FREE REVISION NOTES ON INCOTERMS 2020 PART -2 | BANK FINANCIAL MANAGEMENT
In this post, we will further read about the Incoterms 2020 part 2 from the CAIIB 2023 Syllabus & to crack the CAIIB 2023 BFM Exam.
This is the second instalment of BFM 2023 notes on the topic of Incoterms 2020 from the Module A of BFM i.e. International Banking. In our first part of BFM notes, we covered the first 5 categories of the 7 Incoterms 2020 rules for any mode of transport.
So, if you have not read part-1, then you must go through the Incoterms 2020 part – 1 to get a better understanding of the meaning of Incoterms & its categories.
INCOTERMS 2020 PART 2 | INTERNATIONAL BANKING 2023
We understood from our previous notes that the International Chamber of Commerce (ICC) established a set of pre-defined commercial terminology known as the Incoterms (International Commercial Terms) in relation to international commercial law which prescribed the responsibility of exporters & importers in the planning of shipments and the transfer of liabilities involved at different stages of the transaction.
And these Incoterms 2020 part 2 rules for any mode(s) of transport can be categorized:
- EXW i.e. Ex Works (place of delivery)
- FCA i.e. Free Carrier (place of delivery)
- CPT i.e. Carriage Paid to (place of destination)
- CIP i.e. Paid For Transport and Insurance (place of destination)
- DPU i.e. Unloaded at the Place of Delivery (place of destination)
Now, we will cover the next set of rules of Incoterms:
- DAP i.e. Delivered at Place (place of destination)
- DDP i.e. Delivered Duty Paid (place of destination).
- DAP – Delivered at Place
- DAP denotes that the buyer is in charge of paying all fees, duties, and taxes related to unloading the goods.
- Although the products are delivered to the specified location, unloading is not the seller’s responsibility.
- Seller is only accountable for packing, export clearance, transportation charges, and any terminal fees up to the agreed-upon destination port.
- The seller is also in charge of importing the goods into the designated destination country and passing customs.
- At the final specified place of destination, the risk is finally shifted over to the purchaser.
DDP – Delivered Duty Paid
- DDP denotes that the seller is responsible for all risks and expenses related to clearing and delivering the goods to the specified location.
- The buyer’s country’s customs clearance is also the seller’s responsibility which also entails paying taxes and charges.
- Additionally, the seller must request the required registrations and authorizations from the customs.
- Unloading, however, is not the seller’s responsibility.
- Maximum responsibilities are placed on the seller while minimum obligations are placed on the buyer under this clause.
- Until the products arrive at the final agreed location, the buyer is at no risk or liability.
- DDP conditions carry a significant risk in terms of delays and unanticipated additional expenses unless the seller has a thorough awareness of the laws and regulations of the buyer’s country. DDP should, thus, be used with care.
The Incoterms 2020 rules for sea and inland waterway transport:
For the transportation of products solely by sea or inland canal, the following 4 rules of international trade apply:
Typically, when the products are on board, the risk & obligation are passed (apart from FAS). These conditions are only appropriate for non-containerised products, such as commodities because they have to be verified at the point of transfer.
Note: In the earlier editions of the Incoterms, the risk moved between the seller & the buyer when the items crossed the ship’s rail.
FAS – Free Alongside Ship
- At the designated port of shipping, the seller ships the goods next to the purchaser’s vessel.
- From that point forward, the buyer is responsible for all expenses and risks of loss or damage.
- According to the FAS term, the seller must export-clear the goods.
FOB – Free On Board
- Prior to the items being put onto the specified vessel, the seller is responsible for all expenses and risks under FOB conditions.
- The seller is in charge of coordinating export clearance.
- The cost of maritime freight, bill of lading fees, and insurance are all paid at the same time by the customer.
- The expenditures of local transportation from the port of arrival to the destination are likewise his responsibility.
- The customer is liable for any damage that occurs to the goods while they are on board the vessel.
- FOB should only be used for non-containerized maritime freight and inland waterway transit since Incoterm FCA was established in 1980.
- However, the most frequently used and incorrect term for all forms of transportation is still FOB.
CFR – Cost & Freight
- For the seller who pays for the transportation of the goods up to the designated port of destination, CFR entails a greater risk & level of obligation.
- In the exporting nation, the buyer assumes the risk. precisely after the cargo has been put into the ship.
- Both freight charges and export clearance are covered by the shipper.
- Additionally, until the port of ultimate destination, the vendor is liable for any damage to the cargo on board the ship.
- The buyer is responsible for acquiring insurance & paying for local delivery from the port to the final location.
- The parties shall instead take into account the Incoterm CIF if the buyer demands that the seller get insurance.
CIF – Cost, Insurance & Freight
- When the products are loaded onto a ship at the port of shipping, the seller delivers them after getting them cleared for export.
- The cost of shipping and insurance to the specified port of destination is covered by the seller.
- The seller is also accountable for any harm to the ship’s cargo.
- In accordance with Clause C of the Institute Cargo Clauses, the Seller shall obtain the Minimum Level of Insurance.
- The seller is required to deliver the bill of lading, the insurance policy, and the invoice at the port of arrival.
- These documents serve as proof of the CIF’s price, insurance, and freight.
INCOTERM 2022 DOES NOT COVER:
Incoterms are typically incorporated into the contract of sale, but they do not:
- identify the goods being sold or list the contract price;
- address all the terms of a sale;
- specify when the title, or ownership of the goods, passes from the seller to the buyer;
- refer to the method or timing of payment negotiated between the seller and buyer; or
- specify which documents the seller must provide to the buyer to facilitate the customs clearance process.
So, this was all about the INCOTERM 2022 that falls into the BFM Syllabus 2023 in Module A i.e. International Banking.
Best & Latest BFM Videos That Will Make Cracking June CAIIB Exams 2023 Very Easy!
Like I previously said, if you found these notes easy & cool to remember for the 2023 Exams of Certified Associate of the Indian Institute of Bankers, then you surely will love the Video lectures prepared by the Learning Sessions faculty!
Learning Sessions faculty makes the scheduling in the way that the candidates have to follow through the routine studies that make the concept retention an easy job. Under the sword of negative marking, candidates will make it through the 2023 Exams with exemptions!
You can be the one to crack June 2023 CAIIB too!
Join us to power up your CAIIB studies.