HomeOpinion & AnalysisColumnistsUnderstand your obligations in global trade

Understand your obligations in global trade

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Buyers must be knowledgeable of additional obligation brought by international trading in addition to shelf price of a commodity.

Goods have to be cleared for export, transported from suppliers’ warehouses to carriers and the port of exit. Duties and taxes have to be paid.

Tenders have to be evaluated for competitiveness; this therefore requires understanding of international Chamber of Commerce recognised trading incoterms.

The prerogative of assignment of duty is defined by the incoterm that parties agree to. Incoterms in a sales contract determines who has a legal right to suffer detriment in the event of a mishap during delivery.

There are in four categories, E, F, C and D each describing the obligation of the parties in trade.

E category: Ex-works with buyer obliged to arrange for transport, load, export processing goods once they have been made available at the named supplier’s site; bearing all the risks from the supplier’s warehouse.

F category; Shifts responsibility to the supplier to clear goods for export and deliver them to a named place and the buyer takes over. Free carrier acceptance gives supplier responsibility to hand goods over to a carrier identified by the buyer.

Free alongside ship (FAS) places obligation to the seller to place the goods alongside the vessel. The term is limited to sea freight or inland waterway transport.

Free on board gives the supplier an obligation to physically deliver goods past the ship rails. The term also has the same limitations as FAS.

Cost and freight (CFR) oblige suppliers to pay the costs of freight to the named destination port. The buyer’s responsibility starts when the goods pass the ships.

The FAS limitations are applicable. Cost insurance and freight (CIF) is simply addition by supplier of marine insurance to CFR. CFR limitations are also applicable.

Carriage paid to (CPT) to a named destination is applicable when inland transport is the only option. The seller is responsible for freight to a named destination and buyer assumes risk when goods have been accepted by the named carrier.

Carriage and insurance paid to a named destination is simply adding cargo insurance to CPT. This incoterm is applicable to any mode of transport including multimodal transport.

D category: Delivery at frontier to a named place obligates the seller to clear for export and deliver them at the named point and place and at the frontier, but before the customs border of the adjoining country. The term is applicable for any mode of transport and is mostly applicable to road and rail.

Delivery ex-ship compels the sellers to deliver goods on board a ship but uncleared for import, at the named destination.

The buyer pays for unloading, customs clearing at the destination. The term is limited to sea and waterway transport.

Deliver ex-quay (duty paid) (DEQ) to a named destination means force the seller to put goods on quay at the named destination cleared for importation, paying duties and taxes of the goods thereto.

DEQ also allows for exclusion of duty and value added tax for as long as they are precisely spelt out.

Delivery duty unpaid (DDU) force the seller to deliver goods at a named place and point in country of importation including costs of customs formalities excluding duties, taxes and other official charges payable upon importation.

Parties may agree on allocation of responsibility of custom formalities and document clearly parties obligations in the contract. DDU can be used for any mode of transport.

Delivery duty paid to a named destination gives maximum responsibility to the seller. The sellers fulfils his obligation when goods have been made available at the named place and point in the country of importation after settling duties and all formalities with customs.

This term can only be used if the seller is capable to directly or indirectly obtain an import licence.

Nyasha Chizu is a fellow of CIPS and branch chairman of CIPS Zimbabwe.

He writes in his personal capacity. Email: chizunyasha@yahoo.com

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