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: jack-of-all-trades@windowslive.com Line/IG/Tango:0811715874 Email: natthaws@scg.co.th 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