Incoterms 2000
...tly changing needs of international trade. Here are some examples of the correct use of Incoterms: “FOB Liverpool Incoterms 2000”, and “CPT Smith Carriers, Inc. Main Warehouse New York Incoterms 2000”. Familiar mistakes that must be given attention and avoided is the wrongly use of the correct format of a term; for example, the term CFR which is persistently replaced with C&F which is the old CFR that belongs to Incoterms 1980, or C+F which has never existed. Finally, parties must inform their bank or insurance company which incoterms have been selected for their business, so that these banks or insurance companies can determine what are the parties’ duties and rights. IV. ICC Arbitration In case of a contractual dispute, the International Chamber of Commerce (ICC) offers arbitration services. Arbitration is in fact an important tool used to resolve commercial problems without litigation. It is a method of having a dispute between parties resolved by persons who are knowledgeable in the areas of disagreements. Those persons are called arbitrators. Arbitration has long been used as an alternative to the courts because it is a quick and low-cost process of solving complicated issues or disputes. So, parties choose arbitration as a means of resolving a dispute without pursuing the problem through courts. Parties wishing arbitration to be used in case of a dispute should mention it into their contract in advance. The following standard arbitration clause is suggested by ICC: “All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules” . V. Some important definitions There are 13 trade terms in Incoterms 2000, where each incoterm is a three-letter abbreviation related to where the seller’s responsibility ends, and that should be written into purchasing or shipping contracts. The parties involved in the sales contracts are not only the sellers and the buyers. There are also carriers and shippers. Let us take a look at some important terminologies. Carrier: It is the party who, in a contract of carriage, undertakes to procure the performance of carriage by rail, road, sea, air, or any combination of the modes. A carrier should be differentiated from a shipper. Shipper: It is the party turning the goods over for carriage, and contracting with the carrier. Freight Forwarder: It is the person acting as an agent in the transshipping of freight to or from foreign countries, and in the clearing of freight customs. Quay: It is a landing place built for ships to load or unload alongside. VI. Means of payment and documents used The most important means of payment that arise between parties using Incoterms 2000 are the following: Letter of credit: It is payment undertaking given by a bank to the seller and is issued on behalf of the applicant, i.e. the buyer. The buyer is the applicant and the seller is the beneficiary. Mail transfer, Western Union Money Transfer Service, CAD (Cash Against Documents). Wire Transfer: (SWIFT): is an easy and convenient term of payment used in international commercial terms. It costs less than $50 per transaction. Bill of lading: It is a document issued by a carrier and is a proof of the receipt of the goods. It’s also a contract of carriage and a document of title for the goods. It is expected that it will be replaced by electronic means in the near future. Commercial invoice: It is a complete record of the transaction between exporter and importer with regard to the goods sold. It also reports the content of the shipment and serves as the basis for all other documents about the shipment. Proforma invoice: The Proforma invoice is a legal document between the supplier and the customer to describe the details of a certain commodity. The Proforma invoice is needed for all international non document shipments, and is used for the customs in the country of destination to determine the customs value. EDI: Electronic Data Interchange - It is increasingly common for sellers to prepare and transmit documents electronically. VII. Parties’ obligations in each incoterm Sellers and buyers each have 10 obligations that they should be responsible for in a sales contract. The following 10 As are sellers’ obligations: A1: Provide the goods in conformity with the contract. A2: Licenses, authorizations and formalities. A3: Contracts of carriage and insurance. A4: Delivery. A5: Transfer of risks. A6: Division of costs. A7: Notice to the buyer. A8: Proof of delivery, transport document or equivalent electronic message. A9: Checking, packaging, marking. A10: Other obligations. The following 10 Bs are buyers’ obligations: B1: Payment of the price. B2: Licenses, authorizations and formalities. B3: Contracts of carriage and insurance. B4: Taking delivery. B5: Transfer of risks. B6: Division of costs. B7: Notice do the seller. B8: Proof of delivery, transport document or equivalent electronic message. B9: Inspection of goods. B10: Other obligations. VIII. How do Incoterms 2000 work? The 13 incoterms can be grouped in two ways . First, they can be grouped by their mode of transport. FAS, FOB, CFR, CIF, DES, and DEQ are applicable for sea transport only. DAF is an exclusively territorial incoterm. The remaining, which are EXW, FCA, CPT, CIP, DDU, and DDP are applicable for all modes of transport, including water. Second, incoterms can be classified into 4 categories: E, F, C, and D, where E-terms represent departure terms, F-terms are main carriage unpaid terms, C-terms are main carriage paid terms, and D-terms are arrival terms. Let’s see each one of them in more details . E-terms & F-terms (departure and main carriage unpaid terms) First of all, under EXW, the seller minimizes his risk by only making the goods available at his own premises. Under F terms and under FCA unless otherwise agreed, the seller arranges and pays for the pre-carriage in the country of export. EXW, or Ex-Works, (p.27), means that the seller has to make the goods available to the buyer at the seller’s premises (works, stock, factory etc.), as provided in the contract. The seller also bears all risks until delivery. The buyer is responsible for loading, export clearance, main carriage, on carriage, and import clearance costs. This term provides therefore the minimum obligations on a seller. FCA (... named place), or Free-Carrier, (p.33), means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place. The seller pays also for carriage to the named place (pre carriage) and bears all risk of loss or damage until delivery. Then, it’s up to the buyer to bear all other costs: unloading at point, main carriage, on carriage, and import clearance costs. FAS (...named port of shipment), or Free Alongside Ship, (p.41), means that the seller’s responsibilities are completed when the goods, cleared for export, have been placed alongside the ship on the quay at the named place of shipment. From that moment, the buyer is responsible for loading on board ship, main carriage, on carriage, and import clearance costs. He also bears all costs of risk of loss or damage. FOB (... named port of shipment), or Free On Board, (p.49), means that the seller’s responsibilities are completed when the goods, cleared for export, are placed on the ship by the seller at the named place of shipment. The risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship’s rail. The buyer is thus responsible for main carriage, on carriage, and import clearance costs. C-terms & D-terms (main carriage paid & arrival terms) Under C terms, the seller arranges and pays for the main carriage but without assuming the risk of the main carriage. Under D terms, the seller’s cost/risk is maximized because he must make the goods at the agreed destination. CFR (... named port of destination), or Cost & Freight, (p.57), means that the seller must clear the goods for export and pay the costs and freight necessary to bring them to the named place of transfer, but the risk of loss or damage to the goods, and any other costs, is transferred to the buyer when the goods pass the ship’s rail in the port of shipment. So the buyer is responsible for unloading at destination port, on carriage, and import clearance costs. CIF (... named port of destination), or Cost, Insurance and Freight, (p.65), is similar to the term CFR, but the seller must also procure marine insurance on the buyer’s behalf. The seller thus contracts with the insurer and pays the insurance premium, although the buyer has the risk of loss from the time the goods pass the ship’s rail in the port of shipment. CPT (... named place of des...