Lect 2
Lect 2
Lect 2
1
Objectives
On completion of this unit, you should
be able to :
• Describe the functions of Incoterms.
• Understand the obligations of the
sellers and buyers for each Incoterm.
• Compare and contrast the different
Incoterms.
2
In every international trade...
3
What are Incoterms?
Incoterms defines the rights and
obligations of both sellers & buyers
in relation to transportation of goods.
Standardised & internationally
recognised trade terms by ICC
Versions : 1936, 1953, 1976, 1980,
1990, 2000 & 2010
Standardised 3-letter code
4
2.2 Function of Incoterms
3 separate contracts of transport for the
goods
• Pre – carriage
* From exporter’s => transport
operator.
• Main carriage
* From transport operator => named point
in buyer’s country.
• On-carriage
* From named point in buyer’s country to
buyer’s
5
Understanding the diagram
6
EXPORT IMPORT
10
Note the shipping terms...
• Carriage cost = Transportation cost =
Freight cost
• Port of departure = Port of shipment =
Port of export = Port of loading
• Port of arrival = Port of destination = Port
of import = Port of discharge
• Carrier = Transport company = Shipping
company
• Export/Import Clearance = licence, taxes/
duties. 11
2.3 Categories of Incoterms
“E” EXW “C” CFR
CIF
“F” FCA CPT
FAS CIP
FOB “D” DAT
DAP
DDP
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Note – Risk line
13
Note - Cost line
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2.4.1. Ex Works
(EXW)
Seller’s primary duty
• Make goods available at his
premises (technical delivery)
Buyer’s primary duties
• Take delivery at the seller’s
premises.
• To bring the goods to destination at
buyer’s own cost & risk.
15
EXPORT IMPORT
EXW
17
Free Carrier (FCA)
18
FCA EXPORT IMPORT
1st carrier
21
FAS EXPORT IMPORT
23
Free On Board (FOB)
Buyer’s Primary Duties
• Contract for carriage & pay transport
costs
• Pay for unloading costs
• Arrange for import clearance
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FOB EXPORT IMPORT
27
CFR EXPORT IMPORT
29
CIF EXPORT IMPORT
32
CPT EXPORT IMPORT
1st
carrier
Seller’s Risk Buyer’s Risk
34
CIP EXPORT IMPORT
1st carrier
37
DAT EXPORT IMPORT
39
Buyer’s primary duties
• Take delivery of the goods at the
named place.
40
DAP EXPORT IMPORT
42
DDP EXPORT IMPORT
44
2.5 Points to note –
Duty to Provide Insurance
45
Factors affecting the choice of
Incoterm
• Market situation
* bargaining power of sellers & buyers
46
Control of transport & insurance
* larger firms
vs.
smaller firms
47
• Governmental involvement
* governmental directives to channel
business to national carriers or to
promote domestic insurance market
48
“Buy using FOB method,
importers advised”
Star Maritime – 24 October 2005
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• Country situation
* labour & political conditions
* infrastructure
50