Seminar Import/ Export Trade/ Transportation Speaker: Richard Tang of Universal Bridge Cargo

Introduction Import/ Export in Canada Sales Process/ Documentation requirements Incoterms 1990 Payment Methods Payment: Documentary Collections and Letter of Credit Insurance and Claim The role of the Carrier/ Freight Forwarder/ Customs Broker& Sufferance Warehouse including logistic

Player in the field Depending on the size of the organization, there may be several departments within the exporter’s own shop to handle various processes Marketing (Selling Process) Traffic (Shipping/ Documentation) Finance (Payment Process)

The Seller Must The Buyer Must A1 Provision of goods in conformity within the contract A2 Licenses, authorizations and formalities A3 Contract of carriage & insurance A4 Delivery A5 Transfer of risks A6 Division of costs A7 Notice to the buyer A8 Proof of delivery, transport document or equivalent electronic message A9 Checking /packaging/ marking A10 Other obligations B1 Payment of the price B2 Licenses, authorizations, and formalities B3 Contracts of carriage B4 Taking delivery B5 Transfer of risks B6 Division of costs B7 Notice to the seller B8 Proof of delivery, transport document or equivalent electronic message B9 Inspection of goods B10 Other obligations To facilitate the interpretation of the 13 trade terms, the ICC has grouped them into 4 distinctive categories. The first letter of each indicates the group to which the term belongs.

Role of Documents Document Reason Contracts - Purchase order - Pro-forms Invoice - Sales Contract Shipping and Insurance Documents - Bills of lading - Inspection Certificate - Marine Insurance Certificate - Health/ Analysis Certificate - Weight & Packing List - Certificate of Origin Letters of Credits - Documentary Collections Export Declaration Form B13 - Canada Customs Invoice CCI Canada Customs Coding Form B3 Many forms are necessary depending on the product and the country of destination To avoid misunderstandings To ensure trust between buyer and seller To obtain payment and finance To fulfill Canadian government requirements Statistics (Balance of trade) Assessment/ Collection of duty taxes and fees Import/ Export Control

Purchase order

2. Pro-forma Invoices

3. Sales Contracts

INCOTERMS 1990 Ocean FAS FOB CFR CIF DES DEQ EXW FCA CPT CIP DAF DDU DDP Multimodal Groups E, F, and C terms details the terms of shipment while group D sets out the terms of arrival

INCOTERMS 1990 FCA CUSTOMS CUSTOMS EXW FCA FCA FAS DES DEQ DEQ DDP FOB (DP) DDU CIF/CFR (RISK) CIF/CFR (COST) CPT/CIP (RISK) DAF CPT/CIP (HOST) In the past, some of the ocean terms, specially FOB, CFR, and CIF were used incorrectly to denote a certain mode of transportation. In contrast, Incoterms 1990 clearly indicates which terms should be used exclusively for sea and inland waterway and which terms should be used for Multimodal transport. All ocean terms make specific reference to “ship”, “ship’s rail”, “port of departure”, “port of destination” or even a “quay”. Since the transfer of risks and/or costs are based on those critical ports, it is understood why these should be used only when sending shipment by ocean (sea or inland waterway). Multimodal terms can be used by and mode of transportation including ocean. While the ocean terms FAS, FOB, CFR, and CIF are appropriate when the goods must cross the ship’s rail, FCA, CPT, and CIP should be used when the goods are delivered to the carrier at any point other than the ship’s side.

S B S B S B S B Grouping of the Terms Group E Departure EXW Ex Works c/r contracts &pays Group F Main carriage unpaid FCA Free carrier FAS Free Alongside Ship FOB Free on Board S B delivers c/r CFR Cost and Freight CIF Cost, Insurance and Freight CPT Carriage Paid to CIP Carriage and Insurance paid to Group C Main carriage paid S B delivers &contracts r pays transportation c DAF Delivered At Frontier DES Delivered Ex Ship DEQ Delivered Ex Quay DDU Delivered Duty Unpaid DDP Delivered Duty Paid Group D Arrival S B delivers c/r c = cost, r = risk, s = seller, b = buyer

Shipment Contracts INCOTERMS Shipment Contracts Multimodal Land Air Ocean Named Port FCA RISK COST FCA RISK COST FCA RISK COST FOB RISK COST CFR CIF RISK COST CPT CIP RISK COST The shipment contracts sets out seller’s responsibility to deliver the cargo in good condition into the custody of the named carrier. Under the F terms (FCA, FAS and FOB) the transfer of costs and risks takes place simultaneously when the seller delivers the shipment to the carrier and obtains in exchange a clean receipt. Under the C terms (CFR, CIF, CPT, and CIP), the risks of loss or damage to the goods will pass from the seller to the buyer at the point of delivery

Arrival Contract DAF DES DEQ DDU DDP INCOTERMS 1990 Arrival Contracts U.S.A MEXICO DAF RISK COST DES RISK COST DEQ RISK COST DDU DDP RISK COST The arrival contract commits the seller to be responsible for the goods in transit until they reach the named point of destination.

Ocean vs. Multimodal terms INCOTERMS 1990 Ocean vs. Multimodal terms Ocean RISK COST FOB CFR CIF RISK COST Multimodal RISK COST FCA RISK COST FCA The above chart compare the critical points (i.e. points at which the transfer of cost & risk takes place) under both ocean and multimodal terms.

Liner vs. FIO Terms INCOTERMS Liner vs. FIO Terms Loading Unloading Liner Buyer Buyer FOB FIO Seller Buyer Liner Buyer Buyer CIF FIO Seller Negotiable Liner FIO Stevedoring charges always Cost of loading/ unloading FIO: Free in-out The ocean terms FOB, CFR and CIF Cam be modified by adding “liner terms” of “FIO clause”. Depending upon which one is used, either the buyer of the seller had to pay the cost of loading and/or unloading.

EXW - Ex Works Seller’s primary duties Buyer’s primary duties INCOTERMS – EX Works (… named place) EXW CUSTOMS CUSTOMS Seller’s cost > Buyer’s cost Seller’s risk > Buyer’s risk Seller’s primary duties 1- To make the goods available at his or her premises Buyer’s primary duties 1- To take delivery of the goods as soon as they have been placed at his disposal 2- To bear all costs and risks required to bring the goods to final destination

FCA - Free Carrier Seller’s primary duties Buyer’s primary duties INCOTERMS – Free Carrier .. (named point) FCA CUSTOMS CUSTOMS Seller’s cost > Negotiable * > Buyer’s cost Seller’s risk > Negotiable* > Buyer’s risk Seller’s primary duties 1- Deliver the goods into the custody of the carrier named by the buyer 2- Provide export license, pay export taxes/fees if required 3- Provide evidence of delivery of the goods to the carrier Buyer’s primary duties 1- Nominate carrier 2- Contract for the carriage and pay the freight (*) Transfer of cost & risk will depend on the named point

FAS - Free alongside ship INCOTERMS – FAS (Free alongside ship, named port of shipment) FAS Export customs CUSTOMS Seller’s cost > Buyer’s cost Seller’s risk > Buyer’s risk Seller’s primary duties 1- Deliver the goods alongside ship 2- Provide an ‘alongside’ receipt Buyer’s primary duties 1- Nominate carrier 2- Contract for the carriage and pay the freight 3- Obtain export license, pay export taxes if required

FOB - Free on board Seller’s primary duties Buyer’s primary duties INCOTERMS – FOB (Free on board) FOB CUSTOMS CUSTOMS Seller’s cost > Buyer’s cost Seller’s cost > Buyer’s cost Seller’s primary duties 1- Deliver the goods on board 2- provide export license, pay taxes/fees if required 3- Provide a ‘clean non board’ receipt 4- Pay loading, if not included in the freight Buyer’s primary duties 1- Nominate carrier 2- Contract for the carriage and pay the freight

CIF - Cost, Insurance & Freight INCOTERMS - CIF (Cost, Insurance & Freight) CIF CUSTOMS CUSTOMS Seller’s cost > Buyer’s cost Seller’s risk > Buyer’s risk Seller’s primary duties 1- Contract for carriage, pay for loading, freight, export taxes/fees and unloading if included in freight 2- Provide buyer with invoice and B/L 3- Insure goods and pay premium Buyer’s primary duties 1- Accept goods, invoice and B/L 2- Pay unloading costs if not included in the freight 3- Accept insurance when tendered

CFR- Cost & Freight Seller’s primary duties Buyer’s Primary duties CFR Incoterms- CFR (Cost & Freight) CUSTOMS CUSTOMS Seller’s cost > Buyer’s cost Seller’s risk > Buyer’s risk Seller’s primary duties 1 - Contract for carriage, pay for loading, freight, export taxes/fees and unloading if included in freight 2 - Provide buyer with invoice and B/L Buyer’s Primary duties 1- Accept goods, invoice and B/L 2- Pay unloading costs, if not included in the freight

CPT - Carriage paid to Seller’s primary duties Buyer’s primary duties INCOTERMS - Carriage paid to (…names place of destination) CPT CUSTOMS CUSTOMS Seller’s cost > Buyer’s cost Seller’s risk > Negotiable > Buyer’s risk Seller’s primary duties 1- Contract for carriage and pay freight to destination 2- Deliver goods into custody of first carrier 3- Obtain export license, pay export taxes/fees if required 4- Give buyer invoice and the usual transport documents Buyer’s primary duties 1- Accept deliver of goods when they are delivered to first carrier and when the invoice and transport documents are tendered to him

CIP - Carriage Insurance Paid to (Port) INCOTERMS – Carriage/insurance paid to CIP CUSTOMS CUSTOMS Seller’s cost > Buyer’s cost Seller’s risk > Negotiable > Buyer’s risk Seller’s primary duties 1- Contract for carriage, pay freight to destination 2- Deliver goods to first carrier 3- Obtain insurance and may premiums 4- Obtain export license, pay export tax/fee if required 5- Give buyer invoice and transport documents Buyer’s primary duties 1- Accept delivery of goods when delivered to first carrier 2- Accept invoices, insurance and transport documents

DAF - Delivered at frontier (…named place) INCOTERMS – Delivered at frontier DAF U.S.A MEXICO Laredo Seller’s cost > Buyer’s cost Seller’s risk > Buyer’s risk Seller’s primary duties 1- Deliver goods cleared for export to named frontier 2- Provide document to enable the buyer to take delivery Buyer’s primary duties 1- Takes delivery of goods at frontier 2- Pay for on- carriage and import duties/taxes if required

DES - Delivered Ex Ship Seller’s primary duties Buyer’s primary duties INCOTERMS – Delivered Ex Quay (Duty Paid) DEQ CUSTOMS CUSTOMS Seller’s cost > Buyer’s cost Seller’s risk > Buyer’s risk Seller’s primary duties 1- Deliver goods on the quay at the port of destination 2- Pay unloading costs, duties if required and provide B/L 3- Provide import clearance Buyer’s primary duties 1- Take delivery of the goods from the quay at the port of destination

DEQ - Delivered Ex Quay Seller’s primary duties Buyer’s primary duties INCOTERMS – Delivered Ex Quay (Duty Paid) DEQ CUSTOMS CUSTOMS Seller’s cost > Buyer’s cost Seller’s risk > Buyer’s risk Seller’s primary duties 1- Deliver goods on quay at the port of destination 2- Pay unloading costs, duties if required and provide B/L 3- Provide import clearance Buyer’s primary duties 1- Take delivery of the goods from the quay at the port of destination

DDU - Delivered Duty Paid INCOTERMS – Delivered Duty Unpaid DDU CUSTOMS CUSTOMS Seller’s cost > Buyer’s cost Seller’s risk > Buyer’s risk Seller’s primary duties 1- Delivered the goods to the named place of destination 2- Provide buyer with all shipping documents Buyer’s primary duties 1- Take delivery of the goods at the named place of destination 2- Pay import duties/taxes if required

DDP - Delivered Duty Paid INCOTERMS- Delivered Ex Ship DDP CUSTOMS CUSTOMS Seller’s cost > Buyer’s cost Seller’s risk > Buyer’s risk Seller’s primary duties 1- Deliver the goods to the named place of destination 2- Pay import duties/taxes if required 3- Provide buyer with all shipping documents Buyer’s primary duties 1- Take delivery of the goods at the named place of destination

Methods of Payment Open Account – Flow chart Exporter Importer 1- Sales contract 2- Shipment 3- Documents 4- Payment

Methods of Payment Pre-payment – Flowchart Exporter Importer 1- Sales Contract 2- Payment 3- Shipment 4- Documents

Methods of Payment Methods of Payment E I E I E I E I B B B B Open Account Prepayment 1- Shipment 1- Payment Contract of TRUST E I E I 2- Payment 2- Shipment Documentary Collections Documentary Credit E 1- Shipment I E 1- Shipment I Contract for DOCUMENTS 2- Docs 2- Docs B B B B 3- Payment 3- Payment E – Exporter I – Importer B - Bank Methods of Payment Influencing factors A- Degree of confidence between seller and buyer B- Respective bargaining powers and financial standing of the parties C- Magnitude and duration of the transaction itself D- Political, economical and financial standing of both the seller’s and buyer’s countries E- Foreign exchange control in buyer’s country

Parties to a collection Importer Drawee Accepter Buyer Exporter Drawer Principal Remitter Seller Remitting bank (usually seller’s bank Presenting bank (usually buyer’s bank Foreign Documentary Collections Routing of Documents/Payments Exporter Importer Bank Branch Bank Branch Bank’s head office Int’l Service Center Bank’s head office Int’l Service Center Documentary Collections Documentary Credits Documentary Collections Documentary Credits Imp Exp Imp Exp Imp Exp Imp Exp Documents Payments

Documentary Collections Flow chart Exporter Importer Scrimson Sales Canadian Export Inc. 1- Contract 2- Shipment of goods 8- Payment 3- Collection order 6- Payment 5- Collection 4- Remittance of collection order 7- Payment Bank of Montreal Barclays Bank Documentary Credit Flow chart Scrimson Sales Canadian Export Inc. 1- Goods 4- Documents 7- Payment 5- Payment 2- Documents 3- Documents Bank of Montreal Barclays Bank

Accelerated Documentary Collection System (direct Collection System) Exporter Importer Canadian Export Inc. Scrimson Sales 1- Contract 2- Shipment 4- Collection 7- Payment or advice of acceptance 3- Collection order 5- Payment/ acceptance 6- Payment or acceptance Bank of Montreal Barclays bank

Bank’s liabilities and responsibilities Documentary Collection – Points to observe Seller 1- Credit standing and trustworthiness of the buyer 2- Previous business experience with the buyer’s country 3- Political, economical and legal situation in the importing country 4- Exchange control and import restrictions in the importing country 5- The possibility of retrieving the goods or of finding a new customer in the event of the non-acceptance or non-payment. If so, at what cost? Documentary Collection – Points to observe Buyer 1- The drawee is entitled to examine the document at the collecting bank prior to making payment 2- Prior inspection or examination of the goods is not permissible without special authorization from the principle Foreign Documentary Collection Bank’s liabilities and responsibilities Act in good faith and exercise reasonable care Control and ensure the safety of documents Follow exactly the safety of documents Act promptly in executing instructions Verify that the documents received appear to be as listed- Banks have no further obligation to examine the documents

Transfer of risk, Cost and Ownership Payment Terms : collection at sight through Barclay’s Bank Terms of Sale : CIF Liverpool BANK OWNERSHIP COST RISK Transfer of risk, Cost and Ownership Terms of Payment: Irrevocable L/C 30 Days Date Terms of Sale : FCA Toronto Airport Toronto Airport Cost and Risk Issuing Bank Exporter Ownership

Transfer of Risk, Cost and Ownership Payment Terms : confirmed irrevocable L/C at sight Terms of Sale : CIF Liverpool BANK COST OWNERSIHP RISK Transfer of Risk, Cost and Ownership Payment Terms : Irrevocable L/C at sight Terms of Sale : CIF New York Buyer Cost Issuing Bank Exporter Ownership NEWYORK Risk 1st Carrier

Parties to a Letter of Credit Documentary Credit A Documentary Credit is a letter of advice *Issued by a Bank at the request of his customer The addressee of this letter can obtain a sum of money, provided he complies to the letter with the terms and conditions of the credit Parties to a Letter of Credit Importer APPLICANT Exporter BENEFICIARY 1- Contract 4- Advice 2- Application Correspondent Bank ADVISING BANK Buyer’s Bank Issuing Bank 3- Credit

How to Issue a Letter of Credit Summary of procedures Exporter Importer Canadian Export Inc. Scrimson Sales 1- Sales Contract 5- Shipment 2- Credit application 7- Exporter paid 4- Credit advised/confirmed 10- Document released 11- Issuing Bank paid 6- Documents presented 3- Request to advise/confirm 8- Documents mailed 9- Bank of Montreal paid Bank of Montreal Barclays Bank How to Issue a Letter of Credit Exporter Importer Bank Branch Ban’s head office Int’l Service Center Ban’s head office Int’l Service Center Documentary Collections Documentary Collections Documentary Collections Documentary Collections Imp Exp Imp Exp Imp Exp Imp Exp

Arrangements between bank International Center Local Bank Issuing Bank authorized signature Test key SWIFT (Society for worldwide Interbank Financial Telecommunication) Local Bank Branch Correspondent * Foreign Bank Advising Bank * May or may not carry an account/line of credit in the other bank’s currency

Steps to follow when issuing an L/C to ensure that applicant promise to repay the issuing bank to set down detailed instructions that must be followed Purpose of application (buyer to issuing bank) Types of Documentary Credits Revocable unconfirmed Irrevocable confirmed

Items an L/C must contain Full name & address of the beneficiary Amount and currency Type of Credit: revocable, irrevocable, irrevocable confirm Credit available by: payment (sight draft), acceptance (term draft), negotiable (draft at sight or tenor) Party on whom drafts, if any, are to be drawn and the tenor of such drafts Complete description of goods Freight prepaid or collect Details of the documents required (i.e. if legalized, if certificate of origin certified by the C. of C. etc.) Transshipment allowed or not Partial shipments allowed or not Latest shipment date Period of the time after the date of issue of the transport document, during which presentation of documents must (if not stipulated, the beneficiary has 21 days after issuance of the transport document, but no later that the expiry date.) Date and place of the expiry of the credit Whether the credit is ‘transferable’ How the credit is to be advised (mail, cable, etc.)

Letter of Credit Format Beneficiary/Toronto Exporters Inc. Applicant Nippon Importers Ltd. OR Advice of Credit Issuing Bank ABC Bank Advising Bank XYZ Bank OR Documentary Credit Expiry Date and Presentation of Documents Beneficiary Applicant 2 – Latest shipment date “Bills of lading dated not later than…” 3 - Specific Number of days given for presentation of documents “Documents must be presented for negotiation not later than…days after Bill of Lading date.” Advising Bank 4 – Expiry date “Expiry date in the beneficiary’s country for negotiation…” Issuing Bank 5 – Date of issuance “All documents must show this L/C No. and date…”

Discrepancies most frequently found in the Commercial invoice merchandise description not exactly as indicated in the L/C - terms of delivery - quantity of goods - total amount of money - unit price / currency - breakdown of charges - signatures / legalization - number of copies - used / second hand / rebuilt - other instructions

Export Documentary Credit in SWIFT Format

Section 17(1) Bills of Exchange Act

Selected Bank Terms - Bank acceptance -Trade acceptance - Acceptor - Avail - Bill discounted - Days of grace - Dishonour - Past due bill - Protest - Stamp duty - Presentation for *Acceptance *Payment - Bill of exchange *Demand *Sight *Term *1st/2nd of exchange - Draft endorsements *Blank *Qualified with recourse *Qualified w/o recourse - Case of need - Clean draft

Truck Bill of Lading