Advantages of application of updated INCOTERMS® 2010

Ing. Viktória Valachovičová, PhD. Phone: +421-910 908 321 Email: valachovicova.viki@gmail.com

25.9.2012, Bratislava

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Publication and importance of INCOTERMS as delivery terms of sales contract Delivery, costs, risks and other obligations of seller & buyer according to the INCOTERMS Changes in INCOTERMS® 2010 in comparison to INCOTERMS 2000 Calculation of price according to the INCOTERMS Issues to be careful with at the INCOTERMS’s application Couple of real life scenarios

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International Commercial Terms were first established in1936 Prepared by International Chamber of Commerce (www.iccwbo.org), Paris, approved by UNCITRAL From 1th Jan of 2011, 7th revision published in Sept 2010 is applied From 12/2010 – available Slovak translation (bilingual Slovak-English version) published by National Committee of the ICC in the SR in collaboration with the Slovak chamber of commerce & industry (www.sopk.sk)

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They are applied at the business with goods, i.e. according to the Customs law n. 199/2004 and Law on VAT n. 202/2004 moveable tangible things and energy, delivery of services, business with paper securities, real estates INCOTERMS are not a legislation, they become bound after their introduction in the sales contract (SC) or as a customary practice according to the CISG „Soft law“

They determine  

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Point of delivery Transfer of costs (e.g. for

transport, customs clearance, etc.)

Transfer of risks (the risk of loss and damage)

Other obligations of the contracting parties . These

are grouped within INCOTERMS under 10 fields, for seller in A1–A10, for buyer in B1–B10

They do not determine      

Transfer of ownership Price & payment conditions Dispute solution Relations to the banks, carriers, forwarders, insurers Complaints of the quality of goods, etc.

On some of these aspects, e.g. on the contracting parties within the Contract of Carriage, Forwarding contract or price, INCOTERMS have an indirect influence

Usually contract of sale includes:       

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Definition of the contracting parties Description of the goods and its price Rights and duties of the contracting parties Transfer of ownership Period for/date of delivery, place of delivery Payment terms Delivery terms – INCOTERMS Date, place and the signatures of the contracting parties Other requisites (packaging of the goods, period of guarantee, after-guarantee services, complaints, dispute solution, etc.)

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Article of the SC, in which delivery term is determined:

Besides of sale contract, INCOTERMS are usually included in invoice (possibly in order, price offer) and subsequently in contract of carriage, documents of payment, etc.

Terms is introduced together with the agreed place and version applied, e.g.: Abbreviation of term (agreed place), INCOTERMS® 2010, e.g: „FCA (TSOK/CCIS, Michalska 7, 2nd floor, 811 01 Bratislava), INCOTERMS® 2010“

Term      

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EXW FCA CPT CIP DAT DAP DDP FAS FOB CFR CIF

Agreed place introduced in the SC behind term      

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Place of delivery Place of delivery Place of destination Place of destination Terminal at port/place of destination (=p. of delivery) Place of destination (=place of delivery) Place of destination (=place of delivery) Port of shipment (=place of delivery) Port of shipment (=place of delivery) Port of destination Port of destination

Source: http://www.gw-world.sk/sk

Seller´s obligations  

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General obligations  Licences, security clearances &  other formalities Contracts of carriage and  insurance Delivery  Risks´ transfer  Allocation of costs  Notices to the buyer  Delivery document  Checking, packaging, marking  Assistance with information and  related costs

Buyer´s obligations General obligations Licences, security clearances and other formalities Contracts of carriage and insurance Taking delivery Risks´ transfer Allocation of costs Notices to the seller Proof of delivery Inspection of goods Assistance with information and related costs

Buyer    

EXW FCA FAS FOB

Seller          

(FCA) CPT CIP DAT DAP DDP (FAS) (FOB) CFR CIF

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Reduction of their number to 11 terms: 4 were excluded (DAF,DES,DEQ,DDU), 2 added (DAT&DAP) Shift of delivery point in three terms (FOB, CFR and CIF) from „across the ship´s rail“ to the „on board“

FOB, CFR and CIF in INCOTERMS 2000: „across the ship’s rail“

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FOB, CFR and CIF in INCOTERMS® 2010: „on board the vessel“

FCA, CPT and CIP: carrier takes over the goods in a terminal

Accentuation of their possible application in the inland business directly in the title (cause of the USA, business zones and customary practice)

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Two possibilities of delivery within the maritime terms

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More detailed introduction to the individual terms including the graphical presentation of delivery point instead of the general too long preface in INCOTERMS 2000 Electronic communication has the large possibilities, however not specified in INCOTERMS (see A1 and B1 of any term)

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New term: „security clearances“ in A2/B2 and „security-related information” in A10/B10 Obligation to provide the business partner with the necessary information for obtaining insurance was moved from A10/B10 to A3b)/B3b) Emphasis of the only minimal insurance cover within CIF and CIP term In new version, in A3a) of FAS and FOB, we can find the possibility to procure the contract of carriage by seller at the buyer’s risks and expenses

Wording of the INCOTERMS速 2010 in A3a) of FCA, FAS & FOB

 Inconspicuous preference of universal terms (K. Vanheusden): Division of terms according to the suitability for specific modes

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Terms for any mode of transport

Terms for maritime and inland waterway transport

EXW FCA CPT CIP

FAS FOB CFR CIF

Ex works  Free Carrier  Carriage Paid To  Carriage and  Insurance Paid To DAT Delivered At Terminal DAP Delivered At Place DDP Delivered Duty Paid

Free Alongside Ship Free On Board Cost and Freight Cost, Insurance and Freight

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INCOTERMS is introduced in basic business documents: price offer, purchase order, contract of sale and invoice Term agreed influences the price - term and price are depending variables: when the seller accepts more risks, costs and obligations on his side, price is higher, i.e. in general, EXW price is lowest and DDP price is the highest EP = PC + TN + profit margin EP = export price PC = procurement/ production price TC = transaction costs

P 0 < P1 < P 2 < P 3

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Costs of inspection, packaging and labeling Costs of issuance of necessary documents Costs of loading, unloading and other terminal fees Costs of carriage Cost of insurance Taxes, duties and costs for various licenses and authorizations concerning the export & import Transit costs Costs of information Supplementary costs (if basic duty is not fulfilled)

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Introduction of the intended version (some companies still intend to realise their contracts according to the INCOTERMS 2000) Application of the „maritime term“ at other mode of transport Application of EXW at the business operations outside the business zones Real possibility of repayment of VAT at the DDP Accurate specification of the handling costs (loading, unloading of the goods) as buyer at the „C“ and „D“ – terms can not influence the Contract of Carriage

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Variation of INCOTERMS, e.g. FOB trimmed, DAPunloaded Limited insurance at the CIP and CIF Risk of so called broken insurance (individual transport stages are insured by several insurance companies or insurance of the part of transport by exporter and other part by importer, e.g. at the application of CIF) At application of DDP within EU, in position of the seller to verify, whether the goods is subject of excise duty in the country of destination If not DDP within EU is applied, in position of the buyer to verify, whether the goods were already customs cleared for import to the EU

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Asian seller and European buyer agrees in the contract of sale on: „CFR Hamburg INCOTERMS® 2010“ The goods are shipped in Singapore, but on the basis of wrong instructions of the seller to the carrier, they are discharged at Southampton.

Who now bears the cost of transshipping the goods from Southampton to Hamburg?

If goods are damaged by fire or stolen while in Southampton, who bears the risk of their damage/loss?

Case study n.1 - Solution

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At the CFR, costs to the port of destination pays the seller However, the buyer bears all risks after delivery of goods on board the vessel in the port of shipment In this case, costs are for the seller’s account and risks for the buyer’s It depends upon the seller to admit the mistake and compensate the buyer in order to keep the business partner as well as goodwill

Case study n.2 - Assignment 

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American seller delivered under

“DAT Paris, INCOTERMS® 2010”

to the French importer Goods were carried in containers by sea transport from Philadelphia to Le Havre and on-carriage was operated by railway It is now a week since the goods were removed by the buyer from the agreed terminal in Paris Buyer has today discovered that goods in 2 containers were damaged Can the buyer claim the part of the price back from the seller or to require the addition to the next delivery?

Case study n.2 â&#x20AC;&#x201C; A map

Case study n.2 - Solution 

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Buyer made mistake that he did not check containers with goods directly at the terminal If the contract of sale would be on DAP Paris INCOTERMS® 2010, buyer could claim some refund from seller, but in the case that he already took over the goods from terminal and carried them to own premises, it is not possible to prove that the goods were damaged during the main carriage managed by seller and not by loading, on-carriage and unloading operated by the buyer on his own.