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July 8, 2021 at 12:00 AM

 

 

International trade has a long history, dating back to the 16th and 17th centuries when the barter system was supplanted by Mercantilism. The transition to liberalism began in the 18th century.

 

During this time, Adam Smith, the founder of economics, produced the classic book ‘The Wealth of Nations' in 1776, in which he established the significance of specialization in production and brought International trade under the said scope.

 

The Comparative Advantage Principle was developed by David Ricardo, and it still holds true today. This would not be achievable without taking into account a number of critical aspects. Which are, in other words, exchange rates, competitiveness, globalization, tariffs and trade barriers, transportation costs, languages, cultures, and trade agreements. Trading term or incoterms is an important factor affecting or influencing companies decisions to trade internationally.

 

Incoterms are a set of 11 internationally accepted standards that specify the responsibilities of sellers and buyers in international trade. These trading terms of establishes who is responsible for paying for and handling the cargo, as well as for insurance, documentation, customs clearance, and other logistical tasks depending on the trading term used.

 

The International Chamber of Commerce is responsible for the establishment a set of rules known as the Incoterms (ICC). The fact that each Incoterms rule explains the obligations, expenses, and risks that buyers and sellers must bear in their transactions, is very significant in facilitating business. Knowing Incoterms will help you have a smoother transaction by clearly outlining who is responsible for what and at what stage of the process.

The most recent edition is Incoterms® 2020.These standards have been updated and are now divided into two categories based on mode of transportation. There are seven (7) rules for whichever mode(s) of transportation you like or utilize, with the remaining four (4) being particular to SEA, LAND, or INLAND WATERWAY travel. In total eleven (11) rules

 

The seven Incoterms2020 rules for any mode(s) of transport are:

 

EXW - Ex Works or Ex-warehouse

Ex works is when the seller 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.). The seller does not need to load the goods on any collecting vehicle. Nor does it need to clear them for export, where such clearance is applicable.

 

 FCA - Free Carrier

The seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as explicitly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.

 

 CPT  - Carriage Paid to

The seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such site is agreed between parties). The seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

 

CIP -  Carriage and Insurance Paid To

The seller has the same responsibilities as CPT, but they also contract for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. 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 arrangements.

 

DAP - Delivered at Place

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.

 

 DPU - Delivered at Place Unloaded

DPU replaces the former Incoterm® DAT (Delivered At Terminal).  The seller delivers when the goods, once unloaded are placed at the disposal of the buyer at a named place of destination. The seller bears all risks involved in bringing the goods to, and unloading them at the named place of destination.

 

DDP - Delivered Duty Paid

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. The seller bears all the costs and risks involved in bringing the goods to the place of destination.  They must clear the products not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.

 

The four Incoterms2020 rules for Sea and Inland Waterway Transport are:

FAS - Free Alongside Ship

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. The risk of loss of or damage to the goods passes when the products are alongside the ship.  The buyer bears all costs from that moment onwards.

 

FOB - Free on Board

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 damage to the goods passes when the products are on board the vessel.  The buyer bears all costs from that moment onwards.

 

CFR - Cost and Freight

The seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the products are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

 

CIF - Cost Insurance and Freight

The seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the products are on the ship. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port 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. The buyer should note that under CIF 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 arrangements.

 

As you can see, shipping your goods can be very complex, but you don’t have to do it alone. Partner with us, at LOGICAL MARITIME SERVICES we provide the logistics solutions you need to regulate the industry. Visit our website at logicalmaritimegh.com .

 

 

VALERIE  NYANYO

AUTHOR