TERMS OF TRADE

(International Logistics)
Group No. 1
Tushar Rhode
Tarun Sharma
Shivam Seth
Niladri Sekhar Jyoti

15
th
December 2013
Steps of International Logistics
Main
International
Transportation
4
Handling
Inbound
Customs
Clearance
Duties
Final
Transportation
Unloading
Packing
Loading
Preliminary
Transportation
Customs Clearance
for Export
Handling
Outbound
Insurance
1
2
3
5
6
7
8
9
10 11
Key Issues
Major Steps in the whole process:
Clearance of goods for export and import
Organizing the transport of goods (multimodal)
Handling (leading/unloading) of goods at pt of transfer
Insurance against damage/loss during transit
Issues Involved:
Who will carry out which all activities
Who will pay for which of those tasks
Who bears the ownership of the goods in each step
(remember, ownership = risk of the goods)

Making it Clear between You & Me
All issues must be clarified in the contract
However, that itself is a challenge:
Describing all the terms is lengthy process - and it does need
contractual expertise
Description can create ambiguity different parties can have
different interpretation
It takes a lot of time to clarify and bring everyone on the same
page, in case ambiguity arises
Fortunately, a set of standardized terms of trade was
created in 1963 by the Int. Chamber of Commerce
Evolved into 11 Incoterms (2010*) - 3 letter acronyms
(Abbreviation for International commercial terms)

NOTE: Our text book is updated with Incoterms 2000 only

Evolution: from 2000 to 2010
EXW Ex Works

FCA Free Carrier
FAS Free Alongside Ship
FOB Free On Board

CFR Cost and Freight
CIF Cost, Insurance & Freight
CPT Carriage Paid To
CIP Carriage & Insurance Paid To

DEQ Delivered Ex Quay
DES Delivered Ex Ship
DAF Delivered at Frontier
DDU Delivered Duty Unpaid
DDP Delivered Duty Paid
EXW Ex Works

FCA Free Carrier
FAS Free Alongside Ship
FOB Free On Board

CFR Cost and Freight
CIF Cost, Insurance & Freight
CPT Carriage Paid To
CIP Carriage & Insurance Paid To

DAT Delivered At Terminal
DAP Delivered At Place
DDP Delivered Duty Paid

Marine Restricted Omni-Modal
11 Incoterms - Characteristics
Every Incoterm has
A scope: The type of products for which it can be used
A modality: The mode of transport for which it can be used
A syntax: The way it has to be stated on invoices and
paperwork
Every Incoterm defines:
The responsibilities of the exporter
The responsibilities of the importer
A specific transfer point at which the responsibilities
for the goods shifts from the exporter to the importer


Incoterms 2010
EXWORKS
VENDOR BUYER
FREE CARRIER
FAS
FOB
CFR
CIF
(Maritime only)
(Maritime only)
Group E:
EXW Ex Works: at vendors plant
Group F:
FCA Free Carrier: Land carrier
FAS Free Alongside Ship: At the shipping port
FOB Free On Board: On the Vessel. Maritime only.
Group C:
CFR Cost and Freight: At the arrival port (On board). Doesnt include insurance. Maritime
CIF Cost Insurance and Freight: At the arrival port (On board). Includes insurance. Maritime
CPT Carriage Paid To: Same as CFR but used for land/air freight
CIP Carriage and Insurance Paid To: Same as CIF but used for land/air freight
Group D:
DAP Delivered at Place: Multimodal / Land carrier
DAT Delivered at Terminal: Same as DAP but the shipper is
responsible for the load.
The buyer is responsible for the load.
DDP Delivered Duty Paid: At the buyers plant (Insurance, cost and
freight included (Door to Door).
DAP DAT DDP
Tax Control
Warehouse
(Almacn Fiscal)
Buyer Plant Vendor Plant
(Maritime only)
(Maritime only)
EX WORKS (EXW) (named place)
Named place is where the shipment originates usually
the sellers premises
Seller must have goods available and packaged when
promised
Buyer must arrange pre-carriage, export clearance, main
carriage, import clearance and on carriage
Neither party is required to insure
Transport Mode: All

Free Carrier (FCA)(named place)
Named place is either the place where the shipment
originates such as the sellers premises or another place
agreed within the sellers country
Seller is to have goods available and packaged when
promised, load collecting vehicle, pre-carriage and
export clearance
Buyer must unload delivering vehicle, main carriage,
import clearance and on carriage
Neither party is required to insure
Transport mode: All modes
Free Alongside Ship (FAS)(named port)
Named port is alongside a vessel at port on the sellers
side
Seller is to deliver goods, export packed alongside the
buyer-designated vessel at the port on the sellers side
along with export clearance
Buyer loads vessel, arranges main carriage, import
clearance and on carriage
Neither party is required to insure
Transport Mode: Vessel Only
Free on Board (FOB)(named port)
Named port is loaded on a vessel at a port on the sellers
side
Seller delivers the goods on board the buyer-designated
vessel at the port on the sellers side along with export
clearance
Buyer arranges main carriage, import clearance and on
carriage
Neither party is required to insure
Transport mode: Vessel Only
Cost & Freight (CFR)(named port)
Named port is on the buyers side
Seller delivers goods export packed on board the sellers
designated vessel at the port on the sellers side, pays
transportation costs to the agreed port on buyers side,
and arranges export clearance
Buyer arranges vessel unloading, import clearance and
on carriage
Neither party is required to insure
Transport Mode: Vessel Only
Carriage Paid To (CPT)(named place)
Named place on buyers side
Seller delivers goods export packed to the carrier for
transportation to the named place of destination and will
pay all transportation costs thereto along with arranging
export clearance
Buyer arranges import clearance and on carriage
Neither party is required to insure
Transport mode: All modes


Cost, Insurance and Freight (CIF)
(named port)
Named port is on buyers side
Seller delivers goods export packed on board the sellers-
designated vessel at port on sellers side, pays all
transportation costs to agreed port on the buyers side
and arranges export clearance
Buyer arranges import clearance and on carriage
Seller must provide at least minimum coverage
Transport Mode: Vessel Only
Cost, Insurance Paid (CIP)(named place)
Named place on buyers side
Seller delivers goods export packed to the carrier for
transportation to the named place of destination and pays
all transport costs thereto along with arranging export
clearance
Buyer arranges import clearance and on carriage
Seller must provide at least minimum insurance coverage
Transport Mode: All Modes
Delivered at Terminal (DAT)(named place)
Named place at terminal on buyers side (a terminal at
the destination port or a terminal not far beyond the
destination port where its yet to be cleared by Customs)
Seller arranges export clearance and delivers goods
export packed to the named destination terminal, pays
all transport costs thereto and unloads
Buyer arranges import clearance and on carriage
Neither party is required to insure
Transport Mode: All Modes
Delivered at Place (DAP)(named place)
Named place on buyers side
Seller arranges export clearance, delivers export packed
goods to the named place of destination and pays all
transportation costs thereto
Buyer arranges import clearance and on carriage
Neither party is required to insure
Transport mode: All Modes

Delivered Duty Paid (DDP)(named place)
Named place is on buyers side
Seller arranges export clearance, delivers export packed
goods cleared for import at the named destination and
pays all transportation costs thereto
Buyer possibly responsible for unloading, on carriage
Neither party is required to insure
Transport Mode: All Modes

Incoterms 2010
Sellers Responsibility Matrix:

















Transition to 2010 Rules:
Existing contracts (even if performance continues into 2011)
Continue to apply 2000 edition
Contracts entered into before Jan 2011
Should specify which version will apply
Contracts entered into beginning in Jan 2011
2010 will apply


Advice on Usage
Usageuse the phrase Incoterms 2010 after
the rule and named place
Clarifies that 2000 version does not apply
Usageensure you are naming the right location
EXW, FCA, FAS, FOB, DAT, DAP, DDP = place of delivery
CPT, CIP, CFR, CIF= place of desination
Be careful modifying Incoterms Rules
If you do modify rules (not advised), ensure contract
clarifies what you are modifying and what you are not
Electronic Data Interchange
For a number of Incoterms, there is no transport document
that is issued at the point where the responsibility shifts
from the exporter to the importer (for example, a Bill of
Lading).

Electronic Data Interchange has attempted to solve this
problem.

Whenever there is no transport document possible, the
exporter can still send an EDI notice to the importer,
which acts as a proof of delivery for both parties. The
exporter has a record of the notification sent, and the
importer knows unambiguously when the goods were
delivered to the quay or when they arrived in port.

APPENDIX 1 Incoterms 2000 Groups
2000 division of rules by sellers obligation
E (Make goods available at own premises)
F (Deliver goods to a carrier appointed by buyer)
C (Contract for carriage without assuming risk of
loss during shipment)
D (Bear all costs and risks needed to bring goods
to place of destination)
But, remember rules are split by mode of
transport

APPENDIX 2 Terms not in use!
DAF Delivered at Frontier (named place of delivery)
This term can be used when the goods are transported by rail and road. The seller pays for
transportation to the named place of delivery at the frontier. The buyer arranges for customs
clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the
frontier.

DES Delivered Ex Ship (named port of delivery)
Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the
named port of destination and the goods made available for unloading to the buyer. The seller pays
the same freight and insurance costs as he would under a CIF arrangement. Unlike CFR and CIF terms,
the seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the
named port. Costs for unloading the goods and any duties, taxes, etc. are for the Buyer. A commonly
used term in shipping bulk commodities, such as coal, grain, dry chemicals; and where the seller
either owns or has chartered, their own vessel.

DEQ Delivered Ex Quay (named port of delivery)
This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at
the port of discharge.

DDU Delivered Duty Unpaid (named place of destination)
This term means that the seller delivers the goods to the buyer to the named place of destination in
the contract of sale. A transaction in international trade where the seller is responsible for making a
safe delivery of goods to a named destination, paying all transportation expenses but not the duty.
The seller bears the risks and costs associated with supplying the goods to the delivery location,
where the buyer becomes responsible for paying the duty and other customs clearing expenses.

APPENDIX 3 - References
www.iccwbo.org
www.wikipedia.org