Incoterms 2000 Lecture

1. INCOTERMS 2000
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2. THE HORROR STORIES!
 Incoterms? That’s that FOB thing, innit?
 The export price list shows ‘FOB £5.00 per
Unit’ and ‘CFR £5.00 per Unit’!
 We use FOB Birmingham or CIF Cairo!
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3. INCOTERMS
 the point at which risk passes;
 the delivery point;
 the division of costs;
 the division of functions;
 the division of responsibilities.
define
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4. INCOTERMS GROUP ‘E’
 The goods are made available to the
buyer at the seller’s premises.
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5. INCOTERMS GROUP ‘F’
 The seller must deliver the goods to a
carrier appointed by the buyer.
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6. INCOTERMS GROUP ‘C’
 The seller must contract for the
carriage of the goods
without assuming risk of
loss of or damage to the goods
or additional costs due to events
occurring after shipment.
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7. INCOTERMS GROUP ‘D’
 The seller must bear all costs and risks
required to bring the goods to the
place of destination.
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8. EX WORKS - EXW
 May be used for any mode of
transport.
 The seller must place the goods at the
disposal of the buyer at the seller’s
premises or another named place not
cleared for export and not loaded on
any collecting vehicle.
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9. FREE CARRIER - FCA
 May be used for any mode of
transport.
 The seller must deliver the goods,
cleared for export, to the carrier
nominated by the buyer at the place
nominated by the buyer.
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10. FREE ALONGSIDE SHIP - FAS
 Maritime and inland waterway
transport only.
 The seller must place the goods,
cleared for export, alongside the
vessel at the named port of shipment.
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11. FREE ON BOARD - FOB
 Maritime and inland waterway
transport only.
 The seller delivers the goods, cleared
for export, when they pass the ship’s
rail at the named port of shipment.
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12. COST AND FREIGHT - CFR
 Maritime and inland waterway transport only.
 The seller delivers when the goods pass the ship’s rail in
the port of shipment. The seller must pay the costs and
freight necessary to bring the goods to the named port of
destination BUT the risk of loss of or damage to the goods,
as well as any additional costs due to events occurring
after the time of delivery, are transferred from the seller
to the buyer.
 The seller must clear the goods for export. If the parties
do not intend to deliver the goods across the ship’s rail
the CPT term should be used.
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13. COST INSURANCE AND FREIGHT - CIF
 Maritime and inland waterway transport
only.
 The obligations are the same as under CFR
with the addition that the seller must
procure insurance against the buyer’s risk
of loss or damage to the goods during
carriage.
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14. CARRIAGE PAID TO - CPT
 May be used for any mode of transport.
 The seller delivers the goods to the
nominated carrier and must also pay the
cost of carriage necessary to bring the
goods to the named destination. The buyer
bears all additional costs and risks after the
goods have been delivered to the
nominated carrier.
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15. CARRIAGE & INSURANCE PAID TO - CIP
 May be used for any mode of
transport.
 The obligations are the same as under
CPT with the addition that the seller
must procure insurance against the
buyer’s risk of loss of or damage to
the goods during carriage.
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16. DELIVERED AT FRONTIER - DAF
 May be used for any mode of
transport.
 The seller must place the goods at the
disposal of the buyer on the arriving
means of transport not unloaded,
cleared for export but not cleared for
import, at the named point and place
at the frontier.
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17. DELIVERED EX SHIP - DES
 Maritime and inland waterway
transport only.
 The seller delivers when the goods are
placed at the disposal of the buyer on
board the ship, not cleared for
import, at the named port of
destination.
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18. DELIVERED EX QUAY - DEQ
 Maritime and inland waterway
transport only.
 The seller delivers when the goods are
placed at the disposal of the buyer on
the quay, not cleared for import, at
the named port of destination.
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19. DELIVERED DUTY UNPAID - DDU
 May be used for any mode of
transport.
 The seller must deliver the goods to
the buyer, not cleared for import, and
not unloaded at the named place of
destination.
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20. DELIVERED DUTY PAID - DDP
 May be used for any mode of
transport.
 The seller must deliver the goods to
the buyer, cleared for import, and not
unloaded at the named place of
destination. The seller pays the
import duties.
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21. WHICH INCOTERMS TO USE?
 The buyer’s stipulation.
 The regulations of the country of
importation.
 Standard practice for the country of
importation.
 Exporter’s policy.
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22. WHICH INCOTERM TO USE?
 The mode of transport used
 Availability of information
 Customer service
 Economy

23. INCOTERMS 2000 – Major Changes
 FAS / DEQ customs clearance
obligations.
 FCA loading and unloading obligations.
 The expression ‘ No Obligation’.
 Consistency of language
 Customs clearance in free trade areas.
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24. INCOTERMS AND INSURANCE
 Only affects CIF / CIP.
 Seller procures insurance for the
benefit of the buyer.
 Minimum cover of Institute Cargo
Clause.
 Contract price plus 10%.
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26. INCOTERMS
AND ELECTRONIC COMMERCE
 Incoterms 2000 includes provision for
specified documents or ‘equivalent
electronic message’.
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27. PLEASE REMEMBER!
 Documents must refer to Incoterms 2000 (or current
version)
 Always use the 3 letter code
 Always suffix with a named place
CIF Aqaba Port Incoterms 2000
FOB Immingham Docks Incoterms 2000
CPT Queen Alia Airport Incoterms 2000

28. The Incoterms Revision
 Incoterms review underway
 Reduction from 13 to 10 terms
 Clarification of maritime / non-maritime terms
 Security regimes addressed
 Publication due 2010
 Probably effective from Jan 2011

29. The Incoterrms Revision
 Incoterms 2011
 EXW v FCA
 The Maritime Terms
 The D Terms – in general
 The D Terms – and Letters of Credit

30. Incoterms 2000 – Responsibility Chart
SERVICES
EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP
Warehouse
Storage
S S S S S S S S S S S S S
Warehouse
Handling
S S S S S S S S S S S S S
Export Packing S S S S S S S S S S S S S
Loading
Charges
B S S S S S S S S S S S S
Inland Freight B S* S S S S S S S S S S S
Terminal
Charges
B B S S S S S S S S S S S
Forwarder’s
Fees
B B B B S S S S S S S S S
Loading on
vessel
B B B S S S S S S S S S S
Sea/Air Freight B B B B S S S S S S S S S
Charges on
arrival
B B B B B B S S S S S S S
Duty, Taxes &
Customs
clearance
B B B B B B B B B B B B S
Delivery to
destination
B B B B B B B B B B B S S
S = Seller
B = Buyer
• If terms are FCA Seller’s Premises, Seller is responsible only for loading goods and not for inland freight.
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31. Customs Formalities

32. Customs Formalities
Legal Obligations:
 Declarations of cargoes
 Payment of duties / Taxes
 Compliance with import regulations including controls
and prohibitions
Impact upon time scales in the supply chain

33. Why is Customs Clearance needed?
 Revenue collection or waiver
 Anti-Smuggling Net
 Counterfeit goods / IPR protection
 Enforce import controls
 Assure integrity of declarations
 Inspection / quality assurance
 Identify over-pricing and under-pricing issues

34. Documentary Requirements - Imports
 Invoices showing CIF / CIP value
 Packing Lists
 Certificates of Origin
 Import Licence
 Certificates of Free Sale
 Test Certificates
 Import declaration
 Inspection Certificates / CRIs / IDFs

35. Typical Clearance Routes
Customs Entry
Processing
Unit
No Checks
Documentary
Checks
Cargo Examination

36. Customs Valuations
 Duties / Taxes are usually calculated on the basis of
the CIF / CIP value of the goods.
 Valuation is on the basis of the transactional value
 If the transactional value cannot be determined
Customs Authorities may base their calculations on the
value of identical or similar goods.
 Most countries use the Harmonised System (HS) of
classification for their customs tariffs.

37. Types of Customs Duty
 Import Duty
 Excise Duty
 Anti-Dumping Duties
 Countervailing Duties

38. Exercise!
 CPT Value of the consignment US$10,000
 Insurance premium estimated as US$100.00
 Import Duty Rate is 3%
How much Import Duty would be payable?

39. Topical Issues
 Single Window Environment
 WCO Safe Framework
 Trusted Trader environments – The Golden List
 Use of Scanners
 One Stop Border Posts
 Integrated Border Management
 Trade / Transit Corridors

40. Inefficiency of trade procedures - Kenya
Bank
Importer /
Exporter Transporter
Clearing
Agent
Ship Agent
Kenya Airport
Authority
KRA Customs
Kenya Ports
Authority
Other Control
Agencies

41. Expected Business Solution
PCBS
Revenue Authority
( Tradex)
Port & Airport
Authority
Railways
CFS & ICD OGA
Importer /
Exporter
E- Permit
Ship
Agents
Freight
Forwarders

42. The World Customs Organisation’s (WCO) SAFE
Framework of Standards (FoS)
A set of recommended international supply-chain security
standards and supporting principles adopted by the WCO in
June 2005 to secure and facilitate international trade.
17 Standards arranged under the two Pillars of:
 Pillar 1: Customs to Customs co-operation (11 standards)
 Pillar 2: Customs to business partnerships (6 standards)

43. Aims of SAFE FoS:
 To establish international supply-chain security and trade facilitation standards
to promote certainty and predictability.
 To enable integrated supply-chain management across all transport modes.
 To enhance the role, functions and capabilities of Customs administrations.
 To strengthen co-operation between Customs administrations to improve their
capability to detect high risk consignments.
 To strengthen Customs / Business co-operation.
 To promote the seamless movement of goods through secure international
trade supply-chains.

44. Lessons Learned
SAFE’s 4 Core Elements:-
 Harmonization of cargo information, required electronically in
advance for inbound, outbound and transit shipments.
 The adoption of a Risk Management approach in addressing security
threats.
 Mutual Customs co-operation in the inspection of outbound
consignments considered high risk.
 The conferral of benefits to businesses meeting minimum supply-chain
security standards and demonstrating good practice (e.g. Authorised
Economic Operator (AEO) and similar ‘trusted trader’ schemes).

45. Methods of Shipment
 Seafreight – Liner shipping
1. Containerised
2. Break Bulk / Conventional
 Seafreight – Charter
 Road
 Rail
 Air – Sea / Air
 Multi Modal solutions

47. Cargo Insurance
 Responsibilities in relation to Incoterms
 Types of cover – Open Cover / Specific
 Premium Elements – Marine / War Risks
 Institute Cargo Clauses A, B & C

48. Cargo Insurances
Claims
 Prompt action by the insured
 Complete and accurate documentation
 Do not sign clean receipt
 Advise insurers immediately
 Hold last carrier responsible

50. Documentation
Movement:
 Bills of lading
 Electronic Bills of Lading
 Airwaybills
 CMR Notes
 CIM Notes
 Forwarders Certificate of Receipt

51. Original Bill of Lading

52. Combined Transport Bill of Lading

53. Non-negotiable Copy of Bill of Lading

54. Another Example of a Bill of Lading

55. A Charter Party Bill of Lading

56. Documentation
 Certificates of Origin
 Inspection Certificates
 Test Certificates / traceability
 Packing Lists
 Commercial Invoices (indicating CIF value for customs)
 Insurance Certificates

57. customs security carrier security customs
CARGO
EXPORTERS
BANK
IMPORTERS
BANK
DOCUMENTS (DIRECT OR THROUGH BANK)
$ PAYMENT
EXPORTER
IMPORTER

58. Methods of Payment for Exports / Imports
 Cash in Advance
 Confirmed Irrevocable Letter of Credit
 Unconfirmed Irrevocable Letter of Credit
 Avalised Bill of Exchange
 Bank collections
 Cash against Documents
 Open Account
Principle of Documentary Exchange

59. Selection of Payment Term and
Method
Sellers Criteria:
 Minimise credit risk
 Exporters need for funds
 Usual terms sales to country of importation
 What competitors are offering
 Effect of bank charges
Seller will Assess both Commercial and Country Risks

60. Letters of Credit
A guarantee of payment by the issuing bank to
the seller, conditional upon presentation of
documents, to a nominated bank, which
strictly comply with all the terms and
conditions of the letter of credit.

61. Letters of Credit
The parties involved:
 The Opener – Buyer or Importer
 Opening Bank – Issues the L/C
 Nominated Bank – Advises and may ‘confirm’ the L/C
 The Beneficiary – Seller or Exporter

63. Letters of Credit
Types:
 Confirmed / Unconfirmed
 Irrevocable / revocable (UCP 600 Revision)
 Revolving
 Transferable
 Back to Back
 Standby
 Red Clause / Green Clause

64. Letters of Credit
The Rules:
 Uniform Customs and Practice for Documentary Credits
– ICC Publication No 600
 eUCP
 International Standard Banking Practice

65. Why revise the rules?
 Rejection rate under UCP 500 consistently high at 50-
70% of presentations
 Requirement to reflect changes in banking /
international transportation and insurance since UCP
500 was published in 1993

66. ICC Task Force Recommendations
 Review should be technical rather than line by line revision
 ICC opinions, decisions, DOCDEX and court cases should be
considered
 7 articles of UCP 500 account for 58% of all Opinions, these
require scrutiny
 17 articles have resulted in none, one or two opinions.
 Consider incorporation of URR 525, ISP98 and eUCP.

67. What are the key changes?
 Leaner set of rules – reduced from 49 to 39 articles
 Easier to read therefore easier to translate
 Rules more robust due to removal of terminology ‘Unless
otherwise stipulated’ – openers must ‘Expressly modify’
 New fundamental article on ‘definitions’

68. UCP 600 New Articles
 2 - Definitions
 3 - Interpretations
 9 - Advising of credits and
amendments
 12 - Nomination
 15 - Complying presentation
 17 - Original documents and
copies

69. UCP 500 Articles not Included
 5 - Instructions to issue / amend
 6 (part) - Revocable
 8 - Revocation
 12 – Incomplete or Unclear instructions
 38 – Other documents

70. Article 2 - Definitions
 Applicant
 Banking Day
 Complying presentation
 Honour – Issuing bank must ‘honour’
 Negotiation – Bank uses own funds
 Paying – Using issuing banks funds

71. Article 3 Interpretations
 Words in the singular include the plural and vice-versa
 Credits are Irrevocable even if un-stated
 Branches of banks in different countries are considered separate
banks
 Words such as prompt, immediately, as soon as possible will be
disregarded
 The words from / after in relation to maturity date exclude the
date mentioned

72. Article 3 Interpretations
 A document may be signed by
handwriting / facsimilie signature / perforated
signature / stamp / symbol or mechanical / electronic
method of authentication
 A requirement for certification / legalisation is
satisfied by any signature / mark / stamp / label

73. Article 3 Interpretations
 First half of month – 1-15th
 Second half of month – 16th -last day
 Beginning – 1-10th
 Middle - 11-20th
 End – 20th – last day

74. Article 4 Credits v contracts
 The credit is a separate transaction from the
underlying sales contract
 Copies of the contract or proforma invoice should not
be included as an integral part of the letter of credit

75. Article 5 – Documents V Goods, Services
and Performances
Banks deal with documents and not with goods, services
or performances to which the documents may relate
 Deletion of ‘all parties’
 Banks only deal in documents

76. Article 6 Availabilty, Expiry Date and Date
for Presentation
 Combines 3 articles from UCO 500
 Sets minimum requirements be be set in each credit on
these issues
 Cross reference to Articles 2 and 29
 Credits are always available with the issuing bank
 Prohibition of drafts drawn on applicant

77. Articles 9 & 10 Advising Credits &
Amendments
 New article
 Bank must satisfy itself of authenticity of credit
 Clarifying partial acceptance is deemed rejection
 Time limits on amendments disregarded

78. Article 14 Standard for Examination of
Documents
 Fundamental to exporters – one of longest articles
 Incorporates some of ISBP
 Maximum period of time for bank to determine compliance
reduced to 5 banking days.
 Such period not subject to other event, for example expiry
 Removal of concept of reasonable time

79. Article 14 Standard for Examination of
Documents
 Default presentation period 21 calendar days connected to
original transport document
 Concept of not in conflict / read in context introduced to reduce
misuse of inconsistency rule. Requires case by case interpretation
 Requirement that a document must appear to fulfil its function

80. Article 14 Standard for Examination of
Documents
 Any date of issuance of a document on or prior to date of
presentation is acceptable
 Addresses of beneficiary and applicant may differ within their
respective country / contact details transferred from ISBP (notify
party exempted)
 Issuer of transport document requirement allows NVOCC and
freight forwarders documents

81. Article 15 Complying Presentation
 New article
 Actions to be taken by the bank after determining
presentation is compliant.
 Honour or negotiation must follow
 Clarification that documents have to be forwarded

82. Article 16 Discrepant documents
 Structure of refusal notice
 Additional possibilities – holding documents until
receipt and acceptance of waiver
 Latest date for notice of refusal links with 14 (b)

83. Article 17 Original Documents and
Copies
 Interpretation of requirement
 At least one original of each document must be presented
 Originals instead of copies acceptable
 Focus on definition of originals rather than copies
 Signing in original makes a document original
17 (b) Reflects ICC Decision on Original Documents

84. Article 18 Commercial Invoices
 Invoice must be in same currency as the credit
 New emphasis that banks may accept invoices showing
a greater value than allowed by the credit provided
they do not honour or negotiate for an amount in
excess of the credit

85. Articles 19 Transport document
covering at least two different modes
of transport
 If a through document is used this article applies
 For example multi-modal bill of lading or sea / airwaybill
 No requirement to show name of master
 Must indicate the name of the carrier
 Must be signed by the carrier or a named agent, or the
master or a named agent (on behalf of the carrier or master)
 Must indicate that the goods have been despatched, taken in
charge or shipped on board at the place stated in the letter
of credit.

86. Article 20 Bill of Lading
Article 21 Non-negotiable waybill
 No requirement to show name of master
 No reference to vessels propelled by sail
 Updated transhipment provisions
 Must indicate the name of the carrier
 Must be signed by the carrier or a named agent, or the master or
a named agent (on behalf of the carrier or master)
 Must indicate that the goods have been shipped on board a named
vessel at the place stated in the letter of credit.
 Shipped on Board relates to the port of loading shown in the
credit not a feeder port (pre-printed wording or dated notation)
 Must contain conditions of carriage or linked to email address
giving conditions – new UNCTRAD rule.

87. Article 22 Charter Party Bill of Lading
 Banks will not examine charter party contracts even if
they are presented as a requirement of the letter of
credit
 May be signed by the master, owner or charterer (or a
named agent on their behalf)
 Must indicate that the goods have been Shipped on
Board

88. Article 23 Air Transport Document
 Flight date in a notation is treated as the date of shipment
whether it is called for in the credit or not – over-rides ISBP.
 Updated transhipment provision
 Banks will ignore information in ‘For Carriers Use Only’ box
 Must indicate the name of the carrier
 Must be signed by the carrier or a named agent for and on behalf
of the carrier
 Must indicate that the goods have been accepted for carriage

89. Article 24 Road, Rail or Inland Waterway
Documents
 New combined article
 A rail waybill titled ‘Duplicate Rail Waybill’ is
acceptable.
 Transhipment is acceptable even if prohibited by the
credit
 Must indicate the name of the carrier
 Must be signed by the carrier or a named agent on
behalf of the carrier
 Must indicate receipt of the goods by signature, stamp
or notation

90. Article 25 Courier Receipts……
 Refers to goods for transportation under the letter
of credit, no document transmittal

91. Article 26 On Deck……
 If loading on deck is required the applicant must
expressly modify the requirements of this article when
opening the letter of credit otherwise loading on deck
is not permitted
 A clause stating that goods may be loaded on deck is
acceptable

92. Article 27 – Clean Transport Document
 Claused transport documents are not acceptable.
 For example, if steel is being shipped, the opener must
modify the clause by stating ‘Rust on the steel is
acceptable’
 The word ‘clean’ is not required to appear on the
transport document.

93. Article 28 – Insurance Document and
Coverage
 Amalgamated to one article
 Incorporates ISBP provision concerning minimum cover
 An insurance document may contain reference to any exclusion
clause. As a result of ‘millennium clauses’ and ‘acts of terrorism
(after 9/11)’
 Cover notes not allowed
 Insurance policy acceptable instead of a certificate

94. Article 33 Hours of Presentation
 No change for UCP 500
 However – Banks may manage this differently to
mitigate the reduction to five (from seven) banking
days allowed to check documents

95. Article 36 Force Majeure
 Addition of Acts of Terrorism as a specified Force
Majeure event.

96. Transhipment provisions
In general, even if the Letter of Credit prohibits
transhipment, transport documents indicating that
goods may or will be transhipped are acceptable as
long as the whole transit is covered by a single
document.

97. How is it for the Exporter?
 A liberalised regime
 Should see a reduction in the 70% discrepancy rate
 Reduction in time allowed for banks to check
documents from 7 to 5 banking days
 Prescriptive rules for banks in handling complying
presentations
But will the customer be happy?

98. How is it for the Importer?
 Documents presented need to be fit for purpose:
1. Customs
2. Regulatory / conformity
3. Title and delivery
4. Insurance
 Need to ‘expressly modify’ requirements

99. Letters of Credit
Opening a Letter of Credit:
 Timing and facilities
 Opener’s responsibilities
 Control of the transaction – linkage with sales contract
/ purchase order
 Requirement for advance documents

100. Letters of Credit
Discrepant documents:
 Completeness
 Compliance
 Correctness
 Consistency
Should you accept or reject the documents?
Remember: Consequences of delay in
documentation

101. Letters of Credit
Accept or Reject?
 Right goods at the right price
 Quality of goods
 Marketable
 Documents required for clearance
 Claused transport documents
 Profitability / viability of transaction