Seller (BNZ Trading Co, Vietnam) offers 200 tons of coffee to Buyer (ROTECH Co.
, Japan)
with the following conditions:
Q1. Seller agrees to deliver the goods to buyer under the term of CIF port of Osaka, Japan.
The goods were transported and unloaded at the port and kept at customs shed for
inspection and payment of duties. The buyer was notified of the arrival of the merchandise
and its location. Before the buyer picked up the goods, the customs shed (including the
merchandise in it) was destroyed by fire. The buyer claims refund of the purchase price,
stating that buyer did not receive the goods. Is the seller responsible? Why?
Seller: BNZ Trading Co, Vietnam
Buyer: ROTECH Co., Japan
Good: 200 tons of coffee
Seller agrees to deliver the goods to buyer under the term of CIF port of Osaka, Japan.
Context: The goods were transported and unloaded at the port and kept at customs shed. The
buyer was notified of the arrival of the merchandise and its location. Before the buyer picked up
the goods, the customs shed (including the merchandise in it) was destroyed by fire. The buyer
claims refund of the purchase price, stating that buyer did not receive the goods.
According to INCOTERMS 2010, CIF - “Cost, Insurance and Freight” means that “the seller
delivers the goods on board the vessel or procures the goods already so delivered. The risk of
loss of or damage to the goods passes when the goods are on board the vessel. The seller must
contract for and pay the costs and freight necessary to bring the goods to the named port of
destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or
damage to the goods during the carriage. The buyer should note that under CIF the seller is
required to obtain insurance only on minimum cover. Should the buyer wish to have more
insurance protection, it will need either to agree as much expressly with the seller or to make its
own extra insurance arrangements.” Hence, in this case, the seller is not responsible for the
destroyed merchandise since risk transfers from seller to buyer once the goods have been loaded
on board, i.e. before the main carriage takes place which means ROTECH Co. (the buyer) is
responsible for the goods as the goods were transported and unloaded at the port of Osaka, Japan
and kept at customs shed for inspection and payment of duties.
Q2. Seller agrees to deliver the goods to buyer at the following prices: (1) USD125,000 FOB
Saigon port; USD145,000 CIF Osaka port; USD162,000 DAP at buyer’s warehouse in
Osaka, Japan. Freight cost including loading fee to bring the goods from Saigon port to
Osaka port is USD17,000. Transportation cost including loading and unloading fee to bring
the goods from Osaka port to the buyer’s warehouse is USD14,000; Insurance rate is 0.2%.
Import duty is 5% of the FOB price.
1. Buyer will choose to buy at what price? Why?
2. What must the seller pay costs and bear risks under the term of DAP at the buyer’s
warehouse in Osaka?
3. Discuss the major differences between CIF Osaka port and DAP at buyer’s warehouse in
Osaka?
4. Discuss the major differences between DAP at buyer’s warehouse in Osaka and DDP at
buyer’s warehouse in Osaka?
Summary:
FOB: $125,000
CIF: $145,000
DAP: $162,000
Freight cost including loading fee: $17,000
Transportation cost including loading and unloading fee: $14,000
Insurance rate: 0.2%
Import duty: 5% of FOB price
1. Buyer will choose to buy at what price? Why?
To choose the selling price the buyer should change the cost of option (2) and (3) into FOB cost:
(1) FOB Saigon port: 125,000 USD
(2) CIF Osaka port: 145,000 USD
We have formula: CIF= FOB + F +(CIF x R)= (FOB + Freight) / (1- Insurance rate)
→ FOB = CIF x (1 - R) - F
= 145,000 x (1 - 0.2%) - 17,000
= 127,710 USD
(3) DAP at buyer’s warehouse in Osaka, Japan: 162,000 USD
We have formula: DAP = FOB + Freight + Transportation cost
→ FOB = DAP - Freight - Transportation cost
= 162,000 - 17,000 - 14,000
= 131,000 USD
→ According to the three results above, the buyer should choose option (1) because in this
option the buyer have to pay the lowest cost.
2. What must the seller pay costs and bear risks under the term of DAP at the buyer’s
warehouse in Osaka?
According to INCOTERMS 2010, under the terms of DAP:
The seller takes on all the risks and costs of delivering goods to the buyer’s warehouse in Osaka.
This means the seller is responsible for everything, including packaging, documentation, export
approval, loading charges, and ultimate delivery. The buyer, in turn, takes over risk and
responsibility as of the unloading of the goods and clearing them for import.
3. Discuss the major differences between CIF Osaka port and DAP at buyer’s warehouse in
Osaka?
DAP at buyer’s warehouse in Osaka:
The seller agrees to pay all costs and suffer any potential losses of moving goods sold to the
buyer’s warehouse in Osaka. In DAP agreements, the buyer is responsible for paying import
duties and any applicable taxes, including clearance and local taxes, once the shipment has
arrived at the buyer’s warehouse.
CIF Osaka port:
The seller delivers the goods on board the vessel or procures the goods already so delivered. The
risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller
must contract for and pay the costs and freight necessary to bring the goods to Osaka port. The
seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods
during the carriage.
4. Discuss the major differences between DAP at buyer’s warehouse in Osaka and DDP at
buyer’s warehouse in Osaka?
Under the Delivered At Place (DAP) Incoterms rules, the seller is responsible for delivery of the
goods, ready for unloading, at the named place of destination.
The seller assumes all risks involved up to unloading. Unloading is at the buyer’s risk and cost.
As with DAP, the seller in a DDP agreement assumes all the risks and costs of the operation to
deliver the goods to a specified place in the country of importation. However, in a DDP
arrangement, it is the seller, not the buyer, who also bears the costs and taxes of import
clearance.
With DDP, the buyer is only responsible for unloading the goods at the final destination.
