What are Incoterms and Why are they important?

Incoterms are international commercial terms which are used in the assignment of costs and responsibilities between buyers and sellers around the globe, which are very often mistaken and treated as shipping terms.

Incoterms were proposed by the International Chamber of Commerce to provide a framework when dealing with matters of sales contracts such as:

  • arranging and paying for transportation;
  • customs clearance;
  • duty and VAT payments;
  • arranging necessary documentation and
  • agreeing on the point where risk and insurance responsibility is passed over from the seller to the buyer.

Incoterms have been revised in ten year intervals to reflect international commercial practice. The last revision effected in INCOTERMS 2010 and we are expecting the next one to be available in 3 years’ time which will be known as INCOTERMS 2020.

 

Importance of Incoterms

Although there are 11 different incoterms, sellers and buyers regularly underestimate the importance of them and their impact on international trade. Many traders believe that the clear and plain language used in the contract will be enough to ensure that all parties keep their trading obligations. Traders very often cannot see that incoterms eliminate discrepancies in contract language by giving the same definition of specific trade agreement to all parties and reducing the risk of problems that may occur during the shipment.

Incoterms are only relevant for a sales contract, however the agreement between parties to use certain incoterms has also an effect on other contracts. For example a seller who has agreed on FOB incoterm, is bound to choose sea transportation as he has to present a bill of lading to the seller. Therefore other transportation methods are completely inadequate. Failure to understand the correct definition of each Incoterm used will lead to problems throughout the supply chain and may affect payment of goods, delivery schedules and even cause conflict between seller’s and buyer’s responsibilities, including who completes the customs declarations and makes duty payments.

The Incoterms rules have become an essential part of the daily language of trade and it is extremely important that the terms of sale are discussed upfront, which will help you to reduce the risk in a transaction. By specifying the seller’s and buyer’s obligations, there is no confusion with regards to rules of transportation from one country to the other. However, it is worth remembering that Incoterms do not cover ownership or title transfer of the goods. These terms have to be agreed upon separately between the two transacting parties.

 

Incoterms Categories

Incoterms are divided into 4 categories:

Category E – which is representing minimum obligation to the seller, who makes available goods at the premises in order for the buyer to collect.

  • EXW (Ex Works)

Category F –where the seller arrange, pay and deliver the goods to a carrier appointed by the buyer however the buyer pays for everything after that.

  • FCA (Free Carrier)
  • FAS (Free Alongside Shipping)
  • FOB (Free on Board)

Category C- where the seller has obligation to contract for carriage however the risk will pass to the buyer in the country of departure.

  • CPT (Carriage Paid To)
  • CIP (Carriage and Insurance Paid To)
  • CFR (Cost and Freight)
  • CIF ( Cost, Insurance and Freight)

Category D- where the seller bears all risk involved in bringing the goods to the agreed destination.

  • DAT (Delivery at terminal)
  • DAP (Delivery at place)
  • DDP (Delivery Duty Paid)

Also, incoterms are divided in relation to the form of transportation of goods where EXW, FCA, CPT, CIP, DAT, DAP and DDP are used for any mode or models of transport and where FAS, FOB, CFR and CIF are used for sea and inland waterway transport only.

 

It is worth remembering that regardless of the type of agreement concluded between the EU and UK after Brexit, a customs declaration will still be required on export from the UK and import into the UK. The correct incoterm is one of the requirements while lodging your customs declaration, and if traders wish to maintain compliant with laws in international trade they should become familiar with Incoterms 2010. We would encourage traders that as part of their Brexit preparation they look at incoterms agreed to ensure that they are not taking responsibility for customs duty, Vat or submitting the customs declarations in the country of destination.

For more information about our partnership with BDO Ireland click here.

Vicki Caplin | | 0 comments

Customs Duty and Import VAT Suspension Procedures

Depending on the type of goods, as discussed in our Classification article in Maycustoms duty is generally 0-17% (more for agricultural goods or foodstuff) and import VAT is levied at 23%. This could also be the case for goods brought into Ireland from the UK and Northern Ireland after Brexit.

Many forward thinking businesses have put in place procedures to suspend, reduce or eliminate this additional cost. By doing so they protect themselves from newly introduced customs duties, which could be the case with Brexit and allow themselves to shop around for the most competitively priced goods, without having to rely solely on EU producers in order to avoid paying customs duty.

Special procedures or Customs Procedures with Economic Impact (CPEI) as they were previously known, allow goods to be imported without payment of customs duty and in some cases import VAT.    The procedure or combination of procedures that applies, depends on the intended purpose of the goods post import. Activities that can avail of suspension range from; transporting goods across borders (think moving goods from mainland Europe across the UK to Ireland), to the storage and processing of goods.

In most cases prior authorisation from Revenue will be required to avail of Special Procedures but it can be possible to avail of duty suspension for “once off” or occasional imports. In all cases security will need to be provided by way of a bond, however this requirement can be waived if a business is AEO certified.  The process of obtaining an authorisation can take a number of months and can vary depending on a number of different elements such as number of locations involved, the goods and the effectiveness of the current customs operating procedures within the business.

Once authorised, the importer is able to import their goods without payment of duties, so the customs duty (and import VAT in some cases, for example Inward Processing or Customs Warehousing) is suspended, pending the use of the goods as set out in their authorisation. This can have the effect of either delaying, reducing or eliminating the payment of duty. How it will operate will very much depend on the type of operation and is best considered as part of an overall duty mitigation strategy.

Revenue are introducing an online facility to submit applications. This commences on 2nd October 2017 and is known as the Customs Decisions System (CDS). This is aimed at streamlining the process going forward and assisting the consultation process amongst other EU member states. Future customs procedures will be completed through ROS and will require businesses and their agents (if completing applications on their behalf) to have a valid ROS certificate.

We encourage businesses to review their supply chains to map out current and future duty points, the potential financial impact of customs and other duties and if required, explore different ways to mitigate their duty costs.

For more information about our partnership with BDO Ireland click here.

Vicki Caplin | | 0 comments

How should you prepare your business for Brexit by March 2019?

The question that we are often asked is “whether or not it is possible to do anything as we don’t know what the final agreement will look like?”

Unfortunately, this is untrue for the most part.

We do in fact know most of what will be required to trade, post-March 2019 and therefore the actions required between now and then.

  • We do know for instance that import and export declarations are inevitable, with the accompanying requirement to provide Customs with the necessary classification, origin and other trade information.
  • We do not know whether positive duty rates will apply, as we don’t know whether a new a Trade Agreement will be concluded. We do know however, that this is highly unlikely to be completed by March 2019.
  • Even with a Trade agreement, we do know that this will not benefit every company trading with the UK due to restrictions on country of origin and potential sectoral restrictions. In addition, a Trade Agreement in itself leads to additional customs authorisations and procedures that companies will need to put in place to avail of preferential rates.

Most companies with a Brexit plan have therefore already started work on preparing for the required new trading arrangements.

At this point a typical time frame would break down as follows:

As can be seen from the above timeline there is a significant amount of work that will be required.  The timetable does not allow for slippage, complications inevitably arising to cause delays, IT scheduling conflicts or other unforeseen issues.

Without a transition phase being agreed therefore, companies who have not started preparing could leave themselves at risk of incurring unnecessary costs and delays when trading with the UK.  As we hear Michel Barnier, EU's Chief Brexit negotiator,say on a regular basis, “the clock is ticking”.

* Trusted Trader Status is formally known as Authorised Economic Operator Status (AEO). This authorisation will be detailed in our next newsletter.

For more information about our partnership with BDO Ireland click here.

Vicki Caplin | | 0 comments

Deep Sea Freight Rates Continue to Ease

The extreme peak in export sea freight rates out of Europe to Asia experienced during the spring has eased back somewhat with Consultants, Drewry showing a rate for 40ft. container from Rotterdam to Shanghai at USD  1290. This is still double the rate of a year ago. The import rate, at USD 1751 has continued to fall and is now 8% more than the rate this time last year. However, actual rates are now likely to increase as traffic volumes heading towards the Christmas peak season. Rates for shipment of 40ft containers out of Rotterdam to New York remain soft, USD 1721 being a 5% drop on the rate a year ago. Import rates from New York remain very low with a figure of USD 527 for a 40ft container, a 15% increase on the rate a year ago.

Clodagh Sheridan | | 0 comments

Perennial Freight Opens Direct Trailer Service to Iberia

Wexford based IEA Member company Perennial Freight has opened the first weekly direct trailer service linking Ireland and Iberia. The trailers are shipped ex Rosslare on Saturday and are discharged at the Port of Santander on Monday morning. Cargo is delivered to main destinations including Barcelona and Madrid on Tuesday with that for further destinations including Valencia being delivered on the following day. The Perennial equipment fleet includes Curtainsiders, Euroliners, Flatbeds and Containers.

Contact at Perennial is: Christiane O’Connor, christiane@perennialfreight.com

Clodagh Sheridan | | 0 comments

Welsh Assembly Committee Report Highlights Port Competitiveness Issues in Brexit Situation.

The External Affairs Committee of the Welsh Assembly has completed and issued a significant report that has a focus on the implications for Welsh Ports and related land infrastructure of the potential diversion of traffic moving between Ireland and Britain as well as that traffic currently “landbridging” through Wales to and from continental Europe. The report reflects very much the views expressed to the Committee when they visited Dublin and met with IEA, the Irish Maritime Development Office (IMDO) and Departmental representatives.

Among the concerns voiced in the report was that; “a soft border between Northern Ireland and the Republic, and a hard-maritime border between Wales and the Republic of Ireland, could severely disadvantage Welsh ports and result in a loss of competitiveness leading to a displacement form Welsh Ports – principally Holyhead- to ports in England and Scotland, via Northern Ireland.”  This concern was greater than that about the possible outcomes of moves to develop further routes and frequencies running direct from Ireland to continental Europe.

Clodagh Sheridan | | 0 comments

Boom in European Rail Freight Leads to Congestion on the Tracks

While in spring 2017 exporters shipping product in containers to Deepsea markets experienced serious delays and cost escalations while the shipping lines and terminals sought to cope with handling significantly larger vessels and changes in schedule arising from the establishment of new vessel sharing alliances, the focus is now shifting to problems with freight by rail in Europe.

The continental rail system is being put under increasing pressure. Ports including Rotterdam and Antwerp are seeking to relieve congestion at the quayside by establishing inland terminals and shifting significant container volumes by rail to these, with the cargo going onward by rail to final destination. Road congestion and increasing pressure for shipment by low-carbon systems are also significant factors. The European Rail Freight Association (ERFA) has expressed concerns that rail freight terminal development designed to meet the increased traffic volumes is, in fact, adding to the congestion and is pushing freight traffic back onto the roads.

Over the last five years or so a number of Shippers and Forwarders involved in the movement of higher value goods between Asia and Europe have introduced rail freight services linking a number of Chinese locations with main centres in Europe, particularly, the port of Duisburg. At the end of May 2017, the Journal of Commerce calculated that there were 53 weekly trains into Europe and 23 headed back to Asia. Last year 40,000 containers moved by rail between Asia and Europe and DB Schenker estimates that this figure will grow to over 100,000 by 2020. Other sources put the 2020 figure at over half a million forty-foot boxes on the rails.

The major driver for the growth of this mode of container freight is the time/cost equation involved.  A 40ft container door to door cost from China to a European destination would cost in the order of USD 3,000 using ocean freight and the transit would take at least 33 days, the same shipment by rail would cost about USD 8,000 and would arrive in between 12 and 25 days. The same cargo movement by air would cost about USD 37,000 and would take about 7 days.

However, the congestion now occurring at European rail terminals as well as at some of the rail gauge interfaces further east, is worrying carriers as, already, these delays are accumulating to five to six days.

Clearly, it is impractical to operate rail freight trains linking China directly with Ireland but a number of operators are now using the system with Ireland bound containers being shipped through terminals such as Duisburg.

Clodagh Sheridan | | 0 comments

Dublin Port Reports Significant Trade Growth in First Half 2017

Speaking at the publication of the first half 2017 traffic throughput at Dublin Port the Port’s CEO Eamonn O’Reilly said; ““The phenomenal growth we have seen in recent years is continuing, with 2017 set to be the third successive record year for Dublin Port. The 2.9% increase in trade in the first half of 2017 brings our growth in just five years to 29%. At this rate, Dublin Port’s volumes would double in just 14 years.

“Work is well underway on Masterplan projects to provide capacity for future growth. These include the Alexandra Basin Redevelopment (ABR) Project and the development of Dublin Inland Port on a 44-hectare site situated 14 km from the Port.

“We are also starting preliminary work on Dublin Port’s second major Masterplan project, the MP2 Project, with a target of applying for planning permission in late 2018. Planning permission and other consents will take about two years, allowing construction to commence as we approach the end of works under the ABR Project. The MP2 Project will provide much needed additional capacity for Ro-Ro freight and container traffic to the UK and, increasingly, to Continental Europe.

“The major development projects in Dublin Port are being guided by Dublin Port’s Masterplan which we are currently reviewing. At this stage, the review is pointing towards a third and final major Masterplan Project (following on from the ABR Project and the MP2 Project) on the Poolbeg Peninsula. This will bring Dublin Port towards its ultimate capacity and able to accommodate projected future growth all the way to 2040.”

Dublin Port company is an active participant in the IEA Multimodal Freight Group.

Clodagh Sheridan | | 0 comments

Getting It Right With Exports – Business Achievers, powered by Ulster Bank

Clodagh Sheridan | | 0 comments

FAQ for 2017 Export Industry Awards – Applications

What are the Export Industry Awards?


The Irish Exporters Association’s Export Industry Awards in its 17th year is the premier event for recognising the achievements of Irish Exporters. It is important that we highlight the exporting companies who have excelled in their sector despite some difficult trading conditions and to highlight exporters who have been fundamental to Ireland’s success.

The 2017 event is supported by a number of corporate and industry sponsors: Bank of Ireland, Etihad Airways, KPMG and UCD Michael Smurfit Graduate Business School, Bord Bia, Enterprise Ireland, GS1 Ireland and the Irish Maritime Development Office along with our Media partner The Sunday Times, with more to be confirmed.

 

How and when can I apply for the Awards?

The closing date for applications is Thursday, 31st August 2017. There is no application fee, a straightforward application process and companies are welcome to enter more than one category with 11 categories covering the emerging exporters to established indigenous exporters of manufactured goods, services, software and onward to the multinational companies.

In 2017 we are introducing a user friendly online application system. Applicants can start, save, exit and return to edit and submit their online application forms. If you encounter any issues, please contact Jennifer Condon, Events Manager at jennifercondon@irishexporters.ie or 01 642 4178 for assist.

 

What are the benefits of entering the Awards and attending the Gala Dinner & Awards Ceremony?

Entry would provide your company with an opportunity to be recognised on both a regional as well as national level, provide positive PR and increase brand awareness leading to access to new customers. Attendance at the gala event would provide your company with plenty of opportunities to network with some of Ireland’s biggest and best companies and is also a great staff night out!

To learn more watch the video below:

Vicki Caplin | | 0 comments

TAGS

#customstips Access for Trade Additional Tariffs Agri-Food Industry Agricultural Levies Agricultural Products Air Freight Anti-Dumping Duty Article 50 Avionics Awards B2B BDO Ireland Binding Origin Information (BOI) Binding Tariff Information Border Controls on Trade Borders Borders Controls Brexit Brexit SME Scorecard BTI Applications Business Business Opportunities C79s Canada Canadian FTA Cash Flow Management CETA CETA Agreement Cheese Classification Code Combined Nomenclature Commodity Codes Common Law System Competitive Corporate Tax Regime Competitively Priced compliance Computers consular Consumer Goods Continental Europe Copyrights CROSS Currency Issues Customs Customs Authorities Customs Classification Customs Clearance Customs Controls Customs Declarations Customs Duties Customs Economic Procedures Customs Union Delivered At Terminal (DAT) Delivery Day Unpaid (DDU) Delivery Duty Paid (DDP) Development digital marketing Distance Sales Dual Use Regulation Dublin Port Duty-Free Duty Costs Duty Rates eBTI Database Economic Sanctions EC Sales Educated Workforce education Egypt Eighth VAT Directive Electronics Electronic VAT Refund (EVR) Emarkable Enterprise Ireland EU EU Legislation EU Member States EUR1 Movement Certificate EU Restrictive Measures European Commission European Council European Economic Area (EEA) European Free Trade Association (EFTA) European Parliament European Union EU Sanctions EU Standards EU Tariff Rates EU Trade Agreements Export Exporters Export markets export services Extra Customs Duty Fines Free Circulation Free Trade Agreement Free Trade Agreement Facilitation Free Trade Market Freight Fruit GDP Passport Goods Growth Harmonised System HS Code Harmonised Tariff Schedule HTS Code HS Codes HTS Codes Iceland IEA Survey Import Import/Export Import/Export Declarations Import/Export goods Import Duties Imported Goods Importer Responsability Importers Import Licenses Incoterms Information Security Intellectual Property Intermodal International International Trader Intrastat Investment Iran Ireland Irish Beef Irish Companies Irish Exporters Irish Exporters Association Irish Food and Drink Industry Irish Traders Israel JCPOA jobs Labour Mobility Legislation Licensing Obligations Lichtenstein Machinery Manufacturing Company Maritime Markets Materials Processing Medical Devices member development Membership service Mexico Middle East Most Favored Nation (MFN) movement of goods Multimodal NAFTA Navigation networking & connectivity New Markets Non-EU Country North-South Border Norway Norweigan Air Nothern Ireland Origin Requirements Origin Ruling Patent Laws Penalties Pharmaceuticals PM Ports Post-Clearance Audit Post-Entry Audit Issues Post Clearance Customs Audit Potential Markets Preferential Duty Rates Preferential Origin Preferential Origin Certificate Preferential Origin Status Preferential Trade Preferential Trade Agreements Proof of Origin Status Rail Freight Rates of Duty Recognition Registered System of Preference (GSP) Report representation Resources Revenue REX System Risk Risks of Brexit Russia Sea Freight Shipping Single Administration Documents (SAD) Single Administrative Document Single Market South Korea Spirits Sponsor Statistics Sufficiently Transformed Products Supplier Invoice Supply Chain Sweden Switzerland TARIC Tariff and Non-Tariff Barriers Tariff Classification Tariff Codes Tariff Free Trade Tariffs Tax Audit Tax Declaration Taxes Telecommunications Thirteenth VAT Directive Trade Trade Agreement Traders Trading Opportunities training Transport Turkey UK UK Government UK Market Ukraine UK VAT Rates Union Customs Code Union Customs Duty US VAT VAT Deferment Facility VAT Margin Schemes VAT on Importation VAT Registration Vegetables VIES Sales WCO Explanatory Notes Wholly Obtained Products Wine WTO WTO Bound Rates WTO Rates