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SUPPLY CHAIN MANAGEMENT - LECTURE 9.pptx
- 1. LECTURE 9
- 3. INCO terms Abbreviation for International Commercial Terms They are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts for domestic and international trade. They are published by the International Chamber of Commerce (ICC) and are widely used in international commercial transactions. The first Incoterms were issued in 1936. The most recent version (8 Version ) of Incoterms, Incoterms 2010, were launched in September 2010 and became effective January 1, 2011. th
- 4. Incoterms provide a common set of rules to clarify responsibilities of sellers and buyers for the delivery of goods under sales contracts. They apportion transportation costs and responsibilities associated with the delivery of goods between buyers (importers) and sellers (exporters) and reflect modern-day transportation practices. Incoterms significantly reduce misunderstandings among traders and thereby minimize trade disputes and litigation. "INCOTERMS " is a registered trademark of the ICC. 速
- 5. Benefit of Incoterms The main benefit of Incoterms is to reduce risk Due to the fact that countries have different business cultures and languages, it s wise to have a clearly -written contract to reduce any misunderstandings. Thus, the main benefit of Incoterms is reduced risk in a transaction. By specifying the exporting sellers and importing buyer s obligations, there is no confusion with regards to rules of transportation from point A to point B. Incoterms do not cover, however, ownership or title transfer of the goods. These terms are agreed upon separately between the two transacting parties.
- 6. HISTORY
- 7. HISTORY
- 11. INCO terms 2010 The two main categories of Incoterms速 2010 are now organized by modes of transport. Group 1. Incoterms that apply to any mode of transport Group 2. Incoterms that apply to sea and inland waterway transport only (uncontainerized or bulk cargo only)
- 12. Group 1 INCO EXW Ex Works FCA Free Carrier CPT Carriage Paid To CIP Carriage and Insurance Paid To DAT Delivered at Terminal DAP Delivered at Place DDP Delivered Duty Paid
- 13. Group 2 INCO FAS Free Alongside Ship FOB Free on Board CFR Cost and Freight CIF Cost, Insurance, and Freight
- 14. EXW (Ex Works)
- 15. EXW (Ex Works) This term places the maximum obligation on the buyer and minimum obligations on the seller. EXW means that a buyer incurs the risks for bringing the goods to their final destination Seller, only has to make the goods available, suitably packaged, at the specified place, usually at the sellers factory or depot or another named place (factory , warehouse etc.). Seller has no obligation to load the goods or clear them for export.
- 16. EXW (Ex Works) Buyer bears all risk and costs starting when he picks up the products at the sellers location until the products are delivered to his location. 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. If the seller does load the goods, he does so at buyer's risk and cost. If the parties agree that the seller should be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.
- 17. EXW (Ex Works) In many cross-border transactions, this rule can present practical difficulties. Specifically, the exporter may still need to be involved in export reporting and clearance processes, and cannot realistically leave these to the buyer. The buyer is also responsible for completing all the export documentation, although the seller does have an obligation to obtain information and documents at the buyer's request and cost.
- 19. FCA(Free Carrier) The seller is responsible for delivery of the goods, cleared for export, at a named place (possibly including the seller's own premises). The goods can be delivered to a carrier nominated by the buyer, or to another party nominated by the buyer. Carrier/buyer is responsible for unloading after delivery and loading into own carrier. Buyer assumes all risks and costs associated with delivery of goods to final destination including transportation after delivery to carrier and any customs fees to import the product into a foreign country.
- 20. FCA(Free Carrier) 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. If delivery occurs at the seller's premises, or at any other location that is under the seller's control, the seller is responsible for loading the goods on to the buyer's carrier. this is an important difference from Ex Works EXW.
- 21. CPT (Carriage Paid To)
- 22. CPT (Carriage Paid To) Can be used for any transport mode, or where there is more than one transport mode. The seller is responsible for origin costs including export clearance and freight costs for carriage up to the named place of destination (either the final destination such as the buyer's facilities or a port of destination. This has to be agreed by seller and buyer, however). However, the goods are considered to be delivered when the goods have been handed over to the first or main carrier, so that the risk transfers to buyer upon handing goods over to that carrier at the place of shipment in the country of Export.
- 23. CPT (Carriage Paid To) 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. By default , seller is not responsible for procuring insurance. 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 If the buyer requires the seller to obtain insurance, the Incoterm CIP should be considered instead.
- 24. CIP Carriage and Insurance Paid to (named place of destination)
- 25. CIP Carriage and Insurance Paid to (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. Seller clears the goods for export and delivers them to the carrier or another person stipulated by the seller at a named place of shipment. Seller is responsible for the transportation costs associated with delivering goods and procuring minimum insurance coverage to the named place of destination.
- 26. DAT Delivered At Terminal (named terminal at port or place of destination)
- 27. DAT Delivered At Terminal (named terminal at port or place of destination) Terminal (named place)can be any place a quay, container yard, warehouse or transport hub. The seller covers all the costs of transport (export fees, carriage, unloading from main carrier at destination port and destination port charges) and assumes all risk until arrival at the destination port or terminal. 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.
- 28. DAT Delivered At Terminal (named terminal at port or place of destination) Risk transfers from seller to buyer when the goods have been unloaded. The buyer is responsible for import clearance and any applicable local taxes or import duties and all charges after unloading (for example, Import duty, taxes, customs and on-carriage) However, it is important to note that any delay or demurrage charges at the terminal will generally be for the seller's account.
- 29. DAP Delivered At Place (named place of destination)
- 30. DAP Delivered At Place (named place of destination) Once goods are ready for shipment, the necessary packing is carried out by the seller at his own cost, so that the goods reach their final destination safely. All necessary legal formalities in the exporting country are completed by the seller at his own cost and risk to clear the goods for export. The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. Under DAP terms, the risk passes from seller to buyer from the point of destination mentioned in the contract of delivery.
- 31. DAP Delivered At Place (named place of destination) 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.) After arrival of the goods in the country of destination, the customs clearance in the importing country needs to be completed by the buyer at his own cost and risk, including all customs duties , taxes and unloading. However, as with DAT terms any delay or demurrage charges are to be borne by the seller.
- 32. DDP Delivered Duty Paid (named place of destination)
- 33. DDP Delivered Duty Paid (named place of destination) This term means that the seller assumes all the risks and costs of transport (export fees, carriage, insurance, and destination port charges, delivery to the final destination) and pays all applicable taxes and import customs/duty The buyer has only to unload the goods at the final destination 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.
- 34. Group 2 Incoterms The four rules defined by Incoterms 2010 for international trade where transportation is entirely conducted by water are as per the below. It is important to note that these terms are generally not suitable for shipments in shipping containers; the point at which risk and responsibility for the goods passes is when the goods are loaded on board the ship, and if the goods are sealed into a shipping container it is impossible to verify the condition of the goods at this point. 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.
- 35. FAS Free Alongside Ship (named port of shipment)
- 36. FAS Free Alongside Ship (named port of shipment) The seller delivers when the goods (cleared for export)are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. Buyer assumes all risks/costs for goods from this point forward. The buyer is responsible for loading the goods and all costs thereafter. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. This term should be used only for non-containerised sea freight and inland waterway transport. Packaging: Sellers responsibility and cost Export Clearance & Security: Sellers responsibility and cost
- 37. FOB Free on Board (named port of shipment)
- 38. FOB Free on Board (named port of shipment) 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. Under FOB terms the seller bears all costs and risks up to the point the goods are loaded on board the vessel. The seller must also arrange for export clearance. The buyer pays cost of marine freight transportation, bill of lading fees, insurance, unloading and transportation cost from the arrival port to destination. FOB should only be used for non-containerised sea freight and inland waterway transport. However, FOB is still used for all modes of transport despite the contractual risks that this can introduce.
- 39. CFR Cost and Freight (named port of destination)
- 40. CFR Cost and Freight (named port of destination) 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. Seller is not responsible for insuring the goods for the main carriage. The seller pays for the carriage of the goods up to the named port of destination. If the buyer does require the seller to obtain insurance, the Incoterm CIF should be considered. CFR should only be used for non-containerized sea freight and inland waterway transport; for all other modes of transport it should be replaced with CPT.
- 41. CIF Cost, Insurance & Freight (named port of destination)
- 42. CIF Cost, Insurance & Freight (named port of destination) seller clears the goods for export and delivers them when they are on- board the vessel at the port of shipment. Seller bears the cost of freight and insurance to the named port of destination. Sellers insurance requirement is only for minimum cover. Buyer is responsible for all costs associated with unloading the goods at the named port of destination and clearing goods for import. Risk passes from seller to buyer once the goods are on-board the vessel at the port of shipment.
- 43. CIF Cost, Insurance & Freight (named port of destination) The insurance policy should be in the same currency as the contract. However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the main carriage takes place. However as with Carriage and Insurance Paid To, the rule only require a minimum level of cover, which may be commercially unrealistic (110%). Therefore the level of cover may need to be addressed elsewhere in the commercial agreement.
- 44. CIF Cost, Insurance & Freight (named port of destination) In particular, CIF is the most common because there will be a stronger grasp on shipments. In this scenario, the seller takes responsibility for all costs until the cargo is loaded at the origin port, but the cost passes to the buyer at the specified discharge port.
- 45. 2010 VS 2020
- 62. END
Editor's Notes
- #8: EXW Ex Works DAP Delivered at Place FCA Free Carrier DDP Delivered Duty Paid CPT Carriage Paid To CIP Carriage and Insurance Paid To DAT Delivered at Terminal . Delivered at Place Unloaded (DPU) (formerly referred to as油DAT for Delivered at Terminal) requires the seller to deliver the goods at the disposal of the buyer after theyve been unloaded from the arriving means of transport.
- #9: FAS Free Alongside Ship FOB Free on Board CFR Cost and Freight CIF Cost, Insurance, and Freight F.O.B. and F.O.R. (Free on Rail/Road) have similar meaning. F.O.R. is used in case of local sales i.e. goods are delivered at the buyer's premises and all the charges (freight, insurance etc.) are born by the seller. F.O.B. is a global term and is generally used in case of export sales.