SCMN Episode 11
INCOterms characteristics
-clarify important issues for buyers and sellers 1. clarify obligations of each party 2. assign responsibility for payments 3. articulate the risks assumed by each party
freight protection risks
-freight theft, product damage, shipment delay, limited carrier liability -high value electronics apparel, alcohol and pharmaceuticals are all targets of freight theft- piracy
types of responsibilities
-packing and shipping of goods -payment of transportation fees and duties -in-transit responsibilities
freight risks
-product contamination -jettison -piracy
standardized terms
-provide a consistent level of knowledge -offer protection to both parties -save negotiation time -clarify costs -minimize confusion about responsibility -help manage risk
purpose of INCOterms
-to create standard domestic transportation contracts -to specify risks and responsibilities for delivery of goods under sales contracts -to eliminate all possible transportation disputes
INCOterms benefits
1. INCOterms facilitate intelligent, transparent contracting 2. they layout specific rights and obligations regarding freight management all along the SC 3. provide clarity to avoid buyer-seller disputes
INCOterms decision process
1. decide on main mode of transportation 2. consider the 4 letter segments and individual terms 3. consider which option balances the responsibilities and risks vs. the control. and cost benefits
transaction, documentation, security
3 intertwined export preparation activities that must occur before moving freight
risk mitigation
3 steps: 1. focus on damage prevention 2. limit theft opportunities 3. manage the financial risks (cargo insurance)
foreign trade zones
FTZ acronym
insurance
I in an INCOterm stands for...
3 letter acronym + named place
INCOterm formation
international commercial terms
INCOterms acronym
success
INCOterms are important and complex, but they increase chances for _____. engage the expertise of international logistics service providers in planning and INCOterm choice
C,D
INCOterms group _____ and _____ put more responsibility on the buyer
E,F
INCOterms group _____ and _____ put more responsibility on the seller
group 1
INCOterms that apply to any mode of transportation
group 2
INCOterms that only apply to sea and inland waterways
international chamber of commerce
INCOterms were created by...
ACE (automated commercial environment)
In the US, _____ is an electronic platform intended to facilitate rapid flows of legit trade, while targeting goods that present a security threat -it will require that all import and export manifest data be electronically transmitted to US customer and boarder patrol
north american free trade agreement
NAFTA acronym
true
T/F INCOterms are not automatically included in contracts, they have to be specified
false
T/F INCOterms specify the delivery details, carrier name, voyage and price
terms of trade
TOT acronym
obligations
TOT determine the seller's and buyer's respective _____: -responsibilities and changes for the transportation of goods from the seller's premises to the buyer's location
United states mexico canada agreement
USMCA acronym
cargo insurance
a complex purchase and not a guaranteed cure-all. there is unique terminology to understand, limits to liability to decipher, and traditions to unravel. also, the insurance policy may not fully compensate you for the expenses involved in a freight mishap.. there may be an insurance deductible, there are people costs involved in managing claims, and legal expense may be needed.
bailee
a person whom the possession of goods is transferred without title to those goods
group d
arrivals
limited carrier liability
as a bailee, the carrier is responsible for loss or damage to the freight from the carrier's negligence -however, freight loss due to storms, terrorist acts, improper packaging absolve carrier of liability
insurance certificate
assumes the coverage of loss or damage to the freight during transit
EXW (ex works)
buyer has full responsibility from door of seller. total responsibility also means total control
FOB origin
buyer takes responsibility at seller's location
jettison
cargo thrown overboard to prevent ship from sinking
INCOterms
created by the international chamber of commerce and recognized by the UN commission on international trade law as the global standard for the interpretation of the most common terms in foreign trade
NAFTA
created in 1994 and removes most barriers to trade and investment among US, Canada and Mexico
group E
departure terms
FOB origin, FOB destination
domestic INCOterms
4 hours
for air shipping, manifest info must be submitted _____ before arrival at entry boarder
2 hours
for rail shipping, manifest info must be submitted _____ before arrival at entry boarder
1 hour (30 minutes for FAST participants)
for road shipping, manifest info must be submitted _____ before arrival at entry boarder
losses
fortuitous _____ occur across the SC. at sea, the master of the ship has the absolute right to jettison cargo when he reasonably believes it to be necessary and the owners of the ship incur no liability.
importance of paperwork
it drives the entire export process-moving information in a timely fashion is key to uninterrupted freight flows -critical success factors -using the right documents -availability in advance of shipment -accuracy -impacts application of tarrifs -errors create delays and costs
EXW, FCA, CPT, CIP, DAT, DAP, DDP
list the group 1 INCOterms
FAS, FOB, CFR, CIF
list the group 2 INCOterms
group c
main carriage paid
group f
main carriage unpaid
manifest, 24
many countries require that carriers provide import _____ info electronically to the customs agency _____ hours prior to loading at port
documentation
must be: 1. available on time 2. accurate 3. establish accountability **the importer is responsible for this
transaction
negotiate the details -terms of trade -control -risk management
the smart way
negotiating the terms of the trade- standardized commercial terms
the hard way
negotiating the terms of trade- negotiate each export step and process individually
security
protecting the goods -insurance -packaging -compliance
letter of credit
protects the buyer and seller -guarantees seller will receive payment as long as the delivery conditions are met. bank covers if buyer can't.
bill of lading
purposes: -evidence of contract of carriage -receipt of goods -document of the title ot the goods
free trade agreements
reduce barriers to imports and exports between nations -ex: eliminating tariffs, quotas, subsidies, allow countries to grow and prosper with each other
FTZ
secure sites in the US under supervision of US customs. these offer storage, exporting, manufacturing, assembly, repacking, testing and repairing services
CFR, CIF, CPT, CIP (cost and freight, cost insurance and freight, carriage paid to, carriage and insurance paid to)
seller responsible for getting goods through port of export and delivered to point of import -seller only assumes obligation for purchasing insurance if "I" is present in term -buyer is responsible for gettin goods through port of import and onto final destination -seller should be able to qualify carriers and negotiate advantageous rates
FCA, FAS, FOB (free carrier, free alongside ship, free on board)
seller responsible for packaging the goods and getting them to named place, often point of export -buyer responsible from named place to their location -buyer avoids challenges of moving goods indie the country of origin where he/she may not have experience
DAT, DAP, DDP (delivered at terminal, delivered at place, delivered duty paid)
seller takes full responsibility for getting goods to the buyer's location -DDP makes the seller pay duties, clear customs and make final delivery to buyer's location -low risk, easy option for buyer, make sense if buyer has no international trade experience -total responsibility, total control (for seller)
FOB destination
seller takes responsibility all the way to buyer's location
documentation
shuffling the paper -required docs -key information -accuracy
same time
the SC export planning process should occur at the _____ the seller and buyer negotiate the detials of their contract
e-freight
the international air transport association is creating a paper-free air cargo SC through an initiative called _____
paper documentation
the right paperwork, at the right time, in the right format, 100% accurate is essential for international shipment
USMCA
took effect 7/1/2020, replacing NAFTA. The US, Mexico and Canada reached an agreement to replace NAFTA with this agreement
commercial invoice
used by customs agencies to determine the true value of the imported goods for the duty assessment -must ID the buyer and seller and accurately provide: 1. date and terms of sale 2. quantities, weight, and/or volume of the shipment 3. type of packaging 4. complete description of goods 5. insurance, shipping and other charges
certificate of origin
verifies the country in which the goods were manufactured -the country of origin effects the importance restrictions, duty rates, trade compliance, and quotas
