Continuing our previous blog …….
Here are the remaining SIX INCOterms which can help identify risk, cost and liability related to the business dealings at different points along the supply chain.
If you haven't read the first part of this blog, go back to that blog first (link)!
6) DDP also known as Delivered Duty Paid, is known whereby in the process the seller is responsible for delivering goods to the named place in the country of importation, including all costs and risks in bringing the goods to the import destination. This includes duties, taxes and customs formalities. This term may be used irrespective of the mode of transport, for a landlocked country like Nepal, and the pretext of government policies this term is a bit too risky and not suggested for use.
7) FAS is Free Alongside Ship named which identifies that seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. Suitable only for maritime transport but NOT for multimodal sea transport in containers ( see INCOterms 2011, ICC publication 715.) This term is typically used for heavy- lift or bulk cargo.
8) FOB (Free on Board) a on named port of shipment where the seller must load themselves the goods on board the vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board the vessel. The seller must clear the goods for export. The terms are applicable for maritime and inland waterway transport only. The buyer must instruct the seller about the details of the vessel and port where the goods are to be loaded, and there is no reference to, or provision for the use of a carrier or forwarder from port of Origin to part of destination. This term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments. This term is widely accepted by traders and government but is totally WRONG to use in the context of Nepal and should be stopped for export shipment and focus on import shipment by making logistics services providers responsibilities.
9) CFR also Known as Cost and Freight is when a seller must pay the costs and freight required in bringing the goods to the named port of destination. The risk of loss or damage is transferred from seller to buyer when the goods pass over the ship’s rail in the port of shipment. The seller is required to clear the goods export. This term should only be used for sea or inland waterway transport. This term misses the insurance component and in Nepal where government regulation demands import tax under CIF plus VAT. It is found that it is not much encouraged. Insurance is covered when the liability covers the carrier/ airlines is not sufficient.
10) CIF (cost Insurance and freight) the seller has the same obligations as under CFR however it also requires to provide insurance against the buyer’s risk of loss or damage to the goods during transit. The seller is required to clear the goods for export. This term should only be used for sea or inland waterway transport.
It is used in Nepal with wrong notion and not much appreciated in international trade because the intention should be to avoid hassle and liabilities rather than taking them. The positioning of empty is costly as well as assurance of return of empty needs to be guaranteed through a private to private sector mechanism.
In the context of Nepal this is not possible, the major problem is how exports and movement of empty containers are not smooth.
What do these TERMS determine??
These are all the ELEVEN terms you need to know because Incoterm determines;
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When and where the seller provides the goods to the buyer & when & where the buyer is obliged to pay the contracted price.
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Obligations for export/import licenses, duties, taxes, etc
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Obligations to arrange and pay for transportation and insurance.
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Conditions for delivery by the seller & acceptance by the buyer.
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Allocation of responsibility for risk of loss or damage.
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Allocation of costs associated with movement of the goods.
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Provisions regarding notices of delivery or dispatch of the goods.
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Proof of delivery, transport documents or electronic messages.
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Requirements of seller to check quantity & conformance of goods with the contract & to provide suitable packaging and markings
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Obligations of mutual assistance, information & documentation.
To learn more about the points to be noted when using INCOTERMS in negotiation by traders, click here (link).