INCOTERMS save for DAT, DAP and DDP which are sales at destination..

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1 INCOTERMS 2010 In order to better secure the rights and obligations of sellers and buyers operating in international trade, the International Chamber of Commerce in Paris, in the thirties, has codified customs and uses developed by international operators for the delivery of goods. At the same time, the United States federal law defined the Revised American Foreign Trade Definitions. save for DAT, DAP and DDP which are sales at.. The Incoterms refer to 7 terms for intermodal transport (EXW- FCA- CPT- CIP- DAT- DAP- DDP) and 4 terms which are exclusively used from port to port deliveries (FAS FOB CFR CIF).They are defined as follows in English and in French: In 2010, the latest version of the INternational COmmercial TERMS or 11 Incoterms defined by a three letter acronym, for international and national deliveries of goods. Incoterms are not mandatory for international trade operations or even local trade. However, as there are widely used in Europe, Africa, Asia and the Americas, there are now reckoned to become a common standard for global supply chains and a legal standard for judges and arbitrators worldwide. Each Incoterm has three objectives: (i) it is ascertaining the place of delivery at a named place, (ii) the respective obligations of the seller and the buyer from shipment of goods and (iii) allocating the costs and risks for the seller and buyer for each delivery of goods. In order to include an Incoterm to a sale contract, you should negotiate this term with your commercial offer, as the choice of an Incoterm affects the price of the goods and your liability over the goods. Incoterms are classified into four categories: E, F, C and D corresponding to an increasing level of obligations for the seller and decreasing for the buyer. All incoterms are for sales on shipment, Information to all users : contrary to a common view, the seller retains at all times, an obligation to package the goods, in order to allow their full protection according to the mode of transport being used, and subject to the information that he has effectively received from the buyer. Under international law, packaging is part of the material conformity of goods. Therefore, a faulty packaging is always for the seller s liability under the rules of the Incoterms but also entitles the buyer to reject the goods totally or in part under the contract of sale. Should the packaging service be made by the seller himself or by a contractor, a packaging service is never insignificant. Some advice to make good use of the Incoterms: firstly, the transfer of risks over the goods, marked by a red line in the following charts, is occurring at the same time as the transfer of costs to the buyer, except for C terms; secondly, the transfer of risks over the goods is made indifferently from the transfer of ownership, which is not ruled by the Incoterms. 1

2 EXW Named place Delivery: the seller delivers the goods when placing the goods at the disposal of the buyer at the seller s premises or another named placed (i.e. works, factory, warehouse ). Goods are not loaded nor cleared by the seller. Loading/unloading: the seller is not liable for loading. But if the parties agree that the seller shall load the goods on the carrier, this should be made clear by adding express wording to the contract of sale and increases the liability of the seller. Transfer of risks: when goods are collected by the buyer and marked per red line. Customs clearance: the seller does not clear goods. EXW Named place Ex Works / à l usine Costs Risks Loading Buyer Buyer Pre-shipment carriage Buyer Buyer Loading main carriage Buyer Buyer Customs clereance for export Buyer Buyer Main carriage Not mandatory B Buyer Insurance of main carriage Not mandatory B Buyer Post-shipment carriage Buyer Buyer Costs and risks: please refer to opposite chart. FCA Named place Delivery: the seller delivers the goods to the carrier appointed by the buyer at the seller s premises or at another named place. Loading /unloading: if the delivery is made at the seller s place, the seller is liable for loading. If delivery occurs at another place, the buyer is responsible for loading the goods. Transfer of risks : when are loaded on the carrier. Should delivery be made at another place, the transfer of risk occurs when goods are made available to the buyer, i.e. unloaded. Customs clearance: the seller clears goods for export, not import. FCA Named place Free carrier/ Franco transporteur Costs Risks Pre-shipment transport Seller Seller Loading main transport Seller S Out S Customs clereance for export Buyer Buyer Main transport Mandatory B Buyer Insurance of main transport Not mandatory B Buyer Unloading main transport Buyer Buyer Costs and risks: used for containers and pallets. Pease refer to opposite chart. 2

3 CPT Named place loaded to the carrier or another person designated on shipment at an agreed place. The seller appoints a carrier and pay for the costs of carriage to bring the goods at a named. Loading /unloading: loading and unloading are for the seller if mentioned in the contract of carriage. Transfer of risks: when goods are handed over to the buyer, on shipment. In case many carriers are used, and there is no agreement, risks pass to the 1st carrier. Custom clearance: the seller has to clear goods for export, not import. Costs and risks: used for containers and pallets. Refer to opposite chart. CPT Named place at Carriage paid to / Port payé jusqu à Costs Risks Pre-shipment carriage Seller Buyer Loading main carriage Seller Buyer Customs clereance for export Seller Buyer Insurance of main carriage Not Mandatory S Not mandatory B CIP Place at to a named carrier, on shipment, loaded on carrier or to any third party on shipment. Loading /unloading: loading and unloading is for the seller or buyer if in the contract of carriage. Transfer of risks: risks pass when goods are at disposal of carrier appointed for transport, or in default to the first carrier. Insurance: seller has to provide and pay for covering the buyer s risks of loss or damage to the goods during the main transport, but only for a minimum cover, under clause C of Cargo Clauses, unless the buyer asks for a full cover including loss of profits or additional hazards. Custom clearance: the seller has to clear goods for export, not import. Costs and risks: the seller must pay for the cost of carriage up to the named place of. Used for containers and pallets. Countries in Maghreb and in Africa and Central America, require an insurance cover for the main transport, issued in their own country, and not in the country of shipment. 3 CIP Named place at Carriage and Insurance Paid / Port payé assurance comprise jusqu à Costs Risks Pre-shipment carriage Seller Buyer Loading main carriage Seller Buyer Customs clereance for export Seller Buyer Insurance of main carriage Mandatory S Buyer

4 DAT Terminal at at terminal once unloaded from main transport and at disposal of buyer at the defined terminal. Please detail where the goods are due to be delivered inside the terminal. Loading /unloading: loading and unloading charges from main transport is for the seller. Transfer of risks : when goods are at disposal of buyer inside the terminal. clear the goods for exporting, but not for importing the goods. Costs and risks: used for bulk deliveries, containers or unusual packaging. Please refer to opposite chart. DAT At terminal Delivered at Terminal/ Rendu Terminal Costs Risks Main carriage Mandatory S Seller Insurance of main carriage Not mandatory S Seller DAP Named place at Delivery : when the goods are placed at the disposal of the buyer on the carrier, ready for unloading. Loading /unloading: loading charges on main transport is for the seller but unloading at named place is for the buyer. Transfer of risks: when the goods are at disposal of buyer for unloading at the named place at. The seller and the buyer need to be clear about the place of delivery as the seller bears all risks up to this place. Customs clearance: goods are cleared for export, not for import. Costs and risks: if post shipment is necessary, the seller cannot recover its costs unless agreed in the contract of sale. Used for bulking, containers and unusual packaging. Otherwise, please refer to opposite chart. DAP Named place Delivered at Place /Rendu lieu Costs Risks Pre-shipment transport Seller Seller Loading main transport Seller Seller Main transport Mandatory S Seller Insurance of main transport Not mandatory S Seller Unloading main transport Buyer Buyer 4

5 DDP Place at to the buyer, when goods are ready for unloading on any type of transport at the named place of and cleared for customs export and import. Loading /unloading: loading charges on main transport is for the seller and unloading if indicated in the contract of carriage. Transfer of risks: when goods are at the disposal of buyer at. Customs clearance: both export and import clearances are charged to the seller. This term should not be used when the seller is unable to clear the goods as non - resident in the country of import or cannot obtain any required license. Costs and risks: this incoterm represents the maximum obligations for the seller. Otherwise, please refer to opposite chart. Should the parties exclude some of the formalities or costs, like payment of local sales taxes or VAT, then they should mention it in their contract of sale. DDP Named place Delivery duty paid / Rendu droits acquittés Coûts Risques Main carriage Obligatoire S Seller Insurance of main carriage Non Seller obligatoire S Unloading main carriage Seller Seller Customs clearance for import Seller Seller Post shipment carriage Seller Seller THE FOLLOWING TERMS SHOULD BE USED EXCLUSIVELY FOR DELIVERY BY SEA AND INLAND WATERWAYS. FAS Port of shipment when placed alongside the quay or the barge chartered by the buyer at the port of shipment indicated by the buyer. This term is appropriate for bulking. Loading / Unloading : the loading costs on carrier are to the buyer. Be careful with local uses in port not defined by Incoterms. Transfer of risks: on the quay. Customs clearance: goods are handed over to the buyer cleared for export. Costs and risks: this term is used for commodity trade. It does not take into account port customs which vary from port to port. Be very careful when using such term. Otherwise, please refer to opposite chart. FAS Port of shipment Free Alongside Ship / Franco le long du navire Costs Risks Loading main carriage Buyer Buyer Main carriage Mandatory B Buyer Insurance of main carriage Not Buyer mandatory B Transport post acheminement Buyer Buyer 5

6 FOB Port of shipment when the goods are onboard the ship nominated by the buyer, at the port of shipment. Loading / Unloading : the loading costs on carrier are to the seller Transfer of risks: The buyer has to bear the costs and risks of loss and damage up to the moment they are onboard the ship. clear the goods for export, not import. Costs and risks: local uses in port are not taken into account by Incoterm. Otherwise refer to opposite chart. FOB Port of shipment Free On Board / Franco Bord Costs Risks Customs clearance for export Seller Seller Main carriage Mandatory B Buyer Insurance of main carriage Not mandatory Buyer B CFR Port at when they are onboard the ship at the port of shipment, not at port of. Loading / Unloading : the loading costs on carrier are to the seller Transfer of risks: when the goods are placed onboard the ship, not at. As the Buyer and Seller negotiate the port of, do not forget to mention the port of shipment because risks pass at this point. clear the goods for export, not for import at. Costs and risks: seller has to bear the costs up to the port of. Otherwise, please refer to opposite chart. CFR Port at Cost And Freight / Coût et Fret Costs Risks Insurance of main carriage Not mandatory Buyer B 6

7 CIF Port at Delivery: the seller delivers when the goods are onboard the ship at the port of shipment, and not at port of. Be careful in checking that the port of can provide an adequate type of unloading equipment in presence of an unusual packaging. Otherwise, the goods may return unloaded at the costs of Buyer. Transfer of risks: when the goods are onboard the ship at the port of shipment. Buyer and Seller negotiate the port of, do not forget to mention the port of shipment because risks pass at this point. Insurance: the seller must provide and pay for covering the buyer s risks of loss or damage to the goods during the main transport, but only for a minimum cover (Clause C Cargo clauses), unless the buyer wishes to have a better cover or take up an extra insurance cover according to other Cargo clauses. In practice, the insurance policy is covering 110% of the value of the goods, and may be agreed for loss of profits or additional hazards. Some risks require additional cover. clear the goods for export, not import. Costs and risks: the seller has to contract and pay for the costs and freight has to clear the goods for export, not import. Otherwise, please refer to opposite chart To conclude, in day to day operations, some variations to the Incoterms are often found as these rules are deemed to be adapted periodically as a result of trade operators practices. However operators should be very careful as to the use, validity and consequences of such changes. For illustration: - EX WORKS, loaded at the Buyer s risks : increases in the obligations of the Buyer; - EX WORKS loaded : increases the liability of the seller; CIF Port at Cost Insurance and Freight / Coût Assurance et Fret Costs Risks Customs clearance for export Seller Seller Insurance of main carriage Not Mandatory S Buyer Customs clereance for import Buyer Buyer - FOB stowed and trimmed : unclear as to each party s liability; - FOB stowed and trimmed but at the Buyer s risks after delivery : no increase in the seller s liability during transport - FOB, Lille airport is not valid, as a FOB incoterm is exclusively for maritime transports. - FCA, Dunkirk, THC for seller s account : terminal handling charges are clearly for the seller. Please note that an Incoterm is not a contract of transport, nor a contract of sale. An Incoterm may define whether the buyer or the seller, has to insure the goods during transport.with the exception of CIP or CIF, it is at the end of negotiations or following the terms of the contract of carriage, that each party will know who has to insure the goods. Regarding any default in conformity caused before shipment, the claim against the seller is made exclusively according to the contract of sale. As to any damages occurring during shipment, the parties will need to know whether the seller or the buyer, was responsible for the goods according to the agreed Incoterm. Furthermore, the claimant needs to have a judicial claim over the goods easy to use. This is not the case when a public order rule in a country at requires that the goods on the main carrier, should be insured in that country. In such case, litigation moves to the country of, one way which is not the easy way for an exporter. This short article is a summarized presentation of the Incoterms. Should you need the full definitions of Incoterms or the relevant guide about Incoterms, please refer to the website of ICC at: Marie-Luce Dixon, Enterprise Europe Network, Nord de France ml.dixon@cci-international.net 7