Ad Valorem
According to the value. For example, an import duty rate of 10% ad valorem means 10% of the value of the goods.

Agent
An independent person or corporation acting as a representative, usually in a foreign market, who attempts to sell products for an overseas seller (principal) and earns a commission on successful sales. Agents are not normally involved in delivery or servicing of product.

Air Waybill (AWB)
The document which covers transport by air. It is issued by the carrier, whether an airline or a freight forwarder, as a non-negotiable document serving as a receipt to the consignor for the goods, and containing the conditions of transport. It also shows the details of the consignee so that they can be contacted on arrival of the goods.

– HAWB
House AWB issued by a freight forwarder acting as a carrier.

– MAWB
The term used for the AWB issued on airline’s stationery to a freight forwarder for all of the goods covered by one or more House AWBs on the one flight going from one loading airport to one destination airport.

APCA
Australian Port Charges Additional, the port charges passed on by shipping companies to importers for FCLs

Applicant
The buyer who has requested his bank to arrange an L/C on his behalf. In some countries where the buyer may have trouble arranging an import license, the applicant may be a third party acting on behalf of the buyer.

Austrade
The Australian Trade Commission – Australia’s export and investment facilitation agency, see www.austrade.gov.au.

BAF
Bunker Adjustment Factor – an adjustment to shipping companies’ freight rates to take into account fluctuations in the cost of fuel oil (bunkers) for their ships.

Bank Guarantee
A document issued by a bank acting as a guarantor for their customer. The bank’s guarantee is accepted because of their status and creditworthiness compared to that of their customer. Often used in conjunction with major projects, in the form of Bid Bonds, Performance Bonds and Warranty Bonds, commonly for 10% of the contract value, all of which provide the buyer with a measure of comfort should the seller not fulfil his obligations at various stages of the contract.

Beneficiary
The seller in whose favour an L/C is issued, ie the person who will “benefit” from the L/C. (See also Letter of Credit).

Bill of Exchange
An unconditional order in writing, issued by the seller (drawer) instructing the buyer (drawee) to pay the seller’s bank (payee) a specified amount (normally the full invoice value) on demand (at sight) or at a fixed or determinable future time. A suitable form can be obtained from the seller’s bank, or drawn up on a blank sheet of paper.

Bill of Lading (B/L)
The document which covers transport by sea. Signed by the carrier, whether a shipping line or a freight forwarder, it serves as a receipt to the consignor for the goods, as evidence of the contract of transport containing the conditions of transport, and as a document of title by which possession of the goods can be transferred. Typically a B/L is issued in a set of three signed originals or negotiables, one of which must be presented to claim the goods upon which the others become void.

– Combined Transport / Multimodal B/L
A B/L covering transport by shipping container from an inland place prior to the loading port, to an inland place beyond the destination port. Most freight forwarders and shipping companies title their B/Ls as “Bill of Lading for Combined Transport or Port-to-Port shipment” or similar.

– Congen B/L
A standard form of bill of lading used in shipments by chartered ship.

– Clean B/L
A bill of lading indicating that the goods were received by the carrier in good order and condition, without any clauses declaring a defective condition in the goods and/or their packing

– Dirty/Foul/Claused B/L
A bill of lading with any clauses declaring a defective condition in the goods and/or their packing. Almost invariably not acceptable to banks for presentation under L/Cs and almost always not acceptable to the buyer. (See also Clean Bill of Lading).

– House B/L
A bill of lading issued by a freight forwarder acting as a carrier. The terms and conditions of the contract may well be different to the terms and conditions contained on the shipping company’s B/L, which can in extraordinary circumstances lead to legal complications should a dispute arise.

– Master B/L
The term used for the B/L issued by a shipping company to a freight forwarder for all of the goods covered by one or more House B/Ls on the one ship going from one loading port to one destination port.

– Ocean B/L
A B/L covering port-to-port shipment. Typically banks continue to use this term on L/Cs even though the majority of international shipments are containerised (See also Multimodal B/L).

– On Board/ Shipped On Board B/L
A B/L evidencing that the goods were not only received by the carrier but were actually loaded on board in good order and condition. “Shipped” indicates that not only were the goods on board, but that the ship has departed the port.

– Order B/L
A negotiable B/L, in which the goods are consigned “to order of” a particular party, often theshipper in which case the consignee is mostly shown simply as “to order”.

– Straight B/L
A non-negotiable B/L in which the goods are consigned directly to a named consignee.

Box
Colloquial term for a shipping container.

Breakbulk
Non-containerised cargo.

BSRA
Basic Service Rate Additional – the charge levied by shipping companies to importers for LCL cargo, including the port charges, transport to an unpacking depot (see CFS) subsequent sorting and storage of the goods and finally loading onto a vehicle collecting the goods for delivery to the buyer.

CAF
Currency Adjustment Factor – an adjustment to shipping companies’ freight rates to take into account the effect over time of fluctuations in currency exchange rates.

Carnet
A document, normally issued by a Chamber of Commerce which is a member of the International Chamber of Commerce (ICC) to enable the holder to temporarily take merchandise into certain countries, as samples or for display purposes, without the need to pay import duty or pay a bond for the duty. The issuer will require the holder to give them security by way of a bank guarantee.

Cash against Documents (CAD)
An arrangement whereby the buyer pays for goods as soon as the buyer receives the seller’s documents. There is normally an intermediary involved, ie a bank or an agent acting on behalf of the seller, to ensure that the transaction takes place smoothly.

Certificate
A general term for any document issued by the seller or another party, certifying to some action having taken place or some fact about the goods.

Certificate of Origin
A certificate stating the country of origin of the goods. Depending on the importing country’s requirements, this can be as simple as being issued by the seller or the manufacturer. In most cases however, it is required to be issued by a Chamber of Commerce in the country of origin.

CFS
Container Freight Station – place or depot where individual LCL cargo is loaded into, and unloaded from, containers.

Charterparty
A written contract between a shipowner and a charterer who rents use of the ship or part of its freight capacity. A voyage charterparty is a contract covering transport of goods from one or more ports to one or more ports and will detail the costs and responsibilities involved.

Commercial Invoice
A document issued by the seller, addressed to the buyer, giving details of the individual transaction, including complete description of the goods, prices, currency, delivery and payment terms and so on. This is generally used by the Customs authorities in the importing country to assess customs duties payable.

Conference
A group of shipping companies who have associated to offer regular services on specific routes at published rates. Sometimes referred to as liner shipping. Non conference shipping lines are sometimes referred to as independent or outsiders. No longer allowed under various international laws.

Consignee
The party shown on the bill of lading or air waybill to whom the shipment is consigned. Need not always be the buyer, and in some countries will be the buyer’s bank. See also Bill of Lading – Order B/L and Notify Party.

Consolidation
Where a freight forwarder groups, or consolidates, one or more shipments for one or more shippers to the one destination as one overall shipment. (See also House B/L and Master B/L).

Consular Invoice
The seller’s commercial invoice certified, for a fee, in the exporting country by the consular representative of the importing country. Now required only by a handful of countries.

Container ship
Ship designed to take ISO (International Standards Organisation) containers in vertical cells within the ship’s holds as well as on the deck. These ships generally rely on infrastructure on the wharf to load and unload the containers.

Conventional ship
Ship designed with holds which can load almost any type of loose cargo, such as drums, sacks, crates, pallets etc. These ships are designed with their own derricks for loading and unloading.

Customs Broker
A person or corporation licensed by the Australian Customs Service to handle on behalf of importers the process of clearing goods through customs.

Customs Duty
A tax, duty or tariff levied at the time of import upon goods entering a country. Usually based on the value of the goods (ad valorem), on the physical nature of the goods such as quantity or weight, or on a combination of the value and other factors.

CY
Container Yard – place or depot where individual containers are held prior to loading on board a ship and after unloading from the ship. Can be inland or at the dock-side.

Documentary Collection
A method whereby the seller uses the services of his bank to ensure that the buyer only receives the shipping documents under conditions specified by the seller, ie upon payment, or upon acceptance, of the seller’s bill of exchange. (see also Bill of Exchange, Cash Against Documents and URC522).

Documentary Credit
The officially correct term for Letter of Credit. The UCP600 only mentions “Documentary Credit” not “Letter of Credit”. See also Letter of Credit and UCP600).

Demurrage
Extra charges paid to a carrier when loading and/or unloading has not been completed within the specified time.

Documents against Acceptance (D/A)
see Documentary Collection

Documents against Payment (D/P)
see Documentary Collection

Draft
see Bill of Exchange

Drawee
see Bill of Exchange

Drawer
see Bill of Exchange

Dumping
The practice of selling goods in a foreign market at a price lower than which they would be sold at in the home market, to gain a competitive advantage over other suppliers. If this is shown to be injurious to locally-based suppliers in the foreign market, the government of that country may impose remedies by way of anti-dumping duties.

Duty Drawback
If goods which have been imported, and upon which customs duty has been paid, are exported or have been used in the manufacture of goods which have been exported, then the exporter may be entitled to a refund of the original import duty paid.

EFIC
Export Finance Insurance Corporation. EFIC is a self-funding corporation wholly owned by the Commonwealth Government. EFIC can provide credit insurance on exports of Australian goods, as well as provide medium to long-term finance to buyers of Australian goods. See www.efic.gov.au

Exchange Rate
The price of one currency in the terms of another.

Export
To send goods from a country to an overseas destination.

FAK
Freight All Kinds, as a general description of the goods on a master B/L covered under the one freight rate regardless of the nature of the individual goods.

FCL
Full Container Load, generally but not always indicating that goods in the container are from one seller who packed the container, going to one buyer who will unpack the container.

Flat Rack
A device which is designed for cargos which will not fit into containers to be shipped on container ships. Consists of a base and two ends of the same dimensions as an ISO container.

Force Majeure
A clause in a contract which protects both parties in the event that part of the contract cannot be complied with due to causes outside the control of the parties and could not have been avoided by exercising due care. For example, floods, earthquakes, civil unrest and so on.

Freight Forwarder
A person or corporation who arranges transport of goods on behalf of either the seller or buyer. In many cases the freight forwarder will also consolidate several small shipments into one larger one to take advantage of better freight rates. In most cases the freight forwarder will assume the legal liabilities of acting as a carrier.

Gross Weight
The total weight of a shipment of goods, including their packaging such as crates, pallets etc.

Groupage
see Consolidation

Hazardous Goods
Certain cargoes, as prescribed by the UN, such as explosive, radioactive, poisonous and flammable goods etc, which must be declared to the carrier before being loaded onto ships or aircraft. The penalties for mis-declaring or failing to declare hazardous or dangerous cargo are extremely high.

Import
To bring goods from overseas into one’s country.

Incoterms 2010
A set of rules for the interpretation of the most commonly used trade terms in foreign trade, recognised throughout the world, issued by the International Chamber of Commerce, as their publication 715. It is most strongly recommended that every exporter and importer has a copy of “Incoterms 2010”. The 11 trade terms are summarised very briefly here.

Rules for any mode or modes of transport
especially airfreight, FCL and LCL seafreight.

– EXW Ex Works (named place)
The seller’s only responsibility is to make the goods available at his premises, (ie works or factory). The buyer bears the full cost and risk involved in bringing the goods from there to the desired destination and the buyer must be able to carry out any required export formalities.
The rule represents the minimum obligation for the seller and generally should not be used for export transactions.

– FCA Free Carrier (named place)
The Seller fulfils his obligation to deliver when he has handed over the goods, cleared for export, into the charge of a carrier, or another person, named by the buyer at the named place or point.
This rule may be used for any mode of transport, including multi-modal transport.

– CPT Carriage Paid To (named place of destination)
The seller must pay the costs and freight necessary to bring the goods to the named destination but the risk of loss of or damage to the goods is transferred from the seller to the buyer when the goods have been delivered into the custody of the carrier. This rule may be used for any mode of transport.

– CIP Cost and Insurance Paid to (named place of destination)
This rule is similar to CPT but with the addition that the seller has to procure marine insurance against the buyer’s risk of loss of or damage to the goods covering that period until the goods have been delivered from the carrier to the buyer. This rule may be used for any mode of transport.

– DAT Delivered at Terminal (named place of destination)
The seller fulfils his obligation to deliver when the goods have been made available, unloaded, at an agreed terminal (usually a container yard, forwarder’s warehouse etc) at the named place in the country of importation.The seller has to bear the risks and all costs and other charges of delivering the goods thereto, but not including duties and taxes. The buyer is responsible for customs clearance, and if he fails to do this, he is responsible for the consequences. This rule may be used for all modes of transport.

– DAP Delivered at Place (named place of destination)
The seller fulfils his obligation to deliver when the goods have been made available at an agreed point at the named place in the country of importation. The seller has to bear the risks and all costs and other charges of delivering the goods thereto, but not including duties and taxes. The buyer is responsible for customs clearance, and if he fails to do this, he is responsible for the consequences. The buyer must unload the goods from the arriving means of transport. This rule may be used for all modes of transport.

– DDP Delivered Duty Paid (named place of destination)
The seller fulfils his obligation to deliver when the goods have been made available at an agreed point at the named place in the country of importation, often the buyer’s premises. The seller has to bear the risks and all costs, including duties, taxes and other charges of delivering the goods thereto, cleared for importation. This rule should not be used if the seller is unable directly or indirectly to obtain any necessary import licence or approval.This rule may be used for all modes of transport.

Rules for Maritime transport
especially bulk and break-bulk seafreight but not for airfreight, FCL and LCL seafreight

– FAS Free Alongside Ship (named port of shipment)
The seller fulfils his obligation to deliver when the goods are placed alongside the vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The seller is responsible to clear the goods for export.
This rule can only be used for sea or inland waterway transport and its correct use is only when using a chartered ship, or when goods are not containerised.

– FOB Free On Board (named port of shipment)
The seller fulfils his obligation to deliver when the goods have passed over the ship’s rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The seller is responsible to clear the goods for export. This rule can only be used for sea or inland waterway transport. This is probably the most commonly misused term in international trade. Its correct use now is only where the ship’s rail is relevant to the transaction, such as when using a chartered ship, or when goods are not containerised. Obviously it cannot apply to airfreight.

– CFR Cost and Freight (named port of destination)
The seller must pay the costs and freight necessary to bring the goods to the named destination but the risk of loss of or damage to the goods is transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment. The seller is responsible to clear the goods for export.
This rule very specifically requires the carriage of the goods in a “seagoing vessel”.

– CIF Cost, Insurance and Freight (named port of destination)
This term is similar to CFR but with the addition that the seller has to procure marine insurance against the buyer’s risk of loss of or damage to the goods.
This rule very specifically requires the carriage of the goods in a “seagoing vessel”.

Out-dated terms

– C&F was replaced in Incoterms 1990 with CFR, but is still commonly mis-used.
– DAF, DES, DDU were replaced in Incoterms 2010 with DAP
– DEQwas replaced in Incoterms 2010 with DAT
– FISFree into Store
An unofficial trade term indicating that the seller’s price includes all costs up to delivery to the buyer. This is similar in effect to DDP.

Insurance
A process whereby someone with a risk of something happening to their financial detriment (the assured) pays someone else (an underwriter) a fee (premium) to bear that risk on their behalf.

– Insurance Certificate
A certificate issued by the insurance underwriter giving details of a particular transaction which is held insured under an insurance policy.

– Insurance Policy
Contract of insurance.

– Marine insurance
Insurance covering the international, and often local, transport of goods. Generally covers “all risks” plus war and strikes risks, and is taken out for 110% of the CIF/CIP value of the goods.

ISBP745
“International Standard Banking Practice for the Examination of Documents under Documentary Credit”, International Chamber of Commerce publication 745 – a companion to the UCP600 which as its name suggests reflects international banking practice in regards to L/Cs.

Landed Cost
The total cost which an importer pays to have goods delivered into their premises. This typically includes the costs of the goods, international transport, insurance premium, port charges, customs duties, delivery charges, bank charges etc.

LCL
Less than Container Load, a small amount of cargo insufficient to on its own be economically shipped as FCL. It will be combined with other LCL cargo from other shippers going to the same destination port, into an FAK FCL. See also Consolidation.

Letter of Credit
A conditional order in writing, issued by a buyer’s bank, guaranteeing to pay the seller upon presentation of stipulated documents, strictly in accordance with the credit. It is strongly recommended that every exporter and importer has a copy of the “Uniform Customs and Practice for Documentary Credits”, International Chamber of Commerce publication 600 and “International Standard Banking Practice” International Chamber of Commerce publication 681. Both of these are available from most major Chambers of Commerce, or from us at AUD 55.00 each plus postage, handling and GST, to Australian addresses only. See our Bookshop page.

– Confirmed
A letter of credit which has been further guaranteed by a local bank generally in the exporter’s country.

– Irrevocable
A credit which cannot be revoked, cancelled or amended unless the beneficiary agrees. All L/Cs issued under UCP600.

– Discrepancy
Where a document does not comply strictly with the terms and conditions of an L/C.

– Under Reserve
Where documents with discrepancy/ies are nevertheless negotiated against an L/C, and the negotiating bank reserves the right to take back the funds from the exporter if the discrepancy is not acceptable to either the buyer or the L/C issuing bank.

Liner terms
Freight rates which include loading/unloading charges, generally with a regular shipping lines.

Manifest
A list of the various shipments being carried on a ship or aircraft.

Nett Weight
The weight, or mass, of the goods themselves without any packaging.

Notify Party
The person or company to be advised by the carrier upon arrival of the goods at the destination port.

On Board / Shipped On Board
A notation on a bill of lading, indicating that not only did the carrier receive the goods in good order and condition, but they were also placed on board the ship.

Open Account
The seller allows the buyer to send payment at some future time (ie 60 days).

Packing List
A document which details the contents, and often dimensions and weight, of each package or container.

Payee
see Bill of Exchange.

Phytosanitary Certificate
A document issued by the Department of Agriculture, Fisheries and Forestry, for exports from Australia of plants or plant products.

Port charges
see APCA, BSRA and PSC.

Pre-payment
The buyer pays the seller for the goods prior to shipment.

Pro Forma Invoice
A sample invoice issued by the exporter before shipment, which the importer may require to arrange import approvals or apply for a letter of credit. It can also be used as an offer to sell goods.

PSC
Port Service Charge, similar to APCA.

Reefer
Colloquial for a refrigerated container.

RO-RO
A “roll-on/roll-off” ship, where loaded transport vehicles are driven onto it, such as a car ferry, or where containerised and other cargo is loaded into it by forklifts or similar.

Shipping Marks
Specific markings on packages to identify them apart from other packages and to identify them on the relevant documents.

Sight Draft
A bill of exchange drawn “at sight” meaning that as soon as the drawee accepts the bill it falls due for payment. See also Bill of Exchange.

STC
Said to contain, often placed before the description of goods on a bill of lading because the carrier does not know the nature or quantity of goods actually placed in the packages or the containers.

SWIFT
Society for Worldwide Inter-bank Financial Telecommunications, whereby banks can electronically transfer funds, issue L/Cs, etc.

T/T
Telegraphic transfer, an electronic means of transferring funds between banks, generally using SWIFT.

Tare
The weight of packaging or a container without the goods.

Tenor
The period of time before a bill of exchange falls due for payment.

Term Draft
A bill of exchange drawn for a period other than at sight or on demand.

TEU
Twenty-foot equivalent unit, the means of describing the carrying capacity of a train or ship. For example, a 40 foot container takes up the space of two TEUs.

THC
Terminal handling charge, levied by CY and CFS operators for goods passing through their operations.

To Order
see Bill of Lading, Order B/L.

Transhipment
Goods are transferred from one ship to another at an intermediate port. Can also refer to goods being transferred from one method of transport to another.

UCP600
Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce publication 600, which lays out guidelines for banks to follow when dealing with L/Cs. (See also Letter of Credit).

URC522
Uniform Rules for Collections, International Chamber of Commerce publication 522, which lays out guidelines for banks to follow when handling Collections. (See also Collections).

Value for Duty
The value of an import declared to the customs upon which customs duty will be calculated. In Australia, the value of the goods at the time of export from the exporting country, thus generally the FOB value and using the exchange rate at the date of export. Many other countries use the CIF value at the time or declaration in the importing country.

Volumetric
A notional or calculated weight for bulky goods sent by air. Generally stated as 6000cm3 = 1 kg, meaning that the total volume in cubic centimetres is divided by 6000 to give an equivalent weight in kgs. The airline or forwarder will charge whichever is the greater of the actual weight and volumetric weight. Also shown sometimes as 167 kg = 1 cbm.

Wharfage
see APCA, BSRA and PSC

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The post Export Import Glossary appeared first on Export Document Service.

“Every time I open a business magazine there’s another article telling me I should export my products. I’m comfortable with my local sales, I don’t know anyone who exports, and exporting sounds scary. So what’s in it for me?” Perfectly reasonable thoughts if you haven’t looked at exporting yet. Of course not every company is in the right place or has the right product mix to export, but let’s find out how others see it.

Quality Air Equipment Pty Ltd (QAE) is only ten years old and Director Stephen Podetti, one of the three founding brothers said “If we didn’t export, another ten years down the track we would probably still be where we are today.” QAE specialises in designing and supplying air conditioning diffusion, sheet metal, fans and accessories to the heating, ventilation and air conditioning industries and now exports to Europe and North Africa.

Exporting can end up being the major focus of the company, especially if the local market in Australia is very limited. Using the can-do attitude that Australian companies are reknowned for, more unusual markets can open up. Bronx International Pty Ltd has developed a worldwide reputation for supplying specialised galvanising and paint lines used to coat metal strip. “Without exporting our company would not exist as only a very small portion of our overall turnover is from local sales within Australia” said Leontia Trimboli, Finance Director. Bronx have had recent successes with major projects in Russia and Eastern Europe, and now sees Latin America emerging as a potential market.

It is vital for SMEs in Australia to not just follow the crowd because they saw a magazine article saying that China and India are going to be great markets for Australian products. Such generalised statements can lead an SME to expend huge amounts of energy in marketing to the wrong countries or regions and against major competitors. Steve Podetti analysed the market for his company’s products and saw the hot Mediterranean climates as prime candidates. New buildings of course demand air conditioning so QAE’s specialised flexible ducting has met with considerable success there and sales are growing. The machinery which Bronx supplies is suited to developing countries as most of their customers produce painted and galvanised product for corrugated roofing in their own countries.

Export marketing is not a cheap or easy process. David Newell, Business Development Director of Matcon Pacific Pty Ltd, a subsidiary of a UK company, said that they use exhibitions, sales visits and good local representation in the countries they are exporting to. Matcon specialise in providing machinery for handling and processing powders, granules, tablets and other materials in Intermediate Bulk Containers (IBCs), so again the developing countries provide healthy markets for them. Over time exporters will need to work on building up a reputation in their markets. Bronx’s Leontia Trimboli explained that in their case “A lot of our references are through word of mouth, because it is a sector of the steel industry that has close links across the world. Our global reputation and references have helped to build our business and around 60 percent of clients are repeat business.”

Family-owned Era Polymers Pty Ltd, says their Export Manager Louise Connor, are heavily involved in international trade shows catering to their markets for specialty polyurethanes. Additionally they find the internet to be a great tool to facilitate overseas growth plans, using not only their own website but specialist websites on which they advertise their products to build a global brand and presence.

Dieter Riegel, Managing Director of HD Scientific Supplies Pty Ltd, says that attending major international conferences and exhibiting their products are his company’s main export marketing tool. HD Scientific has been servicing Australian scientific industries for 40 years, marketing an extensive range of laboratory instrumentation and consumables. Yet it is only in the last two and a half years that they have made a concerted effort to market overseas. Now some 15% of sales come from exports.

Effective websites can be a very useful tool in export marketing. QAE for example chose to use a short and catchy web address of www.qaeglobal.com which immediately gets the message across that they market to the world. The Bronx website www.bronxintl.com is an important tool for marketing and lead generation for them. They have been developing and adding to this over the past year, and now the home page and other articles have been translated into Russian, Spanish and Indonesian, and so have their product brochures. The lesson here is to continually improve the offering on your website to keep ahead of the competitors and demonstrate your products in a modern and attractive way. The website is now an exporter’s product catalogue for the world.

What are some of the difficulties that these companies face getting their products out into the export marketplace? The main challenges for an export driven Australian company are the exchange rates, regional issues within each country, language and the logistics costs. The AUD exchange rate is impossible to predict so good management through foreign currency bank accounts, forward exchange contracts and so on are a must.

Matcon find that difficulties can be experienced in getting good local people on the ground, red tape imposed by some government run agencies and political/security unrest. The last is always a potential risk in developing countries, especially if there is a long lead time between getting the order and shipping the goods. There are so many countries around the world where it may have appeared that everything was on the up-and-up when the order was taken, but come time to ship and things have changed, sometimes with new laws passed to tighten up foreign currency transfers or greater environmental controls.

Dieter Regel explained that presenting HD Scientific’s products to European and American markets, because the equipment is bulky, means they have to take into account high freight as well as clearance and storage costs. Era Polymers have found that the best way of servicing their customers in about 50 countries who want fast delivery of their specialty polyurethanes is to hold stock in a number of strategically placed warehouses around the world so that they can offer deliveries within one week of receiving an order.

For most companies a supportive and helpful freight forwarder is a necessity. When the goods are sold freight collect the exporter must deal with the buyer’s forwarder who may be previously unknown to the exporter, so there is no relationship or understanding of the product. It is important to ensure that the exporter controls the freight movement. As Louise Connor explains, “Our freight forwarder is an integral part of our success. We can and do guarantee our quality and back up service. In partnership with our freight forwarder on-time deliveries around the world have become an important part of our success.”

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The post Why Export? appeared first on Export Document Service.

by Bob Ronai

Australian SME’s engaged in exporting will do well to have a local “best friend.” That best friend is an efficient and friendly freight forwarder who looks after the movement of their goods and gives relevant advice when requested. Sometimes exporters refer to them by confusing names like “shipping agent,” “freight agent,” “export agent” and the like, but in Australia the generally accepted description is “freight forwarder” or “forwarder” for short.

FORWARDERS, LARGE AND SMALL

There are many hundreds of freight forwarders in Australia, ranging from massive European-based companies with their own offices around the world even in out-of-the-way locations, through the larger Australian-based global freight forwarders with offices in each capital city and a wide network of international agents, the smaller single-city companies with a basic network of international agents in the more usual locations, to the one-man-bands who simply look after the logistics at this end with the local offices of the airlines and vessel operators. Each exporter needs to assess which kind of operation best suits them, but to do this it is necessary to understand what the international freight forwarder actually does for them.

If the overseas buyer is paying the freight forwarding companies, depending on the Incoterm used in the contract of sale, the choice of freight forwarder will usually be taken out of the exporter’s hands. Some exporters feel that it is easier if they work this way, but in reality they loose control over shipment of their own goods which, it can be argued, is not a clever way to export. (Correct Incoterm for most such shipments would be FCA, not the commonly but incorrectly used EXW or FOB — the latter should not be used for airfreight or containerised seafreight and the former simply cannot be correctly used as the overseas buyer is responsible for the export declaration to Australian Customs). So for the purposes of this article the assumption is that the exporter is paying the freight forwarding company, the cost of which is built into their export price, and choosing their own freight forward to arrange a shipment by sea (correct Incoterms for most shipments would be CPT or CIP, not the commonly but incorrectly used CFR and CIF which should not be applied to airfreight or containerised seafreight).

FULL CONTAINER LOAD

In the first scenario the shipment is a Full Container Load (FCL), that is, of sufficient volume to efficiently fill a 20ft or 40ft shipping container, and the exporter contacts the forwarder just a few days before the goods are ready. The freight forwarding service will often have a preferred shipping line on a particular route and will make a booking on that line’s next departing vessel receiving cargo around the date the exporter will be ready to pack the container. The shipping line will advise the freight forwarding service a release number and the location from where the empty container is to be collected, plus where the packed container is to be delivered. Of course there will also be discussion on the freight rates and surcharges to apply. The forwarder will then call their trucking contractor to arrange that side of things including booking time slots at the depots, booking a sideloader truck if the container has to be put on the ground and left at the exporter’s premises for a day or two to pack.

Some exporters do not have the facilities to pack containers themselves or might be accumulating goods from different sub-contractors so they will have the forwarder organise packing of the container. Many forwarders however do not themselves have the storage or facilities to pack containers so they will arrange to outsource this to a transport or container depot.

Some forwarders require a request from the exporter in writing before going ahead with the above arrangements, but certainly before the containers are packed the exporter will need to supply the forwarder with a Shipper’s Letter of Instruction (SLI), the Commercial Invoice and the Packing List. The SLI can either be a generic document created by the exporter in say Excel or Word, or on a form supplied by the forwarder, and can be considered as being the first leg of entering into a contract of carriage. The Commercial Invoice and Packing List are needed initially by the forwarder for the information to electronically declare the shipment to Australian Customs and obtain an Export Declaration Number (EDN). Without an EDN the forwarder cannot prepare the next electronic document, a Pre-Receival Advice (PRA), required before the container can move in to the depot. The forwarder will then prepare their own Forwarding Instructions (FI, similar to the exporter’s SLI) to the shipping line in order for the line to know what details are required to appear on their Bill of Lading (B/L). If the forwarder has an office or agent at the destination, the shipping line B/L will show the forwarder as the shipper and their overseas people as the consignee, and the forwarder will in turn issue their House B/L showing the exporter as shipper and buyer as consignee. Some forwarders even like to hide the identity of the shipping line from the exporter but savvy exporters can soon work this out from the name painted on the side of the container or the container number’s prefix.

If the forwarder issues their house B/L then they need to make their overseas counterparty aware of the transaction. They will usually obtain an express release B/L or sea waybill from the shipping line and email a copy of this along with a copy of their own house B/L and the exporter’s Commercial Invoice and Packing List.

LESS THAN CONTAINER LOAD

In the second scenario, the shipment is small, possibly just a pallet or two, and is a Less than Container Load (LCL). This time, in response to the call from the exporter the forwarder will select a consolidator who acts as a wholesaler to many forwarders and combines into a container various small cargos to the same destination. It is the consolidator who books with the shipping line and the forwarder only needs to make the booking with the consolidator, arrange trucking from the exporter to the consolidator and apply to Customs for the EDN. In response to the forwarder’s FI the consolidator will issue their House B/L either showing the exporter as the shipper and consigned to their buyer or more often showing the forwarder as the shipper and their overseas agent as the consignee then allowing the forwarder to in turn issue their own House B/L to the exporter. Because most consolidators also act as retail forwarders this latter method is generally preferred by forwarders as it hides the existence and identity of the consolidator from the exporter and vice versa. Some forwarders even like to hide the fact that they are not themselves consolidating the cargo with other exporters’ cargo.

The document flow for an LCL shipment will be similar to an FCL House B/L as discussed above. In both FCL and LCL shipments, the exporter should have a B/L in their hands one or two business days after the vessel has left port, but no later than three business days unless there have been unforeseen problems.

THE FORWARDER IS LIKE A SWAN

As can be seen from the above, even for a simple mundane shipment the forwarder can be likened to a swan, appearing to the exporter to be effortlessly gliding across the water with little effort as they look after the shipment, yet below the surface they are rhythmically paddling to keep things moving in the most efficient manner. Good communications between the exporter and their forwarder are vital, and even though the exporter should have a warm and comfortable confidence in their forwarder they should ensure that complacency does not creep in. It certainly doesn’t hurt to occasionally check out rates and services from other forwarders whether just by enquiry or even slipping a shipment or two to another forwarder for a more tangible comparison.

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You’re relatively new to the exporting game. Sure, you’ve had a few nibbles, sent a couple of little shipments off by courier and taken payment by credit card. But now it’s time to get into “real” exporting and you’ll need to work out, amongst other things, your payment policy. Of course you’ll want payment up front before you dispatch the goods, or even before you accept the customer’s order. That policy though will immediately put the brakes on your export success. How would you feel, sending someone you don’t know in another country your hard-earned cash on the hope and promise that you’ll one day eventually get the goods in exchange? Not thrilled? And that’s probably how your potential customer will feel too.

Maybe you’d consider accepting say 25% deposit up front and 75% before shipment. But if the 75% never comes then you’re holding goods which cost you probably triple the deposit and they mightn’t be of use to anyone else.

It’s time to consider a documentary credit, more commonly called a letter of credit or L/C. This means that your customer’s bank promises to pay you if you submit complying documents to your bank after the goods have been shipped, and normally requires as one of those documents a “draft” drawn “at sight”. Your customer will be paying for the goods even before they arrive over there.

Your competitors might be offering your customer payment terms of 30 or 60 days so how can you get in on this game without going broke?
If your financial position is fairly solid you could consider giving your customer terms of say 60 days after dispatch, by way of their letters of credit requiring presentation of your draft, not at sight, but at “60 days after bill of lading date”. This means that you won’t see the payment until that due date. Your customer will quite likely be very happy with this arrangement as it can free up their cash flow until after the goods have been received by them. If they put up cash security then it will sit in their bank probably earning interest. They will however have a currency risk for those 60 days. And of course there are a number of issues for you too. Very importantly, if you sold in a currency other than Australian dollars then your exchange risk continues until that due date. There will also be a negative impact on your cash flow and you are reliant on the overseas bank honoring their promise.

So on the assumption that your customer is delighted with the arrangement and is happy to hand over their order to you instead of to one of your competitors, how do you resolve those issues? Firstly, have your bank or another local bank “confirm” the letter of credit process for country, bank, and most importantly document risk. This means in effect that your bank guarantees payment so long as they consider that your documents are in perfect compliance with the L/C. This will cost you a fee, depending on how the confirming bank judges their risks, of anywhere from less than one percent to 5 or 6 percent per annum, often only a few hundred dollars. With a term drawing under a confirmed L/C, when you present your complying documents you instruct the confirming bank to “discount” the draft meaning that they pay you immediately. Two major benefits are that they will pay you “without recourse”meaning that even if the issuing bank for some reason fails to pay on the due date your bank cannot take the money back from you, and your foreign currency exchange risk also ceases when you are paid out. Naturally the confirming bank will charge you interest from when they pay you until they are reimbursed by the overseas bank, but the rate will be based on that applying for the particular currency plus an agreed margin and is sometimes less than your overdraft rate. This “loan” is secured by the confirmed L/C so it is not counted against your other facilities with your bank.

At this point you’re possibly thinking “oh no, more bank fees!” But let’s say for example that the confirmation fee is 2% pa, the L/C expires in about four months and drafts are at 60 days. The confirming bank’s exposure therefore will be a maximum of about 180 days so the confirmation fee will equate to 1% flat. Let’s also say that the discount interest for the 60 days is 7.5% pa, equating to 1.25% flat. If your gross profit margin was say 20% of your total costs then you will be reducing this to 17.75%.

But isn’t it better to make 17.75% than not make the sale at all?

Disclaimer: The information in this article is intended to be of a general nature only and is not advice. You should consult with your bank and your financial adviser to determine if this is the best course of action for you.

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There are typically two reasons for this:
1. The existing exporter who was manufacturing in Australia but found that it became cheaper to outsource that manufacturing to overseas companies. They have retained their existing export customers, and because of cheaper costs have been able to price more keenly and possibly attract more export customers.

2. The accidental exporter who sources product from overseas for the Australian market, and has developed a comprehensive website describing their products. The web knows no boundaries and they have started to receive genuine inquiries from overseas which they turn into export sales.

Regardless of how it came about, there are potential pitfalls which the exporter needs to be aware of to avoid disasters. For example, ensuring that the supplier’s and buyer’s identities are kept from each; matching the purchase trade terms to the sales trade terms; matching the purchase and sales payment arrangements to not impact adversely on the exporter’s finances.

The exporter should select an Incoterm which puts them in control at all times. Buying at their usual CIP price and selling FCA is a mismatch because the exporter is paying their supplier for freight and insurance typically to an Australian port but their customer wants to arrange and pay for the freight themselves and cover their own insurance. If the exporter decides to keep the customer happy and changes the buying term to FCA then they have just invited disaster. An FCA sale will almost invariably mean that the buyer will appoint their own freight forwarder, and that forwarder will need to be in contact with the supplier to take delivery of the goods at origin and clear them for export. The only documents which the supplier can make available to the buyer’s forwarder are those they prepare for their sale to the exporter. So the exporter’s buying price immediately becomes available to their customer’s forwarder and typically the supplier’s documents will be sent on to the forwarder’s office in the customer’s country. The supplier’s price to the exporter might simply cover material and fabrication, with the exporter’s selling price calculated by adding a margin, design and marketing costs. Therefore there is likely to be a considerable disparity between the exporter’s buying and selling costs and it would be embarrassing if not disastrous for the buyer to find out the exporter’s supply costs, as well as exactly who the supplier is.

If the exporter tries to avoid this by making their export invoice available to the buyer’s forwarder, they must remember that export formalities in the supply country will be carried out in the supplier’s name and in many countries quite likely against an export permit with an export value attached. The authorities in the supplier’s country might therefore expect that higher amount of money to come into the country or might suspect the supplier of circumventing that country’s exchange control measures. And the supplier will then be made aware of the exporter’s price and think that with such an seemingly high margin taken by the exporter they should charge the exporter a higher price next time.

It is also important to match the destinations. In a recent example, the exporter was buying CIP to a port but then selling DAP to an inland destination a long way from the port. The supplier’s insurance would only cover the sea leg and the insured value would be based on the supplier’s selling price to the exporter. The supplier uses their own forwarder and paid freight only to the port. The exporter found themselves at the last minute under-insured and inland freight not covered. The supplier’s forwarder was asked to quote and as the goods were already on the water thought they had the exporter over a barrel and quoted triple the real price. The solution was to tell the supplier not to insure (which in theory should have reduced the price by a fraction of a percent but was generously allowed to the supplier), instruct the supplier’s forwarder that the shipping line’s bill of lading was to be consigned to the exporter’s Australian forwarder. This forwarder took over the transaction and co-ordinated with the shipping line to extend their transport of the containers all the way to the inland place, and paid the line for the inland transport. Certainly messy but many times exporters in such circumstances find that they have accidentally tied themselves into awkward knots which are sometimes difficult to unravel.

Unless the exporter has sufficient finances behind them, they may well need to ensure that they have longer payment terms from their supplier than they are giving their buyer. Ideally they will be paid in advance but more likely they will receive an L/C from their customer. Beware the pitfalls of transferable L/Cs because the buyer and seller will very soon know who they each are. Also the buyer might not be happy to rely on an L/C from a third country under which they will only be paid by the exporter’s bank when they in turn obtain reimbursement from the issuing bank. But what happens if the supplier gives the exporter say 30 days terms and the buyer wants 60 days? Messy for sure but workable. The buyer arranges issue of an L/C to the exporter say for drafts at 60 days after shipment. The exporter arranges with their bank to issue a Letter of Assignment to the supplier in which the exporter’s bank promises to pay the supplier as soon as they discount the drawing (ie pay it out before due date) which they do upon receipt of the issuing bank’s acceptance. The surplus of the payment from the buyer in excess of the payment to the supplier, less bank charges, is then credited to the exporter’s account.

The most workable strategy is to buy freight collect (FCA) and sell freight prepaid (CPT/CIP). This way the exporter arranges with their own freight forwarder to handle the shipment from the supplier’s country to the buyer’s country, and arranges that they pay the freight from Australia. The forwarder will arrange export clearance on the supplier’s invoice to the exporter but will not pass it on to the buyer’s country. The supplier will not know who the exporter’s buyer is. Also the forwarder will arrange a House Bill of Lading (HBL) showing the exporter as the shipper so that the buyer does not find out who the supplier is. The seller needs the services of a knowledgeable and experienced freight forwarder who has put in place procedures with their agents in the supply countries and destination countries to allow the Australian forwarder to issue their HBLs as soon as the vessel has departed. Most forwarders treat this as too hard or simply aren’t interested but there are some good ones out there.

The beauty of these three country or “triangle” shipments is that they generally involve no additional outlay of capital and can push the exporter’s buying prices even lower because of increased volumes. With the right strategic planning and the right advice from the outset, they can become very profitable for Australian companies sourcing their specialized products from overseas.

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Exporting seems to thrive on paperwork, never-ending paperwork. Why is that, and what are all the different documents for?

The biggest difference between a local sale with its minimal paperwork and an export sale is that Customs in both the exporting and importing country are involved, plus extra layers of transport operators. For a local sale the invoice is folded and placed into a little window-faced sticker attached to the parcel, a consignment note is attached, that’s typically all that’s needed. For exports we can drown in the paperwork especially if a letter of credit is involved. So let’s look at the main documents needed for an export.

Purchase Order
Before even thinking of getting goods ready for an export order, the seller should receive the buyer’s detailed Purchase Order. The information on this document should include details of the goods ordered, quantities, agreed prices, the Incoterm (term of trade which explains who bears certain costs, risks and responsibilities in the transport chain).

Order Acknowledgement
The seller will send the buyer some form of document, reflecting the purchase order and confirming that the order will be fulfilled.

When the seller has gathered the ordered goods and is ready to export them, he will prepare the following documents:

Shipper’s Letter of Instruction (SLI)
The freight forwarder needs the seller’s instructions to handle the shipment — is it going by air or sea, who is it going to, where are they, what are the goods, who is paying the various charges and so on. Most forwarders will provide a blank SLI form to be completed but if it suits the seller, especially if they are dealing with several forwarders, then they can create their own generic SLI. Without the SLI some forwarders will not even start the freight booking process.

Commercial and Pro Forma Invoice
Entering the world of exporting, the seller will discover a couple of new kinds of invoice, different to the usual Tax Invoice for sales within Australia. First there’s the Pro Forma Invoice, which acts like an order acknowledgement or as an advance advice of what the seller expects to ship. With some goods the order might be in a rounded quantity like say 1000kgs or 500 metres but when it comes time to ship, the exact quantity may be slightly different. Not every buyer will want a proforma invoice, but in some countries it is needed to obtain an import permit for the particular shipment. Some sellers find it easier just to issue one for every order received. The proforma invoice should not be put through to debtors in the  seller’s accounting system as the shipment might not go ahead.

The commercial invoice is created when the seller knows exactly what it is that is being shipped at that time. It will typically contain at least the following information: unique number and date of issue; name and address of seller; name and address of buyer; full description of the goods sufficient for clearance through customs in both the exporting and importing countries; sizes, styles, colours, part numbers etc; unit prices including currency code and Incoterm; vessel name and voyage number; ports of loading and discharge; payment method and terms and any other information that is relevant.

Packing List
The seller generally will prepare a packing list which can act as a final check of what has been packed, and will be needed by the buyer to check off the goods received. The customs authorities in the importing country may want to physically verify the goods in a particular package, and if a package goes missing the insurance company will want to know what was in it too.

Then there are documents which come from outside providers:

Chamber of Commerce Certificate of Origin
Some importing countries require this document, often because of Free Trade Agreements or as a matter of their own legislation. The document certifies to the origin of the goods and it is an offence under Australian law to falsely or fraudulently declare goods to be of an incorrect origin.

Certificate of Marine Insurance
If the seller has entered into a sale on CIF or CIP basis then he is responsible to provide insurance cover for the buyer’s risk. An insurance certificate for the particular transaction covering the CIF/CIP invoice value plus ten percent needs to be obtained via the seller’s insurance broker. The certificate will need to be countersigned on the front by the seller to validate it, and on the back to allow the buyer to make a claim in the event of some mishap. An insurance certificate is typically issued in an original and a duplicate (both of equal standing) and one or more copies which are for information purposes only and cannot be used to make a claim.

Bill of Lading
The bill of lading (B/L for short) is issued by either the local agent of the shipping line itself (“Master” B/L or “MBL” sometimes incorrectly referred to by forwarders as an “Ocean” B/L) or by the freight forwarder (“House” B/L or “HBL”). If the agent of the line issues the B/L they will sign with their company name “as agent for the carrier” and then state the name of the carrier which is usually their parent company. If a forwarder issues their HBL on their own stationery then they should sign the B/L “as the carrier” (and not as some do, “as agent for the carrier” then showing the name of the shipping line.)

The B/L has three distinct purposes: firstly, it is a receipt from the carrier acknowledging that the shipper has handed over goods in apparent good order and condition for shipment to the nominated port of discharge or to an inland destination; secondly, it is evidence of the contract to carry the goods and on the reverse bears a huge quantity of fine print; and most importantly, it almost always acts as a title document which the buyer requires to take hold of the goods at destination and which the seller can hold to ransom until payment for the goods is made.

The B/L has traditionally been issued in three originals, only one of which need be handed over to take hold of the goods and then the other two originals become void. This process stems from the days of airmail and before that surface mail being the only viable means of getting original documents from one country to another. Both these were inefficient and unreliable so documents were sent off in two or three sets of originals, several days apart. This way it was almost certain that at least one set would make it to the buyer in time. Of course now all the original documents are usually put in the one envelope and despatched with one of the international courier services with tracing facilities on the internet. Copies of B/Ls cannot be used to claim the goods.

Other Documents
There are other documents which might be relevant to a particular type of goods or required by some countries but not others, for example: health certificate; phytosanitary certificate; analysis certificate; fumigation certificate; packing declaration, and many others.
Many sellers see export paperwork as a dark art, but they can outsource their preparation to specialist companies to save themselves and their overseas buyers time and dramas.

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In late September 2010 the International Chamber of Commerce (ICC) released their updated Incoterms® 2010. These 11 rules replace the previous 13 terms, and make it easier to understand the seller’s and buyer’s responsibilities. Among other things they deal with both parties’ obligations to each other including providing security information, when delivery occurs, the point at which risk transfers from seller to buyer, and who pays freight, insurance and other charges.

The rules have been extensively rewritten so some of them are now more suitable for domestic transactions. In three of them the long established and traditional concept of the goods being “on board” when swinging precariously at the end of the rope while passing over the ship’s rail has been replaced by the simpler concept of the goods actually being placed on board the vessel.

Incoterms 2010 are now divided into two groups — the seven any mode or modes of transport rules at the front of the book and the four rules intended only for sea or inland waterway transport at the back of the book.

Very importantly, the much misunderstood and misused rules FAS Incoterms 2010 (Free Alongside Ship), FOB Incoterms 2010 (Free On Board), CFR Incoterms 2010(Cost and Freight) and CIF Incoterms 2010 (Cost Insurance and Freight) which most people think simply cover all kinds of freight by sea now have very clear instructions that they should not be used for shipments by container. While this has been the case for the last thirty years it nevertheless has not been widely understood. These rules (except FAS) require the seller themselves to load the goods on board. This is a remnant of three hundred years’ heritage when sacks and barrels were carried up the gangplank on men’s shoulders. A major concern of misusing these rules for shipments in containers is that the seller’s direct control is lost beyond the point where they hand over the goods to the carrier yet their risk and costs continue until the goods are on board.

If cargo is loaded directly onto the vessel, generally referred to as “break-bulk”, with a separate stevedoring contract and a separate freight contract, then FOB for freight collect, CFR and CIF for freight prepaid, are appropriate. Note that in all three of these the transit risk after the goods are on board is for the buyer, but in CIF the seller takes out insurance for the buyer.

The rules for any mode/s start with EXW (Ex Works) which is now stated as being suitable for domestic trade but not for international trade. This is because it is the buyer who has to carry out export formalities in the seller’s country. That is virtually impossible to achieve with the tight security provisions these days. In practice the buyer’s forwarder clears the goods for export in the seller’s name mostly without the seller’s knowledge or permission. This then means that the transaction is not EXW but actually FCA Seller’s Premises.

FCA (Free Carrier) is the only “freight collect” multimodal rule, which should be used in place of EXW and FOB for air freight and container shipments by sea. It needs to be qualified with the addition of a place such as “Seller’s premises” or “Carrier’s premises”. The seller’s risks and costs cease when they physically deliver the goods out of their own direct control. In FCA the buyer typically arranges the freight through their own freight forwarder and export formalities are carried out by the seller, often via that forwarder. If a seller wishes to keep quoting their usual “FOB” price then wording such as “FCA Carrier’s premises plus THC” could be quoted. This indicates that the seller’s risks cease at the point of physical delivery but that they will include a specific additional cost in their selling price.

There are two “freight prepaid” any mode/s rules which can be used for air freight and container shipments by sea. The first is CPT (Carriage Paid To) which then needs the destination place to be specified, ie “CPT Taipei”. CPT means that the seller delivers when he hands over the goods to the carrier or forwarder of his choice but pays the freight to the destination. The transport risk for loss of or damage to the goods passes to the buyer once the seller hands the goods over to his own carrier or forwarder. This rule should be used in place of the misused CFR for air freight and container shipments by sea .

Often the buyer will ask the seller to also cover the risk by providing insurance. The delivery and risk are still the buyer’s, exactly the same as for CPT, however now the seller takes out insurance for the buyer’s risk and then “blank endorses” the certificate before giving it to the buyer. Should there be a loss of or damage to the goods in transit then the buyer is able to claim against the seller’s insurance policy. This rule is CIP (Carriage and Insurance Paid to) with a destination place to be shown after it, and should be used in place of the misused CIF for air shipments and container shipments by sea.

The old DEQ (Delivered ex Quay) has been replaced with DAT (Delivered at Terminal) rule which expands on the places where this delivery can occur. DAT requires the seller to arrange unloading the goods from the arriving means of transport and make them available to the buyer in the terminal, wharf, airport, warehouse etc as stated in the contract.

Three of the previous rules, DAF (Delivered at Frontier), DES (Delivered ex Ship) and DDU(Delivered Duty Unpaid) have been rolled into one new rule DAP (Delivered at Place). DAP is similar to CIP in cost to the seller but now the seller delivers when the goods have been made available to the buyer, not unloaded from the arriving means of transport, at the specified destination which is often the buyer’s premises. So the transit risk remains the seller’s until that delivery is achieved. Nevertheless, the buyer is responsible for import formalities and payment of duties and taxes.

Lastly there is DDP (Delivered Duty Paid) which in reality is only suitable for domestic transactions or those within a customs bloc like the EU. This rule requires the seller to carry out import formalities and pay any import duties and VAT. Clearly this is going to be difficult if not impossible in most countries where some form of importer registration will be in force.

The three D rules also delay when the transaction should be taken up in the seller’s accounting. Australia is a developed country known for its expertise and companies should strive to follow world’s best practice by using the correct rules as laid out in Incoterms 2010. Every exporter should have a copy of the new Incoterms 2010 on hand in their office so that they are able to demonstrate informed leadership even though their trading partners might not yet be aware of the latest rules.

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Incoterms 2010 Chart is prepared by Import-Export Services Pty Ltd
For illustrative purposes only. The full text of the rules are contained in International Chamber of Commerce publication 715
The word “Incoterms” is a registered trademark of the International Chamber of Commerce

RULES FOR ANY MODE OR MODES OF TRANSPORT

Suitable for transport by land, air, sea or any combination of them
These are the correct rules to use for shipment by sea in containers (LCL & FCL)
In each of these rules, risk passes from seller to buyer at the point of delivery
These rules are suitable for both domestic and international trade, references to export and import clearances are if applicable

EXW – EX WORKS (named place of delivery)

Seller makes goods available at his premises, not loaded on collecting vehicle, not cleared for export
This term should not be used when the buyer cannot itself directly or indirectly carry out export formalities
Suitable for domestic trade while FCA is usually more appropriate for international trade
This term represents the minimum obligations for the seller, maximum obligations for the buyer

FCA – FREE CARRIER (named place of delivery)

Seller delivers goods to the buyer’s carrier, cleared for export
If delivered at seller’s premises then seller must load collecting vehicle
If delivered by seller to carrier’s premises or elsewhere, seller does not unload the vehicle

CPT – CARRIAGE PAID TO (named place of destination)

Seller delivers goods to the first carrier, cleared for export
Seller contracts and pays for carriage to destination place
This term is effectively “FCA plus freight prepaid”

CIP – CARRIAGE AND INSURANCE PAID TO (named place of destination)

Seller delivers goods to the first carrier, cleared for export
Seller contracts and pays for carriage to destination place
Seller contracts and pays for insurance cover against the buyer’s risk during transit
This term is effectively “FCA plus freight and insurance prepaid”

DAT – DELIVERED AT TERMINAL (named terminal at port or place of destination)

Seller delivers goods to a named terminal at port or place of destination, unloaded from arriving means of transport
Seller is not responsible for import customs formalities

DAP – DELIVERED AT PLACE (named place of destination)

Seller delivers when goods are placed at the disposal of the buyer at a named place of destination, not unloaded from arriving means of transport
Seller is not responsible for import customs formalities
If the delivery place is beyond the terminal, such as to buyer’s premises, then seller’s risk and cost resume once the buyer completes import customs formalities

DDP – DELIVERED DUTY PAID (named place of destination)

Seller delivers when goods are placed at the disposal of the buyer at a named place of destination, often at buyer’s premises, not unloaded from arriving means of transport
Seller is responsible for import customs formalities, including payment of duties and taxes
This term should not be used when the seller cannot itself directly or indirectly carry out import formalities
This term represents the maximum obligations for the seller, minimum obligations for the buyer

FAS – FREE ALONGSIDE SHIP (named port of shipment)

Seller delivers when goods are placed alongside the vessel (eg on a quay or a barge) nominated by the buyer at the named port of shipment, cleared for export
Where the goods are in containers, it is typical for the seller to hand the goods over to the carrier at a terminal, not alongside the ship, so the FCA rule should be used

FOB – FREE ON BOARD (named port of shipment)

Seller delivers when goods are placed on board the vessel nominated by the buyer at the named port of shipment, cleared for export
Where the goods are in containers, it is typical for the seller to hand the goods over to the carrier at a terminal, not on board the ship, so the FCA rule should be used

CFR – COST AND FREIGHT (named port of destination)

Seller delivers when goods are placed on board the vessel at the named port of shipment, cleared for export
Seller contracts and pays for carriage to the destination port
Where the goods are in containers, it is typical for the seller to hand the goods over to the carrier at a terminal, not on board the ship, so the CPT rule should be used
This term is effectively “FOB plus freight prepaid”

CIF – COST INSURANCE AND FREIGHT (named port of destination)

Seller delivers when goods are placed on board the vessel at the named port of shipment, cleared for export
Seller contracts and pays for carriage to the destination port
Seller contracts and pays for insurance cover against the buyer’s risk during transit
Where the goods are in containers, it is typical for the seller to hand the goods over to the carrier at a terminal, not on board the ship, so the CIP rule should be used
This term is effectively “FOB plus freight and insurance prepaid”

EXPORT DOCUMENT SERVICE – specialists in export L/Cs

no more fiddly documents – now you can get on with other important work
• we carefully check each L/C to ensure all terms and conditions are workable
• eliminating errors in your documents will mean no more hefty discrepancy fees
• you will benefit because correct documents enhance your export marketing effort
• documents into your bank quicker mean you will receive your export dollars quicker
• we look after all your export documents, including
Commercial Invoices              Packing and Weight Lists           Certificates of Origin
Insurance Certificates            Phytosanitary Certificates            SLIs and FIs
B/Ls and AWBs checked       Sight and Term Drafts                  Lodgement Instructions
• you continue using your preferred forwarders and we liaise with them on your behalf
• you pay a flat rate per shipment regardless of size or value (plus disbursements)
• we can review your contracts and provide other export support consultancies
• we are a completely independent company working for your best interests
• you benefit from our decades of specialised international trade expertise
• we have QBE professional indemnity insurance for your protection
• we give you our Confidentiality Statement for your security
• infrequent shipments or many shipments each week
• we are specialists in UCP600 and ISBP681

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