Incoterms | Sherie Griffiths

March 26, 2010

Glossary of Terms – The F’s

Filed under: A-Z of International Trade Terms, Business, International Trade, International Trade Financial Solutions — Tags: Container Load, Crane, Dockside, Fiata, Financial Solutions, Foreign Currency, Free Alongside Ship, Free Carrier, Freight Forwarders Association, Glossary Of Terms, Incoterm, Incoterms, Independent Organisation, International Federation, International Trade, Letter Of Credit, Old Habits, Premises, Ray Stannard, Shipper, Shipping Costs, Transport Document, Unfortunate Choice — sheriegriffiths.com @ 12:14 pm

From Ray Stannard, International Trade Financial Solutions.

The title of this post might be an unfortunate choice, but consistency is everything. Good news re Incoterms – after ‘F’, there are no more! As a result, I think we’ll start getting through letters more quickly.

FAS Incoterm

Free Alongside Ship [named port]. The seller clears the goods for export and delivers them the relevant ship at a named port. Thereafter, the buyer is responsible for the goods.

FCA Incoterm

Free Carrier. Similar, but different, to FAS. Again, the seller is responsible for the goods up to a location named by the buyer. This could be the seller’s premises, or those of a carrier/forwarder. If the term is FCA Seller’s Premises, the seller is only responsible for the loading of the goods; however, FCA Named Place means that the seller is also responsible for the inland freight to that named place.

FCL

Full Container Load. This is NOT an Incoterm. This is where a container is used exclusively by one shipper. Exclusive use, if you can fill the container, can result in lower shipping costs.

FCR

Forwarder’s Certificate of Receipt. This is a document issued by the Freight Forwarders nominated by the buyer to collect goods from the seller which confirms the receipt of goods in its custody. An FCR can replace the transport document under a Letter of Credit, but only if it is specifically mentioned as the acceptable document evidencing transport.

FIATA

The International Federation of Freight Forwarders Association. FIATA is an independent organisation which represents many [but not all] freight forwarders in many countries throughout the world.

FOB Incoterm

Free on Board. Probably one of the most well known of the Incoterms and, technically, the most mis-used, since title passes when the goods pass over the ship’s rail. FOB was designed in pre containerisation days, when goods were lifted by crane at the dockside. Technically, FCA should be used for containerised shipments, but old habits are hard to break….

Foreign Currency Accounts

The holding of an account in any currency other than Sterling. Normally used where a business either has 2 way currency flows and/or operates a foreign exchange policy, grouping several invoices before conversion to another currency. The possible downside of operation such accounts can be on cashflow insofar as funds ‘may be in the wrong currency’.

Foreign Exchange Risk

Anyone who trades in a foreign currency will have a degree of Foreign Exchange risk. The risk is caused by the minute by minute fluctuations in exchange rates. An appreciationof this risk and understanding of what steps can be taken to mitigate this risk isa vital tool for anyone who wants a successful overseas trading strategy [buying or selling].

Forwarding Agent

Often used by smaller businesses to clear customs for goods coming into the UK from outside the EU.

Forward Contracts

Used as part of the strategy to mitigate against adverse movements in exchange rates; an example of a widely available tool to manage foreign exchange risk [see above]. You agree to buy/sell a specific amount of currency at either a fixed future date or between a range of dates, agreeing the rate today.

Free Circulation

Goods that are already in circulation within the EU, having either previously entered into the EU, with all relevant duty paid, or having originated in the EU. In the eyes of HMRC, goods in free circulation are not classified as imports or exports.

Free Trade Zone

A designated port/area in a Country where duty free import of non prohibited goods is permitted. Often seen in developing countries to attract business and inward investment.

Freight Forwarder

A freight forwarder will look after the shipment of goods between seller and buyer, taking care of the freight, customs clearance, insurance, etc. Many freight forwarders specialise in certain parts of the world, so it’s important to ensure that you use one with suitable knowledge and understanding of the Countries/regions in which you trade.

Sorry for a slightly long section, but on to G’s [and more?] next month.

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October 23, 2009

“Glossary of Terms – The C’s [and an 'I]“

Filed under: Uncategorised — Tags: Alphabetical Order, Cash Advance, Cash In Advance, Cia, Correct Position, Countries, Country Of Origin, Demonstration Purposes, Glossary Of Terms, Gsp, Heading, Importers, Incoterms, Insurance, Insurance Cover, Latter Course, Letter C, Origin C, Preferential Rates, Temporary Import — sheriegriffiths.com @ 10:10 am

After last month’s rest, let’s get back to looking at some of the more common terms frequently encountered when buying and selling overseas. With the letter ‘C’, we encounter some of our first Incoterms and here I have a problem. Incoterms come under ‘I’, but all 13 of them start with a letter that precedes ‘I’. So, either I list all 13 in their correct position and keep everyone waiting until we get to the letter ‘I’ or go out of order. As you can tell from the heading above, I think the latter course makes most sense. I just need to remember, when we do reach the letter ‘I’ that Incoterms have already been covered. There are many terms that start
with C, so I’ll spread them over the next 2 issues.

C. Carnet. This usually allows the temporary import of goods for display or for demonstration purposes only without having to pay duty. It does not apply to every
Country, and different rules apply, so you do need to enquire for any specific country in which you are interested.

CIA. Cash in Advance, i.e. paying up front. For exports, this means paying before the goods leave the Country.

CWO. Cash with Order, i.e. the payment accompanies the order. Note that the transaction is binding on both parties. CIA and CWO are similar, but do have differences. Note also that these are NOT Incoterms [see below].

Certificate of ….. There are many documents often called for or needed when moving goods between countries, e.g. Cert. of Origin, Inspection Cert., Insurance Cert., etc. I’ll cover the more common ones under their correct alphabetical order.

Cert. of Manufacture. Does what it says. Completed/prepared by the seller and often notarised.

Cert. of Origin [C/O]. A statement showing the origin of the goods. Many countries demand these – for importers, the amount of duty due may depend on the country of origin. Some countieshave lower duties [preferential rates]. If you are importing from one of these you may need a GSP C/O.
For exporters, you need to see what your destination country wants and, if necessary arrange for a C/O through your local Chamber of Commerce, many of whom can also arrange certification, if needed.

Now, to the one out of order, the I.

Incoterms: This stands for International Commercial Terms and is, broadly speaking, the terms of shipment. They set out the delivery terms of the underlying goods and are recognised internationally. There are 13 terms, split into 4 categories and each one will state which party [buyer/seller] is responsible for the goods at every stage of the shipment. Each Incoterm is identified by a 3 letter code and I will include each in the relevant part of this glossary, albeit that there are probably only 4 or 5 which are seen on a regular basis. Whenever you trade internationally, you MUST use one of the recognised Incoterms. To do otherwise will land you in all sorts of problems and disputes if anything goes wrong.

OK, back to the C’s.

CFR [or C&F]. Incoterm – Cost and Freight. Under CFR terms, the seller is responsible for clearing the goods for export and for all carriage costs associated in getting the goods to the port in the destination country. The buyer is responsible for all risks [and costs] after delivery, which occurs when the goods pass over the ship’s rail in the port of shipment. This is still a regularly seen Incoterm, although it should not be applied to containerised traffic; CPT should be used instead.

CIF. Incoterm. Cost Insurance and Freight. Similar to CFR except that the seller is responsible for the cost of insuring the goods between shipment and destination ports. Again, delivery occurs when the goods cross the ship’s rail in the port of shipment. Also, like CFR, CIF is commonly seen and is not suited to containerised transport; CIP should be used.

CIP. Incoterm. Carriage and Insurance paid to [named place]. Developed for container traffic where delivery typically takes place at a container terminal, which may be miles away from a port. Delivery is made when the seller delivers the goods to his carrier, after which the buyer assumes all responsibility, except for the insurance
of the goods, which remains the seller’s responsibility.

More C’s next month.

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