ABSTRACT
The volume of trade has reached to high rates in today’s globalized world. INCOTERMS that regulates the international delivery methods for sellers and purchasers during the process of foreign trade is quite significant, as the rules of INCOTERMS take an important place for the contracts that are prepared accordingly by regulating the place of delivery and the responsibility of the seller until the delivery. Moreover, INCOTERMS1 is a total structure including the risks and expenses of the good for the buyer until the delivery to the place of business. The delivery methods of Free Carrier (“FCA”) and Carriage and Insurance Paid to (“CIP”) are parts of INCOTERMS issued in 2010. When FCA and CIP are compared, significant differences occur within the scope of the responsibilities of the parties. In this context, one of the most important differences between them is that in CIP, the seller has to provide the delivery to the buyer by fulfilling the obligations of insurance and carriage.
I. INTRODUCTION
Incoterms2 states for rules that regulates the matters of the shipping and delivery of the goods in international sales. The parties determine the delivery method, the party that bears the risk and expenses relating to the good and the moment that the responsibility reverts to the other party. INCOTERMS are divided into two parts with the rules issued in 2010. Hereunder, the clauses that include the rules for all carriage methods and the clauses that include the rules for the marine and inland water transport are differentiated. The number of the clauses under INCOTERMS 2010 is eleven and FCA, which is one of the two delivery methods that are the subjects of this article, states the delivery of the good without payment of main carriage at the place to the carrier3. CIP, which expresses the delivery with the payment of the carriage and insurance, is the other method of delivery. FCA and CIP are the delivery methods which may be used for seaway, highway, airway or multi-means carriages4.
II. THE GENERAL PURPOSE AND SCOPE OF INCOTERMS
The most significant topics that are subject to negotiations between the seller and the buyer in international trade are the good, price, amount and payment. The topic of price contains several subtopics. One of them is the delivery. These topics that are important for parties and normally take long time to approach are concluded and organized easily through INCOTERMS rules published by ICC. INCOTERMS aims to interpret common terminology in the field of international trade on delivery of goods to regulate some international rules and thus to avoid different interpretations on these terms in international trade. INCOTERMS may be defined briefly as a standard body of rules regulating the rights and responsibilities of seller and buyer in international trade. However, it should be stated that the use of INCOTERMS in international trade does not prevent the usage of it in domestic trade. INCOTERMS regulates delivery of goods, delivery methods, transfer of risk, ones who import and export, sharing of expenses, distinction of goods, and preparation for delivery and documentary obligations. Besides, INCOTERMS is only applicable for trade of real goods. The goods that are subject to intellectual property as computer software etc. are out of the scope of INCOTERMS if they are traded without forming tangible assets5. The knowledge of out of scope fields besides the fields within the scope is also significant during the preparation of agreement. The out of scope fields can be stated as executive remedies for breach of contract, other topics about performance of contract, how ownership of goods passes to buyer from seller, payment and payment methods and insurance6.
The parties of contract solve some possible legal issues during preparation of contract and afterwards as (i) which party deals with custom transaction, (ii) place of delivery, (iii) who pays carriage payment for main contract of carriage of goods subject to international trade from seller’s country to buyer’s, (iv) obligation of insuring goods and payment of insurance premium, (v) liability for expenses until delivery and (vi) damage and loss problem occurs until the time of delivery7.
III. FCA AND CIP IN GENERAL
A. FCA in General
The term FCA is a delivery method suitable for every type of carriage and states the delivery of goods at seller‘s workplace or at another determined place to a carrier or other person assigned by buyer and at this moment transfer of risk to buyer8. In this sense, the delivery method is called “free carrier” because of the reason that seller delivers the good to carrier and main carriage expense is bared by buyer. In this delivery method, seller fulfills the obligation of delivery by delivering goods to carrier assigned by buyer at the place determined with completing custom clearance operations. If there is no determined place, seller may choose a place himself to deliver goods to carrier in a before specified territory. According to trade practice, for situations that require seller’s help to contract with carrier such as railway and airway transportation, seller may take an action himself at buyer’s own risk and expenses9.
B. CIP in General
CIP, as FCA, is also a delivery method which may be used in every type of delivery and seller fulfills his obligation of delivery to buyer by delivering goods to carrier but bears the expenses until the goods are delivered to the point of arrival. In the delivery method of CIP, seller forms a contract of carriage with a carrier he assigned and delivers the goods. Seller pays the carriage expenses and insures for damages and losses during carriage. Seller fulfills his obligation of delivery when the goods are delivered to the carrier not to the point of arrival10. Seller clears through customs only on a scale applied for exports, however has no obligation concerning imports. According to CIP, the obligation to insure is on seller but its scope is at minimum level. The name of the place that will be written next to the term of CIP shows until which point the insurance is paid by seller.
IV. THE IMPLEMENTATION OF FCA AND CIP AND THE DIFFERENCES
The delivery method of FCA can be used for every type of carriage methods such as seaway, highway, airway and railway that provides the delivery of the goods within the scope of contract of sale. In this delivery method, the one that seller delivers the goods is the person assigned by buyer himself or another carrier. Seller delivers the goods to these persons at his workplace or another determined place. The damage and loss of the goods are transferred to buyer at the time of the delivery to the carrier assigned the buyer. Another delivery method CIP can also be used for every type of carriage method, as FCA. However, unlike FCA, in CIP seller forms contract of carriage with a carrier chosen by himself and delivers the goods to that carrier. Seller pays expenses of carriage and insures for damages and risks during the carriage. Seller fulfills his obligation of delivery when the goods are delivered to carrier, not when they arrive to the point of arrival. In this context, starting from the moment where the goods are delivered to first carrier’s surveillance, seller bears no responsibility for risks and expenses. Henceforth, except from transportation and insurance premium, all the risks and expenses of the goods belong to buyer.
In the contracts of sale which FCA rules apply, seller clears through customs only on a scale applied for exports and he has no obligation with regard the imports. The matters, which are under seller’s obligation in FCA delivery method, are control/packing, customs operations and approbations for clearing through customs. Buyer is responsible for loading, transportation, discharging and customs operations and approbations for clearing through customs at arrival. Within FCA, insurance obligations cannot be attributed to one party but can be agreed on contract by parties11. In CIP delivery method, seller clears through customs only on a scale applied for exports however buyer has no obligation on custom clearance concerning imports. In the contracts of sale which CIP rules apply, seller is responsible for control/packing, customs operations and approbations for clearing through customs. Differently from FCA, loading the goods is seller’s obligation and distinctively the transportation and insurance obligations also belong to him. Within transportation, buyer recompenses general expenses that do not belong to seller. The insured sum should be at least 110% of the price of contract of sale. Buyer is responsible for discharging and customs operations and approbations for clearing through customs at arrival according to CIP delivery method. Pursuant to contract of carriage, buyer pays discharging expenses that do not belong to seller12.
The obligations of buyer, one party of contract of sale do not significantly differ between the contracts that FCA or CIP delivery methods are preferred. For both of the delivery methods, the principal obligation of buyer is to pay the price of the goods as provided in contract. Furthermore, buyer has to get the import permit or other certificates of authority and also clear through customs for import of goods and complete transactions for transit pass through other countries if necessary13. Since there is no obligation to sign a contract of carriage for seller within FCA, seller may conclude such contract at buyer’s own risk and expenses if buyer requests or custom of trade requires so and if buyer does not instruct against in reasonable due time14. In CIP delivery method, buyer pays the price of the goods as his principal obligation as provided in contract. Buyer has to complete the customs transactions by arranging the clearance for imports. He has to off-load the goods without delay by paying customs duty, discharging expenses and port charges at port of arrival. All the expenses except transportation and insurance premium are compensated by buyer after delivery15.
After explaining the obligations of buyer and seller in FCA delivery method, in order to make detailed explanations about the implementation it should be noted that in this delivery method primarily the goods that will be delivered by seller shall be gone through customs and delivered to carrier assigned by buyer at the place determined, so that the obligation of delivery of seller ends. At this point, if the buyer does not determine a certain place of delivery, seller may determine it. If the determined place is the workplace of seller, seller loads the vehicle which is sent by buyer. If the determined place is another place, seller brings the goods to that location and leave at the disposal of buyer. The buyer is under obligation in case the goods are not received or received posteriorly. However, it should be stated that the parties should determine the place of delivery as explicit as possible. Seller has the obligation to provide the goods and receipt or equivalent e-receipt in accordance with contract of sale and to keep available other documents if it is stipulated in the contract. According to trade practice, for situations that require seller’s help for concluding a contract with carrier such as railway and airway transportation, seller may take action himself at buyer’s own risk and expenses. If buyer gives instruction to seller to deliver the good to a specific person, for example a person who provides carriage services but is not personally a carrier, seller’s obligation of delivery will fulfilled when the goods are delivered to this person. As it is stated above, since the place of delivery has importance in terms of transfer of damage and risk, it should be written right next to the clause if FCA is applied to contract. In this context, from the moment the goods are delivered to that place, transportatıon, risk and all expenses will be under buyer’s obligation. When the goods are delivered to carrier at seller’s workplace, seller’s name will be written on carrier’s receipt as sender, but when another place of delivery is determined, seller delivers the goods in his vehicle ready to off-load and in this case buyer’s name will be written on carrier receipt as sender16.
In the contracts of sale that CIP delivery method is applied, primarily seller concludes a contract of carrier with the carrier that he determines in order to provide the delivery of the goods to buyer. In this context, seller fulfills his obligation of delivery at the time the goods are delivered to carrier. Regarding delivery of goods to carrier, seller pays carriage expenses and also has the obligation to insure for damages and risks during carriage. The scope of that insurance is narrow, only provides minimum protection. If buyer desires to benefıt from a larger insurance protection, he may request it from seller at his own additional expense or separately insure himself. In conclusion, in terms of CIP, seller bears risks, loading expenses, transportation and insurance premium and provides the goods to be brought to loading point. After these obligations are fulfilled, seller informs buyers that the goods are loaded at the determined time and place.
Seller insures the goods with appropriate insurances by paying insurance premiums. After loading of the goods, expenses and risks, except insurance premiums and transportation, transfer to buyer.
V. CONCLUSION
FCA and CIP are delivery methods which may be used for seaway, highway, railway, airway or multi-means carriages. It is very important to determine the times when seller’s obligation of delivery ends and when the damages transfer to buyer for both methods. In FCA, seller’s obligation of delivery is fulfilled when the goods, whose customs transactions regarding exports are completed, are delivered to buyer at place of delivery determined by contract. Expenses and risks transfer to buyer from seller with delivery to buyer at the place of delivery. With regard CIP, seller fulfills his obligation of delivery when the goods are delivered to carrier. Seller has no obligation to form a contract of carrier or insure according to the rules of FCA. However, when CIP is preferred, delivery of goods has to be performed by a carrier that is assigned by seller with a contract of carriage. In CIP, in contrast with FCA, loading the goods is an obligation of seller, he is also responsible for transportation and insurance premium and this differs CIP from other methods.
The determinant factor of which INCOTERM is preferred for delivery method of sales contract is the obligations of parties. In the light of explanations stated above, FCA can be defined as one of INCOTERMS that seller has the least obligations. In this context, the number of obligations, which have to be performed by buyer, is more than CIP. In CIP, since the seller has to pay for transportation and insurance premium, the risk, damage and loss of buyer are minimized. As a result, in accordance with nature of business and will of the parties, parties may arrange their financial and commercial obligations such as delivery, damage, insurance and payment for delivery of the goods subject to contract by applying INCOTERMS.
BIBLIOGRAPHY
Abdurrahman Özalp, ICC INCOTERMS 2010, Vol.1, Legal Yayıncılık, UTTDER Year 2012
Ferudun Kaya, Uluslararası Ticaret İşlemleri ve Muhasebesi, Beta Yayınları, 2nd Edition, Istanbul 2015
Hale Ezel, Uluslararası Ticarette Teslim Şekilleri (INCOTERMS) (Delivery Terms in International Trade), Masters Thesis, Dokuz Eylül University Institute of Social Sciences, Izmir 2013 ICC Guide to INCOTERMS 2010, ICC Services Publications, 2011
Mustafa Doğan, Incoterms 2010 Kurallarına Göre Hasarın İntikali, TAAD, Year 6, October 23 2015
Nuray Ekşi, Milletlerarası Ticaret Hukuku, Beta Yayınları, Istanbul 2010
Zeliha Günay Taşçı, INCOTERMS 2010 ile 2000 Broşürleri Arasındaki Farkların İncelenmesi (The Examination of the Difference Between the Incoterms 2010 and 2000 Rules), Masters Thesis, Istanbul Commerce University, Institute of Foreign Trade, Istanbul 2017
FOOTNOTE
1 INCOTERMS states for the abbreviated form of “International Commercial Terms”.
2 The rules of INCOTERMS which are used for international trade were first prepared by International Chamber of Commerce and issued in 1936. Due to the development in transportation and technology, the rules were first reorganized in 1953 and congruently in 1967, 1976, 1980, 1990, 2000 and 2010 for preamble reasons. When their historical progress is analyzed it should be noted that the rules are revised once in every ten years. INCOTERMS 2010 rules are in force since January 1st, 2011.
3 The carrier states the party who the contract of carriage is signed with.
4 Nuray Ekşi, Milletlerarası Ticaret Hukuku, Beta Yayınları, Istanbul 2010, p. 184-185.
5 Ekşi, p.184-185.
6 Ekşi, p.184-185.
7 Ekşi, p.184-185.
8 For general information about FCA please see ICC Guide to INCOTERMS 2010, ICC Services Publications, 2011, p. 98-109.
9 Ferudun Kaya, Uluslararası Ticaret İşlemleri ve Muhasebesi, Beta Yayınları, 2nd Edition, Istanbul 2015, p. 74.
10 Abdurrahman Özalp, ICC INCOTERMS 2010, Vol. 1, Legal Yayıncılık, UTTDER 2012, p. 8.
11 Özalp, p. 7.
12 Özalp, p. 8.
13 Zeliha Günay Taşçı, INCOTERMS 2010 ile 2000 Broşürleri Arasındaki Farkların İncelenmesi (The Ezamination of the Difference Between the Incoterms 2010 and 2000 Rules), Masters Thesis, Istanbul Commerce University, Institute of Foreign Trade, Istanbul 2017, p. 38.
14 Mustafa Doğan, Incoterms 2010 Kurallarına Göre Hasarın İntikali, TAAD, Year 6, October 23 2015, p. 237.
15 Taşçı, p. 59.
16 Hale Ezel, Uluslararası Ticarette Teslim Şekilleri (Incoterms) (Delivery Terms in International Trade), Masters Thesis, Dokuz Eylül University Institute of Social Sciences, Izmir 2013, p. 43.
