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Terms of delivery

As we already know there are 5 forms of international business (international trade, currency transactions, employing foreign assets, foreign investments & international services).

According to the classification of UNO there are 156 different services, but one of the leading (after tourism) is transportation. It can be explained by the fact, that transportation accompanies almost every deal, every contract, & is involved in all 5 forms of international trade. Even more, without development of international transportation the development of international trade & over forms of international business would be impossible.

International transportation involves not only a transfer of the goods from one mode of transport to another, but it also involves loading the goods, packing, marking, customs formalities, delivery etc. According to the classification of the “Incoterms-2000” in respect of the expenses of delivery & the risk of accidental damage or loss of the goods, in accordance of the responsibilities of the parties, there are may be various terms of delivery.

There are 4 groups: E, F, C & D. Each group is divided in some subgroups, which have their own characteristic.

The first group is E & it includes only one subgroup – EXW.

EXW – Ex Works (free on works/factory). In this group seller’s only responsibility is to make goods available on his promises. He is not responsible of loading the goods. The buyer bares all the risks. This group supposes the minimum seller’s responsibility.

The second group is F & it includes 3 subgroups: FCA, FAS & FOB.

FCA – FreeCarrier. The seller’s responsibility is to deliver the goods to the frontier of the seller’s country in the place, named in the contract. As soon as the goods are at the border – they are in custody of the buyer. The buyer is responsible for unloading the goods from the wagon. The risk of damage or loss of the goods passes from the seller to the buyer at the place where the goods have been delivered.

FAS – Free Alongside Ship. The seller’s obligations are fulfilled, when the goods have been placed alongside the ship on the quay. From when moment the goods are in the custody of the buyer, & the buyer bares all the risks.

FOB – Free On Board. The seller’s responsibility is to deliver the goods to the quay at the frontier of his country & to load the goods on board the buyer’s ship. The risks transfer when the goods pass the ship’s rail.

The third group is C & it includes 4 subgroups: CFR, CIF, CPT & CIP.

CFR – Cost, Freight. The seller’s responsibility is to deliver the goods to the frontier of the buyer’s country. The risks pass to the buyer as soon as the goods pass the ship’s rail in the port in the port of loading.

CIF – Cost, Insurance, Freight. The same as the CFR, with the only difference that the seller also pays for the insurance & unload the goods.

CPT – Carriage Paid To. The seller’s responsibility is fulfilled as soon as he delivered the goods to the frontier of the buyer’s country & unloaded the goods. The buyer bares all the risks since the moment of transfer the goods to the carrier of the main freight at the frontier of the sellers country.

CIP – Carriage, Insurance, Paid To. The same as the CPT, with the only difference that the seller also pays for the insurance.

The fourth group is D & it includes 5 subgroups: DAF, DES, DEQ, DDU & DDP.

DAF – Delivered At Frontier. The seller’s responsibility is to deliver the goods to the frontier of the buyer’s country. The risks transfer from the seller to the buyer after customs formalities are done & the goods are in the custody of the buyer.

DES – Delivered Ex Ship. The seller must deliver the goods to the port in the buyer’s country. The buyer unloads the goods by himself & since the time the goods are in the custody of the buyer he bares all risk of the damage or loss.

DEQ – Delivered Ex Quay. The same as DES, but the seller also must unload the goods. After that all the risks transfer to the buyer.

DDU – Delivered Duty Unpaid. It is considered as door-to-door delivery. The seller should deliver the goods to the buyer’s place & unload them.

DDP – Delivered Duty Paid. The same as DDU, but the seller also pays the import duty. DDU & DDP suppose the maximum seller’s responsibility.

So to sum  it up we can say that the volume of the seller’s responsibility grows from the group E to the group D. In the groups E & F the goods are on the territory of the seller’s country. In group C the seller delivers the goods to the frontier of the buyer’s country, but the buyer bares all the risks from the frontier of the seller’s country. Group D is considered to be door-to-door delivery & the seller bares all the risks till the place of destination.

Also, speaking on this topic, I would like to define what the freight market is & give the classification of the freight markets.

The freight market is not the uniform market. It does not have a homogeneous connection with the specific geographical area but rather with ships that can carry similar types of cargos.

The most important freight markets are:

-          the dry cargo market

-          the tanker market

-          the reefer market

-          the passenger market

The dry cargo market is the most diversified market & may be divided into the following markets:

-          bulk & ‘tweendecker

-          container

-          ro/ro

-          liner

-          feeder

-          special

The bulk sector follows the variations in supply of the important bulk cargoes like coal, grain, ores & concentrates, steel, wood etc. The most important employment possibilities for ‘tweendeckers are all kinds of bagged commodities, like sugar, rice, cement, & also supplementary (“extrta”) vessels for the regular lines.

The container market is limited & requires large investments for the specially equipped vessels, port installations & terminal equipment. Container ships are used in traffic between highly industrialized areas with advanced transportation system.

Ro/ro (roll off/roll on) ships are ocean-going ships that can carry any types of goods (including industrial products, like machinery) & do not require any port installations other than a stretch of quay with the length equal to the width of the ship.

Liner traffic is a firmly controlled activity where remuneration is fixed well in advance.

The feeder market is represented with shipping companies carrying on independent trading with vessels of smaller sizes.

In addition to the above-mentioned types of vessels there are quite a number of special ships which meet various special needs:

-          heavy-lift carriers (built with the special demands on stability & constructional strength)

-          barges & pontoons (used for transporting heavy materials)

-          tugs

-          barge carriers

The main characteristic of the tanker marker is the small number of big charterers: the large oil companies & loading areas. The tankers are used to carry refined products, liquid chemicals, gas, oil etc.

Reefer ships (refrigerated) are employed in contract trading to a large extent, & for such goods as fruits, vegetables (seasonally), fish, meat etc.

The passenger ships in transoceanic liner traffic have now almost vanished. The most passenger ships are operated in short distance trade & have a capacity for rolling goods.

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