How to calculate minimum insurance cover under CIF deliveries?

CIF means "Cost, Insurance and Freight" in international commercial terms terminology.

CIF is one of the most frequently used incoterms in foreign trade transactions, but it is widely misunderstood and misused by the practitioners.

For example CIF term is commonly used with land or air shipments, whereas CIF can only be used with sea shipments according to ICC Incoterms 2010 rules.

Additionally, under CIF trade term risk passes from exporter to importer when the goods are shipped on board a vessel at the port of loading. 

But many exporters believe that their risk will not be over until goods are being discharged at the port of destination. 

Above I have defined two major misunderstandings regarding the mode of transport usage and delivery responsibility of the CIF incoterms. 

Now I would like to focus on the insurance coverage of the CIF incoterms.

What are the differences between EXW and FCA as per Incoterms 2010?

On my previous article, I have explained the differences between FOB and FCA as per Incoterms 2010 rules. 

Today I would like to write about the differences between another two frequently used incoterms: EXW and FCA.

Let me start with the definitions of these trade terms in question.

• EXW (Ex Works) means that the exporter delivers when it places the goods at the disposal of the buyer at the exporter’s premises or at another named place (i.e., works, factory, warehouse, etc.).
• FCA (Free Carrier) means that the exporter delivers the goods to the carrier or another person nominated by the buyer at the exporter’s premises or another named place.

What are the differences between FOB and FCA as per Incoterms 2010?

FCA( Free Carrier) is a very flexible trade term, which should be preferred instead of EXW (Ex Works) and FOB (Free on Board) incoterms in most situations, because the usage of Ex Works and Free on Board is not suitable for large scale of situations.

For example, frequently exporters and importers use Ex Works trade term, where the exporter handles and pays for the export custom duties. 

But according to Incoterms 2010 rules, importer must arrange the export custom operations under Ex Works trade term, where such clearance is applicable.

In these situations foreign trade parties should use FCA instead of EXW.

ICC recommends FCA instead of FOB in containerized shipments. But why?

FOB (Free on Board) and FCA (Free Carrier) are two well-known and frequently used trade terms of Incoterms 2010.

Both FOB anf FCA have been in circulation for a long period of time, as they been defined under previous versions of Incoterms.

FOB is one of the oldest incoterms, which has been created in 1923. FCA introduced to the export-import world in 1980.

ICC recommends FCA instead of FOB in containerized shipments.

ICC included a warning message in Incoterms 2010, which catches the most practitioners by surprise.

One of the explanatory paragraphs under the FOB rule states that:

FOB may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such situations, the FCA rule should be used.

Is it possible to use FOB incoterms with land and or air shipments?

The aim of the international commercial terms, known as incoterms, is to create a set of international standard rules for the application of the most commonly used trade terms in foreign trade.

Incoterms can only achieve its goal if it could reduce or eliminate the uncertainties of different interpretations of such terms in different countries.

ICC, International Chamber of Commerce, published latest version of international trade terms rules, which is known as Incoterms 2010. 

Incoterms 2010 rules define 11 different trade terms.

FOB, Free on Board, trade term is one of the most frequently used incoterms along with CIF and Ex Works. 

As a result every exporter or importer must understand these trade terms very well.