SHOW YOUR LOVE FOR THE COUNTRY BY USING APPROPRIATE INCOTERMS

QUERY FROM HANG PHAM

Dear Mr.Old!

I just read a document about Incoterms and it stated that: If containers are used for transportation of goods, FOB should be replaced by FCA, CFR by CPT, and CIF by CIP.
For the benefit of macroeconomics and microeconomics, merchants should choose the “C”-terms when exporting and “F”-terms when importing.

Can u explain the reason for me?

Many thanks

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COMMENT FROM MR. OLD MAN

Dear Hang Pham,

Thanks for asking Mr. Old Man. Intelligent queries.

1) WHY FCA, CPT, CIP FOR CONTAINERIZED GOODS?

It is true that if containers are used for transportation of goods, FOB should be replaced by FCA, CFR by CPT, and CIF by CIP.

You are requested to pay attention to the point where the risks of loss or damage to the goods are transferred from the seller to the buyer (transfer of risks). Under trade terms like FOB, CRF and CIF the buyer must bear the risk of loss or damage to the goods from the time they have passed the ship’s rail at the named port of shipment, whereas under FCA, CPT and CIP the buyer bears the risks of loss or damage to the goods from the time the seller delivers the goods to the carrier at a point agreed in the contract of carriage. And as you may know, containerized goods are delivered at CY (container yard) or CFS (container Freight Station), not over the ship’s rail. Hence, if choosing FOB, CFR or CIF term for transportation of containerized goods, the buyers must bear the additional risks of loss or damage (if any) to the goods for the distance from CY or CFS to the ship’s rail.

2) WHY C-TERMS WHEN EXPORTING AND F-TERMS WHEN IMPORTING?

I don’t want to use big words like “for the benefits of macroeconomics and microeconomics”. But it is true that a patriotic merchant should choose C-terms when exporting and F-terms when importing as this is a good way to contribute to the development of his country’s transport industry and insurance industry and the growth of his country GDP.

Under CFR or CPT term the exporter must contract (normally with the local carrier) at his own expense for the carriage of the goods to the place of destination, i.e., he must pay the carrier all costs relating to the goods until they have been delivered as well as freight and all other costs including loading and unloading costs.

Under CIP and CIF, in addition to freight and other costs, the exporter must pay the local insurer the insurance premium for the goods.

Under FOB term the importer must contract (normally with the local carrier) at his own expense for the carriage of the goods from the named port of shipment. Under FOB the importer is not obligated but may buy insurance for the goods from the local insurer.

To use domestic service is to love the country. The merchants should bear in mind “BUY FOB, SELL CIF”. By choosing the right trade terms, the merchants can help his country’s GDP grow fast.

From another angle, a wise merchant can also get much benefit from “BUY FOB SELL CIF” practice, i.e., being able to negotiate with the local carrier and insurer for the lower freight cost and a lower insurance premium.

Best regards,
Mr. Old Man (Nguyen Huu Duc) …