Topic 2: Terms of delivery (Incoterms)

Vocabulary:

Passing risk – переход риска

To send the goods – отправлять груз

To bear the costs – нести расходы

To avoid disagreements – избегать разногласий

Obligation - обязательство

To cover all costs– покрыть все расходы

Title – право собственности

FAS– франко вдоль борта

FOB– франко борт

CFR– стоимость и фрахт

CIF– стоимость, страховка и фрахт

When the goods are sent from a Seller to a Buyer each party has to know exactly which of the costs and risks of transportation he has to bear. In order to avoid disagreements, the Sales Contract usually stipulates one of the thirteen terms of delivery drawn up by the Chamber of Commerce. These are known as Incoterms (International Commercial Terms). They determine which party is to bear the various costs involved in transportation and the point at which the risks are to pass from the Seller to the Buyer. It is known as the passing risk.

So, Incoterms are used to divide transaction costs and responsibilities between buyer and seller.

Under Incoterms 2010 FAS, FOB, CFR, CIF are used for sea and inland waterways.

• FAS Free Alongside Ship

“Free Alongside Ship” means that the seller is relieved from responsibility for the goods when they 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.

• FOB Free On Board

“Free On Board” means that the seller delivers the goods on board the vessel 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 on board the vessel, and the buyer bears all costs from that moment onwards.

• CFR Cost and Freight

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

• CIF Cost, Insurance and Freight

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

The seller also pays 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.

Remark: In 2010 Incoterms were amended. There are 2 changes for the FOB incoterm: the seller’s responsibility extends until the goods are “on board the vessel” rather than “past the ship rail” and the seller must arrange for packing the goods rather than provide the packing.

Match the words and phrases:

отправлять груз передача риска понести все расходы и риски избегать разногласий для того чтобы обязательство плата за перевозку груза страховка порт отправки перейти через леер делить расходы франко вдоль борта доставка на борт судна доставка к причалу стоимость, страхование и фрахт франко борт порт назначения склад покупателя условия доставки франко завод интересоваться чем-либо назначать цену самая низкая цена самые выгодные условия закупка связаться с кем-либо поставлять оборудование конкурентноспособный подсчитать расходы партия груза

Buyer’swarehouse to be interested in…. the most favourable terms to pass ship’s rails purchase to ship goods delivery terms passing risk free on board to supply equipment consignment insurance obligation competitive to bear all costs and risks to quote price in order to the lowest price charge for carrying goods Ex works to calculate costs free alongside the ship cost, insurance and freight port of shipment to get in touch with smb. to avoid disagreements port of destination to share costs delivered ex ship delivered ex quay

Comprehention test

1. In order to avoid disagreements, the Sales Contract usually …

a) stipulates one of the 11 Incoterms; b) changes terms of payment; c) cancels all formalities.

2. The point at which the costs and risks are to pass from the Seller to the Buyer is known as …

a) passing costs; b) passing risks; c) delivering risks.

3. Ex works represents maximum obligation for the …

a) Buyer; b) Seller; c) Carrier

4. The Seller pays for transportation of the goods on the quay at the port of shipment under ….

a) FOB; b) CIF; c) FAS

4. The Buyer pays for insurance, unloading, and for transportation of the goods from the port of …. to his warehouse under CFR.

a) shipment; b)destination; c)call

4. The Buyer only has to pay for transportation of the goods from the port of destination to his warehouse under ….

a) DAT; b) FAS; c) CIF

4. The passing risk is the same under FOB, CFR and….

a) FAS; b) DES; c) CIF

4. The passing risk occurs when the goods have been loaded on board at the port of shipment under….

1. EXW; b) FOB; c) FAS

4. Incoterms are terms of….

1. payment; b) transportation; c) delivery

4. … can be used for all forms of transport.

1. EXW; b)FAS; c)FOB

4. Goods are sent from the…..

1. port of shipment; b) port of destination; c) port of call

4. The idea of insurance is to obtain … in case of damage or loss.

1. information; b) official document; c) indemnity

4. Goods are delivered to the….

1. port of shipment; b) port of destination; c) port of call

4. The charge made for carrying the goods on the ship is ….

1. transportation costs; b) freight costs; c) carrying costs.

4. Incoterms are adopted by the….

1. Maritime Arbitration; b) IMO; c) Chamber of Commerce