International Trade Overview
Module: International Trade
Contents
- Introduction
- Enquiries and Response
- Customs
Procedures
- Risk
- Titles
and Risk
- Risks in International Trade:
- Commercial risks
- Political
risks
- Documentation
- The
Export Quotations
- Mode of Transport -Sea Freight
- Delivery
- Export Cargo
Shipping Instruction
- SAD
- Certificate
of Origin
- Standard Shipping Note (SSN)
- The Bill of Lading
- Receipt
of goods
- Contract of carriage
- Document
of Title
- Paramount Clause
- Jurisdiction
- Period of Responsibility
- The
scope of the voyage
- Substitution of Vessel, Transhipment
and Forwarding
- Loading, Discharging and Delivery-Letter
Of Credit
- Law and Arbitration
- The
Role of UCP 500
- Revocation of a Credit
- Liability of Issuing and Confirming Banks
- Types
of Credit
- Insurance
References
Appendix
Introduction
The product that is to be exported is Hot Briquetted Iron (HBI) (See
Appendix 1) from Libya to the USA. In recent years the Libyan businesses have
been opening up to American Business as the government in Libya is now aiming
to increase western investment in the country to improve the country's economy.1 The Libyan Iron and Steel Company produce the product, which is a large industrial
complex situated in Misurata City in Libya. The HBI produced in this industrial
complex is of high quality and is made according to the ISO 2000 standards; this
industrial complex is the largest steel manufacturer in North Africa.2 The HBI can be easily transported from the factory through the jetty of the factory,
which can easily accommodate any large cargo ship and can load the goods with
ease. The various steel products from this factory are already being exported
to various European, Middle Eastern and South American countries. This report
looks at all the steps necessary to transport the product from Libya to the US
the buyer in this case is the US government which will then distribute the products
to various industrial complexes in the US, this reports includes details of all
documentary evidence, method of payments and terms of delivery.
Enquiries
and Response
Once the buyer in the USA has made the initial enquiry, it
would be up to the Libyan Iron and Steel Company to respond to it in a professional
business manner. The response should be polite and as detailed as possible, it
should also include as much relevant information as possible. If the enquiry is
of a general nature then it should be replied to with catalogues and price lists,
and a contact whereby a salesperson or representative can be reached on. In some
instances the buyer might enquire about a large order, and in this situation it
would be advisable that arrangements are made for negotiations to further the
enquiry. Since this sale to the US would be new and after a ling gap the management
at the Libyan Steel and Iron Company would have to work hard to establish goodwill
with the US clients.
Customs
Procedures
When sending the HBI consignment through to the buyer, it is
vital that the package be labelled and packed correctly, also providing all the
necessary documentation including all the tariff and identification codes. Also
information in detailing any licenses that would be placed on the product, so
that the goods travel trough customs with the least amount of problems.
Risk
There are a number
of risks included in International Trade; they include a physical risk (that products
might get damaged). The buyer has to make sure the product gets to the point of
delivery undamaged. Other risks that can damage the exporter are Credit Risk and
Exchange Rate fluctuations, which can result in losses to the Exporter.Since the
Libyan government has not been allowed to trade under the UN sanctions for a few
years the buyers will have to consider all these risks to be safe.
Titles
and Risk
The title of the goods and the all risks that can be associated
to trade pass from the seller to the buyer when the cargo passes the vessel's
permanent hose connections at port. The Libyan Steel and Iron should provide the
US buyers with all these guarantees before the goods leave the Libyan Port.
Risks
in International Trade:
There are a number of risks that are associated
with international trade; these can be divided into two major groups :3
Commercial
risks
¢ Risk of insolvency of the buyer, the buyer in the UK could
run into financial, this should not be a problem for the exporters as they are
certain that they will be paid in time.
¢ Risk of protracted default
- the failure of the buyer to pay the amount due within six months after the due
date
¢ Risk of non-acceptance, the Libyan company would have to be very
careful in fulfilling all the requirements of the US government to assure that
their payments are made on time and they can establish a good working relation
with their US partners.
Political
risks
¢ Risk of cancellation or non-renewal of export or import
licences
¢ War risks, the current situation in Iraq has added a major
impact on the insurance costs and uncertainty of the timings.
¢ Risk
of expropriation or confiscation of the importer's company
¢ Risk of
the imposition of an import ban after the shipment of the goods
¢ Transfer
risk - imposition of exchange controls by the importer's country or foreign currency
shortages
Documentation
The necessary documents form the time and contract required by Libya to get
payment and USA to take delivery are:
The
Export Quotations
On these quotations the contract is based.
1.
Goods Description, CIF 10,000 metric tons of HBI packed for industrial use
2. Price.
3. Delivery period; time taken for the vessel to come from Libya
to US
4. Terms and methods of payment. By an irrevocable letter of credit
which is to pay 30 days from the bills of lading in a form and a bank acceptable
to the seller.
Ex works (Exw) the buyer would have to include Price of physically
transporting the goods to the US buyers warehouse. This is decided in the term
of contract. The export Price does not clearly include the variables, which have
to be included in the Price. The buyer may specify the range of products, size;
in this case HBI there is a variety of industrial steel that is traded and requires
specification. Other variables include the cost of packing and transporting. DDP
Price includes all the costs quoted in the Price. The exporter would then have
to make sure that their product reaches safely to the US port.
Mode
of Transport -Sea Freight
Services between Libya and USA can be maintained
by a number of international shippers, this report recommends P&O Stena, the
HBI would move by containerisation, the process which would move goods in standard
size units. This report recommends the use containers that are to the international
Standards Organisation specification, that is 8ft6in 20ft, refrigerated (Reefers)
design. Since the standard container is suitable for all-surface freight, and
not just sea, this leads to one of its major advantages. As containers move goods
door to door, the documentation covers more than just the sea freight part of
the journey. This also means that "freight rates" are used, which cover
the entire journey.4
Delivery
The arrival terms used for this contract is going to be DDP (Delivery
Duty Paid), under this incoterms the seller, Libyan Steel and Iron would have
to bear all costs and risks of delivering the HBI cargo to the USA. Other variables
include the cost of packing and transporting. DDP Price includes all the costs
quoted in the Price .The Libyan Steel and Iron is going to pay for all the costs
including shipping, packing and the paying the customs duty before the goods can
be handed over to the buyers in the USA. There is no obligation under Incoterms
to arrange insurance, however it is wise to get insurance cover; the specified
destination is usually the buyer's premises.
The contract is further
clarified by the incoterms FCA the seller must deliver the products to the buyer
at the port. Under DAF delivered at frontier, the risk passes at the frontier.
If the shipment is in a container base it can be transported according to multi-modal
methods. Once the Libyan Iron and Steel get their cargo in the US they will hand
over the goods to the buyers and that is the point where the risk will pass from
the seller to the buyer.
Export
Cargo Shipping Instruction
Libya Iron and Steel would raise the ECSI,
also referred as shippers letter of instruction (SLI) for ship freight. This document
would give full details of the consignment and instructions for shipment of the
carrier
SAD
The single administrative document is based as the basic customs form for export.
Libyan Steel will have to prepare an export declaration for its goods before they
leave Libya.5
Certificate of Origin
The Certificate of Origin acts as a documentary proof of foreign goods for goods
entering a country. The customs authorities in US can use this document to calculate
the custom duties6
The Certificate includes
1. SHIPPED ON Name- of the shipping company and the
particular ship
2. DATE- The date the carrier left the port in the Libya
3. CONSIGNED TO- The bank in Libya, it appears on the Letter of Credit
4.
MARKS AND NUMBERS- the marks recorded on each package, Country of Origin (Libya)
Destination Port of Entry and Customs.
5. NO OF PACKAGES the total number
of packages, carton boxes.
6. Gross Weight
7. Net Weight
Standard
Shipping Note (SSN)
This document is used when the goods are delivered
to the carrier. It provides all the physical details about the shipment, which
may be used to check the delivered cargo for size, weight and this becomes the
basis for calculating the freight and handling charges at the Libyan Port, based
on the documentation provided by the Libya Steel in Libya.
The
Bill of Lading
The most important export documentation is The Bill of
Lading; the bill has three major functions7
1. A receipt of goods
2. Evidence for the Contract of Carriage
3. A document
of Title
Receipt of goods
The bill of lading obliges the carrier to deliver the goods according to the standards
agreed. There are problems like bad packaging or damage to goods that an exporter
might face.
Contract
of carriage
The bill of lading is the evidence the contract of carriage.
The contract is a verbal one the carrier is able to charge freight for space booked
even if it is not used by the shipper. This is known as dead freight and is reduced
should the carrier obtain alternative cargo to take up the space. This would have
to be arranged by the Libyan Steel and Iron and agreed by the US buyers.
Document of Title
This
is the most important function of the bill of lading. The bills are issued in
original copies of three or four are signed on behalf of the Ship's Master and
are refer to as negotiable as they contain, and are able to transfer, property
in the goods. This function determines the ownership of the cargo when it is being
transported abroad in this case the HBI which is an expensive industrial export
would have to be carefully packaged and then priced.
Paramount
Clause
The Hague rules include in the International Convention for the
Unification of certain rules relating to the Bill of Lading, dating 25th August
1924, Brussels. If there is no enactment in force in the country (Libya) of shipment,
then the legislation of the destination country would apply.8
Jurisdiction
If
any conflict arises under the Bill of lading it would be decided in the country
where the carrier has its main business in this case the Carrier would be P&O
Stena. The law of that country would apply unless another situation arises.
Period
of Responsibility
The carrier is not responsible for the goods once they
have been handed over to the other party after discharge from the vessel. The
carrier is not responsible for any kind loss or damage to the cargo after that
period.
The scope of the
voyage
The vessel may stop other ports, or take a different route than
directly go to the destination port at once. The liner can be carrying a variety
of products. In a situation where the liner needs to stop for maintenance or any
other unforeseen situation the liner can stop at a port and would not be liable
for the delay.
Substitution
of Vessel, Transhipment and Forwarding
Whether arranged before hand or
not. The Carrier is at liberty to carry the port of destination by other vessel
or the one that was agreed to carry the goods. The carrier can also store the
goods when they are in transit.
3.14Loading, Discharging and Delivery
These are the responsibility of the carrier. Landing, storing is the expense of
the buying company. All these requirements will have to understand by the US buyers
and the Libyan company and the details must be documented to avoid any future
conflict or unforeseen situation.
Letter
Of Credit
Both the parties have agreed to use Irrevocable Credit as the
method of Payment. This method is used because it reduces the credit risk for
Libya Iron and Steel. The buyer's bank, which is undertaking to pay the beneficiary,
is The Citibank NY (Issuing Bank) correspondent bank in the exporter's country
is Libyan Arab Foreign Bank. The mode of transport in this case is sea; the importers
can take the possession of goods without paying. Therefore the consignee for Shipping
will be with instructions to collect payment against release of goods. The Citibank
branch in New York would release funds when it receives and checks the entire
document presented exporter to the correspondent bank. All the documents presented
by Libyan Steel and Iron should confirm exactly the term of the L/C in order for
the funds to be released.
Law
and Arbitration
The agreement can be governed by in accordance with the
Laws of the United States, any dispute that may arise, can be finally settled
by arbitration in the US or in Europe. Three arbitrators, one appointed by the
seller, one to be appointed by buyer and the third to be appointed by the two
arbitrators, carry out the arbitration proceedings. The decision of the arbitrators
is binding on both the parties. "The Rules of Conciliation and Arbitration
of the International Chamber of Commerce govern arbitration"
The
Role of UCP 500
The Uniform Customs 1993 Revision, ICC Publication No
500 applies to all documentary credits, which includes they be applicable. Documentary
credit and Standby Letter of credit describes the arrangement that is described
by the bank issuing the document of credit. The bank prepares these arrangements
based on the customer's requirements. In our situation importers buy rights; imports
would have to arrange for the credit on which they could process further documents
for buying rice.
1. The arrangements are in order to make a payment to or the order of a third party (the beneficiary) or are to pay bills of exchange (drafts) drawn by the beneficiary.
Or
2. Authorize another bank to effect such payment, or to accept and pay such bills of exchange
Or
3. Authorize another bank to negotiate.
Against stipulated document, which are provided that the terms and conditions of the Credit are complied with. Credits are independent of the sales contract on which they are based. The bank's responsibility is to pay, accept and pay drafts or negotiate and or to fulfill any other obligation under the credit. The credit can be either revocable or irrevocable, therefore it should be clearly indicated the type of credit provided. If it is not specified the credit would be deemed irrevocable.
A credit may be advised to a Beneficiary through another bank, which is the advising bank, without engagement on part of the advising bank. The bank can analyze the feasibility of the credit. If the bank cannot establish apparent authenticity it must inform immediately to the bank from which the instructions are appeared to have come from.
Revocation of a Credit
A
revocable credit can be amended or cancelled by the issuing Bank at any moment,
without any prior notice to the beneficiary. But the bank must fulfill the following
requirements:
¢ Reimburse another bank with which a revocable Credit
with which payment is made available. Acceptance or negotiation for any payment,
acceptance made by the bank.
¢ Reimburse another bank with which a revocable
Credit has been made available for deferred payment. If the bank has, prior to
receipt by it of notice of amendment or cancellation, taken up documents which
appear on their face to be in compliance with the terms and conditions of the
credit
Liability of Issuing
and Confirming Banks
An irrevocable credit, assures definite undertaking
of the issuing bank, provided that the requisite documents are presented to the
Nominated Bank or the Issuing Bank and the following terms are complied with:
¢
Credit provides to pay at sight
¢ If the credit provides for deferred
payment to pay the amount on the maturity dates, this is determined in the contract.
¢ If the credit provides for acceptance
(a) By the issuing Bank,
to accept drafts drawn by the beneficiary on the issuing bank and pays the amount
upon maturity.
(b) By another person's bank to accept and at maturity
drawn by the beneficiary on the issuing bank if the credit provides for negotiation.
A confirmation of an irrevocable credit by another bank, which is the confirming bank, confirms the position on the undertaking of the Confirming Bank. The terms and condition of the credit should be compiled with:
¢ If the credit
agreement requires the payment to be made at sight then payment must be paid at
sight.
¢ Payment to be made on maturity.
¢ Credit requires acceptance.
The irrevocable credit cannot be amended or cancelled except for the provision in Article 48. The issuing bank is bound by amendments issued by or from the issuance of such amendments.
Types
of Credit
All credits must indicate whether that is available by sight
payment, by deferred payment, by acceptance or negotiation. Unless the credit
clarifies that it is available only with the issuance bank. Under Article 11 in
a situation where an Issuing bank instructs an advising bank, by a specific tele-transmission
to advise credit or make any changes in it would be deemed to be the operative
credit instrument. Article 12 states that incomplete or unclear instructions regarding
credit the bank may need to give notification prior to the beneficiary.
Insurance
One of the more important risks involved in an export transaction is that
of loss or damage to goods during their physical movement from seller to buyer.
In most instances, full protection from the risk can be provided through special
transportation insurance, such as marine insurance. Protection can be provided
to cover all transport risks from the time the goods leave the factory or warehouse
until they reach the final destination stipulated by the buyer. Such insurance
will pay out the full value of the loss, less any excess. So universally is marine
insurance necessary that most firms engage regularly in export business maintain
open policy with a reliable marine insurance company. Therefore the exporters
will secure the marine insurance coverage.
- http://www.odci.gov/cia/publications/factbook/geos/ly.htmlTrade with Libya: 2002[^ Return]
- http://www.libyansteel.com/index.htm[^
Return]
- International Physical Distribution Jim Sherlock[^ Return]
- Principles of International Trade and Payments Peter Briggs[^ Return]
- Principles of International Trade and Payments, P. Briggs, 1994[^ Return]
- International Physical Distribution Jim Sherlock[^ Return]
- International
Trade: A Business Perspective, C. J. Jepma, A. P. Rhoen, 1996[^
Return]
- International
Trade: A Business Perspective, C. J. Jepma, A. P. Rhoen, 1996[^
Return]
References
¢ http://www.odci.gov/cia/publications/factbook/geos/ly.htmlTrade with Libya: 2002
¢ http://www.libyansteel.com/index.htm
¢ International Physical Distribution Jim Sherlock
¢ Principles of International Trade and Payments Peter Briggs
¢ International Trade: A Business Perspective, C. J. Jepma, A. P. Rhoen, 1996
Appendix 1
Hot Briquetted Iron (HBI)
¢ Total Iron : 90
- 94 %
¢ Metallic Iron : 84 min
¢ Metallization Degree : 90
- 95 %
¢ Carbon : 1.0% ±0.2
¢ Average Size : 106×48×32
mm
¢ Average Weight : 500 - 600 gm
¢ Bulk Density : 2.4 -
2.8 ton/m³
¢ Apparent Density : 4.9 - 5.5 ton/m
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