BMGT477 Final

Logistics Intermediaries

1.Among many ancillary service providers, main functions are gathering around port, airport, more specifically, customs bureau. 2. Key intermediary businesses are; (1) Consolidator (2) Customs Bond Brokers (3) Freight Forwarder (3PL in broader term) (4) NVOCCs

Who pays for these intermediaries

1.Determined by terms of sale(Incoterm); i.e., depends on who owns the goods at the time when the costs are incurred. 2.Payments are recorded and charged by invoices.

Customs Bureau = law enforcement

1.Most zones at port/airport are restricted. They are working places for authorized staffs, where there is a distinct culture of detesting irregularities, interruptions and un-professionalism. 2. It is a law enforcement culture. Customs establishes compliances programs, which create licensed jobs such as export/import filing services and bond broker. Freight forwarders, mostly, have traditional origins of those licensed services. Backed by such authorized competencies, they compete on local knowledge( connection), experiences in export/import, skills in relationship and coordinating. (professional networker

How the customs bond functions in the delivery of goods

A customs bond is like an insurance policy that guarantees payment of all duties and fees related to a shipment. As an importer, you purchase a bond from a surety company, who guarantees the US government that all corresponding shipment fees will be paid for. By bonding the importer, the surety company is bounded by the importer's responsibilities. Should the importer fail to honor his payments, the surety company may be obligated to do so on behalf and honor the bond conditions before then taking legal action against the importer. As a US importer, there are certain merchandise you bring into the country that will require you to file a customs bond: Goods valued at over $2,500 for commercial purposes Commodities subject to requirements from other government agencies such as weapons or food Without a customs bond, your importing merchandise will not be able to clear customs.

Letter of Credit- Definition

A document in which the importer's bank promises to pay the exporter if the importer does not pay. Letters of credit substitute the creditworthiness of the bank for the creditworthiness of the importer. The promise of payment is not made upon the exporter meeting certain conditions (or the importer not meeting certain conditions), but instead it is made on the documents of the transaction. This is why a letter of credit is often called a documentary letter of credit and why the process is called documentary credit. It is fundamental to understand that the transaction documents are the critical elements to a letter of credit. The bank is under no obligation to pay if the documents do not conform to the letter of credit's requirements, even though delivery has been made and the importer has obtained control of the merchandise. Similarly, the bank is obligated to pay if the documents are in order, even though the merchandise may be shoddy or not fit for sale The letter of credit is a contractual agreement between the issuing bank and the beneficiary—the exporter—that is undertaken on behalf of the importer. This contractual agreement is independent of the underlying business relationship be- tween the exporter and the importer; only the documents relating to a particular transaction between the exporter and the importer matter. Extreme care must be taken in handling the documents related to a letter of credit; otherwise, errors trigger a very time-consuming and expensive process of amendments and corrections. An international transaction conducted on a letter-of-credit basis is almost as good as one made on a cash-in-advance basis in that the exporter will be paid. However, a letter of credit involves going through a lot more steps and paying a lot more banking fees.

Drafts

A draft is a promissory note, signed by the importer in the presence of a representative of the presenting bank, in which the importer commits to pay the exporter on a given date. A draft (or a bill of exchange) is a legal document in the importing country in which the importer officially recognizes a commercial debt toward the exporter. This makes it easier to collect payment if the importer decides not to honor its commitment, as the default is now a domestic issue rather than an international one—a dispute over which a domestic court in the importing country would have no problem ruling. Specifically, in the instructions to the presenting bank, it is possible to request a protest in case of non-payment on a draft, which is a legal process that can have serious consequences for an importer; it may be difficult (if not impossible) for the importer to obtain credit after it has been recorded that it does not honor its debt. Although drafts are introduced in the section dealing with documentary collections, it is not unusual for a draft to accompany a letter of credit as well. When they accompany a letter of credit, they fulfill the same role; the documents held by the issuing bank are not given to the importer until the importer signs the draft.

What freight forwarders do?

A freight forwarder is an agent of the exporter or importer Helps exporter/importer; (1) determining various shipping (and related) costs (2) determining most appropriate mode/carrier (3) Brokering for transportation and warehouses (4) making arrangements with customs broker to clear goods (some freight forwarders have license to do) (5) preparing and filing documentation (6) coordinating and connecting among the parties.

Marine Insurance- general avg

A loss incurred on an ocean voyage that is "general," in the sense that the loss involves all the cargo owners on board. A general average can occur when there is a fire onboard a ship, when a vessel is grounded, or when a ship capsizes. Insurance companies also consider it a general average when the ship's captain takes an action to save the ship, the crew, and the remainder of the cargo; for example, the captain may decide to throw some cargo overboard to save the ship or to ground the ship to prevent it from sinking. The owners of the cargo that was saved by this action are indebted to the owners of the cargo that was sacrificed and to the owners of the damaged ship. The marine insurance industry recognizes that responsibility, and the owners of the cargo that was saved must indemnify the owners of the cargo that was lost and/or the owners of the ship that was damaged

CIP (Carriage and Insurance Paid To)

A modification of the CPT Incoterms rule for which the exporter also purchases insurance for the cargo while it is in transit. The CIP Incoterms rule can be used for all goods and all means of transportation, but is mostly designed for non-containerized cargo that travels by surface or air. It is possible to use CIP for ocean cargo, as long as the cargo is not given to an ocean carrier in a port. Under CIP, delivery takes place when the exporter provides the goods to the first carrier in the exporting country. This is the case even though the exporter has pre-paid shipping charges to the city of destination (pre-carriage, main carriage and on-carriage) and the contract of carriage is in the exporter's name. Proof of delivery is obtained when the exporter is given a bill of lading or equivalent document (air waybill, sea waybill, multi-modal bill of lading) by the carrier. Exporter is responsible for export packing, inland freight, export clearance, arrange int'l carrier, load onto int'l, pay int'l carrier, and pay insurance.

Marine Insurance- insurable interest

A party who would experience a financial loss in the case of a peril is said to have an insurable interest. An insurance contract is legally binding only if the insured has an interest in the subject matter of the insurance and this interest is in fact insurable. In most instances, an insurable interest exists only if the insured [were to] suffer a financial loss in the event of damage to, or destruction of, the subject matter of the insurance The use of Incoterms rules helps the exporter and the importer determine where their respective responsibilities start and end. It should therefore follow that the insurable interest of the exporter ends when possession shifts to the importer, at which time the importer has an insurable interest

All-risks coverage

An all-risks policy is an older type of policy that is a much less frequently used, except in the United States, where it is still common. Because an all-risks policy can be written as an American contract or as a British contract, it can contain different wordings of the clauses and other minor changes, which makes an American policy differ from a British policy on a few points; therefore, international logisticians should read such policies carefully to ensure that there is a proper match between the risks that the shipper—exporter or importer—is willing to assume and the ones that the policy excludes. For a U.S. all-risks policy to be enforceable, the goods must be shipped "under deck," which means that the goods must be stowed inside the ship, for the obvious reason that goods inside a ship are exposed to fewer perils than goods stowed on deck. However, this presents a practical problem because the shipper is usually unaware of the way the goods are stowed, and because some containerships no longer have a deck and are instead equipped with stack bars. This problem is solved by requesting that the insurance company cover the goods based upon the Shipper's Letter of Instruction, which requests that the goods be shipped under deck, and not based upon the way the goods are actually stowed. Such coverage can be obtained as an endorsement to the main policy, usually at no additional charge. Once this endorsement has been granted, an all-risks policy is similar to a Coverage A policy, and therefore an all-risks policy is also quite appropriate for shipments of any nature between two developed countries.

Bill of Lading

An ocean bill of lading is a fundamental international shipping document used in ocean transportation. Its (almost) equivalent for air shipments is called the air waybill (see Section 9.5.4). A bill of lading (see Figure 9.11 on the next page) is the contract of carriage used for shipping containers, automobiles, crates, and any form of cargo that does not requisition the capacity of the entire ship; when a shipment requires the use of the entire capacity of a ship—generally a bulk shipment of oil or other commodities—another document, called a charter party, is used. The ocean bill of lading when issued by an ocean carrier (a steamship company) is also frequently called a master bill of lading. When the bill of lading is issued by a Non-Vessel-Operating Common Carrier (NVOCC), it is often called a house bill of lading. A house bill of lading indicates the name of the ocean carrier and the master bill of lading. The bill of lading is extremely important because it fulfills three roles in an international transaction: 1. The bill of lading is a contract. 2. The bill of lading is a receipt for the goods. 3. The bill of lading is a certificate of title.

Date Draft

Another way of granting credit to the importer. The difference is that credit is extended to the importer for 30, 60, or 90 days from the shipment date rather than from the date of the endorsement of the draft. The shipment date is determined by the main contract of carriage, generally the date at which the ocean bill of lading or the air waybill is issued. The advantage of the date draft over the time draft is that the exporter has control over the date at which shipment is initiated (and therefore over the date at which the payment is due), whereas it has no control over the date at which the importer will endorse the draft Alleviates one problem of documentary collection in general: the date at which the importer will endorse the draft. The bank must notify the importer as soon as it receives the documents. However, the importer has no incentive to come to the bank to collect them—if the draft is a sight or time draft—because delaying endorsement delays payment as well.

Why use NVOCCs

Because NVOCCs poses large volumes of space on multiple shipping lines, they can sometimes offer better rates. Also because as original business was, NVOCC offers range of other logistic services such as a consolidating small shipments into container loads and pass savings onto shippers and freight forwarding.

FCA (Free Carrier)

Can be used for any merchandise and for any means of transportation, but it was created for goods shipped through multi- modal transportation (i.e., merchandise that is shipped through multiple means of transportation—without being "handled" between means of transportation be- cause it is containerized—and under a single bill of lading). The FCA Incoterms® rule can be used for shipments of either full-container loads (FCL) or less-than- container loads (LCL). FCA has become one of the most popular Incoterms®rules as the number of multi-modal shipments has increased Under FCA, the delivery takes place when one of two conditions is met: • If it is an FCA "exporter's premises" transaction, the delivery takes place when the goods are loaded, by the exporter and at its expense and risk, onto the carrier's truck. • If it is an FCA "carrier's premises" transaction, the delivery takes place when the goods are made available to the carrier (i.e., when the goods have arrived at the carrier's dock). The goods are delivered even though they have not been unloaded from the exporter's truck. They are unloaded by the carrier and at the carrier's expense (i.e., at the importer's expense), and at their risk. The document that corresponds to the transfer of responsibility for an FCA shipment is the receipt given by the carrier to the exporter; it is generally a multi- modal bill of lading. Exporters is responsible for export packing, inland freight, and export clearance Importer is responsible for the rest

EXW (ex works)

Can be used for any merchandise and for any means of transportation. It should be used with the following syntax: EXW · 2400 Progress Drive, Poughkeepsie, New York 12601, USA, Incoterms® 2010. where the address is the location at which the exporter will hold the merchandise available to the importer. This location is in the exporting country. Exporter is responsible for export packing (place goods at the disposal of the buyer, package the goods, and to assist in the export clearance procedures) Importer is responsible for all other aspects Delivery occurs at the time at which the importer (or the importer's agent) picks up the goods at the exporter's plant. This delivery must take place at a mutually convenient time. The exporter is required to notify the importer that the goods are available for pickup and the importer is required to notify the exporter of the time at which the goods will be picked up.

DDP (Delivered Duty Paid)

Can be used for any merchandise and for any means of transportation. Choosing the DDP Incoterms rule requires the exporter to provide the ultimate level of customer service. The exporter handles everything for the importer, including shipment to the customer's plant and customs clearance in the importing country. For the importer, a DDP transaction is exactly equivalent to receiving a domestic shipment from a domestic supplier: the only thing left to the importer's care is unloading the merchandise, something that is usually the importer's responsibility under a domestic shipment. Delivery takes place when the exporter places the goods at the disposal of the importer at the delivery address. The goods are delivered loaded (i.e., it is the responsibility of the importer to arrange and pay for unloading the goods). However, this is often a very minor point, as the destination of the delivery is often the importer's plant, which can obviously unload a truck. Although there is no transportation document that corresponds to delivery, a commonly used alternative is for the exporter to provide the bill of lading at delivery. Exporter is responsible for everything.

CFR (cost and freight)

Can be used for any merchandise, it is specifically designed for ocean transportation, and is not meant for any other means of transportation or for merchandise that is not destined to be handed to an ocean shipping line at the port of departure. The practices followed by international shippers make CFR an Incoterms rule that should be used sparingly—or not at all—with containerized cargo. Delivery does not take place in the port of destination (the port mentioned in the Incoterm rule) but in the port of departure, where the exporter delivers the goods to the carrier. In a CFR transaction, the point of delivery is the "FOB point." Until the merchandise is onboard the ship, it is the responsibility of the exporter; after that, the responsibility shifts to the importer. The document associated with the CFR term is the proof of delivery in the port of departure: an ocean bill of lading or a sea waybill. Only after receiving the goods will the shipping line issue this document, giving one of the originals to the exporter. Exporter is responsible for export packing, inland freight, export clearance, arrange carrier, load onto carrier, and pay int'l carrier.

FAS (free alongside ship)

Can be used for any merchandise, it is specifically designed for ocean transportation, and is not meant for any other means of transportation or for merchandise that is not destined to be handed to an ocean shipping line at the port of departure. The practices followed by international shippers make FAS an Incoterms rule that should be used sparingly—or not at all—with containerized cargo, which should be best handled under a DAT Incoterms rule. The delivery officially takes place when the exporter delivers the goods "alongside" a ship designated by the importer. The problem with this Incoterms® rule is that ports no longer keep merchandise "alongside" a ship, or on a quay waiting for a ship. Instead, the delivery takes place in a holding area, then the goods are cartaged (transported within the port area) from the holding area to the ship before the stevedoring (loading onto the ship) takes place. Exporter is responsible export packing, inland freight, and export clearance.

FOB (free on board)

Can be used for any merchandise, it is specifically designed for ocean transportation, and is not meant for any other means of transportation or for merchandise that is not destined to be handed to an ocean shipping line at the port of departure. The practices followed by international shippers make FOB an Incoterms rule that should be used sparingly—or not at all—with containerized cargo, which is best handled under a DAT Incoterms rule. The point at which the responsibility for the goods shift from the exporter to the importer is when the goods are "onboard" the vessel. It is expected to mean that the goods are delivered when they are in the hold of the ship, but remain to be stowed—placed in the exact location on the deck. The point at which the responsibility for the goods shifts from the exporter to the importer is called the "FOB point." The document associated with the FOB delivery is quite clear however: the proof of delivery is an ocean bill of lading or a sea waybill. Since the ocean bill of lading certifies that the goods have been received onboard the ship, there is a perfect match between the documents available and the requirements of the Incoterms rules. Only after receiving the goods will the shipping line issue this document, giving a copy to the exporter. Exporter is in charge of export packing, inland freight, export clearance, and load onto int'l carrier

CIF (cost, insurance, freight)

Can be used for any merchandise, it is specifically designed for ocean transportation, and is not meant for any other means of transportation or for merchandise that is not destined to be handed to an ocean shipping line at the port of departure. The CIF Incoterms® rule is also mostly designed for non-containerized cargo Delivery is the "FOB point," the point at which the responsibility shifts from the exporter to the importer. Until the merchandise is onboard the ship, it is the responsibility of the exporter; after that, the responsibility shifts to the importer. The document associated with the CIF term is also quite clear: the proof of delivery is an ocean bill of lading or a sea waybill. Only after receiving the goods will the shipping line issue this document, giving one of the originals to the exporter. Exporter is responsible for esport packing, inland freight, export clearance, arrange carrier, load onto carrier, pay carrier, and pay insurance.

DAP (Delivered at Place)

Created in 2010, the DAP Incoterms rule allows the exporter to provide a high level of service by delivering the goods to the importer's place of business—or some other location chosen by the importer. DAP is intended to be used for all modes of transportation and all types of cargo. Delivery takes place when the goods arrive, still loaded on the means of transportation provided by the exporter, at their destination. Since the delivery generally takes place at a location that is the importer's place of business, the proof of delivery is the arrival of the goods, ready to be unloaded. It is customary for the exporter to provide a copy of the bill of lading to the importer. Exporter is responsible for export packing, inland freight, export clearance, arrange int'l carrier, load onto int'l carrier pay int'l carrier unload int'l carrier, pay insurance, import clearance, and pay inland freight.

DAT (Delivered at Terminal)

Created in 2010, the DAT Incoterms rule reflects the practice that containerized cargo often transits through a container terminal, whether in the exporting or importing country. DAT is intended to be used for all modes of transportation and all types of cargo, but fits closely with intermodal containerized shipments. A terminal, or more precisely an intermodal terminal, is a location where cargo shifts from one mode of transportation to another; from truck to rail, or from rail to ocean. The goods are unloaded from the means of transportation provided by the exporter. If the terminal is in the port of origin, then the exporter delivers the goods when they are unloaded from the truck that took them to the terminal. If the terminal is in the port of destination, the transfer of responsibility takes place when the goods are unloaded from the ship. Proof of delivery is generally provided by the terminal with a terminal receipt. Exporter is responsible for export packing, inland freight, export clearance, arrange int'l carrier, load onto int'l carrier, pay int'l carrier, unload int'l carrier, and pay insurance.

Customs Bond Brokers

Customs Bond is a sum of money collected from customs bond brokers, that is held as a guarantee that correct duty amount will be paid. Importing goods which is covered by the bond called "bonded cargo" can pass the customs before duty amounts are verified and deducted.

The inspection/evaluation of goods at the "choke-point"

Customs plays a special role for international logistics because the border is a "chokepoint" where cargo enters/exits the country and the government can control and regulate activities

Roles of Customs

Customs plays a special role for international logistics because the border is a "chokepoint" where cargo enters/exits the country and the government can control and regulate activities. Roles: National security role revenue collection manage imports for market fair competition

How duties are determined and by who

Duty is calculated in several different ways, generally based upon three criteria: 1. The type of goods imported, which is determined according to several rules of classification that essentially have been standardized worldwide. 2. The value of the goods imported, which is determined not only by the in- voice value, but also according to many rules that differ from country to country, collectively called valuation rules. 3. The country from which the goods are imported; this determination is made according to the rules of origin, a process recently simplified but still quite cumbersome for manufactured products with components made in multiple countries From these three elements, customs calculates what tariff will be charged on the import, or the tax that the importer must pay on the imported goods. The tariff is generally a percentage of the goods' value, but it can also be calculated with other methods, based on the number of units shipped or their weight, for example.

IT in ISM

EDI(Electronic Data Interchange): Send documents (order, invoice, packing list, certificates etc.) between different companies computer system. 2. Yet, internet data transmittal would be faster and safer, even today. 3. ERP(Enterprise Resources Planning) and its software are not yet in one standard. (majors are SAP, Oracle, and Microsoft) 4. Apply "Platforms" such as AWS, Google

Who files the entry and what CBP officers are looking for

Ideally, there should be only three documents required in every country to make an entry: • A form designated for entry (specific to the record-keeping requirements of the importing country) • A Certificate of Origin to ascertain the goods' country of origin • A commercial invoice with enough information to determine the goods' valuation and classification However, many more forms can be required, from an import license to a series of certificates or other documents. Many countries' requirements are available online; many of the forms for many countries can be accessed through the export.gov website, maintained by the U.S. Department of Commerce's International Trade Administration. The critical element of import documentation is that it is established on a per-transaction basis. Every import, however small, must have its own specific entry, which can lead to an inordinate amount of paperwork, under which both the importer and the customs authorities are drowning. The United States has implemented an International Trade Data System, which is also called the Auto- mated Commercial Environment and the "single window" system, through which all entries can be completed electronically, and with which entries can be entered monthly rather than one by one. Payment of duty can also be completed monthly.

Dumping and Countervailing Duty

In some cases, customs can determine that the invoice value is lower (in some rare cases, higher) than the actual value of the goods. This is generally uncovered by comparing the value of an invoice with a database of import entries with the same Harmonized System number made in preceding years. When the invoice's value is below what customs has historically accepted and when a much higher valuation is reached with one of the alternative valuation methods customs can determine that the exporter is dump- ing the goods in the importing country, i.e., selling the goods at a price that is below their commercial value. a price is set below the wholesale price in the exporting country, and that this low price causes injury to competitors (or some other group, such as a labor union) located in the importing country In cases of dumping, customs can add an additional duty to the regular duty rate of the commodity, and this duty rate is called an anti-dumping duty, which can range from one percent to several times the value of the imported goods. Unfortunately, dumping accusations are one of the most commonly used tools of certain countries to restrict imports, and it is still one of the most commonly used methods of protectionism. customs can use a countervailing duty to tax products that the exporting government is found to have subsidized. In that case again, it only acts after an allegation of injury by an affected competitor. However, although there is strong support for such countervailing duties in some industries, the U.S. Commerce Department has declined to impose them on products coming from countries in which non-market economies prevail.

Time Draft

In some cases, the exporter may want to grant credit to the importer but still want to ensure it will be paid. In that case, the exporter can request that the bank exchange the documents against a time draft: the importer has to sign (endorse) a document promising it will pay within a certain time after the draft is endorsed. Credit is generally extended for durations that are multiples of thirty days: 30, 60, 90, and 180 days are the most common credit terms. Because of problems associated with the custody of the goods between their arrival in the importing country and the time they become the property of the importer, the ICC advises that "collections should not contain bills of exchange [drafts] payable at a future date with instructions that commercial documents are to be delivered against payment."

Letter of Credit- Process

Issuance 1.negotiation which takes place between the exporter and the importer, in which it is agreed that the term of payment will be by letter of credit. The exporter then sends a pro forma invoice to the importer, which estimates the terms of the transaction as closely as possible 2.when the importer (the applicant) requests its bank (the issuing bank) to open a letter of credit on the importer's behalf, naming the exporter as the beneficiary. The importer follows the exporter's instructions regarding the terms of the sale and makes sure to include in the application all the documents that it will need to clear customs in the importing country. 3.the issuing bank sends the letter of credit (generally electronically, using the SWIFT network; or by fax; or, rarely, by mail) to the exporter's bank, which then advises the letter of credit. In this simplified example, the exporter's bank is also the advising bank. 4.the advising bank notifies the beneficiary that the letter of credit is acceptable from the bank's perspective. By reviewing the letter of credit, the bank is not engaging its responsibility; it is only acting as an adviser to the exporter and has no liability (will not have to pay) if the issuing bank does not honor its commitment. Shipment 5.the exporter ships the merchandise abroad. Usually, the exporter ships directly to the importer, but in some cases, the shipment may go to another party, such as a wholesaler working with the importer. After the documents are collected, the exporter sends them to its bank (the advising bank), which checks them against the terms of the letter of credit. This is the process that the exporter must follow to provide the importer with the documents that it needs to clear customs in the importing country 6.when the advising bank receives the documents from the exporter. The advising bank sends the documents to the issuing bank if they conform to the requirements of the letter of credit. However, if they do not conform, then the advising bank holds the documents until the issue is resolved 7.The issuing bank then checks the documents again, and determines whether they conform to the requirements of the letter of credit. If the documents conform, the issuing bank notifies the importer that the documents are in order and it exchanges them (paying attention to the original of the bill of lading or the air waybill, which acts as the certificate of title to the goods) against payment by the importer Payment 8. payment is first made by the importer to its bank, in exchange for the transaction documents. In many cases, since the issuing bank has frozen a portion of the importer's bank account before issuing the letter of credit, the payment is simply processed from this account.

Incoterms

Main Carriage by Any Means of Transportation EXW: Ex Works FCA: Free Carrier CPT: Carriage Paid To CIP: Carriage and Insurance Paid to DAT: Delivered At Terminal DAP: Delivered At Place DDP :Delivered Duty Paid Main Carriage by Ocean FAS: Free Alongside Ship FOB: Free On Board CFR: Cost and Freight CIF: Cost, Insurance and Freight

Marine Cargo Insurance

Marine cargo insurance can be purchased either under an open ocean-cargo policy or under a special cargo policy. open: an insurance policy that covers all of the shipments made by a firm special: allows a firm to specifically purchase the coverage that pertains best to a shipment. However, it tends to be cumbersome to enter a contract every time the firm gets involved in an international transaction, and thus a special cargo policy is not commonly used, unless the products the firm sells are large capital goods or expensive tailor-made equipment that needs specialized care while in transit.

NVOCCs

Non-Vessel Operating Common Carriers NVOCC business was legalized by Shipping Act of 1984 as a measure of deregulation. NVOCCs have a partial capacity ownership on carriers' vessels. They sell their space on ships of carriers, issue bills of lading to shippers. Although they do not operate the ships, they are considered to be a carrier.

Ancillary functions and services

Primary functions: Ocean/Air carriages Insurance Customs clearance To Ancillary Functions -Ground carriage (drayage & delivery), booking, brokering, packaging, labelling, warehousing, inventory services, containerizing, loading and unloading -Brokerage (required legal advice) -Documentation (application, declaration certification, e-formatting, translating - BL, Invoice, export/import filing) Customs House Bond Brokerage

Duty drawbacks

Several countries, including the United States, grant a substantial tax break to exporters who use imported parts in the products they export. Such a tax break is called a duty drawback. The United States, U.S. Customs and Border Protection will refund 99 per- cent of the duty paid by an importer in one of three cases: • For merchandise that is rejected by the importer as non-conforming to the original purchase order • For imported products that are re-exported unused • For imported parts that are used—without substantial transformation—in the assembly or manufacturing of products that are eventually re-exported *Note that this duty drawback is not available for products exported to NAFTA countries. Drawback can often represent a considerable savings. However, few U.S. firms take advantage of this duty drawback opportunity, either because they do not know about it or because they fear the paperwork requirements that ac- company this program. In exchange for this flexibility, customs has substantially stiffened penalties for illegitimate drawbacks. Duty drawbacks can be used by some countries to bolster exports. Historically, Korea and Taiwan supported their exporters by allowing them to engage in aggressive duty drawbacks, for example. Countries have been accused of using drawbacks to engage in protectionism. Since exporters using imported goods get reimbursed for the duty that they pay upon importing them, the tariff rates can be high, and the companies do not complain. However, these high duty rates prevent other importers, who would sell the goods in the country, from being competitive.

Types of letter of credit

Stand-by Transferrable Back-to-back Red-clause

How tariffs are determined

Tariffs or duties are assessed based on; a) Classification of cargo: Harmonized System of Classification by 10 digits first 6 digits = common across all countries, 4 digits = a country can customize purposes example: golf shoes (6402.19) common to all countries US men's golf shoes (.05.30), women's golf shoes (.05.60) 2. General Classification Rules •incomplete/unfinished product = "finished product" (a tariff shift occurs) • doubtful descriptions = "essential character" • no classification = "most resembled product" if unable to classify, ask customs for "binding ruling" b) Value of the goods: Customs can use a number of methods to try to assess value to a shipment based upon invoices submitted (1)Comparative method - Assess value based on identical or similar goods imported (2)Deductive method - Determine the price at which identical or similar goods are sold in the U.S. and then "deduce" import value based on normal mark-ups and distribution costs. (3)Computed method - Compute cost of goods based on manufacturing and other costs and reasonable mark-ups. c) Country of origin: Most countries have more than one tariff schedules, which based on WTO, bilateral or regional trade agreement •To determine the Country of Origin, (a) Substantial Transformation (tariff shift) (b) Local Contents Rules (percentage of product contents including labor costs) are main guidelines.

Why importers bear significant responsibilities in customs clearance

The Importer of Record (IOR) is officially noted by many governments as the owner or purchaser of the products being imported into a destination country. The IOR can be the owner, purchaser, or a customs broker with the proper authorization. In most cases, a power of attorney (POA) provides the authorization to do clearance for an importer. The IOR must ensure all goods are appropriately documented and valued. The Importer of Record is the responsible party for the payment of duties, tariffs, and fees of the imported goods.

Customs Regulations

The U.S. Customs Modification Act of 1993 created the concepts of informed compliance and reasonable care, both of which have become pivotal to the efforts of Customs and Border Protection in the United States. informed compliance: if an importer has been trained in classifying and valuing goods for import purposes, it is more likely to perform these tasks correctly. reasonable care: If the importer has been found to exert reasonable care in the past, the likelihood that one of its shipments is going to be inspected is minimal, thereby minimizing entry delays and allowing the importer to organize its supply chain more predictably Also lowers costs, as merchandise is cleared quickly and does not languish in some bonded warehouse while the importer and customs argue about its correct classification, valuation, or country of origin. For an importer to be found compliant, it must show that it exercised reason- able care when filing its customs entries. To demonstrate reasonable care, the importer must follow a long list of obligations that the U.S. Customs and Border Protection Office provides. These obligations ensure that the importer employs a customs specialist, who in turn ensures that all—including the most recent— customs regulations are followed and that the importer has a process by which it correctly determines the valuation, classification, and country of origin of an import. Reasonable care is monitored through a system of compliance audits organized by U.S. Customs

C-TPAT

The United States complemented its interdiction approach with the creation of the Customs-Trade Partnership Against Terrorism (C-TPAT) in 2001; however, only a handful of companies were involved in this program in 2001 and 2002. By 2003, 137 companies had joined, and in 2016, there were over 11,500 importers and logistics services providers enrolled in the program. About 55 percent of the shipments entering the United States—by value—were entered by C-TPAT participants, and 100 percent of the shipments made by C-TPAT participants complied with U.S. Customs and Border Protection security guidelines. The C-TPAT program is a shift away from interdiction and one-hundred- percent inspection; it recognizes that the immense majority of international shipments are innocuous and, therefore, that they should not be the targets of law enforcement. The only concern with these shipments should be the possibility that they are intercepted by criminals and the merchandise that they contain is substituted for dangerous goods. The goal of the C-TPAT program is there- fore to encourage corporations involved in international trade to enact security measures that prevent tampering with the shipments at any point in the supply chain; corporations are asked to evaluate their levels of security in the supply chain, determine their vulnerability, and remedy any issues. The C-TPAT program is a voluntary program in which companies elect to participate. Corporations must first apply to participate in the C-TPAT program, and after their application is accepted, they become "Tier I" members. Tier I members are also called certified corporations. After their supply-chain security has been analyzed by U.S. Customs and Border Protection and the firms' security measures have been found to be "reliable, accurate, and effective,"26 the firms' applications are validated, and the firms become "Tier II" members

Drafts- letter of credit

The draft is an instrument that legally binds the importer to paying within a certain period. This allows the exporter to grant commercial credit to the importer whenever it is deemed necessary. If no draft is attached to a letter of credit, the assumption is that the importer is not granted any credit (i.e., that the letter of credit is payable "at sight;" in other words, immediately)

CPT (Carriage Paid To)

The exporter and the importer agree that the exporter should pre-pay the main carriage for the goods. This Incoterms rule is designed to be used for all cargo types and all means of transportation. CPT is most commonly used for goods transported by surface or air transportation, but it can be used for goods transported by ocean; however, CPT is rarely used for cargo that is directly delivered by the exporter to an ocean carrier in a port. In addition, CPT is more likely to be used for cargo that is not containerized, such as roll-on/roll-off cargo or large crates. Delivery takes place in the exporting country when the exporter provides the goods to the first carrier. This is the case even though the exporter has pre-paid shipping charges to the city of destination (pre- carriage, main carriage and on-carriage) and the contract of carriage is in the exporter's name. Proof of delivery is obtained when the exporter is given a bill of lading or equivalent document (air waybill, sea waybill, multi-modal bill of lading) by the carrier. Exporter is responsible for export packing, inland freight, export clearance, arrange int'l carrier, pay int'l carrier, and pay insurance.

Sight Draft

The exporter can request that the presenting bank release the documents only upon payment of the invoice by the importer. Such a transaction is called "documents against payment" (D/P) or a sight draft transaction, meaning that the draft (a promissory note) is payable "at sight" (i.e., immediately). The ex- porter retains title to the goods, embodied in the bill of lading or air waybill, until payment is made and the bill of lading or air waybill is given to the importer.

Filing of a Claim; notification

The first and most important step is to promptly notify both the carrier and the insurance company of the loss. The best practice is to notify the carrier or the carrier's agent and the insurance company immediately if the damage is visible at the time the goods are discharged—for instance, if the packaging shows signs of damage, the container seal shows signs of tampering, or the shipment shows some other outward sign of damage. If there is no apparent exterior damage, there are different requirements for the timely notification and eventual filing of a claim, depending on the mode of transportation. If the cargo was transported by ocean, the carrier should be notified within three days. For international air shipments, the carrier must be notified within seven days. For international and domestic land transportation, and for domestic shipments, the notification requirements vary and are outlined in the air waybill or the (intermodal) bill of lading; however, such a notification will likely be within seven days. It is therefore critical to inspect cargo as quickly as possible after it has been received, even if it shows no sign of damage or pilferage, so that, should the cargo be damaged, a notification and eventual claim can be filed within the contractual time limits. This notification must be made in writing; the notification should include a description of the damage and a record of the seal number and of its condition. The notification should be sent to the insurance company, to the insurance agent, and to all the carriers involved in the shipment, even if they are only agents of the main carrier; for example, the trucking company hired by the shipping line to make the final delivery should be notified. Notification should be made by certified mail, with return receipt requested, to provide evidence of a timely notification. Even in cases where the damage is apparent, it is not sufficient, although necessary, to make an annotation on the delivery receipt for the goods. In addition, the more precise the annotation on the delivery receipt, the greater the level of protection for the insured.

Commercial Invoice

The invoice that accompanies an international shipment is called the commercial invoice. Depending on the terms of payment, the commercial invoice may be sent directly to the importer with the merchandise, or indirectly, through banking channels. A commercial invoice should present precisely what the importer is being billed for. This seems obvious, but it is a much greater challenge to fulfill this requirement for an international transaction than it is for a domestic transaction. Several areas of the invoice must be carefully written to avoid problems later

Incoterms Rule Strategy

The proper choice of an Incoterms rule is therefore contingent upon the exporting firm's strategy, but is also somewhat constrained by the following parameters: • The type of product sold: several industries (commodities in particular) prefer using some specific terms of trade rather than others. • The method of shipment: goods shipped by ocean or barge are sold under different Incoterms® rules than cargo shipped by air or by ground transportation—rail or road. • The package size: containerized goods, small packages, and large crates are transported under different Incoterms® rules and use different transportation modes. • The ability of either the exporter or importer to perform the tasks involved in the shipment. • The amount of trust placed by either the exporter or the importer toward the other. The greatest criterion used to choose the proper Incoterms rule for a transaction is the willingness of both parties to perform and pay for some of the tasks involved in the shipment. In some cases, an exporter can gain a strategic advantage and facilitate the sale of its products by assisting the importer with the tasks involved in the shipment. In others, an importer can obtain a lower price if it performs all or most of the tasks involved in the shipment However, most companies do not determine which Incoterms rule to use on a case-by-case basis, but instead determine which term of trade should be used regularly, given the company's strategy, its product line, its customers' expectations, and its trade volume. Sophisticated exporters offer more than one Incoterms rule choice to their customers to gain a tactical advantage over their competitors.

What is Duty?

The tax that an importer must pay to bring goods into a country.

Incoterm Rules

The term of trade or Incoterms rule that the exporter and the importer agree to use in a transaction defines five aspects of an international sale: • Which tasks the exporter performs • Which tasks the importer performs • Which activities are paid by the exporter • Which activities are paid by the importer • When the transfer of responsibility for the goods takes place it is necessary to distinguish between (1) the transfer of responsibility for the goods between the exporter and the importer and (2) the transfer of title between the exporter and the importer. The transfer of responsibility (transfer of risk) is dictated by the Incoterms rule. The transfer of title (transfer of ownership) usually takes place when the importer has either paid the exporter and obtained the original bill of lading, accepted to sign a draft, or performed some other event specifically outlined in the contract of sale. The transfer of responsibility coincides with the delivery of the goods, a point that is clearly outlined in each of the Incoterms® rules, and in most cases, delivery occurs chronologically much earlier than the transfer of title

Policy Coverage, Non-coverage

There are two major groups of policies that can be purchased to protect cargo during an ocean or air shipment. The first group of policies is governed by British law and was completely rewritten in 1982, mostly to put them into contemporary English. The policies were revised again in 2009 to add greater precision to some terms, and update the remnants of traditional ancient English that had been kept in the 1982 version. This group of insurance policies has become the standard for all other countries as well, except for the United States. These policies are known as the Institute Marine Cargo Clauses, Coverage A, B, or C. They are named after the Institute of London Underwriters, which is also known by its formal name of The International Underwriting Association of London. The second group of policies is older, with some antiquated clauses and a few modern ones, and these policies are mostly written by U.S.-based insurance companies. These traditional policies are known as all-risks, with-average, and free-of-particular-average policies, and a decreasing number of policies are using these terms. These three types of policies are less standardized than the Institute Marine Cargo Clauses policies. To make things more interesting, these six general policies can be modified to add coverage that is not included in the original contract, such as the risks of strikes and civil unrest, allowing international traders to tailor the coverage they are purchasing to a shipment's specific needs

CTPAT advantages

To encourage corporations to participate in the C-TPAT program, Customs and Border Protection offers companies several advantages: • A lower inspection probability. • Priority inspections. • Priority processing • Customs assistance

Primary Purpose of Documentations

To identify and certify the goods at the time of import customs clearance. It is the importer who must file an import, declare amount of duty to customs and pay, mostly establishing customs bond. Critical information is usually given by the upstream of supply chain (suppliers) by documentation. (Classification of goods, Country of Origin and Valuation of Good.) Exporters know best about the good that will be examined in importing country. That is why Export Declaration is important document which information is transferred to customs and parties in the downstream. Commercial Invoice and Bill of Lading are special documents because they serve for multiple purposes in supply chain

Definition of logistics service providers

•1PL = Manage their logistics functions using own logistics assets. (Suppliers own delivery service) •2PL = Facilitate logistics service for 1PL with transportation capacity (Trucking firms) •3PL = Integrate different logistics functions and handle managerial capacity of supply chain (Freight forwarders) •4PL? = Integrate 2PL and 3PL and serve as a single contact point for 1PL. Provide end-to-end solutions for value-added supply chain services to 1PL. (FEDEX, Amazon and other "integrator" =4PL)

Freight forwarder

•A 3rd Party Logistics services provider •Coordinating and connecting among all parties involved in international supply chain. •Agent of importer and/or exporter Traditional "Freight Forwarder" business, earnings are mainly from capacity "brokering", is under threat by category killers who serve complete vertical control 1.US freight forwarders are agents licensed or accredited by the International Air Transport Association (IATA) for air and by the Federal Maritime Commission (FMC) for ocean freight. 2.The license/accreditation is to prevent fraudulent activities by Freight Forwarders (agencies) working between shippers and carriers. 3.They have compliance certificates from local customs bureau.

Terms of Trade: Incoterms

•After quotation (availability and price) is satisfactory to seller and buyer, the sales contract will be agreed. •To follow up, terms of sales/trade also must be agreed. Terms (agreement details specified ) are in sales contract, purchase order, letter of credit, bill of lading, commercial invoice etc. as addendum to the contract. • The agreement deals with the; (1) cost of the product (merchandize price) (2) cost covering risk of physical loss (liabilities) (3) costs of moving the product (incl. transportation) They are negotiated between the seller and the buyer It is a strategy to gain best results in cost and time efficiencies. Incoterm (international commercial term) is listed in sequence of order starting EXW where the importer's job is the most, and ending DDP, where the exporter covers all responsibility. Since Incoterm is the role sharing, the amount of invoice issued by exporter can vary depending how much exporter takes responsibilities. Generally speaking exporter maintain its export trading pattern and events in its country better fit handled by exporter, likewise events in the importer's country may best handled by importer. Both sides consider the trading expertise and economies of scale in the role sharing negotiation

Disaster Relief

•Disasters often occur with little or no warning, whereas famines often progress over a prolonged period of time. As a result, disaster relief can be quite different from famine relief. Even under such emergency humanitarian aid cases, customs and border protection procedures are not waived.

Aids effects

•Some US farmers are willing to donate when they have excess crops. •The US is the major donor of foods.

ISCM as a tool (famine)

•Supply chain manager is an expert who can design architecture and execute it. •This expertise is a tool for success in business, as well as for CSR and humanitarian causes. In famine and disaster relief, ISCM processes are followed the same as business

Terms of Payment

•There are 5 terms of payment (at least, that we will discuss in class) that may be used for in international transaction. These are the following: Higher risk to importer -Cash in Advance -Letter of Credit -Sight Draft/Documents Against Payment -Date Draft/Documents Against Acceptance Open Account Higher risk to exporter

Decisions by seller and buyer (incoterm)

•Whenever an exporter sells goods to a foreign company, there are a number of steps involved including: -Packaging -Clearing the goods for export -Organizing the main transportation of goods and storages in transit -Arranging for insurance and possibly filing insurance claims -Clearing customs in the importing country •Include information regarding: -Who arranges for a logistics process -When legal ownership of the goods is transferred -Who pays for various logistics processes -How payment is to be arranged •The firm that arranges for a service sometimes is not the firm that pays for the service. •What risks are assumed when the firm that arranges for a service is not the firm that pays for a service? •Vertical and linear supervision/control is essential