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In any international trade contract, the SELLER and the BUYER have certain responsibilities when it comes to cost, delivery and receipt of the goods. The exporter is responsible for ensuring that the cargo is supplied in complete conformity to that of the importer’s order. This includes packing, labelling and transporting the cargo (if required to do so) to a place of acceptance as agreed upon by both parties. Consequently, the buyer has to pay for and take receipt of the goods at the place agreed upon in the sales contract.

The International Chamber of Commerce (ICC) has developed a set of standard commercial terms pertaining to the costs and responsibilities to be borne by the seller and the buyer. These standards are internationally understood and accepted by all traders and have implications on the physical movement of the goods and the related costs and risks. These standards are called INCOTERMS, or International Commercial Terms.

Incoterms: risk, cost and responsibility

As an exporter, it is important to have all the information pertaining to your costs above and beyond the cost of your product at your premises included in the calculation of your export price. This will ensure that you have adequately covered all your expenses.

Some examples of costs to consider:

  • The cost of loading the cargo into a container or other means of transport
  • The cost of obtaining necessary documentation
  • Freight costs
  • Applicable duties
  • Insurance costs

Your export price should be quoted in an internationally accepted format. The importer needs to understand the exact breakdown of the price that you have quoted and what additional costs they may be expected to pay in order to take final receipt of the goods. Additionally, the importer must understand what their responsibility is with regard to the physical movement of the goods.

Incoterms define certain critical locations or points relating to the physical movement of the goods from the exporter’s premises to that of the importer’s place of final receipt. The cost and risk relating to the movement of the goods, and the responsibility for ensuring that the goods are moved to a particular point in the chain, are clearly defined when the exporter states a specific Incoterm on an invoice, transport document or sales contract. In order to define this “point”, the Incoterm quoted must always be followed by a named place, such as Arusha, Tanzania, or a port such as Dakar, Senegal. It would be at this named place or port that the risk, cost and responsibility would pass from the seller/exporter to the buyer/importer.

Types of Incoterms

There are 13 Incoterms, ranging from an early transfer of risk, cost and responsibility from the seller to the buyer to a late transfer of risk, cost and responsibility to the buyer.

The terms within the Incoterms are not mandatory, either by international convention or by national law, in any trading country. They have, however, proved to be of great assistance because they establish the parameters of responsibility between the seller and buyer, in a manner that is internationally recognised and accepted in the international trading community.

In fact, Incoterms have proved to be very effective when settling trade disputes. Courts of law in most countries accept Incoterms standards as binding when settling an international trade dispute for a transaction that included an Incoterm.

Incoterms – As per Incoterms 2000 ICC Publication

Term

Meaning

Description

EXW

Ex works

You make the goods available at your premises. Your buyer is responsible for collecting and shipping the goods from your front door.

FAS

Free Alongside Ship

You must place the goods alongside the ship at the named port. Your buyer must clear the goods for export. This term of agreement is suitable for maritime transport only.

FOB

Free On Board ship

You must load the goods on board the ship nominated by your buyer. The cost and risk carried by each party is divided at the ship's rail. You must clear the goods for export. This term of contract agreement is suitable for maritime transport only.

CFR

Cost and Freight

You must pay the cost of freight to bring the goods to the port of destination. However, risk is transferred to your buyer once the goods have crossed the ship's rail. This term of contract agreement is suitable for maritime transport only.

CIF

Cost Insurance Freight

Exactly the same as the CFR, except that you must in addition procure and pay for insurance.

FCA

Free Carrier

You hand over the goods, cleared for export, into the custody of the first carrier - named by your buyer- at a named location. This term of contract agreement is suitable for all modes of transport.

DAF

Delivered at Frontier

You make the goods available, cleared for export, at a named location on the frontier. This term of contract agreement is suitable for rail/road transport.

DES

Delivered Ex-Ship

You make the goods available to your buyer on board the ship at the port of destination, not cleared for import.

DEQ

Delivered Ex-Quay

This is one step further than DES, the goods must be unloaded into the quay at the port of destination and import clearance must be obtained by you.

CPT

Carriage Paid To

This term is the multi-modal equivalent of CFR. You pay for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier.

CIP

Carriage and Insurance Paid to

This is the multi-modal equivalent of CIF. You pay for carriage to the named point of destination, but risk passes over when the goods are handed over to the first carrier.

DDU

Delivered Duty Unpaid

You must deliver the goods all the way to a named location in the country of destination. However, your buyer must clear the goods for import and pay necessary duties.

DDP

Delivered Duty Paid

This contract is the maximum obligation for you, since you have to pay for delivery of the goods all the way to your buyer's front door.

Seller and buyer obligations

Certain essential obligations are assigned to both the seller and buyer regardless of the Incoterm quoted.

The seller’s obligations:

  • Supply the correct quantity, quality and value of the goods in accordance with the buyer’s order.
  • Supply the goods on or before the stipulated dispatch date, or within the agreed time span.
  • Prepare, produce or manufacture the goods and then pack them, ensuring that they are ready for dispatch.
  • Pack the goods at the seller’s own expense in the form of packing that the buyer requires. If the buyer has not provided special packing specifications, the goods should be packaged so that they can withstand the mode or modes of transport to their final destination. When the goods are shipped without packaging, the seller is responsible for protecting the goods against natural hazards such as rust and corrosion, in accordance with normal trade practice.
  • Mark and individually number packages to correspond with any packaging list that the buyer requires. This includes marking the weight and dimensions of packaged/unpackaged goods, cautionary marks to indicate methods of handling, and where appropriate, international labels indicating the hazardous nature of the goods.
  • Provide the buyer with a commercial invoice and a parking list where required, as well as any certificates concerning the origin of the goods and any other necessary documentation to enable the buyer to take delivery of the goods in the country of destination.

The buyer’s obligations:

  • Accept all risks, as well as loss of, damage to the goods from the place and time agreed upon, until the moment and port or place the buyer receives the goods.
  • Pay all additional costs that may arise from the buyer’s own failure to accept delivery of the goods in a timely manner.
  • Provide the seller (if requested to do so) with appropriate evidence that the goods have in fact been appropriately and successfully delivered to the buyer.

In addition to these above-mentioned obligations, both the seller and the buyer must recognize the importance of communication. The seller must always give sufficient warning to the buyer prior to the movement of the goods as to when the buyer can expect to receive them or when the buyer could be expected to pay costs such as sea freight charges. This is vital to enable the buyer to arrange for smooth and problem-free movement of the goods, thus avoiding any additional expenses.

The buyer must ensure that his/her instructions to the exporter about any matters that the exporter is responsible for, are efficient and clear.

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The Kenya Export Promotion and Branding Agency (BRANDKE) is a new State Corporation established under the State Corporations Act Cap 446 through Legal Notice No.110 of August 9th, 2019
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