EXPORT CONTRACTS

Meaning Contracts which apply exclusively to the international sale of goods.

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Types There are two main types of export contracts, with variations on each:
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CIF Means cost, insurance and freight. Under this type of contract, the
price that the buyer pays the seller includes the charge for the goods,
the cost of getting them to the ship (e.g., transportation costs from the
factory to the ship), loading costs and money for taking out an insur
ance policy for the goods. Both seller and buyer have specific duties
as explained below. In a CIF contract, it is the port of destination that
is named; e.g., a CIFcontract which says, CIF Amsterdam means
that the goods will be shipped on CIF terms to the port of Amsterdam.
Contrast FOB below, where the port named is the port of shipment.
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C & F Contracts The same as CIF, except that the buyer (not the seller) takes out the
insurance.
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FOB Means free on board which indicates that the seller will bear all costs
up to the point where the goods are loaded onto the ship. E.g., he will
bear transportation costs (to take the goods to the ship) and loading
costs (to put them on the ship). However, the buyer is responsible for
paying the freight and insurance. The port named in a FOB contract
is the port of shipment where the goods will be loaded. So a contract
FOB Antwerp indicates that the goods will be shipped on FOB terms
and will be loaded at the port of Antwerp.
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FAS Contracts This is a variation of the FOB contract. Under it, the seller is only
obliged to place the goods alongside the ships rail, and meet the cost
for getting them there. So he does not meet loading or other costs.
1
CIF = cost, insur-
ance and freight
FOB = free on board
Ex works/factory
& Ex ship/arrival
VARIANTS
C & F = Cost
and Freight
FAS = free
alongside ship
Classic Straight
With
Services
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The buyer will be responsible for loading and meeting loading costs.
In addition, he will have the duties noted under straight FOB below.
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Ex Works etc. If a contract is ex works/factory/warehouse etc., it means that it is for
the buyer to collect the goods from either the sellers place of work/
his factory or his warehouse, whichever of these places are stipulated.
Sellers Duties 1. Make the goods available at his premises (i.e., place of work, facto
ry, warehouse etc.). This is the cheapest type of contract for the
seller, because he does not have to bear the cost and risk of trans
porting the goods to the ship. Unless expressed otherwise, proper
ty and risk will pass to the buyer when he collects the goods.
Given that the buyer has to collect the goods before they have
been put on a ship or been transported abroad, ex contracts can
rightly be said not to be export contracts, at least from the sellers
viewpoint.
Buyers Duties 1. Collect the goods from the sellers premises
2. Pay the price for the goods when he collects them
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Ex Ship/Arrival The sellers overall duty is to ensure that the goods reach the port of
destination, and are unloaded to the buyer.
Sellers Duties 1. Select ship and port
2. Take out the Contract of Carriage with the carrier
3. Pay the freight
4. Pay loading and unloading costs
5. Take out insurance
Buyers Duties 1. Pay the price of the goods when they are delivered to the port
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ESSENTIAL DISTINCTIONS
Explanation Of the various export contracts, the most frequently used and discuss-
ed are CIF and FOB. It is not always made clear what are the essen
tial differences between them, the following should help:
2
CIF FOB
To fulfil the contract, the seller can buy goods already
afloat, he does not have to physically load goods.
To fulfil the contract, the seller must load actual goods
onto the ship, he cannot buy goods already afloat.
Seller always pays the cost for transporting the goods to
the ship, plus freight and insurance.
The buyer is usually responsible for paying freight and
insurance, only for additional services seller does so.
It is a destinations contract; e.g.., CIF London, means
the ship will offload in London.
It is an arrivals contract; e.g., FOB Kingston, means the
ship will arrive at Kingston for loading.
The seller always takes out the contract of carriage so
he is always the shipper
Depending on the type of FOB, either seller or buyer
can take out Contract of Carriage, so either can be ship-
per.
No need for nomination of ship or port The ship and port must be nominated by the buyer
CIF contracts are alway export contracts; i.e., the ship is
always going to a foreign destination.
FOB contracts can be for either import or export of
goods.
There can be constructive delivery of the goods via
transfer of the Bill of Lading
Constructive delivery is not allowed under an FOB con-
tract, there must be delivery of the actual goods
shipped
Copyright 2008: LEagle Consulting