Chapter 9  International Logistics

9.5 International Trade Terminology II

    The following is a case study pertaining to the use of Incoterms group 2 rules in practice. Let us presume that company A which is located in London, UK, is exporting cargoes to company B, a company in New York, USA. The implications for the seller and the buyer, where appropriate, are explained in detail. The various Incoterms are set out in a logical order, starting with the least obligations on company A and ending with the most obligations upon company A.

    9.5.1. FAS

    （1）Company A’s obligation（seller）. This term is to be used only for sea or inland waterway transport of cargoes. FAS means the seller delivers the cargoes alongside the ship, e.g. on the quay or on a barge nominated by the buyer at the named port of shipment. 

    The seller fulfills its obliga-tion to deliver when the cargoes have been placed alongside the ship on the quay at the named port of shipment. 

    The seller provides exportquality packaging of cargoes and assumes the cost of transport of cargoes from its warehouse or plant to the port of shipment for loading on the ship.

    If the cargoes are in containers the seller will deliver the cargoes to the carrier at a terminal and not alongside the ship. In such cases, the term FCA would be more appropriate.

    The seller’s obligations are to:

    ① Clear the cargoes for transport, if required;

    ② Obtain at its own risk and expense an export license and other legal documents required for export of the cargoes;

    ③ Pay export customs duties and taxes;

    ④ Offer a commercial invoice or electronic record（if this is customary or has been agreed between the parties）, and a clean bill of lading “received for shipment”;

    ⑤ Send advice to the buyer that the cargoes have been delivered or placed alongside the ship at the named port of shipment;

    ⑥ Deliver the cargoes on the agreed date or within the agreed period.

    （2）Company B’s responsibilities（buyer）. The buyer pays for the cargoes as required in the sale contract and must accept the proof of delivery or transport document（s） as agreed in the sale contract.

    The buyer’s obligations are to:

    ① Provide sufficient notice of the ship name, loading port and delivery time within the agreed period;

    ② Take delivery of the cargoes when delivered to the port of destination;

    ③ Obtain an import license, at its own risk and expense;

    ④ Undertake all the freight charges, unloading costs, import duties and taxes, if applicable, and arrange for customs clearance of cargoes from the port of destination;

    ⑤ Bear the risk of loss and damage to the cargoes from the moment that they are placed on the quay alongside the ship.

   9.5.2. FOB

    （1）Company A’s obligation（seller）. This term is to be used only for transport of cargoes by sea or inland waterway. The FOB term requires the seller to clear the cargoes for export, and to pay export duties and taxes, and loading charges.

    The seller’s obligations are to:

    ① Deliver the goods “on board the ship”（this requirement is fulfilled when the cargoes have passed over the ship’s rail at the named port of shipment）;

    ② Obtain an export license, if required;

    ③ Acquire, at its own risk and expense, quality and quantity certificates, if required in the sale contract;

    ④ Offer the buyer a commercial invoice, or an electronic record（if this is customary or had been agreed between the parties）, and a clean “on board” bill of lading marked “freight to pay”;

    ⑤ Send advice to the buyer that the cargoes have been delivered on board the named ship at the port of shipment.

    （2）Company B’s responsibilities（buyer）:

    ① The buyer pays for the cargoes as required in the sale contract;

    ② The buyer must take delivery of the transport document（s）;

    ③ The buyer has to acquire at its own risk and expense an insurance policy to cover the risks of loss or damage to the cargoes from the point when they have been delivered “on board” the named ship at the port of shipment.

    ④ The buyer has to pay for the cargo freight, unloading costs and other import customs duties and taxes at the port of destination. The buyer is also in charge of the clearance of the cargoes from the port of destination.

   9.5.3. CFR

    （1）Company A’s obligation（seller）. This term is to be used only for transport of cargoes by sea or inland waterway. The seller fulfills its obligation when the seller has delivered the cargoes “on board” the ship.

    CFR requires the seller to clear the cargoes for export, acquire an export license, pay export duties and taxes, and undertake the risk of loss or damage to cargoes until they have been delivered “on board” the ship.

    In addition, the seller must pay the costs and freight necessary to take the cargoes to the named port of destination.

    The risk of loss or damage to the cargoes, as well as any additional costs because of events occurring after the time the cargoes have passed the ship’s rail and have been delivered“on board” the ship, is transferred from the seller to the buyer.

    The seller should offer a commercial invoice, or an electronic record（if this is customary or has been agreed between the parties）, a clean “on board” bill of lading marked “freight paid”, and quality and quantity certificates if required in the sale contract.

    The seller must also send advice to the buyer that the cargoes have been delivered on board the ship at the port of shipment.

    （2）Company B’s responsibilities（buyer）. The buyer pays for the cargoes as required in the sale contract and takes delivery of the cargoes when they arrive at the port of destination.

    The buyer is responsible for:

    • Obtaining an import license;

    • Arranging and paying for the insurance of the cargoes;

    • Paying import duties and taxes;

    • Arranging customs clearance of the cargoes;

    • Paying transportation costs from the port of destination to the buyer’s premises, including unloading costs.

    9.5.4. CIF

    （1）Company A’s obligation（seller）. This term is to be used only for transport of cargoes by sea or inland waterway. The seller has the same obligations as under CFR but with the addition that he has to procure marine insurance against the buyer’s risk of loss or damage to the cargoes during carriage.

    The seller contracts for insurance and pays the insurance premium. The term of CIF requires the seller to clear the cargoes for export and pay export duties and taxes.

    Cover should comply with the minimum provision of clause（C）of institute of cargo clauses（LMA/IUA）. It should cover 110% of the contract value in the currency of the contract.

    The seller should offer a commercial invoice or an electronic record if this has been agreed between the parties, quality and quantity certificates if required in the sale contract, a marine insurance policy, a clean“ on board” bill of lading marked“ freight paid” or“ prepaid”.

    The seller must deliver the cargoes to the ship nominated by the buyer at the port of shipment on the date or within the period agreed in the sale contract.

    The seller must send notice to enable the buyer to arrange to take delivery of the cargoes when they arrive at the port of destination.

    （2）Company B’s responsibilities（buyer）:

    • The buyer pays for the cargoes as required in the sale contract;

    • The buyer must take delivery of the transport document（s）;

    • The buyer must take delivery of the cargoes when they arrive at the port of destination;

    • The buyer is responsible for obtaining an import license, paying import duties and taxes, clearance of cargoes from the port of destination, and transportation of cargoes from the port of destination to the buyer’s premises.