Monday, June 10, 2013
Export your product to expand market
Saturday, July 18, 2009
HOW TO CHECK YOUR L/C
Letter of Credit Checklists and Guides are designed to minimize unnecessary costs and risk when trading on a letter of credit basis and are aligned with the 1993 revision of the ICC Uniform Customs and Practice for Documentary Credits (UCP500).
Working through the checkpoints set out in the various sections will help reduce discrepancies; associated unplanned costs; and the risk of losing the whole basis of secured payment for which the credit was established in the first place.
Step 1. Clause 40A
Check that the type of credit gives you the level of payment security you required. It may not be confirmed by a bank and may even be revocable i.e subject to cancellation without your knowledge. Credits issued under UCP 500 are irrevocable unless otherwise stated.
The recommended form of document credit is IRREVOCABLE as cannot be cancelled or amended unless all parties give their agreement
Step 2. Clause 42C
Check that you will be paid at the time you planned. The credit may specify payment some time after documents and/or drafts have been accepted by the paying bank.
The recommended draft is at SIGHT as Bill of exchange payable immediately upon presentation. However, in Indonesia although the draft is at SIGHT the paying bank will only settle the payment until got disbursement from issuing bank in the buyer’s country.
Step 3. Clause 59 and 50
Check that the spelling of your company and buyer name and address are both correct. If the name of your own company is not correct then even if you alter it on your invoice heading to match, the bank may not agree to credit the payment to your account; this point should be clarified with the bank.
Step 4a. Clause 31D
Check that you can produce the goods, ship them, assemble the documents required and deliver them to the bank, all by the expiry date and within the transport document time limit. The bank has no discretion under UCP 500 and is not in a position to pay after expiry dates, nor if the documents are not completely in order.
The following check list will help you to determine how many days you need to prepare all documents before deliver them to the bank:
- Production and packing.
- Inspection -if required.
- Shipment -check sailing frequencies.
- Chamber of Commerce or Ministry of trade to apply Certificate of Origin
- Obtaining the inspection certificate
- Assembling checking shipping documents
- Presenting them to the bank
In term of place of expiry, we recommend would be in INDONESIA
Step 4b. Clause 48
Check the presentation period. To apply certificate of origin at the chamber of commerce or Ministry of Trade, obtaining the inspection certificate, assembling checking shipping document, and presenting them to the bank must be completed within 21 days of the date of shipment evidenced by the transport document in order to present documents in time -unless the credit specifies a different period which could be less. (Note: the validity date stipulated in the credit must be adhered to. It is not overridden by the 21 day rule although provided it still falls within the validity of the credit it might well be in your interest to ask for "in excess of 21 days" when arranging for the establishment of the credit).
Step 5. Clause 71B
Check that only those bank charges you agreed to pay are stated to be for your account.
We recommend that clause 71B state : ALL BANKING CHARGES OTHER THAN THOSE OF THE ISSUING BANK ARE FOR BENEFICIARIES ACCOUNT
Step 6. Clause 32B
Check the value of the credit. The amount should be the same with amount at the agreed proforma invoice or in the agreed sales contract
Step 7. Clause 45A
Check the terms of delivery the same as you quoted. (eg. FOB, CNF, CIF)
Step 8. Clause 43P
Check with your buyer, are partial shipments prohibited or not. Normally, the issue of partial shipment would be stated in the sales contract and both seller and buyer should agree upon. If possible “partial shipment” is allowed to anticipate if there is something wrong in the production we are still able to send some of the goods.
Step 9. Clause 46A
Check shipping document required. Ensure that:
b. They are consistent - for example, the shipping marks, quantities/weights, transport details, references, and in general terms the descriptions, must tally so that they clearly relate on their face to the same shipment.
c. The description of goods is correct. They may be described in general terms, not inconsistent with the credit, in all documents except the invoice, where the exact credit description must be reproduced. Credit details should preferably not be repeated in full in transport documents and some carriers will refuse to enter more than their minimum necessary information. This may cause a discrepancy if the information given does not relate sufficiently to the credit or other documents.
d. Documents are authenticated where necessary - import regulations in some countries still make it essential to sign manually and possibly witness documents and any alterations or additions to them. (Note UCP 500 Article 20(d).
e. Any restrictions in the credit are catered for, for example if short form bills of lading are prohibited.
Step 10. Clause 43T
Clause for Transshipment should be “ALLOWED” as most of the small vessel transit in Port Klang (Malaysia) or Singapore or Hong Kong or Taiwan and continue the journey by using the bigger vessel (mother vessel) to the destination countries.
Step 11. Clause 44C
See the explanation step 4a for clause 31D. Exporter should make sure that he/she can produce the goods on time to avoid the delay in shipping out the goods.
Step 12. Clause 41D
The recommended description for “available with/by” is “ANY BANK BY NEGOTIATION”. Hence, exporter can negotiate/present the shipping document in any bank and there is not restriction.
Step 13. Clause 44A
Make sure that the loading on board/dispatch is the same with what stated at the agreed sales contract
Step 14. Clause 44B
Make sure that the “For transport to and mode of transport” are the same with what stated at the agreed sales contract
source: various sources included owned experiences.
Thursday, July 9, 2009
LETTER OF CREDIT
What is a Letter of Credit?
A letter of credit is basically a document issued by a bank guaranteeing a client's ability to pay for goods or services. A bank or finance company issues a letter of credit on behalf of an importer or buyer, authorizing the exporter or seller to obtain payment within a specified timeframe once the terms and conditions outlined in the letter of credit are met. The letter of credit acts like an insurance contract for both the buyer and seller and practically eliminates the credit risk for both parties, while at the same time reducing payment delays. A letter of credit provides the exporter or seller with the greatest degree of safety when extending credit. It is useful when the importer or buyer is not well known and when exchange restrictions exist or are possible
Types of Letter of Credit
Types of Letters of Credit. Banks may issue several types of letters of credits. It is best for importers and exporters to meet with their banking officer to determine which type of credit best suits their needs. The most common types of letters of credits are:
• Revocable• Irrevocable• Transferable• Confirmed• Unconfirmed• Back-to-back• Standby• Cash advance against letter of credit
Revocable
A revocable letter of credit allows for amendments, modifications and cancellation of the terms outlined in the letter of credit at any time and without the consent of the exporter or beneficiary. Because this places the exporter at risk, revocable letters of credit are not generally accepted.
Irrevocable
An irrevocable letter of credit requires the consent of the issuing bank, the beneficiary and applicant before any amendment, modification or cancellation to the original terms can be made. This type of letter of credit is commonly used and preferred by the exporter or beneficiary because payment is always assured, provided the documents submitted comply with the terms of the letter of credit. Irrevocable letters of credit can be both confirmed and unconfirmed (See below).
Transferable
An irrevocable letter of credit may also be transferable. With a transferable letter of credit, the exporter can transfer all or part of his rights to another party. Transferable letters of credit are often used when the exporter is the importer's agent or a middleman between supplier and importer, and not the actual supplier of merchandise. With a transferable letter of credit, the exporter uses the credit standing of the issuing bank and avoids having to borrow or use his own funds to buy goods from a supplier. Hence, it is a viable pre-export financing vehicle. Before transfer can be made, the exporter must contact, in writing, the bank handling the disbursement of funds - the transferring bank. Transferable letters of credit can only be transferred based on the terms and conditions specified in the original credit, with certain exceptions. Therefore, it may be difficult to achieve flexibility and confidentiality with this finance method.
The transferring bank, whether it has confirmed the letter of credit or not, is only obligated to effect the transfer to the extent and in the manner expressly specified in the letter of credit. Transferable letters of credit involve specific risks. When a bank opens a transferable letter of credit for a buyer, neither party can be certain of who will be the ultimate supplier. Both parties must rely upon the importer's assessment of the exporter's reputation and ability to perform. To reduce overall risk and prevent the shipment of substandard goods, an independent certificate of inspection can be required in the documentation.
For simplicity's sake, many banks prefer single transfer and discourage multiple transfers, but will do multiple transfers if conditions are right. Partial transfers can also be made to one or several suppliers if the terms of the original letter of credit allow for partial shipments. The processing of this type of letter of credit can become complicated and tricky, requiring logistics coordination and the highest level of precision. Incomplete and/or ambiguous information on the transferable letter of credit almost always leads to problems. Furthermore, the beneficiary of the transferable letter of credit must be available throughout the entire negotiation process to assist the transferring bank.
Other forms of irrevocable letters of credits, though not widely used, are unconfirmed, confirmed and back-to-back.
Confirmed
A confirmed letter of credit is when a second guarantee is added to the document by another bank. The advising bank, the branch or the correspondent through which the issuing bank routes the letter of credit, adds its undertaking and commitment to pay to the letter of credit. This confirmation means that the seller/beneficiary may also look to the credit worthiness of the confirming bank for payment assurance.
Unconfirmed
An unconfirmed letter of credit is when the document bears the guarantee of the issuing bank alone. The advising bank merely informs the exporter of the terms and conditions of the letter of credit, without adding its obligation to pay. The exporter assumes the payment risk of the issuing bank, which is typically located in a foreign country.
Back-to-Back Letters of Credit
Back-to-back letters of credit are two individual letters of credit that together offer an alternative to a transferable letter of credit. The back-to-back letter of credit allows exporters (sellers or middlemen) who do not qualify for unsecured bank credit to use a letter of credit as security for a second letter of credit in favor of a supplier. In other words, if a foreign buyer will issue a letter of credit to an exporter, certain banks and trade finance companies will issue independent letters of credit to the exporter's suppliers so that the required goods can be purchased. Even if the initial letter of credit is not successfully completed, the second remains valid, and the issuing bank is obligated to pay under its terms.
Although back-to-back letters of credit provide small and medium exporters virtually unlimited working capital to finance their sales and complete more export transactions, many banks are reluctant to take on this type of arrangement. Because back-to-back letters of credit involve two separate transactions, it is likely that several participating banks will be involved and the risk of confusion and dispute is high. To protect itself, a bank generally will require that the exporter present all relevant documents that are part of the first letter of credit before issuing the second letter of credit. The second document is worded to conform precisely to the original and dated to expire at some date prior to the first, ensuring that the seller has sufficient time to present documents within the time limits of the first.
Standby Letter of Credit
Unlike a commercial letter of credit, which is basically a payment mechanism, a standby letter of credit is a form of a bank guarantee. It may be used as necessary to cover nonpayment of a financial obligation. A standby letter of credit normally is intended to be drawn on only in the event of nonpayment. The standby letter of credit is issued by the bank and held by the seller, who in turn provides the customer open account terms. If payment is made according to the seller's terms, the letter of credit is never drawn on. However, if the customer is unable to pay, the seller presents a draft, and all other documents as required, to the bank for payment. The standby letter of credit typically expires within 12 months.
Cash Advance Against Letter of Credit
A cash advance against a letter of credit works like back-to-back letters of credit, with the exception that the bank or financing company will issue cash to the suppliers instead of another letter of credit.
Benefit of Letter of Credit
Benefit for seller:
A letter of credit is basically a document issued by a bank guaranteeing a client's ability to pay for goods or services. A bank or finance company issues a letter of credit on behalf of an importer or buyer, authorizing the exporter or seller to obtain payment within a specified timeframe once the terms and conditions outlined in the letter of credit are met. The letter of credit acts like an insurance contract for both the buyer and seller and practically eliminates the credit risk for both parties, while at the same time reducing payment delays. A letter of credit provides the exporter or seller with the greatest degree of safety when extending credit. It is useful when the importer or buyer is not well known and when exchange restrictions exist or are possible
Types of Letter of Credit
Types of Letters of Credit. Banks may issue several types of letters of credits. It is best for importers and exporters to meet with their banking officer to determine which type of credit best suits their needs. The most common types of letters of credits are:
• Revocable• Irrevocable• Transferable• Confirmed• Unconfirmed• Back-to-back• Standby• Cash advance against letter of credit
Revocable
A revocable letter of credit allows for amendments, modifications and cancellation of the terms outlined in the letter of credit at any time and without the consent of the exporter or beneficiary. Because this places the exporter at risk, revocable letters of credit are not generally accepted.
Irrevocable
An irrevocable letter of credit requires the consent of the issuing bank, the beneficiary and applicant before any amendment, modification or cancellation to the original terms can be made. This type of letter of credit is commonly used and preferred by the exporter or beneficiary because payment is always assured, provided the documents submitted comply with the terms of the letter of credit. Irrevocable letters of credit can be both confirmed and unconfirmed (See below).
Transferable
An irrevocable letter of credit may also be transferable. With a transferable letter of credit, the exporter can transfer all or part of his rights to another party. Transferable letters of credit are often used when the exporter is the importer's agent or a middleman between supplier and importer, and not the actual supplier of merchandise. With a transferable letter of credit, the exporter uses the credit standing of the issuing bank and avoids having to borrow or use his own funds to buy goods from a supplier. Hence, it is a viable pre-export financing vehicle. Before transfer can be made, the exporter must contact, in writing, the bank handling the disbursement of funds - the transferring bank. Transferable letters of credit can only be transferred based on the terms and conditions specified in the original credit, with certain exceptions. Therefore, it may be difficult to achieve flexibility and confidentiality with this finance method.
The transferring bank, whether it has confirmed the letter of credit or not, is only obligated to effect the transfer to the extent and in the manner expressly specified in the letter of credit. Transferable letters of credit involve specific risks. When a bank opens a transferable letter of credit for a buyer, neither party can be certain of who will be the ultimate supplier. Both parties must rely upon the importer's assessment of the exporter's reputation and ability to perform. To reduce overall risk and prevent the shipment of substandard goods, an independent certificate of inspection can be required in the documentation.
For simplicity's sake, many banks prefer single transfer and discourage multiple transfers, but will do multiple transfers if conditions are right. Partial transfers can also be made to one or several suppliers if the terms of the original letter of credit allow for partial shipments. The processing of this type of letter of credit can become complicated and tricky, requiring logistics coordination and the highest level of precision. Incomplete and/or ambiguous information on the transferable letter of credit almost always leads to problems. Furthermore, the beneficiary of the transferable letter of credit must be available throughout the entire negotiation process to assist the transferring bank.
Other forms of irrevocable letters of credits, though not widely used, are unconfirmed, confirmed and back-to-back.
Confirmed
A confirmed letter of credit is when a second guarantee is added to the document by another bank. The advising bank, the branch or the correspondent through which the issuing bank routes the letter of credit, adds its undertaking and commitment to pay to the letter of credit. This confirmation means that the seller/beneficiary may also look to the credit worthiness of the confirming bank for payment assurance.
Unconfirmed
An unconfirmed letter of credit is when the document bears the guarantee of the issuing bank alone. The advising bank merely informs the exporter of the terms and conditions of the letter of credit, without adding its obligation to pay. The exporter assumes the payment risk of the issuing bank, which is typically located in a foreign country.
Back-to-Back Letters of Credit
Back-to-back letters of credit are two individual letters of credit that together offer an alternative to a transferable letter of credit. The back-to-back letter of credit allows exporters (sellers or middlemen) who do not qualify for unsecured bank credit to use a letter of credit as security for a second letter of credit in favor of a supplier. In other words, if a foreign buyer will issue a letter of credit to an exporter, certain banks and trade finance companies will issue independent letters of credit to the exporter's suppliers so that the required goods can be purchased. Even if the initial letter of credit is not successfully completed, the second remains valid, and the issuing bank is obligated to pay under its terms.
Although back-to-back letters of credit provide small and medium exporters virtually unlimited working capital to finance their sales and complete more export transactions, many banks are reluctant to take on this type of arrangement. Because back-to-back letters of credit involve two separate transactions, it is likely that several participating banks will be involved and the risk of confusion and dispute is high. To protect itself, a bank generally will require that the exporter present all relevant documents that are part of the first letter of credit before issuing the second letter of credit. The second document is worded to conform precisely to the original and dated to expire at some date prior to the first, ensuring that the seller has sufficient time to present documents within the time limits of the first.
Standby Letter of Credit
Unlike a commercial letter of credit, which is basically a payment mechanism, a standby letter of credit is a form of a bank guarantee. It may be used as necessary to cover nonpayment of a financial obligation. A standby letter of credit normally is intended to be drawn on only in the event of nonpayment. The standby letter of credit is issued by the bank and held by the seller, who in turn provides the customer open account terms. If payment is made according to the seller's terms, the letter of credit is never drawn on. However, if the customer is unable to pay, the seller presents a draft, and all other documents as required, to the bank for payment. The standby letter of credit typically expires within 12 months.
Cash Advance Against Letter of Credit
A cash advance against a letter of credit works like back-to-back letters of credit, with the exception that the bank or financing company will issue cash to the suppliers instead of another letter of credit.
Benefit of Letter of Credit
Benefit for seller:
- Assures the security of payment from an international bank once the terms of the letter of credit are met
- Seller can determine when payment will be satisfied and ship the goods accordingly
- Credit risk is nearly eliminated
- Provide seller easier access to financing once the letter of credit has been issued
- Once the bank confirms the letter of credit, political and economical risk and questions regarding the buyer’s ability to pay are eliminated. The confirming bank is obliged to pay, even if the buyer goes bankrupt, provided the terms of the letter of credit are met
Benefit for buyer
- Buyer can confirm that the merchandise is shipped on or before the required date
- It is a safer to deal with bank that to prepay
- No cash is tied up in the process. Buyer does not have to pay cash up front to a foreign seller before receiving the documents of title (Bill of lading) to the goods purchased. This is particularly helpful when the buyer is unfamiliar with local supplier and laws
- Protect the buyer since the bank only pays when the supplier complies with the specific terms and conditions and produces the documents required by the buyer
- The buyers can build safeguards into the letter of credit, including inspection of the goods and quality control, and set production and delivery times.
International Commercial Terms
EXW {+ the named place}Ex Works
Ex means from. Works means factory, mill or warehouse, which is the seller's premises. EXW applies to goods available only at the seller's premises. Buyer is responsible for loading the goods on truck or container at the seller's premises, and for the subsequent costs and risks.
In practice, it is not uncommon that the seller loads the goods on truck or container at the seller's premises without charging loading fee.
In the quotation, indicate the named place (seller's premises) after the acronym EXW, for example EXW Kobe and EXW San Antonio.
The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex Works.
FCA {+ the named point of departure}Free Carrier
The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the seller's premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller's expense. The point (depot) at origin may or may not be a customs clearance center. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the air shipment, technically speaking, goods placed in the custody of an air carrier is considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment.
The term FCA is also used in the RO/RO (roll on/roll off) services.
In the export quotation, indicate the point of departure (loading) after the acronym FCA, for example FCA Hong Kong and FCA Seattle.
Some manufacturers may use the former terms FOT (Free On Truck) and FOR (Free On Rail) in selling to export-traders.
FAS {+ the named port of origin}Free Alongside Ship
Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller's expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks.
In the export quotation, indicate the port of origin (loading) after the acronym FAS, for example FAS New York and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels.
FOB {+ the named port of origin}Free On Board
The delivery of goods on board the vessel at the named port of origin (loading), at seller's expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai. Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the air freight.
In North America, the term FOB has other applications. Many buyers and sellers in Canada and the U.S.A. dealing on the open account and consignment basis are accustomed to using the shipping terms FOB Origin and FOB Destination.
FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB Destination means the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyer's premises, which may include the import customs clearance and payment of import customs duties and taxes at the buyer's country, depending on the agreement between the buyer and seller.
In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (International Commercial Terms).
CFR {+ the named port of destination}Cost and Freight
The delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F.
In the export quotation, indicate the port of destination (discharge) after the acronym CFR, for example CFR Karachi and CFR Alexandria.
Under the rules of the INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However, in practice, the term Cost and Freight (C&F) is still commonly used in the air freight.
CIF {+ the named port of destination}Cost, Insurance and Freight
The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the import customs clearance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990, the term CIF is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight.
CPT {+ the named place of destination}Carriage Paid To
The delivery of goods to the named place of destination (discharge) at seller's expense. Buyer assumes the cargo insurance, import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym CPT, for example CPT Los Angeles and CPT Osaka.
CIP {+ the named place of destination}Carriage and Insurance Paid To
The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller's expense. Buyer assumes the import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym CIP, for example CIP Paris and CIP Athens.
DAF {+ the named point at frontier}Delivered At Frontier
The delivery of goods to the specified point at the frontier at seller's expense. Buyer is responsible for the import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the point at frontier (discharge) after the acronym DAF, for example DAF Buffalo and DAF Welland.
DES {+ the named port of destination}Delivered Ex Ship
The delivery of goods on board the vessel at the named port of destination (discharge), at seller's expense. Buyer assumes the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym DES, for example DES Helsinki and DES Stockholm.
DEQ {+ the named port of destination}Delivered Ex Quay
The delivery of goods to the quay (the port) at destination at seller's expense. Seller is responsible for the import customs clearance and payment of customs duties and taxes at the buyer's end. Buyer assumes the cargo insurance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym DEQ, for example DEQ Libreville and DEQ Maputo.
DDU {+ the named point of destination}Delivered Duty Unpaid
The delivery of goods and the cargo insurance to the final point at destination, which is often the project site or buyer's premises, at seller's expense. Buyer assumes the import customs clearance and payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym DDU, for example DDU La Paz and DDU Ndjamena.
DDP {+ the named point of destination}Delivered Duty Paid
The seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer's end, and the delivery of goods to the final point at destination, which is often the project site or buyer's premises. The seller may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for example DDP Bujumbura and DDP Mbabane.
source: Export 911
Ex means from. Works means factory, mill or warehouse, which is the seller's premises. EXW applies to goods available only at the seller's premises. Buyer is responsible for loading the goods on truck or container at the seller's premises, and for the subsequent costs and risks.
In practice, it is not uncommon that the seller loads the goods on truck or container at the seller's premises without charging loading fee.
In the quotation, indicate the named place (seller's premises) after the acronym EXW, for example EXW Kobe and EXW San Antonio.
The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex Works.
FCA {+ the named point of departure}Free Carrier
The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the seller's premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller's expense. The point (depot) at origin may or may not be a customs clearance center. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the air shipment, technically speaking, goods placed in the custody of an air carrier is considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment.
The term FCA is also used in the RO/RO (roll on/roll off) services.
In the export quotation, indicate the point of departure (loading) after the acronym FCA, for example FCA Hong Kong and FCA Seattle.
Some manufacturers may use the former terms FOT (Free On Truck) and FOR (Free On Rail) in selling to export-traders.
FAS {+ the named port of origin}Free Alongside Ship
Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller's expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks.
In the export quotation, indicate the port of origin (loading) after the acronym FAS, for example FAS New York and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels.
FOB {+ the named port of origin}Free On Board
The delivery of goods on board the vessel at the named port of origin (loading), at seller's expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai. Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the air freight.
In North America, the term FOB has other applications. Many buyers and sellers in Canada and the U.S.A. dealing on the open account and consignment basis are accustomed to using the shipping terms FOB Origin and FOB Destination.
FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB Destination means the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyer's premises, which may include the import customs clearance and payment of import customs duties and taxes at the buyer's country, depending on the agreement between the buyer and seller.
In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (International Commercial Terms).
CFR {+ the named port of destination}Cost and Freight
The delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F.
In the export quotation, indicate the port of destination (discharge) after the acronym CFR, for example CFR Karachi and CFR Alexandria.
Under the rules of the INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However, in practice, the term Cost and Freight (C&F) is still commonly used in the air freight.
CIF {+ the named port of destination}Cost, Insurance and Freight
The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller's expense. Buyer is responsible for the import customs clearance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990, the term CIF is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight.
CPT {+ the named place of destination}Carriage Paid To
The delivery of goods to the named place of destination (discharge) at seller's expense. Buyer assumes the cargo insurance, import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym CPT, for example CPT Los Angeles and CPT Osaka.
CIP {+ the named place of destination}Carriage and Insurance Paid To
The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller's expense. Buyer assumes the import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym CIP, for example CIP Paris and CIP Athens.
DAF {+ the named point at frontier}Delivered At Frontier
The delivery of goods to the specified point at the frontier at seller's expense. Buyer is responsible for the import customs clearance, payment of customs duties and taxes, and other costs and risks.
In the export quotation, indicate the point at frontier (discharge) after the acronym DAF, for example DAF Buffalo and DAF Welland.
DES {+ the named port of destination}Delivered Ex Ship
The delivery of goods on board the vessel at the named port of destination (discharge), at seller's expense. Buyer assumes the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym DES, for example DES Helsinki and DES Stockholm.
DEQ {+ the named port of destination}Delivered Ex Quay
The delivery of goods to the quay (the port) at destination at seller's expense. Seller is responsible for the import customs clearance and payment of customs duties and taxes at the buyer's end. Buyer assumes the cargo insurance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym DEQ, for example DEQ Libreville and DEQ Maputo.
DDU {+ the named point of destination}Delivered Duty Unpaid
The delivery of goods and the cargo insurance to the final point at destination, which is often the project site or buyer's premises, at seller's expense. Buyer assumes the import customs clearance and payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym DDU, for example DDU La Paz and DDU Ndjamena.
DDP {+ the named point of destination}Delivered Duty Paid
The seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer's end, and the delivery of goods to the final point at destination, which is often the project site or buyer's premises. The seller may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for example DDP Bujumbura and DDP Mbabane.
source: Export 911
International Trade Processes
International Trade Processes
1. Sales Contract process
2. Letter of Credit (L/C) process
3. Cargo Shipment process
Ad1. Sales Contract process
a. Promotion/Introduction letter
Expoters promote their goods through trade exhibition, newpapers, magazine, radio and television ads both at home and abroad. Promotion can also be made through assistance from the National Export Development Agency (Badan Pengembangan Ekspor Nasional - BPEN), KADIN, Trade Attache of Indonesian Embassy abroad.
b. Letter of Inquiry
Interested importer can send a letter of inquiry to exporter. This letter of inquiry usually contains inquiry for price quote, product specification, quantity of goods, delivery time and destination port.
c. Offersheet
In response to the letter sent by interested importer, exporter will usually reply by sending the importer an offersheet. Offersheet contains information as requested by the importer – product price, specification, quantity (1 container / 2 container), delivery time, destination port, packaging method, brochure, and if necessary, sample product.
d. Ordersheet/Purchase Order
After reviewing the offersheet sent by the exporter, the importer will place an order in a form called ordersheet or purchase order.
e. Sales Contract
Exporter will prepare a sales contract based on information specified in both the offersheet and purchase order together with clauses on force majuere, claim, shipment date, transshipment, partial shipment, inspection, packing and marking, and marine cargo insurance. Sales contract must signed by both the exporter and importer. The sales contract is made in two copies, each having the same tenor.
f. Sales confirmation
Importer will review the sales contract and sign it if it approves and send the sales contract back to the exporter.
Ad2. L/C Opening process
a. Importer requests its forex bank to open a letter of credit (L/C) to provide some funds to pay its liabilities to the exporter as much as agreed and specified in the sales contract and pursuant to the provisions of The Uniform Customs and Practice of Documentary Letter of Credit dari International Chamber of Commerce Paris No 500 or commonly referred to as UCP-DC-500. The forex bank requested by the exporter to open an L/C is called an opening bank/issuing bank. This opening bank will be responsible for the L/C to the exporter receiving the L/C. Importer requesting the opening of L/C is called applicant.
b. Opening bank will issue an L/C through a correspondent bank of the country where the exporter is from. Such L/C opening can be by letter, wire, telex, facsimile or other legal electronic media. The correspondent bank requested by the opening bank to deliver L/C opening mandate is referred to as advising bank
c. Advising bank notifies with a cover letter that there is an L/C opened for the interest of the exporter. The cover letter is referred to as L/C advice. While the exporter receiving the L/C is called beneficiary.
ad3. Cargo shipment process
a. After receiving L/C confirmation, the exporter prepares goods which are ready for export, and files booking to the shipping company. The exporter then arranges export formality, for example filling in PEB (Pemberitahuan Ekspor Barang) or Export Notice, and applies certificate of origin.
b. After loading the goods to the ship, the shipping company submit receipt of goods received, copy of forwarding contract and copy of goods ownership in the form of bill of lading.
c. Shipping company is then responsible to forward the cargo to destination port.
d. After receiving shipping document from the opening bank, importer as consignee, will secure import clearance in Custom and Excise of the destination port. Importer will later contact the shipping agent in the destination port to receive the goods/cargo.
e. Shipping agent surrenders the cargo/goods to the importer.
source: various sources
1. Sales Contract process
2. Letter of Credit (L/C) process
3. Cargo Shipment process
Ad1. Sales Contract process
a. Promotion/Introduction letter
Expoters promote their goods through trade exhibition, newpapers, magazine, radio and television ads both at home and abroad. Promotion can also be made through assistance from the National Export Development Agency (Badan Pengembangan Ekspor Nasional - BPEN), KADIN, Trade Attache of Indonesian Embassy abroad.
b. Letter of Inquiry
Interested importer can send a letter of inquiry to exporter. This letter of inquiry usually contains inquiry for price quote, product specification, quantity of goods, delivery time and destination port.
c. Offersheet
In response to the letter sent by interested importer, exporter will usually reply by sending the importer an offersheet. Offersheet contains information as requested by the importer – product price, specification, quantity (1 container / 2 container), delivery time, destination port, packaging method, brochure, and if necessary, sample product.
d. Ordersheet/Purchase Order
After reviewing the offersheet sent by the exporter, the importer will place an order in a form called ordersheet or purchase order.
e. Sales Contract
Exporter will prepare a sales contract based on information specified in both the offersheet and purchase order together with clauses on force majuere, claim, shipment date, transshipment, partial shipment, inspection, packing and marking, and marine cargo insurance. Sales contract must signed by both the exporter and importer. The sales contract is made in two copies, each having the same tenor.
f. Sales confirmation
Importer will review the sales contract and sign it if it approves and send the sales contract back to the exporter.
Ad2. L/C Opening process
a. Importer requests its forex bank to open a letter of credit (L/C) to provide some funds to pay its liabilities to the exporter as much as agreed and specified in the sales contract and pursuant to the provisions of The Uniform Customs and Practice of Documentary Letter of Credit dari International Chamber of Commerce Paris No 500 or commonly referred to as UCP-DC-500. The forex bank requested by the exporter to open an L/C is called an opening bank/issuing bank. This opening bank will be responsible for the L/C to the exporter receiving the L/C. Importer requesting the opening of L/C is called applicant.
b. Opening bank will issue an L/C through a correspondent bank of the country where the exporter is from. Such L/C opening can be by letter, wire, telex, facsimile or other legal electronic media. The correspondent bank requested by the opening bank to deliver L/C opening mandate is referred to as advising bank
c. Advising bank notifies with a cover letter that there is an L/C opened for the interest of the exporter. The cover letter is referred to as L/C advice. While the exporter receiving the L/C is called beneficiary.
ad3. Cargo shipment process
a. After receiving L/C confirmation, the exporter prepares goods which are ready for export, and files booking to the shipping company. The exporter then arranges export formality, for example filling in PEB (Pemberitahuan Ekspor Barang) or Export Notice, and applies certificate of origin.
b. After loading the goods to the ship, the shipping company submit receipt of goods received, copy of forwarding contract and copy of goods ownership in the form of bill of lading.
c. Shipping company is then responsible to forward the cargo to destination port.
d. After receiving shipping document from the opening bank, importer as consignee, will secure import clearance in Custom and Excise of the destination port. Importer will later contact the shipping agent in the destination port to receive the goods/cargo.
e. Shipping agent surrenders the cargo/goods to the importer.
source: various sources
Wednesday, July 8, 2009
Export Pricing and Penetrating Strategies, Order Quantity (Economics of Scale), and Foreign Exchange Risks
The primary goal of a business is to make money. Trimming the profit margin in order to win a deal is not uncommon in exporting. However, sacrificing the profit margin at the expense of quality must be avoided.
Business practices and standards of living vary from country to country. In some countries a markup of 25% on imported goods is considered excellent, while others may require at least 60% in order to survive.
It is very important to know who your competitors are and their selling price and sales strategy. Quite often, the price competitiveness overrides all other considerations in the initial contact with the buyer. How a product is priced is crucial in getting the buyer's attention, before the buyer becomes familiar with the quality of the product, delivery and service. When dealing with a large importer like chain store, quoting a high price may cause the buyer to lose interest, unless a business relationship already exists between exporter and buyer, or unless the exporter has a new product where there is no competition.
Rarely is an exporter able to offer a product to all customers at the same price. Price bargaining is not uncommon in exporting. However, a few large importers are willing to provide a counter-offer, unless the product is unique or new and there is little or no competition. If the importer has a buying agent in the exporter's country, it would be better to contact the agent.
Pricing, Exchange Rates and Price Validity
In some countries, the domestic selling price of imported goods changes a few times a year. However, in Western countries the selling price usually remains constant throughout the year. The strategy of selling at a low price for the first order and then increasing the price for the next order may backfire. The buyer may insist on paying the same, if not a lower, price for the repeat order. Once a price is lowered, it can be difficult to increase unless competitors are forced out.
Most international transactions are conducted in U.S. currency. The exchange rate fluctuates and the costs of export goods change. The exporter will lose money in the event of currency appreciation in the exporting country. For example, three months ago US$1 that was worth 125 Yen is only worth 90 Yen today, which means the exporter will lose 35 Yen for every dollar converted now. On the contrary, the exporter will receive extra money in the case of currency devaluation in the exporting country.
In times of exchange rate instability, the exporter can negotiate with the buyer to deal in the exporter's currency, instead of U.S. funds. The exporter must indicate in the quotation its price validity, for example, "prices valid for 30 days from date" or "prices subject to our final confirmation (or acceptance)."
Order Quantity, Production Cost and Freight
The economies of scale in the production and shipping must be considered in export pricing. Normally, a minimum production run is required in order to stay competitive. The unit cost of goods generally is lower in a larger order quantity.
In ocean shipments, there is a minimum charge or minimum CBM (cubic meter) requirement in the LCL (less than container load) delivery. Any shipment having a smaller CBM than the minimum requirement would be subject to the full amount. For example, if the minimum requirement is 2 CBM at US$60 per CBM or a minimum charge of US$120, if the consignment is only 1 CBM, that means the freight charge is still US$120.
It would be more economical to price the goods based on the FCL (full container load) rather than the LCL, if the order quantity is large enough to fill a container. The exporter can indicate in the quotation the minimum quantity required for the quoted price.
A trick the importer may use in order to get a lower price is to inflate the quantity requirement. For example, the actual quantity of product Z the importer requires is 1,000 dozens at US$2/dozen, the quantity could be inflated to 3,000 dozens, which cost US$1.80/dozen. The exporter would then bargain hard to buy 1,000 dozens at US$1.80/dozen. Sometimes, it is necessary to be flexible in the quantity requirement, depending on the customer and circumstance, for example in the first order---initial order or trial order.
Allowance for Defective Products
Damages incurred to the insured goods in transit may be claimed from the insurance company. At times, goods are damaged due to mishandling at the buyer's warehouse. Some buyers may claim such damages in the form of a discount. The exporter should reserve in the pricing 1% or 2%, depending on the customer and product history, as an allowance for defective products. A higher percentage may be required for fragile goods such as glassware
Hidden Commission
The hidden commission, usually 2% or 3% of the export price, is not uncommon in some exporting countries. It is given by the exporter to the buying agent for each successful deal, as a compensation for supplying inside information on the competitive selling price, and for the opportunity of having the exporter's product introduced to their overseas principal.
source: export 911
Business practices and standards of living vary from country to country. In some countries a markup of 25% on imported goods is considered excellent, while others may require at least 60% in order to survive.
It is very important to know who your competitors are and their selling price and sales strategy. Quite often, the price competitiveness overrides all other considerations in the initial contact with the buyer. How a product is priced is crucial in getting the buyer's attention, before the buyer becomes familiar with the quality of the product, delivery and service. When dealing with a large importer like chain store, quoting a high price may cause the buyer to lose interest, unless a business relationship already exists between exporter and buyer, or unless the exporter has a new product where there is no competition.
Rarely is an exporter able to offer a product to all customers at the same price. Price bargaining is not uncommon in exporting. However, a few large importers are willing to provide a counter-offer, unless the product is unique or new and there is little or no competition. If the importer has a buying agent in the exporter's country, it would be better to contact the agent.
Pricing, Exchange Rates and Price Validity
In some countries, the domestic selling price of imported goods changes a few times a year. However, in Western countries the selling price usually remains constant throughout the year. The strategy of selling at a low price for the first order and then increasing the price for the next order may backfire. The buyer may insist on paying the same, if not a lower, price for the repeat order. Once a price is lowered, it can be difficult to increase unless competitors are forced out.
Most international transactions are conducted in U.S. currency. The exchange rate fluctuates and the costs of export goods change. The exporter will lose money in the event of currency appreciation in the exporting country. For example, three months ago US$1 that was worth 125 Yen is only worth 90 Yen today, which means the exporter will lose 35 Yen for every dollar converted now. On the contrary, the exporter will receive extra money in the case of currency devaluation in the exporting country.
In times of exchange rate instability, the exporter can negotiate with the buyer to deal in the exporter's currency, instead of U.S. funds. The exporter must indicate in the quotation its price validity, for example, "prices valid for 30 days from date" or "prices subject to our final confirmation (or acceptance)."
Order Quantity, Production Cost and Freight
The economies of scale in the production and shipping must be considered in export pricing. Normally, a minimum production run is required in order to stay competitive. The unit cost of goods generally is lower in a larger order quantity.
In ocean shipments, there is a minimum charge or minimum CBM (cubic meter) requirement in the LCL (less than container load) delivery. Any shipment having a smaller CBM than the minimum requirement would be subject to the full amount. For example, if the minimum requirement is 2 CBM at US$60 per CBM or a minimum charge of US$120, if the consignment is only 1 CBM, that means the freight charge is still US$120.
It would be more economical to price the goods based on the FCL (full container load) rather than the LCL, if the order quantity is large enough to fill a container. The exporter can indicate in the quotation the minimum quantity required for the quoted price.
A trick the importer may use in order to get a lower price is to inflate the quantity requirement. For example, the actual quantity of product Z the importer requires is 1,000 dozens at US$2/dozen, the quantity could be inflated to 3,000 dozens, which cost US$1.80/dozen. The exporter would then bargain hard to buy 1,000 dozens at US$1.80/dozen. Sometimes, it is necessary to be flexible in the quantity requirement, depending on the customer and circumstance, for example in the first order---initial order or trial order.
Allowance for Defective Products
Damages incurred to the insured goods in transit may be claimed from the insurance company. At times, goods are damaged due to mishandling at the buyer's warehouse. Some buyers may claim such damages in the form of a discount. The exporter should reserve in the pricing 1% or 2%, depending on the customer and product history, as an allowance for defective products. A higher percentage may be required for fragile goods such as glassware
Hidden Commission
The hidden commission, usually 2% or 3% of the export price, is not uncommon in some exporting countries. It is given by the exporter to the buying agent for each successful deal, as a compensation for supplying inside information on the competitive selling price, and for the opportunity of having the exporter's product introduced to their overseas principal.
source: export 911
Reference for some recommended booth design
Designing your booth is one of important factor to attract visitor to come and see your product. Therefore, you need to serioulsy prepare a good and attractive booth design. You can start with just draw a scatch and consider the main entrance and circulation of the visitor when they are visiting your booth.
The best booth is have 4 sides open so visitor can see and come inside to the booth from any direction. However, in the reality sometimes we only can get 2 or 3 sides open or even only one side open. Don't panic! we still can utilize the only one side booth open with a good booth design.
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