Choice of relevant incoterms available to parties
From the facts of the given case, it is apparent that the buyer, Bai Yun Incorporated, located in Beijing, China intends to iniatiate a sale of goods contract with the seller, Susie Seller located in Melbourne, Australia. Although neither party made any mention to the type of incoterm to be used, the buyer in this instance specifically requested that the terms of contract provide for main carriage to be arranged for and borne by the buyer. In addition to that, the buyer also insists on using China Ocean Shipping Company (COSCO). Because of this, it would be reasonable for us to assume that the main carriage will be through sea.
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On the other hand, with FCA terms, any mode of transport (air, rail, road) may be utilised. On the whole, regardless of which method chosen, the seller would have to make the goods ready and cleared for export.
Seller's costs and risks of relevant incoterms
Based on the above facts, the 3 available incoterms that are applicable to this situation are FOB, FAS and FCA. Under FCA terms, the risk passes from the seller to the buyer as soon as the seller delivers the goods to the first carrier. Realistically, this can happen when the Seller hands over the goods to a freight forwarder to be placed onto the vessel. Risk is said to have transferred from buyer to seller at this point. Furthermore, because the term is an “F” incoterm, there is no burden on the seller to arrange for or pay for main carriage and insurance. However, the seller is responsible in obtaining export clearance for the goods.
On the other hand, unlike FCA, FOB and FAS terms are specifically used for sea freight where goods are being transferred in bulk, or where the buyer has chartered a vessel to transport the goods. In the case of FOB, risk passes from seller to buyer when goods are delivered on board the ship. Traditionally, the previous rule for this term specified that the risk for the goods passed as it passed the ships rail. However, this term may have created confusion in certain instances, and as such the newer incoterm was designed to remedy this shortfall. Similarly, FAS is almost identical to the FOB term with the difference being that in FAS, the seller is required to deliver the goods “alongside” the buyer's carriage ship at the buyer's port of choice. Here, the risk passes from buyer to seller at the named port terminal. Under both these terms, the seller has minimal responsibilities which include bearing the costs of custom clearance, export permits, as well as getting the goods on board the vessel. Nonetheless, the seller still needs to be aware that even though risk of damage has transferred to the buyer, non-conformity of goods with the contract will still result in a breach of contract by the seller. Also, it is the responsibility of the seller to ensure reasonable care is taken to package the goods whilst in transit. In exceptional cases where the buyer does not nominate a ship or loading is impossible due to bad weather, the onus falls on the buyer to pay for storage and insurance. Risk passes from the agreed date of delivery.
Best Incoterm to incorporate into contract
Judging from the facts of the case, the most beneficial Incoterm for Susie to incorporate into her contract would be FCA. Although technically, any one of the “f” Incoterms maybe used in this instance, FCA places the least about of burden on the seller because the seller does not need to arrange or pay for carriage and insurance. With an FCA, Susie is only responsible to have the goods ready for pickup and export by the first carrier....