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  1. 1. DOCUMENTARY TRANSACTION • Fundamental Problem-seller fears relinquishing control over its goods before payment, while buyer fears making payment before obtaining possession of the goods. • Methods of Payment » Cash in Advance » Open Account and Consignment » Documentary Collection » Documentary Credit
  2. 2. DOCUMENTARY TRANSACTION • Approach • Documentary Transactions • Necessary Documents to Complete International Private Business Transaction • Decision to Export • Bill of Lading • Allocation of Risk Through the Use of Trade Terms
  3. 3. Documentary Transaction • Documentary Transaction alleviates the seller’s risk of not being paid or the buyer’s risk of not receiving the goods. – Sale of Goods Contract is converted into a sale of documents contract. • Buyer contracts to buy documents and the seller promises to provide conforming documents to the buyer while goods or in transit. – Buyer can use documents to conduct additional transactions
  4. 4. Documentary Transaction • Documentary Collections Documents – Draft or Bill of Exchange-foreign buyer’s check • Sight Draft-immediate payment due to seller. – Cash Against Document-buyer takes possession by either making payment or accepting the draft • Time Draft-payment due at some point in time in the future – Document Against Acceptance-documents transferring title to buyer upon acceptance of time draft.
  5. 5. DOCUMENTARY TRANSACTIONS • Sales Contract – Parties to Sales Contract • Freight Forwarder • Customs Broker • Assortment of Common Carriers • Insurance Companies • Commercial Banks – Letter of Credit » Confirming Bank
  6. 6. DOCUMENTARY TRANSACTIONS • Checklist for Sales Transaction – Entrance into Sales Contract – Letter of Credit – Confirming Letter of Credit – Hire Carrier of Goods – Insurance Policies – Inspection – Preparation for Shipment – Obtain Shipping Documents – Load Goods on Carriers – Transmit Shipping Document – Payment of Letter of Credit – Customs Clearance – Custom Duties
  7. 7. DOCUMENTS • Documents Necessary to Complete International Private Business Transaction – Sales Contract-covers all necessary information to complete transactions in terms of performance, payment, description of goods and third parties. – Commercial Invoice-contains information about goods, seller, buyer and country of origin.
  8. 8. DOCUMENTS • Documents – Bill of Lading-contract between owner and common carrier of goods. – Consular Invoice-invoice from country of departure. – Certificate of Origin-origin of export item. – Certificate of Inspection-specification of goods shipped
  9. 9. DOCUMENTS • Documents – Insurance Certificates-insurance binder stating type and amount of coverage. – Shipper’s Export Document-allows host country to keep statistics on exports. – Export License-license to export – Packing Slip-list that itemizes the material in each individual package being shipped.
  10. 10. DECISION TO EXPORT • Acquisition of Information in the Following Areas-Preparation of Pro Forma Invoice • Objective of Entering Foreign Market • Actual Cost of Exporting Products • Computation of Final Price in Foreign Market • Evaluation of Market Demand and Competition • Modification of Product to Meet Local Laws and Standards • Incidental Expenses in Travel and Communication
  11. 11. BILL OF LADING • Bill of Lading • Functions » Carriage Contract between ship owner and shipper » Evidence of Receipt that the goods were delivered to ship » Document of Title • Forms » Electronic Bill of Lading » On Board Bill of Lading » Received For Shipment Bill of Lading » Straight and Order Bill of Lading » Clean Bill of Lading
  12. 12. BILL OF LADING • Carriage of Goods By Sea Act – Applies to Bill of Lading – Imposes Duties of Performance on Part of Carrier – Provides for Defenses for Carrier If Goods Are Destroyed While In Transit – Per Package Limitation – See Chapter 10 of Text
  13. 13. BILL OF LADING • Trade Terms-Allows contracting parties to allocate risk and cost of transporting goods. • Common Terms – CIF-(cost, insurance, freight)-the seller quotes the price for the goods including insurance and all transportation charges. – CFR-(cost and freight)-insurance costs excluded. – CPT-(carriage paid) and CIP (carriage and insurance paid)-modes other than water – EXW (ex work)-seller’s place. – FAS-(free along side)—FCA(free carrier), FOB-free on board – DES-(Delivered EX Ship)-goods delivered to destination specified on bill of lading.
  14. 14. BILL OF LADING • Incoterms-created by International Chamber of Commerce to standardize allocation of risk-1990 and 2000-13 Categories • E Group (EX Work) • F Group (FCA, FAS, FOB) • C Group (CFR, CIF, CPT, CIP) • D Group (DAF, DES, DEQ, DDU, DDP) – 2000 Revisions-Export Clearance Obligations Under FAS, Loading of Goods on Buyer’s Vessel, Placing Import Clearance obligation under DEQ