LESSON (2): DELIVERY RULES
Posted Sept 2, 2021
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FTNX defines all end buyers, suppliers, exporters, importers, sellers, buyers and all informed traders as PCT (Professional Commodity Traders.) This aspect makes it much easier for FTNX to ‘generalise’ the advice provided in this website, as all informed PCT should be using or ought to be using uniform long-tested aspects of the trade to do with payment and delivery.
INCOTERMS 2020 DELIVERY RULES AND OBLIGATIONS OF THE PCT WHEN APPLYING TO USING AN UCP600 ‘AT SIGHT’ DLC TO PAY FOR GOODS
There are Eleven Incoterms in this new release. The least obligation is served via EXW. Most obligations are applied under DAP and DDP delivery term. Those who want to learn more about Incoterms can buy a booklet from the ICC website.
A PCT including FTNX can only apply the following Incoterms as per 2020 Edition.
- Any carriage mode: FCA and CIP:
- Carriage by ocean-going vessel: CFR, FOB, FAS and CIF
Incoterms 2010 apply similar aspects except for a few minor differing details, and may still be implied or formally applied while current UCP 600 rules are in effect. The delivery term CPT may also be used at times, mostly for special transactions applied under air cargo deliveries where the supplier accompanies the goods being sold i.e: Deep storage gold bullion carrying no current assay. FOB ‘Freight and Collect’ allowable variable (FOB&F) may also be used by a PCT, and well as ‘CIF&C’(and commission.) In all cases a Charter Party BOL (Bill of lading) cannot be used by a PCT because, under UCP, the PCT (FTNX) has to produce a more expensive BOL which is endorsed by the Shipowner is another unseen security feature of UCP.
(1) FCA: FREE CARRIER: FOB is not the correct term when dealing in Full Container Loads (FCL), FCA is. FTNX as seller arranges all expenses from supplier to Customs Freight Station (CFS) and secure the appropriate Custom documents to that point. All obligations thereafter for is for the end buyer: Furthermore, FTNX must also secure the added “Received BOL” to the documents it must present to its bank under a UCP DLC payment mode.
(2) CIP: CARRIAGE AND INSURANCE PAID: CIF is not the correct term when dealing in Full Container Loads (FCL) CIP is. The cost for FTNX includes freight and all expenses in unloading over the ship's rails, at the port of destination. Exception: FTNX must secure a ‘shipped on board BOL’ as endorsed by the Shipowner POL to be able to collect on the DLC once delivery POL is completed is another added unseen security feature that a PCT is expected to comply with intently with, under UCP ‘at sight’ presentation rules.
(3) CPT: CARRIAGE PAID TO: Not often used or applied by FTNX except for special transactions. All expenses are for FTNX ‘over the ships rails’ port of unloading or customs terminal at the destination airport.
(4) FAS: FREE ALONGSIDE: FTNX delivers goods to a loading port where they are placed ‘alongside’ ready for loading by a ship heading to berth or is at berth. All expenses at the port from ‘lifting’ thereon are for the end buyer.
(5) CIF: COST FREIGHT AND INSURANCE: All expenses are for FTNX including, freight and insurance ‘over the ship rails’ POL (Port of loading). The supplier now under incoterms 2020 offers to the Buyer (PCT) Class “A” Insurance cover, where previously Class “C” cover was the minimum cover required to be offered.
Added Insight CIF: The end buyer may rescind this higher cover to favour the lower Class “C” insurance coverage, which the supplier must accept. So where is the difference that required the issuance of a newly revised set of incoterms so soon? I’m sure in their wisdom the ICC has reason to add such trivial matters in creating a change and new incoterms publication. FTNX cannot see what the reason may be except to say it may have something to with liabilities and the serving of ambiguous advice. If an end buyer is NOT offered Class “A” insurance by the supplier and takes the minimum cover as advised by under Incoterms 2010, in where a Class “A” event occurs during a voyage, then it could be legally held that the end buyer was not informed about other insurance coverage options. The action of the supplier in only offering the lower class insurance cover could hold the supplier liable for losses incurred by the end buyer. As stated no changes to the FTNX doctrine applies, and the PCT can change to the Incoterms 2020 perspective accordingly. No change to the base trading routine applies, In closing; We offer issuance cover to the end buyer, and like insurance coverage taken all over the world, if one takes the cheaper cover not accounting for the possibilities of an adverse advent, then the insured person is not covered, should such an adverse event occur. The PCT can only advise or recommend the buyer to take ‘suitable insurance cover,’ we cannot forcibly dictate to them the type of cover to take, which is a reasonable argument. From 2018 for (the more dangerous) crude oil and fuel shipments FTNX has been offering all risk Class ‘A’ cover to its clients. From 2021 FTNX will remain offering Class “C” minimum insurance coverage to its clients adding the following clause on the offer “unless agreed upon otherwise” until all templates are gradually changed. By offering the class “A” cover only as we have attempted to do on a few occasions, the end buyer had often asked us for the lower cover anyway forcing the PCT (undue delay) to return to the supplier to seek class ‘C’ cover; an option which the end buyer also has, at his or her discretion anyway under incoterms 2020. For a CFR transaction, “The buyer shall secure appropriate insurance cover, before delivery taking place,” remains the standing aspect, ‘unless agreed upon otherwise’ is a term already used under ICC UCP banking rules, could certainly accommodate and support the same usage under incoterms.
(6) The PCT using incoterms CIF is reminded that 115% of the value of the goods is sought from the supplier to ensure matters of commission payments ( which must be disclosed on the invoice and cannot exceed 5.0% of good value) are not assessed for import tariffs and taxes.
(7) CFR: COST AND FREIGHT: All expenses are for FTNX up to the port of loading including freight, ‘over the ships rails.’
Added Insight: Does not include insurance which the end buyer must secure priority loading operations as ‘reminded’ by the PCT.
(8) FOB: FREE ON BOARD: This is the most popular delivery model for whole NBC shipments. All expenses POL ‘over the ships rails’ for goods placed in good condition on board. If the end buyer asks the PCT to also secure the BOL, then the PCT may do so on the condition that the BOL does not form part of the payment process applied to the UCP 600 DLC, as secured at buyers expense as the DLC collection conditions will not accept a Charter Party BOL.
Unless other arrangements have been made, under CIF proper, even though freight is marked as pre-paid, as applied for at time of booking the vessel; as served under the reference of the UCP 600 DLC held by FTNX, the freight needs to be ‘earned’ by the carrier before it can collect on any assured pre payment advice served at the time of booking. The freight value is not collected by FTNX which remains in the account of the end buyer as applied as a credit on the sellers (FTNX) invoice so that the end buyer can pay for freight. Under UCP DLC rules sellers invoice is a crucial document and it already applied under such rules that debit and credit application is in play in a matter of freight; is a very good application, as the freight component offered by the PCT must be genuinely served and that; if the total value of goods was applied on the seller's invoice as a lump sum, import duties would be applied of the ‘whole lump sum’ has been tested in international court challenges. Every detail must be entered on the invoice separately in where debits and credits must apply is another added unseen feature that FTNX must apply when selling commodities to the end buyers. The Certificate of Origin is secured by the FTNX but its expense is applied as a debit against the end buyer account as this is an importation requirement. PSI inspection of goods is for the FTNX to bear and indicated on the offer; if the end buyer wants a different PSI service, then the end buyer pays for such etc. etc. The terms ‘delivery’ means delivery of documents and not physical goods is what incoterms is specifying when it comes to the collection process of the DLC. Even if FTNX gave the end buyer let's say 90 or 180 days deferred payment option on an exceptional deal, a UCP 600 financial instrument will still need to be issued in advance once the contract is signed.
Working in an ’ad hoc’ matter where Incoterms is used but is not supported by a UCP 600 DLC payment instrument; such an aspect offers very little protection, as Incoterms deals with ‘delivery obligations and expenses’ of parties to the contract. When UCP 600 DLC payment instrument is strictly applied in combination with the virtues offered under Incoterms delivery rules (as all informed PCT’s are required to apply) a formidable routine and safe practices prevail protecting both the supplier, the PCT and the end buyer intently. FTNX will not accept any other payment mode other than a UCP endorsed DLC offers us peace of mind that the intention of the end buyer is served. FTNX applies Incoterms with UCP rules, which is an exclusive formidable aspect of trade that all PCT’s must apply.