INCOTERMS

Contents :

  1. F.O.B (...named port of shipment)
  2. Seller's duties
  3. Buyer's duties
  4. Required documents
  5. Delivery
  6. Risk
  7. Property
  8. Strict (Classic) F.O.B Contract
  9. F.O.B Contract with Additional Services
  10. C.I.F (...named port of destination)
  11. Seller's duties
  12. Buyer's duties
  13. Required documents
  14. Delivery
  15. Risk
  16. Property
  17. Damaged Goods
  18. General
  19. S.O.G.A. '79

INCOTERMS

1 ) F.O.B (...named port of shipment)

F.O.B is a shipment contract.
Free on Board means that the seller fulfills his obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. This means that the buyer has to bear all costs (freight and insurance) and risks of loss of, or damage to, the goods from that point.


Seller's duties:

  1. supply the goods in accord with the contract of sale,
  2. provide at his expense the customary packing of the goods (if required),
  3. provide the buyer on request and at his expense with the Certificate of Origin,
  4. bear the cost of conveying the goods to the ship,
  5. provide export clearance (export license, pay export taxes and fees if required).
  6. deliver the goods on board the nominated vessel at the named port of shipment within the agreed period or on the agreed date (and bear the cost of so doing),
  7. supply at his expense the requisite documentation as proof of delivery of the goods alongside the named vessel,
  8. pay loading costs according to the custom of the port to the extent that they are not included in the freight,
  9. provide a clean on board receipt,
  10. give notice of the shipment to the buyer so as to enable him to insure.


Buyer's duties:

  1. arrange at his own expense pre-shipment inspection,
  2. nominate a carrier,
  3. contract for the (sea) carriage and pay the freight,
  4. contract and pay for the insurance of the goods (if he wishes),
  5. pay loading costs to the extent that they are included in the freight,
  6. pay all costs to obtain the bill(s) of lading, Certificate of Origin, etc.,
  7. pay unloading costs.


Required documents:

  1. commercial invoice,
  2. customary clean receipt,
  3. export license.


Delivery:

Delivery is complete when the goods are put on board the ship.


Risk:

The seller bears all risks of loss of, or damage to, the goods until such time as they have passed the ship's rail at the named port of shipment. Up to the point of crossing the ship's rail, the risk on the goods lies upon the seller.


Property:

Property in the goods shall pass on the delivery of the bill of lading (unless otherwise agreed).


1.1 Strict (Classic) F.O.B Contract:

  1. arrangements for shipment and insurance are made by the buyer directly,
  2. the buyer has to name to the seller an effective ship, i.e. a ship ready, willing and able to carry the goods away from the port of shipment within the stipulated shipping time,
  3. if the buyer fails to nominate a ship, the seller cannot make such nomination.


1.2 F.O.B Contract with Additional Services:

i) arrangements for the carriage by sea and insurance shall be made by the seller, but for and on behalf of the buyer and for his account,
ii) if after the conclusion of the contract of sale these charges are increased, the buyer has to bear the increase (or refund the seller if he has already paid the increased charges).


2) C.I.F (...named port of destination)

C.I.F is a shipment contract.


Cost, Insurance and Freight means that the seller has the same obligation as under CFR but with the addition that he has to procure marine insurance against the buyer's risk of loss, or damage to, the goods during the carriage. The seller contracts for insurance and pays the insurance premium.

The contract is performed by the seller by delivery of the shipping documents to the buyer, and not by delivery of the goods.


Seller's duties:

  1. supply the goods in accord with the contract of sale terms,
  2. provide and pay for the customary packing of the goods (if required),
  3. contract for the carriage of the goods and pay the freight to the named port of destination,
  4. contract for the insurance of the goods during the carriage (minimum coverage is only required; price of the goods + 10%) and pay the insurance premium,
  5. provide and pay for export clearance (export license, pay export taxes and fees, if required),
  6. bear all the risk of goods until they have effectively passed the ship's rail,
  7. deliver the goods (of the description contained in the contract) on board the ship at the port of shipment,
  8. arrange and pay loading costs,
  9. give proper notice of shipment to the buyer,
  10. tender, within a reasonable time after shipment, the clean negotiable 'shipped on board' Bill of Lading, the policy or certificate of insurance and the commercial invoice and the Certificate of Origin to the buyer so that the buyer may obtain delivery of the goods.
  11. pay unloading costs to the extent that they are included in the freight,


Buyer's duties:

  1. arrange and pay for pre-shipment inspection (if he wishes),
  2. pay the price, less the freight, on delivery of the shipping documents (pay all costs in obtaining the documents),
  3. accept delivery of the goods upon shipment at the named port of destination when the invoice, the cargo insurance policy or other evidence of insurance cover, the Certificate of Origin and the transport document are tendered to him, and receive the goods from the carrier at the named port of destination,
  4. pay unloading, lighterage and landing costs at the port of destination according to the bill of lading and to the extent that they are not included in the freight,
  5. pay customs, import duties and wharfage charges and obtain import license.


Required documents:

  1. commercial invoice (representing the contract of sale),
  2. transport document (the bill of lading, representing the contract of carriage by sea),
  3. export license,
  4. insurance policy or certificate (representing the contract of marine insurance).


Delivery:

"The seller discharges his obligations as regards delivery by tendering a bill of lading covering the goods."


Risk:

The seller bears all risks of loss, or damage to the goods until such time as they have passed the ship's rail at the port of shipment.

During the voyage the goods are at the risks of the buyer (covered in ordinary by insurance).


Property:

(a) property passes when the shipping documents are taken up by the buyer, but "what the buyer obtains, when the title under the documents is given to him, is the property in the goods, subject to the conditions, if upon examination he finds them to be not in accordance with the contract".


Damaged Goods:

Under the C.I.F contract it is immaterial whether the goods arrive safely at the port of destination. If they are lost or damaged in transit, the marine insurance should cover the loss or damage and, by virtue of the transfer of the bill of lading and the insurance policy, the buyer has direct contractual claims against the shipowner or the insurer.


General:

The maritime Incoterms FOB and CIF are appropriate when goods are handed over to the carrier at the ship's side.

These trade terms deal only with question relating to the delivery of the goods (delivery terms).

While Incoterms specifically deal with questions of division of risk of loss of, or damage to, the goods between seller and buyer they do not deal with property rights; i.e. they do not involve questions relating to the transfer of property or the transfer of title to the goods. Property rights are determined by the S.O.G.A. '79.

Incoterms do not themselves deal with breach of contract and consequences following from it.


S.O.G.A. '79

According to the S.O.G.A. '79 the seller's basic obligation in an F.O.B contract, is to put the goods on board a ship and to pay the expenses of so doing. Nevertheless, the precise obligations depend on the terms of the agreement, and in the leading case [Pyrene Co.Ltd v. Scindia Navigation Co.Ltd (1954)].

In a C.I.F contract, the seller has to arrange for the shipment of the goods and he contracts directly with the carrier for their shipment. After they have been shipped, the property in the goods passes to the buyer in accordance with the intention of the parties. The leading case determining the precise obligations in C.I.F contracts is [Comptoir d' Achat v. Louis de Ridder (The Julia) 1949] .

Copyright ©, 1997 Marinet