The international trade of agricultural commodities involves complex transactions, with buyers and sellers negotiating various aspects, including payment terms and quality inspections. One critical aspect to consider is the timing and location of payments and inspections for agri-commodities. This article discusses the main reason why agri-commodity payments should be made at the port of loading after inspection, focusing on the concepts of risk and responsibility.
Responsibility Shifts at Port of Loading
In both FOB (Free on Board) and CIF (Cost, Insurance, and Freight) contracts, the responsibility for goods passes to the buyer after shipment. Consequently, insurance coverage for the goods is in the buyer’s name. This shift in responsibility is recognized by the International Chamber of Commerce (ICC) in its Incoterms, which are widely accepted trade terms defining the responsibilities of buyers and sellers in international trade transactions [1].
Third-Party Certification
High-volume purchase contracts for agri-commodities typically require third-party certification of the volume and quality of the products shipped. This certification is essential to establish trust between buyers and sellers and ensure the proper execution of contracts. The World Trade Organization (WTO) encourages the use of independent inspection services to promote transparency and fairness in international trade [2].
Risk of Deterioration During Transit
Agricultural commodities are susceptible to deterioration during transit due to factors such as temperature, humidity, and handling. If the cargo suffers damage during the voyage, the insurance should cover the buyer for this situation, as the responsibility for the shipped product lies with the buyer. However, buyers who intend to pay for agro-commodities after a quality check at the port of destination may attempt to charge such deterioration to the seller, which is not in line with the terms of the contract or the principles of fairness in international trade.
Comparison with Metals and Fuels
Unlike agricultural commodities, metals, and fuels are less likely to deteriorate during transit. This reduced risk of deterioration is one reason why sellers in these industries may accept payment after the analysis of the product at the port of destination. However, applying the same approach to agri-commodities would be unfair to sellers due to the inherent risks associated with the transportation of these products.
Conclusion
In conclusion, agri-commodity payments should be made at the port of loading after inspection to ensure fairness in international trade. By acknowledging the shift in responsibility and risk of deterioration during transit, buyers and sellers can establish mutually beneficial agreements that promote transparency and trust in the global marketplace.
References:
[1] International Chamber of Commerce (ICC). (2020). Incoterms 2020. https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/
[2] World Trade Organization (WTO). (n.d.). Technical Barriers to Trade (TBT). https://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm