Presentation on INCOTERMS 2020

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INCOTERMS IN PUBLIC PROCUREMENT
(Dispute Context)
Email: er.snshah@gmail.com
NEPCA
22.07.2023 Cell: 9851004366
Er. Satya Narayan Shah
B.Sc. In Mechanical Engineering (India)
MS in Manufacturing Engineering & Management (UK)
Presentation Outlines
1. Recap of Previous session
(17.06.2023)
2. INCOTERMS in Public Procurement
Rules(2064)
3. INCOTERMS in SBDs
4. Common Mistakes while using
Incoterms
5. Outlines of INCOTERMS Rules
6. Important Features of Incoterms
2020 as Compared to Previous
Version (2010)
2
RECAP
• Pricing of Goods
• Responsibilities on Seller and Buyer
• INCOTERMS 2020 as defined by ICC
• Basis to choose the INCOTERMS
• Limitations
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INCOTERMS 2020
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)
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 (…named place of destination)
Group D Arrival
DPU DPU (Delivered at Place Unloaded)
DAP Delivered At Place(…named place)
DDP Delivered Duty Paid (…named place of destination)
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INCOTERMS 2020
1. EXW – Ex-Works

Buyer assumes almost all costs and risk throughout the shipping process

Seller’s only job is making sure the buyer can access the goods

Once the buyer has access, it’s all down to them (including loading the
goods)
• Risk transfers from seller to buyer:
• At the seller’s warehouse, offices or wherever the goods are being
collected from.
2.FCA – Free Carrier

It’s the seller’s job to get the goods to the buyer’s carrier at an agreed
location

Seller is also required to clear goods for export
• Risk transfers from seller to buyer:
• When the buyer’s carrier receives the goods. 5
INCOTERMS 2020
3. FAS – Free Alongside Ship

Seller assumes all costs and risk until goods have been delivered next to the
ship

Buyer then takes over risk and takes care of export and import clearance
• Risk transfers from seller to buyer:
• When goods have been delivered next to the ship.
4. FOB – Free On Board

Seller assumes all costs and risk until goods have been delivered on board
the ship

They also sort out export clearance

Buyer assumes all responsibilities as soon as the goods are on board
• Risk transfers from seller to buyer:
• When goods have been delivered onto the ship.
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2. 2
INCOTERMS 2020
5. CPT – Carriage Paid To

Same seller responsibilities as FCA with one difference: the seller covers
delivery costs

As with FCA, it’s the seller’s responsibility to clear goods for export
• Risk transfers from seller to buyer:
• When the buyer’s carrier receives the goods.
6. CIP – Carriage And Insurance Paid To

Same seller responsibilities as CPT with one difference: the seller also pays
for the carriage and insurance to the named destination.

Seller is obliged to purchase the maximum level of insurance cover under
Clause A (Institute Cargo Clauses), for the buyer’s risk.
• Risk transfers from seller to buyer:
• When the buyer’s carrier receives the goods.
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INCOTERMS 2020
7. CFR – Cost And Freight

Seller has the same responsibilities as FOB but must also pay the cost of
bringing the goods to the port

As with FOB, the buyer assumes all responsibilities as soon as the goods
are on board

Risk transfers from seller to buyer:

When goods are on the ship.
8. CIF – Cost, Insurance And Freight

Seller has the same obligations as CFR but must also cover insurance
costs

Seller is obliged to purchase the minimum insurance cover which is 110% of
the invoice value, in the currency of that invoice and contract.

If the buyer requires more comprehensive insurance, the seller must
arrange the additional cover at the buyer’s cost.
•Risk transfers from seller to buyer:
•When the goods are on the ship. 8
INCOTERMS 2020
9. DPU – Delivered At Place Unloaded (previously DAT)

Seller is responsible for the costs and risk of delivering the goods to an
agreed place of unloading.

The place of unloading could be any place, whether covered or not.

Seller organises customs clearance and unloads the goods at the place of
unloading.

Buyer sorts import clearance and any related duties.
•Risk transfers from seller to buyer:
•At the place of unloading.
10. DAP – Delivered At Place

Seller covers the costs and risk of transporting goods to an agreed address

Goods are classed as delivered when they’re at the address and ready to
be unloaded

Export and import responsibilities are the same as DPU

Risk transfers from seller to buyer:

When goods are ready for unloading at the agreed address
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INCOTERMS 2020
11. DDP – Delivered Duty Paid

Seller takes almost all responsibility throughout the shipping
process

They cover all costs and risk of transporting goods to the
agreed address

Seller also makes sure goods are ready for unloading, fulfils
export and import responsibilities and pays any duties
• Risk transfers from seller to buyer:
• When goods are ready for unloading at the agreed address.
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Organization of INCOTERMS
Organization of INCOTERMS
Incoterms are divided into four (4) categories:
• “E” term (Departure) – Seller makes the goods available to the buyer
at the seller’s premises or other place named by the seller
• “F” terms(Main Carriage Unpaid) – Seller is responsible to deliver the
goods to the export shipment point and carrier designated by the
buyer
• “C” terms (Main Carriage Paid)– Seller is responsible for contracting
carriage of goods to the place of destination, but does not assume
risk of loss or damage to goods, or additional costs due to events
occurring after shipment
• “D” terms (Arrival)– Seller is responsible for all costs and risks
associated with delivering goods to the named place in the country
of destination
The point at which liability and carriage transfer from the seller to the
buyer distinguishes the groups and each group’s letter corresponds to
the first letter of an INCOTERM
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INCOTERMS 2020
Forany
modeof
transport
1.EXW ExWorks(…namedplace)
2.FCA FreeCarrier(…namedplace)
3.CPT Carriage Paid To (…named place of
destination)
4.CIP Carriage and Insurance Paid (…named place
ofdestination)
5.DPU DPU(DeliveredatPlaceUnloaded)
6.DAP DeliveredAtPlace(…namedplace)
7. DDP Delivered Duty Paid (…named place of
destination)
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3. 3
INCOTERMS 2020
SEAORINLAND
WATERWAY
TRANSPORT
FAS(FreeAlongsideShip)
FOB(FreeOnBoard)
CFR(CostandFreight)
CIF(CostinsuranceandFreight)
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Responsibilities: sellers ‐ buyers
14
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SBDs (PPMO)
• (ITB15)Bid Prices and Discounts (ICB)
– The terms EXW, CIF, CIP, and other similar terms shall be
governed by the rules prescribed in the current edition of
Incoterms, published by The International Chamber of
Commerce, at the date of the Invitation for Bids or as specified
in the BDS.
(a) For Goods manufactured in Nepal :
the price of the goods quoted EXW (ex works, ex factory, ex
warehouse, ex showroom, or off-the-shelf, as applicable),
including all customs duties, Value Added Tax and other taxes
already paid or payable on the components and raw material
used in the manufacture or assembly of goods quoted ex
works or ex factory, or on the previously imported goods of
foreign origin quoted ex warehouse, ex showroom, or off-the-
shelf;
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SBDs (PPMO)
(b) For Goods manufactured outside Nepal, to be imported:
i. the price of the goods quoted CIF (named port of
destination), or CIP(border point),or CIP(named place
of destination), named place of destination as specified
in the BDS;
ii. the price for inland transportation, insurance, and
other local services required to convey the Goods from
the named place of destination to their final destination
(Project Site) specified in the BDS;
iii. in addition to the CIP prices specified in (b)(i)
above, the price of the Goods to be imported may be
quoted FCA (named place of destination) or CPT
(named place of destination), if so specified in the
BDS; 17
SBDs (PPMO)
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(c) For Goods manufactured outside Nepal, already
imported:
[For previously imported Goods, the quoted price shall
be distinguishable from the original import value of these
Goods declared to customs and shall include any rebate or
mark-up of the local agent or representative and all local
costs except import duties and taxes, which have been
and/or have to be paid by the Purchaser. For clarity the
bidders are asked to quote the price including import duties,
and additionally to provide the import duties and the price
net of import duties which is the difference of those values.]

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SBDs (PPMO) NCB (15) Bid Prices and Discounts
(Third Revision June, 2019)
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Prices quoted in the Price Schedules shall be included
the cost of goods, other taxes already paid or payable
on the components and raw material used in the
manufacture or assembly of the item, the customs
duties, transportation cost up to final delivery,
insurance cost, unloading, and any other cost for
(incidental) services, if any, related to the delivery of
goods. All risks and responsibilities up to the final
destination including installation and
commissioning of Goods, if applicable, shall be
borne by the Supplier.
NCB Previous version SBDs (PPMO)
• Prices quoted in the Price Schedules shall be
entered separately in the following manner:
• the price of the goods quoted EXW (ex works, ex
factory, ex warehouse, ex showroom, or off-the-shelf,
as applicable), including all customs duties and sales
and other taxes already paid or payable: (i) on the
components and raw materials used in the
manufacture or assembly of goods quoted ex works
or ex factory; or (ii) on the previously imported goods
of foreign origin quoted ex warehouse, ex showroom
or off-the-shelf; 20
Common Mistakes may Lead to Disputes
The consequences of practicing wrong Incoterms can lead to disputes that cost
money, time and unnecessary risks, which could be detrimental for all parties
involved.
1. Using Incorrect Modes
• FAS, FOB, CFR, and CIF ‐ sea and inland waterway transport.
• FAS, FOB, CFR and CIF are not appropriate for containerized sea
freight. Containerized freight is usually handed over to the carrier in a
terminal
• Use FCA, CPT, and CIP for containerized freight.
2. No Named Place
• Failure to use a specific named place can lead to disputes over
responsibilities.
3. Incoterms Do Not Define Title Transfer
Title transfer will need to be defined separately and specifically in a sales
contract.
4. Understanding Customs Responsibilities and Capabilities 21
Common Mistakes may Lead to Disputes
5. Insurance Issues
• CIP or CIF that the amount of insurance placed on the
goods by the seller be adequate ( minimum level of 110%
contract value)
6. Terminal Handling Charges
• Ocean carriers’ processes for issuing terminal handling
fees for container movements vary by carrier and trade
lane. There is usually some confusion as to who is
responsible, particularly when C‐ or D‐ terms are
used. Confusion often leads to delays in the payment of
the fees which will lead to demurrage. The
responsibilities should be outlined in the commercial
contract. 22
Common Mistakes may Lead to Disputes
7. Lack of understanding of the allocation of costs and risks between
the buyer and seller
8. The usage of incorrect version of the Incoterms rules
9. The rules not being geographically specific
10. Not understanding what the Incoterms rules does and does not
do
11. Choosing rules that do not suit the requirement of the business
Sellers committing to DDP or DAP without checking if he/she can
handle import responsibilities in the buyer’s country
12. Buyers using EXW without considering the implications in export
procedures
13. Using CIP or CIF without checking whether insurance coverage is
sufficient and matches the requirements of the commercial contract
14. Not aligning Incoterm with bank’s security requirements for
payment 23
Incoterms do NOT deal with
1. whether there is a contract of sale at all, they do not: address all the
conditions of a sale;
2. identify the goods being sold nor list the contract price;
3. the specifications of the goods sold;
4. the time, place, method or currency of payment of the price;
5. the effect of sanctions;
6. the imposition of tariffs;
7. export or import prohibitions;
8. force majeure or hardship;
9. intellectual property rights;
10. specify which documents must be provided by the seller to the buyer to
facilitate the customs clearance process at the buyer’s country;
11. the remedies which can be sought for breach of the contract of sale;
12. most consequences of delay and other breaches in the performance of
contractual obligations; and
13. the method, venue, or law of dispute resolution in case of such breach.
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Remember
• Use the phrase “Incoterms 2020” after the rule and named place
• E (Make goods available at own premises)
• F (Deliver goods to a carrier appointed by buyer)
• C (Contract for carriage without assuming risk of loss during
shipment)
• D (Bear all costs and risks needed to bring goods to place of
destination)
• But remember rules are split by mode of transport
• Usage—ensure you are naming the right location
• Use contract of sale or terms and conditions
• Be careful on modifying Incoterms Rules
• If you modify rules (not advised), ensure contract clarifies what you
are modifying
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Each Incoterm contains a set of rules of interpretation for
the obligations of both the seller (A1-A10) and the buyer
(B1-B10) covering the following issues:
A1/B1 – General Obligations,
A2/B2 – Delivery,
A3/B3 – Transfer of risks,
A4/B4 – Carriage,
A5/B5 – Insurance,
A6/B6 – Delivery/transport document,
A7/B7 – Export/import clearance,
A8/B8 – Checking/packaging/marking,
A9/B9 – Allocation of costs, and
A10/B10 – Notices.
Set of Rules
Important Features of Incoterms 2020 as
Compared to Previous Version
1. DAT Incoterm changed to DPU (Delivery at Place
Unloaded)
• DAT required Delivery at Terminal (unloaded), changed to the
term to DPU (Delivery at Place Unloaded), to broadly cover
‘any place, whether covered or not’.
2. Insurance cover differs between CIF and CIP
• Under CIF / CIP, the seller buys insurance for the buyer. In
Incoterms 2010, insurance is required under clause C, but in
Incoterms 2020, CIP requires insurance complying with Institute
Cargo Clause (A) whereas CIF requires insurance under
Clause C.
• Clause A covers a more comprehensive higher level of
insurance (e.g. for the manufactured goods), whereas a lower
level of cover from Clause C would probably apply to the
commodities world.
27
Insurance Rules
Important Features of Incoterms 2020 as
Compared to Previous Version
3. The Listing of Costs
• All costs are now listed in the ‘Allocation of Costs’ sections
for each rule, to avoid confusions. Ordering of articles
within the Incoterms 2020 rules have also changed, these
now appear in the A9/B9 section of each rule. Incoterms
rules guide now collects together the costs, with the
principle aim of clearly stating the costs to each party.
4. Security Requirements
• From a carriage requirements perspective, security related
allocations have been added to A4 and A7 of each
Incoterms rule, and the necessary costs associated have
been added to A9/B9.
Er. Satya Narayan Shah 28
Important Features of Incoterms 2020 as
Compared to Previous Version
5. Own transport
• Incoterms 2010 rules assumed that goods carried from the
seller to the buyer were via a 3rd party. Incoterms 2020
allows for own means of transport by the buyer in the FCA
rules and by the seller in the D rules.
6. Presentation and design
• Incoterms 2020 rules have much more extensive
explanatory notes, with better diagrams, a different
structure for users and a reordering of rules to make
delivery and risk more obvious. Maritime related rules still
haven’t changed and remain at the back of the rule book
as they still might be used for bulk commodities.
Er. Satya Narayan Shah 29
Important Features of Incoterms 2020 as
Compared to Previous Version
7. FCA and Bills of lading
• According to FCA, part B4, ‘The buyer must contract or
arrange at its own cost for the carriage of the goods’. The
difference between FCA and FOB to the seller is a
significant cost and risk. In the 2010 Incoterms rules,
exporters of goods in containers were encouraged to use
FCA.
• FOB preferably used because a standard Letter of Credit
requires an onboard Bill of Lading to be presented. The
Incoterms 2020 FCA extra provision now states that if the
parties have so agreed, the buyer must instruct the carrier
to issue to the seller, at the buyers cost and risk, a
transport document stating that the goods have been
loaded (such as a Bill of Lading with an on board notation)’
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