Friday, February 28, 2020

Beware a Lack of Knowledge When Incoterms and Contract Details Affect Export and Import Shipments

Revised ICC Terms Need to Be Studied by Freight Forwarding Agents and Suppliers Alike
Shipping News Feature

UK – WORLDWIDE – Every decade since 1980 the standard terms of contract between exporters and importers have been updated by the International Chambers of Commerce (ICC). Known collectively as Incoterms all shipping and forwarding agents, as well as merchants, should be familiar with a full glossary of the terms so essential in making each party in a transaction fully aware of their responsibilities.

Incoterms have in fact been around since 1936 and in January of this year a new set of less familiar terms were introduced. Those seeking to understand the full meaning of the terms can take a course with the ICC Academy to gain a certificate proving their comprehension of them, but for most however a working knowledge of exactly what they are buying into will probably be enough.

Certain changes introduced this year have a particular relevance, the term FCA (Free Carrier) seems to be superseding the previously favoured FOB (Free on Board). FOB shipments leave the seller exposed to problems at the loading port. The seller remains liable for the goods right up until the moment they actually cross the deck onto the ship. FCA can be used for any transport mode, or a series of transport modes and is seen as a very flexible rule that is suitable for all situations where the buyer arranges the main carriage.

This allows the seller to extract a ‘named place’ from the buyer, which could be for example a freight terminal. When delivery is effected and the goods signed for then responsibility passes to the buyer. The term also affects ‘ex works’ status as it means under FCA terms even if the named place is the seller’s premises, the goods have to actually be loaded onto the collecting transport before he or she can absolve themselves of responsibility.

Additionally not only is the physical loading the seller’s responsibility, but so too is the need to undertake any export procedures, something not considered under ex works terms.

FCA is, as we say, also often considered for containerised cargo, which is of course where most forwarding agents will come across it. Under this term a buyer can authorise the carrier to issue an ‘on board’ Bill of Lading to the seller once the goods are loaded. This can then be passed to the buyer as evidence of completion of the contract.

Another change is the replacement of DAT (Delivered at Terminal) by DPU (Delivered at Place Unloaded). This simply means a place agreed by both parties in the contract so that wherever that may be, once the goods are safely unloaded at the agreed point the contract is complete. DAT was simply considered by the ICC to be too specific.

An old term familiar to many is CIF (Cost, Insurance, Freight), pretty self-explanatory with the seller invoicing the cost of the goods, the delivery charges to an agreed point and the insurance cover for the full value up to that point. This however the ICC says is only suitable for goods transported by sea or inland waterway and where the seller has direct access to the vessel for loading, for example bulk cargoes or non-containerised goods. Container shipments would now be better served sold under CIP (Carriage and Insurance paid to) terms but, as ever with these terms the devil is in the detail.

Problems tend to arise when things such as terminal handling charges come into the equation, if the point of sale is an import port, who pays to get the goods off the ship? If there are Customs charges, demurrage etc. who gets the bill? As ever these are the real points to look out for and for anyone writing contracts of any value a trawl through the ICC website, or one of its training partners, to establish not only the best terms, but how to learn them thoroughly and perhaps also to study standard contract formats, is well worth a look.

Photo: Courtesy of Incodocs.