GUIDELINES AND RECOMMENDATIONS ON CONTRACTS AND

PRACTICES FOR INTERNATIONAL TRADE IN TROPICAL TIMBER

2020
également

09
disponible
PAMPHLET en Français

INCOTERMS®
ANY INTERNATIONAL EXCHANGE OF GOODS IS NECESSARILY ASSOCIATED WITH A
LEVEL OF SERVICE NEGOTIATED BY THE TRADING PARTNERS.
THE ESSENTIAL ROLE OF INCOTERMS® IS TO STIPULATE HOW THE RELATED OBLIGA-
TIONS AND RESULTING COSTS, AND THE RISKS, ARE SPLIT BETWEEN EXPORTERS AND
IMPORTERS.

1. DEFINITION
Incoterms®, short for “International Commer- These customary rules define in code form the
cial Terms”, are the codified set of standard conditions for the delivery of goods under a sales
contractual provisions relating to the carriage of contract.
goods. More specifically, Incoterms® identify the reci-
Defined by the International Chamber of procal obligations of the seller and the buyer, the
Commerce (ICC)1, Incoterms® are revised every allocation of transport costs, and the place of
10 years to reflect changes in international trade delivery, which represents the point at which the
practices. risks are transferred from the seller to the buyer.

2. M
 ETHODS OF IMPLEMENTATION
• Incoterms®, or contractual delivery terms, • They are used for transactions with third coun-
govern almost 95% of international transactions. tries and for trade within the European Union.
• They relate only to the flow of goods, and • Under no circumstances do they determine the
concern only the exporter, who is not neces- transfer of ownership, which must be specified
sarily the seller, and the importer, who is not in the contract binding the commercial partners.
necessarily the buyer. • Incoterms® are not a law but an ICC recom-
• They determine the delivery obligations of the mendation; it is therefore important to specify
exporter (who may be the seller), the point of to which version the transaction refers. The
transfer of risk to the importer, the services latest version, which came into effect in 2020 in
that may be included in the invoice and the ICC Publication No. 723 EF, is the most appro-
documents and/or information that the expor- priate for today’s world.
ter is required to provide for the proper execu- • There are 11 Incoterms® in the latest version,
tion of the international transaction. eight of which provide only for shipping obliga-
tions for the exporter.

1. International Chamber of Commerce

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 GUIDELINES AND RECOMMENDATIONS ON CONTRACTS AND
PRACTICES FOR INTERNATIONAL TRADE IN TROPICAL TIMBER

3. R
 ECOMMENDATIONS FOR THE APPLICATION
OF INCOTERMS®
• Before making any decisions, it is essential to analyse precisely the physical flow, which may differ
from the financial flow.
• Incoterms® only apply to physical flows.
• It is important to understand that the customs authorities only recognise the 2010 and 2020 versions.
• As customs clearance has become increasingly important, a separate article has been devoted to it.
• All Incoterm® acronyms must be associated with a geographical location.
• It is important that the transport agreement is consistent with the conditions of delivery.
• The main risk today is not the failure to use Incoterms®, but that they are used improperly. In the
event of a dispute, the exporter’s commitments will be taken into account, even if the obligations
set out in the chosen Incoterm® have been exceeded.

4. CHARACTERISTICS OF INCOTERMS®
•S
 election criteria

- Destination, type of customer, nature of the contract, deadlines, value of the order, payment terms,
mode of transport, exporter’s financial capacity, etc.

•F
 amilies of Incoterms®

- F = the importer is responsible for international transport and pays for it directly
- C = the exporter pays for international transport, which is carried out under the importer’s responsibility
- D = the exporter is responsible for international transport and pays for it directly

•M
 ode of transport

- All modes of transport: EXW, FCA, CPT, CIP, DAP, DPU, DDP
- Sea and river transport: FAS, FOB, CFR, CIF
- Transport organised with own resources: FCA, DAP, DPU, DDP

5. R
 ECOMMENDED INCOTERMS® FOR ALL MODES
OF TRANSPORT
• EXW - EX Works: the shipper makes the goods take, they are responsible for providing packaging
available to the customer in the customs terri- suited to the mode of transport, preliminary infor-
tory of the country of export, either at their own mation for compliance with the safety and secu-
premises or at those of a subcontractor, supplier rity measures in force, etc. Certain consequences
or packer. Officially, the shipper does not take may have a “boomerang” effect on the shipper.
care of anything.
Comments: This Incoterm® should be avoided at • FCA - Free CArrier: the exporter hands over
all costs, because if it is complied with, the ship- the goods cleared for export and loaded onto the
per is not the exporter in the customs sense of mode of transport to the service provider repre-
the term and, if they are the seller, they imme- senting the importer somewhere in the customs
diately lose the right to invoice exclusive of VAT. territory of export.
Additionally, although the shipper has no action to

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 GUIDELINES AND RECOMMENDATIONS ON CONTRACTS AND
PRACTICES FOR INTERNATIONAL TRADE IN TROPICAL TIMBER

Comments: The place associated with the of countries (but not in the EU), import customs
Incoterm® may be before the goods leave clearance is compulsory on entry into the terri-
(premises of the exporter, subcontractor or tory, implying payment of the duties and taxes
packing company) or any other place (storage due. In the event of a problem (non-compliant
area, consolidation area, port or airport) in the documents, importer not taking the necessa-
customs territory of export. This Incoterm® may ry steps, etc.), all storage costs will be charged
be used for all modes of transport, leaving the to the exporter who cannot refuse to pay them
importer in control of transport costs and risks. (see service providers’ terms and conditions). It
is therefore highly advisable to check the risks
• CPT - Carriage Paid To...: the exporter pays associated with entering the importing territory.
the costs, including international carriage to the
destination (airport, port or any other place in • DPU - Delivered at Place Unloaded: the expor-
the destination territory); on the other hand, the ter pays for and is responsible for international
importer assumes the risks associated with inter- transport to the destination indicated after the
national carriage, which may be by any mode. code. Responsibility is transferred to the impor-
Comments: The place indicated after the code ter after unloading at the destination.
is important. Never forget that in all countries Comments: Recent Incoterm®, almost identi-
except the EU, import customs clearance forma- cal to the previous one, with the exception that
lities and payment of the resulting costs take the exporter is responsible for unloading at the
effect on arrival in the country. Indicating an agreed place of delivery. Suitable for oversize
inland location may prove dangerous in the event cargo requiring very special handling equipment.
of unscheduled storage of the goods on arrival.
Additional costs will be billed to the exporter. • DDP - Delivered Duty Paid: the exporter pays
One recommendation, especially in these times, for and is responsible for all distribution opera-
is to indicate a location on arrival in the country, tions up to the destination following the code, not
i.e. before customs clearance. necessarily the importer’s premises. Unloading
at this point is the importer’s responsibility. In
• CIP - Carriage and Insurance Paid To...: the addition, the exporter manages import customs
exporter pays the costs, including international clearance and pays any duties and taxes due.
carriage and the transport insurance premium Comments: The opposite of EXW – but just as
taken out for the benefit of the importer, who dangerous. In effect, the exporter’s selling price
assumes the risks associated with international is inflated to cover customs duties and taxes in
carriage. the importing country. Customs duties are liable
Comments: Same comments as for CPT; in addi- to change at any time in certain countries, but
tion, check that the importing country does not above all, the exporter must pay the importing
require the insurance to be taken out on its terri- country’s own taxes but cannot reclaim them, not
tory and that the cover corresponds to the risks being established in that country for tax purpo-
incurred. ses. To avoid these significant risks, the ICC
recommends DAP or DPU. The Customs autho-
• DAP - Delivered At Place: the exporter pays rity issues the same recommendation, stating
for and is responsible for international trans- that exports start at FCA and should stop at DAP.
port to the destination indicated after the code.
Responsibility is transferred to the importer Note: Incoterms® FOR and FOT (Free On Rail
before unloading at the destination. and Free On Truck) are still occasionally used,
Comments: The place of destination can be although they no longer appear in the 2000,
anywhere in the destination territory (from the 2010 or 2020 versions of Incoterms® and are
point of entry to the final destination). However, it therefore not accepted by Customs, who only
should be remembered that in the vast majority recognise the 2010 and 2020 versions.

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 GUIDELINES AND RECOMMENDATIONS ON CONTRACTS AND
PRACTICES FOR INTERNATIONAL TRADE IN TROPICAL TIMBER

6. R
 ECOMMENDED INCOTERMS® FOR CONVENTIONAL
SEA AND RIVER TRANSPORT
• FAS - Free Alongside Ship: the exporter deli- • CFR - Cost and Freight: the exporter pays for
vers the goods, cleared for export, alongside the the sea freight; the place of delivery and the
loading dock. The importer manages all trans- transfer of risk are as for FOB.
port and import formalities. Comments: The two trading partners must
Comments: Incoterm® mainly used to make check which of them is responsible for paying
liquid or solid bulk immediately available for the costs of unloading the ship at its destination.
future re-export by the importer. These costs depend on the choice of liner term
imposed by the shipping line.
• FOB - Free On Board: the exporter delivers
the goods, cleared for export, to the vessel desi- • CIF - Cost Insurance and Freight: Incoterm®
gnated for transport and pays all the costs of almost identical to CFR; in addition, the expor-
loading the goods into this vessel. The exporter ter takes out transport insurance for the benefit
is responsible until such delivery. The choice of of the importer with a minimum cover of “FPA
vessel is normally the importer’s responsibility, except...”4 for the contract price plus 10%.
but usually the choice is left to the exporter in Comments: French marine cargo insurance poli-
agreement with the TLO2. cies apply a 20% increase on the quoted price
Comments: Incoterm® which has changed with without any particular justification.
each revision; the exporter must now systema-
tically pay the loading charges, irrespective of
the liner term3 provided by the shipping line.
The danger lies essentially in the docking of the
ship being delayed, which will result in storage
costs being charged to the exporter. Important
reminder: Incoterm® not to be used for contai-
ner transport as, in this mode of transport, the
apparent condition of the goods or packaging
cannot be checked after loading onto the ship.

2. Transport and/or Logistics Operator

3. The Liner Terms specify the shipping line’s tariff offer, mainly setting out the distribution of embarkation and disembarkation costs
between the shipper/consignee and the shipping line. They therefore qualify the contract of carriage (Bill of Lading), specifying the
charges that are included or excluded.
4. “FPA except…” cover (Free of Particular Average except that resulting from a listed event) is an insurance formula that corresponds to
restricted insurance generally covering damage to goods during loading and unloading operations, as well as damage affecting the cargo
and the means of transport. Unlike “all risks” cover, it is limited to loss or damage caused to goods by one of the events listed in the policy
wording: collision, grounding, explosion, etc.

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 GUIDELINES AND RECOMMENDATIONS ON CONTRACTS AND
PRACTICES FOR INTERNATIONAL TRADE IN TROPICAL TIMBER

CONCLUSION

The choice of Incoterm® is of vital importance in any international contract, as it affects all aspects
of product distribution: transport, customs, sundry costs, etc.

Summary table of Incoterms® (© Magali Lajoinie)

Document produced by ATIBT’s Timber-Material-Standardisation Commission by Magali Lajoinie (Fil Export),

Emmanuel Groutel / WALE (President) and Jean Gérard / CIRAD (Secretary). November 2023 - funded by ITTO

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