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:
CFR (Cost and Freight) CPT (Carriage Paid To)
Destination The seller is responsible for The seller is responsible for delivering the goods
Point delivering the goods to the named to a named place, which could be any place
port of destination, and they must (such as a terminal or warehouse) agreed upon
pay for the cost of freight to that by the buyer and seller. The key distinction is
port. 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
risk the buyer when the goods pass the goods are handed over to the first carrier
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
transport inland waterway transport. sea, air, and land.
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 pre-
named 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 - Under CIP, the seller is
responsible for obtaining responsible for obtaining
insurance with minimum insurance with minimum
coverage specified by the coverage specified by the
Institute Cargo Clauses (A). This Institute Cargo Clauses (C). This
provides less comprehensive covers the basic risks of loss or
coverage than the coverage damage during transportation
offered under CIP.
- 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 CFR
Insurance The buyer is responsible for The seller is responsible for
arranging and paying for securing minimum insurance
insurance from the moment the coverage for the goods during
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 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 The seller bears the cost of
costs and risks, including freight freight until the goods reach the
charges, from the moment the destination port, making it a
goods are loaded on board the slightly more expensive option
vessel. 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 Land-based: Delivery point Port-side: Requires delivery
to a named place (e.g., terminal, can be a terminal, alongside the ship at the port,
airport) on land, while FAS requires warehouse, or any agreed- but not necessarily on board.
delivery alongside the ship at the upon location inland.
named port.
Loading costs: Under FCA, the seller Seller responsibility: Buyer responsibility: Buyer is
is responsible for loading the goods Includes loading the goods responsible for loading the
onto the nominated carrier's vehicle. onto the buyer's nominated goods onto the ship, including
Under FAS, the buyer is responsible carrier's vehicle. any associated costs.
for loading the goods onto the ship.
Documentation: Both require similar Similar paperwork: Both May require additional
documentation, but FCA may require require commercial invoice, documents: FCA may require
additional documents relating to the packing list, certificate of additional documents like
land transport. origin, and other relevant transport documents depending
documents. 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 DPU (Delivered at DAP (Delivered at Place) DDP (Delivered Duty Paid)
Place Unloaded)
Place of Named place at the Named place at the Named place at the buyer's
Delivery buyer's premises buyer's premises premises, ready for unloading
and cleared for import
Responsibilities Deliver the goods to Deliver the goods to the Deliver the goods to the named
of Seller 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 Suitable for general cargo Suitable for high-value goods
where the seller when the buyer wants to or when the buyer wants to
wants to retain minimize their avoid the complexities of
control over the involvement in the import clearance
delivery process delivery process
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.
 The competitive landscape: If I am facing strong competition, I may need to offer DDP to win
the business.
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6. Incoterm nào phù hợp trong các TH
Incoterm Importer Exporter
CIF Preferred if the importer: 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
negotiating and securing freight rates. associated costs, avoiding fluctuations in freight
charges.
- Has experience arranging and
managing freight shipments. - Prefers a simpler transaction and avoids
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 - Desires greater control over the administrative burdens related to freight
shipping process, choosing the specific arrangements.
carrier and route.
- Doesn't have established relationships with
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 To Order Bill of Lading (To To Bearer B/L
(Straight BL) Order BL)
Ownership The goods are consigned to The goods are consigned "to The goods are consigned
a specific named order" or "to the order of" a "to bearer," meaning the
consignee, usually the named party (usually the possession of the BL
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 buyer or the consignee shipper or a specified party). document itself represents
mentioned in the sales This allows for more ownership of the goods
contract flexibility in transferring
ownership.
Transfer This type of BL is non- This type of BL is This type of BL is
negotiable, meaning it negotiable, meaning it can be extremely negotiable, as
cannot be transferred to transferred to another party the document can be
another party without the through endorsement and transferred simply by
specific endorsement of the delivery of the document. physical delivery, without
consignee. the need for endorsement.
Use Cases Common in Open Flexibility in Trade: To Highly Negotiable
Account Transactions: Order BLs provide flexibility Instruments: To Bearer
Straight BLs are often used in trade, especially in BLs are rare and are not
in transactions where the scenarios where the goods commonly used due to the
buyer and seller have a may need to be sold or high level of negotiability,
high level of trust, such as transferred to another party which can lead to
open account transactions. before reaching the challenges in controlling
destination the ownership of goods
Transfer of No Negotiability: The title Negotiability: The Physical Possession:
Title to the goods is negotiability of a To Order Ownership is determined
straightforward and does BL allows for the transfer of by the physical possession
not involve negotiation. title to the goods by of the BL document. The
The named consignee is endorsement and delivery of person holding the
typically the rightful the document. This facilitates document is considered the
owner. easier trading, financing, and owner
transfer of ownership.
Consignee Named specifically "To order" or "to order of" Not specified
followed by a named party
Control of Transferred upon delivery Retained by the holder of the Retained by the physical
goods to the named consignee BL until endorsed holder of the B/L
Payment Typically used for cash-in- Used for credit transactions Retained by the physical
terms advance transactions where payment is due upon holder of the B/L
surrender of the endorsed BL
Security High Moderate Low

8. Direct BL – Through BL

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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 Direct BL Through BL
Scope of Covers only one transport leg from Covers multiple transport legs involving
transport origin to destination. different carriers.
Number of One carrier Multiple carriers
carriers involved
Issuance Issued by the initial carrier at theIssued by the first carrier in the chain of
origin port. transport, covering the entire journey.
Responsibility Each carrier is responsible for the The first carrier is responsible for the cargo
for cargo cargo only during its respective legthroughout the entire journey, regardless of
of the journey. which carrier is transporting it at a given
time.
Purpose Suitable for simple, single-leg Suitable for complex, multi-leg transport.
transport.
Cost Typically less expensive than Usually more expensive due to the additional
Through BL. responsibility assumed by the first carrier.
Complexity Simpler due to involvement of a More complex due to multiple carriers and
single carrier. potential for discrepancies between
documents.
Freight Charges Paid to the carrier responsible for Paid to the first carrier, who then distributes
the entire transport the payment among the other carriers
involved
Use cases - 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.
Control The consignee specified on the The intermediary (issuing party) retains
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.
Documentation Requires only one BL Requires separate BLs for each leg of the
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.
Liability for Carrier assumes full liability for any loss Carrier's liability starts when the goods
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Damage 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 Can be used for both cash-in-advance and Often used for credit transactions where
Terms credit transactions. payment occurs after shipment
confirmation.
Issuance Issued after the goods have been loaded Issued before the goods are loaded,
Timing 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.
Title and Implies the transfer of title to the goods. Does not necessarily transfer
Ownership The consignee gains ownership. ownership. It indicates readiness for
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
Involved notes, checks, payment slips, BE). documents (e.g., invoices, bills of
lading, inspection certificates).

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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 Verification is based on the examination
creditworthiness of the parties involved, as of shipping and title documents,
there are no physical documents to confirm providing a more secure method of
the status of the goods or their shipment. ensuring that the goods have been
shipped.
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.
 Transaction Security: Documentary collection provides additional security through the
presentation of shipping and title documents.
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  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.
5. Payment history:

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  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.

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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.

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  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:
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  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:

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  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:

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  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 Documentary Credit
Collection (LC)
Payment Timing Before shipment After delivery After presentation Upon receipt of
of documents documents by the
issuing bank
Risk for Exporter Lowest Highest Moderate Lowest (Highest level
(Provides of security.)
moderate security)
Cash Flow for Best Worst Moderate Moderate
Exporter
Flexibility Low flexibility High flexibility Moderate Moderate to low
for the buyer. for the buyer flexibility. flexibility due to strict
compliance.
Cost for ex Low Low Moderate High
Cost for im Low high Moderate Low

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Suitability for No Yes Moderate Yes
New Buyers
Suitability for Limited Limited Moderate Yes
Large
Transactions
Administrative Low Low Moderate High
Complexity
Security for Lowest Highest Moderate Moderate
Buyer
Security for High (for Low (for Moderate High (for exporter)
exporter exporter) exporter)
Buyer Relations May strain Fosters goodwill Can build trust High level of security,
relations due to but has credit with moderate but may be seen as
upfront payment. risk. security less favorable by
buyers.
Suitability Low-value High-value Medium-value High-value
transactions, new transactions, transactions, transactions, new or
or unknown established moderate risk unfamiliar buyers
buyers buyers

AD VS DISAD
Advantages Disadvantages
Cash in - Lowest risk for the exporter: Payment - May discourage buyers: The upfront
Advance 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.
- Strengthened relationships: Builds trust - Requires extensive credit checks:
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 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 - Moderately secure: Offers some - Still carries some risk: Buyers can
Collection 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 - Highest security for the exporter: - Most expensive method: High bank
Credit (LC) 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)

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Definition In a D/P transaction, the exporter In a D/A transaction, the exporter ships the
ships the goods and presents the goods and presents the shipping and title
shipping and title documents to their documents to their bank. The documents
bank. The documents are then are then forwarded to the importer's bank.
forwarded to the importer's bank. The The importer can obtain the documents
importer can obtain the documents upon accepting a time draft, committing to
upon payment, typically made paying at a later date.
through a sight draft.
Timing of Payment is due immediately upon Payment is due on a specified date after
Payment presentation of documents. presentation of documents and acceptance
of the bill of exchange.
Financing No financing involved. Payment is Provides financing to the importer,
expected upon presentation of allowing them time to generate funds
documents before payment.
Security for Higher security as payment is Lower security as the exporter grants credit
Exporter 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 for Lower security as the importer must Higher security as the importer can inspect
Importer pay before inspecting the goods. the goods before making payment.
Suitability Suitable for high-value transactions Preferred for transactions where the
with trustworthy buyers or where importer requires time for inspection and
inspection of goods before payment is verification of the goods or when the
not critical. importer's financial situation warrants less
stringent payment terms.
Risk Lower risk for the exporter as Higher risk for the exporter as payment is
payment is received upon document delayed and dependent on the importer's
presentation. The importer bears the creditworthiness. The importer assumes the
risk until payment is made. risk but gains possession of the goods.
Administrative Less complex as it involves a single Slightly more complex due to the
Complexity 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
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 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
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)

27
 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
supplier or sub-contractor. an L/C but cannot or does not want to obtain one
themselves.
Benefits for Expands potential customer Secures payment from a reputable bank,
Exporter base by allowing participation regardless of the financial status of the
in multi-party transactions. intermediate beneficiary.
Drawbacks for Increased complexity and Potentially lower profit margin due to additional
Exporter paperwork due to additional bank charges associated with the back-to-back
transfer steps. L/C.

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