International Contracts of Sale INCOTERMS Shipping Business : Chapter 7 Rea Metropoulou Attorney at Law (LL.M. Cantab) Bartsiokas Metropoulou & Associates Lawyers www.bartsmetro.gr Legal &Claims Manager Hellenic Carriers Corporation S.A. www.hellenic-carriers.com
.history is important! ICC: International Chamber of Commerce is the largest, most representative business organization in the world. Hundreds of thousands of members in more than 180 countries. ICC has three main activities: rule setting, dispute resolution, and policy advocacy. ICC was founded in 1919 to serve world business by promoting trade and investment, open markets for goods and services, and the free flow of capital. The organization's international secretariat was established in Paris and the ICC's International Court of Arbitration was created in 1923. The Incoterms rules are a series of pre-defined commercial terms published by ICC that are widely used in International commercial transactions. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods. The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide. First published in 1936, the Incoterms rules have been periodically updated, with the eighth version Incoterms 2010 - having been published on January 1, 2011. "Incoterms" is a registered trademark of the ICC.
an answer to a commercial need Each Incoterms rule specifies: the obligations of each party (e.g. who is responsible for services such as transport; import and export clearance etc) the point in the journey where risk transfers from the seller to the buyer So by agreeing on an Incoterms rule and incorporating it into the sales contract, the buyer and seller can achieve a precise understanding of what each party is obliged to do and where responsibility lies in event of loss, damage or other mishap.
the logic behind the 11 rules The eleven rules are divided into two main groups: Rules for any transport mode Ex Works EXW Free Carrier FCA Carriage Paid To CPT Carriage & Insurance Paid to CIP Delivered At Terminal DAT Delivered At Place DAP Delivered Duty Paid DDP Rules for sea & inland waterway only Free Alongside Ship FAS Free On Board FOB Cost and Freight CFR Cost Insurance and Freight CIF In general the transport by sea or inland waterway only rules should only be used for bulk cargos (e.g. oil, coal etc) and non-containerised goods, where the exporter can load the goods directly onto the vessel. Where the goods are containerised, the any transport mode rules are more appropriate.
. And another logical way to divide Buyer responsible for all carriage EXW Buyer arranges main carriage FAS; FOB; FCA Seller arranges main carriage, risk passes after main carriage DAT; DAP; DDP Seller arranges main carriage, but risk passes before main carriage CFR; CIF; CPT; CIP This last group of rules should be particularly taken care of. Although the seller pays for transport to the named place, the risk transfers at an earlier point in the journey.
The E Rule: EXW Ex Works (EXW) + named place of delivery Can be used for any transport mode, or where there is more than one transport mode Places minimum responsibility on the seller, who merely has to make the goods available, suitably packaged, at the specified place, usually the seller s factory or depot. The buyer is responsible for loading the goods onto a vehicle (even though the seller may be better placed to do this); for all export procedures; for onward transport and for all costs arising after collection of the goods. In many cross-border transactions, this rule can present practical difficulties. The exporter may still need to be involved in export reporting and clearance processes, and cannot realistically leave these to the buyer. Consider Free Carrier (seller s premises) instead. Other things to watch for: Although the seller is not obliged to load the goods, if the seller does so, this is at the buyer s risk!
The F- Rules: FCA, FAS, FOB F means Free of Customs Free Carrier (FCA) + named place of delivery Can be used for any transport mode, or where there is more than one transport mode. A very flexible rule that is suitable for all situations where the buyer arranges the main carriage In all cases, the seller is responsible for export clearance; the buyer assumes all risks and costs after the goods have been delivered at the named place. FCA is the rule of choice for containerised goods where the buyer arranges for the main carriage.
Free Alongside Ship (FAS) + named port of shipment Use of this rule is restricted to goods transported by sea or inland waterway. In practice it should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk cargos or non-containerised goods. For containerised goods, consider Free Carrier FCA instead. Seller delivers goods, cleared for export, alongside the vessel at a named port, at which point risk transfers to the buyer. The buyer is responsible for loading the goods and all costs thereafter.
Free On Board (FOB) + named port of shipment Use of this rule is restricted to goods transported by sea or inland waterway. In practice it should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk cargos or non-containerised goods. For containerised goods, consider Free Carrier FCA instead. Seller delivers goods, cleared for export, loaded on board the vessel at the named port. Once the goods have been loaded on board, risk transfers to the buyer, who bears all costs thereafter.
The D Rules: DAT, DAP, DDP D means Delivered Delivered at Terminal (DAT) + named terminal at port or place of destination Can be used for any transport mode, or where there is more than one transport mode. The seller is responsible for arranging carriage and for delivering the goods, unloaded from the arriving conveyance, at the named place. Risk transfers from seller to buyer when the goods have been unloaded. Terminal can be any place a quay, container yard, warehouse or transport hub. The buyer is responsible for import clearance and any applicable local taxes or import duties. Things to watch for: The place for delivery should be specified as precisely as possible, as many ports and transport hubs are very large. A useful rule, well suited to container operations where the seller bears responsibility for the main carriage.
Delivered at Place (DAP) + named place of destination Can be used for any transport mode, or where there is more than one transport mode. The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving conveyance, at the named place. (An important difference from Delivered At Terminal DAT, where the seller is responsible for unloading.) Risk transfers from seller to buyer when the goods are available for unloading; so unloading is at the buyer s risk. The buyer is responsible for import clearance and any applicable local taxes or import duties. This rule can often be used to replace the Incoterms 2000 rules Delivered At Frontier (DAF), Delivered Ex Ship (DES) and Delivered Duty Unpaid (DDU)
Delivered Duty Paid (DDP) + named place of destination Can be used for any transport mode, or where there is more than one transport mode. The seller is responsible for arranging carriage and delivering the goods at the named place, cleared for import and all applicable taxes and duties paid (e.g. VAT, GST) Risk transfers from seller to buyer when the goods are made available to the buyer, ready for unloading from the arriving conveyance This rule places the maximum obligation on the seller, and is the only rule that requires the seller to take responsibility for import clearance and payment of taxes and/or import duty. These last requirements can be highly problematical for the seller. In some countries, import clearance procedures are complex and bureaucratic, and so best left to the buyer who has local knowledge.
The general C Rules C means Carriage Carriage Paid To (CPT) + named place of destination Can be used for any transport mode, or where there is more than one transport mode. The seller is responsible for arranging carriage to the named place, but not for insuring the goods to the named place. However delivery of the goods takes place, and risk transfers from seller to buyer, at the point where the goods are taken in charge by a carrier. Things to watch for: Terminal Handling Charges (THC) are charges made by the terminal operator. These charges may or may not be included by the carrier in their freight rates the buyer should enquire whether the CPT price includes THC, so as to avoid surprises. The buyer may wish to arrange insurance cover for the main carriage, starting from the point where the goods are taken in charge by the carrier NB this will not be the place referred to in the Incoterms rule, but will be specified elsewhere within the commercial agreement.
Carriage and Insurance Paid To (CIP) + named place of destination Can be used for any transport mode, or where there is more than one transport mode. The seller is responsible for arranging carriage to the named place, and also for insuring the goods. As with CPT, delivery of the goods takes place, and risk transfers from seller to buyer, at the point where the goods are taken in charge by a carrier. Things to watch for: Terminal Handling Charges (THC) are charges made by the terminal operator. These charges may or may not be included by the carrier in their freight rates the buyer should enquire whether the CIP price includes THC, so as to avoid surprises. Although the seller is obliged to arrange for insurance for the journey, the rule only requires a minimum level of cover, which may be commercially unrealistic. Therefore the level of cover may need to be addressed elsewhere in the commercial agreement
The water C Rules C means Cost Cost and Freight (CFR) + named port of destination Use of this rule is restricted to goods transported by sea or inland waterway. In practice it should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk cargos or noncontainerised goods. For containerised goods, consider Carriage Paid To CPT instead. Seller arranges and pays for transport to named port. Seller delivers goods, cleared for export, loaded on board the vessel. However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the main carriage takes place. NB seller is not responsible for insuring the goods for the main carriage.
Cost Insurance and Freight (CIF) + named port of destination Use of this rule is restricted to goods transported by sea or inland waterway. In practice it should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk cargos or non-containerised goods. For containerised goods, consider Carriage and Insurance Paid CIP instead. Seller arranges and pays for transport to named port. Seller delivers goods, cleared for export, loaded on board the vessel. Risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the main carriage takes place. Seller also arranges and pays for insurance for the goods for carriage to the named port. However as with Carriage and Insurance Paid To, the rule only require a minimum level of cover, which may be commercially unrealistic. Therefore the level of cover may need to be addressed elsewhere in the commercial agreement.
Incoterm 2010 Export customs declaration Carriage to port of export Unloading of truck in port of export Loading on vessel in port of export Carriage (Sea/Air) to port of import Insurance Unloading in port of import Loading on truck in port of import Carriage to place of destination Import customs clearance Import taxes EXW Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer FCA Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer FAS Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer FOB Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer CPT Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer CFR Seller Seller Seller Seller Seller (CNF) Buyer Buyer Buyer Buyer Buyer Buyer CIF Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer CIP Seller Seller Seller Seller Seller Seller Buyer/ Seller Buyer/ Seller Buyer Buyer Buyer DAT Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer DAP Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer DDP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller /Not including Seller VAT/ FAT
Practicalities For containerised goods use all transport modes rules. Remember: Passing of title on goods is not regulated by Incoterms. Letters of credit work better with C rules. Specify port/place. Always think of export/import implications and the risks of carriage by first carrier. In CIP and CIF rules, insurance should be appropriate for the cargo and assignable to the buyer.
Define and explain all the following Incoterms and comment upon their application in international trade a. DAT b. DAP c. CIF d. DDP e. FAS
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