We have completed our export letter of credit consultancy services with success in regards to a letter of credit which is issued by International Bank of Qatar on 07.January.2018.
The letter of credit number was ILCQAI011818937. Letter of credit issued in English language.
The beneficiary applied us very late. At the time of our intervention, 1st shipment had been waiting at the port of discharge and demurrage and port charges had been piling up.
Consequently the beneficiary was very angry and lost its confidence to the advising bank.
After we were included in the transaction, we quickly analyzed the situation and took necessary steps so that the goods were cleared from the customs for the 1st shipment.
Afterwards we prepared documents for 2nd, 3rd and 4th shipments.
Documents belonging to the remaining shipments have been accepted by the issuing bank on first presentation.
The letter of credit was available with mixed payments. %50 of letter of credit had been paid in advance. %40 of letter of credit amount is payable against shipping documents and %10 of letter of credit amount is payable after installation of the machinery in Qatar.
Commercial invoice and certificate of origin had to be legalized by Qatar’s embassy in the exporting country.
Our Work:
The exporter contacted us too late around 30 days after the 1st shipment.
At the time of our intervention, 1st shipment had been waiting at the port of discharge and demurrage and port charges had been piling up.
Consequently the beneficiary was very angry, had no idea what to do and lost its confidence to the advising bank.
We could not checked the letter of credit in order to clear unacceptable conditions.
Instead we quickly analyzed the situation and took necessary steps so that the goods were cleared from the customs for the 1st shipment.
Payment of 1st shipment received by the exporter.
Afterwards we prepared documents for 2nd, 3rd and 4th shipments.
Documents belonging to the remaining shipments have been accepted by the issuing bank on first presentation.
Conclusion:
Although the exporter contacted us very late, we managed to put things in order and completed the transaction without any problem for each side.
We have completed our export letter of credit consultancy services with success in regards to a letter of credit which is issued by Wahda Bank on 28.March.2019.
The letter of credit number was 114MIS.LC.49.075. Letter of credit issued in English language.
Confirming bank found one discrepancy claiming that the inspection company indicated on the inspection certificate is not exactly matching the letter of credit.
Letter of Credit : Inspection Certificate Clause:
Pre-shipment inspection certificate in one original and two copies dully issued and signed by Kfali for Inspection and Conformity
Inspection Certificate Issued by:
Kfali Inspection Company
Confirmation drops out and the documents have been dispatched to the issuing bank unconfirmed.
At the same time an amendment request have been sent to the applicant regarding the issuer of the inspection certificate.
Conclusion:
Documents have been accepted by the issuing bank on first presentation.
The issuing bank deducted enormous discrepancy fee of USD 500 from the proceeds without indicating any discrepancy information.
We have completed our export letter of credit consultancy services with success in regards to a letter of credit which is issued by Banque de Developpement Local on 31.Dec.2018.
The letter of credit number was INCDI000005580. Letter of credit issued in English language.
Documents have been accepted by the issuing bank on first presentation.
Documents Required:
Commercial invoice in 6 originals
Bill of Lading (Full Set)
Packing list in 1 original
Certificate of Origin
Specific Conditions:
As per Algerian import regulations, the NIF number of the applicant must be mentioned on the all originals bills of lading.
Letter of credit issued in a simple form without containing unnecessary conditions or documentation.
Our Work:
The exporter has supplied us the actual letter of credit.
We have checked the letter of credit and determined that the latest date of shipment is too close and needs to be amended along with expiry date.
Once the beneficiary supplied us the shipment details we have prepared the commercial invoice and packing list. We also completed the shipping instructions for the bill of lading document and filled out the draft version of certificate of origin.
After shipment, the beneficiary has sent us all of the documents for final evaluation.
The documents have been presented to the advising bank and have been checked once again to eliminate possible discrepancies.
Conclusion:
Documents have been accepted by the issuing bank on first presentation.
We have completed our export letter of credit consultancy services with success in regards to a letter of credit which is issued by Bank Hapoalim B.M. on 26.Dec.2018.
The letter of credit number was 061-01-000314-6. Letter of credit issued in English language.
All presentations have been accepted by the issuing bank on first presentation.
Documents Required:
Commercial invoice in 3 originals
FCR (Forwarder’s Cargo Receipt)
Packing list in 3 originals
EUR1 Certificate in 1 original
Specific Conditions:
Delivery term was FCA (Free Carrier) as a result the issuing bank requested a FCR (Forwarder’s Cargo Receipt) document instead of a bill of lading.
The FCR document was not requested by the issuing bank in ordinary FIATA document which is known as Forwarder’s Certificate of Receipt, but in Forwarder’s Cargo Receipt format.
As there was no transport document indicated in the letter of credit, there was no latest date of shipment exist.
Our Work:
The exporter has supplied us the draft letter of credit.
We have checked the draft letter of credit and corrected the points that may create problem at the presentation period.
Once the beneficiary supplied us the shipment details we have prepared the commercial invoice and packing list. We also completed the shipping instructions for the FCR document and filled out the draft version of EUR1 certificate.
After shipment, the beneficiary has sent us all of the documents for final evaluation.
The documents have been presented to the advising bank and have been checked once again to eliminate possible discrepancies.
Conclusion:
All presentations have been accepted by the issuing bank on first presentation.
Since the end of World War 2 the United States of America is dominating world in terms of political, economical and technological means.
Apparently they will be having a competitor, not now but within 10, 20 or 30 years time from now on.
China.
Basically the USA has seen the threat. They know that if they lost their technological advantage, they will not be able to protect their economical and political dominance.
Which means that the USA and China have very deep conflicting interests. They both want to be the super-nation of the 21th century.
Many people think that the struggle between these two nations is all about the USA President Donald Trump and is limited to the trade measures taken reciprocally.
Unfortunately, this may not be the case.
What we are experiencing right now might be the starting steps of a new type of cold war and will have significant effects on the future of international trade, international finance and international relationships of the nations.
As a result each of us should understand what is going on between China and the USA.
On today’s post I have gathered best documentary movies explaining the tension between China and the USA.
Trump’s Trade War (full film) | FRONTLINE
This is one of the best documentary explaining China and US trade war. Published on 07.May.2019.
This documentary covers:
US President Donald Trump’s attitude against US trade deficit and the way he looked at tariffs since he was a young president prospect 30 years ago.
Controversy in the USA government especially between nationalists and globalists.
The possible effects of tariffs to the US and Chinese manufacturers.
Interviews with top US, Chinese officials not only in US but in China as well.
How Americans Are Losers In The US-China Trade War
This video is prepared by Singapore based news network CNA Insider. The opinions are mainly coming from globalists perspective, supporting slightly Chinese thesis.
For example, we can’t see unfair Chinese government’s incentives given to Chinese corporations to destroy fair global trade on this video.
Published on 07.March.2019.
This documentary mainly covers:
Technical analysis of the current global manufacturing system.
Why tariffs is not a good idea for the USA to confront China economically.
Adverse effects of tariffs to the US manufacturing companies.
This video is prepared by USA based Vice News. The opinions are mainly coming from globalists perspective, explaining why trade war with China via tariffs hurting USA manufacturers and farmers.
This video explains Chinese technological improvements in Shenzhen.
Although this video has no direct connection with trade war between China and the USA, it perfectly illustrate why some US people think that China is going to outsmart US in the near future.
Zowee, a Chinese smartphone manufacturing factory, has been changing its production process so that smartphones are going to be made end-to-end completely by robots.
The trick is that Zowee builds all of these automation robots by itself by Chinese engineers. One of the biggest US fear.
China’s Trillion Dollar Plan to Dominate Global Trade
China has embarked on the most ambitious infrastructure project in modern world history. It’s called the Belt and Road Initiative (BRI), and it spans three continents and covers almost 60 percent of the world’s population.
It’s how China plans to become the world’s next superpower.
Why China is building islands in the South China Sea
China is building islands in the South China sea and its causing disputes among the other nations in the region; Malaysia, the Philippines, Brunei, Vietnam, and Indonesia. The US has many allies in the region and uses its massive Navy to patrol international waters, keeping shipping lanes open for trade
To truly understand the international conflicts and trends shaping our world you need a big-picture view. Video journalist Sam Ellis uses maps to tell these stories and chart their effects on foreign policy.
The way that consignee field is completed can affect how the goods are to be transferred from shipper to consignee.
There are three possible consignee field instructions available on a bill of lading.
Straight Bill of Lading: Bill of lading states the consignee’s actual name. Depending on the commercial law of the destination country, consignee may clear the goods with or without needing to present an original bill of lading.
Straight bills of lading may create a risk factor for the shippers if they have not received the payment in advance of the shipment.
Especially under letters of credit and cash against goods payment methods, this option should be used with caution.
Negotiable Bill of Lading: Negotiable bills of lading are the ones that are consigned to order of a named party such as to order of the shipper, to order of the issuing bank or to order of the importer etc.
Title of the goods can be transferred through endorsement by stamp and signature.
Negotiable bills of lading generally used under letters of credit and cash against documents payment methods.
Bearer Bill of Lading: This option states that the goods must be delivered by the carrier to the party,whose in possession of the original bills of lading.
Bill of lading is a transport document covering the carriage of goods by sea.
Letters of credit rules define 4 different types of bills of lading:
Multimodal Bill of Lading: (UCP 600 article 19) A type of bill of lading covering at least two different modes of transport such as sea shipment + road transportation.
Bill of Lading: (UCP 600 article 20) In general it refers to the transport document which is used in port to port containerized sea shipments, usually issued in negotiable form.
Sea Waybill: (UCP 600 article 21) Non negotiable bill of lading. Can not be issued in a negotiable form. Consignee can clear the goods at the port of destination by proving identity.
Charter Party Bill of Lading: (UCP 600 article 22) A bill of lading containing an indication that it is subject to a charter party contract. Used in bulk cargo shipments.
On this port I will explain how to complete a bill of lading as it is explained under letters of credit rules UCP 600 article 20.
Step 1 : Analyzing the Letter of Credit:
All documents must be issued according to the conditions of the letter of credit. Bill of lading is not an exception.
As a result a beneficiary who would like to submit a discrepancy free bill of lading must analyze the letter of credit at first instance.
Field 50: Applicant: Applicant is the importer. Usually issuing banks require that bills of lading show applicants’ details under notify party fields.
Field 59: Beneficiary: Beneficiary is the exporter. Although letters of credit rules state that the shipper or consignor of the goods indicated on any document need not be the beneficiary of the credit, it would be a wise move to mention exact beneficiary details under consignor / shipper fields of the bills of lading.
Field 43P: Partial Shipments: This field determines whether partial shipments are acceptable or not.
Field 43T: Transhipment: This field determines whether transhipment are acceptable or not.
Field 44E: Port of Loading/Airport of Departure: This field indicates the port of loading.
Field 44F: Port of Discharge/Airport of Destination: This field indicates the port of discharge.
Field 44C: Latest Date of Shipment: This field indicates latest date of shipment. Please be careful that date of shipment is a technical term in letters of credit rules. You should understand how date of shipment is determined on a bill of lading.
Field 45A: Description of Goods &/or Services: According to the letters of credit rules in documents other than the commercial invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit.
Field 46A: Documents Required: One of the articles under this field usually determines the requirements of the bill of lading.
Field 47A: Additional Conditions: This field may include additional conditions that must be stated on the bill of lading.
Step 2 : Analyzing the Letters of Credit Rules:
Although all of the UCP 600 articles can be related to the document preparation one way or another, it would be meaningful to drill down to the UCP 600 articles that are directly regulating the bills of lading.
Understanding UCP 600 Articles Which are Related to the Bill of Lading
UCP 600 article 20 states that:
a. A bill of lading, however named, must appear to:
i. indicate the name of the carrier and be signed by:
– the carrier or a named agent for or on behalf of the carrier, or
– the master or a named agent for or on behalf of the master.
Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.
Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.
ii. indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by:
– Pre-printed wording, or
– An on board notation indicating the date on which the goods have been shipped on board.
The date of issuance of the bill of lading will be deemed to be the date of shipment unless the bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment.
If the bill of lading contains the indication “intended vessel” or similar qualification in relation to the name of the vessel, an on board notation indicating the date of shipment and the name of the actual vessel is required.
If the bill of lading does not indicate the port of loading stated in the credit as the port of loading, or if it contains the indication “intended” or similar qualification in relation to the port of loading, an on board notation indicating the port of loading as stated in the credit, the date of shipment and the name of the vessel is required. This provision applies even when loading on board or shipment on a named vessel is indicated by pre-printed wording
on the bill of lading.
iv. be the sole original bill of lading or, if issued in more than one original, be the full set as indicated on the bill of lading.
v. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage (short form or blank back bill of lading). Contents of terms and conditions of carriage will not be examined.
vi. contain no indication that it is subject to a charter party.
b. For the purpose of this article, transhipment means unloading from one vessel and reloading to another vessel during the carriage from the port of loading to the port of discharge stated in the credit.
c.
i. A bill of lading may indicate that the goods will or may be transhipped provided that the entire carriage is covered by one and the same bill of lading.
ii. A bill of lading indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment, if the goods have been shipped in a container, trailer or LASH barge as evidenced by the bill of lading.
d. Clauses in a bill of lading stating that the carrier reserves the right to tranship will be disregarded.
Step 3 : Make Sure That Data on Bill of Lading is not Conflicting with Data on Other Documents:
Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.
For example description of goods, gross weight, net weight, product classification codes, shipping marks, packaging, quantity of goods etc. as stated on the bill of lading must not conflict with data in any other stipulated document.
Example: Letter of Credit and Presented Bills of Lading
Sample Letter of Credit
F50: Applicant
BAHRAIN ELECTRONIC MACHINES IMPORTING COMPANY W.L.L. P.O.BOX:33078 KINGDOM OF BAHRAIN
F59: Beneficiary
Name and Address:
ILKE MAKINA TAAHHUT MADEN SANAYI VE TICARET-LIMITED SIRKETI, OSTIM SANAYI SITESI BAGDAT CADDESI NO.392 OSTIM/ANKARA/TURKEY
F43P: Partial Shipments
NOT ALLOWED
F43T: Transshipment
ALLOWED
F44E: Port of Loading/Airport of Departure
TURKEY
F44F: Port of Discharge/Airport of Destination
BAHRAIN
F44C: Latest Date of Shipment
161115 2016 Nov 15
F45A: Description of Goods and/or Services
SPARE PARTS AS PER PROFORMA INVOICE REF: T16-100 CFR: BAHRAIN (INCOTERMS 2010)
F46A: Documents Required
ARTICLE 3- FULL SET OF SHIPPED (ON BOARD) MARINE BILLS OF LADING IN 3/3 ORIGINALS ISSUED BY SHIPPING CO’S ON IT’S LETTER HEAD FORMAT ISSUED TO THE ORDER OF THE HOUSING BANK FOR TRADE AND FINANCE, BAHRAIN BRANCH SHOWING FREIGHT PREPAID AND MUST INDICATE ONLY THE APPLICANT AS A NOTIFY PARTY AND MUST INDICATE NAME AND ADDRESS OF THE SHIPPING COMPANY’S AGENT IN BAHRAIN.
THE MARINE B/L MUST CLEARLY INDICATE THE NAME OF THE CARRIER AND CLEARLY STATES ITS FUNCTION/QUALITY IN THE FOLLOWING STRICT MANNER: ”THE CARRIER” AND NOT ”AS CARRIER” AND BILL OF LADING MUST SHOW PACKING OF THE GOODS IN SEAWORTHY PACKING AS PER ISO STANDARD.
B/L MUST SHOW THAT GOODS SHIPPED IN CONTAINERS.
F47A: Additional Conditions
ALL DOCUMENTS MUST BE DATED AND INDICATE THIS L/C NUMBER AND THE HOUSING BANK
FOR TRADE AND FINANCE,BAHRAIN BR. NAME AND ISSUANCE DATE.
B/L MUST SHOW THE CONTAINER(S) AND SEAL(S) NUMBER(S) ALWAYS WHENEVER SHIPMENT
EFFECTED BY CONTAINER(S).
B/L ISSUED AND/OR SIGNED BY FREIGHT FORWARDER IS NOT ACCEPTABLE.
SHORT FORM B/L IS NOT ACCEPTABLE.
SHIPPER OR CONSIGNOR OF THE GOODS INDICATED ON ANY DOCUMENTS MUST BE THE
BENEFICIARY OF THE CREDIT.
ALL REQUIRED DOCUMENTS MUST BE ISSUED IN ENGLISH LANGUAGE.
DOCUMENTS APPEARING DATE OF ISSUANCE PRIOR TO THAT OF THIS CREDIT ARE NOT
ACCEPTABLE.
ALL ORIGINAL TRANSPORT DOC’S REQUIRED UNDER THIS L/C MUST BE PRE-PRINTED
THE WORD ”ORIGINAL”
BILL OF LADING MUST APPEAR A SEPARATE NOTATION STATING ”CONTAINERS ACTUALLY LOADED ON BOARD+VESSEL NAME+PORT OF LOADING NAME+DATE”DULY SIGNED BY THE SAME SIGNOR OF THE BILL OF LADING ”
As a result importer and exporter can freely determine the contents of the bills of lading.
Under Cash Against Documents payment method banks do not check the documents, but how the bill of lading is completed is important in terms of delivery of goods.
Shipper: Shipper means a person that enters into a contract of carriage with a carrier. Shipper also known as consignor.
Under CFR, CIF, CPT, CIP, DAT, DAP and DDP Incoterms, exporter sings the contract of carriage with a carrier and becomes the shipper.
Although importer enters into a contract of carriage with the carrier under FCA, FOB and FAS incoterms, once again on the basis of “documentary shipper” term the exporter should be mentioned as a shipper on the bill of lading.
Rotterdam Rules explain documentary shipper as ”means a person, other than the shipper, that accepts to be named as “shipper” in the transport document…”
Consignee: Consignee means a person entitled to delivery of the goods under a contract of carriage or a transport document.
Consignee is one of the most crucial fields on a bill of lading. This field determines not only to whom the shipment is to be delivered, but also signifies the position of the bill of lading against the title of goods.
Especially under letters of credit and cash against documents payment methods, how consignee field is completed is very crucial.
How to Complete Consignee Field under Letters of Credit Payment Method?
Under letters of credit consignee field must be completed according to the letter of credit terms and conditions.
Issuing banks generally state bills of lading conditions under field 46-A.
In most cases issuing banks demand that the bill of lading should be issued to order of the issuing bank. Less frequently it is also possible that issuing banks demand bills of lading to be issued to order and blank endorsed.
In very rare situations, issuing banks may request bills of lading to be consigned to applicants. In these situations the beneficiaries must be alerted against various risks including fraud risk.
Example 1: A bill of lading issued under a letter of credit transaction: Issued to order of the issuing bank.
How to Complete Consignee Field under Cash Against Documents Payment Method?
Although it is not possible to consign a transport document to a bank without having the bank’s advance acknowledgement as per documentary collection rules (URC 522), it is a customary act to made out the bill of lading to order of the presenting bank.
Example 2: A bill of lading issued under a cash against documents transaction: Issued to order of the importer’s bank.
How to Complete Consignee Field of a Bill of Lading Under Cash in Advance or Open Account Payments?
Under cash in advance and open account payments, exporters and importers complete the transaction without interfered by a 3rd parties such as a banks.
Shipping documents are sent directly to the importer by the exporter via express courier or registered postal services.
As there is no 3rd party exists in the transaction, bill of lading may be made out to the name of the importer company under cash in advance and open account payments.
Example 3: A bill of lading issued under an open account transaction: Bill of lading consigned to the importer.
Notify Party: Notify party means a person that should be notified by the carrier when the shipment arrives at port of discharge.
Notify party has no effect on title of goods, which determines delivery of the goods to the consignee.
Notify party is mostly importer, importer’s forwarder or importer’s custom’s broker.
Examples:
On above Example 1: Consignee : To order of the issuing bank, Notify Party: Importer
On above Example 2: Consignee : To order of the importer’s bank, Notify Party: Importer
On above Example 3: Consignee : Importer, Notify Party: Importer
Carrier: Carrier means a person that enters into a contract of carriage with a shipper. The carrier shall carry the goods to the place of destination and deliver them to the consignee.
The carrier is bound before, at the beginning of, and during the voyage by sea to exercise due diligence to:
Make and keep the ship seaworthy;
Properly crew, equip and supply the ship and keep the ship so crewed, equipped and supplied throughout the voyage; and
Make and keep the holds and all other parts of the ship in which the goods are carried, and any containers supplied by the carrier in or upon which the goods are carried, fit and safe for their reception, carriage and preservation.
The carrier shall during the period of its responsibility properly and carefully receive, load, handle, stow, carry, keep, care for, unload and deliver the goods.
How to Complete Carrier Field under Letters of Credit Payment Method?
Letters of credit rules state that a bill of lading, however named, must appear to: indicate the name of the carrier and be signed by:
the carrier or a named agent for or on behalf of the carrier, or
the master or a named agent for or on behalf of the master.
Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.
Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.
Carrier’s Agent: Carrier’s agent means a person authorized to transact business for and in the name of the carrier.
Carrier’s agent is an optional field on bills of lading, because of the fact that the bill of lading could be signed by a carrier, a master or simply by a forwarder.
How to Complete Carrier’ Agent Field under Letters of Credit Payment Method?
When an agent signs a bill of lading for [or on behalf of] the carrier, the agent is to be named and, in addition, to indicate that it is signing as “agent for (name), the carrier” or as “agent on behalf of (name), the carrier” or words of similar effect.
When the carrier is identified elsewhere in the document as the “carrier”, the named agent may sign, for example, as “agent for [or on behalf of] the carrier” without naming the carrier again.
Definition: Approval basis is a letter of credit term used in situations where the beneficiary could not prepare the documents according to the letter of credit terms and asks the presenting bank to send the documents to the issuing bank as it is by indicating each discrepancy.
Explanation: Letter of credit is a conditional payment method. The issuing bank is obligated to pay for the credit amount to the beneficiary only against a complying presentation.
If the issuing bank determines that the presentation is not complying, which means that the documents contain discrepancies, then the issuing bank should approach the applicant for a waiver of the discrepancies.
If the applicant accepts the documents with discrepancies, then the issuing bank can pay the credit amount to the beneficiary by deducting the discrepancy fee.
Approval basis is an option available to the beneficiary.
If the beneficiary ascertains himself that the documents are discrepant and there is no chance that the issuing bank fails to notice them, then the beneficiary may want to fasten the process by having sent the documents under approval basis.
What are the Advantages and Disadvantages of Documents Sent under Approval Basis?
Advantages Approval Basis
Beneficiary may be able to send the documents faster to the applicant.
Applicant may be able to receive documents faster so that demurrage and detention charges may be eliminated or restricted.
Disadvantages Approval Basis
Payment guarantee of the issuing bank diminishes as the issuing bank can not pay the credit amount until getting the applicant’s approval.
Beneficiary can not receive the payment without getting any approval from the applicant.
Payment method should be regarded as a documentary collection rather than a letter of credit, but letter of credit rules will apply and letter of credit fees will be deducted.
What is the Difference Between on Approval Basis and Collection Basis?
Although collection basis and approval basis are used with the same meaning in letters of credit terminology, it is possible to make some distinction.
Collection Basis
Collection basis may refer to the situation in which the beneficiary would prefer to send discrepant documents to the issuing bank under documentary collection rules. (URC 522)
In such a scenario the issuing bank must act according to instructions sent by the presenting bank’s cover letter. Under documentary collections banks do not check the documents.
Approval Basis
Approval basis may refer to the situation in which the beneficiary would prefer to send discrepant documents to the issuing bank under the letters of credit rules. (UCP 600)
Letter of Credit Examples:
SENDING DOCUMENTS UNDER COLLECTION BASIS OR ON APPROVAL OR TRUST BASIS WITHOUT INDICATING DISCREPANCIES ARE PROHIBITED.
The freight notation is a specific reference included in the transport document that indicates whether the shipper has already paid the freight costs in advance, labeled as “freight prepaid,” or if the consignee is responsible for paying the transport costs upon the goods’ arrival at the destination, labeled as “freight collect,” or “freight payable at destination.”
In the case of charter party contracts, the freight notation may indicate “freight payable as per charter party” instead of “freight collect,” or “freight payable at destination.”
Which Party Pays the Freight Costs? Exporter or Importer?
Determining the party who arranges the transportation and pays for the transport cost is one of the major decisions in any international trade transaction.
The agreed terms of delivery, also known as incoterms, determines whether freight charges are to be paid by the exporter or the importer.
If freight charges are to be paid by the exporter, then this must be indicated on the transport document with a freight notation such as Freight Prepaid.
On the other hand, if freight charges are to be paid by the importer, then this must be indicated on the transport document with a freight notation such as Freight Collect.
The Relationship Between Sales Contract, Contract of Carriage and Freight Charges
Contract of Sale is the main contract in international trade. It is signed between the exporter and the importer, and this contract defines each parties’ roles and responsibilities.
Once the sales contract is signed, the exporter and importer start signing additional contracts with third party service providers to complete the transaction.
For example,
contract of carriage should be signed with the carrier,
insurance contract should be signed with the insurance company,
inspection contract should be signed with the inspection company,
a contract with customs broker should be signed in order to clear the goods from customs.
The contract of sale determines by whom, either the exporter or the importer, the above mentioned additional contracts should be signed.
Incoterms and Freight Charges
According to the Incoterms 2010 rules, the exporter must conclude the contract of carriage with the carrier and pay for the freight under CFR, CIF, CPT, CIP, DAT, DAP, DDP terms.
Freight prepaid is the correct freight notation that should be used on transport documents under CFR, CIF, CPT, CIP, DAT, DAP, DDP trade terms.
Incoterms 2010 rules also dictates that under EXW, FCA, FAS and FOB trade terms the importer must arrange the transportation and pay for the freight charges.
Letter of Credit Example:
Introduction:
An exporter from India signed a sales contract with a buyer from United Kingdom for the sales of turmeric.
And the trade term is CFR Cost and Freight. (CFR Port of Felixstowe, Incoterms 2010)
According to the incoterms 2010 rules, under CFR trade terms, the seller must contract or procure a contract for the carriage of the goods from the agreed point of delivery, if any, at the place of delivery to the named port of destination or, if agreed, any point at that port.
As a result the freight notation on the marine bill of lading must be “Freight Prepaid“.
Letter of Credit:
46A: Documents Required
FULL SET OF ORIGINAL SHIPPING COMPANY SHIPPED ON BOARD MARINE BILL OF LADING TROUGH AN INTERNATIONAL UNIFORM SHIPPING LINES MADE OUT TO THE ORDER OF HSBC BANK, LONDON BRANCH, UK NOTIFY APPLICANT MARKED FREIGHT PREPAID.
