inco 2010 terms

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Presented by

Mr.Ilanko KathiravelupillaiExecutive Officer

Foreign Currency Banking Unit

What are Incoterms ?

The word Incoterms is an abbreviation of InternationalCommercial Terms.

A set of international rules for the interpretation of the mostcommonly used trade terms in foreign trade.

1st published in 1936 by ICC.

Purpose: help the traders to avoid misunderstandings byclarifying costs, risks & responsibilities of both buyer and seller inthe delivery of goods.

Primarily intended for use where goods are sold across thenational boundaries but are in practice incorporated into thedomestic sales contract too.

Rules will apply when express reference is made into the salescontract.

Rules will not override the mandatory laws.

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Incoterms

Scope of these rules

limited to matters relating to rights & obligations

of parties to contract of sale such as:

Import & export clearance

Transportation

Risk of loss of or damage to the goods

Division of costs etc..

Rules do not deal with:

Transfer of ownership / title to the goods

Relief from the obligations and exemptions from the liability in case ofunexpected or unforeseeable events

Consequences following from breach of obligations under contract of

sale

Types of Methods of payment

Choice of Law / Place of Jurisdiction

Previous version of Incoterms 2000 is revisedin 2010 and new rules have come into force as

of 1st January 2011.

The revised version is known as

Incoterms 2010

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For existing contracts, it will continue to apply (when

incorporated into the contract) even if performance of the

contract will be made in 2011 or even later.

If the parties agree Incoterms 2000 can be still used even

after 01/01/2011.

However, it is strongly recommended to start usingIncoterms 2010 rules after 01/01/2011 for new contracts as

they are updated with new trade developments.

What will happen to Incoterms 2000

after 01/01/2011?

EXW (...named place) EXW (...named place)

FCA (...named place) FCA (...named place)

FAS (...named port of shipment) FAS (...named port of shipment)

FOB (...named port of shipment) FOB (...named port of shipment)

CFR (...named port of destination) CFR (...named port of destination)

CIF (...named port of destination) CIF (...named port of destination)

CPT (...named place of destination) CPT (...named place of destination)

CIP (...named place of destination) CIP (...named place of destination)

DAF (a named place)

DES (...named port of destination)

DEQ (...named port of destination)

DDU (...named place of destination)

DAT (named terminal at port /

.. place of destination)

DAP (named place of destination)

DDP (...named place of destination) DDP (...named place of destination)

Incoterms 2000 Incoterms 2010

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A Sellers obligations B Buyers obligations

A1 General Obligations of the seller B1 General Obligations of the buyer

A2 Licences, authorizations, security

clearances and other formalities

B2 Licences, authorizations, security

clearances and other formalities

A3 Contracts of Carriage and

Insurance

(a) Contract of carriage(b) Contract of insurance

B3 Contract of Carriage and

Insurance

(a) Contract of carriage(b) Contract of insurance

A4 Delivery B4 Taking Delivery

A5 Transfer of Risks B5 Transfer of Risks

A6 Allocations of Costs B6 Allocation of Costs

A7 Notice to the Buyer B7 Notice to the Seller

A8 Delivery document B8 Proof of delivery

A9 Checking - Packaging - Marking B9 Inspection of Goods

A10 Assistance with information and

related costs

B10 Assistance with information and

related costs

Incoterms 2010

1. Increase in the importance in the cargo security since 09/11.

WhyRevision of Incoterms 2000

2. Changes in the transport industry

Development of container transport

3.Changes in the insurance industry

Revision of Institute of cargo clauses in 2009

4.Increased use of Electronic Communications in business

transaction.

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1. Reduction in number of rules from 13 to 11

2. Classification into two groups

3. Adoption of Rules in domestic trade as well

4. Removal of Ships Rail the traditional transfer risk point.

5. Recognition of Electronic communication

6. Insurance cover

7. Security related clearances & information required for such clearances

8. Avoiding of potential double charging of Terminal Handling Charges

9. String sales

10. Guidance notes

1. Rules for any mode or modes of transport

2. Rules for sea and inland waterway transport

Main Features of Incoterms 2010

Removal of four terms ( DEQ, DES,DAF & DDU )

Delivered Ex Quay (named port of destination)

Delivered Ex Ship (named port of destination)

Delivered at Frontier (named place)

Delivered Duty Unpaid (named place of destination)

Addition of two new terms ( DAT & DAP )

UnderDAT the seller delivers when the goods, once unloaded from the arriving means oftransport, are placed at the disposal of the buyer at a named terminal at the named port or place ofdestination. "Terminal includes any place, whether covered or not, such as a quay, warehouse,container yard or road, rail or air cargo terminal.

UnderDAP the sel1er delivers when the goods are placed at the disposal of the buyer on thearriving means of transport ready for unloading at the named place of destination.

Which makes the previous 13 rules in Incoterms 2000 reduced to 11rules in Incoterms 2010

DAT replace DEQ and

DAP replaces DAF, DES & DDU

1. Reduction in number of rules

Main Features of

Incoterms 2010

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Incoterms 2000 were grouped into four categories. The new rules

are not divided in this way anymore.

The 11 Incoterms 2010 rules are grouped in to two categories

according to mode of transport.

1) Rules for any mode or modes of transport

2) Rules for sea and inland waterway transport

EXW / FCA / CPT / CIP / DAT / DAP / DDP

FAS / FOB / CFR / CIF

Seylan Bank PLC International Division

2. Classification of new rules

Main Features of

Incoterm 2010

(1)

Rules for Sea and Inland Waterway Transport

2. Classification into two groups

Main Features of

Incoterms 2010

(2)

Rules for any Mode or Modes of Transport

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EU has made border formalities less significant.

Greater trend in using Incoterms rule in domestic sales contract

including in the US.

These new developments are adopted in Incoterms 2010.

The obligation to comply with Import / Export formalities (B2 / A2)

exists where applicable.

Main Features of

Incoterms 20103. Domestic & International trade

Ships Rail at the named port of shipment

4. Removal of Ships Railthe traditional transfer risk point.

Main Features of

Incoterms 2010

Ships Rail

As perIncoterms 2000

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Transfer of RISK when goods are delivered On Board the vessel

at the named port of shipment instead of the Ships Rail

4. Removal of Ships Railthe traditional transfer risk point.

Main Features of

Incoterms 2010

As perIncoterms 2010

Incoterms 2000 provided that certain specified documents could

be replaced with Electronic Data Interchange ( EDI ) messages

where the parties agreed to do so.

Main Features of

Incoterms 20105. Electronic communication

Under Incoterms 2010, any paper communication could be

replaced with an Equivalent Electronic Record or Procedure where

the parties so agree or customary.

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The new rules are adopted to the 2009 revision of ICC Contract of insurance under CIF & CIP

Its sellers obligation to provide insurance

Insurance policy or other evidence of insurance cover

With underwriters or insurance company of good repute

Claim directly from insurer by buyer or any other person having insurableinterest

Insurance shall cover

At least min. cover provided by ICC(C)-LMA / IUA Min. 110% of the price provided in the contract

In the currency of the contract

From point of delivery to named port / place of destination

Any additional cover at the request & expense of the buyer. (cover...provided by ICC (A) or ICC(B)-LMA/IUA or Institute war clause,institute strike clause)

Main Features of

Incoterms 20106. Insurance

For other terms,There is a new obligation requiring the parties to exchange information to obtaininsurance.

Although there is no obligation for the parties to take insurance. However, its

prudent to take the insurance by the party who is taking the risk.

Security has become much more important issue since 09/11.

Mandatory security checks for scanning containers have been

introduced by many countries.

New Rules allocates the obligations to exchange information

between parties to obtain or to render assistance to obtain security

related clearance for the goods.

Main Features of

Incoterms 20107. Security

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Under CPT,CIP,CFR,CIF,DAT,DAP & DDP freight is paid by

seller.

In some cases THC is included in the freight which forms the part

of the sales price.

The carrier or terminal operator, nevertheless, charge these

costs to the buyer at the destination. The buyer paying for same

service twice.

The new rules reduce the risk of the buyer being charged twice

for terminal handling costs.

Main Features of

Incoterms 20108. Terminal Handling Charges

In contract of sale of commodities as opposed to manufacturedgoods.

Commodities are sold in transit number of times.

Seller in the middle of the string does not ship the goods as goodsare shipped by first seller.

Obligation of the seller in the middle of the string is to procure thegoods shipped.

No term for sale of goods in transit in Incoterms 2000.

Incoterms 2010 now provides an option, where relevant, allow theseller in the middle to procure goods that have been shipped as analternative to the obligation to ship the goods.

Main Features of

Incoterms 20109. String Sales

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Main Features of

Incoterms 20109. String Sales

ORIGINAL

BUYER

FIRST

SELLER

GOODS

Commodities are sold

in transit number of times

10. Guidance Notes

Main Features of

Incoterms 2010

ICC Publication no 715E provides,

Guidance Notes for each rule;

Explains the fundamentals of each Incoterms rule

More specific when a rule should be used Picture at the beginning of each rule gives the summary at .

.glance

Assist the user to select the appropriate term for a particular

..transaction.

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Contract of carriage

No obligation

Contract of insurance

No obligation

Place the goods at the disposalof the buyer, On the agreed date,

not loaded on to buyers

collecting vehicle.

Bears all risks of loss ordamage & Pay all costs, until

goods are delivered

Provide any information that is

required for the security clearance

at buyers request.


No obligation


No obligation

Take delivery of goods

Appropriate evidence of having

taken delivery of goods.

Bears all risks of loss or damage& Pay all the costs, from the time

goods are delivered.

EXW - EX WORKS (named place of delivery)

Sellers Obligations Buyers obligations

EXW - EX WORKS (named place of delivery)

Carriage of Goods

Risks

Costs

Seller | Carrier | Border | Port Port | Named | Buyer

Place

Export Clearance Import Clearance

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FCA - FREE CARRIER (named place of delivery)


No obligation.

However, if requested by the buyer

or its a commercial practice,

seller may contract for carriage at

buyers risk & expense.

Contract of insurance No obligation

Deliver the goods to the carrier

nominated by the buyer at the

named place on the agreed date.

Bears all risks of loss or damage

& Pay all costs, until goods are

delivered.

Usual proof that the goods have

. been delivered.

Contract of carriage- at its ownexpenses from named place of

delivery.

Contract for insurance- Noobligation

Take delivery of goods


& Pay all costs, from the time


Accept the proof of delivery


Carriage of Goods

Risks

Costs


Place


FCA - FREE CARRIER (named place of delivery)

Optional at Buyers Request

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CPT - CARRIAGE PAID TO (named place of destination)

Contract of carriage- contract orprocure contract of carriage, at its

own expense, from the place of

delivery to the place of

destination.

Contract of insurance-

No obligation

Deliver the goods, on the agreed

date, by handing over to the

carrier at the agreed place of

delivery.Bears all risks of loss or damage

until goods are delivered.

Pay all costs up to the

destination.

Provide usual transport

document

Contract of carriage No obligation


No obligation

Take delivery of goods when

they have been delivered and

receive from the carrier at the

place of destination.


from the time goods are delivered.

Pay all costs from the

destination.

Accept the transport documents,

if it is in conformity with the

contract.


Risks

Carriage of Goods

Costs


Place


CPT - CARRIAGE PAID TO (named place of destination)

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CIP - CARRIAGE AND INSURANCE PAID TO (named place of destination)

Contract of carriage - contract orprocure contract of carriage, at its


delivery to the place of

destination.

Contract of insurance - must

obtain cargo insurance at leastwith min. cover.


date, by handing over to the

carrier at the agreed place of

delivery Bears all risks of loss or

damage until goods are delivered.Pay all costs up to destination.


documents

Contract of carriage No obligation


No obligation


they have been delivered andreceive from the carrier at the

place of destination.

Bears all risks of loss or damagefrom the time goods are delivered.

Pay all coasts from the

destination

Accept the transport documents,if it is in conformity with the

contract.


Carriage of Goods

Risks

Costs


Place


CIP - CARRIAGE AND INSURANCE PAID TO (named place of destination)

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DAT - DELIVERED AT TERMINAL (named terminal at port / place of destination)

Contract of carriage- at its ownexpense, to the named terminal at

the port or place of destination.

Contract of insuranceno

obligation.

Deliver the goods, on the agreeddate, by unloading from the

arriving means of transport and

placing them at the disposal of the

buyer at the named terminal at theport or place of destination.


& Pay all costs, until goods aredelivered.

Provide with a document

enabling the buyer to take delivery.

Contract of carriage No obligation.


No obligation


they have been delivered.


& Pay all costs, from the timegoods are delivered.

Accept the delivery documents.


Carriage of Goods

Risks

Costs


Place


DAT - DELIVERED AT TERMINAL (named terminal at port / place of destination)

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DAP - DELIVERED AT PLACE ( named place of destination)

Contract of carriage - at its ownexpense, to the named place of

destination.


No obligation.


date, by placing them at the

disposal of the buyer ready for

unloading from the arriving meansof transport at place of

destination.



delivered.


enabling the buyer to take

delivery.



Take delivery of goods whenthey have been delivered.


& Pay all costs from the timegoods are delivered.



Carriage of Goods

Risks

Costs


Place


DAP - DELIVERED AT PLACE ( named place of destination)

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DDP - DELIVERED DUTY PAID ( named place of destination)

Contract of carriage - at its ownexpense, to the named place of

destination.


No obligation.


date, by placing them at the

disposal of the buyer ready for

unloading from the arriving meansof transport at place of

destination.



delivered.


enabling the buyer to take

delivery.



Take delivery of goods whenthey have been delivered.


& Pay all costs, from the timegoods are delivered.



Carriage of Goods

Risks

Costs


Place


DDP - DELIVERED DUTY PAID ( named place of destination)

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FAS - FREE ALONGSIDE SHIP (named port of shipment)


However, if requested by the

buyer or its a commercialpractice, seller may contract for

carriage at buyers risk & expense.

Contract of insuranceno

obligation.


date, by placing them alongside

the ship nominated by the buyer

at the port of shipment or byprocuring the goods so delivered

Bears all risks of loss or damage& Pay all costs, until goods are

delivered.

Provide usual proof that the

goods have been delivered.

Contract of carriage- at its ownexpenses from named port of

shipment.


No obligation



Bears all risks of loss ordamage & Pay all costs, from the

time goods are delivered.



Carriage of Goods

Risks

Costs


Place


FAS - FREE ALONGSIDE SHIP (named port of shipment)


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FOB - FREE ON BOARD (named port of shipment)


However, if requested by the

buyer or its a commercialpractice, seller may contract for

carriage at buyers risk & expense.

Contract of insurance -

No obligation.


date, by placing them on board

the vessel nominated by the buyer

at the port of shipment or byprocuring the goods so delivered

Bears all risks of loss or

damage & Pay all costs, until


Provide usual proof that the

goods have been delivered.

Contract of carriage- at its ownexpenses from named port of

shipment.


No obligation



Bears all risks of loss ordamage & Pay all costs, from the

time goods are delivered.



Carriage of Goods

Risks

Costs


Place


FOB - FREE ON BOARD (named port of shipment)


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CFR - COST AND FREIGHT (named port of destination)



delivery to the port of destination


No obligation.


date, by placing them on board

the vessel nominated by the buyerat the port of shipment or by

procuring the goods so delivered,

Bears all risks of loss or

damage until goods are delivered.

Pay all costs up to destination.


document for the agreed port of

destination.

Contract of carriage-No obligation.

Contract of insurance-No obligation





Pay all costs from the destination

Accept the transport documents

if it is in conformity with sales

contract.


Carriage of Goods

Risks

Costs


Place


CFR - COST AND FREIGHT (named port of destination)

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CIF - COST INSURANCE AND FREIGHT (named port of destination)



delivery to the port of destination


insurance- must obtain cargoinsurance at least with min. cover.

Deliver the goods, on the agreeddate, by placing them on board

the vessel nominated by the buyer

at the port of shipment or by

procuring the goods so delivered,


until goods are delivered.Pay all costs up to destination.


document for the agreed port of

destination.

Contract of carriage-No obligation.

Contract of insuranceNo obligation

Take delivery of goods when they

have been delivered.



Pay all costs from thedestination.

Accept the transport documents

if it is in conformity with sales

contract.


Carriage of Goods

Risks

Costs


Place


CIF - COST INSURANCE AND FREIGHT (named port of destination)

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Other obligations

Seller Buyer

Provide the goods ,commercial

invoice and any other evidence in

conformity with sales.

Do the export clearance except EXW

Provide with information, at buyers

request, that buyer needs for obtaining

insurance( except CIP/CIF)

Give notice to the buyer that goods

have been delivered.

Pay the cost of checking operation.PSI mandated by the authority of

country of export except EXW.Package the goods at its own expense.

Mark the package appropriately.

The seller must reimburse the buyer

for all costs and charges incurred by

seller in providing assistance in

obtaining documents & information

including security related information.

Pay the price of the goods as

provided in the sales contract.

Do the import clearance except DDP

Give the seller sufficient notice.

Pay the cost of mandatory PSI except

mandated by the authority of country of

export.

The buyer must reimburse the seller

for all costs and charges incurred by

seller in providing assistance inobtaining documents & information

including security related information.

Best Practice in Using Incoterms

Expressly incorporate Incoterms 2010 in to sales contract rather than just

Incoterms.

Use the recommended three letter abbreviation for each term in Incoterms 2010

followed with place of delivery or destination

FOB Colombo Port Incoterms 2010

Be specific on place of delivery or place of destination, i.e choose a point with in

the place of delivery/destination

DDP DHL warehouse Moscow Airport Incoterms 2010

Avoid using traditional expressions such as C+F , C&F, FOB+I

Distinguish between maritime terms and any mode of transportFOB Colombo Air port Incoterms 2010 Incorrect

FCA Colombo Air port Incoterms 2010 Correct

Containerised Shipments, for example manufactured goods, are delivered at the

cargo terminal for later lifting on board the container vessel, the appropriate

Incoterms rules should be FCA, CPT & CIP instead of FOB, CFR & CIF

When goods are required to be delivered On Board the vessel FOB/CFR/CIF

should be used.

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Trade Contracts

Presented by

Mr.Priyantha De ZilvaSenior Manager - Exports

What is a Trade Contract?Agreement between Buyer and Seller which could be in the following ways.

Sales ContractsIssued by Seller to Buyer it is a document that states a commitment from theseller to sell goods to the Buyer at specific prices and terms.

Purchase ContractIt is a Commercial Document issued by a Buyer to a Seller indicating Termsand Conditions.

Proforma InvoiceIt is issued by the Seller to the Buyer prior to shipment of goods details wouldbe similar to the purchase order / sales contract.

IndentUsually Issued by an Indenting agent for placing of an order between Buyer

and Seller.

Why is a Proper Trade Contract Essential?To avoid different Interpretations / Assumptions

To Avoid Any Additional Costs

(Eg: Legalization / Confirmation charges in relating to L/Cs. etc)

Terms and Conditions of the Contract should be precise clear without anyambiguity

Contracts must contain the following information:

Buyer and Seller Details (Name and Address, Their Bank Details)

Price of Goods

Terms of Delivery of goods i.e. INCOTERMS Terms of payment collection / L/C / Advance Payment / Open Account

Type of Packing

whether documents (Commercial Invoice / Certificate of Origin ) needs to be legalizedor certified by an independence authority.

(Eg: Chamber of Commerce)

Documents Required :

Commercial Invoice

Packing / Weight List

Inspection Certificate

Type of Transport Documents

Trade Contracts