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Chapter3

Chapter3. Trade Terms. The Definition of Trade Terms:

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Chapter3

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  1. Chapter3 Trade Terms

  2. The Definition of Trade Terms: • The trade terms refer to using a brief English concept or abbreviation to indicate the formation of the unit price and determine the responsibilities, expenses and risks borne by two parties as well as the time of the passing of the property in the goods. e.g. FOB London, CIF San Francisco CFR Tokyo, EXW Nanjing DDQ Hanburg

  3. Incoterms≠ laws It is nothing if not agreed to use by two parties in the contract. In case of a dispute, courts or arbitrators will look at • Contract • Goods possession • What payment has been made

  4. 1. International Convention of Trade Terms • Three Main International Customary Practices: ① Warsaw -- Oxford Rules 1932 ② Revised American Foreign Trade Definitions ③ International Rules For the Interpretation of Trade Terms • Full name:International Commercial terms • 6 editions:1936, 1953,1967,1976, 1980, 1990, 2000

  5. Mode of Transport Consideration( INCOTERNS 2000 )

  6. 2. Trade Terms frequently used • FOB (Free on Board,…named port of shipment) • CFR (Cost and Freight,…named port of destination) • CIF (Cost, Insurance and Freight，…named port of destination)

  7. FCA : Free Carrier (…named place) • CPT : Carriage Paid To (…named place of destination) • CIP : Carriage, Insurance Paid to (…named place of destination)

  8. We will explain them from the • Definitions & Examples • Mode of transportation • The formation of the unit price • The place of delivery/risk transfer • Responsibilities, expenses and risks borne by each parties

  9. 1)FOB • Definition • FOB: Free On Board (…Named port of Shipment) It means that the seller fulfills his obligation to deliver the goods when they have passed over the ship’s rail at the named port of shipment. This means that the buyer has to bear all expenses and risks of loss of or damage to the goods from that point.

  10. Examples • “FOB Vessel ABC Buenos Aires Argentina” • “Free On Board Gdansk Poland” • The mode of transportation • Suitable for sea or inland waterway transport

  11. The formation of the unit price: Only:COST • The place of delivery /risk transfer: “On the ship’s rail at the named port of shipment !”

  12. The expenses and responsibilities borne by two partiesThe seller The buyer Contract for the carriage of the goods Deliver the goods on board the vessel Obtain import license Obtain export license Cover cargo insurance Provide documents for the buyer and ask for payment Pay the price and take delivery of the goods

  13. Variants of trade terms: FOB liner terms Buyer bears the charge of shipment FOB under tackle Buyer takes the charge from tackling FOBS, FOB stowed Seller not only puts the cargo into the cabin but also takes the charge of stowing FOBT, FOB trimmed Seller not only puts the cargo into the cabin but also takes the charge of trimming

  14. ATTENTION: FOB in Revised American Foreign Trade Definitions1941 • FOB Vessel term: Seller has no responsibility to get the exporting license and bear any exporting charges, unless buyer has promised to pay for the charges and asked seller do so. • So, Vessel should be attached after FOB and stated clear seller should get the exporting license and pay for the relevant charges when you import from USA or other American countries.

  15. You should add the following statement in the contract if your client is an American: “Seller should be responsible for export license and all the payments including the duty and the relative charges should be born by seller. ”

  16. 2) CIF • Definition • CIF: Cost, Insurance and Freight(named port of destination) • Seller undertakes the cost and freight necessary to carry the goods to the named port of destination and has the obligation to procure marine insurance against the risks of, losses of, or damage to the goods during the carriage. But the risks keep unchanged the same as CFR.

  17. Examples • “CIF Hong Kong” • “Cost, Insurance and Freight Port of New York” • The mode of transportation • Suitable for sea or inland waterway transport

  18. The formation of the unit price COST+ Insurance + Freight • The place of delivery /risk transfer: • “On the ship’s rail at the named port of shipment!”

  19. The expenses and responsibilities borne by two partiesThe seller the buyer CIF Contract for the carriage of the goods at seller’s own expenses Cover cargo insurance on behalf of the buyer On usual term By the usual route In the proper vessel Pay additional insurance premium Additional Freight Minimum insurance (F.P.A)Usual freight

  20. Variants of trade terms: CIF liner terms Seller bears the charges of loading & unloading CIF ex ship’s hold Buyer bears the unloading from bottom of ship CIF ex tackle Seller bear the unloading of tackling CIF landed Seller bear the unloading to the quay including lighterage and wharfage charge.

  21. 3) CFR • Definition • CFR: Cost and Freight(named port of destination) Seller undertakes the cost and freight necessary to carry the goods to the named port of destination, but the risks of, losses of, or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board, are transferred from the seller to the buyer when the goods pass the ship’s rail at the port of shipment．

  22. Examples • “CFR Hamburg” • “Cost and Freight Port of NY” • The mode of transportation • Suitable for sea or • inland waterway transport

  23. The formation of the unit price COST+ Freight • The place of delivery / risk transfer: “On the ship’s rail at the named port of shipment !”

  24. The expenses and responsibilities borne by two parties The seller the buyer CFR Contract for the carriage of the goods at his own expenses Cover insurance when get seller’s notice On usual term By the usual route In the proper vessel Additional Freight Usual freight

  25. Variants of trade terms: CFR liner terms Seller bears the charges of loading & unloading CFR ex ship’s hold Buyer bears the unloading from bottom of ship CFR ex tackle Seller bear the unloading of tackling CFR landed Seller bear the unloading to the quay including lighterage and wharfage charge.

  26. Summary:FOB, CFR, CIF All contracts with FOB, CFR, CIF term are belong to shipment contracts Group C & Group F: points of delivery and risk transfer keep same. Seller fulfills delivery at port of shipment. 2.FOB, CFR, CIF terms are document transaction (Symbolic delivery): The buyer should pay the price against the documents The seller fulfills his duty of delivering goods against the documents

  27. Case: CFR • A French company imported a batch of wheat on CFR basis. The contract provided that the landing quality of the goods should be taken as final. However, when the goods arrived at the destination, the import quarantine bureau detained the goods as they found that the goods contained a great deal of bacteria forbidden to enter the country. Unfortunately, the goods were consumed by a fire while detainment. A dispute broke out between the buyer and the seller.

  28. Case CIF • In 2002, a Chinese exporter exported 500M/T walnut to a Canadian importer on the basis of US$4,800 per M/T CIF Quebec. As it was a seasonal commodity, the importer required and both parties agreed to stipulate the following in the contract: • L/C Issuing date: to be issued by the end of September • Shipment: Not later than Oct.31, partial shipment and transshipment prohibited. • Arrived Date: Not later than Nov. 30. Otherwise, the buyer is entitled to refuse the goods.

  29. Terms of Payment: Draft at 90T/D under L/C. • Due to the weather, the liner arrived at Quebec on Dec.5. Consequently, the importer refused to take the delivery of the cargo unless 20% discount of the total value of the goods was made for the loss incurred to the importer. After painful negotiations, the transaction came to an end with the exporter’s loss of US$360,000 by the discount of 15% of the total value of goods. • Then, what is the crux of this case?

  30. 4) FCA • Definition FCA: Free Carrier (…Named place) • The seller fulfills his obligation to deliver the export duty cleared goods to the named place. • Seller may load the goods if at home but be unnecessary to unload the goods if to deliver the goods in other places. • Carrier can be any actual carrier, contracting carrier such as freight forwarder.

  31. Examples • “ FCA Beijing China ” • “ Free Carrier Berne Switzerland” • “ FCA Ankala Turkey ” • The mode of transportation • Suitable for All modes of transport includingcontainer transport and multi-modal transport

  32. The formation of the unit price: Only:COST likeFOB • The place of delivery /risk transfer: depend on different ways and placesat the named place. e.g. on truck at seller’s works, at airport, at CY, at terminal controlled by carrier.

  33. The expenses and responsibilities borne by two partiesThe seller The buyer • Deliver the cleared goods on buyer’s truck or to the place named by buyer unloaded • Contract for the carriage of the goods • Obtain import license • Charge the cargo unitization (e.g. into container or on pallets) • Cover cargo insurance • Provide documents for the buyer and ask for payment • Pay the price and take delivery of the goods

  34. 5) CPT • Definition • CPT: Carriage Paid to (…Named place of destination) • The seller fulfills his obligation to deliver the export duty cleared goods to the carrier. • Seller should pay for transport to the named destination. • Carrier can be any actual carrier, contracting carrier such as freight forwarder.

  35. Examples “ CPT Dublin Ireland ” “ Carriage Paid To Tirana Albania” “ CPT Kabul Afghanistan ” • The mode of transportation Suitable for All modes of transport includingcontainer transport and multi-modal transport

  36. The formation of the unit price: COST & CARRIAGE likeCFR • The place of delivery / risk transfer: where deliver the goods to the carrier on truck. e.g. on truck at seller’s works, airport, CY, terminal and make the cargo controlled by the carrier.

  37. The expenses and responsibilities borne by two partiesThe seller The buyer • Deliver the goods to the carrier • Obtain import license • Cover cargo insurance • Obtain export license • Pay the price and take delivery of the goods • Set a contract with carrier and pay for the transport to destination • Provide documents for the buyer and ask for payment

  38. 6) CIP • Definition CIP: Carriage & Insurance Paid to (Named place of destination) • The seller fulfills his obligation to deliver the export duty cleared goods to the first carrier. • Seller should pay for transport and insurance to the named destination. • Carrier can be any actual carrier, contracting carrier such as freight forwarder.

  39. Examples “ CIP Cairo ” “ Carriage And Insurance Paid To Rome” “ CIP Addis Ababa Ethiopia ” • The mode of transportation Suitable for All modes of transport includingcontainer transport and multi-modal transport

  40. The formation of the unit price: COST, INSURANCE & CARRIAGE likeCIF • The place of delivery / risk transfer: where deliver the goods to the first carrier on truck or at CY. e.g. on truck at seller’s works, or to the place as airport, CY, terminal to make the goods controlled by carrier.

  41. The expenses and responsibilities borne by two partiesThe seller The buyer • Deliver the goods to the carrier • Obtain import license • Obtain export license • Pay the price and take delivery of the goods • Cover cargo insurance • Set a contract with carrier and pay for the transport to destination • Provide documents for the buyer and ask for payment

  42. Summary:FCA, CPT, CIP Ways of transport:FOB, CFR, CIF are used only for transport in the sea or in inland water way, but FCA, CPT, CIP may used for all kinds of transport; risk transfer:FOB,CFR,CIF are on the ship’s rail, but FCA, CPT,CIP are depend on places; 3.Different documents: FOB, CFR, CIF ask seller to offer cleaned B/L, but FCA, CPT, CIP need different bill of shipment; 4. Different charges: FOB,CFR,CIF ask seller to take the charge until goods over the rail, for FCA,CPT,CIP carriage includes load charge(FCA),or unload charge(CPT,CIP).

  43. Rest of 7 other incoterms EXW EX Works (…named place) • Seller fulfills his delivery only by taking the goods to the place where buyer could control (no loading); • Seller is not responsible for export duty clearance; • Buyer obligates export & import duty clearance. • It is minimum obligation term for seller.

  44. FAS Free Along Ship(…named port of shipment) • Seller fulfills his delivery only by taking the goods at the quay along ship; • Seller is responsible for export duty clearance; • Buyer obligates import duty clearance; • Buyer takes the charge of transport and insurance. • It is a term for sea and inland water transport.

  45. DAS Delivered AT Frontier(…named place) • Seller fulfills his delivery by taking the cleared goods under controlled by the buyer at any side of frontier; • Seller is responsible for the charge of transport and insurance; • Buyer obligates import duty clearance; • Mainly used in railway transport and highway transport. Seller may get full bill and arrange insurance if it is railway transport. Charge of insurance depends.

  46. DES Delivered Ex Ship(…named port of destination) • Seller fulfills his delivery by taking the uncleared goods at the port of destination; • Seller is responsible for the charge of transport and insurance; • Buyer obligates import duty clearance; • It is a term for sea and inland water transport.

  47. DEQ Delivered Ex Quay(…named port of destination) • Seller fulfills his delivery by taking the uncleared goods at the quay in port of destination; • Seller is responsible for the charge of transport and insurance; • Buyer obligates import duty clearance; • It is a term for sea and inland water transport.

  48. DDU Delivered Duty Unpaid(named place of destination) • Seller fulfills his delivery by taking the uncleared goods at the named place of destination; • Seller is responsible for the charge of transport and insurance as far as destination; • Buyer obligates import duty clearance; • It is a term usually used for the trade in EU.

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