Standardization of Commercial Terms 

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Standardization of Commercial Terms

Contracts of international sales usually include commercial terms which are not customary in home trade. This is because sending goods from one country to another can be a risky business. If the goods are lost or damaged on the way or if delivery doesn't take place for some other reason, disputes may arise between buyer and seller. To avoid such disputes, it is usual to agree in advance who bears the costs and risks of the delivery of goods and up to what point. The price of the goods will depend upon the term of agreement between buyer and seller. For example, when the buyer agrees to take delivery of the goods from the seller's premises (i.e. he bears all the costs and risks of the delivery) the seller will quote a lower price. On the other hand, if the buyer wants the seller to bear all the costs and risks of delivering the goods to their destination, the price will be higher.

In the course of the long history of international trade special commercial terms have been developed. These terms make it possible for the buyer and seller to mutually agree on the terms of the sale of the goods without having to define in detail their respective responsibilities in each particular case. These terms have also been standardized and cannot be interpreted in different ways. They unambiguously define who pays the cost (price, packing, invoicing, freight, insurance, charges for the documents) and who bears the risks and up to what point.

The best-known such terms are Incoterms. They were first formulated by the International Chamber of Commerce in 1936, in Paris, and have been revised several times since.



Trading has always been a risky business. In old times very often the ships sent on long voyages never returned to port. A rich merchant could become a poor man overnight if his ship laden with cargo was lost at sea. Robbers attacked the caravans and took the merchants' money and goods. Even today acci­dents, fire or theft may damage the goods and cause losses for the buyer or seller. In order to avoid these accidents today it is natural to insure the shipment of goods against these risks.

All sensible businessmen now insure goods for the full value. The idea of insurance is to obtain indemnity in case of damage or loss. Insurance is against risk. Insurance is one of the aids to trade, allowing risks to be taken without fear of disastrous loss. Without adequate insurance many enterprises would be too risky to undertake. It is essential that all goods for export be covered by insurance at every stage of transportation.

While the goods are in a warehouse, the insurance covers the risk of fire, burglary, etc. As soon as the goods are in transit they are insured against pilferage, damage by water, breakage or leakage. Other risks may also be covered. The insured is better protected if his goods are insured against all risks /a.a.r./. The goods may be also covered against general or particular average. In the insurance business the word 'average' means loss. Particular average refers to risks affecting only one shipper's consignment. General average refers to a loss incurred by one consignor but shared by all the other consignors who use the same vessel on the same voyage.

In a foreign trade transaction the terms of the contract of sale will indi­cate whether the costs of insurance will be paid by the seller or the buyer. The document that gives the details of what the insured party has to pay or what the insurance company will do if the goods are damaged or lost is called the insurance policy. The insurance policy forms part of the shipping documents. The amount of the insurance charges, insurance premium, will depend on the value of the goods insured and the risk involved.

In the old days when there were yet no insurance companies a merchant who wanted to insure the voyage of a ship would ask various other merchants how much they would pay him if his ship was lost. These other merchants would write their names and the amount accepted under the details of the contract. As for example, merchant X wanted to insure his ship for five hundred thousand pounds. He went to merchant A who signed for twenty thousand pounds, to merchant B who signed for thirty thousand and so on until he was fully covered. Merchants A, B, C, etc. were called the underwriters, a word which is still used today.

Lloyds of London is an association of underwriters best known for marine insurance. lt originated as a group of underwriters who met at a London coffee house owned by Edward L1oyd, who had a reputation for obtaining up-to-date information about shipping movements. Merchants and ship-owners met to arrange insurance for ships and their cargoes and in 1680 Lloyds of London was formed. Although marine insurance still accounts for over 40 per cent of Lloyds' business, it now covers many different risks. It was the first insurer of cover for burglary, car or planes. As well as insurance, Lloyds provides a comprehensive shipping information service. The Shipping Index records the movements of ships throughout the world, showing where they are, which port they were at last and where they are going to.

Principles of insurance

All insurance is governed by certain principles.

1) A person can only insure an event which will cause a personal or monetary loss.

2) Person taking out insurance must not tell lies or omit to mention relevant facts which might affect the insurer's decision about whether to issue a policy or what premium to charge.

3) lf a claim is made the insured person should be restored to the same position he or she was in before the event. Nobody can make a profit out of insurance. No one must encourage damage in order to get money.

* Lloyds' Shipping Index - реєстр Ллойдз; перелік морських суден, що видається компанією Ллойдз


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