INCOTERMS 2020 : For maritime, customs & logistic professionals !

INCOTERMS 2020 - MASCOTMARITIME

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What are INCOTERMS? 

INCOTERMS stands for International Commercial Terms. Incoterms are primarily a set of three-letter codes that define the buyer’s and seller’s responsibilities and rights in international trade and commerce. 

When was the first INCOTERMS published?

The first INCOTERMS – Uniform Rules for the Interpretation of Trade Terms-published by the International Chambers of Commerce (ICC) in 1936.

The ICC has kept in step with the changes & has produced trade terms which has become tried and tested in the market and in the courts. Amendments and additions have been made to INCOTERMS in 1953, 1967, 1976 and 1980, 1990,2010. The latest is INCOTERMS 2020. 

Is it compulsory to incorporate INCOTERMS in sale contracts? 

Under the “freedom of contract” doctrine, the parties to a sales contract are free to allocate responsibilities, costs, and risks as they see fit.

Therefore, they can either use the universally recognized INCOTERMS in their sales contract, or they can use trade terms, which may or may not define the precise responsibilities of each party and the precise moment when those responsibilities are met. It’s possible that this will spark a lengthy and pricey court battle.

How many categories of INCOTERMS are there?

At present there are 4 main categories of INCOTERMS 2020.

Category C – Contains four terms (CPT, CIP, CFR & CIF)

Category D – Contains three terms (DAP, DPU & DDP) 

Category E – Contains one term (EXW) 

Category F – Contains three terms (FCA, FAS & FOB)

How many INCOTERMS are there at present?

Presently there are 11 INCOTERMS 2020 (7 INCOTERMS for any mode of transport & 4 INCOTERMS for sea & inland transport waterways). 

AA) FOR ANY MODE OR MODES OF TRANSPORT

  • EXW – Ex Works

The seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at a previously agreed place (factory, warehouse, etc.). The seller is not obliged to load the goods on any collecting vehicle, nor obliged to clear the goods for export, where such clearance is needed.

But Sellers often offer to load the products onto the truck instead, at the risk and expense of the buyer, or sometimes even for free. An agreement of this sort, however, must be included in the sales contract itself.

If the buyer lacks the expertise to manage the export process, FCA shipping should be used instead of EXW.

  • FCA – Free Carrier

The seller delivers the goods to the carrier, or another person nominated by the buyer at the seller’s premises or at a previously agreed place. The parties to specify as clearly the point within the agreed place of delivery, as the risk passes to the buyer at that point.

At the agreed upon delivery location, the seller must get the necessary export documentation and transfer the goods to the carrier. If the seller’s place of business is also the designated delivery location, then only the seller is liable for loading the items.

A carrier can be any entity that provides carriage services, including but not limited to shipping lines, airlines, trucking companies, railways, and freight forwarders.

  • CPT – Carriage Paid to

The seller delivers the goods to the carrier, or another person nominated by the seller at an agreed named place and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

The seller to clear the goods and set up transportation (by one or more modes of transport) to the place named as the final destination. The seller does not have to buy insurance or pay for it.

A carrier is any individual or company that transports goods, such as a shipping line, airline, trucking company, railway, or freight forwarder.

The first carrier used in multimodal shipments is the place of shipment.

When the first carrier receives the goods from the seller, the seller’s risk ends and the buyer’s risk begins, according to CPT rules. However, the buyer is only liable for any additional costs incurred after the goods have arrived at their final destination.

CPT is commonly used in air freight, containerized ocean freight, small parcel shipments, and “ro-ro” motor vehicle shipments.

  • CIP – Carriage and Insurance Paid to

The seller delivers the items to the carrier, or another person designated by the seller at an agreed-upon named location, and the seller is responsible for contracting and paying the costs of transporting the goods to the agreed-upon location. Additionally, the seller contracts for insurance coverage against the buyer’s risk of loss or damage to the items during transport.

The buyer should be aware that, per CIP, the seller is only needed to secure minimum-coverage insurance. If the buyer desires additional insurance coverage, it must either expressly agree with the seller or make its own additional insurance arrangements.

In Carriage and Insurance Paid To (CIP), the seller takes all risk until the items are delivered to the first carrier at the point of shipment, not the point of delivery. Once the items have been delivered to the initial carrier, the buyer assumes all risk.

However, the seller is responsible for the cost of transportation and comprehensive insurance coverage until the freight reaches its designated destination.

A carrier is any individual or organization that transports things, such as a shipping line, airline, trucking firm, railway, or freight forwarder. The first carrier used in multimodal shipments is the place of shipment.

  • DDU- Delivered at place unloaded earlier (DAT – Delivered at Terminal)

Delivered at Place Unloaded (DPU)- the seller will place the goods at the buyer’s disposal after they have been unloaded from the arriving mode of transport.

DPU can be applied to any – and more than one – mode of transportation. The buyer and seller must specify and agree on a specific destination.

DPU requires the seller to clear goods for export, where applicable, but does not require the seller to clear goods for import, pay import duty, or complete import customs formalities.

The only Incoterms rule that requires the seller to unload goods at the destination is DPU.

  • DAP – Delivered at Place

The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. 

The seller bears all risks involved in bringing the goods to the named place.

The seller is responsible for delivering the goods, ready for unloading, at the named place of destination under the Delivered At Place (DAP) Incoterms rules.

The seller assumes all risks up to and including unloading. Unloading is done at the buyer’s risk and expense.

Unless both parties agree otherwise, the seller cannot seek reimbursement for unloading costs incurred under the carriage contract.

DAP rules require the seller to clear goods for export where applicable, but do not require the seller to clear goods for import, pay import duty, or complete import customs formalities.

DAP can be applied to any – and more than one – mode of transportation. The buyer and seller must specify and agree on the exact unloading location at the specified destination.

  • DDP – Delivered Duty Paid

The seller delivers the goods when they are placed at the buyer’s disposal, cleared for import on the arriving means of transport, and ready for unloading at the specified destination.

The seller bears all costs and risks associated with transporting the goods to their destination and is required to complete all customs formalities, including clearing the goods not only for export but also for import and paying any duty for both export and import.

The seller assumes all responsibilities and costs for delivering the goods to the specified place of destination under the Delivered Duty Paid (DDP) Incoterm rules. Both the export and import formalities, fees, duties, and taxes must be paid by the seller. The seller is under no obligation to insure the goods for pre- or main carriage.

Until the goods are unloaded from the vehicle at the named destination, which is usually the buyer’s place of business, the buyer is free of any risk or cost.

DDP is the only Incoterms rule that imposes on the seller the responsibility for import clearance and the payment of taxes and/or import duty. 

Read More: Voyage Charter, Time Charter

BB) FOR SEA AND INLAND WATERWAY TRANSPORT

  • FAS – Free Alongside Ship

The seller delivers when the goods are placed alongside the vessel (on the quay or on a barge) nominated by the buyer at the agreed named port of shipment. 

The risk (loss or damage to the goods) passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

The seller clears the goods for export and loads them onto the vessel at the specified port of departure. A loading dock or a barge may be used as the named port of departure, but not a container terminal.

The buyer is in charge of loading the freight onto the vessel, as well as local carriage, discharge, import formalities and duties, and onward carriage to the final destination. FAS only applies to transport by ocean or inland waterway. It is popular for bulk cargo like oil or grain.

  • FOB – Free On Board

The seller delivers the goods on board the vessel nominated by the buyer at the agreed named port of shipment. 

The risk (loss or damage to the goods) passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

The seller clears the goods for export and makes certain they are delivered to and loaded onto the vessel for transport at the specified port of departure. As soon as the goods are loaded onto the transport vessel at the port of departure, the buyer assumes all risk and costs, including import clearance and duties.

FOB refers only to ocean or inland waterway transport. As a result, the named location is always a port. It does not apply if the primary mode of transportation is air, ground, or rail. This term is commonly used to describe bulk cargo (e.g.  oil or grain).

  • CFR – Cost and Freight

The seller delivers the goods on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

The risk (loss of or damage to the goods) passes when the goods are on board the vessel. 

The seller is responsible for clearing the goods for export, loading them onto the ship at the port of departure, and paying for transportation to the named port of destination.

When the seller delivers the goods onboard the ship, the risk is transferred from the seller to the buyer.

All additional transportation costs from the port of destination, including import clearance and duties, are the buyer’s responsibility.

Use CFR only for ocean or inland waterway transportation.

  • CIF – Cost, Insurance and Freight

The seller delivers the goods with export clearance on board the ship. The seller must contract for and pay the appropriate charges and freight to deliver the items to the designated port of destination. Additionally, the seller contracts for insurance coverage against the buyer’s risk of loss or damage to the items during transport.

Under CIF, the seller is obligated to get minimum insurance coverage on the goods for the duration of their journey to the port of destination. If the buyer needs additional insurance coverage, he or she must negotiate with the seller beforehand or make their own arrangements.

The risk of loss of or damage to the goods passes to buyer when the goods are on board the vessel.

CIF applies exclusively to ocean and inland waterway freight. It is frequently employed for bulky, enormous, or overweight shipments.

The seller delivers the products, which have been cleared for export, onto the vessel at the port of shipment, pays for the carriage of the goods to the port of destination, and secures and pays for minimal insurance coverage on the goods throughout their transit to the stated port of destination.

Once the goods are loaded aboard the vessel for the primary conveyance, the buyer accepts all risk; nevertheless, they are not responsible for any costs until the freight reaches the designated port of destination. If the freight is delivered just to the terminal and is containerized, use CIP instead.

The default insurance coverage for CIP is all-risk, although the parties can negotiate a reduced coverage requirement.

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