skip to main |
skip to sidebar
INCOTERMS (part 2)
by: Jose G Echeverry.
continue from INCOTERMS (part 1)
GROUP C
the seller arranges and pays for the main carriage but do NOT assume risk
CFR: Cost And Freight- the seller must contract and pay for the carriage of the goods to the prt of destination, obtain and pay for the BL for the goods, prepare and pack the goods as required, assume the cost of the documents required for the export and costs in case of delay at the port of shipment; the buyer must assume all risks of the goods from the time the goods have passed the ship´s rail at the port of shipment, bear the costs of documents such as consular/certified invoice (do not assume costs for BL), assume the loading/unloading costs at the destination port as well as all future expences such as customs clearance, taxes and duties etc. The risks and insurance costs passes to the buyer once the shipment has passed the ship´s rail, but the seller pays for the transportation to the destination port, this term can be used only for ocean transportation.
CIF: Cost Insurance and Freight- the risks passes to the buyer once the goods pass the ship´s rail but the seller must pay the costs and freight necessary to bring the goods to the arrenged port of destination. all costs are tranferred from the seller to the buyer after delivery, however in CIF the seller must take an insurance against the buyer´s risk of damage or loss during the carriage, under CIF the seller is obligated to obtain insurance only in minimun cover, in case the buyer wants a greater cover he would either need to agree with the seller or to make his own extra insurance.This term is only used for ocean transportation.
CPT: Carriage Paid To- the seller delivers the goods to the carrier designated but must pay the cost of carriage to bring the goods to the named port of destination, the risk of loss or damage is transferred from the seller to the buyer when the goods have been delivered into custody of the main carriage and not at ship´s rail. this international commerce term can be used for multimodal tarnsport
CIP: Carriage and Insurance Paid to- it´s similar to CPT, however the seller must pay for transportation and insurance against the buyer´s risk of loss or damage to the goods during the transportation, this term can be used for any mode of transportation "multimodal"
GROUP D
seller assumes most of the risks and costs.
DAF: Delivered at Frontier- Risk and responsibility for import clearance is transferred to the buyer once the goods arrive at the named boarder point, the goods are placed at the disposal of the buyer on the arriving mean of transportation (not unloaded) cleared for export but not cleared for import, the goods must be delivered before the customs border, this frontier may be used for any frontier including the exporter´s coutry border, therefore is important to define clearly the name and point of delivery.
DES: Delivered Ex Ship- The seller fulfills his obligation when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the arraged port of destination, the seller assumes all the risks and costs until the goods arrive to the port of destination before discharging, this term can only be used for sea transportation.
DEQ: Delivered Ex Quay- The seller´s risks and responsibilities end when the goods are placed on the quay at the disposal of the importer at the destination port, the seller must take all the costs of carriage and unloading costs at the destination port, the buyer must clear the goods for import, and pay for taxes and duties, this term can be used for sea transportation or multimodal.
DDU: Delivered Duty Unpaid- The seller delivers the goods to the buyer not cleared for import and not unloaded from the mean of transportation at the named place of transportation, the buyer will assume all costs of unloading and duties which means the costs of carrying out the customs formalities, customs duties, taxes. This term may be used for any mode of tranport.
DDP: Delivered Duty Paid- Risk passes to buyer when seller delivers goods to named destination port cleared for must assume all costs of carriage and duties which includes carrying out customs formalities, customs duties, taxes and other charges for import in the coutry of destination, thimport, but not unloaded, the seller is international commerce term represents the maximum obligation for the seller, this term should not be used if the exporter is unable to obtain the import licence.
INCOTERMS (part 1)
by: Jose G Echeverry.
the international commercial terms are international sales terms created by the International Chamber of Commerce (ICC) and were introduced for the first time in 1936, the latest modification of the incoterms was in 2000 and is expected to be another in 2010.
The incoterms define responsibilities of the exporters and importers in an international transaction as well as the transfer of the liabilities, it is extremely importat to know which incoterm will be used in an international sale, as it will affect the costs and responsibilities of the transaction (insurance, tariffs, shipping).
TYPES OF INCOTERMS
GROUP E
EXW: Ex Works- Represents the minimun liability to the seller, risk and expenses of the sale are paid for the importer, title of the goods and risk pass to the buyer once the goods are recived at the seller
´s premises, the transportation and insurance costs are assumed by the buyer, this incoterm is used for any mode of transportation, the seller has fulfilled obligation when the goods are placed at the disposal of the buyer. Loading the goods for transportation and all the documents required are at the cost of the buyer, however if both sides agree that the risks and costs of loading will be taken by the seller, the sentence " loaded upon the departing vehicle at the cost and risk of the seller " must be added after EXW in in the purchase order.
GROUP F
the seller pays for pre-carriage at the origin point but does not pay for main carriage
FCA: Free Carrier- Transportation and insurance costs passes to the buyer on his vehicle, it´s the buyer responsiblity to recieve the seller´s vehicle unloaded, the seller fulfill his obligation when the goods are delivered at the into the custody of the main carrier at the designated point but not loaded onto the main carrier, this incoterm can be used for "multimodal" transport.
normally the seller´s assistance is required in making the contract with the carrier therefore the seller may act on behalf of the buyer.
FAS: Free Alongside Ship- Risk, trasportation and insurance costs passes to the buyer once the goods are delivered alongside ship by the seller, is used for see or inland waterway transportation, the export clearance obligation rest with the seller.
FOB:Free On Board- means that the seller fulfilled his obligation when the goods passed the ship´s rail at the named port of shipment, this means that the buyer must afford all risks and costs of loss or damage to the goods from that point. This term can be used only for ocean transportation, it is important to be clear and specify the port of shipment to avoid problems, so it´s important to quote in the contract "FOB" followed by the requested port of shipment rather than the city. for example: it is preferable to request "FOB UK port", rather than "FOB london", or "FOB North Continental port" rather than "FOB Hamburg".
In an international trade, It's essential to agree with the other person how is he going to pay you for the goods, after all the majority of the trade operations are not payed in cash at the moment of the sell; that's why there are some instruments used for the payment of these "debts". They are: - letter of credit: it's a document requested by the importer to his bank, so it serves as a guarantee that the goods will be payed to the exporter; these kind of documents are used in almost every country of the world and gives a very low risk rate to the exporter.
- open account: an open account is a method where the exporter deliver the goods before the payment is made; normally expecting a payment from the importer between 30 and 90 days after the delivery. This kind of method is only recommended when you know the other person because the risk of losing the goods is prettty high
- cash in advance: in this method the buyer pays to the seller before the products are even shiped, that means that the buyer "completly relies on the seller to ship exactly the goods expected, as quoted and ordered"1
- documentary collection: used when the buyer can't pay for the goods in the trade moment; with this method the seller gives a document to the buyer that is used as a guaranty for the payment; normally the document is supported by a bank, that is called the remitting bank; and the docs are received by the buyer's bank, also called the presenting bank. The documentary collection can be: a sight draft or a time draft. The most used is the sight draft and it goes as it's shown in the next graphic:
1. the buyer (drawee) and the seller (drawer) negotiate the transaction
2. the seller ships the goods
3. the seller signs a draft doc and gives all the documents to the remitting bank
4. the remitting bank gives the documents to the presenting bank
5. the presenting bank tells to the buyer that he has recieved all the documents
6. the presenting bank holds the documents until the payment is done.
7. the buyer pays for the supplied goods
8. the presenting bank gives the documents to the buyer 2
Althought there're other terms of payment, these are the most used in the international trade so the knowledge of them is a must for any exporter or importer.
1. took from: http://www.foreign-trade.com/reference/payment.cfm
2. took from: http://www.export61.com.au/international-payments.asp#16
CFR: Cost And Freight- the seller must contract and pay for the carriage of the goods to the prt of destination, obtain and pay for the BL for the goods, prepare and pack the goods as required, assume the cost of the documents required for the export and costs in case of delay at the port of shipment; the buyer must assume all risks of the goods from the time the goods have passed the ship´s rail at the port of shipment, bear the costs of documents such as consular/certified invoice (do not assume costs for BL), assume the loading/unloading costs at the destination port as well as all future expences such as customs clearance, taxes and duties etc. The risks and insurance costs passes to the buyer once the shipment has passed the ship´s rail, but the seller pays for the transportation to the destination port, this term can be used only for ocean transportation.
CIF: Cost Insurance and Freight- the risks passes to the buyer once the goods pass the ship´s rail but the seller must pay the costs and freight necessary to bring the goods to the arrenged port of destination. all costs are tranferred from the seller to the buyer after delivery, however in CIF the seller must take an insurance against the buyer´s risk of damage or loss during the carriage, under CIF the seller is obligated to obtain insurance only in minimun cover, in case the buyer wants a greater cover he would either need to agree with the seller or to make his own extra insurance.This term is only used for ocean transportation.
CPT: Carriage Paid To- the seller delivers the goods to the carrier designated but must pay the cost of carriage to bring the goods to the named port of destination, the risk of loss or damage is transferred from the seller to the buyer when the goods have been delivered into custody of the main carriage and not at ship´s rail. this international commerce term can be used for multimodal tarnsport
CIP: Carriage and Insurance Paid to- it´s similar to CPT, however the seller must pay for transportation and insurance against the buyer´s risk of loss or damage to the goods during the transportation, this term can be used for any mode of transportation "multimodal"
DAF: Delivered at Frontier- Risk and responsibility for import clearance is transferred to the buyer once the goods arrive at the named boarder point, the goods are placed at the disposal of the buyer on the arriving mean of transportation (not unloaded) cleared for export but not cleared for import, the goods must be delivered before the customs border, this frontier may be used for any frontier including the exporter´s coutry border, therefore is important to define clearly the name and point of delivery.
DES: Delivered Ex Ship- The seller fulfills his obligation when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the arraged port of destination, the seller assumes all the risks and costs until the goods arrive to the port of destination before discharging, this term can only be used for sea transportation.
DEQ: Delivered Ex Quay- The seller´s risks and responsibilities end when the goods are placed on the quay at the disposal of the importer at the destination port, the seller must take all the costs of carriage and unloading costs at the destination port, the buyer must clear the goods for import, and pay for taxes and duties, this term can be used for sea transportation or multimodal.
DDU: Delivered Duty Unpaid- The seller delivers the goods to the buyer not cleared for import and not unloaded from the mean of transportation at the named place of transportation, the buyer will assume all costs of unloading and duties which means the costs of carrying out the customs formalities, customs duties, taxes. This term may be used for any mode of tranport.
DDP: Delivered Duty Paid- Risk passes to buyer when seller delivers goods to named destination port cleared for must assume all costs of carriage and duties which includes carrying out customs formalities, customs duties, taxes and other charges for import in the coutry of destination, thimport, but not unloaded, the seller is international commerce term represents the maximum obligation for the seller, this term should not be used if the exporter is unable to obtain the import licence.
