Incoterms 2010

Roland Satchell VP CDCS

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Strictly Private and Confidential
Meet the presenters:

 Charnell Williams, North America Import Product Manager

 Charnell is a Director in Citi‘s Global Transaction Services where she is a Product Manager
for Import Products and Services. In the International Banking community Charnell is
recognized as a Trade Expert with over 34 years of experience. She is on the BAFT-IFSA
Board of Directors, the ICC Drafting Committee for ISBP, and serves as an Advisory Member
of the Institute of International Banking Law & Practice, Inc.

 Roland Satchell, Global Trade Advisor for Citi.

 Roland is Vice President and Global Trade Advisor at Citi. Roland has over 20 years of
experience in the financial industry. Over the past 14 years he has been working in Global
Trade Operations serving in a number of operational managerial positions. Currently he is the
North American Trade Advisory Head and also the Global Trade Advisory Coordinator leading
Citi‘s Trade Advisory Global Team of Trade experts.

 Contact Roland
– roland.d.satchell@citi.com
– +1 (813) 604-7183

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 These materials are provided for educational and illustrative purposes only and not as a
solicitation by Citi for any particular product or service. Furthermore, although the information
contained herein is believed to be reliable, the following does not constitute legal advice and
Citi makes no representation or warranty as to the accuracy or completeness of any
information contained herein or otherwise provided by it.

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Incoterms

 What are they?

 What do they mean?

 Why do they exist?

 Main changes of Incoterms 2000 to 2010

 Who uses them?

 Incoterms 2010 – Format and Usage

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What Are They?

 ―Incoterms‖: is an abbreviation of ―International Commercial Terms‖

 Published by the International Chamber of Commerce, Paris

 Latest version (effective Jan 01, 2011): ―Incoterms 2010‖

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What Do They Mean?

 Incoterms define at the minimum level

– The division of costs between buyers and sellers

– The point at which delivery occurs, i.e., the point at which the risk of
loss or damage transfers from the seller to the buyer

– Which party is responsible for export and import clearance

 Incoterms also give some information regarding documentation, but it is

not their primary function

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Why Do They Exist?

 Incoterms have been around since the first version 1936 and has been
revised last in 2000. This is now being replaced with the 2010 version

 Shorthand form used in Sales Contracts to define the division between

buyers and sellers of certain minimum obligations, risks and costs
involved in transportation of goods

 Incoterms are only applicable when there is a physical movement of

goods

 Whilst they are mostly used in International Trade, they can be

appropriately used for domestic trade as well

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 Main changes on the Incoterms® 2010
 Number of Incoterms was reduced from 13 to 11.

EXW EXW
FAS FAS
FOB FOB
FCA FCA
CFR CFR
CIF CIF
CPT CPT
CIP CIP
DAF DAP
DES DAT
DEQ DDP
DDU
DDP

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Main changes on the Incoterms® 2010

 Guidance Notes have been included before each rule

 Facilitates usage of electronic records if agreed or where customary

 Clearly allocates the Terminal Handling Charges (THC) in the relevant

terms

 For ‗String Sales‘, Incoterms 2010 clarifies the obligation to ‗procure

goods shipped‘ as an alternative to the obligation to ship goods

 Allocates obligations to obtain or render assistance in obtaining security

related clearances

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Purpose of Incoterms

 Main task of Incoterms is to define the sharing of costs and transfer of

risk or damage over the goods, up to an agreed place

 To avoid misunderstanding and disputes among the parties over the

sharing of costs and transfer of risk or damage over the goods

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Who Uses Them?

 Buyers and Sellers, directly

 And indirectly
 Banks
 Insurers
 Carriers/Forwarding Agents

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Use by Banks

 Most credits will state an Incoterm

 This enable banks to check, to an extent, that:

– The documents called for in the credit are consistent with the term used

– The documents presented are consistent with the term used

NB: Only few credits state that the term used is actually an ―Incoterm‖.

To avoid ambiguity and avail the benefit of this revision, it is recommended

to state the Incoterms specifically stating ―Incoterms 2010‖

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Use by Insurers

 If there is loss or damage to a cargo, insurers will be at pains to establish

exactly where it has occurred and therefore whether the buyers or sellers
were responsible

 Incoterms determine whether it is the buyer or seller that is at risk

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Use by Carriers/Forwarding agents

 To determine which party (buyer/seller) will be responsible for payment of

frieght charges

 To determine which party (buyer/seller) will be responsible for the various

activities in transportation

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Incoterms and Documents

 It is not a primary function of Incoterms to dictate what documents are to

be issued, or what their content should be. The following is a precise of
what rules state on documents:
– CIF/CIP - the seller is required to provide the buyer with an insurance
document covering risks from the delivery point to the named point
– C and D Terms - the seller must provide the buyer with the transport
document or other proof of delivery appropriate to the means of
transportation

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Incoterm Categories

 There are 11 Incoterms, subdivided into 2 categories

1. Rules for any mode or modes of transport

• EXW, FCA, CPT, CIP, DAP, DAT, DDP

2. Rules for Sea and Inland waterway

• FAS, FOB, CFR, CIF

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Responsibilities

 ―EXW‖ term defines the minimum that has to be done from the sellers
perspective

 ―DDP‖ terms define the most that has to be done from the sellers
perspective

 The other terms define the points in between these two extremes

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Format of Incoterms

 All Incoterms consist of 3 alpha characters

 Incoterms are followed with either a ―delivery place/port of loading‖ or ―place of

destination/port of discharge‖

 E and F terms will usually be followed with a delivery place / port of loading

 C and D terms will usually be followed with a place of destination / port of discharge

 The named place stated after the Incoterms, is the place up to which the seller pays the
freight costs, e.g., ―EXW New York‖

 Do not confuse this with the ―Delivery Point‖, i.e., the point at which the risk transfers from
seller to buyer. The risk can transfer at a different point as well ! (Eg. C Terms)

 Also, ―delivery‖, in the Incoterm sense, has nothing to do with transfer of ownership. Title of
the goods always lies with the documents.

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The 11 Incoterms

 EXW – Ex Works: means that the seller delivers when he places the
goods at the disposal of the buyer at the seller‘s premises or another named place (I.e.
works factory, warehouse, etc.) not cleared for export and not loaded on any collecting
vehicle
 FCA – Free Carrier: means that the seller delivers the goods, cleared
for export, to the carrier nominated by the buyer at the named place. It should be noted that
the chosen place of delivery has an impact on the obligations of loading and unloading the
goods at that place. If delivery occurs at the seller‘s premises, the seller is responsible for
loading. If delivery occurs at any other place, the seller is not responsible for unloading.
 CPT – Carriage Paid To: means that the seller delivers the goods to
the carrier nominated by him but the seller must in addition pay the cost of carriage
necessary to bring the goods to the named destination.
 CIP – Carriage and Insurance Paid to: means that the seller delivers
the goods to the carrier nominated by him but the seller must in addition pay the cost of
carriage necessary to bring the goods to the named destination and also pay the necessary
insurance.

(1) Only for use with Port to Port or Inland Waterway transportation. All others for any mode of transport.
(2) New Incoterms.
In all cases, the Seller is responsible for, and assumes the cost of Export Clearance and the Buyer is responsible for Import Clearance and costs except: DDP - Seller does both, and
EXW - Buyer does both.

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The 11 Incoterms

 DAT (2) – Delivered At Terminal: means that the seller delivers when the
goods, once unloaded from the arriving means of transport, are placed at the disposal of
the buyer at a named terminal at the named port or place of destination.
 DAP (2) – Delivered At Place: means that 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.
 DDP – Delivered Duty Paid: means that the seller delivers the goods to
the buyer, cleared for import, and not unloaded from any arriving means of transport at the
named place of destination.

(1) Only for use with Port to Port or Inland Waterway transportation. All others for any mode of transport.
(2) New Incoterms.
In all cases, the Seller is responsible for, and assumes the cost of Export Clearance and the Buyer is responsible for Import Clearance and costs except: DDP - Seller does both, and
EXW - Buyer does both.

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The 11 Incoterms

 FAS (1) – Free Alongside Ship: means that seller delivers when the goods
are placed alongside the vessel at the named port of shipment This means that the buyer
has to bear all costs and risks of loss of or damage to the goods from that moment.
 FOB (1) – Free On Board: means that the seller delivers when the goods
are placed on board the ship at the named port of shipment
 CFR (1) – Cost and Freight: means that the seller delivers when the goods
are placed on board the ship in the port of shipment. The seller must in addition pay the
cost of carriage necessary to bring the goods to the named destination.
 CIF (1) – Cost Insurance and Freight: means that the seller delivers when
the goods are placed on board the ship in the port of shipment and also pay the necessary
freight and insurance. .

(1) Only for use with Port to Port or Inland Waterway transportation. All others for any mode of transport.
(2) New Incoterms.
In all cases, the Seller is responsible for, and assumes the cost of Export Clearance and the Buyer is responsible for Import Clearance and costs except: DDP - Seller does both, and
EXW - Buyer does both.

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Incoterms and Contracts of Carriage

 They are completely separate things but, confusingly, some credits add
contract of carriage terms to the stated Incoterm, e.g. CFR Free Out,
Tincan.

 Such terms are usually only encountered when there is a bulk commodity
shipment by sea involved

 There is no standard, ―source‖ document that can be consulted to know

exactly what such terms mean, it will vary between carriers and the ports
concerned.

 A bank will seldom need to know exactly what the terms really mean—
banks are just interested to see that the correct statement appears on the
documents.

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Contract of Carriage Terms

 The following are some of the terms most commonly seen in credits and/or on Bills of
Lading, and what they usually mean:
– Liner – an ocean vessel which sails to a published schedule and itinerary of ports of call
– Liner In – the ―freight‖ cost levied by the carrier includes the cost of loading the goods
onto the ship
– Liner Out – the ―freight‖ cost levied by the carrier includes the cost of unloading the
goods off the ship
– Liner Terms/Berth Terms/LILO – Liner In and Liner Out
– Free Out (FO) – the ―freight‖ cost levied by the carrier does not include the cost of
discharging the cargo from the vessel
– Free In (FI) – the ―freight‖ cost levied by the carrier does not include the cost of loading
the cargo onto the vessel
– Stow – the ―freight‖ cost does not include the cost of placing the cargo safely in the ships‘
hold
– The ―freight‖ cost does not include the cost of leveling bulk cargoes in the ships‘ hold
 These terms are usually seen only in conjunction with FOB and CFR (or on their own) and
in various permutations, e.g. FOBS, FOBT, FOBST, FIO, FIOS, FIOST, etc.

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How to use Incoterms 2010 effectively

 Incorporate Incoterms 2010 into the contract of sale

 Choose the appropriate Incoterm rule applicable

 Specify the delivery place/port or place of destination as precisely as

possible

 Can be used for domestic trade as well

 Be aware of risk of using variants of Incoterms (Eg. EXW,Loaded )

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The end

Q&A

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 Roland Satchell
Global Trade Advisor
roland.d.satchell@citi.com
+1 (813) 604-7183

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