Agreements between the Importer and Exporter

Table of contents
Payment terms
Shipping Terms (Incoterms 2010)
Shipping Means
Shipping Container and Pallets
Labeling, Marketing and Packaging

Payment terms
 

To succeed in today’s global marketplace and win sales against foreign competitors, Palestinian traders must offer their customers attractive sales terms supported by appropriate payment methods. Payment method must be chosen carefully to minimize the payment risk while also accommodating the needs of the buyer. There are four popular primary methods of payment for international transactions:
 
1. Open Account: Under an open account payment method, title to the goods usually passes from the seller to the buyer prior to payment; this method is employed only between a Buyer and a Seller who have a long-term relationship involving a great level of mutual trust.
 
2. Bills for Collection [Documents against Payment (D/P) & Documents against Acceptance (D/A)]. Documentary collections involve the use of a draft that requires the importer to pay the face amount either on sight (document against payment—D/P) or on a specified date in the future (document against acceptance—D/A). The draft lists instructions that specify the documents required for the transfer of title to the goods.
 
The process of using Bills of collection goes as follows:
 

 
 
 
 

Although banks do act as facilitators for their clients under collections, documentary collections offer no verification process and limited recourse in the event of nonpayment. Drafts are generally less expensive than letters of credit.
 
3. Documentary Credits (Letter of Credit)
Letters of credit are among the most secure instruments available to international traders. It is useful when reliable credit information about a foreign buyer is difficult to obtain, but you are satisfied with the creditworthiness of your buyer’s foreign bank. The letter of credit specifies the documents that are required to be presented by the exporter, such as an ocean bill of lading (original and several copies), consular invoice, draft, and an insurance policy. The letter of credit also contains an expiration date. Before payment, the bank responsible for making payment, verifies that all document conform to the letter of credit requirements. If not, the discrepancy must be resolved before payment can be made and before the expiration date.
The process of using a letter of credit can be illustrated in steps as shown:

4. Advance Payment
The most secure method of trading for exporters and, consequently the least attractive for buyers. Payment is expected by the exporter, in full, prior to goods being shipped.
 
During or before contract negotiations, you should consider which method is mutually desirable for both you and your customer. This usually results in selecting one of the middle rungs of the payment risk ladder shown below, this is where banking products such as Bills for Collection and Letters of Credit come in to play.
 
 
 
Incoterms are the recognized abbreviation for the international Chamber of commerce terms of sale, as follows:
 

TERMS FOR ANY TRANSPORT MODE

1 .EXW (ex works):

EXW establishes the seller's minimum commitment. The seller delivers the goods at the named place (factory, workshop, warehouse, etc.). The buyer pays all the costs and assumes the risks inherent to receiving the merchandise (including transportation, insurance and other expenses).

2. FCA (free carrier)

3.The seller delivers the dispatched goods for export at the named place. At this point, he transfers to the buyer all the risks for loss or damage. If the goods are delivered at the seller's facilities, he will be responsible for loading. If the delivery takes place elsewhere, the seller is not responsible for loading the goods. It should be mentioned that the site chosen for delivery determines the loading and unloading obligations of the parties. This is valid for any mode of transportation.

4. CPT (carriage paid to)

The seller delivers the merchandise when effectively giving it to the carrier designated by him. He must also pay all the transportation costs to take the goods to the named destination. The buyer bears all the risks and any other costs incurred after the goods are delivered. The seller must bear all the risks or damages suffered by the goods until they are delivered.

5.CIP (carriage and insurance paid to)

The seller delivers the goods when he makes it available to the carrier designated by him, but must bear all the transportation costs to the named point of destination. The buyer bears all the risks and any other such cost as may be incurred after the goods have been so delivered. Nonetheless, the CIP term also requires hiring insurance against all risks borne by the buyer to cover for the loss or damage that the goods may suffer during the carriage.

6. DAT –Delivered terminals

The Seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the Buyer’s disposal at a named terminal at the named port or place of destination. “Terminal” includes any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The Seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

7.DAP – Delivered at Place

The Seller delivers when the goods are placed at the Buyer’s disposal on the arriving means of transport ready for unloading at the names place of destination. The Seller bears all risks involved in bringing the goods to the named place.

 

8. DDP (delivered/duty paid)

The seller delivers the goods to the buyer after they are dispatched for importation but not yet unloaded from the means of transport used for carriage to the named destination. The seller shall bear all the risk and cost until the goods are delivered on the means of transportation at the named destination. The seller must bear the cost of all the paperwork, customs duties, taxes and other charges required for importation into the destination country.

MARITIME-ONLY TERMS

1. FAS (free alongside ship)

The seller delivers the goods and the invoice at the named port alongside the ship. The FAS term requires the seller to clear the goods through customs before exporting it. However, if the parties wish the seller to dispatch the goods for export, they must clearly say so in the sale and purchase contract. This term is used exclusively for sea and continental navigation transportation.

2. FOB (free on board)

The goods must be delivered by the seller on board the ship designated by the buyer, at the agreed date or within the agreed deadlines, at the named shipping port and in the usual way at that port, as stipulated in the contract. The buyer must bear all the costs and risks of damage or loss after delivery at the point of delivery (port of origin). The seller pays the shipping costs and bears the risk for the loss or damage of goods until such time as the goods have been placed on board at the named port of shipping.

3.CFR (cost and freight)

The seller pays the shipping and freight costs to the named port of destination. The seller must bear the risks for the loss or damage of goods until they are on board the ship at the port of shipping. The seller, other than freight, must pay all the expenses and costs resulting from loading and unloading the goods and provide all the paperwork needed for exporting.

4. CIF (cost,insurance and freight)

The seller delivers the merchandise on board the ship at the port of shipping. The seller bears all the risks and damages until such time as the goods have been placed on board at the port of shipping. The seller must buy, at his own expense, a freight insurance policy as agreed in the contract to empower the buyer or any other person who holds an insurable interest over the goods, to file directly a claim with the insurer, and hand over to the insurer the insurance policy or any other proof of insurance coverage.

 
 
The Palestinian exporter should choose the best way to movetransport goods to their final destination; freight forwarders sometimes help in giving advice on which way to choose. As an exporter, this requires knowing about the four basic means of transport, air, sea, rail and road and the advantages and disadvantages of each:
 
Mean Of Transport
Description

Advantages

Disadvantages
Air
It is commonly used for the delivery of goods with short lead times, fragile goods, and products that are not bulky. Also for products in high demand and in short supply.
- Fast delivery.
- Customer is not kept waiting for order fulfillment.
- Reduced lead time on supplier.
- Improved service levels.
- Flight delays and/or cancellations.
- Cost.
 
Sea
Can be used in case of bulky containers and long lead times. It is usually conducted in containers.
- Ideal for transporting heavy and bulky goods
- Suitable for products with long lead times
 
- Longer lead/delivery times.
- Bad weather.
- Difficult to monitor exact location of goods in transit.
- Could be costly.
Rail
Businesses use rail transportation for the delivery of a wide range of goods including post, coal, steel and other heavy goods.
 
- Fast delivery
- Capacity
- Cost effective
- Safe mode of transport
- Reliable
 
- Subject to unforeseen delays.
- Reliance on rail freight operator's timetable.
- Suppliers/customers are not always located near a rail freight depot and delivery to/from the depot can be costly and time consuming.
Road/ Land
It is a very popular mode of transportation. Many transport companies provide scheduled delivery days and next day delivery services, depending upon your needs.
- Cost effective
- Fast delivery
- Ideal for short distances, national
- Ideal for transporting perishables (e.g. fruit and vegetables)
- Easy to monitor location of goods
- Easy to communicate with driver
- Ideal for sending by courier shortages to customers.
- Transport subject to traffic delays
- Transport subject to breakdown
- Goods susceptible to damage through careless driving
- Bad weather
- Driving regulations can cause delays
 
 
a. Shipping Containers
The most used and secure way to move cargo is in containers; since they have been designed to fulfill the function of protecting the cargo from damage. Shipping containers range from large reusable steel boxes used for intermodal shipments to simple corrugatedcarton boxes.
 
b. Pallets
A pallet is a flat transport structure that supports goods in a stable fashion which allows handling and storage efficiencies.
 
 
Labeling, marking and packaging are mandatory requirements for any imported product so that it will comply with Palestinian standards.
 
a.Labeling
The Labels of Imported commodities must meet the Specifications set by the Ministry of National Economy, which are as follows:
 
  • The labeling should be in Arabic; if another language is included other than Arabic, the Arabic language label should be written in larger letters in proportion to the letter size of the foreign language.
  • The contents of the produce should be of identical size in both languages.
  • The label should be printed in a color different from that of the package and be easily legible.
  • The label should be printed on the packaging and not glued to the product itself; In the case of clothing items, the label should be sewn to each individual piece.
     
The labeling should include the following information:
 
  •  name of the product and product trademark;
  •  type of product;
  •  name and address of the importer;
  •  place of production, name and address of producer;
  •  date of production and expiry date;
  •  product contents/ingredients;
  •  conservation or storage tools contained or required; and
  •  volume of the product.
     
The importer should contact the Ministry of National Economy for approval of the label/artwork of the product prior to shipping of the merchandise. the following documents should be sent to the ministry of national economy:
 
  •  label design containing the aforementioned information;
  •  corporate registration;
  •  registration of the Palestinian agent if the producer distributes into Palestine through an authorized agent; and
  •  proof that the product contents comply with standards and specifications.
     
Moreover, any product that requires a safety warning cannot be distributed without the requisite warning (i.e. cigarettes and flammables). There are numerous kinds of warnings depending on the type of product.
 
The importer may conduct the labeling of products in one of three ways:
 
  •  At exporter country; the importer can send the label for approval to the MNE prior to receiving the shipment.
  •  At the port of arrival. Products packed into a container cannot be discharged from the border crossing until the products are labeled.
  •  At the importer’s warehouse. To proceed with this option, the products can be cleared by obtaining a bank guarantee until such time that an inspector, delegated by the MNE, verifies that the products have been correctly labeled according to the specified standards. Accordingly, the MNE will inform the Israeli Customs Authorities within 45 days of the outcome of the inspection. Consequently, the Israeli Customs Authorities will instruct the bank to release the guarantee. Currently, as a result of an agreement between the PNA and Israel, guarantees should be placed with Israeli banks.
     
b.Marking
 
Marking is mainly used as an alternative to labeling when the imported goods cannot be labeled (i.e. heavy-duty machinery, vehicles, etc).. Moreover, marking is always required on the packing cases. Common shipping marks to be placed on each packing case are the following:
 
  •  identification of the importer;
  •  number of the packing case;
  •  port of destination;
  •  gross and net weight;
  •  outside measurements of the case;
  •  country of origin; and
  •  cautionary marks if careful handling is required.
     

c.Packaging
 

Packing is essential to ensure the arrival of goods safely. There are various types of packaging including corrugated or plywood boxes, wooden crates, multi-wall bags, barrels and metal containers. Selecting the appropriate type of depends on the following:
 
  •  The characteristics of the product,
  •  the type of transport carrier,
  •  legal restrictions and;
  •  The after sale use of the product.
     
Packaging should comply with the customs rules on packaging applied in the country of destination. Imported goods destined for Palestine should comply with such packaging requirements, knowing that there are no specific Israeli packing requirements related to security concerns or inspections for products imported into Palestine. Example on packaging requirements is the prevention of using any packaging materials for foodstuffs which contain substances likely to have adverse affects on human health.