Incorterm_200

University of Economics of Ho Chi Minh city Topic: Clasification about International Commercial Terms (according to INCOTERMS 2000) and a pending problem about transportation authority in import and export of Vietnam. Proffessor: PhD Trieu Hong Cam Student: Tang Huynh Yen Phuong Class: Foreign Trade 1_ Course: 33 20th February, 2010 Content 1. Introduction 2. Clasification about the International Commercial Terms 2.1. Group: E 2.2. Group: P 2.3. Group: C 2.4. Group: D 3. Realities and the causes of exporting at FOB price and importing at CIF price in Vietnam 4. Recommendation and Conclusion. ***References 1. Introduction Understanding the international rules in order to explain the uniform commercial conditions is extremely important in trading with foreign partners. This not only helps us to save time and minimize unnecessary misunderstandings in the contract but also to solve the prolems that happen unexpectedly. Clearly understanding and knowing how to apply the conditions of Incoterms are very important and sometimes also give us many advantages. However, not many Vietnamese import and export enterprises have known about that. The misconceptions of the transportation authority is one of the reasons explain why Vietnamese import and export companies usually export at FOB price and import at CIF price. In other words, they lose the transportation authority to the other partners. It also means that our country loses a wealth of benefits and currency. In this essay, you will be provided information about four different categories of International Commercial Terms as well as the other causes of exporting at FOB price and importing at CIF price in Vietnam and some recommendations about this problem. 2. Clasification about the International Commercial Terms (according to INCOTERMS 2000) Incoterms are designed to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree. The terms are grouped into four different categories: The E term - Ex works: the seller only makes the goods available to the buyer at the seller's own premises The F terms - FCA, FAS, FOB : the seller must deliver the goods to a carrier appointed by the buyer The C terms - CFR, CIF, CPT, CIP : the seller has to contract for carriage, but without assuming the risk of loss of or damage to the goods after shipment and dispatch The D terms - DAF, DES, DEQ, DDU, DDP : the seller must bear all costs and risks needed to bring the goods to the place of destination Explanation International Commercial Terms | Incoterms | 2.1. Group: E | EXW | EXW - Ex Works (...named place) means that the seller fulfills their obligation to deliver when they have made the goods available to the buyer at their premises. The buyer thus bears all costs and risks involved in taking the goods from the seller's premises to the desired destination.Ex means from. Works mean factory, mill or warehouse, which is the seller’s premise. EXW applies to goods available only at the seller's premises. Buyer is responsible for loading the goods on truck or container at the seller's premises, and for the subsequent costs and risks. In practice, it is not uncommon that the seller loads the goods on truck or trailer at the seller's premises without charging a loading fee.In the quotation, indicate the named place (seller's premises) after the acronym EXW, for example EXW Kobe and EXW San Antonio. The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex Works. | 2.2. Group F | FCA | FCA - Free Carrier (...named place) means that the seller fulfills their obligation to deliver when they have handed over the goods, cleared for export, into the charge of the carrier, named by the buyer, at the named place.The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the seller's premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller's expense. The point (depot) at origin may or may not be a customs clearance center. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the export quotation, indicate the point of departure (loading) after the acronym FCA, for example FCA Hong Kong and FCA Seattle. Some manufacturers may use the former term FOT (free on truck) and FOR (free on rail) in selling the export traders. | FAS | FAS - Free Alongside Ship (...named port of shipment) means that the seller fulfills their obligation to deliver when the goods have been placed alongside the vessel at the named port of shipment.Goods are placed in the dock shed or at the side of a ship, on the dock or lighter, within the reach of its loading equipment so that they can be loaded responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FAS, for example FAS New York and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels. | FOB | FOB - Free On Board (...named port of shipment) means that the seller fulfills their obligation to deliver when the goods have passed over the ship's rail at the named port of shipment.The delivery of the goods on board the vessel at the named port of origin (loading), at seller’s expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai. | 2.3. Group C | CFR | CFR - Cost and Freight (...named port of destination) means that the seller must pay the costs and freight necessary to bring the goods to named port of destination.The delivery of goods to the named port of destination (discharge) at the seller’s expense. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F. In the export quotation indicate the port of destination (discharge) after the acronym CFR, for example CFR Karachi and CFR lexandria. | CIF | CIF - Cost, Insurance, and Freight (...named port of destination) means that the seller must pay the costs, freight, and insurance necessary to bring the goods to the named port of destination.The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller’s expense. Buyer is responsible for the import customs clearance and the other costs and risks. In the export quotation, indicate the port of destination after the acronym CIF, for example CIF Pusan. | CPT | CPT - Carriage Paid To (...named place of destination) means that the seller pays the freight for the carriage of goods to the named destination.The delivery of the goods to the named place of destination (discharge) at seller’s expense. Buyer assumes the cargo insurance, import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the place of destination (discharge) after the acronym CPT, for example CPT Los Angeles or CPT Osaka. | CIP | CIP - Carriage and Insurance Paid To (...named place of destination) means that the seller pays the insurance, and freight for the carriage of goods to the named destination.The delivery of the goods and the cargo insurance to the named place of destination (discharge) at seller’s expense. Buyer assumes the import customs clearance, payment of customs duties and taxes, and other costs and risks.In the export quotation, indicate the place of destination (discharge) after the acronym CPT, for example CIP Paris or CIP Athens. | 2.4. Group D | DAF | DAF - Delivered At Frontier (...named place) means that the seller fulfills their obligation to deliver when the goods have been made available, cleared for export, at the named place.The delivery of the goods to the specified point at seller’s expense. Buyer is responsible for the import customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the point at frontier (discharge) after the acronym DAF, for example DAF Buffalo and DAF Welland.Example 1DAF Laredo, Texas. Seller is in Dallas, Texas, buyer is in Mexico City, Mexico. The shipment travels by truck from Dallas to the frontier at Laredo, Texas USA where the buyer takes possession and trucks the goods to Mexico City.Example 2DAF Basel Switzerland. Seller is in Dallas, Texas, buyer is in Bern Switzerland. The shipment travels by truck from Dallas to Port Arthur, by ship to Le Havre, France and then by rail to the frontier in Basel where the buyer takes possession and transports the goods to the city of Bern. | DES | DES - Delivered Ex Ship (...named port of destination) means that the seller fulfills their obligation to deliver when the goods have been made available to the buyer on board the ship, uncleared for import, at the named port of destination. The delivery of goods on board the vessel at the named port of destination (discharge) at seller’s expense. Buyer assumes the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym DES, for example DES Helsinki and DES Stockholm. | DEQ | DEQ - Delivered Ex Quay (...named port of destination) means that the seller fulfills his obligation to deliver when they have made the goods available to the buyer at the named port of destination (including duties, taxes, and other charges of delivery).The delivery of goods on the quay (the port) at destination at seller’s expense. Seller is responsible for the import customs clearance and payment of customs duties and taxes at the buyer’s end. Buyer assumes the cargo insurance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym DEQ, for example DEQ Libreville and DEQ Maputo. | DDU | DDU - Delivered Duty Unpaid (...named place of destination) means that the seller has fulfilled their obligation to deliver when the goods have been made available at the named place in the country of importation (excluding duties, taxes, and other charges of delivery).The delivery of the goods and the cargo insurance to the final point of destination, which is often the project site or buyer’s premises, at seller’s expense. Buyer assumes the import customs clearance and payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks. In the export quotation, indicate the point of destination (discharge) after the acronym DDU, for example DDU La Paz and DDU Ndjamena. | DDP | DDP - Delivered Duty Paid (...named place of destination) means that the seller has fulfilled their obligation to deliver when the goods have been made available at the named place in the country of importation (including duties, taxes, and other charges of delivery).The seller is responsible for most of the expenses, which include the cargo insurance, import customs clearance, and payment of customs duties and taxes at the buyer’s end, and the delivery of goods to the final point at destination, which is often the project site or the buyer’s premises. The seller may opt not to insure the goods at his/her own risks. In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for example DDP Bujumbura and DDP Mbabane. | 3. Realities and the causes of exporting at FOB price and importing at CIF price in Vietnam Exporting at FOB price and importing at CIF price have become a habit of most import and export enterprises in Vietnam since we began trading with the world market . It made Vietnamese enterprises become passive about transportation authority. This problem has been existing for a long time due to some main reasons following: Marine transportation industry in the country is not really strong enough. Firstly, transportation network of VietNam overseas is too small and the foreign agents system is still sparse. Therefore Vietnamese marine transportation industry has not met the transportation’s demand of most import and export companies for along time. Moreover, shipping charges of the Vietnamese transportation companies are too high in comparison with the price of foreign companies. The main reason for this is our ships are so old and backward that consume much fuel. Also, we have to spend a lot of money on maintenance and repair costs. Furthermore, we do not have a suitable structure for our fleet of ships for a long time, lack of containner ships for carrying groceries and lack of specialized vessels. Vietnamese insurance industry is not really prestigious During the past ten years, there is only one insurance company that has the exclusive right in the field of insurance. So, the process of handling with claims and compensation of customers have taken a lot of time. Also, most of insurance employees are still confused and embarrassed when dealing with custommers because they are not well trained enough.The capital of Vietnamese insurance companies is not enough for major contracts. Therefore, when the value of the insurance is large, they have to reinsure at a foreign insurance company. These issues have been existing for many years and led to the low prestige of the insurance companies in Vietnam . State has no policies or regulations required import and export companies to hire the domestic ships and buy insurance from Vietnamese companies. According to international trade rules, the countries have imported-goods enjoy the transpotation authority to the imported country. About insurance, up to 1991, there were more than 40 countries in the world has regulations that imports of their country must be bought insurance from their country’s companies to reduce the cost of foreign currency, and to support national insurance companies. Vietnam does not have regulations about this issue, so the import- export company is still exporting at FOB price and importing at CIF price. Import-Export enterprises fear the risk of chartering and buying insurance. Because of exporting at FOB price and importing at CIF price, Vietnamese enterprises do not have to charter and buy insurance for goods. Therefore, they can avoid the risk of chartering and buying insurance such us an increasing in freight (or liner tariff or hire...) or insurance premium...However, losing the transportation authority made our enterprises become passive in carring and receiving cargo and lose an oportunity to bring currency to our country. Lack of knowledge and experience about international transportation and insurance The import-export enterprises do not have mastery of chartering and insurance. They also do not have relationship with all carriers and insurance companies in order to choose the prestige carriers in the market. Misconceptions about the FOB and CIF term: FOB means that the seller fulfills their obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. CIF means that the seller must pay the costs, freight, and insurance necessary to bring the goods to the named port of destination. Therefore, they believe that "exporting under FOB conditions is safer and faster payment than CIF and vice versa. According to INCONTERMS, the seller only bears risk and costs incurred related to the goods until the goods ship by rail at the port of loading goods in FOB and CIF terms (including CFR). The payment in full quickly or slowly depends on the provisions in the contract and not depends on the FOB or CIF term. The import-export enterprises have problems of capital Capital of many import- export companies is often borrowed from the banks. They do not have enough capital to pay freight and insurance premium. Besides, Vietnamese exports are mainly raw or intermediate processing materials that have low value, so that the freight is much more than the value of the cargos. 4. Recommendation and Conclusion. In conclusion, the exporting at FOB price and importing at CIF price reality are still very popular in Vietnam. It’s obvious that Vietnam and Vietnamese import- export enterprises lose lots of benefits from losing transportation authority. Based on the causes of this reality, it is reasonable to think of some measures to support Vietnamese companies so that we can obtain the transportation authority in the future. * The government should have suitable policies to encourage and made export and import company export at CIF price and import at FOB price. Moreover, they should also provide financial supports to enhance country’s marine transportation industry in order to meet transportation demand of trader. * Popularize the information about forwarding and international insurance as well as document about chartering operation for domestic import-export business. It can help them to be independent in conducting transportation of goods as well as have more knowledge about the benefits of holding the transportation authority. * Encourage prestigious insurance companies to open branches or representative offices in Vietnam to create favorable conditions for Vietnamese transportation companies so that it is easier for them to contact with the insurance company when they have a transportation contract. References Guide to Incoterms 2000 : http://www.geo-logistics.com/WTR_Customs/incoterms.asp EXW - Ex Works: http://www.geo-logistics.com/WTR_Customs/exw.asp#top FCA - Free Carrier: http://www.geo-logistics.com/WTR_Customs/fca.asp#top FAS - Free Alongside Ship : http://www.geo-logistics.com/WTR_Customs/fas.asp#top FOB - Free On Board: http://www.geo-logistics.com/WTR_Customs/fob.asp#top CFR - Cost and Freight: http://www.geo-logistics.com/WTR_Customs/cfr.asp#top CIF - Cost, Insurance, and Freight : http://www.geo-logistics.com/WTR_Customs/cif.asp#top CPT - Carriage Paid To: http://www.geo-logistics.com/WTR_Customs/cpt.asp#top CIP - Carriage and Insurance Paid To: http://www.geo-logistics.com/WTR_Customs/cip.asp#top DAF - Delivered At Frontier : http://www.geo-logistics.com/WTR_Customs/daf.asp#top DES - Delivered Ex Ship: http://www.geo-logistics.com/WTR_Customs/des.asp#top DEQ - Delivered Ex Quay: http://www.geo-logistics.com/WTR_Customs/deq.asp#top DDU - Delivered Duty Unpaid : http://www.geo-logistics.com/WTR_Customs/ddu.asp#top DDP - Delivered Duty Paid : http://www.geo-logistics.com/WTR_Customs/ddp.asp#top Insurance of Vietnamese import and export in the context of international economic integration http://www.baovietnhantho.vn/newsdetail.asp'websiteId=3&newsId=66&catId=33&lang=VN The causes of exporting at FOB price and importing at CIF price http://www.vietship.vn/showthread.php't=1569