Explicate the cost and risks to buyer and

seller involved under various delivery terms

(INCOTERMS) in an international trade
transaction

Presented By: (Group 6)

Raghavender (IB38)
Pranab Roy (IB32)
Arvind Kumar (IB65)
Pulind Malhotra (IB37)
Kunal Tripathi (IB20)
Priyesh Narain (IB35)
Chetna Singh (IB07)
Shweta Makhija (IB64)
What are INCOTERMS?
 INCOTERMS (International Commercial Terms) are widely
accepted international rules applying to the tasks, costs, and
risks involved in the delivery of goods

 INCOTERMS cover the "who, what, and when" of

international goods sales and delivery, including:
Who does what
Who pays for what
When does risk pass from seller to buyer
When does delivery occur

Shweta
Contd…
 In addition, the rules address insurance, export and import
clearance, and the division of other costs pertaining to the
delivery of goods between buyer and seller

 INCOTERMS do not cover ownership or title to goods,

details of payment obligations, vessel requirements,
termination, insolvency, etc.

 Types of businesses which utilize INCOTERMS include:

Trading companies, especially exporters and importers

Marine and multimodal transport firms
Logistics companies
Financial services providing funding for trading companies

Shweta
Purpose
To provide a set of international rules for the interpretation of
the most commonly used trade terms in foreign trade. Thus,
the uncertainties of different interpretations of such terms in
different countries can be avoided or at least reduced to a
considerable degree”.

Shweta
Scope
The scope of the Incoterms is limited to the rights and
obligations of the parties’ arising from the delivery of the sale
of goods. Incoterms do not define the goods, but the goods
should be understood as commodities

Shweta
The topics that Incoterms govern can be gathered under four
groups:
 the delivery of goods,
 transfer of risks,
 division of costs, and
obligations concerning the documents. Incoterms do not provide
rules for the
(i) payment and payment methods,
(ii) transfer of ownership,
(iii) variants,
(iv) dispute resolution and

 other issues relating to fulfilment of the contract.

Shweta
Some of the Incoterms

EXW “Ex Works”

Chetna
Contd…

 The seller delivers when he places the goods at the disposal

of the buyer at the seller's premises or another named place
(i.e. works, factory, warehouse, etc.) not cleared for export
and not loaded on any collecting vehicle

 The minimum obligation for the seller, and the buyer has to
bear all costs and risks involved in taking the goods from the
seller's premises.

Chetna
FAS “Free Alongside Ship”

Chetna
Contd…
 The seller delivers the goods, cleared for export, to the
carrier nominated by the buyer at the named place

Point to be remembered

If delivery occurs at the seller's premises, the seller is

responsible for loading. If delivery occurs at any other place,
the seller is not responsible for unloading. This term may be
used irrespective of the mode of transport, including
multimodal transport.

Chetna
FAS “Free Alongside Ship”

Arvind
Contd…

The seller delivers when the goods are placed alongside the
vessel at the named port of shipment. This means that the
buyer has to bear all costs and risks of loss or damage of the
goods from that moment. The FAS term requires the seller to
clear the goods for export.

Arvind
FOB "Free on Board”

Arvind
Contd…

The seller delivers when the goods pass the ship's call at the
named port of shipment. This means that the buyer has to
bear all costs and risks of loss of or damage to the goods from
that point. The FOB term requires the seller to clear the goods
for export. This term can be used only for sea or inland
waterway transport.

Arvind
CFR "Cost and Freight"

Raghvendra
Contd…

The seller must pay the costs and freight necessary to bring
the goods to the named port of destination but the risk of loss
of or damage to the goods, as well as any additional costs due
to events occurring after the time of delivery, are transferred
from the seller to the buyer. The CFR term requires the seller
to clear the goods for export.

Raghvendra
CIF “Cost Insurance and
Freight"

Raghvendra
Contd…
 The seller must pay the costs and freight necessary to bring
the goods to the named port of destination, but the risk of
loss of or damage to the goods, as well as any additional
costs due to events occurring after the time of delivery, are
transferred from the seller to the buyer.

 However, with CIF the seller also has to procure marine

insurance against the buyer’s risk of loss of or damage to the
goods during the carriage. Consequently, the seller contracts
for insurance and pays the insurance premium.

Raghvendra
CIP "Carriage and Insurance
paid to..."

Pranab
Contd..
 The buyer bears all risks and any additional costs occurring after
the goods have been delivered. However, in CIP the seller also
has to procure insurance against the buyer's risk of loss of or
damage to the goods during the carriage.

 Consequently, the seller contracts for insurance and pays the

insurance premium

 "Carrier" means any person who, in a contract of carriage,

undertakes to perform or to procure the performance of
transportation by rail, road, air, sea, inland waterway or by a
combination of such modes.

Pranab
CPT “Carriage paid to..."

Pranab
Contd…

The buyer bears all risks and any other costs occurring after
the goods have been so delivered.

Pranab
DAF "Delivered at Frontier"

Priyesh
Contd…
 The seller delivers when the goods are placed at the
disposal of the buyer on the arriving means of transport not
unloaded, cleared for export, but not cleared for import 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

 However, if the parties wish the seller to be responsible for

the unloading of the goods from the arriving means of
transport and to bear the risks and costs of unloading, this
should be made clear by adding explicit wording to this effect
in the contract of sale.

Priyesh
DES “Delivered Ex Ship”

Priyesh
Contd…

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. If the parties
wish the seller to bear the costs and risks of discharging the
goods, then the DEQ term should be used.

Priyesh
DEQ “Delivered Ex Quay”

Priyesh
Contd…

The seller delivers when the goods are placed at the disposal
of the buyer not cleared for import on the quay at the named
port of destination. The seller has to bear costs and risks
involved in bringing the goods to the named port of destination
and discharging the goods on the quay . The DEQ term
requires the buyer to clear the goods for import and to pay for
all formalities, duties, taxes and other charges upon import

Priyesh
DDU “Delivered Duty Unpaid”

Kunal
Contd…
 The seller delivers the goods to the buyer, not cleared for
import, and not unloaded from any arriving means of transport at
the named place of destination. The seller has to bear the costs
and risks involved in bringing the goods thereto, other than,
where applicable, any "duty" (which term includes the
responsibility for and the risks of the carrying out of customs
formalities, and the payment of formalities, customs dudes,
taxes and other charges) for import in the country of destination

 Such "duty" has to be borne by the buyer as well as any costs

and risks caused by his failure to clear the goods for import in
time.

Kunal
DDP "Delivered Duty Paid”

Kunal
Contd…
The seller delivers the goods to the buyer, cleared for import,
and not unloaded from any arriving means of transport at the
named place of destination. The seller has to bear all the costs
and risks involved in bringing the goods thereto including,
where applicable, any "duty” (which term includes the
responsibility for and the risks of the carrying out of customs
formalities and the payment of formalities, customs duties,
taxes and other charges) for import in the country of
destination.

Kunal
Latest Revision of the ICC Rules
Contains a Number of Important
Changes
 The goal of the new INCOTERMS is to simplify the drafting of sales
contracts by clearly defining some of the obligations of both buyers and
sellers, thus avoiding misunderstandings, which might otherwise occur.

 The 2010 revision recognizes the significant changes that have

occurred in global trade since 2000, including:
 Post 9/11 cargo security regulations
 2004 revision of the U.S. Uniform Commercial Code
 New Institute Cargo Clauses
 Increase in electronic communications
 Delivery, with respect to revenue recognition compliance
 Spread of customs free zones
 Increasing development of trade blocs (e.g. the European Union)
where border formalities have largely disappeared

Pulind
Key Changes Addressed in
INCOTERMS 2010

 The new INCOTERMS expressly state (on the front page)

that they can be used for “both domestic and international
trade.” The previous version did not refer directly to domestic
sales.

 The 2010 version adds two new INCOTERMS – DAP

(delivered at place) and DAT (delivered at terminal) to
replace DEQ (delivered ex quay - duty paid).

 Four INCOTERMS were deleted: DAF (delivered at frontier),

DES (delivered ex ship), DEQ (delivered ex quay) and DDU
(delivery duty unpaid).

Pulind
Some other key changes:

 Express reference made to the use of “equivalent electronic

records”, instead of assuming only hard copies would be
utilized.
 Amendment to insurance cover to reflect changes in
Institute Cargo Clauses.
 Allocation of each party’s obligations regarding information
required to obtain security-related clearances.
 Expressly allocated responsibility for terminal handling
charges.

Pulind
Incoterms for any Mode or
Modes of Transport:

 EXW - Ex Works
 FCA - Free Carrier
 CPT - Carriage Paid To
 CIP - Carriage and Insurance Paid
 DAT - Delivered At Terminal (new)
 DAP - Delivered At Place (new)
 DDP - Delivered Duty Paid

Pulind
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

 If it is intended that the seller is to bear all the costs and

responsibilities from the terminal to another point, DAP or
DDP may apply.

Pulind
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.

 If the seller is responsible for clearing the goods, paying

duties etc., consideration should be given to using the DDP
term.

Pulind
Incoterms for Sea and Inland
Waterway Transport Only:

 FAS - Free Alongside Ship

 FOB - Free On Board
 CFR - Cost and Freight
 CIF - Cost, Insurance and Freight

Kunal
Conclusion

INCOTERMS 2010 is expected to be well received by those

firms with previous experience with INCOTERMS. As with any
revisions to “standard” practice, however, each firm that is
impacted by these changes must embrace them and assure
that the necessary amendments are made to their future sales
contracts.
 

Kunal