Knowledge and Tips

About B2B INCOTERMS

Nowadays, trade goods exported from China are often on FOB terms.

INCOTERMS, What is FOB:

FOB: FOB – Free on Board (Cost)

Also known as the Free on Board (named port of shipment) clause. This means that the seller completes his delivery obligation when the goods cross the ship’s rail at the named port of shipment. This means that the buyer shall bear all costs and risks of loss of or damage to the goods from this point onwards. That is to say, in the goods in the designated port of shipment over the ship’s side, the goods on the ownership of the main risks and rewards transferred to the buyer.

(A) the division of the basic obligations of buyers and sellers

According to the International Chamber of Commerce on the interpretation of FOB, buyers and sellers of their respective basic obligations, in summary, can be divided as follows:

1, the seller’s obligations

(1) At the time or within the period specified in the contract, in the port of shipment, in accordance with the customary way to the buyer assigned to the goods on board, and timely notification to the buyer. (2) Obtain an export license or other official approval documents at its own risk and expense. When customs formalities are required, all customs formalities are necessary for the export of the goods. (3) To bear all costs and risks until the goods cross the ship’s rail at the port of shipment;

(4) To provide, at his own expense, the usual documents proving that the goods have been handed over to the ship. If the buyer and seller agree to use electronic communication, all documents can be replaced by electronic data interchange (EDI) messages of equal validity.

  1. Obligations of the buyer

(1) Obtain an import license or other officially approved document at his own risk and expense. When customs formalities are required, handle all customs formalities for the importation of the goods as well as their transit through another country, if necessary, and pay the relevant fees and transit charges; (2) charter a ship or book a cabin, pay the freight charges, and give the seller sufficient notice of the name of the ship, the place of loading, and the time of delivery required; (3) bear all the costs and risks of the goods after they have crossed the ship’s rail at the port of shipment;

(4) accept the seller to provide the relevant documents, take delivery of the goods, and according to the contract pay for the goods

(B) the United States of America on the FOB interpretation of the difference

It is worth noting that the “1941 Revised U.S. Foreign Trade Definitions” on the interpretation and application of FOB, with the international general interpretation and application of obvious differences, which is mainly manifested in the following aspects: 1. FOB generally interpreted as a means of transportation somewhere on the delivery of a wide range of its scope of application, and, therefore, with the U.S. agreed FOB import contracts, except that the name of the port of embarkation must be marked, the port of shipment. FOB must also be added after the word “ship” (Vessel). If only “FOB San Francisco” and omitted to write the word “Vessel”, the seller is only responsible for the goods to any place within the city of San Francisco, is not responsible for the goods to the port of San Francisco, and handed over to the ship. As Canada and other countries also invoke the practice of the United States, therefore, with Canada and other countries businessmen who signed FOB import contracts, should also pay attention to this issue. 2. In the division of risk, not to the port of shipment for the boundary, but to the cabin for the boundary that the seller bears the burden of the goods loaded to the cabin of the goods until all the loss of all the losses and damages. 3. In the burden of the cost, the buyer is required to pay the seller to assist in the provision of export documents and fees. 4. Export tax and other costs arising from export.

The deformation of FOB trade terms

In the FOB terms of the transaction, the seller is responsible for payment of all costs before the goods are loaded onto the ship. However, due to the longer history of the term, various countries and regions in the use of the “loading” concept do not have a unified and clear interpretation, of the process of loading operations involved in specific costs, such as the cost of transporting the goods to the side of the ship, lifting on board the cost of the cabin and the cost of flat, etc., in the end, who should bear the burden, the practice of the countries or the customary practice is not entirely consistent. The customary practices of each country are not entirely consistent. If the use of liner transportation, the ship tube loading tube unloading, loading, and unloading costs into the liner freight, naturally the buyer is responsible for chartering the buyer; and if the use of chartered ship transportation, the ship generally do not bear the cost of loading and unloading. This must be clear who should bear the costs in the process of loading the ship. To illustrate the burden of loading costs, the two sides are often in the FOB terminology after the addition of additional conditions, which formed the FOB conditions, including the following: (1) FOB Liner Terms (FOB liner conditions) This deformation refers to the cost of loading by the liner’s practice of dealing with, that is, borne by the ship or the buyer. Therefore, with the use of this deformation, the seller does not bear the costs associated with loading. (2) FOB Under Tackle (FOB delivery under the hook) refers to the seller bearing the cost of the goods to the buyer’s designated ship’s hook to the place, and lifting such as the cabin as well as other costs, all borne by the buyer. (3) FOB Stowed (FOB Stowage) means that the seller is responsible for loading the goods into the hold of the ship and bears the cost of loading including the storage fee. The stowage fee refers to the cost of placement and organization of the goods into the cabin. (4) FOB Trimmed (FOB Trim) means that the seller is responsible for loading the goods into the hold of the ship and bears the cost of loading including Trim. Cabinage refers to the cost of leveling the bulk cargo loaded into the ship’s hold. In many standard contracts, to show that the seller bears the cost of loading, including the cost of leveling and shipping charges, often using FOBST (FOB Stowed and Trimmed) way.
The FOB of the above deformation is just to show who bears the cost of loading and production and does not change the FOB of the place of delivery as well as the boundaries of the risk division

CIF (Cost, Insurance, and Freight)

1, also known as the cost plus freight (designated port of destination) terms. It means that the seller, in addition to the same obligations under the CFR terms, must also insure the goods against the risk of loss or damage to the goods borne by the buyer in transportation. The seller concludes the insurance contract and pays the premium. The seller’s liability passes to the buyer as soon as the goods cross the ship’s rail at the port of destination. That is to say, in the designated port of destination of the goods over the ship’s side, the goods on the ownership of the main risks and rewards will be transferred to the buyer.

2, this price term is also customarily known as “cif”, by the general interpretation of international trade practices, in the CIF conditions, the responsibility of the buyer and seller are as follows:

Seller’s responsibility: (1) responsible for chartering or booking, in the contract within the period of the port of shipment, the goods will be loaded on board the ship and pay the freight charges to the port of destination, notify the buyer after loading; (2) responsible for the goods loaded on board the ship before the cost of all costs and risks; (3) is responsible for handling the insurance, insurance premiums; (4) is responsible for handling the export formalities to provide the government of the exporting country or the relevant aspects of the documents issued by the relevant parties;

(5) Responsible for providing relevant shipping documents, including official insurance documents.

Buyer’s responsibility: (1) bear all the costs and risks after the goods are loaded onto the ship; (2) accept the relevant shipping documents provided by the seller, and pay for the goods according to the contract;

(3) Handle the import formalities for receiving the goods at the port of destination.

3, the goods declared at CIF, tax rebate calculation of tax exemption, tax credit should be based on the following formula: exemption, tax credit = (amount of the transaction – shipping costs – insurance – foreign banks and other deductions) × rebate rate of cost plus freight CFR (Cost plus Freight Rate)

1, also known as cost plus freight (named port of destination) terms. This means that the buyer must pay the cost and freight necessary to transport the goods to the named port of destination, but the risk of loss of or damage to the goods after delivery to the ship, as well as any additional costs incurred for this reason, the main risks and rewards of the seller’s ownership passes to the buyer from the time when the goods cross the ship’s rail at the port of shipment.

2, cost and freight refers to the seller being responsible for chartering or booking, in the contractual shipment period in the delivery of the goods to the designated port of destination on board, bearing the goods in the port of shipment to cross the ship’s rail until all the costs and risks, and pay the freight.

3, CFR and CIF are different: CFR contract seller is not responsible for insurance procedures pay insurance premiums, and does not provide insurance policies. In addition, CFR and CIF contract buyer and seller obligations are divided on the same basis.

According to the CFR term contract, need to pay special attention to the shipment notice. According to international trade practice, whether it is FOB, CIF, or CFR contract, the seller must be loaded on board the goods to the buyer promptly after the notice of loading. However, in the CFR contract, the seller issuing a timely notice of shipment is particularly important because it is related to the buyer for the imported goods promptly for the issue of insurance. Some countries’ laws, such as the United Kingdom (Sale of Goods Act) stipulate that: if the seller has not issued a notice of shipment to the buyer, so that the buyer the insure the goods, then, the risk of the goods in the sea should be regarded as the seller’s responsibility. Therefore, in the export trade, we as a CFR contract seller, generally application of rapid communication methods, such as telex, as soon as the name of the ship to understand the loaded ship, immediately issue a notice of loading. Some foreign letters of credit issued by the beneficiary (the seller) must provide the shipment notice of the telegram or telex copy. The date of the telegram or telex must often be no later than the date of the bill of lading.

CFR terms in addition to insurance at the buyer’s expense, other aspects of the obligations of buyers and sellers and CIF terms are the same.

For FOB conditions, the buyer to specify the overseas freight forwarder should carefully consider whether to accept. In recent years, the buyer has repeatedly occurred with the forwarder collusion, requiring the ship to release the goods without a single, resulting in the seller’s money and goods empty things.

Share a case

  
A handicraft exporting company in Fujian (hereinafter referred to as the seller) signed a trade contract with a US company (hereinafter referred to as the buyer) to export handicrafts from Fujian to the US company, and the trade mode was FOB. The seller booked the booking and delivered the goods to the forwarder in Fujian according to the buyer’s instruction, and the forwarder A delivered a full set of the original bill of lading (B/L) to the seller, and the bill of lading was issued to the B company.
The seller got the bill of lading according to the agreement with a copy of the bill of lading to the buyer to claim payment, but until the goods to the port of destination did not see the consignee payment. Although the bill of lading is still in their hands, the payment was not received, so the seller continued to urge. However, later, the seller learned that the goods had been lifted and the buyer would not pay again! How could the goods be lifted when the bill of lading was in hand? So the seller sued the court to hold the carrier liable. The court ruled that the carrier, Company B, was liable. However, the question is, the carrier have enough compensation ability? Currently, the companies that dare to release goods without a bill of lading are usually like this: skin-packing companies or far away overseas; it is not easy to make them take responsibility.