Ex Works (EXW) Can be used for any transport mode, or where there is more than one transport mode This rule places minimum responsibility on the seller, who merely has to make the goods available, suitably packaged, at the specified place, usually the seller’s factory or depot. The buyer is responsible for loading the goods onto a vehicle (even though the seller may be better placed to do this); for all export procedures; for onward transport and for all costs arising after collection of the goods. In many cross-border transactions, this rule can present practical difficulties. Specifically, the exporter may still need to be involved in export reporting and clearance processes, and cannot realistically leave these to the buyer. Consider Free Carrier (seller’s premises) instead. Other things to watch for. Although the seller is not obliged to load the goods, if the seller does so, this is at the buyer’s risk! In spite of its apparent simplicity, this rule presents many pitfalls for both parties when used for cross- border transactions. Ex Works obliges the buyer to undertake export procedures (obtaining of licenses, security clearances and so on.) The buyer may be poorly placed to do this. In any event the seller is only obliged to “provide assistance”, at the buyer’s risk and expense. From the seller’s perspective, there is the problem of obtaining evidence that the goods are to be exported – where VAT or sales tax is charged on domestic sales, the tax authorities may require this. The obvious alternative for cross-border transactions is Free Carrier (FCA) – seller’s premises.
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Ex Works (EXW)
Can be used for any transport mode, or where there is more than one transport mode
This rule places minimum responsibility on the seller, who merely has to make the goods available,
suitably packaged, at the specified place, usually the seller’s factory or depot.
The buyer is responsible for loading the goods onto a vehicle (even though the seller may be better
placed to do this); for all export procedures; for onward transport and for all costs arising after
collection of the goods.
In many cross-border transactions, this rule can present practical difficulties.
Specifically, the exporter may still need to be involved in export reporting and clearance processes, and
cannot realistically leave these to the buyer. Consider Free Carrier (seller’s premises) instead.
Other things to watch for. Although the seller is not obliged to load the goods, if the seller does so, this
is at the buyer’s risk!
In spite of its apparent simplicity, this rule presents many pitfalls for both parties when used for cross-
border transactions.
Ex Works obliges the buyer to undertake export procedures (obtaining of licenses, security clearances
and so on.) The buyer may be poorly placed to do this. In any event the seller is only obliged to
“provide assistance”, at the buyer’s risk and expense.
From the seller’s perspective, there is the problem of obtaining evidence that the goods are to be
exported – where VAT or sales tax is charged on domestic sales, the tax authorities may require
this.
The obvious alternative for cross-border transactions is Free Carrier (FCA) – seller’s premises.
Free Carrier (FCA)
Can be used for any transport mode, or where there is more than one transport mode.
A very flexible rule that is suitable for all situations where the buyer arranges the main carriage
For example:
Seller arranges pre-carriage from seller’s depot to the named place, which can be a terminal or
transport hub, forwarder’s warehouse etc. Delivery and transfer of risk takes place when
the truck or other vehicle arrives at this place, ready for unloading – in other words, the
carrier is responsible for unloading the goods. (If there is more than one carrier, then risk
transfers on delivery to the first carrier.)
Where the named place is the seller’s premises, then the seller is responsible for loading the
goods onto the truck etc. NB this is an important difference from Ex Works EXW
In all cases, the seller is responsible for export clearance; the buyer assumes all risks and costs
after the goods have been delivered at the named place.
FCA is the rule of choice for containerized goods where the buyer arranges for the main carriage.
For cross-border transactions, Free Carrier (seller’s premises) is usually a better option than Ex Works.
As with Ex Works, the seller’s responsibilities end once the consignment has been collected from their
premises by the buyer’s carrier.
However the seller is required to undertake export procedures, and to load the goods onto the vehicle if
necessary – something the seller is probably better placed to do anyway
Carriage Paid To (CPT)
Can be used for any transport mode, or where there is more than one transport mode.
The seller is responsible for arranging carriage to the named place, but not for insuring the goods
to the named place. However delivery of the goods takes place, and risk transfers from seller to
buyer, at the point where the goods are taken in charge by a carrier.
Terminal Handling Charges (THC) are charges made by the terminal operator. These charges may or
may not be included by the carrier in their freight rates – the buyer should enquire whether the CPT
Price includes THC, so as to avoid surprises.
The buyer may wish to arrange insurance cover for the main carriage, starting from the point where the
goods are taken in charge by the carrier – NB this will not be the place referred to in the Incoterms rule,
but will be specified elsewhere within the commercial agreement
See also “Carriage and Insurance Paid to CIP”
As with the other “C” rules, a good choice for transactions involving letters of credit.
Carriage and Insurance Paid To (CIP)
As with CPT, delivery of the goods takes place, and risk transfers from seller to buyer, at the point
where the goods are taken in charge by a carrier – see delivery.
Things to watch for. Terminal Handling Charges (THC) are charges made by the terminal operator.
These charges may or may not be included by the carrier in their freight rates – the buyer should
enquire whether the CPT price includes THC, so as to avoid surprises.
Although the seller is obliged to arrange for insurance for the journey, the rule only requires a
minimum level of cover, which may be commercially unrealistic. Therefore the level of cover may
need to be addressed elsewhere in the commercial agreement
This rule and CIF (Cost Insurance and Freight) are the only two rules that place an obligation on the
seller to arrange insurance for the consignment.
Note that this insurance covers the buyer’s risk, because risk will pass from the seller to the buyer
before the main carriage.
As with the other “C” rules, a good choice for transactions involving letters of credit.
Delivered at Terminal (DAT)
Can be used for any transport mode, or where there is more than one transport mode. The seller is
responsible for arranging carriage and for delivering the goods, unloaded from the arriving conveyance,
at the named place.
Risk transfers from seller to buyer when the goods have been unloaded.
‘Terminal’ can be any place – a quay, container yard, warehouse or transport hub.
The buyer is responsible for import clearance and any applicable local taxes or import duties.
Many analysts believe that the global economy is entering a period of strong new growth, especially in
emerging markets.
1. Thoroughly check a new customer’s credit record. Finding foreign corporate information can be tricky, especially for emerging markets. Local
consulting firms may be able to help, and you can also get assistance from the Trade
Commissioner Service office.
2.
3. Use that first sale to start building the customer relationship. Your number-one tool for managing a customer’s credit risk is building a long-term, trusted
relationship. This can obviously take years to fully achieve. But start laying the groundwork by
discussing your credit terms with a new customer before you extend credit. This will help you
gauge the customer’s attitudes to credit, and ensure that they clearly understand what you
expect of them. Also consider using a “master sales agreement” with a new customer, rather
than relying on purchase orders to set out credit terms.
4. Establish credit limits. To set a credit limit for a new customer, you can use tools such as: Credit-agency reports, which
can provide comprehensive information about a company’s financial history. Bank reports,
which should give details of the bank’s relationship with the company, the company’s
borrowing capacity and its level of debt. Audited financial statements, which can provide a
good view of the business’s liquidity, profitability and cash flow.
5. Make sure the credit terms of your sales agreements are clear. A sales agreement that includes well-worded, comprehensive terms of credit will minimize the
risk of disputes and improve your chances of getting paid in full and on time.
6. Use credit and/or political risk insurance.
7. Use factoring. To do this, you sell your receivable to a factoring company for its cash value, minus a discount.
This gives you your money immediately because you don’t have to wait for payment—the
customer will pay the factoring company instead of you. But make sure the factoring is on a
“non-recourse” basis, which means you’re not liable if the customer defaults.
8. Develop a standard process for handling overdue accounts. Your chances of collecting on a delinquent account are highest in the first 90 days after the due
date.
Political risk
The political stability of a foreign country into which a company is exporting is of the utmost
importance. Exporters must be constantly aware of the policies of foreign governments in order that
they can change their marketing tactics accordingly and take the necessary steps to prevent loss of
business and investment.
Instability in the target market could lead to losses resulting from war, civil strife and political
instability. It is essential to warn exporters to be aware of government intervention in the target market.
Most countries world-wide operate under a capitalist system within which the volumes and values of
goods and services whether provided locally or by way of imports, are set by the forces of supply and
demand.
There are, however, still a number of countries in which the government plays an interventionist role.
Examples of such economies include North Korea, Cuba and Vietnam. In certain other countries,
partial liberalisation of trade has been achieved but the extent of this liberalisation still has to be
investigated by any exporter wishing to enter these markets.
Furthermore, while there are certain countries that appear to have advanced towards a more open
market, there may be constraints upon their foreign currency reserves. In such countries the Reserve or
Central bank of that country may not have enough foreign exchange to allow payments to progress
thereby again resulting in the risk of non-payment for the exporter.
Transportation and logistics risks
With the movement of goods from one continent to another, or even within the same continent, goods
face many hazards. There is the risk of theft, damage and possibly the goods not even arriving at all.
The exporter must understand all aspects of international logistics, in particular the contract of carriage.
This contract is drawn up between a shipper and a carrier (transport operator). Exporters and importers
must understand their legal rights to claim against carriers. The "shipper", would be the party that pays
the main carrier of freight and this could be either the exporter or the importer, dependant upon the
Incoterm (see section on Incoterms 2000, ICC publication) under which that particular transaction was
effected.
Insuring goods in transit
Cargo insurance covers loss of or damage to goods while in transit by land, sea and air.
Insurance for exports
Many exporters arrange insurance and freight but pass on the cost to the buyer. Where this is the case,
your agreed terms are likely to be Cost Insurance Freight to a named destination port - in other words
you are charging your customer for the cost of goods as well as insurance and freight to the port or
airport of their choice.
Foreign buyers often insist on this service, because insurance rates in the UK are relatively cheap.
The benefits:
you have greater control over the risk as the UK insurance industry is highly regulated you could win business from competitors who do not offer insurance
Remember that if you leave your buyer to arrange insurance, they will do so before paying for the
goods. You may not be paid in full if there's a problem and they're not adequately insured. In addition,
if the goods are rejected when they get to the port of entry or to the customer's premises, they won't be
covered by insurance, and the responsibility will be back with you.
Insurance for imports
You will minimise your risks if you arrange insurance of goods that you import. You'll know how
much you are paying and what's included. Your supplier might not be able to give you full details of
insurance cover they arrange, or if they do, the information may not be entirely reliable.
The following types of cover are available:
open cover - for all journeys specific (voyage) policy - for one-off shipments seller's interest contingency - back-up for physical loss or damage where you have not arranged the
cargo insurance
Economic Risk
Port activities form part of national and international transport chains. The volume of trade moving through these chains depends to a large extent on macroeconomic factors, namely population, consumption, production, exports, and so forth. Consequently, the macroeconomic situation and its expected evolution have a strong impact on the level of activity in a port. It is essential to take this element into account in the market survey conducted to estimate the traffic and throughput risk. The principles of traffic and throughput risk sharing are analyzed in a later section devoted to this topic.