International Business

Operations
Lecture 4/13
10.10.2019
Ing. Eva Křenková, Ph.D.
Office hours: every Monday 11:00 – 12:00
NB213
E-mail: eva.krenkova@vse.cz
Last week at 2MO352 …

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 Contracts for the
International Sales of
Goods

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Delivery Terms

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 Terms of delivery are an
important part of the sales
contract …
They are used to allocate
responsibilities between the
seller and the buyer.

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• TRANSPORT COSTS
• RISK OF LOSS OR DAMAGE TO THE GOODS IN
TRANSIT
• INSURANCE RESPONSIBILITIES
• EX IM CUSTOMS CLEARANCE AND PAYMENT
OF DUTIES
• INFORMATION ASSISTANCE DUTIES

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 INCOTERMS 2010
RULES FOR ANY MODE OR MODES OF TRANSPORT
• EXW EX WORKS
• FCA FREE CARRIER
• CPT CARRIAGE PAID TO
• CIP CARRIAGE AND INSURANCE PAID TO
• DAT DELIVERED AT TERMINAL
• DAP DELIVERED AT PLACE
• DDP DELIVERED DUTY PAID

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

• FAS FREE ALONGSIDE SHIP
• FOB FREE ON BOARD
• CFR COST AND FREIGHT
• CIF COST INSURANCE AND FREIGHT
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Source: ICC website
Delivery terms – INCOTERMS 2010
History of INCOTERMS
Recent INCOTERMS are the INCOTERMS 2010
ICC release of new INCOTERNS 2020

• The source for INCOTERMS is the ICC

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Maximum – minimum duty for the seller
• EXW – ex works (named place of delivery)
– The seller delivers when it places the goods at the disposal
of the buyer at the seller´s premises (factory, warehouse,
etc.)
– The seller is not required to lead the goods or clear them
for export
• DDP – delivered duty paid (named place of delivery)
– The seller delivers the goods when the goods are placed at
the disposal of the buyer, cleared for import, on the
arriving means of transport and ready for unloading at the
named place of destination.

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 Difference between EXW & FCA
• FCA – free carrier (named place of delivery)
– The seller delivers the goods to the carrier or another
person nominated by the buyer at the seller´s
premises or another named place
– Specify the point where the costs and risks pass from
the seller to the buyer
– Seller is required to clear the goods for export where
applicable
– In case, where the seller is in better position to load
the goods, FCA is ussually more appropriate than EXW
– Buyers should not agree on EXW if they can not easily
obtain export clearance (FCA or other Incoterms is
more appropriate)
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 Sea/Ocean transport
• FAS – Free alongside ship (named port of shipment)
– The seller delivers when the goods are placed alongside
the vessel (e.g. on a guay or a barge) nominated by the
buyer at the named por of shipment
– If the goods are in container and are handed over to a
carrier at a terminal, the FCA might be more appropriate
• FOB – Free on board (named port of shipment)
– The seller is required to deliver the goods on board of a
vessel

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 Sea/Ocean transport
!!! C !!!
• CFR – Cost and freight (named port of destination)
– The seller deliveres the goods on board of a vessel .
– The seller contracts for and pays the costs and freight
necessary to bring the goods to the named port of
destination.
– The risk of loss and damage to the goods passes when the
goods are on board the vessel

• CIF – Cost, insurance and freight (named port of

destination)
– The seller also contracts for insurance cover against the
buyer´s risk of loss and damage to the goods during the
carriage
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 !!! C !!!
• CPT – Carriage paid to (named place of destination)
– The seller deliveres the goods to the carrier and contracts
for and pays the costs of carriage to the named place of
destination
– Risk passes when the goods have been delivered to the
first carrier
– More appropriate then CFR where goods are handed over
to the carrier before they are on board the vessel (e.g.
container delivered at a terminal)
• CIP – Carriage and insurance paid to (named place of
destination)
– The seller also contracts for insurance cover against
buyer´s risk of loss and damage to the goods during the
carriage

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 All means of transport
• DAT – delivered at terminal (named terminal at port or
place of destination)
– The seller deliveres when goods are place at buyer´s
disposal unloaded from the arriving means of transport at
a named terminal
– The seller bears the risks involved in bringing the goods to
and unloading them at the terminal

• DAP – Delivered at place (named place of destination)

– The seller deliveres when the goods are placed at the
buyer´s disposal on the arriving means of transport ready
for unloading at a destination
– The seller bears all risk involved in bringing the goods to
the named place
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 INCOTERMS 2020
Changes in Incoterms 2020
• Incoterms® 2020 provides for demonstrated market need in relation to
bills of lading (BL) with an on-board notation and the Free Carrier (FCA)
Incoterms® rule.
• Incoterms® 2020 aligns different levels of insurance coverage in Cost
Insurance and Freight (CIF) and Carriage and Insurance Paid To (CIP).
• Incoterms® 2020 includes arrangements for carriage with own means of
transport in FCA, Delivered at Place (DAP), Delivered at Place Unloaded
(DPU), and Delivered Duty Paid (DDP).
• There is a change in the three-letter name for Delivered at Terminal
(DAT) to DPU.
• Incoterms® 2020 includes security-related requirements within carriage
obligations and costs.

Source: https://iccwbo.org/media-wall/news-speeches/icc-releases-incoterms-2020/
 „I“ INSURANCE in INCOTERMS 2010
• The CIF and CIP Incoterms require the seller to obtain
insurance coverage for the buyer´s account.
• The seller is only obliged to take out insurance at the Institute
Cargo Clauses C, i.e. that the insurance cover does not cover
partial loss and damage.
• Minimum amount of coverage is set at 110 % of the value of
the goods (CFR + 10% ),
• in other words the insurance coverage must be for the
contract price + 10% and must be in the currency of the sales
contract
• The buyer should make sure that the insurance arranged by
the seller corresponds to the purchase contract as regards
cover of risks and value.

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Insurance and INCOTERMS 2010
3 standard clauses:
Institute cargo clause A – Against all risk, AR
- broadest coverage
- it is often considered to provide „all risks“ cover, but
some importatnt risks are not covered by Clause A
(risk of strike, war, damage resulting from unsificient
packing, delay and other)
Institute cargo clause B
With Particular Average-WA/WPA B and C: Cover only risks that are
Institute cargo clause C specifically refered to
Free of particular average-FPA
Source: http://www.iuaclauses.co.uk/site/cms/contentDocumentLibraryView.asp?chapter=8&category=57
The International Underwriting Association of London (IUA) 17
 Splitting Insurance Coverage
• In cases of some of the named Incoterms, the transfer
of risks is during the transit (e.g. FAS, FOB)
• It´s no common practice to split the insurance covarage
• The insurance coverage is most often warehouse-to-
warehouse
• There is a risk of leaving a gap
• If the loss or damage is only discovered upon arrival, it
may be difficult to prove were the loss or damage
occured and as result, both insurers may be able to
avoid the payment
• In general, two separate partial covers are generally
more expensive than one w-to-w cover
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