International trade terms (INCOTERMS) in sea transportation of goods -Rights and liabilities for parties involved

International trade terms (INCOTERMS) in sea transportation of goods -Rights and liabilities for parties involved

Forming links in the transport chain

It is important for the seller and buyer of goods, as well as their bankers, cargo insurers and the various carriers who may be involved in the total journey to know precisely when the right to ownership and risk of loss or damage passes from seller to buyer, so that the respective obligations, rights and liabilities of each party can be determined and disputes avoided. The obligations of the seller and buyer with respect to delivery of the goods and the division of functions, costs and risks related to the delivery should be contained in trade terms incorporated in the contract of sale.

Misinterpretation of trade terms and uncertainties may result where there are different trading practices in the respective countries of the buyer and seller which are not known to each other. The trade term “FOB”, for example, has a different meaning to a merchant in the USA than to a UK merchant. Language differences between buyer and seller, or lack of a common language, may also cause misinterpretation of contract terms.

What are International trade terms (INCOTERMS)

* INCOTERMS is a set of rules, published by the International Chamber of Commerce, for the uniform interpretation of the most commonly used trade terms used in international trade contracts. The main purpose of INCOTERMS is to clearly set out the obligations of the seller and buyer with respect to the delivery of the goods and the division of functions, costs and risks associated with delivery. By the use of INCOTERMS misinterpretations or uncertainties described above may be avoided or reduced.

* INCOTERMS are published in various languages used by the chief trading nations. The latest edition is INCOTERMS 2000. A sales contract should contain an express reference to the edition used.

* Thirteen INCOTERMS are defined, which can be arranged in four groups: E, F, C and D according to the seller’s basic obligations, as follows:

• Group E – where the goods are to be made available to the buyer at the seller’s premises;
• Group F – where the seller and buyer must deliver the goods to a carrier appointed by the buyer;
• Group C – where the seller must contract for the carriage of the goods without bearing the risk of loss of or damage to the goods or additional costs following shipment; and
• Group D – where the seller has to bear all costs and risks required to bring the goods to their destination.

* INCOTERMS can be further grouped into two basic categories: terms suitable for use in contracts involving water transport, and terms suitable for all transport modes.

An outline meaning of commonly used INCOTERMs are shown in the following paragraphs:

EXW [Ex Works (named place) ] :Seller to place goods at disposal of buyer at seller’s premises or another named place, not cleared for export and not loaded onto any collecting vehicle. Title and risk pass to buyer at seller’s door.

FCA [Free Carrier (named place) ]:Seller to deliver goods, cleared for export, to carrier nominated by buyer at named place. Title and risk pass to buyer on delivery to carrier.

FAS [Free Alongside Ship (named port of shipment)] : Seller to place goods, cleared for export, alongside vessel at named port of shipment. Title and risk pass to buyer alongside ship.

FOB [Free On Board (named port of shipment) ] : Seller delivers goods, cleared for export, when they pass ship’s rail at named loading port. Title and risk pass to buyer as goods pass ship’s rail.

CFR [Cost and Freight (named port of destination)] : Seller delivers goods when they pass ship’s rail at named loading port and must pay costs and freight necessary to bring goods to named port of destination. Buyer bears all additional costs and risks after goods have been delivered over ship’s rail at loading port. Title and risk pass to buyer when goods delivered on board ship.

CIF [Cost, Insurance and Freight (named port of destination)] : Seller’s obligations same as under CFR with addition that seller must obtain insurance against buyer’s risk of loss/damage during sea carriage. Title and risk pass to buyer when goods delivered on board ship.

CPT [Carriage Paid To (named place of destination)] : Seller delivers goods to nominated carrier and pays cost of carriage to named destination. Buyer bears all additional costs and risks after goods delivered to carrier. Title, risk and insurance cost pass to buyer when goods delivered to carrier.

CIP [Carriage and Insurance Paid To (named place of destination)] : Obligations same as under CPT with addition that seller procures insurance against buyer’s risk of loss/damage to goods during carriage. Title and risk pass to buyer when goods delivered to carrier.

DAF [Delivered at Frontier (named place)] : Seller to place goods at disposal of buyer on arriving means of transport, not unloaded, cleared for export but uncleared for import, at named border point. Title, risk and responsibility for import clearance pass to buyer when delivered to named border point by seller.

DES [Delivered Ex Ship (named of destination)] : Seller delivers when goods are placed at buyer’s disposal on board ship, not cleared for import, at named port of destination. Title, risk and responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods on ship at destination port.

DEQ [Delivered Ex Quay (named port of destination)] : Seller delivers when goods are placed at disposal of buyer, not cleared for import, on quay at named port of destination. Title and risk pass to buyer when delivered on board ship at destination point by seller who delivers goods on dock at destination point cleared for import.

DDU [Delivered Duty Unpaid (named place of destination)] : Seller must deliver the goods to the buyer, not cleared for import, and not unloaded, at the named place of destination. Title, risk and responsibility of import clearance pass to buyer when seller delivers goods to named destination point. Buyer is obligated for import clearance.

DDP [Delivered Duty Paid (named place of destination)] : Seller must deliver goods to buyer, cleared for import, and not unloaded, at named place of destination. Title and risk pass to buyer when seller delivers goods to named destination point cleared for import.

Summarized below seagoing cargo ship various employment guide:

Charty party forms

International trade terms (INCOTERMS) in sea transportation of goods -Rights and liabilities for parties involved

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