Archive for the ‘Incoterms’ Category


 

Cost Insurance Freight CIF Incoterm ® 2010 | Use Case Scenario

Risk, Responsibility and Rewards – How The CIF Incoterms ® rule delivers and what it covers in greater detail:

cif-incoterms

 

In order to better reflect modern commercial reality, the ICC created a new classification system for Incoterms and abolished the previous classification system which was based on the first letter of the Incoterm rule. Under Incoterms 2010, the ICC has divided the Incoterms in accordance with the means of transportation as follows:

Rules for any Mode or Modes of Transport: EXW, FCA, CPT, CIP, DAT, DAP, DDP

Rules for Sea and Inland Waterway Transport: FAS, FOB, CFR and CIF

 

CIF Incoterms ® (Cost Insurance Freight)

 

In our series on the importance of understanding and leveraging Incoterms® 2010, we take a deeper and more detailed look into the CIF Incoterm and the impacts negotiated, as well as often overlooked during the establishment of project viability or business case development for capital projects that are going to be requiring international sales contracts to fulfill their mandates.

First we review what CIF Incoterm is as defined by the International Chamber of Commerce (ICC): CIF is recommended for use with non-containerized sea freight.

CIF Definition: CIF, or “cost, insurance and freight”, is a term used in international contracts for the sale of goods being shipped by sea to a port of destination where the seller pays the cost of the insurance and transport of the goods to the destination, and provides the buyer with the documents necessary to obtain the goods from the carrier. Legal delivery occurs when the goods cross the ship’s rail in the port of shipment (where they are being shipped FROM).

 

Insurance Charges:

Under CIF, the seller is required to obtain insurance only for minimum coverage. If the buyer wants more comprehensive insurance, they must ensure that the seller is contractually obliged to do so within their contract.

Insurance coverage for goods during shipment:

Freight insurance can be purchased directly from a shipper or from a third-party insurer. also called cargo insurance.

 

Cargo insurance Types:

Insurers offer two basic types of ocean cargo insurance policies. A voyage policy is used when insuring a single voyage, sometimes referred to as a “stray risk” or “trip risk.” Voyage policies are used primarily to cover shipments made by infrequent shippers. The other basic type of policy is the open cargo policy.

 

Motor Truck Cargo insurance (Cargo) provides insurance on the freight or commodity hauled by a For-hire trucker. It covers your liability for cargo that is lost or damaged due to causes such as fire, collision, or striking of a load.

 

Marine insurance:

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination.

 

Cargo Management Charges:

 

Stevedoring charges:

Stevedoring is the process of loading and unloading ships. The main sectors of stevedoring are container terminal operations – the loading and discharge of container vessels at terminal ports, largely using advanced mechanical technology. Stevedoring charges are the charges incurred for unloading the goods from ship hold to wharf. These charges are treated as forming part of the freight and are to be added to the value for the purpose of charging duty on imported goods. This contingency arises only when the carrier does not include these charges in the Freight Bill.

 

Wharfage charges?:

A charge assessed by a shipping terminal or port when goods are moved through the location. Wharfage is one of the costs of transport goods within the distribution system used by a business to bring its goods to market.

 

Terminal Handling Charges:

Terminal handling charges or Container Service Charges (CSC or THC) are essentially charges on top of the sea freight, collected by shipping lines to recover from the shippers the cost of paying the container terminals or mid stream operators for the loading or unloading of the containers, and other related costs borne by the shipping lines at the port of shipment or destination terminal before being loaded onboard a vessel.

 

Container Freight Station (CFS) charges:

CFS is the term used at the loading port and means the location designated by carriers for the receiving of cargo to be loaded into containers by the carrier. At discharge or destination ports, the term CFS means the bonded location designated by carriers for devanning of containerized cargo.

 

Entry of Goods Valuation and Charges:

 

Entry costs and their determination are also a part of negotiating the international sales contract under CIF. You may wonder how Incoterms selection impact the landed entry costs, it is often overlooked that the Incoterms define where the responsibility for costs rests within the contract covering all of the aspects mentioned above and in certain circumstances there may also be packaging requirements for containers where inspection is required for example.

It is often overlooked that inspection for customs or quality control / delivery inspections incur a cost of service that needs to be considered in the overall costing process.

 

What is included in CIF value?

For the purpose of customs valuation, the CIF value is the price paid for the goods plus the cost of transportation, loading, unloading, handling, insurance, and associated costs incidental to delivery of the goods from the port or place of export in the country of export to the port or place of import in the country.

Assessable value:

Assessable value is a very broad term and complicated, it means the total end assessed value upon which various duties and taxes are levied . The Assessable value is calculated based on various factors/valuation rules mentioned in the Excise Act/Rules as per the Import or Export country.

 

Use Case Scenario:

 

For our case study purpose, below is an example of an international sales contract announced by Northern Minerals Ltd. where CIF was selected from the 2010 Incoterms to guide the pricing, risk and responsibility for this agreement where they are leveraging CIF to determine clarity on costs for their sales agreement:

Northern Minerals Ltd. (ASX:NTU) announced that it has entered into a sales agreement with Lianyugang Zeyu New Materials Sales Co. Ltd. (JFMAG). The agreement covers all planned production from the company’s Browns Range pilot plant.

JFMAG is a subsidiary of Guangdong Rare Earths Group, and Guangdong Rare Earths Group is a subsidiary of Guangdong Raising Asset Management. Guangdong Rare Earths Group is one of China’s five major vertically integrated heavy rare earths companies.

The Sales Agreement terms are based off CIF Incoterms 2010 with pricing referenced from a 2-month average of quoted prices on Asian Metals and Beijing Ruidow Information Technology.

Under the Sales Agreement, prior to the first shipment of rare earth carbonates, JFMAG will make a pre-payment to Northern Minerals of A$10 million. The prepayment covers approximately 15% of the expected value of production during the Pilot Plant phase, with the remaining 85% to be paid to Northern Minerals over the course of the agreement based on volumes delivered. JFMAG or its nominated beneficiary will be issued 40 million unlisted options at $0.25 exercise price which can be converted to ordinary shares to offset the pre-payment of A$10 million.

Northern Minerals Enters Sales Agreement for Browns Range Pilot Plant Output

 

 

Trade Talk | Exploring Customs Brokers and the Supply Chain

Trade Talk | Exploring Customs Brokerage and the Supply Chain

Back in 2013 it was reported by Canadian National (CN) that Six million goods and raw materials cross international borders every single day. Now imagine what is involved in clearing these goods through customs in different countries.

This is where Customs Brokers come into the Supply Chain. Customs Brokers are your translators. We communicate with customs and participating government agencies, vendors, carriers and all other participating parties.  throughout the shipping process, ensuring that all of the proper procedures have been followed.

From televisions and home appliances to custom machinery for large construction projects, we clear thousands of shipments every day. Seven days per week, 24 hours per day, 365 days a year, regardless of the port of entry or mode of transport. It is the Customs Brokers duty to ensure that your shipments in and out of the U.S., Canada, Mexico or any other country are being cleared and managed efficiently.

Trade between the United States and Canada is huge and growing. In 2013, our two-way trade was $606 billion. To put that into context, that’s $1.7 billion a day — or $1.2 million every single minute.

What we know for sure:

 According to WX1130 a popular radio news channel, it is expected that aside from the bi-lateral negotiations with the US on NAFTA, Canadian parties will likely address some of the points in debate at the State level rather than the Federal level. This means that those who are representing impacted interests are getting focus by those who have the ability to ensure minimal negative impact and/or even improved experiences across the Supply Chain.

There are 9 million U.S. based jobs that exist because of NAFTA being in place. If Monday’s meetings between Canada and the U.S. indicate anything, it is that there is willingness and there are channels open to ensuring that those 9 million jobs across the Supply Chain remain unaffected and that more jobs can be created with the incoming infrastructure goals of both these countries.

What we are talking about:

Customs Brokers in Supply Chain

Where does your Broker fit in the supply chain? Well the supply chain in truth can actually starts with either the buyer or the seller – it will also ultimately end with either the buyer or the seller. What is determined at either position will impact the activity and costs within the supply chain.

What most people have traditionally considered “supply chain” actually happens in between these two points, your broker is your asset at each end of the supply chain. So do we extend supply chain to incorporate Customs Brokerage?

When we look at past clients cases our experience would suggest YES to this.

Something as seemingly simple, can create extremely complex issues and unnecessary expense, because at the outset it seems so very simple. Take HS Tariffs or even Incoterms, reclassification or reassignment of one of these codes has saved over 50M for just one of our clients on a mere 5 international shipments.

Incoterms if they are new to you were issued updated in 2010. You can see them here

What are Incoterms®:

What are IncotermsModern-day Incoterms, date back to the creation of the first FOB term in 1812.

Here is a basic explanation of what Incoterms are below and if you want to see the updates made in 2010 you can view those HERE

“A series of three-letter trade terms related to common contractual sales practices, the Incoterms® rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods. Incoterms inform sales contract defining respective obligations, costs, and risks involved in the delivery of goods from the seller to the buyer. However, it does not constitute contract or govern law. Also it does not define where titles transfer and does not address the price payable, currency or credit items.

The Incoterms® rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.” ~ 

As you can see here, supply chain is much more than freight forwarding and logistics – because these actions take place in between the buyer buying and the seller selling. For many years now we have been working to expand our client’s understanding of where to best access our value as customs brokers – the customs brokers value is best seen on either end of the supply chain for the buyer or the seller before activating the supply chain in the delivery process.

What we think:

Customs Brokers on Supply Chain

We are thinking about ensuring our readers and customers understand IncoTerms and HS Tariff Codes. Earlier this month we shared an article on HS Tariffs you can review it here, and next week we will sharing a powerful article on Incoterms.

 

What we advise:

Advice on Customs Brokerage and Supply Chain

Engage your customs broker early in the sales process, or early in the buying process to ensure that all parties experience the best trade compliance results both top line and bottom line.

 

Getting this right is money in your pocket – getting it wrong, well that is a loss we don’t want you to experience! 

 

What we are reading:

Reading - Customs Brokers and Supply Chain

Forbes: As an analyst who covers supply chain management (SCM) and procurement practice across industry, I tend to keep my keyboard focused on the disruptive themes that continue to re-define it. That said, if you’re expecting me go on about the unprecedented growth of the SCM solution markets, the accelerated pace of innovation, tech adoption, social change, etc., don’t hold your breath. I can’t, as the data argue otherwise. Too many of us conflate diversification with acceleration. There’s a difference.

Great Suppliers Make Great Supply Chains

Wall Street Journal: Leave it to California growers to find a new way to eliminate the shipping from farm to warehouse. A startup operation near the San Francisco International Airport is trying to turn the warehouse itself into a farm, the WSJ’s Jacob Bunge and Eliot Brown report, eliminating the timing, transportation and preservation strategies that are critical to modern agriculture distribution. Backed by a group of tech entrepreneurs and investors, Plenty United Inc. hopes to begin selling produce soon that they say is bred for local tables rather than for shipping durability. The operation is part of the expanding field of indoor farming made possible by new lighting and other growing technology. Several startups are trying to marry that technology to the consumer push for local goods, and make it economically palatable by slashing logistics costs. Warehouse space isn’t cheap, however, particularly close to urban consumers, and Plenty United will have to nurture more funding to meet its goal of running 60 farms outside major U.S. cities.

Today’s Top Supply Chain and Logistics News From WSJ – WSJ

 
Have our team put a quote together for your projects below:

 

When topics as broad as free trade re-negotiations, tariff amendments, any type of international border barriers to business are being discussed many of us want to be the fly on the wall that hears the discussion. We try to be that fly on the wall for you, our valued readers.

We know that you also want to know how to have your voices heard in that discussion, especially when you are directly affected.

One way to share your voice is to publish your concerns, insights, ideas or expertise online. Each week we publish and share industry news, our insights and reports that impact you as our readers. Do you have something that you would like us to share? Ask? Research for you? Let us know and we will add your requests to our weekly research and publishing goals.

Trade Talk – HELP! “I’ve been chosen for a (CBSA) Trade Compliance Verification Audit!”

Canada Border Services Agency (CBSA) Verification list 2017 is out – Are you an importer of these items?

As an Importer of goods into Canada, you may one day be faced with a terrifying reality of being chosen for a Canada Border Services Agency (CBSA) Trade Compliance Audit. You may wonder what your next step should be.

Step 1: Breathe, it may not be as bad as you think. Contact your customs broker and discuss the situation. They will guide you through this process. You are not alone.

Step 2: Understand how an audit works.

The CBSA uses Post Release Verification Audits as a tool to measure trade compliance with the various CBSA programs.  Typically a trade compliance audit will focus on one of three major programs, Tariff, Origin or Valuation.  In all cases, there are two processes by which your company may be chosen for an audit.  

  1. Random Verifications – These verifications are typically focused on the type of goods being imported, the country of origin of the goods, the relationship between the purchaser and the seller, etc.   
  2. Targeted Verification Priorities – Targeted verifications are determined through a risk-based assessment.  A list of verification targets is typically issued by CBSA in January and July of each calendar year.  Each list will carry new items to be verified for compliance with tariff, origin and valuation, and, there will be some items that carry over from previous calendar years.

The January 2017 Trade Compliance Verification Priorities can be found at the following link:

http://www.cbsa-asfc.gc.ca/import/verification/menu-eng.html

 

CBSA Verification Audit

 

 

Step 3: Educate your team.

Trade Compliance Education:

Pacific Customs Brokers aims to keep importers and exporters informed on changing customs regulations while educating them on the consequences of non-compliance. Whether you are new to importing, exporting or are seeking training on the movement of international goods, our trade compliance program will aim to match your needs.

Related blog post: 7 Excellent Reasons to Invest in Trade Compliance Education

 Trade Advisory Services:

If your company is chosen for a Trade Compliance Audit or Verification Audit, Pacific Customs Brokers is here to help.  Please contact our office as soon as you are notified of your audit, and one of our Certified Trade Compliance Specialists will work with you to guide your business through the audit process.  It is very important that we be brought in right at the beginning to ensure that we can represent your best interests with CBSA to mitigate the impact of any additional duty, penalties or interest that may otherwise be payable.

Our trade advisory services include but are not limited to:

  • Thorough HS database review with ongoing updates
  • Current industry training and education to review transactions completed by customs brokers thereby minimizing errors
  • Experienced counsel on valuation and origins
  • Strategic advice on withstanding a customs audit
  • Firm support through the challenges of the audit process

For more information about our trade compliance audit services, contact us today or learn more at Canada Customs Trade Compliance.

 

Do you have questions about CBSA’s   trade compliance verification priorities? Use the comments section below to leave us your thoughts or email Ask Your Broker .

The Disadvantages of Delivered Duty Paid (DDP)

Outsourcing your Transportation and Customs Control

Have you ever asked yourself why you choose Delivered Duty Paid (DDP Incoterms ®) for your international business? Many companies choose international terms of sale based on their company philosophy, history, costs, seller options or perceived ease of transaction. Without knowing the options beyond Incoterms DDP; a company could be losing control of their shipments and increasing their costs dramatically. The solution is to understand all Incoterms®; the responsibility involved, and to select the most advantageous term for your business strategy.

DDP Incoterms ®

Incoterms® DDP being an example, are terms that are agreed upon during the negotiation of a contract or sale and deal exclusively with;

  • The obligation of buyers and sellers (with regard to each of the 13 stages involved in the transport and clearance of a shipment – see Incoterms® chart), and
  • The stipulations on which party bears the risk of loss during transit.

Additional Information:

  • The purpose of these terms are to provide a set of international rules for the interpretation of the most commonly used trade terms.
  • The parties to the transaction select the Incoterms®, which determines who pays the cost of each transportation segment.
  • Incoterms® influence customs valuation of imported merchandise. Certain costs within the supply chain may or may not be included in the value for Customs, depending on the term selected.

It is important that your buyers understand and select terms of sale that are in the best interest of your company. The best time to determine the chosen one is when the buyer is evaluating whether or not to move forward with the purchase. Decisions made after the fact will inevitably affect the initial price that was being considered.

DDP – Delivered Duty Paid

This commonly used term places the maximum obligations on the seller and minimum obligations on the buyer.

The seller is responsible for delivering the goods to the named place, in the country of the buyer, and pays all costs and risks in bringing the goods to the destination, including, import duties and taxes. Risk transfers from seller to buyer when the goods are made available to the buyer, ready for unloading from the arriving conveyance.

Buyer Advantages

  • Lower risk, as the seller assumes all responsibilities and charges to the destination. However, risk is not gone!
  • Landed cost is known at the time of purchase.
  • No administrative supply chain management, arrangement of vendors or payment of such charges.

Buyer Disadvantages

  • Can not be used if the seller is unable to obtain import licenses, permits or certain payment options with Canada Customs. Some taxes such as GST are only payable by registered business entities, so there may be no mechanism for the seller to make payment.
  • No control over the movement or importation of the goods.
  • No direct contacts to track a shipment other than through your vendor.
  • No ability to interject in the event of an issue.
  • Hidden transport and import costs may lie in the markup calculated by the seller.

An Alternative to DDP: FCA – Free Carrier

This commonly used term places the maximum obligations on the buyer and minimum obligations on the seller.

The buyer is now responsible for delivering the goods to their intended destination, and pays all costs and risks in bringing the goods to the destination, including, import duties and taxes.

The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place. The seller pays for carriage to the named point of delivery, and risk passes when the goods are handed over to the first carrier

Buyer Advantages

  • Control over the movement or importation of the goods.
  • Direct contacts to track a shipment.
  • Ability to interject in the event of an issue.
  • No hidden transport and import costs.

Buyer Disadvantages

  • Administrative resources to liaise with service provider.

Always review and consider terms of sale proposed for use in a new contractual agreement to ensure they are consistent with your business plan. Ask for advice from your customs broker or freight forwarder, as often times they can recommend advantageous terms of sale.

Need assistance in reviewing your terms of sale? Please leave your questions and comments in the section below or email Ask Your Broker.