Incoterms_® and Commercial Contracts

EXW (insert named place of delivery) Incoterms® 2010

• Documents: Article A7 requires the seller to give the buyer any notice needed to enable the buyer to take delivery of the goods and article B8 requires the buyer to provide with appropriate evidence of having taken delivery.
• Issues: Article A4 situates delivery upon placing the goods at the disposal of the buyer (or the buyer-appointed carrier) prior to loading on the collecting vehicle. This may be between the notification of Article A7 and the evidence of Article B8. A Preshipment Inspection Certificate may well be the most appropriate document proving that the goods are at disposal and ‘ready for collection’ but not yet loaded.

• Documents: Article B2 contractually obliges the buyer to carry out all customs formalities and to obtain all documents licences and authorizations, not only upon transit and import in his own country, but also for the export of the goods from the seller’s country. The seller is only required to give assistance to the buyer at the latter’s request, risk and expense.
• Issues:

1. Article 788,2 of the implementing provisions of the Community Customs Code (CCIP) prohibits non-EU companies from exporting. A non-EU company may give instructions to a customs agent regarding export formalities and may pay the customs clearance costs, but for administrative purposes, the EU seller will always be indicated as the exporter on the customs clearance form and thus be administratively liable.
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2. Non-resident companies cannot apply for export licences, health certificates, etc.
3. Article A1 of the Incoterms® rule EXW only requires the seller to provide the buyer with an invoice and evidence of conformity (packing list) in accordance with the seller’s law (thus usually supporting the export formalities). As the seller is not supposed to know the final destination of the goods, the seller’s obligations to obtain other documents are limited to assistance at the buyer’s request, risk and expense.
4. As delivery is inland and not cleared, national VAT-regulations may prohibit exemption of the seller’s invoice of VAT. Moreover, the seller depends on the buyer’s willingness to return a proof of exportation, justifying the VAT-exemption for export (if allowed).

• Documents:

1. In application of Article A3 a) EXW, the seller has no obligation to make a contract of carriage and article A4 situates delivery prior to loading. Therefore, if an independent carrier is used, the buyer should be the shipper on the transport document, both as ‘sender’ (contracting party) and ‘loader’.
2. Article A7 requires the buyer to notify the buyer when and where the goods can be collected. If the ‘when and where’ is left to the decision of the buyer, Article B7 requires the buyer to give the seller sufficient notice.

• Issues:

1. Loading is normally not part of ‘transport under the contract of carriage’. The buyer should therefore instruct the carrier (or any other person) to load the goods as the buyer’s agent and, when applicable, indicate the carrier as the loader on the transport document.
2. As the buyer loads the goods, the buyer is responsible for securing the shipment and dangerous goods declarations (when applicable).

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• Documents: Article A1 requires the seller to provide the buyer with an (export) invoice. As the seller, in accordance with A9, also has to package the goods in the manner appropriate for their transport, the provision of a packing list will usually also be understood.
• Issues:

1. The Incoterms® rules as such do not impose conclusive documentation for document-driven payment terms. A preshipment inspection certificate may nevertheless provide a solution, as it is a document established by a third party upon delivery at the place of departure/collection.
2. In general not suitable if payment is to be executed under a documentary credit or documentary collection.

• Documents: None required (Article A3 b)/B3 b)).
• Issues:

1. Buyer has the risk and should examine the need for insurance.
2. As the seller is at risk of not being paid, should the buyer not have sufficient insurance to cover possible transport damage to the goods, and as in such situations a credit insurance will normally not intervene, the seller might want to consider an insurance ‘seller’s contingency.

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FCA (insert named place of delivery) Incoterms® 2010

• Documents:

A8 requires the seller to provide the buyer with the usual proof that the goods have been delivered.

1. If the named place is the seller’s premises this would be a freight collect transport document (could be a pre-carriage or multimodal document).
2. If the named place is another location prior to main carriage, a freight prepaid pre-carriage transport document, signed off by the buyer or anyone acting on his behalf upon arrival, or a receipt document (FCR, terminal receipt, etc.), could provide this proof.

• Issues: Buyer contracts for carriage and therefore controls the disposition of any freight-collect documents.

• Documents: Article A2 requires the seller to carry out all customs formalities and to obtain all documents, licences and authorizations upon export (including export preshipment inspection – Article A9). Article B2 charges the buyer with transit and the import into its own country (including import preshipment inspection – Article B9). Parties must give each other assistance.
• Issues:

1. Article A2 contractually obliges the seller to carry out all customs formalities upon export at the named place, even though delivery is prior to passing the customs border. Article 788,(1) of the implementing provisions of the Community Customs Code (CCIP) however imposes the export formalities upon the EU-company ‘who is the owner of the goods or has a similar right of disposal at the time when the declaration is accepted’. If the goods are to be shipped to a destination outside the EU, the FCA buyer, when established in the EU, will thus have to be the exporter of record (and assume the liabilities), regardless of the contractual Incoterms provisions. This often complicates string sales.
2. When selling from countries requiring advance export customs reporting, the FCA buyer is in a better position than the FCA seller to communicate the required information in good time, as he appoints the forwarder and/or carrier.
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3. Article A1 of the Incoterms® rule FCA only requires the seller to provide the buyer with documents (invoice and evidence of conformity) in support of the export declaration (article A2). The destination country of the shipment (that the seller is not supposed to know) may subject these documents to specific, different formal requirements. The FCA seller’s obligations to adapt the said documents or to obtain other documents are limited to assistance at the buyer’s request, risk and expense.
4. As delivery is inland, prior to leaving the customs territory, national VAT regulations may prohibit exempting the seller’s invoice from VAT. Moreover, the seller depends on the buyer’s willingness to return a proof of physical exportation, justifying the VAT exemption for export (if allowed).

• Documents: As the buyer contracts for carriage (Article B3 a)), article Article B7 requires the buyer to notify the seller in good time of the name of the carrier, when necessary, of the time when the carrier will take the goods, of the mode of transport and of the point of taking delivery. The seller, under Article A7 has an obligation to inform the buyer when the carrier has received the goods. A8 limits the seller’s obligation to assisting the buyer, at the buyer’s request, risk and expense, in obtaining a transport document.
• Issues:

1. If the named place is the seller’s premises, carriage will often be door-to-door with the seller being the ‘loader’ and the buyer being the ‘sender’ on the transport document (when applicable). In this situation, the seller will be responsible for securing the load, and will have to provide a Dangerous Goods Declaration etc.
2. If the named place is another location prior to main carriage, the buyer should be the ‘loader’ as well as the ‘sender’ (= shipper) of the main carriage. In this situation, it is normally up to the buyer to provide a Dangerous Goods Declaration etc.
3. Article A3 a) imposes no obligation on the seller to contract for carriage but allows the seller to do so ‘if requested by the buyer or if it is commercial practice […]on usual terms at the buyer’s risk and expense’. In such situations, the seller will become the ‘shipper’ and be the contracting party with the carrier under the contract of carriage (freight collect) and will control the transport documents.

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• Documents: In addition to the documents mentioned under ‘Proof of Delivery’, ‘Customs’ and ‘Transport’, Article A1 requires the seller to provide the buyer with an (export) invoice. As the seller, in accordance with A9, also has to package the goods in the manner appropriate for their transport, the provision of a packing list will usually also be understood.
• Issues:

1. As the delivery document is ‘the usual proof that the goods have been delivered in accordance with A4’, this document may not be a transport document but a receipt document. If this is the case:
• the liability of the person receiving the goods (on behalf of the buyer) may not be of a mandatory nature (Hague/Visby, Hamburg, CMR, COTIF, Montreal, etc.) and may be contractually excluded;
• the presentation of the document is not settled by UCP 600 and ISBP (regarding signing, presentation, emission, cleanliness, etc.);
• the document is not a title document, and therefore not very appropriate for structuring the financing of the operation.
2. As the FCA buyer in principle is supposed to book the freight, he will control the transport documentation process. This might make it difficult for sellers to find protection in document-driven payment terms.
3. In general not suitable if payment is to be executed under a documentary collection, as delivery and the passing of risk will normally occur prior to presentation of the document and collection.

• Documents: None required (Article A3 b)/B3b)).
• Issues:

1. Buyer has the risk from the agreed point of departure and should examine the need for insurance.

1. As the seller is at risk of not being paid, should the buyer not have taken sufficient insurance to cover possible transport damage to the goods, and as in such situations a credit insurance will normally not intervene, the seller might want to consider an insurance ‘seller’s contingency’[Page184:]

CPT (insert named place of destination) Incoterms® 2010

• Documents: Article A8 requires the seller to provide the buyer with the usual transport document to the agreed point at the agreed place, freight prepaid (or freight for shipper’s account).
• Issues: As the Incoterms® rule CPT only refers to the ‘ship to’-place, the parties are well advised to identify as precisely as possible in the contract also the ‘ship-from’-place where the risk passes to the buyer. If several carriers are used for the carriage to the agreed destination and the parties do not agree on a specific point of delivery, discussion might arise regarding the place where the risk actually passes.

• Documents: Article A2 requires the seller to carry out all customs formalities and to obtain all documents, licences and authorizations upon export (including export preshipment inspection – Article A9). Article B2 charges the buyer with transit and the import into its own country (including import preshipment inspection – Article B9). Parties have to give each other assistance.
• Issues:

1. Article A1 of the Incoterms® rule CPT only requires the seller to provide the buyer with documents (invoice and evidence of conformity) in support of the export declaration (Article A2). The destination country of the shipment might submit these documents to specific, different formal requirements. The CPT seller’s obligations to adapt the said documents or to obtain additional documents are limited to assistance at the buyer’s request, risk and expense.
2. The seller is required to provide the buyer with a freight-paid transport document. In some countries this document is needed to establish the customs value or to establish ‘direct transportation’ for tariff preference purposes.

• Documents:

1. Article A8 requires the seller to provide the buyer with the usual transport document to the agreed point at the agreed place, freight prepaid (or freight for shipper’s account).
2. Article A7 moreover requires the seller to notify the buyer when the goods have been shipped so that the buyer can take reception of the goods upon arrival.

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• Issues:

1. Buyers bear the transport risk for carriers that they have not selected and with which they have not contracted. However, they inherit sellers’ contractual rights against carriers.
2. The seller has contract for the carriage on usual terms, freight paid by the usual route and in a customary manner.
3. The transport document may be road, rail, air or combined but may also be a port-to-port Bill of Lading.
4. The Incoterms rules do not require the transport document to be ‘clean’.

• Documents: Freight prepaid transport document (see ‘Proof of Delivery’ and ‘Transport’), export documents (see ‘Customs’) and (export) invoice (Article A1).
• Issues:

1. Sellers control the documentation process, and can obtain effective protection when financing the operation with a documentary credit.
2. In general not suitable if payment is to be executed under a documentary collection as delivery and passing of the risk will normally occur prior to presentation of the documents and collection.

• Documents: None required (Articles A3 b)/B3 b)).
• Issues:

1. Buyers are at risk from the delivery point, which can be as early as the first carrier, and should provide adequate insurance, preferably on a warehouse-to-warehouse basis.
2. As the seller is at risk of not being paid, should the buyer not have sufficient insurance to cover possible transport damage to the goods, and as in such situations a credit insurance will normally not intervene, the seller might want to consider an insurance ‘seller’s contingency’

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CIP (insert named place of destination) Incoterms® 2010

• Documents: Article A8 requires the seller to provide the buyer with the usual transport document to the agreed point at the agreed place, freight prepaid (or freight for shipper’s account).
• Issues: As the Incoterms® rule CIP only refers to the ‘ship to’-place, the parties are well advised to also identify as precisely as possible in the contract the ‘ship-from’ place where the risk passes to the buyer. If several carriers are used for the carriage to the agreed destination and the parties do not agree on a specific point of delivery, discussion might arise regarding the place where the risk actually passes.

• Documents: Article A2 requires the seller to carry out all customs formalities and to obtain all documents, licences and authorizations upon export (including export preshipment inspection – Article A9). Article B2 charges the buyer with transit and the import into its own country (including import preshipment inspection – Article B9). Parties must give each other assistance.
• Issues:

1. Article A1 of the Incoterms® rule CIP only requires the seller to provide the buyer with documents (invoice and evidence of conformity) in support of the export declaration (Article A2). The country of destination of the shipment might submit these documents to specific, different formal requirements. The CIP seller’s obligations to adapt the said documents or to obtain additional documents are limited to assistance at the buyer’s request, risk and expense.
2. The seller is required to provide the buyer with a freight-paid transport document. In some countries this document is needed to establish the customs value or to establish ‘direct transportation’ for tariff preference purposes.

• Documents:

1. Article A8 requires the seller to provide the buyer with the usual transport document to the agreed point at the agreed place, freight prepaid (or freight for shipper’s account).
2. Article A7 moreover requires the seller to notify the buyer when the goods have been shipped so that the buyer can take reception of the goods upon arrival.
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• Issues:

1. Buyers bear the transport risk for carriers that they have not selected and with which they have not contracted. However, they inherit the sellers’ contractual rights against carriers.
2. The seller has contract for the carriage on usual terms, freight paid by the usual route and in a customary manner.
3. The transport document may be road, rail, air or combined but may also be a port-to-port Bill of Lading.
4. The Incoterms rules do not require the transport document to be ‘clean’.

• Documents: Freight prepaid transport document (see ‘Proof of Delivery’ and ‘Transport’), export documents (see ‘Customs’) and (export) invoice (Article A1).
• Issues:

1. Sellers control the documentation process, and can obtain effective protection when financing the operation with a documentary credit.
2. In general not suitable if payment is to be executed under a documentary collection as delivery and passing of the risk will normally occur prior to presentation of the documents and collection.
3. The seller-provided insurance cover might be of interest for structuring the buyer’s financing.

• Documents: Article A3 b) requires the seller to provide the buyer with evidence of insurance for at least 110% of the value of the goods in the currency of the contract with Institute Cargo Clauses C cover, enabling the buyer or anyone else with an insurable interest to claim directly from the insurer.
• Issues:

1. The seller is the applicant of the insurance policy, the buyer is the beneficiary.
2. In some countries the insurance certificate is required to establish the customs value.
3. C Clauses cover is seldom adequate. Parties should consider additional cover (A or B plus war, strike (SRCC)), and possibly warehouse-to-warehouse.
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4. Some countries require exporters to contract for insurance with a national insurance company. If the buyer doubts the quality of this insurance, he might consider an umbrella insurance policy.

DAT (insert named terminal at port or place of destination)
Incoterms® 2010

• Documents: Article A8 requires the seller to provide the buyer with a document enabling the buyer to take delivery of the goods at (the agreed point in) the agreed terminal of destination.
• Issues: The delivery document might be a delivery order, a release notice or warehouse warrant but might also be the transport document (freight prepaid), signed by the consignee upon collection in the terminal.

• Documents: Article A2 requires the seller to carry out all customs formalities and to obtain all documents, licences and authorizations upon export (including export preshipment inspection – Article A9) and transit to the agreed point of destination. Article B2 charges the buyer only with the import into its own country (including import preshipment inspection – Article B9). Parties must give each other assistance.
• Issues:

1. As the seller delivers the goods in a terminal within the country of destination, it will also have to carry out transit formalities (and post the required bonds) up to that place (when applicable) and formalities regarding advance warning of the customs authorities of this country, safety of the goods (REACH, ISPM 15, etc.).
2. As the place of delivery is inland in the country of destination, certain inland charges in this country such as carriage, warehousing, THC, etc. might be subject to local indirect taxes (VAT, etc.). If the seller has no place of business in the country he might not be able to apply for a refund or deduction of these taxes.
3. In order to avoid inclusion of these inland costs in the customs value, the seller is advised to indicate these costs separately on the invoice.
4. The seller should be able to provide a freight-paid transport document, which in some countries is needed to establish the entered value.
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5. Article A1 of the Incoterms® rule DAT only requires the seller to provide the buyer with documents (invoice and evidence of conformity) in support of the export and transit declaration up to the agreed place of destination (Article A2). The country of importation of the goods might submit these documents to different, specific formal requirements. The DAT seller’s obligations to adapt the said documents or to obtain additional documents in view of the import procedures are limited to assistance at the buyer’s request, risk and expense.

• Documents:

1. As Article A3 a) requires the seller to contract for carriage, the seller will always be able to provide with a freight-paid transport document (if an independent carrier is used).
2. Article A7 requires the seller to notify the buyer in order to prepare collection at the terminal.

• Issues:

1. The seller is the shipper on the transport document.
2. DAT requires the seller to deliver the goods by placing them at the disposal of the buyer after unloading the arriving means of transportation. DAT thus is the only Incoterms® rule that requires the seller to unload at destination.
3. Certain logistical costs in the country of destination (such as THC, cartage, etc.) are at the expense of the seller to the extent they are made prior to the point where the buyer or its agent can take delivery of the goods.

• Documents: Freight prepaid transport document (see ‘Proof of Delivery’ and ‘Transport’), export and transit documents (see ‘Customs’) and (export/transit) invoice (Article A1).
• Issues:

1. As the risk passes at destination, this Incoterms rule is not suitable if payment is made with a letter of credit. In a DAT sale the conclusive document should indeed be issued only after the goods have arrived, are unloaded and made available. This is hardly conceivable in a documentary credit.
2. Very suitable for documentary collections, as the delivery, passing of risk and presentation/collection of the documents can coincide.

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• Documents: None required (Article A3 b)/B3 b)).
• Issues: Sellers should consider obtaining adequate insurance cover as they are at risk through the arrival terminal. The seller will be the applicant as well as the beneficiary of the policy.

DAP (insert named place of destination) Incoterms® 2010

• Documents: Article A8 requires the seller to provide the buyer with a document enabling the buyer to take delivery of the goods at the agreed point in the agreed place of destination, not unloaded from the arriving means of transportation.
• Issues: As the goods are to be delivered ‘ready for unloading’ the delivery document will usually be the transport document (freight prepaid), signed by the consignee upon arrival.

• Documents: Article A2 requires the seller to carry out all customs formalities and to obtain all documents, licences and authorizations upon export (including export preshipment inspection – Article A9) and transit to the agreed point of destination. Article B2 charges the buyer only with the import into its own country (including import preshipment inspection – Article B9). Parties must give each other assistance.
• Issues:

1. As the seller delivers the goods at a location within the country of destination, he will also have to carry out transit formalities (and post the required bonds) up to that place (when applicable) and formalities regarding advance warning to the customs authorities of this country and safety of the goods (REACH, ISPM 15, etc.).
2. As the place of delivery is inland in the country of destination, certain inland charges in this country such as carriage, warehousing, THC, etc., might be subject to local indirect taxes (VAT, etc.). If the seller has no place of business in the country he might not be able to apply for a refund or deduction of these taxes.
3. In order to avoid inclusion of these inland costs in the customs value, the seller will be advised to indicate these costs separately on the invoice.
4. The seller should be able to provide a freight-prepaid transport document, which in some countries is needed to establish the entered value.
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5. The seller may be unable to deliver the goods at the agreed inland point of destination, should the buyer fail to timely handle import clearance. Articles B5 b) and B6 c) render the DAP buyer liable for the risks and costs resulting from any failure to timely handle import clearance.
6. Article A1 of the Incoterms® rule DAP only requires the seller to provide the buyer with documents (invoice and evidence of conformity) in support of the export and transit declaration up to the agreed place of destination (Article A2). The country of importation of the goods might submit these documents to different, specific formal requirements. The DAP seller’s obligations to adapt the said documents or to obtain additional documents in view of the import procedures are limited to assistance at the buyer’s request, risk and expense.

• Documents:

1. As Article A3a) requires the seller to contract for carriage and the goods are delivered ready for unloading from the arriving means of transport, a freight paid transport document will usually be presented by the seller to the buyer (if an independent carrier is used).
2. Article A7 requires the seller to notify the buyer in order to prepare receipt of the goods from the carrier. If the buyer is entitled to determine the exact time and place of reception of the goods, he must give the seller sufficient notice thereof (Article B7).

• Issues:

1. The seller is the shipper on the freight prepaid transport document (if an independent carrier is used).
2. The seller is not required to unload the goods from the arriving means of transportation. This may present problems when the named place of delivery/destination is not the buyer’s premises. In such situations the Incoterms® rule DAT might be more appropriate.

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• Documents: Freight prepaid transport document (see ‘Proof of Delivery’ and ‘Transport’), export and transit documents (see ‘Customs’) and (export/transit) invoice (Article A1).
• Issues:

1. As the risk passes at destination, the DAP Incoterms® rule is not suitable if payment is made with a letter of credit. In a DAP sale the conclusive document should indeed be issued only after the goods have arrived and are ready to be unloaded. This is hardly conceivable in a documentary credit.
2. Documentary collections would also be complicated, especially if the named place is the buyer’s premises as opposed to an arrival point on the buyer’s side such as a port terminal.

• Documents: None required (Article A3 b)/B3 b)).
• Issues: Sellers should consider obtaining adequate insurance cover as they are at risk up to arrival at the agreed point of destination (often the buyer’s premises). The seller will be the applicant as well as the beneficiary of the policy. A global transport insurance policy might be an appropriate solution.

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DDP (insert named place of destination) Incoterms® 2010

• Documents: Article A8 requires the seller to provide the buyer with a document enabling the buyer to take delivery of the goods at the agreed point in the agreed place of destination, not unloaded from the arriving means of transportation.
• Issues: As the goods are to be delivered ‘ready for unloading’ the delivery document will usually be the transport document (freight prepaid), signed by the consignee upon arrival.

• Documents: Article A2 contractually obliges the seller to carry out all customs formalities and to obtain all documents, licences and authorizations, not only upon transit and export from its own country, but also for the import of the goods into the buyer’s country. The buyer is only required to give assistance to the seller at the latter’s request, risk and expense.
• Issues: DDP is the only Incoterms® rule tasking sellers with import clearance and with preshipment inspection, imposed by the government of the country of destination.

1. Under most customs laws, only companies with a place of business in the customs territory can act as importer, apply for import licences, etc. Also, in the EU, art. 64, 2, b of the Community Customs Code requires the declarant (i.e. the person making the customs declaration in his own name or the person in whose name a customs declaration is made) to be established in the Community.
2. As the ‘importation’ in itself is a taxable transaction (and as most countries do not accept a split up clearance for customs and VAT purposes), the seller would not only have to be registered for customs purposes, but also for VAT in the country of destination, and should invoice the sale with local VAT subsequent to the importation. Unless the seller can appoint a freight forwarder acting as a commission agent / tax representative, this registration might require a business licence, local address, permanent establishment, invoicing in local currency, etc.
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3. As the seller has contractually agreed to be the ‘importer of record’, he is under a contractual obligation to obtain any import licence or other official authorization necessary for the import of the goods. Customs formalities upon importation do not only relate to tax issues but also to measures of economic policy (safety requirements, labelling, certification, etc.).
4. It may be impossible for the seller to comply with these obligations if the seller has no place of business in the country of destination. Thus the transaction may be qualified as a ‘domestic sale’ for administrative purposes (currency exchange, applicable law, competence of courts, etc.).
5. As mandatory PSI upon importation is usually a condition for obtaining an authorization to purchase hard currency and transfer it abroad, the Incoterms rules are not entirely in line with art. 54 of CISG, which always charges the buyer with all ‘steps’ and formalities to execute payment.

• Documents:

1. As Article A3 a) requires the seller to contract for carriage and the goods are delivered ready for unloading from the arriving means of transport, a freight paid transport document will usually be presented by the seller to the buyer (if an independent carrier is used).
2. Article A7 requires the seller to notify the buyer in order to prepare receipt of the goods from the carrier. If the buyer is entitled to determine the exact time and place of reception of the goods, it must give the seller sufficient notice thereof (Article B7).

• Issues:

1. The seller is the shipper on the freight prepaid transport document (if an independent carrier is used).
2. The seller is not required to unload the goods from the arriving means of transportation. This may present problems when the named place of delivery/destination is not the buyer’s premises.

• Documents: Freight prepaid transport document (see ‘Proof of Delivery’ and ‘Transport’), export, transit and import documents (see ‘Customs’) and import invoice (Article A1).
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• Issues:

1. As the risk passes at destination, customs cleared, the DDP Incoterms® rule is not suitable if payment is made with a letter of credit. In a DDP sale the conclusive document should indeed be issued only after the goods have arrived, are customs cleared and ready to be unloaded. This is hardly conceivable in a documentary credit.
2. Documentary collections would also be complicated, especially if the named place is the buyer’s premises as opposed to an arrival point on the buyer’s side such as a port terminal.

• Documents: None required (Article A3 b)/B3 b)).
• Issues: Sellers should consider obtaining adequate insurance cover as they are at risk up to arrival at the agreed point of destination (often the buyer’s premises). The seller will be the applicant as well as the beneficiary of the policy. A global transport insurance policy might be an appropriate solution.

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FAS (insert named port of shipment) Incoterms® 2010

• Documents: Article A8 requires the seller to provide the buyer with the usual proof that the goods have been delivered.
• Issues: The seller must deliver the goods by placing them alongside the ship nominated by the buyer at the agreed loading point. In practice, FAS shipments are often delivered, not unloaded from the train, barge, truck ... arriving alongside the ocean going vessel, and are directly transshipped from the means of pre-carriage to the ship. If an independent carrier is used for pre-carriage, the freight prepaid pre-carriage transport document, signed off by the buyer’s appointed carrier or anyone acting on the buyer’s behalf upon arrival, might be used. In certain ports, a receipt document alongside ship (quay receipt, dock receipt, etc.) is not commonly available.

• Documents: Article A2 requires the seller to carry out all customs formalities and to obtain all documents, licences and authorizations upon export (including export preshipment inspection – Article A9). Article B2 charges the buyer with transit and the import into its own country (including import preshipment inspection – Article B9). Parties must give each other assistance.
• Issues:

1. Article A2 contractually requires the seller to carry out all customs formalities upon export at the named place, even though delivery is prior to the material passing of the customs border.
2. Article 788(1) of the implementing provisions of the Community Customs Code (CCIP) imposes the export formalities upon the EU-company ‘who is the owner of the goods or has a similar right of disposal at the time when the declaration is accepted’. If the goods are to be shipped to a destination outside the EU, the FAS buyer, when established in the EU, may thus well have to be the exporter of record (and assume the liabilities), regardless of the contractual Incoterms provisions. This may complicate string sales.
3. When selling to countries requiring advance export customs reporting (EU), the FAS buyer might in a better position than the FAS seller to communicate the required information in good time, as he appoints the forwarder and/or carrier.
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4. The Incoterms® rule FAS only requires the seller to provide the buyer with documents (invoice and evidence of conformity) to support the export declaration. The country of destination of the shipment (that the seller is not supposed to know) might submit these documents to different requirements. The FAS seller’s obligations to adapt the said documents or to obtain other documents are limited to assistance at the buyer’s request, risk and expense.
5. As delivery may well be inland, prior to passing the customs border, national VAT regulations may prohibit exemption of the seller’s invoice of VAT. Moreover, the seller depends on the buyer’s willingness to return a proof of physical exportation, justifying the VAT exemption for export (if allowed).

• Documents:

1. Article A8 only requires the seller to provide the buyer with a transport document if this document is the usual proof that the goods have been delivered alongside the ship. If this is not the case, the seller’s obligation is limited to the provision of assistance in obtaining a transport document.
2. Article B7 requires the buyer to give the seller sufficient notice of the vessel’s name, loading point and, where necessary, the selected delivery time. Under Article A7, the seller must, at the buyer’s risk and expense, give the buyer sufficient notice either that the goods have been delivered or that the vessel has failed to take the goods.

• Issues:

1. The buyer should be both the ‘loader’ and ‘sender’ (= shipper) on the main transport document (‘freight collect’/’freight payable at destination’). It is normally up to the buyer to provide a Dangerous Goods Declaration, ISPS, Cargo Tracking Notes, etc.
2. Article A3 a) imposes no obligation on the FAS seller to contract for carriage but allows the seller to do so ‘if requested by the buyer or if it is commercial practice […] on usual terms at the buyer’s risk and expense’. In such situations, the seller will become the ‘shipper’ and be the contracting party with the carrier under the contract of carriage. The seller will then control the transport documents.

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• Documents: Apart from the documents mentioned under ‘Proof of Delivery’, ‘Customs’ and ‘Transport’, Article A1 requires the seller to provide the buyer with an (export) invoice. As the seller, in accordance with A9, also has to package the goods in the manner appropriate for their transport, the provision of a packing list will usually also be understood.
• Issues:

1. As the delivery document is ‘the usual proof that the goods have been delivered in accordance with A4’, this document may not be a transport document, but a receipt document. If this is the case:
• the liability of the person receiving the goods (on behalf of the buyer) may not be of a mandatory nature (Hague/Visby, Hamburg, CMR, COTIF, Montreal, etc.) and might be contractually excluded;
• the presentation of the document is not settled by UCP 600 and ISBP (regarding signing, presentation, emission, cleanliness, etc.);
• the document is not a title document, and therefore not very appropriate for structuring the financing of the operation.
2. As the FAS buyer is in principle supposed to book the freight, he will control the transport documentation process. This might make it difficult for sellers to find protection in document-driven payment terms. In general not suitable if payment is to be executed under a documentary credit or documentary collection.

• Documents: None required (Articles A3 b)/B3 b)).
• Issues:

1. Buyer has the risk from arrival alongside the vessel at the named port of departure and should examine the need for insurance.
2. As the seller is at risk of not being paid, should the buyer not have sufficient insurance to cover possible transport damage to the goods, and as in such situations a credit insurance will normally not intervene, the seller might want to consider an insurance ‘seller’s contingency’.

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FOB (insert named port of shipment) Incoterms® 2010

• Documents: Article A8 requires the seller to provide the buyer with the usual proof that the goods have been delivered, specifying that unless such proof is a transport document, the seller must only provide assistance to the buyer, at the buyer’s request, risk and expense, in obtaining a transport document.
• Issues: The seller must deliver the goods by handing them over to the ship according to the port customs. If there is no port custom, the default position is that the seller must place the goods on board. In some ports, goods are considered ‘on board’ for delivery purposes when they are under ship’s tackle. Thus a ‘received for shipment B/L’ or a mate’s receipt might in certain situations be sufficient as a proof of delivery.

• Documents: Article A2 requires the seller to carry out all customs formalities and to obtain all documents, licences and authorizations upon export (including export preshipment inspection – Article A9). Article B2 charges the buyer with transit and the import after departure (including import preshipment inspection – Article B9). Parties must give each other assistance.
• Issues:

1. Customs legislation usually assimilates a delivery FOB with a delivery ‘beyond the customs border’ and thus, as a general rule, does not object to the seller acting as the exporter on the customs clearance form.
2. As delivery is supposed to be ‘outside of the customs territory’, national VAT-regulations will usually authorize exemption of the seller’s invoice of VAT, and allow the seller to control the proof of physical exportation, justifying the VAT-exemption for export.
3. The Incoterms® rule FOB only requires the seller to provide the buyer with documents (invoice and evidence of conformity) to support the export declaration. The country of destination of the shipment (that the seller is not supposed to know) might subject these documents to different requirements. The FOB seller’s obligations to adapt the said documents or to obtain other documents are limited to assistance at the buyer’s request, risk and expense.
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4. When selling to countries requiring pre-loading import reporting (i.e. US, EU), FOB buyers might be in a better position to obtain the required information in good time, as they appoint the forwarder or carrier.

• Documents:

1. Article A8 only requires the seller to provide the buyer with a transport document if this document is the usual proof that the goods have been delivered alongside the ship. If this is not the case, the seller’s obligation is limited to the provision of assistance in obtaining a transport document.
2. Article B7 requires the buyer to give the seller sufficient notice of the vessel’s name, loading point and, where necessary, the selected delivery time. Under Article A7, the seller must, at the buyer’s risk and expense, give the buyer sufficient notice either that the goods have been delivered or that the vessel has failed to take the goods.

• Issues:

1. In practice, contracting parties will usually presume the seller to provide the buyer with an on-board B/L (‘freight collect’ or ’freight payable at destination’).
2. This B/L need not be ‘clean’.
3. The seller should be the ‘loader’ and thus be in charge of the Dangerous Goods Declaration.
4. The buyer should book the freight and thus be the ‘sender’. In this quality, the seller would be in charge of ISPS, Cargo Tracking Notes, etc.
5. As the term ‘shipper’ on the B/L may cover both qualities of ‘loader’ and ‘sender’, a seller mentioned as the ‘shipper’ on the B/L might be advised to formally notify the carrier that he is not the contracting party to the contract of carriage.
6. Article A3 a) imposes no obligation on the FOB seller to contract for carriage but allows the seller to do so ‘if requested by the buyer or if it is commercial practice […] on usual terms at the buyer’s risk and expense’. In such situations, the seller will become the ‘shipper’ and be the contracting party with the carrier under the contract of carriage. The seller will then control the transport documents.

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• Documents: Apart from the documents mentioned under ‘Proof of Delivery’, ‘Customs’ and ‘Transport’, Article A1 requires the seller to provide the buyer with an (export) invoice. As the seller, in accordance with A9, also has to package the goods in the manner appropriate for their transport, the provision of a packing list will usually also be understood.
• Issues:

1. As the delivery document is ‘the usual proof that the goods have been delivered in accordance with A4’, this document might technically not be a transport document. In practice however the FOB delivery will usually be supposed to be evidenced by a B/L, and delivery will be presumed to coincide with the date on the B/L.
2. As the FOB buyer is in principle supposed to book the freight, he will control the transport documentation process. This might make it difficult for sellers to find protection in document-driven payment terms.
3. In general not suitable if payment is to be executed under a documentary collection as delivery and passing of the risk will normally occur prior to presentation of the document and collection.

• Documents: None required (Article A3 b)/B3 b)).
• Issues:

1. Buyer has the risk from arrival on board the vessel at the named port of departure and should examine the need for insurance.
2. As the seller is at risk of not being paid, should the buyer not have sufficient insurance to cover possible transport damage to the goods, and as in such situations a credit insurance will normally not intervene, the seller might want to consider an insurance ‘seller’s contingency’.

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CFR (insert named port of destination) Incoterms® 2010

• Documents: Article A8 requires the seller to provide the buyer with the usual transport document to the agreed point at the agreed port of destination, freight prepaid (or freight for shipper’s account). This transport document must cover the contract goods, be dated within the period agreed for shipment, enable the buyer to claim the goods from the carrier at the port of destination and, unless otherwise agreed, enable the buyer to sell the goods in transit by the transfer of the document to a subsequent buyer or by notification to the carrier. When such a transport document is issued in negotiable form and in several originals, a full set of originals must be presented to the buyer (= B/L).
• Issues: As the Incoterms® rule CFR only refers to the ‘ship to’ port, the parties are well advised to also identify as precisely as possible in the contract the ‘ship-from’ port where the risk passes to the buyer and delivery takes place.

• Documents: Article A2 requires the seller to carry out all customs formalities and to obtain all documents, licences and authorizations upon export (including export preshipment inspection – Article A9). Article B2 charges the buyer with transit and import (including import preshipment inspection – Article B9). Parties must give each other assistance.
• Issues:

1. Article A1 of the Incoterms® rule CFR only requires the seller to provide the buyer with documents (invoice and evidence of conformity) in support of the export declaration (Article A2). The country of destination of the shipment might submit these documents to specific, different formal requirements. The CFR seller’s obligations to adapt the said documents or to obtain additional documents are limited to assistance at the buyer’s request, risk and expense.
2. Even though Article B2 requires the buyer to obtain, at its own risk and expense, any import licence or other official authorization and to carry out all customs formalities for the import of the goods (and for their transit), the seller will normally be better placed to obtain and deliver required information when exporting to countries requiring pre-loading import reporting, as he organizes carriage.
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3. The seller is required to provide the buyer with a freight-paid transport document. In some countries this document is required to establish the customs value or to establish ‘direct transportation’ for tariff preference purposes.

• Documents:

1. Article A8 requires the seller to provide the buyer with the usual transport document to the agreed port, freight prepaid (or freight for shipper’s account).
2. Article A7 moreover requires the seller to notify the buyer when the goods have been shipped so that the buyer can take reception of the goods upon arrival.

• Issues:

1. The default transport document required from the seller is a freight prepaid (or ‘freight for shipper’s account’) port-to-port Bill of Lading on usual terms for carriage by the usual route in a vessel of the type normally used for the transport of the type of goods sold with the seller being the shipper (loader + sender).
2. The Incoterms rules do not require the transport document (unless otherwise agreed a port-to-port B/L) to be clean.
3. As the ‘shipper’, the seller will have to take care of the Dangerous Goods Declaration, ISPS at departure, Cargo Tracking Notes, etc.
4. Buyers bear the transport risk for carriers that they have not selected and with which they have not contracted. However, they inherit sellers’ contractual rights against carriers.

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• Documents: Freight prepaid port-to-port Bill of Lading (see ‘Proof of Delivery’ and ‘Transport’), export documents (see ‘Customs’) and (export) invoice (Article A1).
• Issues:

1. Sellers control the documentation process, and can obtain real protection when financing the operation with a documentary credit. Therefore this Incoterms® rule is commonly used with documentary letter of credit terms.
2. In general not that suitable if payment is to be executed under a documentary collection, as delivery and passing of the risk will normally occur prior to presentation of the document and collection.

• Documents: None required (Article A3 b)/B3 b)).
• Issues:

1. Buyers are at risk from the port of departure and should examine the need for adequate insurance.
2. As the seller is at risk of not being paid, should the buyer not have sufficient insurance to cover possible transport damage to the goods, and as in such situations a credit insurance will normally not intervene, the seller might want to consider an insurance ‘seller’s contingency’.

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CIF (insert named port of destination) Incoterms® 2010

• Documents: Article A8 requires the seller to provide the buyer with the usual transport document to the agreed point at the agreed port of destination, freight prepaid (or freight for shipper’s account). This transport document must cover the contract goods, be dated within the period agreed for shipment, enable the buyer to claim the goods from the carrier at the port of destination and, unless otherwise agreed, enable the buyer to sell the goods in transit by the transfer of the document to a subsequent buyer or by notification to the carrier. When such a transport document is issued in negotiable form and in several originals, a full set of originals must be presented to the buyer (= B/L).
• Issues: As the Incoterms® rule CIF only refers to the ‘ship to’-port, the parties are well advised to also identify as precisely as possible in the contract the ‘ship-from’-port where the risk passes to the buyer and delivery takes place.

• Documents: Article A2 requires the seller to carry out all customs formalities and to obtain all documents, licences and authorizations upon export (including export preshipment inspection – Article A9). Article B2 charges the buyer with transit and the import (including import preshipment inspection – Article B9). Parties must give each other assistance.
• Issues:

1. Article A1 of the Incoterms® rule CIF only requires the seller to provide the buyer with documents (invoice and evidence of conformity) in support of the export declaration (Article A2). The country of destination of the shipment might submit these documents to specific, different formal requirements. The CIF seller’s obligations to adapt the said documents or to obtain additional documents are limited to assistance at the buyer’s request, risk and expense.
2. Even though Article B2 requires the buyer to obtain, at its own risk and expense, any import licence or other official authorization and to carry out all customs formalities for the import of the goods (and for their transit), the seller will normally be better placed to obtain and deliver required information when exporting to countries requiring pre-loading import reporting, as he organizes carriage.
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3. The seller is required to provide the buyer with a freight-paid transport document and an insurance certificate. In some countries these documents are required to establish the customs value or to establish ‘direct transportation’ for tariff preference purposes.

• Documents:

1. Article A8 requires the seller to provide the buyer with the usual transport document to the agreed port, freight prepaid (or freight for shipper’s account).
2. Article A7 moreover requires the seller to notify the buyer when the goods have been shipped so that the buyer can take reception of the goods upon arrival.

• Issues:

1. The default transport document required from the seller is a freight prepaid (or ‘freight for shipper’s account’) port-to-port Bill of Lading on usual terms for carriage by the usual route in a vessel of the type normally used for the transport of the type of goods sold with the seller being the shipper (loader + sender).
2. The Incoterms rules do not require the transport document (unless otherwise agreed a port-to-port B/L) to be clean.
3. As the ‘shipper’, the seller will have to take care of the Dangerous Goods Declaration, ISPS at departure, Cargo Tracking Notes, etc.
4. Buyers bear the transport risk for carriers that they have not selected and with which they have not contracted. However, they inherit sellers’ contractual rights against carriers.

• Documents: Freight prepaid port-to-port Bill of Lading (see ‘Proof of Delivery’ and ‘Transport’), export documents (see ‘Customs’), Insurance certificate and (export) invoice (Article A1).
• Issues:

1. Sellers control the documentation process, and can obtain real protection when financing the operation with a documentary credit. Therefore this Incoterms® rule is commonly used with documentary letter of credit terms.
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2. In general not that suitable if payment is to be executed under a documentary collection as delivery and passing of the risk will normally occur prior to presentation of the document and collection.
3. The seller-provided insurance cover should be of interest for structuring the financing of the operation.

• Documents: Article A3 b) requires the seller to provide for evidence of insurance for at least 110% of the value of the goods in the currency of the contract with Institute Cargo Clauses C cover, enabling the buyer or anyone else with an insurable interest to claim directly from the insurer.
• Issues:

1. The seller is the applicant of the insurance policy, the buyer is the beneficiary.
2. In some countries the insurance certificate is required to establish the customs value.
3. C Clauses cover is seldom adequate. Parties should consider additional cover (A or B plus war, strike (SRCC), and possibly warehouse-to-warehouse.
4. Some countries require exporters to contract for insurance with a national insurance company. If the buyer doubts the quality of this insurance, he might consider an umbrella insurance policy.

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