INTERNATIONAL MARKETING MDI, Gurgaon (PGPT-APRIL-2012)

Project on INCOTERMS Dedicated to (Prof) Dr.Kirti Sharma :

Group: 10 Team Members Dravesh Sharma-27 Gyan Dev-30 Gopal G.-28 Jatin Mahendroo-32 Mayank Kapoor-43 Jerome James-34

INCOTERMS IN INTERNATIONAL MARKETING

INCOTERMS IN INTERNATIONAL MARKETING

INCOTERMS IN INTERNATIONAL MARKETING

INCOTERMS IN INTERNATIONAL MARKETING

Internationally accepted commercial terms that clearly allocate cost of goods, transportation, risk, customs & insurance responsibilities between buyer & seller. Incoterms is an abbreviation for International Commercial Terms first published in 1936 by International Chamber of Commerce. The Objective of Incoterms is to alleviate or reduce abmbiguity over interpretations of shipping terms. The term will outline the obligation for the clearance of the goods for export or import. Incoterms are used frequently in International contracts.

INCOTERMS IN INTERNATIONAL MARKETING

Make International Trade easier

Standard trade definitions commonly used in International Contracts make Intl trade easy

Helps Traders in different global markets to understand Import/Export

INCOTERMS IN INTERNATIONAL MARKETING

Pricing & Delivery Pricing & Delivery for export involves considerations of pricing, but not limited to, market conditions, comparative price of similar products in target market, Additional Transport Costs for reaching an overseas destination. The Incoterm used in an export contract will bear on what costs are included in the export price and the method of payment used. Exporters have suffered loss by failing on Incoterms. Incoterm is determinant for Pricing/Delivery of Product in export market Essential element of Marketing Mix-Price/delivery are determined with mutual agreement of Importer & Exporter (May be any form of Incoterm C&F,CIF,FOB) Determinant of Profit Margin & competitive advantage Determinant of Delivery of goods in host country

INCOTERMS IN INTERNATIONAL MARKETING

INCOTERMS IN INTERNATIONAL MARKETING

International Marketing Strategic Decision Making : Leading to Board Decisions : Product : Apparels/Chocolate/Electronic items Based on price component : Incoterm to modify from FOB to CIF for more competitive advantage Based on delivery terms : Incoterm to alter from CIF to C&F to gain competitive advantage

INCOTERMS IN INTERNATIONAL MARKETING

International Strategic Marketing Decision Making : Leading to Board Decisions: Country of origin : USA/Germany/Nepal Incoterm alteration from C&F to CFR changed the profitability of firm in USA Incoterm alteration from EXW to FOB changed the profit margin of firm in Nepal Incoterm alteration from DDU to FCA enhanced the opportunity cost Pricing of firm in Germany Incoterm changes from DEQ to CIF altered the profit margins of firm to 15% profitability in Turkey for Chocolate exports

INCOTERMS IN INTERNATIONAL MARKETING

Incoterms
EXW (EX-Works) One of the simplest and most basic shipment arrangements places the minimum responsibility on the seller with greater responsibility on the buyer. In an EX-Works transaction, goods are basically made available for pickup at the shipper/seller's factory or warehouse and "delivery" is accomplished when the merchandise is released to the consignee's freight forwarder. The buyer is responsible for making arrangements with their forwarder for insurance, export clearance and handling all other paperwork. FOB (Free On Board) One of the most commonly used-and misused-terms, FOB means that the shipper/seller uses his freight forwarder to move the merchandise to the port or designated point of origin. Though frequently used to describe inland movement of cargo, FOB specifically refers to ocean or inland waterway transportation of goods. "Delivery" is accomplished when the shipper/seller releases the goods to the buyer's forwarder. The buyer's responsibility for insurance and transportation begins at the same moment. FCA (Free Carrier) In this type of transaction, the seller is responsible for arranging transportation, but he is acting at the risk and the expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller chooses and works with the freight forwarder or the carrier. "Delivery" is accomplished at a predetermined port or destination point and the buyer is responsible for Insurance. FAS (Free Alongside Ship)* In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS requires the shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for export. "Delivery" is accomplished when the goods are turned over to the Buyers Forwarder for insurance and transportation. CFR (Cost and Freight) This term formerly known as CNF (C&F) defines two distinct and separate responsibilities-one is dealing with the actual cost of merchandise "C" and the other "F" refers to the freight charges to a predetermined destination point. It is the shipper/seller's responsibility to get goods from their door to the port of destination. "Delivery" is accomplished at this time. It is the buyer's responsibility to cover insurance from the port of origin or port of shipment to buyer's door. Given that the shipper is responsible for transportation, the shipper also chooses the forwarder. CIF (Cost, Insurance and Freight) This arrangement similar to CFR, but instead of the buyer insuring the goods for the maritime phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder. "Delivery" as above, is accomplished at the port of destination. CPT (Carriage Paid To) In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition that the seller has to buy cargo insurance, naming the buyer as the insured while the goods are in transit. CIP (Carriage and Insurance Paid To) This term is primarily used for multimodal transport. Because it relies on the carrier's insurance, the shipper/seller is only required to purchase minimum coverage. When this particular agreement is in force, Freight Forwarders often act in effect, as carriers. The buyer's insurance is effective when the goods are turned over to the Forwarder. DAT (Delivered At Terminal) This term is used for any type of shipments. The shipper/seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal. DAP (Delivered At Place) DAP term is used for any type of shipments. The shipper/seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer. DDP (Delivered Duty Paid) DDP term tend to be used in intermodal or courier-type shipments. Whereby, the shipper/seller is responsible for dealing with all the tasks involved in moving goods from the manufacturing plant to the buyer/consignee's door. It is the shipper/seller's responsibility to insure the goods and absorb all costs and risks including the payment of duty and fees.

transport Mode and their appropriate incoterms

Certain Incoterms are multi-modal and others can be used only when the goods are intended to carried by sea or inland water transport. Since CFR and CIF can only be used when the goods are intended for carriage by sea or inland waterway transport CPT and CIP respectively must be used when whenever the goods are not handed over for marine transport or when the goods are containerized (even the container is delivered to a seaport). A common mistake is selecting the Incoterm which is not appropriate for the agreed mode of transport. The terms must be used for the correct mode of transport if they are to offer any protection to the buyer or the seller.
Air Freight Road Freight Rail Freight Sea Freight

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

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What Incoterm Rules Dont Do :

As we addressed earlier . . . by themselves, Incoterms do NOT address transfer of legal title of the goods.
Rather, title passage is usually addressed in the sales/purchase contract or, if not, by default it is addressed by sovereign (local) law. FYI . . . in most transactions, passage of legal ownership from the seller to the buyer usually requires two events: Delivery + Payment = Title Transfer

What Incoterm Rules Dont Do (Continued) :

By themselves, Incoterms are not law and do NOT automatically apply to every sales transaction of tangible goods. The parties must specify that their transaction is subject to Incoterms 2010. If silent, the default in the USA is the UCC for domestic transactions (Yipes!). Or, for cross border transactions, the (USA) default may be the UCC or, in some instances, the UN Convention on the Sale of Goods (CISG) to which the USA is a party (similar to treaty status).

What Incoterm Rules Dont Do :

Incoterms are not Payment Terms (although payment timing is commonly tied to the event of delivery).

Payment Terms + Incoterms = Terms of Sale