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FAS/FOB/CFR/CIF: Incoterms Guide

Views: 39     Author: Site Editor     Publish Time: 2022-04-06      Origin: Site

FAS Incoterms

The full name of FAS is Free alongside Ship (..named port of shipment), which means that the seller will deliver the goods to the side of the ship or in the barge at the designated port of shipment, and handle all the goods required for export when customs formalities are required. Customs procedures, the buyer bears all costs and risks from the ship's side (or barge) at the port of shipment.


*This term is commonly used by exporters in the trade of bulk goods, especially primary products such as wheat, cotton, soybeans, ores.

Main obligations of seller and buyer:

Seller's main obligations:

(1) Responsible for delivering the goods to the ship designated by the buyer at the designated port of shipment within the specified time limit.

(2) Responsible for handling the export procedures of goods and bear the cost of export customs clearance.

(3) Bear the risks and expenses from the time when the goods are delivered to the buyer's side at the designated place.


Buyer's main obligations:

(1) Accept the relevant documents provided by the seller, receive the goods, and pay the payment according to the contract.

(2) Bear the risks and expenses until the goods are handed over to the ship at the designated place.

(3) At your own risk and expense, obtain an import license or other officially approved documents, and go through the customs procedures required for the import of goods, and pay customs duties and other relevant fees.


Points to note in actual business:

A. Under FAS terms, the side of the ship usually refers to the reach of the cargo crane or shore handling rigging of the ship's handling equipment.


B. When the loading port is congested or large ships cannot approach, the seller may change the delivery conditions to "Free on Lighter" with the consent of the buyer. At this time, the seller's responsibility is only when the goods cross the barge. Until then, the barge fee and its risk shall be borne by the buyer.


C. Under the terms of FAS, when the buyer fails to notify the seller of the ship, the place of shipment and the time of delivery in a timely manner, or the designated ship does not arrive at the port of shipment on time, or the ship arrives on time but cannot complete the loading work or In the event of an early stop of loading, risks and expenses may be transferred earlier after the goods have been specified.


D. The FAS terms in the 2010 General Rules are quite different from the FAS terms in the 1990 Amendment to the Definition of U.S. Foreign Trade. According to the interpretation of American terms, the full name of FAS is Free along Side, which refers to the side of various means of transportation, including land transportation. Therefore, when exporting to the United States, it is necessary to add the word Vessel after FAS to indicate the meaning of FAS in the "2010 General Rules".


E. Shipment connection problem: If the vessel designated by the buyer does not arrive at the port to receive the goods on time, or stops loading earlier than the stipulated time, or the buyer fails to issue a dispatch notice in time, as long as the goods have been clearly marked, or The goods under this contract are determined in other ways, and the risks and expenses arising therefrom shall be borne by the buyer.



FOB Incoterms

The full name of FOB is Free on Board (...named port of shipment). FOB is one of the trade terms commonly used in international trade. It means that the seller must deliver the goods to the port of shipment specified in the contract within the date or time limit specified in the contract, and deliver them to the vessel designated by the buyer, that is, to complete its delivery obligations. According to the "2010 General Regulations", the FOB term is only applicable to sea and inland water transportation. If the goods are loaded in containers and delivered at the container terminal, the FCA trade term should be used.

Main obligations of seller and buyer:

Seller's main obligations

(1) Be responsible for delivering the goods in compliance with the contract to the ship designated by the buyer within the date or time limit specified in the contract, and notify the buyer in time.

(2) Responsible for obtaining export license or other officially approved documents (commodity inspection certificate, certificate of origin, etc.), and handling all customs procedures required for export of goods.

(3) Bear all the costs and risks before the goods are delivered to the vessel sent by the buyer at the port of shipment (in the "2000 General Rules", the risk division point of the FOB term is that the goods "pass the ship's rail" at the designated port of shipment. Boundary. Taking the "ship's rail" as the boundary indicates that the risks of the goods before they are loaded on the ship, including the loss caused by the goods falling into the dock or the sea during loading, shall be borne by the seller; The boundary of risk division has been substantially changed, that is, it is no longer stipulated that "the side of the ship is the boundary", but that the goods are loaded on the ship as the boundary, and then the risk is transferred from the seller to the buyer.)

(4) Responsible for providing commercial invoices and the usual documents to prove that the goods have been delivered to the ship (shipped ocean bill of lading). If the buyer and the seller agree to use electronic communication, all documents may be replaced by an equivalent electronic data interchange message (EDI message).


Buyer's main obligations:

(1) Receive the goods and pay the payment according to the provisions of the sales contract.

(2) Responsible for chartering or booking space, paying freight, and promptly notifying the seller of the name of the ship, the place of shipment and the time of delivery.

(3) At your own risk and expense, obtain an import license or other officially approved documents, and be responsible for all customs formalities required for the import of goods.

(4) To bear all the costs and risks after the goods are delivered to the ship sent by them at the port of shipment.


Points to note in actual business:

A. The following five situations usually occur, and the risk will be transferred to the buyer in advance:

(1) At the agreed time, the vessel proposed by the buyer does not arrive, resulting in loss of dock storage costs or cargo staying, and the risk should be transferred to the buyer in advance.

(2) Although the vessel arrives at the port at the agreed time, it will queue up when docking at the wharf. At this time, the seller's risk should be transferred to the buyer in advance.

(3) Only the shipment period is agreed, and it is not agreed when the buyer will send the ship to the port of shipment, and the ship will arrive after the shipment period, then when the shipment period expires, the risk of damage to the goods will be transferred to the buyer in advance, regardless of the buyer's dispatch. Ship arrives no.

(4) The buyer dispatched the ship on time, but due to various reasons (the ship may not be seaworthy or unfit for cargo), the cargo could not be loaded on the ship, or the loading was terminated early, at this time, the risk should be transferred to the buyer in advance.

(5) The ship arrives at the port on time, but the seller fails to set the ship in time. If the reason is that the buyer does not allow enough time for the seller to ship the goods, the buyer shall be liable.


B. The seller must prudently perform the obligations of delivery and presentation: "2010 General Rules" clearly stipulates that the seller must provide goods that meet the requirements of the sales contract under the FOB term. At the same time, due to the use of FOB conditions, the seller delivers the goods at the port of shipment, and under normal circumstances, the buyer cannot go to the delivery location to accept the goods. The seller usually completes its delivery obligations by submitting the documents required by the contract. Therefore, it is a basic obligation for the seller to submit qualified documents in time, including commercial invoices, inspection certificates, transport documents, especially ocean bills of lading or equivalent electronic documents.


C. The provisions of the bill of lading shipper under the term of FOB: According to the interpretation of my country's maritime law, the shipper refers to: ① the person who signs a contract of carriage of goods by sea with the carrier in his own name or who entrusts another person; ② himself or the entrusted person A person who, in his own name, delivers the goods to the carrier in connection with the contract of carriage of goods by sea. Therefore, both buyer and seller of FOB contract are eligible, but it is better to have the seller as the shipper, otherwise, if the buyer and the carrier collude with each other, the buyer will go first as the shipper if the payment is not paid. Pick up the goods.


D. Differences between the handling of export customs clearance and U.S. trade practices: The 2010 General Regulations stipulate that the seller must bear the risk and expense of obtaining any export license or other official approval document, and go through all customs formalities required for the export of the goods (if The place needs to go through these customs formalities). According to the interpretation of the "Definition of Foreign Trade in the United States", the buyer is responsible for applying for licenses and handling export customs clearance procedures, and the costs and risks are also borne by the buyer. Only when it is difficult for the buyer to handle it by himself, at the buyer's request and at the buyer's expense and risk, the seller can assist. Therefore, in order to avoid misunderstandings due to differences in trade practices, it is better for both parties to clearly stipulate in the contract.


Risk Prevention Measures for E.FOB Contracts:

(1) According to the "2010 General Rules", the exporter of the FOB contract should deliver the goods to the shipping company. Generally speaking, most shipping companies have a good reputation. Even if there is a problem after releasing the goods to the customer with the guarantee, they will properly handle the dispute by virtue of their reputation and strength. But judging from the current actual situation, there are relatively few designated shipping companies by the buyer, and most of them are designated overseas freight forwarders. As we all know, the credibility of freight forwarding companies is far from that of most shipping companies. Therefore, the seller must take precautionary measures to prevent the buyer from joining forces with the freight forwarding company to defraud. For example, it is necessary to conduct a credit investigation on the freight forwarding company through an international consulting agency or ask the buyer to cooperate with the overseas freight forwarding company to issue a guarantee.

(2) When the transaction is made on FOB terms, in order to protect its own interests, the seller will generally clearly stipulate in the contract the time or time limit for the buyer to send the ship to the port for loading, as well as the additional costs and risk responsibilities caused by delay or failure to designate the ship. shall be borne by the buyer. Buyer must notify Seller of the name of the vessel and estimated time of arrival several days before the vessel arrives at the designated port of shipment. Similarly, the buyer often requires that after the ship arrives on time, if the seller fails to load the goods according to the contract, resulting in empty space and demurrage and other consequences.

(3) According to the provisions of FOB trade terms, the seller has no obligation to handle freight insurance, and the buyer should handle it according to the situation. If the market situation is unfavorable for the buyer when the contract is performed, and the buyer refuses to accept the goods, it is possible to not take out insurance, so that once the goods are in danger on the way, the seller may lose both money and goods. If the buyer and the seller have concluded the transaction according to the FOB term, and the payment method other than the letter of credit is adopted, the seller should insure the seller's interest insurance locally.


Deformation of F.FOB:

It is best for the buyer and the seller to clearly stipulate in the contract the undertaking of this matter and related risks and expenses, so as to avoid trade disputes.

(1) FOB Liner Terms (FOB Liner Terms): The shipping costs are handled in accordance with the liner practice, that is, the ship or the buyer is responsible, and the seller does not bear the related costs of loading.

(2) FOB under Tackle: The seller shall bear the cost of delivering the goods to the place where the hook of the vessel designated by the buyer can be reached, and the hoisting into the tank and other expenses shall be borne by the buyer.

(3) FOB Stowed (FOB handling fee included): The seller is responsible for loading the goods into the cabin and bears the loading cost including the handling fee. Cabin handling charges refer to the charges for placement and arrangement of goods after entering the cabin.

(4) FOB Trimmed (FOB trimming fee included): The seller is responsible for loading the goods into the cabin and bears the loading cost including trimming fee. Trimming charges refer to the cost of levelling the bulk cargo loaded into the hold.
(5) FOB Stowed and Trimmed (FOBST): This variant means that the seller bears the shipping costs including the handling fee and the trimming fee.



CFR Incoterms:

The full name of CFR is Cost and Freight (...named port of destination). According to the interpretation of the "2010 General Regulations", the buyer should load the goods on board the ship at the port of shipment specified in the contract and within the specified time limit, and notify the buyer in time. The risk of loss or damage after the goods are loaded on board, and any additional costs arising from events after the delivery of the goods, pass from the seller to the buyer from the date of delivery.

Main obligations of seller and buyer:

Seller's main obligations:

(1) Responsible for loading the agreed goods on the ship at the time and port of shipment specified in the contract, and transporting them to the designated destination port, and promptly notify the buyer.

(2) Responsible for handling the export procedures of goods and obtaining export licenses or other officially approved documents.

(3) Responsible for chartering or booking space, and paying the normal freight to the port of destination.

(4) Bear all costs and risks before the goods are delivered to the ship arranged by themselves at the port of shipment.

(5) Responsible for providing the goods and commercial invoices in accordance with the contract, or electronic data exchange information with the same effect, as well as the transport documents and other relevant documents stipulated in the contract.


Buyer's main obligations:

(1) Responsible for paying the price as stipulated in the contract.

(2) At your own risk and expense, go through the procedures for importing goods and obtain an import license or other officially approved documents.

(3) To bear all costs and risks after the goods are delivered to the vessel arranged by the seller at the port of shipment.

(4) Receive the goods according to the contract and accept the transport documents.


Points to note in actual business:

A. Transfer of risk points: The risk point is that the seller loads the goods into the cabin at the port of shipment, and the risk point is transferred to the buyer, so the buyer must apply for insurance with the insurance company before this. Agree on how to issue a shipping notice and when to send a shipping notice. The trade contract should also specify the content, method, and time of sending the shipping notice.


B. Variation of CFR term: Due to the different practices of ports in the world, there are also different regulations for unloading costs. Some ports stipulate that the ship should be borne, and some ports should be borne by the consignee. In the case of the former, if the ship is not willing to bear the cost of unloading, it will transfer the cost of unloading to the charterer if it is a bulk cargo, which will increase the burden on the seller. Therefore, the buyer and the seller must specify in the trade contract who will bear the cost of unloading.


In practice, additional conditions are usually added to the CFR trade term or CIF trade term to explain, thus resulting in the deformation of CFR or CIF. There are four variants of CFR or CIF:

(1) CFR Liner Terms (CFR Liner Terms) or CIF Liner Terms (CIF Liner Terms): The unloading costs are handled in accordance with the liner method and are borne by the ship or the seller, that is, the buyer does not bear the unloading costs.

(2) CFR Landed (CFR unloaded to shore) or CIF Landed (CIF unloaded to shore): The seller shall bear the unloading fee, including the cost of unloading the goods by barge to the shore because the ship cannot dock. .

(3) CFR under Ship's Tackle (delivery under CFR hook) or CIF under Ship's Tackle (delivery under CIF hook): The seller is responsible for unloading the goods from the ship to the place where the hook reaches (dock or barge) cost of.

(4) CFR Ex Ship's Hold (CFR Bilge Delivery) or CIF Ex Ship's Hold (CIF Bilge Delivery): After the goods are delivered to the port of destination, the buyer will open the cabin by himself, and bear the burden of unloading the goods from the bilge to the wharf cost of.


The above variants of CFR and CIF are only to indicate who is responsible for unloading costs when using voyage charter for transportation, and do not change the place of delivery and the division of risks and responsibilities between these two terms. In a word, when concluding a voyage charter party, it should be noted that the incoterms in the trade contract should be connected with the loading and unloading expense clause in the voyage charter party. Only in this way can it be clear who will bear the loading and unloading costs and related costs, and avoid disputes or disputes in the international transportation of goods.



CIF Incoterms

The full name of CIF is Cost, Insurance and Freight (...port of destination). CIF is one of the most commonly used trade terms in international trade. When using the CIF term, the seller also loads the goods on board the ship at the port of shipment to complete its delivery obligations. The seller is responsible for chartering and booking space under the usual conditions, paying the cost and freight required for the delivery of the goods to the designated port of destination, but the risk of loss or damage to the goods after delivery, and any additional costs arising from events occurring after the delivery of the goods shall be It is transferred from the seller to the buyer upon delivery. After the seller has loaded the goods on the ship at the specified port of shipment and within the specified time limit, it shall notify the buyer in time.


Changes in CIF Insurance Subscription Types in Incoterms 2020:

In CIF price terminology, the seller's responsibility remains "to take out at his own expense cargo insurance in accordance with Clause (C) of the Association's Cargo Insurance Clause (LMA/IUA) or any similar clause".

Main obligations of seller and buyer:

Seller's main obligations:

(1) Within the time limit specified in the contract, deliver the goods conforming to the contract at the port of shipment to the ship bound for the designated port of destination, and give the buyer a shipping notice.

(2) Responsible for handling the export procedures of goods and obtaining export licenses or other approval certificates (origin, commodity inspection certificates, etc.).

(3) Responsible for chartering or booking space and paying the sea freight to the port of destination.

(4) Responsible for handling cargo transportation insurance and paying insurance premiums.

(5) Responsible for all costs and risks until the goods pass the ship's rail at the port of shipment.

(6) Responsible for providing the usual transport documents, commercial invoices and insurance policies for the goods to the designated destination port, or electronic information with the same effect.


Buyer's main obligations:

(1) Responsible for handling import procedures to obtain import licenses or other approvals.

(2) Bear all costs and risks after the goods have passed the ship's rail at the port of shipment.

(3) Receive the goods delivered by the seller according to the contract, and accept the documents consistent with the contract.


Points to note in actual business:

A. Conceptual misunderstanding: in the terms of CIF and FOB, the delivery point and the risk point are all on the ship at the port of shipment. The seller completes the seller's obligations when the goods are safely loaded onto the ship at the port of shipment. Take responsibility again. The seller will hand over the insurance policy, bill of lading, etc. to the buyer, and risk claims will be handled by the buyer.


B. Booking and stowage: under CIF conditions, the seller orders the ship independently, chooses the freight forwarder of the shipping company, pays the freight, terminal fees, etc. Generally, the freight forwarder/shipping company designated by the buyer is not accepted. In actual business, customers will choose foreign services. Maersk, APL and other well-known shipping companies, confirm the freight with the buyer, and it is acceptable after the shipping date, but generally not shipped by the freight forwarder designated by the buyer.


C. The seller handles insurance at the port of shipment. Generally, the specific insurance amount, insurance type and applicable insurance clauses are specified when the contract is concluded, as well as the start and end period of the insurance liability, and the insurance policy of the association or China is selected. The insurance policy must be endorsed when the bank presents the document. transfer to the buyer.


D. Unloading costs: terminal operation fees, etc., CIF generally uses the PORT TO PORT clause, the cost of the port of departure shall be borne by the seller, and the cost of the port of destination shall be borne by the buyer.


E. The problem of chartering and booking: Since the contract of carriage from the port of shipment to the port of destination is signed by the seller, in general, the seller chooses the appropriate ship according to the specific conditions of the goods, or rents the whole ship, or liner booking . This is the so-called on Usual Terms to put forward certain restrictions on the age of the ship, the registry, the class, the type of the ship, and the ships of the shipping company. For these requirements, the seller should consider carefully, no matter whether the other party proposes it before the conclusion of the contract or after the conclusion of the contract, if the seller thinks he can do it without adding trouble and extra expenses, it can be accepted; otherwise, it can be reject. But once accepted, it must be strictly followed.


When the contract is concluded under CIF conditions, the seller of the contract should also pay attention to whether the rented vessel is seaworthy and cargo-worthy when handling the chartering and booking. The so-called seaworthiness (Seaworthiness) refers to the ship carrying cargo at the port of shipment, from the perspective of the performance of the ship and the staffing of the ship, has the ability to transport the goods from the port of shipment to the port of destination. Cargoworthiness refers to the suitability of the ship for the goods stipulated in the contract of carriage from the perspective of its performance and equipment.


F. Port of shipment, port of destination and route issues: Port of shipment and port of destination are the starting point and destination of transportation in ocean transportation. When specifying the port of shipment and the port of destination in the contract, it can be one of each, or two or more, or even optional ports, which should be determined by both parties through negotiation according to their needs. From the practical point of view, it is more common to stipulate a port of shipment and a port of destination.


According to the relevant provisions of Anglo-American law, in the CIF contract, the port of destination is a condition (Condition), while the port of shipment is not a condition, but only a guarantee (Warranty). Therefore, if the name of the destination port is clearly specified in the contract, both parties must comply with it. If either party wants to change the port of destination, it must obtain the consent of the other party, otherwise it is a violation of the requirements, which constitutes a major breach of contract.



Summary 2020 List of Incoterms Changes

About FCA

If both parties agree that the seller will deliver the goods to the container terminal in accordance with FCA (Free Cargo Carrier) requirements, the buyer may instruct the carrier to issue an onboard bill of lading to the seller upon discharge.


About CIP

IP belongs to the highest insurance category (such as CIC all risks and ICC (A) insurance) under the buyer's insurance, while the insurance requirements under the CIF term remain unchanged, and the lowest insurance category can still be purchased.


About DPU

In Incoterms2020, DAT is changed to DPU. The delivery point of the DPU term is still the destination, but the destination is no longer limited to the end point of transportation, but can be anywhere.


Shipping with custom shipping methods

FCA, DAP, DPU, DDP allow buyer/seller to use their own means of transport. (The 2010 General Regulations refer to "third-party carriers")


Clearer allocation of guarantee obligations

Incoterms2020 includes safety-related requirements in transport obligations and costs, and the rules for the allocation of safety-related obligations and the corresponding means of incurring costs are clearly specified under each term. And the "2020 General Rules" provides a "one-stop fee list" for the costs that should be borne by both parties.



Incoterms Price Composition

FOB, CFR, CIF trade terms (for Sea shipping):

FOB price = purchase cost price + domestic expenses + net profit

CFR price = purchase cost price + domestic cost + foreign freight + net profit

CIF price = purchase cost price + domestic cost + foreign freight + foreign insurance premium + net profit

Domestic fees are:

1. processing costs;

2. Packaging costs;

3. Storage fees (including warehouse rent, fire insurance, etc.);

4. Domestic transportation costs (from warehouse to wharf);

5. Document fees (including commodity inspection fees, notarization fees, consular visa fees, certificate fees, license fees, customs declaration fees, etc.);

6. Shipping charges (shipping, lifting charges and barge charges, etc.);

7. Bank charges (discounted interest, handling fees, etc.);

8. Estimated loss (loss, short-term loss, leakage, breakage, deterioration, etc.);

9. Postage (telegraph, telex, mail, etc.).


The main foreign expenses are:

1. Foreign freight (sea transportation cost from the port of shipment to the port of destination);

2. foreign insurance premiums (maritime cargo insurance);

3. If there is an intermediary, it also includes the commission paid to the intermediary.


FCA, CPT, CIP trade terms (for any shipping method)

FCA price = purchase cost price + domestic expenses + net profit

CPT price = purchase cost price + domestic cost + foreign freight + net profit

CIP price = purchase cost price + domestic fee + foreign freight + foreign insurance premium + net profit

Domestic fees are:

1. processing costs;

2. Packaging costs;

3. Storage fees (including warehouse rent, fire insurance, etc.);

4. Domestic transportation costs (from warehouse to wharf);

5. LCL fee (if the goods do not constitute a full container);

6. Document fees (including commodity inspection fees, notarization fees, consular visa fees, certificate fees, license fees, customs declaration fees, etc.);

7. Bank charges (discounted interest, handling fees, etc.);

8. Estimated loss (loss, short-term loss, leakage, breakage, deterioration, etc.);

9. Postage (telegraph, telex, mail, etc.).


The main foreign expenses are:

1. Foreign freight (transportation cost from the domestic departure point of the export to the foreign destination);

2. foreign insurance premiums;

3. If there is an intermediary, it also includes the commission paid to the intermediary.



Price conversion of main trade terms:

Conversion of the three terms FOB, CFR and CIF:

1. Convert FOB price to other price

CFR price = FOB price + foreign shipping

CIF price = (FOB price + foreign freight) / (1-insurance plus × insurance rate)


2. Convert CFR price to other price

FOB price = CFR price - foreign freight

CIF price = CFR price / (1-insurance plus × insurance rate)


3. Convert CIF price to other price

FOB price = CIF price × (1 - insurance premium × insurance rate) - foreign freight

CFR price = CIF price × (1 - insurance premium × insurance rate)


Conversion of three terms of FCA, CPT and CIP:

1. Convert FCA price to other price

CPT price = FCA price + foreign shipping fee

CIP price = (FCA price + foreign freight) / (1-insurance plus × insurance rate)


2. Convert CPT price to other price

FCA price = CPT price - foreign freight

CIP price = CPT price / (1-insurance bonus × insurance rate)


3. Convert CIP price to other price

FCA price = CIP price × (1 - insurance premium × insurance rate) - foreign freight

CPT price = CIP price × (1-insurance bonus × insurance rate)



For About EXW/FCA/CPT/CIP/DPU/DAP/DDP: Detailed Incoterms
https://stusupplychain.com/exw-fca-cpt-cip-dpu-dap-ddp-incoterms.html


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