TOPIC 4: Technical Issues (1): International Contracts

Question 1

International Commercial Contracts: Vienna Convention 1980

Answer 1

Agreement between two companies

Located in different countries

Exchange of goods and services

Should include information about:
1. Terms of delivery (Incoterms)
2. Method of payment

This is the starting point of the relationship between the exporter and the importer

Question 2

International Operations: AGENTS INVOLVED

Answer 2

1) CARRIES AND FORWARDERS COMPANIES

2) BANK AND INSURANCE COMPANIES

3) CUSTOMS AND PUBLIC ADMINISTRATION

Question 3

International Commercial Contracts: THE SELLER OBLIGATIONS

Answer 3

• Transfer ownership of the goods
• Deliver the goods and documents in time and form.

The seller obligations depend on the terms of delivery agreed: International Commercial Terms INCOTERMS

Question 4

International Commercial Contracts: THE BUYER OBLIGATIONS

Answer 4

1. Accept the goods
2. Pay the sale price in the place and time specified in the contract

Question 5

Which are the 2 types of sells? ( related with incoterms )

Answer 5

Incoterms of sale at departure.
When the seller’s delivery obligation ends at the country of origin.

Incoterms of sale at destination.
When the seller’s delivery obligation ends at the country of destination.

Question 6

International Transactions imply

Answer 6

Different Countries
Different legislation
Different languages
Distance: delays, risks associated with transships
More costs: tariffs, taxes and more
International transport
Diverse cultures, frequent misunderstandings when interpreting the most basic issues of the commercial relationship.

Question 7

INCOTERMS: what does the acronym mean ?

Answer 7

“International Commerce Terms”

Question 8

What are the Incoterms ?

Answer 8

The International commerce terms is a concept that groups 11 international rules created, managed and government by the International Chamber of Commerce ( ICC )

They are not mandatory → They are voluntary, authoritative, globally accepted, and adhered-to text for determining the responsibilities of buyers and sellers for the delivery of goods under sales contracts for international trade.

Question 9

What is the main objective of the Incoterms ?

Answer 9

The main objective of Incoterms is that there is a complete understanding between the different parties involved in an international trade action.

It is very common in this type of commerce that the buyer and the seller do not speak the same language or do not belong to the same industry sector; a possible misunderstanding could mean great economic and/or time losses.

Incoterms make international trade easier to carry out since they allow entities from various countries to understand each other when using them in different sales contracts.
_______________________________________
Incoterms → Objective

To avoid and solve conflicts related to:
- Delivery.

• Expenditures.
• Risks.
• Responsabilidades.
• Documents

Question 10

What is the origin of the Incoterrms ?

Answer 10

Incoterms were first conceived by the ICC ( CAMARA DE COMERCIO INTERNACIONAL) in 1921, and the first Incoterms rules were created in 1936.

Since then, Incoterms have evolved into a codified worldwide contractual standard.

They are periodically updated as events in international trade occur and require attention

Question 11

Explain Incoterms 2020 and how to use them ?

Answer 11

In order to use Incoterms, this must be clearly stated in the contract of sale by indicating: the Incoterms rule chosen, the port, designated place or location, followed by “Incoterms 2020“ (example: CIF Hong Kong Incoterms 2020)

The choice of the Incoterm has to be done in function with the organizational capacities of the enterprise, the type of transportation used, the level of service that the enterprise wishes to provide to the client or the resources of its supplier, or it could be in function to the common practices of the market, or the practices used
by the competitors, etc.

The Incoterm selected must also be well-adapted to the type of goods that will be shipped and the type of transportation that will be used.

Question 12

Name the Incoterms for any mode of transport ( there are 7)

Answer 12

1) EXW (Ex Works)
2) FCA (Free Carrier)
3) CPT (Carriage Paid To)
4) CIP (Carriage and Insurance Paid To)
5) DAP (Delivered at Place)
6) DPU (Delivered at Place Unloaded)
7) DDP (Delivered Duty Paid)

Question 13

Name th Incoterms for sea and Inland Waterway Transport ( there are 4)

Answer 13

1) FAS (Free Alongside Ship)
2) FOB (Free on Board)
3) CFR (Cost and Freight)
4) CIF (Cost, Insurance, and Freight)

Question 14

EXW

Answer 14

Ex Works

Question 15

FCA

Answer 15

Free Carrier

Question 16

CPT

Answer 16

Carriage Paid To

Question 17

CIP

Answer 17

Carriage and Insurance Paid To

Question 18

DAP

Answer 18

Delivered at Place

Question 19

DPU

Answer 19

Delivered at Place Unloaded

Question 20

DDP

Answer 20

Delivered Duty Paid

Question 21

FAS

Answer 21

Free Alongside Ship

Question 22

FOB

Answer 22

Free on Board

Question 23

CFR

Answer 23

Cost and Freight

Question 24

CIF

Answer 24

Cost, Insurance, and Freight

Question 25

Explain: EXW (Ex Works)

Answer 25

The seller only provides the goods at their premises. Seller pays: Production cost only. Buyer pays: Local transport, export customs, international freight, insurance, import customs, and final delivery.

Question 26

Explain: FCA (Free Carrier)

Answer 26

The seller delivers goods to the carrier. Seller pays: Transport to the agreed location. Buyer pays: International freight, insurance, import customs, and final delivery.

Question 27

Explain: CPT (Carriage Paid To)

Answer 27

The seller covers transportation to the destination. Seller pays: Transport to the named destination. Buyer pays: Insurance, import customs, and final delivery.

Question 28

Explain: CIP (Carriage and Insurance Paid To)

Answer 28

The seller also pays for insurance. Seller pays: Transport and minimum insurance. Buyer pays: Import customs and final delivery

Question 29

Explain: DAP (Delivered at Place)

Answer 29

The seller delivers to the final destination but does not cover import duties. Seller pays: All transport costs except import clearance. Buyer pays: Import duties and taxes.

Question 30

Explain: DPU (Delivered at Place Unloaded)

Answer 30

The seller delivers and unloads the goods. Seller pays: All transport and unloading costs. Buyer pays: Import duties and taxes.

Question 31

Explain: DDP (Delivered Duty Paid)

Answer 31

The seller pays all costs, including import duties. Seller pays: Everything up to the buyer’s location. Buyer pays: Nothing until goods are received.

Question 32

Explain: FAS (Free Alongside Ship)

Answer 32

The seller delivers goods next to the vessel. Seller pays: Transport to the port of shipment. Buyer pays: Loading onto the ship, freight, insurance, and import clearance.

Question 33

Explain: FOB (Free on Board)

Answer 33

The seller loads goods onto the ship. Seller pays: Transport and loading onto the vessel. Buyer pays: International freight, insurance, and import duties.

Question 34

Explain: CFR (Cost and Freight)

Answer 34

The seller covers freight to the destination port. Seller pays: Freight to the destination. Buyer pays: Insurance, import duties, and final delivery.

Question 35

Explain: CIF (Cost, Insurance and Freight)

Answer 35

The seller also pays for insurance. Seller pays: Freight and insurance to the destination port. Buyer pays: Import duties and final delivery.

Question 36

How to calculate EXW – Ex Works

Answer 36

GROUP E: MINIMUM SELLER RESPONSABILITY Calculate: all costs from the seller’s warehouse to final destination.

Question 37

How to calculate FCA – Free Carrier

Answer 37

GROUP F: Main transport unpaid by seller Calculate: buyer pays from that point onward (main transport, import).

Question 38

How to calculate FAS – Free Alongside Ship (only for sea freight)

Answer 38

GROUP F: Main transport unpaid by seller Calculate: buyer pays loading, sea transport, import duties.

Question 39

How to calculate FOB – Free On Board (only for sea freight)

Answer 39

GROUP F: Main transport unpaid by seller Calculate: buyer pays from the moment goods are on board.

Question 40

How to calculate CFR – Cost and Freight (only for sea freight)

Answer 40

Group C (Main transport paid by seller) Calculate: seller pays sea freight, buyer handles import.

Question 41

How to Calculate CIF – Cost, Insurance and Freight (only for sea freight)

Answer 41

Group C (Main transport paid by seller) Calculate: seller pays freight + insurance, buyer handles import.

Question 42

How to calculate CPT – Carriage Paid To

Answer 42

Group C (Main transport paid by seller) Calculate: seller pays transport, buyer pays insurance + import.

Question 43

How to calculate CIP – Carriage and Insurance Paid To

Answer 43

Group C (Main transport paid by seller) Calculate: seller pays transport + insurance, buyer pays import.

Question 44

How to calculate DAP – Delivered at Place

Answer 44

Group D (Maximum seller responsibility) Calculate: seller pays all transport, buyer pays only import taxes.

Question 45

How to calculate DPU – Delivered at Place Unloaded

Answer 45

Group D (Maximum seller responsibility) Calculate: seller pays and unloads, buyer pays import.

Question 46

How to calculate DDP – Delivered Duty Paid

Answer 46

Group D (Maximum seller responsibility) Calculate: total cost delivered to buyer’s door with no extra charges.