fastlane
Coming to terms
AS WE WROTE LAST SPRING (“MAKING SURE NOTHING’S LOST
in translation,” FastLane, May 2010), for those new to the foreign
trade game, one of the top concerns is likely to be the delivery
arrangements—in particular, who’s responsible for costs like freight,
insurance, customs charges, and damage in transit. To clarify matters,
the International Chamber of Commerce (ICC) has published a list
of International Commercial Terms, or Incoterms, which are internationally recognized and clearly define both the buyer’s and seller’s
obligations in common transactions. The intent is to cut down on the
uncertainty arising from differing interpretations of terms of sale
from one country to another.
Since that column appeared, the ICC has published a revised set of
terms, known as Incoterms 2010. In addition to
cutting the number of terms to 11 from 13, the
chamber has also reclassified them. The older
terms (Incoterms 2000) were divided into four
groups, based on where responsibility transferred
from one party to the other. The new terms are
divided into two groups, based on whether they
apply to all modes of transportation or are specific
to ocean and inland waterway transport.
Although this might sound confusing, the alterations are relatively minor. In fact, nine of the
terms remain unchanged. What follows is a short
summary of the Incoterms 2010, with a few notes
on the changes:
▪ Incoterms for all modes
Ex-Works means the buyer assumes total responsibility for the shipment. Delivery is accomplished when the product is handed over to
the buyer’s representative at the plant or DC. The buyer is responsible for freight costs, insurance, export and import clearance, and all
customs charges.
FCA (Free Carrier) provides that the seller fulfills his responsibility
when he delivers the product to the carrier.
CPT (Carriage Paid To) provides that the seller pays transportation
costs and export clearance charges, but the buyer pays for insurance.
CIP (Carriage and Insurance Paid To), a term used primarily for
multimodal moves, is essentially the same as CPT, except the seller
must also purchase cargo insurance in the buyer’s name.
DDP (Delivered Duty Paid) means the seller is responsible for all
risks and charges up to the consignee’s door. This is the maximum
obligation that can be assumed by a seller.
DAT (Delivered at Terminal) (new). Delivery is
accomplished when goods are unloaded and
placed at the disposal of the buyer at a named
terminal.
DAP (Delivered at Place) (new). Delivery is
accomplished when goods arrive and are ready
for unloading at the destination.
(Note: These last two terms replace the 2000
Incoterms “Delivered at Frontier,” “Delivered Ex
Ship,” “Delivered Ex Quay,” and “Delivered Duty
Unpaid.”)
▪ Incoterms for ocean and
inland waterway transport
FOB (Free on Board) means
that the seller is responsible
for getting the goods to a port.
The buyer bears the cost and
responsibility from that point
on.
FAS (Free Alongside Ship)
requires the seller to deliver
the product alongside a given
vessel at a port.
CFR (Cost and Freight) deals
with the cost of the merchandise as well as the
freight costs. The seller is responsible for the
product and the transportation costs to the destination port.
CIF (Cost, Insurance, and Freight) provides that
the seller pays for insurance in addition to the
product and transportation costs.
Information on the new terms can be found on
a number of websites, but the UPS site contains a
particularly helpful summary. It can be downloaded at www.ups-scs.com/tools/incoterms.pdf. ;
Clifford F. Lynch is principal of C.F. Lynch & Associates, a
provider of logistics management advisory services, and author of
Logistics Outsourcing – A Management Guide and co-author of The Role of
Transportation in the Supply Chain. He can be reached at
cliff@cflynch.com.
