International Commerce Terms Terms (INCOTERMS) (INCOTERMS)

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Octubre 2010

Bufete Internacional and

Global Business University

Welcomes you to the Course:

Exponent:

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International Commerce

Terms

Terms (INCOTERMS)

(INCOTERMS)

Interational Use Facilitate International _Commerce

Important part of any commercial contract Detail commercial

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Escenario Necesidad Very

Very Active Active Global

Global EconomyEconomy

Consumer Consumer market market Explotion Explotion Increased

Increased numbernumber and

and typestypes of of products products

Increases

Increases in in thethe speedspeed of

of businessesbusinesses ““needsFocusFocus onneeds” of ” of theon thethethe clients

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Necesidad

actual de

los

negocios

Clarity

Clarity and and understanding

understanding CompetitiveCompetitiveAdvantagesAdvantages

Legalities

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Problems

Problems that

that get

get solved

solved!!

Selling price varies

from purchase price Differences in languages_{makes understanding} quite difficult

Facilitates the

application of justice There are differences

in the legal meanings from one country to

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What are the

flashpoints in

international

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High

High pointspoints in in businesses businesses

Practical

Practical/Legal /Legal Comprehension Comprehension IT and IT and Communicatios Communicatios Adaptability Adaptability Marketing Marketing Ethics Ethics Transport

Transport EvolutionEvolution Unfair

Unfair PracticesPractices in International in International

Business Business Legal

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Contract

Normal Content……… Normal Content……… Acceptance

Acceptance of of thethe INCOTERMS 2010INCOTERMS 2010



VoluntaryVoluntary RulesRules 

SpecifySpecify conditionsconditions whenwhen differentdifferent toto

“defaults”. “defaults”.

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Volume Quality and design Payment methods Warranties Intelectual Property Period

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INCOTERMS

INCOTERMS DO NOT

DO NOT substitute

substitute the

the

contract

contract,

, since

since they

they don’t

don’t even

even

prononuce

prononuce,

, for

for example

example,

, the

the price

price

of

of the

the property

property or

or the

the method

method or

or

means

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INCOTERMS 2010



Born in 1936



Globally acepted



Constant Actualization

‒

Constant Dynamism

 Come from the International Commerce Chamber



Headquarters: Paris, France



Commercial, legal and practice Commision



Seeking to satisfy businesses needs

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INCOTERMS 2010

Reforms

2010 (effective from 2011)

 Considers free trade zones

 Allows the use of electronic communications

 Takes into account safety

 Adopts transport evolution

 They simplify [From 13 a 11]

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INCOTERMS coverage

3 big groups

 You can add or reduce conditions or outcomes as agreed with sufficient clarity and contract.

Tasks Costs Risks

Delivery date Delivery

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INCOTERMS 2010

Included

Included Concepts

Concepts

Notifications

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Assistance

Documentation Inspections Customs Clearance

Delivery Dates Package and _Labeling Risks

 Losses  Damages

Transport Insurance

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INCO

TERMS

2010

INCO

TERMS

2010

R Quality/Quantity Payment Documentation Notifications Lab eling Pack agi ng Legal Entrance Variables Load and

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Scope

Customs



BasisBasis 

TaxableTaxable

Commercial



 CostsCosts 

 RisksRisks 

 TasksTasks

Financial



 DeductionsDeductions 

 AccumulationAccumulation

Legal



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INCOTERMS 2010

What

What are

are they

they?

?

They are commercial tools that define

responsibilities, tasks, costs, and risks of

the parts that facilitate the commercial

understandment. They are the basis of the

sale contract.

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RAFTS RAFTS



Local/Local/domesticdomestic 

NotNot usedused

nowadays nowadays UNIFORM COMERCIAL UNIFORM COMERCIAL CODE (1952) CODE (1952) 

HarmonizationHarmonization of of

commercial commercial transactions

transactions fromfrom thethe US

US



7 7 applicationsapplications FOBFOB

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Uniform Commercial Code/USA (UCC)

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Terms used in the US for dommestic operations that are a habit.Framed in three sources: 1.- The UCC, 2.- The National Motor Freight Classification (the NMFC) and 3.- The habit.

FOB : Free On Board (Libre o Franco A Bordo)  FOB Origin;

 FOB Origin, Freight Collect;  FOB Origin, Freight Prepaid;

 FOB Origin, Freight Prepaid & Charged Back or FOB Origin, Freight Prepaid & Add;

 FOB Destination;

 FOB Destination, Freight Collect;  FOB Destination, Freight Prepaid;

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RAFTD/CC of US

Emmited by the US Chamber of Commerce, their first edition was in 1919 and the last revision had place in 1941.

 In August 1985 USCC considered them repealed and

suggested that they shouldn’t be used, but as they were voluntary the parts can still use them in their contracts. They’re used specially by some american, mexican and centroamerican companies.

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RAFTD

RAFTD don’t have groups and have only six terms:

Terms Conditions

1. - Ex* Ex -Works

2. - FOB* Free On Board

3. - FAS Vessel Free Alongside Ship Vessel

4. - C & F* Cost And Freight

5. - CIF* Cost Insurance and Freight

6. - Ex-Dock Ex-Dock

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

Usage

Established in the commercial contract (as well as invoice and order)



[Incoterms aplicable] delivery place and indicate Incoterms Version as detailed as possible

Selection of Incoterms:



Type of trasport



Type of merchandise



Obligations from the parts.

INCOTERMS 2010

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

The usage of the INCOTERMS 2010 oblige the parts to:



Deliver in time the agreed merchandise



Bill and charge by sending the documentation (paper or electronic).



Notifications (mutually) from delivery and reception



Assistance (assigning costs) in all leading.

INCOTERMS 2010

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Delivery

Delivery//RiskRisk _{INCOTERMS 2010}_{INCOTERMS 2010} Delivery Delivery--DestinyDestiny R Delivery Delivery//RiskRisk Included

Included DestinyDestiny

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Revision 2010

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Dissapearance of the 4 traditional groups of rules.

1

1 E

EXW

F

FCA,FAS, FOB

C

CFR, CIF, CPT, CIP

D DAF, DES, DEO, DDU, DDP

INCOTERMS 2010

Reforms

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Elimination of 4 INCOTERMS which are “replaced” by two new terms

2

Dissapeared Created

DES-Delivery Ex Ship DAT

Delivery at Terminal

DEO-Delivery Ex Quay

DAF-Delivery at Frontier DAP

Delivery at Place

DDU-Delivery Duty Unpaid

INCOTERMS 2010

Reforms

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The INCOTERMS 2010 are constituted in two larger groups classified by the means of transport.

3

Any means of transport Maritime Transport

EXW FCA CPT CIP

DAT DAP DDP

FAS FOB CFR CIF

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INCOTERMS 2010

Reforms

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Domestic or international usage



Zones where the customs border has lost importance (European Union)



Substitution in the US from the Uniform Commercial Code.

4

4 INCOTERMS 2010

INCOTERMS 2010

Reforms

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26%

26% of of thethe internationalinternational commercecommerce don’tdon’t use use customs

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“Guide notes” were created; they explain fundamentation and reach of each Incoterm

When they should be used(type of operation)

Risk transfer moment

Costs and included tasks

5

5 INCOTERMS 2010

INCOTERMS 2010

Reforms

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Electronic notifications and documents are accepted with the same value as paper

Electronic Data Interchange (EDI)

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Obligations are established between the parties, relative to obtention or contribution of assistance and security.

7

7 INCOTERMS 2010

INCOTERMS 2010

Reforms

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Freight costs are delimited, without including unload in destiny and must be sure that the contract doesn’t include THC (Terminal Handling Charges)

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INCOTERMS 2010

Delivery

Delivery Place

Place

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Elimination of every provition in chich delivery was on the boat’s handrail, now, it is sidelines or FOB.

9

9 INCOTERMS 2010

INCOTERMS 2010

Reforms

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Substitution of the term “loading goods” by “ providing loaded goods” to give entry to the logistic proceses from the supply chain.

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CUSTOMS FORMALITIES.- All customs regulations including documents, safety information, and verifications as well as contribution payments collected in customs commonly in pacted and written form. Excluding internal taxes.

EGA (DELIVERY).- Indicates where the risk of loss of damage passes to the buyer that doesnt necesarilly is the agreed point of delivery. (Legal delivery)

INCOTERMS 2010

Definitions

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DELIVERY DOCUMENTS

Documents that prove that delivery took place.



Invoice



Reception.- EXW, FCA, FAS, FOB



Transport and insurance documents



Customs Documents (EXW/DDP)



Payment documents

INCOTERMS 2010

Definitions

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Packaging

Includes:

1.

Compliance of established requirements in the contract

2.

Enough packaging suitable for transportation (de fault)

Doesn’t include: Containment or similars

Labeling: by international regulation, must be specified in the contract.

INCOTERMS 2010

Definitions

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Insurance.-The obligation to insurance the goodsonly exists in INCOTERMS CIF and CIP, and must be done by the minimum coverage of 110% of the shipping value. (DEFAULT).

Insurance must have a C Clause, which is the most restricted. It must cover the risks established in the general clauses, for multimodal transport and coverage from warehouse to warehouse policies.

INCOTERMS 2010

Definitions

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Security Information.- the use of the INCOTERMS obliges the parts to provide each other by petition only, any information about safety and shipping control with the correspondent coverage (logistic control).

General

Asisstance.-

Transport



Safety



Insurance



Packaging

INCOTERMS 2010

Definitions

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 United States: C-TPAT

 Canada: Partners in Protection (PIP)  Singapur: Partnership for Secure Trade

 European Union: Authorized Economic Operator  Jordan: Golden List

 New Zealand: Secure Exports Scheme

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1. Seguridad de las instalaciones y controles de acceso 2. Seguridad del personal

3. Seguridad de socios comerciales 4. Seguridad de la carga

5. Seguridad del medio de transporte 6. Seguridad de la información

7. Manejo de incidentes

8. Manejo de crisis y recuperación después de algún incidente

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INCOTERMS 2010

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EXPO IMPO INSURANCE TRANSPORT CONTRACT

OFFICIAL INSPECTIONS

MINIMAL PACKAGING

EXW X X X X X 

FCA  X X X  

CPT  X X   

CIP  X    

DAT  X X   

DAP  X X   

DDP   X   

FAS  X X X  

FOB  X X X  

CFR  X X   

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INCOTERMS 201O

Classification by

delivery of risk

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INCOTERMS 2010 when delivery place [transmission of risk] is the[same] place of destiny.



EXW (Ex Works)



FCA (Free Carrier)



DAT (Delivery at Terminal)



DAP (Delivery at Place)



DDP (Delivery Duty Paid)



FAS (Free Alongside Ship)



FOB (Free on Board)

By

By risk

risk transmission

transmission

1

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INCOTERMS 2010 in which place of destiny (fisical delivery) differs from the point where risk is transmitted (legal delivery)



CPT (Carriage Paid To)



CIP (Carriage and Insurance Paid To)



CFR (Cost and Freight)



CIF (Cost, Insurance and Freight)

[Note: the destiny place only indicates where the seller covers the cost]

2

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By

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EXW

[EXWORKS]

 Any transport

 Delivery and destiny are the same place

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 CONTRACT OF INSURANCE AND TRANSPORT

 No obligation  DELIVERY

 Must take place in the specified place, in case it

isn’t, in any logic place on the agrreed period or date.

 INCLUDED COST

 All costs until the goods have been delivered

(doesn’t include customs costs)

 DELIVERY DOCUMENTS

 Comercial invoice and reception proof.

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 Any means of transport

 Delivery and destiny are the same place

 Includes cargo in the means of transpor but not

unloading

 Includes export tramits

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 CONTRACTS OF TRANSPORT AND INSURANCE

 No obligation to the buyer

 DELIVERY

 The seller must deliver the goods to the

transport when being loaded

 INCLUDED COSTS

 All costs until goods are delivered, including

export and cargo to the hired transport by the buyer

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

Any means of transport



Delivery

point

is

distinct

from

destiny.

Transmission of the risk takes place when

merchandise is loaded with the final carrier post

export.



Includes cargo and, when the transport

document mentions it, unloading

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 CONTRACT OF TRANSPORT AND INSURANCE

 The seller is obliged to hire the carrier but not to

insure the merchandise

 INCLUDED COSTS

 All costs up to the destiny point (includes export)

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 Delivery point differs from destiny. Transmission of

the risk passes when the merchandise is loaded by the final carrier. Post export

 Includes loading and unloading, unless specified in

the contract

 Includes restricted insurance clause [C]

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 TRANSPORT AND INSURANCE

 The seller is obliged to hire the carrier and normal

insurance

 DELIVERY

 Takes place with the assigned carrier and not at

arrival to the contracted destiny

 INCLUDED COSTS

 Export, cargo, transport, insurance and unloading

at destiny

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 Delivery point is the same as destiny

 Includes loading and unloading, up to the specified

point on the terminal. If the goods are

intended to

be taken to other points,

DAP o DDP

should be

used

 All the risks, up to determined point are from the

seller

 Includes export paperwork, but doesn’t have any

import obligations

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 TERMINAL  Quay

 Ware house

 Container yard

 TRANSMISSION OF THE RISK (DELIVERY)

 At the moment of delivery in the terminal (fisical and

legal delivery are the same)

 INCLUDED COSTS

 All costs until the goods are delivered, included in

the terminal, before import

DAT

[DELIVERY AT TERMINAL]

 Container roll

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

TRANSPORT AND INSURANCE



The seller is obliged to contract in normal

terms and has no obligation to insure the

goods

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 The point of delivery is the same as the destiny

 Includes loading until specified point which is the

moment where delivery takes place for risk effects.

 Includes export paperworks but doesn’t have

obligation over imports

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The seller is obliged to contract transport but

has no obligations to insure the goods

 INCLUDED COSTS

All costs until goods are delivered

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 Includes cargo, export, transport, import and

shipping but doesn’t include unloading

 Represents maximum effort from the seller

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 Seller is obliged to contract carrier but has no

obligation to insure the merchandise

 DELIVERY

 The seller must deliver the goods at the agreed point,

after the import with no obligations to unload

 INCLUDED COSTS

 All costs until the goods are delivered, includes

customs from export and import

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 Maritime transport

 Merchandise is delivered aside the ship. If the

goods are delivered at terminal and in containers, FCA should be appropriate

 Doesn’t include upload in the means of transport

 Includes export paperwork, but has no obligation

over import

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 TRANSPORT AND INSURANCE CONTRACTS

 No obligations for the seller

 INCLUDED COSTS

 All costs until the goods are delivered includes

custom costs on export

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 Delivery is the same as destiny

 The merchandise is delivered free on board o

to

the company designated by the buyer

 Includes uploading to the transport

 Includes paperwork and export tramits, but has no

obligation to import

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 TRANSPORT ANd INSURANCE CONTRACTS

 No obligation to the seller

 INCLUDED COSTS

 All costs until the goods are delivered, includes

customs costs and uploading to the ship

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

Maritime transport



Delivery point differs from destiny



Includes uploading but not unloading. If the

goods should be delivered unloaded, CPT or CIP

should be used.



Includes export tramits and paperwork, but

there’s no obligation to the import

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 TRANSPORT AND INSURANCE CONTRACTS

 The seller is obliged to contract the carrier but

has no obligation to insure the goods

 INCLUDED COSTS

 All costs until the goods arrive at destiny, includes

customs and export costs, without unloading

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 Delivery point differs from destiny

 Includes uploading, but not unloading. If you

wanted to deliver unloaded CPT or CIP should be used.

 Includes cost of ordinary insurance

 Includes export but there’s no obligation over

import

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 The seller is obliged to contract transport and

insurance

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1. When can Incoterms be used domestically?

2. What concepts include costs when Incoterms are used in domestic commerce?

3. If delivery takes place in containers, in the exit port, which Incoterm should be used?

4. If the merchandise is delivered at destiny, still loaded in the transport, and when delivery has taken place when unloading, which Incoterm is appropriate?

a) If it’s maritime b) If it isn’t maritime

5. Which are the risks included in the Incoterms? 6. What are the critical points in each Incoterm?

CONFIRMATION

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

The seller has no control on the export



The buyer requires help and in the export

country

EXAMPLE

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ereyes@comerciointernacional.com.mx

Tel. 01 (55) 1500 1400 Fax 01 (55) 1500 1401

www.bufeteinternacional.com.mx www.comerciointernacional.com.mx