Chapter 6. Incoterms

CONTENTS
Nguyen Thi Dieu Chi. Assoc. Prof. Dr. – Course of International Payments
1 Overview of Incoterms
Incoterms 2000
2
Chapter 6
3 Incoterms 2010
Incoterms
4 Incoterms 2020
5 Exercises
School of Banking and Finance – International Finance Department
Nguyen Thi Dieu Chi (Assoc. Prof. Dr.) 2
1 2
Overview of Incoterms Overview of Incoterms

Nguyen Thi Dieu Chi. Assoc. Prof. Dr. – Course of International Payments Nguyen Thi Dieu Chi. Assoc. Prof. Dr. – Course of International Payments
INCOTERMS (International Commerce Terms) INCOTERMS

 The term INCOTERMS means International Commercial Terms  In 1936, to avoid or minimize disputes and difficulties in trade,
for the use of buyer and seller of goods. the ICC – International Chamber of Commerce in Paris
introduced rules of Incoterms.
 When a contract is made between a buyer and seller or between
 Rules of Incoterms have been revised periodically, keeping in
an importer and exporter the terms of sale and purchase for delivery
mind the developments taking place from time to time and the
of goods must be clarified to avoid any dispute at a later stage. revisions in the systems and procedures to handle international
 There terms were established by the ICC (International Chamber trade.
of Commerce), after discussions with various interested parties.  These rules were last revised in 2020 and became effective from 1st
 The value of the INCOTERMS is universally recognised January 2020.
3 4
Overview of Incoterms Overview of Incoterms

PURPOSE
The purpose is to provide a set of international rules for the
interpretation of the most commonly used trade terms in local,
national and international trade to:
+ Avoid misunderstanding the meaning of certain terms, disputes
and litigation
?
NOTED QUESTIONS IN TRADE TRANSACTIONS
+ Adapt the terms to be increasing use of electronic data
interchange (EDI) 1. Who will arrange to pay for the carriage of goods from one point
+ Accommodate the changes in the use of technology and to another?
transportation systems.
For example: Unitization of cargo; Use of containers; Multimodal 2. Who will bear the risk of these operations cannot be carried out?
transport; Role on roll off traffic with road vehicles; Railway 3. Who will bear the risk of loss or damage to the goods in transit?
wagons in “short sea” marine transport…
5 6
1
INCOTERMS 2000 INCOTERMS 2010
Structure of Incoterms Version 2000 Structure of Incoterms Version 2010

There are 13 terms in Incoterms 2000 and divided Incoterms 2010 includes 11 terms and are divided
into 4 groups: E, F, C, D into two groups:
 Group E includes 1 terms (EXW) Terms groups are classified basing on kinds of
 Group F includes 3 terms (FCA, FAS, FOB) transportation means;
 Group C includes 4 terms (CFR, CIF, CPT, CIP)  Group 1 (Goods/products are delivered by many
 Group D includes 5 terms (DAF, DES, DEQ, kinds of transportation means: EXW, FCA, CPT,
DDU, DDP) CIP, DAP, DAT and DDP)
 Group 2 (Goods/products are delivered by sea):
FAS, FOB, CFR and CIF
7 8
7 8
EXW- EX WORKS EXW- EX WORKS

 Goods/Products are delivered at seller’s

works, factory, warehouse etc…
 The seller is not responsible for loading the
goods on to the vehicle, unless otherwise
agreed.
 The buyer bears all costs and risks involved in
taking the goods from the seller’s premises to
the desired destination
 The term represents the minimum obligation
for the seller
9 10
EXW- EX WORKS FCA – FREE CARRIER

Seller’s
Buyer Seller Factory
 Receive goods at seller’s Deliver goods basing on the
work, factory… signed contract
 Have all obligations to all Help buyer customs documents
costs and risks from receiving Finish delivering obligation
goods from the seller from the buyer receiving goods at
Buy insurance for goods; his factory.
 Implement import and export Have minimum obligation in
tax duty delivering goods
11 12
2
FCA – FREE CARRIER FAS - FREE ALONGSIDE SHIP
(Free Carrier)The seller's obligation is to hand over the goods,

cleared for export, into the charge of the carrier named by the buyer
at the named place or point.
If no precise point is indicated by the buyer, the seller may
choose within the place or range stipulated where the carrier shall
take the goods into his charge. When the seller's assistance is
required in making the contract with the carrier the seller may act at
the buyers risk and expense.
This term can be used across all modes of transport.
13
13 14
FAS - FREE ALONGSIDE SHIP FOB – FREE ON BOARD

 The seller must place the goods alongside the ship at the named port.
 The seller must clear the goods for export.
 Suitable only for maritime transport but NOT for multimodal sea
transport in containers
 This term is typically used for heavy-lift or bulk cargo.
15 16
FOB – FREE ON BOARD CFR – COST AND FREIGHT

 The seller must load themselves the goods on board the vessel
nominated by the buyer.
 Cost and risk are divided when the goods are actually on board of
the vessel (this rule is new!).
 The seller must clear the goods for export.
 The term is applicable for maritime and inland waterway transport
only but NOT for multimodal sea transport in containers.
 The buyer must instruct the seller the details of the vessel and the
port where the goods are to be loaded, and there is no reference to,
or provision for, the use of a carrier or forwarder.
17 18
3
CFR – COST AND FREIGHT CIF – COST INSURANCE AND FREIGHT
 The seller must pay the costs and freight required in bringing the
goods to the named port of destination.
 The risk of loss or damage is transferred from seller to buyer
when the goods pass over the ship's rail in the port of shipment.
 The seller is required to clear the goods for export. This term
should only be used for sea or inland waterway transport.
19 20
CIF – COST INSURANCE AND FREIGHT CPT – CARRIAGE PAID TO

 The seller has the same obligations as under CFR

however he is also required to provide insurance
CIF against the buyer's risk of loss or damage to the
goods during transit.
 The seller is required to clear the goods for export.
This term should only be used for sea or inland
waterway transport.
21 22
CPT – CARRIAGE PAID TO CIP – CARRIAGE & INSURANCE PAID TO

 The seller pays the freight for the carriage of goods

to the named destination.
CPT  The risk of loss or damage to the goods occurring
after the delivery has been made to the carrier is
transferred from the seller to the buyer.
 This term requires the seller to clear the goods for
export and can be used across all modes of
transport.
23 24
4
CIP – CARRIAGE & INSURANCE PAID TO DAF – DELIVERED AT FRONTIER
 The seller has the same obligations as under CPT but has the
responsibility of obtaining insurance against the buyer's risk of
loss or damage of goods during the carriage.
 The seller is required to clear the goods for export however is only
required to obtain insurance on minimum coverage.
 This term requires the seller to clear the goods for export and can
be used across all modes of transport.
25 26
DAF – DELIVERED AT FRONTIER DES – DELIVERED EX SHIP

 "Delivered at Frontier" means that the seller fulfils his obligation
to deliver when the goods have been made available, cleared for
export, at the named point and place at the frontier, but before the
customs border of the adjoining country.
 The term "frontier" may be used for any frontier including that of
the country of export. Therefore, it is of vital importance that the
frontier in question be defined precisely by always naming the
point and place in the term.
27 28
DES – DELIVERED EX SHIP DEQ - DELIVERED EX QUAY

 Delivered Ex Ship» means that the seller delivers when the goods
are placed at the disposal of the buyer on board the ship not cleared
for import at the named port of destination.
 The seller has to bear all the costs and risks involved in bringing
the goods to the named port of destination before discharging.
 This term can be used only when the goods are to be delivered by
sea or inland waterway or multimodal transport on a vessel in the
port of destination.
29 30
5
DEQ - DELIVERED EX QUAY DDU – DELIVERED DUTY UNPAID
 "Delivered Ex Quay (duty paid)" means that the seller fulfils his
obligation to deliver when he has made the goods available to the
buyer on the quay(wharf) at the named port of destination, cleared
for importation.
 The seller has to bear all risks and costs including duties, taxes
and other charges of delivering the goods thereto.
 This term should not be used if the seller is unable directly or
indirectly to obtain the import license.
31 32
DDU – DELIVERED DUTY UNPAID DDP – DELIVERED DUTY PAID

 Delivered duty unpaid" means that the seller fulfils his obligation
to deliver when the goods have been made available at the named
place in the country of importation.
 The seller has to bear the costs and risks involved in bringing the
goods thereto (excluding duties, taxes and other official charges
payable upon importation) as well as the costs and risks of
carrying out customs formalities.
 The buyer has to pay any additional costs and to bear any risks
caused by his failure to clear the goods for import in time.
33 34
DDP – DELIVERED DUTY PAID SUMMARY INCOTERMS 2000

 The seller is responsible for delivering the goods to the named
place in the country of importation, including all costs and risks in
bringing the goods to import destination.
 This includes duties, taxes and customs formalities.
 This term may be used irrespective of the mode of transport.
35 36
6
SUMMARY INCOTERMS 2000 Compare Incoterms 2000 & 2010
Terms Mode of transportation
EXW Using in all modes of
FCA transportation: marine, train,
CPT, CIP plane, land and multimodal
DAF, DDU, DDP transport
FAS, FOB Only using sea transport

CFR, CIF
DES, DEQ
37 38
DAP – Delivered at Place DAP – Delivered at Place

 Seller delivers the goods when they are placed at the disposal of
the buyer on the arriving means of transport ready for unloading
at the named place of destination.
 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.
39 40
DAT – Delivered at Terminal DAT – Delivered at Terminal

 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.
 "Terminal" includes quay, warehouse, container yard or road, rail
or air terminal.
 Both parties should agree the terminal and if possible a point
within the terminal at which point the risks will transfer from the
seller to the buyer of the goods.
41 42
7
SUMMARY INCOTERMS 2010 INCOTERMS 2010
DAP – Delivered at Place (s)

Ex.DAP Hanoi, Vietnam
DAT – Delivered at Terminal
Ex.DAT Hanoi Train Station
43 44
SUMMARY INCOTERMS 2010 DIFFERENCE BETWEEN INCOTERMS 2010 & 2000

1. Reduction from 13 to 11 rules

Terms Mode of transportation
2. Priority for Incoterms used with any mode of transportation in
EXW Using in all modes of
comparison with sea Incoterms.
FCA transportation: marine, train,
3. Goods in containers only for Incoterms for any mode of transport
CPT, CIP plane, land, and multimodal
but not for sea Incoterms.
DAT, DAP, DDP transport
4. Transfer of risks “on board” in Incoterms FOB, CFR, and CIF
Only uing sea transport 5. Allocation of terminal costs
FAS, FOB
CFR, CIF 6. Security related information
7. Validity of electronic messages and documents
8. International and national use
45 46
Rules in Incoterms 2010 and 2020 Difference among Incoterms 2000, 2010, 2020
 EXW- Ex Works
 FCA - Free Carrier
 FAS - Free Alongside Ship
 FOB - Free on Board
 CFR - Cost and Freight
 CIF - Cost Insurance and Freight
 CPT - Carriage Paid To
 CIP - Carriage & Insurance Paid to
 DAT- Delivered at terminal
 DAP – Delivered at Place(s)
 DAP - Delivered at Place (Ready for unloading)
 DPU - Delivered at Place Unloaded
 DDP - Delivered Duty Paid
47 48
8
DAP – Delivered at Place DAP – Delivered at Place
 The seller delivers the goods to the buyer – and transfers the risk of the goods to
the buyer when the goods are placed at the buyer's disposal on an incoming
transport vehicle and ready for unloading at the designated destination location.
 The seller assumes all risk to deliver the goods to the specified destination. The
risk of loss or damage of the shipment is transferred to the buyer at the point of
delivery.
 All costs incurred before the point of delivery are borne by the seller and all
costs after the point of delivery are borne by the buyer. Applicable to all modes
of transportation.
49 50
DPU – Delivered at Place Unloaded DPU – Delivered at Place Unloaded

 The seller delivers the goods to the buyer – and transfers the risk of the goods
to the buyer as soon as the goods are unloaded from the incoming transport
vehicle and placed at the buyer's disposal at the designated destination.
 The seller assumes all risks of loss or damage of the goods in order to take
them to their designated destination and unload.
 DPU is the only Incoterms condition that requires the seller to unload at the
destination (the seller bears the cost and risk of unloading).
 All costs incurred before the point of delivery are borne by the seller and all
costs after the point of delivery are borne by the buyer. Apply all modes of
transportation.
51 52
INCOTERMS 2020 INCOTERMS 2020

Rules Mode of transportation

Applies to all types means of
EXW transport.
FCA
CPT, CIP
DAP, DPU, DDP
Only applies to seaway transport.

FAS, FOB
CFR, CIF
53 54
9
DIFFERENCE BETWEEN INCOTERMS 2010 & 2020 DIFFERENCE BETWEEN INCOTERMS 2010 & 2020
 DAT (Delivered at Terminal) is replaced by DPU (Delivered at Place Unloaded):  CIF and CIP terms: "I" = insurance, for terms with the letter "I", by default the seller
 The ICC wants to emphasize that sellers must deliver goods to a predetermined point will have to buy insurance for the goods. For the CIP clause, the default insurance type
(train station, port, ICD, any one point ...), that is, be responsible for lowering goods is type (A) or equivalent type (A), previously according to the incoterms 2010, the
from the transport vehicle to below the "ground" of the intended destination. While default insurance for the CIP condition was type (C) – compulsory insurance.
DAT (delivery only to a certain port, train station), the point of delivery can be  The terms: Free Carrier (FCA), Delivered at Place (DAP), Delivered at Place Unloaded
anywhere as agreed by the seller and buyer. (DPU) and Delivered Duty Paid (DDP), are further extended, Accordingly, the carrier
 FCA (Free Carrier): The seller waives liability when delivering goods to the carrier does not have to be a 3rd party, but can be transported by the buyer's or seller's means of
(carrier specified by the buyer), this provision has a new point that the carrier is transport.
allowed to issue a bill of lading after receiving the goods from the seller. Note:  For the incoterms 2020 adding regulations on information confidentiality, the parties
delivery to the carrier, i.e. responsibility and cost of loading up on the transport. must keep confidential information about goods, prices, information related to the
agreement between the parties in the contract.
55 56
Note in the application of Incoterms to

Questions
commercial practice
 Incoterms are not transport contracts, nor can they replace foreign trade contracts; 1. What are Incoterms 2010 ? Select the appropriate answer from the
 Incoterms are not mandatory legal documents, so parties engaged in foreign trade following:
activities may have different provisions than those prescribed by the Incoterms and a. The law relating the international carriage of goods;
should be clearly specified in foreign trade contracts;
 For the incoterms 2020, the terms as well as the implementation guidelines pay great b. A set of international recognized contract terms that define buyers/sellers’
attention to insurance and information security, importers and exporters need to study responsibilities when included in international contracts;
carefully to apply the provisions of the incoterms 2020 in trade as soon as possible c. A shorthand used by the freight industry for indicating whether the buyer or
because the internet age is very developed, information security is very necessary in the
process of trade and trade. seller pays for freight costs during the shipment of goods;
 In the current commercial contracts of many import-export companies, although there d. A set of contract terms indicating where the title to the goods passes in
are incoterms in the contract, invoice, packing list ... but it does not specify which international shipments.
version Incoterm. (For example: CIF Cat Lai, CIF Hai Phong). This can lead to
misunderstanding, because each version of incoterms has many similarities, so it is 2. What are the differences between following terms?
necessary to pay special attention to specify the applicable version (For example: CIF a. CIP and CIF
Cat Lai, Incoterms 2020; FOB Haiphong, Incoterms 2000 ...). b. FOB and CFR
c. ExWorks and FCA sellers’premises
57 58
Questions Solutions
3. You receive an export order with the Incoterms CFR New York 1. What are Incoterms 2010 ? Select the appropriate answer from
Airport. How would you respond ? the following:
4. Under CIF/CIP contracts: b. A set of international recognized contract terms that define
a. Who is legally obligated to take out the insurance cover ? buyers/sellers’ responsibilities when included in international
contracts;
b. What value should the insurance amount cover ?
A common misconception is that Incoterms relate to title – ownership
c. Who is responsible for making the insurance claim if the goods
of the goods, payment, etc have nothing to do with the Incoterms
are damaged in transit ?
Rule chosen in the contract and these issues must be covered
elsewhere in the contract.
59 60
10
Solutions Solutions
2. What are the differences between following terms?

2. What are the differences between following terms?
c. ExWorks and FCA seller’s premises – under both terms the buyer
a. CIP and CIF – Both terms say that: organizes the transport and pays the freight from the seller’s premises BUT
The seller must pay for the freight to arrival in the buyer’s country, risk ExWork is not considered appropriate under the 2010 set for anything but
for the international movement of goods is the buyer’s not the domestic deliveries as it makes the buyer responsible for all export
seller’s, the seller must buy cargo insurance cover in the name of formalities.
the buyer BUT CIP is applicable for movements by any modes of This includes: the loading of the goods at the seller’s premises the
transport but CIF is only appropriate for “conventional” sea freight preparation of export paperwork being registered appropriately with the
export customs authorities so the export transaction can be made in the
shipments. CIF is not even appropriate for containerized sea freight. buyer’s name not the seller’s total transport and shipment costs,
b. FOB and CFR – both terms are only appropriate for conventional responsibilities and risks.
sea freight shipments (not in containers), and, under both terms the The use of FCA seller’s premises makes the seller responsible for loading,
risk for the international movement of goods is the buyer’s not the paperwork and export customs formalities which is more natural.
seller’s, BUT under FOB the buyer organizes the transport and pays Changing to FCA Seller’s Premises also means that the seller is legally
the freight while under CFR it is the seller who does this entitled to obtain evidence of export which may be required under VAT/Tax
law.
61 62
Solutions Solutions
3. You receive an export order with the Incoterms CFR New York 4. Under CIF/CIP contracts:
Airport. How would you respond ? a. Who is legally obligated to take out the insurance cover ?
The use of CFR is not appropriate to air freight shipments as The seller
it requires the issuing of a bill of lading and for the goods to be loads b. What value should the insurance amount cover ?
onto a ship. The direct replacement multimodal replacement for CFR 110% of the CIF value of the shipment, in the currency of the
is CPT. contract
c. Who is responsible for making the insurance claim if the goods
are damaged in transit ?
The Buyer
63 64
Exercises
Ex1. Vietnam Company sells iron to a Chinese Importer. The China

Company requires the Vietnam company deliver goods on transport
mean at frontier between Vietnam and China. The Vietnam Company
will bear all costs and risks to deliver goods to defined place at the
frontier, whereas the China Company will bear costs and risks when
they receive goods on lorry at frontier. Which terms will be used in
this case? Why – explain ?
Ex2. A Vietnam Company imports computer from UK, the Vietnam
Company does not have much international trade experience. Which
terms should the Vietnam Company use to import the product? Why
– explain ? KẾT THÚC
Q&A
CHƯƠNG 2
HỎI & ĐÁP 66
65 66
11

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CONTENTS

Overview of Incoterms Overview of Incoterms

INCOTERMS (International Commerce Terms) INCOTERMS

Overview of Incoterms Overview of Incoterms

Structure of Incoterms Version 2000 Structure of Incoterms Version 2010

EXW- EX WORKS EXW- EX WORKS

 Goods/Products are delivered at seller’s

EXW- EX WORKS FCA – FREE CARRIER

(Free Carrier)The seller's obligation is to hand over the goods,

FAS - FREE ALONGSIDE SHIP FOB – FREE ON BOARD

 The seller must clear the goods for export.

 This term is typically used for heavy-lift or bulk cargo.

FOB – FREE ON BOARD CFR – COST AND FREIGHT

goods to the named port of destination.

 The risk of loss or damage is transferred from seller to buyer

should only be used for sea or inland waterway transport.

CIF – COST INSURANCE AND FREIGHT CPT – CARRIAGE PAID TO

 The seller has the same obligations as under CFR

CPT – CARRIAGE PAID TO CIP – CARRIAGE & INSURANCE PAID TO

 The seller pays the freight for the carriage of goods

responsibility of obtaining insurance against the buyer's risk of

loss or damage of goods during the carriage.

required to obtain insurance on minimum coverage.

be used across all modes of transport.

DAF – DELIVERED AT FRONTIER DES – DELIVERED EX SHIP

 "Delivered at Frontier" means that the seller fulfils his obligation

customs border of the adjoining country.

the country of export. Therefore, it is of vital importance that the

frontier in question be defined precisely by always naming the

point and place in the term.

DES – DELIVERED EX SHIP DEQ - DELIVERED EX QUAY

DDU – DELIVERED DUTY UNPAID DDP – DELIVERED DUTY PAID

DDP – DELIVERED DUTY PAID SUMMARY INCOTERMS 2000

 The seller is responsible for delivering the goods to the named

place in the country of importation, including all costs and risks in

bringing the goods to import destination.

 This includes duties, taxes and customs formalities.

 This term may be used irrespective of the mode of transport.

Terms Mode of transportation

EXW Using in all modes of

FCA transportation: marine, train,

CPT, CIP plane, land and multimodal

DAF, DDU, DDP transport

FAS, FOB Only using sea transport

DAP – Delivered at Place DAP – Delivered at Place

the buyer on the arriving means of transport ready for unloading

at the named place of destination.

 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.

DAT – Delivered at Terminal DAT – Delivered at Terminal

DAP – Delivered at Place (s)

SUMMARY INCOTERMS 2010 DIFFERENCE BETWEEN INCOTERMS 2010 & 2000

1. Reduction from 13 to 11 rules

DPU – Delivered at Place Unloaded DPU – Delivered at Place Unloaded

INCOTERMS 2020 INCOTERMS 2020

Rules Mode of transportation

Only applies to seaway transport.