Trade Terms: Points of delivery in the country of the seller

One of the most important aspects of trade terms is point of delivery, that is the moment when the goods are either handed over to a carrier or place on board the collecting vehicle for onwards shipment to the buyer. As of this moment, the seller is said to have completed his obligation with regards to the delivery and the buyer is said to have taken the delivery of the said goods.

Whatever risks the goods may be exposed to or costs incurred from this point onwards are to be borne by the buyer. The trade terms are therefore be the important factor in determining the point of delivery. The point of delivery can either be in the country of the seller or in the country of the buyer. It may take place at the seller’s premises; at the factory, workplace or warehouse. It may also take place at the seaport, airport, country border or at any place where goods are customarily being loaded and unloaded.

When delivery is to be made in the country of the buyer, the goods may be collected at the seaport, airport, country border or at any named place.

Terms such as Ex-work, FCA, FAS, FOB, CFR, CIF, CPT and CIP are terms where the point of delivery is to take place in the country of the seller. There are three different methods of making a delivery by the seller when the delivery is to take place in the country of the seller.

Firstly, by having the goods ready at the buyer’s disposal by placing the goods at the seller’s premises as mentioned above. Under this condition, buyer is therefore responsible to arrange and to contract for the carriage to the final destination. This type of arrangement is represented by Ex-work term.

Secondly, by handing over to the carrier where the forwarding agent will come and collect the goods at the seller’s premises or at any named place. This type of arrangement is represented by terms such as FCA, FAS, CPT and CIP. There are two conditions apply under FCA; if the goods are to be handed over to a carrier at a named place other than the seller’s premises, buyer is responsible to unload the goods. On the other hand, if the handing over of the goods is taking place at the seller’s premises, the seller is responsible to load the goods onto the collecting vehicle. The term FCA requires the buyer to arrange and to contract for the carriage. Whereas the arrangement for transport under CPT and CIP is the obligation of the seller.

Finally, by placing the goods on board the vessel at the port of shipment. The seller must ensure that the goods are actually on board the vessel. This is where the terms FOB, CFR and CIF are used. Under the term FOB, the buyer is the party who is responsible to arrange and to contract for the transport. On the other hand, such obligation is transferred to the seller under the terms CFR and CIF.

INCOTERMS

Once the LC is issued and received by the seller, the next event to take place is the movement of the goods. The seller is liable and responsible to ensure that the goods ordered by the buyer are delivered and received by the buyer at the agreed place and within the agreed time. The delivery process requires engagement of a third party where risks and costs are inherent.

Firstly, transport. Goods can be moved using variety modes of transport such as vessel, truck, barge, airplane and train. Regardless of the modes of transport, the inherent factor here is cost.

Secondly, safety of the goods or cargo. The goods, while waiting to be loaded on the carrying vehicle or while in transit may be exposed to the risks of damage or loss to the goods.

In some cases, the goods are required by the regulations of the exporting or importing country where pre-inspection must be carried out to ensure compliance and conformity. Besides, it is customary that custom clearance must be obtained by both, importer as well as exporter. That means custom duty is to be incurred.

All these duties, obligations and costs may form ground for disputes between buyer and seller of different countries as there bound to be trade practice differences, political policies differences, restriction on foreign currencies and other uncontrollable trade limitations.

Therefore, it is imperative that a uniform understanding should be established to enhance the process of trade between trading parties of different countries. This understanding should be able to be applied internationally regardless of geographical locations. Finally, it should form a rule where it is binding on all parties involved in international trade, particularly buyer and seller. Henceforth, International Commercial Terms or INCOTERM comes into picture.

INCOTERMS expressly spells out clear guidelines on the distributions of risks and costs between buyer and seller. The obligations of each party are also expressly stated as to how the delivery should be made by the seller, who should arrange for transportation, who should bear the costs of insurance, transportation, import and export duties and so on. This rule is specifically applicable to the sales contract between the buyer and the seller. The current INCOTERMS applied worldwide which is published by the International Chamber of Commerce (ICC) is known as INCOTERM 2000.

SWIFT Format: Field 78

Field 78 (Instruction to the paying/accepting/negotiating bank) is an optional field where Issuing Bank will indicate instructions regarding sending of the documents, method of reimbursement and other related instructions such as:

+AMOUNT OF NEGOTIATION MUST BE ENDORSED AGAINST THIS CREDIT

+ALL DOCS TO BE AIR COURIERED IN ONE LOT TO ISSUING BANK, ZEALOT BANK LTD, NO 47 & 49 JALAN BAHAGIA, TAMAN TUN DR ISMAIL, 60000 KUALA LUMPUR, MALAYSIA

+UPON RECEIPT OF DOCS IN STRICT COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS CREDIT, WE SHALL REMIT PROCEEDS AS PER YOUR DISPOSAL INSTRUCTION

These instructions are meant for the Paying Bank or Accepting Bank or Negotiating Bank such as where the documents should be sent to and how the reimbursement is going to be paid.

SWIFT Format: Field 49

Field 49 (Confirmation instruction) is a mandatory field. This field must present in every LC issued. This field contains instruction regarding confirmation of the LC where it must contain one of the following codes:

1. CONFIRM – The receiver is requested to confirm the LC
2. MAY ADD – The receiver may add its confirmation to the LC
3. WITHOUT – The receiver is not requested to confirm the LC

However, if a bank (receiver) which is authorized or requested by the issuing bank to confirm the LC (CONFIRM) is not prepared to do so, it must inform the issuing bank and may advise the LC to the beneficiary without confirmation.

When the field is indicated by the code ‘MAY ADD’, the receiver may or may not add its confirmation. Should the receiving bank wishes to add its confirmation, it must also inform the issuing bank prior to adding its confirmation and advise the same to the beneficiary.

When the code “WITHOUT’ is indicated and the receiving bank wishes to add its confirmation at the request of the beneficiary, it must also notify the issuing bank to obtain approval before adding its confirmation.

When confirmation is added to the LC, the confirming bank is acting as a second issuing bank in the country of the seller.

SWIFT Format: Field 48

Field 48(Period for presentation) is an optional field where the time limit within which the presentation of the shipping documents should be made to the issuing bank or nominated bank by or on behalf of the beneficiary/seller.

As a general rule, this time period starts from the date of shipment which is indicated in the transport documents i.e. Bill of Lading, Multimodal transport documents, Air Waybill etc.

Secondly, in any event or when this field is not present or where there is no express indication in this field, the presentation should be made not later than 21 calendar days after the date of shipment but not later than the expiry date of the LC. In this case, the expiry date of the LC is deemed to be an expiry date for presentation.

The number of days indicated in this field should accommodate the seller a comfortable time period to enable him to obtain certain documents issued by third party (Insurance document, Transport document, Certificate of origin, inspection certificate etc), to prepare other documents, to vet through all the documents, to collate and to make presentation to the bank.

Buyer may indicate any number of days, for example, 7 days, 12 days, 14 days or 21 days. The number of days is calculated from the date of shipment indicated in the transport document.

SWIFT Format: Field 71B

Field 71B (Charges) is also an optional field. This field is meant for the following charges:

1. Agent’s commission (AGENT)
2. Commission (COMM)
3. Our Correspondent’s commission (CORCOM)
4. Commercial discount (DISC)
5. Insurance premium (INSUR)
6. Postage (POST)
7. Stamp duty (STAMP)
8. Teletransmisson charges (TELECHAR)
9. Wharfing and warehouse (WAREHOUS)

This field is accommodated for 35 characters (alpha numeric) per line subject to a maximum of 6 lines. By indicating either one or combination of some of the charges above, the proceeds received by the seller is the net amount after deducting the said charges.

As a general rule as well as to avoid disputes, in most cases, all the charges incurred in the country of the buyer will be paid by the buyer and those charges incurred in the country of the seller is to be paid by the seller. Therefore, this field is normally indicated as follow:

‘all charges outside Malaysia (country of the buyer) is for the account of the beneficiary’.

Having indicated as such, the seller would be able to account his actual cost up to delivery (handing over to carrier / on board the vessel) of the goods and buyer on the other hand would know his actual cost before selling the goods.

SWIFT Format: Field 47A

Field 47A (Additional conditions) is also another optional field. This field is normally used by issuing bank or the buyer to lay down other important instructions and requirements.

This is where issuing bank indicates among others, discrepancy fee is charged for the account of the seller should there is any discrepancy in the presentation. Buyer may make use of this field to provide instructions to the seller to request additional performance for example, to fax Bill of Lading, invoice or other performance deemed necessary. But bear in mind, all these additional performance must be accompanied by a simple written confirmation to certify that such performance has been discharged and the written confirmation must be submitted to the bank to form a presentation.

To illustrate this, assuming the additional condition is worded as follow:

‘…Seller is to fax a copy of Bill of Lading upon shipment to buyer at 603-56784535. A certificate to this effect is required for negotiation’

In this case, first, the seller must fax a copy of B/L to the buyer upon shipment of the goods. Secondly, the seller must also prepare a certificate or written confirmation (letterhead) addressed to the buyer to confirm that the B/L has been faxed. This ‘certificate’ or written confirmation must also be submitted to the bank.

Other than this, buyer may also include requirements such as appointment of transport, inspection of goods, conditions for delivery or other additional performance. All these performance must be accompanied with a written confirmation.