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How to choose contract terms while importing from Ukraine

Choosing a proper type of contract is as much important part of any project as choosing proper supplier at first stage. It is needless to say that there is no firm formula to advise since each origin country/each seller and each kind of goods has its optimal solution – even though below is our vision based on experience and lots verities of shipments which we held in past years:

FCA basis (our suggestion best option for buyer in Ukraine realities BUT buyer needs reliable seller and forwarder)

Advantages:

  • Lowest cargo price since seller will not make added value for cost while adding logistics charges in price;
  • Full control of cargo right after leaving mill/sellers warehouse;
  • Your agent keeps contacting seller locally pushing them acc;
  • Don’t depend on seller’s choice of ocean carrier – as fact route /transit time of delivery your goods to destination is only your choice.

Disadvantages:

  • In most cases you have to invest money right before shipment while in case of other terms you still getting some time credit;
  • You need to have reliable forwarding agent which can be trusted – otherwise you just receive additional work of controlling both seller/forwarder and if agent is not fare with you – overprized logistics cost;

 

FOB basis (good option for buyer in Ukraine realities in case buyer don’t have reliable forwarder and seller can’t be trusted for sure)

Advantages:

  • Don’t depend on seller’s choice of ocean carrier – as fact route /transit time of delivery your goods to destination is only your choice;
  • More or less reliable cargo price since seller will not make high added value for cost while adding logistics charges in price for inland delivery while Ukraine;
  • Full control of cargo right after loading on board of the vessel;
  • No need to arrange payment to seller until cargo is loaded on board / Bill of lading is issued – thus you can work via Letter of credit / cash against documents basis and hence will have original Bill of lading as guaranty/evidence cargo is duly shipped to you.

Disadvantages:

  • You depend on seller possibility to arrange shipment on nominated by you vessel/carrier. Ukraine reality (especially within Spt – May period when export season is high) due to slow logistics often sellers can’t reach nominated vessels in time as fact buyer has to keep a close eye on shipment changing voyages;

 

  • While placing booking on FOB terms with carriers buyer needs to be sure free time for turn around container to be agreed properly with container line. In case you seller arranges delivery to port by truck pls make sure 14 days agreed by you with carrier, in case delivery is arranged by rail you will need at least 21 days to be confirmed – otherwise additional charges for demurrage/detention will occur – it is always a dispute as fact between buyer/seller who should absorb them (while as per INCOTERMS on FOB basis it is seller’s responsibility).

 

CFR/CIF basis (not most favorable option for buyer)

 

Advantages:

  • No need to be involved in arranging logistics for your purchase until it delivered to designated by you port/place of delivery;
  • No need to arrange payment to seller in advance – thus you can work via Letter of credit / cash against documents basis and hence will have original Bill of lading as guaranty/evidence cargo is duly shipped to you;
  • Seller is fully responsible for all the logistics risk which might occur while arranging shipment from Ukraine.

Disadvantages:

  • Buyer completely depends on seller’s choice of carrier, way of shipment and shipment period. Even though some shipment terms are stated in contract with seller at the end of the day in case some delays are faced it would be very difficult for buyer to charge shipper for schedule delays or cancel contract;
  • Seller would make added value on top for CFR/CIF contract in compare other terms;
  • Insurance risks – even though contact is signed basis included insurance seller still not facing and responsibility after cargo is loaded on board;
  • Seller will try to save as much money on ocean freight as possible – thus as fact can choose cheapest carrier with longest voyage and/or with lots of transshipment ports where cargo can stuck for long period.

Another additional fact which to be added is stealing of cargo risk – doesn’t matter on what terms you are signing contract but in case goods you are purchasing are high valued (and especially if cargo delivered within Ukraine by rail) it is highly recommended cargo to be insured.

Summarizing above said – our suggestion is to use FCA/FOB terms as optimal solution with shipment via trusted forwarders and stich to CFR/CIF as last alternative option.  Our group is offering both services trading/sourcing agency and logistics

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