International Trade Transactions and Incoterms

This assignment delves into the complexities of international trade transactions, focusing on various payment methods and essential insurance policies. It examines letters of credit (LC) and documentary collections (DC), highlighting their suitability for different scenarios based on buyer and seller risk assessments. The importance of cargo insurance and marine insurance for exporters is also discussed, emphasizing the need to seek professional guidance for optimal coverage.

Running head: CUSTOMS – REGULATORY COMPLIANCE MANAGEMENT 1
Customs – Regulatory Compliance Management
Name:
Institutional Affiliation:

CUSTOMS – REGULATORY COMPLIANCE MANAGEMENT 2
Customs – Regulatory Compliance Management
Steps for Negotiating an International Contract
Under any contract where parties buy, sell, import or export goods, the bottom line of
their intention is to gain something valuable. The end of an agreement is always the outcome of
the series of negotiations with concessions that may be done voluntarily or being based on the
foreign laws. In some foreign countries, when negotiation involves a foreign country, the local
business must retain fifty one percent of the legal ownership of venture (Reich, 2008). Therefore,
the steps involved in international business negotiation include:
1. Hiring a consultant
2. Choosing the negotiating team
3. Gauging the bargaining power and negotiation style of the counterpart
4. Meeting counterpart in person
5. Fixing the agenda and keeping detailed records
If the company does not have any internal skilled expertise that can provide international
negotiation, hire one to assist. In case the cost is a problem, it will be vital for the company to
search online or purchase literature to subscribe to qualified expert. Other than that, the company
should consider a small competent team that will be responsible for managing schedules,
expenses, and communication more efficiently, particularly if traveling is essential. Also, for any
language or cultural barrier, a translator or customary expert should be part of the team.
Additionally, the purchasing company should gauge the importing company’s bargaining
power and negotiation style. It is because in a contract one party always has a considerably more
to gain or lose from transnational risk (Reich, 2008). Under or overestimating the equilibrium of
bargaining power can lead to pointless failed or concessions negotiations. Correspondingly,

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antagonistic approach to negotiations when the counterpart is more unreceptive, or when one is
technically focused while the supplier is financially focused, venturing in such business will not
seem to be good.
Moreover, the fourth step in negotiation would be to try and meet the buyer in person. It
would be essential to be careful of the cultural norms. Dress well, be on time, and display proper
behavior and respect. Initial physical expression helps in creating the tone and the level of trust
for extra negotiations. Equally, selecting an impartial site or inviting the buyer through
persuasion to home territory may assist in overcoming cultural biases (Armbruster, 2007).
Additionally, being perceived as informed and professional, a check list assists in keeping
time, schedules, and expenses in check. It also reduces the number of the problems that may be
ignored, preserves more rounds of negotiation on target, and gives reference for forthcoming
negotiations.
Contract Terms
The most used among the common governing trade relations is the International Sale
Contract (ISC). It is mainly used to govern trade between companies in various countries. It is an
agreement that sets forth the rights and responsibilities of the parties involve and remedies for
breach. Most of the international contracts are mainly influenced by the Contracts for the
International Sale of Goods (CISG). CISG is widely accepted internationally by nations with
different backgrounds and traditions. Nevertheless, some of the major international sales contract
terms include goods description, contract price, delivery, time of delivery, goods inspection, title
retention, Force Majeure, and disputes resolution.
Goods description is one of the major terms in a sale contract. In most cases buyers will
prefer a comprehensive and accurate description than the seller. Unclear and poor description of

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goods leaves the buyer with no recourse if the seller technically delivers the goods that meets the
description of the contract but fails to satisfy buyer’s trade purposes. Besides, the exporter would
also like to describe the goods accurately if they are sure of delivering the exact goods. Other
than that, the contract should indicate openly the currency and the amount to be paid for the
goods in figures and words. If the parties failed to reach the agreeable price, there should be a
clause explaining the strategy for determining the price stated in the contract.
The best method to deliver the terms is through the use of Incoterms 2010 rules, which
was published by the International Chamber of Commerce. Incoterms provides the following
regulations to both the buyer and the seller: Firstly, it gives direction to the international
transport and administrative costs. Secondly, it shows the point of transfer and risk that goods
may are associated with on transit. Thirdly, it outlines the obligations for customs and payment
of import responsibilities. Lastly, allocates the responsibilities for obtaining insurance coverage.
Using incoterms requires a place description and the exact delivery point.
Additionally, the contract should also include time of delivery whereby the parties
indicates the specific date for delivery or period. Besides the delivery time, the contract should
indicate the payment conditions by allowing the use of all the international payment methods that
includes at least advance payment, open account, documentary credit, and documentary
collection. Moreover, the parties show in the contract whether the buyer should inspect the goods
before payment. The contract should indicate where the inspection will take place and the
company that will do it. It is a prerequisite that the seller notifies the buyer if the goods are
available for inspection.
Further, retention of the title (RoT) term gives the seller authority to retain goods
ownership until when the full payment and reclaim the goods if the seller fails to pay. Other than

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RoT, it is a usual thing that the international contracts get subjected to force majeure terms. This
term excuses the parties from performance if their failure is as a result of impediments that are
beyond their control. For example, if the failure is due to outbreak of earthquake, war, and
hurricane among others. The last term that should be indicated in the contract is how the disputes
between the parties should be resolved. They should have option between litigation and
arbitration. However, if the parties decided to settle for arbitration then they should specify the
arbitration place and the language. Similarly, if they opt for litigation, they should decide the
municipal or national courts in which the filing of the case should take place.
Incoterms
Incoterms also referred as (International Commercial Terms) are regulations concerning
the delivery conditions for goods and are supervised by the International Chamber of Commerce.
They are mainly used in dividing and defining the duties of the buyer and the seller as well as
reflecting the present practices in the global transport of goods. They are also known as price
clauses because of being able to determine the cost components of goods transfer. The price of
the contract is affected by the choice of the incoterm (Zahid, Jusoh & Inn, 2014). The main
reason for incoterms’ existence is because it provides the international rules that helps in the
interpretation of the terms used in international business. It will be essential to use the following
two incoterms:
 CIF – Cost Insurance and Freight, and
 DAF – Delivered at Frontier (named delivery place)
With Cost Insurance and Freight (CIF), the exporter must pay for the costs, freight, and
insurance that takes the goods to the destination port. However, any risk is transferred to the
buyer once the goods get loaded into the ship. The reasons for choosing CIF is because Catdom

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is still new in the international arena. It is more convenient way shipping since the do not have to
work with freight or other shipping details. However, the exporter pays more than what should
have been paid. Handling freight might be expensive because the supplier works with his own
forwarder and mark up the price given from the forwarder as an extra way of making profits
(Zahid, Jusoh & Inn2014). The seller also organizes and provides insurance payment for the
goods for carriage to the destination port named in the contract. However, the insurance and
carriage payment the rules require the minimum level of cover that may not be realistic
commercially. As a result, the level of cover might require to get addressed elsewhere in the
contract.
On the other hand, incoterm DAF makes the seller to deliver goods to the agreed place at
the border, but the liability ends before the delivery is cleared at the customs and the goods are
made available to the buyer in the means of transport. The buyer is responsible for unloading the
goods. The term border must be specified because of its ambiguous meaning (Kokoruda, 2011).
It can mean the destination country, the port, or even the where house, therefore it needs to be
clearly specified. Other than that, this incoterm can be utilized for any mode of transport if the
border is on land as in this case. If the delivery is in a dock, port or aboard ship, the incoterms
should be used as Delivered Ex Ship (DES) or Delivered Ex Quay (DEQ). Under DES the seller
is responsible for all the costs and risks during the delivery of goods at the named port of
delivery as stated under the contract (Kokoruda, 2011). On the other hand, DEQ terms are
responsibility of the seller ends only after the goods have been unloaded the goods at quay of the
contracted destination.
How CISG Applies to International Transaction

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The purpose of the United Nations Convention on Contract for the International Sale of
Goods (CISG) is to bring uniformity to the global trade transactions with respect to the terms
used in trade. The CISG has been understood to contain the incoterms provisions of the
International Chamber of Commerce. CISG applies automatically to any agreement parties
entered into for the commercial sale of goods (CSG) internationally as long as both party’s
countries have ratified CISG (Kokoruda, 2011). It replaces the national commercial contract law
that was intended to apply to the transaction in connection to the formation of the deal and the
rights and responsibilities of the importer and exporter under the contract. The CISG applies to
written and oral contracts for the CSG.
However, express exclusions can be made to the CISG based on the clauses included in
the contract stating that the agreement shall be controlled laws of the country involved. The
clause may also state that the contract shall not be guided by CISG, but instead governed by the
country involved in the contract, for example Eagleton. CISG also provides regulations regarding
contract formation, passing of risk, damages, interest, anticipatory breach of contract, obligations
of the parties under the contract, and exclusions from the contract performance (Kokoruda,
2011). Further, it gives various States to lodge a declaration requiring a written contract.
Considerations on Transport Options
Some of the things that a buyer or an importer should consider when advising and
agreeing on the transport options may include:
 Selecting major forwarders or carries and improving freight tariffs.
 Assessing internal or External resources for the transit program
 The correct equipment for the job
 Consideration of the freight

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 Considering incoterms 2010 with the exporter
 Linking the whole supply chain
Deploying fewer dedicated freight major forwarders allows one to: Firstly, decrease the
complexity of the administration needs. Secondly, establish relations and connection with the
exporter. Thirdly, negotiate the favorable freight tariffs with higher volumes for the affordable
costs. Fourthly, create a special interest for the carrier or the forwarder to preserve the business.
Fifthly, improve the level of the service, and lastly, decrease the total transportation prices.
Because many carries always negotiate freight at their terms, it therefore, calls for negotiating
skills.
Additionally, internal and external resources examination for the transport program must
be sensibly deliberated. The price related to selecting and communicating to forwarders,
maximizing compliance, paying invoices, efficiency assessment of the trade routes, dispatching
instructions, entering data into the system and tracking freight can really get out of control
(Wulf, 2016). Therefore, it is vital to adopt the best practices to check and control administrative
expenditures related to transportation program.
Moreover, for the small and medium sized businesses that are moving freight, the
importer should consider moving large volumes of the consignment in consolidated container
because smaller shipments are more expensive (Fandl, 2016). For example the cost of shipping
one cubic meter crate can be more than four times the price of shipping the same within a
consolidated container load. Other than that, the importer needs to choose the right equipment for
the transportation. Ensuring that the goods are transported using the right equipment is vital to
getting the best value for the conveyance cash.

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Using the right equipment while maximizing weight capacity can help the importer
recover a substantial cost from the transportation program. Besides, considering incoterms 2010
may help the importer to know the overall freight bill to avoid any extra charge or profit that the
supplier may get from the internal mark-ups on the freight charges included in the cost paid. The
importer needs to asses his or her incoterms to control costs and optimized scheduling logistics.
Finally, it will be vital for an importer to use a collective approach that may help in
getting the most out of transportation volumes and minimizing cost. This can happen through
linking the entire supply chain by adopting a comprehensive approach to the total supply chain.
Payment and Insurance Options
Payment options may include Cash-in-Advance, Letters of Credit, and Documentary
Collections. Cass-in-Advance is vital for an exporter because he or she can avoid credit risk
because payment is done before the transfer of goods ownership. The cash-in-advance options
available for exporters are the wire transfers and credit cards. Conversely, letters of credit (LCs)
is one of the most secure instruments offered to global traders. The bank makes a commitment
on behalf the importer that payment will be made to the seller, provided that the conditions in the
letters of credit have been met (1-Methods of Payment | export.gov., 2017). This payment
method is convenient when reliable credit information about a foreign buyer is hard to get, but
the seller is satisfied with the creditworthiness of the foreign bank of the buyer. On the other
hand, documentary collections (DC) are mainly used for ocean shipments. It is a payment
method whereby the exporter leaves the payment collection to its bank, which then sends the
documents required by its buyer to the foreign bank, with guidelines to issue the documents to
the buyer for payment (Wulf, 2016).

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The insurance policies that will be essential for an exporter include the Cargo Insurance
or Freight Insurance and Marine Insurance. The reasons for selecting cargo insurance is because
it provide cover against all the physical loss or damage to freight from any cause during transit,
whether by sea, land or air (Guide to Cargo Insurance., 2017). It provides a cheaper way of
protecting the physical loss or damage to goods in transit. Its advantage is that the Assured has
power to issue his own special policies of insurance. On the other hand, marine insurance may be
organized by either the supplier or the buyer depending on the terms of sale. Due to the
competitive nature of the marine insurance business, the exporter needs to seek the counsel and
guidance from his or her insurance broker who will help in canvassing the marine insurance for
the preferred terms of coverage at the best offered rates (1-Methods of Payment | export.gov.,
2017).

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References
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