ABS Products Inc., a High Point, North Carolina-based furniturecompany, imports

Question

ABS Products Inc., a High Point, North Carolina-based furniturecompany, imports merchandise manufacturedin Argentina(AR). The price of the products in the factory at AR, is $2,000,000. The expenses incurred during the transaction are:

Transport costs from the City of El Dorado, AR to the Port of Buenos Aires, AR: $ 4,000Transport costs from the Port of Buenos Aires, AR to the Port of Wilmington, NC, USA: $110,000Transport costs from the Port of Wilmington, NC to the Warehouse of ABS Products in High Point, NC: $600Cargo loading costs in the port of Buenos Aires: $360Unloading costs in the port of Wilmington, NC: $410Unloading costs in High Point: $100Export duty: $700Import duty: $1,200Transit duties: $850Custom clearance of import costs: $500Land-transport insurance in Argentina: $850Cargo-transport insurance: $1,900Land-transport insurance in the US: $150

DEFINE the following terms AND COMPUTE the costsincurredby the buyer (importer) and the seller (exporter)under following delivery conditions:

a) Ex Works (EXW)

b) Free Alongside Ship (FAS) (at Port of Buenos Aires)

c) Cost and Freight (CFR) (at Port of Wilmington)

d) Delivery at terminal (DAT) (at Port of Wilmington)

e) Delivery Duty Paid(DDP)

Explanation / Answer

These terminologies originate from Incoterms and accordingly following terms are defined as per Incoterms 2017 :

EX Works ( EXW ) :

Carriage to be arranged by the buyer

Risk transferred from seller to buyer when the goods are at the disposal of the purchaser

Ex works price = Price at factory = $2,000,000

Free alongside the Ship ( FAS ) :

a) Sea Carriage to be arranged by the buyer.

b) Risk transfer from the seller to the buyer when the goods have been placed alongside the ship.

c) Cost transfer from the vendor to the buyer when the goods have been placed alongside the ship.

Free Alongside the ship

= Ex factory cost +Transport Cost from city of El dorado to Port of Buenos Aires + Land transport insurance in Argentina + Export duty

= $2,000,000 + $4,000 + $850 + $700

= $2005,550

Cost and Freight ( CFR ) :

a) Carriage and insurance have to be arranged by the seller.

b) Risk transfer from the vendor to the buyer when the goods pass the ship’s rail.

c) Cost transfer at the port of destination buyer, paying such fees as are not for the sellers account under the carriage contract.

CFR at Port of Wilmington

= Free alongside Ship at port of Buenos Aires + Cargo loading cost at Port of Buenos Aires + Transport cost from Port of Buenos Aires to Port of Wilmington

= $2005,550 + $360 + $110,000

= $2115,910

Delivery at Terminal ( DAT ) at Port of Wilmington :

The seller pays for transport to a specified terminal at the agreed destination. The buyer is responsible for the cost of importing the goods. The buyer takes responsibility once the goods are unloaded at the terminal.

Delivery at terminal at port of Wilmington

= Cost and Freight ( CFR) + Unloading cost at the port of Wilmington + Transport cost from Port of Wilmington to Warehouse in High point NC + Unloading cost in High point + Cargo transport Insurance( Ocean ) + Land transport Insurance in USA

= $2115,910 + $410 + $600 + $100 + $1900 + $150

= $2119070

Delivery Duty Paid ( DDP) :

The seller is responsible for delivering the goods to the named destination in the buyer’s country, including all costs involved.

Delivery Duty Paid ( DTP )

= Delivery at Terminal at Port of Wilmington + Transit duties + Custom clearance of import goods + Import Duty

= $2119070 + $850 + $500 + $1200

= $2121620

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