Exam 3

Question 1

EXW Incoterm Pricing:

Mode of TRNSP: Any

Answer 1

Cost of Product:

Question 2

FAS Incoterm Strategy

Mode of TRNSP: Ocean

Answer 2

Price of Product + Transportation cost at origin

Question 3

FOB Incoterm Strategy

Mode of TRNSP: Ocean

Answer 3

Price of Product + Transportation of Origin + Loading charges at Origin.

Question 4

CFR Incoterm Strategy

Mode of TRNSP: Ocean

Answer 4

Price of Product + Transport cost at origin + loading charges at origin + international ocean transportation.

Question 5

CIF Incoterm Strategy.

Mode of TRNSP: Any

Answer 5

Price of Product + Transport cost at origin + loading charges at origin + international ocean transportation + insurance.

Question 6

DAP Incoterm Strategy:

Mode of TRNSP: Any

Answer 6

Price of Product + Transport cost at origin + loading charges at origin + international ocean transportation + insurance + terminal country charge + transportation to place.

Question 7

DPU Incoterm Strategy:

Mode of TRNSP: Any

Answer 7

Price of Product + Transport cost at origin + loading charges at origin + international ocean transportation + insurance + terminal country charge + transportation to place + unloading costs.

Question 8

DDP Incoterm Strategy:

Mode of TRNSP: Any

Answer 8

Price of Product + Transport cost at origin + loading charges at origin + international ocean transportation + insurance + terminal country charge + transportation to place + unloading costs + Tariffs.

Question 9

Considering that apple has extensive experience in importing from China and has negotiated very low international ocean rates with liners, which incoterm would you recommend for the transactions with the Chinese supplier: FOB or CIF? Why?

Answer 9

FOB -As Apple can negotiate lower prices, they’d save money by taking control once the cargo is loaded on board. Here the seller is responsible for the transportation of the goods until they are loaded on the vessel. If they used CIF, the suppliers in China would be responsible for paying insurance and everything else, they would not get good rates.

Question 10

Now you recieve two quotas (Pro-forma invoices) frm one of the newchinese suppliers. Ne FOB and one CIF Quote” Which one will list a higher quoted price? Why?

Question 11

Which term of payment do you recommend using in this transaction: Cash in Advance, letter of credit, or open account? Are there advantages for Apple to use each of them? Which option would the Chinese Supplier prefer?

Answer 11

We would use Letter of Credit. It’s safer for apple, as they would be able to specify certain conditions on the seller based on criteria that is important to them. This also protects the seller, because if the seller meets all the criteria, they will be paid by the bank, regardless of what happens.

The seller would want cash in advance to give enough capital to meet Apple’s large demands.

Question 11

Can you list the documents that Apple will receive from the supplier in this transaction and from the carrier?

Answer 11

The first document would be the negotiating invoice when deciding on incoterms and what types of payment.

The next document is the commercial invoice, which is the final draft of all the agreed terms and conditions between buyer and seller.

The final document is the bill of lading. This issues a contact between carrier and shipper, and is a title to the goods. This is given to the buyer at the end, so that they can receive their products.

Question 12

In a later phase, you start managing the importation of IPad, unassembled, in boxes. Which product classification will you use for customs clearance purposes? iPads, or electronic parts?

Answer 12

It woud be an IPad due to the rules of classification:

Rule 1: When you have anything that unassembled, it’s labeled as the final product.
Rule 2: You must use the most specific classifications as possible.
Rule 3: Look for the classification that represents the essential character and qualities.

Question 12

What is the difference between a sight draft and a date draft? What are the advantages to a buyer to use a date draft?

Answer 12

Sight Draft: The buyer pays on sight in the location where products are delivered.
Date Draft: The buyer is able to receive the bill of lading, and then pays for the products at a later date.

Question 12

What are the advantages to a buyer and seller to use letter of credit?

Answer 12

Letter of Credit: Buyer gets to make certain specifications, the seller will automatically get paid if they meet these standards .

Question 12

The bill of lading and manifest are two documents issued by carriers. Describe the purpose of these two documents.

Answer 12

The shipper only sees the original Bill of lading. The buyer receives a copy of the document used to show ownership and rights towards a specific good or product.

Manifest is a map of all the shipper’s cargo aboard the vehicle, along with destinations. Shippers will never see the manifest.

Question 13

An ocean carrier just receives a shipment to move between Asia and the U.S. They issue a bill of lading. Which party initially receives this copy of the bill of lading for the international transportation leg? The seller or the exporter? Why?

Answer 13

Initially, the seller will get the bill of lading first, but in EXW incoterm, the buyer is the one responsible for coordinating everything. The buyer gets the bill of lading first in this scenari.

Question 14

An importer is managing two shipments, the first with DDP and payment with cash in advance when the shipment leaves the exporter’s warehouse, and a second with DDP incoterm, and open account payment with transfer 30 days after the shipment arrives at the final destination. Which shipment has zero in-transit costs for the importer? Why?

Answer 14

The open account will have no in-transit holding costs, because holding cost include not only the cost of managing the product in the warehouse, but also the financial opportunity cost of that money being used somewhere else.

The cash in advance option would have in-transit holding costs, because the items would incur costs while being moved internationally.

Question 15

What are the three factors used for calculating the tariffs to import a product into the U.S? What are the key steps to identify those three dimensions?

Answer 15

Classification: U.S and CDP use a 10-digit code.

Valuation: U.S CDP uses FAS, May need to calculate FAS by deducting other costs.

Country of Origin: Where the product was last modified, classification changed. So for example, if I ship out leather from brazil, then the leather goes to Chile and becomes a handbag, the item is now classified as a handbag, and no longer leather.

Question 16

What is the difference between duty drawback and countervailing duty?

Answer 16

Duty Drawback: CDP refunds or credits tariffs, usually when importing then exporting the same product.

Countervailing duty: When the CDP charges additional duties.