Podcast
Questions and Answers
Buyers are responsible for costs and risks once they assume responsibility per the Incoterm.
Buyers are responsible for costs and risks once they assume responsibility per the Incoterm.
True
Incoterms do not provide a legal basis for resolving disputes related to delivery obligations.
Incoterms do not provide a legal basis for resolving disputes related to delivery obligations.
False
Choosing appropriate Incoterms is essential for aligning responsibilities during contract negotiations.
Choosing appropriate Incoterms is essential for aligning responsibilities during contract negotiations.
True
Under DDP terms, buyers are not responsible for duties and taxes.
Under DDP terms, buyers are not responsible for duties and taxes.
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Incoterms do not play a role in managing logistical and financial risks in international trade.
Incoterms do not play a role in managing logistical and financial risks in international trade.
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Under the Incoterm EXW, the seller is responsible for delivering the goods to the buyer's destination.
Under the Incoterm EXW, the seller is responsible for delivering the goods to the buyer's destination.
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CIF requires the seller to insure the goods during transit to the destination port.
CIF requires the seller to insure the goods during transit to the destination port.
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DPU replaced the term DAT in the changes made in Incoterms 2020.
DPU replaced the term DAT in the changes made in Incoterms 2020.
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The responsibility of the seller ends as soon as the goods are delivered to the carrier under any Incoterm.
The responsibility of the seller ends as soon as the goods are delivered to the carrier under any Incoterm.
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Under CFR, the seller is responsible for costs and risks until the goods arrive at the final destination.
Under CFR, the seller is responsible for costs and risks until the goods arrive at the final destination.
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Incoterms are designed to simplify computations of costs and risk allocations in international trade.
Incoterms are designed to simplify computations of costs and risk allocations in international trade.
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Digitalization was not a significant factor in the changes made to Incoterms in 2020.
Digitalization was not a significant factor in the changes made to Incoterms in 2020.
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The buyer assumes all risks once goods are placed alongside the vessel under the Incoterm FAS.
The buyer assumes all risks once goods are placed alongside the vessel under the Incoterm FAS.
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Study Notes
Incoterms
Definition And Purpose
- Definition: Incoterms (International Commercial Terms) are standardized terms used in international trade contracts that define the responsibilities of buyers and sellers.
-
Purpose:
- To clarify the costs, risks, and responsibilities associated with the transportation and delivery of goods.
- To facilitate international trade by providing a common terminology.
Types Of Incoterms
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Group E (Departure):
- EXW (Ex Works): Seller makes goods available at their premises; buyer bears all responsibilities.
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Group F (Main Carriage Unpaid):
- FCA (Free Carrier): Seller delivers goods to a carrier; buyer assumes risks from that point.
- FAS (Free Alongside Ship): Goods are delivered alongside the vessel; risk transfers to buyer.
- FOB (Free On Board): Seller delivers goods on board the vessel; risk transfers as goods pass the ship's rail.
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Group C (Main Carriage Paid):
- CFR (Cost and Freight): Seller pays for transport to the destination port; risk transfers at loading.
- CIF (Cost, Insurance and Freight): Same as CFR, but seller also insures the goods during transit.
- CPT (Carriage Paid To): Seller pays for carriage to a specified destination; risk transfers upon handover to carrier.
- CIP (Carriage and Insurance Paid To): Same as CPT, but seller must also insure the goods.
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Group D (Arrival):
- DAP (Delivered At Place): Seller delivers goods to a named destination; all risks until delivery.
- DPU (Delivered At Place Unloaded): Seller delivers and unloads goods at destination; risk transfers after unloading.
- DDP (Delivered Duty Paid): Seller delivers and pays all duties; assumes all risks and costs until delivered.
Changes In Incoterms 2020
- New Terms: Introduction of DPU (Delivered at Place Unloaded) as a replacement for DAT (Delivered at Terminal).
- Insurance Requirement: More detailed insurance requirements for CIP and CIF.
- Digitalization: Recognition of electronic documents alongside traditional paper documentation.
- Clarifications: Improved definitions and obligations related to transport, costs, and risks.
- Security: Emphasis on the seller's obligations regarding security for the transport of goods.
Responsibilities Of Buyers And Sellers
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Sellers:
- Must deliver the goods per the agreed Incoterm.
- Assume costs and risks according to the chosen Incoterm until risk transfers to the buyer.
- Prepare necessary documentation (e.g., commercial invoice, transport document).
-
Buyers:
- Responsible for costs and risks once they assume responsibility per the Incoterm.
- Must clear goods for import and handle relevant duties and taxes (except in DDP).
- Ensure they are ready to receive the goods at the agreed location.
Application In International Trade
- Legal Framework: Incoterms provide a legal basis for resolving disputes related to delivery obligations and risks.
- Contract Negotiation: Choosing appropriate Incoterms is essential during negotiations to align responsibilities and expectations.
- Global Trade Standardization: Widely accepted and used globally, Incoterms serve as a common language in international contracts, promoting smoother transactions.
- Risk Management: Helps businesses assess and manage logistical and financial risks in cross-border transactions.
Incoterms Definition and Purpose
- Standardized terms used in international trade contracts
- Define responsibilities of buyers and sellers
- Clarify costs, risks, and responsibilities associated with transportation and delivery
- Facilitate international trade by providing common terminology
Types of Incoterms
-
Group E (Departure): Seller makes goods available; buyer bears all responsibilities
- EXW (Ex Works)
-
Group F (Main Carriage Unpaid): Seller delivers goods to a carrier; buyer assumes risks
- FCA (Free Carrier)
- FAS (Free Alongside Ship)
- FOB (Free On Board)
-
Group C (Main Carriage Paid): Seller pays for transport; risk transfers at loading/handover
- CFR (Cost and Freight)
- CIF (Cost, Insurance, and Freight)
- CPT (Carriage Paid To)
- CIP (Carriage and Insurance Paid To)
-
Group D (Arrival): Seller delivers goods to destination; assumes risks and costs until delivered
- DAP (Delivered At Place)
- DPU (Delivered At Place Unloaded)
- DDP (Delivered Duty Paid)
Incoterms 2020 Changes
- DPU (Delivered at Place Unloaded) introduced, replaces DAT (Delivered at Terminal)
- More detailed insurance requirements for CIP and CIF
- Recognition of electronic documents alongside traditional paper
- Improved definitions and obligations related to transport, costs, and risks
- Emphasis on seller's obligations regarding security for goods transport
Responsibilities of Buyers and Sellers
-
Seller responsibilities:
- Deliver goods as per agreed Incoterm
- Assume costs and risks according to chosen Incoterm until risk transfers
- Prepare necessary documentation (e.g., invoice, transport document)
-
Buyer responsibilities:
- Responsible for costs and risks once they assume responsibility
- Clear goods for import, handle duties & taxes (except in DDP)
- Ready to receive goods at agreed location
Application in International Trade
- Provides a legal basis for resolving delivery and risk disputes
- Essential for aligning responsibilities and expectations during contract negotiation
- Promotes smoother transactions by serving as a common language in contracts
- Helps businesses assess and manage logistical and financial risks in cross-border transactions
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Description
This quiz covers the definition, purpose, and various types of Incoterms used in international trade. It includes detailed explanations of the responsibilities of buyers and sellers based on standardized terms. Test your knowledge on these pivotal terms that facilitate global commerce.
