U.S.

Customs Compliance Training:

Incoterms® 2010 Rules for

Honeywell US

Lynn Brumley
Honeywell ITC (Import Compliance)
 Incoterms® Rules Scenarios

• You are an import coordinator determining the

correct value to report to Customs.
- How do Incoterms impact the declared (dutiable) value?
- Which Incoterms minimize duty impact?
• You are an export coordinator determining whether
Honeywell is the US Principle Party in Interest
(USPPI).
- How do Incoterms impact Honeywell’s export
responsibilities?
- Can we be caught with unintended liability for exports?
• You are a commodity manager responsible for
procurement of raw material.
- Given globalization, is there an easy way to specify who will
be responsible for insurance, transportation, and
export/import clearance?

Incoterms.ppt- 2
Incoterms® 2010
 Incoterms® Rules Scenarios

• You are an contracts manager for Honeywell

customers:
- How can you tell which Incoterms rules are best for
Honeywell while still servicing the customer?
- What is Honeywell’s obligation for import/export clearance
and licensing?

Incoterms.ppt- 3
Incoterms® 2010
 Preferred Honeywell Incoterms® Rules

• “Modified” EXW/FCA
- Low negotiated freight rates
- Other Pro’s/Con’s listed later
• DDU/Other Prepaid Rules
- Used in certain sales scenarios (e.g. “drop ship”)
- WARNING: DDU eliminated in 2010 Incoterms Rules
(replaced with “DAP”)
• More information at:
http://inside.honeywell.com/law/hon-contracts/sales-
terms-and-conditions.html (U.C.C. Terms not
considered for international transactions)
• Other scenarios to be addressed with appropriate
SBG/SBU personnel

Incoterms.ppt- 4
Incoterms® 2010
 What has changed in Incoterms® 2010?

• Eliminates four Incoterms Rules:

- DAF, DES, DEQ, DDU
• Adds two Incoterms Rules:
- DAT, DAP
• Eliminates “ship’s rail” in vessel-specific Incoterms
Rules
• Covers “String Sales” (aka “High Seas” or “In
Transit” sales)
• Adds language for security requirements (shared
responsibility)
• Addresses carriage charges/fees up to point of
delivery
• Becomes more “domestic” friendly

Incoterms.ppt- 5
Incoterms® 2010
 What Incoterms® Rules Are

• Incoterms Rules 2010 are internationally recognized

standard definitions that describe some of the
responsibilities of a Buyer and Seller in an international
sales transaction.
• Incoterms Rules 2010 are 11 terms of shipment
developed by the International Chamber of Commerce.
• Each term must be followed by a geographic location
such as a city or airport (the more specific the better).
Example: “Ex works Redmond, Washington”; “DAP
15001 N.E. 36th Street, Redmond, WA, Building 3.”
• Full correct usage of Incoterms include version being
used: “DAP 15001 N.E. 36th Street, Redmond, WA,
Building 3 Incoterms 2010.”

Incoterms.ppt- 6
Incoterms® 2010
 Incoterms® Allow You to Answer:

• Who will pay for carriage?

• Who will pay for loading and unloading?
• Who is responsible for selecting the carrier?
• How will risk of loss or damage in transit be divided
between the parties?
• Who is responsible for clearing export and import?

Incoterms.ppt- 7
Incoterms® 2010
 What Incoterms® Rules Are Not

• Incoterms Rules do not address:

- Transfer of ownership and other property rights
(title transfer)
- Breaches of contract
- Insurance other than “I” Incoterms Rules
- Recognition of revenue
- Stowage of containers
- “Drop shipments” in one Incoterms Rule
- Recovery of transportation fees for seller if Incoterms Rule
Place of Delivery does not match carriage contract – make
sure they are consistent!

Incoterms.ppt- 8
Incoterms® 2010
 Benefits to Understanding Incoterms®

• Save money

• Gain convenience

• Avoid contract disputes

• Reduce compliance risk

Incoterms.ppt- 9
Incoterms® 2010
 Key Incoterms® Definitions

• Delivery – Where risk of damage or loss of goods

passes from seller to buyer; does not necessarily
equate to destination

• Carriage – Refers only to “main” carriage (“pre-”

and “on-” carriage covered elsewhere)

• Packaging – Refers to transportation and

contractual packaging, not to stowage of the actual
container/other means of transport

Incoterms.ppt- 10
Incoterms® 2010
 Incoterms® Rules Structure

Seller Description Buyer Description

A1 "General obligations of the seller" B1 "...of the buyer"

"Licenses, authorizations, security clearances and other

A2 formalities" B2 Same

A3 "Contracts of carriage and insurance" B3 Same

A4 "Delivery" B4 "Taking delivery"

A5 "Transfer of risks" B5 Same

A6 "Allocation of costs" B6 Same

A7 "Notices to the buyer" B7 "…to the seller"

A8 "Delivery document" B8 "Proof of delivery"

A9 "Checking-packaging-marking" B9 "Inspection of goods"

A10 "Assistance of information and related costs" B10 Same

Incoterms.ppt- 11
Incoterms® 2010
 Sample Incoterms® Diagram
Origin Destination

EXW FOB CIF DDP

Incoterms.ppt- 12
Incoterms® 2010
 Incoterms® Families by Risk Obligation

• E-terms
- Seller makes goods available at Seller’s own premises.
• F-terms
- Seller delivers goods to a carrier appointed by Buyer.
• C-terms
- Seller arranges and pays for main carriage. With all other
terms, risk and cost pass at the same point. With C-terms,
risk passes after export but Seller is responsible for cost of
main carriage and, with CIF and CIP, also for cost of
insurance.
• D-terms
- Seller bears all costs and risks to get goods to agreed
destination.

Incoterms.ppt- 13
Incoterms® 2010
 Incoterms® Families by Transportation Mode

• Mode Neutral:
- EXW
- FCA
- CPT
- CIP
- DAT
- DAP
- DDP
• Sea/Inland Waterway Use Only:
- FAS
- FOB
- CFR
- CIF

Incoterms.ppt- 14
Incoterms® 2010
 E-terms

EXW: Ex works
Seller must make the goods available at Seller’s
premises. Risk of loss transfers at Seller’s
premises.

Incoterms.ppt- 15
Incoterms® 2010
 EXW: Ex-Works

• Seller Pro’s:
- Only responsible to have goods packaged, ready for
transport at seller’s named facility;
- Not responsible for loading/pre-carriage/export clearance in
origin country;
- Can be used for small package international courier
shipments or domestic small package shipments.

Incoterms.ppt- 16
Incoterms® 2010
 EXW: Ex-Works

• Seller Con’s:
- For U.S. shippers, still has U.S. Principal Party in Interest
responsibilities but no control over goods’ destination
(goods could be even diverted to domestic markets!);
- Inability to retrieve key documentation for duty drawback
claims in origin country;
- Could be caught in risky “no-man’s land” – buyer in over his
head, asks for assistance in loading/pre-carriage/export
clearance despite Incoterms.

Incoterms.ppt- 17
Incoterms® 2010
 EXW: Ex-Works

• Buyer Pro’s:
- Complete visibility and control over shipment from outset to
make booking/loading changes as needed;
- U.S. importers: ability to receive necessary shipment pre-
alert information for ISF and customs clearance activity;
- Assurance that all links in supply chain are C-TPAT certified;
- Access to documentation needed for Drawback claim in
destination country;
- Mandates cooperation from Seller to ensure
documentary/customs compliance.

Incoterms.ppt- 18
Incoterms® 2010
 EXW: Ex-Works

• Buyer Con’s:
- Shipper not even responsible to load conveyance for
transport – could lead to messy claims issues;
- Buyer responsible for pre-carriage and export clearance in
unfamiliar country;
- VAT or other domestic tax exemption– importer has
shipment documentation but does not have representation
in origin country to provide proof of export to government
authorities.

• Bottom Line: EXW generally not recommended by

Incoterms Committee for international transactions!

Incoterms.ppt- 19
Incoterms® 2010
 F-terms

FCA: Free Carrier (…named place)

Seller must deliver goods to the carrier designated
by Buyer at a specified place. Seller arranges
export clearance. Risk of loss transfers upon
delivery at Seller’s premises or other place on
Seller’s side.

FAS: Free Along Ship (…named port of shipment)

Seller must deliver goods alongside the designated
ship. Seller arranges export clearance. Risk of loss
transfers upon delivery alongside ship on Seller’s
side.

Incoterms.ppt- 20
Incoterms® 2010
 F-terms (cont.)

• FOB: Free on Board (…named port of shipment)

- Seller must deliver goods on board the designated ship and
pay loading charges. Seller arranges export clearance;
- Note: “Ship’s rail” no longer used in Incoterms 2010;
- This term is only used for non-containerized ocean
shipments;
- Different from U.S. domestic use of “FOB” terms under the
U.C.C. structure (more later).
1 - -

Incoterms.ppt- 21
Incoterms® 2010
 F-terms (cont.)

• Seller Pro’s:
- Has control over export clearance;
- “FCA + Other Place of Delivery” allows for cargo to be
delivered to terminal gate, not on board vessel;
- Not responsible for pre-carriage in case of “FCA Seller’s
place”;
- Mandates cooperation from Buyer to ensure
documentary/customs compliance.

Incoterms.ppt- 22
Incoterms® 2010
 F-terms (cont.)

• Seller Con’s:
- For U.S. shippers, conflict in export responsibilities under
Incoterms/Foreign Trade Regulations (more later);
- No control over cargo routing/destination;
- May cause issues for Sellers inexperienced in export
requirements or if license is required;
- Lose “critical mass” for ideal freight contracts;
- FOB Incoterms Rule incongruent with containerized cargo;
- Responsible for pre-carriage under “FCA + Other Place of
Delivery”;
- No access to necessary shipment documentation for VAT
exemption or Duty Drawback claim at origin.

Incoterms.ppt- 23
Incoterms® 2010
 F-terms (cont.)

• Buyer Pro’s:
- “Preferred” Incoterms Rule for most Buyers;
- Complete visibility and control over shipment from either
shipper’s facility or origin terminal to make booking/loading
changes as needed;
- Creates freight “critical mass” for ideal carriage contracts;
- U.S. importers: ability to receive necessary shipment pre-
alert information for ISF and customs clearance activity;
- Shipper responsible for loading shipment and export
clearance;
- Access to documents for Duty Drawback claims in
destination country;
- Mandates cooperation from Seller to ensure
documentary/customs compliance.

Incoterms.ppt- 24
Incoterms® 2010
 F-terms (cont.)

• Buyer Con’s:
- If “FCA + other place of delivery,” could include domestic
freight markup;
- Lose pre-carriage visibility if other than seller’s premises;
- Responsible for pre-carriage if “FCA seller’s premises”;
- FOB Incoterms Rule incongruent with containerized cargo;
- May require faster payment to Seller if terms somehow tied
to Incoterms Rules.

• Bottom Line: F-terms ideal for Buyers, “proceed

with extreme caution” for Sellers

Incoterms.ppt- 25
Incoterms® 2010
 C-terms

CFR: Cost & Freight (…named port of destination)

Seller must contract & pay for main carriage to
destination port. Buyer arranges import clearance.
Risk of loss transfers as goods are delivered to first carrier.
Used only for containerized ocean cargo.

CIF: Cost, Insurance & Freight (…named port of destination)

Seller must contract & pay for main carriage; must
provide minimum insurance against loss or damage during
carriage. Buyer arranges import clearance. Risk of
loss transfers as goods are delivered to first carrier. Used
only for containerized ocean cargo.
Note: The fact that the seller purchases insurance on behalf
of the Buyer does not alter transfer of risk.

Incoterms.ppt- 26
Incoterms® 2010
 C-terms (cont.)

CPT: Carriage Paid To (…named place of destination)

Similar to CFR but mode-neutral. Risk of loss transfers upon
delivery to the first carrier; however, Seller chooses and pays
for the carrier.

CIP: Carriage and Insurance Paid To

(…named place of destination)
Similar to CIF but mode-neutral.

Incoterms.ppt- 27
Incoterms® 2010
 C-terms (cont.)

• Seller Pro’s:
- “Preferred” Incoterms Rule for most Sellers;
- Allows Seller to control freight yet limit risk to delivery at
first carrier;
- Creates freight “critical mass” for ideal carriage contracts;
- Controls destination of freight for export compliance;
- Maintains export documentation for Duty Drawback/VAT
exemption;
- Responsible for only minimum insurance coverage in
CIP/CIF;
- Mandates cooperation from Buyer to ensure
documentary/customs compliance.

Incoterms.ppt- 28
Incoterms® 2010
 C-terms (cont.)

• Seller Con’s:
- May require assisting Buyer if claim made on first carrier;
- May cause issues for Sellers inexperienced in export
requirements or if license is required;
- CFR/CIF incongruent with containerized cargo.

Incoterms.ppt- 29
Incoterms® 2010
 C-terms (cont.)

• Buyer Pro’s:
- Acceptable for small importers with no “critical mass”
freight contracts;
- Seller responsible for export clearance/license
requirements;
- Mandates cooperation from Seller to ensure
documentary/customs compliance.

Incoterms.ppt- 30
Incoterms® 2010
 C-terms (cont.)

• Buyer Con’s:
- No visibility to freight for ISF/import customs compliance
purposes;
- Lose “critical mass” for ideal freight contracts;
- May be required to make claim against unknown first carrier;
- May increase dutiable value for U.S. Customs purposes if
prepaid international freight/insurance cannot be
substantiated;
- Will need to obtain international freight/insurance costs for
countries with CIF-based declared value requirements;
- Unnecessary minimum insurance coverage provided by
Seller for CIP/CIF;
- No access to documentation for Duty Drawback claim in
destination country;
- CFR/CFR/CIF incongruent with containerized cargo.
• Bottom Line: C-terms ideal for Sellers, “proceed
with extreme caution” for Buyers
Incoterms.ppt- 31
Incoterms® 2010
 D-terms

DAT: Delivered at Terminal (…named terminal)

Seller must deliver goods, cleared for export and unloaded, at
named terminal on Buyer’s side. Buyer arranges import
clearance. Risk of loss transfers upon delivery to Buyer at
terminal. Mode-neutral.

DAP: Delivered at Place (…named specific place)

Seller must deliver goods to named place on Buyer’s side,
cleared for export. Buyer pays unloading costs and arranges
import clearance. Risk of loss transfers upon delivery to
Buyer at named place. Mode-neutral.

Incoterms.ppt- 32
Incoterms® 2010
 D-terms (cont.)

• Seller Pro’s:
- Creates freight “critical mass” for ideal carriage contracts
- Controls destination of freight for export compliance;
- Maintains export documentation for Duty Drawback/VAT
exemption;
- Creates “flexible” Incoterms Rule for international/domestic
use;
- Mandates cooperation from Buyer to ensure
documentary/customs compliance.

Incoterms.ppt- 33
Incoterms® 2010
 D-terms (cont.)

• Seller Con’s:
- Responsible for cargo and delivery in unfamiliar country;
- Responsible for unloading of cargo for DAT;
- May cause issues for Sellers inexperienced in export
requirements or if license is required;
- Requires sales contract terms to be very detailed in place of
delivery and for other responsibilities;
- May cause payment delays if terms are somehow tied to
Incoterms Rules.

Incoterms.ppt- 34
Incoterms® 2010
 D-terms (cont.)

• Buyer Pro’s:
- Acceptable for small importers with no “critical mass”
freight contracts;
- Seller responsible for export clearance/license
requirements;
- May delay payment to Seller if somehow tied to Incoterms;
- May be used in conjunction with “Vendor Managed
Inventory” projects to delay inventory liability for tax
purposes;
- Creates “flexible” Incoterms Rule for international/domestic
use;
- Mandates cooperation from Seller to ensure
documentary/customs compliance.

Incoterms.ppt- 35
Incoterms® 2010
 D-terms (cont.)

• Buyer Con’s:
- No visibility to freight for ISF/import customs compliance
purposes;
- Lose “critical mass” for ideal freight contracts;
- May increase dutiable value for U.S. Customs purposes if
prepaid international freight/insurance cannot be
substantiated;
- Will need to obtain international freight/insurance costs for
countries with CIF-based declared value requirements;
- No access to documentation for Duty Drawback claim in
destination country;
- Requires sales contract terms to be very detailed in place of
delivery and for other responsibilities.

• Bottom Line: DAT/DAP terms have plusses/minuses

for Sellers/Buyers, so use with great care.
Incoterms.ppt- 36
Incoterms® 2010
 DDP – Delivered Duty Paid

DDP: Delivered Duty Paid (…named place of destination)

Seller must deliver goods at named destination.
Seller arranges import clearance. Risk of loss
transfers at named point of destination.

Incoterms.ppt- 37
Incoterms® 2010
 DDP – Delivered Duty Paid (cont.)

• Seller Pro’s:
- Creates freight “critical mass” for ideal carriage contracts;
- Controls destination of freight for export compliance;
- Maintains export documentation for Duty Drawback/VAT
exemption;
- May be used in domestic trade and in cases where Seller
has strong, established presence in destination country;
- Mandates cooperation from Buyer to ensure
documentary/customs compliance.

Incoterms.ppt- 38
Incoterms® 2010
 DDP – Delivered Duty Paid (cont.)

• Seller Con’s:
- Responsible for cargo delivery and customs clearance in
unfamiliar country;
- Many countries do not allow non-resident to be Importer of
Record ;
- Responsible for ISF filing;
- Probability for confusion in responsibilities at destination is
extremely high;
- May cause payment delays if terms are somehow tied to
Incoterms Rules.

Incoterms.ppt- 39
Incoterms® 2010
 DDP – Delivered Duty Paid (cont.)

• Buyer Pro’s:
- Acceptable for small importers with no “critical mass”
freight contracts;
- Seller responsible for export clearance/license
requirements;
- May delay payment to Seller if somehow tied to Incoterms;
- May be used in conjunction with “Vendor Managed
Inventory” projects to delay inventory liability for tax
purposes;
- Mandates cooperation from Seller to ensure
documentary/customs compliance.

Incoterms.ppt- 40
Incoterms® 2010
 DDP – Delivered Duty Paid (cont.)

• Buyer Con’s:
- No visibility to freight for ISF/import customs compliance
purposes;
- Lose “critical mass” for ideal freight contracts;
- May increase dutiable value for U.S. Customs purposes if
prepaid international freight/insurance cannot be
substantiated;
- Will need to obtain international freight/insurance costs for
countries with CIF-based declared value requirements;
- No access to documentation for Duty Drawback claim in
destination country;
- Seller often in over his head in destination country, requiring
intervention by Buyer.

• Bottom Line: Similar to EXW, this INCOTERMS Rule

is not recommended for international transactions!
Incoterms.ppt- 41
Incoterms® 2010
 Responsibility Matrix
EXW FCA FAS FOB CFR CIF CPT CIP DAT DAP DDP
Ex-Works Free Carrier Free Free Onboard Cost of Goods Cost, Carriage Paid Carriage & Delivered At Delivered At Delivered
Alongside & Freight Insurance & To Insurance Terminal Place Duty Paid
Service Ship Freight Paid to

Transportation Mode All All Ship Ship Ship Ship All All All All All

Packaging & packing Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Loading at point of origin Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Inland freight from origin to

Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
air/seaport

Receiving charges at origin

Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
port

Export clearance & duties Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Freight forwarder fees Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Ocean/air freight Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller

Cargo insurance Buyer Buyer Buyer Buyer Buyer Seller Buyer Seller Seller Seller Seller

Charges at arrival port Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Seller

Unloading at destination Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Buyer Buyer

Customs duties & clearance Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller

Inland delivery from arrival

Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller
port to final destination

Incoterms.ppt- 42
Incoterms® 2010
 General Suggestions/Warnings

• Incoterms Rules 2000 can still be used if both

parties agree, but Incoterms version used should
be clearly spelled out in agreement (e.g., FCA
Heathrow (Incoterms 2000).
• Do not use any term that allows the other company
to buy insurance (Honeywell has insurance).
• Additions to standard terms may be used (e.g.,
“EXW loaded”), but it is important to spell out the
precise meaning of the variation within the
contract.

Incoterms.ppt- 43
Incoterms® 2010
 Export Compliance: Routed Transactions

• Liability concerns related to U.S. Principal Party in Interest

(USPPI) versus Foreign Principal Party in Interest in Interest
(FPPI) – 2000 Regulatory change provides more protection to
the exporter (USPPI); further protection granted in updates to
the U.S. Census Bureau’s Federal Trade Regulations (FTR) in
2008. Updated regulations can be found in 15 CFR Part 30.

• In Routed Export Transactions, the exporter (USPPI) is only

responsible for providing basic commodity information and
EIN to the Buyer’s forwarding agent who files the Electronic
Export Information (EEI) (15 CFR 30.3(e)); however, for
Incoterms Rules FCA, FAS and FOB, Seller is responsible for
export clearance, creating a conflict.

• Suggested solution: USPPI obtains POA or written

authorization from FPPI, prepares and files the EEI through
AES based on the information obtained from the FPPI and
other parties to the transaction.
Incoterms.ppt- 44
Incoterms® 2010
 Export Compliance: Routed Transactions (cont.)

• EEI (Electronic Export Information) record must be prepared

and filed through AES by a principal party interest or by as
authorized forwarding or other agent.

• In a routed transaction the forwarding or other agent can be

the exporter for export control purposes under the EAR.

• The USPPI of the duly authorized U.S. agent for the FPPI may
apply for a license to export items from the United States.

• Routed Shipments should be avoided for all ITAR shipments

– Honeywell export licenses should be provided to freight
forwarders only when Honeywell controls freight routing and
destination.

Incoterms.ppt- 45
Incoterms® 2010
 U.S. Domestic Transactions
• Until 2004, Uniform Commercial Code (U.C.C.)
shipment/delivery terms were used for domestic U.S.
transactions.

• Terms for shipment/delivery purposes were officially deleted

from U.C.C. in 2004; however, many state laws governing
sales contracts were not revised accordingly.

• “F.O.B.” U.C.C. term, applied to many different domestic

transaction scenarios, still appear in state law, court cases
and domestic contracts.

• Incoterms committee now recognizes its Rules for domestic

transactions.

• U.C.C. = Incoterms “conversion” can be found in “Incoterms

for Americans®” (2010 version), Frank Reynolds author.

Incoterms.ppt- 46
Incoterms® 2010
 Incoterms Scenarios Revisited

• Import Coordinator
- How do Incoterms impact the declared (dutiable) value?
- Which Incoterms minimize duty impact?
• Export Coodinator
- How do Incoterms impact Honeywell’s export
responsibilities?
- Can we be caught with unintended liability for exports?
• Commodity/Sales Contract Manager
- Given globalization, is there an easy way to specify who will
be responsible for insurance, transportation, and
export/import clearance?

Incoterms.ppt- 47
Incoterms® 2010
 Additional Resources

• Official Incoterms 2010 Rules/Wall Chart:

http://www.iccwbo.org/products-and-services/trade-
facilitation/incoterms-2010/
• Incoterms for Americans® 2010:
http://www.incoterms-4-americans.com/
• ICC Incoterms Training Events:
http://www.iccwbo.org/training-and-events/all-
events/

Incoterms.ppt- 48
Incoterms® 2010
 Contacts

Export: Dale Rill

(202) 662-2641
dale.rill@honeywell.com

Customs: Joe Murray

480-592-2521
joseph.murray@honeywell.com

Logistics: Carl Minnis

973 455-3424
carl.minnis@honeywell.com

Incoterms.ppt- 49
Incoterms® 2010