INCOTERMS 2010

Hi All !!

When I completed my MBA, I thought I'll write a study material about INCOTERMS 2000 and INCOTERMS 2010 in a blog so that it can help others who would like to learn about it. But, its been one year since I completed my MBA and I was lazy to do that. Now, its time for me to have a change in my career and was refreshing my knowledge in Supply Chain Management. And came across INCOTERMS. So I thought  of writing it atleast now. 

INCOTERMS 2000 :

• Short form of INternationals COmmercial TERMS. Also, called as Shipping Terms.
• It is updated by ICC - International Chamber of Commerce, Started in Paris in the year 1919.
• The First Incoterms were brought forward by Europeans in 1936.
• Americans came up with NAFTA Terms to compete with ICC. NAFTA terms are also trade terms. But ICC's Incoterms are more popular. 
• LC ( Letter of Credit), Incoterms and all other trading terms are under the control of ICC.
• Incoterms are fixed depending ion demand, market, trend, company's goodwill, etc.
• Incoterms is just one line in LC. 

Incoterms are updated often. Incoterms 2000 has 13 incoterms in it. Whereas, the new one, Incoterms 2010 has just 11 in it. 

As you know, for every trade, there is an exporter who sell their item. And there is an importer who buy the item. You have to read incoterms from the view of exporter - as if exporter is talking to importer. All Incoterms are abbreviated with 3 letters. And it starts with C, D, E or F. 

Before learning Incoterms, let's see what are the steps involved in selling and buying of an item. 

1. After the sale contract is done and accepted by both the parties, the exporter packs goods which are to be sold. And keeps it in their premises.
2. These packed goods are loaded in the truck (any carrier vehicle) which is the exporter's premises.
3. The goods are taken to the port. (For road shipment, this is not there)
4. Goods Export clearance is done. Export duty paid.
5. The goods are kept inside the vessel. This is called as wharfage. Wharfage can be loading goods in to the vessel or offloading from the vessel.
6. Now the goods are moving from source to destination. Or from Exporter (Seller) to Importer (Buyer).
   There are two different charges associated while carrying the goods in a vessel - 
   a. The cost of freight (does not include loading\offloading, etc), b. The cost of insurance.
7. The goods are to be off-loaded from the ship. (Wharfage).
8. Import clearance of goods done. Import duty charges has to be paid. 
9. Load the goods in truck and take it to the Importer's premises. 

Let's learn the Incoterms 2000 and 2010 now. Here, you can even see the differences between Incoterms 2000 and Incoterms 2010.. 

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1. EXW  - EXWorks :

• This term is in both Incoterms 2000 and Incoterms 2010.
• From Factory, it's the buyer's responsibility.
• The exporter packs goods and keep in his factory. All other activities are done by importer. 
• Mostly the demand for these goods are high, and the importer (buyer) takes the responsibility of freight, loading, offloading, etc.

2. FCA - Free Carrier : 

• This is there in both Incoterms 2000 and Incoterms 2010.
• Exporter packs goods, and loads it to the truck from exporter's premises. 
• Rest all done by the importer.

Next two incoterms, i.e. FAS and FOB are exclusively for Sea Shipment. (The exclusive Sea shipment terms are highlighted here)

3. FAS - Free Alongside Ship :

• This term is in both Incoterms 2000 and Incoterms 2010.
• Exporter packs goods, takes it to the port, does the clearance and keep it near the vessel.
• The exporter does not load the goods in to the vessel.

4. FOB - Free On Board :

• This is there in both Incoterms 2000 and Incoterms 2010.
• This is one of the mostly used Incoterm. 
• Exporter takes the responsibility from packing till all goods are loaded in to the vessel.
• Importer need not take care of the steps (including clearance or loading) involved in exporter's country.  
• FOB = FAS + Wharfage (loading)

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Now let's see the Incoterms that start with letter 'C'. These incoterms do not talk about loading, offloading, import clearance, etc. These are just about cost of the fright and insurance of moving goods.

The next 2 terms (CFR and CIF) are exclusively for sea shipment like FAS and FOB. Sea shipment is given more importance as 90% of traded goods are moved through sea. 

5. CFR - Cost And Freight :

• This is there in both Incoterms 2000 and Incoterms 2010.
• Popularly called as C&F.
• Used only in Sea Shipment.
• The freight charges from exporter's port to the importer's port (destination) is paid by the exporter.
• As mentioned earlier, the Incoterms starting with letter 'C' are not associated with any loading, offloading, clearance, etc.

6. CIF - Cost Insurance and Freight :

• This is there in both Incoterms 2000 and Incoterms 2010.
• Used only in Sea Shipment.
• Exporter takes care of (pays for) the freight and insurance cost from source to destination.
• Insurance is mandatory for all shipments. In CIF, exporter pays for insurance, otherwise, importer pays.

7. CPT - Carriage Paid To :

• This is there in both Incoterms 2000 and Incoterms 2010.
• Similar to CFR, but used for other means of transport, like, road, rail, air, etc.
• Only Freight charges are paid by the exporter.

8. CIP - Carriage and Insurance Paid To :

• This is there in both Incoterms 2000 and Incoterms 2010.
• Similar to CIP, but used for other means of transport, like, road, rail, air, etc.
• Here, both freight and Insurance are paid by exporter.

Now, all Incoterms starting with letter 'C' are explained.
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Let's move on to the 'D' terms.
The D group describes different methods of delivery of goods and represents the arrangements with the maximum amount of responsibility (both for costs and risks) to the seller, not the buyer. In these terms, the importer is safe - he is doing the activities in his country only. 

Here, let's write separately except the last one DDP which is there in both Incoterms 2000 and Incoterms 2010.

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There are 5 terms starting with the letter 'D' in Incoterms 2000.  DES, DAF, DEQ,  DDU and DDP.
DDP is there in both Incoterms 2000 and Incoterms 2010.

9. DES - Delivered Ex Ship :   (Incoterms 2000)

• From exporter's place till the vessel reaches the importer's port, all activities are done by exporter.
• Here exporter does not take care of Offloading.

10. DAF - Delivered at Frontier :  (Incoterms 2000)

• DAF = DES + Wharfage (off-loading)
• Exporter takes the responsibility of the goods from packing till the vessel reaches the importer's port. The exporter also does the off-loading of goods.

11. DEQ - Delivered Ex Quay :    (Incoterms 2000)

• DEQ = DAF + Import Clearance
• Exporter takes the responsibility of goods till the importer's port, off-loads the goods, and does the clearance documentation at the importer's port.
  ( This is actually one of the least important incoterm)

12. DDU - Delivery Duty Unpaid :   (Incoterms 2000)

• According to this incoterm, the exporter delivers the goods at importer's place mentioned in the contract. But, exporter does not pay the duty charges.

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In Incoterms 2010, there are only 3 terms. In the 2000 'D' terms, two of them, DES and DEQ are meant only for sea shipment. 

9. DAT - Delivered at Terminal: (Incoterms 2010)

• ‘Terminal’ can be any place – a quay, container yard, warehouse or transport hub.
• Risk transfers from seller to buyer when the goods have been unloaded.
• The buyer is responsible for import clearance and any applicable local taxes or import duties.
• The place for delivery should be specified as precisely as possible, as many ports and transport hubs are very large.
• Where Terminal Handling Charges may apply, the parties should clarify who should bear these.

 DAP - Delivered at Place : (Incoterms 2010)

• DAP = DAT + wharfage (offloading)
• The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving conveyance, at the named place.   
• An important difference from Delivered At Terminal DAT, where the seller is responsible for unloading.
• Risk transfers from seller to buyer when the goods are available for unloading; so unloading is at the buyer’s risk.
• The buyer is responsible for import clearance and any applicable local taxes or import duties.
• This rule can often be used to replace the Incoterms 2000 rules Delivered At Frontier (DAF), Delivered Ex Ship (DES) and Delivered Duty Unpaid (DDU)

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Now, we move on to the last one - DDP. As said earlier, this is there in both Incoterms 2000 and Incoterms 2010.

11\13. DDP - Delivery Duty Paid :

• This is there in both Incoterms 2000 and Incoterms 2010.
• According to this incoterm, the exporter delivers the goods at importer's place mentioned in the sale contract. He packs, take it to port, does clearance documentation, load, takes care of freight, off-load goods at destination, does import clearance, pays custom duty, takes it to the importer.
• Exporter pays the custom duty charges as well. 
• It is more like door to door delivery.

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More Terms: 

Freight Prepaid    : Freight Charges are paid by Exporter - CFR, CIF

Freight Recollect : Freight Charges are paid by Importer - FOB