An Overview of Incoterms® 2020

The Incoterms® are a set of 11 individual rules issued by the International Chamber of Commerce (ICC) which define the responsibilities of sellers and buyers for the sale of goods in international transactions. Of primary importance is that each Incoterms rule clarifies the tasks, costs, and risks to be borne by buyers and sellers in these transactions. Familiarizing yourself with Incoterms will help improve smoother transactions by clearly defining who is responsible for what and each step of the transaction.

The Incoterms® 2020 rules are updated and grouped into two categories reflecting modes of transport. Of the 11 rules, there are seven for ANY mode(s) of transport and four for SEA or LAND or INLAND WATERWAY transport.

The seven Incoterms® 2020 rules for any mode(s) of transport are:

EXW - Ex Works (insert place of delivery)

FCA - Free Carrier (Insert named place of delivery)

CPT - Carriage Paid to (insert place of destination)

CIP - Carriage and Insurance Paid To (insert place of destination)

DAP - Delivered at Place (insert named place of destination)

DPU - Delivered at Place Unloaded (insert of the
place of destination)

DDP - Delivered Duty Paid (Insert place of destination).

Note: the DPU Incoterms replaces the old DAT, with additional requirements for the seller to unload the goods from the arriving means of transport.

The four Incoterms® 2020 rules for Sea and Inland Waterway Transport are:

FAS - Free Alongside Ship (insert name of the port of loading)

FOB - Free on Board (insert named port of loading)

CFR - Cost and Freight (insert named port of destination)

CIF - Cost Insurance and Freight (insert named port of destination)

Can I still use Incoterms® 2010 after January 1, 2020?

Yes, all contracts using any incoterms are valid if they are agreed upon by all parties to the transaction, and correctly identified on the export-related documents. Although the ICC recommends using Incoterms® 2020 beginning January 1, 2020, parties to a sales contract can agree to use any version of Incoterms after 2020. They need to clearly specify the chosen version of Incoterms being used (i.e., Incoterms® 2010, Incoterms® 2020, or any earlier version).

Incoterms Clarify Responsibilities of Parties to a Sales Transaction

For example, in each Incoterm rule, a statement is provided as to the seller’s responsibility to provide the goods and commercial invoice in conformity with the contract of sale. Likewise, a corresponding statement is provided which stipulates that the buyer pays the price of goods as provided in the contract of sale.
Each Incoterm rule has a statement stipulating which party is responsible for obtaining any export license or other official authorization required for export and for carrying out the customs formalities necessary for the export to proceed. Similarly, each rule has a corresponding statement as to which party is responsible for obtaining any import license or other official authorization required for import and for carrying out the customs formalities required for the import of goods. These statements also specify which party bears the cost of handling these tasks.
Similarly, each Incoterm rule specifies which party to the transaction, if any, is obligated to contract for the carriage of the goods. Another point addressed in each Incoterm rule is which party, if any, is obligated, to provide for cargo insurance coverage. These statements also specify which party bears the cost of handling these tasks. Each rule also contains statements, among others, as to which party is responsible for packing the goods for transport overseas and bearing the costs of any pre-shipment inspections.
A final example is cargo delivery. Each Incoterm rule specifies the seller’s obligations for cargo delivery and clarifies when delivery occurs. Each rule also specifies when the risk of loss or damage to the goods being exported passes from the seller to the buyer by reference to the delivery provision.

What Incoterms Do Not Cover

As noted above, Incoterms are generally incorporated in the contract of sale, however, they do not:

address all the conditions of a sale;
identify the goods being sold nor list the contract price;
reference the method or timing of payment negotiated between the seller or buyer;
when the title, or ownership of the goods, passes from the seller to the buyer;
specify which documents must be provided by the seller to the buyer to facilitate the customs clearance process in the buyer’s country; and
address liability for the failure to provide the goods in conformity with the contract of sale, delayed delivery, or dispute resolution mechanisms.

Hire CHA for container booking (Customs House Agent)

An exporter will require a CHA for the export clearance of the goods from the domestic port destination. The exporter has to pay the freight charges to the CHA for the container booking. The CHA will send the empty containers to the exporter’s warehouse. The CHA will further generate a shipping bill with a successful customs clearance process.

This entire procedure will help your goods to receive the ‘port of loading’ for dispatching the goods to the importer’s country. The exporter will receive a bill of lading document for getting incentives or any other privileges from the government. Also, you have to send one copy of the bill of lading to the importer along with the set of year documents.

Inland Container Depot (ICD) - Meaning & The Complete Process.

What is the role of Inland Container Depot?

An Inland Container Depot (ICD) is a container storage facility situated in the hinterlands, away from any major port. Shipping companies use ICDs to store and move shipping containers before and after transporting them to the seaport.

As they are located away from the sea or any major river routes, Inland Container Depots are also sometimes referred to as ‘Dry Ports.’

Why is Inland Container Depot important?

At an ICD, the sea custodians, freight forwarders, customs brokers as well as officials from the customs department provide their services to the importers and the exporters. They process their shipment near their godowns and factories, away from the far-off ports. ICDs help de-stressing and decongest the ports where the storage spaces are limited due to the land’s judicial use

Functions of Inland Container Depot

As Inland Container Depots act as makeshift warehousing storage for twenty-feet-

ICDs are physical facilities that store the containers temporarily before they are moved to the port and loaded on the ships. Exporters can also place their cargo inside the containers at an ICD.
Along with being a storage facility, ICDs can also provide export and import customs clearances. All the services that are provided at a port, can also be availed at the ICD situated far away from the port.
ICDs also act as servicing and repair facilities for containers and other moving equipment.

https://www.dripcapital.com/resources/blog/what-is-inland-container-depot-icd

Letter of Credit [LC] Explained with Process & Example

What is a Letter of Credit?

A letter of credit or LC is a written document issued by the importer’s bank (opening bank) on the importer’s behalf. Through its issuance, the exporter is assured that the issuing bank will make a payment to the exporter for the international trade conducted between both parties.

The importer is the applicant of the LC, while the exporter is the beneficiary. In an LC, the issuing bank promises to pay the mentioned amount as per the agreed timeline and against specified documents.

A guiding principle of an LC is that the issuing bank will make the payment based solely on the documents presented, and they are not required to physically ensure the shipping of the goods. If the documents presented are in accord with the terms and conditions of the LC, the bank has no reason to deny the payment.

Why is a Letter of Credit important?

A letter of credit is beneficial for both parties as it assures the seller that he will receive his funds upon fulfillment of the terms of the trade agreement and the buyer can portray his creditworthiness and negotiate longer payment terms, by having a bank back the trade transaction.

Features / Characteristics of Letter of credit

A letter of credit is identified by certain principles. These principles remain the same for all kinds of letters of credit. The main characteristics of letters of credit are as follows:

Negotiability

A letter of credit is a transactional deal, under which the terms can be modified/changed at the parties' assent. In order to be negotiable, a letter of credit should include an unconditional promise of payment upon demand or at a particular point in time.

Revocability

A letter of credit can be revocable or irrevocable. Since a revocable letter of credit cannot be confirmed, the duty to pay can be revoked at any point in time. In an irrevocable letter of credit, all the parties hold power, it cannot be changed/modified without the agreed consent of all the people.

Transfer and Assignment

A letter of credit can be transferred, also the beneficiary has the right to transfer/assign the LC. The LC will remain effective no matter how many times the beneficiary assigns/transfers the LC.

Sight & Time Drafts

The beneficiary will only receive the payment upon maturity of the letter of credit from the issuing bank when he presents all the drafts & the necessary documents.

Documents required for a Letter of Credit

How does a Letter of Credit Work?

LC is an arrangement whereby the issuing bank can act on the request and instruction of the applicant (importer) or on their own behalf. Under an LC arrangement, the issuing bank can make a payment to (or to the order of) the beneficiary (that is, the exporter). Alternatively, the issuing bank can accept the bills of exchange or drafts that are drawn by the exporter. The issuing bank can also authorize advising or nominated banks to pay or accept bills of exchange.

What is the process of getting an LC?

The process of getting an LC consists of four primary steps, which are enlisted here:

Step 1 - Issuance of LC

After the parties to the trade agree on the contract and the use of LC, the importer applies to the issuing bank to issue an LC in favor of the exporter. The LC is sent by the issuing bank to the advising bank. The latter is generally based in the exporter’s country and may even be the exporter’s bank. The advising bank (confirming bank) verifies the authenticity of the LC and forwards it to the exporter.

Step 2 - Shipping of goods

After receipt of the LC, the exporter is expected to verify the same to their satisfaction and initiate the goods shipping process.

Step 3 - Providing Documents to the confirming bank

After the goods are shipped, the exporter (either on their own or through the freight forwarders) presents the documents to the advising/confirming bank.

Step 4 - Settlement of payment from importer and possession of goods

The bank, in turn, sends them to the issuing bank and the amount is paid, accepted, or negotiated, as the case may be. The issuing bank verifies the documents and obtains payment from the importer. It sends the documents to the importer, who uses them to get possession of the shipped goods.

Bhavin Patel