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					INCOTERMS – The Profit is
in the Details
                              Breakout Session # 1305
                                                Phillip Poland


                                                 April 11, 2006
                                                  1:30-2:30




NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                            Hyatt Regency Atlanta
:
Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             2
    INCOTERMS – The Profit is
    in the Details
   Effective use of the most
   common terms for
   international sales!

This information is provided as a general summary of requirements
and information that may be applicable to international sales. While
the information may assist in the identification of matters to
consider, it should not be construed as a comprehensive
representation of all controls. Nor should this information be used
as conclusive guidance for any specific transaction. Coordination
with appropriate legal counsel is advised.


      NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                                  Hyatt Regency Atlanta
      :
      Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             3
Background - Introduction
• Incoterms are the most commonly accepted terms of
  sale in international business
• Published and developed by the International
  Chamber of Commerce (ICC)
• Incoterms have been adopted by most countries
• Defines the responsibilities and risks for transactions.
• First established in 1936, updated periodically with
  the latest version being “Incoterms 2000”
• They are used as part of the overall sales agreement.




NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                            Hyatt Regency Atlanta
:
Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             4
Scope and Purpose
• Commercial terms defining the roles of the buyer and
  seller in the arrangement of international
  transportation and other responsibilities related to the
  international shipment of tangible goods.
• Provides a set of international rules for the
  interpretation of the most commonly used trade terms
  in foreign trade
• Limited to matters relating to the obligations of the
  parties with respect to the delivery of the goods sold
• Incoterms deal only with the relation between the
  sellers and buyers under the contract of sale



 NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                             Hyatt Regency Atlanta
 :
 Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             5
Scope and Purpose
• Incoterms deal with a number of identified obligations
  imposed on the parties such as
   – Seller’s obligation to place the goods at the
     disposal of the buyer, or
   – Hand them over for carriage, or
   – Deliver them at a destination, and
   – The distribution of risk between the parties
   – Obligations to clear the goods for export and
     import
   – Packing of the goods
   – Buyer’s obligation to take delivery


 NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                             Hyatt Regency Atlanta
 :
 Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             6
Why Incoterms?
• Incoterms are international rules accepted by
  governments, legal authorities and practitioners worldwide
• Reduces or removes uncertainties arising from differing
  interpretations of shipping terms in different countries.
• Reference to a proper Incoterm 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.


NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                            Hyatt Regency Atlanta
:
Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             7
Main Functions
• Eliminate barriers caused by distance, language, and local
  business practices
• Eliminate uncertainties and different interpretations of
  trade terms on a world-wide scale
• Provide universally accepted vocabulary
• Reduce risk of misunderstanding, disputes, and litigation
• Facilitate international commercial exchanges
• Define the importer’s and exporter’s costs, risk and
  obligations regarding delivery of the goods


NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                            Hyatt Regency Atlanta
:
Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             8
What Incoterms Does Not Cover
• How or when title to the goods transfers
• Protect a party from his/her own risk of loss for all
  segments of the shipment
• Cover the goods before or after delivery
• Define the remedies for breach of contract
• Terms of payment that dictate when you get paid
• Specify details of the transfer, transport, and delivery
  of goods
• Intangible goods like computer software
• Incoterms applies to the contract of sale and not the
  contract of carriage (transportation)



 NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                             Hyatt Regency Atlanta
 :
 Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             9
Responsibilities Affected
• The terms allocate 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

 NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                             Hyatt Regency Atlanta
 :
 Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             10
Common Terms
• Pre-carriage:
     – Initial transport of goods from the seller to the main
     carrier
     – Usually by truck, rail, or inland waterway
• Main carriage:
     – Primary transport of goods
     – Longest part of the journey & from one country to
     another
     – Usually by sea or air, but may be by truck, or rail
• On-carriage:
     – Transportation from arrival point in the destination
     country to buyer, which can be by any mode
• Carrier:
     – Any party who arranges for the primary
     transportation by truck, plane, ship, rail, etc.
NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                            Hyatt Regency Atlanta
:
Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             11
Common Terms
• Delivery:
   The term delivery is used in two contexts in Incoterms:
   – The seller bringing the goods to the named point
   – Traditional sense of the buyer receiving the goods
• Customs clearance:
   Clearing the goods for export or import means
   – Paying the duties, taxes and administrative costs
   – Performing administrative matters related to:
       • Clearance and Customs formalities
       • Import and/or export regulations
       • Typically, the Shipper (exporter) clears the goods
         for export the Buyer (importer) clears the goods
         for import


NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                            Hyatt Regency Atlanta
:
Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             12
Organization of Incoterms 2000
Incoterms are divided into four (4) categories:

• “E” term – Seller makes the goods available to the buyer
  at the seller’s premises or other place named by the seller

• “F” terms – Seller is responsible to deliver the goods to
  the export shipment point and carrier designated by the
  buyer

• “C” terms – 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 – Seller is responsible for all costs and risks
  associated with delivering goods to the named place in
  the country of destination

NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                            Hyatt Regency Atlanta
:
Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             13
                        The Thirteen Incoterms
All modes of transport                                                    Sea and inland waterway
  including multi-modal                                                     transport only

• EXW – Ex Works                                                          • CIP – Carriage and
• FCA – Free Carrier                                                        Insurance Paid To
• CPT – Carriage Paid To                                                  • DES – Delivered Ex Ship
                                                                            DEQ – Delivered Ex Quay
• DAF – Delivered at
  Frontier                                                                • FAS – Free Alongside
                                                                            Ship
• DDU – Delivered Duty
  Unpaid                                                                  • FOB – Free Onboard
• DDP – Delivered Duty                                                    • CFR – Cost and Freight
  Paid                                                                    • CIF – Cost, Insurance,
                                                                            and Freight

    http://www.iccwbo.org/incoterms/wallchart/wallchart.pdf

    NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                                Hyatt Regency Atlanta
    :
    Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             14
 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.


  NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                              Hyatt Regency Atlanta
  :
  Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             15
 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.


  NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                              Hyatt Regency Atlanta
  :
  Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             16
EXW – Ex Works (Named Place)
 • Seller:
    – Informs the Buyer when and where the goods will be
       available
    – Provides Commercial Invoice, Packing List &
       Certificate of Origin
 • Buyer:
    – Obtains the Export License
    – Arranges all carriers
    – Loads goods onto the carrier at the point of departure
    – Obtains import licenses and arranges import formalities
 • Risk of loss or damage passes to the buyer from the
   seller's door
 • Difficult to use with ITAR controlled items due to license
   issues
 NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                             Hyatt Regency Atlanta
 :
 Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             17
FCA – Free Carrier (Named Place)
• Seller:
   – Obtains the Export License
   – Arranges delivery of the goods to the buyer’s carrier
       • If delivery point is at the Seller’s facility, the Seller
          must load the goods onto the Buyer's collecting
          carrier.
       • If not delivering at the Seller’s facility, there is no
          obligation to load.
• Buyer:
   – Gives sufficient notice to the Seller of the carrier &
      delivery point
   – Arranges the main carriage and the on-carriage
   – Obtains import licenses and arranges import formalities
• Risk of loss or damage passes to the buyer when the
  seller delivers the goods to the carrier
NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                            Hyatt Regency Atlanta
:
Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             18
DDU – Delivered Duty Unpaid (Named
Place)
• Seller:
   – Obtains the Export License
   – Arranges for and pays freight costs of carriage to the
     named point of destination
• Buyer:
   – Accepts and unloads the goods
   – Obtains import licenses and pays for import clearance
• Risk and responsibility of import clearance pass to buyer
  when seller delivers goods to named destination point.
• Often can be used to lower duties or taxes when foreign
  buyer can receive a voucher for any cost incurred


 NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                             Hyatt Regency Atlanta
 :
 Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             19
The EVIL FOB Term - Comparison

• Incoterms, FAR, and UCC use FOB
• FOB covers all modes of delivery under FAR and
  UCC, but only water shipping under the Incoterms
• FAR and UCC relate primarily to domestic sales, and
  should not be used for international commercial sales
• Under FAR and UCC must state whether delivery
  occurs at origin/source or destination
• Incoterms delivery occurs only at the port where the
  ship is departing




 NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                             Hyatt Regency Atlanta
 :
 Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             20
Incoterms FOB – Free On Board (Named
Shipping Port)
• Seller:
   – Obtains the Export License
   – Arranges delivery of goods to & loads the buyer’s
     carrier
   – Places goods on board the ocean vessel at the port of
     export designated by the Buyer
• Buyer:
   – Gives sufficient notice to the Seller of the carrier &
     delivery point
   – Arranges the main carriage and the on-carriage
   – Obtains import licenses and arranges import formalities
• Risk & responsibility passes to the buyer when the goods
  pass the rail of the vessel
• Used for sea or inland waterway transportation only
 NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                             Hyatt Regency Atlanta
 :
 Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             21
FAR or UCC FOB – Free On Board
(Named Place)
 • The FAR requires that shipments outside of the
   Contiguous United States (CONUS) are made only
   under F.O.B. terms
       – Exceptions may be negotiated
 • Exact equivalents to Incoterms may not exist in all
   cases but there are close equivalents
 • Specify as part of the term origin/source verses
   destination, method of transportation, and if cost paid
 • Important FAR clauses 52.247 and 47.303
 • Used for any mode of transportation


  NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                              Hyatt Regency Atlanta
  :
  Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             22
Keys to Effective Use of Incoterms
• EX Works is not a method to avoid obtaining
  export licenses or to avoid export compliance
• Always think about taxes and duty issues
  when selecting a term of sale
• Assess who is in the best position to assess
  risk of loss and carrier
• Understand your liability as a potential USPPI
  based on the term of sale selected


NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                            Hyatt Regency Atlanta
:
Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             23
• Important website
             http://www.iccwbo.org/


• Contact Information
    Phillip Poland
             314-409-8234
             pwpoland@yahoo.com


• Questions


NCMA World Congress 2006                                                                    April 10–12, 2006
                                                                                            Hyatt Regency Atlanta
:
Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management   Atlanta, GA             24

				
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