INCOTERMS

  Inco terms fixes up the risk and responsibility of buyer and seller.

Language is one of the most complex and important tools of International Trade. As in any complex and sophisticated business, small changes in wording can have a major impact on all aspects of a business agreement.For business terminology to be effective, phrases must mean the same thing throughout the industry. That is why the International Chamber of Commerce created "INCOTERMS" in 1936. INCOTERMS are designed to create a bridge between different members of the industry by acting as a uniform language they can use.

Differences between Incoterms 2010 and 2020:

• The Incoterms FCA (Free Carrier) now provides the additional option to make an on-board notation on the Bill of Lading prior loading of the goods on a vessel.
• The costs now appear centralized in A9/B9 of each Incoterms rule.
• CIP now requires at least an insurance with the minimum cover of the Institute Cargo Clause (A) (All risk, subject to itemized exclusions).
• CIF requires at least an insurance with the minimum cover of the Institute Cargo Clause (C) (Number of listed risks, subject to itemized exclusions).
• The Incoterms rules Free Carrier (FCA), Delivered at Place (DAP), Delivered at Place Unloaded (DPU) and Delivered Duty Paid (DDP) now take into account that the goods may be carried without any third-party carrier being engaged, namely by using its own means of transportation.
• The rule Delivered at Terminal (DAT) has been changed to Delivered at Place Unloaded (DPU) to clarify that the place of destination could be any place and not only a “terminal”.
• The Incoterms 2020 now explicitly shifts the responsibility of security-related requirements and ancillary costs to the seller.

In Bangladesh, for export, DAP, DPU (earlier DAT) DDP are not allowed.
For import,DDP is not allowed. for CIF and CIP, permission from ministry of Commerce is required.
Except EXW and DDP, export formalities of exporter are completed in exporting country and import formalities are completed by the importer in importing countries.

Each INCOTERM refers to a type of agreement for the purchase and shipping of goods internationally. There are 11 different terms, each of which helps users deal with different situations involving the movement of goods

Each INCOTERM  is Often expressed in 3 letter abbreviated form, followed by place relating to term, –ie: CIF Manila port, Philippines.

INCOTERMS also deal with the documentation required for global trade, specifying which parties are responsible for which documents. Determining the paperwork required to move a shipment is an important job, since requirements vary so much between countries. Two items, however, are standard: the commercial invoice and the packing list.

Ex Works (ExW)

v Seller only obliged to make goods available at their named premises (ie Ex works Birmingham).

v No obligation to load goods or arrange export customs clearance.

v Buyer bears all costs and risks for transport.

The “F” Terms (FCA, FOB, FAS)

Seller delivers goods to carrier or to port / place of shipment, including export customs formalities.

                        Risk is transferred to buyer when goods are delivered, ie:

                        –FCA: When goods presented to carrier in named place.

                        –FOB: When goods loaded on board ship in port of loading

                        –FAS: When goods delivered to quayside alongside ship.

                      

  Buyer pays transport costs and bears risk from this point.

The “C” Terms (CPT, CIP, CFR, CIF)

Seller arranges (and pays for) transport up to agreed place of arrival at destination, but...

                        Risk transfers to buyer when goods are delivered to carrier or port in country of export,  ie:

                        –CPT / CIP: When goods presented to carrier in named place.

                        –CFR / CIF: When goods loaded on board ship in port of loading.

                        For CIF / CIP, seller also supplies cargo insurance as part of contract.

The “D” Terms (DPU, DAP, DDP)

 Seller arranges delivery (and bears risk) to named place of destination:

                         

–DAT: 

• The rule Delivered at Terminal (DAT) has been changed to Delivered at Place Unloaded (DPU) to clarify that the place of destination could be any place and not only a “terminal”.

–DAP: When goods presented at named destination “place” of delivery (not unloaded), excluding  customs clearance, import duties, taxes,

–DDP: When goods presented at named destination “place” of delivery (not unloaded), including customs clearance, import duties, taxes.

Other Responsibilities

                        Export packing: Seller must package the goods in manner appropriate for their transport.

 Documentation: Seller must provide commercial invoice in conformity with the  contract of sale, and any other evidence of conformity required by the contract.  

                         

Incoterms also identifies which party is responsible for Export & Import Licences, Permits, Pre-shipment inspection:

                        Insurance: Where cargo insurance is specified, should be:

                                                 –Minimum cover of Institute Cargo Clauses C (Institute of London Underwriters),

                        –Cover entire movement from door to door,

                        –For minimum contract price plus 10%.

                        Notification & Assistance: Incoterms® indicates when each party must supply information, notices or assistance to the other to enable transport to occur smoothly, also when assistance must be paid for.

Using FOB & CIF Terms!

 Using FOB, CIF & CFR terms can cause problems in relation to containerised goods

                        •Risk transfers when goods are loaded on board vessel in port of loading; but…

                         Contents of container cannot be checked.

Using Incoterms

                                        

–Whenever you provide a quotation to a client which incorporates an international transport movement.

–Whenever you acknowledge an order involving an international transport movement.

–On all sales invoices, and all other contractual documentation and correspondence.

                        Using Incoterms Effectively

                 

–Use most appropriate term; and avoid using terms which are not suitable for chosen mode of transport.

                         

–Be as precise as possible.

–Always quote “In accordance with Incoterms 2020”.

 Example: Free Carrier (FCA) London E15, In accordance with Incoterms® 2020