Session 2 - Incoterms 2020 - Strucutre, Explantion & Leveraging

INCOTERMS 2020-
STRUCTURE, EXPLANATION
& LEVERAGING
By
Dr. Ram Singh
Professor & Head (MDPs)
International Trade Operations
Indian Institute of Foreign Trade
New Delhi
Email: ramsingh@iift.edu
STRUCTURE OF
INCOTERMS
Organization of Incoterms 2020
Incoterms are divided into four (4) categories:
 “E” term – Seller makes the goods available to the buyer at the
seller’s premises or other place named by the seller.
 “F” terms – Seller is responsible to deliver the goods to the export

shipment point and carrier designated by the buyer
 “C” terms – Seller is responsible for contracting carriage of goods

to the place of destination, but does not assume risk of loss or
damage to goods, or additional costs due to events occurring after
shipment
 “D” terms – Seller is responsible for all costs and risks associated
with delivering goods to the named place in the country of
destination
The Structure of Incoterms
 4 groups of terms
Group E Departure
EXW Ex Works (… named place)
Group F Main carriage unpaid

FCA Free Carrier (…named place)
FAS Free alongside Ship (…named port of shipment)
FOB Free On Board (…named port of shipment)
Group C Main Carriage Paid

CFR Cost and Freight (…named port of destination)
CIF Cost Insurance and Freight (…named port of destination)
CPT Carriage Paid To (…named place of destination)
CIP Carriage Insurance Paid To (…named place of destination)
Group D Delivered
DAP Delivered at Place (…..named place of destination)
DPU Delivered at Place Unpaid (….named place of destination)
DDP Delivered Duty Paid (…named place of destination)
Incoterms Classified by Use of Transport
All modes of transport Sea and inland waterway

including multi-modal transport only
 EXW – Ex Works
 FAS – Free Alongside Ship
 FCA – Free Carrier
 FOB – Free Onboard
 CPT – Carriage Paid To
 CIP – Carriage and  CFR – Cost and Freight
Insurance Paid To  CIF – Cost, Insurance, and
 DAP – Delivered At Place Freight
 DPU- Delivered at Place
Unpaid
 DDP – Delivered Duty
Paid
*Beautiful Incoterms; Mode Neutral; can be used with any mode of transport
Four Groups of Incoterms
Less More
Res. 1) “E” group Res.
2) “F” group
Seller Buyer
3) “C” group
More Less
4) “D” group Res.
Res.
EXW
EX WORKS (…..Named Place of Delivery)
 The “E”-term is the term in which the seller’s obligation
is at its minimum.
 The buyers all the costs and risks involved in taking the
goods from sellers; Premises to the desired destination.
 Seller's obligation is to make goods available at his
premises (Works; Factory; warehouse). This Terms
represents minimum Obligation for the seller.
 Term can be used irrespective of mode of Transport in
Trade Operations.
EXW
Ex Works …(Named Place of Delivery)
SELLER BUYER
Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents at named Port of Ship Port of named place ofDocuments Importer
Premises Formalities place of: Shipment Rail Arrival destination: Formalities Premises
Frontier/ Plane Frontier/
Terminal/ Terminal/Quay
Quay
Seller’s Buyer’s Risks
Risks
Seller’s ’s Cost
Buyer
Cost
Dr. Singh Anecdotes
 Best Use of EXW: EXW Incoterms can be best

Used for Domestic Sales / Exports Sales when
buyer has better logistical expertise or if
exporter has monopoly / ignorant of market
conditions; Deemed Export sales; risk averse
situations.
 Let us Check Up:
Incoterms 2020
The “F” –terms require the seller to deliver goods for

carriage as instructed by the buyer.
 FCA
 FAS
 FOB
FCA
FREE CARRIER (…..Named Place)
 Seller delivers when goods, cleared for export, to the

carrier nominated by the buyer at a named place.
 Term may be used irrespective of the mode of transport.
 Seller is obligated to load goods on arriving vehicle if it
arrives within the Date of Shipment at the agreed point or
place.
 If the vehicle don't arrive on agreed date; seller should
handover the documents to person nominated by buyer.
FCA
FCA – Free Carrier (….Named
Free Carrier…(named place) Place)
SELLER BUYER
Seller/ Export Delivered at Loading Onboard Discharging Delivery at Import Buyer/

Exporter Documents named place Port of Ship Port of named place of Documents Importer
Premises Formalities of: Shipment Rail Arrival destination: Formalities Premises
Quay
Seller’s Risks Buyer’s Risks
Seller’s Cost Buyer’s Cost

Dr. Singh Anecdotes
 Best use of Incoterms FCA: Can be best used in

Deemed Exports & Restricted Exports. Incoterms
FCA can be best used when buyer want to
maximize his control on Trade supply chain or
buyer is risk averse. FCA are best suited for Air
shipments under Group F.
FAS -FREE ALONGSIDE SHIP
(…named port )
 Seller delivers when goods, cleared for
export, are placed alongside the vessel.
 Seller obliged to clear goods for export.
 The buyer bears all costs and risks of loss or

damage to the goods from that moment.
 Terms can be used for sea or inland waterway
transport only.
FAS – Free Alongside (…..Named Port)
FAS
Free Alongside…(named place)
SELLER BUYER

Terminal/ Ship’s Ship’s Terminal/Quay
Quay Rail Rail

Dr. Singh Anecdotes
 Best Use of Incoterms FAS: Incoterms FAS are

best used in case of Inland water Transport;
however can be used with equal ease in Sea
Transportation. Should not be used from country
hinterland (place). Should also be avoided in
case of Charter Party Contracts.
FOB – FREE ON BOARD
(…named port of shipment)
 Seller delivers when goods, cleared for export, pass

the ship’s rail at the named port of shipment.
 The buyer bears all costs and risks of loss or damage to
the goods from that point.
 Term can be used for sea or inland waterway transport
only.
 If intent is not to deliver goods across the ship’s rail, use
FCA.
FOB
Free On Board…(named port of shipment)
SELLER BUYER

Exporter Documents at named Port of Ship Port of named place of Documents Importer
Quay
Seller’s Risks Buyer’s
Risks

Dr. Singh Anecdotes
 Best Use of Incoterm FOB: Most suitable for
Both the parties in ideally competitive
situation. Due Care should be taken for not
using it from “Place”. Should be avoided as
possible for Air Transport. Give buyer the
control on supply Chain. Establish Ideal
business relationships.
Incoterms 2020
 The “C” –terms require the seller to

contract for carriage at his expense – to a
specified point.
 CFR
 CIF
 CPT
 CIP
CFR – COST AND FREIGHT
(…..Named Port of Destination)
 Seller delivers when goods, cleared for export, pass

the ship’s rail at the named port of shipment.
 The seller pays the costs and freight necessary to
bring goods to port of destination, but the buyer
bears the risk of loss and additional costs occurring
after delivery.
 Term can be used for sea or inland waterway
transport.
 If intent is not to deliver goods across the ship’s rail,
use CPT
CFR
Cost and Freight …(named port of destination)
SELLER BUYER

Quay

Dr. Singh Anecdotes
 Best Use of Incoterms CFR: CFR Incoterms is

suitable for Bulk Cargo like Coal; Cotton Bales;
Iron Ore. Also suitable for ‘stand alone shipments’
or when buyer has his own means of
Transportation. Suitable for FCL Cargo. Suitable
for Charter party contracts.
CIF – Cost Insurance & Freight
(….Named Port of Destination)
 Seller delivers when goods, cleared for export, pass the ship’s
rail at the named port of shipment.
 The seller pays the costs and freight necessary to bring goods
to port of destination, but the buyer bears the risk of loss and
additional costs occurring after delivery.
 The seller procures marine insurance, against buyer’s
risk of loss. Seller is required to obtain insurance only on
minimum cover.
 Term can be used for sea or inland waterway transport.
 If intent is not to deliver goods across the ship’s rail, use CIP.
CIF
Cost, Insurance and Freight …(named port of destination)
SELLER BUYER

Quay
Seller’s Buyer’s Risks
Risks
Seller’s Buyer’s Cost

Costs
Dr. Singh Anecdotes
 Best Use of Incoterms CIF: Most suitable for port to
port Shipment; widely used in global trade. Buyer
must take care of risk mitigating mechanism.
Should be avoided when goods are to be delivered
across ship rail (country hinterland). Ideal for
competitive business relations. Suitable for both FCL /
LCL Cargo. Ideal for Containerized Cargo.
CPT – CARRIAGE PAID TO
(…..Named Place of Destination)
 Seller delivers the goods, cleared for export, to the

carrier.
 The seller pays the costs of carriage necessary
to bring goods to named destination, but the
buyer bears the risk of loss and additional
costs occurring after ‘delivery’ at seller
Country.
 Term may be used irrespective of mode of
transport.
CPT - Carriage Paid To
CPT
(…….Named Place of Destination)
Carriage Paid To …(named port of destination)
SELLER BUYER

Quay
Risks
Seller’s Cost Buyer’s

Costs
Dr. Singh Anecdotes
 Best Use of Incoterms CPT: Most suitable for
Warehouse to Warehouse Shipment; widely used
when intent is to get cargo in country hinterland at dry
ports; buyer must take care of risk mitigating
mechanism to protect himself from 1st warehouse
itself. Should never be used at port town such as JNPT/
Kolkata/ Chennai. Ideal for Break bulk; LCL cargo.
CIP – CARRIAGE AND INSURANCE PAID TO
(…..Named Place of Destination)
 Seller delivers the goods, cleared for export, the carrier.

 The seller pays the costs of carriage to named
destination, but the buyer bears the risk of loss and
additional costs occurring after delivery.
 The seller procures insurance against buyer’s risk
of loss. Seller is required to obtain insurance only
on a minimum cover.
 Term may be used irrespective of mode of transport.
CIP – Carriage and Insurance Paid to
(…Named Place
CIP of Destination)
Carriage and Insurance Paid To …(named port of destination)
SELLER BUYER

Quay

Dr. Singh Anecdotes
 Best Use of Incoterms CIP: Notable Change has
been made so as to facilitate the break bulk cargo
for end to end journey.
 Most suitable for Warehouse to Warehouse Shipment;
widely used when intent is to get cargo in country
hinterland at dry ports; buyer must take care of risk
mitigating mechanism to protect himself from 1st
warehouse itself. Should never be used at port town
such as JNPT/ Kolkata/ Chennai. Ideal for Break
bulk; LCL cargo.
Incoterms 2020
 The “D” –terms obligate the seller to contract

for Carriage as well Insurance at his expense –
to a specified port; point or place and deliver
the goods to the buyer. Incoterms are:
 DAP
 DAU
 DDP
DAP-Delivered At Place
(……Named Place of Destination)
 Seller bears the responsibility and risks to deliver
the goods to the named place.
 Seller is advised to obtain contracts of carriage
that matches the contract of sale.
 Seller is required to clear the goods for exports.
 Importer is responsible for effecting customs
clearance and paying any customs duties.
DAP
Delivered At Place…(named place of destination)
SELLER BUYER

Exporter Documents at named Port of Ship Port of named place ofDocuments Importer
Quay Rail Rail
Risks
Seller’sCost Buyer’s Cost

Dr. Singh Anecdotes
 If the seller incurs unloading cost at place of destination;
unless previously agreed he is not entitled to recover any
such costs.
 Parties are advised to specify as clearly as possible the
point within the agreed place of destination; because
risks transfer at this point from seller to buyer.
 If the intent is to deliver the goods duly cleared from
customs ( Import Duty & Procedure); DDP should be used.
DPU – DELIVERED AT PLACE UNPAID
(…named place of destination)
 Seller delivers goods to the buyer, not cleared for import,
however unloaded, at the named place of destination.
 Seller bears all costs and risks (except duty) to bring goods to the
named place of destination.
 Term may be used irrespective of mode of transport.
 It is introduced for the first time in Incoterms 2020.
 DPU is an extension of DAP as it includes the unloading cost at
destination, thus first terms mandating unloading as sellers cost.
 Terms is mainly for containerized trade as world trade is getting
more and more containerized.
 It addresses the changing dynamics of world trade profile, e-
commerce, postal, courier and online.
DPU
Delivered at Place Unpaid…(named place of destination)
SELLER BUYER

Quay Rail Rail
Risks

Dr. Singh Anecdote
 Suitable for Containerized Trade, Postal Trade,
Courier Trade and is suitable for E-commerce
Trade. Offer solution to end to end journey
except Import Duty at destination. Suitable for
finished cargo requiring specific logistics
solution. Brings clarity in end to end logistics to
f Hazmat Cargo
DDP – DELIVERED DUTY PAID (…named
place of destination)
 Seller delivers goods to the buyer, cleared for
import, and not unloaded, at the named place of
destination.
 Seller bears all costs and risks, including import
duty, to bring goods to the named place of
destination.
 Term may be used irrespective of mode of
transport. If delivery is to take place at the port,
DAT (2010) should be used.
DDP
Delivered Duty Paid…(named place of destination)
SELLER BUYER

Quay Rail Rail
Risks
41
Dr. Singh Anecdote
 Best Use of Incoterm DDP: Immense care should be
taken to check local Import policy / Authorisation
requirements. Rate of Duties should also be checked in.
Attitude of Customs Authority in Customs Clearance /
Corruption etc. Ideal for Vender managed Inventory
situations / Consignment Sales when seller has better
logistical knowledge.
 Also know as Franco Domino in Francophone
Countries.
Knowledge Bytes:
Incorporating
Incoterms in Trade
Contracts
FI (Free In)
 In the international ocean freight terminology

the word “Free” means “Not included”. I.e. if
FI, then the shipper is responsible for the
coast of loading goods onto a vessel for the
international shipping overseas.

FO (Free Out)
 FO is the international shipping term in

ocean freight that indicates that the
consignee (recipient) is responsible for the
cost of unloading cargo from the vessel at
the destination.
FIO (Free In and OUT)
 The international shipping term used in

the ocean freight industry means that the
carrier is NOT responsible for the cost of
loading and unloading gods onto/from the
vessel.
Free into Store (FIS)
 An unofficial trade term indicating that the
seller's price includes all costs up to
delivery to the buyer. This is similar in
effect to DDP.
Mode of Transport and Appropriate
Incoterms - Any Mode 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
Mode of Transport and Appropriate Incoterm –
Maritime and Inland Waterway Transport Only
 FAS – Free Alongside Ship

 FOB – Free Onboard
 CFR – Cost and Freight
 CIF – Cost, Insurance, and Freight
In Summary
 Buyer’s Objective: maximize control of supply

chain, use FOB, FCA, or FAS
 Must name a place after the INCOTERM
 INCOTERMS are negotiable!
 INCOTERMS should appear on all commercial
documents
 Establish a close relationship with a forwarder
Thank You for Your Patience
Thank You
धनयवाद
Merci
Gracias Danke
Schon
Thank You
谢谢

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INCOTERMS 2020-

Incoterms are divided into four (4) categories:

 “F” terms – Seller is responsible to deliver the goods to the export

 “C” terms – Seller is responsible for contracting carriage of goods

Group F Main carriage unpaid

Group C Main Carriage Paid

All modes of transport Sea and inland waterway

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

 Best Use of EXW: EXW Incoterms can be best

The “F” –terms require the seller to deliver goods for

 Seller delivers when goods, cleared for export, to the

Seller/ Export Delivered at Loading Onboard Discharging Delivery at Import Buyer/

Seller’s Cost Buyer’s Cost

 Best use of Incoterms FCA: Can be best used in

 The buyer bears all costs and risks of loss or

Seller/ Export Delivered at Loading Onboard Discharging Delivery at Import Buyer/

Seller’s Cost Buyer’s Cost

 Best Use of Incoterms FAS: Incoterms FAS are

 Seller delivers when goods, cleared for export, pass

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Seller’s Cost Buyer’s Cost

 The “C” –terms require the seller to

 Seller delivers when goods, cleared for export, pass

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Seller’s Cost Buyer’s Cost

 Best Use of Incoterms CFR: CFR Incoterms is

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Seller’s Buyer’s Cost

 Seller delivers the goods, cleared for export, to the

Seller/ Export Delivered at Loading Onboard Discharging Delivery at Import Buyer/

Seller’s Cost Buyer’s

 Seller delivers the goods, cleared for export, the carrier.

Seller/ Export Delivered at Loading Onboard Discharging Delivery at Import Buyer/

Seller’s Cost Buyer’s Cost

 The “D” –terms obligate the seller to contract

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Seller’sCost Buyer’s Cost

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Seller’s Cost Buyer’s Cost

Seller/ Export Delivered Loading Onboard Discharging Delivery at Import Buyer/

Seller’s Cost Buyer’s Cost

 In the international ocean freight terminology

 FO is the international shipping term in

 The international shipping term used in

 FAS – Free Alongside Ship

 Buyer’s Objective: maximize control of supply

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