Incoterms_® and Commercial Contracts

GUIDANCE NOTE

This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. It is suitable for domestic trade, while FCA is usually more appropriate for international trade.

“Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e., works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.

The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the costs and risks to that point are for the account of the seller. The buyer bears all costs and risks involved in taking the goods from the agreed point, if any, at the named place of delivery

EXW represents the minimum obligation for the seller. The rule should be used with care as:

1. The seller has no obligation to the buyer to load the goods, even though in practice the seller may be in a better position to do so. If the seller does load the goods, it does so at the buyer’s risk and expense. In cases where the seller is in a better position to load the goods, FCA, which obliges the seller to do so at its own risk and expense, is usually more appropriate.
2. A buyer who buys from a seller on an EXW basis for export needs to be aware that the seller has an obligation to provide only such assistance as the buyer may require to effect that export: the seller is not bound to organize the export clearance. Buyers are therefore well advised not to use EXW if they cannot directly or indirectly obtain export clearance.
3. The buyer has limited obligations to provide to the seller any information regarding the export of the goods. However, the seller may need this information for, e.g., taxation or reporting purposes.

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A1 General obligations of the seller

Comments - The seller must provide the goods in conformity with the contract. It is also usual practice that the seller, in order to be paid, has to invoice the buyer. In addition, the seller must submit any other evidence stipulated in the contract itself that the goods conform with the contract.

This text only serves as a reminder of the seller’s main obligation under the contract of sale.

A2 Licences, authorizations, security clearances and other formalities

Comments - Under EXW it is the buyer’s obligation to obtain export as well as import licences or other official authorizations. It is therefore the seller under this term who should render the necessary assistance and the buyer who should bear any cost involved. However, the seller must, whenever required, assist the buyer, at his risk and expense, with security clearance.

Since the goods are made available to the buyer at the seller’s premises, the seller has no obligation to contract for carriage or insurance. However, he must give the buyer any information he may request for insurance purposes.

A3 Contracts of carriage and insurance

Comments - Since the goods are made available to the buyer at the seller’s premises, the seller has no obligation to contract for carriage or insurance. However, he must give the buyer any information he may request for insurance purposes.

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A4 Delivery

Comments - Under EXW the seller only has to make the goods available to the buyer at the named place of delivery in the seller’s own country, which is usually at the seller’s premises. Therefore, this term represents the seller’s minimum obligation; delivery at the buyer’s premises in the buyer’s country would represent the seller’s maximum obligation, for example DAT, DAP and DDP. Exactly how delivery should be performed is not specified, but this normally follows what has been done in previous dealings between the same parties or from the custom of the trade.

Frequently, the seller assists the buyer by bringing the goods onto a ramp from which they can be loaded on an arriving vehicle. The seller may also assist the buyer with the loading of the goods on to the vehicle, for example by using a fork-lift truck. If it is intended that the seller should be obliged to assist the buyer as above, this could be made clear by the parties’ adding the words “loaded upon departing vehicle” after EXW in the contract of sale.

A5 Transfer of risks

Comments - All the Incoterms rules are based on the same principle that the risk of loss of or damage to the goods is transferred from the seller to the buyer when the seller has fulfilled his delivery obligation according to A4.

All the Incoterms rules, in conformity with the general principle of the 1980 CISG (Convention on Contracts for the International Sale of Goods), connect the transfer of the risk with the delivery of the goods and not with other circumstances, such as the passing of ownership or the time of the conclusion of the contract. Neither the Incoterms rules nor CISG deal with transfer of title to the goods or other property rights with respect to the goods.

The passing of risk of loss of or damage to the goods concerns the risk of fortuitous events (accidents) and does not include loss or damage caused by the seller or the buyer, for example through inadequate packing or marking of the goods. Therefore, even if damage occurs subsequent to the transfer of the risk, the seller may still be responsible if the damage could be attributed to the fact that the goods were not delivered in conformity with the contract (see A1 and the comments to A9).

A5 of all the Incoterms rules contain the phrase “with the exception of loss or damage in circumstances described in B5”. This means that there are exceptions to the main rule in the circumstances described in B5 which may result in a premature passing of the risk because of the buyer’s failure properly to fulfil his obligations (see the comments to B5).

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A6 Allocation of costs

Comments - As is the case with the transfer of the risk of loss of or damage to the goods, all the Incoterms rules follow the same rule, that the division of costs occurs at the delivery point. All costs occurring before the seller has fulfilled his obligation to deliver according to A4 are for his account, while further costs are for the account of the buyer (see the comments to B6). This rule is made subject to the provisions of B6, which indicates that the buyer may have to bear additional costs incurred by his failure to take delivery or to give appropriate notice to the seller.

Since under EXW the seller’s obligation is limited to placing the goods at the disposal of the buyer, all further costs have to be borne by the buyer once the goods have been placed at his disposal. The seller has no duty to bear any costs incurred for export or security clearance, since under B2 this is the buyer’s obligation.

A7 Notice to the buyer

Comments - The seller must give the buyer sufficient notice as to when the goods will be available at the agreed or chosen delivery point, so that the buyer can make preparations in time to take delivery according to B4. There is no stipulation in the Incoterms rules spelling out the consequences of the seller’s failure to give such notice. But it follows from the Incoterms rules that the seller’s failure constitutes a breach of contract. This means that the seller could be held responsible for such a breach, according to the law applicable to the contract of sale.

A8 Delivery document

Comments - Since the seller makes the goods available at his premises, or a named place of delivery in his own country, no delivery document is required.

A9 Checking – packaging – marking

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Comments - It is necessary for the buyer to ensure that the seller has duly fulfilled his obligation with respect to the condition of the goods. This is particularly important if the buyer is called upon to pay for the goods before he has received and checked them. However, the seller has no duty to arrange and pay for inspection of the goods before shipment, unless this has been specifically agreed in the contract of sale.

The goods must also be adequately packed. But the seller may not know the buyer’s intentions concerning the mode of transport and the ultimate destination. There is a considerable difference between a short journey to an adjoining country and an intercontinental carriage by sea, which may expose the goods to the risk of breakage or corrosion from humidity and condensation.

The seller is obliged to pack the goods for a long and difficult carriage only if he knows that this will actually occur. Therefore, it is advisable for the buyer to inform the seller accordingly, or, better still, to specify the required packaging in the contract of sale.

A10 Assistance with information and related costs

Comments - Since it is for the buyer to do whatever is necessary with respect to export, transit and import and security clearance, he may well need the seller’s assistance to obtain documents (for example, a certificate of origin, health certificate, clean report of finding, import licence, security-related information) or equivalent electronic data interchange (EDI) messages issued or transmitted in the country of delivery or import. But any cost incurred by the seller in rendering this assistance must be reimbursed to him by the buyer, according to B10.

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B1 General obligations of the buyer

Comments - The buyer must pay the price agreed in the contract of sale. B1 constitutes a reminder of this main obligation, which corresponds with the seller’s obligation to provide the goods in conformity with the contract of sale, as stipulated in A1.

B2 Licences, authorizations, security clearances and other formalities

Comments - Since the seller only makes the goods available to the buyer in the country of export, it is for the buyer to do whatever is necessary with respect to the clearance of the goods for export, transit, import and security. A prohibition of export or import will not relieve the buyer from his obligation under the contract of sale. However, contracts of sale frequently contain “relief clauses” to the benefit of both parties in such cases. These clauses may stipulate that the affected party will be given the benefit of an extension of time to fulfil his obligation, or, under the worst circumstances, the right to avoid the contract. It may also be possible to obtain such relief under the law applicable to the contract of sale.

Before accepting the obligation to clear the goods for export, the buyer should ascertain that the regulations of the seller’s country do not prevent him as a non-resident from applying for an export licence or from performing whatever tasks are necessary to clear the goods for export and security. Normally, no such difficulties will be encountered, since measures in this regard can be taken by freight forwarders (customs brokers) on the buyer’s behalf. If the buyer wishes to avoid the obligation to clear the goods for export, the words “cleared for export” could be added after EXW.

B3 Contracts of carriage and insurance

Comments - The buyer has no obligation to the seller under the contract of sale to contract for carriage, except as required in order to take delivery according to B4. He would, of course, nevertheless arrange for carriage in his own interest.

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B4 Taking delivery

Comments - The buyer must take delivery of the goods when they have been placed at his disposal at the agreed time and place as stipulated in A4. His failure to do so will not relieve him from his obligation to pay the price and could result in a premature passing of the risk of loss of or damage to the goods or make him liable to pay additional costs according to B5 and B6.

B5 Transfer of risks

Comments - According to the main rule, while the seller under A5 bears the risk of loss of or damage to the goods until the delivery point, the buyer has to bear the risk thereafter. The delivery point is different under the different terms. In EXW and all D-terms, the goods are simply placed “at the disposal of the buyer” at the relevant point, while under the F- and C-terms the delivery point is related to the handing over of the goods to the carrier in the country of dispatch or shipment (see the comments to A4 of these terms). In the terms used for goods intended to be carried by sea, reference is made to delivery alongside the named vessel (FAS A4) or delivery onboard the vessel (FOB, CFR, CIF).

Consequences of buyer’s failure to give notice

While the seller under EXW and all D-terms can transfer the risk by his own act of placing the goods at the buyer’s disposal, he may be prevented from doing so by the buyer’s failure to give notice according to B7. This can occur when it is the buyer’s responsibility to determine (1) the time within a stipulated period when the goods are to be made available or (2) the place of delivery (see the comments to B7). The failure to perform these tasks results in a premature passing of the risk: it is not acceptable that the buyer should be able to delay the delivery and the passing of the risk longer than contemplated when the contract of sale was made. Therefore, his failure to notify according to B7 will cause the risk to pass “from the agreed date or the expiry date of any period fixed for taking delivery”.

Identification of the contract goods and the passing of risk

The risk, however, cannot pass until the goods have been duly identified as the contract goods. If the goods are unascertained, i.e. goods of a certain kind which the seller will deliver to his various buyers, passing of risk occurs only when the goods are “clearly identified as the contract goods”.

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B6 Allocation of costs

Comments - Although the seller’s obligation is limited to placing the goods at the disposal of the buyer at the seller’s own premises, EXW A4 does not indicate exactly how this should be done. In practice, the seller will often assist the buyer by bringing the goods onto a ramp from which they can be loaded on to a vehicle for carriage from the seller’s place. Or the seller may assist the buyer with the loading of the goods on to this vehicle, for example by placing them on to the vehicle by the use of a fork-lift truck. In these cases, sellers will not usually debit their buyers with costs for work performed by the seller’s own personnel and/or for the use of the seller’s own equipment. However, if the goods are to be taken from an independent warehouse and the seller stands to incur external costs, he would, according to the main principle of B6, be entitled to debit such costs to the buyer.

Normally, the extent to which the seller will assist the buyer free of charge in removing the goods from the seller’s premises will be determined from previous dealings between the same parties or from the custom of the trade. If, however, the parties agree that the seller should be obliged to perform the loading of the goods, the words “loaded upon departing vehicle” may be added after EXW in the contract of sale.

Notice and identification of goods

Whenever the buyer is entitled to determine the time or place of taking delivery, his failure to notify the seller according to B7 will not only cause the risk of loss of or damage to the goods to pass prematurely but also make him liable to pay any additional costs caused thereby, for example extra costs for storage and insurance. However, this liability occurs only if the goods have been identified as the contract goods (see the comments concerning “identification” under B5).

Buyer clears goods for export

Under EXW the buyer has to clear the goods for export. Consequently, he will have to pay “where applicable, all duties, taxes and other charges as well as the costs of carrying out customs formalities payable upon export” and reimburse the seller for any assistance the seller provides in performing these tasks.

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B7 Notices to the seller

Comments - As discussed in the comments to B5 and B6, the failure of the buyer to notify the seller of the time for shipping the goods or the destination – when the buyer in the contract of sale has been given the option to determine these matters – may cause the risk of the loss of or damage to the goods to pass before the goods have been delivered according to A4. In addition, it can make the buyer liable to pay any additional costs incurred by the seller as a result of the buyer’s failure.

B8 Proof of delivery

Comments - The buyer should provide the seller with a customary receipt for the goods. This receipt could be indicated on a packing list or provided by some other document which could constitute “appropriate evidence”.

B9 Inspection of goods

Comments - As noted in the comments to A9, the buyer has to pay for any costs of checking the goods, unless the contract determines that these costs should be wholly or partly borne by the seller. In some cases, the contract may provide that the costs should be borne by the seller if the inspection reveals that the goods do not conform with the contract.

Pre-shipment inspection

In some countries, where import licences or permission to obtain foreign currency for the payment of the price may be required, the authorities may demand an inspection of the goods before shipment, to ensure that the goods conform with the contract. (This is usually called pre-shipment inspection, PSI.) If this is the case, the inspection is normally arranged by instructions from the authorities to an inspection company, which they appoint. The costs following from this inspection have to be paid by the authorities. Any reimbursement to the authorities for the inspection costs, however, must be made by the buyer, unless otherwise specifically agreed between the buyer and the seller.

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B10 Assistance with information and related costs

Comments - As discussed in the comments to A10, the seller has to render the buyer assistance in obtaining the documents or electronic messages and information which may be required for the transit, import and security-clearance of the goods. However, this assistance is rendered at the buyer’s risk and expense. Therefore, B10 stipulates that the buyer must pay all costs and charges incurred in obtaining these documents or electronic messages. He will also have to reimburse the seller for the seller’s costs in rendering his assistance in these matters.

GUIDANCE NOTE

This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed.

“Free Carrier” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.

If the parties intend to deliver the goods at the seller’s premises, they should identify the address of those premises as the named place of delivery. If, on the other hand, the parties intend the goods to be delivered at another place, they must identify a different specific place of delivery.

FCA requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.

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A1 General obligations of the seller

Comments - The seller must provide the goods in conformity with the contract. It is also usual practice that the seller, in order to be paid, has to invoice the buyer. In addition, the seller must submit any other evidence stipulated in the contract itself that the goods conform with the contract.

This text only serves as a reminder of the seller’s main obligation under the contract of sale.

A2 Licences, authorizations, security clearances and other formalities

Comments - The seller has to clear the goods for export and assume any risk or expense which this involves. Consequently, if there is an export prohibition or if there are particular taxes on the export of the goods – and if there are other government-imposed requirements which may render the export of the goods more expensive than contemplated – all of these risks and costs must be borne by the seller. However, contracts of sale usually contain particular provisions which the seller may invoke to protect himself in the event of these contingencies. Under CISG and corresponding provisions in various national Sale of Goods Acts, unforeseen or reasonably unforeseeable export prohibitions may relieve the seller from his obligations under the contract of sale.

A3 Contracts of carriage and insurance

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Comments - The F-terms all mean that the seller’s obligation is limited to handing over the goods to the carrier nominated by the buyer. Consequently, the seller has no obligation to contract for carriage. Nevertheless, if arranging for the carriage is not difficult and if the freight rate would be more or less the same regardless of whether the seller or the buyer contracts with the carrier, it is often more practical for the seller to contract for carriage at the buyer’s risk and expense. This explains why, in many cases, a commercial practice has developed to this effect.

It should be stressed, however, that the seller has no obligation to contract for carriage as noted above and that the buyer does not have to let him do so. If there is a commercial practice between the parties, then under F-terms the seller may contract for carriage as an additional service to the buyer, unless the buyer in due time has instructed the seller not to do so.

Therefore, if it is possible for the buyer to obtain a better freight rate than the seller, or if there are other reasons for him to exercise his right to contract for carriage (for example, government directions), he must inform the seller accordingly, preferably when the contract of sale is made. Otherwise, problems and additional expenses may follow if both parties contract for carriage assuming that the other party did not.

Conversely, the seller must promptly inform the buyer if for some reason he does not wish to follow the buyer’s request to contract for carriage or to adhere to commercial practice. Otherwise, additional expenses and risks may occur as a result of the failure to arrange for carriage in due time. In any event, the seller does not incur any risk in complying with the buyer’s request or with commercial practice, since whatever he does or intends to do is at the buyer’s risk and expense.

If transport becomes temporarily unavailable or more expensive, the buyer under all Fterms has to bear these risks.

The seller, even under F-terms, has to contract for any carriage required to reach the place where the parties have agreed that the goods should be handed over for carriage, as, for example, when the goods are to be carried from an inland point to an ocean carrier to be named by the buyer. Such pre-carriage would then be for the seller’s account.

A4 Delivery

Comments - FCA, as first presented in the Incoterms1980 rules (where it was referred to as FRC), was originally intended to solve the particular problems arising from changed cargo handling techniques, such as containerization or other means of assembling parcel cargo in transportation units before the vehicle of transport arrived. In such cases, FCA should be used instead of FOB, the latter of which is intended to be used in cases where the seller tenders the goods to the ship. By using FCA instead of FOB, the point of delivery is moved to the prior point where the goods are delivered to the carrier, either at his cargo terminal or to a vehicle sent to pick up the goods after they have been containerized or otherwise assembled in transportation units at the seller’s premises.

Stipulations on handing over and delivery advisable in contract of sale

It is vital for the seller to know at the time he makes his offer what he may be required to do according to the contract of sale, since this may well affect his costs and should therefore be reflected in the price. Ideally, in the contract of sale the parties should agree on a precise point for the delivery of the goods to the carrier and make clear how the goods should be handed over to him, for example by naming the carrier’s cargo terminal and specifying if the goods should be delivered containerized or not.

Also, it is necessary to clarify who should be responsible for loading the goods on to the buyer’s collecting vehicle and unloading them from the seller’s vehicle used to bring the goods to the place where they should be handed over to the carrier.

In the Incoterms® 2010 rules it is the seller who has the duty to load the goods on to the buyer’s collecting vehicle, and the seller only has to bring the goods for on-carriage on the seller’s means of transport ready for unloading by the buyer.

If at the time the contract of sale is concluded, the buyer wishes later to have the option to decide (1) the point where the goods should be handed over for carriage or (2) the mode of transport, it is important to determine the extent of the buyer’s options concerning these matters and the time within which he must exercise them. If the buyer is not given options but the contract mentions a place where the carrier has several receiving points, the seller “may select the point that best suits his purpose”.

Normally, it would follow from the mode of transport and the carrier’s receiving point exactly how the goods should be handed over for carriage. But, as noted in the preceding paragraph, there may be different alternatives for the handing over, and failing precise stipulations or instructions in the contract of sale, the goods may be handed over to the carrier “in such a manner as the quantity and/or nature of the goods may require”.

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The quantity and nature of the goods will determine whether the goods should be containerized by the seller as homogeneous cargo in one full load in a so-called FCLcontainer, or by the carrier at his cargo terminal as parcel cargo together with cargo from other shippers in a so-called LCL-container.

Who is a carrier ?

Since the carrier under FCA is named by the buyer, it is normally not necessary to decide whether the entity named can be regarded as a “carrier” according to the law applicable to the contract of sale and the contract of carriage. The seller merely has to accept the buyer’s nomination. Therefore, the buyer is not compelled to name someone who has the status of a carrier in a legal sense; he could also name “another person” (for example, a freight forwarder).

However, the problem of deciding whether the person engaged for the carriage is a “carrier” in the legal sense may arise whenever the seller chooses this person in accordance with A3. The seller must then “contract for carriage on usual terms at the buyer’s risk and expense”, and unless otherwise agreed, arrange a contract of carriage and not merely a contract of forwarding agency.

A contract of carriage may be entered into with operators which do not physically perform the carriage as long as they assume liability as carriers for the carriage.

A5 Transfer of risks

Comments - All the Incoterms rules are based on the same principle, that the risk of loss of or damage to the goods is transferred from the seller to the buyer when the seller has fulfilled his delivery obligation according to A4.

All the Incoterms rules, in conformity with the general principle of CISG, connect the transfer of the risk with the delivery of the goods and not with other circumstances, such as the passing of ownership or the time of the conclusion of the contract. Neither the Incoterms rules nor CISG deals with transfer of title to the goods or other property rights with respect to the goods.

The passing of risk for loss of or damage to the goods concerns the risk of fortuitous events (accidents) and does not include loss or damage caused by the seller or the buyer, for example through inadequate packing or marking of the goods. Therefore, even if damage occurs subsequent to the transfer of the risk, the seller may still be responsible if the damage could be attributed to the fact that the goods were not delivered in conformity with the contract (see A1 and the comments to A9).

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A5 of all the Incoterms rules contain the phrase “with the exception of loss or damage in circumstances described in B5”. This means that there are exceptions to the main rule in the circumstances described in B5 which may result in a premature passing of the risk because of the buyer’s failure properly to fulfil his obligations (see the comments to B5).

A6 Allocation of costs

Comments - As is the case with the transfer of the risk of loss of or damage to the goods, all the Incoterms rules follow the same rule, that the division of costs occurs at the delivery point. All costs occurring before the seller has fulfilled his obligation to deliver according to A4 are for his account, while further costs are for the account of the buyer (see the comments to B6). This rule is made subject to the provisions of B6, which indicates that the buyer may have to bear additional costs incurred by his failure to nominate a carrier that takes the goods into his charge or to give appropriate notice to the seller.

Since the seller’s obligation is limited to handing over the goods to the carrier named by the buyer, all further costs have to be borne by the buyer once the goods have been delivered in this way. The seller must, however, pay the costs of customs formalities as well as all duties, taxes and other official charges payable upon export.

A7 Notices to the buyer

Comments - The seller must give the buyer sufficient notice as to when the goods will be available at the agreed or chosen delivery point, so that the buyer can make preparations in time to take delivery according to B4. There is no stipulation in the Incoterms rules spelling out the consequences of the seller’s failure to give such notice. But it follows from the Incoterms rules that the seller’s failure constitutes a breach of contract. This means that the seller could be held responsible for such a breach, according to the law applicable to the contract of sale.

The seller must also inform the buyer if the carrier nominated by the buyer fails to take the goods into his charge at the time agreed. There is no similar stipulation in the other Incoterms rules, since under all C- and D- terms, the consequences of any failure of the carrier to take the goods into his charge have to be borne by the seller.

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A8 Delivery document

Comments - Since the seller has to hand over the goods for carriage, the carrier normally gives him a receipt which is usually identical to the transport document such as a received for shipment bill of lading or multimodal transport document. If so, that document serves as evidence not only of the contract of carriage – which under F-terms is made by or on behalf of the buyer – but also of the delivery of the goods to the carrier.

If, however, the seller receives a document other than the transport document – for example, a so-called mate’s receipt when the goods have been loaded onboard a ship chartered by the buyer – he should, upon the buyer’s request, assist the buyer to obtain the transport document. This assistance is rendered at the buyer’s risk and expense.

A9 Checking – packaging – marking

Comments - It is necessary for the buyer to ensure that the seller has duly fulfilled his obligation with respect to the condition of the goods. This is particularly important if the buyer is called upon to pay for the goods before he has received and checked them. However, the seller has no duty to arrange and pay for inspection of the goods before shipment, unless this has been mandated by the authorities in the country of export or specifically agreed in the contract of sale.

The goods must also be adequately packed. But the seller may not know the buyer’s intentions concerning the mode of transport and the ultimate destination. There is a considerable difference between a short journey to an adjoining country and an intercontinental carriage by sea, which may expose the goods to the risk of breakage or corrosion from humidity and condensation.

The seller is obliged only to pack the goods for a long and difficult carriage if he knows that this will actually occur. Therefore, it is advisable for the buyer to inform the seller accordingly, or, better still, to specify the required packaging in the contract of sale.

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A10 Assistance with information and related costs

Comments - Since it is for the buyer to do whatever is necessary with respect to transit, import and security clearance, he may well need the seller’s assistance to obtain documents (for example, a certificate of origin, health certificate, clean report of finding, import licence) issued or transmitted in the country of delivery and/or origin. But any cost incurred by the seller in rendering this assistance must be reimbursed to him by the buyer, according to B10. Similarly, the seller must reimburse the buyer for any assistance provided by him according to B10.

Also, the seller may be requested to provide the buyer with information relating to the goods which the buyer may require for security-related clearance of the goods.

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B1 General obligations of the buyer

Comments - The buyer must pay the price agreed in the contract of sale. B1 constitutes a reminder of this main obligation, which corresponds with the seller’s obligation to provide the goods in conformity with the contract of sale, as stipulated in A1.

B2 Licences, authorizations, security clearances and other formalities

Comments - Since the seller fulfils his obligations by handing over the goods for carriage and clearing the goods for export, the buyer has to take care of any necessary transit formalities and clear the goods for import. These obligations of the buyer are specifically mentioned in B2.

B3 Contracts of carriage and insurance

Comments - Under all F-terms the buyer has the obligation to contract for carriage, though the seller may, as an additional service, arrange for carriage at the buyer’s risk and expense. However, the contract for carriage starts “from the named place”, and any prior carriage (pre-carriage) would have to be arranged by the seller (see A3).

B4 Taking delivery

Comments - The buyer must take delivery of the goods when they have been placed at his disposal at the agreed time and place as stipulated in A4. His failure to do so will not relieve him of his obligation to pay the price and could result in a premature passing of the risk of loss of or damage to the goods, or make him liable to pay additional costs according to B5 and B6.

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B5 Transfer of risks

Comments - According to the main rule, while the seller under A5 bears the risk of loss of or damage to the goods until the delivery point, the buyer has to bear the risk thereafter. The delivery point is different under the different terms. In EXW and all D-terms the goods are simply placed “at the disposal of the buyer” at the relevant point, while under the F- and C-terms the delivery point is related to the handing over of the goods to the carrier in the country of dispatch or shipment (see the comments to A4 of these terms). In the terms used for goods intended to be carried by sea, reference is made to delivery alongside the named vessel (FAS) or delivery onboard the vessel (FOB, CFR, CIF).

The seller cannot – as under EXW and the D-terms – cause the goods to be delivered and the risk to pass unless he receives instructions or contracts for carriage under the Cterms or on behalf of the buyer (see the comments to FCA A3a). When the buyer is responsible for making the contract of carriage and nominating the carrier and that carrier fails to take the goods into his charge, the buyer incurs the same liability as he would had he failed properly to nominate the carrier or to notify the seller of matters required for handing over the goods for carriage.

Identification of the contract goods and premature passing of risk

For risk to pass prematurely, it is required that the goods be identified as the contract goods. When the goods have been prepared for dispatch they have also normally been identified as the contract goods. But a failure of the buyer to give sufficient notice of the date or period of shipment according to B7 causes the seller to defer his preparations. If so, it may not be possible to identify some goods stored at the seller’s premises or in an independent cargo terminal as the contract goods on the “agreed date or the expiry date of any period stipulated for delivery”. The risk would then not pass until the identification has been made.

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B6 Allocation of costs

Comments - Under FCA the seller fulfils his delivery obligation according to A4 by handing over the goods to the carrier. The buyer must pay the freight and other costs occurring subsequent to the delivery of the goods to the carrier.

Since the buyer has to contract for carriage, he would also have to pay any additional costs incurred because the carrier or person named by him fails to take the goods into his charge.

Whenever the buyer is entitled to determine the time or place of taking delivery, his failure to notify the seller according to B7 will not only cause the risk of loss of or damage to the goods to pass prematurely but also make him liable to pay any additional costs caused thereby, for example, extra costs for storage and insurance.

The liability to pay additional costs as noted above occurs only if the goods have been identified as the contract goods (see the comments on “identification” in B5).

B7 Notices to the seller

Comments - As discussed in the comments to B5 and B6, the failure of the buyer to notify the seller of the time for shipping the goods or the destination – when the buyer in the contract of sale has been given the option to determine these matters – may cause the risk of the loss of or damage to the goods to pass before the goods have been delivered according to A4. In addition, it can make the buyer liable to pay any additional costs incurred by the seller as a result of the buyer’s failure.

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The buyer’s notice should inform the seller of the name of the carrier as well as of any further particulars relating to the delivery of the goods for carriage (such as the mode of transport and the exact point and time for the delivery) unless, of course, the carrier has been chosen by the seller according to A3.

B8 Proof of delivery

Comments - The seller has to provide proof of delivery, and the buyer must accept that proof if it conforms with the contract and with the requirements of A8 (see comments to A8). If the buyer rejects a conforming document giving proof (for example, by instructions to a bank not to pay the seller under a documentary credit), he commits a breach of contract which would give the seller remedies available for the breach under the contract of sale (for example, a right to cancel the contract or to claim damages for breach). However, the buyer is not obliged to accept a document which does not provide adequate proof of delivery, for example, if there are notations on the document showing that the goods are defective or if the document indicates that the goods have been provided in less than the agreed quantity. The document is then considered to be “unclean”.

B9 Inspection of goods

Comments - As noted in the comments to A9, the buyer has to pay for any costs of checking the goods, unless the contract determines that these costs should be wholly or partly borne by the seller. In some cases, the contract may provide that the costs should be borne by the seller if the inspection reveals that the goods do not conform with the contract.

In some countries, where import licences or permission to obtain foreign currency for the payment of the price may be required, the authorities may demand an inspection of the goods before shipment, to ensure that the goods are in conformity with the contract. (This is usually called pre-shipment inspection, PSI.) If this is the case, the inspection is normally arranged by instructions from the authorities to an inspection company, which they appoint. The costs following from this inspection have to be paid by the authorities. Any reimbursement to the authorities for the inspection costs, however, must be made by the buyer, unless mandated by the authorities of the country of export or otherwise specifically agreed between the buyer and the seller.

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B10 Assistance with information and related costs

Comments - As discussed in the comments to A10, the seller has to assist the buyer in obtaining the documents or electronic messages and information which may be required for the transit, import and security-related clearance of the goods. However, this assistance is rendered at the buyer’s risk and expense. Therefore, B10 stipulates that the buyer must pay all costs and charges incurred in obtaining these documents or electronic messages. He will also have to reimburse the seller for the seller’s costs in rendering his assistance in connection with these matters or in contracting for carriage in accordance with A3.

GUIDANCE NOTE

This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed.

“Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

When CPT, CIP, CFR or CIF are used, the seller fulfils its obligation to deliver when it hands the goods over to the carrier and not when the goods reach the place of destination.

This rule has two critical points, because risk passes and costs are transferred at different places. The parties are well advised to identify as precisely as possible in the contract both the place of delivery, where the risk passes to the buyer, and the named place of destination to which the seller must contract for the carriage. If several carriers are used for the carriage to the agreed destination and the parties do not agree on a specific point of delivery, the default position is that risk passes when the goods have been delivered to the first carrier at a point entirely of the seller’s choosing and over which the buyer has no control. Should the parties wish the risk to pass at a later stage (e.g., at an ocean port or airport), they need to specify this in their contract of sale.

The parties are also well advised to identify as precisely as possible the point within the agreed place of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the named place of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.

CPT requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.

CPT [Page112:]

A1 General obligations of the seller

Comments - The seller must provide the goods in conformity with the contract. It is also usual practice that the seller, in order to be paid, has to invoice the buyer. In addition, the seller must submit any other evidence stipulated in the contract itself that the goods conform with that contract.

This text only serves as a reminder of the seller’s main obligation under the contract of sale.

A2 Licences, authorizations, security clearances and other formalities

Comments - The seller has to clear the goods for export and assume any risk or expense which this involves. Consequently, if there is an export prohibition or if there are particular taxes on the export of the goods – and if there are other government-imposed requirements which may render the export of the goods more expensive than contemplated – all of these risks and costs must be borne by the seller. However, contracts of sale usually contain particular provisions which the seller may invoke to protect himself in the event of these contingencies. Under CISG and corresponding provisions in various national Sale of Goods Acts, unforeseen or reasonably unforeseeable export prohibitions may relieve the seller from his obligations under the contract of sale.

A3 Contracts of carriage and insurance

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Comments - The seller’s obligation to contract for carriage is basically the same under all C-terms, in that the seller fulfils his delivery obligation upon handing over the goods for carriage in the country of shipment, but with the additional obligation to arrange and pay for the carriage up to the agreed point in the country of destination. Since CFR and CIF can only be used when the goods are intended for carriage by sea or inland waterway transport, CPT and CIP respectively must be used as alternatives to CFR and CIF when the goods are intended to be carried by other modes of transport (air, road, rail, unnamed or multimodal transport). But they should also be used whenever the goods are not handed over for sea transport to the ship, for example, transport of containerized cargo or in roll on-roll off traffic when the goods are carried in railway wagons, trailers or semi-trailers on ferries.

In all C-terms, the seller must, unless otherwise agreed, contract for carriage “on usual terms” and “by the usual route”. In CFR and CIF reference is made to a vessel of the type nor mal ly used for the transport of goods of the type sold. Since CPT and CIP are not confined to sea carriage but may be used for all modes of transport, reference is not made to the vehicle of transport but instead to the “customary manner” of transportation.

The seller has no obligation to provide insurance for the benefit of the buyer (compare CIP where the seller has to provide insurance).

However, he must give the buyer any information he may request for insurance purposes.

A4 Delivery

Comments - While delivery under CFR and CIF must be made on board the vessel at the port of shipment, the goods under CPT and CIP must be handed over “to the carrier’. Therefore, the delivery obligation is no longer related to the means of conveyance – the vessel – but to the carrier as such.

CPT and CIP should be the preferred terms, when in practice delivery is not intended to be made directly to a vessel. When the parties intend to use several carriers – for example, a pre-carriage by road or rail from the seller’s premises at an inland point for further carriage by sea to the agreed destination – the seller has fulfilled his delivery obligation under CPT and CIP when the goods have been handed over for carriage to the first carrier. In this respect, there is an important difference between CPT and CIP on the one hand and CFR and CIF on the other.

In the latter two terms, delivery is not completed until the goods have reached a vessel at the port of shipment. Therefore, the principle that the delivery is completed when the goods have been handed over to the first carrier cannot apply under CFR and CIF unless the pre-carriage is performed by sea, for example, by a so-called feeder ship to an oceangoing vessel for further carriage.

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A5 Transfer of risks

Comments - All of the Incoterms rules are based on the same principle that the risk of loss of or damage to the goods is transferred from the seller to the buyer when the seller has fulfilled his deli - very obligation according to A4.

All of the Incoterms rules, in conformity with the general principle of CISG, connect the transfer of the risk with the delivery of the goods and not with other circumstances, such as the pass ing of ownership or the time of the conclusion of the contract. Neither the Incoterms rules nor CISG deals with transfer of title to the goods or other property rights with respect to the goods.

The passing of risk of loss of or damage to the goods concerns the risk of fortuitous events (accidents) and does not include loss or damage caused by the seller or the buyer, for example, inadequate packing or marking of the goods. Therefore, even if damage occurs subsequent to the transfer of the risk, the seller may still be responsible if the damage could be attributed to the fact that the goods were not delivered in conformity with the contract (see A1 and the comments to A9).

A5 of all the Incoterms rules contain the phrase “with the exception of loss or damage in the circumstances described in B5”. This means that there are exceptions to the main rule concerning the passing of risk under the circumstances mentioned in B5, which may result in a premature passing of the risk because of the buyer’s failure to fulfil his obligations properly (see the comments to B5)

A6 Allocation of costs

Comments - As is the case with the transfer of the risk for loss of or damage to the goods, all of the Incoterms rules follow the same rule, that the division of costs occurs at the delivery point.

All costs occurring before the seller has fulfilled his obligation to deliver according to A4 are for his account, while further costs are for the account of the buyer (see the comments to B6). This rule is made subject to the provisions of B6, which indicates that the buyer may have to bear additional costs incurred by his failure to give appropriate notice to the seller.

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A7 Notices to the buyer

Comments - The seller must give the buyer sufficient notice that the goods have been dispatched, as well as other relevant information, so that the buyer can make preparations in time to take delivery according to B4. There is no stipulation in the Incoterms rules spelling out the consequences of the seller’s failure to give such notice. But it follows from the Incoterms rules that the seller’s failure constitutes a breach of contract. This means that the seller could be held responsible for the breach according to the law applicable to the contract of sale.

A8 Delivery document

Comments - In all shipment contracts – and particularly contracts under the so-called C-terms, which require the seller to arrange and pay for the contract of carriage – it is vital for the buyer to know that the seller has fulfilled his obligation to perform these tasks and to deliver the goods to the carrier. The transport document constitutes proof of such delivery.

Non-negotiable transport documents

Generally, it suffices for the parties to refer to the “usual transport document” obtained from the carrier when the goods are handed over to him. But in maritime carriage, dif - ferent documents can be used. While traditionally, negotiable bills of lading were used for carriage of goods by sea, other documents have appeared in recent years, for exam - ple, transport documents which are non-negotiable and similar to those used for other modes of transport. These alternative documents have different names – “liner waybills”, “ocean waybills”, “cargo quay receipts”, “data freight receipts” or “sea waybills”. The term “sea waybill” is frequently used to include all of the various non-negotiable transport documents used for carriage of goods by sea.

Unfortunately, international conventions and national laws do not yet provide specific regulations for these non-negotiable transport documents. (The exception is in the United States, where a non-negotiable bill of lading is recognized; this is the “straight bill of lading”.) For this reason, the Comité Maritime International (CMI) in June 1990 adopted Uniform Rules for Sea Waybills. The parties should refer to these Rules in the contract of carriage to avoid any legal uncertainties stemming from the use of non-negotiable documents (see Annex 1).

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When sale of goods in transit is intended ,the parties should choose one of the terms in Group II for transport by sea and inland waterways (FAS, FOB, CFR, CIF).

A9 Checking – packaging – marking

Comments - It is necessary for the buyer to ensure that the seller has duly fulfilled his obligation with respect to the condition of the goods. This is particularly important if the buyer is called upon to pay for the goods before he has received and checked them. However, the seller has no duty to arrange and pay for inspection of the goods before shipment, unless this is mandated by authorities in the country of export or has been specifically agreed in the contract of sale.

The goods must also be adequately packed. Since the seller arranges the carriage, he is in a good position to decide the packing required for the transport of the goods. However, if he knows the ultimate destination and circumstances relating to the carriage he may be required to pack the goods accordingly. The goods should also be marked in accordance with applicable standards and regulations.

A10 Assistance with information and related costs

Comments - The seller has the obligation to clear the goods for export, but he has no obligation after shipment to bear any costs or risks connected either with the transit through another country or with import clearance of the goods at destination. However, he has the duty to render assistance to the buyer in obtaining any documents or equivalent electronic messages which may be required for these purposes. The buyer, however, must reimburse [Page117:] the seller for any expenses which the seller might have incurred in connection with this assistance. Moreover, if something goes wrong, the buyer will have to assume the risk. Similarly, the seller must reimburse the buyer for any assistance provided by him according to B10.

The seller may also be requested to provide the buyer with information related to the goods which the buyer requires for security-related clearance of the goods.

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B1 General obligations of the buyer

Comments - The buyer must pay the price agreed in the contract of sale. B1 constitutes a reminder of this main obligation, which corresponds with the seller’s obligation to provide the goods in conformity with the contract of sale, as stipulated in A1.

B2 Licences, authorizations, security clearances and other formalities

Comments - The buyer must take care of the import and security clearance and bear any costs and risks in connection with it. Therefore, an import prohibition will not relieve the buyer of his obligation to pay for the goods, unless there is a particular “relief clause” in the contract of sale which he invokes to obtain this relief. Such clauses may provide for the extension of time or the right to avoid the contract under the applicable law (see the comments to A2).

The buyer must also do whatever may be needed to pass the goods through a third country after they have been shipped (dispatched) from the seller’s country, unless this obligation is for the seller’s account under the contract of carriage.

B3 Contracts of carriage and insurance

Comments - Although B3(a) merely stipulates “No obligation” for the buyer, on-carriage from the port of destination is necessary in most cases, and it is the buyer’s responsibility to do whatever is required for this purpose. But the seller is not concerned with the further carriage of the goods, and the buyer has no obligation to the seller in this respect. Whatever the buyer does is in his own interest and is not covered by the contract of sale.

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B4 Taking delivery

Comments - Here, the two critical points under the C-term appear again. Since the seller fulfils his obligation by handing over the goods to the carrier at the place of dispatch (A4), it is for the buyer to accept such delivery under B4. But the buyer also has a further obligation to receive the goods from the carrier at the named port of destination. This is not something he does only in his own interest (as in B3) but is an obligation to the seller, who has concluded the contract of carriage with the carrier.

The fact that the buyer must take delivery of the goods when as they have been delivered in accordance with A4 does not, of course, preclude him from raising claims against the seller if the goods do not conform with the contract.

B5 Transfer of risks

Comments - According to the main rule, while the seller under A5 bears the risk of loss of or damage to the goods until the delivery point, the buyer has to bear the risk thereafter. The delivery point is different under the different terms. In EXW and all D-terms the goods are simply placed “at the disposal of the buyer” at the relevant point, while under the F- and C-terms the delivery point is related to the handing over of the goods to the carrier in the country of dispatch or shipment (see the comments to A4 of these terms). In the terms used for goods intended to be carried by sea, reference is made to delivery alongside the named vessel (FAS) or delivery on board the vessel (FOB, CFR, CIF).

The buyer’s failure to give notice according to B7, which relates to the “time for dispatching the goods and/or the named place of destination or the point of receiving the goods within that place” (see the comments to B7) may result in a premature passing of the risk: it is unacceptable to allow the buyer to delay the delivery and passing of the risk longer than contemplated when the contract of sale was made. Therefore, his failure to notify according to B7 will cause the risk to pass “from the agreed date or the expiry date of the period agreed for delivery”.

The risk, however, cannot pass until the goods have been appropriated to the contract. If the goods are unascertained – i.e. goods of a certain kind which the seller will deliver to various buyers – appropriation occurs only when the goods are “clearly identified as the contract goods”.

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B6 Allocation of costs

Comments - While the seller has to pay all costs required to bring the goods to the place of dispatch and to deliver the goods to the carrier (as well as unloading charges at the place of destination, provided they have been included in the freight), the buyer has to pay any further costs which may arise after the seller has fulfilled these obligations. In this sense, the transfer of the risk also determines the division of costs; if something occurs as a result of contingencies after shipment – such as strandings, collisions, strikes, government directions, hindrances because of ice or other weather conditions – any additional costs charged by the carrier as a result of these contingencies, or otherwise occurring, will be for the account of the buyer.

Failure to give notice and premature passing of risk The failure to give appropriate notice in accordance with B7 not only results in a premature transfer of the risks (see comments to B5) but also imposes on the buyer the responsibility to pay any additional costs as a consequence. In this case, the obligation to pay these additional costs occurs only if the goods have been identified as the contract goods (as discussed in the comments to B5).

Buyer’s duties in clearing goods for import As noted in the comments to B2, the buyer has the duty to clear the goods for import; it is then established in B6 that he has to pay the costs arising from the clearance (“duties, taxes and other charges as well as the costs of carrying out customs formalities”). The buyer also has to pay any duties, taxes and other charges arising in connection with the transit of the goods through another country after they have been delivered by the seller in accordance with A4 unless these costs were for the seller’s account under the contract of carriage.

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B7 Notices to the seller

Comments - As discussed in the comments to B5 and B6, the failure of the buyer to notify the seller of the time for dispatching the goods and/or the named place of destination or the point of receiving the goods within that place – when the buyer in the contract of sale has been given the option to determine these matters – may cause the risk of the loss of or damage to the goods to pass before the goods have been delivered according to A4. In addition, it can make the buyer liable to pay any additional costs incurred by the seller as a result of the buyer’s failure.

B8 Proof of delivery

Comments - The buyer has to accept the transport document if it conforms with the contract and with the requirements of A8 (see the comments to A8). If the buyer rejects a conforming transport document (for example, by instructions to a bank not to pay the seller under a documentary credit), he commits a breach of contract, which would give the seller remedies available for such a breach under the contract of sale.

These remedies could include, for example, a right to cancel the contract or to claim damages for breach. However, the buyer is not obliged to accept a document which does not provide adequate proof of delivery, for example, one which has notations on it showing that the goods are defective or that they have been provided in less than the agreed quantity. In these cases, the document is termed “unclean”.

B9 Inspection of goods

Comments - As discussed in the comments to A9, the buyer has to pay for any costs of checking the goods unless the contract states that these costs should be borne wholly or partly by the seller. In some cases, the contract may provide that the costs should be borne by the seller if the inspection reveals that the goods do not conform with the contract.

In some countries, where import licences or permission to obtain foreign currency for the payment of the price may be required, the authorities may demand an inspection of the goods before shipment, to ensure that the goods are in conformity with the contract. (This is usually called pre-shipment inspection, PSI.) If this is the case, the inspection is normally arranged by instructions from the authorities to an inspection company, which they [Page122:] appoint. The costs following from this inspection have to be paid by the authorities. Any reimbursement to the authorities for the inspection costs, however, must be made by the buyer, unless mandated by the authorities of the country of export or specifically agreed between the buyer and the seller.

B10 Assistance with information and related costs

Comments - As discussed in the comments to A10, the seller has to render the buyer assistance in obtaining the documents or electronic messages and information which may be required for the transit and import and security-clearance of the goods. However, this assistance is rendered at the buyer’s risk and expense. Therefore, B10 stipulates that the buyer must pay all costs and charges incurred in obtaining these documents or electronic messages. He will also have to reimburse the seller for the seller’s costs in rendering his assistance in these matters.

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GUIDANCE NOTE

This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed.

“Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

When CPT, CIP, CFR or CIF are used, the seller fulfils its obligation to deliver when it hands the goods over to the carrier and not when the goods reach the place of destination.

This rule has two critical points, because risk passes and costs are transferred at different places. The parties are well advised to identify as precisely as possible in the contract both the place of delivery, where the risk passes to the buyer, and the named place of destination to which the seller must contract for carriage. If several carriers are used for the carriage to the agreed destination and the parties do not agree on a specific point of delivery, the default position is that risk passes when the goods have been delivered to the first carrier at a point entirely of the seller’s choosing and over which the buyer has no control. Should the parties wish the risk to pass at a later stage (e.g., at an ocean port or an airport), they need to specify this in their contract of sale.

The parties are also well advised to identify as precisely as possible the point within the agreed place of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the named place of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.

CIP requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.

A1, A2, A3(a) A4 to A10

See the comments to CPT A1, A2,A3 (a) A4 to A10.

A3(b) Contract of insurance

Comments - The only difference between the CPT and the CIP term is that the latter requires the seller to also obtain and pay for cargo insurance. This is particularly important for the buyer, since under CIP the risk of loss of or damage to the goods will pass from the seller to the buyer when the goods have been delivered to the carrier at the place of dispatch (see CPT A5).

In addition, it is vital for the buyer to be given the right to claim against the insurer independently of the seller. For this purpose it may be necessary to provide the buyer with the insurance policy under which the insurer makes his undertaking directly to the buyer.

Seller need only provide “minimum cover”

It is important to note that the seller only has to provide for so-called “minimum cover”. Such limited cover is suitable only for bulk cargoes, which normally do not suffer loss or damage in transit unless something happens to the means of conveyance as well as to the cargo (strandings, collisions, fire, etc.). The buyer and seller are therefore advised to agree that the seller should provide a more suitable insurance cover. The buyer should then specify the extended cover he prefers [Page125:]Under Clauses C of the Institute Cargo Clauses (LMA/IUA) cover is available in categories A, B and C. The C category provides the minimum cover, and the cover is extended progressively in categories B and A. However, even the most extended cover does not provide for what is misleadingly called “all-risk insurance”. Furthermore, there are other important exceptions which insurance does not cover, for example, cases when the loss of the goods has been caused by insolvency or fraud, or when financial loss has been incurred by delay in delivery.

Duration of insurance cover

The duration of the insurance cover must coincide with the carriage and must protect the buyer from the moment he has to bear the risk of loss of or damage to the goods (i.e. from the moment the goods have been delivered to the carrier at the place of dispatch). It must extend until the goods arrive at the agreed place of destination or an agreed pont within that place.

Some risks require additional cover

Some particular risks require additional insurance, and if the buyer requests it, the seller must arrange this additional cover at the buyer’s expense – for example, insurance against the risks of war, strikes, riots and civil commotion – if this cover can possibly be arranged.

Amount of the insurance cover

The amount of the insurance should correspond to the price provided in the contract, plus 10 per cent. The additional 10 per cent is intended to cover the average profit which buyers of goods expect from the sale. The insurance should be provided in the same currency as stipulated in the contract for the price of the goods. Consequently, if the price of the goods is to be paid in convertible currency, the seller may not provide insurance in other than convertible currency.

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B1 to B2, B3(a), and B4 to B10

See the comments to CPT B1 B2, B3(a), and B4 to B10

B3(b) Contract of insurance

Comments - It is vital for the buyer to understand that the seller only has to take out minimum insurance cover. This cover in most cases is insufficient when manufactured goods are involved. In the contract of sale, therefore, the buyer should require the seller to take out additional cover. If, however, the contract does not deal with this matter at all, the seller’s obligation is limited as stipulated in A3, and the buyer has to arrange and pay for any additional insurance cover required.

In most cases the seller will know how to arrange the insurance from the contract of sale (from the invoice value of the goods, their destination, etc). However, the buyer has to provide the seller upon request with any information necessary for the seller to procure additional insurance requested by the buyer.

GUIDANCE NOTE

This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed.

“Delivered at Terminal” means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

The parties are well advised to specify as clearly as possible the terminal and, if possible, a specific point within the terminal at the agreed port or place of destination, as the risks to that point are for the account of the seller. The seller is advised to procure a contract of carriage that matches this choice precisely.

Moreover, if the parties intend the seller to bear the risks and costs involved in transporting and handling the goods from the terminal to another place, then the DAP or DDP rules should be used.

DAT requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.

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A1 General obligations of the seller

Comments - The seller must provide the goods in conformity with the contract. It is also usual practice that the seller, in order to be paid, has to invoice the buyer. In addition, the seller must submit any other evidence stipulated in the contract itself that the goods conform with that contract.

This text only serves as a reminder of the seller’s main obligation under the contract of sale.

A2 Licences, authorizations, security clearances and other formalities

Comments - Since the term DAT is evidence of an arrival contract, the seller has to do whatever may be necessary for the goods to reach the agreed place for delivery. This means the seller is responsible for export clearance of the goods as well as any transit formalities involved in the transport of the goods through another country before arrival at the agreed destination.

Unforeseen or reasonably unforeseeable prohibitions

The seller’s obligations under DAT may become more expensive than contemplated as a result of reasonably unforeseeable circumstances. However, contracts of sale usually contain provisions which the seller may invoke to protect himself in the event of these contingencies. Under CISG and corresponding provisions in various national Sale of Goods Acts, unforeseen or reasonably unforeseeable prohibitions may relieve the seller from his obligations under the contract of sale.

A3 Contracts of carriage and insurance

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Comment Under all D-terms, the seller must ensure that the goods actually arrive at destination. It follows from this that the seller must arrange and pay for any carriage of the goods.

Under the D-terms, the seller’s choice of transport is only of importance to the buyer insofar as it affects the buyer’s obligation to receive the goods from the carrier. If the seller chooses an unusual mode of transport which makes it more difficult or expensive for the buyer to receive the goods from the carrier, any additional costs or risks caused by the seller’s choice of transport will be for the seller’s account.

Normally, the point mentioned after the D-term will indicate where the goods should be delivered at destination. But if there are several alternatives available, and the contract of sale or commercial practice does not indicate which alternative the seller must choose, he may select the point at the named place of destination which best suits its purpose.

A4 Delivery

Comments - Under all D-terms, the seller must place the goods at the disposal of the buyer at destination. The precise point for the delivery of the goods depends upon the D-term chosen. According to DAT A4, the goods should be placed at the disposal of the buyer UNLOADED from the arriving means of transport (note the difference under DAP!).

A5 Transfer of risks

Comments - All of the Incoterms rules are based on the same principle that the risk of loss of or damage to the goods is transferred from the seller to the buyer when the seller has fulfilled his delivery obligation according to A4.

All of the Incoterms rules, in conformity with the general principle of CISG, connect the transfer of the risk with the delivery of the goods and not with other circumstances, such as the passing of ownership or the time of the conclusion of the contract. Neither the Incoterms rules nor CISG deals with transfer of title to the goods or other property rights with respect to the goods.

The passing of risk of loss of or damage to the goods concerns the risk of fortuitous events (accidents) and does not include loss or damage caused by the seller or the buyer, for example, inadequate packing or marking of the goods. Therefore, even if dam age occurs subsequent to the transfer of the risk, the seller may still be responsible if the damage could be attributed to the fact that the goods were not delivered in conformity with the contract (see A1 and the comments to A9).

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A5 of all the Incoterms rules contain the phrase “with the exception of loss or damage in the circumstances described in B5”. This means that there are exceptions to the main rule concerning the passing of risk under the circumstances mentioned in B5, which may result in a premature passing of the risk because of the buyer’s failure properly to fulfil his obligations (see the comments to B5).

A6 Allocation of costs

Comments - As is the case with the transfer of the risk of loss of or damage to the goods, all of the Incoterms rules follow the same rule, that the division of costs occurs at the delivery point. All costs occurring before the seller has fulfilled his obligation to deliver according to A4 are for his account, while further costs are for the account of the buyer (see the comments to B6). This rule is made subject to the provisions of B6, which indicates that the buyer may have to bear additional costs incurred by his failure to give appropriate notice to the seller.

Since under D-terms, the seller does not fulfil his obligation until the goods have actually arrived at destination and been placed at the disposal of the buyer, the seller has to do everything required to achieve this. Nevertheless, A3 in all D-terms still stipulates that the seller must contract for carriage; and A6 of all D-terms stipulates that he must pay the costs resulting from A3 for the carriage of the goods and pay the costs of customs formalities as well as all duties, taxes and other charges payable upon export (and in the case of DDP also import) of the goods, prior to delivery. Needless to say, any transit costs incurred subsequent to delivery will have to be paid by the buyer.

A7 Notices to the buyer

Comments - The seller must give the buyer sufficient notice as to the estimated time of arrival (ETA) of the vessel, if used for the transport, and other essential notices, so that the buyer can make preparations in time to take delivery according to B4. There is no stipulation in the Incoterms rules spelling out the consequences of the seller’s failure to give such notice. But it follows from the Incoterms rules that the seller’s failure constitutes a breach of contract. This means that the seller could be held responsible for the breach according to the law applicable to the contract of sale.

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A8 Delivery document

Comments - Whenever a document is required in order to enable the buyer to take delivery, the seller has to provide him with such a document. If the goods are delivered directly to the buyer he must give a receipt indicating , in his own interest, any non-conformity.

A9 Checking – packaging – marking

Comments - It is important that the buyer ensure that the seller has duly fulfilled his obligation with respect to the condition of the goods, particularly if the buyer is called upon to pay for the goods before he has received and checked them. However, the seller has no duty to arrange and pay for the inspection of the goods unless this is mandated by the authorities of the country of export or specifically agreed in the contract of sale.

A10 Assistance with information and related costs

Comments - DAT requires the buyer to clear the goods for import. The buyer has to reimburse the seller for any costs it may incur in rendering any assistance (see B10).

B1 General obligations of the buyer

Comments - The buyer must pay the price agreed in the contract of sale. B1 constitutes a reminder of this main obligation, which corresponds with the seller’s obligation to provide the goods in conformity with the contract of sale, as stipulated in A1.

B2 Licences, authorizations, security clearances and other formalities

Comments - Although the seller has to make the goods available to the buyer in the country of destination and clear the goods for export and transit, it is for the buyer to do whatever is necessary with respect to the clearance of the goods for import (see the comments to A2).

B3 Contracts of carriage and insurance

Comments - Although B3 merely stipulates “No obligation” for the buyer, on-carriage from the port of destination is necessary in most cases, and it is the buyer’s responsibility to do whatever is required for this purpose. But the seller is not concerned with the further carriage of the goods, and the buyer has no obligation to the seller in this respect. The words “No obligation” mean that whatever the buyer does is in his own interest and is not covered by the contract of sale.

B4 Taking delivery

Comments - As in all D-terms, B4 has wording stating that the buyer shall take delivery as soon as the goods have been placed at his disposal in accordance with A4. The seller, according to A4 in the D-terms, shall place the goods at the buyer’s disposal “on the agreed date or within the agreed period”.

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If the goods are placed at the buyer’s disposal earlier than agreed, the buyer is not obliged to take delivery before the agreed time, though it may normally be in his own interest to do so. If the goods are placed at the buyer’s disposal too late, the buyer may hold the seller responsible for breach of contract according to the applicable law. He may also recover damages from the seller or, in the event of a fundamental breach, cancel the contract.

B5 Transfer of risks

Comments - According to the main rule, while the seller under A5 bears the risk of loss of or damage to the goods until the delivery point, the buyer has to bear the risk thereafter. The delivery point is different under the different terms. In EXW and all D-terms the goods are simply placed “at the disposal of the buyer” at the relevant point, while under the F- and C-terms the delivery point is related to the handing over of the goods to the carrier in the country of dispatch or shipment (see the comments to A4 of these terms). In the terms used for goods intended to be carried by sea, reference is made to delivery alongside the named vessel (FAS) or delivery onboard the vessel (FOB, CFR, CIF).

Consequences of buyer’s failure to comply with B2, or to give notice

Whenever the seller undertakes to deliver the goods at an interior point in the country of destination it is important that the buyer complies with his obligation to clear the goods for import (B 2). If he fails to do so, the risk of loss of or damage to the goods would pass to him before the goods have arrived at the delivery point. While the seller under EXW and all D-terms can transfer the risk by his own act of placing the goods at the buyer’s disposal, he may be prevented from doing so by the buyer’s failure to fulfill his obligation to clear the goods for import or give notice according to B7. This can occur when it is the buyer’s responsibility to determine (1) the time within a stipulated period when the goods are to be made available or (2) the place of delivery (see the comments to B7). The failure to perform these tasks results in a premature passing of the risk: it is not acceptable that the buyer should be able to delay the delivery and passing of the risk longer than contemplated when the contract of sale was made. Therefore, his failure to notify according to B7 will cause the risk to pass from the agreed date or the expiry date of any period stipulated for delivery.

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Identification of the contract goods and premature passing of risk

The risk, however, cannot pass until the goods have been “identitifed as the contract goods”. If the goods are unascertained – i.e., goods of a certain kind which the seller will deliver to various buyers – identification only occurs when the goods are clearly set aside or otherwise identified as the contract goods.

This appropriation will normally be made when the seller has handed over the goods for carriage and the consignment has been marked as intended for the buyer – unless the cargo is carried in bulk and intended to be appropriated between different buyers only upon the arrival of the goods at destination. If so, identification may be made so that each buyer is allotted its proportion of the bulk. The Incoterms 2000 rules used the word "appropriation" to clarify this. No change is intended by deleting this word in the Incoterms® 2010 rules.

B6 Allocation of costs

Comments - Since according to A4 the goods are made available to the buyer unloaded from the arriving means of transport (compare DEQ of the earlier versions of the Incoterms rules), the buyer is relieved of the obligation to pay for the costs of unloading. However, once the goods have been placed at his disposal in accordance with A4, the buyer must pay any costs for the storage and further carriage of the goods to their final destination. Also, he must pay any additional costs caused by his failure to fulfil his obligation to clear the goods for import according to B2.

If the buyer fails to take delivery or to take such measures as are needed for on-carriage, he will have to bear any additional costs incurred thereby. At this stage, the seller will normally have identified the goods as the contract goods (through the process of appropriation). But if he has not done so – for example, if the goods arrive at destination in bulk for later appropriation by delivery orders or otherwise – the buyer does not have to bear any additional costs relating to the goods until they have been duly appropriated.

Subject to the goods having been appropriated as noted above, the buyer also has to pay any additional costs incurred as a result of his failure to notify the seller according to B7 of the time or place of taking delivery, for example additional storage and insurance costs.

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B7 Notice to the seller

Comments - As discussed in the comments to B5 and B6, the failure of the buyer to notify the seller of the time and place of taking delivery – when the buyer in the contract of sale has been given the option to determine these matters – may cause the risk of the loss of or damage to the goods to pass before the goods have been delivered according to A4. In addition, it can make the buyer liable to pay any additional costs incurred by the seller as a result of the buyer’s failure.

B8 Proof of delivery

Comments - The buyer has to accept the delivery document if it conforms with the contract and with the requirements of A8 (see the comments to A8). If the buyer rejects the document (for example, by instructions to a bank not to pay the seller under a documentary credit), he commits a breach of contract, which would give the seller remedies available for such a breach under the contract of sale.

These remedies could include, for example, a right to cancel the contract or to claim damages for breach. However, the buyer is not obliged to accept a document which does not provide adequate proof of delivery, for example, one which has notations on it showing that the goods are defective or that they have been provided in less than the agreed quantity. In these cases, the document is termed “unclean”.

B9 Inspection of goods

Comments - As noted in the comments to A9, the buyer has to pay for any costs of checking the goods, unless the contract determines that these costs should be wholly or partly borne by the seller. In some cases, the contract may provide that the costs should be borne by the seller if the inspection reveals that the goods do not conform with the contract.

In some countries, where import licences or permission to obtain foreign currency for the payment of the price may be required, the authorities may demand an inspection of the goods before shipment, to ensure that the goods are in conformity with the contract. (This is usually called pre-shipment inspection, PSI.) If this is the case, the inspection is normally arranged by instructions from the authorities to an inspection company, which they appoint. The costs following from this inspection have to be paid by the authorities. Any reimbursement to the authorities for the inspection costs, however, must be made by the buyer unless the inspection is mandated by the authorities of the country of export or the buyer and the seller specifically agree otherwise.

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B10 Assistance with information and related costs

Comments - Since the buyer has the obligation to clear the goods for import, he may require the seller’s assistance to obtain the necessary documents and information. The seller must render this assistance when requested by the buyer to do so, but the seller does this at the buyer’s risk and expense.

GUIDANCE NOTE

This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed.

“Delivered at Place” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

The parties are well advised to specify as clearly as possible the point within the agreed place of destination, as the risks to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the place of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.

DAP requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities. If the parties wish the seller to clear the goods for import, pay any import duty and carry out any import customs formalities, the DDP term should be used.

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A1 General obligations of the seller

Comments - The seller must provide the goods in conformity with the contract. It is also usual practice that the seller, in order to be paid, has to invoice the buyer. In addition, the seller must submit any other evidence stipulated in the contract itself that the goods conform with that contract.

This text only serves as a reminder of the seller’s main obligation under the contract of sale.

A2 Licences, authorizations, security clearances and other formalities

Comments - The seller has to clear the goods for export and assume any risk or expense which this involves. Consequently, if there is an export prohibition or if there are particular taxes on the export of the goods – and if there are other government-imposed requirements which may render the export of the goods more expensive than contemplated – all of these risks and costs must be borne by the seller. However, contracts of sale usually contain particular provisions which the seller may invoke to protect himself in the event of these contingencies. Under CISG and corresponding provisions in various national Sale of Goods Acts, unforeseen or reasonably unforeseeable export prohibitions may relieve the seller from his obligations under the contract of sale.

A2 stipulates that the seller has to do whatever may be necessary with respect to prior transit formalities. This is the case even when the goods are to be carried through several countries before they reach the point named after DAP in the contract of sale.

A3 Contracts of carriage and insurance

Comments - Under all D-terms, the seller must ensure that the goods actually arrive at destination. It follows from this that the seller must arrange and pay for any carriage of the goods. Under the D-terms, the seller’s choice of transport is only of importance to the buyer insofar as it affects the buyer’s obligation to receive the goods from the carrier. If the seller chooses an unusual mode of transport which makes it more difficult or expensive for the buyer to receive the goods from the carrier, any additional costs or risks caused by the seller’s choice of transport will be for the seller’s account.

Normally, the point mentioned after the D-term will indicate where the goods should be delivered at destination. But if there are several alternatives available, and the contract of sale or commercial practice does not indicate which alternative the seller must choose, he “may select the point at the named place of destination that best suits its purpose”.

A4 Delivery

Comments - Under all D-terms the seller must place the goods “at the disposal of the buyer” at destination. The Incoterms® 2010 rules specify that under DAP the goods are placed at the disposal of the buyer “on the arriving means of transport ready for unloading” (see also DDP A4).

If in the contract of sale only the frontier of the country concerned is named and not the point at that frontier where the delivery should take place (the contract may say, for example, “DAP Italian border”), the seller can then select the point at the border which best suits his purpose.

DAP may be used irrespective of the intended mode of transport. Rail carriage usually continues past the border without any discharge of the goods from the railway wagon and re-loading on to another one. Consequently, there will be no real “placing of the goods at the disposal of the buyer”. Instead, the seller, on the buyer’s request, may provide the buyer with a through railway consignment note to the place of final destination in the country of import (see the comments to DAP A8).

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A5 Transfer of risks

Comments - All of the Incoterms rules are based on the same principle that the risk of loss of or damage to the goods is transferred from the seller to the buyer when the seller has fulfilled his delivery obligation according to A4.

All of the Incoterms rules, in conformity with the general principle of CISG, connect the transfer of the risk with the delivery of the goods and not with other circumstances, such as the passing of ownership or the time of the conclusion of the contract. Neither the Incoterms rules nor CISG deals with transfer of title to the goods or other property rights with respect to the goods.

The passing of risk of loss of or damage to the goods concerns the risk of fortuitous events (accidents) and does not include loss or damage caused by the seller or the buyer, for example, inadequate packing or marking of the goods. Therefore, even if damage occurs subsequent to the transfer of the risk, the seller may still be responsible if the damage could be attributed to the fact that the goods were not delivered in conformity with the contract (see A1 and the comments to A9).

A5 of all of the Incoterms rules contains the phrase “with the exception of loss or damage in the circumstances described in B5”. This means that there are exceptions to the main rule concerning the passing of risk under the cir cum stances mentioned in B5, which may result in a premature passing of the risk because of the buyer’s failure to fulfil his obligations properly (see the comments to B5).

A6 Allocation of costs

Comments - As is the case with the transfer of the risk of loss of or damage to the goods, all of the Incoterms rules follow the same rule, that the division of costs occurs at the delivery point. All costs occurring before the seller has fulfilled his obligation to deliver according to A4[Page141:] are for his account, while further costs are for the account of the buyer (see the comments to B6). This rule is made subject to the provisions of B6, which indicates that the buyer may have to bear additional costs incurred by his failure to give appropriate notice to the seller.

Since under D-terms the seller does not fulfil his obligation until the goods have actually arrived at destination and been placed at the disposal of the buyer, the seller has to do everything required to achieve this. A3 in all D-terms still stipulates that the seller must contract for carriage; and A6 of all D-terms stipulates that he must pay the costs resulting from A3 for the carriage of the goods and, where applicable, the costs relating to customs formalities, duties, taxes and other charges prior to delivery in accordance with A4. Needless to say, any transit costs incurred subsequent to delivery will have to be paid by the buyer.

A7 Notices to the buyer

Comments - The seller must give the buyer sufficient notice as to when the goods are available at the agreed or chosen delivery point, so that the buyer can make preparations in time to take delivery according to B4. There is no stipulation in the Incoterms rules spelling out the consequences of the seller’s failure to give such notice. But it follows from the Incoterms rules that the seller’s failure constitutes a breach of contract. This means that the seller could be held responsible for the breach according to the law applicable to the contract of sale.

A8 Delivery document

Comments - Whenever a document is required in order to enable the buyer to take delivery, the seller has to provide him with such a document. If the goods are delivered directly to the buyer he must give a receipt indicating, in his own interest, any non-conformity. However, as noted in the comments to DAP A4, goods carried by rail will frequently remain on the railway wagon and continue to the final destination. The seller must then provide the buyer with the usual through document of transport if the seller has agreed to contract for on-carriage, at the buyer’s risk and expense.

A9 Checking – packaging – marking

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Comments - It is important that the buyer ensure that the seller has duly fulfilled his obligation with respect to the condition of the goods, particularly if the buyer is called upon to pay for the goods before he has received and checked them. However, the seller has no duty to arrange and pay for the inspection of the goods before shipment, unless this is mandated by the authorities in the country of export or specifically agreed in the contract of sale.

A10 Assistance with information and related costs

Comments - The seller has the obligation to carry out all customs and security-related formalities for the export of the goods and for their prior transit. But he has no obligation after the goods have reached the agreed point place to bear any costs and risks for their transit through another country or for import or security-related clearance. However, he has the duty to render the buyer assistance in obtaining the documents (for example, a certificate of origin, a health certificate, a clean report of findings, an import licence or security-related information) which may be required for import clearance of the goods.

The buyer, in turn, must reimburse the seller for any expenses which the seller might have incurred in connection with this assistance. Moreover, if something goes wrong, the buyer will have to assume the risk.

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B1 General obligations of the buyer

Comments - The buyer must pay the price agreed in the contract of sale. B1 constitutes a reminder of this main obligation, which corresponds with the seller’s obligation to provide the goods in conformity with the contract of sale, as stipulated in A1.

B2 Licences, authorizations, security clearances and other formalities

Comments - The buyer must take care of the import and security clearance and bear any costs and risks in connection with it. Therefore, an import prohibition will not relieve the buyer of his obligation to pay for the goods, unless there is a particular “relief clause” in the contract of sale which he invokes to obtain this relief. Such clauses may provide for the extension of time or the right to avoid the contract under the applicable law (see the comments to A2).

B3 Contracts of carriage and insurance

Comments - Although B3 merely stipulates “No obligation” for the buyer, on-carriage from the place of delivery is sometimes necessary, particularly in railway traffic, where the seller may agree to assist the buyer. (see DAP A4 and A8). Otherwise, the seller is not concerned with the further carriage of the goods and the buyer has no obligation to the seller in this respect. The words “No obligation” mean that whatever the buyer does is in his own interest and is not covered by the contract of sale.

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B4 Taking delivery

Comments - As in all D-terms, B4 has wording stating that the buyer shall take delivery as soon as the goods have been placed at his disposal in accordance with A4. The seller, according to A4 in the D-terms, shall place the goods at the buyer’s disposal “at the agreed point, if any, at the named place of destination on the agreed date or within the agreed period”.

If the goods are placed at the buyer’s disposal earlier than agreed, the buyer is not obliged to take delivery before the agreed time, though it may normally be in his own interest to do so. If the goods are placed at the buyer’s disposal too late, the buyer may hold the seller responsible for breach of contract according to the applicable law. He may also recover damages from the seller or, in the event of a fundamental breach, cancel the contract.

B5 Transfer of risks

Comments - According to the main rule, while the seller under A5 bears the risk of loss of or damage to the goods until the delivery point, the buyer has to bear the risk thereafter. The delivery point is different under the different terms. In EXW and all D-terms the goods are simply placed “at the disposal of the buyer” at the relevant point, while under the F- and C-terms the delivery point is related to the handing over of the goods to the carrier in the country of dispatch or shipment (see the comments to A4 of these terms). In the terms used for goods intended to be carried by sea, reference is made to delivery alongside the named vessel (FAS) or delivery onboard the vessel (FOB, CFR, CIF).

Consequences of buyer’s failure to comply with B2 or to give notice

Whenever the seller undertakes to deliver the goods at an interior point in the country of destination it is important that the buyer complies with his obligation to clear the goods for import (B2). If he fails to do so, the risk of loss of or damage to the goods would pass to him before the goods have arrived at the delivery point. While the seller under EXW and all D-terms can transfer the risk by his own act of placing the goods at the buyer’s disposal, he may be prevented from doing so by the buyer’s failure to give notice according to B7. This can occur when it is the buyer’s responsibility to determine (1) the time within a stipulated period when the goods are to be made available or (2) the point or place of delivery (see the comments to B7). The failure to perform these tasks results[Page145:] in a premature passing of the risk: it is not acceptable that the buyer should be able to delay the delivery and passing of the risk longer than contemplated when the contract of sale was made. Therefore, his failure to notify according to B7 will cause the risk to pass from the agreed date or the expiry date of the agreed period for delivery.

Identification of the contract goods and premature passing of risk

The risk, however, cannot pass until the goods “have been clearly identified as the contract goods”. If the goods are unascertained – i.e., goods of a certain kind which the seller will deliver to various buyers – appropriation occurs only when the goods are “ identified as the contract goods”.

This identification will normally be made when the seller has handed over the goods for carriage and the consignment has been marked as intended for the buyer – unless the cargo is carried in bulk and intended to be appropriated between different buyers only upon the arrival of the goods at destination. If so, identification may be made so that each buyer is allotted its proportion of the bulk. The Incoterms 2000 rules used the word "appropriation" to clarify this. No change is intended by deleting this word in the Incoterms® 2010 rules.

B6 Allocation of costs

Comments - If, as stipulated in A4, the goods are placed at the disposal of the buyer at the named place or point of destination ready for unloading by the buyer (compare DES of the earlier versions of the Incoterms rules), the buyer, under DAP B6􀁝 would have to pay all costs from the time the goods have been made available to him in this manner.

When DAP is used for railway traffic, the goods will usually remain on the same railway wagon, and the point mentioned in the contract will then primarily serve as a point for dividing the railway freight between the parties (i.e., as a tariff point). The seller has to bear all costs and risks until that point has been reached.

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Under all D-terms, the buyer has to take delivery of the goods at the agreed point and time. The same principle governs even if there is no delivery in the physical sense, for example, if the goods remain on the same vehicle when it passes the agreed delivery point. If the buyer fails to take delivery or to take the required measures for on-carriage, he will have to bear any additional costs incurred thereby.

Appropriation required if goods arrive in bulk

At the delivery stage, the seller will normally have identified the goods as the contract goods. But if he has not done so – for example, if the goods arrive at destination in bulk for later appropriation by delivery orders or otherwise – the buyer does not have to bear any additional costs relating to the goods until they have been duly appropriated. Subject to the goods having been appropriated, the buyer then has to pay any additional costs incurred as a result of his failure to notify the seller of the time or place of taking delivery according to B7, for example, additional storage and insurance costs.

Buyer’s duties in clearing goods for import

As noted in the comments to B2, the buyer has the duty to clear the goods for import; B6 declares that he also has to pay the costs arising in that connection (“the costs of customs formalities as well as all duties, taxes and other charges”). The buyer also has to pay any duties, taxes and other charges arising with regard to the transit of the goods through another country, after they have been delivered by the seller in accordance with A4.

B7 Notices to the seller

Comments - As discussed in the comments to B5 and B6, the failure of the buyer to notify the seller of the time and place of taking delivery – when the buyer in the contract of sale has been given the option to determine these matters – may cause the risk of the loss of or damage to the goods to pass before the goods have been delivered according to A4. In addition, it can make the buyer liable to pay any additional costs incurred by the seller as a result of the buyer’s failure.

B8 Proof of delivery

Comments - The buyer has to accept the delivery document if it conforms with the contract and with the requirements of A8 (see the comments to A8). If the buyer rejects the document (for example, by instructions to a bank not to pay the seller under a documentary credit), he commits a breach of contract, which would give the seller remedies available for such a breach under the contract of sale.

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These remedies could include, for example, a right to cancel the contract or to claim damages for breach. However, the buyer is not obliged to accept a document which does not provide adequate proof of delivery, for example, one which has notations on it showing that the goods are defective or that they have been provided in less than the agreed quantity. In these cases, the document is termed “unclean”.

B9 Inspection of goods

Comments - As noted in the comments to A9, the buyer has to pay for any costs of checking the goods, unless the contract determines that these costs should be wholly or partly borne by the seller. In some cases, the contract may provide that the costs should be borne by the seller if the inspection reveals that the goods do not conform with the contract.

In some countries, where import licences or permission to obtain foreign currency for the payment of the price may be required, the authorities may demand an inspection of the goods before shipment, to ensure that the goods are in conformity with the contract. (This is usually called pre-shipment inspection, PSI.) If this is the case, the inspection is normally arranged by instructions from the authorities to an inspection company, which they appoint. The costs following from this inspection have to be paid by the authorities. Any reimbursement to the authorities for the inspection costs, however, must be made by the buyer, unless the inspection is mandated by the authorities of the country of export or the buyer and the seller specifically agreed otherwise.

B10 Assistance with information and related costs

Comments - As discussed in the comments to A10, the seller has to render the buyer assistance in obtaining the documents or electronic messages and information which may be required for the transit, import and security-clearance of the goods. However, this assistance is rendered at the buyer’s risk and expense. Therefore, B10 stipulates that the buyer must pay all costs and charges incurred in obtaining these documents or electronic messages. He will also have to reimburse the seller for the seller’s costs in rendering his assistance in these matters.

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According to A8, the seller may have to provide the buyer with a through document of transport. This may also involve other measures, such as obtaining exchange control authorization, permits, other documents or certified copies thereof. The buyer must, at his risk and expense, provide the seller with these documents, when the seller requests that he do so.

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GUIDANCE NOTE

This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed.

“Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.

DDP represents the maximum obligation for the seller. The parties are well advised to specify as clearly as possible the point within the agreed place of destination, as the costs and risks to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the place of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.

The parties are well advised not to use DDP if the seller is unable directly or indirectly to obtain import clearance.

If the parties wish the buyer to bear all risks and costs of import clearance, the DAP rule should be used.

Any VAT or other taxes payable upon import are for the seller’s account unless expressly agreed otherwise in the sale contract.

A1 General obligations of the seller

Comments - The seller must provide the goods in conformity with the contract. It is also usual practice that the seller, in order to be paid, has to invoice the buyer. In addition, the seller must submit any other evidence stipulated in the contract itself that the goods conform with that contract.

This text only serves as a reminder of the seller’s main obligation under the contract of sale.

A2 Licences, authorizations, security clearances and other formalities

Comments - Since the term DDP is evidence of an arrival contract, the seller has to do whatever may be necessary for the goods to reach the agreed place/point for delivery. This means the seller is responsible for export and import clearance of the goods, as well as any transit of the goods through third countries.

Before agreeing to sell the goods under DDP, the seller should be sure that the regulations of the buyer’s country do not prevent him as a non-resident from applying for any necessary import licence. Normally no such difficulties will be encountered, since the application for licences can be made by freight forwarders (customs brokers) on the seller’s behalf.

Advisable to exclude payment of some charges

It may be advisable for the parties to exclude the payment of any charges relating to the “internal” fiscal system in the country of import (such as VAT levied upon import) from the seller’s obligation to pay. If this is not done, any right to deduct these expenses or to benefit from particular tax advantages available only to residents could be lost. The charges intended to be excluded should then be identified in conjunction with the DDP term in the contract of sale, for example, by using a phrase such as “DDP VAT unpaid”.

Unforeseen or reasonably unforeseeable prohibitions

The seller’s obligations under DDP may become more expensive than contemplated as a result of reasonably unforeseeable circumstances. [Page151:]

However, contracts of sale usually contain provisions which the seller may invoke to protect himself in the event of these contingencies. Under CISG and corresponding provisions in various national Sale of Goods Acts, unforeseen or reasonably unforeseeable export prohibitions may relieve the seller from his obligations under the contract of sale.

If the seller wishes to avoid the obligation of clearing the goods for import, he should add the phrase “not cleared for import” after DDP.

A3 Contracts of carriage and insurance

Comments - Under DDP the seller must ensure that the goods actually arrive at destination. It follows from this that the seller must arrange and pay for any carriage of the goods.

Under the D-terms, the seller’s choice of transport is only of importance to the buyer insofar as it affects the buyer’s obligation to receive the goods from the carrier. If the seller chooses an unusual transport which makes it more difficult or expensive for the buyer to receive the goods from the carrier, any additional costs or risks caused by the seller’s choice of transport will be for the seller’s account.

Normally, the point mentioned after the D-term will indicate where the goods should be delivered at destination. But if there are several alternatives available, and the contract of sale or commercial practice does not indicate which alternative the seller must choose, he “may select the point at the named place of destination that best suits its purpose”.

A4 Delivery

Comments - Under DDP the seller must place the goods at the disposal of the buyer on the arriving means of transport ready for unloading by the buyer (same as DAP). It is important to note the difference between DDP and DAT in this respect.

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A5 Transfer of risks

Comments - All of the Incoterms rules are based on the same principle that the risk of loss of or damage to the goods is transferred from the seller to the buyer when the seller has fulfilled his delivery obligation according to A4.

All of the Incoterms rules, in conformity with the general principle of CISG, connect the transfer of the risk with the delivery of the goods and not with other circumstances, such as the passing of ownership or the time of the conclusion of the contract. Neither the Incoterms rules nor CISG deals with transfer of title to the goods or other property rights with respect to the goods.

The passing of risk of loss of or damage to the goods concerns the risk of fortuitous events (accidents) and does not include loss or damage caused by the seller or the buyer, for example, inadequate packing or marking of the goods. Therefore, even if damage occurs subsequent to the transfer of the risk, the seller may still be responsible if the damage could be attributed to the fact that the goods were not delivered in conformity with the contract (see A1 and the comments to A9).

A5 of all of the Incoterms rules contains the phrase “with the exception of loss or damage in circumstances described in B5”. This means that there are exceptions to the main rule concerning the passing of risk under the circum stances mentioned in B5, which may result in a premature passing of the risk because of the buyer’s failure properly to fulfil his obligations (see the comments to B5).

A6 Allocation of costs

Comments - As is the case with the transfer of the risk of loss of or damage to the goods, all of the Incoterms rules follow the same rule, that the division of costs occurs at the delivery point. All costs occurring before the seller has fulfilled his obligation to deliver according to A4are[Page153:]for his account, while further costs are for the account of the buyer (see the comments to B6). This rule is made subject to the provisions of B6, which indicates that the buyer may have to bear additional costs incurred by his failure to give appropriate notice to the seller.

Since under D-terms, the seller does not fulfil his obligation until the goods have actually arrived at destination and been placed at the disposal of the buyer, the seller has to do everything required to achieve this. Nevertheless, A3 in all D-terms still stipulates that the seller must contract for carriage; and A6 of all D-terms stipulates that he must pay the costs resulting from A3 for the carriage of the goods, and, where applicable, the costs of customs formalities necessary for export and import as well as all duties, taxes and other charges prior to delivery in accordance with A4. Needless to say, any transit costs incurred subsequent to delivery will have to be paid by the buyer.

A7 Notices to the buyer

Comments - The seller must give the buyer any notice required for the buyer for taking delivery according to B4, so that he can make preparations in time to take delivery according to B4. There is no stipulation in the Incoterms rules spelling out the consequences of the seller’s failure to give such notice. But it follows from the Incoterms rules that the seller’s failure constitutes a breach of contract. This means that the seller could be held responsible for the breach according to the law applicable to the contract of sale.

A8 Delivery document

Comments - Whenever a document is required in order to enable the buyer to take delivery, the seller has to provide him with such a document. If the goods are delivered directly to the buyer he must give a receipt indicating , in his own interest, any non-conformity.

Documents can be replaced by EDI messages when the parties have agreed to communicate electronically.

A9 Checking-packaging-marking

Comments - It is important that the buyer ensure that the seller has duly fulfilled his obligation with respect to the condition of the goods, particularly if the buyer is called upon to pay for the goods before he has received and checked them. However, the seller has no duty to arrange and pay for the inspection of the goods before dispatch unless mandated by authorities or specifically agreed in the contract of sale.

A10 Assistance with information and related costs

Comments - DDP requires the seller to clear the goods for import, but if the seller so requests the buyer must assist in obtaining any documents (for example, a certificate of origin, a health certificate, a clean report of findings, an import licence) or information for security-related clearance which the seller may require for these purposes. The seller, however, has to reimburse the buyer for any costs the buyer may incur in rendering this assistance. Also, the seller may have to render a similar assistance to the buyer required for further transport of the goods and the buyer has to reimburse the seller for such assistance (B10).

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B1 General obligations of the buyer

Comments - The buyer must pay the price agreed in the contract of sale. B1 constitutes a reminder of this main obligation, which corresponds with the seller’s obligation to provide the goods in conformity with the contract of sale, as stipulated in A1.

B2 Licences, authorizations, security clearances and other formalities

Comments - Since the seller has to make the goods available to the buyer in the country of destination, it is for the seller to do whatever is necessary with respect to the clearance (including security-related clearance) of the goods for export, transit and import.

B3 Contracts of carriage and insurance

Comments - Although B3 merely stipulates “No obligation” for the buyer, on-carriage from the place of destination may be necessary in some cases, and it is the buyer’s responsibility to do whatever is required for this purpose. But the seller is not concerned with the further carriage of the goods, except assisting the buyer at his risk and expense as set forth in A10. The words “No obligation” mean that whatever the buyer does is in his own interest and is not covered by the contract of sale.

B4 Taking delivery

Comments - As in all D-terms, B4 has wording stating that the buyer shall take delivery as soon as the goods have been placed at his disposal in accordance with A4. The seller, according to A4 [Page156:]in the D-terms, shall place the goods at the buyer’s disposal “on the agreed date or within the agreed period”.

If the goods are placed at the buyer’s disposal earlier than agreed, the buyer is not obliged to take delivery before the agreed time, though it may normally be in his own interest to do so. If the goods are placed at the buyer’s disposal too late, the buyer may hold the seller responsible for breach of contract according to the applicable law. He may also recover damages from the seller or, in the event of a fundamental breach, cancel the contract.

B5 Transfer of risks

Comments - According to the main rule, while the seller under A5 bears the risk of loss of or damage to the goods until the delivery point, the buyer has to bear the risk thereafter. The delivery point is different under the different terms. In EXW and all D-terms the goods are simply placed “at the disposal of the buyer” at the relevant point, while under the F- and C-terms the delivery point is related to the handing over of the goods to the carrier in the country of dispatch or shipment (see the comments to A4 of these terms). In the terms used for goods intended to be carried by sea, reference is made to delivery alongside the named vessel (FAS) or delivery onboard the vessel (FOB, CFR, CIF).

Consequences of buyer’s failure to give notice

While the seller under EXW and all D-terms can transfer the risk by his own act of placing the goods at the buyer’s disposal, he may be prevented from doing so by the buyer’s failure to give notice according to B7. This can occur when it is the buyer’s responsibility to determine (1) the time within a stipulated period when the goods are to be made available or (2) the place or point of delivery (see the comments to B7). The failure to perform these tasks results in a premature passing of the risk: it is not acceptable that the buyer should be able to delay the delivery and the passing of the risk longer than contemplated when the contract of sale was made. Therefore, his failure to notify according to B7 will cause the risk to pass “from the agreed date or the expiry date of the agreed period for delivery”.

Identification of the contract goods and premature passing of risk

The risk, however, cannot pass until the goods have been identified as the contract goods. If the goods are unascertained – i.e. goods of a certain kind which the seller will deliver to various buyers – appropriation only occurs when the goods are clearly set aside as the contract goods.

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This appropriation will normally be made when the seller has handed over the goods for carriage and the consignment has been marked as intended for the buyer – unless the cargo is carried in bulk and intended to be appropriated between different buyers only upon the arrival of the goods at destination.

B6 Allocation of costs

Comments - Under DDP the parties have to specify the place of delivery as the buyer must pay any further costs subsequent to the delivery of the goods to that place.

The buyer must pay any additional costs which may arise if he fails to take delivery as agreed or if he fails to notify the seller of the time and place of delivery according to B7. The buyer’s obligation to pay additional costs in these cases is subject to the identification of the goods as the contract goods (appropriation).

Since under DDP the seller has to clear the goods for import, the buyer does not have to pay any costs in that regard.

B7 Notices to the seller

Comments - As discussed in the comments to B5 and B6, the failure of the buyer to notify the seller of the time and place of taking delivery – when the buyer in the contract of sale has been given the option to determine these matters – may cause the risk of the loss of or damage to the goods to pass before the goods have been delivered according to A4. In addition, it can make the buyer liable to pay any additional costs incurred by the seller as a result of the buyer’s failure.

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B8 Proof of delivery

Comments - The buyer has to accept the document if it conforms with the contract and with the requirements of A8 (see the comments to A8). If the buyer rejects the document (for example, by instructions to a bank not to pay the seller under a documentary credit), he commits a breach of contract, which would give the seller remedies available for such a breach under the contract of sale.

B9 Inspection of goods

Comments - As noted in the comments to A9, the buyer has to pay for any costs of checking the goods, unless the contract determines that these costs should be wholly or partly borne by the seller. In some cases, the contract may provide that the costs should be borne by the seller if the inspection reveals that the goods do not conform with the contract.

In some countries, where import licences or permission to obtain foreign currency for the payment of the price may be required, the authorities may demand an inspection of the goods before shipment, to ensure that the goods are in conformity with the contract. (This is usually called pre-shipment inspection, PSI.) If this is the case, the inspection is normally arranged by instructions from the authorities to an inspection company, which they appoint. The costs following from this inspection have to be paid by the authorities. Any reimbursement to the authorities for the inspection costs, however, must be made by the seller, unless otherwise specifically agreed between the buyer and the seller.

B10 Assistance with information and related costs

Comments - Since the seller has the obligation to clear the goods for import, he may require the buyer’s assistance to obtain the necessary documents or EDI messages. The buyer must render this assistance when requested by the seller to do so, but this is done at the seller’s risk and expense.

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GUIDANCE NOTE

This rule is to be used only for sea or inland waterway transport.

“Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

The parties are well advised to specify as clearly as possible the loading point at the named port of shipment, as the costs and risks to that point are for the account of the seller and these costs and associated handling charges may vary according to the practice of the port.

The seller is required either to deliver the goods alongside the ship or to procure goods already so delivered for shipment. The reference to “procure” here caters for multiple sales down a chain (‘string sales’), particularly common in the commodity trades.

Where the goods are in containers, it is typical for the seller to hand the goods over to the carrier at a terminal and not alongside the vessel. In such situations, the FAS rule would be inappropriate, and the FCA rule should be used.

FAS requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.

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A1 General obligations of the seller

Comments - The seller must provide the goods in conformity with the contract. It is also usual practice that the seller, in order to be paid, has to invoice the buyer. In addition, the seller must submit any other evidence stipulated in the contract itself that the goods conform with the contract.

This text only serves as a reminder of the seller’s main obligation under the contract of sale.

Comments - Under FAS it is the seller’s obligation to clear the goods for export and to obtain any export licence or other official authorization. This is a change compared with FAS as interpreted in the versions of the Incoterms rules before 2000. The seller’s obligation to clear the goods for export is now the same as under FOB (see the comments to FOB A2).

A3 Contracts of carriage and insurance

Comments - Since in A4 the goods should only be placed alongside the vessel named by the buyer, the seller has no obligation to contract for carriage or insurance. However, he must give the buyer any information he may request for insurance purposes.

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A4 Delivery

Comments - The seller fulfils his obligation to deliver the goods by placing them alongside the named vessel in the port of shipment, either on the quay or in lighters. Once this has been done, any further risks and costs in loading the goods onboard are for the account of the buyer. When the goods are sold in transit, further sellers would not physically deliver the goods alongside but would sell them procured delivered alongside by the first seller.

A5 Transfer of risks

Comments - All of the Incoterms rules are based on the same principle, that the risk of loss of or damage to the goods is transferred from the seller to the buyer when the seller has fulfilled his delivery obligation according to A4.

All of the Incoterms rules, in conformity with the general principle of CISG, connect the transfer of the risk with the delivery of the goods and not with other circumstances, such as the passing of ownership or the time of the conclusion of the contract. Neither the Incoterms rules nor CISG deals with transfer of title to the goods or other property rights with respect to the goods.

The passing of risk for loss of or damage to the goods concerns the risk of fortuitous events (accidents) and does not include loss or damage caused by the seller or the buyer, for example through inadequate packing or marking of the goods. Therefore, even if damage occurs subsequent to the transfer of the risk, the seller may still be responsible if the damage could be attributed to the fact that the goods were not delivered in conformity with the contract (see A1 and the comments to A9).

A5 of all of the Incoterms rules contain the phrase “with the exception of loss or damage in the circumstances described in B5”. This means that there are exceptions to the main rule in the circumstances described in B5 which may result in a premature passing of the risk because of the buyer’s failure properly to fulfil his obligations (see the comments to B5).

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A6 Allocation of costs

Comments - As is the case with the transfer of the risk for loss of or damage to the goods, all of the Incoterms rules follow the same rule, that the division of costs occurs at the delivery point. All costs occurring before the seller has fulfilled his obligation to deliver according to A4 are for his account, while further costs are for the account of the buyer (see the comments to B6). This rule is made subject to the provisions of B6, which indicates that the buyer may have to bear additional costs incurred by his failure to nominate a carrier that takes the goods into his charge or to give appropriate notice to the seller.

Since under FAS the seller’s obligation is limited to delivering the goods alongside the vessel named by the buyer, all further costs have to be borne by the buyer once the goods have been made available in this manner.

A7 Notices to the buyer

Comments - The seller must give the buyer sufficient notice concerning when the goods have been placed alongside the named vessel or that the vessel has failed to take the goods within the time agreed. There is no stipulation in the Incoterms rules spelling out the consequences of the seller’s failure to give this notice. But it follows from the Incoterms rules that the seller’s failure constitutes a breach of contract. This means that the seller could be held responsible for the breach according to the law applicable to the contract of sale.

A8 Delivery document

Comments - Since the seller’s obligation is limited to placing the goods alongside the named vessel, he may not always receive a receipt or a transport document from the carrier. The seller must then provide some other document to prove that the goods have been delivered. When requested by the buyer, the seller must assist the buyer to obtain the transport document. This assistance is at the buyer’s risk and expense.

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A9 Checking – packaging – marking

Comments - It is necessary for the buyer to ensure that the seller has duly fulfilled his obligation with respect to the condition of the goods. This is particularly important if the buyer is called upon to pay for the goods before he has received and checked them. However, the seller has no duty to arrange and pay for inspection of the goods before shipment, unless this has been mandated by the authorities in the country of export or specifically agreed in the contract of sale.

The goods must also be adequately packed. But the seller may not know the buyer’s intentions with respect to the ultimate destination. There is a considerable difference between a short journey to an adjoining country and an intercontinental carriage by sea, which may expose the goods to the risk of breakage or corrosion from humidity and condensation.

A10 Assistance with information and related costs

Comments - Since it is for the buyer to do whatever is necessary with respect to transit and import clearance, he may well need the seller’s assistance to obtain documents (for example, a certificate of origin, a health certificate, a clean report of finding, import licence) issued or transmitted in the country of delivery or import. But any cost incurred by the seller in rendering this assistance must be reimbursed to him by the buyer, according to B10. Similarly, the seller must reimburse the buyer for any assistance provided by him according to B10.

Also, the seller may be requested to provide the buyer with information relating to the goods which the buyer may require for security-related clearance of the goods.

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B1 General obligations of the buyer

Comments - The buyer must pay the price agreed in the contrcat of sale. B1 constitutes a reminder of this main obligation, which correspond with the seller’s obligation to provide the goods in conformity with the contract of sale, as stipulated in A1.

B2 Licences, authorizations, security clearances and other formalities

Comments - The seller, according to A2, makes the goods available to the buyer in the country of shipment cleared for export, but it is for the buyer to do whatever is necessary with respect to the clearance of the goods for transit and import. A prohibition of import, governmental or otherwise, will not relieve the buyer from his obligation under the contract of sale. However, contracts of sale frequently contain “relief clauses” to the benefit of both parties in such cases. These clauses may stipulate that the affected party will be given the benefit of an extension of time to fulfil his obligation or, under the worst circumstances, the right to avoid the contract. It may also be possible to obtain such relief under the law applicable to the contract of sale.

B3 Contracts of carriage and insurance

Comments - In a strictly legal sense, the buyer under FAS has no obligation to the seller to contract for carriage except as required for the buyer to take delivery according to B4. This, however, still obliges the buyer to name and arrange for a vessel, so that the seller can deliver the goods alongside. Indeed, in practice the buyer normally arranges for carriage in his own interest and does not let the ship remain in the port of loading. In this regard, FAS stipulates that the buyer must “contract at its own expense for the carriage of the goods from the named port of shipment”.

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B4 Taking delivery

Comments - The buyer must take delivery of the goods when they have been placed alongside the vessel as stipulated in A4. His failure to do so would not relieve him from his obligation to pay the price and could further result in a premature passing of the risk of loss of or damage to the goods or make him liable to pay additional costs according to B5 and B6.

B5 Transfer of risks

Comments - According to the main rule, while the seller under A5 bears the risk of loss of or damage to the goods until the delivery point, the buyer has to bear the risk thereafter. The delivery point is different under the different terms. In EXW and all D-terms the goods are simply placed “at the disposal of the buyer” at the relevant point, while under the F- and C-terms the delivery point is related to the handing over of the goods to the carrier in the country of dispatch or shipment (see the comments to A4 of these terms). In the terms used for goods intended to be carried by sea, reference is made to delivery alongside the named vessel (FAS) or delivery onboard the vessel (FOB, CFR, CIF).

Premature passing of risk

The buyer’s failure to notify the seller of the vessel name, loading place and required delivery time may result in a premature passing of the risk, as it cannot be accepted that the buyer should be able to delay the delivery and passing of the risk longer than contemplated when the contract of sale was made. Thus, his failure to notify according to B7 will cause the risk to pass “from the agreed date or the expiry date of the agreed period for delivery”.

A further problem can arise if the vessel fails to arrive in time, since in these cases the goods cannot be placed alongside as contemplated. Consequently, a premature passing of the risk could occur in these circumstances. The same result could also occur if the vessel is unable to take the goods, or closes for cargo earlier than the time notified. In this latter case, the goods will be at the buyer’s risk.

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For the risk to pass prematurely, it is required that the goods be identified as the contract goods. When the goods have been prepared for dispatch they have also normally been appropriated to the contract goods. But a failure of the buyer to give sufficient notice of the date or period of shipment according to B7 causes the seller to defer his preparations. If so, it may not be possible to identify some goods stored at the seller’s premises or in an independent cargo terminal as the contract goods on the agreed date or the expiry date of any agreed period for delivery. The risk would then not pass until the identification has been made.

B6 Allocation of costs

Comments - Under FAS the seller fulfils his delivery obligation according to A4 by placing the goods alongside the vessel. The buyer must pay the freight and other costs occurring subsequently.

Since under FAS the buyer has to contract for carriage and nominate the ship, he also has to pay any additional costs incurred because the vessel named by him has failed to arrive on time, or will be unable to take the goods, or will close for cargo earlier than the notified time (see the corresponding rule for the premature passing of the risk in the comments to B5).

The failure of the buyer to notify the seller according to B7 will not only cause the risk of loss of or damage to the goods to pass prematurely, but will also make the buyer liable to pay any additional costs caused thereby, for example, extra costs for storage and insurance.

For the buyer to be liable for additional costs according to B6, the goods to which these costs relate must be identifiable as the contract goods (see the comments on “identification” under B5).

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B7 Notices to the seller

Comments - As discussed in the comments to B5 and B6, the failure of the buyer to notify the seller of the name of the vessel, the loading place and the required delivery time may cause the risk of the loss of or damage to the goods to pass before the goods have been delivered according to A4, and also make the buyer liable to pay any additional costs the seller incurs as a result of the buyer’s failure.

B8 Proof of delivery

Comments - The buyer must accept the seller’s proof of delivery if the proof is adequate. If the buyer nevertheless rejects it (for example, by instructions to a bank not to pay the seller under a documentary credit), he commits a breach of contract which will give the seller remedies for the breach available under the contract of sale (for example, a right to cancel the contract or to claim damages for breach). However, the buyer is not obliged to accept a document which does not provide adequate proof of delivery. If there are notations on the document showing that the goods are defective or that they have been provided in less than the agreed quantity, the document is then considered to be “unclean”.

B9 Inspection of goods

Comments - As noted in the comments to A9, the buyer has to pay for any costs of checking the goods, unless the contract determines that these costs should be wholly or partly borne by the seller. In some cases, the contract may provide that the costs should be borne by the seller if the inspection reveals that the goods do not conform with the contract.

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In some countries, where import licences or permission to obtain foreign currency for the payment of the price may be required, the authorities may demand an inspection of the goods before shipment to ensure that the goods are in conformity with the contract. (This is usually called pre-shipment inspection, PSI.) If this is the case, the inspection is normally arranged by instructions from the authorities to an inspection company, which they appoint.

The costs following from this inspection have to be paid by the authorities. Any reimbursement to the authorities for the inspection costs, however, must be made by the buyer, unless the inspection has been mandated by the authorities of the contract of export or otherwise specifically agreed between the buyer and the seller.

B10 Assistance with information and related costs

Comments - As discussed in the comments to A10, the seller has to render the buyer assistance in obtaining the documents or electronic messages and information which may be required for the transit, import and security-related clearance of the goods. However, this assistance is rendered at the buyer’s risk and expense. Therefore, B10 stipulates that the buyer must pay all costs and charges incurred in obtaining these documents or electronic messages. He will also have to reimburse the seller for the seller’s costs in rendering his assistance in these matters.

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GUIDANCE NOTE

This rule is to be used only for sea or inland waterway transport.

“Free on Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

The seller is required either to deliver the goods on board the vessel or to procure goods already so delivered for shipment. The reference to “procure” here caters for multiple sales down a chain (‘string sales’), particularly common in the commodity trades.

FOB may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such situations, the FCA rule should be used.

FOB requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.

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A1 General obligations of the seller

Comments - The seller must provide the goods in conformity with the contract. It is also usual practice that the seller, in order to be paid, has to invoice the buyer. In addition, the seller must submit any other evidence stipulated in the contract itself that the goods conform with the contract.

This text only serves as a reminder of the seller’s main obligation under the contract of sale.

A2 Licences, authorizations, security clearances and other formalities

Comments - The seller has to clear the goods for export and assume any risk or expense which this involves. Consequently, if there is an export prohibition or if there are particular taxes on the export of the goods – and if there are other government-imposed requirements which may render the export of the goods more expensive than contemplated – all of these risks and costs must be borne by the seller. However, contracts of sale usually contain particular provisions which the seller may invoke to protect himself in the event of these contingencies. Under CISG and corresponding provisions in various national Sale of Goods Acts, unforeseen or reasonably unforeseeable export prohibitions may relieve the seller from his obligations under the contract of sale.

A3 Contracts of carriage and insurance

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Comments - The seller has no obligation to contract for carriage and would not be requested to do so if the FOB term is used for the carriage of full ship loads of bulk commodities. Nevertheless, the seller may contract for carriage at the buyer's risk and expense if it is commercial practice or if he is requested by the buyer to do so (compare the same stipulation in FCA A 3 (a)).

A4 Delivery

Comments - The seller’s obligation to place the goods onboard the ship in due time is the essence of the FOB term. Through the centuries the ship’s rail has assumed an inordinate importance as an imaginary border between the seller’s and the buyer’s territory. But using the ship’s rail as a point for the division of functions, costs and risks between the parties is not, and never has been, quite appropriate. To divide the functions between the parties while the goods are swinging across the ship’s rail seems impracticable. In the words of an oftencited English court decision: “Only the most enthusiastic lawyer could watch with satisfaction the spectacle of liabilities shifting uneasily as the cargo sways at the end of a derrick across a notional perpendicular projecting from the ship’s rail.” (Pyrene v. Scindia Navigation [1954] 2 Q.B. 402 at p. 419).

The reference in FOB A4 to “the manner customary at the port” highlights the problem of using the passing of the ship’s rail as the guiding factor in practice. The parties in these circumstances will have to follow the custom of the port regarding the actual measures to be taken in delivering the goods onboard. Usually the task is performed by stevedoring companies, and the practical problem normally lies in deciding who should bear the costs of their services.

The seller’s obligation to place the goods on board may be extended by a phrase added to FOB, for example “FOB stowed” or “FOB stowed and trimmed”. Though these additional words are primarily intended to make sure the seller has to pay all of the loading costs, it is doubtful whether they are also intended to move the “delivery point” to the extent that the seller would be considered to have failed to fulfil his delivery obligation until the loading, stowing and trimming have been completed (see Understanding the Incoterms rules page 15) and comments to FOB A5, A6 and FOB B5, B6).

When the goods are sold in transit, further sellers would not physically deliver the goods on board but would sell them procured delivered on board by the first seller.

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A5 Transfer of risks

Comments - All of the Incoterms rules are based on the same principle that the risk of loss of or damage to the goods is transferred from the seller to the buyer when the seller has fulfilled his delivery obligation according to A4.

All of the Incoterms rules, in conformity with the general principle of CISG, connect the transfer of the risk with the delivery of the goods and not with other circumstances, such as the passing of ownership or the time of the conclusion of the contract. Neither the Incoterms rules nor CISG deals with transfer of title to the goods or other property rights with respect to the goods.

The passing of risk for loss of or damage to the goods concerns the risk of fortuitous events (accidents) and does not include loss or damage caused by the seller or the buyer, for example through inadequate packing or marking of the goods. Therefore, even if damage occurs subsequent to the transfer of the risk, the seller may still be responsible if the damage could be attributed to the fact that the goods were not delivered in conformity with the contract (see A1 and the comments to A9).

A5 of all of the Incoterms rules contain the phrase “with the exception of loss or damage in the circumstances described in B5”. This means that there are exceptions to the main rule in the circumstances described in B5 which may result in a premature passing of the risk because of the buyer’s failure properly to fulfil his obligations (see the comments to B5).

A6 Allocation of costs

Comments - As is the case with the transfer of the risk of loss of or damage to the goods, all of the Incoterms rules follow the same rule, that the division of costs occurs at the delivery point. All costs occurring before the seller has fulfilled his obligation to deliver according to A4 are for his account, while further costs are for the account of the buyer (see the comments to B6). This rule is made subject to the provisions of B6, which indicates that the buyer may have to bear additional costs incurred by his failure to nominate a carrier that takes the goods into his charge or to give appropriate notice to the seller.

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The seller must pay the costs of customs formalities necessary for export as well as all duties, taxes and other official charges payable upon export.

A7 Notices to the buyer

Comments - The seller must give the buyer sufficient notice concerning when the goods have been delivered on board or if the carrier nominated by the buyer fails to take the goods into its charge. There is no stipulation in the Incoterms rules spelling out the consequences of the seller’s failure to give this notice. But it follows from the Incoterms rules that the seller’s failure constitutes a breach of contract. This means that the seller could be held responsible for the breach according to the law applicable to the contract of sale.

A8 Delivery document

Comments - Since the seller has to hand over the goods for carriage, the carrier normally gives him a receipt which is usually identical to the transport document. If so, that document serves not only as evidence of the contract of carriage – which under F-terms is made by or on behalf of the buyer – but also as evidence of the delivery of the goods to the carrier.

If, however, the seller receives a document other than the transport document – for example, a so-called mate’s receipt when the goods have been loaded on board a ship chartered by the buyer – he should, upon the buyer’s request, assist the buyer to obtain the transport document. This assistance is rendered at the buyer’s risk and expense.

A9 Checking – packaging – marking

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Comments - The goods must also be adequately packed. But the seller may not know the buyer’s intentions with respect to the ultimate destination. There is a considerable difference between a short journey to an adjoining country and an intercontinental carriage by sea, which may expose the goods to the risk of breakage or corrosion from humidity and condensation.

A10 Assistance with information and related costs

Comments - It is for the buyer to do whatever is necessary with respect to transit and import clearance. He may also need the seller’s assistance to obtain documents (for example, a certificate of origin, a health certificate, a clean report of finding, an import licence) issued or transmitted in the country of shipment and/or origin. But any cost incurred by the seller in rendering this assistance must be reimbursed to him by the buyer, according to B10. Similarly, the seller must reimburse the buyer for any assistance provided by him according to B10.

Also, the seller may be requested to provide the buyer with information relating to the goods which the buyer may require for security-clearance.

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B1 General obligations of the buyer

Comments - The buyer must pay the price agreed in the contract of sale. B1 constitutes a reminder of this main obligation, which corresponds with the seller’s obligation to provide the goods in conformity with the contract of sale, as stipulated in A1.

B2 Licences, authorizations, security clearances and other formalities

Comments - The buyer must take care of the import and security clearance and bear any costs and risks in connection with it. Therefore, an import prohibition will not relieve the buyer of his obligation to pay for the goods, unless there is a particular “relief clause” in the contract of sale which he invokes to obtain this relief. Such clauses may provide for the extension of time or the right to avoid the contract under the applicable law (see the comments to A2).

B3 Contracts of carriage and insurance

Comments - The buyer has to contract for carriage so that the goods can be placed on board. How - ever, the seller – as in FCA A3 – may assist the buyer in contracting for carriage (see the comments to A3). If so, the assistance is rendered at the buyer’s risk and expense.

B4 Taking delivery

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Comments - The buyer must take delivery of the goods when they have been placed on board the vessel named by the buyer at the named port of shipment. His failure to do so will not relieve him of his obligation to pay the price and could further result in a premature passing of the risk of loss of or damage to the goods, or make him liable to pay additional costs according to B5 and B6.

B5 Transfer of risk

Comments - According to the main rule, while the seller under A5 bears the risk of loss of or damage to the goods until the delivery point, the buyer has to bear the risk thereafter. The delivery point is different under the different terms. In EXW and all D-terms, the goods are simply placed “at the disposal of the buyer” at the relevant point, while under the F- and C-terms the delivery point is related to the handing over of the goods to the carrier in the country of dispatch or shipment (see the comments to A4 of these terms). In the terms used for goods intended to be carried by sea, reference is made to delivery alongside the named vessel (FAS) or delivery onboard the vessel (FOB, CFR, CIF).

Premature passing of risk

The buyer’s failure to notify the seller of the vessel name, loading place and required delivery time may result in a premature passing of the risk, as it cannot be accepted that the buyer should be able to delay the delivery and passing of the risk longer than contemplated when the contract of sale was made. Thus, his failure to notify according to B7 will cause the risk to pass from the agreed date or the expiry date of any agreed period stipulated for delivery.

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A further problem could arise if the vessel is not named or if it fails to arrive in time, since then the goods cannot be placed onboard as contemplated. Moreover, a premature passing of the risk could occur in these circumstances. B5 also stipulates that the same could result if the vessel is “unable to take the goods, or closes for cargo earlier than the time notified in accordance with B7”.

For risk to pass prematurely, it is required that the goods be identified as the contract goods. When the goods have been prepared for dispatch they have also usually been identified as the contract goods. But a failure of the buyer to give sufficient notice of the date or period of shipment according to B7 causes the seller to defer his preparations. If so, it may not be possible to identify some goods stored at the seller’s premises, in an independent cargo terminal, or on the quay as the contract goods on the agreed date or the expiry date of any agreed period stipulated for delivery. The risk would then not pass until the identification has been made.

B6 Allocation of costs

Comments - Under FOB the seller fulfils his delivery obligation according to A4 by placing the goods onboard the vessel at the loading place.

Since under FOB the buyer has to contract for carriage and nominate the ship, he also has to pay any additional costs incurred because the vessel named by him has failed to arrive on time, or will be unable to take the goods, or will close for cargo earlier than the notified time (see the corresponding rule for the premature passing of the risk in the comments to B5).

The failure of the buyer to notify the seller according to B7 would not only cause the risk of loss of or damage to the goods to pass prematurely but would also make the buyer liable to pay any additional costs caused thereby, for example, extra costs for storage and insurance.

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For the buyer to be liable for additional costs according to B6, the goods to which these costs relate must be identifiable as the contract goods (see the comments on “identification” under B5).

Under FOB, because the buyer has to clear the goods for import, he has to pay “all duties, taxes and other official charges as well as the costs of carrying out customs formalities” and to reimburse the seller for any assistance the seller renders him in this regard.

B7 Notices to the seller

Comments - As discussed in the comments to B5 and B6, the failure of the buyer to notify the seller of the name of the vessel, the loading place and the required delivery time may cause the risk of the loss of or damage to the goods to pass before the goods have been delivered according to A4 and also make the buyer liable to pay any additional costs the seller incurs as a result of the buyer’s failure.

B8 Proof of delivery

Comments - The buyer must accept the seller’s proof of delivery if the proof is adequate. If the buyer nevertheless rejects it (for example, by instructions to a bank not to pay the seller under a documentary credit), he commits a breach of contract which will give the seller remedies for the breach available under the contract of sale (for example, a right to cancel the contract or to claim damages for breach). However, the buyer is not obliged to accept a document which does not provide adequate proof of delivery. If there are notations on the document showing that the goods are defective or that they have been provided in less than the agreed quantity, the document is then considered to be “unclean”. [Page181:]

B9 Inspection of goods

Comments - As noted in the comments to A9, the buyer has to pay for any costs of checking the goods, unless the contract determines that these costs should be wholly or partly borne by the seller. In some cases, the contract may provide that the costs should be borne by the seller if the inspection reveals that the goods do not conform with the contract. In some countries, where import licences or permission to obtain foreign currency for the payment of the price may be required, the authorities may demand an inspection of the goods before shipment, to ensure that the goods are in conformity with the contract. (This is usually called pre-shipment inspection, PSI.) If this is the case, the inspection is normally arranged by instructions from the authorities to an inspection company, which they appoint. The costs following from this inspection have to be paid by the authorities.

Any reimbursement to the authorities for the inspection costs, however, must be made by the buyer, unless the inspection has been mandated by the authorities in the country of export or specifically agreed between the buyer and the seller.

B10 Assistance with information and related costs

Comments - As discussed in the comments to A10, the seller has to render the buyer assistance in obtaining the documents or electronic messages and information which may be required for the transit, import and security-related clearance of the goods. However, this assistance is rendered at the buyer’s risk and expense. Therefore, B10 stipulates that the buyer must pay all costs and charges incurred in obtaining these documents or electronic messages. He will also have to reimburse the seller for the seller’s costs in rendering his assistance.

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GUIDANCE NOTE

This rule is to be used only for sea or inland waterway transport.

“Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

When CPT, CIP, CFR or CIF are used, the seller fulfils its obligation to deliver when it hands the goods over to the carrier in the manner specified in the chosen rule and not when the goods reach the place of destination.

This rule has two critical points, because risk passes and costs are transferred at different places. While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk passes to the buyer. If the shipment port is of particular interest to the buyer, the parties are well advised to identify it as precisely as possible in the contract.

The parties are well advised to identify as precisely as possible the point at the agreed port of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.

The seller is required either to deliver the goods on board the vessel or to procure goods already so delivered for shipment to the destination. In addition, the seller is required either to make a contract of carriage or to procure such a contract. The reference to “procure” here caters for multiple sales down a chain (‘string sales’), particularly common in the commodity trades.

CFR may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such circumstances, the CPT rule should be used.

CFR requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.

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A1 General obligations of the seller

Comments - The seller must provide the goods in conformity with the contract. It is also usual practice that the seller, in order to be paid, has to invoice the buyer. In addition, the seller must submit any other evidence stipulated in the contract itself that the goods conform with that contract.

This text only serves as a reminder of the seller’s main obligation under the contract of sale.

Comments - The seller has to clear the goods for export and assume any risk or expense which this involves. Consequently, if there is an export prohibition or if there are particular taxes on the export of the goods – and if there are other government-imposed requirements which may render the export of the goods more expensive than contemplated – all of these risks and costs must be borne by the seller. However, contracts of sale usually contain particular provisions which the seller may invoke to protect himself in the event of these contingencies. Under CISG and corresponding provisions in various national Sale of Goods Acts, unforeseen or reasonably unforeseeable export prohibitions may relieve the seller from his obligations under the contract of sale.

A3 Contracts of carriage and insurance

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Comments - Although the CFR seller fulfils his obligations by shipping the goods (see section A4 below), he has to arrange and pay for the contract of carriage to the named port of destination. Unless the contract contains specific stipulations as to the nature of the contract of carriage, the seller may contract “on usual terms” and for carriage “by the usual route”.

The CFR term can be used only for sea and inland waterway transport.

The vessel should be of a kind normally used for the transport of the goods of the contract description. It may be unacceptable, for example, to arrange for the carriage of containerized cargo on deck if the ship is not designed for carriage of containers, since the carriage may then expose the cargo to additional risks and even render the insurance cover ineffective.

Differences between goods carried in liner trade and bulk cargoes carried in chartered ships

There is a considerable difference between goods normally carried in so-called liner trade and bulk cargoes, which are normally carried in chartered ships. In most cases, it should be clear what kind of carriage the seller should arrange, since break bulk cargo now is normally containerized or otherwise carried by regular transport in transportation units (flats, pallets, etc.) from port to port.

In these cases, the carrier frequently undertakes to carry the goods, not only from port to port but from an interior point in the country of shipment to an interior point in the country of destination. It is then inappropriate to use the CFR term, and the parties are advised to use the CPT term instead (see the comments on CPT).

When it is uncertain whether the goods should be carried by regular shipping lines or by chartered ships, it is advisable that the matter be specifically dealt with in the contract of sale. It often happens that carriage by chartered ships is permitted, but that the carriage must nevertheless be contracted for on “liner terms”. If so, the freight costs would ordinarily include loading and unloading costs. A charter party, however, may well provide that these costs should be “free” to the carrier. This is the so-called FIO-clause – which stands for “Free In” and “Free Out”.

In any case, the expression “liner terms” is vague and ambiguous, and it is recommended that the parties specifically deal with the conditions of the contract of carriage in the contract of sale when carriage is not to be arranged by regular, well-known shipping lines.

A4 Delivery

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Comments - As noted above, delivery under the CFR term occurs at the moment the goods are placed on board the vessel at the port of shipment. Thus, the CFR term, like the FOB term, is evidence of a shipment contract. Since the port of destination is mentioned after CFR, for example “CFR London” by a seller in New York, the legal nature of a CFR contract is frequently misunderstood by traders. This is quite understandable, because the critical point where the seller fulfils his obligation is usually omitted. CFR contracts do not usually provide that shipment shall take place at a particular port, for example “CFR London shipment from New York”, since this would restrict the seller’s options to ship the goods from alternative ports of shipment.

It must be emphasized that the CFR term, as distinguished from the FOB term, contains two critical points. The first represents the point at which delivery takes place upon shipment according to A4, namely when the goods are placed on board the vessel. The second represents the point at destination, up to which the seller shall arrange for carriage of the goods.

Avoid stipulating date of delivery at destination

One essential point of the CFR term is sometimes ignored in commercial practice. When, for example, the contract stipulates that delivery should take place not later than a specified date at destination (for example “arrival London not later than ...”), this kind of stipulation defeats the object of the CFR term and leaves room for different interpretations of the contract.

One option would be to interpret this stipulation to mean that the parties have agreed on an arrival contract rather than a shipment contract. If that is the case, the seller is not considered to have fulfilled the contract until the goods have actually arrived at destination. If in such a case the goods are delayed because of casualties after shipment or are even lost, the seller would not be free from his obligations under the contract of sale unless, of course, he has the protection of a particular relief clause or force majeure clause in the contract of sale. Such a contract is, of course, different from a CFR contract under which the seller fulfils the contract in the port of shipment.

The other option would be to interpret the stipulation in a way which would allow the basic nature of the CFR contract to supersede the particular wording the parties use, even in cases when the parties have stipulated that the goods should arrive before a particular date at destination. If that is done, the contract would be interpreted to mean that the goods must be placed onboard the ship at such time as would normally suffice for its arrival at destination at the stipulated date.

Since it is uncertain which of these options will be used to interpret CFR with this or similar language added, the parties are strongly advised to abstain from using such additions. When the goods are sold in transit, further sellers would not physically deliver the goods on board but would sell them procured delivered on board by the first seller.

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A5 Transfer of risks

Comments - All of the Incoterms rules are based on the same principle that the risk of loss of or damage to the goods is transferred from the seller to the buyer when the seller has fulfilled his delivery obligation according to A4.

All of the Incoterms rules, in conformity with the general principle of CISG, connect the transfer of the risk with the delivery of the goods and not with other circumstances, such as the passing of ownership or the time of the conclusion of the contract. As noted, neither the Incoterms rules nor CISG deals with transfer of title to the goods or other property rights with respect to the goods.

The passing of risk of loss of or damage to the goods concerns the risk of fortuitous events (accidents) and does not include loss or damage caused by the seller or the buyer, for example, inadequate packing or marking of the goods. Therefore, even if damage occurs subsequent to the transfer of the risk, the seller may still be responsible if the damage could be attributed to the fact that the goods were not delivered in conformity with the contract (see A1 and the comments to A9).

A5 of all of the Incoterms rules contain the phrase “with the exception of loss or damage in the circumstances described in B5”. This means that there are exceptions to the main rule concerning the passing of risk under the circumstances mentioned in B5, which may result in a premature passing of the risk because of the buyer’s failure properly to fulfil his obligations (see the comments to B5).

A6 Allocation of costs

Comments - As is the case with the transfer of the risk of loss of or damage to the goods, all of the Incoterms rules follow the same rule, that the division of costs occurs at the delivery point. All costs occurring before the seller has fulfilled his obligation to deliver according to A4[Page188:] are for his account, while further costs are for the account of the buyer (see the comments to B6). This rule is made subject to the provisions of B6, which indicates that the buyer may have to bear additional costs incurred by his failure to give appropriate notice to the seller.

A7 Notices to the buyer

Comments - The seller must give the buyer sufficient notice that the goods have been delivered onboard the vessel, as well as other relevant information, so that the buyer can make preparations in time to take delivery according to B4. There is no stipulation in the Incoterms rules spelling out the consequences of the seller’s failure to give such notice. But it follows from the Incoterms rules that the seller’s failure constitutes a breach of contract. This means that the seller could be held responsible for the breach according to the law applicable to the contract of sale.

A8 Delivery document

Comments - It is of vital importance for the buyer to know that the seller has fulfilled his obligation to deliver the goods onboard the ship. The transport document usually constitutes proof of such delivery.

Non-negotiable transport documents

Generally, it suffices for the parties to refer to the “usual transport document” obtained from the carrier when the goods are handed over to him. But in maritime carriage different documents can be used. While, traditionally, negotiable bills of lading were used for carriage of goods by sea, other documents have appeared in recent years, for example transport documents which are non-negotiable and similar to those used for other modes of transport. These alternative documents have different names – “liner waybills”, “ocean waybills”, “cargo quay receipts”, “data freight receipts” or “sea waybills”. The term “sea waybill” is frequently used to include all of the various non-negotiable transport documents used for carriage of goods by sea.

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Unfortunately, international conventions and most national laws do not yet provide specific regulations for these non-negotiable transport documents. (The exception is in the United States, where a non-negotiable bill of lading is recognized; this is the “straight bill of lading”.) For this reason, the Comité Maritime International (CMI) in June 1990 adopted Uniform Rules for Sea Waybills. The parties should refer to these Rules in the contract of carriage to avoid any legal uncertainties stemming from the use of nonnegotiable documents (see Annex 1).

Sale of goods in transit

In most cases, goods intended for carriage by regular shipping lines will not be the subject of a further sale in transit. But with respect to goods intended to be carried in chartered ships, the situation is frequently quite different. For example, when commodities are sold on the spot market, they are often sold many times before they reach destination. In these cases the negotiable bill of lading has traditionally been very important, since the possession of the paper document enables the subsequent buyer to claim the goods from the carrier at destination. He does this by surrendering the original bill of lading to the carrier in exchange for the goods.

However, when no sale of the goods in transit is intended, there is no need to use a bill of lading if the buyer’s right to claim the goods from the carrier at destination is ensured by other means, such as by reference in the contract to the CMI Uniform Rules for Sea Waybills.

A buyer intending to sell the goods in transit to a subsequent buyer has the right under CFR and CIF terms to claim from his seller a document controlling the disposition of the goods, such as a negotiable bill of lading. This sale in transit can also be arranged, however, without a bill of lading. It can occur if the parties involved use a system which calls upon the carrier to follow instructions to hold the goods at the disposition of subsequent buyer(s).

EDI and the bill of lading

Section A1 takes into account that the parties may wish to engage in “paperless trading”. If the parties have agreed to communicate electronically, the requirement that a paper document be presented is no longer compulsory.

The traditional bill of lading is out of step with the modern development towards paperless trading. For this reason, the CMI in June 1990 designed the “Uniform Rules for Electronic Bills of Lading”, which cover situations in which EDI messages between the parties involved are intended to replace the need for the traditional paper bill of lading.

These Uniform Rules are based on EDI messages to the carrier which serve the same purpose as the words “notification to the carrier” in A8. Parties who have not agreed to use the “Uniform Rules for Electronic Bills of Lading”, however, have to continue the traditional practice of requiring negotiable bills of lading. Systems – such as BOLERO –[Page190:]are now being developed for EDI messages not only among the shipper, the carrier and the consignee but also among other parties such as banks, insurers, freight forwarders and customs authorities.

Risk of maritime fraud when issuing several original bills of lading

Unfortunately, the malpractice of issuing bills of lading in several originals has persisted despite the fact that it creates a considerable risk of maritime fraud. A buyer paying for the goods directly or through a bank must therefore ensure that he receives all originals of the bill of lading, if several originals have been issued.

Bills of lading issued upon request of a charterer

When bills of lading are issued upon the request of a charterer by the owner of a chartered ship, the bill of lading may refer to the terms of the charter party (for example, “all other terms as per charter party”). For these cases, the Incoterms 1990 rules stipulated that the seller must also provide a copy of the charter party. This stipulation was deleted in the Incoterms 2000 rules and does not appear in the Incoterms® 2010 rules.

A9 Checking – packaging – marking

Comments - It is necessary for the buyer to ensure that the seller has duly fulfilled his obligation with respect to the condition of the goods. This is particularly important if the buyer is called upon to pay for the goods before he has received and checked them. However, the seller has no duty to arrange and pay for inspection of the goods before shipment, unless this is mandated by the authorites in the country of export or has been specifically agreed in the contract of sale.

The goods must also be adequately packed. Since the seller arranges the carriage, he is in a good position to decide the packing required for the transport of the goods. However, if he knows the ultimate destination and circumstances relating to oncarriage he may be required to pack the goods accordingly. The goods should also be marked in accordance with applicable standards and regulations.

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A10 Assistance with information and related costs

Comments - The seller has the obligation to clear the goods for export, but he has no obligation after shipment to bear any costs or risks connected either with the transit through another country or with import clearance of the goods at destination. However, he has the duty to render assistance to the buyer in obtaining any documents (for example, a certificate of origin, a health certificate, a clean report of findings, an import licence) or equivalent electronic messages and information which may be required for these purposes. The buyer, however, must reimburse the seller for any expenses which the seller might have incurred in connection with this assistance. Moreover, if something goes wrong, the buyer will have to assume the risk.

Also, the seller may be requested to provide the buyer with such information relating to the goods as the buyer may require for security-related clearance of the goods.

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B1 General obligations of the buyer

Comments - The buyer must pay the price agreed in the contract of sale. B1 constitutes a reminder of this main obligation, which corresponds with the seller’s obligation to provide the goods in conformity with the contract of sale, as stipulated in A1.

B2 Licences, authorizations, security clearances and other formalities

Comments - The buyer must take care of the import and security clearance and bear any costs and risks in connection with it. Therefore, an import prohibition will not relieve the buyer of his obligation to pay for the goods, unless there is a particular “relief clause” in the contract of sale which he invokes to obtain this relief. Such clauses may provide for the extension of time or the right to avoid the contract under the applicable law (see the comments to A2).

The buyer must also do whatever may be needed to pass the goods through a third country after they have been shipped (dispatched) from the seller’s country, unless this obligation is for the seller’s account under the contract of carriage.

B3 Contracts of carriage and insurance

Comments - Although B3(a) merely stipulates “No obligation” for the buyer, on-carriage from the port of destination is necessary in most cases, and it is the buyer’s responsibility to do whatever is required for this purpose. But the seller is not concerned with the further carriage of the goods, and the buyer has no obligation to the seller in this respect. Whatever the buyer does is in his own interest and is not covered by the contract of sale.

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B4 Taking delivery

Comments - Here, the two critical points under a CFR sale appear again. Since the seller fulfils his obligation by delivering the goods on board the vessel at the port of shipment (A4), it is for the buyer to accept such delivery under B4. But the buyer also has a further obligation to receive the goods from the carrier at the named port of destination. This is not something he does only in his own interest (as in B3) but is an obligation to the seller, who has concluded the contract of carriage with the carrier.

Unless the buyer frees the goods from the ship when they duly arrive, the seller may incur additional costs debited to him by the carrier. These costs must be borne by the buyer if he is in breach of his obligation to receive the goods from the carrier.

That the buyer must take delivery of the goods when they have been delivered in accordance with A4 does not, of course, preclude him from raising claims against the seller if the goods do not conform with the contract.

Charter party loading and discharge

In the charter party trade, problems frequently arise in ports of loading as well as in ports of discharge when the time for loading and discharging the cargo exceeds the “free” time according to the charter party terms (the “lay-time”). In these cases, the charterer has to pay particular compensation (“demurrage”) to the owner.

Needless to say, it is vital for sellers and buyers to agree, not only in the charter party but also in the contract of sale, how much time should be available for loading and discharge respectively, and which of the parties should bear the costs of any demurrage charged by the shipowner. Charter parties may also provide that the shipowner should pay compensation if the time of loading and/or discharge is less than a certain stipulated time. This is so-called dispatch, or despatch, money. In this case, it is also important to stipulate in the contract of sale which of the parties should be entitled to this compensation.

B5 Transfer of risks

Comments - According to the main rule, while the seller under A5 bears the risk of loss of or damage to the goods until the delivery point, the buyer has to bear the risk thereafter. The delivery point is different under the different terms. In EXW and all D-terms, the goods are simply placed “at the disposal of the buyer” at the relevant point, while under the F- and C-terms [Page194:] the delivery point is related to the handing over of the goods to the carrier in the country of dispatch or shipment (see the comments to A4 of these terms). In the terms used for goods intended to be carried by sea, reference is made to delivery alongside the named vessel (FAS) or delivery on board the vessel (FOB, CFR, CIF).

Since the seller is relieved from any further risk of loss of or damage to the goods when they have placed on board, it follows that the buyer has to assume these risks subsequent to the passing of that critical point. According to the terms of the contract of sale, the buyer may be given the option to determine the time for shipping the goods. This option may also include the right to later name the port to which the goods should be shipped. In these cases, it is necessary that the seller be given timely and sufficient notice (see comments to B7).

Premature transfer of risk

If the buyer fails to give appropriate notice to the seller, he could be exposed to additional costs and risks if the goods have to be stored in the port of loading, pending shipping instructions. B5 stipulates that in these cases the risk may be transferred from the seller to the buyer before the time when the goods have placed on board. This is an important exception to the main rule.

This premature transfer of the risks could occur at one of two points: (1) when, as a result of the buyer’s failure to give sufficient notice, the goods cannot be shipped at an agreed date or (2) on the expiry date, in cases when the buyer has been given a period during which to determine the time for shipment.

In accordance with the general principle of the Incoterms rules, this premature transfer of the risks will never occur until the goods have been identified as the contract goods.

B6 Allocation of costs

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Comments - While the seller has to pay all costs required to bring the goods to the port of shipment and to deliver the goods onboard the vessel (as well as unloading charges at the port of discharge, provided they have been included in the freight), the buyer has to pay any further costs which may arise after the seller has delivered the goods on board the vessel. In this sense, the transfer of the risk also determines the division of costs. If something occurs as a result of contingencies after shipment – such as strandings, collisions, strikes, government directions, hindrances because of ice or other weather conditions – any additional costs charged by the carrier as a result of these contingencies, or otherwise occurring, will be for the account of the buyer.

The buyer is free from paying the further costs only if these costs “were for the seller’s account under the contract of carriage”. This does not mean, however, that the buyer must pay for costs and charges payable under the contract of carriage in the ordinary course of events (for example, when the shipper has been given credit by the carrier, i.e., “collect freight”).

Failure to give notice and premature passing of risk

The failure to give appropriate notice in accordance with B7 not only results in a premature transfer of the risks (see comments to B5) but also imposes on the buyer the responsibility to pay any additional costs as a consequence. In this case, the obligation to pay these additional costs occurs only if the goods have been identified as the contract goods (as discussed in the comments to B5).

Buyer’s duties in clearing goods for import

As noted in the comments to B2, the buyer has the duty to clear the goods for import; it is then established in B6 that he has to pay the costs arising from the clearance (“duties, taxes and other charges as well as the costs of carrying out customs formalities”). The buyer also has to pay any duties, taxes and other charges arising in connection with the transit of the goods through another country after they have been delivered by the seller in accordance with A4 unless these costs were for the seller’s account under the contract of carriage.

B7 Notices to the seller

Comments - As discussed in the comments to B5 and B6, the failure of the buyer to notify the seller of the time for dispatching the goods and/or the named place of destination or the point of receiving the goods within that place – when the buyer in the contract of sale has been given the option to determine these matters – may cause the risk of the loss of or damage to the goods to pass before the goods have been delivered according to A4. In addition, it can make the buyer liable to pay any additional costs incurred by the seller as a result of the buyer’s failure.

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B8 Proof of delivery

Comments - The buyer has to accept the transport document if it conforms with the contract and with the requirements of A8 (see the comments to A8). If the buyer rejects a conforming transport document (for example, by instructions to a bank not to pay the seller under a documentary credit), he commits a breach of contract, which would give the seller remedies available for such a breach under the contract of sale.

These remedies could include, for example, a right to cancel the contract or to claim damages for breach. However, the buyer is not obliged to accept a document which does not provide adequate proof of delivery, for example, one which has notations on it showing that the goods are defective or that they have been provided in less than the agreed quantity. In these cases, the document is termed “unclean”.

B9 Inspection of goods

Comments - As discussed in the comments to A9, the buyer has to pay for any costs of checking the goods unless the contract states that these costs should be borne wholly or partly by the seller. In some cases, the contract may provide that the costs should be borne by the seller if the inspection reveals that the goods do not conform with the contract.

In some countries, where import licences or permission to obtain foreign currency for the payment of the price may be required, the authorities may demand an inspection of the goods before shipment, to ensure that the goods are in conformity with the contract. (This is usually called pre-shipment inspection, PSI.) If this is the case, the inspection is normally arranged by instructions from the authorities to an inspection company, which they appoint. The costs following from this inspection have to be paid by the authorities. Any reimbursement to the authorities for the inspection costs, however, must be made by the buyer, unless mandated by the authorities of the country of export or specifically agreed between the buyer and the seller.

B10 Assistance with information and related costs

Comments - As discussed in the comments to A10, the seller has to render the buyer assistance in obtaining the documents or electronic messages and information which may be required for the transit and import and security-clearance of the goods. However, this assistance is rendered at the buyer’s risk and expense. Therefore, B10 stipulates that the buyer must pay all costs and charges incurred in obtaining these documents or electronic messages. He will also have to reimburse the seller for the seller’s costs in rendering his assistance in these matters.

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GUIDANCE NOTE

This rule is to be used only for sea or inland waterway transport.

“Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

When CPT, CIP, CFR, or CIF are used, the seller fulfils its obligation to deliver when it hands the goods over to the carrier in the manner specified in the chosen rule and not when the goods reach the place of destination.

This rule has two critical points, because risk passes and costs are transferred at different places. While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk passes to the buyer. If the shipment port is of particular interest to the buyer, the parties are well advised to identify it as precisely as possible in the contract.

The parties are well advised to identify as precisely as possible the point at the agreed port of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.

The seller is required either to deliver the goods on board the vessel or to procure goods already so delivered for shipment to the destination. In addition the seller is required either to make a contract of carriage or to procure such a contract. The reference to “procure” here caters for multiple sales down a chain (‘string sales’), particularly common in the commodity trades.

CIF may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such circumstances, the CIP rule should be used.

CIF requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.

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A1, A2, A3(a), A4 to A10

See the comments to CFR A1, A2, A3 (a), A4 to A10.

A3 (b) Contracts of insurance

Comments - The only difference between the CFR and the CIF term is that the latter requires the seller also to obtain and pay for cargo insurance. This is particularly important for the buyer, since under CIF the risk for loss of or damage to the goods will pass from the seller to the buyer when the goods are loaded on board at the port of shipment (see A5 under CFR).

In addition, it is vital for the buyer to be given the right to claim against the insurer independently of the seller. For this purpose it may be necessary to provide the buyer with the insurance policy under which the insurer makes his undertaking directly to the buyer.

Seller need only provide “minimum cover”

It is important to note that the seller only has to provide for “minimum cover”. Such limited cover is suitable only for bulk cargoes, which normally do not suffer loss or damage in transit unless something happens to the ship as well as to the cargo (strandings, collisions, fire, etc.). The buyer and seller are therefore advised to agree that the seller should provide a more suitable insurance cover. The buyer should then specify the extended cover he prefers.

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The insurance cover according to the so-called Institute Cargo Clauses is available in different categories. However, even the most extended cover in A does not provide for what is misleadingly called “all-risk insurance”. Furthermore, there are other important exceptions which category A insurance does not cover, for example, cases when the loss of the goods has been caused by insolvency or fraud, or when financial loss has been incurred by delay in delivery.

Duration of insurance cover

The duration of the insurance cover must coincide with the carriage and must protect the buyer from the moment he has to bear the risk of loss of or damage to the goods (i.e., from the moment the goods are loaded on board at the port of shipment). It must extend until the goods arrive at the agreed port of destination.

Some risks require additional cover

Some particular risks require additional insurance, and if the buyer requests it, the seller must arrange this additional cover at the buyer’s expense – for example, insurance against the risks of war, strikes, riots and civil commotion – if this cover can possibly be arranged.

Amount of the insurance cover

The amount of the insurance should correspond to the price provided in the contract, plus 10 per cent. The additional 10 per cent is intended to cover the average profit that buyers of goods expect from the sale. The insurance should be provided in the same currency as stipulated in the contract for the price of the goods. Consequently, if the price of the goods is to be paid in convertible currency, the seller may not provide insurance in other than convertible currency.

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B1 to B2, B3(a) and B4 to B10

See the comments to CFR B1,B2, B3(a) and B4 to B10.

B3(b) Contract of insurance

Comments - It is vital for the buyer to understand that the seller only has to take out minimum insurance cover. This cover in most cases is insufficient when manufactured goods are involved. In the contract of sale, therefore, the buyer should require the seller to take out additional cover, usually according to the Institute Clauses A or a corresponding cover. If, however, the contract does not deal with this matter at all, the seller’s obligation is limited as stipulated in A3(b), and the buyer has to arrange and pay for any additional insurance cover required.

In most cases the seller will know how to arrange the insurance from the contract of sale (from the invoice value of the goods, their destination, etc.). But if this is not the case, the buyer has to provide the seller, upon the latter’s request, with any additional necessary information.

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