Page 39 - Banking Finance June 2021

ARTICLE

destination which may be in the origin country or such as a goods at a named place after arranging for export
port in the destination country or any other place as specified clearance. The goods may be either delivered to the carrier
in the contract. For eg If a seller quotes his price for the identified by the buyer or to another party nominated by
goods using Incoterms® as "CIF Mumbai", it implies that the the buyer. However, the agreed place of delivery affects the
quotation includes the cost of the goods, the Insurance for obligations of loading and unloading of goods at that place.
the goods during transit and also the Freight charges for the If the delivery takes place at the seller's premises or any
goods to reach the Mumbai Port. Similarly different other location under the control of the seller, then the seller
Incoterms rules involve different responsibilities and sharing is obliged to load the goods on to the buyer's carrier. But if
of costs between the buyer and seller in international trade the delivery takes place at any other place, then the seller
transactions. The key features of all the 11 Incoterms rules is deemed to have given delivery of goods to the buyer as
are as under: soon as the seller's transport arrives at the name place. After
that the buyer is responsible for both unloading and loading
1. EXW - Ex Works (named place of delivery): the goods into their own carrier. The transfer of risk from
Under this Incoterms® the seller makes the goods available buyer to seller also takes place from this point onwards.
at their premises, or at another named place and it is the
responsibility of the buyer to bear the cost and the risk of 3. FAS - Free Alongside Ship (named port of
bringing the goods to the desired final destination. This
Incoterms® places the least obligation on the seller and the shipment):
maximum obligation on the buyer. Normally this Incoterm Under this rule, the seller completes his obligation once the
is used when making an initial quotation in a trade goods are placed alongside the ship at the named port of
transaction which does not include any other cost other than shipment. The buyer has to bear all the subsequent costs
the cost of the goods. The seller is not even needed to load from that point onwards. Similarly, the risk of damage to
the goods on the collecting vehicle and also clear the goods the goods also gets transferred to the buyer from that point.
for export. If needed to do so, it is to be done at the risk The seller also has to arrange for export clearance of the
and cost of the buyer. For Example, if the Incoterms® used goods. This term may be used for inland waterway transport
is "EXW Hamburg", then the goods are to be picked up by and in sea shipments with non-containerized freight.
the buyer from the seller's premises in Hamburg. The buyer
is responsible for the risk and all costs from that point 4. FOB - Free On Board (named port of
onwards which includes transportation costs, taxes and
duties etc. shipment):
In order to fulfill his obligations under FOB contract, the
2. FCA - Free Carrier (named place of delivery): seller has to deliver the goods on board a vessel that is
Under this Incoterms®, the seller is obliged to deliver the designated by the buyer. The seller has to arrange for export
clearance also. The buyer will bear the cost of freight, bill
of lading fees, insurance, unloading and transportation cost
from the arrival port to the final destination. The risk of
damage to goods also gets transferred to the buyer after
the goods are loaded on to the ship identified by the buyer.

5. CFR - Cost and Freight (named port of
destination):
Under this type of contract, the seller is required to pay for
the carriage of the goods up to named port of destination.
The risk of damage to goods gets transferred to the buyer
once they are loaded on board the ship in the exporting
country. The seller also has to bear the cost of export
clearance. The buyer has to bear the cost of insurance in

BANKING FINANCE | JUNE | 2021 | 39