101 CIP (CARRIAGE & INSURANCE PAID TO); NAMED PLACE OF DESTINATION Seller / Exporter POL POD Buyer / Importer Transporter Int. Carrier Transporter O - POE D - Gate POE Transport Leg 1 ORIGIN Transport Leg 1 CARRIAGE Transport Leg 3 DESTINATION Gate Cargo Seller / Exporter Risk up to FCA point Buyer / Importer’s Risk from FCA Point Seller / Exporter Cost incl. Insurance to Final Destination Buyer / Importer’s Cost from Final Destination Final Dest. Copyright - ESSC
My Study Notes
CIP (CARRIAGE & INSURANCE PAID TO); NAMED PLACE OF DESTINATION - NOTES DEFAULT POINT: Same as CPT, but Exporter (Seller) pays for Insurance Premium Exporter Importer Seller to control cost up to named place of destination (most cost control) At mercy of seller’s choice of main carrier Freight + loading costs + unloading + insurance + oncarriage Most risk from handing over at named place of carrier at origin Customs clearance origin Customs clearance destination Insurance Note: • Maximum Insurance will apply and must cover all risk, i.e. damages etc. • Cargo Clause A • Importer is at risk from FCA point onwards. Copyright - ESSC 103
My Study Notes
CHANGES TO INSURANCE COVER CIP VS. CIF (INCOTERMS 2010 VS. 2020) • The Incoterm CIP means that the seller delivers to the carrier (risk transfer point / FCA point), but then pays for the carriage and insurance to the named destination (cost transfer point). CIF is the same except that it can only be used for maritime or ocean transport (delivery is onto a ship / FOB point and the destination needs to be a port). • Under Incoterms 2010 the seller is obliged to provide insurance for the buyer that is equivalent to Clause C (Institute of Cargo Clauses). This is a basic level of insurance (Cargo Clause C) which typically might be suitable for bulk commodity cargoes. • In ICC Incoterms® 2020 CIF keeps the same insurance requirements, Clause C, but CIP has increased the insurance required to Clause A. In other words, the reasoning behind this is that CIF is more often used with bulk commodity trades and CIP (as a multimodal term) is more often used for manufactured goods carrying a higher value and more prone to damage. Copyright - ESSC 105
My Study Notes
ICC INCOTERMS EXPLAINED Rules for: ------ D (Terms) 107 The D-Terms refers to situations where cargo entered the POD (D-POE), but needs to be delivered to a destination nominated by the Buyer. It therefore caters for 3 scenarios: 1 – Delivery is part of the on-carriage / freight to an inland port (DPU), 2 – Delivery is done by taking cargo from the inland port for final delivery to another terminal, warehouse or depot (DPU), and 3 – Delivery is made to the “door” (place) of Buyer / Importer (DAP or DDP). Copyright - ESSC
My Study Notes
109 DPU (DELIVERED AT PLACE); UNLOADED Seller / Exporter POL POD Buyer / Importer Transporter Int. Carrier Transporter O - POE D - Gate POE Transport Leg 1 ORIGIN Transport Leg 1 CARRIAGE Transport Leg 3 DESTINATION Gate Cargo Seller / Exporter Cost, Risk, incl. Unloading, up to Place of Destination Imp. Risk Dep / Term Typical situation where on-carriage (delivery) is made to an inland port / depot (Dep) or terminal (term), where the on-carriage may still be part of the freight component, but taken from there for delivery outside of the inland port / depot or terminal Copyright - ESSC
My Study Notes
DPU (DELIVERED AT PLACE); UNLOADED NOTES DEFAULT POINT: Seller delivers goods once unloaded from arriving carrier, placed at disposal of buyer at named place, at agreed date & time Exporter Importer Seller to control cost up to named place of destination (most cost control) At mercy of seller’s choice of main carrier Freight + loading costs + unloading + on-carriage to named place At risk from handing over at named place. Min obligation! Customs clearance origin Customs clearance destination Copyright - ESSC 111
My Study Notes
DAP (DELIVERED AT PLACE); NAMED PLACE AT DESTINATION Seller / Exporter POL POD Buyer / Importer Transporter Int. Carrier Transporter O - POE D - Gate POE Transport Leg 1 ORIGIN Transport Leg 1 CARRIAGE Transport Leg 3 DESTINATION Gate Cargo Seller / Exporter Cost and Risk, excl. Duties & Taxes, up to Place of FINAL Destination WH / Store DAP is similar to the old DDU Term (Delivered Duty Unpaid) Copyright - ESSC 113
My Study Notes
DAP (DELIVERED AT PLACE); NAMED PLACE AT DESTINATION - NOTES DEFAULT POINT: Seller delivers goods once unloaded from arriving carrier and placed at named destination, for unloading from transport by the Buyer, at agreed date & time Exporter Importer Seller to control cost up to named place of destination (most cost control) At mercy of seller’s choice of main carrier Freight + loading costs + unloading + on-carriage + delivery to named place At risk from handing over at named place. Min obligation! Customs clearance origin Customs clearance destination Copyright - ESSC 115
My Study Notes
117 DDP (DELIVERED DUTY PAID); NAMED PLACE AT DESTINATION Seller / Exporter POL POD Buyer / Importer Transporter Int. Carrier O - POE D - Gate POE Transport Leg 1 ORIGIN Transport Leg 1 CARRIAGE Transport Leg 3 DESTINATION Gate Cargo Seller / Exporter Cost, Risk, incl. Duties & Taxes up to Place of FINAL Destination Transporter Copyright - ESSC
My Study Notes
DDP (DELIVERED DUTY PAID); NAMED PLACE AT DESTINATION - NOTES DEFAULT POINT: Seller delivers goods, placed at buyer’s disposal and Customscleared for import at named place of destination Exporter Importer Seller to control cost up to named place of destination (most cost control) At mercy of seller’s choice of main carrier Freight + loading costs + unloading + on-carriage + Customs duties and taxes to named place Almost no risk from handing over at named place. Minimum obligation! Customs clearance origin and destination VAT can be agreed upon for payment by Importer (Buyer), to claim back on VAT Return. Copyright - ESSC 119
My Study Notes
121 ACCIDENTALLY BREAKING CONTRACT! CIP & D-TERMS VS. DELIVERY OBLIGATIONS Changing the MODE OF TRANSPORT for final delivery from POD to the final place of placement, may just result in an accidental breach of the delivery contract! Importers quite often do this to speed up the delivery process, but changing the on-carriage or final delivery without the knowledge of the supplier, may have legal implications. • Consider this, the Incoterm agreed on was CIP (ocean), the POD was DBN, and final delivery City Deep – JHB. On-carriage from DBN was supposed to be by rail. • The importer agreed with the shipping line to deliver the container by road and pay in the difference between the rail and road freight. • On route there was an accident and the container came off the trailer and landed on top of a car. Two occupants in the car were killed instantly! • Who was at fault, who will pay for the damages and who will be facing a lawsuit? Copyright - ESSC
My Study Notes
ICC INCOTERMS CHECKLIST 123 Copyright - ESSC
My Study Notes
Customs Valuation Base vs. ICC Incoterms Discussion Points: • Customs’ Interpretation of FOB • FOB Value vs. Customs Value Vs. VDP • Visual Interpretation Copyright - ESSC 125
CUSTOMS’ INTERPRETATION OF FOB • Customs only use FOB as a guideline for valuation purposes, and NOT as explained by the ICC Incoterms. • Customs do not care for the mode of transport pertaining to FOB! • FOB for Customs literally means PLACED Free on Board. • Also, Customs do not interpret FCA to be the same as FOB, simply because there could be additional handling and transport charges after the FCA point of delivery. • For FCA, always check the waybill or BoL (especially in Air Freight) for “Costs Due Agent” to add as dutiable charges to the Commercial Invoice value for VDP. Copyright - ESSC 126
My Study Notes
FOB VALUE VS. CUSTOMS VALUE VS. VDP • The FOB Value is used by RSA Customs to determine the Customs Value • However, the Customs Value for both imports and exports, is subject to the rule of rounding off to a whole value, where 51 cents is the denominator, for example: ◦ If the Customs Value is R1.50, then one must “round down, meaning the Customs Value is now R1 (no decimals!) ◦ If the Customs Value is R1.51, then one must “round up”, meaning the Customs Value is now R2 (no decimals!) • The VDP stands for Value for Duty Purposes and applies to the Customs Import Value for duty calculations and as a basis for other Customs Values (i.e. VPB and ATV) Copyright - ESSC 128
My Study Notes
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 – Customs Valuation Rule RSA: Add all physical costs to arrive at FOB Value Transport Leg 2 – Customs Valuation Rule RSA: Deduct all freight costs to arrive at FOB Value Transport Leg 3 – Customs Valuation Rule RSA: Deduct all freight & destination costs to arrive back at FOB Value FOB is valuation point for VDP in the RSA Copyright - ESSC 130
My Study Notes
End of this Module, thank you! Copyright - ESSC 132 Any Questions?