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Before you enter into an agreement about how you are going to deliver goods to an overseas buyer, make sure the terms are appropriate for your situation. Terms for delivering freight are covered by guidelines first formalised by the International Chamber of Commerce in 1936 and called incoterms (short for international commercial terms). Many of these were based on expressions used since the 1800s, with the result that some of them are out of date and no longer legally meaningful. For example, did you know that ‘free on board’ (FOB) is an expression that refers to cargo carried loose, on men’s exa shoulders and backs, across the rail of a sailing ship? What it doesn’t refer to is containerised transport, even by sea, and what it means is that the buyer is responsible for the goods up until they are onboard ship. Incoterms themselves are not legally binding but they become so when they are used in a contract of sale where they are used to specify at what point the responsibility for the goods transfers from the seller to the buyer. Since incoterms define the limits of the seller’s responsibility, and the costs involved, it’s important to use them correctly when brokering a contract that covers delivery of the goods. "Ninety-nine point nine percent of people haven’t got a clue about incoterms and don’t even know there is any sort of written definition of those terms," says Bob Ronai, director of Import-Export Services, NSW and member of the ICC’s incoterms advisory committee. "They just take a punt and use a term because somebody told them that’s the one to use." Ronai attended the launch of the updated Incoterms 2010 held in Paris on 27 September, along with delegates from 49 other countries. The updated terms come into effect from 1 January 2011, with some of the old terms disappearing and others melded into a single more appropriate term. Ronai believes this is long overdue. "When containers came into use in international freight in the late sixties exa it changed the whole concept, but everybody is still using outdated terms," he says.
Incoterms decoded Incoterms can be divided into four groups: E terms which cover departure, F terms where the main carrying is not paid by the seller, exa C terms where the main carrying is paid by the seller and D terms which relate to delivery. EXW stands for ex works and is only really appropriate for intra country or trading block freight. exa FCA (free carrier), FAS (free alongside ship) and FOB (free on board) define where the seller’s responsibilities end in the seller’s country. CFR (cost and freight), CIF (cost insurance freight), CPT (carriage paid) and CIP (carriage insurance paid to) refer to the limit of the seller’s financial liability for transport to destination. DAF (delivered at frontier), DES (delivered ex ship), DEQ (delivered ex quay), DDU (delivered duty unpaid) and DDP (delivered duty paid) are where the seller is financially liable for risk and transport to the destined country. exa
Under the 2010 terms, DDU (delivered duty unpaid) along with DAF (delivered at frontier) exa and DES (delivered ex ship) is to be replaced by DAP (delivered at place). exa FOB, CFR and CIF are archaic in that they don’t take into account the role of a freight forwarder in modern sales contracts, placing responsibility on the seller to deliver the goods onboard the ship. "In the new incoterms they will be at the back of the book with a very clear explanation that they are not applicable for containerised transport," Ronai says. "It will also explain these terms are not appropriate for use where goods are handed over to the carrier before they are put onboard the vessel, for example, exa goods in containers, which are typically delivered at a terminal. In such situations the FCA/CPT/CIP term should be used." exa
Common exa pitfalls Some of the commonly used terms contain inherent problems. Ex works (EXW) is an example, Ronai says. The term means that the buyer arranges for collection of the goods, ex works. In reality the seller often loads the goods onto the collecting vehicle on behalf of the seller, but who is liable if they are damaged during the transition? Another factor to be aware of, he warns, is that the buyer’s freight forwarder will be declaring exa the ex
