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Shipping Terms


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  • 1. Import Export Contract Terms Import Export Contract Terms on Price Methods  FOB - Free on Board Free on Board means that the seller fulfills his obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. The buyer has to bear all costs and risks of loss of or damage to the goods from that point. FOB terms requires the seller to clear the goods for export. This term can only be used for sea or inland waterway transport.   CFR or C&F - Cost and Freight Cost and Freight means that the seller must pay the cost and freight necessary to bring the goods to the named port of destination but the risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. The CFR term requires the seller to clear the goods for export.  CIF - Cost, Insurance, and Freight CIF means that the seller has the same obligations as under CFR but with the addition that he has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium.  DAF - Delivered at Frontier (...named place) DAF means that the seller fulfills his obligation to deliver when the goods have been made available, cleared for export, at the named point and place at the frontier, but before the customs border of the adjoining country. The term is primarily intended to be used when goods are to be carried by rail or road, but it may be used for any other mode of transport. Import Export Contract Terms on Payment Methods  Irrevocable L/C(Letter of Credit) A letter of credit eliminates financial risks for you, the manufacturer, and the distributor. When your distributor confirms the order, a letter of credit is drawn from that company's bank to a branch in the United States or to your bank. This letter of credit confirms that funds are available from the distributor to cover the same costs you quoted. An irrevocable letter of credit assures you the order will not be cancelled at any time. When that letter of credit is likewise confirmed by your bank to deliver the goods, the distributor is assured of delivery. Once the letter of credit is confirmed by the bank, the currency exchange is also confirmed, so you don't have to worry about the fluctuation in currency. Basically, the bank holds the money until all shipping documents are presented. The letter of credit states the terms and conditions to make it legal and negotiable into money, usually holding for proof of shipment of the goods. Your freight forwarder helps you attain all those documents. When you hand them to the banker, the letter of credit is turned into liquid assets for you to then pay the manufacturer and all other invoices from the transaction.
  • 2. Never work on promises. Not only do you take a gigantic risk, but you create bad risks for everyone you are involved with. A letter of credit is the only sure way to transfer these payments. Irrevocable L/C is the one that can not be withdrawn or amended by the opening bank without the agreement of the beneficiary. This kind of L/C is more secure and hence is most often used. It claims our attention that, according to Uniform Customs and Practice of Commercial Documentary Credits 500, if a L/C is not marked as being irrevocable or not, it should be taken as irrevocable.  Remittance - Import Export Contract Terms Remittance is of three types: Mail Transfer (M/T), Telegraphic Transfer (T/T), and Demand Draft (D/D).  By Mail Transfer, the buyer will hand over the payment of the goods to the remitting bank that will authorize its branch bank or correspondent bank in the country of the beneficiary by mail to make the payment to him. By  Telegraphic Transfer, the buyer will hand over the payment of the goods to the remitting bank which will authorize its branch bank or correspondent bank in the country of the beneficiary by telegraphic means to make the payment to him. Mail transfer is less expensive, but it costs more time, while telegraphic transfer is more expensive but it is much sooner.  By Demand Draft, the buyer will come to the local bank to buy a banker's bill and then deliver it to the seller or beneficiary by mail. When the seller or beneficiary has received it, he will come to the bank designated by the banker's bill for cash. Apart from banker's bill, promissory notes or checks can also be used in this way.  Documentary Collection - Import Export Contract Terms  D/P at sight Under D/P at sight, the seller might either draw or not draw a draft on the buyer. He hand over the shipping documents together with (or without) the draft, and the shipping documents and the draft (or wihtout draft)will be transferred to the collecting bank which will present them to the buyer and ask him to make the payment at sight. The buyer, upon sight, should then make the payment and get the shipping documents. When the collecting has thus finished the collection, it should immediately notify the remitting bank which will then make the payment to the seller.  D/P at _ days after sight (date) The buyer shall duly accept the documentary draft drawn by the seller at _ days's sight upon first presentation and make payment on its maturity. The shipping documents are to be delivered against payment only.   Documents Against Acceptance (D/A) Under D/A, the buyer can get the shipping documents from the collecting bank after he has duly accepted the draft. This is only applicable to time draft. This will greatly convenience the buyer, but it means much more risk for the seller, for once he has delivered the shipping documents, he will have lost his title over the goods.  D/A means more risks for the seller, for the buyer might refuse to pay after he has accepted the draft and taken the delivery of the goods. Certainly the seller might sue him, but as is often the case, the buyer claims bankruptcy and then the seller can do nothing to remedy the situation.
  • 3. Import Export Contract Terms on Documentation There are roughly five kinds of commonly used international trade documents are list here. They are categorized according to the document source. Insurance Cargo Overview  In international trade,during cargo transportation from the port of shipment to port of destination, there are a lot of risks,which,if they occur,will involve traders in financial losses. Although these risks can not be avoided, they can be transferred to insurance company by covering the goods for various basic risks or insurance clause with the insurer.  In Insurance Cargo Term, the party who insures others against possible loss or damage and undertakes to make payment in case of loss is called insurer; the party who is insured against possible loss and to whom payment covering the loss will be made is called the insured.  The contract made between the insurer and the insured is the insurance policy. The amount of money the insurer agrees to cover by insurance against the subject matter is the insured amount(which is usually the amount of CIF value of the consignment plus 10% representing an anticipated profit for the buyer). The sum of money the insured agrees to pay the insurer for an insurance policy is called premium. Insurance Cargo Clause in the Sales Contract The following examples were adopted from Ocean Marine Cargo Clause of the People's Insurance Company of China.  Insurance to be effected by the seller for 110% of CIF invoice value against Free Particular Average as per Ocean Marine Cargo Clause of the People's Insurance Company of China.  The insurance should be affected by the buyer if the contract is concluded on FOB or CFR basis. However, the seller should, immediately after the goods are completely loaded at port of shipment, notifying the buyer of the consignee of the contract number, name of the commodity, quantity, gross weight, measurement, invoice value and number of B/L, name of the vessel, the date of shipment,etc. In case the goods are not insured in time, owing to the seller's failure to give shipping advice timely, any and all consequent losses should be borne by the seller.
  • 4.  Insurance shall be effected for the amount of seller's CIF invoice value plus 10% against W.P.A. Any additional insurance required by the buyer shall be at his own expense. The seller may insure against War Risk at the buyer's request and at his expense. In case the rate of relevant insurable premium shall be raised between the time of concluding contract and that of shipment, this excess premium shall be on the buyer's account.  Commodity Inspection Overview  Commodity Inspection is usually conducted by special department or agent. Right now, in China, the China Import and Export Commodity Inspection and Quarantine Bureau performs the duties of inspection as per the "Commodity Inspection Law" of China.  In international trade, when concluding the sales contract, the buyer and the seller should mutually agree with the time and place of inspection, the types of inspection certificate and the inspection institution.  For export contract in China, it is required that the certificate of quality and weight issued by the China Import and Export Commodity Inspection and Quarantine Bureau at the port/place of shipment should be part of the documents to be presented for negotiation under the relevant documentary credits.However, the buyer shall have the right to reinspect the quality and weight of the goods.  Commodity Inspection Clause in Sales Contract  It is mutually agreed that the certificate of quality and quantity of weight issued by the xxx (manufacturer) shall be part of the documents for payment under the relevant L/C. However, the inspection of quality and quantity or weight shall be made in accordance with the following:  In case the quality,quantity or weight of the goods are found not in conformity with those stipulated in sales contract after re inspection by the China Import and Export Commodity Inspection and Quarantine Bureau within xxx days after arrival of the goods at the port of destination, the buyer shall return the goods to or lodge claims against the seller for the compensation of losses upon the strength of Inspection Certificate issued by the said Bureau, with the exception of this claim for which the insurer or the insured is liable. All expenses should be borne by the seller. In such case, the buyer may, if no requested, send a sample of the goods in question to the seller, provided that the sampling is feasible.  It is necessary that the buyer and the seller clearly stipulate the time and place of Commodity Inspection and relevant details of inspection clause in sales contract.  Commercial Invoice is generally issued by the importer,exporter or some relevant non- governmental business organizations. A Commercial Invoice is a bill for the goods from the seller to the buyer. It is one of the most important documents used in international trade. Even if the importer may have opened a Letter of Credit, the exporter will usually not be paid until he presents a Commercial Invoice along with other documents to the bank. The invoice serves as a record of the essential details of a transaction. An invoice must show the following basic information about the transaction:  Buyer's order number  Invoice number and date  Shipment terms  Names and addresses of the seller and buyer  Country from which the shipment is made
  • 5.  Description of the goods  Quantity, weight or measurement of the goods  Unit price  Total amount payable, including price of goods, freight, insurance and so on  Rebate or similar incentives  Signature of the exporter SHIPPING DOCUMENTS Shipping Documents,issued by the carrier,verify that the goods have been shipped for the transportation and delivery. Under symbolic delivery, shipping documents are necessary for the settlement of payment. Generally, different modes of transportation have different shipping documents.Railway bill and railway cargo receipt are issued under railway transportation. Airway bill are issued under air transportation. Even in post, parcel receipt is issued by post office. Here we focus on some commonly used shipping documents in import export transportation. Bill of Lading (B/L) It is a formal contract of carriage between the consignor and carrier. The key elements contained in a B/L should include:  Name of the shipper  Name of the carrying vessel  Full description of the cargo including any shipping marks, individual package numbers in the consignment, contents, cubic measurement, gross weight,etc.  Port of loading and port of discharge  Full details of freight, including when and where it is to be paid - whether freight prepaid or collect at destination.  Name of shipper  Name of carrying vessel  Terms of the contract of carriage  The date the goods were received for shipment and/or loaded on the vessel  The name and address of the notified party(the person to be notified on arrival of the shipment, usually the buyer).  Number of Bills of Lading signed on behalf of the master or his agent, acknowledging receipt of the goods  Signature of the carrier or his agent and the date Shipping Note A Shipping Note gives information about a particular export consignment when offered for shipment. It serves the shipping company as a delivery or receipt note for particular consignment. Some people also call it Mate's Receipt. Its role in various ports and trades may differ worldwide. However, the cargo description in a Shipping Note should conform to that found on the commercial invoice. Packing List A Packing List provides a list of the contents of a consignment. It is completed by the shipper. Its prime purpose is to give an inventory of the shipped goods. A Packing List is especially useful for the consignments which are composite. It is usually required by the Customs for clearance purposes.
  • 6. INSURANCE DOCUMENTS Insurance Documents are ones, issued by the issuer, certifying that the insurer and the insured have signed an insurance contract covering the goods to be transported. If the goods under the contract do incur damages or even losses in transit, the insured can lodge a claim against the insurance documents. Since insurance documents are the evidence of insurance contract between the insurer and the insured, they are mainly classified as the following four types: Insurance Policy This is a written legal contract between the insurer and the insured containing all terms and conditions of the agreement. It shows full details of the risks covered, and is also called fomal insurance documents. Key elements of insurance policy are illustrated as follows:  Name of the insurer with a signature identified as that of insurance company, or underwriter, or insurance agent.  Name of the insured, both the seller and the buyer might be the insured if they have insured interest and with good faith.  The insured goods which include description of subject matter.  Type of risks covered which should be one of the three basic risks, i.e. F.P.A., W.P.A. and All Risks.  Insurance provisions  Amount and currency insured.  Place of claim payable.  Transport model and vessel's name.  Port of shipment and port of destination. If transshipment is required, the goods should cover transshipment risks such as warehouse to warehouse clause including transshipment risks.  Time and place of insurance. Insurance Certificate An insurance certificate is a document issued to the insured certifying that the insurance has bee effected. It contains the same details as an insurance policy except that version of provisions is abbreviated. If a documentary credit requires an insurance policy, issuing bank will refuse an insurance certificate for payment. Combined Certificate Combined Certificate is further simplified. The insurer here lists the risks to be covered, the insured amount and the policy number on the invoice provided by the insured, and the other clauses are to be seen on the invoice. Open Policy or Open Cover This is a pre-contract concluded between the insurer and the insured by which the insurer offers insurance to the insured for the consignments he dispatches within a certain period of time.
  • 7. Open Policy is only applicable to the imported goods from foreign countries to China. As soon as the carriage for the consignment under the Open Policy is made, it is under the insurance cover of the Open Policy in accordance with the terms listed on the Open Policy. Import procedure New documentation requirement for drc All cargo arriving to and departing from DRC Cluster must be covered by below listed mandatory documents. These documents provide the relevant agencies with all information. ECTN The ECTN is an Electronic Cargo Tracking Notice. The ECTN number is known as the NVU (Numéro Visa Unique) and must be mentioned on the Bill of Lading. The ECTN is provided by OGEFREM agents at the loading port. The list of agents can be found on the website » /liste-agents.pdf . The Congolese Control Office (the OCC) is charged with the control of the effective application of these measures at the arrival ports and the country borders of the DRC. The shipping line must ensure an ECTN is available before loading the cargo for Export. BIVAC BIVAC (Bureau Veritas Certificate of Inspection) OFIDA, the customs authority in Democratic Republic of Congo (DRC), has issued a statement reminding all parties about the need for every import shipment to have a Bureau Veritas Certificate of Inspection (the so called BIVAC certificate). Carriers are requested not to accept any cargo without a valid BIVAC number, and in case of none compliance cargo will be returned to port of loading at the exporter's expense. For any further queries we advise you to contact your local office » Bureau Veritas or » DOCUMENTATION Following above, below documents must be compulsory be collected and their numbers mentioned on the Bill of Lading. BIVAC BIVAC ECTN DRC x x CGO x In case any of the documentation is not in order upon arrival of the vessels at the Port of Discharge, the shipping line will be fined for non-compliance. Any fines, costs and consequences will be debited to the origin offices (pro rata if needed) immediately for recovery from the shippers. These costs can’t be recovered from importers. DROP OFF Empty containers can be returning to Matadi port or Kinshasa depot which is subject to drop off fees. Please contact ( for further information.