Import Management & ICC Incoterms Module 1 1 The International Chamber of Commerce (With Simulation Examples) A International Supply Chain | International Supply Chain | International Supply Chain (Seller) B (Buyer) Student Study Aid
2 Welcome to your ICC Incoterms® Module!
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Lesson Plan – Subjects 4 Lesson 1: BACKGROUND INFORMATION ABOUT THE ICC INCOTERMS Lesson 2: ESSENTIAL – TECHNICAL KNOWLEDGE ITO APPLICATION Discussion Points: • Introduction • Specific Definitions • Overview of the ICC Incoterms • Incoterms End-to-End • Cost Increase on Sliding Scale • ICC Incoterms Changes for 2020 Discussion Points: • Risk & Cost Escalation for Seller / Exporter • Control: Risk and Cost • Freight Collect vs. Freight Prepaid • Default Points • Modes of Transport vs. Incoterms Copyright - ESSC
Lesson Plan – Subjects 5 Lesson 3: EMBEDDED KNOWLEDGE – ICC INCOTERMS IN DETAIL Discussion Points: ➢ ICC Incoterms Explained ◦ E & F Rules (Grouped E & F) ◦ C Rules (Grouped as C) ◦ D Rules (Grouped as D) ➢ Accidentally Breaking Contract ➢ Incoterms Checklist ➢ Customs Valuation Base vs. ICC Incoterms Copyright - ESSC
ICONS to look out for & meaning 6 Cargo DDP POL POD INCOTERM Indicator POD = Place or Port of Discharge (Entry Point) CARGO = Indicates Delivery Point POL = Place or Port of Loading (Exit Point) Truck = Collect / Deliver Between Points Ocean Freight Only for Incoterms FAS, FOB, CFR & CIF All Modes (Multimodal) for all other Incoterms Copyright - ESSC
Lesson 1 7 BACKGROUND INFORMATION ABOUT THE ICC INCOTERMS Discussion Points: • Introduction • Specific Definitions • Overview of the ICC Incoterms • Incoterms End-to-End • ICC Incoterms Changes for 2020 Copyright - ESSC
8 International Commercial Terms Defined as establishing the seller’s delivery obligation within the International Contract of Sale (ICOS) between the Buyer/Importer and Seller/Exporter (NOTE: Incoterms are NOT a Contract of Sale only) Copyright - ESSC
INTRODUCTION Who created the Incoterms? • The International Chamber of Commerce (ICC) first conceived the Incoterms in 1921. • The RULES were created in 1936, hence the first publication was called Incoterms 1936. • The very first “Incoterm” created was FOB (Free on Board) in 1812 and used by in the British Courts. • The second “Incoterm”, CIF (Cost Insurance & Freight), was created in 1895. • The Incoterms is a registered trademark ® which belongs to the ICC. Copyright - ESSC 9
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INTRODUCTION (CONTINUED) Defining INCOTERMS (what is it) • INCOTERMS is an acronym made up from the words, International Commercial Terms. • It is a set of supply-delivery terms (3-digit rules), whereby the Seller (Party A), must deliver the goods to a specific delivery point (Articles A & B) within the international supply chain as agreed to in the Sales Contract with the Buyer (Party B). • The delivery point is also referred to as the “Default Point” wherefrom the delivery to final place at destination then becomes the responsibility of the Buyer (Party B) (note, delivery under Incoterms DAP & DDP rests with the Seller). • Split into 2 Groups, (1) All Modes & (2) Ocean & Inland waterways! 11 Copyright - ESSC A International Supply Chain | International Supply Chain | International Supply Chain (Seller) B (Buyer) 5 6 7 8 9 10 11 Int. Carriage / Freight POL (EXP) POD (IMP) Country of Origin Country of Dest. 1 2 3 4
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INTRODUCTION (CONTINUED) A STATEMENT OF FACTS (Obligations & Play-the-Play Rules) 1. It is an International Language between Sellers (Party A) and Buyers (Party B), Agents and Customs Authorities (Commercial Value / Price to be Paid) 2. It Establishes the International Sales Contract i.t.o.: 2.1. A Valuation Basis i.t.o. each specific Incoterm Rule 2.2. An Agreement on Delivery Obligation at an Arranged Cost 2.3. An Agreement on Shipping / Dispatching Dates, Lead Times and Delivered to Buyer’s In-stores Date 2.4. An Agreement of Risk Transfer from Departure Point onto Main Carrier 2.5. An Agreement of Cost Transfer from Delivery Point 2.6. An Agreement on the International Mode of Transport from POL to POD, to POFD (Final Destination) 2.7. An Obligation by the Buyer to provide proper Routing Instructions to the Seller and FRT FWD Agent (incl. Hanover at the POD for Rules C & D) 2.8. An Agreement on Open and Transparent Contractual Agreement (No Hidden Cost i.t.o. the Cost-Iceberg!) 2.9. An Agreement on Documentary Requirements 2.10. An Obligation on part of the Buyer to provide proper Packaging, Packing and Stuffing Instructions to the Seller, Agents, Customs and Other Statutory Bodies 13 Copyright - ESSC
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SPECIFIC DEFINITIONS 15 Description / Term Definition Buyer Aka the Importer or Purchaser Seller Aka the Exporter, Supplier or Shipper COS / Cos / ICOS / ICoS International Contract of Sale (Buyer & Seller) Origin Exporting Country Destination Importing Country Delivery Delivery obligations, cost and risk to a specific point (also see “Default Point”) Carrier Aka as the cargo-carrier or freighter, or the international transport operator Carriage / Main Carriage Aka Freight, the internal transport leg between countries Pre-carriage Aka Inland Freight to place of exit On-carriage Aka Inland Freight from place of discharge to place of final destination Transporter Aka the Haulier, Cartage Operator or Trucker Copyright - ESSC
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SPECIFIC DEFINITIONS (CONTINUED) 17 Description / Term Definition All Modes of Transport Aka as multimodal transport POL Port / Place of Loading POD Port / Place of Discharge O-POE Origin – Place / Port of Exit (Export Point onto Carrier) D-POE Destination – Place / Port of Entry (Import Point off the Carrier) Default Point Delivery Point, Seller / Exporter obligated to deliver goods to the handover point as set out in a specific commercial term, where cost and risk is then transferred to the Buyer / Importer Collect (Freight) Groups E & F, Buyer / Importer to pay International Freight Costs Prepaid (Freight) Groups C & D, Seller / Exporter to pay International Freight Costs Master Bill Master Transport Document issued by Carrier, Bill of Lading (BOL) or Master Waybill (i.e. MAWB) House Bill House Transport Document issued by Cargo / Container Operator, NVOCC / Groupage Operator or Air Consol (i.e. HAWB) Commercial Invoice Aka Final Tax Invoice, refers to the transactional invoice payable from Seller / Exporter onto Buyer / Importer Copyright - ESSC
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OVERVIEW OF THE ICC INCOTERMS INCOTERMS Consist of 3-digit codes known as Rules (starting at EXW to DDP) GOLDEN RULE: (1) It addresses the requirements for the SALES Contract between the Buyer (Importer / Consignee) and Seller (Export / Supplier / Consignor / Shipper), and (2)Identifies the delivery point (aka the default point) where cost and risk is transferred from Seller to Buyer. For the latter, the exceptions though are with the CTerms where risk transfers at delivery point to the carrier (i.e. either at FOB or FCA point). Copyright - ESSC 19
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OVERVIEW OF THE ICC INCOTERMS (CONTINUED) Subsequent to the Sales Contract… • It addresses the Customs clearance in the exporting as well as the importing country. FOR EXAMPLE: ◦ EXW = Customs Clearance to be arranged by Buyer (Importer) in both origin and destination, whereas ◦ DDP = Customs Clearance to be arranged by Seller (Exporter) in both origin and destination. ◦ Rest of the terms will indicate who is responsible for Customs Clearances in origin and destination. • It also addresses the mode of transport to be used. Copyright - ESSC 21
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OVERVIEW OF THE ICC INCOTERMS (CONTINUED) Understand each Article’s specifics i.t.o… • Analysing the exact meaning of the wording within each Article, • Highlight potential “grey areas” not covered specifically, i.e. handling, packing, different transport legs (multimodal types), Customs clearing at destination for DPU & DAP specific to “free time” (demurrage & storage charges due to late clearances), • Buyer and Seller to agree on duties, whom to perform such duties, and the associated costs thereto, and • Transport / marine insurance cover, point-to-point and type of cover (Cargo Clauses, A, B & C). The above might require “expressed terms” to be incorporated within the Sales Contract. Copyright - ESSC 23
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OVERVIEW OF THE ICC INCOTERMS (CONTINUED) Comparing the Articles to select the best suited Incoterm Rule i.t.o… • Incoterms 2020 gives us a “horizontal” comparison between the Articles, A1 – A10 and B1 – B10 for each specific Incoterm Rule (the 3-digit terms, EXW to DDP). • This allows the Buyer to weigh up the pros and cons between the sales value of the buying term (shipping term), by deciding if cheaper is better than complete control. Copyright - ESSC 25 The above statements refers to a “trade-off” between cost versus control, where control does not only refer to handling and delivery, but also to negotiating agency fees, carrier costs, routing and final delivery. ARTICLES: A pertaining to Seller & B pertaining to Buyer
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INCOTERMS END-TO-END INT. CARRIAGE/ FREIGHT Seller / Exporter (A) Gate Buyer / Importer (B) Gate ORIGIN DESTINATION Incoterms starts with EXW (Ex-Works) and ends at DDP (Delivered Duty Paid) POL O - POE POD D - POE EXW DDP Copyright - ESSC 27
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COST TO DELIVERY POINT INCREASE INT. CARRIAGE/ FREIGHT Seller / Exporter (A) Gate Buyer / Importer (B) Gate ORIGIN DESTINATION Incoterms starts with EXW (Ex-Works) and ends at DDP (Delivered Duty Paid) POL O - POE POD D - POE COST INCREASE ON A PROGRESSIVE SLIDING SCALE FROM POINT EXW TO DELIVERY POINT DDP EXW DDP Copyright - ESSC 29
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ICC INCOTERMS – 2020 31 3-Digit Term / Rule Description of Term / Rule Freight Collect / Prepaid Mode of Transport EXW Ex-works, Named Place Collect All Modes FCA Free Carrier, Named Place Frist Carrier Collect All Modes FAS Free Alongside Ship, Named Port (of loading) Collect Ocean / Sea FOB Free on Board, Named Port (of loading) Collect Ocean / Sea CFR Cost and Freight, Named Port (of discharge) Pre-paid Ocean / Sea CIF Cost Insurance & Freight, Named Port (of discharge) Pre-paid Ocean / Sea CPT Carriage Paid To, Named Place of Destination Pre-paid All Modes CIP Carriage & Insurance Paid To, Named Place of Destination Pre-paid All Modes DPU Delivered at Place, Unloaded (from Carrier) Pre-paid All Modes DAP Delivered at Place, Named Place (at destination) Pre-paid All Modes DDP Delivered, Duty Paid, Named Place (at destination) Pre-paid All Modes Copyright - ESSC B u y e r C o n t r o l S e l l e r C o n t r o l
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ICC INCOTERMS ARTICLES TO THE RULES Copyright - ESSC 33 • Incoterms’ Rules refer to the 3-Digit Rules (Delivery Terms), EXW to DDP • The Articles are described for the Supplier from A1 to A10, and for the Buyer from B1 to B10
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ICC INCOTERMS CHANGES FOR 2020 • Articles A1 to A10 - Seller’s responsibilities, and B1 to B10 - Buyer’s responsibilities are more defined, specifically tasks to be performed by Seller as well as by Buyer. i.e. Seller’s documentary assistance to Buyer • More emphasis has been put on the delivery / default point • The 3-digit code and default point must be inserted on the contract of sale / purchase order, followed by “Incoterms 2020” • Insurance now have 2 distinctions, CIF remains the same, but CIP has been changed • DAT (Delivered at Terminal) has been replaced by DPU (Delivered at Place, Unloaded) AND, the term FCA… Copyright - ESSC 35
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ICC INCOTERMS CHANGES FOR 2020 FCA now have 2 definite criteria: 1. Default point under FCA (a) = Named Place is the Seller’s premises, where goods must be loaded on board the means of transport provided by the buyer 2. Default point under FCA (b) = Named Place is the a place / point nominated by the Buyer, where goods will be unloaded from the seller’s transporter to the First Carrier • FCA rules i.t.o the transport document such as a Bill of Lading: “If the parties have so agreed, the buyer must instruct the carrier to issue to the seller, at the buyer’s cost and risk, a transport document stating that the goods have been loaded (such as a bill of lading with an on-board notation)” Copyright - ESSC 37
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THE 4 INCOTERM GROUPS FOR INCOTERMS 2020 EXW ExWorks FCA Free Carrier (1st Carrier, Named Place) FAS Free Alongside Ship FOB Free On Board CFR Cost + Freight CIF Cost + Freight + Insure CPT Carriage Paid To CIP Carriage + Insure Paid To DPU Delivered at Place, Unloaded DAP Delivered At Place DDP Delivered Duty Paid Seller / Exporter Buyer / Importer Group 4 D-Terms Group 3 C-Terms Group 2 F-Terms Group 1 E-Terms Transport Leg 1 ORIGIN Transport Leg 2 INT. CARRIAGE/ FREIGHT Transport Leg 3 DESTINATION POL POD O - POE D - POE Copyright - ESSC 39
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THE “PILLARS” OF THE ICC INCOTERMS 2020 EXW FCA FAS FOB CFR CIF CPT CIP DPU DAP DDP Seller / Exporter Buyer / Importer Currently there are eleven 3-Digit Codes 1 2 3 4 5 6 7 8 9 10 11 POL O - POE POD D - POE Transport Leg 1 ORIGIN Transport Leg 2 INT. CARRIAGE/ FREIGHT Transport Leg 3 DESTINATION Copyright - ESSC 41
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TRANSPORT LEGS: ORIGIN | INTERNATIONAL | DESTINATION POL O - POE POD D - POE EXW ExWorks FCA Free Carrier (1st Carrier, Named Place FAS Free Alongside Ship FOB Free On Board CFR Cost + Freight CIF Cost + Freight + Insure CPT Carriage Paid To CIP Carriage + Insure Paid To DPU Delivered at Place, Unloaded DAP Delivered At Place DDP Delivered Duty Paid Seller / Exporter Buyer / Importer Transport Leg 1: Origin Means from EXW up to FCA/FOB Transport Leg 3: Destination Means from CFR/CIF or CPT/CIP up to DDP Transport Leg 2: Int. Carriage Means from FCA/FOB up to CFR/CIF or CPT/CIP Copyright - ESSC 43
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Lesson 2 ESSENTIAL – TECHNICAL KNOWLEDGE ITO APPLICATION Discussion Points: • Risk & Cost Escalation for Seller / Exporter • Control: Risk and Cost • Freight Collect vs. Freight Prepaid • Default Points • Modes of Transport vs. Incoterms Copyright - ESSC 45
RISK ESCALATION FOR EXPORTER EXW ExWorks FCA Free Carrier (1st Carrier, Named Place) FAS Free Alongside Ship FOB Free On Board CFR Cost + Freight CIF Cost + Freight + Insure CPT Carriage Paid To CIP Carriage + Insure Paid To DPU Delivered at Place, Unloaded DAP Delivered At Place DDP Delivered Duty Paid Seller / Exporter Buyer / Importer Risk Escalation: Increases for the Seller / Exporter from F-Group to DDP Copyright - ESSC 46
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SUPPLIER: RISK AND COST WORKS ON SLIDING SCALE FOR EACH INCOTERM Buyer / Importer Seller / Exporter EXW ExWorks FCA Free Carrier (1st Carrier, Named Place) FAS Free Alongside Ship FOB Free On Board CFR Cost + Freight CIF Cost + Freight + Insure CPT Carriage Paid To CIP Carriage + Insure Paid To DPU Delivered at Place, Unloaded DAP Delivered At Place DDP Delivered Duty Paid Important: For the Seller, Risk and Cost works on sliding scale and will escalate from term FCA (Exporter) up to DDP. However, the Seller (Exporter) will recover such costs on his commercial invoice to the Buyer (Importer). Such costs should be broken down comprehensively on the Commercial Invoice for Customs purposes. Transport Leg 1 ORIGIN Transport Leg 2 INT. CARRIAGE/ FREIGHT Transport Leg 3 DESTINATION POL O - POE POD D - POE Copyright - ESSC 48
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COST ESCALATION FOR EXPORTER EXW ExWorks FCA Free Carrier (1st Carrier, Named Place) FAS Free Alongside Ship FOB Free On Board CFR Cost + Freight CIF Cost + Freight + Insure CPT Carriage Paid To CIP Carriage + Insure Paid To DPU Delivered at Place, Unloaded DAP Delivered At Place DDP Delivered Duty Paid Seller / Exporter Buyer / Importer Cost Escalation: Increases for the Seller / Exporter from F-Group to DDP Copyright - ESSC 50