Chapter 4 International Trade

Targets: 1. Trade Terms 2. Contract of International Trade 3. Implementation of International Trade In this chapter, you are expected to fully understand the relationship between international trade and international logistics.

1. Trade Terms 1.1 Definition Trade terms, also known as price terms, are the short terms or abbreviations or brief English concept to indicate/explain the composition or formation of the unit price and determine the obligations, expenses and risks borne by two parties as well as the time of the passing of the property in the goods.

Brief Introduction of convention of international trade Name Issued by time trade terms （Warsaw-Oxford Rules 1932） International Law Institute In 1928 CIF (Revised American Foreign Trade Definitions 1990) American Business Association 1919 EXW (named place), FOB(6 variations), FAS (Free Along Side), CFR (named point of destination), CIF (named point of destination), DEQ (Delivered Ex Quay) (International Rules for the Interpretation of Trade Terms, 2010) International Chamber of Commerce from 1936 11 terms in 2 groups

1.2 Terms in INCOTERMS 2010 Group 1. terms for any mode or multimodal transport EXW（ex works）                     FCA（free carrier）                CPT（carriage paid to）           CIP（carriage and insurance paid to DAT（delivered at terminal）              DAP（delivered at place）        DDP（delivered duty paid）        Group 2. terms for waterway transport FAS（free alongside ship）        FOB（free on board）               CFR（cost and freight）              CIF（cost，insurance and freight） 

1. EXW EXW: Ex Works(…named place) Definition: EXW means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place(i.e., works, factory, warehouse, etc.).

EXW Transfer of risks The buyer bears all risks of loss of or damage to the goods from the time they have been delivered.

Attention EXW is used irrespective the mode of transport selected and may also be used where more than one mode of transport is employed.

2. FCA FCA: Free Carrier（… named place of delivery） Definition: FCA means the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place.

Notices to the buyer The seller must, at the buyer’s risk and expense, give the buyer sufficient notice either that the goods have been delivered or that the carrier or another person nominated by the buyer has failed to take the goods within the time agreed.

Risk Transfer The seller bears all risks of loss of or damage to the goods until they have been delivered.

3.CPT CPT: Carriage Paid To (…named place of destination) Definition: “CPT” means the the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

Transfer of risks The seller bears all risks of loss of or damage to the goods until they have been delivered.

4.CIP CIP: Carriage and Insurance Paid to (……named place of destination) Definition: “CIP” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the parties), and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.

Attention Duty of insurance The buyer should note that under CIP 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 arrangement

Duty of insurance The insurance shall cover, at a minimum, the price provided in the contract plus 10%(i.e., 110%) and shall be in the currency of the contract.

Delivery When CIP is used，the seller fulfills its obligation to deliver when it hands the goods over to the carrier and not when the goods reach the place of destination.

5.DAT DAT: Delivered At Terminal (……named terminal at port or place of destination) Definition: “DAT” means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination.

Delivery The seller must unload the goods from the arriving means of transport and must then deliver them by placing them at the disposal of the buyer at the named terminal at the port or place of destination on the agreed date or within the agreed period.

Transfer of risks The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

6. DAP DAP: Delivered At Place (……named place of destination) Definition: “DAP” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

Delivery The seller must deliver the goods by placing them at the disposal of the buyer on the arriving means of transport ready for unloading at the agreed point, if any, at the named place of destination on the agreed date or within the agreed period.

Transfer of risks The seller bears all risks involved in bringing the goods to the named place.

7. DDP DDP: Delivered Duty Paid(…named place of destination) Definition: “DDP” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination.

1.DDP represents the maximum obligation for the seller. Attention 1.DDP represents the maximum obligation for the seller. 2.The parties are well advised not to use DDP if the seller is unable directly or indirectly to obtain import clearance.

Attention 3. Any VAT or other taxes payable upon import are for the seller’s account unless expressly agreed otherwise in the sale contract.

FAS: Free Alongside Ship(…named port of shipment) Definition: This term means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment.

Delivery The seller must deliver the goods either by placing them alongside the ship nominated by the buyer at the loading point, if any, indicated by the buyer at the named port of shipment or by procuring the goods so delivered. In either case, the seller must deliver the goods on the agreed date or within the agreed period and in the manner customary at the port.

Arrange transport If required by the buyer or if it is commercial practice and the buyer does not give an instruction to the contrary in due time, the seller may contract for carriage on usual terms at the buyer’s risk and expense. In either case, the seller may decline to make the contract of carriage and, if it does, shall promptly notify the buyer.

Notices to the seller The buyer must give the seller sufficient notice of the vessel name, loading point and, where necessary, the selected delivery time within the agreed period.

Notices to the buyer The seller must, at the buyer’s risk and expense, give the buyer sufficient notice either that the goods have been delivered or that the vessel has failed to take the goods within the time agreed.

9.FOB FOB: free on board( …named port of shipment) Definition: “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. FOB is to be used only for sea or inland waterway transport.

Delivery The seller must deliver the goods either by placing them on board the vessel nominated by the buyer at the loading point, if any, indicated by the buyer at the named port of shipment or by procuring the goods so delivered. In either case, the seller must deliver the goods on the agreed date or within the agreed period and in the manner customary at the port.

Attention 1.transfer of risk 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 onward.

Attention 2. Link-up of vessel and goods The buyers should charter the liner in time , and they should tell the details about the ship, for example date and port of shipment. If buyers can’t do well, the buyer should take responsible for the damage and cost of delay.

Attention FOB San Francisco can be learn 3. different explanation about FOB *the place of delivery: FOB term in USA has different types, FOB is not only used in sea transport, sometimes it can be understood to delivery the goods on the vehicle of inland or someplace inland. So you should confirm the definite place of unloading when you do business with American. FOB San Francisco can be learn ※ to deliver on the port of San Francisco ※ to deliver on the vehicle of inland in San Francisco

10. CFR CFR: Cost and Freight(…named port of destination) Definition: CFR means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

Delivery The seller must deliver the goods either by placing them on board the vessel or by procuring the goods so delivered. In either case, the seller must deliver the goods on the agreed date or within the agreed period and in the manner customary at the port.

Attention 1. transfer of risk The risk of loss of or damage to the goods passes when the goods are on board the vessel.

Attention The buyer must pay unloading costs including lighterage and wharfage charges, unless such costs and charges were for the seller’s account under the contract of carriage.

11.CIF CIF: Cost, Insurance and Freight (…named port of destination) Definition: CIF means that the seller delivers the goods on board the vessel or procures the goods the goods already so delivered.

Attention 1. Division of the costs and risks The seller pay for the expenses of insurance, but the risk is shifted from the seller to the buyer when the goods are board the vessel.

Symbolic delivery Document transaction under CIF term is that the seller fulfills his duty of delivery of the goods against documents, and the buyer pays against documents as well. As long as the seller presents a full set of documents (B/L, insurance policy, commercial invoice, etc) in conformity with the contract, the buyer shall fulfill the duty of payment. Even if the goods are lost or damaged, the buyer is not entitled to reject payment.

Attention The buyer must pay unloading costs including lighterage and wharfage charges, unless such costs and charges were for the seller’s account under the contract of carriage.

Discussion What is the relationship between the international trade and international logistics? International trade and international logistics is complementary. 1）The origin and the development of international logistics derive from international trade.

2） The efficient function of the international logistics is a prerequisite and support for the development of international trade. Freight or Carriage in each term

2.Contract in International Trade 2.1 Definition of international trade contract Trade contract is a legally binding agreement that the import and export parties through consultation on their trade of the rights and obligation in accordance with the law. The essence of a contract is that it is a legally enforceable promise or set of promises.

Logistics Import Consignee Export shipper

2.2 The functions of contracts 1) To give us the ability to enter into agreements with others with confidence that we may call on the law – not merely the good faith of the other party to make sure that those agreements will be honored. 2) Contracting lets us create a type of private law – the terms of the agreements we make that governs our relations with others 3) To facilitate the planning that is necessary in a modern society.

2.3 Main Contents in the Contract 1. Parties to the contract 2. Description of Goods 3. Quantity 4. Specification 5. Price 6. Gross Weight, Measurement

7. Marks and Nos. ,Packing 8. Shipment and insurance 9. Payment Terms 10. Inspection 11. Dispute Settlement, Claim 12. Force Majure 13. Arbitration 14. Governing Law

Discussion 1. Which terms in the contract of international trade does related closely with the operation of international logistics? 2. How does the part being shown in trade terms?

3. Implementation of International Trade Definition it is the process of carrying out the contract concluded. Discussion: Which process does make the actual delivery of goods from the seller to the buyer?

Summary: 1. Trade Terms 2. Contract of International Trade 3. Implementation of International Trade After this chapter, have you fully understood the relationship between international trade and international logistics?

Next Chapter We will discuss the actual delivery of goods from the mode of transport for the realization of international trade. Chapter 5 International Maritime Transportation

Thank you