Lesson 2 - Cross - Border Trading

L/O/G/O
International Trade Finance
LESSON 2
CROSS – BORDER TRADING
MFB & MBA. BÙI QUỐC KHÁNH

MOBILE: 0916782788
http://dichvudanhvanban.com www.themegallery.com
7/4/2023 1
Contents
• The risks involved.
• Contracts.
• Methods of payment.
• Clearinghouse.
• Incoterms 2020.
• Ecommerce.
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http://dichvudanhvanban.com
The risks involved
 No transaction can be undertaken without risk to the buyer and
seller, although those risks can be significantly reduced by banks
and insurers.
 For the exporter the main risks are:
• Commercial: Delayed payment or non-payment.
• Political: Intervention by central bank in importer’s country to
delay or prevent the release of foreign exchange.
• Exchange: Depreciation in the currency in which he has
invoiced his goods.
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The risks involved
Other risks include:
• Damage to, or loss of goods in transit
• Cultural and language differences
• Interest rate changes
• Property ownership rights, including intellectual property protection
• Problematic relationships with contractors, distributors and agents
• Political instability and security concerns.
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Contracts
 The type of contract ranges from the very simplest form of offer and
acceptance, to the comprehensive document required to cover the sale of
high-specification technical equipment.
 Apart from the basic details relating to:
• Price.
• Quantity and delivery time.
• Terms of sale.
• Method of settlement.
 Notes:
• Documentation and insurance must be clearly defined and understood
by buyer and seller.
• Important factors which have to be included if the separate
responsibilities of the parties are to be established.
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Methods of payment
 Basic methods of payment, including :
• Advance.
• Open account.
• Collection.
• Documentary credits.
• Consignment.
 Non-traditional methods of payment :
• Forfaiting.
• Factoring.
• Countertrade.
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Methods of payment
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Methods of payment
More
Least Secure Less Secure Most Secure
Secure
Documentary Letters of Cash-in-

Exporter Consignment Open Account
Collections Credit Advance
Cash-in- Letters of Documentary Open

Importer Consignment
Advance Credit Collections Account
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Cash in advance
An importer is required to pay an exporter prior to delivery. Upon
receipt of payment, the exporter delivers the goods to the importer.
Should be applied when the exporter:
is selling globally exclusive goods
is doubtful about the buyer’s character and/or ability to pay
is exposed to buyer's country risk, arising for example from political
and/or economic instability.
=> gives the exporter the greatest protection,
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Open account
The exporter ships the goods first and bills the importer later.
Upon receipt of goods, the importer pays the exporter by means
of telegraphic transfer or sending a demand draft.
 has become an increasingly important payment method
recently.
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Open account
Open account sales have greatly expanded due to:
 major increase in international trade,
 improvement in credit information about importers, and
 sellers eager to increase export volume.
The exporter may accept this unfavorable payment term as:
 The exporter encounters keen competition, hence the goods
have to be sold with the most attractive payment terms to
potential buyers.
 The market is a buyer’s market, hence the buyers has
bargaining power and exporters are given no other choices.
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Consignment
Consignment in international trade is a variation of open
account in which payment is sent to the exporter only after
the goods have been sold by the foreign distributor to the
end customer.
Features:
Key issue in settlement: the amount of goods kept in
stock.
Invoicing: takes place after the goods have been accessed
by the importer.
No absolute documents entitle the exporter to claim the
payment or the goods.
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Consignment
Application:
 Between affiliated and parent companies
 Demonstration/ market survey purposes (involved mall amounts of
merchandise)
 Specific types of products, which require immediate delivery to the
retailer e.g. pharmaceuticals.
Potential conflicts:
The importer will try to keep the stock as large as possible, the
exporter will try to reduce the delivered quantities.
=> This method benefits the importer since he does not have to pay
until he resells the goods.
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Countertrade
 The payment is settled partially in goods or services,
it involves mutual transactions.
 Suitable for importers from countries with limited
foreign exchange.
 Sometimes numerous parties from various countries
are involved
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Clearinghouse
 Is a financial institution that provides

clearing and settlement services.
 A clearing house reduces the settlement risks
by netting offsetting transactions between
multiple counterparties.
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Incoterms 2020
 Are a series of pre-defined commercial terms
published by the International Chamber of
Commerce (ICC).
 The Incoterms rules are intended primarily to
clearly communicate the tasks, costs, and risks
associated with the transportation and delivery of
goods.
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Incoterms 2020
Customs clearance
for export
2 3 4
Handling
Preliminary outbound
1 Loading transportation
Packing
5
6
Insurance
Customs
clearance Main
international 7
duties transportation
11 10 9 8
Handling
Unloading Final Inbound
transportation
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Incoterms 2020
RULES FOR ANY MODE OR MODES OF TRANSPORT
•EXW: Ex Works
•FCA: Free Carrier
•CPT: Carriage Paid To
•CIP: Carriage and Insurance Paid To
•DAP: Delivered at Place
•DPU: Delivered at Place Unloaded
•DDP: Delivered Duty Paid
RULES FOR SEA AND INLAND WATERWAY TRANSPORT
•FAS: Free Alongside Ship
•FOB: Free On Board
•CFR: Cost and Freight
•CIF: Cost Insurance and Freight
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Incoterms
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EXW (insert named place of delivery) Incoterms® 2020
Delivery and risk—―Ex Works‖ means that the seller delivers the goods to the buyer:
• when it places the goods at the disposal of the buyer at a named place (like a factory
or warehouse), and
• that named place may or may not be the seller’s premises.
For delivery to occur, the seller does not need to load the goods on any collecting
vehicle, nor does it need to clear the goods for export, where such clearance is
applicable.
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FCA (insert named place of delivery) Incoterms® 2020
Delivery and risk—―Free Carrier (named place)‖ means that the seller delivers the
goods to the buyer in one or other of two ways:
• First, when the named place is the seller’s premises, the goods are
Delivered and when they are loaded on the means of transport arranged by the
buyer.
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FCA (insert named place of delivery) Incoterms® 2020
Second, when the named place is another place, the goods are delivered
• when, having been loaded on the seller’s means of transport,
• they reach the named other place and
• are ready for unloading from that seller’s means of transport and
• at the disposal of the carrier or of another person nominated by the buyer.
Whichever of the two is chosen as the place of delivery, that place identifies
where risk transfers to the buyer and the time from which costs are for the
buyer’s account.
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CPT (insert named place of destination) Incoterms® 2020
Delivery and risk—―Carriage Paid To‖ means that the seller delivers the goods—
and transfers the risk—to the buyer
• by handing them over to the carrier
• contracted by the seller
• or by procuring the goods so delivered.
The seller may do so by giving the carrier physical possession of the goods in the
manner and at the place appropriate to the means of transport used.
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The seller does not guarantee that the goods will reach the place of destination in
sound condition, in the stated quantity or indeed at all.
=> risk transfers from seller to buyer when the goods are delivered to the buyer by
handing them over to the carrier; the seller must nonetheless contract for the
carriage of the goods from delivery to the agreed destination.
For example, goods are handed over to a carrier in Las Vegas (which is not a port)
for carriage to Southampton (a port) or to Winchester (which is not a port).
=> In either case, delivery transferring risk to the buyer happens in Las Vegas, and
the seller must make a contract of carriage to either Southampton or Winchester.
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Places (or points) of delivery and destination: In CPT, two locations

are important:
• The place or point (if any) at which the goods are delivered (for the transfer
of risk)
• The place or point agreed as the destination of the goods (as the point to
which the seller promises to contract for carriage).
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CIP (insert named place of destination) Incoterms® 2020
Delivery and risk—―Carriage and Insurance Paid To‖ means that the seller
delivers the goods—and transfers the risk—to the buyer
• by handing them over to the carrier
• contracted by the seller
• or by procuring the goods so delivered.
The seller may do so by giving the carrier physical possession of the goods in
the manner and at the place appropriate to the means of transport used.
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Once the goods have been delivered to the buyer in this way, the seller does
not guarantee that the goods will reach the place of destination in sound
condition, in the stated quantity or indeed at all.
This is because risk transfers from seller to buyer when the goods are delivered
to the buyer by handing them over to the carrier; the seller must nonetheless
contract for the carriage of the goods from delivery to the agreed destination.
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Insurance—The seller must also contract for insurance cover against the buyer’s
risk of loss of or damage to the goods from the point of delivery to at least the
point of destination.
This may cause difficulty where the destination country requires insurance cover
to be purchased locally: in this case the parties should consider selling and buying
under CPT.
Under the CIP Incoterms® 2020 rule: the seller is required to obtain extensive
insurance cover complying with Institute Cargo Clauses (A) or similar clause,
rather than with the more limited cover under Institute Cargo Clauses (C). It is,
however, still open to the parties to agree on a lower level of cover
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DAP (insert named place of destination) Incoterms® 2020
Delivery and risk—―Delivered at Place‖ means that the seller delivers the goods—and
transfers risk—to the buyer
• when the goods are placed at the disposal of the buyer
• on the arriving means of transport ready for unloading
• at the named place of destination or
• at the agreed point within that place, if any such point is agreed.
The seller bears all risks involved in bringing the goods to the named place of
destination or to the agreed point within that place. In this Incoterms® rule, therefore,
delivery and arrival at destination are the same.
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DAP (insert named place of destination) Incoterms® 2020
Identifying the place or point of delivery/destination precisely—The parties are

well advised to specify the destination place or point as clearly as possible:
• First, risk of loss of or damage to the goods transfers to the buyer at that point
of delivery/destination— and it is best for the seller and the buyer to be clear
about the point at which that critical transfer happens.
• Secondly, the costs before that place or point of delivery/destination are for the
account of the seller and the costs after that place or point are for the account of
the buyer.
• Thirdly, the seller must contract or arrange for the carriage of the goods to the
agree place or point of delivery/destination. If it fails to do so, the seller is in
breach of its obligations under the Incoterms® DAP rule and will be liable to
the buyer for any ensuing loss.
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DPU (insert named place of destination) Incoterms® 2020
Delivery and risk—―Delivered at Place Unloaded‖ means that the seller

delivers the goods—and transfers risk—to the buyer when the goods,
• once unloaded from the arriving means of transport,
• are placed at the disposal of the buyer
• at a named place of destination or
• at the agreed point within that place, if any such point is agreed.
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DPU (insert named place of destination) Incoterms® 2020
The seller bears all risks involved in bringing the goods to and unloading them at
the named place of destination.
the delivery and arrival at destination are the same.
DPU is the only Incoterms® rule that requires the seller to unload goods at
destination.
The seller should therefore ensure that it is in a position to organise unloading
at the named place.
Should the parties intend the seller not to bear the risk and cost of unloading,
the DPU rule should be avoided and DAP should be used instead.
* Identifying the place or point of delivery/destination precisely (same as above)

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DDP (insert named place of destination) Incoterms® 2020
Delivery and risk—―Delivered Duty Paid‖ means that the seller delivers the
goods to the buyer when the goods are placed at the disposal of the buyer,
• cleared for import,
• on the arriving means of transport,
• ready for unloading,
• at the named place of destination or at the agreed point within that place, if
any such point is agreed.
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DDP (insert named place of destination) Incoterms® 2020
The seller bears all risks involved in bringing the goods to the named place of
destination or to the agreed point within that place.
delivery and arrival at destination are the same.
A note of caution to sellers: maximum responsibility—DDP, with delivery
happening at destination and with the seller being responsible for the payment
of import duty and applicable taxes is the Incoterms® rule imposing on the
seller the maximum level of obligation of all eleven Incoterms® rules.
From the seller’s perspective, therefore, the rule should be used with care
for different reasons as set out in paragraph 7.
Identifying the place or point of delivery/destination precisely—as above

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FAS (insert named port of shipment) Incoterms® 2020
Delivery and risk—―Free Alongside Ship‖ means

that the seller delivers the goods to the buyer
• when the goods are placed alongside the ship (e.g.
on a quay or a barge)
• nominated by the buyer
• at the named port of shipment
• or when the seller procures goods already so
delivered.
The risk of loss of or damage to the goods transfers
when the goods are alongside the ship, and the buyer
bears all costs from that moment onwards.
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FAS (insert named port of shipment) Incoterms® 2020
Mode of transport—This rule is to be used only for sea or inland waterway

transport where the parties intend to deliver the goods by placing the goods
alongside a vessel.
 the FAS rule is not appropriate where goods are handed over to the carrier
before they are alongside the vessel, for example where goods are handed
over to a carrier at a container terminal.
 Where this is the case, parties should consider using the FCA rule rather
than the FAS rule.
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FOB (insert named port of shipment) Incoterms® 2020
Delivery and risk—―Free on Board‖ means that the seller delivers the goods to the
buyer
• on board the vessel
• nominated by the buyer
• at the named port of shipment
• or procures the goods already so delivered.
The risk of loss of or damage to the goods transfers when the goods are on board
the vessel, and the buyer bears all costs from that moment onwards.
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FOB (insert named port of shipment) Incoterms® 2020
Mode of transport—This rule is to be used only for sea or inland waterway

transport where the parties intend to deliver the goods by placing the goods on
board a vessel.
 the FOB rule is not appropriate where goods are handed over to the carrier
before they are on board the vessel, for example where goods are handed
over to a carrier at a container terminal.
 Where this is the case, parties should consider using the FCA rule rather
than the FOB rule.
7/4/2023 39
CFR (insert named port of destination) Incoterms® 2020
Delivery and risk—―Cost and Freight‖ means that the seller delivers the goods to the
buyer
The risk of loss of or damage to the goods transfers when the goods are on board the
vessel, such that the seller is taken to have performed its obligation to deliver the goods
whether or not the goods actually arrive at their destination in sound condition, in the
stated quantity or, indeed, at all.
In CFR, the seller owes no obligation to the buyer to purchase insurance cover: the buyer
would be well-advised therefore to purchase some cover for itself.
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CFR (insert named port of destination) Incoterms® 2020
Ports of delivery and destination—In CFR, two ports are important: the port where
the goods are delivered on board the vessel and the port agreed as the destination of
the goods.
•The seller must contract for the carriage of the goods from delivery to the agreed
destination.
•Risk transfers from seller to buyer when the goods are delivered to the buyer by
placing them on board the vessel at the shipment port or by procuring the goods
already delivered.
For example, goods are placed on board a vessel in Shanghai (which is a port) for
carriage to Southampton (also a port). Delivery here happens when the goods are on
board in Shanghai, with risk transferring to the buyer at that time; and the seller must
make a contract of carriage from Shanghai to Southampton.
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CIF (insert named port of destination) Incoterms® 2020
Delivery and risk—―Cost Insurance and Freight‖ means that the seller delivers
the goods to the buyer
The risk of loss of or damage to the goods transfers when the goods are on
board the vessel, such that the seller is taken to have performed its obligation
to deliver the goods whether or not the goods actually arrive at their
destination in sound condition, in the stated quantity or, indeed, at all.
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• Mode of transport—This rule is to be used only for sea or inland

waterway transport. Where more than one mode of transport is to be
used, which will commonly be the case where goods are handed over to a
carrier at a container terminal, the appropriate rule to use is CIP rather
than CIF.
• Ports of delivery and destination— (as above)
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Insurance—The seller must also contract for insurance cover against the buyer’s
risk of loss of or damage to the goods from the port of shipment to at least the
port of destination.
This may cause difficulty where the destination country requires insurance cover
to be purchased locally.
 in this case the parties should consider selling and buying under CFR.
 under the CIF Incoterms® 2020: the seller is required to obtain limited
insurance cover complying with Institute Cargo Clauses (C) or similar
clause, rather than with the more extensive cover under Institute Cargo
Clauses (A). It is, however, still open to the parties to agree on a higher level
of cover.
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E-commerce
• Electronic commerce is :
– The buying and selling of goods and services.
– The transmitting of funds or data.
=> Over an electronic network, primarily the internet.
• Electronic commerce can reference eUCP – Uniform customs and
practice for documentary credits for electronic presentation.
• In case of disputes in electronic trade, the court or arbitration
tribunal cannot effectively adjudicate the disputes. Hence there is
a need for an electronic of UCP.
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L/O/G/O
Thank You!
7/4/2023 46

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Lesson 2 - Cross - Border Trading

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L/O/G/O

International Trade Finance

MFB & MBA. BÙI QUỐC KHÁNH

Documentary Letters of Cash-in-

Cash-in- Letters of Documentary Open

 Is a financial institution that provides

Places (or points) of delivery and destination: In CPT, two locations

Identifying the place or point of delivery/destination precisely—The parties are

Delivery and risk—―Delivered at Place Unloaded‖ means that the seller

* Identifying the place or point of delivery/destination precisely (same as above)

Identifying the place or point of delivery/destination precisely—as above

Delivery and risk—―Free Alongside Ship‖ means

Mode of transport—This rule is to be used only for sea or inland waterway

Mode of transport—This rule is to be used only for sea or inland waterway

• Mode of transport—This rule is to be used only for sea or inland

• Ports of delivery and destination— (as above)

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