The Structure of Incoterms 2000

Group E. This group includes only one term – EX WORKS. “E” – term is the term in which the seller’s obligation is at its minimum. “Ex works” means that the seller has to do no more than place the goods at the disposal of the buyer at the agreed place – usually at the seller’s own premises or another named place(i.e works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle.

Group F This group includes FCA, FAS, and FOB. The “F” – terms require the seller to deliver the goods for carriage as instructed by the buyer and pay the freight costs. FCA “ Free Carrier ” means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at named place. FAS (named port of shipment). “Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel at 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 moment. FOB (named port of shipment)“Free on Board” means that the seller delivers when the goods pass the ship’s rail at the named port of shipment. This means that, the seller pays for the transportation of the goods to the port of shipment and the loading costs. And the buyer pays for the freight, insurance unloading and transportation from the port of destination to the warehouse.

Group C. Group C includes CFR, CIF, CPT and CIP. The “C”- terms require the seller to contract for carriage on usual terms at their own expense. CFR (named port of destination) “Cost and Freight” means that the seller delivers when the goods pass the ship’s rail in the port of shipment. Thismeans that the seller pays for the transportation of the goods to the port of shipment, loading costs and freight. The buyers pay for insurance, unloading and for the goods to be transported from the port of destination to their warehouse. CIF (named port of destination) “Cost, Insurance and Freight” means that the seller delivers when the goods pass the ships’s rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. CPT(…named place of destination)“Carriage Paid to…” means that the seller deliver the goods to the carrier nominated by them but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the seller delivers the goods to the first carrier and pays freight charges. The buyer arranges and pays for transportation and insurance. CIP (…named place of destination)“ Carriage and Insurance Paid to…” means that the seller deliver the goods to the carrier nominated by them but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any other costs occurring after the goods have been so delivered.

Group D Group “D” includes DAF, DES, DEQ, DDU and DDP. The “D”- terms are different in nature from the “C” – terms since the seller according to the “D”- terms is responsible for the arrival of the goods at the agreed place.

DAF (…named place)“Delivered at Frontier” means that the seller covers all costs and bears all risks until the goods reached a named point at the frontier. The buyer pays all costs and bears all risks involved in transporting the goods from the frontier to the warehouse. The buyer also pays duties. DES (…named port of destination)“Delivered Ex Quay” means that the seller delivers when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the named port of destination. The seller has to bear all costs and risks involved in bringing the goods to the named port of destination before discharging. DEQ (…named port of destination)“Delivered Ex Quay” means that the seller delivers when the goods are places at the disposal of the buyer not cleared for import on the quay(wharf) at the named port of destination. It means that the seller pays for the goods to be transported to the port of shipment, loading, freight, insurance and unloading. The buyer only has to pay for the goods to be transported from the port of destination to the warehouse. DDU(named place of destination) “Delivered Duty Unpaid” means that the seller delivers the goods to the buyer, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. Under this term the seller pays all transportation costs and bears all risks involved in getting the goods to the buyer’s warehouse. The buyer only has to pay duty. DDP(…named place of destination)“Delivered Duty Paid” means that the seller pays all costs and bears all risks to get the goods to the buyer’s warehouse, including, paying duty.

Terms which preferable for exporters or importers, or preferable for both parties. E + Exp; F + Exp; C + Exp/Imp; D + Imp

Also there is another classification of Incoterms taking into account the mode of transport and payment of duty. Therefore, they can be categorized into EXW, Incoterms for shipping, Incoterms for multimodal transport and Incoterms covering payment of duty.

 

 

TERMS OF PAYMENT

Both sides face risks in an import-export transaction. For the exporters there is the risk of the buyers’ default; For the importers there is the risk that the goods will be delayed. Many of the risks in foreign trade are reduced by the work of the banks. They provide different services, which give security to exporters and importers.Groups of terms and conditions of the sales contract regarding payment: currency and financial. Currency terms include price currency and payment currency which have to be adjusted by the application of the corresponding exchange rate if the contract stipulates that these are different currencies. Financial terms comprise first, ways of payment (advance, cash and credit), second, forms of payment (open account, collection, bank transfer and letter of credit), third, means of payment (bills of exchange, cheques and money as it is), and, fourth, various types of bank guarantees.

Methods of Payment can be: Payment on credit suggests payment for the goods after they have been delivered. Payment in advance means partial (10-30%) or complete (100%) payment beforehand for the goods. Payment in cash means immediate payment in cash for goods or services.

Fоrms of Payment: Bank transfer denotes the movement of money by the importers’ bank to the exporters’ account. An open account stipulates periodical payments. Payment for collection means charging an order by the exporters to their bank to receive from the importers a certain sum of money or a confirmation of payment within the agreed period of time

A Letter of Credit is a promise made by the buyers’ bank (the opening or issuing bank)to send a certain sum of money to the sellers’ bank (the advising bank). This form of paymentis the most frequently used one because it is advantageous and secure both to the exporters and to the importers. The main types of letters of credi t are the following. 1) A revocable letter of credit can be cancelled or changed without the sellers’ agreement. 2) An irrevocableletter of credit can be cancelled or changed, but only with the agreement of all parties. 3 ) A confirmedletter of credit is always irrevocable. This means that the sellers will receive their money from the confirming bank, regardless of whether or not their invoice is paid in the buyers’ country. Opening: 1 Buyers and sellers agree on all terms and conditions of the sales contract. 2 The buyers fill out an application form to open/issue a letter of credit at their bank. 3 The buyers’ bank opens the letter of credit and sends it to the sellers’ bank. 4 The advising bank tells the sellers that the letter of credit has been opened. This is called an advice of credit. 5 The sellers check that all the terms and conditions are correctly listed in the L/C. 6 The sellers collect all the necessary transport documents. 7 The sellers give the transport documents and a sight or time draft to their bank. 8 The advising bank checks that all the documents are correct and sends them to the opening bank. 9 The opening bank checks the documents again and sends the payment to the advising bank. 10 The buyers pay (sight draft) or accept the draft (time draft) and get the shipping documents in return. With these, they can collect the goods from the carrier in their country. Means of Payment: Cheques are not practicable in foreign trade as a cheque is payable in the country of origin. That is why cheques are mostly used for payment in home trade. Using bills of exchange, the exporters credit the importers, which is advantageous to the latter. Bill of exchange is a document, usually negotiable, containing an instruction to a third party to pay a stated sum of money at a designated future date or on demand. Types B/E: A sight bill is a bill which is payable on presentation (at sight) or on acceptance. Time bills are payable at a fixed or determinable future time. Bills of exchange may also fall under other categories. Accommodation B/E is a bill that is signed by someone who promises to pay it to help another person to raise money. Documents against acceptance B/E (D/A Bill) is a bill sent by the exporters with other shipping documents to an agent who will not release the documents until the B/E has been signed (accepted) by the person receiving the goods. Documents against payment B/E (cash against documents) is a bill sent by the exporters with other shipping documents to an agent who will not release the documents until the bill has been signed (accepted) by the person receiving the goods.

Discounting B/E. If the exporters want immediate payment, they can discount the draft in return for a cash advance with a bank for a commission, i.e. sell it to a bank for its face value less interest. Dishonored B/E means that drawees do not pay the B/E when it is presented. Two Methods to Effect Payment: documents against payment (D/P), or documents against acceptance (D/A). D/P payment transaction is effected as follows. 1 The sellers send the goods to the carrier. 2 The carrier gives the necessary transport documents to the sellers and transports the goods to the buyers’ country. 3 The sellers collect any other transport documents which may be necessary and give them to their bank (the remitting bank)together with a sight draft. 4 The remitting bank sends the transport documents and the draft to the buyers’ bank (the collecting bank).The buyers are notified when the documents arrive. 5 The buyers pay the sight bill and receive the transport documents in return. They can then take the transport documents to collect their goods from the carrier in their country. 6 The collecting bank sends the payment to the remitting bank. The amount is credited to the sellers. A D/A transaction is, therefore, effected as follows. Все так же, кроме 5The buyers go to their bank and accept the time draft. In return, they are given the transport documents and can collect their goods. 6At maturity, the buyers go back to their bank and pay the bill of exchange. The money is sent from the collecting bank to the remitting bank and credited to the sellers’ account.

 

 

Terms of shipment

(consignor –грузоотправитель; Consignee -грузополучатель)

Shipment is goods shipped together as part of the same lot; the act of carrying cargo.

three categories:- general cargo – goods sent packed in boxes, cases, chests and other containers; - bulk cargo (навалочный) – large quantities of items, such as sand and coal, when sent unpacked; and - bulky cargo (крупногабаритный) – large quantities of items, such as cars, which have to be sent unpacked.

Advantages and disadvantages. Sea: It is the cheapest form of transport over longer distances. Unlimited distances can be covered and large quantities can be transported. Shipping by sea is the slowest means of transport; it may be subject to delays and weather conditions. Train: All types of cargo can be transported by rail and virtually any distance can be covered; large quantities can be carried. At the same time railways may be affected by strikes and there is a relatively high risk of theft. Road: This means of transport is very fast over short distances. Another advantage is the opportunity of using a grouped consignment service. Only small quantities can be transported and there is a relatively high risk of accidents and delays because of traffic jams. This means of delivery is expensive and time-consuming over longer distances; besides, intercontinental transportation is virtually impossible. Air: Air transportation is fast and secure, which means that insurance costs are low. Moreover, there is no limitation as to distance. Yet, it is relatively expensive, subject to delays and strikes, dependable on weather conditions and virtually not practical for short distances.

World shipping problems and risks. There are two kinds of problems for traders: increasing costs and inefficient services. Freight is just one of the expenses which traders have to cost into the price of the goods to their customers. Increasing freights lead to increasing prices which decrease sales. The second problem is caused by liner companies and ports failing to modernize. Traders have to pay demurrage for the time goods are delayed and their customers may get tired of waiting and buy goods elsewhere. Fast modernization often solves problems of rich countries. However, it sometimes makes more problems for poor countries.

Problems for Traders -world trade recessions, poor port facilities, delayed, containerisation (unemployment) Customers -delays, containerization, monopoly

The Freight Market and Different Types of Chartering

1) The Dry Cargo Market - It is the most diversified market that may be divided into the following markets: bulk and tweendecker, container, ro/ro, liner, feeder and special.

a) The Bulk and Tweendecker Market - The important bulk cargoes are: coal, grain, steel, cement, wood and cars.

b) The Container Market - The market for container ships is limited. They are used in traffic between highly industrialized areas with a technically advanced inland transportation system in both the exporting and the importing areas.

c) The Ro/Ro Market - There are ocean-going ro/ro ships, which can carry all types of commodities (including industrial products, machinery, vehicles, building material, etc.) placed on wheeled platforms or flats which may be handled by the use of fork-lift trucks, and which do not require any port installation other than a stretch of quay with a length equal to the width of the ship, where the ramp can be lowered.

d) The Liner Market - Liner traffic is a firmly controlled activity where remuneration is fixed well in advance.

e) The Feeder Market -Common for ocean liner companies or a forwarding agent or a charterer/shipper who trade with their own products to operate feeder ships, as a part of their transport scheme.

f) Special Markets - Include heavy-lift carriers, barges and pontoons, tugs, barge carriers.

2) The Tanker Market - The tankers – and especially those carrying crude oil. There are also special carriers for liquid chemicals of various kinds. The gas tankers form a special class., 3) The Reefer Market ( refrigerated ships) - Is often used for bananas, fish and meat the year round and citrus and other fruit, vegetables and potatoes – seasonal. The reefer ships may also be used in the dry cargo market to carry cars and tractors and even bagged cargoes, paper or unitised cargoes. 4) The Passenger Market (f e for cruise)

The procedure of chartering a vessel A company wanting to charter a ship will apply to one of the world markets for shipping such as the Baltic Exchange in London. In the Baltic a broker who acts as the charterer’s agent works for the company looking for a ship. His job is to find the right kind of ship at the lowest price possible.The shipowners who want to charter their ships also apply to brokers in the Baltic. The broker’s job is to charter vessels out for their owners at the highest price possible. The shipowners’ brokers and charterers’ agents (who are also brokers) negotiate the price and the terms of the charter. The final price and terms depend on the market.the contract is called a charter party/ If booking of general cargoes is concerned, the written agreement is called a booking note (B/N).

Classifications of Charter Parties The voyage charter means that the owner promises to carry on board a specific ship a particular cargo from one port to another. The time charter is an agreement under which the owner puts the vessel at the disposal of the charterer for a certain period of time and during which the charterer controls the commercial operation of the vessel with crew. The bareboat charter (demise charter) means that the vessel is put at the disposal of the charterer for a certain period of time without crew.

Contract of Affreightment (Контракт о фрахтовании) - Under a contract of affreightment, the owner promises to carry for the charterer during a specified period of time (often one year or several years) a large quantity of goods between certain ports. In order to perform their obligations, the owners may employ several of their vessels on a continuous basis which in its regularity is similar to liner traffic.

Management Agreements - A contract between owners and experts who find employers for the owners of a vessel, for the owners account.

Export documentation

Export documents fall under five main categories: (1) documents of dispatch which are to do with the movement of goods from the exporter inside the country to the docks or airport; (2) shipping documents which concern the movement of goods from one country to another; (3) customs forms connected with clearing goods for customs like customs entry, certificate of quality, certificate of origin or customs invoice, and (4) official invoices which are special documents required by the importing country and have to be prepared by the exporter. Finally, there are (5) bank documents concerned with payment.

Documents of Dispatch 1/ The Standard Shipping Note (SSN)погрузочный ордер is used by the receiving authorities of ports and container bases to control and organize cargo arriving from exporters.2/ The Shipping Instructions Form (SIF) is provided by freight forwarders and shipping agents for exporters to give all the details of the consignments they send.3/ groupage service

The Container Shipping Instruction Form is used for different types of containers and includes the place of acceptance, value of the goods, freight and charges, etc. Some goods can't be stowed like ordinary cargo because they may be dangerous, or they may be extremely valuable, or they may be live animals. Some foods and chemicals have to be refrigerated.4/So for special stowage the exporter must complete an Application for Special Stowage Order Form.

Bill of Lading (B/L) (товарораспорядительный документ, коносамент) is the central document of sea export transaction. It is a receipt for goods signed by the shipping company; it is evidence that the shipping line has received the goods. It is evidence of a contract of carriage between the shipping company and shippers; it documents the shipping line’s promise to hand over the goods to the holder of the B/L at the port of destination; it is a document of title.

Clean B/L means that the goods have been ‘received in apparent good order and condition’.

However, there are also various other types of B/L.

- The received B/ L. This kind of B/L is issued when the goods have been inspected but haven’t yet been loaded onto the ship.  The on-board B/L. This is issued for goods which have already been loaded onto a ship. - The straight B/L. This kind of B/L can’t be negotiated. Only the consignee stated on the B/L can take delivery of the goods. - The order B /L. This B/L can be negotiated by endorsement. Banks usually accept order Bills of Lading. - The through B/L. This kind of B/L is used when the goods are to be transported by more than one carrier. - The container B/L. This is used for the transportation of containerized goods - The groupage B/L. This B/L is used for grouped consignments.

Types of Invoices and Certificate of Origin

Commercial Invoice- (счет фактура)This document contains complete details of the order on the B/L. But it also shows the terms of shipment and payment, the value of the order and details of insurance.

Pro-forma Invoice- (предварит счет фактура)It is not a request for payment. It is a ‘sample’ invoice, which may be issued when the buyer has requested a quotation; when the seller sends the buyer goods on approval; or if the goods are to be sold by an agent, in which case the agent will need a pro-forma invoice in order to be able to fix their own prices.

Customs Invoice- It is a special invoice for the customs authorities of the importing country. This invoice is very similar to the commercial invoice, but requires additional information such as the domestic value and export price of the goods.

Consular Invoice- Certain countries, notably those in South America, may insist on a consular invoice as evidence that the goods being imported are not over-priced.

Certificate of Origin- The certificate of origin is issued by the Chamber of Commerce as proof of where the goods were produced.

 

 

ROLE OF GOVERNMENT.

A government is a body that has the authority to make and the power to enforce laws within a civil, corporate, religious, academic, or other organization or group. Authority is the ability to compel obedience that is to make people obey the government(direct physical duress, threats, exile, religious banishment, social banishment). Legitimacy is the attribute of a government that prompts the governed to acquiesce willingly to its authority.

Branches of government:Legislative (the power to make laws)Executive (the power to implement laws) Judiciary (the power to judge and apply punishment when laws are broken).

Forms of government- t hey are traditionally classified according to the number of people who hold political power:

■ Autocracies are governments where one individual ultimately holds all power. This category includes absolute monarchies as well as republican dictatorships with an all-powerful president or other central figure.

■ Oligarchies are governments where political power is held by a small group of individuals who share similar interests with each other. A common type of oligarchy is plutocracy, where the small group of powerful individuals is composed of the wealthiest members of society.

■ Democracies are governments where the people as a whole - not just some of them - hold political power. There are two major kinds of democracy:

Representative democracy, where the people elect representatives every few years to make governmental decisions on their behalf. This is the dominant form of government in the world today.

Direct democracy, where the people vote on governmental decisions directly.

Reasons for government to exist 1) Self interest says that government originated from the authority of warlords and petty despots who took, by force, certain patches of land as their own (and began exercising authority over the people living on that land). Thus, it is argued that governments exist to enforce the will of the strong and oppress the weak, maintaining and protecting class antagonisms. 2) Order and tradition -the government as a positive force that brings order out of chaos, establishes laws to end the "war of all against all", encourages moral virtue while punishing vice, and respects tradition. 3) Natural rights -a right to life, liberty, property and/or the pursuit of happiness. 4) Social contract -governments are created by the people in order to provide for collective needs (such as safety from crime, poverty, illiteracy) that cannot be properly satisfied using purely individual means.

There are four measures of government spending as a percentage of national income: spending on the direct provision of goods and services for the public, transfer payments, interest on the national debt, and total spending.

In every society the primary function of any government is provision of some important services such as national defense, police, public education, firefighting services and the administration of justice. The next significant function is making transfer payments through the budget to some members of society. Transfer payments are payments made to individuals without requiring the provision of any service in return, examples are social security, retirement pensions, unemployment benefits, and, in some countries, food stamps. The next but not the less important function of any government is to regulate industries that means to affect what, for whom and how to produce. Governments directly affect what is produced by spending part of their revenue on particular goods and services such as tanks, schools and public safety. They also affect for whom output is produced through their tax and transfer payments. By taxing rich and making transfers to the poor, the government ensures that the poor are allocated more of what is produced and the rich get correspondingly less. Another aspect is how goods are produced through the regulations imposes for an example. Managers of factories and mines must keep to safety requirements even where are costly to implement, firms are prevented from freely polluting the atmosphere and rivers, offices and factories are banned in attractive residential parts of the city. And, ultimately, the last function of a government is to control the activities of the society. It seems evident that high tax rates reduce the motivation to work. If half of all we earn goes to the government, we would better prefer to work fewer hours a week.

One of the well-known American economists, John Kenneth Galbraith says that good society is able to develop only through regulating such fields as good low cost housing, parks and recreational facilities, libraries, the arts, the sciences, medical research including, as the market system invests for relatively short-run return. Necessary also is investment and regulation in the longer-run interest of the environment. The good society protects and improves life in its planetary dimension. People with left-wing views argue that those who attack the services of the state are usually those who can afford to provide similar services for themselves. Milton Friedman People with right-wing views, on the contrary, generally consider that many of these activities can be left to private enterprise and the market system, and the role of government should perhaps be restricted to activities such as defense, the police, and the justice system. They argue that too much regulation is bad for business and leads to inefficiency. An essential part of economic freedom is freedom to choose how to use our income: how much to spend on ourselves and on what items; how much to save and in what form; how much to give away and to whom. Currently, more than 40% of our income is disposed of on our behalf by government at federal, state and local levels combined.