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Incoterms CIF: Should Buyers Pay THC at Destination Port?-CTD 101 Series

Thu, 01 Dec 2022
Contributors: Meng Yu 余萌
Editor: C. J. Observer

No. Sellers shall pay the cost of Terminal Handling Charges (THC) according to the International Rules for the Interpretation of Trade Terms 2010 (2010年国际贸易术语解释通则) (“Incoterms 2010”).

This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection. We will explain how debt collection works in China below.

This question was put to us by some buyers.

According to their experiences, after the goods they purchased from China under the “Cost, Insurance and Freight” (CIF) term arrived at the destination port, the seller would tell the freight company not to hand over the goods to the buyers until they pay the THC cost.

While they have paid for such expenses many times, they also wonder whether the THC cost at the destination port under the CIF term should be paid by the buyer.

In fact, both ship loading and unloading charges should be paid by the seller according to the Incoterms 2010.

It is required under the Incoterms 2010 Introduction, Article 8 THC:

“Under Incoterms® rules CPT, CIP, CFR, CIF, DAT, DAP, and DDP, the seller must make arrangements for the carriage of the goods to the agreed destination. While the freight is paid by the seller, it is actually paid for by the buyer as freight costs are normally included by the seller in the total selling price. The carriage costs will sometimes include the costs of handling and moving the goods within port or container terminal facilities and the carrier or terminal operator may well charge these costs to the buyer who receives the goods. In these circumstances, the buyer will want to avoid paying for the same service twice: once to the seller as part of the total selling price and once independently to the carrier or the terminal operator. The Incoterms® 2010 rules seek to avoid this happening by clearly allocating such costs in articles A6/B6 of the relevant Incoterms rules.”

This means that the buyer does not have to pay the carrier or the terminal operator in addition to the payment on a CIF basis, under the Incoterms 2010.

It is also required under the Incoterms 2010 Rules, CIF, A6 Division of costs:

“The seller must, subject to the provisions of B6, pay

  • all costs relating to the goods until such time as they have been delivered in accordance with A4; and
  • the freight and all other costs resulting from A3 a), including the costs of loading the goods on board; and
  • the costs of insurance resulting from A3 b); and
  • any charges for unloading at the agreed port of discharge which were for the seller’s account under the contract of carriage; and
  • where applicable (Refer to Introduction paragraph 14), the costs of customs formalities necessary for export as well as all duties, taxes, and other charges payable upon export, and for their transit through any country if they were for the seller’s account under the contract of carriage.”

The rule clearly states that the seller must pay “any charges for unloading at the agreed port of discharge which were for the seller’s account under the contract of carriage.”

Therefore, the seller shall bear the THC cost for discharge at the port of destination on a CIF basis.

We suggest that:

  • When you sign a contract, you shall remind the seller that the THC cost at the destination port under the CIF term should be paid by the seller.
  • When the seller or carrier asks you to pay the cost of THC after the arrival of the goods, you shall remind the seller of the meaning of CIF.

 

 

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Photo by Timelab Pro on Unsplash

Contributors: Meng Yu 余萌

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