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Chapter FiveInternational Trade Terms
the importance of trade terms
the definition of Incoterms
the most frequently used trade terms
how to use various trade terms in international trade
At the end of this chapter, you should be able to understand:The Contents of Chapter 5The Contents of Chapter 5
1. International Trade Terms
2. Introduction to Incoterms 2000
3. Use of Incoterms
4. The Structure of Incoterms 2000
5. Modes of Transport of Incoterms
6. Notes on Incoterms
7. The Most Frequently Used Trade Terms
null1. What are trade terms?
2. Why should trade terms be used in international trade?OverviewOverview
In the international sale of goods, it is of great importance to determine the responsibilities and obligations of both the seller and buyer. In order to make definite the obligations, risks and costs of the two parties in the transfer of the goods, the buyer and seller, during business negotiation, must adopt a certain trade term, which is a indispensable part of the contract for the international sale of goods, because trade terms are directly related to the prices of commodities. Therefore, it is essential for the people engaged in international trade to understand and master various kinds of trade terms which are in universal use in international trade and relevant international trade practices so that they can choose them to their own advantage l. International Trade Terms
ns of Packing l. International Trade Terms
ns of PackingTrade terms, also referred to as “price terms” or “delivery terms”, stand for specific obligations of the buyer and the seller. Key elements of a sales contract:
delivery terms (carriage of the goods from the seller to the buyer and division of costs and risks between the parties) ;
price terms (stipulating what are included in the price the buyer paid to the seller, e.g. cost, freight, insurance, export and import clearance fees, etc. ) ;
delivery obligations (what documents should the seller provide, e.g. bill of lading, insurance policy, etc. ).
Unit Price: US$ 100 per M/T CIF New York null
Trade terms are abbreviations used to indicate the formation of the unit price and determine the responsibilities, expenses and risks borne by two parties as well as the time of the passing of the property in the goods.
Examples: USD 100 per M/T CIFC3 New York
EUR750 per dozen CFR LondonTrade TermsLinks and Liabilities Links and Liabilities Various links and liabilities might add to the cost and hence to the price of goods.
Production or manufacture or purchase of the goods;
Storage, freight from the production site, purchase site or storage site to the port, or in land delivery, etc.
Export customs clearance, export commodities inspection, export license and formalities;
Loading lighter;
Insurance;
Marine transportation or main carriage;
Unloading lighter
Import license, import customs clearance, import commodity inspection;
Land transportation from the port to the delivery spot.International Trade Practices
Regarding Trade TermsInternational Trade Practices
Regarding Trade Terms1.Warsaw — Oxford Rules 1932《1932年华沙——牛津规则》《CIF买卖
合同
劳动合同范本免费下载装修合同范本免费下载租赁合同免费下载房屋买卖合同下载劳务合同范本下载
的统一规则》
2.Revised American Foreign Trade Definitions 1941 《1941年美国对外贸易定义修正本》
3. INCOTERMS 2000《国际贸易术语解释通则》 2. Introduction to Incoterms 2000
2. Introduction to Incoterms 2000
null 3. Use of Incoterms
Not implied into contracts for the sale of goods.
Specifically include them in the contract when using
Incoterms,
Further, your contract should expressly refer to the rules
of interpretation as defined in the latest revision of
Incoterms.
Ensure the proper application of the terms by additional contract provisions.
In case of a dispute, courts and arbitrators will look at: 1) the sales contract, 2) who has possession of the goods, and 3) what payment, if any, has been made.
3. Use of Incoterms
Incoterms Do . . .
Incoterms Do . . .
Incoterms 2000 may be included in a sales contract if the parties
desire the following:
To complete a sale of goods.
To indicate each contracting party’s costs, risks, and obligations with regard to delivery of the goods as follows:
To establish basic terms of transport and delivery in a short format.
Incoterms Do Not . . .
Incoterms Do Not . . .
Not sufficient on their own to express the full intent of the parties. They will not:
Apply to contracts for services.
Define contractual rights and obligations other than for delivery.
Specify details of the transfer, transport, and delivery of the goods.
Determine how title to the goods will be transferred.
Protect a party from his/her own risk of loss.
Cover the goods before or after delivery.
Define the remedies for breach of contract.
null 4. The Structure of Incoterms 2000 Now match the price terms under the INCOTERMS 2000 with their Chinese equivalents.
Now match the price terms under the INCOTERMS 2000 with their Chinese equivalents.
EXW (EX Works) 船边交货
FAS (Free Alongside Ship) 运费付至
FCA (Free Carrier) 目的港船上交货
FOB (Free On Board ) 未完税交货
CFR (Cost and Freight) 工厂交货
CIF (Cost, Insurance and Freight) 货交承运人
CPT (Carriage Paid To) 运费、保险费付至
CIP (Carriage and Insurance Paid To) 装运港船上交货
DAF (Delivered At Frontier) 成本加运费
DES (Delivered Ex Ship) 目的港码头交货
DEQ (Delivered Ex Quay) 完税后交货
DDU (Delivered Duty Unpaid) 边境交货
DDP (Delivered Duty Paid) 成本、保险费加运费 Seller A1-A10 Buyer B1-B10
A1 Provision of goods in conformity with the contract
A2 Licenses, authorization and formalities
A3 Contract 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 obligationsThe respective obligations of the parties
under all the terms of Incoterms 2000B1 Payment of the price
B2 Licenses, authorization and formalities
B3 Contracts of carriage
B4 Taking delivery
B5 Transfer of risks
B6 Division of costs
B7 Notice of the seller
B8 Proof of delivery, transport document
or equivalent electronic message
B9 Inspection of goods
B10 Other obligations《2000年通则》规定的买卖双方的义务卖方义务 买方义务
A1 提供符合合同的货物 B1 支付货款
A2 许可证、核准书和手续 B2 许可证、核准书和手续
A3 运输和保险合同 B3 运输合同
A4 交付货物 B4 收取货物
A5 风险转移 B5 风险转移
A6 费用划分 B6 费用划分
A7 通知买方 B7 通知卖方
A8 交货
证明
住所证明下载场所使用证明下载诊断证明下载住所证明下载爱问住所证明下载爱问
、运输单据或具 B8 交货证明、运输单据或具
有同等效力的电子信息 有同等效力的电子信息
A9 检验、包装、标记 B9 货物检验
A10 其他义务 B10 其他义务《2000年通则》规定的买卖双方的义务 .All modes of transport
including multimodal transport .EXW
FCA
CPT
CIP
DAF
DDU
DDP 5 Modes of Transport of Incoterms
Sea and inland
waterway transportFAS
FOB
CFR
CIF
DES
DEQnullUnderlying Contract
(2) EXW and FCA
(3) EDI
(4) Insurable Interest
(5) Customs of the Port or Trade
(6) Precise Point of Delivery
(7) Export and Import Customs Clearance
(8) Added Wording
(9) Packing
(10) Inspection
(11) Passing of Risks and Costs
66. Notes on Incoterms
Passing of risks and costs under INCOTERMS 2000 Passing of risks and costs under INCOTERMS 2000 Passing of risks and costs under INCOTERMS 2000 Passing of risks and costs under INCOTERMS 2000nullnullFOB, CFR and CIF are the three traditional
trade terms that are widely used in
international trade. With the development of
transportation technology, FCA, CPT and CIP
have also developed based on FOB, CFR and
CIF. The former three trade terms apply to
ocean carriage whereas the latter three can
be used for all modes of transport, but are
particularly suitable for container transport
and all forms of multimodal transport. These
terms are universally used in international trade. 7. The Most Frequently Used Trade Terms
1. FOB (Free on Board ) (…named port of shipment)
1. FOB (Free on Board ) (…named port of shipment)
Definition
The seller delivers when the goods pass the ship’s rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export.
null
Buyer’s obligations
B1 Payment of the price
B2 Licenses, authorization and formalities
B3 Contracts of carriage and insurance
B4 Taking delivery
B5 Transfer of risks
B6 Division of costs
B7 Notice of the seller
B8 Inspection of goodsSeller’s obligations
A1 Provision of goods in conformity
with the contract
A2 Licenses, authorization and formalities
A3 Delivery
A4 Transfer of risks
A5 Division of Costs
A6 Notice to the buyer
A7 Proof of delivery, transport document
or equivalent electronic message
A8 Checking, packaging, marking
Obligations of the parties under FOBnullVariations of FOB Term
As the loading of the goods is a continuous process, sometimes it is hard to use the ship’s rail as a point to divide responsibilities and costs. To avoid dispute, there are several derived price terms:
FOB Liner Terms
FOB Under Tackle
FOB Stowed
FOB Trimmed1. FOB班轮条件(FOB liner terms):装船费用由支付运费的买方负担;
2. FOB吊钩下交货(FOB under tackle):从货物被轮船吊钩起吊开始的装船费用由买方负担;
3. FOB包括理舱(FOB stowed, FOBS):卖方负担将货物装入船舱并包括理舱费在内的装船费用。
4. FOB包括平舱(FOB trimmed, FOBT)卖方负担将货物装入船舱并包括平舱费在内的装船费用。
2. CIF (Cost, Insurance and Freight) (…named port of destination)
2. CIF (Cost, Insurance and Freight) (…named port of destination)
Definition
The seller delivers when the goods pass the ship’s rail in the port
of shipment. The seller must pay the costs and freight necessary to
bring the goods to the named port of destination. But the risk of
loss or damage to the goods, as well as any additional costs due to
events occurring after the time of delivery, are transferred from the
seller to the buyer. However, in CIF the seller also has to procure
marine insurance against the buyer’s risk of loss of or damage to
the goods during the carriage. Consequently, the seller contracts
for insurance and pays insurance premium. Obligations of the parties under CIFObligations of the parties under CIFSeller’s obligations
A1 Provision of goods in conformity
with the contract
A2 Licenses, authorization 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
Buyer’s obligations
B1 Payment of the price
B2 Licenses, authorization and formalities
B3 Taking delivery
B4 Transfer of risks
B5 Division of costs
B6 Notice to the seller
B7 Proof of delivery, transport document or
equivalent electronic message
B8 Inspection of goodsVariations of CIF Terms Variations of CIF Terms CIF Liner Terms (CIF班轮条件)
It denotes that the loading and unloading charges are met by the shipping
company or specifically the exporter.
CIF Landed (CIF卸到岸上)
It means that unloading costs, including ligherage and wharfage are borne
by the exporter.
CIF Ex-ship’s hold( CIF舱底交货)
It states that the importer pays for the unloading charges.
3. CFR (Cost and Freight) (… named port of destination)
3. CFR (Cost and Freight) (… named port of destination)
Definition
The seller delivers when the goods pass the ship’s rail in the port of
shipment. The seller must pay the costs and freight necessary to bring the
goods to the named port of destination but the risk of loss of or damage
to the goods, as well as any additional costs due to events occurring after
the time of delivery, are transferred from the seller to the buyer. The CFR
term requires the seller to clear the goods for export. The difference between CIF and CFR :
Under CFR, the seller is not obligated to arrange marine insurance against the risk of loss of , or damage to , the goods in transit. The buyer is obligated to arrange insurance and pay the insurance premium.The Nature of Performance of a CIF ContractThe Nature of Performance of a CIF Contract It is sale of documents rather than goods.
Three stages of delivery in a CIF contract,
i.e. “provisional delivery” on shipment, “symbolical delivery” on tender of
the documents, and “complete delivery” when the goods are handed over to
the buyer,
The contractual obligation of delivery is satisfied just by delivery of documents and not by actual physical delivery of the goods.
The buyer cannot refuse the documents and ask for the actual goods, nor can the seller withhold the documents and tender the goods they represent.
On presentation of the shipping documents, if they are complete and regular, the buyer is bound to pay the price, irrespective of the arrival of the goods.
Whatever happens to the goods in transit, the bill of lading and the insurance policy provide an almost complete, continuous cover from the port of shipment to the port of destination. Follow-up Practice
Follow-up Practice
1 Review and Discussion Questions
1) What are trade terms? Why are they used in international trade?
2) What is the meaning of Incoterms? What is the significance of using Incoterms?
3) What are the benefits of organizing the terms in Incoterms 2000 into four basic groups?
4) What are the differences between FOB and CFR?
5) Why does an export price need to contain a measuring unit, unit price, employed currency and trade term?
6) Why is it advisable to use CIF in export and use FOB in import?
2 Match the trade terms under INCOTERMS 2000 with their Chinese equivalents
2 Match the trade terms under INCOTERMS 2000 with their Chinese equivalents
a. EXW (EX Works) 1. 船边交货
b. FAS (Free Alongside Ship) 2. 运费付至
c. FCA (Free Carrier) 3. 目的港船上交货
d. FOB (Free On Board) 4. 未完税交货
e. CFR (Cost and Freight) 5. 工厂交货
f. CIF (Cost, Insurance and Freight) 6. 货交承运人
g. CPT (Carriage Paid To) 7. 运费、保险费付至
h. CIP (Carriage and Insurance Paid To) 8. 装运港船上交货
i. DAF (Delivered At Frontier) 9. 成本加运费
j. DES (Delivered Ex Ship) 10. 目的港码头交货
k. DEQ (Delivered Ex Quay) 11. 完税后交货
l. DDU (Delivered Duty Unpaid) 12. 边境交货
m. DDP (Delivered Duty Paid) 13. 成本、保险费加运费
3 Describe the differences and similarities of the following three trade terms and complete the table below.
3 Describe the differences and similarities of the following three trade terms and complete the table below.
.4 Choose the right answer from each of the following.
.4 Choose the right answer from each of the following.
1) Incoterms are a standard set of terms and abbreviations developed by _______.
A. the International Law Association
B. the International Chamber of Commerce
C. the United Nations Conference on Trade and Development
D. the United Nations Commission on International Trade Law ]
2) In the international trade practices regarding trade terms, which of the following is the most influential and widely used _______.
A. Hague Rules《海牙规则》
B. Warsaw-Oxford Rules 1932
C. Revised American Foreign Trade Definitions 1941
D. Incoterms
3) INCOTERMS2000 includes _________ trade terms.
A. 6 B. 12 C 13 D.14
4) As far as risks taken by the seller are concerned,
A. CIF is bigger than CFR. B. CIF is as the same as CFR.
C. CFR is bigger than CIF. D. FOB is bigger than CFR.
5) The term FOB should be followed by:
A. point of origin B. port of importation
C. port of discharge D. port of exportationnull6) The term CIF should be followed by:
A. point of origin B. port of shipment
C. port of destination D. port of exportation
7) The term CFR should be followed by:
A. point of origin B. port of shipment
C. port of destination D. port of exportation
8) The term EXW should be followed by:
A. point of origin B. port of shipment
C. port of importation D. port of exportation
9) The term DAF should be followed by:
A. point of origin B. port of importation
C. place of destination D. port of shipment
10) The term FAS should be followed by:
A. point of origin B. port of destination
C. port of shipment D. port of exportation
null11) The term DES should be followed by:
A. point of origin B. port of shipment
C. port of exportation D. port of destination
12) The term DEQ should be followed by:
A. point of origin B. port of loading
C. port of destination D. port of shipment
13) The term FCA should be followed by
A. point of origin B. seller’s place of shipment
C. buyer’s place of shipment D. buyer’s railway station
14) The term DDP should be followed by:
A. point of origin B. port of shipment
C. port of buyer’s premise D. place of destination
15) Which of the following prices quoted is correct?
A. US$1000 per M/T CIF USA B. US$ 200 per ton CIFC3 New York
C. US$150 per case CIF D. US$ 100 per doz. CIFC3 New York
5. Decide whether the following statements are true or false. 5. Decide whether the following statements are true or false. 1) If the seller agrees to deliver the goods to a ship, but not to pay for loading
them, the term is FOB. ( )
2) Under FOB, the seller must bear 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.
( )
3) The only difference between CFR and CIF is that under a CFR contract the buyer
must purchase a marine insurance contract to cover the goods while they are on
the voyage. ( )
4) Under CFR, the seller must pay the usual freight rate and any additional costs that
arise en route. ( )
5) The terms FOB, CFR and CIF are applicable to all modes of transport. ( )
6) DAF is only adopted when two countries have land-connected borderline. ( )
7) Each term has a “liability point”, which means that costs and risks are all moved
over to another party from that very point. ( )
8) EXW contract is called "physical delivery" while CFR is “symbolic delivery”.( )
9)CFR states that the exporter is obligated to make all necessary arrangements to
ship the goods all the way from the exporter’s premises to the named port of
debarkation. ( )
10)Under CIF the seller also has to procur