The relationship between the Incoterms rules and documentary credits concerns the seller’s obligation to deliver documents to the buyer in order to prove that the seller has fulfilled his obligations under the Incoterms rule and the contract of sale...
The relationship between the Incoterms rules and documentary credits concerns the seller’s obligation to deliver documents to the buyer in order to prove that the seller has fulfilled his obligations under the Incoterms rule and the contract of sale and that, consequently, the buyer is obliged to pay him. In this context the parties ensure that the instructions given by the buyer to the issuing bank are fully compatible with the requirements under the contract of sale.
First, trade terms are classified into two types such as “can be used for one or multimodal transport whatever the transport means” and “can be used for ocean vessel only” It must be remembered in practice that as in container transport the seller’s physical control ends on the delivery of goods to the carrier, the use of FCA, CPT, or CIP should be encouraged rather than FOB, CFR, or CIF under which the seller’s physical control ends on on-board. Furthermore, there should be check boxes for FCA, CPT, and CLP in L/C application form.
Second, where multimodal transport is employed as transportation route, both the contract of sale and documentary credit should contain the provision which requires multimodal transport document instead of ocean B/L.
Lastly, the credit must require transport documents which are compatible with the conditions of the contract of sale. F-terms and C-terms of Incoterms are highly encouraged to use in transactions under the documentary credit.