TRADE WORKSHOP 29 May 2012

Presentation Contents
History of Incoterms Why Incoterms? What do Incoterms cover? Key Changes of Incoterms 2010 How to use Incoterms 2010 Key Aspects of Incoterms 2010

Letters of Credit Issuance

4
Advice /Confirmation of the Letter of Credit.

Exporter/ Beneficiary

Advising/ Confirming Bank

Sales Contract
1

Request to advise & possibly confirm the Letter of Credit

3
Importer applies for Letter of Credit.

2
Importer/Applicant

Issuing Bank

Flow of Documents & Payment

3

Exporter/ Beneficiary

Document

Nominated/ Negotiating Bank

4
Documents

GOODS 1
Document

Importer/App licant

Issuing Bank

INCOTERMS ACRONYM Incoterms is an acronym for

International Commercial

Terms

HISTORY
The International Chamber of Commerce first published in 1936 a set of international rules for the interpretation of trade terms, were known as INCOTERMS 1936 Amendments and additions were later made in :

1953 1967 1976 1980 1990 2000 2010 (effective : 1 January 2011)

Why Incoterms ?
Incoterms provide a set of international rules accepted by governments, legal authorities and practitioner worldwide. For example: FOB American Coy diff FOB UK trader Thus,the uncertainties of different interpretations of such terms in different countries can be avoided.

considerable degree = banyak tafsiran

What do they cover ?

something goes wrong.
Was the correct Terms used?

Had Risk passed?

Who is responsible for Insurance ? What was the named placed after the INCOTERM?

Explanation Cost/Risk/Responsibility
Sellers Works,Factory, Warehouse, etc. Merchandise Cost Freight and Insurance Cost Goods uncleared for export Export permit / Export Tax (if available) Import Permit / Import Duties Buyers Works,Factory, Warehouse, etc.

The Buyer

SELLERS COST SELLERS RISK

SELLERS COST SELLERS RISK

SELLERS COST BUYERS RISK

BUYERS COST BUYERS COST BUYERS RISK BUYERS RISK BUYER S

Tracking / Train Cost Port of Loading Cost : Terminal handling Chgs. Loading chgs

Port of discharge Cost : Terminal handling chgs, Unloading chgs

Tracking / Train Cost

Risks : Loss or damage of the goods

Terminal Handling Charges (if available)

What Do They Cover?

In drawing up a sales contract, the importer and the exporter need to agree how they divide up the Costs Risks Responsibilities

involved in transporting the goods from the exporter to the importer. This agreement is represented by a trade term which is known as an INCOTERM.

COSTS, RISKS And RESPONSIBILITIES

Costs - who will bear the costs involved in delivering the goods; Risks - who will bear the risks of loss or damage to the goods in transit;

Responsibilities - who is responsible for

making all the necessary arrangements.

COSTS, RISKS And RESPONSIBILITIES

Costs the division of cost between sellers & buyers Risks the point at which delivery occurs i.e. the point at which the risk of loss or damage

transfers from the seller to the buyer

Responsibilities which party is responsible for export and import duties/ clearance

STRUCTURE of INCOTERMS
2000
Group E Departure EXW Ex Works Group F Main carriage unpaid FCA Free Carrier (.named place) FAS Free Alongside Ship (.named port of shipment) FOB Free On Board (named port of shipment) Group C Main carriage paid CFR Cost and Freight (.named port of destination) CIF Cost Insurance and Freight (..named port of destination) CPT Carriage Paid To (..named place of destination) CIP Carriage and Insurance Paid To (.named place of destination) Group D Arrival DAF Delivered At Frontier (.named place) DES Delivered Ex Ship (.named port of destination) DEQ Delivered Ex Quay (.named port of destination) DDU Delivered Duty Unpaid (named place of destination) DDP Delivered Duty Paid (..named place of destination) Group E Departure EXW Ex Works Group F Main carriage unpaid FCA Free Carrier (.named place) FAS Free Alongside Ship (.named port of shipment) FOB Free On Board (named port of shipment) Group C Main carriage paid CFR Cost and Freight (.named port of destination) CIF Cost Insurance and Freight (..named port of destination) CPT Carriage Paid To (..named place of destination) CIP Carriage and Insurance Paid To (.named place of destination) Group D Arrival DAT Delivered At Terminal (.named terminal at Port or Place of destination) DAP Delivered At Place (..named place of destination) DDP Delivered Duty Paid (..named place of destination)

2010

Overview of the Key Changes in Incoterms 2010

Key themes for changes

Encourage better use of Incoterms Continue to refine for containers E.g. terminal handling charges Significant changes in practice: Electronic communication Security Insurance Encourage use in the USA An eye for the commodity trade
Encourage = menganjurkan

New Incoterms!
Consolidation of D terms New Incoterms DAT and DAP DAF, DES, DEQ and DDU abolished

Abolished = menghapuskan

DAT in more detail

DAT
Unloaded from arriving means of transport Placed at the disposal of the buyer at the named terminal Not import cleared Replaces DEQ More useful for containers

DAP in more detail

DAP
On arriving means of transport ready for unloading Not import cleared Replaces DES, DAF and DDU

DAT

DAP/DDP

Electronic communications
Incoterms 2000
Electronic data interchange (EDI) message Parties have to agree to use EDI

Incoterms 2010
Equivalent electronic record or procedure If the parties so agree, or customary
Customary = biasanya

Security
A2/B2 allocate obligations to obtain assistance in obtaining security related clearance. A10/B10 compel seller and buyer to talk

Compel = memaksa/mendorong

Insurance
Institute of Cargo Clauses updated A3/B3 Information to Insurance NB. CIF and CIP only require minimum cover by Seller

Commodities - string sales

-Commodities sold several times via string of sale contracts. -More than one seller and only the first seller will have been responsible for shipping the goods. -For example, CIF and CFR now refer to an obligation to contract or procure a contract for the carriage of the goods.

Domestic and international

Apply to both international and domestic Encourage use in USA in place of the former US Uniform Commercial.

Encourage = menganjurkan

Terminal Handling Charges

Described clearly who should pay the Terminal Handling Charges. Avoid paying for the same service twice by buyer (double exposure) For example : CIF/CFR

Better use
The biggest problem with Incoterms is using them incorrectly And this is not just the first time exporter/importer Cause Dispute, Litigation, Financial loss.

In summary
DAT and DAP replaces DAF, DES, DEQ and DDU Domestic and international Electronic communication Insurance Security Terminal handling charges String sales Maritime made secondary Guidance notes

How To Use Incoterms 2010

Incorporate into contract Choose the right rule Specify the place/port precisely
e.g. FCA Jl HR Rasuna Said Blok X 5 Kav. 2 3, Jakarta Indonesia Incoterms 2010

Structure of the Incoterms 2010 Rules

The Sellers obligations are set out in articles A1-A10, and the Buyers obligations in mirror fashion in B1-B10, as follows:

OBLIGATIONS OF SELLER:
A1 General obligations of the seller

OBLIGATIONS OF BUYER:
B1 General obligations of the buyer

A2 Licenses, authorizations security clearances and other formalities

A3 Contracts of carriage and insurance A4 Delivery

B2 Licenses, authorizations security clearances and other formalities

A3 Contracts of carriage and insurance B4 Taking delivery B5 Transfer of risks B6 Allocation of costs B7 Notices to the seller B8 Proof of delivery B9 Checking-packaging-marking

A5 Transfer of risks
A6 Allocation of costs A7 Notices to the buyer A8 Delivery document A9 Checking-packaging-marking

A10 Assistance with information and related costs

B10 Assistance with information and related costs

In addition, the text of the rules in A1-A10 and B1-B10 is supplemented by a short Introduction, setting out important features of the new Incoterms 2010 rules generally, and Guidance Notes at the beginning of each rule, giving guidance on use and application of the rule.

RULES FOR ANY MODE OR MODES OF TRANSPORT

Any Mode of Transport

Group E EXW Ex Works (..named place) Group F FCA Free Carrier (.named place)

Group C CPT Carriage Paid To (..named place of destination) CIP Carriage and Insurance Paid To (.named place of destination) Group D DAT Delivered At Terminal (named terminal at port or place of destination) DAP Delivered At Place (named place of destination) DDP Delivered Duty Paid (.named place of destination)

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

Sea and inland waterway transport only

Group F FAS Free Alongside Ship (.named port of shipment) FOB Free On Board (named port of shipment) Group C CFR Cost and Freight (.named port of destination) CIF Cost Insurance and Freight (..named port of destination)

How to use Incoterms

Incorporate into contract Choose the right rule Specify the place/port precisely
e.g. FCA 38 Cours Albert Ier, Paris, France Incoterms 2010

Any Mode of Transport

INCOTERMS 2010

EXW (EX WORKS) Any mode or modes of transport Delivery when Seller places goods at Buyers disposal at named place Buyer loads goods onto collecting vehicle Buyer pays transport Buyer responsible for export where applicable Minimum Seller obligation Best used for domestic/intra-trading bloc contracts

EXW
Seller
C A B

Buyer
D E F

Risk & Responsibilities Cost/Expense

Real life - EXW

You buy Ex-Works (London) Incoterms 2010. You have no presence in the European Union Any problems?

Presence = kehadiran

Real life - EXW

You buy Ex-Works (loaded) (Jakarta) Incoterms 2010 The goods are damaged in loading Who is responsible for the cost of repairing the damaged goods? a. You b. The Seller c. Both You and the Seller d. Unclear

Incoterms Variants
Incoterms 2010 rules do not prohibit variants to Incoterms as long agreed by all parties. Such alterations extremely clear incorporated in their contract. When using Variants, you are strongly advised to clarify exactly whose cost, risk & responsibility. For eample: - Ex Work Loaded - Ex Work Cleared - CIF Maximum cover - DDU cleared

Real life - EXW

You buy Ex-Works (Sellers premises Jakarta) Incoterms 2010. You expected to collect from Surabaya The Seller insists on delivery at their premises in Jakarta
Who pays for the additional transport costs from Jakarta to Surabaya? a. You b. The Seller c. Both You and the Seller c. Unclear insists = menentukan

INCOTERMS 2010

FCA (FREE CARRIER) Any mode or modes of transport Delivery when Seller delivers goods to carrier or other Buyer nominee at Sellers premises or another named place Buyer arranges and pays for transport BUT If commercial practice or at Buyers request, Seller may (but is not required to) arrange transport at Buyers cost and risk Seller responsible for export where applicable Buyer responsible for import where applicable

FCA
Seller Buyer
D E F

C A B

Risk & Responsibilities Cost/Expense

Real life - choosing Incoterms

The Buyer wants you to deliver to Istanbul railway station The Buyer will then move the goods by rail to Germany Which Incoterm should you use? EXW, FCA or FOB?

Real life - FCA

You sell FCA (Medan Indonesia Container Terminal) Incoterms 2010 There is a fire at the port destroying the container terminal and your container

Must you replace the goods?

Real life - FCA

You sell FCA (Pontianak Indonesia Container Terminal) Incoterms 2010 The Buyer demands that you provide an on board bill of lading

Do you have to provide one? a. Yes b. No

Real life - FCA

You sell FCA (Manado Indonesia Container Terminal) Incoterms 2010 The carrier demands payment of a new terminal charge to take custody You pay. Can you charge it to the Buyer? a. Yes b. No
custody = pemeliharaan

Real life - FCA

You buy FCA (Southampton Container Port) Incoterms 2010 The UK has introduced a new mandatory container screening before containers can be loaded. Who is obliged to pay? a. You (Buyer) b. Seller c. Both
Mandatory = bersifat perintah

INCOTERMS 2010

CPT (CARRIAGE PAID TO) Any mode or modes of transport NB: Risk and cost shift to Buyer at different places Delivery when Seller hands goods over to carrier (risk passes) BUT Seller pays for transport (but does not have risk of transport) Seller responsible for export where applicable Buyer responsible for import where applicable

CPT
Seller
C A B D E F

Buyer

1st Carrier
Risk & Responsibilities Cost/Expense

INCOTERMS 2010

CIP (CARRIAGE AND INSURANCE PAID TO) Any mode or modes of transport NB: Risk and cost shift to Buyer at different places Delivery when Seller hands goods over to carrier (risk passes) BUT Seller pays for transport (but does not have risk of transport) Seller contracts for minimum cover insurance against buyers transport risk Seller responsible for export where applicable Buyer responsible for import where applicable

CIP
Seller
(Cover Insurance)

Buyer
C D E F

1st Carrier
Risk & Responsibilities

Cost/Expense

Real life CPT and CIP

You sell CPT (Buyers warehouse Aceh Indonesia) Incoterms 2010 You load the container onto a truck in Medan Indonesia In transit the truck has an accident Cargo destroyed

Do you need to replace the goods? a. Yes b. No c. Case by Case

Real life CPT and CIP

You sell CPT (Brindisi Port, Italy) Incoterms 2010 The shipping contract does not include unloading costs Ship refuses to handover to the Buyer, until Buyer pays unloading costs

Can Buyer charge you the unloading costs? a. Yes b. No

Real life CPT and CIP

You buy CIP (Damascus Airport) Incoterms 2010 The goods arrive damaged The insurer refuses to pay Insurer states out of scope of Clause C Cargo Insurance How to mitigate the risk cover?

INCOTERMS 2010

DAT (DELIVERED AT TERMINAL) Any mode or modes of transport Delivery when Seller unloads and places them at Buyers disposal at named terminal Seller pays for transport Seller responsible for export where applicable Buyer responsible for import where applicable

DAT
Seller
C A B

Buyer
D E F

Terminal
Risk & Responsibilities Cost/Expense

INCOTERMS 2010

DAP (DELIVERED AT PLACE) Any mode or modes of transport Delivery when Seller places the goods at Buyers disposal not unloaded on arriving means of transport at named place Seller pays for transport Seller responsible for export where applicable Buyer responsible for import where applicable

DAP
Seller Buyer
C A B D E F

Risk & Responsibilities Cost/Expense

- Seller Not Responsible for Import - Seller Not Unloaded

INCOTERMS 2010

DDP (DELIVERED DUTY PAID) Any mode or modes of transport Delivery when Seller places the goods, cleared for import, at Buyers disposal not unloaded on arriving means of transport at named place Seller pays for transport Seller responsible for export where applicable Seller also responsible for import where applicable

DDP
Seller
C A B

Buyer
D E F

Risk & Responsibilities Cost/Expense

-- Seller responsible for Import

-- Seller Not Unloaded

Real life DAT, DAP and DDP

Your French customer asks you to deliver on a DDP basis

Do you agree?

Real life DAT, DAP and DDP

You buy DAP (Buyers warehouse Bogor) Incoterms 2010, from Dubai. The goods are held at the Jakarta border due to customs Who is responsible for the delay? a. You (Buyer) b. The Seller c. Both

Real life DAT, DAP and DDP

You are asked to deliver to Belawan(Medan Indonesia)s container terminal

Do you use DAT, DAP or DDP?

Real life DAT, DAP and DDP

You buy DAT (Beirut container terminal) Incoterms 2010 The carrier tries to charge for unloading from ship and movement to stack Do you pay? a.Yes b. No
Stack - tumpukan

Real life DAT, DAP and DDP

You sell DAP (Buyers warehouse Istanbul) Incoterms 2010 The container is damaged when being unloaded

Who is responsible? a. You (Seller) b. Buyer

Real life DAT, DAP and DDP

You sell DDP (Hong Kong) by air Incoterms 2010 Buyer wants Seller to pay for transport between airport and warehouse

Must the Seller pay? a. Yes b. No

Maritime only

INCOTERMS 2010

FAS (FREE ALONGSIDE SHIP) Sea or inland waterway transport only Delivery when goods are placed alongside vessel at port of shipment Seller may also deliver by procuring goods already delivered as above (a string sale) Buyer pays transport Seller responsible for export where applicable Buyer responsible for import where applicable

string sale = penjualan rutin

FAS
Seller
C A B

Buyer
D E F

Risk & Responsibilities Cost/Expense

INCOTERMS 2010

FOB (FREE ON BOARD) Sea or inland waterway transport only Delivery when goods are placed on board vessel at port of shipment Seller may also deliver by procuring goods already delivered as above (a string sale) Buyer pays transport Seller responsible for export where applicable Buyer responsible for import where applicable

FOB
Seller
C A B

Buyer
D E F

Risk & Responsibilities Cost/Expense

Real life FAS and FOB

You buy goods FOB (Hamburg) Incoterms 2010. When does title (ownership) pass?

Real life FAS and FOB

You sell FOB (Makassar-Indonesia) Incoterms 2010 You deliver the container to the container stack The containers contents are stolen

Do you need to replace the goods? a. Yes b. No

Stack = tumpukan

Real life FAS and FOB

You buy FOB (Hamburg) Incoterms 2010
In loading a cable snaps The cargo lands on the deck and is damaged

Who is responsible? a. You (Buyer) b. The Seller c. Both You and Seller

INCOTERMS 2010

CFR (COST AND FREIGHT) Sea or inland waterway transport only NB: Risk and cost shift to Buyer at different places Delivery when goods are placed on board vessel at port of shipment (risk passes) BUT Seller pays for transport (but does not have risk of transport) Seller may also deliver by procuring goods already delivered as above (a string sale) Seller responsible for export where applicable Buyer responsible for import where applicable

CFR
Seller
C A B

Buyer
D E F

Risk & Responsibilities Cost/Expense

INCOTERMS 2010

CIF (COST INSURANCE AND FREIGHT) Sea or inland waterway transport only NB: Risk and cost shift to Buyer at different places Delivery when goods are placed on board vessel at port of shipment (risk passes) BUT Seller pays for transport (but does not have risk of transport) Seller may also deliver by procuring goods already delivered as above (a string sale) Seller contracts for minimum cover insurance against buyers transport risk Seller responsible for export where applicable Buyer responsible for import where applicable

CIF
Seller
(Cover Insurance)

Buyer
C D E F

Risk & Responsibilities Cost/Expense

Real life CFR and CIF

You sell CIF (Semarang) Incoterms 2010.

Who is responsible for the inland haulage from Solo to Semarang? a. You (Seller) b. Buyer
Haulage = angkutan

Real life CFR and CIF

You buy CFR (Jakarta port) Incoterms 2010 The Seller hands over to a truck at Johor The cargo is loaded onto a ship at Singapore The cargo was damaged between Johor and Singapore

Who is responsible? a. You (Buyer) b. The Seller

FOB EXW

cannot be used as the delivery point is not on to a ship. it is unusual to use EXW where delivery is not at the sellers premises. risk passes on delivery. Under A4 delivery is on delivery not unloaded at the container terminal. Therefore assuming delivery has happened then the risk is on the Buyer.

FCA

CPT

risk passes on delivery (A5). In A4 delivery is when the goods are handed over to the carrier contracted in accordance with A3. NB. Note the delivery point is early it is not the place where the Seller has paid for carriage to.

CIP

Under A5 risk passes to the Seller on delivery. Under A4 delivery is when the goods were handed over to the carrier.

DDP

A Seller will normally avoid DDP as it will not want to bear responsibility for import clearance.

DAT.

Under DAT the Seller is responsible for unloading from the ship and handling costs until the container is in the terminal.

DAP will extend the Sellers obligations to include all handling

cost including costs of loading the Buyers vehicle.

FAS

Under A4 the Seller must deliver the goods alongside the ship. If the Buyer has not specified a loading point, then the Seller may select the point within the port which best suits its purpose.

CIF

Under A5 risk passes on delivery. Under A4 delivery is when goods are placed on board. Therefore the goods have been delivered and are at the risk of the Buyer.

CFR

Under A5 risk passes on delivery. Under A4 the Seller delivers by placing them on board the vessel. Therefore the cargo is at Sellers risk until loading at vessel.

The Seller is responsible for damage to the cargo before loading goods at port of loading.

Transfer of risk from the seller to the buyer

CIF Transport & Insurance Paid Transport Paid

CFR
FAS FOB
First carrier

Loading Port

Destination Port

The Buyer
DAP (ex DES) DAP (ex DAF) DAT
(ex DEQ)

EXW FCA Transport Paid CPT Transport & Insurance Paid CIP Frontier

DAP (ex DDU)

DDP

Thank you