International finance

Submitted To: Prof Javaid Malik

Submitted By:
Rahat Arshad EMBA F14-007
Awaisia Abbasi
EMBA-F14-031

Umer Abbas
EMBA-F14-063
Nazeer Ahmad
EMBA-F14-026

INCOTERMS : International Commercial

TERMS
INCOTERMS define the mutual obligations of
seller and buyer arising from the movement
of goods under an international contract from
the standpoint of risks, costs and documents
UNCTAD, 1990

INCOTERMS : International
Commercial TERMS
Universally

recognised set of definitions of

international trade terms
Recognised by courts and other authorities
Define the trade contract responsibilities and
liabilities between buyer and seller
Updated regularly to keep pace with changes
and developments in international trade

What are they?

Set of international rules for the interpretation
of the most commonly used foreign trade
terms

Why are they Important?

Reduce

the uncertainty caused by trade

practices in different countries.
Simplify the negotiations involved in
international commerce.
Ensure common understanding of obligations

History

International Commerce Terms

Developed by the International

Chamber of Commerce
(headquartered in Paris, France)
Introduced in 1936 and updated several times up to
2000

Most recent (eighth) edition is Incoterms 2010,

effective from 1 January 2011

A set of rules governing key terms applicable

to international trade

A well-established shorthand to describe those terms

Globally accepted contractual standard designed to

facilitate the conduct of trade

New Incoterms 2010 came into operation on 1st January

2011

Purpose of Incoterms
Incoterms were first established in 1936 by the
International Chamber of Commerce (ICC) in
Paris, France.
The ICC recognized the need for a standard set
of shipping terms that could be used by
international business people:
International Commerce Terms
Incoterms are intended to be used as a set of
Rules that Sellers and Buyers of goods can use

Purpose of Incoterms
Designed

for Parties to a Contract

Provides a set of international rules for foreign trade
Reduces uncertainties
Avoids different interpretations in different countries
Additional costs and time can be avoided

THE SELLERS OBLIGATIONS

Provision of goods in conformity with the contract
Licenses, authorizations and formalities
Contract of carriage and insurance
Delivery
Transfer of risks
Division of costs
Notice to the buyer
Proof of delivery, transport document or equivalent
electronic message
Checking packaging marking
Other obligations

THE BUYERS OBLIGATIONS

Payment of the price
Licenses, authorizations and formalities
Contract of carriage
Taking delivery
Transfer of risks
Division of the costs
Notice to the seller
Proof of delivery, transport document of equivalent
electronic message
Inspection of goods
Other obligations

Scope of Incoterms
Incoterms is limited:
To

rights and obligations of the parties to contract of sale with

respect to the delivery of the goods sold.
Do

not deal with the consequences of breach of contract

primarily

intended for use where goods are sold for delivery across
national boundaries, hence international commercial terms

Can

be used in contracts for sale of goods directly.

The Categories
Incoterms
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Ex works
Free carrier
Free alongside ship
Free on board
Cost & freight
Cost, insurance & freight
Carriage paid to
Carriage and insurance paid to
Delivered at frontier
Delivered ex ship
Delivered ex quay
Delivered duty unpaid
Delivered duty paid

Code

EXW
FCA
FAS
FOB
CFR
CIF
CPT
CIP
DAF
DES
DEQ
DDU
DDP

E Terms
F Terms

C Terms

D Terms

Structure
Group

E Departure
EXW Ex Works (.............named place)
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)

Structure
Group

C Main carriage paid

CFR

Cost and Freight (...........named port of destination)

CIF
Cost, Insurance & Freight (.....named port of destination)
CPT Cost Paid To
(...........named port of destination)
CIP Carriage and Insurance paid to ( .named place of
destination)
Group
DAF

D Arrival

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)

The Terms
The E Term is the term in which sellers
obligation is at its minimum

The F Term require the seller to deliver as

instructed by the buyer

The C Term require the seller to contract for

carriage at his expense

The D Term signifies arrival contracts

The Steps of Global

Logistics
Customs Clearance
for Export

2
1

Loading

Preliminary
Transportation

Handling
Outbound

Packing

6
Insurance
Customs
Clearance
Duties

11
Unloading

10
Final
Transportation

Main
International
Transportation

8
Handling
Inbound

E Terms: Departure
EXW (named place)

Under E-terms, the seller minimizes his risk by only

making the goods available at his own premises.
SELLER

Export
Clearance

Import
BUYER
Clearance

Goods
PRE -CARRIAGE
Sellers Risk
Sellers Cost

MAIN CARRIAGE

ON-CARRIAGE

EXW = Ex Works
The seller fulfills his obligation to deliver when he has
made the goods available at his premises to the buyer.
The seller is not responsible for loading the goods on
the vehicle provided by the buyer
The seller is not responsible for clearing the goods for
export, unless agreed.
The buyer bears all costs and risks involved in taking
the goods from the sellers premises to the desired
destination

INCOTERM GROUP F MAIN CARRIAGE

UNPAID
The

F terms require the seller to deliver goods for

carriage as instructed by the buyer.
FCA
FAS
FOB

FCA FREE CARRIER (NAMED PLACE)

Seller:
Term may be used for any mode of transport.
Delivers the goods into the custody of carrier, or if there are
subsequent carriers, to the first carrier at the point of
loading, risk transfers to buyer.
Obtains at own risk and expense any export license or other
official authorizations.
Retains no obligation for contract of carriage after delivery at
the named place.
Pays all costs relating to the goods until such time as they
have been delivered to the first carrier.
Provides the buyer, upon request, with the necessary
information for procuring insurance.

FCA FREE CARRIER (NAMED PLACE)

Buyer:
o Accepts delivery, costs and risks involved in taking the goods from
the delivery point to the desired destination.
various delivery points
Any type of cargo and different payment methods best suited
for goods transported in containers.

seller
Customs

pre

terminal
carriage

Insurance

terminal
Buyer

Customs
carriage

On

FAS -FREE ALONGSIDE SHIP

(NAMED PORT OF SHIPMENT)
Seller:

oTerm used for Maritime & inland waterway transport only.

oDelivers the goods alongside the vessel at the named port of
shipment.
oMust clear the goods for export.
oPays for all costs relating to the goods until such time as they have
been delivered alongside the vessel.
Buyer:
oBears all costs and risks of loss or damage from alongside the
vessel to the desired destination.

FAS -FREE ALONGSIDE SHIP

(NAMED PORT OF SHIPMENT)
Only used for certain commodities and materials that are not packed and
cannot be individualized (grain, timber, minerals, etc.)
Delivery is done in ports with specialized terminals.

seller
Customs

pre
terminal
carriage

Insurance

terminal
Buyer

Customs
carriage

On

FOB FREE ON BOARD

named port of shipment)
Seller:
oTerm can be used for sea or inland waterway transport only.
o Delivers the goods on board the vessel (over the rail) at the named
port of shipment. Risks transfers to buyer.
o Obtain at own risk and expense any export license or other official
authorization and carriers out all customs formalities necessary for
the exportation of the goods.
o Pays all costs relating to the goods until such time as they have
been delivered on board the vessel (over the rail).
Buyer:
o Accepts the delivery, costs and risks involved in taking the goods
from on board the vessel (over the rail) to the desired destination.

FOB FREE ON BOARD

NAMED PORT OF SHIPMENT)
Oldest Incoterm and one of the most widely used
Preferably used with bulk, heavy loads and in case of
complex goods (machinery) whose loading involves certain
risks.
seller
Customs

pre
terminal
carriage

Insurance

terminal
Buyer

Customs
carriage

On

FOB Terms-Risk Transfer

29

DAF DELIVERED AT FRONTIER (

NAMED PLACE)
Term

may be used for any mode of transport when goods are

delivered at a land frontier.
Seller delivers goods, cleared for export, at disposal of buyer on
arriving means of transport.
Not unloaded, not cleared for import at point at frontier before
customs border of adjoining country.
If delivery is to take place in the port of destination, DES or
DEQ should be used.

DES DELIVERED EX SHIP (NAMED

PORT OF DESTINATION)
Maritime

and inland waterway transport only

Seller delivers goods at disposal of buyer on board
the ship.
Not cleared for import at the named port of
destination.
Seller bears all costs and risks to bring goods to the
named port before discharging.
If the seller is to bear the costs of discharging the
goods, DEQ should be used.