International Trade Terms and Shipping Documentation
Incoterms and International Delivery Rules
- EXW (Ex Works): The buyer bears all costs; the seller does not handle export customs clearance.
- FCA (Free Carrier): Delivery at a set place or point (cleared for export).
- FAS (Free Alongside Ship): Goods are placed alongside the ship; the buyer assumes all risks and costs from that point.
- FOB (Free On Board): Risk passes once the goods have passed the ship's rail.
- CFR (Cost and Freight): Seller pays cost and freight to the port of destination; risk passes to the buyer at the port of shipment.
- CIF (Cost, Insurance, and Freight): Same as CFR but includes insurance; risk passes to the buyer at the port of shipment.
- CPT (Carriage Paid To): The multimodal equivalent of CFR.
- CIP (Carriage and Insurance Paid To): The multimodal equivalent of CIF.
- DAF (Delivered At Frontier): Delivery at a specific point and place at the border; the vendor bears costs and risks until delivery.
- DES (Delivered Ex Ship): Goods are delivered on board the vessel at the port of destination; the vendor bears costs and risks until delivery.
- DEQ (Delivered Ex Quay): Delivery at the quay of the port of destination.
- DDU (Delivered Duty Unpaid): Delivery to a specific point of destination without duty payment.
- DDP (Delivered Duty Paid): Delivery to a specific point of destination, including customs clearance and both export and import duties.
Key Risks in International Trade
International trade involves several risks, including exchange rates, country-specific risks, commercial risks, banking risks, and interest rate fluctuations.
Understanding Documentary Credit
Documentary credit is an order that an importer gives to their bank to ensure payment is executed when the exporter's bank submits supporting documentation proving the goods have been sent as agreed. The importer's bank will pay if the paperwork is in order, regardless of whether the importer has a sufficient balance at that time. Essentially, the importer's bank guarantees the operation.
Types of Documentary Credit
- Revocable or Irrevocable: Determines if the credit can be changed without consent.
- Confirmed: In this case, a third bank (usually a first-rate international bank) guarantees the fulfillment of payment in the event that the importer's bank fails to do so.
- At Sight or Term: Specifies if payment is immediate or at a later date.
Essential Shipping Documents and Roles
Bill of Lading (B/L)
The Bill of Lading is a receipt given to the shipper for delivered goods. It proves the existence of a maritime transport agreement and grants rights to the goods. It is the only waybill that can pass ownership of the goods; whoever holds it owns the cargo. It is essential for removing goods from the port.
Freight Forwarder
The Freight Forwarder is responsible for administering insurance, documentation, and customs clearance on behalf of the owners of the goods. They must possess a good reputation, reliability, and service quality. They provide services for customs paperwork or act as a carrier from the viewpoint of the shipper.
Shipping Agent
The Agent acts as the consignee of ships or cargo. The ship agent is in charge of supplying the ship and representing the cargo consignee before port authorities. They are responsible for receiving the goods at the destination and are listed as the recipient in the Bill of Lading (which may coincide with the charterer or ship port).
Single Administrative Document (DUA)
The DUA (Unified Customs Document) is the form used to identify the entry and exit of goods within the European Union. It is used for customs clearance and the calculation of the tax base. This document is used by companies acting as Community operators in their administrative declarations to customs. The SAD (Single Administrative Document) has the nature of a tax return, requiring absolute accuracy for all information provided and incorporated into the documents.