Who pays for what?
Goods move across international borders because there has been a sale involving:
Contract of sale should define the responsibility of both parties relating to:
- The phisical nature of the goods
- Movement of the consignment
Buyers and sellers have various options relating to the movement of the goods regarding:
- The division of costs
- Defining each parties responsibility and the transfer of risk
What is an Incoterm?
Sales term incorporated within the contract of sale
It impacts on the contract of carriage
Incoterms identify the obligations placed on the parties to the contracts in terms of:
- Responsibilities relating the costs and the division when shipping the goods
- Distribution of risks associated with the movement of goods
- Where these risks transfer to another party
Published by the International Chamber of Commerce (ICC) to be used in international transactions.
First published in 1936
Reviewed every 10 years to ensure that they are kept up to date with current trade practices.
Incoterms 2010 will be effective from January 2011
Summary of main changes
Post 1st January 2011 the number of categories has been reduced from four to two.
These categories cover :
- Terms of any mode or modes of transport,
- Terms for sea and inland waterway transport
The aim is to assist Incoterm users in identifying the correct term for their particular requirements.
Reduction in the Number of Incoterms
Current number of 13 Incoterms will be reduced to 11
The following Incoterms will be removed:
- DAF - DES - DEQ - DDU
The following new Incoterms are being introduced:
- DAT - DAP
Terms For Any Mode or Modes of Transport
These consist of the following seven terms:
- CIP: Carriage and Insurance Paid To
- CPT: Carriage Paid To
- DAP: Delivered At Place
- DAT: Delivered At Terminal
- DDP: Delivered Duty Paid
- EXW: Ex Works
- FCA: Free Carrier
All of these term need to specify the port or destination.
Terms for Sea and Inland Waterways
These consist of the following four terms:
- CFR: Cost and Freight to
- CIF: Cost, Insurance and Freight to (To the named port of destination)
- FAS: Free Alongside Ship
- FOB: Free on Board (To the named port of shipment)
Delivered at Terminal (DAT) Definition
Term may be used for all transport modes
Seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination.
Terminal includes quays, warehouses, container yards or road, rail or air terminals.
Both parties should agree the terminal and, if possible, a point within the terminal, at which point the risks will transfer from the seller to the buyer of the goods.
If it is intended that the seller is to bear all the costs and responsibilities from the terminal to another point, DAP or DDP may apply.
Delivered at Terminal (DAT) Responsibilities
The seller is responsible for the costs and risks to bring the goods to the point specified in the contract.
Seller should ensure that their forwarding contract mirrors the contract of sale.
The seller is responsible for the export clearance procedures.
Importer is responsible to:.
- Clear the goods for import.
- Arrange import customs formalities.
- Pay import duty.
If the parties intend the seller to bear the risks and costs of taking the goods from the terminal to another place then the DAP or DAT term should be used.
Delivered at Place (DAP) Definition
Term may be used for all transport modes.
The seller delivers the goods when they are placed at the disposal of the buyer on the arriving means of transport, ready for unloading at the named placed of destination.
Parties are advised to specify as clearly as possible the point within the agreed place of destination, because risks transfer at this point from seller to buyer.
If the seller is responsible for clearing the goods, paying duties etc consideration should be given to using the DDP term.
Delivered at Place (DAP) Responsibilities
Seller bears the responsibility and risks to deliver the goods to the named place.
The seller is advised to obtain contracts of carriage that match the contract of sale.
The seller is required to clear the goods for export.
The seller incurs unloading costs at place of destination, unless previously agreed that they are not entitled to recover any such costs.
Importer is responsible for: - Effecting customs clearance. - Paying any customs duties.