Incoterms 2010: Transportation Items

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Introduction

Incoterms 2010 provide harmonized interpretation rules for 11 common trade terms. An Important task of any international trader is to choose among these 11 common terms, the “right” Incoterm that is most appropriate for the specific transaction he wishes to engage in. The International Chamber of Commerce (ICC) encourages the use “multimodal” Incoterms (such as FCA, CPT, CIP, DAT, DAP and DDP) instead of the “water” or “maritime” Incoterms (such as FAS, FOB, CFR and CIF). According to the ICC, maritime terms are not appropriate, and thus should not be used in container trade, as the seller does not ‘deliver’ the container on board the vessel, but most often hands over the goods to the carrier at an inland point or terminal. International traders are to examine the underlying rationale behind the said ICC advice. For this purpose they have to use some criteria [1] that might be applied to choose the right Incoterm, taking into consideration how the transport mode influences and sometimes even imposes the choice for a particular term.

Choosing the “right” Incoterm requires the parties to a contract of sale to consider, – besides the nature of the goods others, terms of payment, and terms of delivery, – the means of transport: maritime, non-maritime or multimodal. In Incoterms, the term “delivery” refers to the point where risk of loss or of damage passes from the seller to the buyer [2]. Generally, this will also be the point upon which costs pass, even in the C-terms although with an exception for the costs of freight. The latter terms have two “critical points”: delivery, and thus passing of risk, occurs in the place of departure, whereas carriage to the agreed place of destination is for the account of the seller, but at buyer’s risk.


General Rules for Modes of Transportation [3] [4]

  • EXW (Ex Works): Seller delivers (without loading) the goods at disposal of buyer at seller’s premises. Long held as the most preferable term for those new-to-export because it represents the minimum liability to the seller. On these routed transactions, the buyer has limited obligation to provide export information to the seller.
  • FCA (Free Carrier): Seller delivers the goods to the carrier and may be responsible for clearing the goods for export (filing the Electronic Export Information (EEI)). More realistic than EXW because it includes loading at pick-up, which is commonly expected, and sellers are more concerned about export violations.
  • CPT (Carriage Paid To): Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller must pay cost of carriage to the named place of destination.
  • CIP (Carriage and Insurance Paid To): Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller pays carriage and insurance to the named place of destination.
  • DAT (Delivered at Terminal): Seller bears cost, risk and responsibility until goods are unloaded (delivered) at named quay, warehouse, yard, or terminal at destination. Demurrage or detention charges may apply to seller. Seller clears goods for export, not import. DAT replaces DEQ and DES.
  • DAP (Delivered at Place): Seller bears cost, risk and responsibility for goods until made available to buyer at named place of destination. Seller clears goods for export, not import. DAP replaces DAF and DDU.
  • DDP (Delivered Duty Paid): Seller bears cost, risk and responsibility for cleared goods at named place of destination at buyers disposal. Buyer is responsible for unloading. Seller is responsible for import clearance, duties and taxes so buyer is not “importer of record.”

References

  1. Incoterms 2010 and the Mode of Transport: How to Choose the Right Term - Management Challenges in the 21st Century: Transport and Logistics : Opportunity for Slovakia in the Era of Knowledge Economy, Proceedings. Bratislava, Slovakia, 2011, p.163-179 - https://biblio.ugent.be/input/download?func=downloadFile&recordOId=1212622&fileOId=1212631
  2. Incoterms® 2010, Paris, ICC Publication no 715E, 2010, p.10
  3. International Shipping and Incoterms: What the New International Freight Shipping Terms Mean to You // Supply Chain Consortium: Benchmarking & Best Practices - http://www.tompkinsinc.com/wp-content/uploads/2012/07/incoterms-report.pdf
  4. "Rules for Sea and Inland Waterway Transport" are given under analogous items for all modes of transport
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