International trade contracts are usually entered into between buyers, sellers, transporters and any other actor in the import-export
business and they usually involve the sale of goods between buyers (importers) and sellers (exporters) in different countries.
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Usually, international trade activities involve parties from different countries and this means that communication, transportation and other social, political issues will have to be resolved by the parties will be settled; who will bear the cost of transportation; who bear the risk of loss during transportation; and many other questions.
The
International Chamber of Commerce (ICC) came up with general rules, known as the International Commercial Terms (Incoterms), to guide parties to international trade contracts in stating their intentions as to the cost and risk implications and liabilities of parties to such contracts.
The first Incoterms rules were introduced in 1938, and since then, there have been seven revisions, with the last introduced in 2010.
We will now discuss the
contract terms covered under the Incoterms 2010.
When a contract is entered into on an EXW basis, it means that the seller will deliver the goods to the buyer at a named place, which under the standard sale of goods contract is the place of business of the sellers.
This means that the seller will not bear the cost of transportation or loading or any risk that occurs once delivery has been made. This is usually used for domestic contracts.
It would be very inconvenient for a buyer under an international contract for the sale of goods to contract on such terms because it requires the buyer to bear the cost of transportation, customs, insurance, taxes, loading and off-loading, and all costs incurred after the seller has made the goods available to the buyer at the seller’s place of business.
Under the FCA Contract, the seller clears the goods for export and delivers them to the buyer’s nominated and carrier receives the goods at the seller’s place of business, but where the named place of delivery is at a port, the seller does not bear the cost of loading or offloading.
Therefore, under the contract, the seller only bears the cost of export declaration and loading (where the goods are delivered at the seller’s place of business) because the seller’s obligations end at the loading of the goods onto a vehicle, he/she is not expected to offload goods which he/she has already borne the cost of loading in order to transport them to the port.
The contract only covers loading and not offloading.
This contract makes it the responsibility of the seller to pay carriage up to the named place of destination. This means that the seller is responsible for all transportation costs from the place of export, to the place of import, until the goods reach the named destination agreed by the parties.
The buyer is responsible for the cost of customs and import duties and insurance. It should be noted that the insurance cost is borne by the buyer under this type of contract, and the risk transfers to the buyer once the seller delivers the goods to the first carrier.
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Carriage and Insurance Paid To (CIP)
Under this type of contract, the seller is responsible for the cost of carriage and insurance up to the named place of destination. Although the seller bears the cost of insurance, the risk transfers to the buyer when the seller delivers the goods to the first carrier.
Therefore, the difference between this and the CPT Contract is that the seller here pays for insurance. The buyer remains responsible for the customs and import duties on the goods.
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Delivered at Terminal (DAT)
Under the DAT contract, the seller is responsible for all carriage cost up to the terminal or port at the place of import. The buyer, on the other hand, is responsible for the cost of insurance and custom and import duties.
It is the duty of the seller, under this type of contract, to pay for offloading the goods at the port of import and this is where the financial responsibility of the seller ends. The buyer is then responsible for loading the goods onto the vehicle at the port, and for transporting them to the named destination.
This contract term means that the seller is responsible for all costs incurred up to the point of delivery to the buyer at a named destination. The buyer is responsible for the cost of customs and import duties and insurance.
However, the risk does not transfer to the buyer until the goods have been delivered to him/her at the named destination.
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Delivered Duly Paid (DDP)
As the name implies, this type of contract vests full responsibility on the buyer for all carriage and duty costs until the goods are delivered to the buyer at all the named destination.
However, the buyer is responsible for bearing the cost of insurance. The risk transfers to the buyer upon delivery of the goods to him/her at the named destination.
This is the only contract term under the incoterms that places the responsibility for import duties on the seller.
Under a CFR contract, the seller is responsible for the cost of carriage up to the import port where the buyer becomes responsible for offloading the goods at the port, and any further transportation as well as insurance and import duties.
There is a sense of shared responsibility; here the goods are loaded onboard the ship for export.
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Free Alongside Ship (FAS)
The FAS contract places on the seller, the responsibility to deliver the goods alongside the ship for export. Therefore, the seller is responsible for carriage to the port and offloading the goods at the port, while the buyer is responsible for loading them for export and transporting them all the way to the destination.
The buyer is also responsible for insurance and import duties. Risk transfers to the buyer at the point when the goods are left alongside the ship.
This indicates that the seller will bear the cost of transportation until they have been loaded onboard the ship for export. The seller who is responsible for sending the goods to a buyer in another country will bear transportation costs (to take the goods to the ship) and landing costs (to put them on the ship), but, the buyer is responsible for paying the freight (cost of transportation on the ship) and insurance as well as import duties.
Risk transfers to the buyer when the goods are loaded onboard the ship. The parties must agree as to the port of shipment.
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Cost Insurance Freight (CIF)
The seller is responsible for the cost of carriage to the import port, while the responsibility of the buyer begins with the offloading of the goods at the port of import, and he/she is responsible for all costs to the destination.
The buyer is also responsible for the payment of customs and import duties. However, it is important to note that the seller is responsible for the cost of insurance, but the risk passes to the buyer once they have loaded at the port of shipment (for export).
Conclusion
As countries continue to cooperate and negotiate at the international level, international trade rules are constantly being developed, and international trade law and its institutions will continue to grow, it is important that everyone becomes familiar with the different aspects of this area of trade so that they can participate in the global discussion and development of these rules.
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This article was first published on 16th April 2021
foluke-akinmoladun
Foluke Akinmoladun is the Managing Solicitor of Trizon Law Chambers.
She has been a legal practitioner for 13 years and has experience in a wide range of commercial matters. She is a certified mediator, a member of the Chartered Institute of Arbitrators(UK), holds an Advanced Diploma in Accounting from the Association of Chartered Certified Accountants (UK) and is also a tax consultant. She is a dispute resolution expert, handling commercial disputes from negotiations all the way to litigation (if need be).
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