In practice, Ex Works is sometimes not a viable option due to certain

jurisdictions' customs rules. In the European Union, for example, a nonresident individual or corporation cannot complete the export declaration
documents, so the buyer may be left stranded. In such circumstances,
the Free Carrier (FCA) term is preferable.
Delivered ex ship (DES) is a trade term requiring the seller to deliver goods to a buyer at an
agreed port of arrival. The seller remains responsible for the goods until they are delivered..

What is a 'Free Carrier - FCA'

A free carrier (FCA) is a trade term designating the location the seller is to deliver goods. Most
often, the destination is a named airport, terminal or other place where the carrier operates. The
cost for transportation is included in the price set by the seller, and the risk of loss is initially on
the seller, transferring to the buyer upon delivery to the carrier.
BREAKING DOWN 'Free Carrier - FCA'
An FCA can be used to describe any transportation point, regardless of the number of
transportation modes that may be involved in the shipping process, but it must be a location
within the sellers home nation. Once the seller has the goods on premises, the liability transfers
from the seller to the carrier or buyer. As part of the liability transfer, the seller is not responsible
for unloading the goods but only for getting them to the specified destination. However, the
seller may be responsible for ensuring the goods have properly cleared customs before the
shipment may be accepted.

FOB that stands for Free on Board is a very popular mode of contract
between buyers and sellers. The main provision of FOB pertains to seller
taking the responsibility of loading the goods on to the vessel that has
been chosen by the buyer. However, this responsibility ceases as soon
as goods have been loaded on to the vessel, and all the risk is
transferred on to the buyer. FOB applies only to maritime trade and
should not be misconstrued to FCA, which is applicable to trade by road,
rail, air, as well as sea. FCA stands for Free Carrier, and in this contract
the seller is responsible for the goods only up to the time that he loads
the goods to the cargo (often at his own premise), but the carrier is
chosen by the buyer.

TYPES OF L/C
1. A Transferable Letter of Credit (LC) is a documentary credit under which the
Beneficiary (first Beneficiary) may request the bank specifically authorised in the
credit to transfer the credit, available in whole or part, to one or more secondary
Beneficiary(ies). ART 38 UCP 600
Transferable L/C
Transferable letters of credit are particularly well adapted to the requirements of
international trade. They allow an intermediary to transfer a letter of credit to a
supplier, thus enabling the intermediary to reduce the extent to which it uses its
own funds to process business transactions.
Standby L/C
Standby letters of credit are similar to guarantees. Due to their documentary nature, they fall
under the UCP (Uniform Customs and Practice for Documentary Credits). Standby letters of
credit can also be issued under ISP 98 (International Standby Practices).
If the guaranteed service/payment is not provided, the seller can invoke the bank's obligation to
pay by submitting, together with any other documents that the letter of credit might require, a
declaration stating that the letter of credit customer has failed to meet his obligations/payment.
Revolving L/C
If the buyer requests partial deliveries of the ordered goods at specific intervals (contract for
delivery by installments), payment can be made under the terms of a revolving letter of credit
that covers the value of each consecutive installment. The bank is normally liable for the total
value of all agreed partial deliveries.
However, the second partial payment is not effective until the first installment has been paid,
and so forth.
Red Clause L/C
In the case of a red clause credit (letter of credit with advance payment), the seller can request
an advance for an agreed amount (defined in the terms and conditions of the letter of credit)
from the correspondent bank. This advance is basically intended to finance the manufacture or
purchase of the goods to be delivered under the letter of credit. The advance is normally paid

against receipt and a written undertaking from the seller to subsequently deliver the
transportation documents before the credit expires.
Green Clause L/C
Unlike the red clause letter of credit, in the case of a green clause letter of credit, the advance is
normally paid not only against receipt and a written undertaking from the seller to subsequently
deliver the transportation documents before the credit expires, but also against receipt of an
additional document providing proof that the goods to be shipped have been warehoused.

A standby letter of credit (SLOC) is a guarantee of payment issued by a bank

on behalf of a client that is used as "payment of last resort" should the client
fail to fulfill a contractual commitment with a third party. Standby letters of
credit are created as a sign of good faith in business transactions and are
proof of a buyer's credit quality and repayment abilities. The bank issuing the
SLOC performs brief underwriting duties to ensure the credit quality of the
party seeking the letter of credit, then sends notification to the bank of the
party requesting the letter of credit (typically a seller or creditor).

BREAKING DOWN 'Standby Letter of Credit - SLOC'

A standby letter of credit shows a companys credit quality and ability to repay
loans. Although a SLOC is not intended for use, it helps fulfill business
obligations in case the business stops operations, cannot pay its vendors or
becomes insolvent.
Small businesses often face difficulty when securing financing. For this
reason, standby letters of credit may be especially beneficial for encouraging
investors to lend money to a company. In case of default, investors are
assured they will be paid principal and interest from the bank through which
the SLOC is secured.

Obtaining a Standby Letter of Credit

When requesting a SLOC, a business owner proves to the bank he is capable

of repaying the loan. Collateral may be required to protect the bank in case of
default.

A financial SLOC, the most common type, is typically used in international

trade or other high-value purchase contracts where litigation or other nonpayment actions may not be feasible. A financial SLOC guarantees payment
to the beneficiary if criteria outlined in the contract are left unfulfilled. For
example, an exporter sells goods to an overseas buyer who guarantees
payment in 30 days. When the payment does not appear by the deadline, the
exporter presents the SLOC to the importers bank and receives the payment.
A performance SLOC ensures the time, cost, amount, quality of work and
other criteria are fulfilled in a manner acceptable to the client. The bank pays
the beneficiary if any of the written obligations are unmet. For example, a
contractor guarantees a construction project will be finished in 90 days. If work
remains incomplete after the 90-day period, the client can present the SLOC
to the contractors bank and receive the payment due.

DEFINITION of 'Bill Presentment'

The submission of a bill of exchange for payment. A bill, such as a bank
check, is an instrument directs a third party to pay the recipient the fixed sum,
while presentment refers to the act of submitting a legal document to another
party.

Sight Payment : Sight payment refers to the payment which is

made as soon as the complying presentation is seen by the
issuing bank or the bank nominated in the letter of credit. The
nominated bank fulfills its payment obligation with recourse
basis. Nominated bank can demand the amount paid to the
beneficiary back in case of documents are found noncomplying
by the issuing bank. Nominated bank's payment obligation is
not strict as the issuing or the confirming bank's payment
obligation. UCP 600 states that a nominated bank is not
obligated to accept the nomination directed to itself unless
nominated bank inform its acceptance of nomination expressly
to the beneficiary. Even in this situation UCP 600 assumes non
payment by the nominated bank and describe the roles of the
issuing and confirming banks.

Deferred Payment : Deferred payment refers to the payment

which is made after a period of time that is specified also in the

letter of credit. The payment period is usually determined as

specific number of days after the date of presentation or the
date of the transport document. Bill of exchange or draft is not
required under deferred payment.

Acceptance : Acceptance refers to acceptance of a bill of

exchange which is drawn on the bank mentioned in the letter of
credit to be presented with the other required documents and
payment at the maturity.

Negotiation : Let us check the definition of the negotiation

from the UCP 600 in order to understand the term more clearly.
Negotiation means the purchase by the nominated bank of
drafts (drawn on a bank other than the nominated bank) and/or
documents under a complying presentation, by advancing or
agreeing to advance funds to the beneficiary on or before the
banking day on which reimbursement is due to the nominated
bank. (UCP 600 - Article 2)

As can be seen from the above definition any letter of credit

which is available by negotiation could be issued in a way so
that a draft may or may not be required. Also the payment of
the letter of credit may or may not be at sight. If the nominated
bank advance or agreeing to advance funds to the beneficiary
before it receives reimbursement from the issuing bank the
negotiation condition is fulfilled. This can happen in two ways.
First possibility is, in a letter of credit which is available by sight
payment when the nominated bank reimburse the beneficiary
before it receives funds from the issuing bank. Second
possibility occurs when a letter of credit is available by
negotiation requesting presentation of a time draft, while the
nominated bank reimburses the beneficiary before the maturity
date of the bill of exchange.
Types of Payment

(At) Sight
This type of payment indicates immediate payment to the buyer after
presentation of sight draft (bill of exchange)
presentation of conforming documents
the stipulated (advising, confirming or issuing) bank has had reasonable time to
examine documents
the documents are found to be in order

It is important to recognize that "immediate" does not mean within hours, but within a
reasonable period of time. To be on the safe side, it is wise to anticipate a minimum of
72 hours/3 business days after the above steps have taken place.
Deferred Payment
In this situation, payment is made to a buyer at a specified or determinable future date
stipulated in the letter of credit or documentary collection, providing that the documents
are found to be in order. An example is 60 days after date of transport document or
invoice date. No draft is called for under this type of payment. It is important to
remember that a buyer will have credit/collateral/cash tied up until payment is made;
and if a deferred payment is made through a letter of credit, it is guaranteed to a seller
just as if it were made immediately. The risk increases for a seller if the remitting bank is
located in a risky country.
Acceptance

The payment type known as an acceptance is similar to a deferred payment. In this

case, however, a "term" or "usance" draft is presented together to a stipulated bank
along with the other required documents. Once the documents and draft are accepted,
then the draft will be drawn on and payable at a future date as stipulated in the letter of
credit. For example 30 days' sight would mean payment will be made to the seller 30
days after "sight" (the remitting bank has looked at, reviewed and accepted) of the
documents.
Negotiation

In regard to letters of credit, when the documents are presented and reviewed by the
bank, the process is referred to as negotiation of the documents. In accordance with
UCP 600, a bank authorized to negotiate documents/drafts is authorized to give value
for draft (s) and/or document(s), which means the letter of credit can stipulate that
payment be made by the advising, issuing or confirming bank. For the purposes of the
UCP, the interpretation is either "making immediate payment" or "undertaking an
obligation to make payment" (on the due date).
TYPES OF B/L

FULL SET B/L- Signed originals (usually 3) of a bill of lading which have
same validity, supplied to meet the requirements of an importer. They
customarily carry the notation, "Signed for (number) bills of lading, all of

this tenor and date, and if one is accomplished the others shall be void."

Carriers issue bills of lading in a set of 3 original and 3

copies as an established tradition for decades.

CLEAN B/L- A bill of lading issued by a carrier declaring that the goods
have been received in an appropriate condition, without the presence of
defects. The product carrier will issue a clean bill after thoroughly
inspecting the packages for any damage, missing quantities or
deviations in quality.
CLAUSED B/L- A bill of lading that shows a shortfall or damage in the
delivered goods. Typically, if the shipped products deviate from the
delivery specifications or expected quality, the receiver may declare a
claused bill of lading.

ON BOARD B/L- Once after moving the goods on board the

vessel , the carrier of goods certifies on such on board by
mentioning in Bill of Lading by mentioned as SHIPPED ON
BOARD. Shipped on board means, the cargo has been loaded

in to the vessel. Normally, carrier mentions the date of such on

board of goods on the bill of lading below the word Shipped on
board.

Freight prepaid bill of lading.

In the carriage of goods by sea,
freight is payable when the carrier delivers the
goods to the consignee at the agreed destination.
The clause means that the shipper, who obtained the original bill of
lading, simply undertakes to pay the freight.

BLANK ENDORSED B/L- A blank endorsement on a bill of

lading is an indication that there is no specified recipient of the endorsed
bill. A bill of lading is a receipt showing a list of a shipment of goods.
The list contains details of the shipment and is compiled by the carrier of
the goods and given to the person or company that consigns the goods.

When a bill of lading contains a blank endorsement, the carrier becomes the
owner of the bill and can thus claim ownership of the goods listed in the
shipment. For example, a merchant may agree to carry goods for a person or
company. The person or company will then stamp and sign the ocean bill of

lading for the goods and make it out to order, thereby endorsing the bill of
lading to the merchant. The merchant now becomes responsible for the
shipment of goods, and must act as a representative to obtain and then
release the delivery of the goods. The merchant also assumes responsibility
for any ancillary, freight or accounting costs related to the shipment.
A bill of lading acts as a contract that a shipment has arrived at its intended
destination. It also acts as a transfer document, and is administered in the
same way as an actual shipment. A bill of lading can be negotiated and the
carrier is bound to the terms of the bill, regardless of the owner of the goods.
To be valid, a bill of lading must contain a description of the goods, the weight
of the shipment, the name of the shipping company, the flag of the nationality
of origin of the goods, the name of the shipper, freight measurements and the
notify and order party of the shipment.