English for Global Business
After studying this lesson, you will be able to :
•
understand the
definition and role of international trade terms
;
• define
Ⓡ;
• identify
11 trade rules
.
Objectives
Definition of the Role of
International Trade Terms and
practices
International trade terms are a globally recognized set of international rules in business transactions or trade practices. They define trade contract responsibilities and liabilities
between the seller and the buyer.
They are invaluable and a cost saving tool.
The exporter and the importer don’t need to undergo lengthy negotiations about the conditions of each transaction.
Once they have agreed, using a commercial term like FOB, they can sell and buy at FOB (Free On Board) without additional discussion on who will be responsible for the freight, cargo insurance, and other costs and risks.
In international trade, the basic terms and conditions should be clearly and reasonably stated in the contracts so as to clarify the duties and obligations of the Seller and the Buyer as follows;
Terms of Quality Terms of Quantity Terms of Price Terms of Payment Terms of Shipment Terms of Insurance Terms of Packing
Above all, the price terms are the most important one.
For instance, an exporter, in calculating his/her export price, works out dock charges, forwarding charges, freight and insurance, and certainly also their profit margin and adds them to the price paid to the manufacturer to make it, say, “
USD1,000/MT CIF New York
Ⓡ Trade terms, also known as price terms or delivery terms, are a set of uniform rules codifying the interpretation of trade terms defining the price composition and the rights and obligations of the seller and the buyer in global business transactions.
Trade terms are standardized terms used in sales contract that describes the place and means of transfer of goods from the seller and the buyer.
These trade terms, such as FOB, identify the time when the risk of loss shifts from the seller to the buyer, and when the costs of freight and insurance divide.
The use of trade terms greatly simplifies the process of negotiation of the contract, thus saving time and costs for business transactions.
ICC rules for the use of domestic
and international trade terms
Trade terms have been developed in practice for many years.
However, as different countries might have different interpretations
of the terms, misunderstanding occurred frequently.
To clear up the confusion, some commercial organizations drew up sets of rules of standardized legal definitions.
The incoterms rules have become an essential part of the daily language of trade.
The rules were first developed and issued by the ICC in Paris, in 1936, and have been periodically revised to account for changing modes of transport and document delivery.
The current 8th version is incotermsⓇ2010, which came into effect on 1 January 2011, and is a registered trademark of the ICC.
They help traders avoid misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers.
The Incoterms rules explain a set of three letter trade terms reflecting business to business practice in contracts for the sale of goods.
The incoterms rules describe mainly the tasks, costs and risks involved in the delivery of goods from sellers to buyers.
Incoterms rules have traditionally been used in international sale of contract where goods pass across national borders.
The 11 IncotermsⓇ2010 rules are presented in two distinct classes.
The first class included the seven IncotermsⓇ2010 rules that
can be used irrespective of the mode of transport selected and irrespective of whether one or more than one mode of transport is employed. EXW, FCA, CPT, CIP, DAT, DAP and
DDP belong to this class.
They can be used even when there is no maritime transport at all.
It is important to remember, however, that these rules can be used in cases where a ship is used for part of the carriage.
In the second class, the point of delivery and the place to
which the goods are carried to the buyer are both ports, hence the label “sea and inland waterway” rules. FAS, FOB, CFR and CIF belong to this class.
Incoterms
Ⓡ
rules
Ⓡ
Rules for Any Mode or Modes of Transport
EXW (Ex Works)
EXW (insert named place of delivery) IncotermsⓇ2010
“Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e., works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.
FCA (Free Carrier)
FCA (insert named place of delivery) IncotermsⓇ2010
“Free Carrier” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
CPT (Carriage Paid To)
CPT (insert named place of destination) IncotermsⓇ2010
"Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
CIP (Carriage and Insurance Paid to)
CIP (insert named place of destination) IncotermsⓇ2010
“Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
The seller also contracts for insurance cover against the buyer's risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
DAT (Delivered At Terminal)
DAT (insert named terminal at port) IncotermsⓇ2010
"Delivered at Terminal" means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. "Terminal" includes any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risk involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.
DAP (Delivered At Place : 목적지인도규칙)
DAP (insert named place of destination) IncotermsⓇ2010
"Delivered at Place" means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risk involved in bringing the goods to the named place.
DDP (Delivered Duty Place)
DDP (insert named place of destination) IncotermsⓇ2010
"Delivered Duty Paid" means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.
FAS (Free Alongside Ship)
FAS (insert named port of shipment) IncotermsⓇ2010
"Free Alongside Ship" means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.
FOB (Free On Board)
FOB (insert named port of shipment) IncotermsⓇ2010
"Free On Board" means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.
CFR (Cost and Freight)
CFR (insert named port of destination) IncotermsⓇ2010
"Cost and Freight" means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
CIF (Cost, Insurance and Freight)
CIF (insert named port of destination) IncotermsⓇ2010
"Cost, Insurance and Freight" means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
The seller also contracts for insurance cover against the buyer's risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
