Incoterms 2000 ICC Official rules for the interpretation of trade terms
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Transcript of International Logistics: The Management of International Trade Operations Ch. 6: Terms of Trade or...
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Chapter Six:Chapter Six:Terms of Trade Terms of Trade
or Incotermsor Incoterms
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
International Commerce TermsInternational Commerce Terms
Understanding IncotermsUnderstanding Incoterms
Overview of all 13 IncotermsOverview of all 13 Incoterms
Electronic Data InterchangeElectronic Data Interchange
Common Errors in IncotermsCommon Errors in Incoterms
Incoterms as a Marketing ToolIncoterms as a Marketing Tool
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
International Commerce TermsInternational Commerce Terms
In 1936, the International Chamber of Commerce developed the International Commerce Terms (or Incoterms) that formalize these responsibilities. Incoterms were revised in 1953, 1967, 1980, and 1990.
The latest version of Incoterms is dated 2000. A new set is due to be implemented in 2011.
For each international sale, it is important to determine, who — the exporter or the importer — is responsible for:
• Domestic transportation in the exporting country• International transportation• Domestic transportation in the importing country• The risks involved in international transportation• Customs clearance in the importing country
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Understanding IncotermsUnderstanding Incoterms
Incoterms formally define the following aspects of an international sale:
• Which tasks will be performed by the exporter• Which tasks will be performed by the importer• Which activities will be paid by the exporter• Which activities will be paid by the importer• When the transfer of responsibilities takes place
There are 13 different Incoterms, all abbreviated with a 3-letter acronym, such as EXW, DEQ, FOB, and so on.
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Understanding IncotermsUnderstanding Incoterms
Choosing the correct Incoterm depends on which export strategy a company is following. The following factors are particularly important:
• The type of product being sold (weight, volume, perishability, value, sensitivity to temperature changes, and so on)
• The method of shipment• The ability and willingness of either of the exporter and
importer to perform the tasks involved• The amount of trust placed by either of the parties toward
the other
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Thirteen IncotermsThirteen Incoterms
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Thirteen IncotermsThirteen Incoterms
Every Incoterm has:
• A scope — The type of products for which it can be used• A modality — The mode of transport for which it can be used• A syntax — The way it has to be stated on invoices and
paperwork
Every Incoterm defines:
• The responsibilities of the exporter• The responsibilities of the importer• A specific transfer point at which the responsibilities for the
goods shifts from the exporter to the importer
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
EXW [City where goods are made available]
Syntax
Ex-Works (EXW)Ex-Works (EXW)
The exporter has to make the goods available to the importer at a point located in the exporting country, at a mutually-convenient time.
EXW can be used for any type of goods
Scope
ModalityEXW can be used for all modes of transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Ex-Works (EXW)Ex-Works (EXW)
• packages the goods for the international voyage• provides the importer with the documents necessary to clear
Customs
Exporter
Importer
• does everything else
Transfer Point
• when the exporter makes the goods available to the importer
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
FCA [City where goods are delivered to the carrier]
Syntax
Free Carrier (FCA)Free Carrier (FCA)
FCA was created for goods shipped through multi-modal transportation. The exporter/seller delivers the goods to a carrier specified by the importer.
FCA can be used for any type of goods
Scope
ModalityFCA can be used for all modes of transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Free Carrier (FCA)Free Carrier (FCA)
• packages the goods for the international voyage• provides the documents necessary to clear Customs• clears the goods for export
Exporter
Importer
• does everything else
Transfer Point
• when the exporter delivers the goods to the carrier
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
FAS [Port of Departure]
Syntax
Free Alongside Ship (FAS)Free Alongside Ship (FAS)
FAS was created for goods shipped by ocean transportation. The exporter/seller delivers the goods to a port of departure specified by the importer.
FAS can be used for any type of goods
Scope
ModalityFAS can only be used for ocean transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Free Alongside Ship (FAS)Free Alongside Ship (FAS)
• packages the goods for the international voyage• provides the documents necessary to clear Customs• clears the goods for export • delivers the goods to the port of departure
Exporter
Importer
• does everything else
Transfer Point
• when the exporter delivers the goods to the carrier
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
FOB [Port of Departure]
Syntax
Free on Board (FOB)Free on Board (FOB)
FOB was created for goods shipped by ocean transportation. The exporter/seller delivers the goods to the port of departure and pays to have them loaded on a ship specified by the importer.
FOB can be used for any type of goods
Scope
ModalityFOB can only be used for ocean transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Free on Board (FOB)Free on Board (FOB)
• packages the goods for the international voyage• provides the documents necessary to clear Customs• clears the goods for export • delivers the goods to the port of departure and pays to have
them loaded on board
Exporter
Importer
Transfer Point
• when the goods cross the ship’s rail
• does everything else
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
CFR [Port of Destination]
Syntax
Cost and Freight (CFR)Cost and Freight (CFR)
CFR is for goods shipped by ocean transportation. The exporter arranges the international transportation of the goods and pays to have them shipped to a port of destination specified by the importer.
CFR can be used for any type of goods
Scope
ModalityCFR can only be used for ocean transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Cost and Freight (CFR)Cost and Freight (CFR)
• packages the goods for the international voyage• provides the documents necessary to clear Customs• clears the goods for export • delivers the goods to the port of destination
Exporter
Importer
• does everything else
Transfer Point
• when the goods cross the ship’s rail in the port of departure
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
CIF [Port of Destination]
Syntax
Cost, Insurance, and Freight (CIF)Cost, Insurance, and Freight (CIF)
CIF applies to goods shipped by ocean transportation. The exporter arranges and pays for the international ocean transportation of the goods, as well as for international insurance.
CIF can be used for any type of goods
Scope
ModalityCIF can only be used for ocean transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Cost, Insurance, and Freight (CIF)Cost, Insurance, and Freight (CIF)
• packages the goods for the international voyage• provides the documents necessary to clear Customs• clears the goods for export • delivers the goods to the port of destination• pays for international insurance (always 110 percent of value)
Exporter
Importer
• does everything else
Transfer Point
• when the goods cross the ship’s rail in the port of departure
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
CPT [City of Destination]
Syntax
Carriage Paid To (CPT)Carriage Paid To (CPT)
CPT is similar to CFR, except that it applies to goods shipped by non-ocean means of transportation, or shipped on a multi-modal bill of lading that may include ocean transportation.
CPT can be used for any type of goods
Scope
ModalityCPT is used for non-ocean modes of transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Carriage Paid To (CPT)Carriage Paid To (CPT)
• packages the goods for the international voyage• provides the documents necessary to clear Customs• clears the goods for export • arranges and pays to transport the goods to the city of destination
Exporter
Importer
• does everything else
Transfer Point
• when the goods are delivered to the carrier in the city of departure
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
CIP [City of Destination]
Syntax
Carriage & Insurance Paid To (CIP)Carriage & Insurance Paid To (CIP)
CIP is similar to CIF, except that it applies to goods shipped by non-ocean means of transportation, or shipped on a multi-modal bill of lading that may include ocean transportation.
CIP can be used for any type of goods
Scope
ModalityCIP is used for non-ocean modes of transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Carriage & Insurance Paid To (CIP)Carriage & Insurance Paid To (CIP)
• packages the goods for the international voyage• provides the documents necessary to clear Customs• clears the goods for export • arranges and pays to transport the goods to the city of destination• pays for international insurance (always 110 percent of value)
Exporter
Importer
• does everything else
Transfer Point
• when the goods are delivered to the carrier in the city of departure
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
DES [Port of Destination]
Syntax
Delivered Ex-Ship (DES)Delivered Ex-Ship (DES)
DES applies to bulk goods shipped by ocean transportation. The goods are unloaded at the expense of the importer in the port of destination.
DES is generally used for bulk goods only
Scope
ModalityDES can only be used for ocean transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Delivered Ex-Ship (DES)Delivered Ex-Ship (DES)
• provides the documents necessary to clear Customs• clears the goods for export • arranges and pays to transport the goods to the port of destination
Exporter
Importer
• does everything else
Transfer Point
• when the goods are delivered to the port of destination
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
DEQ [Port of Destination]
Syntax
Delivered Ex-Quay (DEQ)Delivered Ex-Quay (DEQ)
DEQ applies to bulk goods shipped by ocean transportation. The goods are unloaded at the expense of the exporter in the port of destination.
DEQ is generally used for bulk goods only
Scope
ModalityDEQ can only be used for ocean transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Delivered Ex-Quay (DEQ)Delivered Ex-Quay (DEQ)
• provides the documents necessary to clear Customs• clears the goods for export • arranges and pays to transport the goods to the port of destination• pays for unloading the goods in the port of destination
Exporter
Importer
• does everything else
Transfer Point
• when the goods are delivered to the importer
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
DAF [City/Location of Border Crossing]
Syntax
Delivered at Frontier (DAF)Delivered at Frontier (DAF)
DAF applies to goods shipped by land transportation. The goods are delivered to the importer at the border between two countries.
DAF can be used for any type of goods
Scope
ModalityDAF can only be used for land-based transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Delivered at Frontier (DAF)Delivered at Frontier (DAF)
• provides the documents necessary to clear Customs• clears the goods for export • arranges and pays to transport the goods to the border city
Exporter
Importer
• does everything else
Transfer Point
• when the goods are delivered to the border city
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
DDU [City in the importing country]
Syntax
Delivered Duty Unpaid (DDU)Delivered Duty Unpaid (DDU)
Under DDU, the exporter agrees to deliver the goods to a location in the importing country. The only thing that the importer has to do is to clear Customs in the importing country.
DDU can be used for any type of goods
Scope
ModalityDDU can only be used for any mode of transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Delivered Duty Unpaid (DDU)Delivered Duty Unpaid (DDU)
• provides the documents necessary to clear Customs• clears the goods for export • arranges and pays to transport the goods to the city in the
importing country
Exporter
Importer
• clears Customs in the importing country
Transfer Point
• when the goods are delivered to the city in the importing country
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
DDP [City in the importing country]
Syntax
Delivered Duty Paid (DDP)Delivered Duty Paid (DDP)
Under DDP, the exporter agrees to deliver the goods to a location in the importing country, after having cleared Customs.
DDP can be used for any type of goods
Scope
ModalityDDP can only be used for any mode of transportation
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Delivered Duty Paid (DDP)Delivered Duty Paid (DDP)
• arranges for transportation and pays for transportation from the country of export to the city of delivery in the importing country
• clears Customs in the importing country
Exporter
Importer
• takes delivery of the goods in the importing country
Transfer Point
• when the goods are delivered to the city in the importing country
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
TASK EXW FCA FAS FOB CFR CIF CPT CIP DES DEQ DAF DDU DDP
Export Packing X X X X X X X X X X X X X
Inland Freight I X X X X X X X X X X X X
Export Clearance I I X X X X X X X X X X X
Arrange Carrier I I I I X X X X X X X X X
Load onto Carrier I I I X X X X X X X X X X
Pay Carrier I I I I X X X X X X X X X
Unload Carrier I I I I I I I X I X X
Pay Insurance X X
Import Clearance I I I I I I I I I I I I X
Pay Duty I I I I I I I I I I I I X
Pay Inland Freight I I I I I I I I I I I X X
Incoterm SummaryIncoterm Summary
X = Exporter’s Responsibility I = Importer’s Responsibility
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Mode of Transport EXW FCA FAS FOB CFR CIF CPT CIP DES DEQ DAF DDU DDP
Ocean Cargo YES NO YES YES YES YES NO NO YES YES NO YES YES
Multi-Modal (FCL) YES YES NO NO NO NO YES YES NO NO YES YES YES
Multi-Modal (LCL) YES YES NO NO NO NO YES YES NO NO YES YES YES
Rail YES YES NO NO NO NO YES YES NO NO YES YES YES
Road YES YES NO NO NO NO YES YES NO NO YES YES YES
Air YES YES NO NO NO NO YES YES NO NO NO YES YES
Incoterm SummaryIncoterm Summary
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
BulkBreak-Bulk
RO-RO Container Small Packet
EXW Yes Yes Yes Yes Yes
FAS Yes Yes Yes Yes No
FCA No Yes Yes Yes Yes
FOB Yes Yes Yes Yes No
CIF Yes Yes Yes Yes No
CIP No Yes Yes Yes Yes
CFR Yes Yes Yes Yes No
CPT No Yes Yes Yes Yes
DES Yes No No No No
DEQ Yes No No No No
DDP Yes Yes Yes Yes Yes
DDU Yes Yes Yes Yes YesDAF Yes Yes Yes Yes No
Incoterm SummaryIncoterm Summary
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Electronic Data InterchangeElectronic Data Interchange
For a number of Incoterms, there is no transport document that is issued at the point where the responsibility shifts from the exporter to the importer (for example, a Bill of Lading).
Electronic Data Interchange has attempted to solve this problem.
Whenever there is no transport document possible, the exporter can still send an EDI “notice” to the importer, which acts as a proof of delivery for both parties. The exporter has a record of the notification sent, and the importer knows unambiguously when the goods were delivered to the quay or when they arrived in port.
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Common Errors in Incoterm UsageCommon Errors in Incoterm Usage
Domestic Terms as International Terms of Trade
An inexperienced exporter will use “FOB factory” rather than the correct corresponding Ex-Works (EXW) Incoterm.
Confusion with Older Incoterm Versions
The International Chamber of Commerce modified the Incoterms in 1980, 1990, and 2000. It eliminated some Incoterms, modified others and created some new ones. For a number of reasons, several exporters have failed to adapt to these changes, and will use an obsolete Incoterm.
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Common Errors in Incoterm UsageCommon Errors in Incoterm Usage
Improper Use of Correct Incoterms
Incoterms are sometimes specific to certain modes of transportation and types of cargo, and cannot be used for others.
The most frequent misuse is when FOB is used with an air shipment: FOB is designed to be used only with an ocean shipment term.
The correct Incoterm to use for an air shipment should be Free Carrier (FCA), to clearly outline the responsibilities of the exporter and of the importer.
International Logistics: The Management of International Trade Operations
Ch. 6: Terms of Trade or Incoterms© 2011 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved.
Incoterms as a Marketing ToolIncoterms as a Marketing Tool
A strategic advantage can be gained by an exporter willing to facilitate the sale of its products by assisting a novice importer in the handling of a shipment.
On the other hand, an experienced importer may be intent on performing all or most of the tasks involved in the shipment.
Most exporters would gain by being flexible, offering a quote where they list several possible Incoterms:
• EXW Cleveland, Ohio, USA $ 245,000• FOB Miami, Florida, USA $ 258,000 • CIF Santos, Brazil $ 285,000
and let the importer decide which Incoterm it would rather use.