INCOTERMS 2000
1
THE HORROR STORIES!
Incoterms? That’s that FOB thing, innit?
The export price list shows ‘FOB £5.00 per Unit’ and ‘CFR £5.00 per Unit’!
We use FOB Birmingham or CIF Cairo!
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INCOTERMS
the point at which risk passes;
the delivery point;
the division of costs;
the division of functions;
the division of responsibilities.
define
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INCOTERMS GROUP ‘E’
The goods are made available to the buyer at the seller’s premises.
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INCOTERMS GROUP ‘F’
The seller must deliver the goods to a
carrier appointed by the buyer.
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INCOTERMS GROUP ‘C’
The seller must contract for the carriage of the goods
without assuming risk of loss of or damage to the goods
or additional costs due to events occurring after shipment.
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INCOTERMS GROUP ‘D’
The seller must bear all costs and risks
required to bring the goods to the place of destination.
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EX WORKS - EXW
May be used for any mode of transport.
The seller must place the goods at the
disposal of the buyer at the seller’s
premises or another named place not
cleared for export and not loaded on any collecting vehicle.
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FREE CARRIER - FCA
May be used for any mode of transport.
The seller must deliver the goods, cleared for export, to the carrier nominated by the buyer at the place nominated by the buyer.
10
FREE ALONGSIDE SHIP - FAS
Maritime and inland waterway transport only.
The seller must place the goods, cleared for export, alongside the vessel at the named port of shipment.
11
FREE ON BOARD - FOB
Maritime and inland waterway transport only.
The seller delivers the goods, cleared for export, when they pass the ship’s rail at the named port of shipment.
12
COST AND FREIGHT - CFR
Maritime and inland waterway transport only.
The seller delivers when the goods pass the ship’s rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer.
The seller must clear the goods for export. If the parties do not intend to deliver the goods across the ship’s rail the CPT term should be used.
13
COST INSURANCE AND FREIGHT - CIF
Maritime and inland waterway transport only.
The obligations are the same as under CFR with the addition that the seller must procure insurance against the buyer’s risk of loss or damage to the goods during carriage. 14
CARRIAGE PAID TO - CPT
May be used for any mode of transport.
The seller delivers the goods to the nominated carrier and must also pay the cost of carriage necessary to bring the goods to the named destination. The buyer bears all additional costs and risks after the goods have been delivered to the nominated carrier.
15
CARRIAGE & INSURANCE PAID TO - CIP
May be used for any mode of transport.
The obligations are the same as under CPT with the addition that the seller must procure insurance against the buyer’s risk of loss of or damage to the goods during carriage.
16
DELIVERED AT FRONTIER - DAF
May be used for any mode of transport.
The seller must place the goods at the
disposal of the buyer on the arriving means of transport not unloaded, cleared for export but not cleared for import, at the named point and place at the frontier.
17
DELIVERED EX SHIP - DES
Maritime and inland waterway transport only.
The seller delivers when the goods are
placed at the disposal of the buyer on board the ship, not cleared for import, at the named port of destination.
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DELIVERED EX QUAY - DEQ
Maritime and inland waterway transport only.
The seller delivers when the goods are
placed at the disposal of the buyer on the quay, not cleared for import, at the named port of destination.
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DELIVERED DUTY UNPAID - DDU
May be used for any mode of transport.
The seller must deliver the goods to the buyer, not cleared for import, and not unloaded at the named place of destination.
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DELIVERED DUTY PAID - DDP
May be used for any mode of transport.
The seller must deliver the goods to the buyer, cleared for import, and not unloaded at the named place of destination. The seller pays the import duties.
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WHICH INCOTERMS TO USE?
The buyer’s stipulation.
The regulations of the country of
importation.
Standard practice for the country of
importation.
Exporter’s policy. 22
WHICH INCOTERM TO USE?
The mode of transport used Availability of information Customer service Economy
INCOTERMS 2000 – Major Changes
FAS / DEQ customs clearance obligations.
FCA loading and unloading obligations.
The expression ‘ No Obligation’.
Consistency of language
Customs clearance in free trade areas.
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INCOTERMS AND INSURANCE
Only affects CIF / CIP.
Seller procures insurance for the benefit of the buyer.
Minimum cover of Institute Cargo Clause.
Contract price plus 10%.
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INCOTERMS AND ELECTRONIC COMMERCE
Incoterms 2000 includes provision for
specified documents or ‘equivalent
electronic message’.
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PLEASE REMEMBER!
Documents must refer to Incoterms 2000 (or current version)
Always use the 3 letter code Always suffix with a named place
CIF Aqaba Port Incoterms 2000
FOB Immingham Docks Incoterms 2000
CPT Queen Alia Airport Incoterms 2000
The Incoterms Revision
Incoterms review underway Reduction from 13 to 10 terms Clarification of maritime / non-maritime terms Security regimes addressed Publication due 2010 Probably effective from Jan 2011
The Incoterrms Revision
Incoterms 2011 EXW v FCA The Maritime Terms The D Terms – in general The D Terms – and Letters of Credit
Incoterms 2000 – Responsibility Chart
SERVICES
EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP
Warehouse Storage
S S S S S S S S S S S S S
Warehouse Handling
S S S S S S S S S S S S S
Export Packing
S S S S S S S S S S S S S
Loading Charges
B S S S S S S S S S S S S
Inland Freight
B S* S S S S S S S S S S S
Terminal Charges
B B S S S S S S S S S S S
Forwarder’s Fees
B B B B S S S S S S S S S
Loading on vessel
B B B S S S S S S S S S S
Sea/Air Freight
B B B B S S S S S S S S S
Charges on arrival
B B B B B B S S S S S S S
Duty, Taxes & Customs clearance
B B B B B B B B B B B B S
Delivery to destination
B B B B B B B B B B B S S
S = SellerB = Buyer
• If terms are FCA Seller’s Premises, Seller is responsible only for loading goods and not for inland freight. 27
Customs Formalities
Customs Formalities
Legal Obligations: Declarations of cargoes Payment of duties / Taxes Compliance with import regulations including
controls and prohibitions
Impact upon time scales in the supply chain
Why is Customs Clearance needed? Revenue collection or waiver Anti-Smuggling Net Counterfeit goods / IPR protection Enforce import controls Assure integrity of declarations Inspection / quality assurance Identify over-pricing and under-pricing issues
Documentary Requirements - Imports Invoices showing CIF / CIP value Packing Lists Certificates of Origin Import Licence Certificates of Free Sale Test Certificates Import declaration Inspection Certificates / CRIs / IDFs
Typical Clearance Routes
Customs Entry Processing
Unit
No ChecksDocumentary
ChecksCargo Examination
Customs Valuations
Duties / Taxes are usually calculated on the basis of the CIF / CIP value of the goods.
Valuation is on the basis of the transactional value
If the transactional value cannot be determined Customs Authorities may base their calculations on the value of identical or similar goods.
Most countries use the Harmonised System (HS) of classification for their customs tariffs.
Types of Customs Duty
Import Duty Excise Duty Anti-Dumping Duties Countervailing Duties
Exercise!
CPT Value of the consignment US$10,000 Insurance premium estimated as US$100.00 Import Duty Rate is 3%
How much Import Duty would be payable?
Topical Issues
Single Window Environment WCO Safe Framework Trusted Trader environments – The Golden List Use of Scanners One Stop Border Posts Integrated Border Management Trade / Transit Corridors
Inefficiency of trade procedures - Kenya
BankImporter /Exporter Transporter
ClearingAgent
Ship Agent
Kenya AirportAuthority
KRA CustomsKenya Ports
Authority Other Control
Agencies
Expected Business Solution
PCBS
Revenue Authority( Tradex)
Port & Airport Authority
Railways
CFS & ICD OGA
Importer /Exporter
E- Permit
ShipAgents
Freight Forwarders
The World Customs Organisation’s (WCO) SAFE Framework of Standards (FoS)
A set of recommended international supply-chain security standards and supporting principles adopted by the WCO in June 2005 to secure and facilitate international trade.
17 Standards arranged under the two Pillars of:
Pillar 1: Customs to Customs co-operation (11 standards)
Pillar 2: Customs to business partnerships (6 standards)
Aims of SAFE FoS:
To establish international supply-chain security and trade facilitation standards to promote certainty and predictability.
To enable integrated supply-chain management across all transport modes.
To enhance the role, functions and capabilities of Customs administrations.
To strengthen co-operation between Customs administrations to improve their capability to detect high risk consignments.
To strengthen Customs / Business co-operation.
To promote the seamless movement of goods through secure international trade supply-chains.
Lessons Learned
SAFE’s 4 Core Elements:-
Harmonization of cargo information, required electronically in advance for inbound, outbound and transit shipments.
The adoption of a Risk Management approach in addressing
security threats.
Mutual Customs co-operation in the inspection of outbound consignments considered high risk.
The conferral of benefits to businesses meeting minimum supply-chain security standards and demonstrating good practice (e.g. Authorised Economic Operator (AEO) and similar ‘trusted trader’ schemes).
Methods of Shipment
Seafreight – Liner shipping
1. Containerised
2. Break Bulk / Conventional Seafreight – Charter Road Rail Air – Sea / Air Multi Modal solutions
Cargo Insurance
Responsibilities in relation to Incoterms Types of cover – Open Cover / Specific Premium Elements – Marine / War Risks Institute Cargo Clauses A, B & C
Cargo Insurances
Claims Prompt action by the insured Complete and accurate documentation Do not sign clean receipt Advise insurers immediately Hold last carrier responsible
Documentation
Movement: Bills of lading Electronic Bills of Lading Airwaybills CMR Notes CIM Notes Forwarders Certificate of Receipt
Original Bill of Lading
Combined Transport Bill of Lading
Non-negotiable Copy of Bill of Lading
Another Example of a Bill of Lading
A Charter Party Bill of Lading
Documentation
Certificates of Origin Inspection Certificates Test Certificates / traceability Packing Lists Commercial Invoices (indicating CIF value for
customs) Insurance Certificates
customs security carrier security customs
CARGO
EXPORTERS BANK
IMPORTERS BANK
DOCUMENTS (DIRECT OR THROUGH BANK)
$ PAYMENT
SALES CONTRACT
PURCHASE ORDER
EXPORTERIMPORTER
Methods of Payment for Exports / Imports
Cash in Advance Confirmed Irrevocable Letter of Credit Unconfirmed Irrevocable Letter of Credit Avalised Bill of Exchange Bank collections Cash against Documents Open Account
Principle of Documentary Exchange
Selection of Payment Term and MethodSellers Criteria: Minimise credit risk Exporters need for funds Usual terms sales to country of importation What competitors are offering Effect of bank charges
Seller will Assess both Commercial and Country Risks
Letters of Credit
A guarantee of payment by the issuing bank to the seller, conditional upon presentation of documents, to a nominated bank, which strictly comply with all the terms and conditions of the letter of credit.
Letters of Credit
The parties involved: The Opener – Buyer or Importer Opening Bank – Issues the L/C Nominated Bank – Advises and may ‘confirm’ the
L/C The Beneficiary – Seller or Exporter
Letters of Credit
Types: Confirmed / Unconfirmed Irrevocable / revocable (UCP 600 Revision) Revolving Transferable Back to Back Standby Red Clause / Green Clause
Letters of Credit
The Rules: Uniform Customs and Practice for Documentary
Credits – ICC Publication No 600 eUCP International Standard Banking Practice
Why revise the rules?
Rejection rate under UCP 500 consistently high at 50-70% of presentations
Requirement to reflect changes in banking / international transportation and insurance since UCP 500 was published in 1993
ICC Task Force Recommendations
Review should be technical rather than line by line revision ICC opinions, decisions, DOCDEX and court cases should
be considered 7 articles of UCP 500 account for 58% of all Opinions, these
require scrutiny 17 articles have resulted in none, one or two opinions. Consider incorporation of URR 525, ISP98 and eUCP.
What are the key changes?
Leaner set of rules – reduced from 49 to 39 articles Easier to read therefore easier to translate Rules more robust due to removal of terminology ‘Unless
otherwise stipulated’ – openers must ‘Expressly modify’ New fundamental article on ‘definitions’
UCP 600 New Articles
2 - Definitions 3 - Interpretations 9 - Advising of credits and
amendments
12 - Nomination 15 - Complying
presentation 17 - Original documents
and copies
UCP 500 Articles not Included
5 - Instructions to issue / amend 6 (part) - Revocable 8 - Revocation 12 – Incomplete or Unclear instructions 38 – Other documents
Article 2 - Definitions
Applicant Banking Day Complying presentation Honour – Issuing bank must ‘honour’ Negotiation – Bank uses own funds Paying – Using issuing banks funds
Article 3 Interpretations
Words in the singular include the plural and vice-versa Credits are Irrevocable even if un-stated Branches of banks in different countries are considered
separate banks Words such as prompt, immediately, as soon as possible
will be disregarded The words from / after in relation to maturity date exclude
the date mentioned
Article 3 Interpretations
A document may be signed by
handwriting / facsimilie signature / perforated signature / stamp / symbol or mechanical / electronic method of authentication
A requirement for certification / legalisation is satisfied by any signature / mark / stamp / label
Article 3 Interpretations
First half of month – 1-15th Second half of month – 16th -last day Beginning – 1-10th Middle - 11-20th End – 20th – last day
Article 4 Credits v contracts
The credit is a separate transaction from the underlying sales contract
Copies of the contract or proforma invoice should not be included as an integral part of the letter of credit
Article 5 – Documents V Goods, Services and Performances
Banks deal with documents and not with goods, services or performances to which the documents may relate
Deletion of ‘all parties’ Banks only deal in documents
Article 6 Availabilty, Expiry Date and Date for Presentation
Combines 3 articles from UCO 500 Sets minimum requirements be be set in each
credit on these issues Cross reference to Articles 2 and 29 Credits are always available with the issuing
bank Prohibition of drafts drawn on applicant
Articles 9 & 10 Advising Credits & Amendments New article Bank must satisfy itself of authenticity of credit Clarifying partial acceptance is deemed rejection Time limits on amendments disregarded
Article 14 Standard for Examination of Documents
Fundamental to exporters – one of longest articles Incorporates some of ISBP Maximum period of time for bank to determine compliance
reduced to 5 banking days. Such period not subject to other event, for example expiry Removal of concept of reasonable time
Article 14 Standard for Examination of Documents
Default presentation period 21 calendar days connected to original transport document
Concept of not in conflict / read in context introduced to reduce misuse of inconsistency rule. Requires case by case interpretation
Requirement that a document must appear to fulfil its function
Article 14 Standard for Examination of Documents
Any date of issuance of a document on or prior to date of presentation is acceptable
Addresses of beneficiary and applicant may differ within their respective country / contact details transferred from ISBP (notify party exempted)
Issuer of transport document requirement allows NVOCC and freight forwarders documents
Article 15 Complying Presentation
New article Actions to be taken by the bank after
determining presentation is compliant. Honour or negotiation must follow Clarification that documents have to be
forwarded
Article 16 Discrepant documents
Structure of refusal notice Additional possibilities – holding documents until
receipt and acceptance of waiver Latest date for notice of refusal links with 14 (b)
Article 17 Original Documents and Copies Interpretation of requirement At least one original of each document must be presented Originals instead of copies acceptable Focus on definition of originals rather than copies Signing in original makes a document original 17 (b) Reflects ICC Decision on Original Documents
Article 18 Commercial Invoices
Invoice must be in same currency as the credit New emphasis that banks may accept invoices
showing a greater value than allowed by the credit provided they do not honour or negotiate for an amount in excess of the credit
Articles 19 Transport document covering at least two different modes of transport If a through document is used this article applies For example multi-modal bill of lading or sea /
airwaybill No requirement to show name of master Must indicate the name of the carrier Must be signed by the carrier or a named agent, or
the master or a named agent (on behalf of the carrier or master)
Must indicate that the goods have been despatched, taken in charge or shipped on board at the place stated in the letter of credit.
Article 20 Bill of LadingArticle 21 Non-negotiable waybill
No requirement to show name of master No reference to vessels propelled by sail Updated transhipment provisions Must indicate the name of the carrier Must be signed by the carrier or a named agent, or the master
or a named agent (on behalf of the carrier or master) Must indicate that the goods have been shipped on board a
named vessel at the place stated in the letter of credit. Shipped on Board relates to the port of loading shown in the
credit not a feeder port (pre-printed wording or dated notation)
Must contain conditions of carriage or linked to email address giving conditions – new UNCTRAD rule.
Article 22 Charter Party Bill of Lading Banks will not examine charter party contracts
even if they are presented as a requirement of the letter of credit
May be signed by the master, owner or charterer (or a named agent on their behalf)
Must indicate that the goods have been Shipped on Board
Article 23 Air Transport Document
Flight date in a notation is treated as the date of shipment whether it is called for in the credit or not – over-rides ISBP.
Updated transhipment provision Banks will ignore information in ‘For Carriers Use Only’ box Must indicate the name of the carrier Must be signed by the carrier or a named agent for and on
behalf of the carrier Must indicate that the goods have been accepted for
carriage
Article 24 Road, Rail or Inland Waterway Documents
New combined article A rail waybill titled ‘Duplicate Rail Waybill’ is
acceptable. Transhipment is acceptable even if prohibited by
the credit Must indicate the name of the carrier Must be signed by the carrier or a named agent
on behalf of the carrier Must indicate receipt of the goods by signature,
stamp or notation
Article 25 Courier Receipts……
Refers to goods for transportation under the letter of credit, no document transmittal
Article 26 On Deck……
If loading on deck is required the applicant must expressly modify the requirements of this article when opening the letter of credit otherwise loading on deck is not permitted
A clause stating that goods may be loaded on deck is acceptable
Article 27 – Clean Transport Document
Claused transport documents are not acceptable. For example, if steel is being shipped, the opener
must modify the clause by stating ‘Rust on the steel is acceptable’
The word ‘clean’ is not required to appear on the transport document.
Article 28 – Insurance Document and Coverage Amalgamated to one article Incorporates ISBP provision concerning minimum cover An insurance document may contain reference to any
exclusion clause. As a result of ‘millennium clauses’ and ‘acts of terrorism (after 9/11)’
Cover notes not allowed Insurance policy acceptable instead of a certificate
Article 33 Hours of Presentation
No change for UCP 500 However – Banks may manage this differently
to mitigate the reduction to five (from seven) banking days allowed to check documents
Article 36 Force Majeure
Addition of Acts of Terrorism as a specified Force Majeure event.
Transhipment provisions
In general, even if the Letter of Credit prohibits transhipment, transport documents indicating that goods may or will be transhipped are acceptable as long as the whole transit is covered by a single document.
How is it for the Exporter?
A liberalised regime Should see a reduction in the 70% discrepancy
rate Reduction in time allowed for banks to check
documents from 7 to 5 banking days Prescriptive rules for banks in handling
complying presentations
But will the customer be happy?
How is it for the Importer?
Documents presented need to be fit for purpose:
1. Customs
2. Regulatory / conformity
3. Title and delivery
4. Insurance Need to ‘expressly modify’ requirements
Letters of Credit
Opening a Letter of Credit: Timing and facilities Opener’s responsibilities Control of the transaction – linkage with sales
contract / purchase order Requirement for advance documents
Letters of Credit
Discrepant documents: Completeness Compliance Correctness Consistency
Should you accept or reject the documents?Remember: Consequences of delay in
documentation
Letters of Credit
Accept or Reject? Right goods at the right price Quality of goods Marketable Documents required for clearance Claused transport documents Profitability / viability of transaction