2. THE HORROR STORIES!
Incoterms? That’s that FOB thing, innit?
The export price list shows ‘FOB £5.00 per
Unit’ and ‘CFR £5.00 per Unit’!
We use FOB Birmingham or CIF Cairo!
3
3. INCOTERMS
the point at which risk passes;
the delivery point;
the division of costs;
the division of functions;
the division of responsibilities.
define
4
4. INCOTERMS GROUP ‘E’
The goods are made available to the
buyer at the seller’s premises.
5
5. INCOTERMS GROUP ‘F’
The seller must deliver the goods to a
carrier appointed by the buyer.
6
6. INCOTERMS GROUP ‘C’
The seller must contract for the
carriage of the goods
without assuming risk of
loss of or damage to the goods
or additional costs due to events
occurring after shipment.
7
7. INCOTERMS GROUP ‘D’
The seller must bear all costs and risks
required to bring the goods to the
place of destination.
8
8. EX WORKS - EXW
May be used for any mode of
transport.
The seller must place the goods at the
disposal of the buyer at the seller’s
premises or another named place not
cleared for export and not loaded on
any collecting vehicle.
9
9. FREE CARRIER - FCA
May be used for any mode of
transport.
The seller must deliver the goods,
cleared for export, to the carrier
nominated by the buyer at the place
nominated by the buyer.
10
10. FREE ALONGSIDE SHIP - FAS
Maritime and inland waterway
transport only.
The seller must place the goods,
cleared for export, alongside the
vessel at the named port of shipment.
11
11. FREE ON BOARD - FOB
Maritime and inland waterway
transport only.
The seller delivers the goods, cleared
for export, when they pass the ship’s
rail at the named port of shipment.
12
12. COST AND FREIGHT - CFR
Maritime and inland waterway transport only.
The seller delivers when the goods pass the ship’s rail in
the port of shipment. The seller must pay the costs and
freight necessary to bring the goods to the named port of
destination BUT the risk of loss of or damage to the goods,
as well as any additional costs due to events occurring
after the time of delivery, are transferred from the seller
to the buyer.
The seller must clear the goods for export. If the parties
do not intend to deliver the goods across the ship’s rail
the CPT term should be used.
13
13. COST INSURANCE AND FREIGHT - CIF
Maritime and inland waterway transport
only.
The obligations are the same as under CFR
with the addition that the seller must
procure insurance against the buyer’s risk
of loss or damage to the goods during
carriage.
14
14. CARRIAGE PAID TO - CPT
May be used for any mode of transport.
The seller delivers the goods to the
nominated carrier and must also pay the
cost of carriage necessary to bring the
goods to the named destination. The buyer
bears all additional costs and risks after the
goods have been delivered to the
nominated carrier.
15
15. CARRIAGE & INSURANCE PAID TO - CIP
May be used for any mode of
transport.
The obligations are the same as under
CPT with the addition that the seller
must procure insurance against the
buyer’s risk of loss of or damage to
the goods during carriage.
16
16. DELIVERED AT FRONTIER - DAF
May be used for any mode of
transport.
The seller must place the goods at the
disposal of the buyer on the arriving
means of transport not unloaded,
cleared for export but not cleared for
import, at the named point and place
at the frontier.
17
17. DELIVERED EX SHIP - DES
Maritime and inland waterway
transport only.
The seller delivers when the goods are
placed at the disposal of the buyer on
board the ship, not cleared for
import, at the named port of
destination.
18
18. DELIVERED EX QUAY - DEQ
Maritime and inland waterway
transport only.
The seller delivers when the goods are
placed at the disposal of the buyer on
the quay, not cleared for import, at
the named port of destination.
19
19. DELIVERED DUTY UNPAID - DDU
May be used for any mode of
transport.
The seller must deliver the goods to
the buyer, not cleared for import, and
not unloaded at the named place of
destination.
20
20. DELIVERED DUTY PAID - DDP
May be used for any mode of
transport.
The seller must deliver the goods to
the buyer, cleared for import, and not
unloaded at the named place of
destination. The seller pays the
import duties.
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21. WHICH INCOTERMS TO USE?
The buyer’s stipulation.
The regulations of the country of
importation.
Standard practice for the country of
importation.
Exporter’s policy.
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22. WHICH INCOTERM TO USE?
The mode of transport used
Availability of information
Customer service
Economy
23. INCOTERMS 2000 – Major Changes
FAS / DEQ customs clearance
obligations.
FCA loading and unloading obligations.
The expression ‘ No Obligation’.
Consistency of language
Customs clearance in free trade areas.
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24. INCOTERMS AND INSURANCE
Only affects CIF / CIP.
Seller procures insurance for the
benefit of the buyer.
Minimum cover of Institute Cargo
Clause.
Contract price plus 10%.
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27. PLEASE REMEMBER!
Documents must refer to Incoterms 2000 (or current
version)
Always use the 3 letter code
Always suffix with a named place
CIF Aqaba Port Incoterms 2000
FOB Immingham Docks Incoterms 2000
CPT Queen Alia Airport Incoterms 2000
28. The Incoterms Revision
Incoterms review underway
Reduction from 13 to 10 terms
Clarification of maritime / non-maritime terms
Security regimes addressed
Publication due 2010
Probably effective from Jan 2011
29. The Incoterrms Revision
Incoterms 2011
EXW v FCA
The Maritime Terms
The D Terms – in general
The D Terms – and Letters of Credit
30. Incoterms 2000 – Responsibility Chart
SERVICES
EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP
Warehouse
Storage
S S S S S S S S S S S S S
Warehouse
Handling
S S S S S S S S S S S S S
Export Packing S S S S S S S S S S S S S
Loading
Charges
B S S S S S S S S S S S S
Inland Freight B S* S S S S S S S S S S S
Terminal
Charges
B B S S S S S S S S S S S
Forwarder’s
Fees
B B B B S S S S S S S S S
Loading on
vessel
B B B S S S S S S S S S S
Sea/Air Freight B B B B S S S S S S S S S
Charges on
arrival
B B B B B B S S S S S S S
Duty, Taxes &
Customs
clearance
B B B B B B B B B B B B S
Delivery to
destination
B B B B B B B B B B B S S
S = Seller
B = Buyer
• If terms are FCA Seller’s Premises, Seller is responsible only for loading goods and not for inland freight.
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32. Customs Formalities
Legal Obligations:
Declarations of cargoes
Payment of duties / Taxes
Compliance with import regulations including controls
and prohibitions
Impact upon time scales in the supply chain
33. Why is Customs Clearance needed?
Revenue collection or waiver
Anti-Smuggling Net
Counterfeit goods / IPR protection
Enforce import controls
Assure integrity of declarations
Inspection / quality assurance
Identify over-pricing and under-pricing issues
34. Documentary Requirements - Imports
Invoices showing CIF / CIP value
Packing Lists
Certificates of Origin
Import Licence
Certificates of Free Sale
Test Certificates
Import declaration
Inspection Certificates / CRIs / IDFs
36. Customs Valuations
Duties / Taxes are usually calculated on the basis of
the CIF / CIP value of the goods.
Valuation is on the basis of the transactional value
If the transactional value cannot be determined
Customs Authorities may base their calculations on the
value of identical or similar goods.
Most countries use the Harmonised System (HS) of
classification for their customs tariffs.
38. Exercise!
CPT Value of the consignment US$10,000
Insurance premium estimated as US$100.00
Import Duty Rate is 3%
How much Import Duty would be payable?
39. Topical Issues
Single Window Environment
WCO Safe Framework
Trusted Trader environments – The Golden List
Use of Scanners
One Stop Border Posts
Integrated Border Management
Trade / Transit Corridors
40. Inefficiency of trade procedures - Kenya
Bank
Importer /
Exporter Transporter
Clearing
Agent
Ship Agent
Kenya Airport
Authority
KRA Customs
Kenya Ports
Authority
Other Control
Agencies
42. The World Customs Organisation’s (WCO) SAFE
Framework of Standards (FoS)
A set of recommended international supply-chain security
standards and supporting principles adopted by the WCO in
June 2005 to secure and facilitate international trade.
17 Standards arranged under the two Pillars of:
Pillar 1: Customs to Customs co-operation (11 standards)
Pillar 2: Customs to business partnerships (6 standards)
43. Aims of SAFE FoS:
To establish international supply-chain security and trade facilitation standards
to promote certainty and predictability.
To enable integrated supply-chain management across all transport modes.
To enhance the role, functions and capabilities of Customs administrations.
To strengthen co-operation between Customs administrations to improve their
capability to detect high risk consignments.
To strengthen Customs / Business co-operation.
To promote the seamless movement of goods through secure international
trade supply-chains.
44. Lessons Learned
SAFE’s 4 Core Elements:-
Harmonization of cargo information, required electronically in
advance for inbound, outbound and transit shipments.
The adoption of a Risk Management approach in addressing security
threats.
Mutual Customs co-operation in the inspection of outbound
consignments considered high risk.
The conferral of benefits to businesses meeting minimum supply-chain
security standards and demonstrating good practice (e.g. Authorised
Economic Operator (AEO) and similar ‘trusted trader’ schemes).
45. Methods of Shipment
Seafreight – Liner shipping
1. Containerised
2. Break Bulk / Conventional
Seafreight – Charter
Road
Rail
Air – Sea / Air
Multi Modal solutions
46.
47. Cargo Insurance
Responsibilities in relation to Incoterms
Types of cover – Open Cover / Specific
Premium Elements – Marine / War Risks
Institute Cargo Clauses A, B & C
48. Cargo Insurances
Claims
Prompt action by the insured
Complete and accurate documentation
Do not sign clean receipt
Advise insurers immediately
Hold last carrier responsible
49.
50. Documentation
Movement:
Bills of lading
Electronic Bills of Lading
Airwaybills
CMR Notes
CIM Notes
Forwarders Certificate of Receipt
56. Documentation
Certificates of Origin
Inspection Certificates
Test Certificates / traceability
Packing Lists
Commercial Invoices (indicating CIF value for customs)
Insurance Certificates
57. customs security carrier security customs
CARGO
EXPORTERS
BANK
IMPORTERS
BANK
DOCUMENTS (DIRECT OR THROUGH BANK)
$ PAYMENT
EXPORTER
IMPORTER
58. Methods of Payment for Exports / Imports
Cash in Advance
Confirmed Irrevocable Letter of Credit
Unconfirmed Irrevocable Letter of Credit
Avalised Bill of Exchange
Bank collections
Cash against Documents
Open Account
Principle of Documentary Exchange
59. Selection of Payment Term and
Method
Sellers Criteria:
Minimise credit risk
Exporters need for funds
Usual terms sales to country of importation
What competitors are offering
Effect of bank charges
Seller will Assess both Commercial and Country Risks
60. Letters of Credit
A guarantee of payment by the issuing bank to
the seller, conditional upon presentation of
documents, to a nominated bank, which
strictly comply with all the terms and
conditions of the letter of credit.
61. Letters of Credit
The parties involved:
The Opener – Buyer or Importer
Opening Bank – Issues the L/C
Nominated Bank – Advises and may ‘confirm’ the L/C
The Beneficiary – Seller or Exporter
62.
63. Letters of Credit
Types:
Confirmed / Unconfirmed
Irrevocable / revocable (UCP 600 Revision)
Revolving
Transferable
Back to Back
Standby
Red Clause / Green Clause
64. Letters of Credit
The Rules:
Uniform Customs and Practice for Documentary Credits
– ICC Publication No 600
eUCP
International Standard Banking Practice
65. Why revise the rules?
Rejection rate under UCP 500 consistently high at 50-
70% of presentations
Requirement to reflect changes in banking /
international transportation and insurance since UCP
500 was published in 1993
66. ICC Task Force Recommendations
Review should be technical rather than line by line revision
ICC opinions, decisions, DOCDEX and court cases should be
considered
7 articles of UCP 500 account for 58% of all Opinions, these
require scrutiny
17 articles have resulted in none, one or two opinions.
Consider incorporation of URR 525, ISP98 and eUCP.
67. What are the key changes?
Leaner set of rules – reduced from 49 to 39 articles
Easier to read therefore easier to translate
Rules more robust due to removal of terminology ‘Unless
otherwise stipulated’ – openers must ‘Expressly modify’
New fundamental article on ‘definitions’
68. UCP 600 New Articles
2 - Definitions
3 - Interpretations
9 - Advising of credits and
amendments
12 - Nomination
15 - Complying presentation
17 - Original documents and
copies
69. UCP 500 Articles not Included
5 - Instructions to issue / amend
6 (part) - Revocable
8 - Revocation
12 – Incomplete or Unclear instructions
38 – Other documents
70. Article 2 - Definitions
Applicant
Banking Day
Complying presentation
Honour – Issuing bank must ‘honour’
Negotiation – Bank uses own funds
Paying – Using issuing banks funds
71. Article 3 Interpretations
Words in the singular include the plural and vice-versa
Credits are Irrevocable even if un-stated
Branches of banks in different countries are considered separate
banks
Words such as prompt, immediately, as soon as possible will be
disregarded
The words from / after in relation to maturity date exclude the
date mentioned
72. Article 3 Interpretations
A document may be signed by
handwriting / facsimilie signature / perforated
signature / stamp / symbol or mechanical / electronic
method of authentication
A requirement for certification / legalisation is
satisfied by any signature / mark / stamp / label
73. Article 3 Interpretations
First half of month – 1-15th
Second half of month – 16th -last day
Beginning – 1-10th
Middle - 11-20th
End – 20th – last day
74. Article 4 Credits v contracts
The credit is a separate transaction from the
underlying sales contract
Copies of the contract or proforma invoice should not
be included as an integral part of the letter of credit
75. Article 5 – Documents V Goods, Services
and Performances
Banks deal with documents and not with goods, services
or performances to which the documents may relate
Deletion of ‘all parties’
Banks only deal in documents
76. Article 6 Availabilty, Expiry Date and Date
for Presentation
Combines 3 articles from UCO 500
Sets minimum requirements be be set in each credit on
these issues
Cross reference to Articles 2 and 29
Credits are always available with the issuing bank
Prohibition of drafts drawn on applicant
77. Articles 9 & 10 Advising Credits &
Amendments
New article
Bank must satisfy itself of authenticity of credit
Clarifying partial acceptance is deemed rejection
Time limits on amendments disregarded
78. Article 14 Standard for Examination of
Documents
Fundamental to exporters – one of longest articles
Incorporates some of ISBP
Maximum period of time for bank to determine compliance
reduced to 5 banking days.
Such period not subject to other event, for example expiry
Removal of concept of reasonable time
79. Article 14 Standard for Examination of
Documents
Default presentation period 21 calendar days connected to
original transport document
Concept of not in conflict / read in context introduced to reduce
misuse of inconsistency rule. Requires case by case interpretation
Requirement that a document must appear to fulfil its function
80. Article 14 Standard for Examination of
Documents
Any date of issuance of a document on or prior to date of
presentation is acceptable
Addresses of beneficiary and applicant may differ within their
respective country / contact details transferred from ISBP (notify
party exempted)
Issuer of transport document requirement allows NVOCC and
freight forwarders documents
81. Article 15 Complying Presentation
New article
Actions to be taken by the bank after determining
presentation is compliant.
Honour or negotiation must follow
Clarification that documents have to be forwarded
82. Article 16 Discrepant documents
Structure of refusal notice
Additional possibilities – holding documents until
receipt and acceptance of waiver
Latest date for notice of refusal links with 14 (b)
83. Article 17 Original Documents and
Copies
Interpretation of requirement
At least one original of each document must be presented
Originals instead of copies acceptable
Focus on definition of originals rather than copies
Signing in original makes a document original
17 (b) Reflects ICC Decision on Original Documents
84. Article 18 Commercial Invoices
Invoice must be in same currency as the credit
New emphasis that banks may accept invoices showing
a greater value than allowed by the credit provided
they do not honour or negotiate for an amount in
excess of the credit
85. Articles 19 Transport document
covering at least two different modes
of transport
If a through document is used this article applies
For example multi-modal bill of lading or sea / airwaybill
No requirement to show name of master
Must indicate the name of the carrier
Must be signed by the carrier or a named agent, or the
master or a named agent (on behalf of the carrier or master)
Must indicate that the goods have been despatched, taken in
charge or shipped on board at the place stated in the letter
of credit.
86. Article 20 Bill of Lading
Article 21 Non-negotiable waybill
No requirement to show name of master
No reference to vessels propelled by sail
Updated transhipment provisions
Must indicate the name of the carrier
Must be signed by the carrier or a named agent, or the master or
a named agent (on behalf of the carrier or master)
Must indicate that the goods have been shipped on board a named
vessel at the place stated in the letter of credit.
Shipped on Board relates to the port of loading shown in the
credit not a feeder port (pre-printed wording or dated notation)
Must contain conditions of carriage or linked to email address
giving conditions – new UNCTRAD rule.
87. Article 22 Charter Party Bill of Lading
Banks will not examine charter party contracts even if
they are presented as a requirement of the letter of
credit
May be signed by the master, owner or charterer (or a
named agent on their behalf)
Must indicate that the goods have been Shipped on
Board
88. Article 23 Air Transport Document
Flight date in a notation is treated as the date of shipment
whether it is called for in the credit or not – over-rides ISBP.
Updated transhipment provision
Banks will ignore information in ‘For Carriers Use Only’ box
Must indicate the name of the carrier
Must be signed by the carrier or a named agent for and on behalf
of the carrier
Must indicate that the goods have been accepted for carriage
89. Article 24 Road, Rail or Inland Waterway
Documents
New combined article
A rail waybill titled ‘Duplicate Rail Waybill’ is
acceptable.
Transhipment is acceptable even if prohibited by the
credit
Must indicate the name of the carrier
Must be signed by the carrier or a named agent on
behalf of the carrier
Must indicate receipt of the goods by signature, stamp
or notation
90. Article 25 Courier Receipts……
Refers to goods for transportation under the letter
of credit, no document transmittal
91. Article 26 On Deck……
If loading on deck is required the applicant must
expressly modify the requirements of this article when
opening the letter of credit otherwise loading on deck
is not permitted
A clause stating that goods may be loaded on deck is
acceptable
92. Article 27 – Clean Transport Document
Claused transport documents are not acceptable.
For example, if steel is being shipped, the opener must
modify the clause by stating ‘Rust on the steel is
acceptable’
The word ‘clean’ is not required to appear on the
transport document.
93. Article 28 – Insurance Document and
Coverage
Amalgamated to one article
Incorporates ISBP provision concerning minimum cover
An insurance document may contain reference to any exclusion
clause. As a result of ‘millennium clauses’ and ‘acts of terrorism
(after 9/11)’
Cover notes not allowed
Insurance policy acceptable instead of a certificate
94. Article 33 Hours of Presentation
No change for UCP 500
However – Banks may manage this differently to
mitigate the reduction to five (from seven) banking
days allowed to check documents
95. Article 36 Force Majeure
Addition of Acts of Terrorism as a specified Force
Majeure event.
96. Transhipment provisions
In general, even if the Letter of Credit prohibits
transhipment, transport documents indicating that
goods may or will be transhipped are acceptable as
long as the whole transit is covered by a single
document.
97. How is it for the Exporter?
A liberalised regime
Should see a reduction in the 70% discrepancy rate
Reduction in time allowed for banks to check
documents from 7 to 5 banking days
Prescriptive rules for banks in handling complying
presentations
But will the customer be happy?
98. How is it for the Importer?
Documents presented need to be fit for purpose:
1. Customs
2. Regulatory / conformity
3. Title and delivery
4. Insurance
Need to ‘expressly modify’ requirements
99. Letters of Credit
Opening a Letter of Credit:
Timing and facilities
Opener’s responsibilities
Control of the transaction – linkage with sales contract
/ purchase order
Requirement for advance documents
100. Letters of Credit
Discrepant documents:
Completeness
Compliance
Correctness
Consistency
Should you accept or reject the documents?
Remember: Consequences of delay in
documentation
101. Letters of Credit
Accept or Reject?
Right goods at the right price
Quality of goods
Marketable
Documents required for clearance
Claused transport documents
Profitability / viability of transaction