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Import Export Contract Terms on

Sales Contract/Purchase Contract


Import Export Contract Terms on
Sales Contract/Purchase Contract

A contract is an agreement that creates an obligation that is a binding, legally enforceable agreement
between two or more competent parties.

A contract can be worked out either by the seller or the buyer, and it is called a sales contract or a
purchase contract respectively. The formal contract consists of the following main terms:

• the name of commodity


• the quality of commodity
• the quantity of commodity
• the packing of commodity
• the price of commodity
• payment
• insurance
• inspection
• cargo claims
• force majesties

Import Export Contract Terms on


Price Methods

• FOB - Free on Board

Free on Board means that the seller fulfills his obligation to deliver when the goods have
passed over the ship's rail at the named port of shipment. The buyer has to bear all costs and
risks of loss of or damage to the goods from that point. FOB terms require the seller to clear
the goods for export. This term can only be used for sea or inland waterway transport.

• CFR or C&F - Cost and Freight

Cost and Freight means that the seller must pay the cost and freight necessary to bring the
goods to the named port of destination but the risk of loss 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 the vessel, is transferred from the seller to the buyer when the goods pass the ship's rail
in the port of shipment. The CFR term requires the seller to clear the goods for export.

• CIF - Cost, Insurance, and Freight

CIF means that the seller has the same obligations as under CFR but with the addition that he
has to procure marine insurance against the buyer's risk of loss of or damage to the goods
during the carriage. The seller contracts for insurance and pays the insurance premium.

• DAF - Delivered at Frontier (...named place)

DAF means that the seller fulfills his obligation to deliver when the goods have been made
available, cleared for export, at the named point and place at the frontier, but before the customs
border of the adjoining country. The term is primarily intended to be used when goods are to be
carried by rail or road, but it may be used for any other mode of transport.
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Import Export Contract Terms on
Payment Methods

• Irrevocable L/C(Letter of Credit)

Irrevocable L/C is the one that can not be withdrawn or amended by the opening bank
without the agreement of the beneficiary. This kind of L/C is more secure and hence is most
often used. It claims our attention that, according to Uniform Customs and Practice of
Commercial Documentary Credits 500, if a L/C is not marked as being irrevocable or not, it
should be taken as irrevocable.

• Remittance - Import Export Contract Terms


Remittance is of three types: Mail Transfer (M/T), Telegraphic Transfer (T/T), and
Demand Draft (D/D).
• By Mail Transfer, the buyer will hand over the payment of the goods to the remitting
bank that will authorize its branch bank or correspondent bank in the country of the
beneficiary by mail to make the payment to him.

By

• Telegraphic Transfer, the buyer will hand over the payment of the goods to the
remitting bank which will authorize its branch bank or correspondent bank in the
country of the beneficiary by telegraphic means to make the payment to him. Mail
transfer is less expensive, but it costs more time, while telegraphic transfer is more
expensive but it is much sooner.
• By Demand Draft, the buyer will come to the local bank to buy a banker's bill and
then deliver it to the seller or beneficiary by mail. When the seller or beneficiary has
received it, he will come to the bank designated by the banker's bill for cash. Apart
from banker's bill, promissory notes or checks can also be used in this way.

• Documentary Collection - Import Export Contract Terms


• D/P at sight

Under D/P at sight, the seller might either draw or not draw a draft on the buyer. He
hand over the shipping documents together with (or without) the draft, and the
shipping documents and the draft (or without draft) will be transferred to the
collecting bank which will present them to the buyer and ask him to make the
payment at sight. The buyer, upon sight, should then make the payment and get the
shipping documents. When the collecting has thus finished the collection, it should
immediately notify the remitting bank which will then make the payment to the seller.

• D/P at _ days after sight (date)

The buyer shall duly accept the documentary draft drawn by the seller at _ day’s sight
upon first presentation and make payment on its maturity. The shipping documents
are to be delivered against payment only.

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• Documents Against Acceptance (D/A)

Under D/A, the buyer can get the shipping documents from the collecting bank after he has
duly accepted the draft. This is only applicable to time draft. These will greatly convenience
the buyer, but it means much more risk for the seller, for once he has delivered the shipping
documents, he will have lost his title over the goods.

• D/A means more risks for the seller, for the buyer might refuse to pay after he has accepted
the draft and taken the delivery of the goods. Certainly the seller might sue him, but as is
often the case, the buyer claims bankruptcy and then the seller can do nothing to remedy the
situation.

Import Export Contract Terms on Documentation

There are roughly five kinds of commonly used international trade documents are list here. They are
categorized according to the document source.

• Government Control Documents


• Commercial (invoice) Documents
• Banking Documents
• Shipping Documents
• Insurance Documents

Export Documents Used For Government Control


Export Documents - Government Control Documents

International trade involves complex flows of goods and services between many countries.
Therefore, a set of documents are used by countries to monitor and control these flows. These
usually include:

Import License and Foreign Exchange Authorization

Many countries use import license and foreign exchange authorization system to restrict
imports. Importers have to present pro-forma invoices to their licensing authorities or to their
central banks, or sometimes to both to apply for the license. If the planned importation is legal
and meets current requirements, the license will be issued. Therefore, exporters should not ship
to importers who need licenses until the licenses are actually in hand.

Export License - Export Documents

At the present time, usually there are very few obstacles placed in the exporter's path by his
own government. On the contrary, many governments are assisting and encouraging the export
of goods and extension of overseas market. Nevertheless, there are some occasions when a
particular restriction might be encountered due to the nature of the product, the market to
which the goods are being exported or some other reasons.

Certificate of Origin - Export Document

A document that stating the country of origin of the goods being made. It is usually required by
countries who do not use Customs Invoice or Consular Invoice to set the appropriate duties for
the importers. It contains the nature,quantity,value of goods shipped and the place of
manufacture. It enables the buyer not only to process the importation of the goods, but also
permits preferential import duties where appropriate.

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Inspection Certificate - Export Document

Inspection Certificate are used by some countries to implement a control system imposed by
government regulation. Its prime function is to ensure that goods are shipped in a quality
condition and in accordance with the terms of the sales contract. It may be issued by
government authorized parties or professional inspection companies. In China, this document is
issued by the Import and Export Commodity Inspection Bureau.

Consular Invoice

Certain countries require a Consular Invoice to control and identify goods. The invoice must be
purchased from the consulate of the country to which the goods are being shipped and usually
is prepared in the language of that country.

Customs Invoice

Customs Invoice is required by the importing country in order to clear the customs, to verify
country of origin for import duty and tax purpose, to compare export price and domestic price,
and to fix anti-dumping duty,etc. Usually, this invoice is required in exporting to US, Canada,
New Zealand, Australia and some African countries.

Commercial Invoice in Import Export Contract


Commercial Invoice is generally issued by the importer,exporter or some relevant non-
governmental business organizations. A Commercial Invoice is a bill for the goods from the
seller to the buyer. It is one of the most important documents used in international trade. Even
if the importer may have opened a Letter of Credit, the exporter will usually not be paid until he
presents a Commercial Invoice along with other documents to the bank. The invoice serves as a
record of the essential details of a transaction.

An invoice must show the following basic information about the transaction:

• Buyer's order number


• Invoice number and date
• Shipment terms
• Names and addresses of the seller and buyer
• Country from which the shipment is made
• Description of the goods
• Quantity, weight or measurement of the goods
• Unit price
• Total amount payable, including price of goods, freight, insurance and so on
• Rebate or similar incentives
• Signature of the exporter

Shipping Documents You Need for the Settlement of


Payment
Shipping Documents, issued by the carrier, verify that the goods have been shipped for the
transportation and delivery. Under symbolic delivery, shipping documents are necessary for the
settlement of payment.

Generally, different modes of transportation have different shipping documents. Railway bill and
railway cargo receipt are issued under railway transportation. Airway bill are issued under air
transportation. Even in post, parcel receipt is issued by post office. Here we focus on some
commonly used shipping documents in import export transportation.

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Bill of Lading (B/L)

It is a formal contract of carriage between the consignor and carrier. The key elements
contained in a B/L should include:

• Name of the shipper


• Name of the carrying vessel
• Full description of the cargo including any shipping marks, individual package numbers in
the consignment, contents, cubic measurement, gross weight, etc.
• Port of loading and port of discharge
• Full details of freight, including when and where it is to be paid - whether freight prepaid
or collect at destination.
• Name of shipper
• Name of carrying vessel
• Terms of the contract of carriage
• The date the goods were received for shipment and/or loaded on the vessel
• The name and address of the notified party (the person to be notified on arrival of the
shipment, usually the buyer).
• Number of Bills of Lading signed on behalf of the master or his agent, acknowledging
receipt of the goods
• Signature of the carrier or his agent and the date

Shipping Note

A Shipping Note gives information about a particular export consignment when offered for
shipment. It serves the shipping company as a delivery or receipt note for particular
consignment. Some people also call it Mate's Receipt. Its role in various ports and trades may
differ worldwide. However, the cargo description in a Shipping Note should conform to that
found on the commercial invoice.

Packing List

A Packing List provides a list of the contents of a consignment. It is completed by the shipper.
Its prime purpose is to give an inventory of the shipped goods. A Packing List is especially
useful for the consignments which are composite. It is usually required by the Customs for
clearance purposes.

Airway Bill

An Airway Bill should basically have the following key elements:

• The place and date of its execution.


• Name of the departure and destination airports
• The name and address of the consignor, consignees and the carrier
• A description of the goods including method of packing, marks, weights, quantity and
dimensions etc.
• The total freight amount prepaid and/or collects at destination.
• The declared value for customs purposes, likewise for carriage, and the currency.
• Date of the flight.
• Details of any special route to be taken
• The signature of the shipper or his agent.
• Details of the booked flight and the actual flights incorporating the first, second and the
third carrier if there are several carriers involved.

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Insurance Documents
To Protect The Interests of Importers and Exporters
Insurance Documents are ones, issued by the issuer, certifying that the insurer and the insured
have signed an insurance contract covering the goods to be transported. If the goods under the
contract do incur damages or even losses in transit, the insured can lodge a claim against the
insurance documents.

Since insurance documents are the evidence of insurance contract between the insurer and the
insured, they are mainly classified as the following four types:

Insurance Policy

This is a written legal contract between the insurer and the insured containing all terms and
conditions of the agreement. It shows full details of the risks covered, and is also called fomal
insurance documents.

Key elements of insurance policy are illustrated as follows:

• Name of the insurer with a signature identified as that of insurance company, or


underwriter, or insurance agent.
• Name of the insured, both the seller and the buyer might be the insured if they have
insured interest and with good faith.
• The insured goods which include description of subject matter.
• Type of risks covered which should be one of the three basic risks, i.e. F.P.A., W.P.A. and
All Risks.
• Insurance provisions
• Amount and currency insured.
• Place of claim payable.
• Transport model and vessel's name.
• Port of shipment and port of destination. If transshipment is required, the goods should
cover transshipment risks such as warehouse to warehouse clause including
transshipment risks.
• Time and place of insurance.

Insurance Certificate

An insurance certificate is a document issued to the insured certifying that the insurance has
bee effected. It contains the same details as an insurance policy except that version of
provisions is abbreviated. If a documentary credit requires an insurance policy, issuing bank will
refuse an insurance certificate for payment.

Combined Certificate

Combined Certificate is further simplified. The insurer here lists the risks to be covered, the
insured amount and the policy number on the invoice provided by the insured, and the other
clauses are to be seen on the invoice.

Open Policy or Open Cover

This is a pre-contract concluded between the insurer and the insured by which the insurer offers
insurance to the insured for the consignments he dispatches within a certain period of time.

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Open Policy is only applicable to the imported goods from foreign countries to China. As soon as
the carriage for the consignment under the Open Policy is made, it is under the insurance cover
of the Open Policy in accordance with the terms listed on the Open Policy.

More About These


Import Export Contract Terms

Import Export Contract Terms - Commodity


Import Export Contract Terms - Quality
Import Export Contract Terms - Quantity
Import Export Contract Terms - Payment
Import Export Contract Terms - Packing
Import Export Contract Terms - Insurance
Import Export Contract Terms - Inspection
Import Export Contract Terms - Claims
Import Export Contract Terms - Force Majeure
Import Export Contract Terms - Export Documents
Import Export Contract Terms - Insurance Documents
Import Export Contract Terms - Shipping Documents
Import Export Contract Terms - Commercial Invoice

Define Commodity The Name of Commodity

Define Commodity

This clause is relatively simple. Usually, the parties to the contract just specify the name of the
product under the subject "Name of Commodity". This clause is a main component of the
Description of Goods.

To avoid possible conflicts, every effort should be made to describe the goods in the sales
contract or import export contract exactly as the buyer and the seller intend them to be.

As the basis of a transaction, it concerns the rights and obligations of the buyer and the seller.
If the commodities delivered by the seller are not in accordance with the agreed name of
commodity, the buyer reserves the right to lodge a claim, reject the goods or even cancel the
contract.

Therefore, as a main condition of sale, the name of commodity should be clearly stipulated.
When giving the name, try to be specific and adopt the widely accepted name agreed by both
parties - seller and buyer, or importer and exporter.

Example on Name of Commodity

• Bronze plated Iron Square Hinges with screws


• Mild Steel Flat Bars
• Sewing Machines, Model JBI-1
• Bath Towels of Art.No.28934
• Bed Sheets,106cm,Blue
• Ching Kiang Brand Vacuum Flask

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Define Quality The Quality of Commodity

Define Quality

In Japan, quality means that "the product is so good that the customers wouldn't think of
buying from anyone else."

Japanese approach to quality is Total Quality Management (TQM).TQM is the process that a
company follows in order to achieve quality.

Competitive strategies are based on four priorities: Efficiency/Cost, Dependability, Quality and
Flexibility.

Methods Expressing the Quality of Commodity

In international trade, the exporters and importers are usually far apart in different countries.
Importers are usually unable to see the goods until they reach the port of destination. Then how
could importers get to know the quality of the goods? The following methods have been
developed for such a purpose.

• Define Quality - Sales by Inspection

is concluded with the spot inspection by the buyers or their agents and the quality is
determined thereof. This method is of special necessity for particular goods such as ornaments,
jewels, paintings, artworks,etc.

In many cases, the buyer may be advised to arrange for inspection of the goods before or at
the time they are handed over by the seller for carriage. Unless the contract stipulates
otherwise, the buyer would himself have to pay the cost for such inspection that is arranged in
his own interest.

• Sales by Sample

A sample is a product, often taken out from a whole lot of consignment or specially designed
and processed. It is given for prospective customers to see and buy the product or set aside as
the quality standard of the whole consignment. Garments, light industry products, and
agricultural native products are generally sold by samples.

• Define Quality - Sales by Specifications,Grade,and Standard

If a trade is made this way, the goods delivered should be of the same specifications, grade, or
standard as stipulated in the contract. Should there be any discrepancy, the buyer is in a
position to make claims for compensation or refuse to accept the goods.

Specifications are detailed descriptions of the goods to be sold. They include the composition,
content, purity, strength, size,etc of the goods.

• Sales by Brand or Trade Mark

Brand is the name, term, symbol, or design or a combination of these to identify a product. It
has a narrower meaning in which an enterprise means to distinguish its products from the
products of other enterprises.

Trade Mark is a legal term. It includes all those words, symbols, or marks that are legally
registered for use by a single company. It is a symbol or ornamental printed on a commodity or
its packing.The word Buick can be used to explain these differences. The Buick car is branded

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under the brand name "Buick". When "Buick" is printed in a certain kind of script, however, it
becomes a trademark.

• Define Quality - Sales by Place of Origin

Some products are well-known by brands or trade marks,while some others, especially native
products, are often well known by the place of origin, they would be more welcomed whenever
their places of origin are mentioned. Thus, the place of origin may signify the quality of a
product. In concluding a sales contract, traders like to mention the places of origin of these
products to indicate their qualities.

Define Quantity The Quantity of Commodity

Define Quantity - The Quantity of Commodity

• Quantity clause is one of the necessary conditions for the conclusion of an import/export
contract. United Nations Convention on Contracts for International Sale of Goods
requires that the quantity of goods delivered should be identical to that called for in the
contract,otherwise the buyer is entitled to reject that portion of goods excessive in
quantity, and to claim against the seller if the quantity is found to be less than that
called for in contract.

• Units of calculation include weight, number, length, area, volume and capacity. The
quantities of many commodities are calculated by weight. Gross Weight, Net Weight,
Conditional Weight, Theoretical Weight, etc.

• Since quantity terms may be ambiguous, careful definition in the sales contract is very
important. The Metric System, British System, U.S. System and the International System
of Units are generally used in international trade nowadays. The implementation and
popularization of the International System of Units symbolizes the increasing
internationalization and standardization of measurement system. But, confusion and
misunderstanding on quantity measures is still not uncommon. An American Pound, for
instance, is different from a European Pound; similarly, a ton has a different real weight
depending on whether it is a short ton, a metric ton, or a long ton.

Define Quantity - Units of Measures and Weights

• Weight
Metric System: 1 metric ton=1,000 kilograms=1,000,000 grams
British System: 1 long ton=2,240 pounds=2,240x16=35,840 ounces
American System: 1 short ton=2,000 pounds=2,000x16=32,000 ounces

Conversion:
1 metric ton=0.9842 long ton=1.1023 short ton
1 long=1.0161 metric ton=1.12 short ton
1 short ton=0.9072 metric ton=0.8929 long ton
1 pound=0.4536 kilogram

• Length
For length,China use kilometer,meter,centimeter,etc.in metric system,while in British
and American system,mile,yard,foot,and inch are used.

1 mile=1,760 yards=1,760x3=5,280 feet


1 meter=1.0936 yards=3.2808 feet=39.3696 inches

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• Area
Area units are used in the calculation of plank, board, or leather,etc.

1 square meter=1.1956 square yards=10.7639 square feet

• Volume
The units of volume are most often applied in the trade of wood, and the like.

1 cubic meter=1.308 cubic yards=35.315 cubic feet

• Capacity
Units of capacity are usually used in the trade of liquid goods and agricultural products.

1 liter=0.22 British gallon=0.264 American gallon


1 British gallon=4.546 liters=1.201 American gallons
1 American gallon=3.785 liters=0.833 British gallon
1 American barrel=31.5 American gallons=31.5x3.785=99.03 liters
1 British barrel=36 gallons=36x4.546=163.656 liters
1 hogshead=63 American gallons=52.5 British gallons
1 bushel=36 liters

Define Quantity - Quantity Clause in Contract

The contractors are usually required to state clearly the quantity of the deal in a contract,
expressions like "about","approximately" should not be allowed. However, in practice, there is
often a More or Less clause in the contract. This is used because quite often the shipment is
over-delivered or under-delivered,esp. for the trading of bulk goods. The following example of
More or Less Clause can be used in contract.

• The seller has the option of shipping 4% more or less on contracted quantity.

• Goods are packed in new gunny bags containing 100 kgs and each bag shall weight 1.15
kgs with allowance of 0.1 kg more or less.

• 1,000 metric tons, 5% more or less at seller's option.

• The seller is allowed to delivery 5% more or less, the price will be calculated as per the
unit price stipulated in the sales contract.

From the above-mentioned examples, the buyer and seller should clearly state the quantity
delivered in the sales contract. Otherwise,some unexpected disputes may arise from the
performance of contract.

Payment Term
Examples of Payment Clauses in Export Contract
Payment Term in Export Contract

The following example of payment terms were adopted from Practical International Trade
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Written by Liyu Zhang. These payment terms are still being used in most Chinese foreign trade
companies today

15 Common Used Payment Terms In China Export Contract

1. Payment shall be made by net cash against sight draft with bill of lading attached showing
the shipment of the goods. Such payment shall be made through Bank of China. The bill of
lading shall not be delivered to the Buyer until such draft is paid.

2. Within 15 days from the date of this Agreement, the Buyer shall establish an irrevocable L/C
with a first-class bank in compliance with the terms and conditions set forth in this contract.

3. Payment for the goods specified herein shall not mean an acceptance thereof by the Buyer
with regard to its quality. All goods shall be accepted only after the Buyer's inspection.

4. All the payments shall be made in the US currency by the Buyer to the Seller by M/T to the
Seller's designated accounts with the bank in United States.

5. Payment shall be made by net cash against sight draft with bill of lading attached showing
the shipment of the goods.

6. The Buyer, on receipt from the Seller's shipping advice, shall open an irrevocable Letter of
Credit with the Bank of China, in favor of the Seller for the total value of shipment 25-30 days
prior to the date of delivery. The L/C shall be available against the Seller's draft at sight on the
issuing bank for 100% invoice value accompanied by the shipping documents specified in
payment clause mentioned in sales contract. Payment shall be effected by the issuing bank by
T/T against presentation of the aforesaid draft and documents. The L/C shall be valid until the
20th day after the shipment is effected.

7. The Seller may present the sight draft together with the shipping documents through the
Seller's Bank to the Buyer for collection after shipment. Since D/P (documents against payment)
is agreed on, the collecting bank will deliver the documents against receipt of payment.

8. Payment shall be effected by the Buyer, by M/T(Mail Transfer), within 7 days after receipt
from the Seller of the shipping documents.

9. The Buyer shall open a 100% confirmed, irrevocable, divisible and negotiable letter of credit
in favor of the Seller within 5 calendar days from date of the agreement through the issuing
bank. The letter of credit shall be drawn against draft at sight upon presentation of the following
documents:

• Full set of the Seller's commercial invoice.


• Full set of clean, blank, endorsed bill of lading.
• Inspection certificate of quality and quantity.

10. The Buyer shall send a confirmed, irrevocable, and transferable letter of credit to be drawn
by sight draft to the Seller before Nov 20th, 2005. The letter of credit remains valid until 15
days after the above mentioned delivery and will expire on Dec 30th, 2005. Meanwhile, a

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deposit of 10% of the total price should be paid by the Buyer immediately after signing the
contract.

11. Payment is effected by confirmed, irrevocable, transferable, and bank's acceptance L/C at
sight with partial shipment, remaining valid for negotiation in China until 15th day after the date
of delivery. In the meantime, the L/C should be opened in favor of the Seller within 15 days
after the signing of the contract.

12. The Buyer shall open an irrevocable sight L/C through a bank acceptable to the Seller. The
L/C must reach to Seller 45 days before the date of delivery, valid for negotiation in China until
the 15th day after the latest shipment date.

13. The payment is effected by irrevocable L/C available by Seller's documentary draft at sight
to be valid for negotiation in China until 21 days after date of shipment. The L/C must reach the
Seller 30 days before the date of shipment.

14. The payment is made by D/P after 60 days sight. The Buyer shall duly accept the
documentary draft drawn by the Seller at 60 days sight upon first presentation and make
payment on its maturity. The shipping documents are to be delivered against payment only.

15. The Buyer shall pay 100% of the sales proceeds in advance by M/T(Mail Transfer) to reach
the Seller not later than July 15,2005.

Pack Definition Packing of Commodity,One of The Key


Terms in Contract
Pack Definition - Overview

• Packing is one of the important ways to realize the value of commodities. It protect
prettified commodities and form an important process in the storage,transportation, and
sales of commodities.

• In international trade, packing is still an important component of the Description of


Goods, and a main condition of the sales contract. In most cases,the parties to a
contract should know beforehand what packing is needed.

• When drafting the stipulation of packing,the specifications should be clear. Phrases as


"Sea-Worthy Packing" or "Customary Packing" should not be used because their
meanings are ambiguous. Sometimes, the party who is to bear the packing charges
should be specified. The quantity or weight for each package is also stipulated, for
example,"carton, 24 tins per carton".

Pack Definition - Packing Variety:

• Box/Cases: wooden in structure and of various sizes, and some are airtight,providing
strong protection for cargoes like equipment and car accessories;

Glass container: used for dangerous liquid cargoes such as acids.

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• Barrel/Drum: made of wood,plastic or metal used for liquid or greasy cargoes;

• Bags: made of cotton,plastic,paper or jute,ideal for cement,fertilizer,flour,chemicals,etc.;

• Crates/Skeleton case:wooden structure between a bale and a case used for light weight
goods of large cubic capacity like machinery.

• Can/Tin: It is a small metal container in which small quantities of paint,oil or certain


foodstuffs are packed.

• Container: It is a very large container facilitate loading and unloading by mechanical


handling.

• Bale: a heap of material pressed together and tied with rope or metal wire,suitable for
paper,wool,cotton,and carpets;

Pack Definition - Function of Packing

• Protecting the goods and keeping them as good and intact as they are delivered in the
transportation.

• Packing makes it convenient for storing,taking care of,transporting,loading,unloading


and distributing the commodities.

• Strong packing can protect the commodities from being stolen and damaged during
transportation.

• Reasonable and suitable packing can reduce shipping space and save freight paid.

Insurance Cargo
International Cargo Transportation Insurance
Insurance Cargo Overview

• In international trade,during cargo transportation from the port of shipment to port of


destination, there are a lot of risks,which,if they occur,will involve traders in financial
losses. Although these risks can not be avoided, they can be transferred to insurance
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company by covering the goods for various basic risks or insurance clause with the
insurer.

• In Insurance Cargo Term, the party who insures others against possible loss or damage
and undertakes to make payment in case of loss is called insurer; the party who is
insured against possible loss and to whom payment covering the loss will be made is
called the insured.

• The contract made between the insurer and the insured is the insurance policy. The
amount of money the insurer agrees to cover by insurance against the subject matter is
the insured amount(which is usually the amount of CIF value of the consignment plus
10% representing an anticipated profit for the buyer). The sum of money the insured
agrees to pay the insurer for an insurance policy is called premium.

Insurance Cargo Clause in the Sales Contract

The following examples were adopted from Ocean Marine Cargo Clause of the People's
Insurance Company of China.

• Insurance to be effected by the seller for 110% of CIF invoice value against Free
Particular Average as per Ocean Marine Cargo Clause of the People's Insurance Company
of China.

• The insurance should be affected by the buyer if the contract is concluded on FOB or CFR
basis. However, the seller should, immediately after the goods are completely loaded at
port of shipment, notifying the buyer of the consignee of the contract number, name of
the commodity, quantity, gross weight, measurement, invoice value and number of B/L,
name of the vessel, the date of shipment,etc. In case the goods are not insured in time,
owing to the seller's failure to give shipping advice timely, any and all consequent losses
should be borne by the seller.

• Insurance shall be effected for the amount of seller's CIF invoice value plus 10% against
W.P.A. Any additional insurance required by the buyer shall be at his own expense. The
seller may insure against War Risk at the buyer's request and at his expense. In case the
rate of relevant insurable premium shall be raised between the time of concluding
contract and that of shipment, this excess premium shall be on the buyer's account.

Commodity InspectionInspection Clause in Sales


Contract
Commodity Inspection Overview

Commodity Inspection is usually conducted by special department or agent. Right now, in


China, the China Import and Export Commodity Inspection and Quarantine Bureau performs the
duties of inspection as per the "Commodity Inspection Law" of China.

In international trade, when concluding the sales contract, the buyer and the seller should
mutually agree with the time and place of inspection, the types of inspection certificate and the
inspection institution.

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For export contract in China, it is required that the certificate of quality and weight issued by
the China Import and Export Commodity Inspection and Quarantine Bureau at the port/place of
shipment should be part of the documents to be presented for negotiation under the relevant
documentary credits.However, the buyer shall have the right to reinspect the quality and weight
of the goods.

Commodity Inspection Clause in Sales Contract

It is mutually agreed that the certificate of quality and quantity of weight issued by the xxx
(manufacturer) shall be part of the documents for payment under the relevant L/C. However,
the inspection of quality and quantity or weight shall be made in accordance with the following:

In case the quality,quantity or weight of the goods are found not in conformity with those
stipulated in sales contract after re inspection by the China Import and Export Commodity
Inspection and Quarantine Bureau within xxx days after arrival of the goods at the port of
destination, the buyer shall return the goods to or lodge claims against the seller for the
compensation of losses upon the strength of Inspection Certificate issued by the said Bureau,
with the exception of this claim for which the insurer or the insured is liable. All expenses should
be borne by the seller. In such case, the buyer may, if no requested, send a sample of the
goods in question to the seller, provided that the sampling is feasible.

It is necessary that the buyer and the seller clearly stipulate the time and place of Commodity
Inspection and relevant details of inspection clause in sales contract.

Cargo Claim What Do You Know If Shipment Losses


or Damaged
Cargo Claim Overview

Cargo Claim refers to that in international trade, one party breaks the contract and causes
losses or damages to the other part directly or indirectly, the injured party may ask for
compensation for the losses or damages.

It is necessary to include a discrepancy and claim clause in a contract. In case the goods
delivered are inconsistent with the contract stipulations, the buyer should make a claim against
the seller within the time limit of reinspection under the support of an inspection certificate or
survey report issued by a nominated surveyor.

On the Basis of Terms and Conditions of the Contract

• There are two types of undertakings entered into in every sales contract.
• The more important one of the two types is called a condition which is a clause
associated with the essence of the contract. This clause actually goes to the root of the
contract. If one party breaks a condition, he will break the foundation of the contract and
leads to an action for fundamental breach of the contract.

• The less important types of undertaking is called a warranty. Since a warranty does not
go to the root of the contract, the injured party can not cancel the contract, but he is
entitled to be compensated for breach of warranty.

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On the Basis of Consequence of Breach of Contract

• If one party breaks the contract and makes the other party unable to obtain the main
profit, then this is called "material breach". In this case, the injured party has the right
to cancel the contract. Meanwhile, he may also ask for compensatin for losses.

• If one party breaks the contract, but the case is not so serious and the other party will
not lose any main profit, this is called "minor breach". In this case, the injured party can
not cancel the contract. However, he may ask for compensation for losses.

• In "United Nations Convention on Contracts for the International Sales of Goods", these
two undertakes are termd fundamental breach and non-fundamental breach.

Claim Clause in the Contract

• Clause in respect of claim in an import and export contract can be fixed as follows:

Force Majeure Events Enable a seller to Avoid his


Contractual Obligations without Paying a
Compensation or Penalty
Force Majeure Overview

• Force Majeure is an event that can be neither anticipated nor reduced to control,e.g., an
industrial strike that leads to loss of profits.
• Force majeure events enable a seller to avoid his contractual obligations without paying
a compensation or penalty.
• Force majeure events include certain natural disasters such as fire, flood, storm, heavy
show, earthquake, and social disturbances like war, strike, sanctions,etc.

Force Majeure Clause In Contract

• In case of delayed shipment or non-delivery due to a generally recognized force


majeure, the seller must advise the buyer immediately, and within 15 days thereafter
the seller must airmail to the buyer a certificate of the incident issued by the competent
government authorities or Chamber of Commerce at the place where the incident
occurred. The seller shall not be absolved from his responsibility unless such an incident
is acknowledged by the buyer.

• In case conditions of force majeure continue to lase over and above 30 days, the buyer
shall have the right to cancel the contract. The seller's failure to obtain an export license
shall not be considered as force majeure.

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