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1 INCOTERMS 2000 () 19 UCP ICC

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15 passed the examination with distinction, scored a minimum of 95% CIB CDCS CDCS CDCS UCP500 ICC Position Papers on UCP500,URR525,ICC560 Incoter ms 2000, SWIFT User Manual, ISP98,UN Conventions on Independent Guarantees and Standby Practice Rules. United Nations Commission On International Trade Law (UNCITRAL)

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19 INCOTERMS 2000 () 3 - FCA Clearance of security fees (or S.F. ) based on the Convention of International Civil Aviation to be handled under FCA A/B 4 or A/B 9? Query: The problem we face is the security fee, which has been introduced in airfreight by some countries. The delivery term to be interpreted is FCA named airport. I have taken two options, one with the origin FCA Paris Airport and the other one with the origin in Finland i.e. FCA Helsinki-Vantaa Airport. To be able to define the change of responsibility for the fee I would like to include also the delivery term FCA Paris and FCA Helsinki, being two delivery terms commonly used. This in order to be able to establish the exact point of change of responsibility. Background of security fee In the convention of International Civil Aviation there is an annex no 17, which gives standards and recommended practices on security issues. Also European Civil Aviation Conference has issued recommendations in DOC 30 which require all countries within EU to introduce into each country s own legislation a law/laws on security controls in air traffic. As we understand the implementation would latest be by However, national legislation is hampering the issue of new legislation and only a few countries have introduced it so far. To our knowledge countries which have introduced the security legislation are Finland, France, UK, Denmark and Sweden. In Finland the Civil Aviation Administration gave instructions to the air carriers and regular agents named Instructions concerning security control measures for air cargo and mail for airlines and regulated agents. In these instructions/regulations are given very specific details regarding security in air transportation/air traffic. Based on the international law Finland implemented a national law and Civil Aviation Administration gave instructions based on these two laws, the international and the national one. The Civil Aviation Administration did not give any instructions, neither is the law giving any instructions, regarding any 19

20 disbursements or fees for any security activity. In order to comply with these regulations cargo must be screened or checked or security compliant through various methods. In Finland the following applies. There are two airline handling agents at Helsinki-Vantaa Airport. One is F and one is N. These two companies have invested in certain devices and they feel, in order to recuperate the investment made, they have introduced a fee called security fee. The fee is pennies/kg based on the actual gross weight of the shipment. Based on Incoterms 1990 this fee has been charged the consignee of the shipment when the delivery term has been FCA named airport i.e. FCA Helsinki-Vantaa Airport or FCA Helsinki. In Incoterms 2000 any definition related to this security fee is not found and according to the interpretation done some clients consider shipper responsible for this fee and not the consignee. This issue was further highlighted when France introduced this security fee during summer In France the legislation was approved during 1998 and came in force on July 15th, The articles referred to in the French legislation are L , L , R à 11. The charges in France are also based on FRF/Kg. In UK the forwarders have invested in the necessary equipment and the security fee is collected by the forwarders as a fee/shipment. In Denmark, we understand, the fee is included in the airlines handling fees. This fee will probably be introduced in all European countries based on the same legislation. The fee might vary from country to country depending who takes the responsibility to get the equipment like scanners, sniffers etc. The questions are in short as follows: 1. The charge should be debited to the shipper or to the consignee based on delivery term FCA Paris airport? 2. The charge should be debited shipper or the consignee when agreed delivery term is FCA Paris? As the fee in France is determined by an official body and based on the law, but in Finland the fee is up to each party to agree upon, is there any difference compared with the situation in Finland with the delivery terms FCA Helsinki-Vantaa Airport or FCA Helsinki. Response: "Security Fees (SF) are not 20

21 covered by the regulation of A/B 9 Incoterms neither in FCA nor in any other term. S.F. are charged for special control measures, which are necessary for the security of air transportation. They are based on law (France) or contract. The check(ing)/inspection mentioned under A/B 9 only refers to such measures which are aimed at the quality or quantity of the goods. The wording of A 9 makes it clear that only checking operations such as checking quality, measuring, weighing, counting are for the sellers' account. The reason is that he has to deliver the contractual goods and has to bear the costs necessary to identify them. In this connection, B 9 governs the costs of inspections (in the same sense), which are not necessary for their specification, but in the interest of the buyer. Therefore the exception is made for inspection (quality, quantity) mandated by the country of export, because exportation is for the seller. The reasons for security checks, the basis for S.F., are not the same as the considerations underlying the provisions of A/B 9, i.e. controlling whether quality and quantity are in conformity with the contract. S.F. have to be handled under A/B 4, which results in the costs ruling of A/B 6. S.F. are not levied in connection with the contractual quality or quantity of the goods, but in connection with their transport, or more specifically with the security of their transport. This aspect is regulated by A/B 4 and A/B 6. In conclusion, this means that under FCA Incoterms 2000 the responsibility for costs of security inspections depends on the question when the seller has fulfilled his A4 obligation. The seller has to bear the security fees, if the security inspection takes place before he has fulfilled his delivery obligation; the buyer has to bear the security fees, if the security inspection takes place after the delivery of the goods by the seller.". 4 - FCA Clarification of the FCA Incoterms 2000 Difference of interpretation between manufacturers and freight forwarders in the U.K.. Query: We are members of British International Freight Association and following a recent article in a Trade Paper (IFW) some confusion has been placed on the INCOTERMS 21

22 FCA and a copy of the relevant article is attached hereto. Perhaps your organisation could give some clarification on this particular Term which appears to be interpreted differently by some of the manufacturing community in the UK and freight forwarders. Extract from IFW, Trade Paper: Do Forwarders care? What is the use of Incoterms 1990 or 2000 if no-one knows how it works or how to use it? When I say no-one I mean freight forwarders, the people shippers trust with their freight. I am the supervisor in an export shipping department of four which controls an immense network of export from the UK and direct from our factories in continental Europe and the US. We have spent months making sure that our sale team contractually get the correct Incoterm and understand what they are asking for. We seem to be winning so far. But why is it that freight forwarders do not seem to understand? These are the people you would expect to understand the rules. We spend months, sometimes years, with larger contracts, making sure that the customer understands what he will be expected to pay and where the risk and cost transfer, only to have this dashed in a few hours by an incompetent forwarder. We re made to look like fools. When I ask these forwarders if they know of Incoterms 2000, the reply is either What s that? or We don t have the time to read that. Is this really the way they should operate - as cowboys? My faith in the system has been severely knocked. The term FCA seems to be the sticky problem. Why? It s a mystery to me. For 10 years, since the 1990 issue of Incoterms it s been the same. Have forwarders been getting it wrong all this time? The book clearly states sellers obligations and buyers obligations, plus the transfer of cost and risk. Where s the difficulty? Free Carrier (FCA) is exactly the same as Free On Board (FOB); it s just that it covers all modes of shipment, while FOB is only a sea freight or inland waterway term. With FCA the sellers costs and obligations are up to and cleared for export, as with FOB. If you do this correctly, as we re trying to do, FOB should only be used for sea freight shipments when you clear the goods for export over a ship s rail. Clearly this shouldn t be used for airfreight or truck. 22

23 When I explained this to the forwarder in question, the negative reply was: I don t know what that means. I told him that the result of this is that our customers are being charged for something that is not part of the contract. His response was: Don t worry, if they don t complain about the extra charge, why should you? Just keep quiet about it. Slightly unprofessional don t you think? I m astounded, annoyed and rather bemused. Clearly, most, but not all, forwarders don t seem to care» Response: A New Term FCA is one of the newest terms that was incorporated to the Incoterms during the revision of 1980 (where it was referred to as FRC) in order to replace the terms FOR/FOT and FOB Airport. It was originally intended to solve the problems arising from cargo handling techniques, such as containerisation or other means of assembling parcel cargo in transportation units before the vehicle of transport is arrived. The term is part of the F Group terms where the main carriage is not paid by the seller. The term in its current version covers all mode of transport including sea, inland waterway, air, road and rail and should be used whenever handling over to the carrier is not completed alongside a ship (in that case the term FAS should be used) or over a ship s rail (in that case the term FOB is more appropriate, see infra). Revision of 2000 During the revision of 2000, FCA has been further substantially modified. The clause A.4 regulating Delivery was amended in a manner to provide different hypothesis where the delivery will be deemed completed, while FCA Incoterms 1990 regulated the delivery in accordance with the mode of transport. FCA Incoterms 2000 provides that the seller is obliged to load the goods on the buyer s collecting vehicle and the buyer is obliged to receive the seller s arriving vehicle unloaded. The Revision of 2000 is intended to clarify one of the most disputed obligations, which is loading and unloading the goods. FOB and FCA FOB is still preferred by most of the seller or buyer and commonly used instead of FCA. As both terms may be used for sea and inland waterway transport, the choice of one of them requires some attention. 23

24 In a very simple way, it can be said that FOB is used when the ship s rail is relevant for the transfer of risks. If the parties do not intend to deliver the goods across the ship s rail, the FCA term should be used. When the parties used FCA, the place of delivery is shifted from the ship s rail (as provided for FOB) to an inland point in or outside the port area in the place of shipment. Therefore some additional cost may occur from the FCA point until the goods are placed on board the ship. This is the case in particular for Transport Handling Charges (THC), the costs incurred in connection with the handling and storage of the goods in cargo terminals. It is recommended to say explicate in the contract of sale who will be responsible for the THC. Delivery of the Goods The seller shall deliver the goods to the carrier nominated by the buyer at the named place. Carrier shall mean any person who in a contract of carriage, undertakes to perform or to procure the performance of transport. If the buyer nominates a person other than a carrier to receive the goods, the seller will be deemed to fulfil his obligation to deliver the goods when they are delivered to that person. Within this context, the freight forwarders may play a substantial role in the performance of the delivery, since in most of the cases, the freight forwarders either will assume the arrangement of the carriage and thus be deemed to be a carrier or will receive the goods that should be hand over to a carrier. In both cases delivery of the goods to the freight forwarders will release the seller from his obligation of delivery. The revised wording of article A.4 provides mainly two hypotheses: The premises of the seller: The delivery of the goods at seller s premises occurs when the goods are loaded to the means of transport provided by the carrier (collecting vehicle) nominated by the buyer or another person acting on his behalf (as a freight forwarder). Any other places: The delivery of the goods in a place other than the seller s premises occurs when the goods are placed at the disposal of the carrier on seller s mean of transport not unloaded. In the case where a specific point is not designated as the place of delivery within the named place and if there are several points available, the seller may select the point at the place of delivery which best suits his purpose. 24

25 Loading and Unloading The seller has the obligation to load the goods on the buyer s collecting vehicle. Export Clearance It is the obligation of the seller to clear the goods for export. The seller must obtain at his own risk and expenses any export license and carry out, where applicable, all customs formalities necessary for the export of the goods. Transfer of Risks As many other Incoterms, the system of transfer of risk in the term FCA is based on delivery of the goods. The risk of loss of or damage to the goods is transferred from the seller to the buyer when the goods are delivered to the buyer in accordance with A.4. Other circumstances, such as the passing of ownership or the time of the conclusion of the contract, are irrelevant for the transfer of risk. Contract of Carriage and Insurance In principle, there is no obligation on the side of the seller. The buyer must contract at his own expense for the carriage of the goods from the named place. However, if requested by the buyer or it is the commercial practice and the buyer does not give an instruction to the contrary in due time, the seller may contract for carriage on usual terms at the buyer s risk and expense. However, in even in his latter case, to conclude a contract of carriage is not a strict obligation of the seller since he may decline to make such a contract. However, if he does, he shall promptly notify the buyer accordingly. The term FCA does not provide an obligation to insure the goods for both parties. Nevertheless, as the risks are transferred to the buyer when they are delivered in accordance with A.4 (see supra) it is advisable that the buyer concludes a contract of insurance at his own risk and expenses to cover any loss or damage incurred after the delivery of the goods to the carrier. Needless to say that the seller has to contract for any carriage required to reach the place where the parties have agreed that the goods should be handed over for carriage. Division of costs The division of cost occurs at the delivery point. Therefore, all costs occurring before the seller has fulfilled his obligation to deliver the goods are at seller s account and all cost occurring after delivery in accordance with A.4 are at buyer s account. The seller must however pay the costs of customs formalities as 25

26 well as duties, taxes and other official charges payable upon export. Checking-Packaging-Marking The seller must pay the costs of those checking operations (such as checking quality, measuring, weighing, counting) which are necessary for the purpose of the delivery of the goods. The seller must provide at his own expense packaging which is required for the transport of the goods. Packaging is to be marked appropriately. Needless to say that this obligation is inapplicable if it is usual for the particular trade to send the goods of the contract description unpacked. The packaging should be in conformity with the circumstances (such as modalities and destination) that are made known to the seller before the contract of sale is concluded. 5 - FOB supply industry where the suppliers traditionally stipulate in their Terms of Sale that although the point where the risk and responsibility of the commodity they sell is clear, they only shall determine where the commodity shall be sampled for quality determination, if required. (see attachments). Response: FOB... named port of shipment Quotations headings:"free on board means that the seller delivers when the goods pass the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss or of damage to the goods from that point...". A 9:" The seller must pay the costs of those checking operations (such as checking quality, measuring, weighing, counting) which are necessary for the purpose of delivering the goods in accordance with A 4.". How to secure samples of the commodity transferred in a FOB agreement - Point of Custody Transfer in Marine Fuel Transactions. Query: We are concerned about the current practice in the Marine Fuels Comments In chartering liquids and gases, it has been constant practice to consider that the checking operations must be performed at the end of the shoreline (or shore-loading arm), which is connected to the ship's manifold. This constant practice applies not 26

27 only with the FOB term and "C" terms, but also with the DES term to allow the seller to demonstrate to insurers which is the responsible party in case of average found on board the ship at the named port of destination". UCP500 4Description of goods under a credit; linkage between documents; compliance and consistency Query We have a number of queries as Described hereunder: 1) What is the importance of the description of goods under a credit? 2) a) Does the description of goods represent the bulk of the goods to be transacted under a credit? b) Article 4 of UCP 500 states: In credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate. In other words, payment is made not against the transfer of the goods but against the documents. Does this mean that the documents presented under a credit represent the goods themselves? 3 a) Sub-Article 37(c) of UCP 500 states: The description of the goods in the commercial invoice must correspond with the description in the credit. In all other documents, the goods may be described in general terms not inconsistent with the description of the goods in the credit. Do the words may be refer to the description of goods in all other documents? Can there be some flexibility in describing in general terms rather than the full description as stipulated in the credit? b) Is it implied that the description of the goods, at least in general terms, ought to be shown in each document? 4) According to case number 23 of the Case Studies on Documentary Credits under UCP 500, ICC Publication No. 535, a) Does the style number 23 of the goods apply to the general terms of the description of the goods, which is a clear-cut link to the stipulated credit? b) Does the commercial invoice number imply another obvious link to the same transaction, since the commercial invoice is a key document in a transaction? c) Does the quantity under this case become a subsidiary link (data content) to ensure that the packing 27

28 list presented is not inconsistent with other stipulated documents? d) Does it mean that the packing list is not only consistent with itself, but also incorporates to some extent the particulars given in the other documents? 5) a) If the goods are described in general terms in all other documents, the identification of the goods will be unequivocal. Is this correct? b) Can you suggest some possible identification marks in general to identify the goods with reasonable certainty? 6) Is the negotiating or issuing bank able to argue that the quantity of the goods can be regarded as general terms construct a sufficient link amongst certificates issued by the beneficiary and the other documents required under the credit? (e.g. certificates merely show the quantity of goods shipped without any form of description, whereas the other documents show the quantity as well as a full description). 7) Is the negotiating bank right that the quantity of the goods can be regarded as general terms to construct a sufficient link amongst any certificates and the other related documents so that they refer to one and the same goods? 8) What are the meanings of compliance and consistency under UCP 500 Analysis and conclusion Point 1 Article 4 of UCP 500 makes the clear distinction that banks deal with documents and not with goods, services and/or other performances to which the documents may relate. Therefore, the importance of the description of goods is one for the beneficiary to ensure that the correct goods are delivered and for the banks to ensure that documents are presented purportedly covering the goods requested. Point 2 a) The description of goods stated in a credit Under the heading covering or similar should represent all the goods that an importer requires for that transaction. It is the responsibility of the applicant to ensure that the goods description mentioned satisfies their requirements, whilst remaining precise and not including excessive detail. b) The only documents that represent the goods themselves are those which convey title, such as bills of lading, and only to the extent that 28

29 such document are called for in a letter of credit. Point 3 a) Unless otherwise stated, the only document which requires a description of the goods which corresponds to that quoted in a credit is the commercial invoice. If a description of goods is given in any other document, then this may be in more general terms than that in the credit, but not in any way inconsistent. b) Unless the credit states otherwise, there is no requirement that a description of goods (full or in general terms) must appear on all documents. However, a bank requires to see some form of linkage between the documents presented and/or the letter of credit terms. A goods description, in full or general terms, would be one means of achieving this. Point 4 a) A style number could perform the function of providing a linkage between documents. b) A commercial invoice number could perform the function of providing a linkage between documents. c) Quantity of goods could be a means of providing linkage. b) The packing list must contain information which is required by the credit and may include other details, provided that such additional detail is not inconsistent with that shown on any other document. Point 5 a) The describing of goods in any document, whether in full or general terms, is merely for the benefit of the documents themselves. It can provide no real identification as to the goods actually shipped. b) One way of monitoring what is actually shipped is to have inspection occur at the point of packing/loading. Identification marks are a documentary requirement and are not necessarily linked to the goods themselves. Point 6 If the credit provides a quantity of goods to be shipped and certificates make reference to this among the other information that was required to appear, this may constitute a sufficient link. Any definitive answer would need to be on a case-by-case basis. Point 7 (See Point 6) 29

30 Point 8 Compliance is the presentation of documents which meet the requirements of the individual credit(s) in their terms and conditions, together with the stipulations that are written into the articles of UCP that may apply to that document(s). Consistency occurs when information quoted on one document is transposed onto another stipulated document in the same detail (e.g. weights, measurements, shipping marks, etc.). This applies whether or not the credit or the individual document required this information to appear. UCP 500 sub-article 13(a) makes the clear statement that Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit. 5Consequences of an original B/L being sent to the applicant or to a third party Query Some L/Cs stipulate that 1/3 bill of lading is to be sent direct to the openers or third party. If the bank discounts under such L/C, apparently with no discrepancies, can the L/C opening bank refuse payment on some flimsy grounds? We may add that once 1/3 B/L is released, the negotiating bank loses control of the goods. Such drawing in effect becomes clean (instead of documentary). Mere possession of documents, held with opening bank of account of negotiating bank, is immaterial because the goods are released. We are of the opinion that in such case the L/C opening bank must pay the bill regardless of any discrepancies. Analysis UCP 500 Article 4 makes a clear distinction that In credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate. Conclusion With this in mind, the answer to your question lies in the fact that the documents must conform to the terms of the credit, irrespective of whether or not an original bill of lading has been sent direct to the applicant or third party the issuing bank is only obliged to pay on receipt of conforming documents. While we can occasionally see the necessity for one original bill of lading to be sent directly, the beneficiary should be aware of the 30

31 possible consequences, as ourlined in the query, when accepting a credit incorporating such a consition. The issue of whether or not the discrepancies are considered valid is one for resolution between the nominated and issuing banks. 31

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