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Final Exam: EXPORT & IMPORT MANAGEMENT

Seller (BNZ Trading Co, Vietnam) offers 200 tons of coffee to Buyer (ROTECH Co., Japan) with the following
conditions:

Q1. Seller agrees to deliver the goods to buyer under the term of CIF port of Osaka, Japan. The goods were
transported and unloaded at the port and kept at customs shed for inspection and payment of duties. The
buyer was notified of the arrival of the merchandise and its location. Before the buyer picked up the goods,
the customs shed (including the merchandise in it) was destroyed by fire. The buyer claims refund of the
purchase price, stating that buyer did not receive the goods. Is the seller responsible? Why?

Seller: BNZ Trading Co, Vietnam

Buyer: ROTECH Co., Japan

Goods: 200 tons of coffee

Seller agrees to deliver the goods to buyer under the term of CIF port of Osaka, Japan.

According to INCOTERMS 2010, CIF - “Cost, Insurance and Freight” specify that “Cost, Insurance and Freight”
means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of
loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay
the costs and freight necessary to bring the goods to the named port of destination.”

Moreover, it also states that “the seller also contracts for insurance cover against the buyer’s risk of loss of or
damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain
insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to
agree as much expressly with the seller or to make its own extra insurance arrangements”. In this case, the seller is
not responsible for the destroyed merchandise since the risks are transferred from the seller to the buyer when the
goods are placed on board the vessel at the port of Osaka, Japan. After being loaded on board, if the goods
transported under the CIF contract are damaged, have defects or lost, it is the buyer that ought to pay for the
documents. However, depending on the case, loss or damage of goods gives the buyer the right to claim from the
carrier or the insurance company.

Q2. Seller agrees to deliver the goods to buyer at the following prices: (1) USD 125,000 FOB Saigon port;
USD145,000 CIF Osaka port; USD162,000 DAP at buyer’s warehouse in Osaka, Japan. Freight cost
including loading fee to bring the goods from Saigon port to Osaka port is USD 17,000. Transportation cost
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including loading and unloading fee to bring the goods from Osaka port to the buyer’s warehouse is USD
14,000; Insurance rate is 0.2%. Import duty is 5% of the FOB price.
Summary:
(1) 125,000 USD FOB Saigon port
(2) 145,000 USD CIF Osaka port
(3) 162,000 USD DAP at buyer’s warehouse in Osaka, Japan
Freight cost including loading fee: $17,000
Transportation cost including loading and unloading fee: $14,000
Insurance rate: 0.2%
Import duty: 5% of FOB price

1. Buyer will choose to buy at what price? Why?

To choose the selling price the buyer should change the cost of option (2) and (3) into FOB cost. We have:
(1) FOB Saigon port: 125,000 USD
(2) CIF Osaka port: 145,000 USD
Formula: CIF = FOB + F + (CIF x R)
𝑭𝑶𝑩 +𝑭𝒓𝒆𝒊𝒈𝒉𝒕
CIF = 𝟏−𝑰𝒏𝒔𝒖𝒓𝒂𝒏𝒄𝒆 𝒓𝒂𝒕𝒆

→ FOB = CIF x (1 - R) - F

= 145,000 x (1 - 0.2%) - 17,000

= 127,710 USD

(3) DAP at buyer’s warehouse in Osaka, Japan: 162,000 USD

Formula: DAP = FOB + Freight + Transportation cost

→ FOB = DAP - Freight - Transportation cost

= 162,000 - 17,000 - 14,000

= 131,000 USD

Consider DAP term, if the buyer want to buy Insurance for this cargo.

We have formula: DAP = FOB + Freight + Transportation cost + Insurance

→ FOB = DAP - Freight - Transportation cost - Insurance

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= 162,000 - 17,000 - 14,000 - 162,000 x 0.002

= 130,676 USD

→ Following the results that are calculated above, the buyer should choose option (1) because the buyer pays
the lowest cost in this option.

2. What must the seller pay costs and bear risks under the term of DAP at the buyer’s warehouse in Osaka?

According to INCOTERMS 2010, under the terms of DAP:

The seller takes on all the risks and costs of delivering goods to the buyer’s warehouse in Osaka, in details:

 Export packing
 Marking and labeling
 Export clearance Export customs declaration (license/EEI/AES)
 FF documentation fees
 Paying the Carriage to port of export
 Unloading of truck in port of export cost
 Loading on truck in port of import cost
 Loading the cargo on vessel/airplane in port of export charges
 Expenses for unloading the cargo in port of import
 Original terminal costs
 Vessel loading expenses
 Nominate export forwarder
 Destination terminal discharges”

3. Discuss the major differences between CIF Osaka port and DAP at buyer’s warehouse in Osaka?

 CIF Osaka port:

Under the term CIF: risks of loss or damaged are transferred from the seller to the buyer when the goods are placed
on board the vessel at the Osaka port. The seller must contract and pay the necessary costs and freight to bring the
goods to Osaka port and responsible for contracting for insurance covering against the buyer’s risk of loss or
damage to the goods during the carriage while the buyer must pay for the documents after being loaded on board.

 DAP at buyer’s warehouse in Osaka:

Under the term DAP: risks of loss and damage are transferred from the seller to the buyer when the goods are
placed at the buyer’s warehouse in Osaka. The seller has the responsibility of paying all related costs and
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bearing any potential damage or losses of goods that are sold to the buyer’s warehouse in Osaka while the buyer is
responsible for paying import duties and applicable taxes, including clearance and local taxes, once the shipment
has arrived at the buyer’s warehouse.

4. Discuss the major differences between DAP at buyer’s warehouse in Osaka and DDP at buyer’s warehouse in
Osaka?

 DAP at buyer’s warehouse in Osaka

Under the term DAP: risks are transferred from the seller to the buyer when the goods are placed at the buyer’s
warehouse in Osaka (not unloaded and not cleared). The seller is responsible for delivering of the goods, ready for
unloading at the named place of destination while the buyer is responsible for not only the unloading, but also the
customs clearance, duties, and taxes as well.

 DDP at buyer’s warehouse in Osaka

Under the term DDP: risks are transferred from the seller to the buyer when the goods cleared and duties paid (not
unloaded) are placed at the buyer’s warehouse in Osaka. The seller not only bears all the risks and costs relating to
operation of delivering the goods to an agreed place in the country of importation but also has the responsibility of
paying other costs including packing, labeling, freight, customs clearance, duties, and taxes while the buyer is only
responsible for unloading.

Q3. Buyer agrees to pay by letter of credit (L/C) at sight.

1. Discuss the procedure of L/C

1.After the parties to the trade agree on the contract and the use of LC, the importer (buyer) applies to the issuing bank
in favor of the exporter (seller).
2.Issuing bank sends the letter of credit to advising bank and the latter confirms the L/C
3.The advising bank checks the content of the L/C whether the L/C is confirmed with the terms arranged in the
contract and.
4.The bank then notifies the seller that a L/C has been issued on its behalf and is available on presentation of
documents.
5.The seller then double-check the L/C again and if all the stipulations are satisfied, the seller arranges for
shipment and prepares necessary documents (bill of lading, commercial invoice, draft, insurance policy, certificate
of origin and amendments if necessary in case the credit improperly describes the merchandise).
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6.After the goods are shipped, the exporter (either on their own or through the freight forwarder) presents the relevant
documents to the advising/confirming bank.
7.The advising/ confirming bank checks the documents again comparing to the term in the L/C. If the documents
comply, the bank pays the seller. Then it sends documents plus settlement instructions to the issuing bank.
8.The issuing bank verifies the documents for compliance with instructions and then reimburses the proceeds to the
advising/confirming bank.
9.The issuing bank gives document to the buyer and the buyers double – check the documents again provides that all of
the documents are satisfied with terms agreed in the contract
10.The buyer arranges for clearance of the merchandise that is, gives up the bill of lading and takes receipt of goods
11.The buyer pays the issuing bank on or before the draft maturity date.

2. Compare the role and responsibility of banks in documentary collections and letters of credit

Letter of credit Document Collection

 An international banking instrument to  The process of exchange of goods by
finance contracts of a commercial nature the creation of trade papers that are due
between an internal importer and a to be collected within the agreed
beneficiary abroad (exporter) deadlines and the banks is used as
 It is an arrangement where an issuing intermediaries to exchange goods with
bank (typically, the buyer’s (importer) payment documents
bank) unconditionally guarantees to pay  It is a procedure in which the bank is
the seller’s bank when the goods are not required to pay the seller (exporter)
delivered along with specific documents. if the buyer decides not to buy.
 In other words, a letter of credit is an  In other words, a documentary
official document that provides a collection gives the buyer a privilege to
guarantee of payment to a seller. reject the consignment if it does not
meet the quality standards or any terms
agreed in the contract. In this case, the
 The bank takes the responsibility to seller is assuming the credit risk if the
pay to the exporter if the importer is not buyer do not pay
able to do so in the letter of credit  The bank holds no such responsibility
 The importer’s bank issues the letter of in the documentary collection
credit  The exporter’s bank issues the
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documentary collection

3. Briefly describe the transferable L/C, back-to-back L/C.

 Transferable Letter of Credit is a credit fain which the first beneficiary has the right to transfer some or all of the
credit to another party (secondary beneficiary). “This is possible only when the Letter of Credit is marked as
transferable by the issuing bank upon the instructions of the buyer or the importer of goods.”
This type of credit allows the first beneficiary (a middle man or agent of the actual supplier) to transfer the LC in
favor of the suppliers and still allowing the first beneficiary to substitute invoices and draft for those presented by
the second beneficiary to conceal the identity of the supplier.
 Back-to-back letter of Credit consist of two letters of credit used together to finance a transaction, one issued by
the buyer's bank to the intermediary (a broker) and the other issued by the intermediary's bank to the seller.
“With the original LC from the buyer's bank, the broker goes to his own bank and has a second LC issued with the
seller as the beneficiary. The seller is thus ensured of payment upon fulfilling terms of the contract and presenting
the appropriate documentation to the intermediary's bank.”
4. What is difference between a bill of exchange and a bill of lading? What is difference between a
commercial invoice and pro forma invoice?
1. Differences between Bill of lading and Bill of exchange

Bill of lading Bill of exchange

 A document that a shipping carrier or freight  A documentation of payment or a negotiable
forwarder issues to the cargo owner as a instrument that is created by the seller or
contract of carriage exporter and given to the buyer (importer) that
 Details what items are being received by a legally requires the buyer to pay an amount of
shipper, the number of goods and where they money at an agreed date at the future.
are being shipped to; it also serves as a receipt  Details the goods shipped to the buyer, the
for the second party once the goods being invoice amount for payment, the date payment
shipped arrive at their destination noted on the is due, and bank details, since the buyer
bill of lading. usually makes a payment from his bank to the
 Is an underlying document where the cargo seller's bank.
owners contract a logistics provider to ship  Is commonly used to facilitate the financing
cargos internationally. of a trade
 The format is :  The format is:
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1.Cargo weight and dimension 1.Drawer of the Bill

2.Cargo description 2.Drawee of the Bill
3.Cargo packing material 3.Endorsee/Payee of the Bill
4.Hazardous cargo detail 4.Date of the bill maturity
5.Stamp Duty

2. Differences between Commercial invoice and Pro forma invoice

Commercial invoice Pro forma invoice

 Shows the final amount that should be  A good faith estimate showing what can be known
paid in advance, such as prices and terms, and an average
 Provides a final statement reflecting billing amount for the types of items being requested.
what has occurred during the process of  Provides an estimate for the final amount of an
filling an order or completing a project. order. A customer may also use a pro forma invoice to
The customer will use this statement to decide whether or not to place an order.
pay the bill, and will keep it for tax and
accounting purposes.  The quantity of products ordered (from the Pro forma
 The commercial invoice confirms Invoice) is often different to the actual quantity of
the exact quantity of the products that goods that have been shipped
have actually been loaded and shipped
 A Commercial Invoice document is
 Pro forma Invoice is issued before the goods have
issued to the buyer after the goods have
been produced or delivered.
been delivered or shipped
 The purpose of a commercial invoice is
 The purpose of a pro forma invoice is to give a
to request payment for items that have
customer a clear idea of what to expect.
actually been sold by showing the
amount that should actually be paid.
 Are used in importing and exporting to declare the
 Are used in accounting to pay bills.
value of goods for customs

Q5. Find out the mistakes including the errors and missing of the following sales contract and explain?

Mistakes Explanation
Missing: Sales contract number, place.
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Missing: Address, Telephone, Fax,

Represented by whom of two parties.

ARTICLE 1: COMMODITY The contract does not include name of goods
- Coffee - Commercial and technical name.

- Name of manufacturer and origin country.

ARTICLE 2: QUALITY
Lack of description of the quality of the goods by
- As export coffee agreed samples (agreement by parties, sample no.)
ARTICLE 3: QUANTITY
Missing: at whose option?
200 tons more or less 5%
ARTICLE 4: PRICE Missing: the version of INCOTERM

USD1,400/T CIF Vietnam port Total amount, total amount in letter.

Wrong at units of weight.

ARTICLE 5: PAYMENT
Missing:
By L/C to be opened not later than
September 4, 2020.  Currency of payment
 Type of L/C, time of payment, “in favor of seller”.
 Issuing bank: Vietcombank, Vietnam.
 Notifying bank: HSBC Bank, Japan. -Wrong at the date of opening L/C.

- Proforma invoice one copy. - Wrong at the name of Issuing bank and Notifying
bank.
- Certificate of Quality and Quantity to be
issued by buyer. -

- Packing list - Wrong at “Pro forma Invoice”.

- Bill of Lading marked freight to collect - Wrong at “buyer”.

at destination made out to order of
Vietcombank. - Lack the number of copies and origin of Packing list.

- Insurance certificate or policy for at - Lack type of bill of lading, “notify the Buyer”.
least 110% of CIF invoice value with
-Wrong at the name of the issuing bank.
ICC.
- Lack of Cargo Policy Coverage.
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ARTICLE 6: DELIVERY
-Lack term of delivery.
Not later than September 5, 2020.
- Lack port of loading, port of discharge.

- Lack final advice of shipment.

- Lack transshipment: Allowed/not allowed.

- Wrong at time of delivery.

ARTICLE 7: INSURANCE - Wrong at “Buyer”

- Will be covered by the Buyer. - Lack of conditions of insurance.

ARTICLE 8: ARBITRATION

All disputes arising out of this contract or Lack applicable law, place of arbitration and who shall
breach thereof which cannot be settled bear arbitration costs.
amicably by the parties concerned shall
be settled by the arbitration.

ARTICLE 9: FORCE MAJEURE

-Lack listing events of force majeure that might
Will be informed happen.

- Lack notification of force majeure by parties

- Lack solution for force majeure.

ARTICLE 10. EFFECTIVE DATE:
Lack the number of copies kept by each party.
The contract is made in two (02) copies
in English.

Besides, the sales contract also lacks of 4 articles: PACKAGING, PENALTY, INSPECTION and
CLAIM.
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Q6. Base on question 5, write the sales contract correctly and completely.

SALES CONTRACT

No.: 01-16/SC

Date: September 5, 2020

Place: Ho Chi Minh city, Vietnam

Party A: BNZ Trading Co, Ltd. (Vietnam)

Address: ..........................................................................................................................

Tel: .................................................................................................................................

Fax: .................................................................................................................................

Represented by: ...............................................................................................................

Hereinafter referred to the Seller

Party B: ROTECH Co, Ltd. (Japan)

Address: ..........................................................................................................................

Tel: .................................................................................................................................

Fax: .................................................................................................................................

Represented by: ...............................................................................................................

Hereinafter referred to the Buyer

Both parties have agreed to sign the contract with the following terms and conditions:

ARTICLE 1: COMMODITY

Vietnam Robusta Coffee

ARTICLE 2: QUALITY

According to the sample agreed by both parties (Sample No 1234)

ARTICLE 3: QUANTITY

200 tons more or less 5% at the Seller’s option.

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ARTICLE 4: PACKAGING

The goods to be packed in the export standard packing appropriate for transport, loading, unloading and
transshipment.

ARTICLE 5: PRICE

- Unit price: USD 1,400/MT CIF Vietnam port, INCOTERM 2010

- Total amount: USD 280,000 +/-5% USD

- Total amount in letter: US dollars two hundred and eighty thousand./.

5% (five percent) more or less on merchandise quantity shipped is acceptable.

ARTICLE 6: PAYMENT

- Currency of payment: US dollars

- Payment by irrevocable to be opened not later than September 7, 2020 for 100% of invoice value, in favor of the
seller.

Issuing bank: HSBC Bank, Japan.

Notifying bank: Vietcombank, Vietnam.

The following documents are presented for negotiation:

- Signed commercial invoice 02 copies.

- Certificate of Quality and Quantity to be issued by manufacturer 02 copies.

- Detailed packing list 02 copies.

- Full set of original clean on board Bill of Lading made out to order of Vietcombank marked freight to collect at
destination and notify applicant.

- Certificate of origin form D.

- Insurance certificate or policy for at least 110% of CIF invoice value with Institute Cargo Clauses (A) Institute
War Clauses (Cargo).

- Other documents.

ARTICLE 7: DELIVERY

- Delivery of goods will be made CIF, INCOTERM 2010.

- Time of delivery: not later than September 21, 2020

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- Port of loading: Saigon port, Vietnam

- Port of discharge: Osaka port, Japan

- Partial shipment: not allowed.

- Transshipment: not allowed.

- Notice of shipment:

+ Pre-shipment: The buyer will advise the seller the name of vessel not later than five (05) days before
shipping date by fax

+ Final advice of shipment: within 24 hours after shipment the Seller shall advise by cable/telex: Contract
No., quantity, gross weight, net weight, measurement, number of packages, invoice value, name of carrying
vessel, Bill of Lading number.

ARTICLE 8: INSURANCE

Insurance for the contracted goods will be covered by the Seller by All Risk Policy.

ARTICLE 9: ARBITRATION

All disputes arising out of or in relation to this contract shall be settled in Vietnam under the law of Vietnam in
accordance with the rule of procedure of The Vietnam arbitration association. The award resulting therefore shall
be final and binding upon the parties.

In the event of arbitration, the party against whom the award is made shall bear the entire costs of both parties to
the action.

ARTICLE 10: FORCE MAJEURE

- Should any circumstances arise preventing either party from full or partial carrying out its obligations under the
contract (namely: act of god, acts of elements, fire, war, military operations of any nature, blockade or prohibition
of export, import), the period stipulated for performance of the contract shall be extended accordingly.

- In the event of these circumstances prevailing for more than fulfill its obligation under the contract, and in this
case, neither the party shall be entitled to indemnity of any losses it may sustain.

- The party unable to carry out its obligations under the contract shall advise the other party of the commencement
and termination of the circumstances preventing performance of the contract within 5 days.

- A certificate issued by the Chamber of Commerce of the sellers’ or buyers’ country shall be sufficient proof of
the operation and the duration of such circumstances.

ARTICLE 11: EFFECTIVE DATE

The contract will come into force from the signing date. The contract is made in two (02) copies in English. Each
party keeps one (01) copies of the contract having equal value.
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Q7. As seller, discuss the steps to implement the sales contract as in question 6.

Step 1: Exporting the License

Step 2: Considering payment terms (CIF)

Step 3: Preparing Vietnam Robusta Coffee for export

Step 4: Inspecting the goods

Step 5: Transportation contract (C & D)

Step 6: Insurance contract (CIF)

Step 7: Being cleared customs procedures

Step 8: Delivering the goods

Step 9: Presenting shipping documents for payment

Step 10: Claiming and solving claim.

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References

Khajuria, R. (2020, April). Letter of Credit and its Process explained with a Flowchart. Retrieved from
https://www.dripcapital.com/resources/blog/letter-of-credit-lc

Ask Any Difference (2020). Difference Between Letter of Credit and Documentary Collection (With Table).
Retrieved from https://askanydifference.com/difference-between-letter-of-credit-and-documentary-
collection/#:~:text=The%20importer's%20bank%20issues%20the%20letter%20of%20credit%2C%20where
as%20the,the%20letter%20of%20credit%20facility

Efinancemanagement (2019, August). Definition of transferable Letter of Credit.

https://efinancemanagement.com/sources-of-finance/transferable-letter-of-credit

MAVERICK, J.B (2019, July). Bill of Lading vs. Bill of Exchange: What's the Difference?. Retrieved from
https://www.investopedia.com/ask/answers/042315/what-difference-between-bill-exchange-and-bill-
lading.asp

Thompson, B. (2019, January). The difference between a Proforma Invoice and Commercial Invoice. Retrieved
from https://incodocs.com/blog/difference-proforma-invoice-commercial-invoice/
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