Theory Exercises Terms: Definitions, Customs Clearance, and Incoterms

Theory Exercises Terms

1. What is the definition for the F Terms?

The terms 'F' require the seller to deliver the goods for carriage in accordance with the instructions of the buyer.

2. What is the meaning of customs clearance?

Customs clearance involves the preparation and submission of documentation required to facilitate exports or imports into the country, representing the client during customs examination, assessment, payment of duty, and taking delivery of cargo from customs after clearance along with documents.

3. A company settled in Spain is about to send its goods to Germany by plane. Explain how many different colors they can get when doing the customs clearance and what the meaning of each of them is.

• Green Channel: means that everything is presented correctly and that therefore the goods can leave or enter the country.
• Orange Channel: means that they want to check that the documentation that has been submitted is correct. It is very likely that they will request another type of document, such as the dual-use letter. Until the required documentation is delivered, the goods will be held in customs.
• Red Channel: means that they have found errors in the documentation provided, or that for any other reason, they have decided to stop the goods for an inspection.

4. Differences between EXW and FCA

In terms of delivery, Ex-works, the seller delivers goods to the buyer at their premises. Insurance is also arranged by the buyer under Ex-works terms. However, in terms of FCA delivery, the export cleared goods are delivered by the seller to the carrier at the named and defined location mentioned in the contract.

5. Allocation of costs for FCA

The seller must pay all costs relating to the goods until they have been delivered and, where appropriate, the cost of customs formalities as well as all duties, taxes, and other charges payable upon export.

6. What kind of cargo is used for FAS? Why?

In containers, because it is carried on board a ship.

7. Which are the two possible cases of delivery for FCA?

8. Allocation of costs and risk for FAS and FOB

The seller is required to deliver the goods alongside the actual ship on the pier/quay. From that point forward, the buyer bears all costs (loading cost, freight, insurance, etc.) and risk. Under FAS terms, the buyer is required to clear the goods for export and pay the cost of loading the goods.

9. Why is it so important for the seller to have the bill of lading? Which is the Incoterm that allows this?

The bill of lading from the carrier to the shipper can be used as evidence of the contract of carriage by the fact that the carrier has received the goods and upon the receipt, the carrier would deliver the goods. In this case, the bill of lading is used as a contract of carriage between the seller and the carrier.

10. Explain the rules from naming Incoterm: Letter 2-Place 3-Icc 2010