Export contract terms

Introduction: The Blueprint of Global Trade

• The Hook: An international sale is fundamentally different from a domestic one. It involves multiple jurisdictions, currencies, and complex logistical handoffs. A handshake won’t cut it—you need a rock-solid, legally compliant export contract.

• The Globax Stance: At Globax Solutions, we know that success in global trade starts long before the cargo is loaded. It starts with the paper that defines the deal.

• What You Will Learn: This guide breaks down the essential terms (the “non-negotiables”) that protect your business, ensure smooth transactions, and mitigate disputes.

Section 1: The Core Commercial Terms

These clauses define the goods, the price, and how the money changes hands—the foundation of the sale.

1. Product Specification and Quantity

• Detail is King: Do not rely on general descriptions. The contract must include:

  • Detailed technical specifications (Model numbers, dimensions, materials, etc.).

  • Quality standards (e.g., must meet ISO standard X).

  • Packaging and labelling instructions (critical for customs compliance and loss prevention).

• Risk Mitigation: Define the acceptable tolerance for quantity variation, if any, to prevent disputes upon delivery.

2. Price and Currency

• Clarity on Cost: Clearly state the unit price, total value, and, crucially, the currency (e.g., USD, not just “$”).

• Exchange Rate Risk: If payment is delayed, which party bears the loss from currency fluctuations? Address this explicitly.

3. Payment Terms and Security

This is where the seller’s risk is highest. The contract must specify the payment method and timing.

• Globax Tip: Always aim for secure methods like a confirmed, irrevocable Letter of Credit, especially with new buyers or in high-risk jurisdictions.

Section 2: The Logistics and Risk Transfer: Incoterms® 2020

The delivery clause is the most complex part of any export contract and relies on the globally recognized Incoterms® (International Commercial Terms).

4. Delivery Terms (Incoterms® 2020)

• Definition: Incoterms are 3-letter codes that precisely define three things: Tasks, Costs, and Risk. They state who is responsible for which part of the journey.

• Key Incoterms for Exporters (Seller-Friendly):

  • EXW (Ex Works): Maximum burden on the buyer. Seller’s responsibility ends at their warehouse. (Globax recommends FCA for international trade over EXW).

  • FCA (Free Carrier): The seller delivers the goods to the buyer’s nominated carrier at a specified place, cleared for export. A practical term for containerized freight.

• Key Incoterms for Importers (Buyer-Friendly):

  • DDP (Delivered Duty Paid): Maximum burden on the seller. Seller handles all transportation costs, risk, and customs clearance (import duties/taxes) up to the final destination.

• The Critical Takeaway: Risk passes from the seller to the buyer at the named point in the Incoterm. Ensure the chosen term aligns with your operational capabilities and insurance coverage.

5. Insurance Responsibility

• The Incoterms Guide: The Incoterm usually dictates who must procure cargo insurance (CIP and CIF require the seller to insure, but most other terms leave it up to the buyer).

• Globax Solutions Recommendation: Regardless of the Incoterm, the seller should always verify that the goods are covered by an adequate policy, as carrier liability is almost always insufficient. (Link to your shipping insurance blog here).

Section 3: The Legal Safety Net

These clauses are the most vital for dispute prevention and resolution—the ultimate protection for your business.

6. Governing Law and Jurisdiction

• Governing Law: The laws of which country will be used to interpret the contract (e.g., “This contract shall be governed by the laws of [Your Country/State]”).

• Jurisdiction: The specific courts or forums that have the authority to hear any disputes.

• The Conflict: The buyer wants their country’s law; the seller wants theirs. This is a critical negotiation point.

7. Dispute Resolution

When a dispute arises, you want a clear, enforceable path to resolution that avoids expensive, unfamiliar foreign courts.

• Arbitration vs. Litigation:

  • Litigation (Courts): Often slow, public, and expensive in foreign jurisdictions.

  • Arbitration: A private, binding process before one or more neutral arbitrators. It is often faster and much easier to enforce across borders (thanks to the New York Convention).

• Globax Advice: Arbitration (e.g., under ICC or UNCITRAL rules) is usually the preferred method for international trade contracts.

8. Force Majeure

• The “Act of God” Clause: This clause relieves both parties from liability when an extraordinary, unforeseeable event beyond their control prevents the fulfillment of the contract (e.g., wars, pandemics, tsunamis, natural disasters).

• Specificity is Key: The clause must explicitly state:

  • Which events qualify (the list of “acts of God”).

  • The obligations of the party claiming Force Majeure (e.g., written notice within 7 days).

  • The consequence (e.g., suspension of performance or termination of contract).

9. Limitation of Liability and Indemnification

• Protecting Your Balance Sheet: Include a clause that caps the maximum amount of damages you are liable for (e.g., limited to the contract value or a fixed amount).

• Indemnification: Define when one party must compensate the other for losses caused by the first party’s actions (e.g., the buyer must indemnify the seller if the goods are rejected at import due to the buyer’s failure to obtain a necessary permit).