What Constitutes a Package Under COGSA?

In 1936, Congress enacted the Carriage of Goods by Sea Act (COGSA) in order to implement the Hague Rules, which the United States signed in 1924. The lan­guage in COGSA is almost identical to that in the Hague Rules except with regard to the carrier’s limitation of liability. The Hague Rules limit a carrier’s

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The Container Revolution

Until the 1960s, nearly all international cargo was delivered to the dockside in small packages and shipped on break-bulk ships. They came in boxes, crates, barrels, and drums and loaded on board ship, stowed, and, at the end of the voy­age, unloaded individually. This process was complicated and time consuming and exposed cargo to

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Foreign Exchange Transactions

An exchange rate is the number of units of a given currency that can be purchased for one unit of another currency. It is a common practice in world currency markets to use the indirect quotation, which is quoting all exchange rates (except for the British pound) per U.S. dollar. The Financial Times foreign

Protection Against Exchange Rate Risks

There are several ways in which export-import companies can protect themselves against unanticipated changes in exchange rates. The risk associated with such transactions is that the exchange rate might change between the date the export contract was made and the date of payment (the settlement date), which is often sixty to ninety days after

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Currency Wars

Many countries (particularly advanced economies such as those in the United States and Europe) are finding economic growth difficult to achieve because of a lack of domestic demand: consumers and businesses are not spending. One way in which governments can try to drive economic growth is by adopting policies that increase their country’s exports.

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Consignment Sales in International Trade

In a consignment sale, the exporter sends the product to an importer on a deferred-payment basis; that is, the importer does not pay for the merchandise until it is sold to a third party. Title to the merchandise passes to the importer only when payment is made to the exporter (Shapiro, 2006). Consignment is

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Open Account in International Trade

An open account is a contractual relationship between an exporter and an importer in which a trade credit is extended by the former to the latter whereby payment is to be made to the exporter within an agreed period of time. The seller ships the merchandise to the buyer and separately mails the relevant

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Documentary Collection (Documentary Draft) in International Trade

The documentary collection or documentary draft is one of the most common methods of making payments in international trade. To facilitate the transaction, two banks are usually involved, one in the exporter’s country and one in the buyer’s country. The banks may be independent banks or branches of the same bank. A draft can

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Documentary Letter of Credit

A letter of credit (L/C) is a document in which a bank or other financial institution assumes liability for payment of the purchase price to the seller on behalf of the buyer. The bank could deal directly or through the intervention of a bank in the seller’s country. In all types of letters of

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Cash in Advance

This method of payment requires the buyer to pay before shipment is effected. The seller assumes no risk of bad debt and/or delays in payment because advance payment is a precon¬dition of shipment. Sellers often require advance payment in cases in which the creditworthiness of the over¬seas customer is poor or unknown and/or the

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New Payment and Financing Alternatives

Since the 1990s, there has been a rapid expansion of online business-to-business transac­tions. One of the most significant challenges to this continued growth has been the lack of a payment mechanism for large cross-border transactions. Existing trade payment processes have not evolved and continue to be labor and document intensive. Any discrepancy in letter-

Fraud in Documentary Credits

International trade fraud is not a new phenomenon. Ever since trade began, merchants have been victims of fraud and other criminal activity. As early as the 1st century BC, there were pirate states along the Anatolian coast, threatening the commerce of the Roman Empire in the eastern Mediterranean. Roman ships were attacked by pirates

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Other Letters of Credit

1. Transferable Letter of Credit Exporters often use transferable L/C to pay a supplier, while keeping the identity of the supplier and the foreign customer from each other, lest they conduct the next transaction without the exporter. This method is often used when the exporter acts as an agent or intermediary. Under a transferable

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Dishonoring Letters of Credit

In June 2005, JFTC, a Chinese company, agreed to purchase 1,000 metric tons of fertilizers from VA Trading Corporation (VATC), located in Houston, Texas. JFTC obtained a letter of credit from the Bank of China (BC) for the purchase price of $1.2 million. Payment was to be made to VATC after delivery of the

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The Independent Principle in Letters of Credit

A bank in New York issued a letter of credit to a beneficiary (seller) in Spain at the request of the buyer to cover the shipment of building products. When seller presented the documents to the bank for payment, the bank declined to pay on the ground that it had no opportunity to test

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Deferred Payment in Letters of Credit (L/C)

Bank A issued a deferred payment L/C in favor of Martin Co. with a promise to pay sixty days from the bill of lading (BL). It also undertook to cover the confirming bank at maturity. Martin Co. presented complying documents to the confirming bank, after which the latter made a discounted payment. The beneficiary

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Origins of Countertrade

Countertrade is any commercial arrangement in which sellers or exporters are required to accept in partial or total settlement of their deliveries a supply of products from the import­ing country. In essence, it is a nation’s (or firm’s) use of its purchasing power as leverage to force a private firm to purchase or market

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Benefits of Countertrade

1. Benefits for Buyers 1.1. Transfer of Technology In exchange for a guaranteed supply of raw materials or other scarce resources, a developed nation will provide the capital, equipment, and technology that are needed to develop such resources. Western firms, for example, assisted Saudi Arabia in the development of its refin­ery and petrochemical industry

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Theories on Countertrade

A limited number of empirical studies on countertrade have been conducted. The following findings characterize some of the theoretical studies on countertrade practices: Countertrade is positively correlated with a country’s level of exports. This means that a higher level of international commercial activity is associated with a high level of countertrade (Caves and Marin,

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Forms of Countertrade

Countertrade takes a variety of forms (see Figure 12.1). Such transactions can be divided into two broad categories: Transactions in which products and/or services are traded in exchange for other prod­ucts and /or services. These include barter, switch trading, and clearing arrangements. Transactions that feature two parallel money-for-goods transactions. These include buy-back, counterpurchase, and

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