FAS, FOB, CFR, CIF - INCOTERMS

 

Introduction 

                   INCOTERMS rules have provided guidance to importers, exporters, lawyers, transporters, insures and others involved in international trade.  They are published by the ICC (International Chamber Of Commerce). 

The Core functions of  INCOTERMS used in international trade :- 

(a) Outline the obligations of the buyer and the seller in a trade transaction.

(b) Clarify when risk passes from seller to buyer under each of these rules. 

( Outline how costs are allocated between the buyer and the seller. 

INCOTERMS rules are divided into two classes. They are given below:-

(1) Rules for any mode of transport :-

(a) EXW (Ex Works)

(b) FCA (Free Carrier)

(c) CPT (Carriage Paid To)

(d) CIP (Carriage And Insurance Paid To) 

(e) DAT (Delivered At Terminal) or DPU (Delivered At Place                         Unloaded)  

(f) DAP (Delivered At Place) 

(g) DDP (Delivered Duty Paid)

(2) Rules for Sea and Inland waterway transport :- 

(a) FAS (Free Alongside Ship)

(b) FOB (Free On Board)

(c) CFR (Cost And Freight) 

(d) CIF (Cost Insurance Freight)   

Rules for sea and inland waterway transport : - 

(A) FAS (Free Alongside Ship) 

                                       Free alongside ship means that seller delivers when the goods are placed alongside the used (eg. on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss or damage to the goods passes when the goods are alongside ship the ship, and the buyer bears all costs from that moment onwards.  this rule is to be used only for sea or inland waterway transport. Under FAS terms, the seller is required to handle all activities till the cargo is delivered alongside the ship. This indicates that the FAS term is more suitable for containerized cargo because, in a containerized shipment, the containers can not be delivered alongside the ship but rather at a container terminal. 

           In a FAS term shipment, the shipper should:- (1) Handle the export clearance formalities for shipment. (2) Pay for the transportation from his door to the agreed port, terminal, quay or ship. (3) Enter into relevant contracts of carriage with the various carriers including any pre-carriages applicable up to the agreed port, terminal, quay or ship. (4) Take care of any and all export permits, quotas, special documentation, etc. relating to the cargo.

                      In a FAS transaction, the buyer needs to take over all obligations from that point of delivery including :- (1) Organize suitable contract of carriage with the most suitable carrier. (2) The loading of the goods on the ship. (3) All cargo handling charges at origin. (4) Arranging agents at origin where it is required to handle loading requirements. 

(B) 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 or procures the goods already so delivered. The risk of loss of or damages to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards. This rule is to be used only for sea or inland waterway transport. 

             In a FOB term shipment, the seller should:- (1) Handle the export clearance formalities for shipment. (2) Pay for the transportation from his door till the goods are loaded on board a ship. (3) Enter into relevant contracts of carriage with the various carriers including any pre-carriages applicable up to the agreed point.

(C) CFR (Cost And Freight)

                           Cost and freight is a legal term used in foreign trade contracts. In a contract specifying that a sale is cost and freight, the seller is required to arrange for the carriage of goods by sea to a port of destination and provide the buyer with the documents necessary to obtain them from the carrier. Under CFR term, the seller is required to clear the goods for export, deliver them on board the ship at the port of departure, and pay for transport of the goods to the named port of destination. The risk passes from seller to buyer when the seller delivers the goods on board the ship. The buyer responsible for paying all additional transport costs from the port of destination, including import clearance and duties. 

           The seller's obligations are : - (1) Goods, commercial invoice and documentations. (2) Export packaging and marking. (3) Export licenses and formalities. (4) Pre-carriage and delivery. (5) Loading charges. (6) Delivery at named port of destination. (7) Proof of delivery. (8) Cost of Pre-shipment inspection. 

     The buyer's obligations : - (1) Payment for goods as specified in sales contract. (2) Risk starting with onboard delivery. (3) Discharge and onward carriage. (4) Import formalities and duties. (5) Cost of pre shipment inspection for import clearance.          

   

(D) CIF (Cost Insurance Freight)

                                          Under CIF, the seller delivers the goods, cleared for export, on board the vessel at the port of shipment, pays for the transport of the goods to the port of destination, and also obtains and pays for minimum insurance coverage on the goods through their journey to the named port of destination. The buyer assumes all risk once the goods are on board the vessel for the main carriage, however they don't take on any costs until the freight arrives at the named port of destination. CIF applies to ocean and inland waterway transport only. It is commonly used to bulk cargo, oversize or over weight shipments. 

                 The seller's obligations : - (1) Purchasing export licenses for the product. (2) Providing inspection of products. (3) Any charges for shipping and loading the goods to the seller's port. (4) Packaging costs for exporting the goods. (5) Fees for customs clearance, duty and taxes for exporting. (6) Cost of shipping the freight via sea or waterway from the seller's port to the buyer's port of destination. (7) Cost of insuring the shipment up until the buyer's port of destination. (8) Covering the cost of any damage or destruction to the goods. (9) The seller must deliver the goods to the ship within the agreed upon timeframe and provide proof of delivery and loading. 

                 The Buyer's obligations : -(1) Unloading the product at the port terminal. (2) Transferring the product within the terminal and to the delivery site. (3) Custom duty charges and associated with importing the goods. (4) Charges for transporting, unloading, and delivering the goods to the final destination. (5) The buyer takes ownership of the goods once on the ship, and if the cargo is damaged during transit, the the buyer must file a claim with the seller's insurance company.    

Conclusion

                The INCOTERMS are a set of commercial / trade rules established by the international chamber of commerce (ICC) that are used in international trade. From the above points, we describe that rules which which are used for sea or inland waterway transport. And responsibilities of seller and buyer's end.