Uncategorized CARGO RECEIPT AND EXW TERM IN LC By Mr Old Man Posted on March 7, 2010 10 min read 12 0 8,571 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUERY FROM EMILY Dear Mr. Old Man, How are you? I haven't written to you for a long time; however, I'm always an audience of your Blog and I never miss a chance to read any your Bloggings. They are really useful for my work. Up to now, I have been working as an International Payment staff for nearly a year and I really love my job. It is very interesting and it makes me try my best to respond well to all situations and your writtings help me a lots. Today I receive a LC application from my customer. According to the sales contract, the delivery term is EXWORKS. Documents required are Cargo receipt between the seller and the logistic company, commercial invoice, packing list and C/O. Under Incoterms 2000, with EXWORKS term, buying insurance is not obligation of buyer or seller but the bank can ask the buyer to buy insurance, can’t it? And I don’t know much about Cargo receipt, can it be signed to order of our bank? What risks Bank can take under EXWORKS term compared to CIF or CFR terms? Being a bank of the buyer, what documents should we advise the buyer to require in L/C? Can I have your ideas about this matter? Best regards, Emily ——————————————-COMMENT FROM Mr. Old Man Dear Emily, Thanks for asking Mr. Old Man. Ex works (EXW) means that the seller delivers and places the goods at the disposal of the buyer at the seller’s premises (i.e., works, factory, warehouse …) not cleared for export and not loaded on any collecting vehicle. This term thus represents the minimum obligation for the seller. And the buyer must bear all costs and risks involved in taking the cargo from the seller’s premises. Under EXW the buyer has no obligation under contract of insurance. Therefore, he may or may not buy insurance for the goods if the import is self-financed. However, if the import is financed by the issuing bank, the buyer, if requested by the issuing bank, is obligated to buy insurance for the goods. This may be regarded as a pre-requisite for the issuing bank to finance. the import transaction. As you know, bills of lading, which are documents of title, are normally requested to be issued to order of the issuing bank, especially when the issuing bank is financing the import. This helps the issuing bank to control the goods until the buyer has fulfilled his obligation under the LC opening contract signed between the buyer and the issuing bank, i.e., depositing full amount or submitted promissory note to enable the issuing bank to pay the complying presentation. Under the terms like CIF, CFR, CIP, CPT, FOB, FCA…, bills of lading – documents evidencing the shipment and transportation are required to be presented for negotiation/payment. Cargo receipt, which is required in accordance with EXW term, is a receipt of cargo for shipment issued by a forwarder/consolidator (used in ocean freight). It is neither a transport document (bill of lading) nor a document of title, therefore, it is not issued to order, e.g., to the order of the issuing bank but normally consigned to the buyer. If the shipping term EXW is used, a cargo receipt instead of a transport document (e.g., bill of lading) is required under the L/C. In this case the bank may bear the risks of: losing its control on the cargo and in the worst-case scenario the buyer (applicant) may take delivery of the cargo but refusing to take up the documents and paying for them even though the documents presented are complying with the terms and conditions of the L/C. Also please note again that under the trade term EXW the seller is not responsible for transportation of the cargo, thus, he is not responsible for presenting any transport documents. Therefore, the issuing bank should not insist on requirement of a transport document, e.g., an ocean bill of lading consigned to the order of the issuing bank. As far as Mr. Old Man knows, in international trade the buyer prefers the terms of group F and group C to EXW as mentioned above, under EXW the buyer must be responsible for export licence, taking delivery of the goods when they have been delivered a named place normally in the country of the seller but it is not easy and convenient for the buyer to fulfil export formalities or contract for carriage of the goods in the country of the seller if he has no office in the country of the seller. What is the solution for this problem? As guided in Incoterms 2000, if the parties wish the seller to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale. EXW should not be used when the buyer can not carry out the export formalities directly or indirectly. In such circumstances, the FCA term should be used provided the seller agrees that he will load at his cost and risk. Under FCA term the seller must provide the buyer at the seller’s expense with the usual proof of delivery of the goods, i.e., the transport document (a negotiable bill of lading, an airway bill …). So in this case, the issuing bank may request the bill of lading to be issued to its order as it normally does. Hoping Mr. Old Man's quick answer is helpful. Best regards,Mr. Old Man. …
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?