Alinea Customs provide guidance in understanding the eleven international terms established by the International Chamber of Commerce that govern a contract of sale in international trade.
If parties would like Incoterms® 2020 rules to apply, it is advisable to identify this within sales contracts and on their export agreements as follows:
“[the chosen incoterms rule], [named port, place, or point] Incoterms 2020”.
For example:
When you display the Incoterms rule you are using, it should be followed by a location and which version of Incoterms— Incoterms® 2020, Incoterms® 2010, or Incoterms® from some other year—that you are using.
The location depends on which Incoterm you are using. This will identify whether Incoterm rules with from the seller’s premises or the buyer’s, or the Incoterm rule with the ocean port of shipment and or the ocean port of destination.
The seller makes the goods available to the buyer at a named place, so the buyer can take over all the transportation costs and also bear the risk of bringing the goods to their final destination.
The buyer arranges both export and import customs clearance.
The seller is obliged to provide the buyer with the goods packaged ready to be transported, and the commercial invoice in conformity with the contract of sale and any other evidence of conformity required by the contract, and any information required for customs, transport security or insurance.
The buyer must pay the price of the goods as provided in the contract of sale.
· The EXW rule can be applied to any mode of transport
· The buyer is responsible for arranging transport
Where applicable the seller must assist the buyer, at the buyer’s request, risk and cost, in obtaining any documents and/or information related to all export/transit/import clearance formalities required by the countries of export/transit/import:
Such as:
· Export/transit/import licence
· Security clearance for export/transit/import
· Pre-shipment inspection; and
· Any other official authorisation
Where applicable, it is up to the buyer to carry out and pay for all export/transit/import clearance formalities required by the countries of export/transit/import:
Such as:
· Export/transit/import licence
· Security clearance for export/transit/import
· Pre-shipment inspection; and
· Any other official authorisation
· Customs duty and all tax payments
The parties are required to name the place of delivery. It is advisable, and in the best interests of the buyer, to clarify the precise point of delivery when the risk transfers to the buyer.
1.) When the named place is the seller’s premises, The goods are delivered once they are loaded onto means of transport organised by the buyer.
2.) When the named place is another place, the goods are delivered:
When, having been loaded onto the seller’s means of transport,
They reach the named other place and
Are ready for unloading from the seller’s means of transport and
Are at the disposal of the carrier or of another person nominated by the buyer.
The seller is responsible for export clearance.
The carrier may or may not accede to the buyer’s request, given that the carrier is only bound and entitled to issue a bill of lading once the goods are on board.
The seller must provide that same document to the buyer, who will need the bill of lading in order to obtain the discharge of the goods from the carrier.
This optional mechanism becomes unnecessary if the parties have agreed that the seller will present to the buyer a bill of lading stating simply that the goods have been received for shipment rather than that they have been shipped on board.
It should also be emphasised that even when this optional mechanism is adopted, the seller is under no obligation to the buyer as to the terms of the contract of the carriage.
Finally, when this optional mechanism is included, the dates of delivery inland and loading on board will necessarily be different, which may well create difficulties for the seller under a letter of credit.
• The seller is obliged to provide the buyer with the goods packaged ready to be transported, and the commercial invoice in conformity with the contract of sale and any other evidence of conformity required by the contract, and any information required for customs, transport security or insurance.
• The buyer must pay the price of the goods as provided in the contract of sale.
· The seller must deliver the goods to the carrier or another person nominated by the buyer at the named point, if any, at the named place, or procure goods so delivered. The seller must deliver the goods
1.) On the agreed date
Or
2.) A the time within the agreed period notified by the period or
3.) If no such time is notified the at the end of the agreed period.
· The buyer must notify the seller of:
a.) The name the carrier or another person nominated within sufficient time as to enable the seller to deliver the goods
b.) The selected time, if any, within the period agreed for delivery when the carrier or person nominated will receive the goods;
c.) The mode of transport to be used by the carrier or the person nominated including any transport-related security requirements; and
d.)The point where the goods will be received within the named place of delivery
· The buyer must take delivery of the goods and provide the seller with appropriate evidence of having taken delivery.
· The buyer bears all of the risks of loss or damage to the goods from the time they have been delivered if:
a.) The buyer fails to nominate a carrier or another person or to give notice to the seller; or
b.) The carrier or person nominated by the buyer fails to take the goods into its charge
i.) From the agreed date, or in the absence of an agreed date,
ii.) From the time selected by the buyer,or if no such time has been notified
iii.) From the end of any agreed period for delivery
· The goods are placed at the disposal of the buyer at a named place (such as a factory or warehouse) and agreed date or time period, and
· That named place may or may not be the premises of the seller.
· The seller is required to load the goods onto the collecting means of transport
· The seller is required to provide export clearance.
· The FCA rule can be applied to any mode of transport
· The buyer is responsible for arranging carriage from the named place of delivery
· Export clearance is the responsibility of the seller, and any further documents required by the country of export such as:
· an export licence
· Security clearance for export
· Pre-shipment inspection;
· Any other official authorisation
However, the seller is not obliged to clear the goods for transit through third countries, or import.
· Import clearance is the responsibility of the buyer. Where applicable, it is up to the buyer to carry out and pay for all transit/import clearance formalities required by the countries of export/transit/import:
Such as:
· Transit/import licence
· Security clearance for export/transit/import
· Pre-shipment inspection; and
· Any other official authorisation
· Customs duty and all tax payments
· The parties are required to name the place of delivery. It is advisable, and in the best interests of the buyer, to clarify the precise point of delivery when the risk transfers to the buyer.
· The buyer must give the seller sufficient notice that the goods have been delivered or that the carrier has failed to collect the goods within the agreed time period.
The seller is obliged to provide the buyer with the commercial invoice, goods packaged for transport, delivered for carriage to specified destination with the carriage paid for by the seller, export clearance, and any information required relating to transport security or insurance.
The seller delivers the goods – and transfers the risk to the buyer:
· By handing them over to the carrier
· Contracted by the seller
· Or by procuring the goods so delivered
· The seller may do so by giving the carrier physical possession of the goods in the manner or at the place appropriate to the means of transport used.
· Once the goods have been delivered to the buyer in this way, the seller is not obliged to insure the goods, and therefore CPT does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity, or indeed at all. This is because the risk transfers from the seller to the buyer by handing them over to the carrier.
· The seller has an obligation to contract for the carriage of the goods from delivery to an agreed destination.
The seller delivers the goods – and transfers the risk to the buyer:
· By handing them over to the carrier
· Contracted by the seller
· Or by procuring the goods so delivered
· The seller may do so by giving the carrier physical possession of the goods in the manner or at the place appropriate to the means of transport used.
· The seller has an obligation to contract for the carriage of the goods from delivery to an agreed destination.
· The seller is also obliged to contract for insurance cover against the buyer’s risk of loss or damage to the goods from the point of delivery to at least the point of destination. This may cause difficulties where the destination country requires insurance to be purchased locally: in this case the parties should consider buying and selling under CPT.
· In CIP two locations are important, the place and point (if any) at which the goods are delivered (for the transfer of risk) and the place or point agreed as the destination of the goods (as the point to which the seller promises to contract for the carriage).
· The seller must contract or procure a contract for the carriage of the goods from an agreed point of delivery to a named place of destination.
· The carriage is arranged at the seller’s cost and must provide for the carriage by the usual route in a customary manner for the type of goods which are sold.
· The CIP rule can be applied to any mode of transport
· The buyer should also note that under the CIP Incoterms 2020 rule, the seller is required to obtain extensive insurance cover complying with Institute Cargo Clauses (A) or similar clause, rather than with the more limited cover under Institute Cargo Clauses (C). It is, however, still open for the parties to agree on a lower level of cover.
· When required by the buyer, the seller must, subject to the buyer providing any necessary information requested by the seller, provide at the buyer’s cost any additional cover if procure-able, such as cover complying with the Institute War Clauses and/or Institute Strike Clauses (LMA/IUA) or any similar clauses (unless such cover is already included with the cargo insurance described in the preceding paragraph).
· The insurance shall cover, at a minimum, the price provided in the contract plus 10% (i.e. 110%) and shall be in the currency of the contract.
· The insurance shall cover the goods from the point of delivery to at least the named place of destination,
· The seller must provide the buyer with the insurance policy certificate or any other evidence of the insurance cover.
· The seller must provide the buyer at the buyer’s request, risk and cost, with the information that the buyer needs to procure any additional insurance.
· Export clearance is the responsibility of the seller, and any further documents required by the country of export such as:
· an export licence
· Security clearance for export
· Pre-shipment inspection;
· Any other official authorisation
However, the seller is not obliged to clear the goods for transit through third countries, or import.
· Import clearance is the responsibility of the buyer. Where applicable, it is up to the buyer to carry out and pay for all transit/import clearance formalities required by the countries of export/transit/import:
Such as:
· transit/import licence
· Security clearance for export/transit/import
· Pre-shipment inspection; and
· Any other official authorisation
· Customs duty and all tax payments
· The parties are advised to clearly identify both places or points within those places as precisely as possible in the contract of sale to cater for the common situation where several carriers are engaged, each for different legs of the transit from delivery to destination. Where this happens and the parties do not agree on a specific place or point of delivery the default position is that the risk transfers when the goods have been delivered to the first carrier of the seller’s choosing, and over which the buyer has no control.
· Should the parties wish to transfer the risk at a later stage (e.g. at a sea or river port) or an earlier one (e.g. an inland point) they must specify this in their contract of sale and consider the consequences of doing so in case the goods are lost or damaged.
· The parties are advised to clearly identify the place of destination, as this is the point to which the seller must contract the carriage and this is the point to which the costs of carriage fall on the seller.
· The seller is required bear the costs of loading the goods onto the collecting means of transport and any transport-related security costs.
· If the seller incurs costs under its contract of carriage related to unloading at the named placed of destination, the seller is not entitled to recover such costs separately from the buyer, unless otherwise agreed between the parties.
· The buyer must take delivery of the goods when they have been delivered, or receive them from the carrier at the named place of destination.
The seller pays for the carriage and insurance to the named overseas destination point, but risk passes when the goods are handed over to the first carrier. The default level of insurance cover under CIP is Institute Cargo Clauses (A). This is a higher level of cover for CIP than Incoterms 2010, which specified Institute Cargo Clauses (C).
· The seller is obliged to provide the buyer with the goods packaged ready to be transported, and the commercial invoice in conformity with the contract of sale and any other evidence of conformity required by the contract, and any information required for customs, transport security or insurance.
· The buyer must pay the price of the goods as provided in the contract of sale.
The seller delivers the goods – and transfers the risk to the buyer:
Export clearance is the responsibility of the seller, and any further documents required by the country of export such as:
Such as:
The seller clears the goods for export and bears all the risks and costs associated with delivering the costs to the named destination not unloaded. The buyer is responsible for the customs clearance import declaration, and the costs and risks associated with unloading the goods in the named country of destination.
The seller delivers the goods – and transfers the risk – to the buyer:
The seller bears all of the risk involved in bringing the goods to a named place of destination or to an agreed point within that place. In this Incoterms rule, therefore, delivery and arrival at destination are the same.
Export clearance is the responsibility of the seller, and any further documents required by the country of export such as:
However, the seller is not obliged to clear the goods for transit through third countries, or import.
Such as:
The parties are advised to specify the destination or point as clearly as possible for several reasons:
The seller arranges carriage and delivery of the goods, ready for unloading at the named place.
The seller is required to unload the goods at this destination. After the goods’ arrival, the customs clearance in the importing country needs to be completed by the buyer at his own cost and risk, including payment of all customs duties and taxes.
This is a retitling of the Incoterms 2010 term Delivered at Terminal (DAT), making it clear that delivery can happen anywhere, not just at a terminal.
The seller delivers the goods – and transfers the risk – to the buyer:
The seller bears all of the risk involved in bringing the goods to and unloading them at the named place of destination. In this Incoterm rules therefore the delivery and arrival at destination are the same.
Export clearance is the responsibility of the seller, and any further documents required by the country of export such as:
However, the seller is not obliged to clear the goods for transit through third countries, or import.
· Import clearance is the responsibility of the buyer. Where applicable, it is up to the buyer to carry out and pay for all transit/import clearance formalities required by the countries of export/transit/import
Such as:
The parties are advised to specify the destination or point as clearly as possible for several reasons:
The seller is responsible for export clearance, the costs of freight and delivering the goods to the named place in the country of the buyer, and customs clearance, Import VAT and all duty in the country of destination.
In short, the seller is responsible for payment of all the costs associated into bringing the goods to the destination, other than unloading the goods.
This terms is most frequently used in business to consumer transactions.
The seller delivers the goods – and transfers the risk – to the buyer:
-An export licence/transit/import licence
-Security clearance for export/transit/import
-Pre-shipment inspection; and
-Any other official authorisation
– Pay all customs duties and taxes including VAT
· For import clearance, there may be tax obligations such as customs duty and import VAT and these obligations may not be recoverable from the buyer.
The parties are advised to specify the destination or point as clearly as possible for several reasons:
The seller must place the goods alongside the ship at the named UK port.
The risk of loss or damage to the goods passes when the goods are alongside the ship, and the buyer bears all the costs from that moment on.
The seller delivers the goods – and transfers the risk – to the buyer:
The risk of loss or damage to the goods transfers when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.
However, the seller is not obliged to clear the goods for transit through third countries, or import.
Such as:
The parties are advised to specify as clearly as possible the loading point at the named point of shipment where the goods are to be transferred to the quay or the barge to the ship, as the costs and associated handling charges may vary according to the practices of the port.
The seller is responsible for all costs involved in the process up until the goods are loaded on to a vessel at the named UK port. Once goods have been loaded, the buyer is responsible for any costs and risks involved in the onward shipment.
The seller delivers the goods – and transfers the risk – to the buyer:
The risk of loss or damage to the goods transfers when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.
However, the seller is not obliged to clear the goods for transit through third countries, or import.
Such as:
The seller must clear the goods, and pay for the freight to bring the goods to the overseas port of destination.
The buyer assumes all risk for the goods from the time the goods have been delivered on board the vessel at the port of shipment.
The seller delivers the goods to the buyer:
The risk of loss or damage to the goods transfers when the goods are on board the vessel, such as the seller is taken to have performed its obligations to deliver the goods whether or not the goods actually arrive at their destination in sound condition, in the stated quantity, or indeed at all. In CFR, the seller owes no obligation to the buyer to purchase insurance: the buyer would be well advised therefore to purchase cover.
In CFR, two ports are important; the port where the goods are delivered on board the vessel and the port agreed as the destination of the goods. Risk transfers from the seller to the buyer when the goods are delivered to the buyer by placing them on board the vessel at the shipment port or by procuring the goods already so delivered. However, the seller must contract for the carriage of the goods from delivery to the agreed destination. Thus, for example goods are placed on board a vessel in Shanghai (which is a port) for carriage to Southampton (which is also a port).
Delivery here happens where the goods are on board in Shanghai, with risk transferring the buyer at that time; and the seller must make a contract of carriage from Shanghai to Southampton.
While the contract will always specify a destination port, it might not specify the port or shipment, which is where risk transfers to the buyer. If the shipment port is of particular interest to the buyer, as it may be, for example, where the buyer wishes to ascertain that the freight element of the price is reasonable, the parties are advised to identify it as precisely as possible in the contract.
The parties are well advised to identify as precisely as possible the point at the named port of destination, as the costs to that port are for the account of the seller. The seller must make a contract or contracts of carriage that cover (s) the transit of the goods from delivery to the named port or to the agreed point within that port where such a point has been agreed in the contract of sale.
It is possible that carriage is effected through several carriers for different legs of the sea transport, for example, first by a carrier operating a feeder vessel from Hong King to Shanghai, then on to an ocean vessel from Shanghai to Southampton. The question arises here whether the risk transfers from seller to buyer at Hong Kong or at Shanghai: where does delivery take place?
The parties may well have agreed this in the sale contract itself. Where there is no agreement the default position is that the risk transfers when the goods have been delivered to the first carrier, i.e. Hong Kong, increasing the period during which the buyer incurs the risk of loss or damage. Should the parties wish the risk to transfer at a later stage they should specify this in the contract of sale.
If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs separately from the buyer unless otherwise agreed between the parties.
However, the seller is not obliged to clear the goods for transit through third countries, or import.
Such as:
This is similar to CFR. The seller clears the goods for export and delivers them when they are on board the port of shipment. The seller bears the costs of freight and insurance to the named port of destination.
However, the seller must also obtain and pay for at least the default level of insurance cover under Institute Cargo Clauses (C). This applies to both 2010 and 2020 Incoterms.
The seller delivers the goods to the buyer:
The risk of loss or damage to the goods transfers when the goods are on board the vessel, such as the seller is taken to have performed its obligations to deliver the goods whether or not the goods actually arrive at their destination in sound condition, in the stated quantity, or indeed at all.
In CIF, two ports are important; the port where the goods are delivered on board the vessel and the port agreed as the destination of the goods. Risk transfers from the seller to the buyer when the goods are delivered to the buyer by placing them on board the vessel at the shipment port or by procuring the goods already so delivered. However, the seller must contract for the carriage of the goods from delivery to the agreed destination. Thus, for example goods are placed on board a vessel in Shanghai (which is a port) for carriage to Southampton (which is also a port). Delivery here happens where the goods are on board in Shanghai, with risk transferring the buyer at that time; and the seller must make a contract of carriage from Shanghai to Southampton.
While the contract will always specify a destination port, it might not specify the port or shipment, which is where risk transfers to the buyer. If the shipment port is of particular interest to the buyer, as it may be, for example, where the buyer wishes to ascertain that the freight element of the price is reasonable, the parties are advised to identify it as precisely as possible in the contract.
The parties are well advised to identify as precisely as possible the point at the named port of destination, as the costs to that port are for the account of the seller. The seller must make a contract or contracts of carriage that cover (s) the transit of the goods from delivery to the named port or to the agreed point within that port where such a point has been agreed in the contract of sale.
It is possible that carriage is effected through several carriers for different legs of the sea transport, for example, first by a carrier operating a feeder vessel from Hong King to Shanghai, then on to an ocean vessel from Shanghai to Southampton. The question arises here whether the risk transfers from seller to buyer at Hong Kong or at Shanghai: where does delivery take place?
The parties may well have agreed this in the sale contract itself. Where there is no agreement the default position is that the risk transfers when the goods have been delivered to the first carrier, i.e. Hong Kong, increasing the period during which the buyer incurs the risk of loss or damage. Should the parties wish the risk to transfer at a later stage they should specify this in the contract of sale.
The seller must also contract for insurance cover against the buyer’s risk of loss or damage to the goods from the port of shipment to at least the port of destination. This may cause difficulty where the destination country requires insurance cover to be purchased locally: in this case the parties should consider buying and selling under CFR. The should also note that under the CIF Incoterms 2020 rule the seller is required to obtain limited insurance cover complying with Institute Cargo Clauses (C). It is, however, still open to the parties to agree on a higher level of cover.
If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs separately from the buyer unless otherwise agreed between the parties.
However, the seller is not obliged to clear the goods for transit through third countries, or import.
Such as:
Visit the International Chamber of Commerce for further information.
1 Kingdom Street,
London,
W2 6BD
