INCOTERMS 2010 SEMINAR

MINUTES

By: Abdel-Aziz Hariri

(Starting 01/01/2011, Incoterms 2000 will no more be effective)

Seminar date: 17-12-2010

DEPARTURE SALES:
Break-bulk Cargo:

The contract made for shipment in Break-bulk usually and always uses the
following Incoterms:

-FOB: Free On Board

-CFR: Cost & Freight
-CIF: Cost, Freight & Insurance

FOB, CFR & CIF are strictly for Break-bulk cargo

In Incoterms 2010 the transfer of risk under FOB, CFR, and CIF has changes; it
is no more on the ships rail and actually on board the ship.

In Incoterms 2010, the point of transfer of risk becomes now more appropriate
since the seller has the responsibility under FOB, CFR, and CIF to deliver the
cargo on board the vessel and not on the ships rail. This matter will avoid
dispute and will allow the buyer to receive the full cargo in good condition.

There is another problem which has been solved by the change of the point of
responsibility; these are the port dues ( ) From now on the
Incoterms 2010 FOB, CFR & CIF consider the port dues or so called FIO

whether at loading or discharge are payable by the seller and included in the unit
price of the cargo.

After September 2001, all cargo should go through what is called Security and
Compliance.

FIO: Free In & Out (Usually for Break-bulk Cargo)

THC: Terminal Handling Charges (Usually for Containerized Cargo)

In the past, the buyer used to pay the FIO twice, once to the seller in the POL and
second to the ships agent in the POD. Therefore, the buyer should always ask for
a copy of the ships manifest showing in writing that all port duties are payable
by the seller as part of the required shipping documents in the documentary
credit.

From now on the carrier / ship agent at the POD can no more charge the receiver
/ buyer for the FIO once again because the buyer has already concluded the
Incoterms 2010.

From Now on the commercial contract must be built on basis of Incoterms 2010
and must be clearly stated. The same requirement of Incoterms 2010 must be
indicated in the credit terms.

The Incoterms FOB, CFR & CIF are labeled only for sea shipment excluding
containers.

FOB, CFR & CIF are intended for sea shipment exclusively for loose cargo or
the unit of packing or bulk.

When opening an L/C covering shipment under FOB, CFR & CIF by sea freight,
a problem will arise regarding the port dues or the fees relating to the freight. The
problem is in the UCP 600 article 26, C which states the following:
A transport document may bear a reference by stamp or otherwise, to charges
additional to the freight

This will create a conflict between Incoterms 2010 and the article 26, C.

In order to avoid this conflict, it is necessary that the L/C include the following
clause:
Transport documents or B/L bearing additional fees to freight charges is not
acceptable and article 26, C is not applicable for this L/C

The new presentation of the B/L under FOB, CFR & CIF shipments is clearly
covering a Port to Port Shipment.

On the B/L, As Carrier written on the bottom of the B/L means that the carrier
is either a contracting carrier or a charter carrier but not the owner carrier.

When a B/L is issued by The Carrier himself, then this carrier is an owner
carrier and not a contracting or charter carrier. Therefore, if any problem arise on
the cargo and such carrier is responsible the receiver can sieve the vessel of such
carrier or any vessel owned by the same carrier.

If the article 26, C is not excluded from the L/C terms and the B/L indicates FIO
in spite that the Incoterm used is 2010, the bank will not consider the B/L
discrepant since the bank is NOT involved in Incoterms rules.

Blank Back B/L is a B/L not showing the contract of carriage on its back

Short Form B/L is a B/L showing the contract of carriage in a short form by
reference of its general contract of transport outside the B/L.()

As for shipment by container as per Incoterms 2010, the container is NEVER

shipped on board the vessel like the conventional / Break-bulk cargo. As such,
we cannot use for the container shipment the same categories of Incoterms used
for conventional cargo / Break-bulk.

------------------------------------------------------------------

Seminar date: 20-12-2010

The new prices under Incoterms 2010 FOB, CFR & CIF have to take into
consideration the following factors:
1. The risk of loading sound cargo until the on board the vessel
2. The charges and fees of loading from the quay / dock to on board vessel
(POL) and from on board vessel to the quay (POD). These charges are
FIO which according to Incoterms 2010 are paid by the seller.
3. There is no possibility of obtaining a B/L on board vessel if the cargo is
not actually on board.
4. The seller must insure the cargo up to on board vessel and pay the
insurance premium.

Under Incoterms 2010 CIF, the seller arranges the insurance in two parts. The
first part up to on board vessel and the insurance premium is paid by the seller
himself; and the second part covers the insurance as from the on board vessel for
all trip including the charges as well as the storage in the warehouse of the
customs at destination.

The buyer has to be aware that he must insure the cargo as from the date the cargo
is released from customs warehouse until the buyers warehouse. Therefore, it is
good to know that Insurance Clause A from warehouse to warehouse means
from customs warehouse to buyers warehouse.

Once the cargo is in the bonded warehouse at the POD, the only risk that
insurance covers is theft, pilferage, non-delivery and fire.

Insurance doesnt cover war in the warehouse + strikes + natural disasters.

Containerized Cargo (FCL):

The contract made for shipment by container usually and always uses the
following Incoterms:

-FCA: Free Carrier In relevance to FOB

-CPT: Carrier Paid TO in relevance to CFR
-CIP: Carrier and Insurance Paid To In relevance to CIF

The main change between the conventional shipment (FOB, CFR & CIF) and the
container shipment (FCA, CPT & CIP) is:
1. The container is delivered to the carrier outside the ship
2. The container is loaded from either the sellers warehouse or the container
yard at the port of shipment or loading.

Whether loaded from sellers warehouse or container yard. All containers are
finally taken to the container terminal at the POL.

There is a difference between container yard and container terminal:

Container Yard:
Container Terminal:

The Seller who sells the cargo in full container load (FCL) delivers the cargo and
its responsibility shall stop when the cargo is stuffed, striped and sealed into the
FCL container in the seller warehouse or works or any point agreed with the
buyer

Containers are called :Multi Model Combined Transport

When the seller delivers the cargo into the container, he must receive a combined
transport document ( ) or what we know as B/L showing that
goods are taken in charge; this means that the goods could not be loaded on board
the vessel yet!

When the seller receives an L/C covering shipment by container, the following
documents must be used:
Full set of clean, multimodal transport document issued as per article 19 of UCP
600, showing goods dispatched or taken in charge or shipped on board,
consigned to - order of Bank Audi.

The commercial practice of shipping in containers does not oblige the seller to
take more responsibility over from the delivery of the cargo to the carrier.

In Incoterms 2010 FCA, the seller pays the fees and charges up to stuffing the
cargo into the container but insurance + land transport + sea transport + landing
charges at POD up to place of delivery are payable by the buyer.

The Terminal Handling Charges (THC) whether at the POL or the POD are
payable by the buyer to the carriers agent.

When a container is loaded FCL, it must be delivered FCL. Thats why you find
on most B/Ls written FCL/FCL.

When the seller delivers FCL, he is contracting the carriage + insurance for the
account and risk if the buyer.

The insurance under CIP for the account of the buyer starts from the date the
container us taken in charge by the carrier.

Once the cargo is stuffed into the container, the carrier delivers to the seller a
combined transport B/L showing place of receipt, POL, POD and place if
delivery. These you will find on the B/L.

The date of the combined transport B/L represents the date of the delivery of the
container in the sellers warehouse.

In CIP, the insurance certificate should cover the risk:

1. Land transit risk for the trip of the container from the sellers warehouse
up to the container terminal
2. From the container terminal to on board the ship; from there the risk must
fall under Institute Cargo Clause A covering war risk and strike clause.
3. POD, when container is discharged from on board the vessel the insurance
shall continue up to the bonded warehouse (Customs) of the port for 60
days and the coverage of risk will only be for fire, theft, pilferage and non
Delivery (TPND)
4. The last part of insurance is from bonded warehouse till buyers
warehouse and this is to be made by the buyer covering the inland transit
only.

Therefore, it clearly appears from the above that the seller must not engage
himself of giving an on board B/L

Containerized Cargo (LCL):

Under LCL shipment, the seller delivers the cargo to the carrier in the container
yard in front of the opened container. The carrier then receives the cargo by
unloading them from the means of transport (example: truck) and stuffing the
cargo into the container, stripping and sealing then delivering to the seller a
combined transport B/L showing this time.

The seller responsibility shall stop when the goods are stuffed into the container
in the container yard. At that time the carrier shall deliver to the seller a combined
transport B/L showing place of receipt in the container yard, POL, POD and place
of receipt but the B/L will meat ion Received for Shipment i.o. Taken in
Charge.

Therefore, the shipment by container is not an on board shipment and it is always

a taken in charge shipment or received for shipment plus the pictures shown by
Incoterms 2010 for FCA, CPT & CIP never show a vessel

If the buyer wishes to buy a cargo in container under FCL or LCL and wishes to
have the container on board vessel, the buyer must conclude the contract and open
the L/C in a manner which we call a variant Incoterm ().

If the intentions of the buyer is to buy a container in the same spirit of FOB, CFR
& CIF, then the prices in the contract must be modified as follows:
At the price of FCA, sellers warehouse by FCL loaded onto vessel at port of
at sellers risk and expenses equal to FOB as Incoterm 2010. Such price will
not be equal to FCA

The variant of Incoterm is possible in spite that it is abnormal. In this case the
opening of the L/C after the conclusion of the contract must be based on an on
board B/L + obligation for seller to obtain not only a printed on board B/L but
also a requirement for the B/L to show container actually loaded on board
notation duly signed and dated by carriers master or agent. In this case, the seller
really bears the responsibility of FOB, CFR & CIF by container
The problem with FIO and THC: Under the Incoterms 2010, all charges (FIO)
additional to freight charges are born by the seller and all THC for containers
whether at POL or POD is for buyers account. Therefore, in order for the buyer
to avoid payment of the FIO twice it is advisable that the buyer claims in the
contract term and L/C the following document:
Certified copy of the manifest of the vessel duly signed by the master of the
vessel giving order to the ship agent carrier at POD to deliver the cargo to the
receiver without payment if any additional charges to the freight charges.
------------------------------------------------------------------

Seminar date: 21-12-2010

FCA, CPT & CIP in Air freight Shipments:

In FCA, CPT & CIP for Air freight, Rail, and land, the seller delivers the cargo to
the carrier for loading on these means of transport.

In using Incoterms 2010 in general, it is necessary to define the place of

destination as well as a fixed point at that destination.

In FCA, CPT & CIP, the export license is made by the seller and the import
license is made by the buyer.

In FCA, CPT & CIP, the material / cargo responsibility for the seller in air freight
shipment shall end on delivery of cargo in the air freight terminal of the carrier.

It is either that the seller pays the THC to the carrier or asks the carrier to charge
them to the receiver / buyer at destination.

In air freight shipments under FCA, CPT & CIP, the carrier usually delivers to the
seller an AWB showing at the same time Not Negotiable and Original No. 3
for Shipper.

When the cargo is delivered to the carrier at the air freight terminal, it is not
immediately loaded into the plane nor is the flight actually accomplished.

If the buyer insists on obtaining an AWB covering an actual loading and an actual
flight, then the buyer must agree with the seller to deliver an AWB showing an
actual flight number and actual flight date duly singed by carrier or his agent.

It must be clear that the seller responsibility in FCA covering air freight shipment
shall seize when the cargo is delivered to the carrier in the air freight terminal.

L/C opened covering air freight shipments should always require the Original no.
3 for shipper copy.

-EXW: Ex-works

Ex-works or Ex-warehouse means that the seller delivers the cargo to the buyer
either in the warehouse or in the works or at any point agreed with the buyer at
the agreed date and time NOT loaded on the means of transport.

EXW should be defined by the point and place of delivery.

Under EXW unit price, the L/C should be payable against an invoice + a deliver
note issued by the seller.

Goods when placed in the warehouse under EXW must be marked and identified
separated from other cargo of similar nature; this is important in order to keep the
pledge over the cargo.

Under EXW the seller has no obligation to affect a contract of carriage or

insurance even if requested by the buyer.
------------------------------------------------------------------

Seminar date: 22-12-2010

Continued.

Under EXW terms the following must be noted:

1. The seller delivers the cargo in the agreed point at the agreed place and on
the agreed date. After such date or period and in case the buyer fails to
take up the cargo, the buyer shall be responsible for all damage cost
occurring to the cargo and usually the contract terms must provide a
maximum limit time for delay after which the goods / cargo may be sold
by the seller through a public auction.
2. It is very important that the cargo under EXW terms be identified by
adding the marking and specifying the type of packaging required. In case
of bulk/loose cargo it is necessary for the buyer and the seller agree on the
means of identification.
3. Failing to identify the cargo, the seller will not be held responsible in case
of damage or bankruptcy.
4. Usually and according to Incoterms 2010 governing EXW price, the seller
has no obligation to the buyer to issue a delivery document or to accept the
buyers obligation for insurance of a delivery document by a freight
forwarder or any other party.

It is a common practice that a buyer under EXW terms, open in favor of the seller
an L/C payable against a simple sellers invoice and delivery order issued and
signed by the seller. This is exactly the normal L/C covering the feature of EXW;
however, the matter is not as simple as it appears because the bank doesnt rely on
a documents issued by the beneficiary since it doesnt represent a pledge.

Some buyers do replace the delivery order issued by the beneficiary with another
document called Forwarder Certificate of Receipt, this document which is
commonly known as FIAT FCR is also not a document of title even if issued in
the name of the bank.

The usually do not consider the FCR as being a transport document because it is
not covered by any article in UCP 600. This document is covered by the financial
standing and the integrity if the freight forwarder.

The danger of FCR is that the freight forwarder act according to the instructions
of the buyer and not the bank and what happens in fact is that the freight
forwarder ships the goods and i.o. giving the full set of B/Ls to the banks and
which should be established to the order of the bank, the freight forwarder is
sending the B/L directly to the buyer consigned in the name of the buyer.

That is why the buyer should ask for what is called a Performance Bond

-FAS: Free Alongside Ship

FAS is Free Alongside Ship on the quay of the POL

The Quay, the POL and the carrying vessel are nominated by the buyer.

FAS Incoterm is used for cargo of substantial quantity

Under FAS, the seller delivers the cargo and its responsibility shall seize when
goods are put at the disposal of the buyer in the quay / docks of the POL agreed
with the buyer and at the same time goods must be identified.

After delivery to the quay, the port authorities deliver to the seller a Dock
Receipt issued and signed by the POL consigned to the order of the issuing bank.

The buyer can ask inspection agencies like SGS to inspect the cargo on the docks
prior to loading.

FAS terms also mean that the goods are placed by the seller in the barges
( )alongside the ship in the POL.

When a buyer is dealing with FAS Incoterm covering important quantity of

commodities, he will be obliged to charter a vessel ()

In opening an L/C cover FAS shipments, the banks fear two things:
1. The vessel is a chartered vessel
2. The sail is FAS basis

Under FAS Incoterms, the buyer is hiring a vessel in accordance with the charter
party contract which is not on the B/L charter party.

The charter party contract is signed under a separate document between the
Master of the vessel, the owner and the charterer who is the buyer.

The charterer of the vessel according to article 22 of UCP 600 may now sign the
B/L alone.

The first protection of bond is to forbid the charter party B/L to be signed by the
charterer.

The second protection: the bank requires that the charterer delivers to the bank an
undertaking letter issued by the owner + Master counter signed by the charterer.
In this undertaking, the master + the owner of the vessel undertake irrevocably not
to diverge the vessel and cargo from its agreed destination w/o prior consent of
the issuing bank.

The third protection: the buyer delivers to the bank an assignment of proceeds
on the contract signed by the Ministry of Economy renouncing to the proceeds of
the contract in waiver of the bank.

The fourth protection: the bank could increase the cash margin against the opened
L/C covering FAS and charter party B/L or increase the personal and real estate
securities.
------------------------------------------------------------------

Seminar date: 22-12-2010

Export under FAS is on sellers account and responsibility.

Security and compliance is made by the seller at his own cost.

The seller is not responsible over the quay of the barges where goods are placed
alongside ship.

The buyer must agree with the seller in the contract terms for nominating the
quay, the POL and the carrying vessel, The buyer pays al charges + insurance as
from the time the goods are placed alongside ship on the agreed date, in the
agreed POL and on the agreed quay.

If an L/C is opened by the buyer in favor of the seller, such L/C will be payable
against the usual documents including inspection analysis and phyto-sanitary
made on the quay as the last point of checking / inspection.

It is very important that we keep in mind that goods must always be identified in
order to keep the privilege of the bank and the buyer over the cargo.

The FAS Incoterm is not suitable for container shipments. The import license and
all formalities regarding loading on the vessel and entering the vessel into port of
the buyers responsibility.

What is the appropriate document to be called for in the L/C under FAS?: It is not
a B/L, it can either be a Dock Receipt issued by the port authorities at the POL
or a Mate Receipt or an FCR or a FIATA B/L (FBL) which is a pre B/L and
more than an FCR.

The seller under FAS doesnt deal with an on board B/L

Under certain circumstance, the buyer and seller agree on an FOB price whereas
the buyer is chartering a vessel to load the cargo.

In order to achieve a transaction where the buyer is purchasing the cargo under
FOB terms and at the same time is hiring a vessel under charter party because he
has contracted a substantial quantity if goods

How to open an L/C under FOB Incoterms with the buyer arranging the charter
party?: in order to satisfy all parties, the issuing bank, the buyer and the seller; the
L/C should be worded in a manner that protects the rights of all parties in this
transaction. Accordingly, the L/C is opened in a standard form by calling for a full
set of charter party B/L with freight payable at charter party + other usual
documents + the following:

1. Original of swift sent by applicant through the channel of issuing and

confirming bank to beneficiary nominating the carrying vessel in or before
10 days at least prior to latest date of shipment stated in the L/C.
2. Important clause stating: In case the applicant did not nominate the
carrying vessel in or before 10 days prior to latest date of shipment and /
or the vessel had been nominated in due time but did not arrive at
destination and / or the nominated vessel arrives late to the POL and / or
the vessel arrives in due time but is not capable of loading the full cargo
then the beneficiary may negotiate this L/C against the above required
documents except the full set of B/L which is replaced by the following
documents:
a) Certificate issued from the port authorities of the POL stating
that the nominated vessel has not arrived to port latest on same
date of latest date of shipment and / or the vessel has arrived at the
port but later than the latest date of shipment and / or the vessel
had been present in due time at port but not capable of loading the
full cargo on board.
b) Dock Receipt issued and signed by the port authorities consigned
in the name if the bank confirming that the cargo consisting of so
an so quantity and so and so weight and so and so description and
so and so marking is stored at the quay of the port ready for
loading upon arrival of the vessel.
c) An undertaking letter issued by beneficiary engaging him
irrevocably to load the cargo FOB vessel at the POL free of charge
when vessel arrives.

ARRIVAL SALES:
Break-bulk & Container Cargo:
-DAT: Delivered at Terminal
-DAP: Delivered at place
-DDP: Delivery Duty Paid

In contrary to departure sales, the buyer is for some transactions interested in

receiving the cargo at place of destination without supporting any risk of loss and
damage and also protecting himself against loss of weight and quality. Usually,
the seller is engaged in delivering such cargo locally according to given specs
and given quality; that is why the buyer will not have recourse on departure sales
because such risk is not protected.

Starting with DAP, it is an Incoterm used internationally and locally where the
seller delivers the cargo to the buyer at the agreed place on the agreed date and to
the agreed point.

The responsibility of the seller shall stop when goods are held at disposal of the
buyer on the means of transportation at the place, date and point agreed.

The buyers duty in international DAP is to arrange the custom duties +

formalities + import license + security and compliance.

If the buyers wants the seller to deliver the cargo discharged from the means of
transportation at the agreed place, point and date, then the buyer must use a
variant of Incoterm called: at the price of DAP so and so latest on so and so date
discharged from the means of transport at sellers risk and expenses.

The Incoterm DAP doesnt allow the buyer to interfere in issuing the delivery
receipt; therefore, if the buyer wishes to have the cargo arrive and discharged
from the means of transport and contracted by him the buyer must use DAT. In
this case the seller must deliver the cargo discharged from the means of transport.

Therefore, the L/C to be issued by the buyer will be available against an invoice
and certificate of delivery signed by the seller as well as the buyer in order to
attest the discharge of cargo at the buyers place.

As for DDP, the maximum responsibility is on the seller because he must deliver
the cargo to the buyers warehouse + arrange for import license, clearance,
security / compliance and custom duties.

Under DDP, the cargo is delivered in the buyers premises not unloaded from the
means of transport.

Finally, we should not use Departure prices with adding expressions saying that
goods have arrived; this is abnormal.

FINISH