2.1.

What are the risks for the Vietnamese seller if the goods are sold in accordance with
aforementioned delivery term (FOB, 1x40’HC, port of loading: HCM port, Vietnam)? Explain.
(1,5 marks). 2.2. Re-draft the delivery term to mimimise the seller’s risks (1 mark). 2.3. Identify
the risks arising from the above TT payment term the Vietnamese seller may bear. (1 mark)
Copilot

Certainly! Let’s address each of these points:

2.1. Risks for the Vietnamese Seller under FOB Delivery Term:
The Free on Board (FOB) delivery term places specific responsibilities on the seller. Here are
the risks associated with this term:
1. Risk of Loss or Damage: Until the goods pass the ship’s rail at the agreed port (HCM port in
this case), the seller bears the risk of loss or damage. If anything happens to the goods during
loading or transit, the seller is liable.
2. Export Customs Clearance: The seller must handle export customs clearance. Any delays or
issues with customs can impact the shipment.
3. Origin Terminal Handling Charge: The seller covers the cost of moving the goods on board.
This includes terminal handling charges at the port of loading.
4. Bulk Cargo Considerations: FOB was traditionally designed for bulk transportation, where
some cargo could be lost during loading (e.g., grains carried away by wind). If the goods are
containerized, FCA might be a better choice.
5. Payment Risk: If the buyer defaults on payment after the goods are loaded onboard, the seller
has no recourse. The seller must trust that the buyer will fulfill their payment obligations.

2.2. Re-drafting the Delivery Term to Minimize Seller’s Risks:

To minimize risks for the Vietnamese seller, consider using the Delivered At Place Unloaded
(DPU) term (replacing the 2010 Incoterm DAT). Under DPU:

 The seller delivers the goods at the named place of destination (buyer’s location) after unloading.
 The seller bears all risks until the goods are placed at the buyer’s disposal.
 This term allows more control over the delivery process and reduces uncertainties related to
loading and transit.

2.3. Risks Arising from TT Payment Term:

Telegraphic Transfer (TT) payment is common in Vietnam. Here are the risks for the
Vietnamese seller:
1. Full Payment in Advance: The seller receives full payment before shipment. However:
o Risk of Non-Delivery: The seller may not deliver the goods as promised.
o Quality Concerns: Goods delivered late or with poor quality can harm the seller’s reputation.
2. Cash Flow Impact: Requiring full payment upfront can limit the seller’s cash flow, especially
for large orders.
3. Buyer’s Default: If the buyer defaults after payment, the seller has no recourse.
To mitigate these risks, sellers could:
 Accept partial payment upfront (e.g., 40% of the order value) and the rest upon delivery.
 Use other payment methods (e.g., Letter of Credit) to balance risk and flexibility.

Remember that risk allocation is crucial in international trade, and sellers should carefully
consider their terms to protect their interests12.