Our import/export glossary of terms - international trade terms
ASWP – Any Safe World Port. It is quite common for commodity sellers to offer delivery to any safe world port of the buyer’s choice.
BCL – Bank Comfort Letter Also known as a Bank Capability Letter, or Bank Confirmation Letter, this is a letter from the buyer’s bank, confirming his ability to meet a certain level payment requirements. This letter states that the buyer has sufficient funds to cover the cost of the order. It should however be understood that this does not imply any guarantee of payment.
BOL or B/L - Bill of Loading. This is the receipt given by the shipping company when goods are loaded onboard the vessel. This is an important document and gives title to the goods. It is needed by the buyer to obtain the goods from the port.
CFR - Cost and Freight. The price includes the cost of the goods, loading, and freight to the named Destination Port. This does not include unloading charges.
CIF – Cost, Insurance and Freight. This is the same as CNF, but also includes insurance to the named destination port. e.g. CIF Jebel Ali.
DC – Draft Contract, A draft contract is an initial contract which is drawn up and sent from the seller to the buyer. The buyer has the opportunity to make amendments and send it back to the seller for consideration. This process continues until both parties are satisfied with the terms of the contract.
DDP – Delivered Duty Paid to the named Destination (which can be customer’s works) e.g. DDP New York. All delivery charges and duties to the named destination are paid by the exporter.
EXW – Ex-Works, The buyer pays all costs of transport from pickup at the suppliers premises. e.g. EXW Hong Kong.
FAS – Free Alongside Ship, The supplier pays costs only to the port of loading. Loading and shipment are responsibility of the Buyer. However the supplier must clear the goods for export. e.g. FAS Los Angeles.
FOB – Free on Board, This means that the supplier pays only to the point where the goods are loaded on board the carrying vessel. The seller must clear the goods for export. As soon as the goods are over the ship’s rail they become the responsibility of the buyer. e.g. FOB London.
FCA - Free Carrier, The supplier must deliver the goods, cleared for export, to the carrier nominated by the buyer at the named place.
FCL – Full Container Load, The goods fill a container, no other purchaser’s goods will share the container. Often suppliers will not supply less then one full container.
FCO – Full Corporate Offer. Issued by the seller after the preliminary stages of negotiation are complete, such as a letter of intent having been issued by the buyer, and a soft probe having been conducted on their accounts by the seller. A full corporate offer is a document which outlines the conditions of the sale.
ICPO – Irrevocable Corporate Purchase Order. This is a document drawn up by commercial buyers, and contains the quantities and type of commodity required, and other conditions that the buyer would like the sale to proceed under. Once submitted to the seller, this is deemed to be binding and the corporation is obliged to complete the sale.
L/C or LOC – Letter of Credit, Letter of Credit is a document issued from the buyer’s bank to the seller which guarantee payment to the beneficiary of the letter of credit (the seller), as long as the terms and conditions set out in the letter of credit are met. L/C are almost always irrevocable, can be transferable, and subject to terms (e.g. on SIGHT, 30 days, 60 days, 180 days, etc.). For regular shipments a revolving L/C is often utilized.
The various types of Letters of Credit can be defined as follows:
CL/C (Confirmed Letter of Credit) A letter of credit, issued by a foreign bank, with validity confirmed by a first class (usually US or European) bank. A seller with CL/C terms is assured of payment even if the foreign buyer or the foreign bank defaults.
DL/C (Documentary Letter of Credit) A document issued by a bank which guarantees the payment of a buyer’s drafts for a specified period and up to a specified amount. The Documentary Letter of Credit provides a more secure means of carrying out transactions in import-export trade than by documentary bills collection (see Bill of Exchange). A letter of credit when transmitted through a bank, usually in the seller’s country, becomes the means by which the seller obtains payment. The necessary documents, correctly completed, are presented to a bank by an agreed date. If the terms of the credit are met, a seller can receive payment from a bank immediately.
IL/C (Irrevocable Letter of Credit) An Irrevocable Letter of Credit cannot be amended or cancelled without the consent of the issuing bank, the confirming bank (if confirmed), and the beneficiary. The payment is guaranteed by the bank if the credit terms and conditions are fully met by the beneficiary. The words Irrevocable Documentary Credit or Irrevocable Credit may be indicated in the L/C. It means that once the buyer’s conditions in the letter have been agreed to by the seller, they constitute a definite undertaking by the buyer’s bank and cannot be revoked without the seller’s agreement.
Revocable Letters of Credit are rarely used as the terms of the credit can be cancelled or amended by an overseas buyer at any time without notice to the seller.
RL/C (Revolving Letter of Credit) When a letter of credit (L/C) is specifically designated a Revolving Letter of Credit, the amount involved when utilized is automatically reinstated, that is, the amount becomes available again without issuing another L/C and usually under the same terms and conditions within a period of time (usually several months to one year). This saves administration when multiple shipments are involved.
SL/C (Stand-by Letter of Credit) is a financial guarantee or performance bond issued by a bank on behalf of a buyer. i.e. a written obligation of the issuing bank to pay a sum to a beneficiary on behalf of their customer in the event that the customer himself does not pay the beneficiary. The SL/C is regulated by the ICC-500 rules.
LOI – Letter of Intent, Letter of Intent is a document issued from the Buyer to the Seller which indicates that the Buyer would like to enter into negotiations with the Seller in the hope of purchasing commodity. The letter of intent is not legally binding, but it does provide a starting point for negotiations.
PB - Performance Bond, This is a type of bank guarantee which is issued from the Seller to the Buyer. It guarantees that the Seller will meet the terms of the contract. Normally issued in the amount of 10% to 15% of the total amount of the contract, a performance bond can be drawn upon by the Buyer in the event that the Seller breaks the contract and fails to provide the product which was stipulated in the contract.
POP – Proof of Product, A Proof of Product (‘POP’) is often requested by customers or agents who believe it will give them some guarantee of the existence of the product and ability of the supplier to deliver the product. In practice many POPs are false. POP offers no proof at all, because once a POP has been drafted it is automatically out of date – the product could have been sold to another buyer and therefore no longer exists. Nevertheless, a POP is still occasionally requested as apparent proof that a seller/broker has the product, which is possibly not the case.
A POP is realistically provided only when the Buyer’s bank issue a Bank Confirmation Letter (BCL) to the Seller’s bank via SWIFT. Then the Seller’s bank can check the availability of funds in the Buyer’s bank and issue a POP to the Buyer’s bank within an agreed time period (e.g. 5 days). In reality, the best and only real proof of product is when the Seller can demonstrate the products in his possession at the dock side.
RWA – Ready, Willing and Able, This is a document which is issued by the Buyer’s bank. The bank confirms that their client has the sufficient funds in their possession and is ready, willing and able to engage in the contract
SWIFT – Society for Worldwide Interbank Financial Telecommunication a global service which is responsible for facilitating communication between banks. Most payments are made via SWIFT.