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ALL ABOUT INCOTERMS 2020 PART 2

FAS – Free next to the train

Free Side Ship means the seller delivers the goods to the buyer:

  • When the goods are placed alongside the vessel (for example on a wharf or barge), nominated by the buyer, at the named port of loading or when the seller purchases the goods so delivered.

The risk of loss or damage to the goods passes when the goods are alongside the vessel and the buyer must bear all costs from that point onwards.

This rule is only applicable to sea or inland waterway transport where the parties intend to deliver the goods by placing them alongside the ship. Therefore, the FAS rules are not appropriate where the goods are delivered to the carrier before they are delivered alongside the ship, for example when the goods are delivered to the carrier at the container terminal. In this case, parties should consider using the FCA rules instead of the FAS rules.

The Parties should identify as clearly as possible the loading point at the named port of loading where the goods will be transferred from the wharf or barge to the vessel as the costs and risks of reaching that location are the responsibility of the Party. seller and these costs and associated handling fees may vary depending on port practices.

Incoterms 2020 FAS requires the seller to clear the goods for export, if applicable. However, the seller is under no obligation to clear customs for import or transit through a third country, pay any import taxes or carry out any import customs formalities.

Using FAS, the seller is responsible for:

  • Export procedure costs: customs, taxes, export authorization, export security clearance and costs to obtain all official licenses;
  • The cost of providing the buyer with evidence that the goods have been delivered according to the contract;
  • Costs related to the transportation of goods until delivery;
  • Costs for control activities such as quality control, measuring, weighing, counting, and delivering appropriately labeled packaging.

The seller's obligations are presented below:

  • The seller must perform all obligations according to the delivery conditions specified in the contract. This means delivery of the goods together with the commercial invoice in accordance with the sales contract and other relevant documents.
  • He delivers the goods by placing them alongside the ship within the time previously specified and at the named port nominated by the buyer.
  • He notifies the buyer in advance about the delivery.
  • He himself provides documents confirming delivery to the buyer. If the evidence is a transport document, the seller must assist the buyer, at the buyer's request, risk and expense, in obtaining that document.
  • The seller assists the buyer at the buyer's request, risk and expense in obtaining any necessary documents for transit and import clearance procedures.
  • He packs and marks the goods.
  • He acts according to all requirements related to transportation until delivery of goods to the buyer.

On the other hand, the buyer bears:

  • Costs of import and transit procedures: customs, taxes, import licenses, import security clearance and costs of obtaining all official licenses;
  • Costs to obtain a contract of carriage;
  • Any additional costs if the buyer fulfills his obligations;
  • Costs related to signing a transportation contract.

The buyer's obligations are set out below:

  • He contracts for carriage from the named port of loading, intended from where the seller contracts for carriage (at the buyer's expense and risk).
  • He assists the seller, at his request, risk and expense, in obtaining any documents necessary for export clearance.
  • The buyer must notify the seller in advance of all safety requirements relating to carriage, name of vessel, loading point and delivery date within the period agreed in the contract.

FOB – Free on board

Delivery on board means the seller delivers the goods to the buyer:

  • Board the vessel, nominated by the buyer, at the named port of loading or purchase the goods so delivered.

The risk of loss or damage to the goods passes once the goods are on board and the buyer must bear all costs from that point onwards.

This rule is only applicable to sea or inland waterway transport where the parties intend to deliver the goods by placing them on board the vessel. Thus, the FOB rule is not appropriate when the goods are delivered to the carrier before they board the ship, for example when the goods are delivered to the carrier at the container terminal. In this case, the parties should consider using FCA rules instead of FOB rules.

FOB requires the seller to complete export customs clearance procedures, if any. However, the seller is under no obligation to clear customs for import or transit through a third country, pay any import taxes or carry out any import formalities.

Using Incoterms 2020 FOB, the seller bears the costs of:

  • Export customs clearance;
  • Regarding delivery to ship;
  • Related to damage to goods before loading onto the ship.

The main obligations of the seller are presented below:

  • The seller must deliver the goods on board the vessel at the place specified by the buyer. He must also bear the related costs.
  • He is allowed to export the product.
  • The seller must take full responsibility for any damage to the goods before loading them on board the ship.
  • He informs the buyer that the goods have been delivered on board the ship.
  • He gives out sales notes.
  • The seller is responsible for export customs clearance and related costs.

On the other hand, the buyer must bear the costs of:

  • Regarding the signing of transportation contracts;
  • Regarding import issues;
  • Import customs clearance;
  • Involves damage or theft of goods after loading on board the ship.

The main obligations of the buyer are set out below:

  • The buyer is responsible for any damage to the goods and theft after the goods have been loaded on board the vessel.
  • He bears the costs related to the conclusion of transport contracts and import matters.
  • He will inform the seller of the named port, ship name and delivery date.
  • He organizes import customs clearance and bears the related costs.

CFR - Costs and Freight

Cost and freight means the seller delivers the goods to the buyer

  • On the train
  • Or purchase goods that have been delivered as such.

The risk of loss or damage to the carriage of goods once on board the vessel, where the seller is deemed to have fulfilled his obligation to deliver whether or not the goods actually arrive at destination is in good condition, in the quantity stated or, indeed, at all. In the CFR, the seller has no obligation to the buyer to obtain insurance: the buyer should therefore purchase some insurance for himself.

CFR Incoterms 2020 rules are used only for sea or inland waterway transport. When multiple modes of transport are used, which is often the case when the goods are delivered to the carrier at the container terminal, the appropriate rule to use is CPT rather than CFR.

In CFR, two ports are important: the port where the goods are delivered on board the ship and the agreed port as the destination of the goods. Risk is transferred from the seller to the buyer when the goods are delivered to the buyer by placing them on board the vessel at the port of shipment or purchasing the goods so delivered. However, the seller must contract to transport the goods from the place of delivery to the agreed location. So, for example, goods are loaded onto a ship in Shanghai (which is a port) for transport to Southampton (also a port). Delivery here takes place when the goods are loaded on board the vessel in Shanghai, risk passing to the buyer at that time; and the seller must contract for transportation from Shanghai to Southampton.

Although the contract will always specify the port of destination, it may not specify the port of delivery, which transfers risk to the buyer. If the port of shipment is of particular interest to the buyer, for example where the buyer wants to be sure that the freight element in the price is reasonable, the parties should specify it as precisely as possible in the contract.

The parties should determine as accurately as possible the location at the named port of destination because the costs of reaching that location are for the seller's account. The seller must make a contract or contracts of carriage providing for the carriage of the goods from the place of delivery to the named port or to an agreed point within that port, where such point has been agreed in the purchase contract. sell.

It is possible that transport is carried out through several carriers for different sea transport legs, for example, first by a carrier operating a feeder vessel from Hong Kong to Shanghai, then Board a cruise ship from Shanghai to Southampton. The question here is whether the risk is transferred from the seller to the buyer in Hong Kong or Shanghai: where does the delivery take place? The parties may have agreed on this right in the sales contract. However, in the absence of such an agreement the default position is that risk passes when the goods are delivered to the first carrier, i.e. Hong Kong, thereby increasing the time within which the buyer must bear the risk of loss or damage. If the parties wish to transfer risk at a later stage (here in Shanghai), they need to clearly state this in their sales contract.

If the seller incurs costs under the contract of carriage in connection with unloading the goods at the named place at the port of destination, the seller is not entitled to recover those costs separately from the buyer unless otherwise agreed. between parties.

The CFR requires the seller to clear the goods for export, if applicable. However, the seller is under no obligation to clear customs for import or transit through a third country, pay any import taxes or carry out any import customs formalities.

When using Incoterms 2020 CFR, the seller is responsible for:

  • Tax costs in the country where the goods are produced;
  • Port fees at departure port;
  • Cost of transporting goods to port;
  • Cost of applying for an export license;
  • Customs duties and taxes in the country of departure;
  • Expenses for checking the quality of goods, weighing, measuring, and counting necessary goods before loading goods onto the ship;
  • Cost of providing transport documents issued to the port of destination and its electronic copy;
  • Shipping costs must be paid by the seller according to the shipping contract;
  • Security clearance costs for exported goods as well as packaging of goods safely and with appropriate labels.

The main obligations of the seller are presented below:

  • The seller is responsible for loading the goods at the point of origin of shipping.
  • He must draw up a contract of carriage.
  • The seller delivers the goods on board the vessel together with the commercial invoice at the place designated by the buyer and bears the costs related thereto.
  • The seller controls the quality of goods, weighs, measures, and counts goods - necessary before loading goods onto the ship.
  • He is responsible for safely packaging the goods required for transportation to avoid unnecessary risks.
  • The seller operates in accordance with all transport-related security requirements for transport to destination.
  • He provides the transport document issued to the destination port of the goods and a copy of that document in electronic form.
  • He provides information to the buyer on the costs and risks necessary to obtain insurance.

Buyer bears:

  • Tax costs in the destination country;
  • Insurance costs during transportation;
  • Transportation costs from home port to headquarters;
  • Costs to obtain import licenses necessary for the transaction and costs related to import customs clearance;
  • Customs fees in transit countries and destination countries;
  • Charges arising from inspection of the goods before delivery, unless this is required in the country where the goods are being shipped;
  • Cost of notifying the seller of the requested shipping date and destination port;
  • All costs relating to transit, unless otherwise stated in the contract of carriage;
  • Unloading costs, unless otherwise stated in the contract of carriage.

The main obligations of the buyer are set out below:

  • The buyer receives the goods at the time and place specified in the contract.
  • He transports goods from the destination port to the main office and unloads the goods at the port.
  • The buyer informs the seller of the port of destination and delivery date.
  • The buyer obtains the necessary import licenses for the transaction and bears the costs of customs clearance.
  • He must carry out control of the goods before transport (if this is required in the country where the goods are transported).

CIF – Cost and freight insurance

Cost and freight insurance means that the seller delivers the goods to the buyer on board or purchases the goods so delivered. Risk of loss or damage to the carriage of goods once on board the vessel, where the seller is deemed to have fulfilled his obligation to deliver even if the goods actually arrive at destination in the same condition. intact or not, in the stated quantity or, indeed, at all.

This rule applies only to sea or inland waterway transport. When multiple modes of transport are used, which is often the case when the goods are delivered to the carrier at the container terminal, the appropriate rule to use is CIP rather than CIF.

In Incoterms 2020 CIF, two ports are important: the port where the goods are delivered on board the vessel and the agreed port as the destination of the goods. Risk is transferred from the seller to the buyer when the goods are delivered to the buyer by placing them on board the vessel at the port of shipment or purchasing the goods so delivered. However, the seller must contract to transport the goods from the place of delivery to the agreed location. So, for example, goods are loaded onto a ship in Shanghai (which is a port) for transport to Southampton (also a port). Delivery here takes place once the goods have been loaded on board the vessel in Shanghai, the risk passing to the buyer at that time: and the seller must contract for carriage from Shanghai to Southampton.

Although the contract will always specify the port of destination, it may not specify the port of delivery, which transfers risk to the buyer. If the port of shipment is of particular interest to the buyer, for example where the buyer wants to be sure that the freight or insurance element in the price is reasonable, the parties should accurately identify that port as the port of delivery. row. Incoterms 2020 may be included in the contract
The parties should determine as accurately as possible the location at the named port of destination because the costs of reaching that location are for the seller's account. The seller must make a contract or contracts of carriage providing for the carriage of the goods from the place of delivery to the named port or to an agreed point within that port, where such point has been agreed in the purchase contract. sell.

It is possible that the transport is carried out through a number of transits for different stages of ocean transport, for example, first by a carrier operating a feeder vessel from Hong Kong to Shanghai, then Then board a ship from Shanghai to Southampton. The question here is whether the risk is transferred from the seller to the buyer in Hong Kong or Shanghai: where does the delivery take place? The parties may have agreed on this right in the sales contract. However, in the absence of such an agreement the default position is that risk passes when the goods are delivered to the first carrier, i.e. Hong Kong, thereby increasing the time within which the buyer must bear the risk of loss or damage. If the parties wish to transfer risk at a later stage (here in Shanghai), they need to clearly state this in their sales contract.

The seller must also contract insurance 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 can cause difficulties where the destination country requires insurance to be purchased locally: in this case the parties should consider purchasing under the CFR. Buyers should also note that under the Incoterms 2020 CIF regulations, the seller must purchase limited insurance in compliance with the Institute Goods Clauses or similar provisions, rather than having broader coverage under the Incoterms 2020 CIF regulations. Institute Goods Terms. However, it is still possible for the parties to agree on a higher insurance level.

If the seller incurs costs under the contract of carriage in connection with unloading the goods at the named place at the port of destination, the seller is not entitled to recover those costs separately from the buyer unless otherwise agreed. between parties.

CIF requires the seller to complete export customs clearance procedures if applicable. However, the seller is under no obligation to clear customs for import or transit through a third country, pay any import taxes or carry out any import customs formalities.

Using Incoterms 2020 CIF conditions, the seller bears the costs:

  • Export clearance;
  • Delivery to ship;
  • Regarding the issuance and sending of commercial invoices;
  • Apply for export licenses or other permits;
  • Sign shipping contract;
  • Insurance;
  • Product packaging and marking;
  • Providing information to the buyer (for example, the goods have been delivered on board);
  • Quality control (measuring, weighing, counting).

The seller's obligations are presented below:

  • The seller is obliged to contract for carriage to the named port of loading at his own expense.
  • He signed and paid the cost of the freight contract.
  • The seller is responsible for loading the goods onto the vessel.
  • The seller is obliged to conclude an insurance contract (with minimum insurance coverage) and deliver it to the buyer.
  • He is responsible for export customs clearance and related costs.

On the other hand, the buyer must bear the costs of:

  • Inform the seller of the shipment date and destination port;
  • Import licenses and other licenses;
  • Import;
  • Obtain documents (or equivalent electronic documents) necessary for the buyer to import or transit the goods;
  • Not within the scope of the contract or not a freight charge but related to the goods in transit from the port of loading;
  • Also, if the buyer does not notify the seller of the shipping time or destination.

The buyer's obligations are shown below:

  • The buyer is responsible for any damage or theft of the goods after they have been loaded on board the vessel.
  • He is obliged to bear all necessary costs to obtain a certificate of origin, consular documents and import duty rates.
  • He must inform the seller of the named port, the name of the vessel and the date of delivery.
  • He organizes import customs clearance and bears all related costs.
  • The buyer must obtain all necessary documents for import or transit.

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