Some standard export contracts and their significance

Export Contracts:
Buyers and sellers have to settle on issues like price, mode of payment, delivery of goods or the possession of goods in all types of sales and purchase. For example, when we go to the market and buy something, there is an understanding at work between both parties, because the payment and delivery of goods is made on the spot, we don't normally need a contract or agreement in this case.

Export and especially international export is not that simple. So many new factors come into play such as different currencies, mode of shipment or delivery time. Delivery takes time and somebody has to bear the risk and expenses of cargo, insurance, etc. Importers and exporters need to secure themselves and this sense of security comes from agreeing upon all the terms and conditions of trade. Both parties will sign on an agreement that states these provisions in detail. Normally export contracts have following sections.

i. Specifications & Signature of contracting parties
ii. Specifications of trading products
iii. Price & terms of payment
iv. Mode of shipment & Delivery period
v. Contract Validity

Following are some of the standard export contracts. These standards are known as "Incoterms", developed and published by "International Chamber of Commerce".

Free on Board:
Importer designates a board (ship) and exporter is responsible to deliver goods on the ship. Exporter has to bear all expenses except the insurance and cargo charges. FOB contract works only when maritime transportation is used as the mode of shipment.

Cost, Insurance and Freight (C.I.F):
Unlike F.O.B, the exporter has to arrange (and pay) for everything including shipment and insurance. In both types (F.O.B and C.I.F) delivery time is crucial and exporter is obliged to deliver the goods on the exact date that has been specified in the contract.

Ex works:
Seller's obligation ends when he makes the goods available at his place. Buyer arranges and pays for everything after that (clearance, transportation, etc).

Delivered Ex Ship:
Seller is responsible for delivering the goods to the port (advised by the buyer). Unlike F.O.B, where seller has to deliver the goods on the ship, in DES the seller has to bear the risk along with freight and insurance cost.

Free Carrier:
This "incoterm" is quite similar to F.O.B, but unlike F.O.B (that's just used for maritime transport), Free carrier (FCA) is used for all types of transport including air, by rail or road.

These are the ones mostly used in international trade; other types include "Cost and Freight", "Carriage paid to", "Delivered Ex QUAY" or "Delivered Duty Paid".

Source:
UK Wholesalers