Exercises: Essentials of Freight Forwarding

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1 Exercises: Essentials of Freight Forwarding

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3 Table of Contents International Payments, Part 1 Exercises 1.1 (Question)... 7 Exercises 1.2 (Question)... 9 Exercises 1.3 (Question)...12 Exercises 1.1 (Answer)...15 Exercises 1.2 (Answer)...18 Exercise 1.3 (Answer)...21 International Payments, Part 2 Exercises 2.1 (Question)...25 Exercises 2.2 (Question)...28 Exercises 2.3 (Preface)...29 Exercises 2.3 (Question)...30 Exercises 2.4 (Preface)...37 Exercises 2.4 (Question)...47 Exercises 2.1 (Answer)...53 Exercises 2.2 (Answer)...57 Exercises 2.3 (Answer)...58 Exercises 2.4 (Answer)...60 APPENDIX A...62 APPENDIX B...71 Export Packaging and Warehousing Exercises 3.1 (Question)...73 Exercises 3.2 (Question)...74 Exercises 3.3 (Preface)...75 Exercises 3.3 (Question)...82 Exercises 3.4 (Question)...84 Exercises 3.1 (Answer)...85 Exercises 3.2 (Answer)...86 Exercises 3.3 (Answer)...88 Exercises 3.4 (Answer)...95 Commercial Documentation and Regulatory Compliance Exercises 4.1 (Question)...97 Exercises 4.2 (Question)...99 Exercises 4.3 (Question) Exercises 4.4 (Question) Exercises 4.5 (Question) Exercises 4.6 (Question) Exercises 4.1 (Answer) Exercises 4.2 (Answer)

4 Exercises 4.3 (Answer) Exercises 4.4 (Answer) Exercises 4.5 (Answer) Exercises 4.6 (Answer) Cargo Insurance Exercises 5.1 (Question) Exercises 5.2 (Preface) Exercises 5.2 (Question) Exercises 5.3 (Preface Determining the Insured Value and Premiums) Exercises 5.3 (Preface Duty and Taxes) Exercises 5.3 (Insured Value and Premiums) (Question) Exercises 5.4 (Preface Insurability, Exclusions of Coverage, Insurance Certificates) Exercises 5.4 (Question) Exercises 5.5 (Question) Exercises 5.6 (Question) Exercises 5.1 (Answer) Exercises 5.2 (Answer) Exercises 5.3 (Answer) Exercises 5.4 (Answer) Exercises 5.5 (Answer) Exercises 5.6 (Answer) Cargo Security and Dangerous Goods Exercises 6.1 (Cargo Security) (Question) Exercises 6.2 (Dangerous Goods) (Question) Exercises 6.3 (Cargo Security) (Question) Exercises 6.4 (Dangerous Goods) (Question) Exercises 6.1 (Cargo Security) (Answer) Exercises 6.2 (Dangerous Goods) (Answer) Exercises 6.3 (Cargo Security) (Answer) Exercises 6.4 (Dangerous Goods) (Answer) Costing and Quoting Exercises 7.1 (Question) Exercises 7.2 (Question) Exercises 7.3 (Question) Exercises 7.4 (Air Export) (Question) Exercises 7.5 (Ocean Export) (Question) Exercises 7.6 (Air Import) (Question) Exercises 7.7 (Ocean Import) (Question) Exercises 7.1 (Answer) Exercises 7.2 (Answer) Exercises 7.3 (Answer) Exercises 7.4 (Air Export) (Answer) Exercises 7.5 (Ocean Export) (Answer) Exercises 7.6 (Air Import) (Answer) Exercises 7.7 (Ocean Import) (Answer)

5 Alternative Transport Solutions Exercises 8.1 (Question) Exercises 8.2 (Question) Exercises 8.3 (Question) Exercises 8.4 (Question) Exercises 8.5 (Question) Exercises 8.6 (Question) Exercises 8.7 (Question) Exercises 8.8 (Question) Exercises 8.9 (Question) Exercises 8.10 (Question) Exercises 8.11 (Preface) Exercises 8.11 (Shipment Information) Exercises 8.11 (Question) Exercises 8.1 (Answer) Exercises 8.2 (Answer) Exercises 8.3 (Answer) Exercises 8.4 (Answer) Exercises 8.5 (Answer) Exercises 8.6 (Answers) Exercises 8.7 (Answer) Exercises 8.8 (Answer) Exercises 8.9 (Answer) Exercises 8.10 (Answer) Exercises 8.11 Calculations (Answer) Exercises 8.11 (Answer)

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7 Questions International Payments, Part 1 Exercises 1.1 (Question) 1. List the four modes of settlement available in international transactions. 2. List three instances when it is not advisable or possible to sell to a foreign buyer on an open account. 3. Explain the process of a documentary collection and list the two important documents involved. 4. What are the exporter s disadvantages when choosing a documentary collection to receive payment for his goods? 5. When using documentary collection as the method of payment on an ocean freight shipment, how would you consign the bill of lading? 6. Define a bill of exchange. 7. What is a sight bill of exchange? 8. What is a term bill of exchange? 9. On a bill of exchange, who is the drawee and who is the drawer? 2017 Page 7

8 Questions International Payments, Part Briefly define the following terms: Drawer: Drawee: Tenor: Remitting bank: Collecting bank: Direct collection: What is meant by acceptance? What is meant by documents on acceptance? Under documentary collections a trust has been established between the and the. Also, the must contract an adequate in order to secure the abroad accounts receivables. An air waybill be consigned because it is a document. The usually pays the banks fees for documentary collections. Name the two basic types of documentary collections Page 8

9 Questions International Payments, Part 1 Exercises 1.2 (Question) 1. Complete a direct bank collection form letter. Shipper: Buyer: Consignment: United Seed Company Ltd. 125 Portage Street Winnipeg, Manitoba R2V 4G1, Canada Empire Grain Importers Ltd. 1 Main Street FK17, Grangemouth, Scotland 1 x 20-ft container of canola seed, 15,300 kg. Shipped Montreal February 5, per mv K.D. Obukhova to Liverpool. Value EXW Winnipeg: CAN $150, Canadian bank: U.K. bank: Terms of payment: Bank of Nova Scotia Barclays Bank, London 90 days sight Questions: i) What kind of documents would you send with the direct bank collection letter? ii) Complete the direct bank collection form for the ocean shipment in this assignment, including the bill of exchange. You have to consider that the ocean carrier should only release the container after the buyer accepted the bill of exchange presented to him by Barclays Page 9

10 Questions International Payments, Part 1 THE BANK OF NOVA SCOTIA Ontario International Banking Centre 181 University Ave., Suite 1916 Toronto, ON Canada M5H 3M7 Mail to: (Collecting Bank) DIRECT COLLECTION Drawee: (Name and Address) Always Quote Reference Number D.C /18572 Date WE ENCLOSE THE FOLLOWING DRAFT(S) AND/OR DOCUMENTS FOR COLLECTION AND REMITTANCE AFTER FINAL PAYMENT ONLY. PLEASE HANDLE THIS COLLECTION AS IF RECEIVED DIRECTLY FROM THE ABOVE OFFICE OF THE BANK OF NOVA SCOTIA TO WHOM YOUR ACKNOWLEDGEMENT. ALL REPORTS AND PAYMENT IS TO BE DIRECTED ALWAYS QUOTING THE ABOVE REFERENCE NUMBER. THIS COLLECTION IS SUBJECT TO THE UNIFORM RULES FOR COLLECTIONS (1995 REVISION) INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO From Drawer (Name and Address) Drawers Ref. No. Tenor Currency & Amount Covering shipment of: Vessel or Carrier Bill of Lading No. ENCLOSED DRAFTS BILLS OF LADING INVOICES INSURANCE CERTIFICATE CERTIFICATE OF ORIGIN PACKING LIST AIR WAYBILL ORIGINAL HH COMMERCIAL CUSTOMS CONSULAR FIRST MAIL SECOND MAIL OBSERVE INSTRUCTIONS MARKED X BELOW DOCUMENTS DELIVER AGAINST PAYMENT DELIVER AGAINST ACCEPTANCE HOLD FOR ARRIVAL OF GOODS PROTEST PROTEST NON-PAYMENT PROTEST NON-ACCEPTANCE DO NOT PROTEST ALL CHARGES FOR ACCOUNT DRAWER FOR ACCOUNT DRAWEE WAVE CHARGES IF REFUSED BY DRAWEE INCLUDING EXCHANGE, INCURE NO CABLE EXPENSE COLLECT THE BANK OF NOVA DO NOT WAIVE CHARGES STAMP, TAXES, ETC. SCOTIA CHARGES OF $23.00 WITHOUT FURTHER INSTRUCTIONS INTEREST COLLECT INTEREST AT % PER ANNUM FROM TO FOR DELAY IN PAYMENT COLLECT INTEREST AT % P.A. FROM DO NOT WAIVE WITHOUT DUE DATE LISTED, APPROXIMATE ARRIVAL OF PROCEEDS AT DEST. FURTHER INSTRUCTIONS ALLOW DISCOUNT OF IF PAID FATE ADVICES BY AIRMAIL ACCEPTANCE NON-ACCEPTANCE NON-PAYMENT BY CABLE ACCEPTANCE NON-ACCEPTANCE NON-PAYMENT REMIT PROCEEDS AIRLINE PRIME BANKERS DRAFT ON TORONTO (Cdn. funds) NEW YORK (U.S. funds) IN THE CURRENCY OF THE CALBE/TELEX/SWIFT AT DRAWERS EXPENSE AT DRAWEES EXPENSE COLLECTION BY LOCAL CURRENCY IN THE EVENT FOREIGN EXCHANGE IS NOT IMMEDIATELY OBTAINABLE, A PROVISIONAL DEPOSIT IN LOCAL CURRENCY MAY BE ACCEPTED WITH DRAWEE S WRITTEN UNDERSTANDING TO ASSUME ALL EXCHANGE PRICES TO EXPECT FULL SETTLEMENT IN THE CURRENCY OF THE COLLECTION. DO NOT SURRENDER DRAFT UNTIL FINAL SETTLEMENT FOR FACE AMOUNT IS RECEIVED FOR REMITTANCE. IN CASE OF NEED WHO WILL ENDEAVOUR IN HAVING DRAFT REFER TO SPECIAL INSTRUCTIONS PREPARED BY (NAME OF FORWARDER) HONOURED AS DRAWN WHOSE INSTRUCTIONS MAY BE ACCEPTED IN EVERY RESPECT SIGNATURE 2017 Page 10

11 Questions International Payments, Part 1 SPACE BELOW FOR ACCEPTANCE STAMP DUE FORWARDING BANK S NUMBER 20 AFTER DATE, FOR VALUE RECEIVED. PAY TO THE ORDER OF THE SUM OF DOLLARS $ TO RECEIVING BANK S NUMBER 2017 Page 11

12 Questions International Payments, Part 1 Exercises 1.3 (Question) 1. Complete a direct bank collection form letter. Shipper: Buyers: Canadian Manufacturing Inc. 20 Royal York Rd. Mississauga, Ontario L5S 2R5, Canada Osterreichische Fabrikationsbetrieb GmbH Vorarlberg Str. Linz 4020, Austria Consignment: 1 crate of barbeque parts, 675 kg m 3 February 5, 2017, AC AWB Value EXW Montreal: CAN $31, Canadian bank: Austrian bank: Terms of payment: Bank of Nova Scotia Wiener Handelsbank AG, Vienna Cash against documents Questions: For this air freight shipment you have the option to either use the traditional bank channel or you suggest a different, possibly a more efficient manner of following shipper s C.O.D. instructions, especially considering that it is air freight and time is of the essence. i) If you use a direct bank collection method, how would you consign the air waybill? ii) iii) iv) How would you forward the completed direct bank collection letter? What kind of documents would you send with this direct bank collection letter? What other option do you think you may have to comply with shipper's instructions for you to arrange for the C.O.D.? Explain Page 12

13 Questions International Payments, Part 1 THE BANK OF NOVA SCOTIA Ontario International Banking Centre 181 University Ave., Suite 1916 Toronto, ON Canada M5H 3M7 Mail to: (Collecting Bank) DIRECT COLLECTION Drawee: (Name and Address) Always Quote Reference Number D.C /18572 Date WE ENCLOSE THE FOLLOWING DRAFT(S) AND/OR DOCUMENTS FOR COLLECTION AND REMITTANCE AFTER FINAL PAYMENT ONLY. PLEASE HANDLE THIS COLLECTION AS IF RECEIVED DIRECTLY FROM THE ABOVE OFFICE OF THE BANK OF NOVA SCOTIA TO WHOM YOUR ACKNOWLEDGEMENT. ALL REPORTS AND PAYMENT IS TO BE DIRECTED ALWAYS QUOTING THE ABOVE REFERENCE NUMBER. THIS COLLECTION IS SUBJECT TO THE UNIFORM RULES FOR COLLECTIONS (1995 REVISION) INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO From Drawer (Name and Address) Drawers Ref. No. Tenor Currency & Amount Covering shipment of: Vessel or Carrier Bill of Lading No. ENCLOSED DRAFTS BILLS OF LADING INVOICES INSURANCE CERTIFICATE CERTIFICATE OF ORIGIN PACKING LIST AIR WAYBILL ORIGINAL HH COMMERCIAL CUSTOMS CONSULAR FIRST MAIL SECOND MAIL OBSERVE INSTRUCTIONS MARKED X BELOW DOCUMENTS DELIVER AGAINST PAYMENT DELIVER AGAINST ACCEPTANCE HOLD FOR ARRIVAL OF GOODS PROTEST PROTEST NON-PAYMENT PROTEST NON-ACCEPTANCE DO NOT PROTEST ALL CHARGES FOR ACCOUNT DRAWER FOR ACCOUNT DRAWEE WAVE CHARGES IF REFUSED BY DRAWEE INCLUDING EXCHANGE, INCURE NO CABLE EXPENSE COLLECT THE BANK OF NOVA DO NOT WAIVE CHARGES STAMP, TAXES, ETC. SCOTIA CHARGES OF $23.00 WITHOUT FURTHER INSTRUCTIONS INTEREST COLLECT INTEREST AT % PER ANNUM FROM TO FOR DELAY IN PAYMENT COLLECT INTEREST AT % P.A. FROM DO NOT WAIVE WITHOUT DUE DATE LISTED, APPROXIMATE ARRIVAL OF PROCEEDS AT DEST. FURTHER INSTRUCTIONS ALLOW DISCOUNT OF IF PAID FATE ADVICES BY AIRMAIL ACCEPTANCE NON-ACCEPTANCE NON-PAYMENT BY CABLE ACCEPTANCE NON-ACCEPTANCE NON-PAYMENT REMIT PROCEEDS AIRLINE PRIME BANKERS DRAFT ON TORONTO (Cdn. funds) NEW YORK (U.S. funds) IN THE CURRENCY OF THE CALBE/TELEX/SWIFT AT DRAWERS EXPENSE AT DRAWEES EXPENSE COLLECTION BY LOCAL CURRENCY IN THE EVENT FOREIGN EXCHANGE IS NOT IMMEDIATELY OBTAINABLE, A PROVISIONAL DEPOSIT IN LOCAL CURRENCY MAY BE ACCEPTED WITH DRAWEE S WRITTEN UNDERSTANDING TO ASSUME ALL EXCHANGE PRICES TO EXPECT FULL SETTLEMENT IN THE CURRENCY OF THE COLLECTION. DO NOT SURRENDER DRAFT UNTIL FINAL SETTLEMENT FOR FACE AMOUNT IS RECEIVED FOR REMITTANCE. IN CASE OF NEED WHO WILL ENDEAVOUR IN HAVING DRAFT REFER TO SPECIAL INSTRUCTIONS PREPARED BY (NAME OF FORWARDER) HONOURED AS DRAWN WHOSE INSTRUCTIONS MAY BE ACCEPTED IN EVERY RESPECT SIGNATURE 2017 Page 13

14 Questions International Payments, Part 1 SPACE BELOW FOR ACCEPTANCE STAMP DUE FORWARDING BANK S NUMBER 20 AFTER DATE, FOR VALUE RECEIVED. PAY TO THE ORDER OF THE SUM OF DOLLARS $ TO RECEIVING BANK S NUMBER 2017 Page 14

15 Answers International Payments, Part 1 Exercises 1.1 (Answer) 1. List the four modes of settlement available in international transactions. 1. Advance payment. 2. Open account. 3. Documentary collection. 4. Documentary credit (or letter of credit). 2. List three instances when it is not advisable or possible to sell to a foreign buyer on an open account. 1. When there are currency restrictions, import permits or quotas or where open accounts are prohibited. 2. In countries where political instability or economic instability make it an unreliable way of receiving payment for your goods. 3. When you feel that the buyer will not pay as agreed. 3. Explain the process of documentary collection and list the two important documents involved. The exporter engages a bank to do the collecting at destination via a corresponding bank. All shipping documents and a bill of exchange are given to the bank who will not release the goods to the importer until they have collected the commercial invoice amount or obtained an accepted term bill of exchange. The two important documents are the bank collection form and the bill of exchange. 4. What are the exporter s disadvantages when choosing a documentary collection to receive payment for his goods? The bank acts as a collection agency. The goods will arrive at destination and if the importer cannot pay, the exporter will have to decide if he pays to bring back the goods or try to sell them to another client, possibly at a loss Page 15

16 Answers International Payments, Part 1 5. When using documentary collection as the method of payment on an ocean freight shipment, how would you consign the bill of lading? Consigned: to order blank. 6. Define a bill of exchange. An unconditional order in writing where one party undertakes to pay another party a named sum of money at presentation or at a given date. 7. What is a sight bill of exchange? A bank draft payable upon presentation. 8. What is a term bill of exchange? A bank draft payable at a specified later date. It is accepted by the signature of the drawee. 9. On a bill of exchange, who is the drawee and who is the drawer? Drawee: the party that has to pay. Drawer: the party that wants the money. 10. Briefly define the following terms: Drawer: The party requesting payment or issuing the bill of exchange (exporter). Drawee: The party specified in the bill of exchange from whom payment is demanded (importer). Tenor: The time allowed to the importer for payment of an accepted bill of exchange. Remitting bank: The bank acting on behalf of the exporter. Collecting bank: The bank in the importer s country, collecting payment. Direct collection: There must be trust between the exporter and importer and no restrictions in the country of import. Payment against presentation of documents Page 16

17 Answers International Payments, Part What is meant by acceptance? The drawee accepts the bill of exchange, thereby agreeing to pay at the date of maturity of the bill of exchange. Acceptance is done by the drawee, signing over the face of the bill of exchange the word accepted along with the date. 12. What is meant by documents on acceptance? The collecting bank (drawee s bank) releases the transport documents to the drawee, after the drawee has properly accepted a term bill of exchange. 13. Under documentary collections a mutual trust has been established between the exporter and the importer. Also, the _exporter _must contract an adequate _credit insurance policy in order to secure the abroad accounts receivables. 14. An air waybill _must_ be consigned _to a party or bank because it is a _non-negotiable_ document. 15. The _importer usually pays the banks fees for documentary collections. 16. Name the two basic types of documentary collections. 1. Documents against payment. 2. Documents against acceptance Page 17

18 Answers International Payments, Part 1 Exercises 1.2 (Answer) 1. Complete a direct bank collection form letter. Question i) You must send, as a minimum, the freight controlling document i.e., the bill of lading and a commercial invoice. Additional documents, like insurance policy or packing list, etc. depend on buyer's specifications. The bill of lading should be consigned to order. Question ii) Refer to completed direct bank collection form Page 18

19 Answers International Payments, Part 1 THE BANK OF NOVA SCOTIA Ontario International Banking Centre 181 University Ave., Suite 1916 Toronto, ON Canada M5H 3M7 Mail to: (Collecting Bank) Barclay s Bank London DIRECT COLLECTION Always Quote Reference Number D.C /18572 Date February 4, 2017 Drawee: (Name and Address) Empire Grain Importers Ltd., 1 Main Street, FK17 Grangemouth, Scotland WE ENCLOSE THE FOLLOWING DRAFT(S) AND/OR DOCUMENTS FOR COLLECTION AND REMITTANCE AFTER FINAL PAYMENT ONLY. PLEASE HANDLE THIS COLLECTION AS IF RECEIVED DIRECTLY FROM THE ABOVE OFFICE OF THE BANK OF NOVA SCOTIA TO WHOM YOUR ACKNOWLEDGEMENT. ALL REPORTS AND PAYMENT IS TO BE DIRECTED ALWAYS QUOTING THE ABOVE REFERENCE NUMBER. THIS COLLECTION IS SUBJECT TO THE UNIFORM RULES FOR COLLECTIONS (1995 REVISION) INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO From Drawer (Name and Address) United Seed Company Ltd. 125 Portage St., R2V 4G1 Winnipeg, Manitoba, Canada ENCLOSED DRAFTS BILLS OF LADING INVOICES INSURANCE CERTIFICATE ORIGINAL HH COMMERCIAL CUSTOMS CONSULAR Drawers Ref. No. Tenor 90 days Covering shipment of: 1 x 20-ft canola seed 15,300 kg Vessel or Carrier CERTIFICATE OF ORIGIN PACKING LIST AIR WAYBILL Currency & Amount CAN $150, Bill of Lading No. 101 FIRST MAIL SECOND MAIL 1 2/ /3 1 1 OBSERVE INSTRUCTIONS MARKED X BELOW DOCUMENTS DELIVER AGAINST PAYMENT DELIVER AGAINST ACCEPTANCE HOLD FOR ARRIVAL OF GOODS PROTEST PROTEST NON-PAYMENT PROTEST NON-ACCEPTANCE DO NOT PROTEST ALL CHARGES FOR ACCOUNT DRAWER FOR ACCOUNT DRAWEE WAVE CHARGES IF REFUSED BY DRAWEE INCLUDING EXCHANGE, INCURE NO CABLE EXPENSE COLLECT THE BANK OF NOVA DO NOT WAIVE CHARGES STAMP, TAXES, ETC. SCOTIA CHARGES OF $23.00 WITHOUT FURTHER INSTRUCTIONS INTEREST COLLECT INTEREST AT % PER ANNUM FROM TO FOR DELAY IN PAYMENT COLLECT INTEREST AT % P.A. FROM DO NOT WAIVE WITHOUT DUE DATE LISTED, APPROXIMATE ARRIVAL OF PROCEEDS AT DEST. FURTHER INSTRUCTIONS ALLOW DISCOUNT OF IF PAID FATE ADVICES BY AIRMAIL ACCEPTANCE NON-ACCEPTANCE NON-PAYMENT BY CABLE ACCEPTANCE NON-ACCEPTANCE NON-PAYMENT REMIT PROCEEDS AIRLINE PRIME BANKERS DRAFT ON TORONTO (Cdn. funds) NEW YORK (U.S. funds) IN THE CURRENCY OF THE CABLE/TELEX/SWIFT AT DRAWERS EXPENSE AT DRAWEES EXPENSE COLLECTION BY LOCAL CURRENCY IN THE EVENT FOREIGN EXCHANGE IS NOT IMMEDIATELY OBTAINABLE, A PROVISIONAL DEPOSIT IN LOCAL CURRENCY MAY BE ACCEPTED WITH DRAWEE S WRITTEN UNDERSTANDING TO ASSUME ALL EXCHANGE PRICES TO EXPECT FULL SETTLEMENT IN THE CURRENCY OF THE COLLECTION. DO NOT SURRENDER DRAFT UNTIL FINAL SETTLEMENT FOR FACE AMOUNT IS RECEIVED FOR REMITTANCE. IN CASE OF NEED WHO WILL ENDEAVOUR IN HAVING DRAFT REFER TO SPECIAL INSTRUCTIONS HONOURED AS DRAWN WHOSE INSTRUCTIONS MAY BE ACCEPTED IN EVERY RESPECT PREPARED BY (NAME OF FORWARDER) CIFFA Forwarder CIFFA Forwarder s Signature SIGNATURE 2017 Page 19

20 Answers International Payments, Part 1 SPACE BELOW FOR ACCEPTANCE STAMP FORWARDING BANK S DUE 90 days after NUMBER Sight February 4, 2017 c.c. 1152/18572 AFTER DATE, FOR VALUE RECEIVED. PAY TO THE ORDER OF SUM OF The Bank of Nova Scotia THE One hundred fifty thousand CAD DOLLARS $150, CAD RECEIVING BANK S TO Empire Grain Importers Ltd. United Seed Co. Ltd. Grangemouth, Scotland NUMBER Exporter s/drawer s Signature 2017 Page 20

21 Answers International Payments, Part 1 Exercise 1.3 (Answer) 1. Question i) The AWB must be consigned to the collecting bank (Wiener Handelsbank) or in your option to your agent in Linz with appropriate instructions. Question ii) Since this is an air freight shipment, you cannot, of course, forward the direct bank collection form separately by mail. The direct bank collection letter should travel with the shipment in an envelope attached to the air waybill. Question iii) There should at least be a commercial invoice included. Additional documents would be subject to buyer s prior specification. Question iv) Instead of using the bank channel, you could use your agent in Linz to collect as C.O. D., i.e., a bill of exchange for CAN $31, made out to Canadian Manufacturing Inc. Especially for air freight this would be the more efficient way. You and your agent could collect a fee - at least the equivalent what both, the Canadian remitting bank (BNS) and the collect bank (Wiener), would charge. This method to use your agent is safe in this case when terms of payment are cash against documents. In case a term is involved you may prefer the bank channel because you would have to collect first the signature of acceptance on the bill of exchange and later when the term is due, present the bill of exchange for payment Page 21

22 Answers International Payments, Part 1 THE BANK OF NOVA SCOTIA Ontario International Banking Centre 181 University Ave., Suite 1916 Toronto, ON Canada M5H 3M7 Mail to: (Collecting Bank) Wiener Handelsbank AG Vienna, Austria DIRECT COLLECTION Always Quote Reference Number D.C /18572 Date February 4, 2017 Drawee: (Name and Address) Osterreichische Fabrikationsbetrieb GMBH Vorarlberg Str., 4020, Linz, Austria WE ENCLOSE THE FOLLOWING DRAFT(S) AND/OR DOCUMENTS FOR COLLECTION AND REMITTANCE AFTER FINAL PAYMENT ONLY. PLEASE HANDLE THIS COLLECTION AS IF RECEIVED DIRECTLY FROM THE ABOVE OFFICE OF THE BANK OF NOVA SCOTIA TO WHOM YOUR ACKNOWLEDGEMENT. ALL REPORTS AND PAYMENT IS TO BE DIRECTED ALWAYS QUOTING THE ABOVE REFERENCE NUMBER. THIS COLLECTION IS SUBJECT TO THE UNIFORM RULES FOR COLLECTIONS (1995 REVISION) INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO From Drawer (Name and Address) Canadian Manufacturing Inc. 20 Royal York Rd. Mississauga, Ont., L5S 2R5, Canada Drawers Ref. No. Tenor Sight Covering shipment of: 1 crate barbeque parts 675 kg Vessel or Carrier Currency & Amount CAN $31, Bill of Lading No. ENCLOSED DRAFTS BILLS OF LADING INVOICES INSURANCE CERTIFICATE CERTIFICATE OF ORIGIN PACKING LIST AIR WAYBILL ORIGINAL HH COMMERCIAL CUSTOMS CONSULAR FIRST MAIL SECOND MAIL 1 2 _ 1 1 _ OBSERVE INSTRUCTIONS MARKED X BELOW DOCUMENTS DELIVER AGAINST PAYMENT DELIVER AGAINST ACCEPTANCE HOLD FOR ARRIVAL OF GOODS PROTEST PROTEST NON-PAYMENT PROTEST NON-ACCEPTANCE DO NOT PROTEST ALL CHARGES FOR ACCOUNT DRAWER FOR ACCOUNT DRAWEE WAVE CHARGES IF REFUSED BY DRAWEE INCLUDING EXCHANGE, INCURE NO CABLE EXPENSE COLLECT THE BANK OF NOVA DO NOT WAIVE CHARGES STAMP, TAXES, ETC. SCOTIA CHARGES OF $23.00 WITHOUT FURTHER INSTRUCTIONS INTEREST COLLECT INTEREST AT % PER ANNUM FROM TO FOR DELAY IN PAYMENT COLLECT INTEREST AT % P.A. FROM DO NOT WAIVE WITHOUT DUE DATE LISTED, APPROXIMATE ARRIVAL OF PROCEEDS AT DEST. FURTHER INSTRUCTIONS ALLOW DISCOUNT OF IF PAID FATE ADVICES BY AIRMAIL ACCEPTANCE NON-ACCEPTANCE NON-PAYMENT BY CABLE ACCEPTANCE NON-ACCEPTANCE NON-PAYMENT REMIT PROCEEDS AIRLINE PRIME BANKERS DRAFT ON TORONTO (Cdn. funds) NEW YORK (U.S. funds) IN THE CURRENCY OF THE CABLE/TELEX/SWIFT AT DRAWERS EXPENSE AT DRAWEES EXPENSE COLLECTION BY LOCAL CURRENCY IN THE EVENT FOREIGN EXCHANGE IS NOT IMMEDIATELY OBTAINABLE, A PROVISIONAL DEPOSIT IN LOCAL CURRENCY MAY BE ACCEPTED WITH DRAWEE S WRITTEN UNDERSTANDING TO ASSUME ALL EXCHANGE PRICES TO EXPECT FULL SETTLEMENT IN THE CURRENCY OF THE COLLECTION. DO NOT SURRENDER DRAFT UNTIL FINAL SETTLEMENT FOR FACE AMOUNT IS RECEIVED FOR REMITTANCE. IN CASE OF NEED WHO WILL ENDEAVOUR IN HAVING DRAFT REFER TO SPECIAL INSTRUCTIONS HONOURED AS DRAWN WHOSE INSTRUCTIONS MAY BE ACCEPTED IN EVERY RESPECT PREPARED BY (NAME OF FORWARDER) CIFFA Forwarder CIFFA Forwarder s Signature SIGNATURE 2017 Page 22

23 Answers International Payments, Part 1 SPACE BELOW FOR ACCEPTANCE STAMP DUE NUMBER FORWARDING BANK S February 4, 2017 c.c. 1152/18572 AT SIGHT AFTER DATE, FOR VALUE RECEIVED. PAY TO THE ORDER OF SUM OF The Bank of Nova Scotia THE Thirty One Thousand CAD DOLLARS $31, CAD RECEIVING BANK S NUMBER TO Osterreichische Fabrikationsbetrieb Canadian Manufacturing Inc. GmbH, Linz Exporter s/drawer s Signature 2017 Page 23

24 Answers International Payments, Part Page 24

25 Questions International Payments, Part 2 Exercises 2.1 (Question) 1. What are the main reasons why a letter of credit may be chosen as a form of International payment? 2. Name some advantages of a letter of credit. 3. The letter of credit deals with documents and not with goods, what risk does this pose to the buyer? 4. What kind of risks is the exporter exposed to under the usance letter of credit? 5. Name (5) five main parties involved in the letter of credit. 6. Which party instructs the bank to open a letter of credit? 7. Which party draws up and issues the letter of credit and then makes payment according to the conditions outlined in the letter of credit? 8. Which party receives payment as stipulated in the letter of credit? 9. Does the advising bank take on any payment obligations to the beneficiary under a letter of credit? 10. What does the Uniform Customs and Practice for Documentary Credits (UCP) outline? 11. What is the current version of the UCP rules used by commercial bankers and commercial parties in the execution of a letter of credit? 12. What is the bank s responsibility under Article 5 of the UCP 600 rules? 2017 Page 25

26 Questions International Payments, Part Is a CIFFA freight forwarder liable for his/her documentation in a letter of credit transaction? 14. As a CIFFA freight forwarder it is your responsibility to comply with the requirements of the letter of credit. What will the failure to do so result in? 15. As a CIFFA freight forwarder what is a good way to avoid any lack of attention or mistakes going through the documentary requirements? 16. The UCP 600 rules provide room for some interpretation; as a CIFFA freight forwarder what should you do if you are in doubt? 17. What date do the banks look for if the credit prescribes an on board bill of lading and a latest shipping date? 18. Under the UCP 600 rules, which date do you use to present the documents to the paying bank? 19. If a bill of lading indicates a place of receipt different from the port of loading, what should be included in the on board notation? 20. Under the UCP 600 rules, Article 23, is a house air waybill acceptable? 21. Unless specified by name in the letter of credit, is a house bill of lading covered in the UCP 600 rules? 22. Is it possible to assign to another party all or part of the proceeds of a drawing/payment under a credit? 23. As a CIFFA freight forwarder you should guard yourself against the risk of nonpayment. How can you ensure payment from your client? 24. Name (3) three types of letter of credit. 25. What is the difference between a revocable and irrevocable letter of credit? 2017 Page 26

27 Questions International Payments, Part If there are spelling errors in the credit instructions, what should the CIFFA freight forwarder do? 27. Name some of the most common errors and/or deficiencies in the execution of a letter of credit Page 27

28 Questions International Payments, Part 2 Exercises 2.2 (Question) 2. Using the diagram below, and the numbers assigned to each step, describe a typical letter of credit procedure Page 28

29 Questions International Payments, Part 2 Exercises 2.3 (Preface) For this exercise you are required to deal with a letter of credit in an air export shipment. The idea is for you to learn how to recognize and select from a letter of credit the pertinent instructions or details you need in order to complete an air waybill and the draft correctly. In view of the fact that the draft is made out to the order of the beneficiary, the beneficiary - i.e., you for the beneficiary - must endorse that draft. UCP 600 You can find the UCP 600 Articles in the Appendices of the CIFFA Essentials of Freight Forwarding textbook. You are not expected to memorize the rules, however it is essential that you familiarize yourself with these Articles, especially Articles pertaining to transport documents. These Articles will be referenced throughout this section. There is no need for an explanation on how to complete the air waybill for an air freight shipment. Just observe the requirements of Article 23 in the UCP 600 for an air transport document Page 29

30 Questions International Payments, Part 2 Exercises 2.3 (Question) 1. Export Air Freight Shipment Sold against Letter of Credit a) Complete the air waybill strictly based on the instructions contained in the letter of credit. Shipment: 51 cartons of barbeque parts. Total weight: 883 kg The dimensions of each carton: 0.48 m L x 0.48 m W x 0.48 m H Available flight: Air Canada, from Toronto to Tokyo Date shipped: January 24, 2017 Rate: CAN $4.00/kg/vol. b) Establish the chargeable weight and the air freight payable. Use both figures in your air waybill. (Refer to conversion tables in Appendix B ). c) Special task: There are two special documentary items in the air freight letter of credit which you are to discover and then make a comment on how to handle the items. Question: which are these two items and what would you propose to do? General comment: usually shippers expect you to complete and furnish any and all documents required in a letter of credit. Normally, you would use a neutral form for the commercial invoice generated by your computer system or perhaps you still use an overlay system. Generally, there is no need to use shipper's stationary. In this activity you are not required to complete the commercial invoice. This comment is made so you know how to deal with the subject of a commercial invoice, packing list, etc. d) Complete the draft in accordance with the instructions of the letter of credit. Sign the draft Page 30

31 Questions International Payments, Part 2 LIVE!!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! Req by: TOR AUTOLCT In: AUT PRT 1/1/17 07:40 page 1 INC CA Que: CA TOR LCT ADMR pri: 150 Dup: N Msg Type: Received Pos Dup: Pri: Time Created: 1/1/17 01:33 Completion: Message Active Exception: Correspondent: II Amount: 58, Name: SANWA BK LTD., OSAKA Owner Office: TOR/LCT Address: Unavailable for this MSG City: Cntry: PC: Parent ICN: Service: SWF Test Result: Tested Input test: N Swift OSN:30ROT Ref: 30SANWJPJSAXXX68675 Sequence:2081 TO ROYAL BANK OF CANADA - Toronto OSN ONTARIO, CANADA RECEIVED 0135/30 3 RN 30SANWJPJSAXXX68675 SENT 1536/30 FROM SANWJPJSAXXX SANWA BK LTD. OSAKA N/A OSAKA JAPAN CIF # II UID: MT 700 ISSUE OF DOC CREDIT PRIORITY / SEQUENCE OF TOTAL: 1/1 40A/ FORM OF DOCUMENTARY CREDIT: IRREVOCABLE 20 / DOCUMENTARY CREDIT NUMBER C/ DATE OF ISSUE: CANADA 31D/ DATE AND PLACE OF EXPIRY: CANADA 2017 Page 31

32 Questions International Payments, Part 2 LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! Req By: TOR AUTOLCT In: AUT PRT 1/1/17 07:40 Page 2 INC CA Que: CA TOR LCT ADMR pri: 150 Dup: N 50 / APPLICANT: YAMAMOTO BARBEQUE CORP OSAKA 59 / BENEFICIARY: CANADIAN MANUFACTURING INC MISSISSAUGA RD. MISSISSAUGA CANADA ICN: CA Que:CA TOR LCT ADMR Pri: 150 Dup: N 32B / AMOUNT: 58, US DOLLAR 41D / AVAILABLE WITH... BY... ANY BANK BY NEGOTIATION 42C / DRAFTS AT... SIGHT 42D / DRAWEE: SANWA BANK LTD. OSAKA 43P / PARTIAL SHIPMENTS: ALLOWED 43T / TRANSHIPMENT: ALLOWED 44A / PORT OF LOADING/AIRPORT OF DEPARTURE TORONTO AIRPORT 44B / PORT OF DISCHARGE/AIRPORT OF DESTINATION OSAKA INTERNATIONAL AIRPORT 44C / LATEST DATE OF SHIPMENT: A / DESCRIPT OF GOODS AND OR SERVICES BARBEQUE PARTS CIP OSAKA INSURE TO BE EFFECTED BY SHIPPER 2017 Page 32

33 Questions International Payments, Part 2 LIVE!!!! LIVE!!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! Req By: TOR AUTOLCT In: AUT PRT 1/1/17 07:40 PAGE 3 INC CA Que: CA TOR LCT ADMR pri: 150 Dup: N 46A / DOCUMENTS REQUIRED: +CLEAN AWB CONSIGNED TO THE SANWA BANK LTD MATSUBARA BR MARKED FREIGHT PREPAID NOTIFY THE APPLICANT AND KINTETSU EXPRESS +SIGNED COMMERCIAL INVOICE IN TWO COPIES +INSURANCE POLICY OR CERTIFICATE IN DUPLICATE ENDORSED IN BLANK FOR 110-0/0 OF THE INVOICE VALUE INCLUDING: INSTITUTE CARGO CLAUSE A (ALL RISK) INSTITUTE WAR CLAUSE INSTITUTE STRIKES RIOTS AND CIVIL COMMOTIONS CLAUSES CLAIMS TO BE PAYABLE IN JAPAN IN THE CURRENCY OF THE DRAFT +CERTIFICATE OF ANALYSIS IN TWO COPIES 47A / ADDITIONAL CONDITIONS: AIR WAYBILLS MUST INDICATE THE NUMBER OF THE CREDIT. ONE SET OF NON-NEGOTIABLE DOCUMENTS MUST BE ATTACHED TO AIR WAYBILL 71B / CHARGES: ALL BANKING CHARGES OUTSIDE OF JAPAN FOR SHIPPERS ACCOUNT 48 / PERIOD FOR PRESENTATION: DRAFTS MUST BE PRESENTED FOR NEGOTIATION WITHIN 16 DAYS AFTER THE DATE OF AWB OR OTHER DOCUMENTS, BUT WITHIN THE CREDIT EXPIRY 49 / CONFIRMATION INSTRUCTIONS: WITHOUT 78 / INSTRUCTIONS PAY/ACCEPT/NEGOT BANK: T.T. REIMBURSEMENT IS ACCEPTABLE NEGOTIATING BANK MUST SEND DOCUMENTS TO US IN TWO CONSECUTIVE REGISTERED AIRMAILS AND DRAFTS TO DRAWEE BANK 2017 Page 33

34 Questions International Payments, Part 2 LIVE!!!! LIVE!!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! Req By: TOR AUTOLCT In: AUT PRT 1/1/17 07:40 PAGE 4 INC CA Que: CA TOR LCT ADMR pri: 150 Dup: N SPECIAL INSTRUCTIONS TO THE ADVISING BANK: IN SETTLEMENT YOU ARE AUTHORIZED TO DEBIT OUR TOKYO ACCOUNT WITH YOU 57D / ADVISE THROUGH BANK: THE ROYAL BANK OF CANADA MAIN BRANCH 72 / SENDER TO RECEIVER INFORMATION: THIS CREDIT IS OPERATIVE AND SUBJECT TO UNIFORM CUSTOMS 2007 REVISION PUBLICATION 600 MAC SAC AUTHENTICATOR RESULT/FBCBEB8D AUTHENTICATION SUCCESSFUL CURRENT KEY END OF MESSAGE LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! 2017 Page 34

35 Questions International Payments, Part 2 Shipper s Name and Address Shipper s Account Number Not negotiable Air Waybill: Issued by: Copies 1, 2, ands 3 of this Air Waybill are originals and have the same validity. Consignee s Name and Address Consignee s Account Number It is agreed that the goods described herein are accepted in apparent good order and condition (except as noted) for carriage SUBJECT TO THE CONDITIONS OF CONTRACT ON THE REVERSE HEREOF. THE SHIPPER S ATTENTION IS DRAWN TO THE NOTICE CONCERNING CARRIER S LIMITATION OF LIABILITY. Shipper may increase such limitations of liability by declaring a higher value for carriage and paying a supplemental charge if required. Issuing Carrier s Agent Name and City Accounting Information Agent s IATA Code Account No. Airport of Departure (Addr. Of First Carrier) and Requested Routing To By First Carrier Routing and Destination To By To By Currency CHGS Code WT/VAL Other Declared Value for Carriage Declared Value for Customs Airport of Destination Flight/Date For Carrier Use Only Flight/Date Amount of Insurance Handling Information: INSURANCE If carrier offers insurance, and such Insurance is requested in accordance with the conditions thereof, indicate amount to be insured in figures in box marked Amount of Insurance. $ SCI No. of Pieces RCP Gross Weight kg Rate Class Chargeable Commodity Item No. Weight Rate/Charge Total Nature and Quantity of Goods (incl. Dimensions or Volume) Prepaid Weight Charge Collect Other Charges Valuation Charge Tax Total Other Charges Due Agent Total Other Charges Due Carrier Shipper certifies that the particulars on the face hereof are correct and that insofar as any part of the consignment contains dangerous goods, such part is properly described by name and is in proper condition for carriage by air according to the applicable Dangerous Goods Regulations. Signature of Shipper or his Agent Total Prepaid Total Collect Currency Conversion Rates CC Charges in Dest. Currency Executed on (Date)at (Place) Signature of Issuing Carrier or its Agent 2017 Page 35

36 Questions International Payments, Part 2 SPACE BELOW FOR ACCEPTANCE STAMP DUE FORWARDING BANK S NUMBER 20 AFTER DATE, FOR VALUE RECEIVED. PAY TO THE ORDER OF THE SUM OF DOLLARS $ TO RECEIVING BANK S NUMBER 2017 Page 36

37 Questions International Payments, Part 2 Exercises 2.4 (Preface) For this exercise you are required to deal with a letter of credit (L/C) in an ocean export shipment. The idea is for you to learn how to recognize and select from a L/C the pertinent instructions or details you need in order to complete the bill of lading (B/L) and the draft correctly. In view of the fact that the draft is made out to the order of the beneficiary, the beneficiary i.e., you for the beneficiary must endorse that draft. UCP 600 You can find the UCP 600 Articles in the Appendices of the CIFFA Essentials of Freight Forwarding textbook. It is essential that you familiarize yourself with these Articles, especially Articles pertaining to transport documents. These Articles will be referenced throughout this section. Banks will accept the signature of the B/L issuer also for the on board purpose. Guide for Completing Marine B/Ls (on Basis of a L/C) This is intended for the novice forwarding student, who attempts to complete a B/L, for a L/C, the first time. Never forget, however, that for any real-life L/C, you must strictly and only follow the specific instructions for each particular L/C separately. This guide only covers those boxes in the B/L for which you must pick up the data and instructions from the L/C. All other boxes are not relevant in this context. Refer to the B/L at the end of the guide for the location of the box numbers. BOX 1: SHIPPER Insert the name of the beneficiary as shown in the L/C, usually in line 59. Always use the spelling of the name, address, including the postal code, only as shown in the L/C, even if it is incorrect or misspelled, and in variance with shipper s stationery. If there are variances, regardless how minor, all other documents required under the L/C must be consistent and show the same version. When the need arises, put aside the shipper s stationery and instead use your computergenerated form or your overlay type form. Both are generic types of forms and the bank will accept them unless prohibited in the L/C Page 37

38 Questions International Payments, Part 2 BOX 2: CONSIGNEE Under the words Required Documents, usually in line 46A, a L/C specifies how the B/L is to be made out. It may say, for example, to order or to order of shipper. Insert exactly what the L/C prescribes at line 46A. BOX 3: NOTIFY Under the words Notify..., usually in line 46A, the L/C specifies whom to notify, usually the applicant. Again, you must follow the particular instructions in the L/C. The name and address of the applicant is in line 50. If an address is incomplete or missing, use only whatever is provided in line 50. Never insert the word applicant. If the L/C doesn t contain any notify address, insert buyer s name or address. SPECIAL COMMENT - BOXES 4, 5, 7, 8, 9 To complete these boxes correctly, you must be strictly guided by the type of B/L required in the L/C. Articles 19 to 24 of UCP 600 specify different requirements for the 6 types of transport documents. The following covers only two types of the B/L. - Marine/ocean B/L - Combined transport B/L. Note that a marine or ocean B/L is prescribed probably in more than 95% of all ocean L/Cs. You may substitute a forwarder s transport document when the L/C requires a marine/ocean or combined transport B/L, etc., provided you complete that forwarder s transport document exactly in the same way as the UCP 600 requires you to prepare a marine/ocean or combined transport B/L, etc. Below you can find, for each of the boxes 4 to 9, a comment for both marine/ocean B/L and a combined transport B/L. It is up to you to read the L/C and choose the correct option. BOX 4: PRE-CARRIAGE BY Insert either truck or rail. There is no direct instruction in the L/C. Marine/Ocean B/L For a port-to-port (loading port/discharge port) B/L you do not need to complete box 4. When you have a marine/ocean B/L but the container is delivered not at port but at an inland container terminal or to the consignee s door (place of receipt or box 5), complete box 4 with truck/rail Page 38

39 Questions International Payments, Part 2 Combined Transport B/L The most common occasion will arise when the L/C requires, in line 46A, by name a combined through transport B/L. Not all B/L forms may use in print the title combined through transport B/L, nor is this required as per Article 19 of UCP 600. Whenever a combined through transport B/L is required, all you need to do is complete box 4 as explained above, plus box 5 and box 9 if need be. Article 19 of the UCP 600 defines a Multimodal Transport Document as covering at least two different modes of transport. Therefore, you must identify the second mode of transport, usually truck/rail. The vessel is the other mode of transport. You will notice that boxes 4 and 9 carry an asterisk in the B/L form which is defined at the bottom of the B/L form: applicable when document issued as combined through B/L. BOX 5: PLACE OF RECEIPT This usually means the inland container terminal (CY) of the carrier, but there are some possible exceptions required in a L/C, e.g., Ontario instead of the actual name of a city. Marine/Ocean B/L The name of the place/port etc. specified in a L/C in line 44A saying loading/dispatch/taking in charge from can never be put in box 5. That named place/port etc. in line 44A, if a marine/ocean B/L is specified, can only be put into box 7 (port of loading). However, you put in addition to the required name of place or port in box 7, in box 5 the name of the container terminal (city) at which the container was received. This is acceptable as per Article 20 of UCP 600 provided shipment is (a) containerized and (b) covered by one through B/L. Combined Transport B/L For this type of B/L the name of the place specified in line 44A of a L/C must show in box 5. (Note of caution: This is only valid if the L/C referring to a combined transport B/L does not mention the word onboard. If the word onboard appears in conjunction with a named combined transport B/L, the rules for a marine/ocean B/L automatically apply.) BOX 7: PORT OF LOADING Marine/Ocean B/L You must show here the named port of line 44A in a L/C. In fact, before doing anything, you must request a copy of the L/C from the shipper and then check first if line 44A (and line 44B for discharge port) is in fact a port, and second, if there is a carrier providing there is actually a service from the required port (of loading) to the required port (of discharge). If there is a carrier you should check if the rate of that carrier tallies with your prior quotation, if any Page 39

40 Questions International Payments, Part 2 In the event you cannot find the required service, you have basically two options. Option 1 Request amendment through the shipper to match the actual port(s) served. Option 2 Sometime it may be possible to persuade a carrier to issue you the required B/L for the L/C even though that B/L then does not correspond to the actual service. For instance, a carrier may agree to show Montreal in box 7 when vessels sail from Halifax. You have to investigate this possibility at time of booking with a responsible person at the agent of the carrier so that you have no let down at time the actual B/Ls are issued by the carrier. Combined Transport B/L You simply show the name of the actual port of loading for the vessel service you have chosen. The name of the loading port is irrelevant in the context of the L/C. For the L/C the important box in terms of line 44A for combined transport B/L is box 5 (place of receipt). BOX 8: PORT OF DISCHARGE Marine/Ocean B/L You must show here the named port of the line 44B in the L/C. In terms of general explanation, the same detail applies for box 8 as explained for box 7 (port of loading). It must be clearly understood that the named place in line 44B should be an actual port. In the event it is an inland destination beyond the discharge port you could not comply when the L/C requires a marine/ocean B/L. In such a case an amendment is necessary. Usually you cannot persuade a carrier to show in box 8 a foreign inland place. Transshipment This needs a special explanation because the UCP rule in Article 20b, c, is frequently or easily misunderstood. First, Article 20b clearly defines transshipment to be from vessel to vessel. Now 20c(ii) says banks will accept a B/L evidencing a transhipment, even if transshipment is prohibited in the L/C, provided shipment is covered by a container and is on a through B/L Page 40

41 Questions International Payments, Part 2 Since most shipments are in a container and on a through B/L, Article 20c is commonly understood or interpreted that you would have no problem in case of a transshipment. Unfortunately there are frequent problems. The reason for these frequent problems is the style or format of all B/Ls. When you have transshipment the carrier on the B/L identifies that transshipment by completing box 8 with name of transshipment port whereas the port of final destination you need shows up in box 9. Box 9 is described in all B/L as place of delivery. But article 20 for a marine/ocean B/L requires that the port of destination shows up in box 8. If you could create a B/L form which describes box 9 as final port of discharge, the bank would accept your transshipment B/L on the basis of article 20c. For the great majority of container lines a transshipment takes place on most routes. The feedering from transshipment port to port of final destination is usually a vessel also owned/controlled by your carrier. Many carriers do not even bother anymore to identify a transshipment port in the B/L. If a transshipment is still identified by a carrier it is rarely a problem to persuade the carrier to omit the transshipment port and simply show in box 8 the final port of destination as discharge port. The point is, whenever a L/C prohibits transshipment you have to ensure with the carrier at time of booking that the carrier will indeed issue you the B/L you require for the L/C. When a carrier is unwilling to omit the showing of the port of transshipment in the B/L, there is sometimes another possible solution before requesting an amendment. Try to persuade the carrier to show the fact of transshipment and the name of the port of transshipment as a separate line in box 19 whereas you request the carrier to show in box 8 the port you require in accordance with your L/C. Combined Transport B/L You simply show the name of the actual port of discharge for the vessel service you have chosen. The name of the discharge port is irrelevant in regard to line 44B in the context of the L/C. For the L/C the important box at destination is either box 8 or more often box 9 as place of delivery. You show the named place in line 44 b in box 8 if the named place is a port and if the named place in line 44B is a place beyond the port of discharge, you show that name in box 9 (place of delivery). BOX 9: PLACE OF DELIVERY This is normally a place of destination or delivery beyond the port of discharge Page 41

42 Questions International Payments, Part 2 Marine/Ocean B/L Since line 44B is required to be shown as port in box 8, port of discharge, there is normally no need to complete box 9 for a marine/ocean B/L. However, if in spite of the L/C requirement in line 44B the client wishes delivery of the container at an inland place, you may complete box 9 (place of delivery) in addition to box 8 (port of discharge). Combined Transport B/L Insert the name of the final destination provided it is other than the port of discharge in box 9, corresponding to line 44B in the L/C. If the line 44B for combined transport calls for an actual port of discharge, leave box 9, place of delivery, blank. BOX 10: FORWARDING AGENT: Insert the name of your forwarding company. BOX 11: MARKS AND NUMBERS, QUANTITY OF PACKAGES Insert, in detail, the container number, seal number, container size, and number of containers, as well as any markings, if the L/C stipulated so. BOX 12: DESCRIPTION OF PACKAGES AND GOODS This is probably the most important box: 1) Description a) You should use strictly the exact description or wording used in the L/C, usually in line 45A. You must copy the description truly and faithfully with all mistakes, if any. b) You should include any additional wording seemingly not pertaining to the description block of line 45A, e.g., warranted packed in seaworthy cases or any similar wordings even when it is obvious to you they are not really part of a description. You can always insert additional descriptive information, as you are required for hazardous goods or tariff rating purposes. The descriptions in the B/L should match the L/C exactly. Note that according to UCP 600, Article 14e, only the commercial invoice must correspond exactly with the L/C. Other documents may describe the goods in general terms not inconsistent with the description in the L/C Page 42

43 Questions International Payments, Part 2 The proviso not inconsistent with is really a dangerous phrase because it allows for a judgmental assessment by the bank. Also, bear in mind that the UCP rules are for the bank usage toward the documents. Always bear in mind that the journey of the cargo also involves different authorities, such as customs, insurance company or surveyor that might delay the shipment process or even reject some documents if the description on all documents does not match. Therefore, you are well advised to stick rigidly to the L/C description also for the B/L. There are two possible occasions when you may wish to make use of the proviso of Article 37C: Descriptions of excessive length, which do not fit into existing B/L forms without an attachment sheet. We recommend the use of a RIDER page where you can include the complete compliant description. Carriers will also issue the same RIDER page on their stationary paper. Descriptions, which contain the actual value of the shipment. In such cases some carriers may wish to assess an ad valorem ocean freight rate. If and when the need for these two occasions arises and no amendment is possible, you first need to check with the carrier whether or not a higher ocean freight rate would apply and you need to check with the bank in advance of booking, perhaps with a sample B/L form your propose, if the bank accepts your version of the description. A simple B/L sample may not be enough, you may have to send copies of the other documents required so the bank can judge if they are consistent with each other. 2) Annotations per L/C a) When a L/C uses the word marked or words to a similar effect, that is an order for you to put the relative information in box 12. The full instructions are usually marked freight prepaid or collect. In that case it is not good enough to complete only box 24 in the B/L simply with the name of your city at origin or use the word payable at destination. b) You also must show all important on board clauses. Carrier B/Ls frequently do not provide for the required style of on board notation, therefore you have to ask the carrier to add it in for you. Marine/Ocean B/L When it is a pure port-to-port B/L and you only complete box 7 (port of loading) and box 8 (port of discharge) you only need to mark in box 12 on board (with a date). When you completed in addition to box 7, box 5 (place of receipt), the style of the on board notation in box 12 must be: On board vessel XYZ. From loading port ABC (with a date). You must repeat the name of the vessel and the name of the loading port even though both are already shown in box 6 and box 8. The background explanation is in Article 20 a (ii) Page 43

44 Questions International Payments, Part 2 c) In the event the L/C demands that all documents show, for example, the L/C number, it is in box 19 where you put it. Sometimes other number information is required to be shown in the L/C, such as order numbers, import permits, customs tariff item, etc. You must carefully scrutinize each L/C for such additional instructions and follow them accordingly. BOX 13 & 14: SHIPMENT WEIGHT AND VOLUME: As in all previous B/Ls, insert the shipment gross weight and shipment volume. Always check to see if there are any stipulations in the L/C regarding shipment weight or volume. BOX 15: NUMBER OF ORIGINALS This will almost always be 3 originals, with either 3 or 4 non-negotiable copies. BOX 16: SIGNATURE Refer to the Preface of this exercise for the specific format the signature authentication is required to be acceptable under the UCP 600. Carrier s B/Ls frequently do not provide for the specific signature authentication required. Therefore, you have to instruct the carrier in which exact manner he must authenticate the signature on the B/L. BOX 99: ENDORSEMENT This refers to the back of the B/L. Whenever a L/C requires that B/L in box 2 is made out "to order" or "to order of shipper", that shipper must endorse the B/L. You do this by typing the name of the shipper s company on the top of the back of the B/L and sign your name over the shipper's name Page 44

45 Questions International Payments, Part 2 Carrier: BILL of LADING Shipper: Carrier References: B/L-No.: BOX 1 Export References: CONSIGNEE: (Non-Negotiable Unless Consigned to Order) Forwarding Agent: BOX 2 BOX 10 Consignee s Reference: Notify Address (Carrier not responsible for failure to notify: see clause 20(1) hereof): Place of Receipt: BOX 3 Pre-Carriage by: BOX 4 Place of Receipt by Pre-Carrier: BOX 5 Place of Delivery: Ocean Vessel: BOX 6 Port of Loading: BOX 7 Port of Discharge: BOX 8 Place of Delivery by On-Carrier: BOX 9 Container Nos., Seal Nos., Marks and Nos. Number and Kind of Packages; Description of Goods Gross Weight (kg) Measurement (cbm) BOX 11 BOX 12 BOX 13 BOX 14 Above Particulars as declared by Shipper. Without responsibility or warranty as to correctness by carrier (see clause 11(1) and 11(2) Total No. of Containers/Packages received by the Carrier: Movement Shipper s declared value (see clause 7(1) and 7(2) hereof): Currency Charge Rate Basis WT/MEA/VAL Payment Amount Received by the Carrier from the Shipper in apparent good order and condition (unless otherwise noted herein) the total number or quantity of containers or other packages or units indicated in the box opposite entitled Total No. Of Containers/Packages received by the Carrier for Carriage subject to all the terms and conditions hereof (including the Terms and Conditions of the Reverse hereof and the Terms and Conditions of the Carrier s Applicable Tariff) from the Place of Receipt of the Port of Loading, whichever is applicable, to the Port of Discharge or the Place of Delivery, whichever is applicable. One original Bill of Lading, duly endorsed, must be surrendered by the Merchant to the Carrier in exchange for the Goods or a delivery order. In accepting the Bill of Lading the Merchant expressly accepts and agrees to all its terms and conditions whether printed, stamped or written or otherwise incorporated, notwithstanding the non-signing of the Bill of Lading by the Merchant. In Witness whereof the number of original Bills of Lading Stated below all of this tenor and date has been signed, one of which being accomplished the others to stand void. Place and Date of Issue: Total Freight Prepaid Total Freight Collect Total Freight Freight Payable at: Signature by Carrier or Agent BOX 16 Number of original Bs/l: BOX Page 45

46 Questions International Payments, Part 2 GENERAL OBSERVATIONS When in doubt, follow the principles below: In most cases, it does not help at all to question the bank for explanation. Always keep in mind that a bank is not experienced in any shipping matter at all. All the bank can do, and is required to do under the UCP, Article 5, is to judge if all documents submitted appear to be in accordance with the terms of the L/C. In fact, you may alert the bank to a problem. Never forget that it is the bank s money which is riding directly on their judgement of your documents being L/C compliant, therefore the bank is bound to be conservative. Their guidance is strictly the UCP 600. Whenever problems regarding compliance arise, consult your experienced manager in your forwarding organization. If no solution seems possible, your shipper must request an amendment. Amendments delay shipping, are costly for your shipper and annoy buyers. Only ask shippers to request an amendment if there is truly no other choice. Questions to the advising bank should only pertain to an item on which it is possible for the bank to make a clear decision. When preparing documents for a L/C, always insist to do this by reading from the actual original L/C. Faxing or photocopying of L/Cs can cause errors in spelling. You must insist, in the interest of the shipper, that shipper is furnishing you the original or, if need be, you should insist to retrieve the original from the advising bank holding the original copy of the L/C. It is all right, however, to use a fax or photocopy of a L/C for consulting purposes Page 46

47 Questions International Payments, Part 2 Exercises 2.4 (Question) 1. Export Ocean Shipment Sold against a Letter of Credit Shipment: a) Complete the ocean bill of lading strictly based on the instructions contained in the letter of credit (see next 3 pages). 15 pallets of automotive filters. Total weight: 11,500 lb The dimensions of each pallet: 48 in L x 42 in W x 42 in H Available vessel: Maersk Penang V. 123 Closing Toronto, Canada: January 31, 2017 Sailing Montreal, Canada: February 5, 2017 ETA Auckland, New Zealand: March 24, 2017 Maersk will transship in Singapore, but Maersk usually makes no reference of the fact of transshipment in their bills of lading issued. b) Check first if this shipment fits into a container and if it does, state size of container required. Make up a container serial number and a seal number to be used in the bill of lading. c) Complete the draft in accordance with instructions in the letter of credit. Sign the draft Page 47

48 Questions International Payments, Part 2 LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! Req By: TOR AUTOLCT In: AUT PRT 1/5/17 07:29 Page 1 ICN: CA Que: CA TOR LCT ADMR Pri:200 Dup: N Msg Type: RECEIVED Poss Dup: Pri:H Time Created : 1/4/17 22:11 Completion: MESSAGE ACTIVE Exception: Correspondent: II Amount: 38, Name: NATL BK OF NEW ZEALAND, H.O +AOS Owner Office: TOR/LCT Address: UNAVAILABLE FOR THIS MESSAGE City: Cntry: PC: Parent ICN: Input Test: N Swift OSN: 12ROT Service: SWF Ref:13NBNZNZ22AXXX47388 Sequence:7405 Test Result: TESTED BANK OF MONTREAL TORONTO, CANADA RECEIVED 1/69417 SRN 13NBNZNZ22AXXX47388 SENT 1/5/12 FROM NBNZNZ22AXXX NATL BNK OF NEW ZEALAND, H.O. +AOS POB 1791 WELLINGTON NEW ZEALAND CIF# II UID: MT 700 ISSUE OF DOC CREDIT PRIORITY / SEQUENCE OF TOTAL 27A / FORM OF DOCUMENTARY CREDIT: IRREVOCABLE 30 / DOCUMENTARY CREDIT NUMBER DCNTBWZ C / DATE OF ISSUE: D / DATE AND PLACE OF EXPIRY: CANADA 2017 Page 48

49 Questions International Payments, Part 2 LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! LIVE!!!! Req by: TOR AUTOLCT In: AUT PRT 1/5/17 07:29 Page 2 ICN: CA Que: CA TOR LCT ADMR Pri: 200 Dup: N 50 / APPLICANT AUTOMOTIVE SPARES N.C. LTD PO BOX 4711 NEW PLYMOUTH NEW ZEALAND 59 / BENEFICIARY CANADIAN CAR CARE PRODUCTS LTD. 100 RAILROAD ST. MISSISSAUGA, ONTARIO CANADA 32B / CURRENCY CODE,AMOUNT USD38, D / AVAILABLE WITH...BY... ANY BANK BY NEGOTIATION 41C / DRAFTS AT... DRAFTS AT 60 DAYS AFTER SIGHT 42D / DRAWEE: THE NATIONAL BANK OF NEW ZEALAND LIMITED INTERNATIONAL BRANCH WELLINGTON 43P / PARTIAL SHIPMENTS: ALLOWED 43T / TRANSHIPMENT: ALLOWED 44A / PORT OF LOADING/AIRPORT OF DEPARTURE ANY NORTH AMERICAN PORT 44B / PORT OF DISCHARGE/AIRPORT OF DESTINATION AUCKLAND, NEW ZEALAND 44C / LATEST DATE OF SHIPMENT: A / DESCRIPTION OF GOODS AND/ OR SERVICE: FILTERS 2017 Page 49

50 Questions International Payments, Part 2 46A / DOCUMENTS REQUIRED: FCA TORONTO COMMERCIAL INVOICE IN DUPLICATE INSURANCE BUYERS CARE CERTIFICATE OF ORIGIN FULL SET CLEAN ON BOARD MARINE BILLS OF LADING TO ORDER AND BLANK ENDORSED MARKED FREIGHT COLLECT 71B / CHARGES: ALL CHARGES OUTSIDE NEW ZEALAND FOR ACCOUNT OF BENEFICIARY (INCLUDING ADVISING COMMISSION, ACCEPTANCE COMMISSION AND DISCOUNT CHARGES FOR TERM CREDITS. 48 / PERIOD FOR PRESENTATION DOCUMENTS MUST BE PRESENTED WITHIN 20 DAYS FROM DATE OF ISSUANCE OF THE TRANSPORT DOCUMENTS, BUT NOT LATER THAN THE EXPIRY OF THE CREDIT 49 / CONFIRMATION INSTRUCTIONS: WITHOUT 53A / REIMBURSEMENT BANK: PHILADELPHIA INTL BK, NEW YORK I.C.S. CLEARANCE ACCOUNT 55 BROAD STREET NEW YORK NEW YORK 78 / INSTRUCTIONS PAY/ACCEPT/NEGOT BANK: ONE COMPLETE SET OF DOCUMENTS IS TO BE FORWARDED BY THE NEGOTIATING BANK AIRMAIL (THE REMAINING DOCUMENTS BY FOLLOWING AIRMAIL) DIRECT TO THE NATIONAL BANK OF NEW ZEALAND LIMITED, INTERNATIONAL BRANCH WELLINGTON, PO BOX 1791, WELLINGTON NEW ZEALAND. 57D / ADVISE THROUGH BANK: BANK OF MONTREAL 234, SIMCOE STREET 3 RD FLOOR TORONTO ON, CANADA 72 / SENDER TO RECEIVER INFORMATION: THIS CREDIT IS OPERATIVE AND SUBJECT TO UNIFORM CUSTOMS 2007, REVISION PUBLICATION 600 AUT SAC AUTHENTICATOR RESULT:/CO8B AUTHENTICATION SUCCESSFUL CURRENT KEY 2017 Page 50

51 Questions International Payments, Part 2 Carrier: BILL of LADING Multimodal Transport or Port to Port Shipment Shipper: Carrier References: B/L-No.: Export References: CONSIGNEE: (Non-Negotiable Unless Consigned to Order) Forwarding Agent: Consignee s Reference: Notify Address (Carrier not responsible for failure to notify: see clause 20(1) hereof): Place of Receipt: Pre-Carriage by: Place of Receipt by Pre-Carrier: Place of Delivery: Ocean Vessel: Port of Discharge: Port of Loading: Place of Delivery by On-Carrier: Container Nos., Seal Nos., Marks and Nos. Number and Kind of Packages; Description of Goods Gross Weight (kg) Measurement (cbm) Above Particulars as declared by Shipper. Without responsibility or warranty as to correctness by carrier (see clause 11(1) and 11(2) Total No. of Containers/Packages received by the Carrier: Movement Shipper s declared value (see clause 7(1) and 7(2) hereof): Currency Charge Rate Basis WT/MEA/VAL Payment Amount Received by the Carrier from the Shipper in apparent good order and condition (unless otherwise noted herein) the total number or quantity of containers or other packages or units indicated in the box opposite entitled Total No. Of Containers/Packages received by the Carrier for Carriage subject to all the terms and conditions hereof (including the Terms and Conditions of the Reverse hereof and the Terms and Conditions of the Carrier s Applicable Tariff) from the Place of Receipt of the Port of Loading, whichever is applicable, to the Port of Discharge or the Place of Delivery, whichever is applicable. One original Bill of Lading, duly endorsed, must be surrendered by the Merchant to the Carrier in exchange for the Goods or a delivery order. In accepting the Bill of Lading the Merchant expressly accepts and agrees to all its terms and conditions whether printed, stamped or written or otherwise incorporated, notwithstanding the non-signing of the Bill of Lading by the Merchant. In Witness whereof the number of original Bills of Lading Stated below all of this tenor and date has been signed, one of which being accomplished the others to stand void. Place and Date of Issue: Freight Payable at: Number of original Bs/l: Total Freight Prepaid Total Freight Collect Total Freight Signature by Carrier or Agent 2017 Page 51

52 Questions International Payments, Part 2 SPACE BELOW FOR ACCEPTANCE STAMP DUE FORWARDING BANK S NUMBER 20 AFTER DATE, FOR VALUE RECEIVED. PAY TO THE ORDER OF THE SUM OF DOLLARS $ TO RECEIVING BANK S NUMBER 2017 Page 52

53 Answers International Payments, Part 2 Exercises 2.1 (Answer) 1. What are the main reasons why a letter of credit may be chosen as a form of International payment? Open account unsatisfactory, documentary collection unsatisfactory, foreign exchange issue in the importer s country, political/economic instability, exporter s request and fair/equal sharing of risk. 2. Name some advantages of a letter of credit. The exporter is assured of payment as long as he/she complies with the terms of the letter of credit; The letter of credit clearly defines the necessary documentation; Credit risk is transferred from importer to issuing bank; The exporter, with the help of a confirming bank, reduces the risk of non-payment; The exporter minimizes collection time with the use of the letter of credit; and The exporter s foreign exchange risk is eliminated. 3. The letter of credit deals with documents and not with goods, what risk does this pose to the buyer? The risk of the exporter not shipping the goods as mentioned in the letter of credit still persists. 4. What kind of risks is the exporter exposed to under the usance letter of credit? The commercial risk of the issuing bank, political risk of the issuing bank s country and foreign exchange risk. 5. Name (5) five main parties involved in the letter of credit. The applicant (importer/buyer); The issuing bank; The beneficiary (exporter/seller); The advising bank; and The confirming bank. 6. Which party instructs the bank to open a letter of credit? The applicant (importer/buyer) Page 53

54 Answers International Payments, Part 2 7. Which party draws up and issues the letter of credit and then makes payment according to the conditions outlined in the letter of credit? The issuing bank. 8. Which party receives payment as stipulated in the letter of credit? The beneficiary (exporter/seller). 9. Does the advising bank take on any payment obligations to the beneficiary under a letter of credit? No. 10. What does the Uniform Customs and Practice for Documentary Credits (UCP) outline? A set of rules on the issuance and use of letters of credit. 11. What is the current version of the UCP rules used by commercial bankers and commercial parties in the execution of a letter of credit? UCP What is the bank s responsibility under Article 5 of the UCP 600 rules? Banks only deal in documents, not in goods. 13. Is a CIFFA freight forwarder liable for his/her documentation in a letter of credit transaction? A freight forwarder (as a member of CIFFA) is clearly liable for the accuracy of the documents supplied within the definition of the CIFFA Standard Trading Conditions (STCs), whereby in case of fraud (or gross negligence) the protection of the STCs does not apply. 14. As a CIFFA freight forwarder, it is your responsibility to comply with the requirements of the letter of credit. What will the failure to do so result in? The exporter will not get paid, the exporter depends on you to prepare at least the transport document without any fault Page 54

55 Answers International Payments, Part As a CIFFA freight forwarder, what is a good way to avoid any lack of attention or mistakes going through the documentary requirements? Make a photocopy of the letter of credit and highlight the important or tricky portion of the credit - each clause once it has been completed and double-checked. 16. The UCP 600 rules provide room for some interpretation. As a CIFFA freight forwarder, what should you do if you are in doubt? Contact the bank immediately, as it is their interpretation of the rules that counts. 17. What date do the banks look for if the credit prescribes an on board bill of lading and a latest shipping date? The actual on board or sailing date. 18. Under the UCP 600 rules, which date do you use to present the documents to the paying bank? You must present at whichever date comes first, presentation deadline or expiry (a presentation date can under no circumstances be later then the expiry date). 19. If a bill of lading indicates a place of receipt different from the port of loading, what should be included in the on board notation? The on board notation must include the name of the vessel, the voyage number and the port of loading. 20. Under the UCP 600 rules, Article 23, is a house air waybill acceptable? No. The house air waybill is not acceptable because it is not a carrier document 21. Unless specified by name in the letter of credit, is a house bill of lading covered in the UCP 600 rules? No. A house bill of lading is not a carrier s document, it is signed by the freight forwarder as an agent for the shipper and consequently is not a contract of carriage Page 55

56 Answers International Payments, Part Is it possible to assign to another party all or part of the proceeds of a drawing/payment under a credit? Yes, as per UCP 600, Article As a CIFFA freight forwarder you should guard yourself against the risk of nonpayment. How can you ensure payment from your client? By setting up a direct separate payment or credit schedule, depending on the financial status of your client, you may want advance payment or failing that, possibly abstain from handling a shipment. 24. Name (3) three types of letter of credit. Transferable letter of credit; Revolving letter of credit; Standby letter of credit; Usance letter of credit; Red clause letter of credit. 25. What is the difference between a revocable and irrevocable letter of credit? If a letter of credit is revocable, the applicant has the right to modify or even cancel the credit at any time, up to the shipping date without the consent of the beneficiary. In the case of an irrevocable letter of credit one cannot annul, revoke, recall, cancel, amend, alter or change anything without the approval of the beneficiary or buyer. 26. If there are spelling errors in the credit instructions, what should the CIFFA freight forwarder do? There is no need to request an amendment, the forwarder merely writes within the documents the name misspelled as indicated in the letter of credit. 27. Name some of the most common errors and/or deficiencies in the execution of a letter of credit. Presentation after the expiry date, late bill of lading on board date, description differs, documents missing, consignee information incorrect and original credit missing Page 56

57 Answers International Payments, Part 2 Exercises 2.2 (Answer) 1. Using the diagram below, and the numbers assigned to each step, describe a typical letter of credit procedure. 1. A contract of the sale of goods is agreed upon between an importer and exporter. The contract finalizes, among other things, the amount and method of payment. 2. The importer, providing necessary detailed information, instructs a bank (the issuing bank) to issue a letter of credit in favour of the exporter. At this time the importer becomes the applicant. 3. The issuing bank transmits the credit to the exporter through a bank (the advising bank) in the exporting country. The issuing bank might ask the advising bank to add its confirmation to the credit (the confirming bank). At the time of acceptance of the letter of credit the exporter becomes the beneficiary. 4. The advising bank informs the beneficiary of the details of the letter of credit, who carefully checks the letter of credit for its requirements. The advising bank informs the issuing bank of the acceptance of the letter of credit by the beneficiary. 5. The beneficiary prepares the required documents and the shipment as called for in the credit and ships the goods to the importer. 6. The beneficiary presents the required documents to the negotiating bank. 7. The negotiating bank confirms that the documents fulfil the terms of the letter of credit, and if satisfactory, according to the terms, pays, accepts or negotiates payment. 8. The negotiating bank forwards the documents to the issuing bank. 9. The issuing bank confirms the fulfilment of the letter of credit, transfers the title to the applicant and makes reimbursement to the advising bank according to the terms of the credit. 10. The issuing bank debits or secures payment from the applicant in the manner agreed to prior to issuance of the letter of credit. 11. The issuing bank releases the documents to the applicant. The applicant uses the documents to take delivery of the goods Page 57

58 Answers International Payments, Part 2 Exercises 2.3 (Answer) 1. a) Shipper s Name and Address Shipper s Account Number Not negotiable Canadian Manufacturing Inc Mississauga Road Mississauga, Canada Air Waybill: Issued by: AIR CANADA Copies 1, 2, ands 3 of this Air Waybill are originals and have the same validity. Consignee s Name and Address Sanwa Bank Ltd. Matsubara Br. Osaka, Japan Issuing Carrier s Agent Name and City CIFFA Forwarder Toronto, Canada Consignee s Account Number It is agreed that the goods described herein are accepted in apparent good order and condition (except as noted) for carriage SUBJECT TO THE CONDITIONS OF CONTRACT ON THE REVERSE HEREOF. THE SHIPPER S ATTENTION IS DRAWN TO THE NOTICE CONCERNING CARRIER S LIMITATION OF LIABILITY. Shipper may increase such limitations of liability by declaring a higher value for carriage and paying a supplemental charge if required. Accounting Information Agent s IATA Code Account No. Airport of Departure (Addr. Of First Carrier) and Requested Routing TORONTO AIRPORT To OSA Airport of Destination Osaka Intl. Airport By First Carrier Routing and Destination To By To By Currency CHGS Code Air Canada CAD X X Flight/Date For Carrier Use Only Flight/Date Amount of Insurance NIL WT/VAL Other Declared Value for Carriage Handling Information: Notify: the applicant, Yamamoto Barbeque Corp, Osaka and Kintetsu Express. Attached: No. of Pieces RCP Gross Weight kg Rate Class Chargeable Commodity Item No. Weight NVD Declared Value for Customs $ NCV INSURANCE If carrier offers insurance, and such Insurance is requested in accordance with the conditions thereof, indicate amount to be insured in figures in box marked Amount of Insurance. Rate/Charge Total Nature and Quantity of Goods (incl. Dimensions or Volume) K , Barbeque parts CIP Osaka Insure to be effected by shipper letter of credit no.: Prepaid Weight Charge Collect Other Charges 3, Valuation Charge SCI Tax Total Other Charges Due Agent Total Other Charges Due Carrier Shipper certifies that the particulars on the face hereof are correct and that insofar as any part of the consignment contains dangerous goods, such part is properly described by name and is in proper condition for carriage by air according to the applicable Dangerous Goods Regulations. CIFFA Forwarder Signature Signature of Shipper or his Agent 3, Total Prepaid Currency Conversion Rates Total Collect CC Charges in Dest. Currency January 24, 2017, Toronto, Canada Executed on (Date)at (Place) Signature of Issuing Carrier or its Agent 2017 Page 58

59 Answers International Payments, Part 2 b) Chargeable weight: 0.48 x 0.48 x 0.48 x 51 = m 3 x 1,000,000 6,000 = 940 kg Air freight charges: 940 kg x CAN $4.00 = CAN $3, c) Insurance policy - claims payable in U.S. Dollars in Japan. Before starting, check with the underwriter's agent if the marine underwriter is able to comply with this condition and mark the policy accordingly. Do not take compliance for granted, always check with the party that makes the actual decision. d) Certificate of Analysis - shipper must supply this Certificate of Analysis. Check with shipper that it will be in fact available at the time of presentation to the bank. SPACE BELOW FOR ACCEPTANCE STAMP FORWARDING BANK S DUE NUMBER L/C number January 24, 2017 AT SIGHT AFTER DATE, FOR VALUE RECEIVED. PAY TO THE ORDER OF SUM OF Canadian Manufacturing Inc. THE Fifty Eight Thousand U.S. DOLLARS $58, USD RECEIVING BANK S NUMBER TO Sanwa Bank Ltd. Canadian Manufacturing Inc. Osaka Exporter s/beneficiary s Signature 2017 Page 59

60 Answers International Payments, Part 2 Exercises 2.4 (Answer) 1. a) Carrier: MAERSK LINE Multimodal Transport or Port to Port Shipment Shipper: Canadian Car Care Products Ltd. 100 Railroad St. Mississauga, Ontario CONSIGNEE: (Non-Negotiable Unless Consigned to Order) TO ORDER Notify Address (Carrier not responsible for failure to notify: see clause 20(1) hereof): BILL of LADING Carrier References: B/L-No.: Export References: Forwarding Agent: K CIFFA Forwarder, Toronto, On., Canada Consignee s Reference: Place of Receipt: Automotive Spares N.C. Ltd. PO Box 4711 New Plymouth, New Zealand Pre-Carriage by: CN Rail Ocean Vessel: Maersk Penang Voy. 123 Port of Discharge: Auckland, New Zealand Toronto, Canada Place of Receipt by Pre-Carrier: Toronto, Canada Port of Loading: Montreal, Canada Place of Delivery by On-Carrier: Place of Delivery: Container Nos., Seal Nos., Marks and Nos. Number and Kind of Packages; Description of Goods Gross Weight (kg) Measurement (cbm) Meau ft container said to contain 5,216 kg Seal #: pallets of filters freight collect Documentary credit no. DCNTBWZ09268 Shipped on board Maersk Penang V. 123 from loading port Montreal February 5/12 Shipped load, stow and count Above Particulars as declared by Shipper. Without responsibility or warranty as to correctness by carrier (see clause 11(1) and 11(2) Total No. of Containers/Packages received Shipper s declared value (see clause 7(1) Received by the Carrier from the Shipper in apparent good order and condition and 7(2) hereof): (unless otherwise noted herein) the total number or quantity of containers or by the Carrier: 1 other packages or units indicated in the box opposite entitled Total No. Of Movement CY/CY Currency USD Containers/Packages received by the Carrier for Carriage subject to all the terms and conditions hereof (including the Terms and Conditions of the Reverse hereof and the Terms and Conditions of the Carrier s Applicable Charge Rate Basis WT/MEA/VAL Payment Amount Tariff) from the Place of Receipt of the Port of Loading, whichever is applicable, to the Port of Discharge or the Place of Delivery, whichever is applicable. One original Bill of Lading, duly endorsed, must be surrendered by the Merchant to the Carrier in exchange for the Goods or a delivery order. In accepting the Bill of Lading the Merchant expressly accepts and agrees to all its terms and conditions whether printed, stamped or written or otherwise incorporated, notwithstanding the non-signing of the Bill of Lading by the Merchant. In Witness whereof the number of original Bills of Lading Stated below all of this tenor and date has been signed, one of which being accomplished the others to stand void. Place and Date of Issue: Toronto, Canada, February 6, 2017 Freight Payable at: Destination Number of original Bs/l: 3 Total Freight Prepaid Total Freight Collect Total Freight Signature by Carrier or Agent Signed by the Carrier, Maersk Lines 2017 Page 60

61 Answers International Payments, Part 2 b) Container stowage: 20-ft container inside dimensions: 232 in L x 90 in W x 90 in H Pallet dimensions: 48 in L x 42 in W x 42 in H Container: 232 L x 90 W x 90 H Pallet: = 4 x 2 x 2 = 16 Therefore, we can load 16 pallets into the 20-ft container. Since we only have 15 pallets, thus a 20-ft standard container is adequate. SPACE BELOW FOR ACCEPTANCE STAMP FORWARDING BANK S DUE NUMBER L/C number DCNTBWZ09268 February 5, 2017 RECEIVED. 60 DAYS AFTER SIGHT_ AFTER DATE, FOR VALUE PAY TO THE ORDER OF SUM OF Canadian Car Care Products Ltd. THE Thirty-eight thousand four hundred sixty 30/100 U.S. DOLLARS $38, USD TO The National Bank of New Zealand Ltd. International Branch Wellington Canadian Car Care Products Ltd. RECEIVING BANK S NUMBER Signature Exporter s/beneficiary s 2017 Page 61

62 Answers International Payments, Part 2 APPENDIX A 2017 Page 62

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67 Answers International Payments, Part 2 Sample Instructions for Completion Applicable to the Irrevocable Documentary Credit CANADIAN IMPERIAL BANK OF COMMERCE 1. Method of issuance - place an "x" in the appropriate box(es). Indicate as Transferable only where it is intended that the Beneficiary may request the transfer of the Credit or a part thereof to another party. Note: The Bank will issue the Credit by Canadian Imperial Bank of Commerce, Hong Kong Branch, if the Beneficiary is located in Hong Kong. 2. Expiry Date - indicate the last date on which drafts and/or documents may be negotiated (usually, but not always in the country of the Beneficiary.) This date will usually be a few days after the last date on which shipment may be made. The extra few days allow the Beneficiary time to prepare and assemble the required documents. 3. Applicant - indicate name, address and fax number (usually the importer). 4. Beneficiary - indicate name, address, contact name, telephone number, fax number. If known, the name of the Beneficiary's bank may also be included. Note: the Bank reserves the right to advise the documentary credit directly to the Beneficiary through an Advising Bank of its choice. If it is imperative that the Credit be relayed through the Beneficiary's bank, this should be noted in box 17 - Additional Conditions. 5. Currency and Amount - indicate the full name of the currency. If the amount of the Credit can be exceeded or reduced, indicate by what percentage. 6. Draft Requirements - indicate the term of draft(s), if required. (e.g. Sight, 60 days, 90 days, etc.). Note that the term of draft(s) has no bearing on the expiry date of the Credit. Indicate if draft(s) are not required. 7. Partial Shipment(s) - place an "x" in the appropriate box. If left blank, partial shipments will be prohibited. Transhipment - place an "x" in the appropriate box. If left blank, transhipments will be prohibited. Refer to current UCP which outlines the conditions under which banks will accept documents indicating that transhipment may take 2017 Page 67

68 Answers International Payments, Part 2 8. place even though transhipment may be prohibited under the terms of the Credit. 9. Shipment - insert the points of dispatch and destination if shipment is to be effected by at least two different modes of transport, or insert the port of loading and port of discharge if shipment is port to port. For all other modes of transport, insert the shipment routing. Also, insert the latest date that the Beneficiary can effect shipment in the country of origin, if known, under "Latest Shipment Date". If a Forwarder's Cargo Receipt is required, a date inserted in the "Latest Shipment Date" box will be interpreted as the date the goods are to be received by the forwarder. 10. Covering - insert brief description of the commodity to be shipped (do not include lengthy descriptions and details or attachments). If necessary, insert contract, sales or order number(s) indicating whether they are the Applicant's numbers or those of the Beneficiary. Details such as grades, quantity, base price, etc. should be omitted. 11. Shipping Terms - a complete explanation of the shipping terms, including detailed guidelines on the responsibilities of buyer and seller, are contained in the current Incoterms, ICC Publication. For port to port shipments - use only FAS (named port of shipment), FOB (named port of shipment), CFR (named port of destination), CIF (named port of destination), DES (named port of destination) and DEQ (named port of destination) For Multimodal or all other modes of transport - use EXW (named place), FCA (named place), CIP (named place of destination), CPT (named place of destination), DAF (named place), DDU (named place of destination) and DDP (named place of destination). Wherever possible include the specific version of Incoterms (e.g. Incoterms 2000) referenced in the Sales Contract. Examples of complete Incoterms are "CPT Toronto Incoterms 2000"or "FOB Hong Kong Incoterms 2000". Documents Required 12. Commercial Invoice - indicate number of copies required. 13. Canada Customs Invoice - indicate number of copies required Page 68

69 Answers International Payments, Part Transport Documents - indicate number of copies and type - "Marine Bills of Lading (for port to port shipment only)", "Multimodal (Combined) Transport Bills of Lading, Air Waybill", "Railway Bill of Lading", "Truck Bill of Lading". Note that a "Forwarder's Cargo Receipt" is not a transport document under UCP. Note: unless otherwise indicated, the Credit will be established as follows: a. Multimodal (Combined) Transport Bills of Lading - Full set Multimodal (Combined) Transport Bills of Lading consigned to shipper's order blank endorsed marked "Notify (...Applicant's name and Address...)" and "Freight Prepaid" or "Freight Collect". b. Marine Bills of Lading - Full set on board Marine Bills of Lading consigned to shipper's order blank endorsed marked "Notify (...Applicant's Name and Address...)" and "Freight Prepaid" or "Freight Collect". c. Forwarder's Cargo Receipt evidencing the date merchandise received for shipment to Applicant marked "Notify (...Applicant's Name and Address...)" and "Freight Prepaid" or "Freight Collect". If a date is inserted in the "Latest Shipment Date" box it will be interpreted as the date the merchandise is to be received by the forwarder. d. Air Way bill consigned to Applicant marked "Notify (...Applicant's Name and Address...)" and "Freight Prepaid" or "Freight Collect". e. Railway Bill of Lading consigned to Applicant and marked "Notify (...Applicant's Name and Address...)" and "Freight Prepaid" or "Freight Collect". f. Copy of Truck Bill of Lading consigned to Applicant and marked "Freight Prepaid" or "Freight Collect". g. Parcel Post Receipt addressed to Applicant. Conditions other than those above must be clearly stipulated. Insurance - if insurance is to be covered by Applicant, state such. If covered by Beneficiary, indicate Insurance Policy/Certificate required together with the risks that are to be covered and percentage of coverage required. Unless otherwise 2017 Page 69

70 Answers International Payments, Part stipulated, insurance coverage must be for at least 110% of the CIF or CIP value of the goods (Refer to current UCP). 16. Other documents - indicate any other documents that may be required including the number of copies of each and content. 17. Additional Conditions - if the amount of the Credit represents a percentage of the total cost of the goods, indicate this (e.g. represents 60% of invoice value, etc). Any other special conditions may be stated here. Note: In the absence of your instructions to the contrary, the Credit will be issued instructing the negotiating bank to forward all documentation to CIBC in one mailing. 18. Banking Charges - indicate which party (Applicant or Beneficiary) is responsible for banking charges other than the Issuing Bank's charges. The Applicant is responsible for the Issuing Bank's charges unless otherwise agreed. The Advising Bank however retains the right to claim from the Issuing Bank any charges which it cannot recover from the Beneficiary and these will be considered as for the account of the Applicant (refer to current UCP). 19. Period for Presentation - under UCP, unless stipulated otherwise, banks will accept documents up to 21 days after the date of shipment or until expiry date (whichever is earlier) regardless of length of transport. The length of the voyage should be considered when determining this figure. Note: This is a sample form only, referencing the old Incoterms Page 70

71 Answers International Payments, Part 2 CONVERSION TABLES APPENDIX B LENGTH CONVERSION FACTORS To From INCHES (in) FEET (ft) CENTIMETRES (cm) METRES (m) INCHES (in) FEET (ft) CENTIMETRES (cm) METRES (m) N/A 12 x x 12 N/A x N/A 100 x x x 100 N/A Examples: - To convert inches (in) to feet (ft), the Conversion Factor is inches 12 = 7.5 feet - To convert metres (m) to feet (ft), the Conversion Factor is x metres x = feet VOLUME CONVERSION FACTORS To From INCHES (in 3 ) FEET (ft 3 ) CENTIMETRES (cm 3 ) METRES (m 3 ) INCHES (in 3 ) FEET (ft 3 ) CENTIMETRES (cm 3 ) METRES (m 3 ) N/A 1,728 x , x 1,728 N/A x 28, , N/A 1,000,000 x 61, x x 1,000,000 N/A Examples: - To convert cubic feet (ft 3 ) to cubic inches (in 3 ), the Conversion Factor is x 1, ft 3 x 1,728 = 207,360 in 3 - To convert cubic metres (m 3 ) to cubic feet (ft 3 ), the Conversion Factor is x m 3 x = 1, ft Page 71

72 Answers International Payments, Part 2 MASS CONVERSION FACTORS To From POUNDS (lb) SHORT TONS (sh tn) LONG TONS (tn) KILOGRAMS (kg) METRIC TONS (mt) POUNDS (lb) SHORT TONS (sh tn) LONG TONS (tn) KILOGRAMS (kg) METRIC TONS (mt) N/A 2,000 2, , x 2,000 N/A 1.12 x x x 2,240 x 1.12 N/A x 1, x , N/A 1,000 x 2, x x x 1,000 N/A Examples: - To convert pounds (lb) to kilograms (kg), the Conversion Factor is lb = kg - To convert metric tons (mt) to short tons (sh tn), the Conversion Factor is x metric tons x = short tons 2017 Page 72

73 Questions Export Packaging and Warehousing Exercises 3.1 (Question) 1. What are the two basic functions that packaging serves? 2. What is palletizing or unitizing of cargo? 3. What is the most common economical container/package? 4. What is the main problem with using wood packaging when shipping items internationally? 5. Canadian warehouses operate under the laws of bailment. This means the warehouse operator is.. 6. Name the three categories of warehouses. 7. Name three functions of a warehouse. 8. Name three advantages of a private warehouse Page 73

74 Questions Export Packaging and Warehousing Exercises 3.2 (Question) 1. Name five types of packages used in ocean freight shipments. 2. Describe the importance of marks and symbols. 3. What are two standard sizes of pallets for ocean freight shipments? 4. What details do you have to verify prior to stuffing an ocean container and an airfreight container? 5. What points do you have to remember when loading an ocean and air freight container? 6. What measures should be taken to prevent damage and losses? 7. Name at least three different types of public warehouses. 8. What is a private warehouse? Describe. 9. What are the advantages and disadvantages of using a public warehouse? 10. What are the advantages and disadvantages of using a private warehouse? 11. What is the warehouseman s liability? 12. Describe a warehouse receipt and explain the difference between negotiable and non-negotiable receipt Page 74

75 Questions Export Packaging and Warehousing Exercises 3.3 (Preface) For many aspects of export crating the forwarder must rely mainly on the expertise of a properly qualified export crating company. The textbook covers some principles of export crating, but as a desk person in freight forwarding you rarely need to apply this art yourself. However, there is one aspect of export crating you should be able to deal with regularly. That is the matter of how to figure out on paper if and how a specific cargo quantity can be stowed best into a container of which size and type. Many of the cargo samples referred to in this assignment have already been dealt with in the International Transportation and Trade Program, under Ocean Freight. Consider this therefore a refresher. There is nothing better than to strengthen your confidence and expertise in the subject of container stowage calculation. Container Stowage Calculations First, when planning a container stowage, you need to be careful and conservative when considering inside dimensions, i.e., use the smallest of the range of each of the dimensions. Remember that the door height of a container is a little less (about 2 inches) than the inner height of a container. When it comes to open-top containers and the loading of big pieces, never guess. Consult the carrier s individual container specifications to see if a "fit" is feasible. Remember, you only find the actual inside dimensions of any container when the box is sitting at the warehouse ramp of your client. Check the specifications for the details of an open-top container and notice that due to the different special shape of an open top container, the available inside dimensions for length, width and height as well as door height/width are less than for a standard container. When making a recommendation of a container stowage, especially when measurements of cargo/box look like a tight fit, point this out in advance to the client, in your very own interest. It is not unusual that the client may actually have to experiment whether or not the given cargo fits. Now to the fitting or container stowage calculation or method itself: If you feel the need to make little sketches to help, you do so. A container loading plan will assist the people who are loading the container. Make sure to be accurate, and try to make the sketches to scale. To determine the container requirements, first, estimate, and then calculate to see how the cargo will actually fit. This is where sketching or drawing a stowage plan becomes helpful Page 75

76 Questions Export Packaging and Warehousing It is always advisable to write at top of your working sheet the inside dimensions and size of the container type you intend to use. For example: 20-ft standard container: L 232 in x W 90 in x 90 in H 40-ft standard container: L 474 in x W 90 in x 90 in H When you do use the exact carrier container dimensions, you should never bother with fractional inside container dimensions, round down to the nearest full number in inches or centimetres. Similarly, it is wiser not to use fractional inches/cm of cargo but round as appropriate, usually up. Additionally, keep in mind the cargo weight. Examine the weight loaded per container and decide if your loaded weight is within the prescribed payload of a 20-ft or 40-ft container. In addition to payload permitted for the container itself you must check and decide if the weight you loaded is within the limits of road regulation, i.e., road regulation in Canada, any transit country like the U.S., or country of destination. 48,000 lb is not a problem in Canada if shipped by rail or road. It is not a problem via a U.S. state directly to U.S. port of loading, if by rail. It can be a problem if shipped by road through some U.S. states (each state is different). New York State has especially low road limits. You should also review permitted weights in the country of destination. For some destinations, the rate for container delivery is dependent on the gross weight of the loaded container. One word of caution: You should never fool around with the height of a cargo unit by thinking you can put a package on its side. The only possible exception to this rule would be if, from the contents of the cargo unit, it is obvious that there would be no problem. Turning cargo on its side should only be considered if shipper is willing to give you written instructions. It is suggested you make up your other samples of uniform packages to train and test your skills to calculate correct container stowage. Stowage of Automobiles Cars must be braced and secured inside the container. This work should only be done by people with the proper professional expertise. You should never consider mixing other cargo with cars inside a container. If you do, there is always the risk that the cargo portion will move around during the voyage and damage the cars. If mixing is ever contemplated, one needs to build a wooden wall or bulkhead behind the second car and perhaps even a deck on top of the cars. The space left in length after two cars are loaded is usually too small to warrant the cost of building a bulkhead and building a deck over the cars is even more risky. There is the potential for unusual stress 2017 Page 76

77 Questions Export Packaging and Warehousing through violent container/ship movements on the high seas so that such a deck, even if well built, can cave in. Because of that you should compare a container not to a truck, but perhaps to a roller coaster ride. Therefore do not contemplate mixing cars with other commodities. There is one possible exception to this non-mixing rule. This refers to household goods, when the owner, in view of cost, may insist on such mixing, in spite of your technical explanation. It would be a matter of company policy for each forwarder to decide how to proceed with such a mix, provided the building of the bulkhead and the stowing of the goods into such containers is strictly done by well-known reputable specialists in this field, such as a moving firm. Please take note that a letter of instruction by the HHG owner is of little value or protection for you if something goes wrong. Courts usually protect the small guy. Your best safeguard is, as it is always, first class quality work. Example: Pick-Up Trucks Total shipment of 10 pick-up trucks, with the dimensions of 195 in L x 84 in W x 78 in H. The calculation of stowage for cars is really no different than that for palletized cargo, except that you only need to consider the length of the vehicle. Given the length of these particular pick-up trucks and the following container dimensions, how many containers would you need? 20-ft standard container: 232 in L x 90 in W x 90 in H = 1 pick-up truck 40-ft standard container: 474 in L x 90 in W x 90 in H = 2 pick-up trucks Therefore, we would need 10 x 20-ft standard containers or 5 x 40-ft standard containers (or a mixture thereof) to move the total shipment of pick-up trucks Stowage: Averaging Method In this case you do not have the single dimensions of each carton. You must make a reasonable guess what volume in terms of m 3 likely fits into one container and which size of container is expected to be the most suitable. The type of commodity usually gives you an idea. You should be aware of the fact that dense items would be in a relatively small-sized cartons and pretty heavy or dense in relation to their volume. In other words, dense items will stow well, making good use of inside container space. Items that are un-palletized make for better use of inside container space. Using the stated average inside container dimensions, make your estimate of how many m 3 of items would fit into what size of container. Also, which container size is the correct one to choose and how many containers you need. In reality, you should however insist with your shipper to supply you with actual single dimensions of cartons or whatever unit of cargo. You should normally refrain from making 2017 Page 77

78 Questions Export Packaging and Warehousing such estimates. When asking you to do this here, it is strictly a theoretical exercise to sharpen your skills. Example: Books 1,000 cartons of books x 0.1 m 3 = 100 m 3 20-ft standard container = m 3 of un-palletized cargo 40-ft container = m 3 of un-palletized cargo Therefore, we would need 2 x 40-ft standard containers to move the total shipment of books. Stowage of Single Large and/or Heavy Items The main point here is for you to recognize that there is a problem with both, weight and dimensions. You know from your container specifications that all containers are only 8 ft wide outside. Therefore, the inside width of all containers is less than 8 ft. Open-top containers have an even less available width inside compared to a standard container. There is a similar situation for the height. The standard outside height of containers is 8 ft 6 in, but after allowing for thickness of floor and roof, you have always less than 8 ft inside height. Again, a special situation applies for open-top containers, as you may have no choice but to uncrate a large item for container stowage. Check your container specifications for inside dimensions of an open-top container, and compare it to the crated and uncrated item. Loading Procedure Technically, you have a problem to load this unit through the door. First, the door is neither wide, nor high enough. Second, you should realize that no regular forklift can handle this combination of length and weight. Even if the unit were a little smaller and fit through the door, you should never contemplate pushing it through the door into the container. How can the receiver unload such a unit? Such units must be loaded through the roof opening of the open-top container. Bracing It is essential that weight is evenly distributed within the container, i.e., a single heavy unit must be centred in the container and then braced at both ends to prevent any shifting. The centering and the woodwork required for bracing may prevent you in this case to load the reels as well into the same container. For a decision, you should depend on the expertise and advice of your export crater. If the cargo does not fit into an open-top 2017 Page 78

79 Questions Export Packaging and Warehousing container, you should examine other containers, e.g., flat rack, or possibly ship the cargo as break bulk, on a conventional vessel. Remember that there are two kinds of payload restrictions to consider, especially for extremely heavy and dense equipment such as an industrial mould or die (usually automotive industry). The standard allowable payload for a container is the maximum weight you are allowed to load inside a container. This payload is the difference between the gross weight of a container (container tare weight and load) and the container tare weight, both of which are marked on the door of any container. This regular payload assumes that you are spreading the cargo weight evenly over the entire inside length of the container. The second type of payload defines a maximum weight per running metre or foot of container inside length. This maximum weight is usually 4,500 kg/m for a 20-ft container and 3,000 kg/m for a 40-ft container. Many steamship agencies may be unaware of this special restriction, nonetheless if you are involved in a shipping situation in which the cargo does exceed the permitted weight per metre, you are obliged to report this to your client and propose a suitable alternative. The first choice should be to build a cradle or frame of heavy timber in order to redistribute the concentrated weight of a die from its own length to the total length of the floor of the 20-ft container (usually open top). In the event such redistribution still does not sufficiently reduce the weight of the die below the indicated maximum per metre or if the work/expertise of building a cradle involving securing it to the container floor is not available, the remaining alternative means first of all a crating of that mould or die and shipping as conventional break bulk cargo, either with a conventional vessel or, if need be, with RO-RO vessel service provided the RO- RO vessel is equipped with ships trailers or mafi for loading/unloading the RO-RO vessel. Stowage of Mixed Palletized Cargo for a Consolidation The difference when loading mixed cargo is that you have to use a floor plan control by adding the different length of the pallets, but stay within container inside length. Remember that you have to use a second tier of pallets. When the length of pallets in the bottom tier differs from the length dimensions in the second tier, it is the longer of the two lengths you must use to arrive at the total length of floor space actually used up. Another point is that you should make sure that the lightweight pallets of cargo get stowed on top of the heavier pallets of cargo. Metric versus Imperial Dimensions 2017 Page 79

80 Questions Export Packaging and Warehousing Canada is officially metric. Nonetheless, you will still find today that nearly in all cases involving Canadian export, the traditional shipper will supply you with imperial dimensions, i.e., feet and inches. In an import situation you probably deal with metric dimensions, i.e., metres and centimetres. It is strongly recommended not to convert the dimensions given to you by the client, at least not for the purpose of a container stowage calculation. Caused by inevitable rounding after any conversion, your results are likely to be inaccurate. Since the whole thing is a matter of basic arithmetic, i.e., dividing, it should not make any difference in which mode you work, even if you personally may feel uncomfortable with the imperial dimensions or vice versa. It is recommended to use the following solution: 1) If the client has given you the single dimensions of packages in inches, proceed as follows: Do not convert each single dimension from inches into centimetres. For the division in L/W/H, simply stay in the inch mode. For the calculation of a cube, multiply the inches with each other the result is in cubic inches, divide the result by 1,728 (1 ft 3 = 1,728 in 3 ), divide ft 3 by (1 m 3 = ft 3 ). In other words, you only convert once, i.e., the end total. You should memorize the two conversion figures. Example: 155 pallets, each 48 in x 42 in x 42 in Multiply 48 in x 42 in x 42 in, then x 155 pallets = 13,124,160 in 3. Divide 13,124,160 by 1,728 (in 3 in 1 ft 3 ) = 7,595 ft 3 Divide 7,595 by (ft 3 per 1 m 3 ) = m 3 2) If the client has given you single metric dimensions of a package, simply select a conservative metric figure from your carrier s container specifications for the container inside dimensions and then proceed in the same style and manner as explained earlier. Conclusion Each case of container stowage planning you work out will have a different set of dimensions. Always try to achieve maximum use of container dimensions by interchanging length and width, even within one row if that achieves a better utilization of space. The first pattern of sizes you choose may not necessarily be the best option possible. Always double-check yourself by applying a different pattern of case placing Page 80

81 Questions Export Packaging and Warehousing It is important for you to learn and understand the basic approach how to proceed correctly from the start. Any of your working papers must be set up in such a clear and transparent style that a colleague in your office can continue your file without any problem. You will calculate 5 different versions of container stowage. Use the following container specifications. Average Inside Container Dimensions Container Type Length Width Height Max. Payload 20-ft standard 232 in 90 in 90 in 20,000 kg 40-ft standard 474 in 90 in 90 in 25,000 kg 40-ft high cube 474 in 90 in 102 in 25,000 kg 45-ft high cube 534 in 90 in 102 in 25,000 kg 20-ft open top 232 in 90 in 94 in 20,000 kg 40-ft open top 474 in 90 in 94 in 25,000 kg 20-ft flat rack 220 in 96 in 90 in 20,000 kg 40-ft flat rack 462 in 90 in 78 in 25,000 kg Average Inside Volume Capacity Container Type Palletized Cargo Volume Un-palletized Cargo Volume 20-ft standard m m 3 40-ft standard m m 3 40-ft high cube m m Page 81

82 Questions Export Packaging and Warehousing Exercises 3.3 (Question) 1. Uniform palletized cargo in standard containers. 155 pallets of TV monitors, each pallet weighs 1,200 lb, the dimensions of each pallet are L48 in x W42 in x H34 in. How many containers of which size are required for this shipment? Work your answer out WITHOUT using a drawing. Stay within payload the container s payload. 2. Un-palletized cargo with single dimensions of cargo units in standard container. 10 Jeep Cherokees, each weighs 2,000 kg, the dimensions of each are L4.2 m (165 in) x W1.79 m (70 ½ in) x 1.61 m (63 in). How many containers of which size are required? 3. Un-palletized cargo based on a reasonable average volume per container in standard containers. This applies when single dimensions of cargo units are not available. 500 cartons of tents, total weight is 12,500 kg, total volume is 100 m 3. How many standard containers of which size are required? 4. Open-top container for a special package in weight and dimensions. One transformer consisting of main unit and 3 reels of cable. Main unit: Net measurement: L30 ft x W7 ft x H7 ft. Weight: 22,000 lb. Gross measurements if crated: L32 ft x W8 ft x H8 ft. Weight: 24,250 lb. Reels: 4 ft in diameter, width 2 ft. Weight of each: 1,100 lb. a) Can you load the net unit into an open-top container? b) If yes, how? Through the door or the roof? 2017 Page 82

83 Questions Export Packaging and Warehousing c) Can you load the gross unit into an open-top container? d) What is your comment in respect to the reels for loading with main unit into the same open-top container? A mixed palletized cargo in a consolidation container. Consignee container consolidation: You are requested to load the following consolidation in Montreal into a container (all dimensions as LWH) Ex Edmonton: 2 pallets of pressure gauges, each 48 in x 45 in x 44 in, 1,800 lb. Ex Kitchener: 2 pallets of electric motors, each 45 in x 42 in x 42 in, 2,200 lb. Ex Montreal: 2 pallets of filter sheets, each 42 in x 42 in x 42 in, 200 lb. Ex Calgary: 2 pallets of assembly tools, each 46 in x 45 in x 42 in, 2,000 lb. Ex Winnipeg: 2 pallets of fittings, each 44 in x 44 in x 40 in, 200 lb. Ex Toronto: 1 crate of instrument panel, 8 ft x 5 ft x 6 ft, 1,150 lb. a) What size container is required for the complete shipment? b) Try to show how you arrived at your answer without making a drawing. c) What is the total cube in ft 3? In m 3? d) What is the total length used inside the container? 2017 Page 83

84 Questions Export Packaging and Warehousing Exercises 3.4 (Question) A good warehouse layout can increase output, improve product flow, reduce costs, improve service to customers and provide better employee working conditions. In the following exercise, complete the diagram outlay: Label the public warehouse layout in the order that would make this warehouse s design truly efficient. Choose your labels from the following list: Receiving area Packaging area Staging area Order pick storage area Bulk storage area Shipping docks area Office Product Flow 2017 Page 84

85 Answers Export Packaging and Warehousing Exercises 3.1 (Answer) 1. What are the two basic functions that packaging serves? Marketing and distribution. 2. What is palletizing or unitizing of cargo? Assembling packages on a pallet base and securing the load to the pallet. 3. What is the most common economical container/package? Fibreboard box. 4. What is the main problem with using wood packaging when shipping items internationally? Wood packaging may contain pests which are harmful to the importing country, heat treatment is required (ISPM 15 compliance). 5. Canadian warehouses operate under the laws of bailment. This means the warehouse operator is liable for damage or loss of goods arising out of his negligence. 6. Name the three categories of warehouses. Private, public and contract. 7. Name three functions of a warehouse. Inventory control; purchasing; order entry; receiving and inspection; redistribution; put-away; storage; replenishment; customer order selection checking; packing and marking; staging; consolidation and shipping; and clerical and administrative. 8. Name three advantages of a private warehouse. Control Flexibility Cost Page 85

86 Answers Export Packaging and Warehousing Exercises 3.2 (Answer) 1. Name five types of packages used in ocean freight shipments. a) Fiberboard drums b) Nailed wooden boxes c) Crates d) Wire bound boxes e) Cleated plywood boxes f) Cardboard (fiberboard) boxes g) Steel drums h) Barrels i) Bales 2. Describe the importance of marks and symbols. They identify the shipment/packages and give any special instructions on the handling of the cargo. 3. What are two standard sizes of North American pallets for ocean freight shipments? 40 in x 48 in, 40 in x 40 in, 48 in x 48 in. 4. What details do you have to verify prior to stuffing an ocean container and an airfreight container? Inspect the container to see if it s watertight, check fittings/tie downs, cleanliness, check door locks and seal, and basic general condition. 5. What points do you have to remember when loading an ocean and air freight container? Observe weight limitations, avoid mixing incompatible cargo, observe hazardous material regulations, have all cargo and materials ready before beginning, plan for the loading and always remember that the unloading must be considered. 6. What measures should be taken to prevent damage and losses? Pack the goods properly, secure the cargo to prevent shifting, use proper dunnage and stowage materials. You should also place hazardous cargo near the door. Always pack for the toughest leg of the journey Page 86

87 Answers Export Packaging and Warehousing 7. Name at least three different types of public warehouses. a) General non-food warehouse b) Refrigerated warehouse c) Bonded warehouse d) Household goods warehouse e) Special commodity warehouse f) Dangerous goods warehouse g) Bulk storage warehouse 8. What is a private warehouse? Describe. It is owned by a company and operated by their own personnel. It is generally designed to meet the specific needs of the company. Provided the volume is large, it means lower cost. 9. What are the advantages and disadvantages of using a public warehouse? Advantages - no capital cost outlay, flexibility in required storage space. Disadvantages - no control, communication is usually harder, the facility might not be geared to a company s specific needs. 10. What are the advantages and disadvantages of using a private warehouse? Advantages - flexibility in the design, can meet specific needs, over a period of time it may become less costly than a public warehouse. Disadvantages - capital outlay, costs, it is a fixed asset. 11. What is the warehouseman s liability? Before a warehouse can be held liable, negligence must be proven. Normally the liability is 100 times one month s storage charge. 12. Describe a warehouse receipt and explain the difference between negotiable and non-negotiable receipt. Acknowledgment on the part of the warehouse operator for the receipt of goods which are not his own and to place in storage in the warehouse. Negotiable receipt - a document of title to the goods. The goods can only be released upon the surrender of the negotiable receipt, properly endorsed. Non-negotiable receipt - a receipt for the goods, nothing else Page 87

88 Answers Export Packaging and Warehousing Exercises 3.3 (Answer) 1. Uniform palletized cargo in standard containers. 155 pallets of TV monitors, each pallet weighs 1,200 lb, the dimensions of each pallet are L48 in x W42 in x H34 in. How many containers of which size are required for the total shipment? Work your answer out WITHOUT using a drawing. Stay within the container s payload. Solution: The first thing we notice is that the length and width add up to 90 in. Remembering our concept of 90, we can calculate how many groups of 4 skids we can load on the floor of a 40- and 20-ft standard containers. 40-ft standard container: On the floor of a 40-ft standard container: 474 : 90 = 5.26 or 5 groups of 4 = 20 pallets on the floor. To determine how many we can stack, we divide the height of the container with the height of our skid. 90 : 34 = 2.6 or we can stack 2 pallets high. We have also used up 450 in of floor length. 5 x 90 in = 450 in. This leaves us 24 in at the door and we cannot load another pallet at the door. Checking the weight, we find that: 40 x 1,200 lb = 48,000 lb = 21,773 kg, weight O.K. We can safely load 40 pallets of TV monitors into a 40-ft container. 20-ft standard container: On the floor of a 20-ft standard container: 232 : 90 = 2.6 or 2 groups of 4 = 8 pallets on the floor. We already know that we can stack 2 high. We have also used up 180 in of floor length. 2 x 90 in = 180 in Page 88

89 Answers Export Packaging and Warehousing This leaves us 232 in 180 in = 52 in at the door. Can we load another pallet at the door? Easily!! Checking the weight 20 x 1,200 lb = 24,000 lb = 10,886 kg. Weight is OK. We can safely load 20 pallets of TV monitors into a 20-ft container. 40-ft high cube container: We have already determined that we can load 20 pallets on the floor of a 40-ft container. How many can we stack in a 40-ft high cube container? To determine how many we can stack, we divide the height of the container with the height of our skid. 102 : 34 = 3 or we can stack 3 pallets high. Therefore, we can load 60 pallets into a 40-ft high cube container. Checking the weight, we find that: 60 x 1,200 lb = 72,000 lb = 32,659 kg. Weight is NOT O.K. We will concern ourselves with loading 20- and 40-ft standards. As we have 155 pallets to ship, we take our 40 pallets and divide that into the number of pallets we have to ship. 155 : 40 = As the result has a decimal place greater than 0.5 we are forced to go to another 40. We will need 4 x 40-ft standard containers to ship the 155 pallets of TV monitors Page 89

90 Answers Export Packaging and Warehousing 2. Un-palletized cargo with single dimensions of cargo units in standard container. 10 Jeep Cherokees, each weighs 2,000 kg, the dimensions of each are L4.2 m (165 in) x W1.79 m (70 ½ in) x 1.61 m (63 in). How many containers of which size are required? We know that we can fit 2 Jeeps into a 40-ft standard container. 474 : 165 in = 2.87 (we cannot have 0.87 of a Jeep). Take the number of Jeeps divided by the number we can load into a 40-ft standard container and this will give us our container requirements. 10 : 2 = 5 x 40-ft standard containers required. Do not even consider a 45-ft container just because it allows loading 3 vehicles. A 45-ft high cube container is a specialized piece of equipment. Not every carrier owns this type of equipment, and it is not allowed on every trade lane. 3. Un-palletized cargo based on a reasonable average volume per container in standard containers. This applies when single dimensions of cargo units are not available. 500 cartons of tents, total weight is 12,500 kg, total volume is 100 m 3. How many standard containers of which size are required? All the information given is just total volumes and weights. As the cargo is relatively light we do not have to worry about the weight. We know that we can load m 3 of loose cargo into a 40-ft standard container. We would take our total volume and divide it by 55 m 3, as a conservative estimate. 100 : by 55 m 3 = 1.8 x 40-ft containers. We cannot have 0.8 of a container, therefore we need 2 x 40-ft standard containers. We can easily load all this cargo into 2 x 40-ft standard containers. NOTE: It is always a dangerous approach to calculate the total available m 3 of inside airspace in a container and try to match this with your total cargo 2017 Page 90

91 Answers Export Packaging and Warehousing m 3. This method might have tempted you to use just 1 x 40-ft HC plus 1 x 20 ft for the 100 m 3 of tents. That would have been wrong and potentially embarrassing. This question emphasises that in a real life situation you should insist with your client to supply you with actual carton dimensions if an accurate or binding stowage calculation is required. But if you have to make an estimate, the relative estimated size of a carton would determine your estimate. The smaller the carton, the better the possibility to use the available space efficiently. If you have cartons of shoes, or other small sized cartons as you would have in a Far East import container, you probably can load a 40 ft to between 55 or 60 m 3. A tent is probably a mid-sized carton, therefore guessing you might load 50 m 3 per 40 ft is a very reasonable guess, and the right answer. Any larger carton approaching the size of a pallet would cause more stowage space loss similar to palletized cargo. 4. Open-top container for a special package in weight and dimensions. One transformer consisting of main unit and 3 reels of cable. Main Unit: Net measurement: L30 ft x W7 ft x H7 ft. Weight: 22,000 lb. Gross measurements if crated: L32 ft x W8 ft x H8 ft. Weight: 24,250 lb. Reels: 4 ft diameter, width 2 ft. Weight: each 1,100 lb. a) Can you load the net unit into an open-top container? The un-crated transformer - the net unit can only fit into a 40-ft opentop container. The crated transformer has a width of 8 ft, which is the same as the outside width of 8 ft of any 40-ft standard or open-top container. Therefore, the gross unit (crated) cannot fit into a standard or open-top container. e) If yes, how? Through the door or the roof? Loading must only be done through the uncovered top. You cannot load a unit of such length (30 ft) and weight (10 tons) through the door. Overhead cranes, either in house or rented, will be required to load this cargo. There is no forklift around capable of handling that length Page 91

92 Answers Export Packaging and Warehousing f) Can you load the gross unit into an open-top container? No!! As explained in answer a), the crated unit width is the same as the outside width of a container. Further, you should always check the roof opening with the carrier. The roof opening is generally 92 in wide. g) What is your comment in respect to the reels for loading with main unit into the same open-top container? 3 reels should be shipped separately as LCL cargo. The transformer must be centred in the container and blocked and braced at both ends, with some form of a small bulkhead at each end to prevent shifting. As a result, there will be no or limited space left for any additional cargo (reels). 5. A mixed palletized cargo in a consolidation container. Consignee container consolidation: You are requested to load the following consolidation in Montreal into a container (all dimensions as LWH) Ex Edmonton: 2 pallets of pressure gauges, each 48 in x 45 in x 44 in, 1,800 lb. Ex Kitchener: 2 pallets of electric motors, each 45 in x 42 in x 42 in, 2,200 lb. Ex Montreal: 2 pallets of filter sheets, each 42 in x 42 in x 42 in, 200 lb. Ex Calgary: 2 pallets of assembly tools, each 46 in x 45 in x 42 in, 2,000 lb. Ex Winnipeg: 2 pallets of fittings, each 44 in x 44 in x 40 in, 200 lb. Ex Toronto: 1 crate of instrument panel, 8 ft x 5 ft x 6 ft, 1,150 lb. a) What size container is required for the complete shipment? 1 x 20- ft standard container. b) Try to show how you arrived at your answer without making a drawing. Each of the two pallet lots has a width that allows stowage/placement side by side. The heights are such that stacking of cargo can be accomplished 2017 Page 92

93 Answers Export Packaging and Warehousing easily. The only exception is the Toronto crate, which does not allow for either stowage of other freight beside it or on top of it. To approach this problem you will gradually sum up the floor length used in the container as we load from the nose (front) to the door. You must remember, when we load cargo on top of other cargo, we do not use any additional floor length or space. Cargo Loaded 1. Load Edmonton on floor at nose. 48 in x 45 in x 44 in; side by side. 2. Load Kitchener on top of Edmonton. 45 in x 42 in x 42 in; side by side. No additional length used. 3. Load Calgary on floor next. 46 in x 45 in x 42 in; side by side. We used an additional 46 in of floor length (48 in + 46 in = 94 in) 4. Load Winnipeg on top of Calgary. 44 in x 44 in x 40 in; side by side. No additional length used. 5. Load Toronto next on floor, 8 ft x 5 ft x 6 ft. We used an additional 8 ft (96 in) of floor length (94 in + 96 in = 190 in). 6. Load Montreal on floor next, 42 in x 42 in x 42 in; side by side. 42 in of floor length is used (42 in in = 232 in). Total floor length used Floor Length Used 48 in 48 in 94 in 94 in 190 in 232 in 232 in The floor length used is that of a 20-ft container. We have been able to do a stowage plan and calculation without the need of a drawing. Fortunately, all the pieces of the puzzle fit well. This is not always the case in your day-to-day operations. If you feel the need to do a sketch, then please do. It is not important as to how one determines a stowage plan, it is important that the result of the planning is correct Page 93

94 Answers Export Packaging and Warehousing c) What is total cube in ft 3? In m 3? Origin ft 3 m 3 Total Weight Ex Edmonton ,633 kg Ex Kitchener ,996 kg Ex Montreal kg Ex Calgary ,814 kg Ex Winnipeg kg Ex Toronto kg TOTALS ,327 kg We have also checked that the cargo weight is within the allowable load for a 20-ft standard container. It is also advisable to make a chart similar to this when you are doing a first estimate to see what size of equipment you might need. d) What is the total length used inside the container? As per answer b) we have used 232 in of floor space. The entire container length Page 94

95 Answers Export Packaging and Warehousing Exercises 3.4 (Answer) 2017 Page 95

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