1. Chapter3
Trade Terms

2. e.g. FOB London, CIF San Francisco
The Definition of Trade Terms:
The trade terms refer to using a brief English concept or abbreviation to indicate the formation of the unit price and determine the responsibilities, expenses and risks borne by two parties as well as the time of the passing of the property in the goods.
e.g. FOB London, CIF San Francisco
CFR Tokyo, EXW Nanjing
DDQ Hanburg

3. Incoterms≠ laws
It is nothing if not agreed to use by two parties in the contract.
In case of a dispute, courts or arbitrators will look at
Contract
Goods possession
What payment has been made

4. Three Main International Customary Practices:
1. International Convention of Trade Terms
Three Main International Customary Practices:
① Warsaw -- Oxford Rules 1932
② Revised American Foreign Trade Definitions
③ International Rules For the Interpretation of Trade Terms
Full name: International Commercial terms
6 editions: 1936, 1953,1967,1976, 1980, 1990, 2000

5. Incoterms 2000 Group E Departure EXW Ex Works (…named place) Group F
Main Carriage Unpaid
FCA
Free carrier (…named place)
FAS
Free Alongside Ship (…named port of shipment)
FOB
Free On Board (…named port of shipment)
Group C
Main Carriage paid
CFR
Cost and Freight (…named port of destination)
CIF
Cost, Insurance and Freight (…named port of destination)

6. Group C
Main Carriage paid
CPT
Carriage Paid To (…named place of destination)
CIP
Carriage and Insurance Paid To (…named place of destination)
Group D
Arrival
DAF
Delivered at Frontier ( a named place)
DES
Delivered Ex Ship (… named port of destination)
DEQ
Delivered Ex Quay (…named port of destination)
DDU
Delivered Duty Unpaid (…named place of destination)
DDP
Delivered Duty paid (…named place of destination)

7. Mode of Transport Consideration ( INCOTERNS 2000 )
All modes of transport
including multimodal transport
Sea and
inland waterway transport
EXW, FCA, CPT, CIP, DAF, DDU, DDP
FAS, FOB, CFR, CIF, DES, DEQ

8. 2. Trade Terms frequently used
FOB (Free on Board,…named port of shipment)
CFR (Cost and Freight,…named port of destination)
CIF (Cost, Insurance and Freight，…named port of destination)

9. FCA : Free Carrier (…named place)
CPT : Carriage Paid To (…named place of destination)
CIP : Carriage, Insurance Paid to (…named place of destination)

10. We will explain them from the
Definitions & Examples
Mode of transportation
The formation of the unit price
The place of delivery/risk transfer
Responsibilities, expenses and risks borne by each parties

11. 1)FOB
Definition
FOB: Free On Board (…Named port of Shipment)
It means that the seller fulfills his obligation to deliver the goods when they have passed over the ship’s rail at the named port of shipment. This means that the buyer has to bear all expenses and risks of loss of or damage to the goods from that point.

12. Examples The mode of transportation “FOB Vessel ABC
Buenos Aires Argentina”
“Free On Board Gdansk Poland”
The mode of transportation
Suitable for sea or inland waterway transport

13. Only: COST The formation of the unit price:
The place of delivery /risk transfer:
“On the ship’s rail at the named
port of shipment !”

14. The expenses and responsibilities borne by two parties The seller The buyer
Contract for the carriage of the goods
Deliver the goods on board the vessel
Obtain import license
Obtain export license
Cover cargo insurance
Provide documents for the buyer and ask for payment
Pay the price and take delivery of the goods

15. Variants of trade terms: FOB liner terms FOB under tackle
Buyer bears the charge of shipment
FOB under tackle
Buyer takes the charge from tackling
FOBS, FOB stowed
Seller not only puts the cargo into the
cabin but also takes the charge of stowing
FOBT, FOB trimmed
cabin but also takes the charge of trimming

16. ATTENTION: FOB in Revised American Foreign Trade Definitions 1941
FOB Vessel term:
Seller has no responsibility to get the exporting license and bear any exporting charges,
unless buyer has promised to pay for the charges and asked seller do so.
So, Vessel should be attached after FOB and stated clear seller should get the exporting license and pay for the relevant charges when you import from USA or other American countries.

17. You should add the following statement in the contract if your client is an American:
“Seller should be responsible for export license and all the payments including the duty and the relative charges should be born by seller. ”

18. CIF : Cost, Insurance and Freight (named port of destination)
Definition
CIF : Cost, Insurance and Freight (named port of destination)
Seller undertakes the cost and freight necessary to carry the goods to the named port of destination and has the obligation to procure marine insurance against the risks of, losses of, or damage to the goods during the carriage. But the risks keep unchanged the same as CFR.

19. Examples
“CIF Hong Kong”
“Cost, Insurance and Freight Port of New York”
The mode of transportation
Suitable for sea or
inland waterway transport

20. COST + Insurance + Freight The formation of the unit price
The place of delivery /risk transfer:
“On the ship’s rail at the named port of shipment!”

21. The expenses and responsibilities borne by two parties The seller the buyer
Contract for the carriage of the goods at seller’s own expenses
Cover cargo insurance on behalf of the buyer
On usual term
By the usual route
In the proper vessel
CIF
Pay additional insurance premium
Additional
Freight
Minimum insurance (F.P.A) Usual freight

22. Variants of trade terms: CIF liner terms
Seller bears the charges of loading & unloading
CIF ex ship’s hold
Buyer bears the unloading from bottom of ship
CIF ex tackle
Seller bear the unloading of tackling
CIF landed
Seller bear the unloading to the quay including lighterage and wharfage charge.

23. CFR : Cost and Freight (named port of destination)
Definition
CFR : Cost and Freight (named port of destination)
Seller undertakes the cost and freight necessary to carry the goods to the named port of destination, but the risks of, losses of, or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board, are transferred from the seller to the buyer when the goods pass the ship’s rail at the port of shipment．

24. Examples
“CFR Hamburg”
“Cost and Freight Port of NY”
The mode of transportation
Suitable for sea or
inland waterway transport

25. COST+ Freight The formation of the unit price
The place of delivery / risk transfer:
“On the ship’s rail at the named port of shipment !”

26. The expenses and responsibilities borne by two parties The seller the buyer
Contract for the carriage of the goods at his own expenses
Cover insurance when get seller’s notice
CFR
On usual term
By the usual route
In the proper vessel
Additional
Freight
Usual freight

27. Variants of trade terms: CFR liner terms
Seller bears the charges of loading & unloading
CFR ex ship’s hold
Buyer bears the unloading from bottom of ship
CFR ex tackle
Seller bear the unloading of tackling
CFR landed
Seller bear the unloading to the quay including lighterage and wharfage charge.

28. Summary: FOB, CFR, CIF
All contracts with FOB, CFR, CIF term are belong to shipment contracts
Group C & Group F: points of delivery and risk transfer keep same. Seller fulfills delivery at port of shipment.
2. FOB, CFR, CIF terms are document
transaction (Symbolic delivery):
The buyer should pay the price against the documents
The seller fulfills his duty of delivering goods against the documents

29. Case: CFR
A French company imported a batch of wheat on CFR basis. The contract provided that the landing quality of the goods should be taken as final. However, when the goods arrived at the destination, the import quarantine bureau detained the goods as they found that the goods contained a great deal of bacteria forbidden to enter the country. Unfortunately, the goods were consumed by a fire while detainment. A dispute broke out between the buyer and the seller.

30. Case CIF
In 2002, a Chinese exporter exported 500M/T walnut to a Canadian importer on the basis of US$4,800 per M/T CIF Quebec. As it was a seasonal commodity, the importer required and both parties agreed to stipulate the following in the contract:
L/C Issuing date: to be issued by the end of September
Shipment: Not later than Oct.31, partial shipment and transshipment prohibited.
Arrived Date: Not later than Nov. 30. Otherwise, the buyer is entitled to refuse the goods.

31. Terms of Payment: Draft at 90T/D under L/C.
Due to the weather, the liner arrived at Quebec on Dec.5. Consequently, the importer refused to take the delivery of the cargo unless 20% discount of the total value of the goods was made for the loss incurred to the importer. After painful negotiations, the transaction came to an end with the exporter’s loss of US$360,000 by the discount of 15% of the total value of goods.
Then, what is the crux of this case?

32. 4) FCA
Definition
FCA: Free Carrier (…Named place)
The seller fulfills his obligation to deliver the export duty cleared goods to the named place.
Seller may load the goods if at home but be unnecessary to unload the goods if to deliver the goods in other places.
Carrier can be any actual carrier, contracting carrier such as freight forwarder.

33. Examples The mode of transportation “ FCA Beijing China ”
“ Free Carrier Berne Switzerland”
“ FCA Ankala Turkey ”
The mode of transportation
Suitable for All modes of transport
including container transport and multi-modal transport

34. Only: COST like FOB The formation of the unit price:
The place of delivery /risk transfer:
depend on different ways and places at the named place.
e.g. on truck at seller’s works, at airport, at CY, at terminal controlled by carrier.

35. The expenses and responsibilities borne by two parties The seller The buyer
Deliver the cleared goods on buyer’s truck or to the place named by buyer unloaded
Contract for the carriage of the goods
Obtain import license
Charge the cargo unitization (e.g. into container or on pallets)
Cover cargo insurance
Provide documents for the buyer and ask for payment
Pay the price and take delivery of the goods

36. 5) CPT Definition CPT: Carriage Paid to (…Named place of destination)
The seller fulfills his obligation to deliver the export duty cleared goods to the carrier.
Seller should pay for transport to the named destination.
Carrier can be any actual carrier, contracting carrier such as freight forwarder.

37. Examples The mode of transportation “ CPT Dublin Ireland ”
“ Carriage Paid To Tirana Albania”
“ CPT Kabul Afghanistan ”
The mode of transportation
Suitable for All modes of transport
including container transport and multi-modal transport

38. COST & CARRIAGE like CFR
The formation of the unit price:
COST & CARRIAGE like CFR
The place of delivery / risk transfer:
where deliver the goods to the carrier on truck.
e.g. on truck at seller’s works, airport, CY, terminal
and make the cargo controlled by the carrier.

39. Deliver the goods to the carrier Obtain import license
The expenses and responsibilities borne by two parties The seller The buyer
Deliver the goods to the carrier
Obtain import license
Cover cargo insurance
Obtain export license
Pay the price and take delivery of the goods
Set a contract with carrier and pay for the transport to destination
Provide documents for the buyer and ask for payment

40. 6) CIP
Definition
CIP: Carriage & Insurance Paid to (Named place of destination)
The seller fulfills his obligation to deliver the export duty cleared goods to the first carrier.
Seller should pay for transport and insurance to the named destination.
Carrier can be any actual carrier, contracting carrier such as freight forwarder.

41. Examples The mode of transportation “ CIP Cairo ”
“ Carriage And Insurance Paid To Rome”
“ CIP Addis Ababa Ethiopia ”
The mode of transportation
Suitable for All modes of transport
including container transport and multi-modal transport

42. COST, INSURANCE & CARRIAGE like CIF
The formation of the unit price:
COST, INSURANCE & CARRIAGE like CIF
The place of delivery / risk transfer:
where deliver the goods to the first carrier on truck or at CY.
e.g. on truck at seller’s works, or to the place as airport, CY, terminal to make the goods controlled by carrier.

43. Deliver the goods to the carrier Obtain import license
The expenses and responsibilities borne by two parties The seller The buyer
Deliver the goods to the carrier
Obtain import license
Obtain export license
Pay the price and take delivery of the goods
Cover cargo insurance
Set a contract with carrier and pay for the transport to destination
Provide documents for the buyer and ask for payment

44. Summary: FCA, CPT, CIP
Ways of transport: FOB, CFR, CIF are used only for transport in the sea or in inland water way, but FCA, CPT, CIP may used for all kinds of transport;
risk transfer: FOB,CFR,CIF are on the ship’s rail, but FCA, CPT,CIP are depend on places;
3. Different documents: FOB, CFR, CIF ask seller to offer cleaned B/L, but FCA, CPT, CIP need different bill of shipment;
4. Different charges: FOB,CFR,CIF ask seller to take the charge until goods over the rail, for FCA,CPT,CIP carriage includes load charge(FCA),or unload charge(CPT,CIP).

45. Rest of 7 other incoterms
EXW
EX Works (…named place)
Seller fulfills his delivery only by taking the goods to the place where buyer could control (no loading);
Seller is not responsible for export duty clearance;
Buyer obligates export & import duty clearance.
It is minimum obligation term for seller.

46. FAS Free Along Ship (…named port of shipment)
Seller fulfills his delivery only by taking the goods at the quay along ship;
Seller is responsible for export duty clearance;
Buyer obligates import duty clearance;
Buyer takes the charge of transport and insurance.
It is a term for sea and inland water transport.

47. DAS Delivered AT Frontier (…named place)
Seller fulfills his delivery by taking the cleared goods under controlled by the buyer at any side of frontier;
Seller is responsible for the charge of transport and insurance;
Buyer obligates import duty clearance;
Mainly used in railway transport and highway transport. Seller may get full bill and arrange insurance if it is railway transport. Charge of insurance depends.

48. DES Delivered Ex Ship (…named port of destination)
Seller fulfills his delivery by taking the uncleared goods at the port of destination;
Seller is responsible for the charge of transport and insurance;
Buyer obligates import duty clearance;
It is a term for sea and inland water transport.

49. DEQ Delivered Ex Quay (…named port of destination)
Seller fulfills his delivery by taking the uncleared goods at the quay in port of destination;
Seller is responsible for the charge of transport and insurance;
Buyer obligates import duty clearance;
It is a term for sea and inland water transport.

50. DDU Delivered Duty Unpaid (named place of destination)
Seller fulfills his delivery by taking the uncleared goods at the named place of destination;
Seller is responsible for the charge of transport and insurance as far as destination;
Buyer obligates import duty clearance;
It is a term usually used for the trade in EU.

51. DDP Delivered Duty Paid (…named place of destination)
Seller fulfills his delivery by taking all the duties cleared goods at the named place of destination;
Seller is responsible for the charge of transport, insurance, and other fees as far as destination;
Seller obligates import duty clearance;
It is the minimum obligation term for buyer.

52. summary Three terms of delivering goods to carrier:
1、FCA (Free Carrier,…named place)
2、 CPT (Carriage Paid To，…named place of destination)
3、 CIP (Carriage insurance Paid to，…named place of destination)

53. Five terms of delivery at destination
1、DAF (Delivered at Frontier．…named place)
2、DES (Delivered Ex Ship．…named port of destination）
3、DEQ (Delivered Ex Quay，…named Port Of destination)
4、DDU (Delivered Duty Unpaid，…named place of destination)
5、DDP (Delivered Duty Paid,…named place of destination)

54. 13 trade terms of INCOTERMS 2000
Place of delivery / risk transfer
FCA CPT CIP
FOB CFR CIF
DDU DDP
EXW
DES
DEQ
FAS
Seller
Buyer
warehouse
火车站 汽车站 机场
CY CFS
warehouse 码头 码头
Seller
Buyer
DAF 关境 边境 关境

55. 贸易 术语 交货 地点 风险转移界限 EXW 买方 FCA 卖方 FAS 装运港船边 FOB 装运港船上 CFR CIF CPT CIP
13种贸易术语总结 贸易 术语 交货 地点
风险转移界限
出口报关责任费用由谁负担
进口报关责任费用由谁负担
适用的运输方式
EXW
商品产地、所在地
货交买方处置时起 买方
任何方式
FCA
出口国内地、港口
货交承运人处置时起 卖方
FAS
装运港船边
货交船边后
水上运输
FOB
装运港船上
货物越过装运港船舷
CFR
CIF
CPT
CIP
DAF
边境指定地点
DES
目的港船上
目的港船上货交买方处置起
DEQ
目的港码头
目的港码头货交买方处置起
DDU
进口国指定地点
指定目的地货交买方处置起
DDP

56. Pricing and quotation of exports
FOB: without freight and insurance
CFR: freight
CIF: freight + insurance
1)on the basis of FOB
CFR=FOB+F;CFRC=(FOB+F)/(1-rate of commission);
CIF=(FOB+F)/(1-Premium rate*insurance markup);
CIFC=(FOB+F)/(1-Premium rate*insurance markup-rate of commission)

57. 2) on the basis of CFR
FOB=CFR-R; CFRC=CFR/(1-rate of commission); CIF=CFR/(1-Premium rate*insurance markup);
CIFC=CFR/(1-Premium rate*insurance markup-rate of commission)
3) on the basis of CFRC
FOB=CFRC*(1-rate of commission)-F;
CFR=CFRC *(1-rate of commission);
CIF=CFRC *(1-rate of commission)/(1-Premium rate*insurance markup);
CIFC=CFRC *(1-rate of commission)/(1-Premium rate*insurance markup-rate of commission);

58. Cost of exports in terms of foreign exchange
C=total export cost (RMB)/FOB net receipt of foreign exchange (USD)
P&L on exporting
P&L on exporting=(FOB foreign exchange net income*bank buying rate)-total export cost (after export rebates)
Rate of P&L on exporting=amount of P&L/total export cost *100%

59. Calculation of commission and discount
commission 3%-5% (CIFC)
Net price=price including c *(1-rate of commission) or =price including c-amount of commission per unit
Discount: quantity discount; special discount; turnover bonus
(CIFD or CIFR)
Net price=original price-amount of discount
Amount discount=original price*rate of discount

60. Certain goods, 1000 pieces, CIF US$15 per unit, freight: US$2010, premium: US$102, purchasing price: RMB 85 per unit; standard rate: 10%, buying rate: USD1=RMB8.05
1) P&L on exporting? Rate of P&L?
2) cost of exports in terms of foreign exchanges?

61. 9 Trade Process
Trade terms: price terms, delivery terms,quotation terms
Critical point: critical point for delivery or risk; critical point for cost