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Time of risk transfer in the international contract for the sale of goods in Incoterms 2020

Time of risk transfer is one of the most critical legal issues that buyers/sellers need to know when entering into an international contract for the sale of goods. In particular, the parties are often based on Incoterm conditions to determine the time of risk transfer in the international contract for the sale of goods according to Incoterm conditions. So, what is the risk transfer and when does risk transfer from seller to the buyer? In this article, Apolo Lawyers (Tel: (+84) 903.419.479) will answer these questions. 

It is essential for the buyer and the seller to know time of risk transfer in the international contract for the sale of goods in Incoterms 2020 so that they can ensure their rights and benefits when entering into the international contract for the sale of goods. 

1. What is the time of risk transfer?

A transfer of risk is a business agreement in which one party pays another to take responsibility for mitigating specific losses that may or may not occur. 

When entering into the contract, the parties often agreed on the time of risk transfer. However, in the case that the parties have no agreement when the risk transferred from the seller to the buyer, it will be based on the provisions of law. 

Moreover, it is very important to know the difference between the time of transfer of ownership and the time of risk transfer. In some case, the time of transfer of ownership is not the time of transfer of risks. 

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2. What are Incoterms? 

The Incoterms are a set of international commercial terms including 11 individual rules issued by the International Chamber of Commerce (ICC) which define the responsibilities of sellers and buyers for the sale of goods in international transactions. Of primary importance is that each Incoterms rule clarifies the tasks, costs, and risks to be borne by buyers and sellers in these transactions.  

Incoterm 2020 includes the conditions of use for one or more modes of transport and conditions apply to sea transport and inland waterway transport

As for the group of delivery terms for one or more modes of transport, according to Incoterms 2020, 7 conditions are listed, specifically:

  • EXW – Delivered at the factory

  • FCA – Delivering the goods to the carrier

  • CPT – Fees to be paid to

  • CIP – Fees and insurance paid up to

  • DAP – Delivery at destination

  • DPU – Delivery at unloading place

  • DDP – Delivery cleared for import

Terms and conditions apply to sea transport and inland waterway transport

For the group of conditions applicable to sea transport and inland waterway transport, according to Incoterms 2020, four conditions are listed, specifically:

  • FAS – Side-by-side delivery

  • FOB – Delivery on board

  • CFR – Freight and freight

  • CIF – Cost of goods, insurance and freight

The Incoterms 2020 rules are updated and grouped into two categories reflecting modes of transport. Of the 11 rules, there are seven for any mode(s) of transport and four for sea or land or inland waterway transport.   

3. Timing of risk transfer in Incoterm 2020. 

In Incoterms 2020, the time of risk transfer is specifically listed in each of the conditions of use for one or more modes of transport, specifically: 

3.1 The group of delivery terms for one or more modes of transport

3.1.1 EXW – Delivered at the factory: 

The seller bears all risks of loss of or damage to the goods until they are delivered to the buyer, and the buyer begins to bear all risks from the time the goods are delivered. A special feature in EXW delivery terms is that EXW means that the seller delivers the goods to the buyer when the goods are placed at the disposal of the buyer at a named place (factory or warehouse), and the named place may be the seller's premises or are not.

For delivery, the seller does not need to load the goods on the vehicle, nor do they need to clear customs for export. 

3.1.2 FCA – Delivering the goods to the carrier

FCA means that the seller delivers the goods to the buyer in one of two ways:

When the named place is the seller's premises, the goods are delivered when they are loaded on a means of transport arranged by the buyer, or

When the destination is nominated as another place, the goods are delivered on completion of loading on the seller's means of transport and to another named place and ready to be unloaded from the seller's means of transport and placed under the jurisdiction of the seller. of the carrier or another person nominated by the buyer.

The buyer bears all risks of loss of or damage to the goods from the moment they are delivered and the risks pass from the time the seller delivers the goods to the buyer at the named place for delivery

3.1.3 CPT – Fees to be paid to

CPT means that the seller delivers the goods to the buyer – and the risk of the goods is transferred to the buyer when the goods are delivered to a carrier hired by the seller or the seller purchases such consignment for delivery for the buyer.

As soon as the goods are so delivered to the buyer, the seller does not guarantee that the goods will arrive at the destination in good condition and complete. The risk is transferred from the seller to the buyer when the goods are delivered to the buyer by handing over to the carrier.

3.1.4 CIP – Fees and insurance paid up to

CIP means that the seller delivers the goods to the buyer – and the risk of the goods is transferred to the buyer when tthe goods are delivered to a carrier hired by the seller or the seller purchases such consignment for delivery for the buyer.

As soon as the goods are so delivered to the buyer, the seller does not guarantee that the goods will arrive at the destination in good condition and complete. The risk is transferred from the seller to the buyer when the goods are delivered to the buyer by handing over to the carrier.

3.1.5 DAP – Delivery at destination 

DAP means that the seller delivers the goods to the buyer – and transfers the risk of the goods to the buyer when the goods are placed at the disposal of the buyer on the arriving means of transport and ready for unloading at the place of destination. Nominated.

The seller bears all risks to bring the goods to the named place of destination. The risk of loss of or damage to the shipment passes to the buyer at the point of delivery.

3.1.6 DPU - Delivery at Place Unload  

DPU means that the seller delivers the goods to the buyer – and transfers the risk of the goods to the buyer as soon as the goods are unloaded from the arriving means of transport and placed at the disposal of the buyer at the place of destination. Nominated.

The seller bears all risks of loss of or damage to the goods in order to bring the goods to the named destination and unload. DPU is the only Incoterms condition that requires the seller to unload the goods at the destination (the seller bears the costs and risks of unloading).

3.1.7 DDP - Delivery Duty Paid 

DDP means that the seller delivers the goods to the buyer when the goods, which have cleared customs for importation, are placed at the disposal of the buyer on the arriving means of transport and are ready for unloading at the named destination. .

The seller bears all risks of loss of or damage to the goods in order to bring the goods to the named destination.

3.2 The group of conditions applicable to sea transport and inland waterway transport

3.2.1 FAS – Side-by-side delivery

FAS means that the seller delivers the goods to the buyer when:

The goods are placed alongside the vessel nominated by the buyer at the named port of shipment or the seller purchases such consignment for delivery to the buyer.

The risk of loss of or damage to the goods is transferred when the goods are placed alongside the vessel, and the buyer bears all costs from that point on.

3.2.2 FOB – Delivery on board

FOB means that the seller delivers the goods to the buyer when:

The goods are placed on board the vessel nominated by the buyer at the named port of shipment or the seller purchases such consignment for delivery to the buyer.

The risk of loss of or damage to the shipment passes when the goods are placed on board the vessel, and the buyer bears all costs from that point on.

3.2.3 CFR – Freight and freight

CFR means that the seller delivers the goods to the buyer when:

The goods are placed on board the vessel or the seller purchases such consignment for delivery to the buyer.

Risk of loss of or damage to the shipment passes when the goods are placed on board the ship, at which point the seller fulfills his obligation to deliver regardless of whether the goods arrive at the port of discharge in good condition and complete or not.

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3.2.4 CIF – Cost of goods, insurance and freight

CIF means that the seller delivers the goods to the buyer when:

The goods are placed on board the vessel or the seller purchases such consignment for delivery to the buyer.

The risk of loss of or damage to the shipment passes when the goods are placed on board the ship, at which point the seller fulfills his obligation to deliver regardless of whether the goods arrive at the port of discharge in good condition and complete or not.

Thus, the time of risk transfer when buying and selling goods depends on the conditions that businesses choose to implement.

If you have any questions about the contract and need a lawyer to consult on drafting the contract and advisee on choosing the terms to use when entering into the contract, please contact Apolo Lawyers for detailed answers. 

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