Incorrect usage of C-Terms – Incoterms 2010

One problem in Incoterms 2010 concerns the correct usage of CFR and CIF and the question – who pays for the terminal handling charges at the port of import?

To summarise, there are 4 C-terms in Incoterms 2010.  Under the new rules dated 2010 the International Chamber of Commerce (ICC) state that CFR/CIF should only be used with bulk sea shipment consignments and CPT/CIP should be used with all other types of shipment, including containerised sea shipments.  Although this has been the case since January 2010, it is surprising how many contracts still specify CFR or CIF for all types of shipments and how many parties still argue strenuously against using CPT or CIP when asked to.

The importance of using the right Incoterm
Does this really matter?  Essentially the difference between CFR and CPT is quite a fine one and if everyone is happy with CFR why bother changing it?  Well there is no problem, as long as no-one has taken out a goods-in-transit insurance policy for the consignment.  But if either party has (and if that party is the seller then the correct incoterm to use is either CIF or CIP) then the use of the ‘wrong’ incoterm could potentially provide an insurance company with a reason to refuse to honour any claim.

Deciding not to state which version of Incoterms is being used, in order to mitigate the above action, could be counter-productive.  Information coming from legal circles on this matter indicate that, in the absence of any statement regarding the version used, the default position is that the parties intended to use the most recent version at the time, which, presently, is the 2010 version.

My suggestion would be that if you really need to continue using CFR and/or CIF in shipments other than bulk sea shipments, then state that you are using the Incoterms 2000 version. There is no law, anywhere, where you have to use Incoterms in your international trade contracts, and even if you do, that you must use the most recent version.  However, please note that the workability of this suggestion is dependent on all parties involved in the contract agreeing to this at the time that the International Trade contract is finalised.

Who pays for the import Terminal Handling Charges?
In theory, the risk to the shipper under any C-term passes to the buyer at the port of export, but the costs to the shipper includes the freight to the port of export.  In addition, when CIF and CIP are used, goods in transit insurance premium costs are also for the account of the shipper.  For a number of years now, Incoterms have also stated that as well as the freight and other relevant freight costs such as fuel surcharge and war risk, the terminal handling charges at the port of import may also be for the account of the shipper.

This is clearly indicated in Incoterms 2010 under Section A6 b) – Allocation of Costs (for all the C-terms) which states that the costs to the shipper can include “any charges for unloading at the agreed port of discharge that were for the seller’s account under the contract of carriage.”  However, in most contracts, there is an implicit agreement that these costs are actually paid by the buyer.  However, this is dependent, not only on there being such an agreement, but that the local laws of the importing country allow this.

This is one of those potential ‘grey’ areas which might cause long arguments that could be costly in both time and funds for all parties concerned.  Any delay in moving the goods off the ship and into the terminal could result in demurrage and storage charges being applied by the shipping company whilst a decision is made between the buyer and seller.  This really does need to be avoided at all costs.

My suggestion is that the seller and buyer decide at the time of contract who is responsible for these charges and this is stated in writing in the sales contract.  If it is the seller, then the shipping costs to the buyer should include the terminal handling charges at the port of import.  This information must be relayed to the shipping company at the time of booking the freight, so that the shipping company is aware that these costs are for the account of the seller.  Otherwise the buyer could end up paying twice for the same service.

Maria Narancic from Point to Point Export Services is an independent international trade adviser who assists organisations world wide with their international trade projects, documentation, Documentary Credits and import/export training.  She is based in the United Kingdom.  If you require any further assistance with the matters mentioned above, please do contact us by e-mail on info@point-point.com or check out other useful articles on our website www.point-point.com 

 

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