RULES FOR ANY MODE OR MODES OF TRANSPORT

EXW | EX WORKS

EXW (insert named place of delivery) Incoterms® 2020

  1. Delivery and risk—“Ex Works” means that the seller delivers the goods to the buyer
    • when it places the goods at the disposal of the buyer at a named place (like a factory or warehouse), and
    • that named place may or may not be the seller’s premises.

For delivery to occur, 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.

  1. Mode of transport—This rule may be used irrespective of the mode or modes of transport, if any, selected.
  2. Place or precise point of delivery—The parties need only name the place of delivery. However, the parties are well advised also to specify as clearly as possible the precise point within the named place of delivery. A named precise point of delivery makes it clear to both parties when the goods are delivered and when risk transfers to the buyer; such precision also marks the point at which costs are for the buyer’s account. If the parties do not name the point of delivery, then they are taken to have left it to the seller to select the point “that best suits its purpose”. This means that the buyer may incur the risk that the seller may choose a point just before the point at which goods are lost or damaged. Best for the buyer therefore to select the precise point within a place where delivery will occur.
  3. A note of caution to buyers—EXW is the Incoterms® rule which imposes the least set of obligations on the seller. From the buyer’s perspective, therefore, the rule should be used with care for different reasons as set out below.
  4. Loading risks—Delivery happens—and risk transfers—when the goods are placed, not loaded, at the buyer’s disposal. However, risk of loss of or damage to the goods occurring while the loading operation is carried out by the seller, as it may well be, might arguably lie with the buyer, who has not physically participated in the loading. Given this possibility, it would be advisable, where the seller is to load the goods, for the parties to agree in advance who is to bear the risk of any loss of or damage to the goods during loading. This is a common situation simply because the seller is more likely to have the necessary loading equipment at its own premises or because applicable safety or security rules prevent access to the seller’s premises by unauthorised personnel. Where the buyer is keen to avoid any risk during loading at the seller’s premises, then the buyer ought to consider choosing the FCA rule (under which, if the goods are delivered at the seller’s premises, the seller owes the buyer an obligation to load, with the risk of loss of or damage to the goods during that operation remaining with the seller).
  5. Export clearance—With delivery happening when the goods are at the buyer’s disposal either at the seller’s premises or at another named point typically within the seller’s jurisdiction or within the same Customs Union, there is no obligation on the seller to organise export clearance or clearance within third countries through which the goods pass in transit. Indeed, EXW may be suitable for domestic trades, where there is no intention at all to export the goods. The seller’s participation in export clearance is limited to providing assistance in obtaining such documents and information as the buyer may require for the purpose of exporting the goods. Where the buyer intends to export the goods and where it anticipates difficulty in obtaining export clearance, the buyer would be better advised to choose the FCA rule, under which the obligation and cost of obtaining export clearance lies with the seller.

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FCA | FREE CARRIER

FCA (insert named place of delivery) Incoterms® 2020

  1. Delivery and risk—“Free Carrier (named place)” means that the seller delivers the goods to the buyer in one or other of two ways.
  • First, when the named place is the seller’s premises, the goods are delivered
  • when they are loaded on the means of transport arranged by the buyer.
  • Second, when the named place is another place, the goods are delivered
    • when, having been loaded on the seller’s means of transport,
    • they reach the named other place and
    • are ready for unloading from that seller’s means of transport and
    • at the disposal of the carrier or of another person nominated by the buyer.

Whichever of the two is chosen as the place of delivery, that place identifies where risk transfers to the buyer and the time from which costs are for the buyer’s account.

  1. Mode of transport—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.
  2. Place or point of delivery—A sale under FCA can be concluded naming only the place of delivery, either at the seller’s premises or elsewhere, without specifying the precise point of delivery within that named place. However, the parties are well advised also to specify as clearly as possible the precise point within the named place of delivery. A named precise point of delivery makes it clear to both parties when the goods are delivered and when risk transfers to the buyer; such precision also marks the point at which costs are for the buyer’s account. Where the precise point is not identified, however, this may cause problems for the buyer. The seller in this case has the right to select the point “that best suits its purpose”: that point becomes the point of delivery, from which risk and costs transfer to the buyer. If the precise point of delivery is not identified by naming it in the contract, then the parties are taken to have left it to the seller to select the point “that best suits its purpose”. This means that the buyer may incur the risk that the seller may choose a point just before the point at which goods are lost or damaged. Best for the buyer therefore to select the precise point within a place where delivery will occur.
  3. ‘or procure goods so delivered’—The reference to “procure” here caters for multiple sales down a chain (string sales), particularly, although not exclusively, common in the commodity trades.
  4. Export/import clearance—FCA requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, to pay any import duty or to carry out any import customs formalities.
  5. Bills of lading with an on-board notation in FCA sales—We have already seen that FCA is intended for use irrespective of the mode or modes of transport used. Now if goods are being picked up by the buyer’s road-haulier in Las Vegas, it would be rather uncommon to expect a bill of lading with an on-board notation to be issued by the carrier from Las Vegas, which is not a port and which a vessel cannot reach for goods to be placed on board. Nonetheless, sellers selling FCA Las Vegas do sometimes find themselves in a situation where they need a bill of lading with an on-board notation (typically because of a bank collection or a letter of credit requirement), albeit necessarily stating that the goods have been placed on board in Los Angeles as well as stating that they were received for carriage in Las Vegas. To cater for this possibility of an FCA seller needing a bill of lading with an on-board notation, FCA Incoterms® 2020 has, for the first time, provided the following optional mechanism. If the parties have so agreed in the contract, the buyer must instruct its carrier to issue a bill of lading with an on-board notation to the seller. The carrier may or may not, of course, accede to the buyer’s request, given that the carrier is only bound and entitled to issue such a bill of lading once the goods are on board in Los Angeles. However, if and when the bill of lading is issued to the seller by the carrier at the buyer’s cost and risk, the seller must provide that same document to the buyer, who will need the bill of lading in order to obtain discharge of the goods from the carrier. This optional mechanism becomes unnecessary, of course, if the parties have agreed that the seller will present to the buyer a bill of lading stating simply that the goods have been received for shipment rather than that they have been shipped on board. Moreover, it should be emphasised that even where this optional mechanism is adopted, the seller is under no obligation to the buyer as to the terms of the contract of carriage. Finally, when this optional mechanism is adopted, the dates of delivery inland and loading on board will necessarily be different, which may well create difficulties for the seller under a letter of credit.

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CPT | CARRIAGE PAID TO

CPT (insert named place of destination) Incoterms® 2020

  1. Delivery and risk—“Carriage Paid To” means that the seller delivers the goods—and transfers the risk—to the buyer
  • by handing them over to the carrier
  • contracted by the seller
  • or by procuring the goods so delivered.
  • The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used.

Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers from seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination. Thus, for example, goods are handed over to a carrier in Las Vegas (which is not a port) for carriage to Southampton (a port) or to Winchester (which is not a port). In either case, delivery transferring risk to the buyer happens in Las Vegas, and the seller must make a contract of carriage to either Southampton or Winchester.

  1. Mode of transport—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.
  2. Places (or points) of delivery and destination—In CPT, two locations are important: the place or point (if any) at which the goods are delivered (for the transfer of risk) and the place or point agreed as the destination of the goods (as the point to which the seller promises to contract for carriage).
  3. Identifying the place or point of delivery with precision—The parties are well advised to identify both places, or indeed points within those places, as precisely as possible in the contract of sale. Identifying the place or point (if any) of delivery as precisely as possible is important to cater for the common situation where several carriers are engaged, each for different legs of the transit from delivery to destination. Where this happens and the parties do not agree on a specific place or point of delivery, the default position is that risk transfers 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 transfer at a later stage (e.g. at a sea or river port or at an airport), or indeed an earlier one (e.g. an inland point some way away from a sea or river port), they need to specify this in their contract of sale and to carefully think through the consequences of so doing in case the goods are lost or damaged.
  4. Identifying the destination as precisely as possible—The parties are also well advised to identify as precisely as possible in the contract of sale the point within the agreed place of destination, as this is the point to which the seller must contract for carriage and this is the point to which the costs of carriage fall on the seller.
  5. ‘or procuring the goods so delivered’—The reference to “procure” here caters for multiple sales down a chain (string sales), particularly common in the commodity trades.
  6. Costs of unloading at destination—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 separately from the buyer unless otherwise agreed between the parties.
  7. Export/import clearance—CPT requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, or to pay any import duty or to carry out any import customs formalities.

CIP | CARRIAGE AND INSURANCE PAID TO

CIP (insert named place of destination) Incoterms® 2020

  1. Delivery and risk—“Carriage and Insurance Paid To” means that the seller delivers the goods—and transfers the risk—to the buyer
  • by handing them over to the carrier
  • contracted by the seller
  • or by procuring the goods so delivered.
  • The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used.

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Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers from seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination. Thus, for example, goods are handed over to a carrier in Las Vegas (which is not a port) for carriage to Southampton (a port) or to Winchester (which is not a port). In either case, delivery transferring risk to the buyer happens in Las Vegas, and the seller must make a contract of carriage to either Southampton or Winchester.

  1. Mode of transport—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.
  2. Places (or points) of delivery and destination—In CIP two locations are important: the place or point at which the goods are delivered (for the transfer of risk) and the place or point agreed as the destination of the goods (as the point to which the seller promises to contract for carriage).
  3. Insurance—The seller must also contract for insurance cover against the buyer’s risk of loss of or damage to the goods from the point of delivery to at least the point of destination. This may cause difficulty where the destination country requires insurance cover to be purchased locally: in this case the parties should consider selling and buying under CPT. The buyer should also note that under the CIP Incoterms® 2020 rule the seller is required to obtain extensive insurance cover complying with Institute Cargo Clauses (A) or similar clause, rather than with the more limited cover under Institute Cargo Clauses (C). It is, however, still open to the parties to agree on a lower level of cover.
  4. Identifying the place or point of delivery with precision—The parties are well advised to identify both places, or indeed points within those places, as precisely as possible in the contract of sale. Identifying the place or point (if any) of delivery as precisely as possible is important to cater for the common situation where several carriers are engaged, each for different legs of the transit from delivery to destination. Where this happens and the parties do not agree on a specific place or point of delivery, the default position is that risk transfers 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 transfer at a later stage (e.g. at a sea or river port or at an airport), or indeed an earlier one (e.g. an inland point some way away from a sea or river port), they need to specify this in their contract of sale and to carefully think through the consequences of so doing in case the goods are lost or damaged.
  5. Identifying the destination as precisely as possible—The parties are also well advised to identify as precisely as possible in the contract of sale the point within the agreed place of destination, as this is the point to which the seller must contract for carriage and insurance and this is the point to which the costs of carriage and insurance fall on the seller.
  6. ‘or procuring the goods so delivered’—The reference to “procure” here caters for multiple sales down a chain (string sales), particularly common in the commodity trades.
  7. Costs of unloading at destination—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 separately from the buyer unless otherwise agreed between the parties.
  8. Export/import clearance—CIP requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, or to pay any import duty or to carry out any import customs formalities.

DAP | DELIVERED AT PLACE

DAP (insert named place of destination) Incoterms® 2020

  1. Delivery and risk—“Delivered at Place” means that the seller delivers the goods—and transfers risk—to the buyer
  • 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 or
  • at the agreed point within that place, if any such point is agreed.

The seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterms® rule, therefore, delivery and arrival at destination are the same.

  1. Mode of transport—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.

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  1. Identifying the place or point of delivery/destination precisely—The parties are well advised to specify the destination place or point as clearly as possible and this for several reasons. First, risk of loss of or damage to the goods transfers to the buyer at that point of delivery/destination—and it is best for the seller and the buyer to be clear about the point at which that critical transfer happens. Secondly, the costs before that place or point of delivery/destination are for the account of the seller and the costs after that place or point are for the account of the buyer. Thirdly, the seller must contract or arrange for the carriage of the goods to the agreed place or point of delivery/destination. If it fails to do so, the seller is in breach of its obligations under the Incoterms® DAP rule and will be liable to the buyer for any ensuing loss. Thus, for example, the seller would be responsible for any additional costs levied by the carrier to the buyer for any additional on carriage.
  2. ‘or procuring the goods so delivered’—The reference to “procure” here caters for multiple sales down a chain (string sales), particularly common in the commodity trades.
  3. Unloading costs—The seller is not required to unload the goods from the arriving means of transportation. However, if the seller incurs costs under its contract of carriage related to unloading at the place of delivery/destination, the seller is not entitled to recover such costs separately from the buyer unless otherwise agreed between the parties.
  4. Export/import clearance—DAP requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for post-delivery transit through third countries, to pay any import duty or to carry out any import customs formalities. As a result, if the buyer fails to organise import clearance, the goods will be held up at a port or inland terminal in the destination country. Who bears the risk of any loss that might occur while the goods are thus held up at the port of entry in the destination country? The answer is the buyer: delivery will not have occurred yet, B3(a) ensuring that the risk of loss of or damage to the goods is with the buyer until transit to a named inland point can be resumed. If, in order to avoid this scenario, the parties intend the seller to clear the goods for import, pay any import duty or tax and carry out any import customs formalities, the parties might consider using DDP.

DPU | DELIVERED AT PLACE UNLOADED

DPU (insert named place of destination) Incoterms® 2020

  1. Delivery and risk—“Delivered at Place Unloaded” means that the seller delivers the goods—and transfers risk—to the buyer
  • when the goods,
  • once unloaded from the arriving means of transport,
  • are placed at the disposal of the buyer
  • at a named place of destination or
  • at the agreed point within that place, if any such point is agreed.

The seller bears all risks involved in bringing the goods to and unloading them at the named place of destination. In this Incoterms® rule, therefore, the delivery and arrival at destination are the same. DPU is the only Incoterms® rule that requires the seller to unload goods at destination. The seller should therefore ensure that it is in a position to organise unloading at the named place. Should the parties intend the seller not to bear the risk and cost of unloading, the DPU rule should be avoided and DAP should be used instead.

  1. Mode of transport—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.
  2. Identifying the place or point of delivery/destination precisely—The parties are well advised to specify the destination place or point as clearly as possible and this for several reasons. First, risk of loss of or damage to the goods transfers to the buyer at that point of delivery/destination—and it is best for the seller and the buyer to be clear about the point at which that critical transfer happens. Secondly, the costs before that place or point of delivery/destination are for the account of the seller and the costs after that place or point are for the account of the buyer. Thirdly, the seller must contract or arrange for the carriage of the goods to the agreed place or point of delivery/destination. If it fails to do so, the seller is in breach of its obligations under this rule and will be liable to the buyer for any ensuing loss. The seller would, for example, be responsible for any additional costs levied by the carrier to the buyer for any additional on-carriage.
  3. ‘or procuring the goods so delivered’—The reference to “procure” here caters for multiple sales down a chain (string sales), particularly common in the commodity trades.
  4. Export/import clearance—DPU requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for post-delivery transit through third countries, to pay any import duty or to carry out any import customs formalities. As

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a result, if the buyer fails to organise import clearance, the goods will be held up at a port or inland terminal in the destination country. Who bears the risk of any loss that might occur while the goods are thus held up at the port of entry in the destination country? The answer is the buyer: delivery will not have occurred yet, B3(a) ensuring that the risk of loss of or damage to the goods is with the buyer until transit to a named inland point can be resumed. If, in order to avoid this scenario, the parties intend the seller to clear the goods for import, pay any import duty or tax and carry out any import customs formalities, the parties might consider using DDP.

DDP | DELIVERED DUTY PAID

DDP (insert named place of destination) Incoterms® 2020

  1. Delivery and risk—“Delivered Duty Paid” means that the seller delivers the goods to the buyer
  • 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 or at the agreed point within that place, if any such point is agreed.

The seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place. In this Incoterms® rule, therefore, delivery and arrival at destination are the same.

  1. Mode of transport—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.
  2. A note of caution to sellers: maximum responsibility—DDP, with delivery happening at destination and with the seller being responsible for the payment of import duty and applicable taxes is the Incoterms® rule imposing on the seller the maximum level of obligation of all eleven Incoterms® rules. From the seller’s perspective, therefore, the rule should be used with care for different reasons as set out in paragraph 7.
  3. Identifying the place or point of delivery/destination precisely—The parties are well advised to specify the destination place or point as clearly as possible and this for several reasons. First, risk of loss of or damage to the goods transfers to the buyer at that point of delivery/destination—and it is best for the seller and the buyer to be clear about the point at which that critical transfer happens. Secondly, the costs before that place or point of delivery/destination are for the account of the seller, including the costs of import clearance, and the costs after that place or point, other than the costs of import, are for the account of the buyer. Thirdly, the seller must contract or arrange for the carriage of the goods to the agreed place or point of delivery/destination. If it fails to do so, the seller is in breach of its obligations under the Incoterms® rule DDP and will be liable to the buyer for any ensuing loss. Thus, for example, the seller would be responsible for any additional costs levied by the carrier to the buyer for any additional on-carriage.
  4. ‘or procuring the goods so delivered’—The reference to “procure” here caters for multiple sales down a chain (string sales), particularly common in the commodity trades.
  5. Unloading costs—If the seller incurs costs under its contract of carriage related to unloading at the place of delivery/destination, the seller is not entitled to recover such costs separately from the buyer unless otherwise agreed between the parties.
  6. Export/import clearance—As set out in paragraph 3, DDP requires the seller to clear the goods for export, where applicable, as well as for import and to pay any import duty or to carry out any customs formalities. Thus if the seller is unable to obtain import clearance and would rather leave that side of things in the buyer’s hands in the country of import, then the seller should consider choosing DAP or DPU, under which rules delivery still happens at destination, but with import clearance being left to the buyer. There may be tax implications and this tax may not be recoverable from the buyer: see A9(d).

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RULES FOR SEA AND INLAND WATERWAY TRANSPORT

FAS | FREE ALONGSIDE SHIP

FAS (insert named port of shipment) Incoterms® 2020

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

  1. Mode of transport—This rule is to be used only for sea or inland waterway transport where the parties intend to deliver the goods by placing the goods alongside a vessel. Thus, the FAS rule is not appropriate where goods are handed over to the carrier before they are alongside the vessel, for example where goods are handed over to a carrier at a container terminal. Where this is the case, parties should consider using the FCA rule rather than the FAS rule.
  2. Identifying the loading point precisely—The parties are well advised to specify as clearly as possible the loading point at the named port of shipment where the goods are to be transferred from the quay or barge to the ship, 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.
  3. ‘or procuring the goods so delivered’—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.
  4. Export/import clearance—FAS requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, to pay any import duty or to carry out any import customs formalities.

FOB | FREE ON BOARD

FOB (insert named port of shipment) Incoterms® 2020

  1. Delivery and risk—“Free on Board” means that the seller delivers the goods to the buyer
  • 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 transfers when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

  1. Mode of transport—This rule is to be used only for sea or inland waterway transport where the parties intend to deliver the goods by placing the goods on board a vessel. Thus, the FOB rule is not appropriate where goods are handed over to the carrier before they are on board the vessel, for example where goods are handed over to a carrier at a container terminal. Where this is the case, parties should consider using the FCA rule rather than the FOB rule.
  2. ‘or procuring the goods so delivered’—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.
  3. Export/import clearance—FOB requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, to pay any import duty or to carry out any import customs formalities.

CFR | COST AND FREIGHT

CFR (insert named port of destination) Incoterms® 2020

  1. Delivery and risk—“Cost and Freight” means that the seller delivers the goods to the buyer
    • on board the vessel
    • or procures the goods already so delivered.

The risk of loss of or damage to the goods transfers when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods whether or not the

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goods actually arrive at their destination in sound condition, in the stated quantity or, indeed, at all. In CFR, the seller owes no obligation to the buyer to purchase insurance cover: the buyer would be well-advised therefore to purchase some cover for itself.

  1. Mode of transport—This rule is to be used only for sea or inland waterway transport. Where more than one mode of transport is to be used, which will commonly be the case where goods are handed over to a carrier at a container terminal, the appropriate rule to use is CPT rather than CFR.
  2. ‘or procuring the goods so delivered’—The reference to “procure” here caters for multiple sales down a chain (string sales), particularly common in the commodity trades.
  3. Ports of delivery and destination—In CFR, two ports are important: the port where the goods are delivered on board the vessel and the port agreed as the destination of the goods. Risk transfers from seller to buyer when the goods are delivered to the buyer by placing them on board the vessel at the shipment port or by procuring the goods already so delivered. However, the seller must contract for the carriage of the goods from delivery to the agreed destination. Thus, for example, goods are placed on board a vessel in Shanghai (which is a port) for carriage to Southampton (also a port). Delivery here happens when the goods are on board in Shanghai, with risk transferring to the buyer at that time; and the seller must make a contract of carriage from Shanghai to Southampton.
  4. Must the shipment port be named?—While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk transfers to the buyer. If the shipment port is of particular interest to the buyer, as it may be, for example, where the buyer wishes to ascertain that the freight element of the price is reasonable, the parties are well advised to identify it as precisely as possible in the contract.
  5. Identifying the destination point at the discharge port—The parties are well advised to identify as precisely as possible the point at the named port of destination, as the costs to that point are for the account of the seller. The seller must make a contract or contracts of carriage that cover(s) the transit of the goods from delivery to the named port or to the agreed point within that port where such a point has been agreed in the contract of sale.
  6. Multiple carriers—It is possible that carriage is effected through several carriers for different legs of the sea transport, for example, first by a carrier operating a feeder vessel from Hong Kong to Shanghai, and then onto an ocean vessel from Shanghai to Southampton. The question which arises here is whether risk transfers from seller to buyer at Hong Kong or at Shanghai: where does delivery take place? The parties may well have agreed this in the sale contract itself. Where, however, there is no such agreement, the default position is that risk transfers when the goods have been delivered to the first carrier, i.e. Hong Kong, thus increasing the period during which the buyer incurs the risk of loss or damage. Should the parties wish the risk to transfer at a later stage (here, Shanghai) they need to specify this in their contract of sale.
  7. Unloading costs—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 separately from the buyer unless otherwise agreed between the parties.
  8. Export/import clearance—CFR requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, to pay any import duty or to carry out any import customs formalities.

CIF | COST INSURANCE AND FREIGHT

CIF (insert named port of destination) Incoterms® 2020

  1. Delivery and risk—“Cost Insurance and Freight” means that the seller delivers the goods to the buyer
  • on board the vessel
  • or procures the goods already so delivered.

The risk of loss of or damage to the goods transfers when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods whether or not the goods actually arrive at their destination in sound condition, in the stated quantity or, indeed, at all.

2. Mode of transport—This rule is to be used only for sea or inland waterway transport. Where more than one mode of transport is to be used, which will commonly be the case where goods are handed over to a carrier at a container terminal, the appropriate rule to use is CIP rather than CIF.

3.‘or procuring the goods so delivered’—The reference to “procure” here caters for multiple sales down a chain (string sales), particularly common in the commodity trades.

4. Ports of delivery and destination—In CIF, two ports are important: the port where the goods are delivered on board the vessel and the port agreed as the destination of the goods. Risk transfers

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from seller to buyer when the goods are delivered to the buyer by placing them on board the vessel at the shipment port or by procuring the goods already so delivered. However, the seller must contract for the carriage of the goods from delivery to the agreed destination. Thus, for example, goods are placed on board a vessel in Shanghai (which is a port) for carriage to Southampton (also a port). Delivery here happens when the goods are on board in Shanghai, with risk transferring to the buyer at that time; and the seller must make a contract of carriage from Shanghai to Southampton.

5. Must the shipment port be named?—While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk transfers to the buyer. If the shipment port is of particular interest to the buyer, as it may be, for example, where the buyer wishes to ascertain that the freight or the insurance element of the price is reasonable, the parties are well advised to identify it as precisely as possible in the contract.

6. Identifying the destination point at the discharge port—The parties are well advised to identify as precisely as possible the point at the named port of destination, as the costs to that point are for the account of the seller. The seller must make a contract or contracts of carriage that cover the transit of the goods from delivery to the named port or to the agreed point within that port where such a point has been agreed in the contract of sale.

7. Multiple carriers—It is possible that carriage is effected through several carriers for different legs of the sea transport, for example, first by a carrier operating a feeder vessel from Hong Kong to Shanghai, and then onto an ocean vessel from Shanghai to Southampton. The question which arises here is whether risk transfers from seller to buyer at Hong Kong or at Shanghai: where does delivery take place? The parties may well have agreed this in the sale contract itself. Where, however, there is no such agreement, the default position is that risk transfers when the goods have been delivered to the first carrier, i.e. Hong Kong, thus increasing the period during which the buyer incurs the risk of loss or damage. Should the parties wish the risk to transfer at a later stage (here, Shanghai) they need to specify this in their contract of sale.

8. Insurance—The seller must also contract for insurance cover against the buyer’s risk of loss of or damage to the goods from the port of shipment to at least the port of destination. This may cause difficulty where the destination country requires insurance cover to be purchased locally: in this case the parties should consider selling and buying under CFR. The buyer should also note that under the CIF Incoterms® 2020 rule the seller is required to obtain limited insurance cover complying with Institute Cargo Clauses (C) or similar clause, rather than with the more extensive cover under Institute Cargo Clauses (A). It is, however, still open to the parties to agree on a higher level of cover.

9. Unloading costs—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 separately from the buyer unless otherwise agreed between the parties.

10. Export/import clearance—CIF requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, to pay any import duty or to carry out any import customs formalities.