Incoterms_® and Commercial Contracts

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There is an important distinction between the delivered-terms (“D-terms”) and the other trade terms with respect to determining the critical point when the seller has performed his delivery obligation. Only with the D-terms (DAT, DAP and DDP) is the seller’s delivery obligation extended to the country of destination. Under the other trade terms he fulfils the delivery obligation usually in his own country, either by placing the goods at the disposal of the buyer at his (the seller’s) premises (EXW), or by handing over the goods to the carrier for shipment (FCA, FAS, FOB, CFR, CIF, CPT and CIP).

To make the important distinction between this fundamentally different nature of the “groups” of trade terms, contracts of sale are often classified accordingly, as, for example, when the D-terms would turn the contract of sale into arrival contracts. Contracts using F-terms or C-terms would fall into the category of shipment contracts.

It is important to note that the seller’s obligation to arrange and pay for the carriage does not in itself extend his delivery obligation up to the point of destination. On the contrary, the risk of loss of or damage to the goods will pass at the point of delivery, and the insurance which the seller has to take out under the trade terms CIF and CIP will be for the benefit of the buyer, who has to assume the risk after the delivery point.

The C-terms, by extending the seller’s obligation with respect to costs of carriage and insurance respectively to the destination, make it necessary to consider not one but two critical points: one for the division of risks and another for the division of costs. Because this is not always easily understood, the C-terms are frequently misunderstood by merchants, who believe them to be more or less equivalent to D-terms. This, of course, is completely incorrect.

A seller having sold his goods on C-terms is considered to have fulfilled his delivery obligation even if something happens to the goods after the point of shipment, while a seller having sold the goods on D-terms has not fulfilled his obligation in similar circumstances.

Consequently, if the goods are lost or accidentally become damaged after shipment but before the goods have arrived at the agreed destination point, a seller having sold the goods upon D-terms has not fulfilled his contract and can therefore be held liable for breach of contract. He will normally have to provide substitute goods in place of those lost or damaged, or make other agreed restitution.

In this respect, the interrelation between the trade term and the other terms of the contract of sale is vital, since the risk falling upon the seller may be eliminated, or at least modified, by various so-called relief clauses or force majeure clauses in the contract of sale.

The basic distinction between C- and D-terms becomes crucial when goods are damag - ed in transit. With C-terms, the seller has already fulfilled his delivery obligations, while with D-terms the seller may be liable for breach of contract.

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It follows that the parties must always observe the fundamental difference between the C-terms and the D-terms and that a seller having sold the goods under D-terms should carefully consider the need to protect himself against breach of contract and non-fulfilment risks by adequate force majeure clauses or other relief clauses in the contract of sale.

The different nature of the trade terms can be evidenced by the grouping of the terms in four categories, using the first letter as an indication of the category to which the term belongs. The first category has only one trade term, namely EXW. But in the other three categories there are three F-terms (FCA, FAS and FOB), four C-terms (CPT, CIP, CFR and CIF) and three D-terms (DAT, DAP and DDP).

It follows from the presentation of the Incoterms® 2010 rules that Group I with terms intended for any mode or modes of transport contains one F-term (FCA), two C- terms (CPT and CIP) and three D-terms (DAT, DAP and DDP), while Group II with terms for sea and inland waterway transport comprise two F- terms (FAS and FOB) and two Cterms (CFR and CIF ).

• The letter F signifies that the seller must hand over the goods to a nominated carrier Free of risk and expense to the buyer.
• The letter C signifies that the seller must bear certain Costs even after the critical point for the division of the risk of loss of or damage to the goods has been reached.
• The letter D signifies that the goods must arrive at a stated Destination.

This grouping and identification of the various trade terms should enable merchants to understand the different fundamental meanings of the terms and guide them to the most suitable option.

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EXW represents the seller’s minimum obligation, since he only has to place the goods at the disposal of the buyer. Although it may appear from the contract itself or from the surrounding circumstances that the buyer intends to export the goods, it is entirely up to him whether he wishes to do so. According to the trade term, there is no obligation for either party to do anything with respect to export.

Nevertheless, it follows from B2 that the buyer must carry out all tasks of export, import and security clearance, and, as stipulated in A2, the seller merely has to render his assistance in connection with these tasks. The buyer has to reimburse the seller for all costs and charges incurred in rendering this assistance (B6).

Neither of the parties has any obligation to the other with respect to contracts of carriage and insurance. However, if the buyer wishes to have the goods carried from the seller’s place he should, for his own benefit, arrange for carriage and cargo insurance.

F-terms: main carriage not paid by seller

While under the F-terms the seller has to arrange any necessary pre-carriage to reach the agreed point for handing over the goods to the carrier, it is the buyer’s function to arrange and pay for the main carriage. Section A3 of the F-terms does not mention anything with respect to pre-carriage, since there is no need to explain how the seller is able to reach the point for the handing over of the goods to the carrier.

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As noted, FCA is the main F-term which can be used irrespective of the mode of transport and should be used whenever handing over to the carrier is not completed alongside a ship or by placing the goods on board. In the two latter cases, the terms FAS and FOB should be used instead of FCA.

The circumstances defining the handing over of the goods to the carrier differ according to the mode of transport and the nature of the goods. Practices also vary from place to place. Since the buyer has to arrange for the transport, it is vital that he instruct the seller precisely regarding how the goods should be handed over for carriage. He should also ensure that the precise point where this will occur is mentioned in the contract of sale. This is not always possible to do when making the contract, since the exact point may be decided subsequently. In this event, it is important that the seller, when quoting his price, consider the various options available to the buyer for requiring the seller to hand over the goods for carriage. The seller, of course, should know how the goods are to be packed, whether they are to be containerized and whether they should be delivered to a terminal in his vicinity or elsewhere.

The quantity of the goods will determine whether they are suitable to constitute so-called full loads (railway wagon loads or container loads), or whether they must be delivered to the carrier as break bulk cargo to be stowed by him, usually at his terminal. In the container trade, the important distinction is made between full loads and less-than-full loads (FCL for full container load and LCL for less than full container load).

Although all of the F-terms clearly place the obligation to contract for carriage on the buyer, in practice the seller frequently performs it when the choice is more or less immaterial to the buyer. This is particularly common when there is only one option available, taking into account the place and the nature of the goods, or when the freight would be the same even though there are several options for carriage.

When there is a “liner service” from the seller’s country, the seller frequently contracts for carriage under FOB. This practice is called “FOB additional service”. In many cases the practice with respect to road transport is less firm; indeed, it may vary from for warder to forwarder and from carrier to carrier. Nevertheless, the seller frequently contracts for the road carriage, though it is intended that the buyer should pay for it.

Current commercial practice makes it difficult to set down in a legal text what the parties are obliged to do. But though from a strictly legal point of view the seller is not concerned with the main contract of carriage, his duties according to commercial practice are reflected under the heading A3. If there is such a practice, the seller may contract for carriage on usual terms at the buyer’s risk and expense.

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The seller may decline to contract for carriage and may notify the buyer accordingly. The buyer may also specifically ask the seller to assist him or tell the seller that he intends to contract for carriage himself.

It is important for the buyer to notify the seller of his intentions if, for instance, he has a special relationship with a carrier making it important for him to exercise his right according to B3 to arrange the contract of carriage.

Even though the seller under an F-term is requested or intends to perform the contracting for carriage according to commercial practice, the buyer always will bear the risk if, because of unforeseen circumstances, transport facilities fail to be available as contemplated.

When the cargo is delivered containerized or in less-than-full loads to the carrier’s terminal, the division of loading costs seldom presents any particular problems. However, the situation is quite different when under FOB the cargo is to be delivered in the traditional manner over the ship’s rail.

The custom of the port will decide the extent to which loading costs under FOB should be distributed between seller and buyer. If this is known to both parties, no difficulties should arise. But frequently the buyer may not know the custom of the port in the seller’s country and indeed may find out later that the custom works to his disadvantage.

For this reason, it is important that the FOB buyer consider this problem when negotiating the contract of sale and the price for the goods.

There are two groups of C-terms; one group (CPT and CIP) can be used for any mode of transport, including sea and multimodal transport while the other group can be used only when the goods are intended to be carried by sea (CFR and CIF).

Sometimes the parties fail to observe the important distinction in the previous paragraph, and use CFR and CIF for modes of transport other than carriage by sea. The seller then puts himself in the unfortunate position of being unable to fulfil his fundamental obligation to present a bill of lading, or to present a sea waybill or similar document as required under CFR or CIF A8.

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Note, however, that if the buyer intends to sell the goods in transit, he may lose this option if he receives the incorrect transport document. In such a case, he would be able to cancel the contract because of the seller’s breach in not providing the correct document. Also, when the market for the goods falls after the contract of sale has been entered into, a buyer could, in certain circumstances, use the seller’s breach as a means of avoiding the market loss by cancelling the contract of sale.

The C-terms may present some difficulties, since only the point of destination is mentioned after the respective term: for example, in a contract of sale concluded between a buyer in New York and a seller in London, only New York is likely to be mentioned after the C-term, with nothing usually being said about shipment from London. Obviously, this can give rise to the false impression that the goods are to be delivered in New York and that the seller has not fulfilled his obligation until they have in fact been delivered there.

Consequently, it is not uncommon that the contract will indicate, for example, “Delivery New York not later than...” (with a particular date being given). But this notation would demonstrate that the contracting parties failed to understand the fundamental nature of the C-term, since under it the seller fulfils his obligation by shipping the goods from his country.

This confusion arises because the seller undertakes to arrange and pay for the main carriage up to destination. This payment obligation, however, is only in addition to the fundamental obligation to ship the goods from the seller’s place.

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Since the C-term must show the extent to which the seller undertakes to arrange and pay for the main contract of carriage – with the addition of insurance under CIF and CIP – indicating the point of destination under C-terms is inevitable. The C-term also establishes that the seller fulfils his delivery obligation by handing over the goods for shipment in his country, and that this has to be accepted as delivery by the buyer (A4 and B4 respectively).

Thus, under the C-terms there will be not only one relevant point as under the F-terms – the point of shipment – but two critical points, one coinciding with the point of shipment under the F-terms, the other indicating the point up to which the seller would have to procure and pay for contract of carriage and insurance. It would be easier for traders to understand the fundamental nature of the C-term if both of these critical points were indicated. However, this is usually not done, since the seller at the time of entering into the contract of sale may prefer to retain a certain liberty with regard to the exact point or port of shipment. A seller in Stockholm, for example, having sold the goods under CFR or CIF to a buyer in New York, may wish to delay deciding whether he wishes to ship the goods directly from Stockholm, or have them carried by road to Gothenburg or perhaps even to Rotterdam for carriage by sea to New York.

If the contract of sale refers to a C-term, but also indicates arrival at destination on a particular date, the contract becomes ambiguous. One would then not know if it was the intention of the contracting parties that the seller will have breached the contract if the goods do not actually arrive at destination on the agreed date, or whether the fundamental nature of the C-term should supersede this interpretation. In the latter case, the seller’s obligation is limited to shipping the goods so that they could arrive at the destination on the agreed date, unless something happens after shipment, which, according to the C-term, would be at the risk of the buyer.

In the Incoterms rules the C-term exists in two forms: CFR and CPT when there is no insurance obligation for the seller, and CIF and CIP when, according to A3b, the seller must obtain and pay for the insurance. Otherwise, CFR and CPT are identical to CIF and CIP respectively.

Under CFR and CPT, where the seller has no insurance obligation, the buyer should be aware of the relation between the cost of insurance and the intended carriage of the goods. If the goods are deemed to be exposed to greater risks during the transport (for example, during the shipment of goods on deck or in older ships), the insurance premium will become more expensive – if insurance is available at all.

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The obligation of the seller to obtain and pay for cargo insurance under CIF and CIP A3(b) is based on the principle of “minimum cover” as set out in the Institute Cargo Clauses drafted by Lloyd’s Market Association (LMA) and International Underwriting Association of London (IUA). But such minimum cover could also follow any other similar set of clauses.

In practice, however, “all risk-insurance” is preferred to less, since the minimum cover is appropriate only when the risk of loss of or damage to the goods in transit is more or less confined to casualties affecting both the means of conveyance and the cargo, such as those resulting from collisions, strandings and fire. In such cases, even the minimum cover would protect the buyer against the risk of having to pay compensation to a shipowner for his expenses in salvaging the ship and cargo, according to the rules relating to general average (the York/Antwerp Rules of 2004).

Minimum cover is not suitable for manufactured goods (particularly not for goods of high value) because of the risk of theft, pilferage or improper handling or custody of the goods. Therefore, extended insurance coverage is usually taken out as protection against such risks. A buyer of manufactured goods should stipulate in the contract of sale that the insurance according to CIF or CIP should be extended as indicated. If he does not, the seller can fulfil his insurance obligation by providing only minimum cover (Institute Clauses C).

The buyer may also wish to obtain additional coverage such as insurance against war, riots, other civil commotions, or strikes or other labour disturbances. This would normally be accomplished by specific instructions to the seller. Alternatively, the buyer may himself arrange for appropriate additional insurance. This can be done either case by case or through general arrangements with his insurer.

The question of whether it is correct to follow the principle of minimum insurance coverage has been much debated. However, the traditional "minimum principle" has been retained, primarily due to the difficulty of knowing the insurance requirements of prospective buyers in multiple sales down a chain (“string sales").

Statistical evidence indicates that fraud occurs more frequently under the CFR and CPT terms than under other terms, largely because the buyer does not normally have sufficient control over the particular method and the type of transport involved. Therefore, the CFR or CPT buyer is advised to consider specific stipulations in the contract of sale restricting the seller’s option to arrange for carriage as he pleases (for example, the buyer can mention a particular shipping line or identify the carrier).

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Sellers uncertain about the buyer’s ability or willingness to pay the price can take measures to prevent delivery of the goods before payment has been made. There are two ways to do this: (1) instructions to prevent the buyer from obtaining documents required to obtain the goods before payment can be given to a carrier, a freight forwarder or a bank (CAD-Instructions); and (2) instructions to require cash from the buyer on delivery (COD instructions) can be given to the carrier or a freight forwarder, and the bank can be instructed not to release the original(s) of the bill of lading until payment has been made. This would probably best be achieved by means of a documentary collection arranged through the international banking system.

Payment can also be arranged by requiring the buyer to open an irrevocable documentary credit (also called a letter of credit, L/C) with the seller as beneficiary. This alternative gives the seller the additional advantage of receiving payment earlier, when the goods are shipped from his own country. He then avoids having to transport the goods to destination before payment, where he could run the risk of the buyer’s failing to collect the goods.

As beneficiary under a documentary credit, the seller will be paid provided he presents the stipulated documents to the bank completely complying with the requirements of the L/C and within the period allowed. The bank which is to pay under the documentary credit can also be requested to add its confirmation to the irrevocable undertaking of the bank which opened the credit (the so-called opening or issuing bank). In this case, the seller obtains a promise to receive payment, not only from the issuing bank, but separately from the confirming bank as well.

Documentary credits are often used with C-terms, and in these cases they are fully consistent with the basic nature of the terms. This is because the seller fulfils his shipment obligation with shipment in his own country and only has to provide evidence with the documents stipulated in the documentary credit that will satisfy the paying bank and the buyer that he has fulfilled that obligation.

Nevertheless, buyers should be aware that with documentary credits banks

• are not concerned with the contract of sale or the contract of carriage;
• limit their service to the contract of finance as such;
• do not undertake to check whether the goods in fact correspond to the contract description;
• only check that the documents “on their face” appear to be in order; and
• do not assume any responsibility for the solvency or standing of parties having issued the documents.

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Thus, the buyer does not receive comprehensive protection merely by using the documentary credit process.

It follows from the previous paragraphs that, with respect to the C-terms

• CFR and CIF should never be used when carriage other than carriage by sea is intended;
• the buyer should always consider the need to restrict the seller’s options with respect to arranging the carriage and, except in case of “string sales”, should require additional insurance coverage from the seller or arrange such insurance himself;
• under no circumstances should a stipulation as to time for delivery be mentioned in connection with arrival at destination: it should be mentioned only in connection with the shipment of the goods; and
• if buyers wish to make sellers responsible for the arrival of the goods at destination at a particular time, D-terms should be used instead of C-terms

When choosing among the different D-terms, two factors have to be taken into consideration:

• the distribution of costs and risks connected with discharging the goods at destin ation; and
• the distribution of functions in connection with the clearance of the goods for import.

A seller of manufactured goods, whose products have to compete in the country of destination and who has to extend his obligation to the buyer by contract guarantees, often finds it inappropriate to limit his obligation under the contract of sale by fulfilling the contract at some earlier point, for example before the goods are dispatched or before they have reached destination. As one car manufacturer reportedly said: “Although I may be relieved of the risk of damage to my cars sold under an FOB contract, I am not pleased to see how they are being damaged when hopeless efforts are made to squeeze them into a cargo hold of a wholly inappropriate ship.”

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Practical problems with respect to arranging the carriage often make terms under which the seller fulfils his obligation by handing over the goods to a carrier inappropriate and less economical. An exporter of goods with a constant flow of cargo in various directions often finds that transport economy (so-called logistics planning) requires him to totally control carriage as well as the delivery at destination. In addition, the seller is often in a better position to obtain competitive freight rates than his buyers.

The terms DES and DEQ are traditional for carriage of goods by sea. The former means that the buyer must take the cargo out of the ship, whereas the latter places the burden on the seller to ensure that the goods are discharged on to the quay. When the goods are to be carried on liner terms, discharging expenses are usually included in the freight, in which case the term DES is out of place. If, on the other hand, the goods are commodities carried in ships to be chartered by the seller, the distinction between DES and DEQ is particularly important. Even though DES and DEQ have disappeared from the Incoterms rules, it is expected that the terms will continue to be used in commodity trading. If so, they will be interpreted either according to the Incoterms 2000 rules or as DAP or DAT under the Incoterms® 2010 rules with the same result.

If the contract of sale is concluded on DES, the seller charters the ship on terms relieving the shipowner from the discharging operation. Thus, the charter party will be concluded between the seller and the shipowner on terms “Free out”, when the word “Free” means that discharging operations are not included in the charter party hire. In such cases, the charter party may make clear that the loading operation is also “free” to the shipowner. If so, the loading expenses have to be borne by the seller, since loading and carrying the goods to the agreed destination under delivered terms would fall upon him. The charter party term in such a case would read “Free in and out” (FIO).

There are also variants of FIO used when further distinctions are made: for example, “Free in and out stowed and trimmed” (FIOST) and similar expressions in the charter party. These and similar terms can also appear in the contract of sale. But a contract of sale on delivered terms has to deal only with discharging functions and expenses, since it is unnecessary to deal with expenses which inevitably must fall upon the seller before the goods arrive at the agreed destination.

However, the term FIOST is sometimes used in FOB contracts of sale when the seller’s obligation is limited to placing the goods on board the ship in the port of shipment. But such a charter party term is out of place in the contract of sale, since the FOB seller is not concerned with discharging operations in the port of destination. Here, if the seller agrees to do more than merely lift the goods over the ship’s rail, the correct term in the contract of sale to specify what the seller has to do in connection with the loading of the ship would read “FOB stowed and trimmed”.

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Under the terms DES and DEQ, or DAP and DAT, it is vital that the buyer know the time of the ship’s arrival so that the ship is not detained in the port of discharge waiting for the cargo to be removed. It is also important that the goods, when they have been discharged, be removed from the quay as quickly as possible. It is common practice for the seller in the contract of sale to give the buyer notice of the estimated time of the arrival of the ship (ETA), and also for the contract to require the buyer to discharge the ship and remove the cargo from the quay within an agreed time.

If the buyer fails to discharge the ship and remove the cargo from the quay, he may have to reimburse the seller for expenses incurred, “demurrage”. Alternatively, the buyer may have to pay port authorities or stevedoring companies for additional storage expenses. To induce the buyer to discharge the cargo, the seller may be prepared to give him an extra bonus for saving time. Corresponding stipulations may also be found in charter parties to the benefit of the seller in his capacity as charterer (so-called dispatch money).

Demurrage can also be charged by the owners or lessors of containers, when the con tainers have not been unloaded within an agreed period and are unavailable for re-use.

It is important to make the terms of the charter party and the contract of sale compatible on questions of demurrage and dispatch money. Terms relating to the time the vessel is available for loading and discharge (so-called laytime) and terms relating to demurrage and dispatch are often complicated, since some events – for example, circumstances which could be attributed to the carrier or events beyond the control of either party, such as labour disturbances, government directions or adverse weather conditions – can extend the time available. For these reasons as well, it is necessary that the provisions of the charter party and the contract of sale be consistent.

DAT, DAP and DDP can usually be used regardless of the mode of transport. When DAP is used for through rail transport, it signifies that the seller’s obligations extend up to the border of the country mentioned after the term. This is usually the border of the buyer’s country, but it could also be some third country through which the goods are to be carried in transit.

Terms such as “free border” or “franco border” are even more common in practice than the earlier DAF in the Incoterms 2000 rules now replaced by DAP. Nevertheless, these terms are not to be used, since misunderstandings frequently arise with respect to the extent of the seller’s obligations. It is clear that the seller has to bear the costs up to the agreed point, but it is not clear whether that point is a “tariff point” or whether a real “delivery point” is intended. If the latter is the case, the seller is also responsible for what may happen to the goods from the time of dispatch until the agreed point is reached.

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As noted in the explanation of C-terms, the mere fact that the seller undertakes to pay costs does not necessarily mean that he also has to assume the risks connected with the carriage. For this reason, terms using only the words “free” or “franco” are to be avoided. The term “delivered” should be used instead, if it is intended that the seller bear the risks as well as the costs for loss of or damage to the cargo or for failure to reach the delivery point. If this is not intended, one of the C-terms, for example CPT or CIP, should be used instead of DAP.

In railway traffic a physical delivery of the goods to the buyer seldom takes place precisely at the border of the buyer’s country. The seller often obtains a through consignment note from the railway, covering the whole transit up to the final destination, and also assists the buyer to do whatever is necessary to clear customs and to pass the goods through third countries before they reach the destination. But the seller in these cases can perform these “additional” services at the risk and expense of the buyer in the same way he would under FCA and FOB terms (see the discussion of FCA and FOB above). Then if something goes wrong after the goods have reached the agreed point mentioned after DAP, this would be at the risk and expense of the buyer. Conversely, if something happens which delays the cargo or prevents it from reaching that point, it would be at the seller’s risk and expense.

Break bulk cargo is usually handed over to freight forwarders for so-called railway cargo consolidation. In these cases, the freight forwarder unitizes the cargo in full wagon loads and enters into contractual arrangements with the railways on terms which differ from the terms which the seller or buyer could have negotiated with the railway for each individual parcel. Freight forwarders have their own tariffs, and they debit sellers and buyers accordingly.

In railway traffic, the point mentioned after DAP, as discussed earlier, would then serve as the “tariff point”, so that the costs relating to the carriage before the point will be debited to the seller and the costs thereafter to the buyer. In most cases, the cargo is not discharged from one railway wagon and re-loaded on another at the point mentioned after DAP. Nevertheless, if something happens to the cargo or if the traffic is interrupted, the point mentioned after DAP would also serve as a point for the division of the risks between seller and buyer.

Presumably, sellers and buyers contracting on the term DAP will not consider more than the division of costs. As noted, the terms CPT and CIP are quite sufficient if only a division of costs between the parties is intended.

When cargo is to be collected or delivered at destination, difficulties arise in determining exactly what should be done by the seller and the buyer.

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Is it sufficient that the goods arrive on the vehicle provided by the seller? Or do they have to be removed from that vehicle at the risk and expense of the seller? If the latter, can the buyer debit the seller for the work performed by his own personnel in receiving the goods at a ramp in his warehouse? And should the seller load the goods on to a vehicle sent by the buyer to collect the goods from the seller’s terminal? Answers to these questions normally follow from commercial practice or from previous dealings between the same contracting parties. Since, in most countries, the seller normally loads the goods on to the buyer’s collecting vehicle, while the buyer unloads the goods from the seller’s vehicle arriving at his premises or some other place named by the buyer, DAT and DAP, in clause A4, at least reflect the latter practice.

It is common practice that the party domiciled in the country arranges export and import and security clearance. Thus the buyer must clear the goods for import and pay duty, VAT and other taxes and charges levied upon import of the goods, unless the parties by choosing DDP have explicitly placed that obligation on the seller.

If any difficulties seem likely to arise in relation to the import of the goods into the buyer’s country, the seller should try to avoid using the term DDP.

Even if no difficulties are expected, each party is usually better suited to assess the possible risks in his own country. Therefore, it is normally better that the seller take upon himself the task of clearing the goods for export, while the buyer procures the import formalities and bears any extra costs and risks incurred in that connection.

Also, it may be that the applicable statutory provisions relating to duties, VAT and similar charges require payment from a party domiciled in the country concerned. A party from abroad, having undertaken to pay these charges, cannot then benefit from advantages accorded to parties domiciled in the country of export or import. Moreover, if the costs are paid by a non-resident, difficulties may arise in deducting the expenditure in the VAT forms submitted to the authorities.

The seller or his freight forwarder may be prepared to clear the goods for import, with - out paying duty, VAT and other official charges connected with the import clearance. If so, DDP may still be used but with the addition of the phrase “exclusive of duty, VAT and other import charges”.

DDP with such an exclusion is not equivalent to the other D-terms since the obligation to clear the goods for import still falls on the DDP seller. It is also possible to use another D-term and then to add that some costs connected with import should be borne by the seller. [Page62:]

Serious difficulties could arise in using the term DAT, DAP when the goods have to pass through customs at an earlier point than the agreed point of destination. If so, the goods may be prevented from reaching the destination point as contemplated if they are held up at the customs station, either because of the failure of the buyer to do whatever is required by the authorities or for other reasons.

Since under DAT and DAP it is the buyer’s task to clear the goods for import, all of the above events are at his risk and expense. This may be cold comfort for a seller who has his transport arrangements interrupted at the customs station but who has the remaining obligation to deliver the goods at the agreed final point of destination. Consequently, sellers are advised to be cautious and to avoid agreeing to arrive at a point which may be difficult to reach.

By adding the term “cleared for import”, it is possible to use DAT or DAP and still place the obligation to clear the goods for import on the seller. This means that the seller’s obligation is limited to the clearance as such and that the duty, as well as other charges levied upon import, will be unpaid and have to be paid by the buyer.

It should be underlined that the “charges” to be paid by the DDP-seller concern only such charges as are a necessary consequence of the import as such and thus have to be paid according to the applicable import regulations. This does not include additional charges resulting from warehousing or services obtained from private parties in connection with the import.

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