The document discusses international trade terms (INCOTERMS). It provides explanations and examples of several key INCOTERMS rules - EXW, FCA, CPT, CIP, DAP. The INCOTERMS rules clarify the obligations and costs of buyers and sellers in international trade contracts, such as who is responsible for transportation and insurance costs.

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Email: er.snshah@gmail.com
NEPCA
2023.06.17 Cell: 9851004366
Er. Satya Narayan Shah
B.Sc. In Mechanical Engineering (India)
MS in Manufacturing Engineering & Management (UK)
International terms of trade

2. PRICING OF GOODS
2

3. Responsibilities
of Parties
The responsibilities and costs between the
parties for:
• Licenses and government imposed
formalities for import & export
• Packing and marking for international
transport
• Documentation required for the
transport, transfer and Customs
clearance of goods
• Proof of delivery
• Taxes, duties, consular fees, terminal
charges, arrival & destination charges
• Insurance, when elected
• Loading and unloading
• International and inland transport
• Risk of loss or damage
3

4. Price
Schedule
• Item description.
• Country of origin.
• Quantity.
• Unit price FOB.
• Unit price CIF, CIP ( Port of
destination, Place of destination)
• Total price.
• Unit price of Inland delivery to final
destination and unit price for other
incidental services (if any).
Price Schedule
Price Schedule
Sample
4

5. Price Schedule
5
9
8
7
6
5
4
3
2
1
Total Price
per Line item
(Col. 7+8)
Price per
line item
for inland
transportat
ion and
other
services
required in
the
Purchaser’
s country
to convey
the Goods
to their
final
destination
specified
in BDS
CIP
(named
palce)
Price
per line
item
(Col.
5x6)
Unit
price
CIP
[insert
place of
destinatio
n]
in
accordan
ce with
ITB
14.6(b)(i)
Quanti
ty and
physic
al unit
Deli
very
Date
as
defin
ed
by
Incot
erms
Cou
ntry
of
Origi
n
Descriptio
n of
Goods
Lin
e
Ite
m
N

6. Schedule of
Delivery
• This schedule should cover description
of goods and services to be supplied
and delivery dates.
• Destination of delivery should be
carefully specified as per used
INCOTERMS (CIF, CIP etc.)
• The date prescribed herein from which
the seller’s delivery obligation starts (i.e.
from notice of awards or contract
signature or opening or confirmation of
L/C) should be stated clearly.
• There may be range of acceptable
delivery periods.
6

7. Background - Introduction
• INCOTERMS are the terms of trade in
business
• Published and developed by the
International Chamber of Commerce
(ICC)
• First established in 1936, updated
periodically with the latest version being
“INCOTERMS 2020”
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8. INCOTERMS
What are INCOTERMS?
The official rules of International Chamber
of Commerce (ICC) for the interpretation
of trade terms accepted by governments,
legal authorities and practitioners
worldwide
Explanation of Obligations of seller and
buyer regarding delivery, division of cost,
transfer of risk, packing, Inspection of
goods, contract of carriage and Insurance,
proof of delivery etc.
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9. Purpose of
INCOTERMS
 To facilitate the international trade so that goods are sold in
more countries, in larger quantities, & in greater variety
 To clearly define the respective obligations of seller & buyer
 To reduce the risk of legal complication in a sales contract
 To respond to the global business needs everywhere
 Reduces or removes uncertainties arising from differing
interpretations of shipping terms in different countries.
 Reference to a proper INCOTERMS in a contract clearly
defines each party’s obligations, costs and risks in the
international transaction and reduces the risk of legal
complications.
 They can assist in defining what costs the purchase price
includes (e.g. prepaid international freight, prepaid duties,
insurance, etc.), and clarify the risks & liabilities.
 Eliminates ambiguities or inconsistencies of country‐specific
sales and shipping contracts.
 Makes it easy for sellers and buyers to identify and manage
the costs and liabilities of transporting cargo between source
and delivery/ destinations.
9

10. 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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11. 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
11

12. 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)
12

13. INCOTERMS 2020
SEAORINLAND
WATERWAY
TRANSPORT
FAS(FreeAlongsideShip)
FOB(FreeOnBoard)
CFR(CostandFreight)
CIF(CostinsuranceandFreight)
13

14. Ex ‐
Works
• Seller delivers when it places the goods at the
disposal of buyer at the seller’s premises or another
named place (i.e. works, factory, warehouse, etc.).
• Seller has no obligation to load goods on any
collecting vehicle, nor does it need to clear the
goods for export, where such clearance is
applicable.
• If seller does load goods, it does so at buyer’s
expense and risk
• Better‐suited to domestic transport (no obligation
that seller clear goods for export—only provide
assistance if necessary at buyer’s expense and risk)
• Buyer bears all risk of loss from time seller places
goods at buyer’s disposal
• Difficult to use with controlled items due to license
issues
• Example:‐Exw (Factory, Biratnagar , Nepal) 14

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16. FCA (Free Carrier)
• Improvements over Ex Works
• Seller delivers the goods to the carrier or another person
nominated by the buyer at the seller’s premises or another named
place. The risk passes to the buyer at that point.
• Seller does clear goods for export; import formalities are buyer’s
responsibility
• Seller may contract for carriage at buyer’s expense and risk
• If the named place is seller’s premises: seller must load goods
onto buyer’s means of transport
• If the named place is any other place: seller must place the goods
at buyer’s (or his carrier’s disposal) on seller’s mode of transport
(ready for unloading).
• Seller clears goods for export
• Buyer has costs in addition to sales price that must be calculated
• Seller has no control over carrier, insurance, etc.
•the buyer instructs the carrier to issue the transport document
(bill of landing) with the on-board notation to the seller. 16

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18. CPT (Carriage paid to)
• Seller delivers the goods to the carrier or another person
nominated by the seller at an agreed place and the seller must
contract for and pay the costs of carriage necessary to bring the
goods to the named place of destination.
• 2 points of importance
•Place of delivery of goods to carrier
•Seller’s delivery obligation is complete
• Risk of loss passes to the buyer.
• Seller clears goods for export and pays for transport through any
country necessary to delivery
• Seller has no obligation to pay for insurance but must provide
buyer information to buy insurance at buyer’s risk and expense
• Buyer obtains import licenses and carries out customs formalities
• Seller pays for both loading and unloading if covered by contract of
carriage 18

19. CPT (CARRIAGE PAID TO)
An Example:
• Contract says seller is to deliver goods to shipping warehouse in
Jawaharlal Nehru Port Trust (JNPT) at Navi Mumbai. Terms of sale are
“CPT buyer’s facility, Kathmandu, Nepal (Incoterms 2020).”
• Delivery obligation is fulfilled when seller delivers to the shipping facility
in JNPT.
• Risk of loss passes at the moment the goods are handed over to the
carrier in JNPT.
• But seller pays for carriage to Kathmandu, Nepal.
Important Points :
• Seller clears goods for export and pays for transport through any country
necessary to delivery
• Seller has no obligation to pay for insurance but must provide buyer
information to buy insurance at buyer’s risk and expense
• Buyer obtains import licenses and carries out customs formalities
• Seller pays for both loading and unloading if covered by contract of
carriage
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21. CIP (Carriage and Insurance Paid to)
• Seller delivers the goods to the carrier or another person nominated
by the seller at an agreed; seller must contract for and pay the costs
of carriage necessary to bring the goods to the named place of
destination.
• Like CPT but with the additional requirement that seller pay for
insurance to the named destination
• Insurance requirement is minimum cover (institute cargo clause “c”)
in the amount of contract price plus 10% from point of delivery to
point of destination
• Buyer may pay for additional coverage (institute cargo clauses “a” or
“b”); seller must provide the information necessary to allow buyer to
do so
• Example:‐CIP (Project site, Kathmandu, Nepal)
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23. DAP
(Delivered
at Place)
• Seller delivers when the goods are placed at the disposal
of the buyer on the arriving means of transport ready for
unloading at the named place of destination.
• The seller bears all risks involved in bringing the good to
the named place.
• Much like DPU, but with additional obligation by seller
into country of delivery
• Goods are placed at buyer’s disposal at named location
ready for unloading; risk passes at that point
• Seller clears goods for export but not import (use DDP if
intent is to require seller to clear goods for import also).
• No obligation on seller to purchase insurance
• Example:‐DAP (Birganj, Nepal) 23

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25. DPU (Delivered at Place Unloaded)
• The DPU Incoterm represents a new feature of the 2020 Incoterms
which has replaced the DAT Incoterm (Delivered at Terminal)
established under the 2010 Incoterms which, in turn, had replaced
DEQ Incoterm (Delivered ex Quay) established under the 2000
Incoterms.
• According to the DPU Incoterm, the delivery of the goods by
the seller to the buyer occurs when the goods are unloaded
from the transportation vehicle and put at the disposal of
the buyer at the place of destination or at the agreed point
within the place of destination, if any.
• It is the only Incoterm “that requires the seller to unload
goods at destination.” Again, the place of delivery and the
place of destination are the same under the DPU Incoterm.
• The seller bears the risk until it has unloaded the goods at
the place of destination.
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26. 26

27. DDP (Delivered Duty Paid)
• Seller delivers the goods when the goods are placed at the disposal of the
buyer, cleared for import on the arriving means of transport ready for
unloading at the named place of destination.
• The seller bears all the costs and risks involved in bringing the goods to the
place of destination and has an obligation to clear the goods not only for
export but also for import, to pay any duty for both export and import and to
carry out all customs formalities.
• Like DAP, but including seller’s obligation to clear goods for import—
•pay for any necessary licenses
• Maximum obligation for seller
• If seller is not well‐suited to clear goods for import, DAP should be used
• No obligation to pay for insurance
•Parties may exclude from the seller's obligations some of the costs payable
upon import of the goods (such as VAT).
•Example:‐DDP (Project site, Kathmandu, Nepal) 27

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30. FAS (Free Alongside Ship)
• Seller delivers when the goods are placed alongside the vessel (e.g.,
on a quay or a barge) nominated by the buyer at the named port of
shipment.
• The risk of loss of or damage to the goods passes when the goods are
alongside the ship, the buyer bears all costs from the moment
onwards.
• Seller is obligated to clear goods for export but not import
• Seller has no obligation to pay for contracts of carriage or insurance
but may contract for carriage and must assist buyer by providing
necessary information for insurance
• Example:‐FCA (Tokyo, Japan) 30

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32. FOB (Free on Board)
• Seller delivers the goods on board the vessel nominated by
the buyer at the named port of shipment or procures the
goods already so delivered.
• The risk of loss of or damage to the goods passes when the
goods are on board the vessel, and the buyer bears all costs
from that moment onwards.
• Another change in 2010: if requested by buyer or if it is
commercial practice and buyer does not instruct otherwise,
seller may contract for carriage at buyer’s risk and expense;
seller may decline but must notify buyer promptly
• Therefore, may want to exclude if that is the intent
• Like FAS but goods must be placed on board
• Example: “FOB Chennai, TN,INDIA (Incoterms 2010)”
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34. CFR (Cost and Freight)
•Seller delivers the goods on board the vessel.
•The risk of loss of /or damage to the goods passes when the goods are on
board the vessel.
•The seller must contract for and pay the costs and freight necessary to bring
the goods to the named port of destination.
•Risk of loss passes when the goods are on board the vessel
•Seller pays for carriage to port of destination
•Seller’s delivery obligation is fulfilled when the goods are on board
•Seller clears goods for export but not import
•Seller has no obligation to obtain insurance
•If intent to ship in containers and delivery is to carrier other than vessel, use
CPT 34

35. CFR (Cost and Freight)
Examples:
• Contract says: Seller is to deliver goods on board vessel at Port of
Charleston, SC, USA. Terms of sale are: “CFR, Kolkata, India
(Incoterms 2010).”
• Seller’s delivery obligation is fulfilled when the goods are on
board the vessel in Port of Charleston, SC, USA; risk of loss passes
to buyer
• Seller must pay for shipment to , Kolkata, India
• Seller pays for unloading if the contract of carriage covers
unloading
• Seller clears goods for export but not import
• Seller has no obligation to obtain insurance
• If intent to ship in containers and delivery is to carrier other than
vessel, use CPT 35

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37. CIF (Cost, Insurance and Freight)
• Seller delivers the goods on board the vessel.
• The risk of loss of damage to the goods passes when the
goods are on board the vessel.
• The seller must contract for and pay the costs and freight
necessary to bring the goods to the named port of
destination.
• Like CFR but with additional obligation to procure
insurance to port of destination
• Insurance requirement is minimum cover (institute cargo
clause c) in the amount of contract price plus 10% from
point of delivery to point of destination
• Seller clears goods for export but not import
37

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39. Basis to
choose
INCOTERMS
• Willingness of both parties
• Company policy
• Market place tradition
• Bargaining position
• Freight purchasing power
• Just‐in‐time
• Legal, Financial restriction by
importer
• Transport infrastructure
• Types of cargo
• Value of goods
• Mode of transport
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40. Remember
• Use the phrase “Incoterms 2010” or “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
40

41. 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.

42. Notes on
Responsibilities
•For all Incoterms, the Seller packs,
verifies contents and marks the
goods for export.
•Seller always has responsibility to
provide these documents:
•Commercial Invoice
•Packing List
•Certificate of Origin
•The Seller also is obligated to
assist the Buyer (at buyer’s
expense) in obtaining
documentation required for
export or import.
•For all Incoterms, the Seller packs,
verifies contents and marks the
goods for export.
•Seller always has responsibility to
provide these documents:
•Commercial Invoice
•Packing List
•Certificate of Origin
•The Seller also is obligated to
assist the Buyer (at buyer’s
expense) in obtaining
documentation required for
export or import.

43. Notes on
Responsibilities
& Costs
•The Buyer is responsible for the costs of any formal
pre‐shipment inspection of goods that may be
required by the authorities of either the exporting or
importing country.
•Each party must provide Proofs of Delivery and timely
notifications to the other when goods are delivered
and/or received.
•Costs that are the Seller’s obligation could be billed to
the Buyer but does not change the risks &
responsibilities of Incoterms.
•The Buyer is responsible for the costs of any formal
pre‐shipment inspection of goods that may be
required by the authorities of either the exporting or
importing country.
•Each party must provide Proofs of Delivery and timely
notifications to the other when goods are delivered
and/or received.
•Costs that are the Seller’s obligation could be billed to
the Buyer but does not change the risks &
responsibilities of Incoterms.

44. Limitations
of
INCOTERMS
• Scope is limited to matters relating to the rights
and obligations of the parties to the contract with
respect to the delivery of goods.
• Generally, they don’t deal with the consequences
of:
• Breach of contract.
• Any exemptions from liability.
• Transfer of ownership and other property
right.
• Sellers shoulder minimal liabilities when using
Group E Incoterms, which essentially transfer most
obligations to buyers.
• Group F Incoterms afford buyers the tolerance for
controlling supply chain with respect to the arrival
of shipments and subsequent posting of the
shipments in inventories.

45. Limitations
of
INCOTERMS
•Group C Incoterms generally expose the buyers to
inflated costs, because the seller bears the
responsibilities for paying freight and insurance
costs.
•This is a disadvantage to the importer, especially if
the exporter chooses to quote the final figure
without itemizing the individual entries for freight,
insurance and currency fluctuation costs.
•Buyer accounting for an inventory of expensive
shipments may experience delays as Incoterms do
not cover the transfer of titles or ownership. This can
be disappointing.

46. Final Words
• Use the phrase “Incoterms 2010” after the rule and
named place
• division of rules by seller’s obligation
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)
• Remember rules are split by mode of transport
• Ensure you are naming the right location
• Use contract of sale or terms and conditions
• Be careful modifying Incoterms Rules
• If you modify rules (not advised), ensure contract
clarifies what you are modifying

47. Responsibilities: sellers ‐ buyers
47