Dear experts/friends ! Some topics in the past related to shipment terms such as CIF/FOB and so on. Now I have a further one as follows:
L/C says in 44F (Port/Discharge/AP destination): Any Sea Port South Korea or any Airport South Korea.
45A shows: ABCDEFG ( = Goods description) CIF BUSAN.
46A requires for Sea shipment full set B/L, if shipment by air AWB is to be presented.
Now bene is requested to ship one package by air urgently and asks me (his banker) now:
1.) If he selects Incheon (which locates at Seoul, as far as I know) as AP/Dest. is the AWB compliant with 45A CIF Busan ? I do not agree, but
2.) how about 44F any Airport South Korea ? Incheon matches this requirement.
What is Your view to this ?
Have a nice further weekend.
Rgds from Germany
Kurt
the safest way i think
The beneficiary may use airport /destination as Incheon Airport. Incheon Airport must also be indicated in the AWB.
But on the body of the AWB itself ( including on all documents required/presented)you must put the full description of goods as per LC. including the "CIF Busan", as well as Port/Discharge/Airport/destination:Any Sea Port South Korea or Any Airport South Korea.
Experts...What do you Think?
Any violent reactions welcome....
CIF Busan
This is a tricky situation and not as clear cut as on its face it would seem.
Of course, clarification/amendment should have been/should be sought, but we are looking at a situation where the questions are:
A. If the beneficiary were to present documents in conformity with the LC, but at divergence with the consistency principle of UCP, if rejected, can the beneficiary argue LC ambiguity to force issuing bank's acceptance, or would the issuing bank be correct in asserting the discrepancy?
B. Is the incoterm/trade term considered to be part of the goods description?
The second question is easier to answer. In most cases the incoterm is referenced within field 45A of an MT700, and so becomes part of the goods’ description, to be quoted on the invoice. Previous ICC opinions R237 & 362 refer.
However, it is the first question, which I believe would test the courts. Two possibilities arise under this:
1. The beneficiary presents invoices evidencing “CIF Busan” but AWB evidences destination airport as “Incheon”. This of course, complies with LC, but factually inconsistent.
2. The beneficiary presents invoices evidencing “CIP Incheon airport” and AWB evidences same airport as destination. The documents are consistent but the invoice is not as per LC terms.
Which prevails? The LC terms, or the principle that the data between documents must be seen to be consistent? Who runs the risk of financial loss due to the ambiguity, if the beneficiary decides to perform under the LC, regardless?
This may not be a matter of solely applying UCP principles, the context is also important. . My personal view is that it is clear from looking at the overall requirements of the LC terms, the intention is clearly to allow the beneficiary to ship by sea, or air, to any Korean port/airport. The fact that the invoice refers to the incoterm as “CIF Busan” is (when viewed in context) clearly an oversight in the LC drafting. There is also the matter of allowing air shipment but defining the incoterm as “CIF”. Therefore, my view is that “1” &” 2” are both acceptable presentations, although” 2” would be the preferable option. It is the issuing bank that should face the consequences of ambiguity
Interestingly, in another ICC opinion, and turning the concept on its head, it was opined that where an LC stated incoterm as “FOB Shimonoseki” an invoice presented which evidenced “FOB Japan” was acceptable, on the basis that the related B/L evidenced port of loading as “Shimonoseki”.
CIF Busan by airfreight
Dear Abrar, dear all experts in the forum ! I just received a message that freight forwarder was able to arrange air transportation to Busan airport. So I think we will match L/C requirements. Many thanks for all Your kind comments/remarks. Have a great further time. rgds Kurt
the song remains the same
Hello Kurt (and others)
Well, the question stands;
"What value did the expression "CIF" add to this credit?"
From what I can see, this credit could have operated without any reference to a 'trade term' - would you agree?
...all thoughts and comments welcome
cheers
phill doran
"...in armour bright, the merchant men..."
CIF Busan by Airfreight - the song remains the same
Dear Phill Doran !
I agree with You, that LC could be settled without reference to "CIF" as a trade term. Thanks to Your comments. Rgds Kurt.
Query on Term Used
Hello Kurt
Sorry but I can’t help you with your question in so much as it relates to the credit, but I just want to note that the reference here is to ‘CIF’ as a customs valuation term and not as a ‘trade term’. To my mind, this is actually correct – trade terms, and specifically commercial terms, serve no point on commercial invoices anyway (and it mystifies me why the UCP insists upon them), whereas customs’ terms must ALWAYS appear on commercial invoices, credit or no credit. Still, as I was recently ‘pulled-up’ here for raising this point on this matter on a ‘Credit’ forum – I will not elaborate.
However, in the context then of credits alone, I would like to ask you – and other members of the board here: If, in this credit, the AWB is (ultimately) compliant, then what was the purpose of the expression “CIF” in the credit? The reason I ask is that the last answer I had here was that the ‘commercial term’ is needed on the credit as it helps the banker understand which papers are needed. But, here is a classic example of a genuinely universal seafreight commercial term adding no value to the banker’s knowledge whatsoever – the fact that CIF demands a specific type of seafreight document is totally contradicted by the surrender of a compliant airfreight document. Thus, if a complaint ‘document called for’ overrides the document associated to the ‘commercial term’ apparently used, then what was the value of the quoting the ‘trade term’ in the first place? Note too that respected legal opinion exists as to what document a ‘CIF’ commercial contract requires – to the point that if that document is not tendered by the seller, the contract is deemed not to be CIF (so it isn’t just my hobby-horse).
Also bear in mind that the exporter’s price – as a customs expression – would be ‘CIF’ regardless of the shipper’s mode of transport, the beneficiary’s payment mechanism or the seller’s underlying private commercial term.
So: what value did the phrase “CIF” add to this credit?
All thoughts would be really appreciated...
cheers
phill doran
"...in armour bright, the merchant men..."
CIF Busan by airfreight
Phil,
Sellers and buyers enter into contracts using Incoterms as terms of trade. The buyer in due course interfaces with the customs regime of his country and then the WCO terms come into play. The former has to do with the payment instrument arranged by the buyer to the seller, ie the L/C, and is therefore also of relevance to the bankers, if stated. The latter is of no relevance to the seller or the bankers.
Regards,
Bob
CIF etc
Hello Bob
Well, I can’t say I agree with you here.
You have mentioned how you have used credits with DDU, here we have CIF and others will have experience of FOB perhaps. So, there does not seem to be an inherent connection between the credit and the terms – credits, rightly or wrongly, can be twisted to meet any term used.
As you are aware, the drafters of Incoterms, in the opening paragraphs of the introduction, stress that Incoterms deal only with the contract of sale and not the contact of financing which they specifically exclude – to avoid any ambiguity. Similarly, the drafters of the UCP in Article 4a make the separation of the sales contract and the credit an absolute.
So why try to find a connection that isn't there?
The term tells the banker nothing about the payment (Incoterms regulate sellers and buyers not, as in the credit, the beneficiary and the issuing bank). And, as we can see from Kurt’s CIF Busan example, they tell the banker nothing about documents either – even in the larger legal world outside of the ICC’s product “Incoterms”, CIF demands a ‘negotiable’ Bill of Lading, yet Kurt’s credit functions quite well with an air waybill!
So: what do ‘commercial terms’ tell you – why is the commercial term needed on the commercial invoice in a credit? In what way would such a term strengthen the banker’s position – in what way would an absence of this piece of information weaken the banker’s position?
My own theory, for what it is worth is this;
As I am sure you know, the UCP begins as the ‘regulations’ of the New York Bankers in 1920 but it was the unconnected (at that stage)1928 Copenhagen ‘joint regulations’ which first mentions “fob” or “c&f” prices – and the key word here is ‘prices’ – not the contract terms of the seller and buyer, but the price structure. There was no requirement for this to be on the documents, but only stipulated in the credit application. I believe it is ultimately as ‘price’ language that we get the concept of ‘trade’ terms (as opposed to commercial terms, which are contract language and not linked to price as such).
The first ICC endeavour in Stockholm in the late 20’s makes reference only to CIF and FOB in the application process – and then only as means of determining freight collect or freight prepaid conditions. Again, there was no call for these valuation terms to be on the commercial invoice, but then as customs terms the credit would not need to specify this, as it would be automatically happening anyway – the commercial invoice being a customs document first and foremost. In the 1929 draft they were not mentioned at all.
The 1933 version makes no mention of commercial terms – but does mention CIF as a term for values (article 29 “CIF values”), for insurance purposes, which clause was repeated in the 1951 and 1962 texts as “CIF values”. To my mind, this is the customs value CIF which was already the basis of the General Average calculations as determined by the Marine Insurance Act of 1906. And it was this minimum calculation against the GA contribution that the banks wanted to be sure was in place.
In parallel almost, the US revision in 1934 makes reference to the use of the uniform commercial code foreign trade definitions for ‘export quotations’ – again, not as contract terms but a valuation/pricing terms.
Somewhere between the 1970 and now, I think in error and principally because the ICC were by then running both products, “trade terms” morphed into commercial terms and then almost exclusively into Incoterms. I think it is an error by the 1973/4 drafters which has been repeated and built upon by those who have come after them.
Anyway: I have posted another thread on the board called “Balance of Payments” as part of an on-going process of research into this topic. Perhaps you could contribute to that thread with responses from an Australian point of view?
You may be right in all this and I may be wrong – but having spent several years researching the subject, if I am wrong then I want to know and understand ‘why’.
cheers
phill doran
"...in armour bright, the merchant men..."
CIF Busan by airfreight
Busan and Incheon are two different ports.
How can you put FOB Busan, when the shipment is effecting from Incheon.
Regards!!!!
Mujeeb :-)
Wrong LC
First of all the LC above is wrong and beneficiayr must request for an amendment or correction from the issuing bank. (issuing bank must know this before issuing an LC at the same time advising bank must at least review the Lc before advising to the beneficiary)
If Field 44F is Any seaport/airport in South Korea
Field 45A must show: ABCDEF CIF ANY SEAPORT/AIRPORT IN SOUTH KOREA (and not CIF Busan)