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Interview on Incoterms in
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Interview on Incoterms in
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Incoterms are trade terms. The traders must know their full details as codified in INCOTERMS 2000, and their implications, for application in trade contract, delivery and documentation. Do the incoterms concern bankers? Yes, the banker has to stipulate an incoterm on LC (letter of credit) and has to examine an incoterm stipulation on LC compliance. But should bankers have functional limited/relevant incoterm stipulation/examination knowledge only or should they have comprehensive professional knowledge in incoterms matters? Do they need to know who will arrange transport, and who will load/ unload goods? Ravi Mehta, TFR contributing editor, finds the answer from his talk with a Canada-based world renowned LC consultant T.O.Lee. Q. Should bankers know only how to stipulate incoterms, what document to stipulate under what Incoterm, and what to examine in incoterms stipulation, on LCs, or they, in addition to this, should also know the full details (costs, risks, delivery obligations, documentation) of each and every incoterm - I mean, in short, should the bankers have limited knowledge of incoterms, that is relevant to LC transactions, or comprehensive knowledge of incoterms.
A. Yes, it is a must that bankers should know how to stipulate/examine incoterms on LCs/compliant documents and they should also know the details and implications of each and every incoterm. Why? If you look at the CDCS (certified documentary credit specialist) examination syllabus, you can see that Incoterms are one of the topics to be tested in the examination papers. What is the purpose of CDCS? It is to test whether a banker working in the export/import department of a bank is reasonably competent, particularly about interpretation of UCP 500. The level of CDCS examination questions is based on the knowledge and experience that a banker with three years working experience in the bills department of a bank should have. That means a bank with three years experience in the import/export/bills/LC department should know about Incoterms. If a banker does not know about Incoterms, it is not possible for him to stipulate Incoterms in the LCs. Incoterms should be stipulated at the least in the commercial invoice and the insurance policy, if any, to form the basis of "sum insured" or "insured value". Incoterms form the basis of the price and clearly defines the cost and risk between the buyer and the seller to avoid later disputes. It is the LC applicant to tell his banker in the LC application form what Incoterm he would like to use, based on his contract with the seller.
All the different Incoterms are within the syllabus of CDCS. So the bankers must know them all. There is no free choice here. The most popular ones are FOB, CFR (cost and freight) & CIF (cost, insurance and freight). Bankers should educate the applicants, their customers, to use these three Incoterms correctly, only in sea transport documents. For other modes of transport, including multimodal transport, FCA ( free carrier), CPT (carriage paid to), & CIP (carriage and insurance paid to) should be used.
A banker should examine a transport document to check if the freight is consistent with the Incoterm used. And whether the freight is within the scope of ISBP 645 (ICC publication on international standard banking practice) provisions. For example, in a bill of lading, whether the freight is compliant with ISBP 645 Paragraphs 96, 97 & 98 provisions.
A banker has to check whether the terms in the insurance policy matches the Incoterm used. For example, in FOB (free on board,) it is not the duty for the beneficiary to pay for the insurance costs for the ocean crossing part, only up to the loading on board part, as the demarcation of risk is on the ship's railing. And there should be no insurance policy to be called for in the LC under FOB. For CIF, the beneficiary must produce an insurance policy with premium prepaid.
More information about LC, BL (bill of lading), Incoterms, trade frauds, dispute cases resolved can be viewed on my website www.tolee.com, that is created to help traders understand more the technicalities of international trade and to minimize their trading risks.
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