Incoterms

A Guide to Incoterms® 2020

The introduction of the new CDS platform has resulted in the legal obligation to submit the Incoterms® relating to all imports to HMRC from 30 September 2022.


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.



The use of Incoterms® establishes a consensus rule applied on a global basis, and answers to the following questions:


  • Who pays for the main transport?

  • Where does the delivery take place?

  • Where and when the risk is transferred from the Seller to the Buyer?

  • Which party bears the fees arising from transport - the issue of documents, unloading of goods at destination, cost of freight, customs clearance at export and import, and the insurance of goods etc?


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:


  • CIF Shanghai Incoterms® 2020, or

  • DAP No 123, ABC Street, Nation of Destination, Incoterms® 2020.


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.


1. Ex Works “EXW (insert named place of delivery) Incoterms 2020”


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.


General Obligations


· 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.


Delivery and risk


· The seller must deliver the goods by placing them at the disposal of the buyer at an agreed point at the named place of delivery.

· If no specific point has been agreed within the named place of delivery, and if there are several points available, the seller may select the point that best suits its purpose.

· The seller must deliver the goods at the on the agreed date within the agreed period. The buyer must take delivery of the goods.

· The buyers bears all of the risks of loss or damage to the goods from the time they have been delivered.

· The buyer is entitled to determine the time frame of the delivery and is required to give the seller sufficient notice.

· The buyer must provide the seller with appropriate evidence of having taken delivery.

· The goods are placed at the disposal of the buyer at a named place (such as a factory or warehouse), and

· That named place may or may not be the premises of the seller.

· The seller is not required to load the goods onto the collecting vehicle.

· The seller is not required to provide export clearance.


Mode of transport


· The EXW rule can be applied to any mode of transport

· The buyer is responsible for arranging transport


Customs Clearance


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


Place or Precise point of delivery


· 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.


2. Free Carrier “FCA (named place) Incoterms 2020”


The seller is responsible for delivery of goods to the buyer in one or other of two methods:


1.) When the named place is the seller’s premises,

o 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:


o When, having been loaded onto the seller’s means of transport,

o They reach the named other place and

o Are ready for unloading from the seller’s means of transport and

o Are at the disposal of the carrier or of another person nominated by the buyer.


The seller is responsible for export clearance.


The new Incoterms® 2020 rules also present the following optional mechanism – if the parties have so agreed in advance in the contract, the buyer may instruct its carrier to issue a bill of lading with an onboard notation to the seller, at the buyer’s cost and risk. 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.


General Obligations


· 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.


Delivery and risk


· 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


Then then buyer bears all risks of loss or damage to the goods:


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


Provided that the goods have been clearly identified as contract goods.


· 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.


Mode of transport


· The FCA rule can be applied to any mode of transport

· The buyer is responsible for arranging carriage from the named place of delivery


Customs Clearance


· 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


Place or Precise point of delivery


· 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.


3. Carriage Paid To “CPT (insert place of destination) Incoterms 2020”


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.


General Obligations


· 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.


Delivery and risk


· In CPT 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 deliver the goods by handing them over to the carrier or procuring the goods so delivered. The seller must deliver the goods on the agreed date or within the agreed period.

· The buyer must take delivery of the goods when they have been delivered and receive them from the carrier at the named place of destination, or if agreed, from a point within that place.

· The buyer bears all of the risks of loss or damage to the goods from the time until they have been delivered.

· If the buyer fails to give notice, then the buyer bears all of risks of loss or damage to the goods from the agreed date or the end of the agreed period for delivery, provided that the goods have been clearly identified as the contract goods.

· 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.


Mode of transport


· The CPT rule can be applied to any mode of transport


Customs Clearance


· 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


Place or Precise point of delivery


· 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 to bear 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.


4. Carrier and Insurance Paid to “CIP (insert named place of destination) Incoterms 2020”


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).


General Obligations


· 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.


Delivery and risk


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.


Mode of transport


· The CIP rule can be applied to any mode of transport


Insurance


· 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.


Customs Clearance


· 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


Place or Precise point of delivery


· 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.


5. Delivered at Place “DAP (insert named placed of destination) Incoterms 2020”


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.


General Obligations


· 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.


Delivery and risk


The seller delivers the goods – and transfers the risk – to the buyer:

· When the goods are placed at the disposal of the buyer

· On the arriving means of transport ready for unloading

· At the named placed of destination or

· At the agreed point within that place if any such point is agreed

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.

· The seller has no obligation to provide insurance

· The buyer must take delivery of the goods when they have been delivered to the named place of destination.


Mode of transport


· The DAP rule can be applied to any mode of transport


Customs Clearance


· 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


Place or Precise point of delivery


The parties are advised to specify the destination or point as clearly as possible for several reasons:

· Risk of loss or damage to the goods transfers to the buyer at that point of delivery/destination – and it is best for the seller and the buyer to be clear about the point at which that critical transfer happens.

· The costs before that place or point of delivery/destination are for the account of the buyer.

· The seller must contract or arrange for the carriage of the goods to the agreed place or point of delivery/destination. If the seller fails to do so, a breach of the obligations of the DAP rule would occur will be liable to the buyer for any ensuing loss, for example the seller would be responsible for any additional costs levied by the carrier to the buyer for any additional on-carriage.

· The seller is not required to unload the goods from the arriving means of transportation. However, if the seller incurs costs under its contract of carriage relating to unloading at the place of delivery/destination, the seller is not entitled to recover such costs separately from the buyer unless otherwise agreed by the parties.

· The seller is not required to bear the costs of unloading from the arriving means of transportation


6. Delivered at Place Unloaded “DPU (insert named placed of destination) Incoterms 2020”


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.


General Obligations


· 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.


Delivery and risk


The seller delivers the goods – and transfers the risk – to the buyer:

· When the goods

· Once unloaded from the arriving means of transport

· are placed at the disposal of the buyer

· At the named placed of destination or

· At the agreed point within that place if any such point is agreed


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.

· DPU is the only Incoterms rule that requires the seller to unload the goods at destination. The seller should therefore ensure that it is in a position to organise unloading at the named place.

· The seller has no obligation to provide insurance

· The buyer must take delivery of the goods when they have been delivered to the named place of destination.


Mode of transport


· The DPU rule can be applied to any mode of transport


Customs Clearance


· 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


Place or Precise point of delivery


The parties are advised to specify the destination or point as clearly as possible for several reasons:

· Risk of loss or damage to the goods transfers to the buyer at that point of delivery/destination – and it is best for the seller and the buyer to be clear about the point at which that critical transfer happens.

· The costs before that place or point of delivery/destination are for the account of the buyer.

· The seller must contract or arrange for the carriage of the goods to the agreed place or point of delivery/destination. If the seller fails to do so, a breach of the obligations of the DPU rule would occur will be liable to the buyer for any ensuing loss, for example the seller would be responsible for any additional costs levied by the carrier to the buyer for any additional on-carriage.

· The seller must unload the goods from the arriving means of transport and must deliver them by placing them at the disposal of the buyer at an agreed point, if any, at the named placed of destination or by procuring the goods so delivered. In either case the seller must deliver the goods on the agreed date or within the agreed period.


7. Delivered Duty Paid “DDP (Insert named place of destination) Incoterms 2020”


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.


General Obligations


· 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.


Delivery and risk


The seller delivers the goods – and transfers the risk – to the buyer:

· When the goods are placed at the disposal of the buyer

· Cleared for import

· On the arriving means of transport

· Ready for unloading

· At the named place of destination or at the agreed point within that place, if any such point is agreed.

· The seller bears all of the risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterm rule, therefore delivery and arrival at destination are the same.

· DDP is the maximum level of responsibility that can be placed on the buyer with delivery happening at destination and with the seller being responsible for the payment of import duty and applicable taxes, imposing on the seller the maximum level of obligation of all eleven Incoterms rules.


Mode of transport


· The DDP rule can be applied to any mode of transport


Customs Clearance


· DDP requires the seller to clear the goods for export, and any further documents required by the country of export such as:

· DDP requires the seller to carry out and pay for all export/transit/import formalities such as

o an export licence/transit/import licence

o Security clearance for export/transit/import

o Pre-shipment inspection; and

o Any other official authorisation

o 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.


Place or Precise point of delivery


The parties are advised to specify the destination or point as clearly as possible for several reasons:

1. Risk of loss or damage to the goods transfers to the buyer at that point of delivery/destination – and it is best for the seller and the buyer to be clear about the point at which that critical transfer happens.

2. The costs before that place or point of delivery/destination are for the account of the buyer.

3. The seller must contract or arrange for the carriage of the goods to the agreed place or point of delivery/destination. If the seller fails to do so, a breach of the obligations of the DDP rule would occur will be liable to the buyer for any ensuing loss, for example the seller would be responsible for any additional costs levied by the carrier to the buyer for any additional on-carriage.


Incoterms for Sea and Inland Waterway Transport


8. Free Alongside Ship (FAS) “Free Alongside Ship Incoterms 2020”


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.


Delivery and risk


The seller delivers the goods – and transfers the risk – to the buyer:

· When the goods are placed alongside the ship (e.g. on a quay or a barge)

· Nominated by the buyer

· At the named port of shipment

· Or when the seller procures goods already so delivered

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.


Mode of transport


· The FAS rule is to be used for only sea or inland waterway transport where the parties intend to deliver the goods by placing the goods alongside a vessel. Therefore, the FAS rule is not appropriate where goods are handed over to the carrier before they are alongside the vessel, for example where the goods are handed over to a carrier at a container terminal. Where this is the case, parties should consider using the FCA rule rather than the FAS rule.

· The seller has no responsibility to provide insurance.


Customs Clearance


· 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


Identifying the loading point precisely


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 required to either deliver the goods alongside the ship or to procure goods already so delivered for shipment. The reference to “procure” here caters for multiple sales down a chain (string sales), particularly common in the commodity traders.


9. Free on Board (FOB) “Free on board (insert named port of shipment) Incoterms 2020”


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.


General Obligations


· 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.


Delivery and risk


The seller delivers the goods – and transfers the risk – to the buyer:

· On board the vessel

· Nominated by the buyer

· At the named port of shipment

· Or procures goods already so delivered

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.


Mode of transport


· The FOB rule is to be used for only sea or inland waterway transport where the parties intend to deliver the goods by placing the goods on board a vessel. Therefore, the FOB rule is not appropriate where goods are handed over to the carrier before they are alongside the vessel, for example where the goods are handed over to a carrier at a container terminal. Where this is the case, parties should consider using the FCA rule rather than the FOB rule.

· The seller has no responsibility to provide insurance.

· The seller is required to either deliver the goods on board the vessel or to procure goods already delivered for shipment. The reference to “procure” caters for multiple sales down a chain (string sales) particularly common in the commodity trades.

· The seller has no obligation to the buyer to make a contract of carriage.


Customs Clearance


· 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


10. Cost and Freight (CFR) “Costs and freight (insert named port of destination) Incoterms 2020”


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.


Delivery and risk


The seller delivers the goods to the buyer:

· On board the vessel

· Or procures goods already so delivered

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


Mode of transport


· The CFR rule is to be used for only sea or inland waterway transport. Where more than one mode of transport is to be used, which will commonly be the case where goods are handed over to a carrier at a container terminal, the appropriate rule to use is CPT rather than CFR.

· The seller has no responsibility to provide insurance.

· The reference to “procure” caters for multiple sales down a chain (string sales) particularly common in the commodity trades.


Port of delivery and destination


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.


Must the shipment port be named?


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.


Identifying the destination point at the discharge port


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.


Multiple carriers


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.


Unloading costs


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.


Customs Clearance


· 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


11. Cost, Insurance and Freight “CIF (Insert named port of destination) Incoterms 2020”


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.


General Obligations


· 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.


Delivery and risk


The seller delivers the goods to the buyer:

· On board the vessel

· Or procures goods already so delivered

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.

· The reference to “procure” caters for multiple sales down a chain (string sales) particularly common in the commodity trades.


Mode of transport


· The CIF rule is to be used for only sea or inland waterway transport. Where more than one mode of transport is to be used, which will commonly be the case where goods are handed over to a carrier at a container terminal, the appropriate rule to use is CIP rather than CIF.


Port of delivery and destination


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.


Must the shipment port be named?


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.


Identifying the destination point at the discharge port


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.


Multiple carriers


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.


Insurance


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.


Unloading costs


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.


Customs Clearance


· 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


Visit the International Chamber of Commerce for further information.