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: , , , , , , , , , , , , , , , , , , , , , , — 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.

March 4, 2010

A-Z of Terms – D

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From International Trade Financial Solutions.

Discount: Defined here in relation to the discounting of Commercial Paper – typically Bills of Exchange. Where a future dated Bill of Exchange has been accepted by the drawee [the one who's due to pay - see below], it may be possible to discount the Bill. A Discount House [or bank] may agree to advance the bulk of the face value of the bill, thus helping your cashflow. Discounting can be with or without recourse [see Recourse, later on]. Usually only bank endorsed bills will be discounted without recourse [except for some specific agreements - usually restricted to larger, multi-national
businesses].

Drawee: The party on whom a Bill of Exchange is drawn, i.e. the one who is buying and has to make payment.

Drawer: The party who draws up the Bill of Exchange – the seller.

Drawing: In terms of Letters of Credit, a drawing is the presentation of documents for payment/acceptance under the Credit. Depending on the terms of the Credit, a drawing may be for part or the whole of the value of the Credit.

Due Date: The date on which payment of an accepted Bill of Exchange or a drawing under a deferred Letter of Credit becomes due. [A deferred Letter of Credit is one where there is a credit period between presentation of documents and payment, but no Bill of Exchange has been called for].

Duty: Import Duty may have to be paid on certain imports into the UK. Generally, there is no duty on goods that are already in free circulation within the EU. For goods imported from outside the EU, rates depend on product and Country of Origin. Duty rates are always based on the CIF value of the goods [regardless of which Incoterm was actually used for the contract] and VAT is added to the CIF value. Care, rates can and do change regularly and at short notice. Customs Duty is different, and applies to specific goods irrespective of their origin, for example, cigarettes, alcohol, etc. coming into the UK. For both types, it is usual
to have to pay the relevant duty amount to HMRC before goods are released [but see Duty Deferment below].

Duty Deferment: For regular importers, it may be possible to obtain a Duty Deferment bond from your bank and lodge this with HMRC. The effect of such a bond is that goods are released quicker and you pay the duty in arrears. There is a cost insofar as the bank will view this as a contingent liability and may require security and will almost certainly charge you for its issuance. Also, the bond must cover an average 2 month’s value of imports.

March 3, 2010

A-Z of Terms – C

Filed under: A-Z of International Trade Terms, Business, International Trade, International Trade Financial Solutions — Tags: , , , , , , , , , , , , , , , , , , , , , — sheriegriffiths.com @ 10:17 am

From International Trade Financial Solutions.

CMR – Convention Merchandises Routiers: These are the conditions for the international movement of goods by road.

Collections: Again, held over from Issue 10. A bank collection is the collection of trade debts through the banking system whereby documents relating to the shipment of goods are passed through the banking system and exchanged either for payment or an acknowledgement of acceptance [usually by means of a Bill of Exchange] for payment at a fixed future date. Both buyer and seller must agree to this course of action at the start and, unlike Letters of Credit, there is no undertaking by the bank to pay. It is generally felt that this is a more secure method than open account trading.

Confirmed Letter of Credit: I will cover this when we look at Letters of Credit, later in the series.

Consignee: The party to whom goods are sent.

Consignor: Also known as the shipper; the party despatching the goods.

Consignment (1): The underlying goods sent by the consignor to the consignee.

Consignment (2): Care – if goods are exported subject to consignment, the exporter will only receive payment on completed sales. Any unsold may be returned to the seller, at the seller’s expense. Can be high risk and expensive.

Containerisation: The use of sealed containers into which goods are packed for shipment.

Convertible Currency: A currency that can be freely bought and sold for other currencies at will, e.g. Sterling, US Dollar, Euro, etc. Exporters must ensure that payment for their goods will be in a freely convertible currency. Note, however, that this may not necessarily mean that funds will be immediately available, if the country concerned still uses exchange control.

Correspondent Bank: A bank that operates in its own Country the business of a foreign bank.

CPT Incoterm: Carriage Paid To [named place]. The seller clears the goods for export and pays for delivery to a named place. The goods are deemed to have been delivered, and the responsibility for them passes to the buyer, once they have been taken by the seller’s carrier.

Customs: Generic term for HMRC. Whether you are importing or exporting, you must follow HMRC regulations, which are complex and detailed. If you use a freight forwarder or shipping agent, they can undertake much of the customs procedures on your behalf but, like tax returns, you are still ultimately liable for the accuracy, etc. of all declarations.

Customs Commodity Code: Also known as CN Code. An 8 digit code required for all goods to be exported outside the EU. Imports from outside the EU have a 10 digit code. These must be entered on the relevant documentation and are available from HMRC via their publication known as The Tariff.

June 17, 2009

Glossary of International Trade Terms – A

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As promised yesterday, here’s more from the latest newsletter from Ray at International Trade Financial Solutions – http://www.inttradefinsolns.co.uk.

 

Today, Ray starts his glossary of common international trading terms.

 

Over the course of the next few issues, I thought that it may be useful to include some of the terms that are often seen in International Trade and a brief explanation.  I cannot promise to include every one – we’d be here for ages but I will try to incorporate some that, from personal experience, I know have caught out both importers and exporters.  I’ll also try to keep things alphabetical, so if anyone wants help on a particular term or expression and I have passed that point in the alphabet, let me know, and I’ll include it in the next available newsletter.

Here goes…..

 

A.

 

Acceptance.

(See yesterday’s post). When applied to Bills of Exchange, it is the act of the buyer [the Drawee] accepting  that the amount quoted on the bill is correct and is a valid sum due from them to the Drawer.  Acceptance is achieved by signing the bill - usually in the form ‘Accepted, for and on behalf of XYZ Ltd, [plus signature & designation]‘.

 

Accepting Bank.

The bank specifically mentioned in a Letter of Credit as being the one upon whom any required  Bill of Exchange is to be drawn.

 

Ad valorem.

Literally, according to value.  Included here since some banks still levy a sliding scale of charges [ad valorem] to some of their International services.  Also important to be aware of minimum/maximum fee levels when comparing the offers of different providers.

 

Advising Bank.

Within the confines of Letter of Credit operations, a  bank, located in the exporter’s Country that handles the Letter of Credit, advising it to the exporter.  Should future

amendments, etc. be needed, these will also usually come through the advising bank.  Note, however, that the advising bank is not necessarily responsible for payment

nor may you be limited to only dealing with this bank when you come to present documents and seek payment.

 

AirWay bill. 

The shipping document used when goods are transported by air.  Unlike a Bill of Lading, it is not a document of title.  AWB’s are issued in multiple copies; it is usually copy 3 that is the one passed to the buyer and which he or his agent needs to present to obtain the goods in the destination Country.

 

Aval, avalisation.

Applies to Bills of Exchange.  Unlike cheques, which are a form of Bill of Exchange, all parties to a Bill have to sign/endorse the Bill.  Where someone whose name does not appear on a bill signs it, they are said to have added their aval or avalised it.  The effect of doing this makes then liable should the bill be unpaid by the other parties.  Often requested of banks by holders of the bill.  A bank avalised bill is almost as good as cash and can be sold to obtain funds and help cashflow.  Often overlooked by sellers.

 

OK, that’s enough.  B’s next time……..

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