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Prashant Bhaskar

International Trade Terms


Learning objectives
discuss why international contracts of sale
are very challenging
discuss how clarity and transparency in
trading terms benefit the exporter and
importer
outline the main INCOTERMS 2000
describe the main terms used in maritime
trade
explain why traders use terms other than
the INCOTERMS.
Topics
The contract of sale
The INCOTERMS
Meaning of E, F, C, and D terms
Interpretation of terms
Responsibilities and obligations of
buyers and sellers
Hybrid terms
Chartering and trading terms
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Will include terms which will indicate obligations and responsibilities
The contract of sale
Key points:
Carriage of goods
Transfer of risk from seller to buyer
Transfer of cost from seller to buyer
Image source: http://resources.alibaba.com/article/107/From_Seller_to_Buyer_a_flow_diagram_of_Incoterms_2000.htm
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The contract of sale
What are the most obvious problems?
- Clarity and certainty
Solution?
- INCOTERMS
International Commercial Terms
Developed by ICC
Current version 2000
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http://resources.alibaba.com/article/107/From_Seller_to_Buyer_a_flow_diagram_of_Incoterms_2000.htm
E term:
Sellers minimum obligation
F terms:
Seller hands over goods to a
nominated carrier free of risk and
expense to buyer
C terms:
Seller must bear certain costs
even after the critical point for
division of risk
D terms:
Goods must arrive at a stated
destination
INCOTERMS the abbreviations
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INCOTERMS
Group E departure
EXW Ex Works ( named place)
Group F Main carriage unpaid
FCA Free Carrier (named place)
FAS Free Alongside Ship (named place)
FOB Free On Board (named port of shipment)
Group C Main Carriage Paid
CFR Cost and Freight (named port of destination)
CIF Cost Insurance and Freight (named port of destination)
CPT Carriage Paid To (named place of destination)
CIP Carriage Insurance Paid To (named place of destination)
Group D Arrival
DAF Delivered at Frontier (named place)
DES Delivered Ex Ship (named port of destination)
DEQ Delivered Ex Quay (named port of destination)
DDU Delivered Duty Unpaid (named place of destination)
DDP Delivered Duty Paid (named place of destination)
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Sellers Obligations Buyers obligations
A1 Provision of goods in conformity with the
contract
B1 Payment of the price
A2 Licences, authorisation and formalities B1 Licences, authorisation and formalities
A3 Contract of carriage and insurance B3 Contract of carriage
A4 Delivery B4 Taking delivery
A5 Transfer of risks B5 Transfer of risks
A6 Division of costs B6 Division of costs
A7 Notice to the buyer B7 Notice to the seller
A8 Proof of delivery, transport documents or
equivalent electronic message
B8 Proof of delivery
A9 Checking- packaging-marking B9 Inspection of goods
A10 Other obligations B10 Other obligations
Grouping of obligations under 10 headings
(Source: Ramberg 1999, pp. 5265)
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E Term
EXW
(Ex WORKS..named place)
Carriage:
Arranged by buyer
Risk transfer:
When goods are at
buyers disposal
Cost transfer:
When goods are at
buyers disposal
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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F Terms
FCA
(Free CArrier..named place)
Carriage:
Arranged by buyer (or
seller on buyers behalf)
Risk transfer:
When goods have been
delivered to carrier at the
named place
Cost transfer:
When goods have been
delivered to carrier at
named place
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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F Terms
FAS
(Free Along Side Ship..named
port of shipment)
Carriage:
Arranged by buyer
Risk transfer:
When goods have been
placed alongside ship
Cost transfer:
When goods have been
placed alongside ship
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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F Terms
FOB
(Free On Board..named port of
shipment)
Carriage:
Arranged by buyer
Risk transfer:
When goods pass the
ships rails
Cost transfer:
When goods pass the
ships rails
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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C Terms
CFR
(Cost and FReight..named port
of destination)
Carriage:
Arranged by seller
Risk transfer:
When goods pass the
ships rails
Cost transfer:
At port of destination
(but buyer liable for costs
that are not on sellers
account under COC)
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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C Terms
CIF
(Cost, Insurance and
Freight..named port of
destination)
Carriage:
Arranged by seller +
insurance
Risk transfer:
When goods pass the
ships rails
Cost transfer:
At port of destination
(but buyer liable for costs
that are not on sellers
account under COC)
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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C Terms
CPT
(Carriage Paid To..named place
of destination)
Carriage:
Arranged by seller
Risk transfer:
When goods are
delivered to the carrier
Cost transfer:
At place of destination
(but buyer liable for costs
that are not on sellers
account under COC)
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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C Terms
CIP
(Carriage and Insurance Paid
to..named place of destination)
Carriage:
Arranged by seller +
insurance
Risk transfer:
When goods are
delivered to carrier
Cost transfer:
At place of destination
(but buyer liable for costs
that are not on sellers
account under COC)
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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D Terms
DAF
(Delivered At Frontier..named
place)
Carriage:
Arranged by seller
Risk transfer:
When goods are
delivered at frontier
Cost transfer:
When goods are delivered
at frontier
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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D Terms
DES
(Delivered Ex Ship..named port
of destination)
Carriage:
Arranged by seller
Risk transfer:
When goods are placed
at the disposal of buyer
on board the ship
Cost transfer:
When goods are placed at
the disposal of buyer on
board the ship
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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D Terms
DEQ
(Delivered Ex Quay..named
port of destination)
Carriage:
Arranged by seller
Risk transfer:
When goods are placed
at the disposal of buyer
on the quay
Cost transfer:
When goods are placed at
the disposal of buyer on the
quay
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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D Terms
DDU
(Delivered Duty Unpaid..named
place of destination)
Carriage:
Arranged by seller
Risk transfer:
When goods are placed
at the disposal of buyer
Cost transfer:
When goods are placed at
the disposal of buyer
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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D Terms
DDP
(Delivered Duty Paid..named
place of destination)
Carriage:
Arranged by seller
Risk transfer:
When goods are placed
at the disposal of buyer
Cost transfer:
When goods are placed at
the disposal of buyer
http://www.pbb.com/en/tools/incoterms/incoterms2000.pdf
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http://www.bas-hk.com/bas/download/pdf/inco.pdf
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Any mode of transport
Group E EXW Ex Works (... named place)
Group F FCA Free Carrier (... named place)
Group C CPT
Carriage Paid To (... named place of
destination)
CIP
Carriage and Insurance Paid To (...
named place of destination)
Group D DAF Delivered At Frontier (... named place)
DDU
Delivered Duty Unpaid (... named
place of destination)
DDP
Delivered Duty Paid (... named place
of destination)
Maritime and inland waterway transport only
Group F FAS
Free Alongside Ship (... named port of
shipment)
FOB
Free On Board (... named port of
shipment)
Group C CFR
Cost and Freight (... named port of
destination)
CIF
Cost, Insurance and Freight (... named
port of destination)
Group D DES
DES Delivered Ex Ship (... named port
of destination)
DEQ
Delivered Ex Quay (... named port of
destination)
Transport modes
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INCOTERM DELIVERY
PLACE
WHO PAYS
MAIN
CARRIAGE?
WHO PAYS
INSURANCE?
WHEN IT IS
USEFUL?
FOB
CFR
FAS
FCA
CPT
Activity
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Hybrid Terms
Give agreed meaning to an INCOTERM subject to customary interpretation
Usually made up of INCOTERM trading term and shipping term
Eg:
FOB ST Free On Board Stowed
CFR FO Cost and Freight Free Out
CFR LT Cost and Freight Liner Terms
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Chartering and trading
Time charter
Voyage charter
Demurrage
Dispatch
Who, between the charterer (exporter or importer) and the shipowner,
bears the responsibility (and costs) of loading, stowing and unloading of
the vessel?
If the charterer is responsible, how much time must the shipowner allow
the charterer to load and unload the vessel?
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Chartering Terms
FIFO: Free In Free OutThe loading (IN) and discharging (OUT) is
FREE of cost to shipowner. The charterer is responsible for both
loading and unloading costs.
FILO: Free In Liner OutThe loading is the charterers responsibility
but the unloading is the shipowners responsibility.
LT BENDSLiner Terms Both Endsthe shipowner is responsible for
loading and discharging at both ends.
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Time for loading/discharging
Eg:
LOAD RATE: 2500 MT per wwdshexeiu
DISCH. RATE: 3000 MT per wwdshinc
2500 MT per wwdshexeiu: 2500 MT per Weather Working Day Sunday and
Holidays Excluded Even If Used
3000 MT per wwdshinc: 3000 MT per Weather Working Day Sunday and
Holiday Included
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Trading term Loading
responsibility
Chartering
contract
Unloading
responsibility
FOB ????(Custom) Importer Importer
FOB ST Exporter Importer Importer
CFR Exporter Exporter ???(custom)
CFR LT Exporter Exporter Exporter
CFR FO Exporter Exporter Importer
Chartering Term Loading responsibility Unloading
responsibility
Liner terms Shipowner Shipowner
FIFO Charterer Charterer
LIFO Shipowner Charterer
FILO Charterer shipowner
Trading and chartering terms
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Exporter and Charterer
Charters vessels
Loads vessel at load port
Pays demurrage/collects despatch at load port
Importer
Unloads vessel and pays
demurrage/collects despatch
Shipowner Charterparty
FIFO
CFR FO
Eg: Trading contract and hybrid term
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We covered:
The contract of sale
The INCOTERMS
Meaning of E, F, C, and D terms
Interpretation of terms
Responsibilities and obligations of
buyers and sellers
Hybrid terms
Chartering and trading terms
Prashant Bhaskar
Activity
Group 1 : List 3 most favorable INCOTERMS for exporters
Group 2 : List 3 least favorable INCOTERMS for exporters
Group 3 : List 3 most favorable INCOTERMS for importers
Group 4 : List 3 least favorable INCOTERMS for importers
Give reasons for your answers