and dispatch.
• the «D» terms DAF, DES, DEQ, DDU, DDP whereby the seller bears all costs and risks needed to bring goods to place of destination.
The respective obligations of parties under each term are grouped under ten headings. Each heading on the seller’s side has its equivalent on the buyer’s side.
At first glance, it would seem best that each of the contracting parties limit its obligation as much as possible. The seller would then try to negotiate an Ex Works contract while the buyer would try to persuade the seller to deliver goods duty paid to the buyer’s premises. In practice, however, the situation is not that simple. A seller or a buyer cannot easily make a better contract merely by shifting functions, costs and risks to a contracting party. The parties involved will probably be guided by the following criteria:
Market situation
In a highly competitive market, the seller may wish to offer prices to the buyer that are comparable to prices offered in the buyer’s domestic market. The seller would then undertake to deliver the goods using the DDP term. As a minimum the seller would be obliged to arrange and pay for transportation by using the CIF term. One should remember that additional costs and risks accepted by the seller are always reflected in the price.
Control of transport and insurance
In some instances an exporter of large and regular volumes of goods may be in a position to obtain better terms from carriers and insurers than the occasional importer. It may be comparatively simple to arrange the transport in the country of export and the risk of something going wrong will be minimal. In such cases there is really no reason why the seller should limit his obligations under an Ex Works or FOB agreement. He could just as well accept a further obligation to arrange and pay for the carriage and insurance on CIF terms.
Sellers and buyers are not always prepared to accept risk of loss and damage to goods, or the risk of cost increases or circumstances hindering transport, in a foreign country. Under normal conditions of trade between countries with well-organized container ports and comparatively peaceful labour conditions, the risk of political disturbances, congestion in the ports, strikes or interruptions of trade may be minimal. In such cases, the seller may be prepared to assume the risk during transport, and to choose a term in which his responsibilities extend to the arrival of goods at destination (Delivered Duty Paid).
Government involvement
Directly or indirectly, government authorities may guide or even instruct parties in their country to sell on CIF terms and to buy on FOB terms. There are several reasons for this:
• trade terms constitute an important tool for directing the flow of goods to national shipping lines or other national carriers. They can also be used to promote the domestic insurance market.
• saving foreign currency. A seller who has undertaken to pay for carriage and insurance will include these costs in his price, and thereby obtain more foreign currency. On the other hand, a buyer who has assumed these costs will pay less for the actual goods, and may sometimes be able to pay for transportation and insurance services in domestic currency.
Use of exception clauses
It must be remembered that trade terms extending the seller’s obligations to delivery in the buyer’s country will not only mean additional costs for the seller but also additional risks. The risk of loss of goods or damage is perhaps not primarily important, since it is normally covered by cargo insurance.
Risks of cost increases and hindrances of various types are much more serious. Unforeseen events – such as the imposition of duties, other government interventions, labour disturbances, war or warlike operations – may put a heavy burden on the seller.
To a certain extent such risks may be modified and divided between the parties under terms other than Incoterms. Depending upon their wording, these terms may provide more or less protection; such protection, however, is seldom complete.
In view of the importance of Incoterms for international trade, we quote here five most frequently used terms from the ICC Incoterms 2000 (ICC publication № 560): EXW, FOB, CIF, CIP, DDP. In the following, each of the five Incoterms is briefly described, highlighting the main obligations of seller and buyer. The sections "The seller’s obligations"/ "The buyer’s obligations" serve at the same time as a checklist.
EXW, EX WORKS (…named place)
"Ex works" means that the seller delivers when he places the goods at the disposal of the buyer at the seller’s premises or another named place (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle.
This term thus represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the seller’s premises.
However, if the parties wish the seller to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale. This term should not be used when the buyer cannot carry out the export formalities directly or indirectly. In such circumstances, the FCA term should be used, provided the seller agrees that he will load at his cost and risk.
The Seller’s obligations
A1 Provision of goods in conformity with the contract
The seller must provide the goods and the commercial invoice or its equivalent electronic message, in conformity with the contract of sale and any other evidence of conformity which may be required by the contract.
A2 Licences,authorizations and formalities
The seller must render the buyer, at the latter’s request, risk and expense, every assistance in obtaining, where applicable, any export licence or other official authorization necessary for the export of the goods.
A3 Contracts of carriage and insurance
a) Contract of carriage
No obligation.
b) Contract of insurance
No obligation.
A4 Delivery
The seller must place the goods at the disposal of the buyer at the named place of delivery, not loaded on any collecting vehicle, on the date or within the period agreed or, if no such time is agreed, at the usual time for delivery of such goods. If no specific point has been agreed within the named place, and if there are several points available, the seller may select the point at the place of delivery which best suits his purpose.
A5 Transfer of risks
The seller must, subject to the provisions of B5, bear all risks of loss of or damage to the goods until such time as they have been delivered in accordance with A4.
A6 Division of costs
The seller must, subject to the provisions of B6, pay all costs relating to the goods until such time as they have been delivered in accordance with A4.
A7 Notice to the buyer
The seller must give the buyer sufficient notice as to when and where the goods will be placed at his disposal.
A8 Proof of delivery,transport document or equivalent electronic message
No obligation.
