Incoterms: A Case Study · 2010 Incoterms® • Key point!! –It is important to understand the...
Transcript of Incoterms: A Case Study · 2010 Incoterms® • Key point!! –It is important to understand the...
Incoterms: A Case
Study
Presented by Tom Gould and
Kelly Raia
Tom Gould Licensed Customs Broker
Certified Customs Specialist
Customs and International Trade Consultant
Sandler, Travis & Rosenberg, P.A.
Phone: 213-453-0897
Email: [email protected]
About Tom Gould
• Member
– CBP Trade Support Network – Leadership Council
– American Association of Exporters and Importers
– LA Customs Broker Association
– Foreign Trade Association
– International Compliance Professionals Association
• Leading expert in the design and management of
simple, easy to use and compliant import compliance
programs, with a special emphasis on apparel and
special claim programs. 3
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Incoterms® 2010
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Incoterms®: What are they? • Incoterms® 2010
– International Commercial Terminology.
– Effective January 1, 2011.
• Developed by the International Chamber of Commerce (ICC) in 1936. Subsequent additions and revisions in 1953, 1967, 1976, 1980, 1990, and 2000.
• Purpose was to provide international “rules” for the interpretation of commonly used trade terms.
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Incoterms® • The Incoterms® are not law!
– However, they are recognized by international judicial bodies under contract law as a “meeting of the minds.”
• They do not determine transfer of title (ownership)!! – Common misconception! The transfer of title may take place anywhere
along the chain and should be specifically identified in the contract.
• They do not determine when revenue may be recognized! – GAAP, SEC, and other regulations determine that.
• The Incoterms® do not apply to the contract of carriage, but to the delivery of goods under a sales contract.
• They are not payment terms – “net 30 days”, “upon receipt”
• They do not enumerate all of the duties and responsibilities.
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2010 Incoterms® • Key point!!
– It is important to understand the term "delivery" - this term has not changed, but was NOT previously defined.
• Definition of Delivery – Delivery – “where the risk of loss or damage to the goods transfers
from Seller to Buyer.”
– Example: “CIF Rotterdam, Incoterms 2010 “– Delivery occurs when the Seller turns the goods over to the international carrier at the port of export! However the Seller is still responsible for paying the freight to Rotterdam and obtaining insurance in the name of the Buyer.
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So do not confuse " delivery" with
responsibility for payment of freight
costs.
Incoterms® 2010
• Definition of “Packaging” for Incoterms® – The packaging of goods to comply with any
requirements of the contract.
– The packaging of goods so that they are fit for transportation
– NOT the stowage of the packed goods within a container or other means of transport!
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Incoterms® 2010
• Insurance – CIF, CIP – Note – when an Incoterm® includes insurance, it
requires the Seller to purchase insurance in the Buyer’s name.
– Type of insurance is Minimum Coverage – • FPA – “Free of Particular Average”
• Institute Cargo Clause C
– All risk – is maximum coverage (Clause A) but does not include unseaworthiness, war, strike, riot & civil commotion.
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Uniform Commercial Code • In the United States, domestic sales agreements follow the Uniform
Commercial Code Section 2A - Sales. A model UCC Code is created and states adopt it.
• In 2004, the model UCC dropped references to FOB and CIF; however, no States adopted this version (or at least those provisions), so in 2011, the UCC put them back in the 2011 Model Code.
• Under the UCC version you could have FOB Destination, which is not allowed in Incoterms®
• So which should you use? Is it a domestic or international sale? – Be clear in your agreements whether you are using Incoterms or UCC Sales term
– Domestic sale – either is okay
– International Sale - do not use UCC terminology.
– Eliminate confusion.
– The judge will be trying to determine intent of the parties.
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Structure of an Incoterm®
• The terms alone are insufficient – a location must always be named and the version of the Incoterms® should be included.
• Examples:
– ExW Harrisburg, PA, Incoterms® 2010
– FCA Kennedy Intl Airport, Incoterms® 2010
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The Obligations
A – Sellers Obligation B – Buyers Obligations
A1-General obligations of the seller B1-General obligations of the buyer
A2-Licenses, authorizations, security clearances and other formalities
B2-Licenses, authorizations , security clearances and other and formalities
A3-Contracts of carriage and insurance
B3-Contracts of carriage and insurance
A4-Delivery B4-Taking Delivery
A5-Transfer of risks B5-Transfer of risks
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The Obligations
A – Sellers Obligation B – Buyers Obligations
A6-Allocation of costs B6-Allocation of costs
A7-Notice to the buyer B7-Notice to the seller
A8-Delivery document B8-Proof of delivery
A9-Checking-packaging-marking B9-Inspection of goods
A10-Assistance with information and related costs
B10-Assistance with information and related costs
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2010 Incoterms®
• 11 terms now instead of 13
• Terms Eliminated: – DAF - Delivered at Frontier
– DES - Delivered Ex-Ship
– DEQ - Delivered Ex-Quay
– DDU - Delivered Duty Unpaid
• Addition of two new terms: – DAT - Delivered at Terminal
– DAP - Delivered at Place
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EXW
FCA CPT
CIP DAT DAP DDP
FAS FOB CFR CIF
DAF DES DEQ DDU
Omnimodal Rules
• Rules For Any Form Of Transportation
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E Term • Ex-works (Ex-Factory, Ex-Plant) – Seller’s obligations are the least.
– Seller’s obligation is to place the goods packed for export at the buyer’s disposal at an agreed place.
– Risk of loss is transferred when Seller makes goods available.
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Seller Buyer
• Packing & labeling
• Make goods available to buyer
• Loading
• Transport domestically
• Receiving/terminal port charges
• Freight forwarding fees
• Export clearance (licensing, if
needed)
• International shipping
• Customs clearance with duties
and taxes
• Arrival/foreign port charges
Pros & Cons of Ex-Works to Seller
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Pros Cons
• Seller only needs to have goods packed,
labeled & ready for export. Buyer has all
responsibilities
• No other costs to Seller
• Risk of loss is transferred to Buyer at
Seller’s warehouse door.
• No export control obligations other than
providing details regarding the goods, such
as the quantity, price, description and
export control information, such as
Schedule B/HTS # and ECCN to Buyer’s
chosen freight forwarder and getting written
confirmation.
• No control over the actual export of the goods.
Goods could be diverted to a prohibited destination
or never exported, just resold in the United States
so Seller would be competing with itself in the gray
market business.
• Seller is still the US Principal Party in Interest.
• Seller has obligation to send export information.
• Buyer could substitute different commercial
invoices.
• If an issue arises overseas as to the value, the
foreign government could begin investigating Seller
for invoicing irregularities. Seller should request for
confirmation of submission.
• There is an opportunity for Seller to make money
off the other services, such as the inland freight or
ocean freight. The price offered at an FCA or DAT
rate could be Seller’s rate, plus 5% or 10%.
F Terms • FCA – Free Carrier – Seller delivers the goods packed and cleared for export,
to the named carrier of the buyer and the named place. If the location is the seller’s premises (i.e., truck), then seller is responsible for loading.
– Risk of loss transfers when seller delivers the goods to the named place cleared for export.
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Seller Buyer
• Packing & labeling
• Loading on domestic carrier
• Domestic inland freight
(air/ocean)
• Receiving port/terminal charges
• Freight forwarding charges
• Export clearance (licensing, if
needed)
• Domestic inland freight
(truck/rail)
• Loading on international carrier
• International transportation
• Arrival/foreign port charges
• Customs clearance with duties &
taxes
• Foreign inland delivery
C Terms • CPT – Carriage Paid To – Seller pays the freight charges to the named place of
destination.
– The buyer is responsible for all charges after delivery at that destination.
– Risk of loss transfers when goods are delivered to the carrier, not when the goods reach the place of destination.
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Seller Buyer
• Packing & labeling
• Loading on domestic carrier
• Domestic inland freight
• Receiving port/terminal Charges
• Freight forwarding charges
• Export clearance (licensing, if
needed)
• Loading on international carrier
• International transportation
• Arrival/foreign port charges
• Customs clearance with duties &
taxes
• Inland delivery
C Terms • CIP – Carriage & Insurance Paid To – Seller pays for the freight charges to the named destination.
– The buyer is responsible for all charges after delivery at that destination.
– Risk of loss transfers when goods are delivered to the carrier
21 * Seller obtains insurance in the name of the buyer! Only required to obtain minimum
coverage.
Seller Buyer
• Packing & labeling
• Loading on domestic carrier
• Domestic inland freight
• Receiving port/terminal Charges
• Freight forwarding charges
• Export clearance (licensing, if
needed)
• Loading on international carrier
• Ocean transportation
• Arrival/foreign port charges
• Insurance*
• Customs clearance with duties &
taxes
• Foreign inland delivery
D Terms • DAT - Delivered at Terminal (heir to DAF, DES, DEQ)
– Omni-modal term, for all methods of transport. • Must be “a” terminal on buyer's side – air, truck, rail, etc.
– Risk of loss transfers when seller delivers unloaded at terminal
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Seller Buyer
• Packing & labeling
• Loading on domestic carrier
• Domestic inland freight
• Receiving port/terminal Charges
• Freight forwarding charges
• Export clearance (licensing, if
needed)
• Loading on international carrier
• Ocean transportation
• Arrival/foreign port charges
• Unloading
• Customs clearance with duties &
taxes
• Foreign inland delivery
D Terms • DAP – Delivered at Place (heir to DDU, DAF,
DES, DEQ) – Risk of loss transfers when Seller delivers to
named place of destination.
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Seller Buyer
• Packing & labeling
• Loading on domestic carrier
• Domestic inland freight
• Receiving port/terminal Charges
• Freight forwarding charges
• Export clearance (licensing, if
needed)
• Loading on international carrier
• Ocean transportation
• Arrival/foreign port charges
• Delivery to named place
• Customs clearance with duties &
taxes
• Unloading from delivering carrier
D Terms • DDP – Delivered Duty Paid – Seller has the maximum obligation.
– Seller delivers goods to the buyers door cleared by Customs but not unloaded.
– Do not use if seller is unable to obtain an import license in the country of destination.
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Seller Buyer
• Packing & labeling • Loading on domestic carrier • Domestic inland freight • Receiving port/terminal charges • Freight forwarding charges • Export clearance (licensing, if
needed) • Loading on international carrier • Ocean transportation • Arrival/foreign port charge • Unloading at arrival port • Foreign inland delivery • Customs clearance with duties &
taxes
• Unloading from arrival carrier
Pros & Cons of DDP to Buyer
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Pros of DDP Transactions Cons of DDP Transactions
• For Buyer - the sales price for the
merchandise includes all costs, including
transportation and customs duty.
• There is no effect on the buyer’s inventory
until the goods are received at its
Distribution Center (if accounting rules
concur)
• DDP simplifies supply chain management.
• Buyer/consignee is not directly responsible
for customs clearance and import trade
compliance; however, most countries do not
allow the foreign party to be the importer of
record. So it can mean that the Seller
charged by the foreign broker or will
reimburse the Seller for the clearance
charges
• Lack of visibility while shipment is in transit.
• Loss of ability to control social corporate
responsibility by producer, which could
result in negative publicity for the buyer.
• C-TPAT and Importer Security Filing
concerns regarding incomplete security in
supply chain.
• Possible delays in release of merchandise if
IOR is not eligible for expedited release or
has had issues in past.
• If merchandise bears buyer’s labels, the
buyer will still be associated with any
negative import issues.
• Buyer has less control over product integrity
(i.e., compliance with Lacey Act, CPSIA,
etc.).
Marine ONLY Terms
• Rules for Sea and Inland Waterways Only
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2010 Incoterms®
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Now
“On Board”
Seller is responsible
for goods until they
are on board vessel.
** Under CFR & CIF, Seller pays for international transportation, but Seller
"delivers" when on board on vessel. Risk of loss passes to Buyer at that
point. (Same as Incoterms 2000)**
Eliminated
“Ship’s Rail” – FOB, CFR,
and CIF
(Marine only terms).
F Terms • FAS – Free Alongside Ship
– Seller delivers the goods packed and cleared for export alongside the vessel at the named port of export.
– Risk transfers at same point.
– Cleared for export was changed in 1990 version
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Seller Buyer
• Packing & labeling
• Loading on domestic carrier
• Domestic inland freight
• Receiving/terminal port charges
• Freight forwarding charges
• Export clearance (licensing, if
needed)
• Loading on international carrier
• Ocean transportation
• Arrival/foreign port charges
• Customs clearance with duties &
taxes
• Foreign inland delivery
F Terms
• FOB – Free On Board Vessel
– Seller delivers when the goods are on board.
– Risk of loss is transferred at the same place.
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Seller Buyer
• Packing & labeling
• Loading on domestic carrier
• Domestic Inland Freight
• Receiving Port/Terminal
Charges
• Freight Forwarding Charges
• Export Clearance (Licensing, if
needed)
• Loading on international
carrier
• Ocean transportation
• Arrival/foreign port charges
• Customs Clearance with
Duties & Taxes
• Foreign inland delivery
FOB Destination – does not exist in Incoterms®
C Terms • CFR – Cost & Freight
– Seller pays for freight and costs to port of destination.
– Risk of loss transfers when goods are on board in port of export.
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Seller Buyer
• Packing
• Loading on domestic carrier
• Domestic inland freight
• Receiving port/terminal Charges
• Freight forwarding charges
• Export clearance (licensing, if
needed)
• Loading on international carrier
• Ocean transportation
• Arrival/foreign port charges
• Customs clearance with duties &
taxes
• Foreign inland delivery
C Terms • CIF – Cost, Insurance & Freight – Seller pays for the international transportation
charges to port of destination.
– Risk of loss transfers when goods are on board at the port of export.
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Seller Buyer
• Packing & labeling
• Loading on domestic carrier
• Domestic inland freight
• Receiving port/terminal charges
• Freight forwarding charges
• Export clearance (licensing, if
needed)
• Loading on international carrier
• Ocean transportation
• Insurance*
• Arrival/foreign port charges
• Customs clearance with duties &
taxes
• Foreign inland delivery
*NOTE: Seller obtains insurance in the name of the buyer!
Only required to obtain minimum coverage.
Diagram of Incoterms®
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Modifications of Incoterms® • Can you modify an Incoterm®?
• Yes, but……….. – Both parties must agree to the term and understand what it
means.
– “FCA factory Incoterms® 2010, inland freight prepaid.”
– This means that: • the Buyer takes risk of loss at the factory,
• Seller will handle the export obligations,
• Seller is also going to arrange for and pay for the inland freight.
– Document the responsibilities in writing on the Purchase Order, Confirmation, contract, etc.
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2010 Incoterms®
• Cargo Security – In 2009 and 2010, the ICC recognized the need
to include cargo security measures, but there are different obligations in different countries.
– Therefore, it has stated the obligation is on both parties.
– Basically, the party requesting the services for its import purposes should pay any charges required.
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Costs By Incoterm®
• Simple cost calculation
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Cost of goods $10,00
0
Ex-works $10,02
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Packed for export ($25)
FCA (port of
export)
$10,57
5
Inland transport ($500) & export
clearance ($50)
DAT (port of
import)
$11,57
5
International transport ($1000)
DAP (destination) $11,72
5
Inland delivery ($150)
DDP
(destination)
$11,82
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Import clearance ($100)
Incoterm® 2010 Books
• The official Incoterms® 2010 books are
available through the U.S. Council for
International Business at
• http://www.uscib.org/icc-guide-to-incoterms-2010-ud-4482/
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Questions? Contact Tom Gould:
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Tom Gould Licensed Customs Broker
Certified Customs Specialist
Customs and International Trade Consultant
Sandler, Travis & Rosenberg, P.A.
Phone: 213-453-0897
Email: [email protected]
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