Documentary Credits and
INCOTERMS - International Commercial Terms
Here is an in depth overview of the 13 Incoterms:
1. Incoterms are part of international sales contracts. They regulate:
(A) Carriage of goods from seller to buyer
(B) Export and import clearances
(C) Division of costs and risks between the parties
2. Important acronyms: Electronic Data Interchange (EDI), Electronic Data
Interchange for Administration Commerce and Transport (EDIFACT) and Uniform
Rules of Conduct for Interchange of Trade Data by Teletransmission (UNCID).
Internet: GE - TPN
3. Electronic Bills of Lading – use the CMI Uniform Rules.
4. As a result of the container revolution and cargo unitization, the incoterms
FCA, CIP and CPT were developed. Emphasis shifted from means of conveyance to
the place of carriage. FOR / FOT / FOBA were omitted.
5. Case Study: warehouse to warehouse insurance and the FOB point - where is
delivery effected?.
CIF - seller exposed to claims for failing to reach the ships rail on time.
6. The mirror method - the 10 headings – see Appendix of Incoterms.
7. INCOTERMS - part of larger picture (deal with delivery and with nothing after
delivery - not with quantity, costs of loading / discharging, clearance,
transport, risks of loss / damage and insurance against them, title, quality
breach of contract or price). There are: Contract of sale, applicable law,
custom of trade.
Example: an FOB Buyer would insure the goods despite the fact that Incoterms do
not oblige him to do so - difference between obligation and commonsense.
8. Specific reference required. Example: trading with a US firm (UCC - AFDT).
9. CISG - Contracts for the International Sale of Goods: POD where breach is
determined in conjunction with Incoterms (concerning delivery).
10. D-terms: seller's delivery obligation is extended to the country of
destination (arrival contract)
E-terms, F-terms, C-terms: seller fulfils delivery obligation in his country
(shipment contract)
11. The common error: there is no connection between risks, costs and delivery.
12. F-terms: Free of risks
C-terms: Costs borne after critical risk point reached
D-terms: Destination
C-TERMS: 2 points of interest: delivery and risk / costs
13. FCA buyer to instruct seller how to hand over goods – and where
FCL Full loads (railway wagon / container) vs. LCL break bulk
14. FOB additional service
Seller contracts for carriage - though he has no obligation to do so
15. FOB The port decides how to distribute loading
16. FAS Seller does not have the obligation to clear goods for exports (unlike
FOB!)
17. C-terms Do not stipulate arrival date! seller obliged to ship good so that
they COULD ARRIVE !
18. CFR, CIF Only by sea! A8 demands bill of lading / sea waybill
If Buyer wants to sell in transit - he will be unable because of lack of the
right document Ţ breach of seller
19. CIF, CIP Minimum Cover vs. all risk and political
