Basics of Freight Forwarding Handout

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BASICS OFFREIGHT FORWARDING

by Atty. Romeo R. Sto. Tomas

WHAT CUSTOMERS WANT

EXPECTATIONS

• Customers want their expectations met.• They want excellent quality at a fair price

-- real value, consistently and reliably provided.

WHAT DO CUSTOMERS WANT?1. Results – the product or service performs

effectively2. Reliability – in the product and all

services that support the product3. Live, warm, friendly and courteous

service (from both people and systems)4. Empathy – a genuine understanding of

their individual needs5. Knowledgeable, well-trained suppliers

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WHAT DO CUSTOMERS WANT?

6. Strong communication – to be kept informed

7. Integrity – open, honest, and fair treatment

8. A sense of partnership – sharing of values

9. Creative solutions to problems10. Value – a fair price to be paid for meeting

expectations

A SAMPLE L/C

TEST 12345XYZ99 WITH PHILIPPINE COMMERCIAL INT’L., MANILADATE: MAY 12, 2002AMOUNT: USDLRS 2,700ISSUE DATE 12MAY02L/C NUMBER 61196ADVISING BANK APPLICANTCHINA BANKING CORPORATION ABC HANDICRAFTS OF TAMPA, INC.DASMARINAS CORNER JUAN LUNA ST. 1313 GRAY STREETPO BOX 611 TAMPA, FLORIDA MANILA 2804, PHILIPPINESBENEFICIARY EXPIRY DATE / PLACE XYZ INTERNATIONAL, INC. 20AUG02 PHILIPPINES4 MEALLA MUGROSA ST.SAN ANTONIO VALLEY 111, SUCATPARANAQUE, MANILA, PHILIPPINESCURRENCY AMOUNTUSD ===========2,700.00TWO THOUSAND SEVEN HUNDRED AND 00/100 USDOLLARSWE HEREBY ISSUE THIS IRREVOCABLE DOCUMENTARY LETTER OF CREDITIN YOUR FAVOR WHICH IS AVAILABLE AT SIGHT BY DRAFTS DRAWN ONNCNB NATIONAL BANK OF FLORIDA, TAMPA, FLFOR 100 PERCENT OF THE INVOICE VALUE BEARING THE CLAUSE DRAWN UNDER IRREVOCABLE LETTER OF CREDIT 61196 ACCOMPANIED BY:SIGNED COMMERCIAL INVOICE IN QUADRUPLICATE.PACKING LIST IN QUADRUPLICATE.CUSTOMS INVOICE IN ORIGINAL AND TWO COPIES.VISA INVOICE IN ORIGINAL AND TWO COPIES.CERTIFICATE OF ORIGIN IN ORIGINAL AND TWO COPIES.SINGLE COUNTRY DECLARATION IN ORIGINAL AND TWO COPIES.CERTIFICATE SIGNED BY BENEFICIARY THAT ONE FULL SET OF NON-NEGOTIABLE DOCUMENTS HAVE BEEN AIRMAILED TO APPLICANT.CERTIFICATE OF ORIGIN GSP FORM “A”.FULL SET AND ONE NON-NEGOTIABLE COPY OF CLEAN ON BOARD OCEANBILLS OF LADING ISSUED TO THE ORDER OF NCNB NATIONAL BANK OFFLORIDA, TAMPA, FL, MARKED FREIGHT COLLECT AND MARKED NOTIFYSACK AND MENENDEZ, (CUSTOMS BROKER) PO BOX 986, TAMPA, FL 33601COVERING:HANDICRAFTS

FOB MANILASHIPMENT FROM ANY PORT

TO TAMPA, FLORIDAPARTIAL SHIPMENTS NOT ALLOWED. TRANSHIPMENTS ALLOWED.INSURANCE COVERED BY BUYER.SPECIAL CONDITIONS: THIS CREDIT IS TRANSFERABLESHIPMENT TO BE EFFECTED NO LATED THAN 31JUL02PRESENTATION TIME: WITHIN 20 DAYS AFTER THE DATE OF ISSUANCE

OF SHIPPING DOCUMENTS BUT WITHIN CREDIT VALIDITY.DOCUMENTS TO BE FORWARDED TO NCNB NATIONAL BANK OF FLORIDA,

INTERNATIONAL DEPT., P.O. BOX 31590, 400 NORTH ASHLEY ST.,16 FLOOR, TAMPA, FL. 33602 IN ONE REGISTERED AIRMAIL.

ALL BANKING CHARGES OUTSIDE USA FOR ACCOUNT OF BENEFICIARYSUBJECT TO UCP500

WE HEREBY ENGAGE WITH THE BONA FIDE HOLDERS OF ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS LC THAT SUCHDRAFTS WILL BE DULY HONORED UPON PRENTATION TO US. THIS IS THE OPERATIVE INSTRUMENT TO BE ACTED ON. NOTIFY BENEFICIARY.NCNB NATIONAL BANK OF FLORIDA, TAMPA, FLORIDA 33602

TEST 12345XYZ99 WITH PHILIPPINE NATIONAL BANK, MANILADATE: MAY 12, 2003AMOUNT: USDLRS 2,700ISSUE DATE 12MAY03L/C NUMBER 61196

ADVISING BANK APPLICANTCHINA BANKING CORPORATION ABC HANDICRAFTS OF TAMPA, INC.DASMARINAS CORNER JUAN LUNA ST. 1313 GRAY STREETPO BOX 611 TAMPA, FLORIDA MANILA 2804, PHILIPPINES

BENEFICIARY EXPIRY DATE / PLACE XYZ INTERNATIONAL, INC. 20AUG03 PHILIPPINES4 MEALLA MUGROSA ST.SAN ANTONIO VALLEY 111, SUCATPARANAQUE, MANILA, PHILIPPINES

CURRENCY AMOUNTUSD ===========2,700.00TWO THOUSAND SEVEN HUNDRED AND 00/100 USDOLLARS

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WE HEREBY ISSUE THIS IRREVOCABLE DOCUMENTARY LETTER OF CREDITIN YOUR FAVOR WHICH IS AVAILABLE AT SIGHT BY DRAFTS DRAWN ONNCNB NATIONAL BANK OF FLORIDA, TAMPA, FLFOR 100 PERCENT OF THE INVOICE VALUE BEARING THE CLAUSE DRAWN UNDER IRREVOCABLE LETTER OF CREDIT 61196 ACCOMPANIED BY:

► SIGNED COMMERCIAL INVOICE IN QUADRUPLICATE.► PACKING LIST IN QUADRUPLICATE.► X CUSTOMS INVOICE IN ORIGINAL AND TWO COPIES.► X VISA INVOICE IN ORIGINAL AND TWO COPIES.► X CERTIFICATE OF ORIGIN IN ORIGINAL AND TWO COPIES.► X SINGLE COUNTRY DECLARATION IN ORIGINAL AND TWO COPIES.► CERTIFICATE SIGNED BY BENEFICIARY THAT ONE FULL SET OF

NON-NEGOTIABLE DOCUMENTS HAVE BEEN AIRMAILED TO APPLICANT

► √ CERTIFICATE OF ORIGIN GSP FORM “A”.► FULL SET AND ONE NON-NEGOTIABLE COPY OF CLEAN ON BOARD

OCEAN BILLS OF LADING ISSUED TO THE ORDER OF NCNB NATIONAL BANK OF FLORIDA, TAMPA, FL, MARKED FREIGHT COLLECT AND MARKED NOTIFY SACK AND MENENDEZ, (CUSTOMS BROKER) PO BOX 986, TAMPA, FL 33601

COVERING:HANDICRAFTS

FOB MANILASHIPMENT FROM ANY PORT

TO TAMPA, FLORIDAPARTIAL SHIPMENTS NOT ALLOWED. TRANSHIPMENTS ALLOWED.INSURANCE COVERED BY BUYER.

SPECIAL CONDITIONS: THIS CREDIT IS TRANSFERABLESHIPMENT TO BE EFFECTED NO LATED THAN 31JUL03PRESENTATION TIME: WITHIN 20 DAYS AFTER THE DATE OF ISSUANCE

OF SHIPPING DOCUMENTS BUT WITHIN CREDIT VALIDITY.DOCUMENTS TO BE FORWARDED TO NCNB NATIONAL BANK OF FLORIDA,

INTERNATIONAL DEPT., P.O. BOX 31590, 400 NORTH ASHLEY ST.,16 FLOOR, TAMPA, FL. 33602 IN ONE REGISTERED AIRMAIL.

ALL BANKING CHARGES OUTSIDE USA FOR ACCOUNT OF BENEFICIARYSUBJECT TO UCP500

WE HEREBY ENGAGE WITH THE BONA FIDE HOLDERS OF ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS LC THAT SUCHDRAFTS WILL BE DULY HONORED UPON PRENTATION TO US. THIS IS THE OPERATIVE INSTRUMENT TO BE ACTED ON. NOTIFY BENEFICIARY.NCNB NATIONAL BANK OF FLORIDA, TAMPA, FLORIDA 33602

TYPES OF L/C

• IRREVOCABLE - The L/C can be amended or cancelled only with the agreement of the parties. Issuing Bank is irrevocably committed to pay the Beneficiary provided all conditions are met.

TYPES OF L/C

• REVOCABLE - The L/C can be amended or cancelled by the Account Party at any time without prior notification to the Beneficiary. However, it cannot be cancelled AFTER the documents have been found in order and paid.

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TYPES OF L/C

• CONFIRMED – Carries the commitment of a bank outside the Account Party’s country, usually the Advising/Paying Bank which adds its obligation to pay to that of the Issuing Bank.

TYPES OF L/C

• UNCONFIRMED L/C – The advising bank merely informs the Beneficiary of a Letter of Credit and does not add its own obligation to pay. It carries only the Issuing Bank’s commitment to pay.

TYPES OF L/C

• STRAIGHT L/C – The beneficiary must present his documents to the bank named in the L/C. The obligation of the Issuing bank extends only to the Beneficiary. The Paying Bank is specifically authorized to pay the Beneficiary and charge its customer either the Importer or Issuing bank

TYPES OF L/C

• NEGOTIATION L/C – it assures anyone who negotiates drafts under the L/C that these will be honored by the Issuing Bank provided all the terms are complied with. The Negotiating bank advances the funds to the beneficiary by buying the draft, thus it becomes a holder in due course of the negotiable instrument.

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TYPES OF L/C

• SIGHT L/C – refers to the tenor of the draft. Payment is effected after presentation of the draft and documents that conform to the terms of the L/C

• USANCE L/C – payment will be made at some specified time after presentation of the draft and documents

TYPES OF L/C

• RED CLAUSE L/C – Clause in L/C which allows advances to the beneficiary prior to the presentation of documents. This means that the exporter may draw on the credit prior to the shipment of goods. All the exporter has to do is to draw a draft on the credit and issue a certification that the amount being drawn is an advance.

TYPES OF L/C

• GREEN CLAUSE L/C – similar to a red clause L/C. However in this case, advances are available only if the beneficiary can show proof that the goods are in a warehouse. Presentation of a warehouse receipt or quedan is required. This is usually available availed of by exporters of commodities like sugar.

Documents Against Payment

• Otherwise known as DP, an arrangement whereby the supplier ships the goods to the buyer and sends through his bank for collection the documents of trade together with a draft drawn at sight on the buyer. This means that the buyer must honor and pay his obligation upon presentation of the documents. In exchange for payment, the bank releases the documents to the buyer including the bill of lading, which he will then use to claim the goods from the shipping company.

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Documents Against Acceptance

• Otherwise known as DA, an arrangement whereby the goods are shipped and the relevant bill of exchange (draft) is drawn by the seller with the tenor of X days on the buyer. Documents are sent to the seller’s bank with clear instructions for collection through one of its correspondent banks located in the domicile of the buyer. Title of the goods and relative documents are released to the buyer only upon acceptance of the draft.

OPEN ACCOUNT

• An arrangement whereby the seller ships goods and sends the shipping documents (NO DRAFT, as distinguished from that of a documentary collection where a draft is required to prove a liability) directly to the buyer but prior agreement provides for payment at some stated specific future date.

PARTIES TO AN L/C

• APPLICANT – Buyer/Importer/Account Party - Arranges opening of the credit

• BENEFICIARY – Seller/Exporter - Party in whose favor the credit is opened

PARTIES TO AN L/C

• ISSUING BANK – Importer’s bank, issues the credit

• ADVISING BANK – Usually a bank located in the exporter’s locale which advises the credit to the beneficiary without engagement on its part

• CONFIRMING BANK – Bank which adds its obligation to the beneficiary to ensure payment or acceptance of a draft

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PARTIES TO AN L/C

• PAYEE BANK – Drawee Bank, the bank on which the draft is drawn

• NEGOTIATING BANK – The bank that gives value for drafts and/or documents under credit. The bank becomes a holder of the draft by advancing its own funds to the beneficiary

• REIMBURSING BANK – The bank named in the credit through which the negotiating bank will seek reimbursement

Common Discrepancies

• Unclean bills of lading• No evidence of goods being actually

“shipped on board”• Shipment made between ports other than

those stated in the credit• Goods shipped on deck• BL does not indicate whether freight is

paid or not


• Insurance document different from that required by credit

• Insurance risks not covered as specified in the credit

• Under-insurance• Insurance not effective from the date

indicated in the transport document


• Documents inconsistent with each other• Description of goods on invoice differs

from that in the credit• Weights differ between documents• Amounts differs between invoice and bill of

exchange• Short-shipment

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• Marks and numbers differ between documents

• Absence of documents called for in the credit

• Bill of exchange drawn on the wrong party• Bill of exchange drawn on an

indeterminable date


• BL, insurance document, or bill of exchange not endorsed correctly

• Absence of signatures, where required, on documents presented

• Credit amount exceeded• Credit expired• Documents not presented in time• Late shipment

TRANSPORT DOCUMENTS

By Romeo R. Sto. Tomas

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FIATA FCR

• Acknowledgement that FF has assumed responsibility of goods

• Can be handed to consignor after goods received by FF

• EXW• Buyer’s Consolidation• Is it negotiable?

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FIATA FCT

• Obligation to deliver the goods at destination thru agent of FF

• Can be handed to consignor after goods

• FF only responsible for forwarding and delivery; not as carrier

• FCT may be negotiable

FIATA FWR

• When FF needs to provide warehousing services

• Issued as a receipt for the goods• Mainly used on national level• Not negotiable, unless otherwise

indicated

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FIATA FBL

• Negotiable FIATA Multimodal Transport Bill of Lading

• Carrier-type transport doc for use by FF acting as MTO

• May also be used as marine Bill of Lading

FIATA FBL

• Mentioned in Article 26, UCP 500

• FF assumes responsibility for delivery as well all carriers and 3rd

parties engaged by him

QUESTION

• Is the FIATA Multimodal Transport Bill of Lading (FBL) an acceptable document under UCP 500 where a documentary credit calls for a marine bill of lading covering a port-to-port shipment and does not indicate that an FBL is not acceptable?

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ANSWER

• The FBL is acceptable as a marine bill of lading provided that it complies with the requirements of UCP 500 Articles 23 and 30.

Functions of a Bill of Lading

• Evidence of contract of carriage• Serves as a receipt• Serves as a document of title

Types of Bills of Lading

• Shipped on board bill of lading• Received for shipment bill of lading

BL according to Beneficiaries

• BL to a named person• BL to order• BL to bearer

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BL according to Voyages

• Direct Bill of Lading• Through Bill of Lading

Clean Bill of Lading

• No remarks regarding goods are made on the bill of lading

Unclean/Claused Bill of Lading

• Reservations are made on the bill of lading regarding condition of cargo

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SEA WAYBILL

• Replacement of traditional ocean bill of lading and is non-negotiable

Advantages of a sea waybill

• Allows consignee to claim goods merely by producing identification

• Suitable for in-house documentation• Suitable for open account trading

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What is a contract?

Civil Code of the PhilippinesTitle II. - CONTRACTS

CHAPTER 1GENERAL PROVISIONS

Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

What is a Contract of Sale?

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Civil Code of the Philippines

Title VI. - SALESCHAPTER 1

NATURE AND FORM OF THE CONTRACT

• Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

• Art. 1460. A thing is determinate when it is particularly designated or physical segregated from all other of the same class.

• The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. (n)

What Buyers and Sellers

Want

WHAT BUYERS WANT

• Contract Fulfillment• Convenience• Credit• Expert Assistance• Payment Options:• In advance• Time of shipment• After Shipment

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WHAT SELLERS WANT

• Contract Fulfillment• Convenience• Prompt Payment• Advice• Payment Options:• In advance• Time of shipment• After shipment

International Sale of Goods Contract

1. Buyer’s obligations

2. Seller’s obligations

3. Product description

4. Quality & quantity

7. Remedies

6. Payment

5. Incoterm & related transport terms and conditions

ITCM10:U2:2.1-8

ITC

Seller’s obligations

Deliver the goods

Deliver the related documents

Transfer the title of ownership

Assure conformity

Act in good faith & fairly

Offer “civil liability”

M8:U1:1.2-1ITC

Buyer’s obligations

Accept the goods or services

Pay the agreed price

Act in good faith & fairly

Accept civil liability

M8:U1:1.2-2

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CONTRACT TERMS• Price• Currency • Payment Terms• Packing• Volume• Dimensions • Quantity

CONTRACT TERMS

• Quality• Specifications• Documents Required • Transport Mode• Freight Charges• Insurance• INCOTERMS

INCOTERMS 2000

by Romeo R. Sto. Tomas

INCOTERMS 2000• International rules for the interpretation

of trade terms

• Provides an internationally recognized standard for commercial contracts between a buyer and seller in two different countries

• First issued by the International Chamber of Commerce (ICC) in Paris 1936, and have been updated in 1967, 1976, 1980, and 1990.

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Agreement to abide by a set of internationally applicable rules in the arrangement and operation of international transportation

A standard three-letter abbreviated terminology

Translated into various languages

Covers thirteen main options

The rules associated with each term clearly describe the key obligations of sellers and buyers.

ITCITC

Using Incoterms 2000

Incoterms

M10:U2:2.2-1

CONTRACT FOR SALE OF GOODS

applicable jurisdictionTerms, conditions and

Any specific clause relatingto carriage and delivery

INCOTERMspecified in the

contract

Hierarchy of contractual terms and clauses

Contract

Contract

§§§ITC

M10:U2:2.2-2

Incoterms are grouped into four categories:

ITCITC

“E” Terms - Ex-works

“F” Terms - Main carriage not paid by seller

“C” Terms - Main carriage paid by seller

“D” Terms - Delivered on arrival

M10:U2:2.2-5

The FOUR PILLARSFOUR PILLARS• DELIVERY

Where and when has the seller fulfilled his obligation to deliver the goods?

• DOCUMENTSWho has to provide what documents or equivalent EDI messages?

• RISKSWho bears the risk of loss of, or damage to the goods?

• COSTSWho pays for what?

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VALID INCOTERMS?

• FOB Factory• FOB Plant• FOB Ex Seller’s Works• FOR / FOT• FOB Airport• C & F

Delivered at FrontierDelivered Ex ShipDelivered Ex QuayDelivered Duty UnpaidDelivered Duty Paid

DAFDESDEQDDUDDP

Group DArrival

Cost and FreightCost, Insurance and FreightCarriage Paid toCarriage and Insurance Paid to

CFRCIFCPTCIP

Group CMain CarriagePaid

Free CarrierFree Alongside ShipFree on Board

FCAFASFOB

Group FMain CarriageUnpaid

Ex WorksEXWGroup E

Departure

“E” FAMILY

• EXW - EX WORKS (...named place)

EXW Delivery

• Seller makes the goods available at the seller’s premises (loading dock of factory/ warehouse)

• Seller to give Buyer reasonable notice as to when and where the goods will be placed at the Buyer’s disposal

Examples:– EXW 123 Factory Tokyo, Japan– EXW ABC Carving Shop Paete, Laguna

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EXW Documents

• S – commercial invoice, packing list

• B – all others (export declaration/ license, truck waybill, commodity clearance, OBL, insurance, etc.)

EXW Transfer of Risk

• Seller’s premises (loading dock) (origin), after the goods have been placed at the buyer’s disposal, on the date or within the period agreed upon, or if no such time is agreed, at the usual time for delivery of such goods

EXW Costs

• S – manufacturing, packing for export, handling up to loading dock of premises at factory/warehouse

• B – loading from seller’s premises to the vehicle provided by the Buyer, Customs doc, loading and port expenses… all others till final destination

“F” FAMILY

• FAS - FREE ALONGSIDE SHIP(...named port of shipment)

• FOB - FREE ON BOARD(...named port of shipment)

• FCA - FREE CARRIER (...named place)

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FAS Delivery• Seller must place the goods alongside the

vessel nominated by the buyer at the loading place named by the buyer at the named port of shipment on the date or within the agreed period

• Examples:• FAS Port Elizabeth, South Africa• FAS Cagayan de Oro

FAS Documents• S – commercial invoice, packing list,

truck waybill, commodity clearance, export declaration/ license

• B – Bill of lading, insurance

FAS Transfer of Risk• Alongside ship at quay or lighter

FAS Costs• S – all costs till cargo placed

alongside ship at quay or lighter• B – cost to load the goods on board the

vessel, freight, insurance, and all other costs beyond that

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FOB Delivery

• Must place the goods on board the vessel nominated by the buyer at the named port of shipment on the date or within the agreed period

• “Past the ship’s rail”

• Examples:• FOB Port Klang, Malaysia• FOB Long Beach, California

FOB Documents

• S – commercial invoice, packing list, truck waybill, commodity clearance, export declaration/ license, OBL “freight collect”

• B – insurance, and beyond

FOB Transfer of Risk

• Ship’s rail

FOB Costs

• S – all costs till cargo placed on board the vessel, past the ship’s rail

• B – freight, insurance, etc.

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FCA Delivery

• Must deliver the goods to the carrier or another person nominated by the buyer at the named place on the date or within the agreed period for delivery.

• If the delivery is at a place other than the seller’s premises, the seller is not responsible for unloading from the delivery vehicle.

• If the delivery is at the seller’s premises, the seller is responsible for loading

Examples:• FCA Sprite Freight CFS Hamburg, Germany• FCA Dive Air Lines SFO International Airport)• FCA ZA Freight Forwarders Tokyo Japan

FCA Documents

• S – invoice, packing list, ed, RSBL (“received for shipment” BL) or truck or train waybill or consignment note, or AWB, “freight collect” (indicating that

the carrier has received the goods)B – insurance, and beyond

FCA Transfer of Risk

• Delivery to the carrier / carrier’s acceptance

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FCA Costs

• S – all costs till cargo handed over to the carrier designated by the buyer

• B – freight, insurance, etc.

“C” FAMILY

• CFR - COST AND FREIGHT (...named port of destination)

• CIF - COST INSURANCE AND FREIGHT(...named port of destination)

CFR Delivery

• Must place the goods on board the vessel selected by the seller at the named port of shipment on the date or within the agreed period

• Examples:• CFR Manila, Philippines.• CFR Sydney, Australia

CFR Documents

• S – commercial invoice, packing list, truck waybill, commodity clearance, export declaration/ license, OBL “freight prepaid”

• B – insurance, and beyond

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CFR Transfer of Risk

• Ship’s rail

CFR Costs

• S – all costs till cargo placed on board the vessel, past the ship’s rail, and freight

• B – insurance, etc.

CIF Delivery

• Must place the goods on board the vessel selected by the seller at the named port of shipment on the date or within the agreed period

• Examples:• CIF New York, U. S. A.• CIF Yokohama, Japan

CIF Documents

• S – commercial invoice, packing list, truck waybill, commodity clearance, export declaration/ license, OBL “freight prepaid,” insurance policy

• B – import documents, etc.

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CIF Transfer of Risk

• Ship’s rail

CIF Costs

• S – all costs till cargo placed on board the vessel, past the ship’s rail, freight, and insurance premium

• B – all costs after cargo has been loaded on board and insurance premium paid

“C” FAMILY

• CPT - CARRIAGE PAID TO (...named place of destination)

• CIP - CARRIAGE AND INSURANCE PAID TO (...named place of destination)

CPT Delivery

• Seller must deliver to the carrier contracted by him, and in case of more than one carrier, delivery to the first carrier

• Example:• CPT South Harbor, Manila, Philippines• CPT JFK Airport, New York, U. S. A.

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CPT Documents

• S – commercial invoice, packing list, truck waybill, commodity clearance, export declaration/ license, “freight prepaid”

• B – insurance policy, import license and import customs formalities, all docs for goods to transit other countries

CPT Transfer of Risk

• Upon delivery to the carrier designated by the seller

CPT Costs

• S – all costs till cargo delivered to the carrier selected by the seller, plus freight

• B – insurance premium, import license and import customs formalities, all docs for goods to transit other countries

CIP Delivery

• Seller must deliver to the carrier contracted by him, and in case of more than one carrier, delivery to the first carrier

• Examples:• CIP NAIA, Paranaque, Philippines• CIP Zurich, Switzerland

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CIP Documents

• S – commercial invoice, packing list, truck waybill, commodity clearance, export declaration/ license, “freight prepaid,” insurance policy for amount

and risks agreed upon• B – import license and import customs

formalities, all docs for goods to transit other countries

CIP Transfer of Risk

• Upon delivery to the carrier designated by the seller

CIP Costs

• S – all costs till cargo delivered to the carrier selected by the seller, plus freight, as well as cost of insurance premium

• B – import license and import customs formalities, all docs for goods to transit other countries

“D” FAMILY• DAF - DELIVERED AT FRONTIER

(...named place)

• DES - DELIVERED EX SHIP (...named port of destination)

• DEQ - DELIVERED EX QUAY (...named port of destination)

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“D” FAMILY

• DDU - DELIVERED DUTY UNPAID(...named place of destination)

• DDP - DELIVERED DUTY PAID(...named place of destination)

DAF Delivery

• Named place of delivery, before crossing over into adjoining country of import, not unloaded on the arriving means of transport

• Examples:• DAF Mexican-Guatemalan border• DAF Texas-Mexico border

DAF Documents

• S – all docs to customs border, before crossing into named place/ destination country, freight prepaid

DAF Transfer of Risk

• Upon placing the goods at the buyer’s disposal on the named place at the frontier, on the date or within the agreed period

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DAF Costs

• S – all costs till prior to crossing customs border of named place/destination country

• B – customs clearance to cross into destination country

DES Delivery• Named port of delivery, not unloaded

from the arriving ship

• Examples:• DES Manila, Philippines• DES Le Havre, France

DES Documents• S – all docs to bring goods to port of

destination on board the ship, not cleared for import

• B – all docs to unload and beyond

DES Transfer of Risk• Upon ship’s arrival on the named port of

delivery

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DES Costs• S – all costs to bring goods to port of

destination on board the ship, not cleared for import

• B – discharge costs, customs clearance, and delivery

DEQ Delivery

• Named port of delivery, discharged unto the quay (wharf) from the arriving ship

• Quay - “ki”

• Examples:• DEQ Port Moresby, PNG• DEQ La Spezia, Italy

DEQ Documents

• S – all docs to bring goods to port of destination & discharged from the

ship unto the quay (wharf), not cleared for import

• B – all docs to take the goods out of the port and beyond

DEQ Transfer of Risk

• Upon cargo’s being discharged onto the quay (wharf)

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DEQ Costs

• S – all costs to bring goods to port of destination & discharged from the

ship, not cleared for import• B – customs clearance, and delivery

• Variation:• DEQ (Duty and VAT Paid) Genoa, Italy

“D” FAMILY

• DDU - DELIVERED DUTY UNPAID(...named place of destination)

• DDP - DELIVERED DUTY PAID(...named place of destination)

DDU Delivery

• Final destination, not unloaded from (still on) the arriving means of transport

• Examples:• DDU Subic Bay, Philippines• *DDU (Unloading for Seller’s Account) FTZ

Singapore*

DDU Documents

• S – all docs to bring goods to final destination, except customs formalities

• B – all docs to customs clear the goods

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DDU Transfer of Risk

• Upon delivery to final destination, not unloaded from the arriving vehicle

DDU Costs

• S – all costs to bring goods to final destination except for customs formalities

• B – customs formalities, unloading from arriving means of transport

DDP Delivery• Final destination, not unloaded from the

arriving means of transport

• Examples: • DDP Alexandria, Egypt• DDP (exclusive of VAT and/or taxes) Cebu City,

Philippines

DDP Documents• S – all docs to bring goods to final

destination

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DDP Transfer of Risk• Upon delivery to final destination, not

unloaded

DDP Costs• S – all costs to bring goods to final

destination, including customs formalities• B – unloading from arriving means of

transport

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E, F, C, D

• E – EXW• F – FAS, FOB, FCA• C – CFR, CIF, CPT, CIP• D – DAF, DES, DEQ, DDU, DDP

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DISTINCTIONS

• According to group - E, F, C, D• According to transport mode• Traditional Sea and Inland

Waterway transport only• Any mode, including multimodal

Maritime

•FAS•FOB•CFR

•CIF•DES•DEQ

Land

•DAF

All Modes

•EXW•FCA•CPT

•CIP•DDU•DDP

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DISTINCTIONS• Shipment Contracts vs. Arrival

Contracts

• Notion of risk - critical point to determine seller’s performance of delivery

obligations

• Shipment Contracts - goods transported at buyer’s risk

• Arrival Contracts - goods transported at seller’s risk

Delivered at FrontierDelivered Ex ShipDelivered Ex QuayDelivered Duty UnpaidDelivered Duty Paid

DAFDESDEQDDUDDP

Group DArrival

Cost and FreightCost, Insurance and FreightCarriage Paid toCarriage and Insurance Paid to

CFRCIFCPTCIP

Group CMain CarriagePaid

Free CarrierFree Alongside ShipFree on Board

FCAFASFOB

Group FMain CarriageUnpaid

Ex WorksEXWGroup E

Departure

GUIDELINES

• Valid only if expressly stipulated in the sales contract or separate agreement

• Incoterms don’t determine when payment for goods has to be made

• Incoterms don’t determine full legal relationship between parties -

ownership, rights to goods, obstacles to delivery, complaints, conditions of payment, etc.

GUIDELINES

• Incoterms are subject to applicable national laws

• Do not alter Incoterms, except to clarify payment of duties/taxes, insurance coverage

• Bank are not concerned with the Incoterms specified in sales contracts

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GUIDELINES

• Incoterms don’t affect relationship of buyer and seller with third parties -carrier, freight forwarder

• Container technology, integrated and intermodal transport have made FOB, CFR, and CIF virtually obsolete.

• New terms are FCA, CPT, CIP. They are expected to replace traditional terms.

Please answer YES or NO:

1. You sell FCA Bangkok (Thailand). Cargo will move by ocean transport. Will you pay for the container stuffing?

2. You sell DDU Copenhagen (Denmark). Would you pay importation taxes?

3. You sell EXW Bujumbura (Burundi). Cargo will move by ocean transport from Mombasa(Kenya). Would you pay road transport up to Mombasa?


4. You sell FCA Dusseldorf (Germany). Cargo will move by truck and roll-on/roll-off operation to Cairo (Egypt). Would you pay the cargo insurance premium?

5. You sell FOB Singapore. Cargo will move by ocean transport. Would you pay the export customs formalities?

6. You sell CIP Niamey (Niger). Cargo will move in an FCL container. Would you pay the freight bill?

Please answer YES or NO:7.You send back defective car parts from Kaduna

(Nigeria) to Sochaux (France) under IncotermFCA Airport Kano (Nigeria). Would you pay the transport insurance premium?

8.You import from Switzerland electronic equipment in an LCL container, with a contract of sale stipulating CPT Dakar (Senegal). Would you pay for the container stuffing at the container terminal in Basle (Switzerland)?

9.You export DDU Glasgow (Scotland) an FCL container moving by ocean transport. Would you pay for unstuffing the container?

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10. You buy CIF Casablanca (Morocco). Cargo will move by ocean transport. Would you pay the transport insurance premium?

11. You sell a FCL container loaded with coffee under Incoterm FCA Lome (Togo). Would you pay the terminal handling charges (THC) in Lome?

12. You sell FOB Contonou (Benin) handicraft products packed in cases. Would you pay storage charges for the cases at the port of Contonou?


13.You import a piece of equipment CPT Airport Colombo (Sri Lanka). Would you pay import duties and taxes?

14.You sell clothes EXW Sfax (Tunisia). Would you pay the loading of the cargo on to the lorry inside your facilities?

15.Groundnuts (peanuts) are sold FOB Bombay (India). Would the buyer pay the export Customs formalities?

1. YOU ARE THE SELLER You don’t want to worry about either local transport in your country, ocean transport, export Customs clearance, or transport insurance. Your factory is located in Bogota (Colombia).

2. YOU ARE THE BUYER You want to get your order by air transport and you are ready to pay airfreight charges from Paris (France). Goods are obtained from the company TELEFILM located in Versailles (France).

3. YOU ARE THE SELLER You are quoting to your European customers prices in which goods are delivered at your own risks and costs by truck up to Modane, at the border between France and Italy.

4. YOU ARE THE SELLER Your client asks you to ship your goods by ocean transport and to take all ocean risks and costs, as well as the risks and costs related to the unloading of the goods at the destination port in Rotterdam (Netherlands). Your client will cover import Customs duties and taxes.

5. YOU ARE THE BUYERYou deal with different service providers in Sweden and you want to consolidate your cargo in a container at the Container Freight Station of your freight forwarder NORD-EXPRESS located in Stockholm. You want to pay the bill on inland transport as well as on transport insurance.

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6. YOU ARE THE SELLER Your client asks you to ship the goods in such a way that he does not have to pay the ocean transport freight. However, he accepts to bear the ocean transport risks because he has access to a cover insurance policy for transport insurance. The port of destination is Helsinki (Finland). The shipment is a conventional shipment with changes of modes.

7. YOU ARE THE SELLER Your premises are located in Le Havre (France), and are connected to a railway line. You want to ship a full wagonload of goods, payment at destination, to your customer in Dusseldorf (Germany). Ordering and loading of the wagon are done by your company.

8. YOU ARE THE SELLER You sell your goods to a client in Germany and you take care of freight and insurance. Destination is Frankfurt airport.

9. YOU ARE THE BUYER You buy goods from a provider located in Los Angeles. You don’t want to worry about transport, insurance, and export and import Customs formalities. Delivery must be made in Lagos (Nigeria). Air transport should be used.

10. YOU ARE THE SELLER You load a road trailer on a roll-on/roll-off vessel sailing to Jeddah (Saudi Arabia). Your selling quotation includes ocean transport freight and insurance. However, transport risks are borne by your client.