Stop doing it incorrectly: FOB and CFR likely risking more on imports and exports

Friday, 2 December 2016 00:01 - - {{hitsCtrl.values.hits}}

Applying Incoterms to sale and purchase contracts makes global trade easier and helps partners in different countries understand one another.

When global companies enter into contracts to buy and sell goods they are free to negotiate specific terms but must be conscious of the trading environment. These terms include the price, quantity, and characteristics of the goods. Every international contract also contains what is referred to as an Incoterm, or international commercial term. There are 11 main terms and several secondary terms that denote the points at which shipper, carrier, and consignee risk and responsibility start and end. For the first time the ICC has come up with a guide line for transport industry in 2016 giving them the opportunity to understand the best practices of Incoterms. These International sales contracts are governed by terms referred as E, F, C, and D.

Incoterms are recognised globally by courts and other authorities. Frequently, parties to a contract are unaware of the different trading practices in their respective countries. This lack of knowledge can lead to misunderstandings and disputes between customer and supplier. The incorporation of proper Incoterms in international sales contracts reduces this risk. The parties to the transaction select the Incoterms, which determine who pays the cost of each transportation segment, who is responsible for loading and unloading of goods, and who bears the risk of loss at any given point during an international shipment. Incoterms also influence customs valuation basis of imported merchandise.

Major incidents like the Bangladeshi tidal waves, Hanjin shipping bankruptcy, Tianjin port explosion, have created many questions as these events caused $Billions in lost goods and unpaid disputed bills and the need to understand the terms better is critical for industries involved in international trade. Wrongly used, the 11 Incoterms will cost your trade more, incur greater risk and liability. For example ysing FOB and CFR on container shipping in Sri Lanka exposes you to great risk and cost escalation.

The forum organised by the Shippers’ Academy Colombo will discuss:

nAre you using terms loosely without knowing the repercussions?

nWhat are the terms most applicable to Sri Lankan exports and imports?

nAs a service provider/banker are you advising your clients of the proper usage?

nDid you know there is a new guideline book published for transport sector in 2016?

The forum is for merchandisers, export/import managers and senior executives, shipping managers,

shipping agents, freight forwarders, bankers, port operators, insurance companies and all involved in international trade, law and logistics.

Shippers’ Academy Colombo CEO Rohan Masakorala will conduct the program at the BMICH Cinema Hall on Thursday, 8 December, from 3 p.m. to5:30 p.m. Interested parties may contact the Shippers’ Academy Colombo on 077-3820703/0113560844 or e-mail: [email protected] or online at www.shippersacademy.lk.