Block 4. Terms of transportation: incoterms

LEAD-IN

¨ What terms of transportation can you name?

¨ What does CIF stand for?

¨ Are there any terms connected with customs clearance?

Frequently parties to a contract are unaware of the different trading practices in their respective countries. This can give rise to misunderstanding, disputes and litigation. In order to remedy these problems the International Chamber of Commerce published in 1936 a set of international rules for the interpretation of trade terms. These rules were known as Incoterms 1936.

Amendments and additions were later made in 1953, 1967, 1976, 1980, 1990 and 2000 to bring the rules in line with current international trade practice.

The main reason for the latest revision of Incoterms was to adapt them to the increasing electronic data interchange (EDI) and to the recent changes in transportation techniques, particularly containers, multimodal transport and roll on – roll off traffic, etc.

FOCUS 1. INCOTERMS 2000

1. CUSTOMS CLEARANCE

It is normally desirable that customs clearance is arranged by the party domiciled in the country where such clearance should take place or at least by somebody acting there on his behalf. Thus, the exporter should normally clear the goods for export, while the importer should clear the goods for import. However, under some trade terms, the buyer might undertake to clear the goods for export in the seller's country (EXW, FAS) and, under other terms, the seller might undertake to clear the goods for import into the buyer's country (DEQ and DDP)…

…Particular problems arise when the seller undertakes to deliver the goods into the buyer's country in places or points which cannot be reached until the goods have been cleared for import but where his ability to reach that place is adversely affected by the buyer’s failure to fulfil his obligations to clear the goods for import…

… (VAT deductions, etc.). “Delivery Duty Unpaid” can solve these problems by removing from the seller the obligation to clear the goods for import.

2. PACKING

In most cases the parties would know beforehand which packing is required for the safe carriage of the goods to the destination. However, since the seller’s obligation to pack the goods may well vary according to the type and duration of the transport envisaged, it has been felt necessary to stipulate that the seller is obliged to pack the goods in such a manner as it is required for the transport, but only to the extent that the circumstances relating to the transport are made known to him before the contract of sale is concluded…

3. THE «C» TERMS ( CFR, CIF, CPT, CIP)

Under the “C” terms the seller must contract for carriage on usual terms at his own expense. Therefore, a point up to which he would have to pay transportation costs must necessarily be indicated after the respective “C” term. Under the CIF and CIP terms the seller also has to take out insurance and bear the insurance costs.

Since the point for the division of costs refers to the country of destination, the “C” terms are frequently mistakenly believed to be arrival contracts, whereby the seller is not relieved from any risks or costs until the goods have actually arrived at the agreed point…

…It happens quite often that the parties wish to clarify to which extent the seller should procure a contract of carriage including the costs of discharge. Since such costs are normally covered by the freight when the goods are carried by regular shipping lines, the contract of sale would frequently stipulate that the goods would have to be so carried or at least that they should be carried under “liner terms”…

…Sometimes in commodity trade goods can be bought while they are carried at sea and in such cases the word “afloat” is added after the trade term. Since under the CFR and CIF terms the risk for loss of or damage to the goods would have passed from the seller to the buyer, difficulties of interpretation might arise. One possibility would be to maintain the ordinary meaning of the above-mentioned terms with respect to the division of risk between the seller and the buyer… The other possibility would be to let the passing of the risk coincide with the time when the contract of sale is concluded...

4. THE «D» TERMS ( DAF, DES, DEQ, DDU, DDP)

The «D» terms are different in nature from the “C” terms, since according to the “D” terms the seller is responsible for the arrival of the goods at the agreed place of destination. The seller must bear all risks and costs in bringing the goods thereto. Hence, the “D” terms signify arrival contracts, while the “C” terms evidence shipment contracts…

5. THE BILL OF LADING

Traditionally, the on board bill of lading has been the only acceptable document to be presented by the seller under the CFR and CIF terms. The bill of lading fulfils three important functions, viz.:

¨ proof of delivery of the goods on board the vessel;

¨ evidence of the contract of carriage;

¨ a means of transferring rights to the goods in transit by the transfer of the paper document to another party…

6. NON-NEGOTIABLE TRANSPORT DOCUMENTS

In recent years a considerable simplification of documentary practice has been achieved. Bills of Lading are frequently replaced by non-negotiable documents similar to those used for other modes of transport than carriage by sea. These documents are called “sea waybills”, “liner waybills”, “freight receipts”. These non-negotiable documents are quite satisfactory to use except when the buyer wishes to sell the goods in transit by surrendering a paper document to the new buyer. The obligation of the seller to provide a Bill of Lading under CFR and CIF must necessarily be retained.