Practice of International Trade – The Price of the Contract Commodity

Chapter 4-3

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The Price Terms

•Meaning of trade/price term• Trade terms show the trade conditions of a

certain transaction.• Price term show the composition of the

contract price – if the freight, insurance premium, import duty etc. is included in the price.

Sellers and Buyers should have to negotiate on all terms of transaction without trade/price terms.

• International practices concerning trade terms• Warsaw–Oxford Rules 1932• Revised American Foreign Trade Definition 1941

• Ex (Point of Origin)• FOB• FAS (Free Along Side)• C&F• CIF• Ex Dock

• Incoterms 2000 (International Commercial Terms, International rules for the interpretation of Trade Terms)

• Incoterms 2000• Group E

• EXW Ex Works (… named place) means that the Seller

delivers when he places the goods at the disposal of the Buyer at the Seller’s premises or another named place not cleared for export and not loaded on any collecting vehicle.

• Who is responsible for transport and insurance.• Who is responsible for export and import customs’

clearance.• The place where the goods is delivered.• The place where risks are transferred from Seller

to Buyer.

Attentions to EXW• The transfer of the risks• Packing of the goods• The application of EXW • Transportation modality

• Group F• FCA Free Carrier (… named place) means that

the Seller delivers the goods, cleared for export, to the carrier nominated by the Buyer at the named place.

• Who is responsible for transport and insurance.• Who is responsible for export and import

customs’ clearance.• The place where the goods is delivered.• The place where risks are transferred from Seller

to Buyer. Attentions to FCA

• Transportation modality• Place of delivery• The transfer of the risks • Contract of carriage

• FAS Free Alongside ship (… named port of

shipment) means that the Seller delivers when the goods are placed alongside the vessel at the named port of shipment.

The meaning of “alongside ship”• If the ship is berthed at dock, the Seller must

deliver the goods to the dock, at the place where can be reached by the tackle of the ship.

• If the ship cannot be berthed at dock, or has to drop anchor in the flow, the Seller must use lighters on his own expense, to send the goods to where can be reached by the tackle of the ship.

• Who is responsible for transport and insurance.• Who is responsible for export and import

customs’ clearance.• The place where the goods is delivered.• The place where risks are transferred from Seller

to Buyer. Attentions to FAS

• Transportation modality According to 《 Revised American Foreign Trade

Definition 1941 》 , FAS means “Free Along Side”. Only the FAS VESSEL is similar with the FAS in 《 Incoterms 2000 》

• FOB Free on Board (… named port of shipment)

means that the Seller delivers when the goods pass the ship’s rail at the named port of shipment.

• Who is responsible for transport and insurance.• Who is responsible for export and import

customs’ clearance.• The place where the goods is delivered.• The place where risks are transferred from Seller

to Buyer.

Attentions to FOB• The timing of the arrival of the carrying ship • The transferring of risks • The loading expense FOB Liner Terms FOB Under Tackle FOB Stowed FOB Trimmed FOB Stowed and Trimmed • The interpretations of FOB term in 《 Revised

American Foreign Trade Definition 1941 》

• The interpretations of FOB term in 《 Revised American Foreign Trade Definition 1941 》

• FOB (named inland carrier at named inland point of departure)

• FOB (named inland carrier at named inland point of departure) FREIGHT PREPAID TO (named point of exportation)

• FOB (named inland carrier at named inland point of departure) FREIGHT ALLOWED TO (named point of exportation)

• FOB (named inland carrier at named point of exportation)

• FOB VESSEL (named port of shipment) • FOB (named inland point in country of import)

• Under terms of Group F, the Buyer should contract for shipment at the expense of his own, and the Seller should deliver the contract goods to the carrier nominated by the Buyer. All the terms in group F are “Main Carriage Unpaid” terms.

• Group C• CIF Cost, Insurance and Freight (… named port of

destination) means that the Seller delivers when the goods pass the ship’s rail in the port of shipment. The Seller must pay the costs and freight necessary to bring the goods to the named port of destination BUT the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the Seller to the Buyer.

• Who is responsible for transport and insurance.• Who is responsible for export and import customs’

clearance.• The place where the goods is delivered.• The place where risks are transferred from Seller

to Buyer.• Attentions to CIF

• Contracting for shipment• Insurance cover• Freight

• The unloading expense CIF Liner Terms CIF Landed CIF ex Tackle CIF ex Ship’s Hold• The nature of CIF contract: emblematic delivery • The time when the risks and title are transferred

to the Buyer • It’s not “Arriving Price”

• CFR Cost and Freight (… named port of

destination) means that the Seller delivers when the goods pass the ship’s rail in the port of shipment.

The difference between CIF and CFR. Attentions to CFR

• Shipping advice• The reason of adopting CFR term • Same variants are adopted under CFR as they

are adopted under CIF

• CPT Carriage Paid To (… named place of

destination) means that the Seller delivers the goods to the carrier nominated by him but the Seller must in addition pay the cost of carriage necessary to bring the goods to the named destination.

• Who is responsible for transport and insurance.• Who is responsible for export and import customs’

clearance.• The place where the goods is delivered.• The place where risks are transferred from Seller

to Buyer.

• CIP Carriage and Insurance Paid To (… named

place of destination) means that the Seller delivers the goods to the carrier nominated by him but the Seller must in addition pay the cost of carriage and insurance necessary to bring the goods to the named destination.

• Who is responsible for transport and insurance.• Who is responsible for export and import customs’

clearance.• The place where the goods is delivered.• The place where risks are transferred from Seller

to Buyer.

• The terms in group C are called “Main Carriage Paid” terms, under which the Seller should contract for carriage, pay the freight, and deliver the goods on board the ship (CIF, CFR) or to the carrier (CPT, CIP) at the named place of departure. All the contracts using group C terms are “shipping contracts” in nature.

• Group D• DAF Delivered At Frontier (… named place)

means that the Seller delivers when the goods are placed at the disposal of the Buyer on the arriving means of transport not unloaded, cleared for export, but not cleared for import at the named point and place at the frontier, but before the customs border of the adjoining country.

• Who is responsible for transport and insurance.• Who is responsible for export and import

customs’ clearance.• The place where the goods is delivered.• The place where risks are transferred from Seller

to Buyer.• The responsibilities, risks and expenses

borne by the Seller and the Buyer are almost equal under the term DAF.

• The choice of the place of delivery is important.

• The mode of transport used.

• DES Delivered Ex Ship (… named port of

destination) means that the Seller delivers when the goods are placed at the disposal of the Buyer on board the ship not cleared for import at the named port of destination.

• Who is responsible for transport and insurance.• Who is responsible for export and import customs’

clearance.• The place where the goods is delivered.• The place where risks are transferred from Seller to

Buyer.

The comparison of DES and CIF—the emblematic delivery and actual delivery

• The place and manner of delivery• The time of the transfer of the risks and title of the

goods• The bearing of the additional expenses incurring in

the course of transport• The requirement on the documents that are

submitted by the Seller• The purpose of effecting insurance

• DEQ Delivered Ex Quay (… named port of

destination) means that the Seller delivers when the goods are placed at the disposal of the Buyer not cleared for import on the quay (wharf) at the named port of destination.

• The difference between DES and DEQ according to INCOTERMS 2000

• The difference between DEQ in INCOTERMS 2000 and that in INCOTERMS 1990

• The mode of transport used

• DDU Delivered Duty Unpaid (… named place of

destination) means that the Seller delivers the goods to the Buyer, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination.

• If the parties wish the Seller to carry out customs formalities and bear the costs and risks resulting there from as well as some of the costs payable upon import of the goods, this should be made clear by adding explicit wording to this effect in the contract of sale. E.g. “DDU VAT PAID (…named place of destination)” may appear in a contract.

• DDP Delivered Duty Paid (… named place of

destination) means that the Seller delivers the goods to the Buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination.

• This term should not be used if the Seller is unable to obtain the import licence directly or indirectly.

• Terms in Group D are “arriving terms”. The Seller has to bear all risks of loss of or damage to the goods, and pay all costs relating to the goods until they have been delivered to the named port or place of destination in accordance with the stipulations in the contract of sale. So the contracts using terms in group D are “arriving contracts” in nature.

•Incoterms 2010• Sea and Inland Waterway Transport

• FAS, FOB, CFR, CIF• Any Mode or Modes of Transport

• EXW, FCA, CPT, CIP, DAT, DAP, DDP

Price of Commodity

• Methods of Pricing• Fixed pricing

• Make careful analysis on the factors that influence the supply and demand of the contract goods

• Make careful investigation on the Buyer’s commercial standing and goodwill.

• Flexible pricing• Price to be specified• Provisional price• Partial fixed price and partial unfixed price

• Price adjustment clause• Floating pricing• Sliding pricing

• Choose currency used Hard currency for exports, soft currency for

import• Quoting a higher price• The Combination of Hard Currencies and Soft

Currencies • “Exchange Clause” in Sales Contract

• Use a soft currency in pricing, use the same soft currency in paying

• A hard currency• A money “basket”

• Use a soft currency in pricing, while use a hard currency in paying