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DELIVERY RULES
Delivery rules as apparent under ICC Incoterms 2020 (Paris France) has a very strong underlying basis that provides suppliers and end buyers an established set of global rules that specifies among other things ‘who pays for what.’ FTNX applies Incoterms intently as should all suppliers and end buyers world wide; interpreting Incoterms however is an ongoing problem
among commodity traders.
INCOTERMS: INTERNATIONAL TRADE
“I have been a supplier for 30 years. I never use Incoterms, I have been doing trade
business
without any problems.”
A supplier
trading with a well known amicable end buyer for years, as
located in another nearby friendly country can trade in any manner that works for them. FTNX can’t do that, as we work with new clients
in far away countries all the time; plying all kinds of commodities. We have in house procedures and we have International trade procedures as well as banking rules and delivery rules to abide by. Let us
take a look at the Incoterms delivery rules that
FTNX is able to use. Incoterms describe the ‘risks’ one has to bear to complete
delivery.
The Meaning of Delivery
First and foremost; The term ‘delivery’ does not refer to physical delivery of goods, but ‘documentary’ delivery. Presenting
the transport documents in a proper (clean) state to the bank issuing the DLC, once delivery has been completed; allows for payment to be made collectible for the benefit of the supplier.
Delivery could mean: delivery at the premise of the factory producing goods on offer or ‘gate price’ as specified under Incoterms as ‘Ex Works’ (EXW) delivery mode. FTNX does not use EXW Incoterms. Many prices found “on the spot” commodity exchanges apply the gate price to mean
an EXW price basis, which is often referred to
as a ‘cash basis.’ FTNX does not deal in the ‘spot’ products, but purchases goods in the future bearing a future price basis. In this sense FTNX is able to suggest a future price and basis, if a supplier does not. Some exchanges offer CIF prices as well; for instance; goods are sold at CIF Paris, France. Sounds great, for a product emanating from ‘just down the road’ in England. The CIF prices does not mean delivery at CIF to any port in the world, or as often seen plied by ill informed traders incorrectly as ‘Any Safe World Port” (ASWP). This kind of CIF price will mean the buyer has to pay for an added CIF component in obtaining goods offered by a supplier, in which the port of loading is in another country.
The cost of delivering said goods to another country by a supplier, has to be paid for by the buyer, before the payment of the goods and new delivery mode is applied for.
Below are the main marine delivery modes; in where when a plane is used to delivery small lots or large bits of infrastructure (i.e: delivery of a wind farm generator) some of these incoterms still apply except now the bill of lading is replaced with an Airway-bill (AWB) of laden and the ships rails is replaced with the the airplane cargo door closing. FTNX does not trade in small lots but many FTNX endorsed and informed USCT members do.
ICC Paris, France administers Incoterms. Those traders who want to know all about such rules intently; an inexpensive booklet can be purchased from the
ICC.
Below are the Incoterms that FTNX is able
use. I am not going to ‘read from the book’ but provide the insight in my own words, adding personal experience along the way; an aspect that only FTNX can provide, as we have been trading long before the internet came to be. In all cases the scope to negotiate on matters of delivery is restricted as Incoterms guides the path that must be taken; in any case there are a handful of shipowners who control 90% of global
trade.This means the buyer or seller has little choice but to accept carriage
terms and conditions.
INCOTERMS
used by FTNX
FAS :Free Alongside Ship
The buyer booked the ship, it
arrives at the port of loading to take NBC or FCL loads. The load has been relocated next to the loading wharf. When the goods or container are ready to be lifted ( ready to be loaded on board the ship) from the wharf, at that moment
FAS Incoterms has been satisfied. When the mechanical method used is
attached to the goods, this act confirms the loading of goods already alongside the buyer's ship has (proven) commenced. The supplier needs to obtain a receipt to confirm as much; often a wharf-fingers or customs receipt is served which is sent to the supplier bank to initiate the collection process on the credit held. If the good are not ready alongside ship when the ship is ready to accept the load called ‘lay-time’ all expenses
to do with the ship waiting is also paid by charterer to the shipowners which in turn means the buyer, importer, either pays for such expenses, as a penalty of being late-or the contract of carriage is cancelled all together. Which may also lead to the contract for the goods purchased being cancelled as well for breach of contracting conditions, if goods take a long time to be ready for loading.
FOB: Free On Board
At FOB, space on board a ship is served by the charter party or shipowner to its clients
at no charge; for using their services. One step from the FAS aspect has the goods lifted over the ship rails
‘in the conditions as ordered.” In effect the goods have to go over the ‘ships rails’ AND be placed on board the ship ‘as ordered’ to fulfil the FOB aspect. As ‘ordered’ goes against Incoterms as per ‘in good condition’ is the only change FTNX has applied as some
products sold may be
in ‘poor condition,’ but serves the end buyer needs, if the purchase is made “as offered.”
The loading of non-break cargo (NBC) often uses the ICC FOB delivery mode
(as opposed to the USA version which is applied in local USA waters). So many suppliers offer FOB for Full Container Loads (FCL) of goods. This is incorrect as the correct
term when loading
for containers is FCA. It’s important as the rules at FCA are different. The
bill of lading is not required to form part of the collection process for the supplier to obtain payment under FOB, however if the buyer asks the seller for
assistance
with acquiring
the BOL , the assistance is served at the added
expense of the buyer and that part of this aspect must not be applied on the DLC, as a collection on the payment
condition, if such assistance is served. ICC incoterms advises that there are some
aspects where the supplier has to assist the buyer, if such assistance is asked for, is a poorly applied aspect of Incoterms. Serving assistance which proves fruitless; howevers allows for the deal to continue without adverse effect–in satisfying the term ‘give assistance.’
I hope this
aspect is
removed with the next
new release of Incoterms
due in 2030 onwards as it a senseless clause, in the reality of an active transaction
CFR: Cost and Freight
Same as per CIF except the insurance coverage is sourced by the buyer. A variation of this incoterms that could be considered by FTNX is defined as FOB and Freight
(FOB&F).
The full FOB aspect is in effect except now the seller arranges for carriage of goods as well. Other variants offered under incoterms such as CIF&C (and commission) are unreliable and impractical and in effect an unworkable delivery modes for a USCT member to apply-in the majority of cases.
CIF: Cost, Insurance and freight
This delivery mode is the most confusing; again used in NBC shipments and not container loads– is an often seen mistake. A ship full of cargo in hold, has one BOL dictating that the whole shipment of goods is being delivered to the end buyer.In a FCL transaction, only the FCL, and not the whole shipment is being sold to the end buyer. One step from FOB means the goods are paid for once all the transport documents are secured and presented cleanly to the supplier's bank. The term ‘clean’ is important . If the document does not represent what is being asked for as instructed via the credit held, a delay will become apparent, which means ‘added expenses’ for the supplier's account will be apparent. Since UCP 600 DLC rules are in effect, to enact with incoterms, these documents are all secured, prior to the ship leaving port of loading (POL) heading to port of destination (POD). The supplier secures full payment to his account, as per the offer price served to the buyer when the deal was struck which includes insurance and freight marked as ‘pre paid.’ Under incoterms Class (A) all risk insurance coverge is sought. The supplier produces all the documents to its bank holding the credit, the documents are examined and if all are cleanly served, the supplier is paid for goods sold to the buyer. The supplier is paid for the sale of goods, not the freight. The end buyer sent payment to the supplier at CIF. The supplier books the ship, specifying that the freight has been ‘pre paid’ under a particular DLC number to the carrier. The supplier only collects the part of the DLC covering the sale of goods. When the ship arrives at the port of destination, the end buyer will still have in its account the value of the carriage rate offered by the supplier to the end buyer. In other words, even though the supplier offers CIF, the funds to cover carriage rates are not collected by the supplier. The Carrier
presents its invoice to the end buyer, as quoted by the supplier. The buyer now pays the carrier the agreed upon rate made prior with the supplier, to obtain ‘possession’ to the ordered goods and all the expenses imposed by customs including tariffs applied on the goods. The suppleir is paid even before the ship leaves POL, but the carrier has to earn its fee, by first completing physical delivery of goods to POD. To stop the contract from being flipped, FTNX applies to endorse (write upon the space on the side of the BOL ) the BOL on its margins; meaning that the BOL has to be advised directly to the end buyer and nobody else. As for insurance component; when such is apparent
must also cover operational expenses of FTNX. Insurance premium baseline rate as an insight on NBC carriage, usually applies a charge rate of around 50/60 cents per each $100 dollars value of
goods being covered in good times; and in adverse times this rate could go as high as 5.0 percent of goods value or more
the closer the ship is headed towards a conflict zone. In general a minimum 110% of goods value or more is being covered to ensure incidentals are included.
CPT: Carriage Paid To
FTNX may apply CPT delivery mode on certain complex products. Example:
Deep storage gold or even alluvial gold, offered by a supplier in one country, requires the buyer to lodge a DLC at CPT Incoterms. The supplier
from Mali, Africa, is accompanying goods, often to be taken at the local airport for delivery by commercial aircraft to the buyer located in let us say, Luton, London U.K.
From the airport, the seller
takes the gold ( using armed security services)
to an arranged depository or smelter, secured by the end buyer in advance, at his expense.
The gold arrives at the facility, in which the end buyer obtains a storage receipt. While in London, the buyer takes his documents including storage receipt, AWB, Certificate of origin, invoice,etc.etc to a corresponding bank,
to act upon collection process on credit held in its account. The supplier is paid once the condition of the credit has been met via the documents being presented. The buyer now pays for all expenses to convert unassayed gold to certified gold bearing bullion certificates. This aspect cannot be used for hallmarked and assayed gold bullion, because a securities
license
is required to trade on such products outright, where parties hand over passports and meet at a bank to conclude on such a deal ‘on the spot’ (Cash for bullion certificates )
CIP: FCL
Carriage and Insurance Paid; is an Incoterms used for FCL not CIF. The FCL is moved into position so that the carrier can commence loading operations at POL. A carrier does not know what is in the container and hence, if the goods are not insured, then if damage caused,
because of negligence caused by the
carrier is proven, the liabilities of the carrier is limited to a standard low token rate that may only
cover part of the full damaged value of goods. In effect however, even without insurance, a carrier is liable for full
damages if it can clearly be proven that
the negligence of the carrier is to blame. The carrier also is able to evade
damages if the goods were damaged due to an ‘act of god’ which Incoterms got rid of such an aspect, after FTNX removed the clause in its doctrine (2010) citing that ‘all damage has a reason on why such damage occurred.’
This is
why it is important to ensure the right cover is apparent as per the delivered invoiced value for the actual goods inside the container. Also note; heading to a delivery port in a war zone will greatly increase the insurance premium. Payment is collected by the supplier when goods are on board ship. All expenses thereafter is for the account of the end buyer. The goods arrive at destination port, buyer claims goods and pays all added expenses including problematic matters of tariffs.
FCA: Free Carrier
The FCL basis under Incoterms 2020 is applied under an ‘agreed place'. It could be agreed upon that the carrier's logistic company picks up the FCL and services a receipt
would suffice most suppliers, as the goods are placed in control of the carrier's agent. Collection on payment
could be sought from this point. For FTNX however, the previous
Incoterms 2010, its effect still remains in place on all FCA offers made to its buyers, as the best option, as it applies to FCA delivery mode that FTNX still applies. The generally agreed upon place that appeases the apprehension of an end
buyer is as follows. The goods are sent to POL by the supplier. It is accepted inside the container
freight station(CFS). It is moved around the container freight station and made ready for placing over the ship's rails POL. The ship arrives ready for loading.
Even though the ship may be in port for days, once the full set of intermodal transport documents are served to the bank, (meaning the goods are now on board, or delivered at the CFS; as applied on the offer ) issuing the credit, in a clean state; collection on payment is may be applied
for by the supplier. Ten FCL therefore requires ten separate sets of documents. What is important here is that the gross weight of the container must not exceed the gross weight marked on its body. For a 20ft FCL a 21 MT payload maximum is apparent. For a 40 ft FCL, remaining under 26 MT payload is a safe aspect, may be assumed as added expenses may be incurred as a penalty if container breach gross payloads at lifting ( up to $2000.00 or more per each FCL) and if the FCL is overweight when picked up by the logistic company
used, a fine of up to $10,000 per each overweight container could be imposed. All expenses to arrive at the ‘agreed place’ is for the account of the supplier. FCA and not FOB is
the correct Incoterms for FCLs.
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