LOG305 International Trade Law: Incoterms, Rules, and Analysis Report

This report, prepared for LOG305 International Trade Law, analyzes the application of Incoterms (DAP, FAS, FOB, and CIF) for a palm oil exporter in dealings with different countries, considering factors like infrastructure, political and economic conditions, and port efficiency. It details the responsibilities of sellers and buyers under each Incoterm. Furthermore, the report compares the Hague-Visby Rules and the Hamburg Rules, focusing on their impact on carrier liability, cargo types covered, and limitations of liability, providing a comprehensive overview of international trade law principles. The analysis highlights the suitability of the Hamburg Rules for handling complex cases due to its flexible approach to different cargo types and broader liability determination.

Running head: INTERNATIONAL TRADE LAW
INTERNATIONAL TRADE LAW
Name of the Student
Name of the University
Author Note

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Palm Oil Plantations in Country A is an established exporter of crude palm oil (CPO)
and palm oil-related products, and it is been shipping the same to the Countries B, C, D, and
E for the last 50 years. Below is the preferential incoterms for Country A’s AS A seller in
their dealings with Country B, C, D, and E;
For Country B, the best incoterm will be DAP or Delivery At Place because it is a
modernized country, where the government has invested significantly to create a developed
and skilled workforce, automation and digitization technologies along with efficient port and
transportation infrastructure. Furthermore, the seller can take such a huge risk of transport as
the currency of country B is stable and almost every global insurance companies and freight
forwarders have a presence in this country. In addition to this, the country's dependency on
imports and familiarity with import formalities and global logistics requirements is the
influential factor behind such risk-taking (Projectmaterials, 2010).
In the case of DAP, the seller is accountable for the transport of goods from the spot
of departure such as business location, warehouse to the preferred destination agreed between
the exporter and the importer, where such shipment will discharge.
The risk associated with the DAP term is required to bear by the seller until goods are
being delivered to the destination place and the same cannot be charged back from the seller.
Therefore, the seller requires to have insurance for shipment under DAP terms to mitigate the
potential risk (Myseatime.com).
The seller’s compulsion under DAP is to provide the delivery of the goods as well as
to provide an invoice for such delivery, the seller needs to provide local authorization or
licenses to export goods, the seller is obligated to unload the goods at the decided destination,
the seller is further required to make payment for the expenses of the main carriage, export

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clearance cost, and also require to pay for the checking cost, quality control cost, packaging
and marking cost. In case any extra cost is required for packaging, the seller must inform the
buyer. On the other hand, the buyer is mandated to pay the cost of the goods, the buyer must
have an import license, the buyer is obliged to give a notice about the time and destination of
the shipment, the buyer is required to pay customs duties while unloading the shipment
(Pathak, 2016).
For Country C, the best incoterm will be FAS or Free, where the seller is required to
delivers a shipment to the buyer when the goods are alongside the ship at a place agreed by
the buyer. From then onwards, the buyer has to abide all risk related to the goods. This is
suitable because the political and legal scenario in that country is relatively uneven along
with challenging economic conditions. It is further evidencing an overall GDP deficit.
Therefore, buyers from this country might have face uncertainty regarding the terms of
payment.
Therefore, in the case of FAS, the risk relating to the loss and damage of shipment goods has
to bear by the buyer once the seller has delivered alongside the ship to the buyer according to
their agreed terms. To mitigate the risk associated with the loss or damage of the products
during carriage, the buyer is required to obtain insurance.
The seller must pay for the requisite cost regarding the export of the goods to get clearance
and deliver the same according to the precise terms of the FAS agreements. In case the buyer
is required to bear such export expenses, it has to be explicitly mentioned in the FAS
agreement (Eldovića et al., 2015).
The buyer must arrange a carrier for the shipment after getting delivery from the seller, as a
buyer is a shipper from that point of time. Furthermore, the buyer needs to bear all sorts of
cost including the insurance cost regarding the shipment of such goods from that point of

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time. Therefore, the liability of bearing the cost of the shipment transfers from the seller to
the buyer in case where the goods have been put alongside the ship.
For Country D, the most favorable incoterm will be FOB or Free on Board. This is
because, in this term, the seller’s responsibility is only to transport the goods at a pre-
approved port. Therefore, the risk of the seller to incur loss or damage regarding shipment is
less. This is preferential due to the surrounding facts of Country D such as, congestion at the
port of such country which varies from 3 to 14 days along with inefficiency in taking
reasonable precautions regarding safety at the port terminal. Further demoralized factors
include unnecessary delay in the discharge of cargo and the occurrence of unreasonable
demurrage. In addition to this, the process of customs clearance can be held to be a
challenging factor irrespective of the fact that in the country there exist well-established
insurance and logistics industries (Bhogal & Trivedi, 2019).
Under the term of FOB, the seller conveys the shipment to the carrier approved by the
buyer. From such point, the seller's liability regarding the shipment gets over and the buyer's
liability comes into the picture.
In FOB, the risk is said to have been passed to the buyer where the shipment crosses
the ship's rail. Therefore, the buyer required to obtain insurance to secure the journey of the
goods through the whole shipment against loss or damage.
The seller must deliver the required shipment to the carrier decided by the buyer and
borne cost up to that point. Shipping expense and risk, from that point onward, has to be
borne by the buyer. The buyer must arrange a carrier for the shipment and bear all incurred
costs once the goods pass the ship's rail.
For Country E, the preferred incoterm will be CIF or Cost, Insurance and Freight if
the shipment is not happening during that time when the weather is stormy. This is because

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the seller can take the risk in this case (Nugroho, 2015). After all, the government of this
country had invested heavily in the growth of the transport infrastructure, which has resulted
in a fairly efficient inland transportation infrastructure. Their ports are well organized and
efficient, with the increasing use of automated handling within the port terminal. However,
due to the existence of complex custom rule and frequent strike, it is better to end the
shipment liability of country A at the port of destination. In case of stormy weather, the best
incoterm is FOB or Free On Board, where the seller is not required to abide the peril of loss
or damage of goods in stormy weather and the risk of shipment transfer to the buyer when the
shipment crosses ship’s rail (Mahdavian & Maruthi, 2018).
The risk in both CIF and FOB passes on when the shipment crosses the rail of the ship
to the buyer. Therefore, it is mandatory for the buyer to obtain insurance to secure the voyage
of the goods through the whole shipment against loss or damage.
The obligation of the seller in CIF is to arrange carrier and pay for the costs and
freight required for the shipment of the goods at a destined port. The seller is further liable for
paying the insurance to secure the buyer against any loss of or damage to the goods
throughout the carriage. On the other hand, the buyer is bound to pay the price of the goods,
the buyer must have an import license, the buyer is obliged to give a notice about the time
and destination of the shipment, the buyer is required to pay customs duties while unloading
the shipment.
The differences between the Hague-Visby Rules and the Hamburg Rules in terms of the
impact on the carrier are discussed below.
The Hague-Visby rule primarily focuses on and enforced on such a bill of landings or
similar kind of document. The rule does not apply on negotiable documents, waybill, and
charter parties as these documents are not recognized as a title document (Samkange, 2017).

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However, the exception is available for the straight bill of landing which under
Hague-Visby rule is similar like the bill of landings as envisaged in Article I (b) of the rule
According to Section 1(b) of the U.K. Carriage of Goods by Sea Act 1971, the Hague-Visby
rules can only be enforceable in cases of the bill of lading where such expressly states that the
rules shall administer contract (Pyrene Co Ltd., v. Scindia Navigation Co Ltd).
On the other hand, in the case of the Hamburg Rule, its application is valid upon the
carriage agreement and not upon the bill of lading. However, the Hamburg Rules still forces
upon the fact that the carrier must issue a bill of lading. In this regard, necessary rules have
been made for the photocopy and electronic broadcast of bills of lading (Ceil, 2018).
In the case of nature of Cargo, According to Article (1) (c) of the Hague – Visby
Rules, it is applicable for all kinds of goods, merchandise, and articles but not applicable for
the deck cargo and live animals. However, the rule leaves the space for both the parties of a
shipment to decide over such an exclusion depending upon the unique monitoring required
for these two types of cargo (Svenska Traktor v. Maritime Agencies).
On the other hand, the Hamburg rule is applicable to all kinds of Cargo. According to
Article 5 (1) and Article 9 of the Hamburg Rule, both live animal and deck cargo is allowable
under this rule subject to the proper compliance of the agreement between the parties and
proper execution of the bill of lading.
To determine the liability of the carrier, the Hague-Visby rule under Article III states
that the carrier should take adequate efforts to look after the quality and security of the
shipped goods during the carriage (Zhao, 2016).
The Hamburg rule distinguishes between the carrier and the actual carrier. Under
Article 5 of the rule, it stated that a carrier is legally responsible for each loss or damage

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along with delayed delivery of goods during the whole shipment unless the carrier provides
adequate proof to establish the fact of his or her innocence.
In case of limitation in case of delay of shipment, the Hague-Visby Rules are silent on
the same but the Hamburg Rules states that damages for delay are payable in nature of 2.5
times freight is payable than the actual price but the amount should not exceed the total
freight value (Andrews, 2017).
To determine the limitation carrier's liability, the Hague – Visby Rules limits such
liability in case of loss or damage as 666.67 SDRs for each package or $ 970.00 (approx), or
2 SDRs/Kg or $1.32 per pound (approx), any of which is higher (Wersel, 2016).
In the case of Hamburg Rules, the liability is limited as per the calculation of 835
SDRs for each package or $210.00 (approx), or 2.5 SDRs/ Kg or $1.65 per pound (approx),
any of which is higher.
Therefore, it can be concluded that for the shipment of both type of oil mentioned in
this case, it is admissible to follow the provisions of Hamburg Rule due to the flexible nature
of the same upon a different kind of cargo's and also its broader approach in determining
liabilities, which is required in the dealing of above-mentioned complex cases of different
countries.

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Reference:
Andrews, M. D. (2017). The Rotterdam rules: to what extent do they provide appropriate
solutions to the shortcomings of the Hague-Visby rules and the Hamburg rules with
regard to multimodal transportation, the carrier’s seaworthiness obligation and the
nautical fault defence? (Doctoral dissertation).
Bhogal, T., & Trivedi, A. (2019). INCOTERMS 2010. In International Trade Finance (pp.
117-130). Palgrave Macmillan, Cham.
Ceil, C. (2018). Limit Liability under Hague-Visby, Hamburg and Rotterdam
Rules. Hamburg and Rotterdam Rules (December 4, 2018).
Eldovića, E., Vukašinovića, M., Tešića, M., & Bijelić, S. (2015). International commercial
terms-Incoterms 2010. In 2nd Logistics International Conference, Belgrade, Serbia.
Mahdavian, S., & Maruthi, T. R. (2018). Obligations Of Buyer And Seller In Contract Of
Marine Insurance Of Carriage Of Goods Thatenacted By Incoterms. International
Journal of Social and Economic Research, 8(1), 69-78.
Myseatime.com. (2015). Incoterms: Guide of everything you want to know about -
MySeaTime. Retrieved 12 April 2020, from
https://www.myseatime.com/blog/detail/incoterms-guide-of-everything-you-want-to-
know-about
Nugroho, B. (2015). The use of CIF Incoterms in Indonesia’s import declarations. World
Customs Journal, 91.
Pathak, A. (2016). Understanding Incoterms 2010. Available at SSRN 2712669.

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Projectmaterials. (2010). What are Incoterms? (ExW, FOB, CFR, CPT,...) - Projectmaterials.
Retrieved 12 April 2020, from https://blog.projectmaterials.com/project-
procurement/incoterms-2010
Pyrene Co Ltd v Scindia Steam Navigation Co Ltd [1954] 2 QB 402
Samkange, R. K. (2017). Are the relevant provisions of the Rotterdam Rules dealing with the
identification of the carrier an improvement over the Hamburg and Hague-Visby
Rules? (Doctoral dissertation, University of Cape Town).
Svenska Traktor v Maritime Agencies (Southampton) Ltd [1953] 2 QB 295
Wersel, C. (2016, March). VI. Commentary on Regulation EC/1177/2010 Concerning the
Rights of Passengers when Travelling by Sea and Inland Waterway. In EU Maritime
Transport Law (pp. 408-490). Nomos Verlagsgesellschaft mbH & Co. KG.
Zhao, L. (2016). An empirical study on uniform seaborne cargo rules.