International Procurement: Highlights on some essential FOB incoterms

Abstract:

Incoterms are last amended by ICC on January 012013.Some essential incoterms are highlighted belowThe incoterms EXW can be defined as an agreement between a buyer and a seller that after production completed and left warehouse of the sellerseller is not responsible for cost and liability for the productIncoterms FOB and EXW can be used interchangeably while consider terms and agreement between buyer and seller.Seller is not responsible for loading the goods unless specified otherwise and buyer is responsible for doing insurance for EXW shipments under the buyer’s Ocean Cargo Policy.Free Carrier While using the incoterm FCA , the Seller agrees to give delivery of the goods into the custody f the forwarderfreight forwarder etc.Free on Board(Named port of shipmentThe incoterm FOB is from thepoint of delivery of goods and transfer of riskit starts with the goods pass the ship’s rail at the named port of shipmentExcept CIP and CIF , incoterms do not have any obligation on the Seller and Buyer to provide insurance.

Keywords: Freight collect, Incoterms,EXW, FCA, FOB

Article:

Introduction:

Incoterms are nothing but some International Commercial terms published by the International Chamber of Commerce to clearly communicate the associated risks, costs, tasks, etc. evolved with international procurement and logistics. Which are widely accepted by legal authorities, governments, and involved parties with the commercial transactions. Incoterms usually help to reduce uncertainties and for that reason are incorporated in Letters of Credit, Sales Contract, etc. in the whole world. Incoterms are last amended/published by ICC on January 01, 2013. Some essential incoterms are highlighted below:

FOB Destination

FOB (Freight on Board) Destination is a shipping term that means that the seller retains the legal title to the goods until they reach the location of the buyer. In this case, the seller pays for the transportation of the freight and takes care of additional freight charges until the goods reach the buyer.

Ex Works (Named place)

The incoterms EXW can be defined as an agreement between a buyer and a seller that after production is completed and left the warehouse of the seller, a seller is not responsible for cost and liability for the product. Incoterms FOB and EXW can be used interchangeably while considering terms and agreements between buyer and seller. Buyer responsibilities include loading, transport, import and export, unloading, and insurance of the goods. In case of buyer and seller, one may get the advantage of concentrating on production, another may get an advantage on transportation. Seller is not responsible for loading the goods unless specified otherwise and buyer is responsible for doing insurance for EXW shipments under the buyer’s Ocean Cargo Policy. The insurance Policy covers warehouse to warehouse. When purchasing goods under EXW buyer should seek an insurer that will give coverage during this situation.

Bangladesh Export Projection FY10

FCA: Free Carrier (Named place)

While using the incoterm FCA, the Seller agrees to give delivery of the goods into the custody of the forwarder, freight forwarder etc. who are usually nominated by Buyer. The Sales Contract or Letter of Credit must state clearly the place or to which people the cargo would be delivered. After handing over the cargo to that place or people buyer is responsible for the loss or damage of the goods. Under the buyer’s Ocean Cargo Insurance Policy, insurance would cover the goods that are delivered to the carrier. It is in the buyer’s interest to review the insurer’s country exposure.

FOB : Free on Board(Named port of shipment)

The incoterm FOB is from the point of delivery of goods and transfer of risk, it starts with the goods passing the ship’s rail at the named port of shipment. Responsibility of goods transferred to the Buyer from the Seller when goods cross the rail of the ship. Except for CIP and CIF, incoterms do not have any obligation on the Seller and Buyer to provide insurance. But at some point, either Buyer or Seller bears the responsibility for loss to the goods during transit.

Conclusion:

In the context of Bangladesh Exporters, Bangladesh Bank has ordered the enlisted banks and foreign currency handling institutions to use Incoterm FCA instead of FOB while they had over cargo to buyer nominated forwarder/carrier. Bangladesh Garments Manufacturers and Exporters Association has advised its members to comply with the Bangladesh Bank’s advice by a circular dated January 01, 2013. They hope that it will help Exporters/Sellers in Bangladesh Garment industries to get coverage of Insurance Policy of Buyers. And they do not pay additional charges, such as Terminal Handling Charges.

Read more:
  1.  Vishny, Paul H. (1981). Guide to international commerce law. St. Paul, MN: West Group. ISBN 0070675139.
  2. “ICC Guide to Incoterms® 2010”. ICC. Retrieved March 14, 2014.

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