INCOTERMS 2000
INCOTERMS 2000
4. Understanding Incoterms
Note: The Incoterms described below are a brief overview designed to give a basic understanding only.
Buyers and Sellers are strongly advised to obtain for themselves the "ICC GUIDE TO INCOTERMS 2000" obtainable from the International Chamber of Commerce in Johannesburg. (SACOB Tel no: +27 (0)11 358 9700)
4.1 EXW
SELLERS OBLIGATION
To make the goods, commercial invoice and prescribed certificate of origin (if required) available, in conformity with the contract/indent, at his premises or another named place (works, factory, warehouse etc.), not cleared and not loaded on any collecting vehicle.
Even though the seller has no obligation for export clearance he must, at the buyer's request, risk and expense, assist in obtaining any export license or other authorization necessary for the export.
The seller is obligated to give sufficient notice to the buyer that the goods have been delivered to the named place in terms of the contract of sale
The seller has no obligation to contract for carriage or insurance. In practice, without obligation and at the buyer's risk and expense, the seller usually loads the goods onto the collecting vehicle. (Technically the moment the seller loads onto the collecting vehicle, the term changes from EXW to FCA seller's premises)
THE BUYERS OBLIGATION
The buyer is obligated to take delivery of the goods at the point they have been made available to him in terms of the contract and is responsible to load, clear for export and contract for the main carriage.
The buyer is responsible at his own risk and expense to obtain any import licenses required and fulfill all official requirements in the importing country including customs formalities.
In the case of payment by letters of credit the buyers agent, would of necessity, have to conform to the instructions contained therein. For example original bills of lading may have to be returned to the seller in order for him to present documents to the bank for payment.
TRANSFER OF RISK
All risk of loss or damage to the goods passes from the seller to the buyer when the goods are made available at the named EXW point, unloaded in terms of the sales contract, which may also include packing for export.
If damage occurs after the transfer of risk point, as a result of action or unfulfilment of contract on the part of the seller, the seller may still be held responsible. I.e. incorrect marking, insufficient packing etc.
Many importers trade under a false security believing that there risk is covered by the carrier, forwarding agent or clearing agent. This is not true as all third parties are usually indemnified against loss in terms of their standard trading terms and conditions. Importers are strongly urged to cover themselves with Marine Insurance, which is normally at nominal cost to them.
` DIVISION OF COSTS
The seller bears all costs up to delivery in conformity to the sales contract. The EXW price may or may not include packing for export. If this is agreed by the parties then the term stated on the invoice should be "Exworks-packing included". The absence of such endorsement infers that goods may still need to be packed in a suitable manner for transport, at the buyer's expense.
The buyer must bear all costs incurred after the goods have been made available at his disposal including, uplifting, export clearance, inland transport, agent's costs, freight, clearance and delivery to his premises.
This term provides for minimum risk to the seller and maximum risk to the buyer
COMMENTS
It would appear that under this term that the seller enjoys the maximum advantage as he has minimum risk. However there is a huge advantage to the buyer as he is able to control fully all expenses incurred from the seller's premises up to his own. This is provided the buyer or his agent is in a position to affect export clearance in the seller's country
4.2 FCA
SELLERS OBLIGATIONS
To deliver the goods and commercial invoice, in conformity with the contract of sale, cleared for export, to the carrier nominated by the buyer at the named place.
"Carrier" means any person who is appointed by the buyer who undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes. Where forwarders conduct their own FCL, Groupage and Air Consolidations and the seller is deemed to have fulfilled his obligations when he has delivered the goods to such nominated forwarder.
The seller is obligated to give sufficient notice to the buyer that the goods have been delivered to the named place in conformity to the contract of sale.
The seller has no obligation or right to contract for the main carriage, however, in the absence of instructions from the buyer, he may at the buyer's risk and expense contract the carriage. In such cases the buyer has no recourse to the seller for the rates paid for the carriage. (This can obviously result in buyers paying higher freight rates than anticipated)
The seller has no obligation for the contract of insurance.
BUYERS OBLIGATION
In setting up the contract of sale, the buyer is obligated to give detailed instruction concerning the delivery point, the carrier or forwarding agent and the mode of transportation
The buyer is obligated to take delivery and full responsibility of the goods at his risk and expense at the FCA named point, to contract the main carriage and arrange customs clearance into his country and final delivery to his premises.
The buyer must obtain at his own risk and expense, any import permit and fulfill any other official requirement in the importing country
TRANSFER OF RISK
All risks for loss or damage to the goods passes from the seller to the buyer, when the seller has delivered the goods in conformity to the contract of sale, at the FCA named point.
If damage occurs after the transfer of risk point, as a result of action or unfulfillment of contract on the part of the seller, the seller may still be held responsible i.e. incorrect marking, insufficient packing etc.
As mentioned under the EXW term, it is again important for the buyer to cover his risk by arranging his own marine insurance.
DIVISION OF COSTS
The seller must bear all costs relating to the goods until such time as they have been delivered to the FCA named place.
The buyer must bear all costs from the time they have been made available to him at the FCA named place up to the final destination, including any additional costs incurred as a result of him not giving timeous instructions or notice.
COMMENTS
This term is widely used throughout the world and is probably the most popular for the following reasons:
· It suits all modes of transport.
· It suits most freighting systems i.e. FCL, Groupage, Air Consolidations.
· Sellers are usually in a better position to execute export clearance and obtain export licenses where required.
· The buyer is usually in a better position to negotiate and contract for main carriage.
4.3 FAS
NOTATION: BY IT'S VERY DEFINITION, THE TERM FAS CAN ONLY BE APPLIED TO SEAFREIGHT OR INLAND WATERWAY.
BUYERS BEWARE AS USA SELLERS ARE INCLINED TO USE THIS TERM WITHOUT RECOGNITION OF INCOTERMS 2000
SELLERS OBLIGATIONS.
To deliver the goods plus invoice in conformity to the contract of sale, cleared for export, on to the quay or loading place, alongside the vessel named by the buyer. (This is a reversal of previous Incoterms which required the buyer to arrange export clearance)
BUYERS OBLIGATION
The buyer is obligated to give sufficient notice of the vessel name, loading point and required delivery time and is responsible for loading on board the vessel, for contracting the main carriage, the import customs clearance and delivery to his door.
TRANSFER OF RISK
All risk for loss or damage to the goods passes from the seller to the buyer when the goods have been delivered by the seller to the named FAS Quay in conformity with the contract of sale.
The buyer should cover his risk by taking out his own marine insurance
DIVISION OF COSTS
Seller bears all costs relating to the goods up to delivery, cleared for export, at the named quay and vessel.
Buyer is responsible for all costs from quayside, including loading on board vessel, main carriage and all other costs up to his door.
COMMENTS
The FAS term is only suitable under very special circumstances. It cannot apply to any other mode of transportation except seafreight and then only for break bulk or conventional cargo
NB: BEWARE USA! THIS TERM IS FAVOURED BY USA SELLERS BUT OFTEN EXPRESSED BY THEM AS FOB.
4.4 FOB
NB This term is not appropriate for containerized or consolidation cargo. It is more appropriate for conventional or "break bulk " cargo
SELLERS OBLIGATION
The seller is responsible to deliver the goods on board the vessel, at the named port of shipment, including export clearance and loading on board. The term is strictly effective as the goods pass over ships rail at which point all risks for loss or damage passes to the Buyer.
The seller must give sufficient notice to the buyer that the goods have been delivered in terms of the sales contract.
BUYERS OBLIGATION
The buyer takes full responsibility for shipping and delivery to his door from the point that the goods pass ships rail.
TRANSFER OF RISK
The seller is responsible to bear all expenses and risk for loss or damage up to the point the goods have passed the ship's rail at the named port of shipment. The seller has no obligation whatsoever to insure the goods beyond the FOB point.
The buyer becomes responsible to bear all risks for loss or damage from when the goods pass ship's rail at named port.
DIVISION OF COSTS
Seller bears all costs up to placing goods on board vessel at named port.
Buyer bears all costs from when the goods are placed on board.
NB: BEWARE USA WHO OFTEN USE FOB FOR FCA AND FAS SHIPMENTS.
4.5 CFR
NB This term is not appropriate for containerized or consolidation cargo. It is more appropriate for conventional or "break bulk " cargo
This term replaces C&F although still commonly used.
SELLERS OBLIGATION
Seller is responsible for the shipping of the goods from his works right up to a port named by the buyer in the country of destination although risk for loss or damage passes to the buyer at ships rail at the loading port. (JHB is considered a port)
BUYERS OBLIGATION
Buyer is responsible to conduct all SA customs clearance, wharfage, landside and deliver to his premises.
TRANSFER OF RISK
It is very important to note that under "C" terms risk for loss or damage passes from the seller to the buyer at "ships rail" at loading port even though the seller is contacted to pay all carriage costs up to destination port.
DIVISION OF COSTS
All shipping and freight costs up to named port at country of destination are for the seller's account. Buyer is responsible for clearance, duty, vat, wharfage and delivery from named port to his premises. In the case of CFR JHB the seller will pay all transport costs up to JHB Terminal. This term, although often used is really CPT Terminal.
4.6 CIF
The seller and buyer's responsibilities are the same as for CFR except that the seller must insure the goods and his price to the buyer will therefore include the insurance cost. Very often the insurance terminates at the named port and is therefore uninsured from that point.
4.7 CPT (Carriage paid to named place)
NB. This term is appropriate for containerized or consolidated cargo
SELLERS OBLIGATION
The seller is obligated to deliver the goods to the carrier nominated by him and is also responsible to contract with the carrier for the main carriage to the named port of destination
BUYER'S OBLIGATION
The buyer takes delivery at the named destination port and is responsible for customs clearance, wharfage and delivery to final destination
TRANSFER OF RISK
It is very important to note that under this "C" term the risk for loss or damage passes from the seller to the buyer at delivery to the contracted carrier at the agreed point IN COUNTRY OF ORIGIN, even though the seller is contracted to pay all carriage costs up to destination named place
DIVISION OF COSTS
The seller bears all costs up to the named destination place except that where the named destination place is inland from the port, only the transport portion from the port to the inland terminal is the seller's responsibility. The buyer bears all costs from the port to final destination except for the transport portion included in the CPT price
4.8 CIP
CIP is to CPT what CIF is to CFR. In other words the seller becomes responsible to insure the goods in addition to his responsibilities under CPT.
4.9 DAF
NB: UNDER ALL 'D' TERMS THE SELLER'S RISK NOW CARRIES THROUGH TO POINT NAMED AS DELIVERY IN COUNTRY OF DESTINATION.
SELLER'S OBLIGATION
Seller is responsible to deliver the cargo to a named place at the frontier in the destination country, not unloaded.
BUYER'S OBLIGATION
Buyer takes delivery at named place and becomes responsible for offloading, customs clearing and delivery to final place of destination.
TRANSFER OF RISKS
The seller bears all risks of loss or damage up to the point where he delivers, not unloaded, at the named place at the frontier. The buyer bears all risks from that point.
DIVISION OF COSTS
Seller bears all costs up to named place at frontier, not unloaded, whereas the buyer will bear all costs thereafter, including inland transport, customs clearing etc.
4.10 DES
This term is suitable for seafreight only.
SELLER'S OBLIGATIONS
The seller is responsible to deliver cargo, at the disposal of the buyer, on board the ship at the named port of destination, not cleared for import and not offloaded.
BUYER'S OBLIGATIONS
The buyer responsible to take delivery ex ship including off loading at terminal, customs clearance, duty, vat, landside and cartage to his door.
TRANSFER OF RISKS
Risk for loss or damage passes from the seller to the buyer at the point where the goods are made available to the buyer on board the vessel at the named destination point. The buyer is responsible for all cost for clearance and delivery to final destination.
DIVISION OF COSTS
Seller bears all costs up to destination port BUT NOT OFFLOADING. Buyer carries all costs for off loading, clearance and delivery to his door.
4.11 DEQ
This term is suitable for seafreight only
SELLER'S OBLIGATIONS
The seller is responsible to deliver the goods discharged from the vessel on to the quay alongside ship at named destination port, customs uncleared
BUYER'S OBLIGATIONS
The buyer is responsible for customs clearance, duty, vat and local cartage to his door.
TRANSFER OF RISKS
Risk for loss or damage to the cargo passes from the seller to the buyer at the point that the goods are offloaded onto the quay alongside the vessel at the named port.
DIVISION OF COSTS
Seller bears all costs up to and including off loading onto quay alongside the vessel at destination named place. The buyer then bears all costs for custom's clearance, duty, vat and other charges relative to obtaining delivery to final destination. clearing, harbour taxes and delivery to his door.
4.12 DDU
SELLER'S OBLIGATIONS
The seller is responsible to make the goods available at a named place of destination in the country of importation, uncleared through customs and duty unpaid. "Duty" is defined as being the responsibility to carry out all customs clearing and other import formalities and payment thereof. The seller is thus not obligated for customs clearing, duty, vat, wharfage etc.
Under this term the seller and buyer may agree for the seller to be responsible for customs clearing and for payment of other import costs (excluding duty) but these details must be clearly specified in the contract of sale.
At the time of contract it must be made clear which other local charges are to be included or excluded from the sellers price. In the absence of specific agreement the standard Incoterm stipulations will apply.
BUYER'S OBLIGATIONS
Unless specifically agreed and stipulated, the buyer is responsible for the performing of all import formalities and delivery to final destination from the DDU point. This will include customs clearing, harbour dues, customs duty and vat.
TRANSFER OF RISKS
The seller bears all risks for loss or damage to the goods right up to the DDU point. The buyer then bears all risks thereafter
DIVISION OF COSTS
Seller bears all costs incurred in making the goods available at the disposal of the buyer. The buyer bears all costs for customs clearance, payment of customs duty, vat, all import formalities and final delivery if different from DDU point.
4.13 DDP
SELLER'S OBLIGATIONS
The seller is responsible to deliver the goods to the buyer, cleared for import at a named place of destination, duty paid but not offloaded from the arriving transport. "Duty Paid" means the completion of all import formalities, payment of customs duty, vat, landside charges and any other charges related to the import.
BUYER'S OBLIGATIONS
The buyer is responsible to take delivery and off load the goods from the arriving transport at the named place of destination.
TRANSFER OF RISKS
The seller carries all risk for loss or damage to the goods right up to the point he makes the goods available to the buyer at the named place of destination.
DIVISION OF COSTS
The seller bears all costs relating to the goods right up to the time the goods are delivered to the named place of destination. This will include, transport, customs clearing for import, import formalities, payment of duties and vat and all other relative charges. The seller and buyer may agree that the importer pays the vat as he has a means of recovering this cost through his normal vat returns. This must be stipulated in the contract of sale.
While EXWORKS represents the minimum risk for the Seller, DDP represents the maximum.