up to 80% of the import value. Incoterms are mode specific. There is no such thing as a CIF shipment via Japan Airlines or a CIP shipment using Hapag Lloyd. Groups E and F are freight collect terms Groups C and D are freight prepaid terms know the difference. Sources of Information: Incoterms books and charts can be ordered off from the ICC website at

35 p.35 Incoterms Chart Term Insurance Freight Mode Licensable Goods EXW NO Collect All NO FCA NO Collect All NO FAS NO Collect Ocean NO FOB NO Collect Ocean NO CFR NO Prepaid Ocean Yes CIF YES Prepaid Ocean Yes CPT NO Prepaid All Yes CIP YES Prepaid All Yes DAT NO Prepaid All Yes DAP NO Prepaid All Consult DDP NO Prepaid All Consult

36 p Incoterms QUESTIONS?

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