Incoterms 2010

Incoterms 2010
What do the Changes Mean?

International Commercial Terms History

Incoterms 2010

Initially created in 1936 by the International Chamber of

Commerce (ICC) and have been periodically revised
(Incoterms 2010 is the 8 th revision)
Incoterms are generally good for approximately 10 years
~ not a magic number, but historically about accurate
Incoterms reflect world-wide trade practices, as
practices change, Incoterms are revised
Incoterms 2010 were written by the ICC, represented by
8 individuals from various countries/areas of the world

Met 11 times in person

Received over 2000 suggestions in first request
Refined suggestions over 4 proposals
Controlling source document is written in British English and will be
translated into 35+ languages.

What are Incoterms 2010?

Incoterms 2010

Eleven (11) Incoterms 2010 (used to be 13 terms)

Four (4) terms were deleted and two (2) new terms were created

Incoterms 2010 began from January 1, 2011

Available worldwide through 100 International
Chamber of Commerce National Committees
The terms arent law; no laws that require their use and are not
all inclusive
Country neutral they dont favor one country over another
Self-contained all information that determines responsibility
and risk are in one place

Incoterms 2010

Definitions..

Just what do we mean?

Key Definitions
Incoterms 2010

What is Delivery?

As defined in Incoterms 2010, it is used to

indicate where the risk of loss of or damage to
the goods passes from the seller to the buyer.

It is not always:
When the goods arrive in your customers hands or
When the goods leave your dock
Defined the same in all countries

You must know your contract and your Incoterm

Note: A Purchase Order and a matching Acknowledgement will
constitute a contract if there isnt a separate stand-alone
contract related to the transaction.

Transportation Definitions
Incoterms 2010

Pre-carriage: inland transportation on the sellers side

Domestic: from the place where the shipment starts to any
subsequent transportation carriage
International: from the place where the shipment starts to the
departure point on the sellers side

Main Carriage:
Domestic: subsequent transportation beyond pre-carriage
International: transportation from the point of departure on the
sellers side to the arrival pint on the buyers side

On-carriage:
Domestic: subsequent transportation beyond main carriage
International: transportation from the arrival pint on the buyers
side

Transportation Definitions
Incoterms 2010

Door to Door
Contract of carriage that includes pre-carriage, main-carriage
and on-carriage by the same carrier

Door to (Air) Port:

Contract of carriage including pre-carriage and main-carriage to
airport or ocean port or truck terminal port or rail port

(Air) Port to (Air) Port:

Contract of carriage for main carriage only

(Air) Port to Door:

Contract of carriage including main carriage and on-carriage

Type of Transportation?
Incoterms 2010

Company A

Company B

Door to Door one contract for all

carriage (pre-, main, and on-carriage)

Type of Transportation?
Incoterms 2010

Company A

Door to Port contract for pre-carriage

and main-carriage

Company B responsible for arranging

pick up at Arrival Airport

A Few More Definitions..

Incoterms 2010

Omni-modal: Used with terms that use all modes of

transportation (truck, airplane, vessel, train)
Marine-restricted: Terms that only apply to carriage
by vessel
Shipment Contract: sales/purchase contract where
the sellers responsibility ends when goods are
handed over to the first carrier
Arrival Contract: sales/purchase contract where
sellers responsibility ends when goods have arrived
at agreed place

Packaging Definitions
Incoterms 2010

1. The packaging of the goods to comply with any

requirements under the contract of sale.
2. The packaging of goods so that they are fit for
transportation.
3. The stowage of the packaged goods within a container
or other means of transport.
Only Definition 1 & 2 are addressed in Incoterms 2010.
Definition 3 must be addressed within the contract
between the parties.

What Questions to Ask?

Incoterms 2010

Who furnishes the goods?

Who packages the goods in a manner suitable for shipment
(export)?
Who moves the goods from the sellers factory to a port,
airport, or border crossing in the sellers country?
Who arranges for export clearance in the sellers country (if
applicable)?
Who arranges for main carriage (international
transportation) from the departure port to the arrival port?
Who pays for main carriage?
Who insures the shipment?
Who arranges for import clearance?
Who pays import duties?
Who pays for on-carriage from the arrival port to the delivery
destination?
Who arranges and pays for country-specific documentation
(e.g., consular invoices, inspection reports, licenses)?

Incoterms 2010

Now that we have some basic definitions

What do Incoterms 2010 Do?

Incoterms 2010

Divides up tasks, responsibilities, costs and risks to deliver

goods from seller to buyer
If used correctly, no duplication of effort between seller & buyer
Acts as signposts for who needs to have additional contracts (i.e., with
vessel steamship line, inland trucking company, etc.) to complete
transaction
If something goes wrong, clearly defines responsibilities based on where the
goods were in the transportation chain of delivery

Address String sales

Shipments where ownership changes in transit

Address Cargo Security concerns

Authorized Economic Operator (AEO), Customs-Trade Partnership Against
Terrorism (C-TPAT), Importer Security Filing (ISF 10+2)

Defines mode of transportation by their use

4 Terms are for Marine-Restricted for sea & inland waterway transport only
7 Terms are Omni-modal for use with all modes of transportation

Increasingly considered replacement for Uniform Commercial

Code (UCC) shipment/delivery terms.

What Incoterms 2010

DO NOT Do

Incoterms 2010

Automatically Apply
Determine When Ownership Changes
When delivery occurs or when payment happens can impact when
ownership changes
Must be addressed specifically in contract
Under US Law, it is when the product is delivered
If jurisdiction is under another sovereign nation law, you need to
address per that country regulation
If contract is subject to the United Nations Convention on Contracts for
the International Sale of Goods (CSIG) the law does not specify if it is
not addressed specifically within the contract

Identify when Revenue is Recognized

Under GAAP and Securities & Exchange Commission (SEC) Rules 1)
ownership must pass prior to recognizing revenue and 2) delivery must
occur
If not specifically addressed in contract, look to applicable contract law

What Incoterms 2010

DO NOT Do

Incoterms 2010

Identify if a Breach of Contract occurs, when it happened

Does not determine remedies for breach of contract

Provide relief from obligations/exemptions from liability in

unexpected or unforeseeable situations
Address Payment issues
Tells you that the buyer must pay, but not when or where

Address more than one contract

Drop Shipments are TWO Contracts
1) between the seller and their supplier and
2) between the seller and the buyer
Incoterms 2010 could be the same or different in each contract

Specifically task a party with container stowage obligations

Incoterms 2000 vs. 2010

Incoterms 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

Marine Restricted
Omni-Modal

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

Incoterms 2010

Group Term Definitions

F Terms
C Terms
D Terms

F-Group Terms
Incoterms 2010

Are considered to be Shipment Contracts

Are considered Buyer Friendly

Seller
Handles Export Clearance
Handles Pre-carriage
Named Place on Sellers
Side

Buyer
Contracts for Main Carriage
In charge of Carrier (and
usually forwarder) selection
Control over Freight Costs
Control of Documentation

C-Group Terms
Incoterms 2010

Are considered to be Shipment Contracts

Are considered Seller Friendly

Seller
Contracts for Main Carriage
In charge of carrier (and
usually forwarder) selection
Handles pre-carriage
Has control over freight
costs
In control of documentation
Passes risk of loss
(delivers) to Buyer prior
main carriage
Handles export clearance

Buyer
Named Place is on Buyers
side
Has risk of loss while goods
are in transit with carrier
selected and paid for by
seller
Must rely heavily on Seller
for data elements required
for ocean shipments such
as Importer Security Filing
(known as ISF or 10+2)
If informed, should not
consider C terms due to
downside described

D-Group Terms
Incoterms 2010

Are considered to be Arrival Contracts

Seller
Contracts for Main Carriage
In charge of carrier (and
usually forwarder) selection
Handles pre-carriage
Has control over freight costs
In control of documentation
Passes risk of loss (delivers)
to Buyer at freight arrival
point
Handles export clearance
Seller may have revenue
recognition issues since
delivery occurs on arrival
side, meaning revenue is
recognized only upon arrival

Buyer
Named Place on Buyers
side
Must rely heavily on Seller
for data elements required
for ocean shipments such
as Importer Security Filing
(known as ISF or 10+2)
Undertakes less risk than in
C terms
If inexperienced, or does
not have good relationship
with carriers, is served will
by D terms

Incoterms 2010

Omni-Modal Incoterms 2010

Ex Works (EXW) + (Named Place)

Incoterms 2010

Named Place is generally Sellers Location (or where product

initially ships from)
Delivery Seller delivers goods when placed at buyers
disposal at the name place of delivery
Goods are packaged
Goods are NOT LOADED on the collecting vehicle

Seller Risks Minimum obligation for seller; once packaged

there is a loss of control over transportation movement,
where package is finally received, how export or import
documentation is presented to relevant governments
Buyer Risks Buyer bears all costs and risks involved in
taking the goods from the named place
Carriage: Buyer responsibility to arrange for pre-carriage,
main carriage, on-carriage
Insurance: Neither party required to insure goods
Export/Import Clearance: Buyer must handle all
requirements, pay all associated duties and fees
Note: Should NOT be used when the buyer cannot carry out
export requirements directly or indirectly

Free Carrier (FCA) + (Named Place)

Incoterms 2010

Named Place is generally:

Sellers Place of Business
Seller responsible for having goods available when promised,
packaged to the extent known or agree, loaded onto
collecting vehicle
Buyer responsible for pre-carriage, main carriage, on-carriage
Another Location on Sellers side (i.e., International Airport,
Freight Forwarder Warehouse for consolidation, another location
agreed by Seller and Buyer)
Seller responsible for having goods available when promised,
packaged to the extent known or agree, loaded onto
collecting vehicle, pre-carriage
Buyer responsible for unloading pre-carriage delivering
vehicle, main carriage, on-carriage

FCA + (Named Place)

Incoterms 2010

Contract of Carriage: Buyer is responsible to make a contract

of Carriage, however if requested or the buyer does not give
instruction in due time, the seller may contract for carriage
on usual terms at the buyers risk and expense.
Risks: passes to buyer at point of delivery
Insurance: Neither party required to insure goods
Export Clearance: Handled by Seller

Associated Licenses can be obtained and maintained under US Law

Automated Export System filings can be completed by Seller

Import Clearance: Handled by Buyer responsible for the

customs formalities and any duties, fees, other charges due
upon importation.

This is the most versatile of the F terms.

Incoterms 2010

Carriage Paid To (CPT) + Named Place (on Buyers

Side)

Delivery: Seller delivers goods to a carrier or another

person nominated by the seller, at an agreed place, for
transportation to the named destination on the
Buyer's side, appropriately packaged
Carriage: Seller chooses and pays cost of carriage to
bring the goods to the named destination (the final
location, not the destination port)
Risks: Seller bears all risks and costs incurred until
the goods are delivered to the first carrier on the
Sellers side
Export Clearance: handled by Seller
Import clearance: Buyer responsibility for paperwork
and all costs
Insurance: Neither party required
Note: Risk of Loss passes on Sellers side to Buyer BUT Cost is
Sellers responsibility to named location on Buyers side

Incoterms 2010

Carriage and Insurance Paid To (CIP) +

Named Place (on Buyers Side)

Delivery: Seller delivers goods to a carrier or another

person nominated by the seller, at an agreed place, for
transportation to the named destination on the Buyer's
side, appropriately packaged
Carriage: Seller pays cost of carriage to bring the
goods to the named destination (the final location, not
the destination port)
Risks: Seller bears all risks and costs incurred until the
goods are delivered to the first carrier on the Sellers
side
Export Clearance: handled by Seller
Import clearance: Buyer responsibility for paperwork
and all costs
Insurance: Seller required to obtain minimum coverage
Note: Risk of Loss passes on Sellers side to Buyer BUT Cost is
Sellers responsibility to named location on Buyers side

Incoterms 2010

Delivered at Terminal DAT +

Named Place (Buyers side)

Replaces DEQ Term

Delivery: Seller delivers goods to named destination
terminal on Buyers side, packaged appropriately and
unloaded
Carriage:
Seller responsible for pre-carriage and main carriage
Buyer responsible for on-carriage

Risks: Transfer from Seller to Buyer once goods are

unloaded on buyers side at terminal
Export Clearance: Seller Responsibility
Import Clearance: Buyer Responsibility
documentation and fees associated
Insurance: Neither party required to insure

Incoterms 2010

Delivered at Place (DAP) +

Named Place (Buyers Side)

Previously contained elements of DDU, DAF, DES terms

Delivery: Seller delivers the goods to the buyer at the
named place on the Buyers side, appropriately
packaged, but not unloaded
Carriage: Seller handles all carriage to named place
on buyers side
Risks: Transfer from Seller to Buyer once goods are
delivered to the named place on buyers side
Export Clearance: Seller handles
Import Clearance: Buyer handles and pays associated
costs
Insurance: neither party required to insure

Incoterms 2010

Delivered Duty Paid (DDP) +

Named Place (Buyers Side)

Delivery: Seller delivers goods to the Buyer, cleared for

import on the arrival transportation, but not unloaded at
the final destination
Carriage: Seller handles all carriage to named place on
Buyers side
Risks: Transfer from Seller to Buyer once goods are
delivered to the named place on the Buyers side
Export Clearance: Seller Handles
Import Clearance: Seller Handles & pays for any charges
associated
Insurance: Neither party required to provide

DDP Caveats
Incoterms 2010

Should not be used if SELLER CANNOT clear goods in

importing country
NOT recommended if Buyer wants control of import
documents and declarations to Customs
DDP DOES NOT MEAN Buyer is absolved of all Customs
Regulations & Responsibilities

Incoterms 2010

Water Transport Only Incoterms 2010

Incoterms 2010

Free Alongside Ship (FAS) +

Named Place (alongside vessel at port on Sellers
side)

Delivery: Seller delivers goods to Buyer alongside the

vessel chosen by Buyer at the named port of
shipment, packed appropriately
Carriage:
Seller handles pre-carriage
Buyer handles main carriage and on-carriage

Risks: Pass from Seller to Buyer once goods place

alongside the vessel on Sellers side
Insurance: Neither party required to insure goods
Export Clearance: Seller Handles
Import Clearance: Buyer is responsible for
requirement and fees associated

Incoterms 2010

Free On Board (FOB) +

Named Place (loaded on vessel at a port on the
Sellers side)

Delivery: Seller delivers goods to Buyer on board the

vessel chosen by the Buyer at the named port of
shipment, packaged for shipment
Carriage:
Seller handles pre-carriage
Buyer handles main carriage and on-carriage

Risks: Pass from Seller to Buyer once goods are

placed on board the vessel on the Sellers side
Insurance: Neither party is required to insure goods
Export Clearance: Handled by Seller
Import Clearance: Handled by Buyer
NOTE:

Ships Rail is no longer part of Incoterms 2010. If using

Marine Terms, Contract or PO must exactly state what on
board the vessel means for the transaction where on the
vessel is the container, item to be placed

Incoterms 2010

Cost and Freight (CRF) +

Named Place (port on Buyers side)

Delivery: Seller delivers goods packaged for shipment

on board the Seller-designated vessel at the port on
Sellers side
Carriage:
Seller handles pre-carriage and main carriage
Buyer handles on-carriage following delivery to port on Buyers
side

Risks: Passes from Seller to Buyer once goods are on

board the vessel
Insurance: Neither party required to insure goods
Export Clearance: Handled by Seller
Import clearance: Buyer is responsible for the
NOTE:
customs requirements and associated costs (fees,
Even
though
risk passes from Seller to Buyer on Sellers side
duties,
etc.)
(once loaded per contract), Seller contracts for and pays
freight necessary to bring goods to the named port on the
Buyers side

Incoterms 2010

Cost Insurance Freight (CIF) +

Named Place (port on Buyers side)

Delivery: Seller delivers goods packaged for shipment on

board the Seller-designated vessel at the port on Sellers
side
Carriage:
Seller handles pre-carriage and main carriage
Buyer handles on-carriage following delivery to port on Buyers side

Risks: Passes from Seller to Buyer once goods are on board

the vessel
Insurance: Seller required to procure minimum coverage
against Buyers risk of loss or damage to the goods during
carriage
Export Clearance: Handled by Seller
Import clearance: Buyer is responsible for the customs
NOTE: Even though
risk passes
from
Seller
to Buyer
requirements
and associated
costs
(fees,
duties,
etc.)on
Sellers side (once loaded per contract), Seller contracts
for and pays freight necessary to bring goods to the named
port on the Buyers side
Same as CPT + Insurance coverage

Price Considerations with Incoterms 2010

Incoterms 2010

When negotiating a contract, keep in mind the following:

Basic Rule of Thumb: The more responsibility the
Seller takes on, the more they must charge the Buyer.
Example: What is the price the Seller should quote for
10 units to be shipped from Hilltown to Seattle?

$10,000 EXW, Johnsburg Factory

$10,200 FCA, Carrier in Hilltown
$10,600 CIP, Newark Airport
$10,800 DAT, OHare Airport
$12,000 DDP Seattle

Importing and Incoterms 2010

Incoterms 2010

Some charges if included and detailed in commercial

invoice need to be deducted from the dutiable value of
the shipment

Main carriage
Any foreign inland freight
Insurance
Supply chain security fees
Terminal handling fees
Etc.

Incoterms 2010 Chart

Incoterms 2010

Any Mode Terms

Control
of Costs

Main
Carriage
Cost

Risk of
Costs

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

CIP (Carriage & Insurance

Paid To)

Seller

Seller

Buyer

CPT (Carriage Paid To)

Seller

Seller

Buyer

DAT (Delivered at Terminal)

Seller

Seller

Seller

DAP (Delivered at Place)

Seller

Seller

Seller

Departure, Freight Collect

EXW (Ex-Works)
Main Carriage Freight Collect

FCA (Free Carrier)

Main Carriage Freight Prepaid

Arrival, Freight Prepaid

DDP (Delivered Duty Paid)

Seller

Seller

Seller

39

Incoterms 2010 Chart

Incoterms 2010

Sea, Inland Waterway

Transport Terms

Control
of
Costs

Main
Carriage
Cost

Risk of
Costs

FAS (Free Alongside Ship)

Buyer

Buyer

Buyer

FOB (Free on Board)

Buyer

Buyer

Buyer

CFR (Cost and Freight)

Seller

Seller

Buyer

CIF (Cost, Insurance, and

Freight)

Seller

Seller

Buyer

Main Carriage Freight Collect

Main Carriage Freight Prepaid

40

Questions?
Incoterms 2010