-
IMK333 Export-Import Management Semester 1/2014 Section 5321
Saturday 14.00-16.30hr Room K322 By Natthawat Setthapakdeepong
Bangkok University International 18 August 2014 - December 13,
2014
Course Description In addition to common principles and
practices of international marketing management, the course will
include foreign market exploration, exchange problems, practices
and document preparation; customs clearances and forwarding
practices; detailed study of customs tariffs, duties and
export-import premiums; landed cost calculation methods; commodity
classification system of the Customs department; carrier selection
decision making management and organization of freight forwarding
and customs clearance agencies; marketing communication for foreign
products; management and organization of import and export
departments of large commercial firms; relationship with financial
and transportation intermediaries. Course Objectives The basic aims
and objectives of this course are: 1) to provide a background of
international trade and marketing that will be applicable and
practical for export transaction 2) to emphasize on export
activities from the beginning to the end of transactions. Export
risk managements will be introduced such as International Sales
contracts, appropriate payments options, financing export
transactions, currency hedging and 3) to provide coverage of
international logistics and physical movement of goods and
circulation of export documentations
Course References: International Marketing and Export Management
by Gerald Albaum, fourth edition Guide to Export Import Basics 2nd
edition : ICC Publication No 641 Incoterms 2010 : ICC Publication
Guide to Incoterms 2010 ICC Guide to Documentary Credit for UCP 600
: ICC Publication No 515
-
Course Outline
1) Export Import Overview 2) International Trade Law
Public International Trade Law Private International Trade
Law
3) Contracts in International Trade
Sales Contract Contract of Finance Contract of Carriage Contract
of Insurance
4) Incoterms 2010 by ICC Ex works (insert named place of
delivery)
FCA (Free Carrier)(insert named place of delivery) FAS(Free
Alongside the ship)(insert named port of shipment) FOB(Free on
Board)(insert named port of shipment) CFR(Cost and Freight)(insert
named port of destination) CIF (Cost Insurance and Freight)(insert
named port of
destination) CPT (Carriage Paid to) (insert named place of
destination) CIP (Carriage Insurance Paid to)(insert named place
of
destination) DAT (Delivered at Terminal)(insert named terminal
at port or
place of destination)
DAP (Delivered at Place)(insert named place of destination) DDP
(Delivered Duty Paid)(insert named place of destination)
5) Export Import Financing Pre shipment financing Post shipment
financing
6) International Payment terms Advance Payment
Open Account Letter of Credit Bill for Collection
Consignment
7) Letter of Credit
UCP600 Type of letter of credit How to read letter of credit
Cautions in using letter of credit 8) International
Transportation and logistics
Air freight Sea freight Inland transportation Railway
9) Marine Cargo Insurance
Institute Cargo Clause (A) Institute Cargo Clause (B)
-
Institute Cargo Clause (C) 10) Claim Settlement
how to make the claim and required documents to substantiate the
claim
11) Import Customs Formalities 12) Export Import Privileges 13)
Shipping Documents 14) Wrap UP 15) Questions and Answers
Mark Allocations Midterm Examination 25% Final Examination 40%
Project Report 15% Project Presentation 10% Attendance and
Participation 10% Total 100%
Lecturers profile Lecturer: Natthawat Setthapakdeepong (BBA-IBM,
MDP, MBA) Full time job @SCG Trading Co.,Ltd Part time lecturer
@ABAC and @BUIC Facebook: [email protected]
Line/IG/Tango:0811715874 Email: [email protected] Page:
Export-Import Guru Page: Interest: Teaching, Foreign Languages,
Paintings and Travelling
IMK333 Export Import Management Natthawat Setthapakdeepong
Bangkok University International 1) Export Import Overview
Introduction to Export Import Procedure
Exporting and Importing
The action of buying and selling products and services across
the country
The major field of International business
-
International business consists of
Export/Import Portfolio Investment Foreign Direct
Investment(FDI)
Export
To ship an item away from a country for sale to another country.
To send an item or service out of one sovereign domain to another
for
purposes of sale.
Import
To receive the goods and services from abroad. To bring the
goods and services from abroad.
Why nations trade with one another?
The distribution of natural resources around the world is
somewhat haphazard.
In the cultivation of natural products, climate plays a decisive
role. Some nations are unable to produce a particular product
sufficiently to
satisfy a large home demand.
With the development of manufacture and technology
Specialization
Why people do International Trade? The foundation stone of
International trade theory Comparative
Advantage
Comparative Advantage demonstrates that if a country specializes
in the
products in which it has the greatest comparative advantage
relative to
other nations, it will trade those products for goods in which
it has the
greatest comparative disadvantage.
Comparative advantage is the theory first detailed by David
Ricardo in
1817, holding that nations should export products that they can
produce
relatively more efficiently than other nations and import
products for which
they are relatively high-cost producer.
According to the law of comparative cost, there should be the
free flow of
goods between nations. However, we still can not reach that
point. The
main reasons are
short run benefits of each nation transportation cost political
reasons
-
Benefits derived from International Trade
Cheaper goods Greater variety of products available Wider market
for producing countries reach EOS Overall Growth of trade due to
reciprocal advantage. Job opportunities (export) + technology
transfer (import). Raises the living standard of people.
Balance of payments.
The relationship between the total sales of a countrys goods and
services to other nations and total purchases it makes of goods
and
services from abroad.
Balance of payment is composed of : 3 elements
The balance of trade The balance of invisible items The balance
of capital items
Types of Exporting and Importing companies Export Export
Merchants
Using their own capital to buy the merchandises from the
producers for export. They take title of the goods.
Export Management company (EMC)
Performing export functions on behalf of the producers. All
documents will be done under the name of the producers. EMC earns
commission from the producer.
Export Agent
A business unit of person who is doing the selling of
merchandises on behalf of the producers to foreign buyers. They
neither hold any inventory nor take possession of the goods. They
earn commission.
Export Broker
A company/person who arranges a meeting or trade negotiation
between a seller and a buyer. They earn brokerage fee.
Import
Import Merchants -- same as export merchant
-
Import Agent --- same as Export agent Buying Agent
A company / person represents an importer to purchase
merchandises or goods from foreign countries. They could be
established by the importer or being the importers
representative.
Distributor
A sole purchaser or purchasers appointed by the producers in
foreign countries to distribute the products in the local
markets.
The distributors will sell the product with a profit margin to
the local merchants.
The distributors will control the selling price for both
wholesale and retail.
Thailand Exporting and Importing firm pattern Export
Trading Manufacturing Exporter
(1) Trading firm Match-maker between the foreign buyers and
domestic producers. Special
features are: Earning commissions from both buyers and sellers
No production for their own use
(2) Manufacturing Exporter Manufacturers who are exporting their
own goods. They can export
through the trading firms or by their own export unit. Most of
the manufacturers are producing merchandises under licensing from
foreign importers.
Import
Buying Agent Types of Export and Import Practice Export
Export Direct Export Indent
Import
Import Direct Import Indent
-
Export Direct Practice Receive the enquiry from the customer
Consider the supplyability Request for quotation from the supplier
Supplier quotation Prepare the cost structure for export(permission
for sales quotation) Draft the sales quotation and check and
approve the sales quotation Offer the sales quotation to the
customer Receive the purchase order from the customer and confirm
the sales order
with the customer and send Proforma Invoice (P/I)to the customer
Issue the purchase order to the supplier and prepare Export Direct
Sales
Summary and get the approval from the authorized person Release
the documents to the relevant parties e.g. A/C dept, supplier
Record data in the Export Direct Control Shipment follow up Prepare
the information for shipping documentation preparation for export
Keep one copy of order confirmation, sales order and export direct
sales
summary Receive Outward Freight Booking or Export Booking from
Freight
department Follow up the customs invoice and shipping status
from the export service
department in case that the terms of payment are D/P, D/A, O/A.
Send the shipment advice (ETD,ETA,ETL)to the customer Record data
in the export direct control Check and correct the shipping
particular Shipment by sea freight, obtain the copy and original
B/L from the freight
department or shipping co. Prepare some documents required by
the customer e.g. certificate of
quality , quantity , Packing declaration and submit to the
export shipping documentation department for presentation with the
bank to collect the money
Follow up and receive the shipping documents from the export
shipping
documentation department and fax one copy of the shipping
documents to the overseas customer for their customs clearance
purpose.
Settle the payment of cost of goods with the local supplier.
Cost structure for export (1) Sales
Sales
-
(2) Cost of Product
Cost of product: ex-works Packaging Tax refund
Total Product Cost (3) Operation Cost
Customs clearance Inspection/surveyor fee/fumigation charge
Inland Transportation charge CFS/Stevedore/Stuffing Port Charge
THC/Cargo handling charge Lift- on/lift-off labor AWB or B/L fee
Contingency
Total Operation Cost (4) Marketing Expenses
Commission charge Rebate
Total marketing charge (5)Financial Cost
Bank charge Interest and other financial cost
Total financial cost (6) Transportation and Insurance cost
Freight charge Insurance premium
Total cost Gross Profit
Margin Import Direct Practice Enquire or receive the enquiry
from the local customer Consider the supplyability of the company
Request for quotation from the overseas supplier Supplier quotation
Prepare the cost structure for import direct Draft the sales
quotation Offer the sales quotation to the local customer
-
Receive the purchase order (P/O) from the local customer and
check the description and condition of the P/O and confirm the
sales order with the customer
Draft the sales contract or P/I and send to the local customer
Prepare Import direct sales summary Send the P/O to the overseas
supplier(stipulating ETD in the P/O in case
of FOB and ETA in the P/O in case of CNF or CIF Send the copy of
P/O and other documents e.g. catalogue to the import
service dept Send the copy of P/O and import direct sales
summary to A/C dept In case of buying the goods from the overseas
supplier on FOB basis
which means we have to arrange the transportation by ourselves,
we have to prepare the Inward Freight Booking(bulk or
container)
In case that the terms of payment is L/C, we have to prepare the
Internal
Application for Opening L/C, attached with the P/O and send to
the Import shipping documentation department
In case that the terms of payment is O/A (Open A/C-Advance
payment),
we have to pay the overseas supplier at least 4 days in advance
before the payment due
Follow up the shipping status or shipment advice (ETD) from the
overseas
supplier. Receive the shipment advice from the supplier by fax,
e-mail, telephone or
letter. Record data in the Import Direct control Follow up and
receive the shipping documents from the overseas supplier
3 days before the ETA in case of shipment by sea and on the
arrival date in case of shipment by air for the customs clearance
purpose.
Prepare arrival note and send to the Import service dept for
customs
clearance. Send one copy of shipping documents to A/C dept and
record the data in
the Import direct control (date of receipt of the shipping
documents and date of arrival note preparation)
Follow up the shipment status and get the copy of insurance
policy (if any)
from the import service department Advise the delivery schedule
to the customer enabling them to prepare for
the cargo receiving Cost Structure for Import (1) Cost of
goods
-
FOB price Import duty
(2) Operation cost
Customs clearance Port charge Inland transport THC
Lift-on/Lift-off labor Inspection/surveyor /testing fee
Contingency Stevedoring charge(for bulk) Other expenses Total
operating cost
(3) Financial cost
Bank charges (L/C opening) Interest charge Bank guarantee(T/R)
Total financial cost
(4) Transportation and Insurance cost
Freight charge Insurance premium
Total cost Gross Profit Export and Import Indent Practice
Receive the enquiry from the customer Search for the suppliers
Request for quotation from the supplier Supplier quotation Sales
quotation Send a quotation to the customer The customer sends the
purchase order Confirm sales order with the customer in return Send
the customers P/O to our supplier and confirm sales order with
the
supplier Commission agreement to the supplier or to the customer
(optional) The customer settles the payment of cost of goods
directly with the
supplier The supplier ships the cargo and send the shipping
documents to the
customer via us
-
Billing to the customer and/or supplier
2) International Trade Law
Public International Trade Law
Private International Trade Law
International Trade Law Laws and rules or regulations related to
international trade e.g. Buying and
selling transaction between merchants (exporter and importer)
who abide the sales contract as the principle to determine the
legal contract between the buyer and seller, other contracts that
relate to international sales contract are:
- International carriage of goods by sea contract or Bill of
lading contract - Financing and payment in International Trade -
Marine Insurance International Trade Law categorized into 2 main
types - Private International Trade Law - Public International
Trade Law 1. Private International Trade Law Laws, rules,
regulations (both international level and domestic level) to
enhance and determine private to private relationship about the
international trade e.g.
- International Sales Contract law - International Carriage of
goods by sea law - Financing and payment in International Trade -
Marine Insurance Law - Dispute Resolutions in International Trade
Law - Conflict of laws 1.1. International Sales Contract Law
United Nations Convention on Contracts for the international
sales of goods or Vienna Convention
The Sales of Goods Act
-
INCOTERMS 2010 (International Rules for the Interpretation of
trade terms 2000) by ICC
1.2. International Carriage Law
English Common Law Hague Rules (International Convention for the
unification of certain
rules of law relating to Bill of Lading) Hague/Visby Rules
(Protocol to amend Hague Rules) Hamburg Rules (United Nations
Convention on the carriage of
goods by sea) Act of Legislation for International Carriage of
goods by sea Warsaw Convention (convention for the unification of
certain rules
relating to international carriage by air) CMR Convention
(Convention on the contract for the international
carriage of Goods by road) ICC Uniform Rules for Multimodal
Transport Documents
United Nations Convention on Multimodal Transport Operation
ASEAN FRAMEWORK AGREEMENT on Multimodal transport CMI Rules for
Electronic Bills of lading CMI Rules for Seaway bills (Comite
Maritime International)
1.3. Financing and Payment in International Trade Law Common Law
The Uniform Customs and Practice for Documentary credit No.500
by ICC (International Chamber of Commerce) Uniform Rules for
Collections No.522 (for Documentary Collection) Uniform Rules for
Demand Guarantee
1.4. Marine Insurance Law
The Marine Insurance Act 1906 Rules for construction of the
policy
The institute clauses and standard policy Institute Cargo Clause
ICC (A) ICC(B) ICC(C)
1.5. Dispute Resolutions in International Trade law New York
Convention (Convention on the recognition and
enforcement of foreign Arbitral Awards) Convention on the
settlement of Investment Dispute between
States and Nationals of other states or ICSID Convention
UNCITRAL Model Law on International Commercial Arbitration
This law will cover
Negotiation Conciliation or Mediation Arbitration (ICC Court of
Arbitration, International Center for
settlement of Investment Disputes) (ICSID)
Litigation
-
1.6. Conflict of laws
Rome Convention (EEC Convention on the law applicable to
contractual obligation)
Act of Legislation for conflict of Laws 2. Public International
Trade Law
Laws, rules and regulations for both domestic and international
level and bilateral or multilateral agreement, aim to enhance or
determine the Private to Public relationship or Public to Public
relationship about the International Trade.
World Trade Organization
Free Trade Agreement (FTA)
General Agreement on Tariffs and Trade
General agreement on Tariffs and Trade Exemption
Agreement for Avoidance of double Taxation
Act of Legislation for export and import
Act of Legislation for export product standard
Act of Legislation for customs
Act of Legislation for Tax compensation for exported product
produced in the kingdom of Thailand
Act of Legislation for Trade Competition
Act of Legislation for Anti-dumping Other International Trade
Laws Corporate Finance Law Electronic Commerce Law Unfair Contract
Terms Law Arrest of ship Law Ship Mortgage Law Natural Resources
and Environmental Law in international Trade Financial Institution
Law International Monetary Fund Law
Problems
1. Problems of International Sales Contract Problems of
Selection of Applicable Law Problems of Selection of Choice of
forum
-
Problems of using EDI in International Sales Contract Problems
of signature Problems of original International Sales Contract
(evidence & witness)
2. Problems of International Carriage of Goods by Sea Law
Problems of responsibility of Freight Forwarder and shipping
agent Problems of proof of loss and damage (when it happens)
Problems of Litigation
3. Problems of Marine Insurance Law
Problems of using marine insurance contract Problems of using
applicable laws with marine insurance
4. Problems of Documentary Credit
Problems of using Trust Receipt Problems of conflict between the
regulations of carriage of goods by sea
and documentary credit. ========================================
3) Contracts in International Trade
Sales Contract Contract of Finance Contract of Carriage Contract
of Insurance
4) Incoterms 2010 by ICC
Ex works (insert named place of delivery) FCA (Free
Carrier)(insert named place of delivery) FAS(Free Alongside the
ship)(insert named port of shipment)
FOB(Free on Board)(insert named port of shipment) CFR(Cost and
Freight)(insert named port of destination) CIF (Cost Insurance and
Freight)(insert named port of
destination)
CPT (Carriage Paid to) (insert named place of destination) CIP
(Carriage Insurance Paid to)(insert named place of
destination)
DAT (Delivered at Terminal)(insert named terminal at port or
place of destination)
DAP (Delivered at Place)(insert named place of destination) DDP
(Delivered Duty Paid)(insert named place of destination)
INCOTERMS 2010 RULES by ICC
-
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 sellers 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 buyers risk!
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 sellers depot to the named
place, which can be a terminal or transport hub, forwarders
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 sellers 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
containerised goods where the buyer arranges for the main
carriage.
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, before the main carriage, at the point where the goods
are taken in charge by the first carrier. Things to watch for.
Terminal Handling Charges (THC) are charges made by the terminal
operator at either the beginning or the end of the transport
operation, or at both ends. 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 will need 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
Carriage and Insurance Paid To (CIP)
-
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, and also for insuring the goods.
As with CPT, delivery of the goods takes place, and risk
transfers from seller to buyer, before the main carriage, at the
point where the goods are taken in charge by the first carrier.
Things to watch for. Terminal Handling Charges (THC) are charges
made by the terminal operator at either the beginning or the end of
the transport operation, or at both ends. 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 See
also Carriage Paid To CPT
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. Things to watch for: The place for
delivery should be specified as precisely as possible, as many
ports and transport hubs are very large. Where Terminal Handling
Charges may apply, the parties should clarify who should bear
these. A useful rule, well suited to container operations where the
seller bears responsibility for the main carriage.
Delivered at Place (DAP)
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, ready for unloading from the
arriving conveyance, at the named place. (An important difference
from Delivered At Terminal DAT, where the seller is responsible for
unloading.)
Risk transfers from seller to buyer when the goods are available
for unloading; so unloading is at the buyer's risk. The buyer is
responsible for import clearance and any applicable local taxes or
import duties. This rule can often be used to replace the Incoterms
2000 rules Delivered At Frontier (DAF), Delivered Ex Ship (DES) and
Delivered Duty Unpaid (DDU)
Delivered Duty Paid (DDP)
Can be used for any transport mode, or where there is more than
one transport mode. The seller is responsible for arranging
carriage and delivering the goods at the named place, cleared for
import and all applicable taxes and duties paid (e.g. VAT, GST)
-
Risk transfers from seller to buyer when the goods are made
available to the buyer, ready for unloading from the arriving
conveyance This rule places the maximum obligation on the seller,
and is the only rule that requires the seller to take
responsibility for import clearance and payment of taxes and/or
import duty. These last requirements can be highly problematical
for the seller. In some countries, import clearance procedures are
complex and bureaucratic, and so best left to the buyer who has
local knowledge. Some taxes such as VAT are only payable by a
locally-registered business entity, so there may be no mechanism
for the seller to make payment.
Free Alongside Ship (FAS)
Use of this rule is restricted to goods transported by sea or
inland waterway. In practice it should be used for situations where
the seller has direct access to the vessel for loading, e.g. bulk
cargos or non-containerised goods. For containerised goods,
consider Free Carrier FCA instead.
Seller delivers goods, cleared for export, alongside the vessel
at a named port, at which point risk transfers to the buyer. The
buyer is responsible for loading the goods and all costs
thereafter.
Free On Board (FOB)
Use of this rule is restricted to goods transported by sea or
inland waterway. In practice it should be used for situations where
the seller has direct access to the vessel for loading, e.g. bulk
cargos or non-containerised goods.
-
For containerised goods, consider Free Carrier FCA instead.
Seller delivers goods, cleared for export, loaded on board the
vessel at the named port. Once the goods have been loaded on board,
risk transfers to the buyer, who bears all costs thereafter.
Cost and Freight (CFR)
Use of this rule is restricted to goods transported by sea or
inland waterway. In practice it should be used for situations where
the seller has direct access to the vessel for loading, e.g. bulk
cargos or non-containerised goods. For containerised goods,
consider 'Carriage Paid To CPT' instead.
Seller arranges and pays for transport to named port. Seller
delivers goods, cleared for export, loaded on board the vessel.
However risk transfers from seller to buyer once the goods have
been loaded on board, i.e. before the main carriage takes place. NB
seller is not responsible for insuring the goods for the main
carriage. See also "Cost Insurance and Freight CIF"
Cost Insurance and Freight (CIF)
Use of this rule is restricted to goods transported by sea or
inland waterway. In practice it should be used for situations where
the seller has direct access to the vessel for loading, e.g. bulk
cargos or non-containerised goods. For containerised goods,
consider 'Carriage and Insurance Paid CIP' instead.
-
Seller arranges and pays for transport to named port. Seller
delivers goods, cleared for export, loaded on board the vessel.
However risk transfers from seller to buyer once the goods have
been loaded on board, i.e. before the main carriage takes place.
Seller also arranges and pays for insurance for the goods for
carriage to the named port. However as with Carriage and Insurance
Paid To, the rule only require 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. Questions
and Answers What Incoterms rules work best with letters of credit?
Where possible use CIF, CIP, CFR or CPT. For all these rules,
delivery takes place before the main carriage. The carrier gives
the seller a transport document which (usually) serves as a
mechanism for control of the goods it will be presented to the bank
under the letter of credit, and then passed on to the buyer so that
the goods can be claimed. All the other rules are potentially
problematical in one way or another. For example with FCA, the
buyer is in control of the main transport, and there are
circumstances in which the buyer may be able to frustrate the
transaction. Conversely with DAT, the buyer can be at risk, because
seller may be able to get paid under the letter of credit before
fulfilling the delivery obligation Can we still use Incoterms 2000
in our agreements? Yes. Many companies have complex agreements with
their counterparties and service providers, which will be
time-consuming to redraft. Therefore parties are free to continue
to refer to Incoterms 2000 (or any other revision!) provided that
this is specified unambiguously in their agreements
-
What is Incoterms 2010s relevance to domestic transactions? Use
of the rules is not limited to cross-border trading. The Incoterms
rules are also applicable to transactions where the buyer and
seller are in the same country, or both within a customs union such
as the European Union. All the provisions of the rules are written
with this in mind, e.g. if there are issues with import duty or
taxes, they need only be considered where appropriate. What is
Incoterms 2010's connection with transfer of title to the goods?
The Incoterms rules are silent on the issue of when title in the
goods passes from seller to buyer. This should be dealt with
elsewhere in the commercial agreement. The issue of title to the
goods is related to that of revenue recognition, which matters to
those organisations who want the best figures in their financial
reports. Revenue recognition is defined by accounting standards
such as GAAP, and the point of delivery (as defined by the
Incoterms rule) is one factor in the decision on revenue
recognition. Hence rules such as DAP and DAT would tend to be
disadvantageous in this respect. What are Incoterms 2011? There is
no Incoterms 2011 revision, this is a mistake. Revisions of the
rules take place around every ten years or so. The most recent
revision is called Incoterms 2010, and it came into force on 1st
January 2011. Can we add qualifications or variations to a rule?
Yes It is possible to add extra words to an Incoterms rule, so as
to cater for special situations and/or to achieve more precise
definition of obligations Example 1: For some types of cargo, costs
arise from stowing the cargo on the vessel. So the Incoterms rule
"FOB stowed" will make it clear that the seller is responsible not
only for loading the cargo on board, but also for stowing it.
Example 2: The rule "DDP, VAT unpaid" seller is responsible for
paying import duty, but not for paying VAT Example 3: The rule
"EXW, loaded" seller is responsible for loading goods onto vehicle
The Incoterms 2010 rules and letters of credit How to align the
letter of credit with the Incoterms rule
-
The letter of credit environment is by definition one of limited
trust sellers have concerns about getting paid, buyers want to be
sure that the goods they ordered are supplied as per the contract,
within the agreed timeframe etc. A key principle of letter of
credit usage is that all the documents called for should be ones
that can be supplied by the seller (e.g. the commercial invoice) or
whose issue is under the control of the seller for example, the
transport document, where the carrier takes instructions from the
seller. Why the "C" rules work best with letters of credit Ideally,
"delivery", as defined by the agreed Incoterms rule, should be
aligned with the presentation of compliant documents to the bank,
because it is this event that triggers payment by the bank. It
follows that the only Incoterms rules that work well with letters
of credit are the "C" rules CIF, CFR, CIP, CPT. Typically the
carrier gives the seller a bill of lading, which serves as a
document for control of the goods. The bill of lading will evidence
that freight has been paid by the seller, and also serves as a
receipt for the goods that have been taken in charge by the
carrier. The bill of lading may also carry an on-board notation,
indicating that the goods have been loaded onto the vessel at a
given time and place. This is widely accepted as evidence that the
goods have been despatched and are in transit. More of this later!
Why does this arrangement work well for both buyer and seller? In
effect, the carrier takes the role of an independent third party,
trusted to take charge of the goods at the beginning of the journey
and to release them to the holder of the bill of lading at their
destination. However it should be noted that with some "C" rules,
the alignment of the Incoterms rule with the letter of credit may
not be perfect. Consider this scenario. A container is being sent
by sea. The Incoterms rule is CIP, so risk passes to the buyer once
the container has been taken in charge by the carrier. However let
us assume that the letter of credit calls for a bill of lading with
an on-board notation, and that there is an accident to the
container in the container yard. The container is never loaded, so
an on-board bill of lading is not issued. The seller is
contractually "off risk", but will not get paid under the letter of
credit. So the seller must deal with the insurance claim something
that the CIP rule was designed to avoid in this situation or must
depend on the goodwill of the buyer to take care of this.
Implications of using other Incoterms rules Lets start with FCA and
FOB, where the seller hands the goods over to the carrier, or loads
the goods on board, but the buyer arranges the carriage. If the
letter of credit calls for a bill of lading, then we have a
situation where the buyer may be in a position to frustrate the
transaction perhaps by cancelling the carriage contract! Without a
bill of lading, the seller cannot make a compliant presentation and
will not get paid.
-
Where there are compelling reasons to use FCA or FOB, there may
be workarounds through special wording in the letter of credit. One
formulation specifies alternative documents that may serve in the
absence of a bill of lading for example, a freight forwarders
receipt. FCA, FOB, FAS: Suggested clauses for the letter of credit
The "D" rules DDP, DAT, DAP present different problems. Delivery
now takes place upon completion of the main carriage but what
documents can the letter of credit call for? A bill of lading can
serve as evidence of despatch of the goods, but not as evidence of
arrival at the named place. So in the event of a mishap in transit,
the seller can still get paid, even though delivery obligations
have not been fulfilled. But if the letter of credit calls for a
receipt given by the buyer upon arrival of the goods, what is to
prevent an unscrupulous buyer declining to accept the goods and
provide such a receipt? The documents the devil is in the detail.
Anybody who has worked with letters of credit will know the
frustration of having documents rejected by the bank due to
apparently trivial discrepancies between the requirements of the
credit and the documents that have been presented. Not
surprisingly, the Incoterms rules provide their own opportunities
for error! The SWIFT MT700 Letter of Credit message format does not
have a separate field for the Incoterms rule. If specified on the
credit, the rule will usually appear as part of "Description of
Goods and Services". However there will be implications for
documentary requirements, e.g. transport document and insurance
document. Where a rule such as CIP is used, the buyer will want to
be sure that the seller has indeed paid for carriage to the agreed
place, so the documents section of the credit will include wording
such as "Bill of lading marked . freight paid to Long Beach,
California". Consider a transport document that is annotated with
two separate statements:
1. Freight paid 2. CIP Long Beach, California
Does this transport document signify that freight was paid to
Long Beach? Common sense would suggest that it does after all, CIP
is well known to mean that the seller pays for carriage to the
named place. However in the real world of letters of credit,
documents such as these are sometimes rejected, using arguments
along the lines that it is not the role of the examiner to
understand terms such as CIP and apply this understanding to the
case!
-
5) Export Import Financing PRE-SHIPMENT FINANCING Packing credit
under Stock. Up to 80%of the value of goods used to
obtain credit Packing credit under contract. Up to 80% of the
value of goods according
to the purchase contract. Packing credit under L/C. Up to 80% of
L/C value POST-SHIPMENT FINANCING Packing credit under Usance Bill.
This credit is for the post-shipment
period. Payment term applies to the overseas buyer. When the
exporter brings the export document and promissory notes with
him when applying for a loan, the bank will give the exporter up
to 90% of the notes face value in Baht currency
IMPORT FINANCING (1) TRUST RECEIPT A short-term (90-180 days)
loan for Importers. The bank will make
payment in foreign currency for the overseas seller. The bank
then will transfer the right to own the goods to the importer.
(2) L/C LOAN A long-term loan for importers in Baht currency.
This usually involves
with high capital and goods that have already been delivered
according to the L/C
(3) EXIM LOAN For Importers, the local bank will arrange a
long-term foreign currency
loan from an overseas bank which is called EXIM Loan. This EXIM
Loan is to be used by the importers for the purchase of the
capital goods. The capital goods and the lending bank must be
from the same foreign country.
-
6) International Payment terms
Advance Payment Open Account Letter of Credit Bill for
Collection Consignment
TERMS OF PAYMENTS FOR EXPORTS AND IMPORTS 5 METHODS OF PAYMENTS
Cash with order or in advance of order Documentary Credit (L/C)
Bill for Collection (B/C) Open Account Consignment (1) CASH WITH
ORDER OR ADVANCE OF PAYMENT The best term of payment for the seller
The seller receives the payment before the shipment effected.
However, unless there is an extraordinarily favorable sellers
market or a
situation where a seller dominates that market, most overseas
customers will be reluctant to pay in advance.
The buyer can make an advance of payment to the seller (other
than cash) by bank draft or telegraphic transfer (T/T)
This kind of payment involves only in a small transaction such
as buying a book, small computer parts etc.
(2) DOCUMENTARY CREDITS (L/C) Most often used when initiating
business with a new account, when a
check of the importers credit reveals it would be unwise to make
shipment on a less secure basis or when large purchases are
requested by an unknown buyer.
DOCUMENTARY CREDIT Means any arrangement whereby a bank (the
Issuing bank)acting at the
request and on the instructions of a customer(the Applicant) or
on its own behalf, is to make a payment to or to the order of a
third party(the Beneficiary) or is to accept and pay bills of
exchange(Draft) drawn by the Beneficiary
Or authorizes another bank to effect such payment or to accept
and pay such bills of exchange(Draft) or
Authorizes another bank to negotiate against stipulated
documents, provided that the terms and conditions of the credit are
complied with.
-
FORM AND NOTIFICATION OF CREDITS A Credit may be either
revocable or irrevocable The credit, therefore, should clearly
indicate whether it is revocable or
irrevocable In the absence of such indication, the credit shall
be deemed to be
irrevocable. ADVISING BANKS LIABILITY A Credit may be advised to
a Beneficiary through another bank(the
Advising Bank) without engagement on the part of the Advising
Bank, but that bank, it it elects to advise the credit, shall take
reasonable care to check the apparent authenticity of the credit
which it advises.
REVOCATION OF A CREDIT A Revocable Credit may be amended or
cancelled by the Issuing Bank at any moment and without prior
notice to the seller or beneficiary For the buyer--a revocable
credit gives the buyer maximum flexibility as
it can be amended or cancelled without prior notice to the
seller up to the moment of payment by the bank at which the issuing
bank has made the credit available
However, the issuing bank must reimburse another bank with which
a revocable credit has been made available for sight payment,
acceptance or negotiation OR for deferred payment
For the seller--a revocable credit involves risks, credit
cancelled while the goods are in transit before the documents are
presented or although presented before payment has been made
An Irrevocable Credit can be amended or cancelled only with the
agreement of the issuing bank, the confirming bank (if credit has
been confirmed) and the seller(beneficiary) For the
buyer--Irrevocable credit gives less flexibility as the credit
can
only be amended or cancelled if all the parties named before
agreed For the seller--Irrevocable credit gives the seller greater
assurance of
payment LIABILITY OF ISSUING AND CONFIRMING BANK An irrevocable
credit constitutes a definite undertaking of the Issuing
Bank, provided that the stipulated documents are presented to
the Nominated Bank or to the Issuing Bank and that the terms and
conditions of the credits are complied with:
If the credit provides for sight payment which means to pay at
sight If the credit provides for deferred payment which means to
pay on the
maturity date(s) determinable in accordance with the stipulation
of the credit
If the credit provides for acceptance
-
by the Issuing Bank--to accept Draft drawn by the Beneficiary on
the Issuing Bank and pay them at maturity or
by another drawee bank--to accept and pay at maturity Draft
drawn by the Beneficiary on the Issuing Bank
If the credit provides for negotiation--to pay without recourse
to drawers and/or bona fide holders Drafts drawn by the Beneficiary
and/ or documents presented under the credit
As there are often 2 banks involved, the issuing bank and the
advising bank, the buyer can be asked by the seller for an
irrevocable credit to be confirmed by the advising bank, the
irrevocable credit becomes a confirmed irrevocable credit
For the buyer--such a confirmed irrevocable credit represents an
additional requirement and more costly
For the seller-- such a confirmed irrevocable credit gives the
seller a double assurance of payment since a bank in the sellers
country has added its own undertaking to that of the issuing
bank
Confirmation charge will be for beneficiarys account A
confirmation of an irrevocable credit by another bank (the
Confirming Bank) upon the authorization or request of the
Issuing Bank, constitutes a definite undertaking of the Confirming
Bank, in addition to that of the issuing bank,
Provided that the stipulated documents presented to the
Confirming Bank or to any other Nominated Bank and that the terms
and conditions of the credit are complied with
If the credit provides for sight payment which means to pay at
sight If the credit provides for deferred payment which means to
pay on the
maturity date(s) determinable in accordance with the
stipulations of the credit
If the credit provides for acceptance by the Confirming Bank--to
accept Draft(s) drawn by the Beneficiary on
the Confirming Bank and pay them at maturity by another drawee
bank--to accept and pay at maturity Drafts drawn by
the Beneficiary on the Confirming Bank If the credit provides
for negotiation--to negotiate without recourse to drawers
and/or bona fide holder, Draft(s) drawn by the Beneficiary
and/or documents presented under the credit
All credits must clearly indicate whether they are available by
sight payment, by deferred payment, by acceptance or by
negotiation
Unless the credit stipulates that it is available only with the
issuing bank, all credits must nominate the bank (Nominating Bank)
which is authorized to pay to incur a deferred payment undertaking
to accept Draft(s) or to negotiate. In a freely negotiable credit,
any bank is a Nominated Bank.
Presentation of documents must be made to the Issuing Bank or
the Confirming Bank, if any or any other Nominated Bank.
Negotiation means the giving of value for Draft(s) and/or
documents by the bank authorized to negotiate. Mere examination of
the documents without giving of value does not constitute a
negotiation
-
PROCEDURE OF DOCUMENTARY CREDIT
The buyer and the seller conclude a sales contracts, providing
for payment by documentary credit.
The buyer instructs his bank--the Issuing Bank to issue a credit
in favor of the seller(beneficiary)
The Issuing Bank asks another bank, usually in the country of
the seller, to advise or confirm the credit.
The Advising or Confirming Bank informs the seller that the
credit has been issued
As soon as the seller receives the credit and is satisfied that
he can meet its terms and conditions, he is in a position to load
the goods and dispatch them
The seller then sends the documents evidencing the shipment to
the bank where the credit is available (Nominated Bank)
This may be the issuing bank or the confirming bank or a bank
named in the credit as the paying, accepting or negotiating
bank.
If the credit allows for negotiation by any bank,there will not
be a nominated bank and documents may be sent to any bank willing
to negotiate under the credit)
The Bank checks the documents against the credit. If the
documents meet the requirements of the credit, the bank will pay,
accept or negotiate according to the terms of the credit.
In the case that a credit is available by negotiation. The
issuing bank or the confirming bank will negotiate without recourse
to the seller. Any other bank including the advising bank, if it
has not confirmed, the credit which negotiates will do so with
recourse to the seller.
The bank , if other than the issuing bank, sends the documents
to the issuing bank
The issuing bank checks the documents and if they meet the
credit requirements, either:
Effects payment in accordance with the terms of the credit
either to the seller if he has sent the documents directly to the
issuing bank, or to the bank that has made funds available to him
in anticipation or in advance
Reimburse in the pre-agreed manner the confirming bank or any
bank that has paid, accepted or negotiated under the credit
T/T REIMBURSEMENT Clause including an undertaking by the issuing
bank to pay the draft
amount to the negotiating bank upon receipt of an authenticated
cablegram from the negotiating bank indicating it has received the
required documents
-
T/T REMITTANCE To negotiate bank in reimbursement, we(issuing
bank) will remit proceeds
by T/T upon receipt of the documents drawn in compliance with
the terms of credit.
When the documents have been checked by the issuing bank and
found to meet the credit requirements, they are released to the
buyer upon payment of the amount due or upon other terms agreed
between him and the issuing bank.
If the buyer sends the transport document to the carrier who
will then proceed to deliver the goods
THE DOCUMENTS NEEDED FOR PRESENTATION TO THE BANK BY THE SELLER
ARE: Draft or Bill of Exchange Commercial Invoice, Packing List,
Bill of Lading Certificate of Origin, Insurance policy(if any)
Certificate of Health,Certificate of Analysis Certificate of
Inspection, etc. SETTLEMENT
BY PAYMENT--The seller sends the documents evidencing the
shipment to the bank where the credit is available (the Paying
Bank)
After checking that the documents meet the credit requirements,
the bank makes payment
This bank , if other than the issuing bank, then sends the
documents to the issuing bank, reimbursement is obtained in the
pre-agreed manner
BY ACCEPTANCE--The seller sends the documents evidencing the
shipment to the bank where the credit is available(the Accepting
Bank) accompanied by a draft drawn on the bank at the specified
tenor
After checking that the documents meet the credit requirement
,the bank accepts the draft and returns it to the seller
This bank, if other than the issuing bank, then sends the
documents to the issuing bank, stating that it has accepted the
draft and that at maturity reimbursement will be obtained in the
pre-agreed manner
By accepting the draft, the bank signifies its commitment to pay
the face value at maturity. The seller can therefore usually
convert the accepted draft into cash by Discounting it with his own
bank or on the local money market
BY NEGOTIATION--The seller sends the documents evidencing
the
shipment to the bank where the credit is available (the
Negotiating Bank) accompanied by a draft drawn on the buyer or on
any other
-
drawee(bank) specified in the credit, at sight or at a tenor as
specified in the credit
After checking that the documents meet the credit requirement,
the bank may negotiate the draft. Negotiation by the issuing bank
or the confirming bank will be without recourse to the seller.
Negotiation by any other bank will be with recourse to the
seller Any bank including the advising bank if it has not confirmed
the credit
This bank, if other than the issuing bank, then sends the
documents and the draft to the issuing bank, reimbursement is
obtained in the pre-agreed manner
SPECIAL TYPES OF DOCUMENTARY CREDIT REVOLVING CREDIT--Credit
arrangement which permits a buyer or a
borrower to purchase goods or secure loans on a continuing basis
so long as the outstanding balance of the account does not exceed a
certain limit.
Loans are repaid and new loans granted in a cycle Revolving
credit can be revocable and/or irrevocable. Revolving credit can
revolve in relation to time and value A credit revolves in relation
to time e.g. a credit which is available for up
to USD 15,000 per month during a fixed period of time, say 6
months, the credit is automatically available for USD 15,000 each
month irrespective of whether any sum was drawn during the previous
month
A credit of this nature-in relation to time can be cumulative or
non-cumulative
A credit revolves in relation to value, the amount of the credit
is reinstated upon utilization within a given overall period of
validity
RED CLAUSE CREDIT(ASSIGNABLE L/C)--a credit with a special
clause formed into the credit which authorizes the advising or
confirming bank to make an advance of payment to the beneficiary
before presentation of the documents
It is so called red clause because the clause was originally
written in red ink to draw attention to the unique nature of this
credit. It is often used as a method of providing the seller with
funds prior to the shipment
If the beneficiary or the seller fails to ship the goods and so
repay the loan by presenting the documents called for by the
credit, the advising bank will have the right to demand repayment
with interest from the issuing bank and that bank will have a
similar right of recourse against the applicant for the credit.
The buyer will be liable for repayment of the advances if the
beneficiary fails to present the documents called for under the
credit as well as all costs incurred by the issuing and the
advising or confirming bank.
TRANSFERABLE CREDIT--A credit that can be transferred by the
original (first) beneficiary to one or more other parties(second
beneficiary). It is normally used when the first beneficiary does
not supply the merchandise himself.
-
But the first beneficiary is a middleman and thus wishes to
transfer part or all of his rights and obligations to the actual
supplier(s) as a second beneficiary. This type of credit can only
be transferred once. The second beneficiary can not transfer to a
third beneficiary.
The transfer must be effected in accordance with the terms of
the original credit, subject to the following exceptions:
The name and address of the first beneficiary may be substituted
for that of the applicant for credit
The amount of the credit and any unit price may be reduced. This
would enable the first beneficiary to allow for his profit
The period of validity, the period of time after date of
issuance of the transport documents for presentation of documents
and the period for shipment may be shortened.
It should be noted that a credit would only be issued as a
transferable
one on the specific instructions of the applicant, the credit
application form and the credit itself must clearly show that the
credit is to be transferable.Only an Irrevocable credit would be
issued in this form
BACK- TO- BACK CREDIT(COUNTER CREDIT)--The seller as beneficiary
of the first credit offers it as security to the advising bank for
the issuance of the second credit.
As an applicant for this second credit, the seller is
responsible for reimbursing the bank for payments made under it,
regardless of whether or not he himself is paid under the first
credit.
There is , however, no compulsion for the bank to issue the
second credit and in fact, many banks will not do so.
In the case that a counter credit, the procedure is the same
except that the seller requests his own bank to issue the second
credit as a counter credit to the first one.
His own bank may agree to issue such a credit if the transaction
falls within the sellers existing credit line of if a special
facility is granted for that purpose.
CREDIT APPLICATION The instructions to be given by the applicant
to the issuing bank will cover
such items as: (1) The full and correct name and address of the
beneficiary(seller) (2) The amount of the credit (3) The types of
credit whether it is revocable, irrevocable, irrevocable
with the added confirmation of the advising bank (4) How the
credit is to be available e.g. by payment , by acceptance or
negotiation (5) The party on whom drafts, if any are to be drawn
and the tenor of
such drafts (6) A brief description of the goods, including
details of quantity and unit
price
-
(7) Whether freight is to be prepaid or not (8) Details of
documents required e.g. certificate of analysis (9) Place of
loading, place of discharging or final destination (10) Whether
transhipment is prohibited (11) Whether partial shipments are
prohibited (12) The latest date of shipment and the date and place
of expiry of the
credit (13) Whether the credit is to be a transferable one (14)
How the credit is to be advised e.g. by mail , telex or swift
DEFINITION OF THE BANK Accepting Bank or Paying Bank--The bank
which opening bank
mentions and is given authorization to certify all documents and
payment Advising Bank or Notifying Bank--The bank that informs
the
beneficiary when receives L/C from the issuing bank or opening
bank Collecting Bank--The bank that receives the documents from
remitting
bank to collect payment from the buyer Confirming Bank--The bank
that confirms L/C for the beneficiary(this
bank is in the sellers country) Correspondent Bank--The bank
that has some connection with the
overseas bank Issuing Bank or Opening Bank--The bank that issues
L/C to the
beneficiary or seller Negotiating Bank--The bank which is
responsible to pay to the
beneficiary (no need to be the branch of the issuing bank) it
can be the beneficiarys bank
Processing Bank--The bank which proceeds and checks the
documents before sending to the restricted bank for payment
Reimbursing Bank--The bank that pays money to the negotiating
bank in case that the issuing bank has no account with the
negotiating bank.
Remitting Bank--The bank that sends documents to collecting bank
Restricted Bank--The bank which is being specified to negotiate
the
documents with the beneficiary or seller (3) BILL FOR COLLECTION
(DOCUMENTARY DRAFT OR BILL OF EXCHANGE) is a written document drawn
by one party (seller) on a buyer for a certain
sum of money at sight or at some definite future time no
guarantee from the bank like L/C 2 KINDS OF BILL FOR COLLECTION
DOCUMENT AGAINST PAYMENT (D/P) DOCUMENT AGAINST ACCEPTANCE (D/A)
DOCUMENTS AGAINST PAYMENT(D/P)
-
The importer orders goods from the exporter and the exporter
arranges to
ship the goods. The exporter takes the shipping documents and
the exporters draft drawn on the importer to the exporters
bank.
The exporting bank forwards all documents to its correspondent
bank in the importing country. This importing bank notifies the
importer when the documents arrive.
If terms are payment at sight, this arrangement would be called
a sight draft documents against payment and the importer would be
required to pay immediately to obtain the shipping documents so he
can pick up the goods at the port of discharge
DOCUMENTS AGAINST ACCEPTANCE (D/A)-DEFERRED PAYMENT However, if
the importer has agreed to accept (pay later)the draft, he is
permitted to obtain the documents by accepting the draft and the
goods but is not obliged to make payment until the draft mature
e.g.60 days D/A.
The exporter will have established credit locally and make
arrangement
with his bank prior to undertaking the shipment. 2 OTHER TYPES
OF DRAFTS(LESS FREQUENTLY USED)
Time Draft and Date Draft (both are used to give the buyer
better financing because they are the forms of deferred
payment)
Time Draft--the buyer may take possession of the goods with
payment deferred
Date Draft--the seller retains the title of the goods until
payment Main problem with this type of financing is the possibility
of the buyer
being insolvent, when the drafts are presented for payment so
the seller should be fairly certain of the buyers financial
stability before offering such terms.
BILL FOR COLLECTION PROCEDURE IN SUMMARY After conclusion of the
sales contract, the exporter prepare the application
for documentary draft or bill for collection The exporter ships
the goods from the port of loading to the importer The exporter
presents draft or bill of exchange and other documents to
the exporters bank The exporters bank forward the documents to
the importers bank The importer pays or accepts the documents The
importer picks up the goods at the port of discharge with the
documents The importers bank transmits funds to the exporters
bank
-
(4) OPEN ACCOUNT The exporter gives credit to the importer The
credit period is depending on the agreement made between the
two
parties. The normal terms can be 30,60,120 days etc Sometimes
the exporter may give discount in order to attract the importer
to expedite the payment The goods will be shipped to the
importer first and then the payment will
be made later on. The importer must have a good credit
outstanding. Open Account will be normally used between the parent
company and its
subsidiaries--strong confidence and trust for the seller The
buyer has the long terms relationship with the seller therefore
open
account is granted. (5) CONSIGNMENT The seller is paid only when
goods are sold in foreign market Too risky for the exporter--rarely
used no sales effort because no money tied up in the inventory for
the importer The exporter consigns the goods to an overseas agent
whom he trusts
and can perform trading function for him. The agent will seek
for the buyer in the importing country and/or get payment from the
importer first.
Then the agent will transfer the payment to the exporter and/or
will also deliver the goods to the customers.
DEALING WITH THE FOREIGN CURRENCY Use 5 convertible currencies
or hard currencies e.g. USD, POUND
STERLING, JAPANESE YEN, EURO, SWISS FRANC Need international
financial manager to cover HEDGE the exchange risk. Banks buy and
sell convertible currencies at SPOT (immediately) or for
FUTURE delivery. The importer contracts with a bank to buy the
currency for FUTURE delivery at a fixed rate of exchange.
At some future time(specific future time), the importer must
make payment in that foreign currency. Conversely, the exporter may
protect himself by contracting to sell to a bank, at a fixed rate
of exchange,
The foreign currency proceeds he expects on a given date these
contracts provide a HEDGE against currency fluctuation. Both
exporter and importer will avoid the risk of fluctuating exchange
rates.
7) Letter of Credit
UCP600 Type of letter of credit
-
How to read letter of credit Cautions in using letter of
credit
Letter of Credit Flow
Step -by- Step description of Letter of Credit transaction: 1)An
Importer (Buyer) and Exporter (Seller) agree on a purchase and sale
of goods where payment is made by Letter of Credit. 2)The Importer
completes an application requesting its bank (Issuing Bank) to
issue a Letter of Credit in favour of the Exporter. Note that the
Importer must have a line of credit with the Issuing Bank in order
to request that a Letter of Credit be issued. 3)The Issuing Bank
issues the Letter of Credit and sends it to the Advising Bank by
telecommunication (SWIFT) or registered mail in accordance with the
Importers instructions. A request may be included for the Advising
Bank to add its confirmation. The Advising Bank is typically
located in the country where the Exporter carries on business and
may be the Exporters bank but it does not have to be. 4)The
Advising Bank will verify the Letter of Credit for authenticity and
send a copy to the Exporter. 5)The Exporter examines the Letter of
Credit to ensure: a) it corresponds to the terms and conditions in
the purchase and sale agreement; b) documents stipulated in the
Letter of Credit can be produced; and
-
c) the terms and conditions of the Letter of Credit may be
fulfilled. 6)If the Exporter is unable to comply with any term or
condition of the Letter of Credit or if the Letter of Credit
differs from the purchase and sale agreement, the Exporter should
immediately notify the Importer and request an amendment to the
Letter of Credit. 7)When all parties agree to the amendments, they
are incorporated into the terms of the Letter of Credit and advised
to the Exporter through the Advising Bank. It is recommended that
the Exporter does not make any shipments against the Letter of
Credit until the required amendments have been received. 8)The
Exporter arranges for shipment of the goods, prepares and/or
obtains the documents specified in the Letter of Credit and makes
demand under the Letter of Credit by presenting the documents
within the stated period and before the expiry date to the
available with Bank. This may be the Advising/Confirming Bank. That
bank checks the documents against the Letter of Credit and forwards
them to the Issuing Bank. The drawing is negotiated, paid or
accepted as the case may be. 9)The Issuing Bank examines the
documents to ensure they comply with the Letter of Credit terms and
conditions. The Issuing Bank obtains payment from the Importer for
payment already made to the available with or the Confirming Bank.
10)Documents are delivered to the Importer to allow them to take
possession of the goods from the transport company. The trade cycle
is complete as the Importer has received its goods and the Exporter
has obtained payment. Advantages and Disadvantages of Using a
Letter of Credit Advantages to the Importer Importer is assured
that the Exporter will be paid only if all terms and conditions of
the Letter of Credit have been met. Importer is able to negotiate
more favourable trade terms with the Exporter when payment by
Letter of Credit is offered. Disadvantages to the Importer A Letter
of Credit does not offer protection to the Importer against the
Exporter shipping inferior quality goods and/or a lesser quantity
of goods. Consequently, it is important that the Importer performs
the appropriate due diligence to assess the reputation of the
Exporter. If the Exporter acts fraudulently, the only recourse
available to the Importer is through legal proceedings.
-
It is necessary for the Importer to have a line of credit with a
bank before the bank is able to issue a Letter of Credit. The
amount outstanding under each Letter of Credit issued is applied
against this line of credit from the date of issuance until final
payment. Advantages to the Exporter The risk of payment relies upon
the creditworthiness of the Issuing Bank and the political risk of
the Issuing Banks domicile, and not the creditworthiness of the
Importer. Exporter agrees in advance to all requirements for
payment under the Letter of Credit. If the Letter of Credit is not
issued as agreed, the Exporter is not obligated to ship against it.
Exporter can further reduce foreign political and bank credit risk
by requesting confirmation of the Letter of Credit by a reputable
international bank in exporting country Disadvantages to the
Exporter Documents must be prepared and presented in strict
compliance with the requirements stipulated in the Letter of
Credit. Some Importers may not be able to open Letters of Credit
due to the lack of credit facilities with their bank which
consequently inhibits export growth.
Letter of Credit
Letter of Credit
Letter of Credit (Terms and conditions of Letter of Credit )
1. 2. 3.
1. Expiry Place / Presentation Place
Letter of Credit Letter of Credit Letter of Credit
2. Type of Letter of Credit
-
Letter of Credit (Irrevocable) Letter of Credit Letter of Credit
Letter of Credit Letter of credit UCP600 Letter of Credit UCP600
Letter of Credit
3. Issuing Bank
Issuing Bank Letter of Credit (Credit Rating) (L/C with Adding
Confirmation) add confirmation Letter of Credit Confirmation of
Letter of Credit
4. Currency of Amount
() Letter of Credit Hard Currency USD, EURO, YEN, British
Pound
5. Document Required
Letter of Credit Letter of Credit Letter of Credit
Discrepancy
6. Credit Available with any bank
Non-restricted for Letter of Credit Negotiation
7. Bank Charge
Letter of Credit "All Bank Charges outside Thailand are for
Applicant Account "
8. Reimbursement Instruction
telex swift Letter of Credit "T/T Reimbursement Allowed " T/T
Reimbursement allowed in the Letter of Credit Letter of credit
-
bank charge
Letter of Credit (reimbursing bank) Letter of Credit USD New
York USA Letter of Credit " In Accordance with The Terms and
Conditions of This Credit in Reimbursement Authorised to drawn on
.......(Reimbursing Bank in
New York )"
(Request for Negotiation ( Negotiation ) / Discount of Export
Bills of Exchange )
Letter of Credit Letter of credit (Request for Negotiation /
Discount of Export Bills Drawn Under Letter of Credit)
1. 2. 3. 4. 5. Letter of Credit 6. Letter of Credit 7. ( Letter
of Credit 2 ) 8. 9. Packing Credit Packing Credit 10. 11. () 12.
13.
Letter of Credit Letter of Credit
Common mistakes in using Incoterms 2010
by ICC ( Incoterms 2010 by ICC)
-
Common mistakes in using the Incoterms 2010 by ICC
Incoterms 2010 by ICC Here are some of the most common mistakes
made by the exporters or
importers:
Incoterms 2010
Use of a traditional "sea and inland waterway only" such as FOB
or
CIF for containerised goods, instead of the all transport modes
e.g.
FCA or CIP. This exposes the exporter to unnecessary risk
FOB CIF ( ) FCA CIP ()
A good example was the Japanese tsunami in March 2011, which
wrecked the Container terminal. Many hundreds of
consignments
awaiting despatch were damaged. Exporters who were using the
wrong incoterms2010 found themselves responsible for losses
that
could have been avoided! Under FCA the exporter finishes his
obligation for the risk of loss or damage once the goods
delivered into
the custody of the carrier or the freight forwarder at the
container
terminal which is different from FOB which requires the exporter
to be
liable until the goods being delivered on board the vessel at
loading
port.
Tsunami 2011 ( Container Terminal ) Incoterms2010 FCA FOB
freight forwarder FOB Tsunami FOB container
Making assumptions about passing of title to the goods, based on
the
Incoterms 2010 in use. The Incoterms 2010 are silent on when
title
passes from seller to buyer; this needs to be defined separately
in the
sales contract
CFR
-
Incoterms2010 sales contract
Failure to specify the port/place with sufficient precision,
e.g. FCA
Bangkok, which could refer to many places within a wide area
in
Bangkok
FCA Bangkok FCA Bangna Warehouse Bangkok
Attempting to use DDP without thinking through whether the
seller can
undertake all the necessary customs formalities in the buyers
country,
e.g. paying GST or VAT or sales tax
DDP (Delivered Duty Paid) GST VAT Sales Tax DDP
Attempting to use EXW without thinking through the implications
of the
buyer being required to complete export procedures in many
countries it will be necessary for the exporter to communicate
with the
authorities in the exporting country in a number of different
ways
Ex works forwarder Ex works
Use of CIP or CIF without checking whether the level of
insurance in
force matches the requirements of the commercial contract
these
Incoterms 2010 only require a minimal level of cover (like ICC
(C) ),
which may be inadequate.
CIP CIF Institute Cargo Clause C (ICC (C))
Where there is more than one carrier, failure to think through
the
implications of the risk transferring on taking in charge by the
first
carrier from the buyers perspective, this may turn out to be a
small
haulage company or freight forwarder in another country, so
redress
may be difficult in the event of loss or damage
FCA carrier shipment first carrier carrier carrier
-
Failure to establish how terminal handling charges (THC) are
going to
be treated at the point of arrival. Carriers practices vary a
good deal
here. Some carriers absorb THCs and include them in their
freight
charges; however others do not. When we make an offer, we have
to
clearly stipulate in the offer that the price offer is without
THC or DTHC
Terminal handling charge handling THC THC THC DTHC THC DTHC
Where payment is with a letter of credit (L/C) or a
documentary
collection (D/P and D/A) , failure to align the Incoterms 2010
with the
security requirements or the requirements of the banks.
L/C (D/P D/A) Incoterms 2010 L/C Incoterms 2010 C Term CFR CIF,
CPT CIP shipment original Bill of Lading
Steps How to handle Letter of Credit and Discrepancies of Letter
of Credit.
Steps How to handle Letter of Credit and Discrepancies of Letter
of Credit.
handle L/C Discrepancies of L/C
-
1) The Letter of Credit (L/C) is useful to both the importer
(purchaser) and exporter (seller). The basic terms of trade
between the two
parties will form an integral part of the terms and conditions
of the LC and
therefore it is important for the seller to provide as much
detail
(description of goods, availability for shipment, price,
INCOTERMS bank
name and address etc) in either a proforma invoice or sales
contract.
L/C Proforma Invoice Sales Contract L/C Incoterms
2) If the seller has any concerns about the financial stability
of the
buyers country then it would be wise to insist that the L/C is
confirmed (ie
guaranteed by a bank in the seller's country).
L/C Confirmed
3) Once the purchaser has instructed its bank (the Opening Bank)
to
issue an L/C it should take about two or three days for the bank
to create
the document and transmit it to the Advising Bank. Most L/Cs are
transmitted
by wire or SWIFT and therefore will be with the advising bank
within 24
hours of transmission. Please note that the Advising Bank may
not
necessarily be the buyer's bank.
L/C L/C L/C SWIFT (Society for Worldwide Interbank Financial
Telecommunication) L/C Advising Bank
4) As soon as the seller receives the LC advice it is important
that
this document is examined to both ensure that the terms are as
set out in
the proforma invoice or sales contract and also that any
additional terms
(such as the deadline for presentation of documents) can be
complied with.
The seller should request clarification from the Advising Bank
if there are
any terms within the L/C that the seller does not understand. If
the seller
cannot comply with any terms then it is important to advise the
buyer and
request an amendment to the L/C.
L/C L/C Proforman invoice Sales contract L/C discrepancy
-
5) Once the goods have been shipped the seller must ensure that
all
documents are collated and not only match the terms and
conditions of the
L/C but also are consistent with one another. It is recommended
that at
least one other person undertakes a second check as familiarity
with the
documents may well lead to a small discrepancy being
overlooked.
L/C present
6) If there are any obvious discrepancies (such as late
shipment) then
it would be best for the seller to contact the buyer and request
an
amendment to the L/C. It is not recommended to ask the buyer to
instruct the
Opening Bank to accept a discrepancy as there is no guarantee
that it will
do so.
discrepancies late shipment L/C Accept Discrepancy of L/C L/C
Accept Discrepancies accept discrepancies of L/C
7) Before sending the documents to the Advising Bank,please
check to
make sure that the documents should not be presented to a third
party bank
(a Negotiating Bank)as any error in dispatch of documents may
lead to a
delay in the mail.
Third party present L/C Third party bank
8) If possible have the documents presented for negotiation via
your
own bank who should be able to undertake a check against the L/C
before
dispatch and may even be able to act as the Negotiating Bank and
possibly
speed up the process.
present condition L/C discrepancy
=============================================================
8) International Transportation and logistics
Air freight Sea freight Inland transportation
Railway
-
SHIPPING TRANSPORTATION (1) OCEAN FREIGHT When an exporter
wishes to send his goods to another country he may have a choice of
transportation. Goods can be shipped by surfaced (road, rail, or
sea) or by air. By far the most important method for developing
countries is sea, with airfreight as an occasional option. Ocean
freight is the most widely used form of transportation in
international trade. It still has the attraction of being a cheap
mode of transport for delivering large quantities of goods over
long distances. The procedures for arranging a shipment of goods
can be complex. Before goods can be shipped by sea the exporter of
his shipping and forwarding agent must: Find out freight rates
Select a shipping lines and a particular vessel Book shipping space
Register cargo on a shipping note and send shipping note to
shipping
company Register details on customs entries forms and send to
customs Arrange adequate packing, including shipping marks Receive
calling forward notice from shipping company Send goods to port
with consignment note Receive bill of lading from shipping company
Pay freight bill Enclose bill of lading and send copies to shipping
line and customer, or to
the bank acting as intermediary. Shipping and forwarding agents
In practice only the largest exporters try to handle all the
shipping and dispatch of their goods overseas themselves. With
large quantities of goods to export they can afford to employ their
own export staff. Small exporters find it easier to use the
services of shipping and forwarding agents, or freight forwarders
as they are sometimes called. They are experts on the availability
of the different modes of transport for different markets, on the
cost, and on the suitability of each mode. Their job involves
booking space, arranging documentation, and, in many cases,
collecting the goods from the factory and transporting them to the
docks, airport, railway station or road collection points. Shipping
and forwarding agents deal with customs entries and other
formalities. They arrange payment of freight charges and insurance,
if
-
necessary, and handle collection of necessary documents. They
may also help by consolidating or grouping together a number of
consignments to make transportation more economic Type of shipping
The freight rates that have to be paid to send goods by ocean
freight depend to some extent on which type of shipping is used.
The four basic types of shipping are: Conference line vessels.
These are ships operated by a line, which is a
member of a shipping conference. Conferences are groups of
shipping lines. They establish common freight rates, regular
scheduled departures and common shipping conditions. They provide
international liner services for the carriage of cargo on a
specified route or routes.
Non-conferences vessels. These are ships operated by shipping
companies giving scheduled but quoting freight rates
independently.
Tramp ships. These ships do not follow regular routes but travel
as and where cargoes are available. Ship which will call at any
port to carry whatever cargoes are available, normally on the basis
of a charter or part charter such a ship is the opposite of a liner
ship which trades on a specific route between advertised port.
Charter ships. These can be hired to transport products for a
particular purpose or time. They can usually only be justified for
a large order.
Of these types of shipping, the most commonly used are
conference line vessels, which make regular journeys and offer
special discounts to exporters who use them regularly. The exporter
or his freight forwarder may make such special arrangements with
conference lines. Charter Party A contract whereby a shipowner
agrees to place his ship of part of it at the disposal of a
merchant or other person (known as the charterer), for the carriage
of goods from one port to another port on being paid freight or to
let his ship for a specified period his remuneration being known as
hire money. 2 types of charter parties 1. Demise or bare boat
Charter party arises when the charterer is
responsible for providing the cargo and crew, whilst the
shipowner merely provides the vessel. In consequence, the charterer
appoints the crew, thus taking over full responsibility for the
operation of the vessel and pays all expenses incurred. A demise
charter party is for a period of time, which may vary from a few
weeks to several years.
2. Non-Demise charter arises when the shipowner provides the
vessel and her crew, whilst the charterer merely supplies the
cargo. It may be a voyage charter for a particular voyage in which
the shipowner agrees to carry cargo between specified port for a
prearranged freight. The majority of tramp cargo shipments are made
on a voyage charter basis. Alternatively, it
-
may be a time charter for a stated period or voyage for
remuneration known as hire money. Non-demise voyage charter types
Differences between the types of NDVC arise mainly out of payment
for the cost of loading and discharging and port expenses. Gross
form of charter (type of voyage charter in which the shipowner
pays for loading and discharging) Net Terms Under those net
terms the cargo is loaded and discharged at
no cost to the shipowner. The cost of stevedores at the loading
port is borne by the shipper and at the port of discharge by the
receiver. The term net terms is not in common use but is generally
referred to as free-in-and out (FIO) with exactly the same
meaning.
FlO charter The cargo is loaded and discharged at no cost to the
shipowner. The cost of stevedores at the loading port is borne by
the shipper and at the port of discharge by the receiver.
Liner terms Found in the short sea trade the shipowner is
responsible for loading, stowing and discharging the cargo. Usually
the shipowner selects and appoints the stevedores, but this can be
an area of discussion during the fixture negotiations.
Lump sum charter The charterer pays a lump sum of money for the
use of the ship and the shipowner guarantees that a certain amount
of space (that is bale cubic metres) will be available for cargo ,
along with the maximum weight of cargo that the vessel will be able
to carry. Lump sum charter may be on either a gross basis or an FIO
basis. Such a charter is very useful when the charterer wishes to
load a mixed cargo the shipowner guarantees that a certain amount
of space and weight will be available and it is up to the charterer
to use that space to his best advantage.
TERMS OF VOYAGE CHARTER LAYTIME Time allowed by the ship owner
to the voyage charterer or bill of lading holder in which to load
and or discharge the cargo. It is expressed as a number of days or
hours or as a number of tonnes per day. There is normally a
provision in the charter party for the commencement of laytime,
which is often at a certain hour after notice of readiness has been
tendered by the master, a provision for periods when laytime does
not count, for instance during bad weather, weekends or holidays
and a provision for laytime being exceeded, when demurrage or
damages for detention become payable or not being fully used, when
despatch may be payable. LAYDAYS Days allowed by the ship owner to
the voyage charterer or bill of lading holder in which to load
and/or discharge the cargo. LAYDAYS CANCELLING
-
Period during which the ship owner must tender notice of
readiness to the charterer that the ship has arrived at the port of
loading and is ready to load. This period is expressed as two dates
for example laydays 25 March cancelling 2 April or when abbreviated
to laycan 25 March/2 April. The charterer is not obliged to
commence loading until the first of these dates if the ship arrives
earlier and may have the option of cancelling the charter if the
ship arrives after the second of the dates, known as the cancelling
date LAYTIME SAVED Charter party term used to define one method by
which despatch money is calculated, that is , by deducting laytime
used from laytime allowed. If , for example , a charter party
provides for 6 laydays for loading and the charterer uses 2 and
days, he is entitled to 3 and days despatch money. Also referred to
as working time saved. LAYTIME STATEMENT Portion of a time sheet,
which details the amount of laytime used by a voyage charterer.
TERMS OF LOADING AND DISCHARGING UNDER CHARTER PARTY WEATHER
WORKING DAY The day on which work is normally carried out at a port
and which counts as laytime unless loading or discharging would
have ceased because of bad weather. SUNDAYS AND HOLIDAYS EXCEPTED
Charter party term, which provides that Sundays, and public
holiday