Incoterms (International Commercial Terms) 2010 Incoterms are standard trade definitions (such as ex-works, FOB and CIF)

which are widely used in international contracts. The Incoterms have been developed by the International Chamber of Commerce and indicates the obligations and risks for both the buyer and the seller. There are eleven Incoterms: EXW Exworks means that the seller delivers when he places the goods at the disposal of the buyer at the sellers premises or another named place (i.e. works, factory, warehouse, etc) not cleared for export and not loaded on any collecting vehicle. This term thus represents the minimum obligation for the seller, and the buyer has to bear all costs and risks involved in taking the goods from the sellers premises. Critical Points Carriage to be arranged by the buyer Risk transfer from the seller to the buyer when the goods are at the disposal of the buyer Cost transfer from the seller to the buyer when the goods are at the disposal of the buyer FOB Free on Board means that the seller delivers when the goods pass the ships rails at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. The FOB terms requires the seller to clear the goods for export. Critical Points Carriage to be arranged by the buyer Risk transfer from the seller to the buyer when the goods pass the ships rail Cost transfer from the seller to the buyer when the goods pass the ships rail CIF Cost Insurance and Freight means that the seller delivers when the goods pass the ships rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine cargo insurance against the buyers risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts for insurance and pays the insurance premium. The CIF term, requires the seller to clear the goods for export. Critical Points Carriage and insurance to be arranged by the seller Risk transfer from the seller to the buyer when the goods pass the ships rail Cost transfer at port of destination, buyer paying such costs as are not for the sellers account under the contract of carriage CA Free Carrier means that the seller delivers the goods cleared for export, to the carrier nominated by the buyer at the named place. It should be

noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the sellers premises, the seller is responsible for loading. If delivery occurs at any other place, the seller is not responsible for unloading. Critical Points Carriage to be arranged by the buyer or by the seller on the buyers behalf Risk transfer from the seller to the buyer when the goods have been delivered to the carrier at the named place Cost transfer from the seller to the buyer when the goods have been delivered to the carrier at the named place CFR Cost and Freight means that the seller delivers when the goods pass the ships rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. The CFR term requires the seller to clear the goods for export. Critical Points Carriage to be arranged by seller Risk transfer from the seller to the buyer when the goods pass the ships rail Cost transfer at port destination, buyer paying such costs as are not for the sellers account under the contract of carriage DDP Delivered duty paid means that the seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods thereto including, where applicable, any duty for import in the country of destination. Whilst the Exworks term represents the minimum obligation for the seller, DDP represents the maximum obligation. Critical Points Carriage to be arranged by the seller Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer FAS Free Alongside Ship means that the seller delivers when the goods are placed alongside the vessel at the named port of shipment. This means that the buyer has to bear all cost and risks of loss of or damage to the goods from that moment. The FAS term requires the seller to clear the goods for export. Critical Points Carriage to be arranged by the buyer Risk transfer from the seller to the buyer when the goods have been alongside the ship Cost transfer from the seller to the buyer when the goods have been placed alongside the ship

CPT Carriage Paid To means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risks and any other costs occurring after the goods have so delivered. The CPT terms requires the seller to clear the goods for export. Critical Points Carriage to be arranged by the seller Risk transfer from the seller to the buyer when the goods have been delivered to the carrier Cost transfer at the port of destination, buyer paying such costs as are not for the sellers account under the contract of carriage CIP Carriage and Insurance Paid To means that the seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer bears all risk and any additional costs occurring after the goods have been so delivered. However, in CIP the seller also has to procure insurance against the buyers risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts for insurance and pays the insurance premium. Critical Points Carriage and insurance to be arranged by the seller Risk transfer from the seller to the buyer when the goods have been delivered to the carrier Cost transfer at place of destination, the buyer paying such costs as are not for the sellers account under the contact of carriage DAT Delivered At Terminal means that the seller delivers when the goods, once unloaded from the arriving means of a transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. The parties are well advised to specify as clearly as possible the 'terminal'. Critical Points Carriage to be arranged by the seller Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer. Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer. DAP Delivered At Placel means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place. Critical Points Carriage to be arranged by the seller Risk transfer from the seller to the buyer when the goods are placed at the disposal of the buyer.

Cost transfer from the seller to the buyer when the goods are placed at the disposal of the buyer. Incoterms Export Costs Import Costs Insurance Place of Delivery EXW FCA FAS FOB CFR CIF CPT CIP DAT DAP DDP S = Seller B = Buyer Top Clearing and Forwarding Freight Forwarders act as consolidators, grouping together small or medium sized goods from different exporters and stuffing them in a full container load to a specific destination so that each customer pays the volume it occupies in the container. Freight Forwarders can arrange for inland transportation with road haulage companies on board normal trucks or equipped with cranes in Mauritius or in any foreign country where rail transportation is often available. They also provide guidance on packaging, marking and labelling according to the final customer requirements. They can also undertake to offer these services or even arrange to have the merchandise bulk-broken or re-assorted at another point. Freight Forwarders are linked to the Customs services through on-line electronic data interchange (EDI) capabilities for accurate submission of import and export documentation for security tracking of various shipments. B S B S S S S S S S S B B B B B B B B B B S (B) B B B S S S S S S S Sellers Works; at buyers disposal Place of departure custody of the carrier Alongside ship in port of shipment On board the ship in port of shipment On board the ship in port of shipment On board the ship in port of shipment Place of departure; custody of the 1st carrier Place of departure; custody of the 1st carrier Place of destination at the terminal; at buyers disposal Place of destination at the terminal; at buyers disposal Place of destination; at buyers disposal

A list of freight forwarders and their contact details is available on www.aptmauritius.com Top International Terms of Payment 1) T/T in Advance T/T in advance means that the buyer needs to make a telegraphic transfer to the seller prior to start of production. The transfer can be in full amount or part of the amount. A wire transfer is commonly used and has the advantage of being almost immediate. Receiving payment by cash in advance of the shipment might seem ideal. In this situation, the exporter is relieved of collection problems and has immediate use of the money. There exists also t/t after shipment whereby the funds are transferred after receipt of a copy of the bill of lading proving that the goods have been loaded for shipment. 2) Open Account An open account transaction is a sale where the goods are shipped and delivered before payment is due, which is usually in 30 to 90 days. Obviously, this option is the most advantageous to the importer in terms of cash flow and cost, but it is consequently the highest-risk option for an exporter. In addition, the extension of credit by the seller to the buyer is more common abroad. Therefore, exporters who are reluctant to extend credit may lose a sale to their competitors. However, though open account terms will definitely enhance export competitiveness, exporters should thoroughly examine the political, economic, and commercial risks as well as cultural influences to ensure that payment will be received in full and on time. It is possible to substantially mitigate the risk of non-payment associated with open account trade by using such trade finance techniques as export credit insurance and factoring. Exporters may also seek export working capital financing to ensure that they have access to financing for production and for credit while waiting for payment. In a foreign transaction, an open account can be a convenient method of payment if the buyer is well established, has a long and favorable payment record, or has been thoroughly checked for creditworthiness. With an open account, the exporter simply bills the customer, who is expected to pay under agreed terms at a future date. Some of the largest firms abroad make purchases only on open account. 3) Documentary Collection (or Cash Against Documents) The process for CAD, or cash against documents, in an export environment is fairly straightforward. After accepting an order from an international customer, the exporter prepares the export documents required by both the country of origin and the destination. Among the documents is a form that is normally referred to as an Export Collection Form. This form, along with other manifests and copies of shipping documents, is forwarded to the bank used by the exporter. While it is not always necessary, many exporters choose to prepare a Bill of Exchange, and include that document with the other forms. As the next step in a purchasing using the cash against documents method, the exporters bank forwards the necessary documents to the bank

designated by the purchaser or importer. The documents are provided with a proviso that they are not to be released to the importer until payment for the shipment is made in full. Until the payment is received by the exporters bank, the transaction is not considered complete. Once the importers bank receives authorization to honor the exporters invoice, cash payment is electronically transferred to the exporters financial institution. After receiving confirmation that the payment was executed and posted properly, the importers bank releases all documents pertaining to the transaction to the buyer. Many banks charge fees for executing a cash against documents transaction. In some instances, the seller covers all bank charges. However, it is more common for buyers to cover any charges issued by the banks at each end of the transaction. Typically, the seller adds the bank charges from the point of origin onto the invoice, while the importers bank normally debits the account used to issue the cash against documents payment. 4) Cash on Delivery Cash on delivery, also known as COD, is a method of payment for goods received, which will be delivered. Payment is given at the time delivery is accomplished. Cash on delivery doesnt always mean cash as a payment, but certainly can also mean cashiers cheque, credit card or personal cheque. It really depends upon the establishment from which youre purchasing something, as to what forms of payment are acceptable. In some ways cash on delivery is a means of protecting the consumer from a seller who would take money and then fail to deliver agreed upon items. However, any scrupulous retail establishment will do all they can to make certain that they deliver items as promised. They may be less willing to trust the customer, and wish for payment prior to delivery in order to make sure they get payment, and dont have to pay a delivery person to attempt delivery when the customer has no intent to pay for the item. 5) Letter of Credit A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank is required to cover the full or remaining amount of the purchase. A letter of credit is often abbreviated as LOC or LC, and is also referred to as a documentary credit. The parties to a letter of credit are usually an applicant who wants to send money, a beneficiary who will receive the money, the issuing bank and the advising bank. Letters of credit are often used for international transactions to ensure that payment will be received. They have become an important aspect of international trade, due to differing laws in each country and the difficulty of knowing each party personally. The bank also acts on behalf of the buyer, or holder of the letter of credit, by ensuring that the supplier will not be paid until the bank receives confirmation that the goods have been shipped. A letter of credit is often confused with a bank guarantee, which is similar in many ways but not the same thing. The main difference is the bank's position relative to the buyer and seller of a good or service in the event of the buyer's default of payment. With a letter of credit, a seller may request that a buyer provide them with a letter obtained from a bank which substitutes the bank's credit for their client's. In the event of the borrower defaulting, the seller can go to the buyer's bank for the payment. Instead of the risk that the buyer will not pay, the seller only faces the risk that the bank will be unable to pay, which is unlikely. This means that if the applicant obtaining the letter of credit fails to perform his or her obligations, the bank must pay. The letter of credit can also be the source of payment for a transaction, meaning that an exporter will get paid by redeeming the letter of credit. A letter of credit is less risky for the merchant, but even riskier for a bank. Types of Letters of Credit: Revocable Credit - This can be amended or cancelled at any time by the importer without the consent of the exporter. This option is not often used, as there is little protection for the exporter. By default all credits are irrevocable, unless otherwise stated.

Irrevocable Credit - Once issued this can only be changed or cancelled with the consent of all the parties. The seller must merely comply with the terms and conditions of the credit in order to receive payment. Confirmed Credit - In some instances, exporters may request a credit to be confirmed by another bank, (usually a bank in their own country). If a bank adds its confirmation to a credit, it means that it is obliged to pay if the terms and conditions of the credit are complied with. This obligation to pay exists even if the issuing bank or country defaults. Payment Credit - This is available for payment at the tellers of the paying bank, as nominated in the credit. The seller can, therefore, present documents to the paying bank and does not have to wait for the documents to be forwarded to the issuing bank for checking and subsequent payment. Negotiation Credit - This is always payable at the counters of the issuing bank. Buyers can use negotiation credits to delay payment until the documents have been received and checked by the issuing bank. Deferred Payment Credit - Similar to payment credits, except that they are payable at a future date. Acceptance Credit - The accepting bank guarantees payment to the holder of the bill of exchange on maturity date - regardless of whether the credit is confirmed or not. This option comes with an acceptance fee which can be substantial. Back-to-Back Credit - The original letter of credit is used as security to open another credit in favour of the exporter's own supplier. The bank confirming the original credit may not necessarily be the issuing bank of the second credit. Transferable Credit - This is normally used when the exporter is not supplying the goods and wishes to transfer all or part of the responsibilities under the credit to the supplier(s). Red Clause Credit - This enables the exporter to obtain advance payment before shipment. This is provided against the exporter's certificate confirming its undertaking to ship the goods and to present the documents in compliance with the terms and conditions of the documentary credit. Green Clause Credit - Similar to a Red Clause Credit, but in addition to pre-shipment finance the exporter also receives storage facilities at the port of shipment at the expense of the buyer. Packing Credit - This offers pre-shipment finance to the seller against warehouse receipts, forwarding agent's receipts or similar documents that prove the goods are no longer in the seller's possession. Standby Credit - Similar to a normal letter of credit, this method differs in that it is a default instrument, whereas a normal credit is a payment instrument. A standby credit is only called upon in the event of failure to perform. Its function is, therefore, that of a guarantee. Revolving Credit - This allows for the credit to be automatically reinstated under certain circumstances. It is normally used where shipments of the same goods are made to the same importer. 6) Bill of Exchange Bills of exchange are financial documents that require the individual or business that is addressed in the document to pay a specified amount of money on a date that is cited within the text of the document. Considered to be a negotiable instrument, the date for the demand to pay generally ranges from the current date to a date within the next six calendar months. A bill of exchange will also require the authorized signature of the debtor in order to be considered legal and binding.

As an unconditional order to pay a fixed sum of money to a creditor, the bill of exchange can take on many different forms. One of the most common examples of the bill of exchange is the common bank cheque. A cheque specifies who is to receive the funds, with the order to pay the face value of the cheque to the order of the creditor. The exact amount of the payment is specified. The date specified on the cheque is often the issue date for the cheque, but may also be the date that the bank is to honor the payment. This process is referred to as post dating a cheque, since the creditor will physically receive the cheque at some time before it will be honored. It is also possible to establish a bill of exchange in the form of a bank draft. Like the bank cheque, drafts are normally set up with a fixed sum of payment, and with specific instructions of when to issue the payment to the creditor. The bill of exchange can be a very simplistic document, or one that is very detailed. In many countries around the world, the use of a bill of exchange is a common means of conducting business. In situations where the bill of exchange is not honored, the holder of the document is free to take legal action against the debtor according to local laws, or to sell the bill of exchange to a collector at a discounted rate of exchange.