1. CFR AND CPT. If you are an importer, which term do you prefer and why?
CFR (Cost and Freight) and CPT (Carriage Paid To) in Incoterms:
Similarities:
- Delivery Point: Both CFR and CPT specify that the seller is responsible for delivering the goods to a
named destination.
- Transportation Costs: In both terms, the seller is responsible for the main carriage or transport costs to
the named destination.
- Both CFR and CPT are classified under the "C" group of Incoterms, which indicates that the seller is
responsible for delivering the goods to a designated location.
Differences:
Destination
Point
CFR (Cost and Freight)
CPT (Carriage Paid To)
The seller is responsible for
delivering the goods to the named
port of destination, and they must
pay for the cost of freight to that
port.
The seller is responsible for delivering the goods
to a named place, which could be any place
(such as a terminal or warehouse) agreed upon
by the buyer and seller. The key distinction is
that CPT doesn't necessarily involve delivery to
a port.
 Named port of destination.
 Named place of destination (can be a
warehouse, terminal, or any other
location).
Transfer of Risk transfers from the seller to Risk transfers from the seller to the buyer when
the buyer when the goods pass the goods are handed over to the first carrier
risk
the ship's rail at the named port of (often the main carrier) for onward transport.
shipment.
Mode
of Applicable only for sea and Applicable for any mode of transport, including
inland waterway transport.
sea, air, and land.
transport
Costs
The seller is responsible for the The seller is responsible for the cost of carriage
cost of freight (transport) to the (including main carriage and any necessary prenamed port of destination.
carriage) to the named place of destination
Importer's Preference: If I were an importer, my preference between CFR and CPT would depend on
specific considerations:
- Destination Requirements: If the final destination involves a port, CFR might be more suitable. If the
goods need to be delivered to a specific inland location beyond a port, CPT might be preferred.
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- Risk Management: CFR might be preferred if I want the risk to transfer at the port of destination. On
the other hand, if I prefer risk to transfer earlier in the transportation process, CPT provides that
flexibility.
- Customs Clearance: Both CFR and CPT place the responsibility for customs clearance on the buyer.
If I, as the importer, have a preference for handling customs procedures, both terms would work.
- Cost considerations: If cost is a major concern, CPT might be more advantageous as the buyer has
more control over the transportation costs and can negotiate with different carriers.
In summary, the choice between CFR and CPT depends on the specific details of the transaction,
the nature of the goods, and the preferences and capabilities of the importer. Importers should
carefully consider these factors and negotiate terms that align with their operational requirements
and risk toleran
As an exporter, CFR might be preferable because it's a more seller-friendly term. The seller's
responsibility ends at the port of shipment, and they arrange minimal insurance coverage, making it
simpler and potentially more cost-effective.
As an exporter, I would prefer to use the CFR incoterm for the following reasons:

Simplified Transaction: CFR requires less paperwork and administrative burden for the exporter
as they don't need to arrange or pay for freight.

Reduced Costs: The exporter saves on the cost of freight charges, which can be significant for
large shipments.

Reduced Risk: By not arranging freight, the exporter avoids potential risk associated with
fluctuations in freight rates or disputes with the carrier.

Convenience: Using a standard term like CFR makes it easier for exporters to find buyers
familiar with the terms and conditions.
However, the best incoterm choice depends on the specific circumstances of each transaction. If the
buyer needs flexibility in choosing the mode of transport or wants to control the shipping process, then
CPT might be a better option. Additionally, if the seller has a strong relationship with the buyer and
trusts them to arrange reliable transportation, then CPT could be considered.
Here are some additional factors to consider when choosing between CFR and CPT:

The nature of the goods: If the goods are fragile or require special handling, the exporter might
prefer CFR to ensure they are handled properly during transport.

The relationship between the parties: If the exporter and buyer have a strong relationship and
trust each other, then CPT could be a viable option.

The terms of the sale: The parties may have agreed on a specific incoterm in their contract,
which would override any other preference.
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2. CIF AND CIP
Similarities:
-
Export Documentation: The seller remains responsible for obtaining all export documentation and
clearing the goods for export.
-
The seller srranging and paying for insurance coverage for the goods.
-
Both CIP and CIF are classified under the "C" group of Incoterms, which indicates that the seller is
responsible for delivering the goods to a designated location.
-
Responsibility for Freight:
 CIP: The seller is responsible for arranging and paying for the main carriage of the goods to the
named destination.
 CIF: The seller arranges and pays for the freight to transport the goods to the named destination
port.
Differences:
CIF
CIP
Mode of transport
Applicable only for sea and Applicable for any mode of
inland waterway transport.
transport, including sea, air, and
land.
Insurance coverage
- Under CIF, the seller is only
responsible
for
obtaining
insurance
with
minimum
coverage specified by the
Institute Cargo Clauses (A). This
provides less comprehensive
coverage than the coverage
offered under CIP.
- Under CIP, the seller is
responsible
for
obtaining
insurance
with
minimum
coverage specified by the
Institute Cargo Clauses (C). This
covers the basic risks of loss or
damage during transportation
- The seller must provide
- The seller arranges minimum insurance coverage for the goods
insurance coverage for the goods up to the named destination.
during
transport
to
the This might include additional
destination port.
insurance, depending on the
agreement.
Destination of Delivery
The seller's responsibility ends The seller delivers the goods to a
when the goods pass the ship's named destination, which might
rail at the named port of be a terminal, warehouse, or
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shipment. The buyer assumes agreed-upon point, beyond the
responsibility once the goods are port of destination. The seller's
on board the vessel.
responsibility ends when the
goods are delivered to the
carrier.
As an importer, you might prefer CIP because it offers comprehensive insurance coverage
beyond the port of destination. This Incoterm provides you with more control over the insurance
coverage and carriage of the goods until they reach the named destination.
If I were an importer, I would prefer to use the CIP incoterm for the following reasons:

Greater Insurance Coverage: CIP provides a higher level of insurance coverage compared to CIF,
which helps to protect me against a wider range of risks.

More Predictable Costs: Since the seller pays for the insurance under CIP, I have a more
predictable cost for the transaction, as I don't need to worry about negotiating the insurance
premium with a separate insurance company.

Less Work: CIP simplifies the process for me, as I don't need to arrange and pay for insurance
separately.
However, the best incoterm choice depends on the specific circumstances of each transaction. If
the cost of insurance is a major concern, then CIF might be a better option. Additionally, if the importer
has experience with international trade and wants more control over the insurance arrangements, then
CIF might be a better choice.
Here are some additional factors to consider when choosing between CIP and CIF:

The value of the goods: If the goods are valuable, the importer may prefer CIP to ensure they are
adequately insured.

The risk profile of the goods: If the goods are susceptible to damage during transportation, the
importer may prefer CIP for its higher level of insurance coverage.

The experience of the importer: If the importer is new to international trade, they may prefer CIP
for its simplicity and less work required.

The terms of the sale: The parties may have agreed on a specific incoterm in their contract,
which would override any other preference.
As an exporter, CIF might be preferable because it's a more seller-friendly term. The responsibility
ends at the port of destination, and the seller arranges minimal insurance coverage, making it simpler
and potentially more cost-effective.
If I were an exporter, I would prefer to use the CIF incoterm for the following reasons:
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
Lower Costs: CIF allows me to avoid the cost of obtaining insurance, which can save me money.

Less Work: CIF simplifies the process for me, as I don't need to arrange and pay for insurance
separately.

Less Risk: Under CIF, the risk of loss or damage to the goods transfers to the buyer once the
goods are delivered to the carrier. This means I am not responsible for any claims that may arise
after that point.
However, the best incoterm choice depends on the specific circumstances of each transaction. If the
risk of damage to the goods is high, or if the buyer requires a higher level of insurance coverage, then
CIP might be a better option. Additionally, if the exporter is new to international trade, they may prefer
CIP for its simplicity and lower risk.
Here are some additional factors to consider when choosing between CIP and CIF:

The value of the goods: If the goods are valuable, the exporter may prefer CIP to ensure they are
adequately insured.

The risk profile of the goods: If the goods are susceptible to damage during transportation, the
exporter may prefer CIP for its higher level of insurance coverage.

The experience of the exporter: If the exporter is new to international trade, they may prefer CIF
for its simplicity and lower risk.

The terms of the sale: The parties may have agreed on a specific incoterm in their contract,
which would override any other preference.
3. FOB AND CFR
Similarities:
- Transfer of Risk: In both terms, the seller's responsibility for the goods ends when the goods are
loaded on board the vessel at the named port of shipment.
- Destination Point: the goods are loaded on board the vessel at the named port of shipment.
- Responsibility for Freight Costs: Both FOB and CFR involve the seller being responsible for the
freight costs to transport goods to a specified destination.
- Mode of transport: Applicable only for sea and inland waterway transport.
Differences:
FOB
Insurance
CFR
The buyer is responsible for The seller is responsible for
arranging and paying for securing minimum insurance
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insurance from the moment the coverage for the goods during
goods are on board the vessel. transport to the destination port.
The seller's responsibility ends at
the ship's rail.
Delivery Obligation
The seller's obligation ends after The seller's obligation extends
the goods are loaded on board further, requiring them to pay the
the vessel at the port of loading. freight charges for carriage to
the named port of destination.
Costs
The buyer is responsible for all
costs and risks, including freight
charges, from the moment the
goods are loaded on board the
vessel.
The seller bears the cost of
freight until the goods reach the
destination port, making it a
slightly more expensive option
for the buyer compared to FOB.
Preference for Importer and Exporter
Importer:


FOB: Preferred if the importer:
o
Desires greater control over the shipping process and chooses the carrier and freight rates.
o
Has existing shipping contracts or relationships with carriers and wants to leverage them.
o
Wants to minimize costs by negotiating directly with carriers.
CFR: Preferred if the importer:
o
Prefers convenience and wants the seller to handle all shipping arrangements.
o
Doesn't have experience with international shipping and wants to avoid the complications.
o
Values knowing the total landed cost of the goods upfront.
Exporter:


FOB: Preferred if the exporter:
o
Wants to simplify the transaction and minimize paperwork and administrative burden.
o
Wants to avoid potential risks and fluctuations associated with freight rates.
o
Wants to optimize their working capital by receiving payment before the goods are
shipped.
CFR: Preferred if the exporter:
o
Has a reliable relationship with a shipping carrier and wants to secure competitive freight
rates for the buyer.
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o
Wants to ensure the goods are transported efficiently and arrive at the destination port in
good condition.
o
Wants to differentiate their offer by including freight charges and appear more attractive
to buyers.
Ultimately, the choice between FOB and CFR depends on the specific needs and preferences of both
the importer and exporter. Factors like cost, flexibility, control, and experience should be carefully
considered when making the decision.
4. FCA – FAS
Feature
FCA
FAS
Delivery point: FCA requires delivery
to a named place (e.g., terminal,
airport) on land, while FAS requires
delivery alongside the ship at the
named port.
Land-based: Delivery point Port-side: Requires delivery
can
be
a
terminal, alongside the ship at the port,
warehouse, or any agreed- but not necessarily on board.
upon location inland.
Loading costs: Under FCA, the seller
is responsible for loading the goods
onto the nominated carrier's vehicle.
Under FAS, the buyer is responsible
for loading the goods onto the ship.
Seller
responsibility:
Includes loading the goods
onto the buyer's nominated
carrier's vehicle.
Buyer responsibility: Buyer is
responsible for loading the
goods onto the ship, including
any associated costs.
Documentation: Both require similar
documentation, but FCA may require
additional documents relating to the
land transport.
Similar paperwork: Both
require commercial invoice,
packing list, certificate of
origin, and other relevant
documents.
May
require
additional
documents: FCA may require
additional
documents
like
transport documents depending
on the agreed-upon delivery
point.
Importer's Preference:
As an importer, my preferred term would depend on several factors:

Control over transportation: If I want more control over the transportation process, I might
prefer FCA, as it allows me to choose the carrier and negotiate the shipping costs.

Cost: If minimizing costs is my primary concern, I might prefer FAS, as it avoids the loading
costs associated with FCA.

Risk tolerance: If I am risk-averse, I might prefer FCA, as the seller bears the risk until the
goods are loaded onto the carrier's vehicle.
Exporter's Preference:
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As an exporter, my preferred term would also depend on several factors:

Efficiency: If my primary concern is efficient delivery, I might prefer FCA, as it allows me to
deliver the goods to a designated point and avoid the complexities of loading onto the ship.

Cost: If minimizing costs is my priority, I might prefer FAS, as it avoids the loading costs
associated with FCA.

Risk mitigation: If I am concerned about potential damage or loss during loading, I might prefer
FAS, as the buyer assumes responsibility for the goods once they are alongside the ship.
5. DDP, DPU, DAP
Similarities:

All three terms are Incoterms used in international trade.

They all involve the transfer of responsibility for the goods from the seller to the buyer at a
specific point.

They all require the seller to clear the goods for export.
Differences:
Feature
Place
Delivery
DPU (Delivered at DAP (Delivered at Place)
Place Unloaded)
of Named place at the Named place at
buyer's premises
buyer's premises
DDP (Delivered Duty Paid)
the Named place at the buyer's
premises, ready for unloading
and cleared for import
Responsibilities
of Seller
Deliver the goods to Deliver the goods to the Deliver the goods to the named
the named place and named place
place, unload them from the
unload them from the
transport vehicle, clear them
transport vehicle
for import, and pay all import
duties and taxes
Risk Transfer
When the goods are When the goods are When the goods are cleared for
unloaded from the placed at the disposal of import at the destination
vehicle at the named the buyer at the named
place
place
Costs
Seller
pays
for Seller pays for loading, Seller pays for loading,
loading,
transport, transport, and delivery
transport, unloading, import
and unloading
duties and taxes, and customs
clearance
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Suitability
Suitable for goods
where the seller
wants
to
retain
control over the
delivery process
Suitable for general cargo
when the buyer wants to
minimize
their
involvement
in
the
delivery process
Suitable for high-value goods
or when the buyer wants to
avoid the complexities of
import clearance
Preference as an Importer
As an importer, I would prefer:

DPU: If I want to minimize my costs and have more control over the unloading process.

DAP: If I want to avoid the complexities of import clearance but still have some control over the
delivery process.

DDP: If I want to avoid the complexities of both import clearance and delivery and am willing
to pay a premium for this convenience.
My choice would depend on factors such as:

The value of the goods: For high-value goods, DDP may be preferable to avoid the risk of
incurring additional costs due to delays or errors during import clearance.

My familiarity with import procedures: If I am unfamiliar with import procedures, DDP may be
a safer option.

The availability of resources: If I do not have the resources to handle import clearance and
delivery myself, DDP may be the most practical option.
Preference as an Exporter
As an exporter, I would prefer:

DPU: If I want to minimize my costs and risks.

DAP: If I want to ensure that the buyer is responsible for all costs and risks once the goods are
delivered.

DDP: If I am willing to take on the additional risks and costs of import clearance in exchange
for securing the sale and potentially charging a higher price for the goods.
My choice would depend on factors such as:

My relationship with the buyer: If I have a strong relationship with the buyer, I may be more
comfortable using DPU or DAP.

My risk tolerance: If I am risk-averse, I may prefer to use DDP, even though it means lower
profit margins.
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
The competitive landscape: If I am facing strong competition, I may need to offer DDP to win
the business.
6. Incoterm nào phù hợp trong các TH
Incoterm
CIF
Importer
Preferred if the importer:
Exporter
Preferred if the exporter:
- Wants to save costs by negotiating - Wants to simplify the transaction by excluding
directly with insurance companies.
insurance arrangements.
- Has existing insurance coverage that - Doesn't have experience or resources to arrange
can be used for the shipment.
insurance.
- Prefers more flexibility in choosing - Prefers to avoid potential risks associated with
insurance coverage.
arranging insurance, especially if the buyer is
unfamiliar or unreliable.
CIP
Preferred if the importer:
Preferred if the exporter:
- Doesn't have experience arranging - Wants to differentiate their offer by including
cargo insurance or wants to avoid the insurance and appear more attractive to
hassle.
importers.
- Desires greater control over the - Has a reliable insurance provider and can
insurance policy and its coverage.
secure competitive rates for the buyer.
- Values the convenience of having - Wants to avoid potential disputes related to
everything arranged by the seller.
insurance coverage.
CFR
Preferred if the importer:
Preferred if the exporter:
- Values convenience and wants the - Wants to differentiate their offer by including
seller to handle the complexities of freight charges and appear more attractive to
freight arrangements.
importers.
- Doesn't have experience with freight - Has established relationships with shipping
management or resources to negotiate companies and can secure competitive rates for
rates.
the buyer.
- Prefers a less time-consuming and - Desires greater control over the shipping
simpler transaction process.
process by choosing the carrier and route.
FOB
Preferred if the importer:
-
Preferred if the exporter:
Wants lower costs by directly - Wants to minimize their responsibilities and
associated costs, avoiding fluctuations in freight
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negotiating and securing freight rates.
charges.
- Has experience arranging
managing freight shipments.
and - Prefers a simpler transaction and avoids
administrative burdens related to freight
arrangements.
- Desires greater control over the
shipping process, choosing the specific - Doesn't have established relationships with
carrier and route.
shipping companies and cannot negotiate
favorable rates.
Here are some factors that can influence the choice of incoterms:
For the Importer:

Need for control over the transportation process: If the importer wants to have more control over
the transportation process, they may prefer an incoterm like DAP or DDP, which give them
responsibility for booking the transport and arranging customs clearance.

Financial resources and expertise: Importers with limited resources or expertise in international
trade may prefer incoterms like FOB or FCA, which shift some of the responsibility and costs to
the exporter.

Risk tolerance: Importers who are more risk-averse may prefer incoterms like CIF or CIP, which
offer greater protection against damage or loss of goods during transit.
For the Exporter:

Need for fast and efficient delivery: If the exporter needs to ensure that the goods are delivered
quickly and efficiently, they may prefer an incoterm like FCA, which transfers responsibility for
transporting the goods to the buyer at a specific point.

Minimizing costs and risks: Exporters who want to minimize their costs and risks may prefer
incoterms like EXW or FCA, which shift some of the responsibilities and costs to the buyer.

Control over the movement of goods: Exporters who want to maintain some control over the
movement of goods until they are loaded onto the vessel may prefer incoterms like FOB or FCA.
7. Straight BL – To order BL
Both Straight Bill of Lading (BL) and To Order Bill of Lading are documents used in international
trade to represent ownership of goods and facilitate their transport. However, they differ in terms of
negotiability and transferability.
Straight Bill of Lading
(Straight BL)
Ownership
To Order Bill of Lading (To
Order BL)
To Bearer B/L
The goods are consigned to The goods are consigned "to The goods are consigned
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a
specific
named
consignee, usually the
buyer or the consignee
mentioned in the sales
contract
order" or "to the order of" a
named party (usually the
shipper or a specified party).
This allows for more
flexibility in transferring
ownership.
"to bearer," meaning the
possession of the BL
document itself represents
ownership of the goods
Transfer
This type of BL is nonnegotiable, meaning it
cannot be transferred to
another party without the
specific endorsement of the
consignee.
This type of BL is
negotiable, meaning it can be
transferred to another party
through endorsement and
delivery of the document.
This type of BL is
extremely negotiable, as
the document can be
transferred
simply
by
physical delivery, without
the need for endorsement.
Use Cases
Common
in
Open
Account
Transactions:
Straight BLs are often used
in transactions where the
buyer and seller have a
high level of trust, such as
open account transactions.
Flexibility in Trade: To
Order BLs provide flexibility
in trade, especially in
scenarios where the goods
may need to be sold or
transferred to another party
before
reaching
the
destination
Highly
Negotiable
Instruments: To Bearer
BLs are rare and are not
commonly used due to the
high level of negotiability,
which
can
lead
to
challenges in controlling
the ownership of goods
Transfer of No Negotiability: The title
to
the
goods
is
Title
straightforward and does
not involve negotiation.
The named consignee is
typically
the
rightful
owner.
Negotiability:
The
negotiability of a To Order
BL allows for the transfer of
title to the goods by
endorsement and delivery of
the document. This facilitates
easier trading, financing, and
transfer of ownership.
Physical
Possession:
Ownership is determined
by the physical possession
of the BL document. The
person
holding
the
document is considered the
owner
Consignee
Named specifically
"To order" or "to order of" Not specified
followed by a named party
Control of
goods
Payment
terms
Transferred upon delivery
to the named consignee
Typically used for cash-inadvance transactions
Security
High
Retained by the holder of the
BL until endorsed
Used for credit transactions
where payment is due upon
surrender of the endorsed BL
Moderate
8. Direct BL – Through BL
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Retained by the physical
holder of the B/L
Retained by the physical
holder of the B/L
Low
Direct BL and Through BL are documents used in international trade to represent ownership of goods
and facilitate their transport. While they share some similarities, they have key differences in terms of
scope, responsibility, and purpose.
Similarities:
-
Both represent ownership of goods and act as a contract of carriage between shipper and carrier.
-
Both facilitate the transport of goods by sea, air, or land.
-
Both indicate the point at which risk of loss or damage transfers from seller to buyer.
Differences:
Feature
Scope of
transport
Number of
carriers involved
Issuance
Responsibility
for cargo
Purpose
Cost
Complexity
Freight Charges
Use cases
Direct BL
Through BL
Covers only one transport leg from Covers multiple transport legs involving
origin to destination.
different carriers.
One carrier
Multiple carriers
Issued by the initial carrier at the
origin port.
Each carrier is responsible for the
cargo only during its respective leg
of the journey.
Issued by the first carrier in the chain of
transport, covering the entire journey.
The first carrier is responsible for the cargo
throughout the entire journey, regardless of
which carrier is transporting it at a given
time.
Suitable for simple, single-leg Suitable for complex, multi-leg transport.
transport.
Typically less expensive than Usually more expensive due to the additional
Through BL.
responsibility assumed by the first carrier.
Simpler due to involvement of a More complex due to multiple carriers and
single carrier.
potential
for
discrepancies
between
documents.
Paid to the carrier responsible for Paid to the first carrier, who then distributes
the entire transport
the payment among the other carriers
involved
- Suitable for simple direct - Preferred for complex shipments involving
shipments with one carrier
multiple carriers and different modes of
- Common in Traditional transport
Shipments: Direct BLs are - Common in Multimodal Transport:
common in traditional point-to- Through BLs are often used in multimodal
point shipments where the goods transport where various modes of transport
are intended for a specific (e.g., sea, rail, road) are involved, and
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consignee.
multiple carriers handle different legs of the
journey.
The consignee specified on the The intermediary (issuing party) retains
Control
Direct BL has direct control over control over the goods during the shipment,
the goods and the shipping process and the named consignee on the Through BL
may not have direct control until certain
conditions are met.
Requires only one BL
Requires separate BLs for each leg of the
Documentation
journey, with the first BL being the master
BL and the others being house BLs
Choosing the right type of BL depends on the specific needs of the transaction.
Direct BL is preferred for:

Simple, single-leg transport: When goods are shipped from one point to another using only one
carrier.

Cost-effectiveness: When cost is a major concern and the potential benefits of a Through BL
don't outweigh the additional expense.

Clarity of responsibility: When clear accountability for each leg of the journey is desired.
Through BL is preferred for:

Complex, multi-leg transport: When goods are shipped across multiple legs involving different
carriers.

Reduced paperwork and administrative burden: Simplifies documentation and reduces the need
for separate contracts with each carrier.

Increased security and reliability: The first carrier assumes responsibility for the entire journey,
potentially enhancing security and reducing the risk of loss or damage.
9. shipped on board BL - received for shipment BL
Both Shipped on Board (SOB) and Received for Shipment (RFS) are types of bills of lading used in
international trade. While they share some similarities, they have crucial differences in terms of the
status of the cargo and the liabilities involved.
Feature
Shipped on Board (SOB) B/L
Received for Shipment (RFS) B/L
Status
Clean
Not clean
Cargo Status
Goods have been physically loaded onto Carrier has received the goods at the
the named vessel at the specified port of port and is preparing to load them onto
loading.
the specified vessel.
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Liability
Damage
for Carrier assumes full liability for any loss Carrier's liability starts when the goods
or damage to the goods from the moment are loaded, but the B/L doesn't confirm
they are loaded onto the vessel.
if they've been loaded yet.
Negotiability
Generally considered negotiable.
May not be considered negotiable until
supplemented with an "on board"
notation.
Payment
Terms
Can be used for both cash-in-advance and Often used for credit transactions where
credit transactions.
payment
occurs
after
shipment
confirmation.
Issuance
Timing
Issued after the goods have been loaded Issued before the goods are loaded,
onto the vessel.
typically upon receipt of the goods at
the port.
Use Cases
- Preferred for transactions with - Often used for initial confirmation of
established credit relationships and where shipment and may be later replaced by
immediate access to the goods is not an SOB B/L
critical
- Used when the carrier wants to
- Commonly used in sea shipments to acknowledge readiness for shipment
provide conclusive evidence of the goods before the actual departure.
being on board.
not
necessarily
transfer
Title
and Implies the transfer of title to the goods. Does
The consignee gains ownership.
ownership. It indicates readiness for
Ownership
shipment.
Choosing the Right B/L:
The choice between SOB and RFS depends on several factors, including the specific needs of the
transaction, the parties' level of trust, and the desired level of certainty about the cargo status.

SOB: Preferable if immediate confirmation of loading and clear liability are crucial.

RFS: Preferable if flexibility regarding loading timing is important or if an RFS is used as a
temporary document before an SOB is issued.
It's important to carefully consider the implications of each type of B/L and choose the one that best
suits the specific circumstances of the transaction.
10. Clen collection – Documentary collection
Feature
Clean Collection
Documentary Collection
Documents
Financial documents only (e.g., promissory Financial documents and commercial
documents (e.g., invoices, bills of
15
Involved
notes, checks, payment slips, BE).
lading, inspection certificates).
Control over Seller retains control over the goods until Seller surrenders control over the goods
Goods
payment is received.
to the buyer (with the help of a carrier)
upon shipment and presentation of
shipping documents.
Risk of Non- Higher risk for the seller as they release the Lower risk for the seller as they retain
Payment
goods without guaranteed payment.
control over the goods until payment is
received.
Verification
Verification
is
based
on
the
creditworthiness of the parties involved, as
there are no physical documents to confirm
the status of the goods or their shipment.
Verification is based on the
of shipping and title
providing a more secure
ensuring that the goods
shipped.
examination
documents,
method of
have been
Security
Lower security, as there is no guarantee that Higher security, as the documents
the goods have been shipped or are in good confirm the shipment and condition of
condition
the goods
Complexity
Simpler and faster to process as it involves More complex and time-consuming due
fewer documents.
to the involvement of additional
documents and coordination between
banks.
Cost
Generally less expensive due to fewer bank Can be more expensive due to additional
charges
associated
with
handling bank charges for handling and verifying
documents.
documents.
Use Cases
Preferred for transactions involving trusted Preferred for transactions involving
buyers or when the value of the goods is higher value goods or buyers who are
relatively low.
unknown or have a lower credit rating.
Risk
- Higher risk for the seller, as they release - Lower risk for the seller, as they retain
the goods before receiving payment
control of the documents until payment
is received
- Lower risk for the buyer, as they only
have to pay once they receive the financial - Higher risk for the buyer, as they may
documents
not receive the goods if payment is not
made
Considerations:

Creditworthiness: Clean collection relies heavily on the creditworthiness and trust between the
parties.
16

Transaction Security: Documentary collection provides additional security through the
presentation of shipping and title documents.

Verification Process: Documentary collection allows for the verification of the shipment and
goods through the examination of physical documents.
In summary, the choice between clean collection and documentary collection depends on the risk
tolerance of the parties involved, the level of trust, and the need for additional security and verification
in the payment process. Documentary collection, with its involvement of shipping documents, offers a
more secure method of handling payments in international trade.
11. Cash in advance – open account – collection of payment – documentaty credit (LC)
You are the importer
As an importer, the choice of payment method depends on several factors, including:
1. Trust in the exporter:

High trust: If the exporter is a trusted partner with a good track record, I might consider Open
Account or Documentary Collection as these offer faster access to the goods and lower costs.

Low trust: If the exporter is unknown or has a poor reputation, I would prefer Cash in
Advance or Documentary Credit to secure the transaction and mitigate risk.
2. Value of the goods:

High value: For high-value goods, I would prioritize Documentary Credit to minimize the risk
of non-delivery or non-compliance with quality standards.

Low value: For low-value goods, I might consider Cash in Advance or Open Account as the cost
and administrative burden of other methods outweigh the risk.
3. Urgency of shipment:

Urgent: If the goods are needed urgently, I might choose Open Account or Cash in Advance to
expedite the shipping process.

Not urgent: If there is no urgency, I could opt for Documentary Collection or Documentary
Credit for greater security and control over the transaction.
4. Negotiating power:

Strong bargaining power: If I have strong bargaining power, I might negotiate for longer
payment terms with Open Account or lower costs with Documentary Collection.

Weak bargaining power: If my bargaining power is weak, I might need to accept the exporter's
preferred payment method, which could be Cash in Advance or Documentary Credit.
17
5. Payment history:

Good payment history: If I have a good payment history with the exporter, I might be granted
more favorable terms like Open Account.

Poor payment history: If I have a poor payment history, I might be limited to Cash in
Advance or Documentary Credit as payment options.
Here's a breakdown of each option and its suitability for an importer:
1. Cash in Advance: Under this mode, the importer pays for the goods before they are shipped. The
seller receives payment in advance of delivering the goods.

Pros:
- Quick and easy, minimizes risk for exporter.
- Simplest and fastest method for the importer.
- Provides the seller with the highest level of security and eliminates credit risk.

Cons:
- Requires upfront payment, which can impact cash flow, limits negotiating power.
- May be less attractive to the buyer as they have to make the payment before receiving the goods.
- Lacks leverage for the importer in case of disputes or non-conformance of goods.

Suitability: Low-value goods, trusted exporters, urgent shipments.
=> Preference: I would avoid this option unless I have a strong relationship with the seller and
complete confidence in their reliability.
2. Open Account: In an open account transaction, the seller ships the goods and then invoices the buyer,
who is expected to make the payment at an agreed-upon later date.

Pros:
- Lower cost, faster access to goods, strengthens relationship with exporter.
- Provides flexibility to the buyer, as they receive the goods before making the payment.
- Offers maximum payment flexibility and improves cash flow.
- Strengthens relationships with trusted suppliers through a collaborative approach.

Cons: High risk for exporter, requires strong trust and payment history.

Suitability: High trust exporters, low-value goods, established business relationships.
=> Preference: I would only consider this option with trusted suppliers with a proven track record
of reliability and after establishing clear payment terms and dispute resolution mechanisms.
18
3. Documentary Collection: Documentary collection involves the use of banks to handle the payment
process. The exporter's bank sends shipping documents to the importer's bank, and the documents are
released to the buyer upon payment or acceptance of a draft.

Pros:
- Moderate risk and cost, balances control between exporter and importer.
- Provides a middle ground between cash in advance and open account. Offers more security
compared to open account

Cons:
- Requires processing of additional documents, can be slower than other methods.
- The exporter may not have as much control over the goods as in a letter of credit.
- Can be complex and time-consuming due to the exchange of documents.
- Requires careful review of documents to ensure they are accurate and complete.

Suitability: Value-sensitive transactions, moderate trust level, goods readily available.
=> Preference: I would consider this option for transactions with established suppliers or when the
value of the goods justifies the additional complexity.
4. Documentary Credit: In a letter of credit, the buyer's bank issues a letter guaranteeing payment to the
seller, provided that the terms and conditions specified in the letter of credit are met.

Pros: Highest security for both parties, strong control over the transaction.

Cons: Higher cost, complex process, requires involvement of banks.

Suitability: High-value goods, low trust in the exporter, complex transactions, need for strict
quality control.
=> Preference: This would be my preferred option for high-value transactions, especially with new
or unknown suppliers, or when dealing with complex or risky imports.
Based on the above factors, Documentary Credit would be my preferred choice as an importer in most
situations, especially for high-value transactions or when dealing with unknown exporters. It provides
the best balance of security, control, and cost for import transactions.
However, the specific choice should be made based on a careful evaluation of the individual
circumstances of each transaction.
Summary:

Cash in Advance: Suitable for low-risk transactions but may be less attractive to buyers.

Open Account: Provides flexibility for the buyer but increases credit risk for the seller.
19

Collection of Payment (Documentary Collection): Offers security without the complexity of a
letter of credit but requires trust between parties.

Documentary Credit (Letter of Credit): Provides a high level of security for both parties but
involves more complexity and cost.
Therefore, as an importer, I would likely choose the following payment methods based on the scenario:




Cash in advance:
o
For low-value transactions with a trusted exporter.
o
When trying to secure a lower price due to reduced risk for the exporter.
Open account:
o
For high-value transactions with a long-standing and trusted exporter.
o
To improve cash flow and strengthen relationships.
Documentary collection:
o
For medium-value transactions with moderate risk.
o
To balance security with cash flow needs.
Documentary credit:
o
For high-value transactions with a new or unknown exporter.
o
When maximum security and payment guarantee are crucial.
It's common for importers to use a combination of these methods based on the specific circumstances
of each trade transaction.
You are the exporter
1. Cash in advance:


Advantages:
o
Eliminates risk of non-payment as payment is received before goods are shipped.
o
Improves cash flow for fulfilling future orders.
o
May allow for higher profit margins due to reduced risk.
Disadvantages:
o
May deter potential buyers due to upfront payment requirement.
o
Damages trust and long-term relationships with buyers.
o
Not suitable for attracting new clients or building loyalty.
2. Open account:
20


Advantages:
o
Highly attractive to buyers due to the lack of upfront payment.
o
Strengthens relationships and builds trust with buyers.
o
May lead to increased sales volume.
Disadvantages:
o
Carries the highest risk of non-payment for the exporter.
o
Requires careful credit checks and due diligence on buyers.
o
Can lead to significant financial losses if payment is not received.
3. Documentary collection:


Advantages:
o
Offers some protection against non-payment as documents are released only upon
payment.
o
Less risky than open account but still allows for credit terms.
o
Bank involvement adds some level of security.
Disadvantages:
o
Still carries some risk as the buyer could refuse to pay after receiving the documents.
o
Bank charges can increase costs compared to other methods.
o
Requires more paperwork and administrative procedures.
4. Documentary credit (LC):


Advantages:
o
Offers the highest level of security as payment is guaranteed by the buyer's bank.
o
Reduces administrative burden as the bank handles document verification.
o
Improves the exporter's reputation and creditworthiness.
Disadvantages:
o
Most expensive option due to bank charges and fees.
o
Requires strict adherence to the terms and conditions of the LC.
o
May not be readily available for all buyers.
Therefore, as an exporter, I would likely choose the following payment methods based on the situation:
21




Cash in advance:
o
For new buyers with limited credit history or high-risk transactions.
o
When dealing with small, one-time orders.
o
To secure payment for customized or high-value goods.
Open account:
o
For established buyers with a strong track record and good credit history.
o
When seeking to build long-term relationships and encourage repeat business.
o
For transactions involving low-risk or readily available goods.
Documentary collection:
o
For transactions with moderate risk and a balance between security and cost.
o
When dealing with buyers with some credit history but seeking some protection against
non-payment.
Documentary credit:
o
For high-value transactions with unknown or high-risk buyers.
o
When maximum security and payment guarantee are essential.
o
To enhance the exporter's reputation and attract larger deals.
If I were an exporter, the best mode of payment would depend on several factors, including:
1. Risk of non-payment:

High risk: I would choose cash in advance or documentary credit (LC) to minimize the risk of
non-payment.

Moderate risk: I might consider open account with a trusted importer or documentary
collection with appropriate safeguards.

Low risk: I would be comfortable with open account or any other method.
2. Value of the transaction:

High value: I would prioritize security and choose documentary credit or collection with
stringent terms.

Low value: I might be more flexible and consider cash in advance or even open account with a
trusted importer.
3. Cash flow needs:
22

Urgent cash flow needs: I would prefer cash in advance or collection, even if it means accepting
slightly less profit.

Flexible cash flow: I might be open to open account or documentary credit with extended
payment terms.
4. Relationship with the importer:

New or unknown importer: I would choose cash in advance or documentary credit to minimize
risk.

Long-standing and trusted importer: I might be comfortable with open account or documentary
collection with less stringent terms.
Here's a general recommendation based on the risk of non-payment:
 High risk: Choose cash in advance or documentary credit (LC).
 Moderate risk: Consider documentary collection or open account with appropriate safeguards.
 Low risk: Opt for open account or any other convenient method.
Ultimately, the best mode of payment for an exporter depends on a careful evaluation of the specific
transaction, the buyer's creditworthiness, and the risk tolerance of the exporter. Balancing security, cost,
and administrative burden is crucial for making an informed decision that protects the exporter's
interests while maintaining good relationships with buyer
12. Cash in advance – open account – collection of payment – documentaty credit (LC) (COMPARE)
Feature
Cash in Advance Open Account
Documentary
Collection
Documentary Credit
(LC)
Payment Timing
Before shipment
After delivery
After presentation
of documents
Highest
Moderate
(Provides
moderate security)
Upon receipt of
documents by the
issuing bank
Lowest (Highest level
of security.)
Worst
Moderate
Risk for Exporter Lowest
Cash Flow
Exporter
for Best
Moderate
Flexibility
Low flexibility High flexibility Moderate
for the buyer.
for the buyer
flexibility.
Moderate to low
flexibility due to strict
compliance.
Cost for ex
Low
Low
Moderate
High
Cost for im
Low
high
Moderate
Low
23
Suitability
New Buyers
for No
Suitability
for Limited
Large
Transactions
Administrative
Complexity
Security
Buyer
Low
for Lowest
Yes
Moderate
Yes
Limited
Moderate
Yes
Low
Moderate
High
Highest
Moderate
Moderate
High (for exporter)
Security for
exporter
Buyer Relations
High (for
exporter)
May
strain
relations due to
upfront payment.
Low (for
exporter)
Fosters goodwill
but has credit
risk.
Moderate
Suitability
Low-value
transactions, new
or unknown
buyers
High-value
transactions,
established
buyers
Medium-value
transactions,
moderate risk
Can build trust High level of security,
with
moderate but may be seen as
security
less favorable by
buyers.
High-value
transactions, new or
unfamiliar buyers
AD VS DISAD
Advantages
Disadvantages
Cash in
Advance
- Lowest risk for the exporter: Payment - May discourage buyers: The upfront
is received before the goods are shipped, payment requirement can be a deterrent
eliminating the risk of non-payment.
for some buyers, especially for new
customers.
- Improved cash flow: Exporters can
immediately use the funds for production - Can damage relationships: Exporters
or other expenses.
may be perceived as untrustworthy or
inflexible.
- Reduced administrative costs: No need
to handle complex documents or - Not suitable for large or expensive
collection processes.
purchases: Large upfront payments can
be difficult for buyers to arrange.
Open Account
- Increased sales: Can attract new - Highest risk for the exporter: Carries
customers and encourage repeat business significant
risk
of
non-payment,
by offering credit terms.
especially with new or unknown buyers.
24
- Strengthened relationships: Builds trust - Requires extensive credit checks:
and loyalty with buyers.
Exporters need to carefully assess the
financial stability of their buyers.
- Improved cash flow for the exporter:
Payment is received after the goods are - Can lead to delays in payment and legal
shipped, allowing for extended payment disputes: Collecting payment can be
terms.
time-consuming and expensive if buyers
default.
Documentary
Collection
- Moderately secure: Offers some - Still carries some risk: Buyers can
protection for the exporter as payment is refuse the goods or the documents may
linked to the release of shipping be fraudulent.
documents.
- Can be more expensive than other
- Reduced credit risk compared to open methods: Bank charges for handling the
account: Exporters retain control of the documents can be significant.
documents until payment is received.
- May not be readily available: Not all
- Requires less upfront cash flow than banks offer documentary collection
cash in advance: Exporters can ship the services.
goods before receiving payment.
Documentary
Credit (LC)
- Highest security for the exporter: - Most expensive method: High bank
Payment is guaranteed by the buyer's charges and fees associated with setting
bank, removing the risk of non-payment. up and managing the LC.
- Reduced administrative burden: Banks Complex
paperwork:
Requires
handle the complex paperwork and extensive documentation and compliance
documentation process.
with strict regulations.
- Clear payment terms and conditions: - May not be readily available: Not all
All parties agree on the payment terms buyers' banks offer LC services,
upfront, minimizing risk of disputes.
especially for smaller transactions.
13. D/P – D/A
Feature
D/P (Documents Against Payment)
D/A (Documents Against Acceptance)
Definition
In a D/P transaction, the exporter
ships the goods and presents the
shipping and title documents to their
bank. The documents are then
forwarded to the importer's bank. The
importer can obtain the documents
In a D/A transaction, the exporter ships the
goods and presents the shipping and title
documents to their bank. The documents
are then forwarded to the importer's bank.
The importer can obtain the documents
upon accepting a time draft, committing to
25
upon payment, typically
through a sight draft.
Timing
Payment
made paying at a later date.
of Payment is due immediately upon Payment is due on a specified date after
presentation of documents.
presentation of documents and acceptance
of the bill of exchange.
No financing involved. Payment is Provides financing to the importer,
expected upon presentation of allowing them time to generate funds
documents
before payment.
Financing
Security
Exporter
for Higher security as payment is Lower security as the exporter grants credit
required before the importer receives to the importer until the due date of the bill
the documents and takes possession of exchange.
of the goods.
Security
Importer
for Lower security as the importer must Higher security as the importer can inspect
pay before inspecting the goods.
the goods before making payment.
Suitability
Suitable for high-value transactions
with trustworthy buyers or where
inspection of goods before payment is
not critical.
Preferred for transactions where
importer requires time for inspection
verification of the goods or when
importer's financial situation warrants
stringent payment terms.
the
and
the
less
Risk
Lower risk for the exporter as
payment is received upon document
presentation. The importer bears the
risk until payment is made.
Higher risk for the exporter as payment is
delayed and dependent on the importer's
creditworthiness. The importer assumes the
risk but gains possession of the goods.
Administrative
Complexity
Less complex as it involves a single Slightly more complex due to the
exchange of documents for payment. additional step of accepting the bill of
exchange.
Advantages
- Offers better security for the - Provides flexibility for the importer as
exporter as they receive payment they have time to inspect the goods before
before releasing the goods.
making payment.
- Reduces risk of non-payment and - Can be beneficial for transactions with
simplifies the collection process.
long lead times or complex shipment
processes.
Disadvantages
- May discourage buyers due to the - Presents higher risk for the exporter as
immediate payment requirement.
payment is delayed and dependent on the
importer's creditworthiness.
- Limits the importer's ability to
26
inspect the goods before committing - Requires additional paperwork and
to payment.
administrative steps compared to D/P.
Importer's Perspective:

D/P: Suitable for importers with immediate payment capability.

D/A: Attractive for importers who prefer deferred payment to manage cash flow.
Exporter's Perspective:

D/P: Offers immediate payment and lower risk for the exporter.

D/A: Provides a competitive advantage but involves some risk for the exporter.
Choosing between D/P and D/A:
The choice between D/P and D/A depends on several factors, including:

Trust relationship between the parties: Established relationships may favor D/A, while new
buyers might require D/P for security.

Financial stability of the importer:
o
D/P is suitable for financially strong importers.
o
D/A provides financing and flexibility for importers with a need for deferred payment.

Urgency of payment: Exporters needing immediate cash flow may prefer D/P, while those
willing to offer credit could use D/A.

Nature of the goods:
o
D/P is more suitable for goods with immediate value.
o
D/A may be appropriate for goods where the importer requires time for processing or
sales.
14. Make comparison of Transferable and Back-to-Back L/C. What are advantages and disavantages (if
any) of an exporter under Transferable L/C?
Feature
Transferable L/C
Back-to-Back L/C
Transferability
Can be transferred to a third Cannot be transferred. A new L/C (back-to-back)
party (beneficiary) by the is issued by the importer's bank based on the
original beneficiary.
original L/C.
Use Case
Used when the original Used when the importer needs to finance the
beneficiary needs to pay a purchase of goods from a supplier who requires
an L/C but cannot or does not want to obtain one
27
supplier or sub-contractor.
themselves.
Benefits
Exporter
for Expands potential customer Secures payment from a reputable bank,
base by allowing participation regardless of the financial status of the
in multi-party transactions.
intermediate beneficiary.
Drawbacks
Exporter
for Increased
complexity
and Potentially lower profit margin due to additional
paperwork due to additional bank charges associated with the back-to-back
transfer steps.
L/C.
28