/ By tjchinafreight ivy / International

Ukraine and Russia close to agreement

Turkey said Russia and Ukraine had made progress in talks to end the war and that the two sides were "close to a deal".

Russian troops invaded Ukraine on February 24, and President Vladimir Putin called his country's operation a "special operation" aimed at demilitarizing Ukraine and weeding out what he sees as dangerous nationalists. Ukraine and the West say Putin has chosen to wage an aggressive war.

On April 2, local time, Arahamia, head of the Ukrainian delegation to the Russian-Ukrainian negotiation, said in an interview with the media that Ukraine and Russia are close to reaching an agreement, but there are still differences on the Crimea issue.

Negotiations are taking place online every day, and a working group of lawyers and diplomats is drafting the final document, Allahamia said. Russia has verbally accepted the terms except for the Crimea issue for the draft Ukraine presented in Istanbul. Ukraine is waiting for a written confirmation from Russia.

According to Alahamia, the Russian side believes that the draft document is sufficiently complete, and the working group is preparing topics for a possible meeting between the two presidents. Alahamia believes that the meeting between the Ukrainian and Russian presidents is very likely to be held in Istanbul, Turkey.

At present, this claim has not been confirmed by Russia.

Head of Ukrainian delegation to Russia-Ukraine talks: Will not sign any document that provides Russia with veto power

On April 2, local time, Alahamia, head of the Ukrainian delegation to the Russian-Ukrainian negotiations, said in an interview with the media that if any document stipulates that Russia has veto power, then Ukraine will not sign the document.

Allahamia said that Russia's veto power means that Ukraine will not have security guarantees, so Ukraine advocates signing a peace treaty with Russia, but security guarantees are provided by other countries, and Russia cannot stop this process. Allahamia believes that Ukraine will allow Russia to accept this position, otherwise it will be impossible to sign any documents.

Allahamia revealed that three NATO members, Turkey, Germany and Italy, are ready to become security guarantors in accordance with Ukraine's vision.

Allahamia emphasized that when Ukraine's security is guaranteed, a referendum will be held to decide whether to revise the provisions of the Ukrainian constitution on non-aligned neutrality; if the referendum supports Ukraine's continued membership of NATO, then Ukraine will hold new negotiations with Russia. .

On April 2, local time, Russian Presidential Press Secretary Peskov said in an interview with Belarusian Channel 1 that Russia hopes to continue negotiations with Ukraine in Belarus, but Ukraine is opposed to this.

Peskov said that the negotiations between Russia and Ukraine are not easy, but the important thing is that the negotiations can continue and the military action can be ended through negotiations. It does not matter where the venue of the negotiations is.

Peskov believes that the double standards of the West have been and will continue in the future, and Russia and Belarus have to deal with them, so patience and persistence are required.

Peskov promised that when Belarus is attacked, it will be regarded as an attack on Russia, and Russia will not hesitate to give it military assistance.

/ By tjchinafreight ivy / Cargo • International • Shipping

Maersk Bars on CMA CGM: We Oppose Stopping Plastic Waste

Not long ago, liner giant CMA CGM announced that it has banned all ships from transporting plastic waste, a move that has received support from NGOs.

But Maersk recently expressed a different view. The shipping company, also headquartered in Europe, warned that stopping the transportation of plastic waste will not only not improve the marine environment, but may also prevent the transportation of this waste to recyclable sites.

The NGO Plastic Change has urged Maersk to stop shipping plastic waste after rival CMA CGM announced it would no longer ship plastic waste for environmental reasons. Louise Lerche-Gredal, head of Plastic Change, wrote in an article, “It is time for Maersk to take a stance on whether they will continue to be part of the waste transport issue. Plastic waste not only contributes to pollution, it also contributes to the climate crisis. , and affect the most vulnerable societies in the world.”

Maersk said it would not do what CMA CGM did because banning the transport of plastic waste due to environmental concerns is not a good idea. "We do not think a blanket ban on the transport of plastic waste is feasible because such a ban would prevent us from helping responsible companies and organisations to transport plastic waste and other recycled materials to recycling sites in a responsible manner."

According to a Feb. 11 press release from CMA CGM, the decision to stop shipping plastic waste comes as the French carrier wants to work to prevent plastic waste from being "exported to destinations where sorting, recycling or recycling cannot be guaranteed." “About 10 million tons of plastic waste ends up in the ocean every year. If we don’t take action, this number will triple to 29 million tons per year in the next 20 years, which will cause irreversible damage to marine ecosystems, flora and fauna ."

CMA CGM said it transported around 500,000 tonnes of plastic waste in 2021. Maersk doesn't disclose the volume of veteran plastic waste shipped, but according to Plastic Change, Maersk ranks third.

Maersk emphasizes that it is "a responsible company and we of course take environmental protection seriously. Ensuring compliance with all legal and regulatory procedures regarding the import and export of plastic waste has always been embedded in our business and daily activities."

Maersk also works with an ocean cleanup organization. The organization recycles plastic waste in the Pacific, and stopping the shipment of plastic waste will prevent Maersk from assisting the organization in delivering the collected plastic to recycling sites.

/ By tjchinafreight ivy / International

Time limit and necessary materials for foreign trade export tax rebate

01 When handling export tax rebates, pay attention to declaration procedures and time concepts

Export enterprises should pay special attention to the declaration procedures and the concept of time when handling export tax rebates to avoid losses.

When handling export tax rebates, you should pay attention to four time limits

30 days: After the foreign trade enterprise purchases import and export goods, it should promptly ask the supplier for a special VAT invoice or ordinary invoice, which is an anti-counterfeiting tax-controlled VAT invoice, and must go through the certification procedures within 30 days from the date of invoicing.

90 days: Foreign trade enterprises must go through the export tax rebate declaration procedures within 90 days from the date of export declaration of the goods, and production enterprises must go through the tax exemption and credit declaration procedures within three months from the date of export declaration of the goods.

180 days: The export enterprise must provide the local competent tax refund department with the verification form of export foreign exchange receipts (except for forward foreign exchange receipts) within 180 days from the date of export declaration.

3 months: If the paper tax refund certificate for export goods of an exporter is lost or the contents are incorrectly filled in, and it can be reissued or changed according to relevant regulations, the exporter may apply to the tax refund department for an extension of the declaration of tax refund (exemption) for export goods within the declaration period. , After approval, the application can be extended for 3 months.

02 Tax classification of export goods tax refund (exemption)

According to the current tax system, my country's export tax refund (exemption) tax is the value-added tax and consumption tax within the scope of turnover tax (also known as indirect tax);

The tax refund (exemption) for export goods is the value-added tax and consumption tax that have been paid in all aspects of domestic production and circulation of export goods.

Turnover tax generally refers to the so-called tax on items characterized by commodities. As far as my country's current tax system is concerned, turnover tax includes value-added tax, business tax, consumption tax, land value-added tax, customs duties and some local industrial and commercial taxes.

03Export tax rebate attached materials

1 customs declaration
The customs declaration form is a document filled in by the import and export enterprise to go through the declaration procedures to the customs when the goods are imported or exported, so that the customs can check and release the goods based on this.

2 Export sales invoice
This is the document filled out by the export enterprise according to the sales contract signed with the export buyer. It is the main document for foreign purchases, and it is also the basis for the accounting department of the export enterprise to record the sales revenue of export products.

3 Purchase Invoice
The main purpose of providing purchase invoices is to determine the supplier, product name, measurement unit, and quantity of export products, whether it is the sales price of the manufacturer, so as to divide and calculate the purchase cost.

4 Foreign exchange settlement bill or foreign exchange receipt notice

5 Waybill and Export Insurance Policy
It belongs to the direct export or entrusted export of self-made products by the manufacturer. If the settlement is based on the CIF price, the export cargo waybill and export insurance policy should also be attached.

6Contract Information
Enterprises that have the business of processing re-exported products with imported materials shall also submit the contract number, date, name and quantity of imported materials and parts, name of re-exported products, cost of imported materials and various taxes paid to the tax authorities. amount, etc.

7 Product tax certificate

8 Certificate that the export receipts have been written off

9 Other materials related to export tax rebates

04Goods tax refund method

At present, the tax refund methods for foreign-invested enterprises export goods include "first levy and then refund" and "exemption, credit, and refund" tax.

2 "First come and go back"

It refers to the goods exported by the production enterprise by itself or through the agency, which shall first be taxed according to the tax rate stipulated in the interim regulations on value-added tax, and then the tax authority in charge of the export tax rebate business shall comply with the stipulated tax rebate rate within the national export tax rebate plan. Approve tax refund.

2 Tax basis

The tax refund amount shall be calculated by multiplying the FOB value of the export goods in the current period by the exchange rate in RMB.

"FOB" (written as FOB price in English) is the FOB price at the port of shipment, but this FOB price is a symbolic price, that is, the seller will hand over the necessary shipping documents to the buyer to collect the payment according to the contract, and the risks of the buyer and the seller are divided. All are limited by the loading of goods on the ship. Therefore, the FOB price is the responsibility of the buyer to charter the ship and book the space, and apply for insurance to pay the transportation insurance fee.

The most commonly used conversion methods for FOB, CFR and CIF prices are as follows:

FOB price = CFR price - freight = CIF price × (1 - insurance premium × insurance rate) - freight

Therefore, if the enterprise trades at the CIF price as the foreign export, after the goods leave the country, the foreign freight, insurance premiums, commissions and financial expenses incurred by the enterprise should be deducted; if the transaction is made at the CFR price, the freight should be deducted.

3 Calculation formula

Tax payable for the current period = output tax of goods sold in the current period + FOB price of exported goods in the current period × exchange rate in RMB × tax rate - all input tax in the current period

Current tax refund amount = FOB price of exported goods × foreign exchange RMB price × tax refund rate

Relevant explanation of the above calculation formula

①The input tax for the current period includes all the domestic purchased materials, water and electricity charges, transportation expenses that can be deducted, and the current value-added tax levied by the customs for the current period. The input tax can be deducted.
②The exchange rate of RMB shall be determined according to the two methods stipulated in the financial system, namely, the price of the day announced by the state or the average price of the price at the beginning and end of the month. Once the calculation method is determined, the enterprise cannot change it within a tax year.
③ If the actual sales revenue of the enterprise is inconsistent with the amount recorded in the foreign exchange verification form submitted by the export goods, the tax authority will levy the tax based on the larger amount and refund the tax based on the amount recorded on the export goods declaration form.
④ If the amount of tax payable is less than zero, it will be carried forward to the next period to offset the amount of tax payable.

/ By tjchinafreight ivy / International

DDP vs DDU: Shipping Incoterms Explained

Delivery Duty Paid (DDP)

In exporting, the seller enters into an agreement with the buyer to deliver the goods to the buyer's location overseas. Such agreements will specify the terms and conditions under which business will be conducted, especially those that will incur costs associated with the export of goods.
A very important point of the agreement is who will be responsible for paying duties and taxes at the port of destination.
A sale or purchase agreement is called Delivery Duty Paid (DDP) when it is agreed between the exporter and the importer that the former will pay all duties at the port of destination.

Seller's responsibility

In the DDP Shipping Agreement, the seller's responsibility to ensure successful delivery is:

  • Verify that all risks of loss or damage to the goods are financially covered up to the point of delivery.
  • Handle the export process at the point of shipment, complying with all required protocols, such as providing licenses and documentation as required for specific shipments.
  • To bear any costs of customs clearance at the place of delivery. If the product is taxed due to value fluctuation (VAT), the seller will also pay any additional tax.
  • Check that products and shipments arrive at international locations for proper termination of liability.
  • Take financial responsibility for shipping costs from the packing area to the point of delivery.
  • Organize and establish carrier connections with all shipping companies that assist in the delivery of goods.

Delivery Duty Unpaid (DDU)

The ICC stopped using the incoterm DDU in 2010, but it is still widely used. The ICC has officially replaced it with the Incoterm® rules DAP, which is delivered on site, but with the same trade rules as DDU.
DDU means that the buyer is responsible for paying any customs fees, duties or taxes in the country of destination. All these fees must be paid by customs to release the goods after the goods arrive at the pre-agreed location, such as the on-site delivery at Jebel Ali port. The seller is liable until the agreed point of delivery, at which stage the buyer is liable.

Seller's responsibility

DDU shipping and DDP shipping are very similar, but the biggest difference between the two is that the seller does not bear the economic responsibility after the goods arrive abroad. Some of the main responsibilities of the seller in DDU shipping services are:

  • Takes responsibility for providing permits, permits and documents required for delivery to Buyer's pickup location.
  • Ship the buyer's goods to the country of delivery.
  • All financial responsibility is assumed for any damage, theft or loss that occurs in the shipment prior to its arrival at the delivery destination.
  • Make sure that the buyer's goods arrive at the designated shipping location.
  • Pay shipping for any shipping charges related to labor and loading costs. This can also include purchasing insurance for the goods.
  • Provide buyers with the latest information on successful deliveries.

This type of agreement between buyer and seller is called Delivery Duty Unpaid (DDU). The International Chamber of Commerce has replaced Incoterm DDU with DAP (Delivered On Site) in its latest publication "Incoterms® 2020".

How to calculate DDU and DDP fees:

Fob amount. Plus: 1. All local charges at the export port 2. Sea freight (whether positive or negative) is the amount of cif. If you want ddu: plus the local charge at the destination port If you want ddp: plus the destination customs duties in port

Delivery on Place (DAP) and Delivery on Ground (DPU)

In the ICC's latest publication "Incoterms® 2020", the term DAP (Delivered On Site) has replaced DDU. Another important term that has been replaced is DAT (delivered at the terminal). DAT is replaced by DPU (Delivered at Place Unloaded), and the designated unloading location can be anywhere, not limited to the terminal.
DAP and DPU are two Incoterms® similar to DDU. DAP stands for Delivered at Place and DPU stands for Delivered at Place Unloaded. Under DAP, the buyer is responsible for paying duties and taxes and unloading.
The seller arranges the transportation and delivery of the goods to a pre-agreed location, ready for unloading. DAP can be used for any transport protocol.
In a DPU, the seller is responsible for delivery and unloading at the locations specified in the agreement between him and the buyer.

/ By tjchinafreight ivy / International

Certificate of Origin

What is a Certificate of Origin (CO)?

A Certificate of Origin (CO) is a document that indicates the country in which the item or goods were manufactured. A certificate of origin contains information about the product, destination and exporting country. For example, an item might be labeled "Made in the USA" or "Made in China."

CO is an important form, required by many cross-border trade treaty agreements, because it can help determine whether certain goods are eligible for import, or whether goods are subject to customs duties.

Why do I need a Certificate of Origin?

If you are shipping internationally, you may need to obtain a Certificate of Origin (COO) for your shipment.
The COO is often required when there is a need to know the country of origin for economic, political or environmental reasons, such as whether there are import quotas, boycotts or anti-dumping measures.
If you ship between countries that share a trade agreement, the COO certifies to customs authorities that the goods are eligible for reduced import duties or taxes.
Some plant and animal products subject to the CITES agreement also require a certificate of origin.

Two types of CO

There is no standardized Certificate of Origin (CO) form for global trade, but the CO, usually prepared by the exporter of goods, contains at least basic details about the product being shipped, the tariff code, the exporter and importer, and the country of origin. After the exporter understands the specific requirements of the border control in the importing country, he will record these details, obtain a CO notarized by the Chamber of Commerce, and submit the form with the shipment. The detailed requirements depend on the type of goods exported and the export destination.

The two types of CO are non-concessional and preferential. Non-preferential COs, also known as "ordinary COs," refer to goods that do not qualify for tariff reduction and exemption treatment under inter-country trade arrangements, while preferential COs state that they are eligible. In the United States, the Generalized System of Preferences (GSP), enacted by Congress in 1974 to promote economic development in poor countries, eliminated tariffs on thousands of products imported from more than a hundred countries with preferential status. Countries such as Bolivia, Cambodia, Haiti, Namibia and Pakistan are currently on the list, as are many other third world or developing countries. The EU and countries around the world have their own versions of the GSP, which mainly promote economic growth through trade with friendly countries.

How to get a certificate of origin?

You can apply for one at your local chamber of commerce - keep in mind that you will need one for each shipment.

In some countries, you can apply for a COO directly online. In other countries, you fill out the standard Certificate of Origin form and submit it to your local Chamber of Commerce for stamping and approval.
Since applying for a Certificate of Origin can be complicated, to save time, you can have an agent (such as a freight forwarder) do it for you.
Keep in mind that some countries require the certificate to be legally approved by the Embassy or Ministry of Foreign Affairs, which may take more time.

Which countries require a certificate of origin?

Any country may require a COO for any product, so be sure to check with your local chamber of commerce if necessary.

Some of the international trade relationships that typically require a Certificate of Origin are:

  • Shipping from EU to countries with EU trade agreements - using EUR.1 file or EUR-MED file
  • For shipments between Canada, the United States and Mexico - use the NAFTA Certificate of Origin
  • For shipments between the US, Central America and the Dominican Republic - use the CAFTA-DR Certificate of Origin
  • Shipping to some countries in the Middle East and Africa - usually requires a Certificate of Origin
  • Shipping to some countries in Asia such as China, India, Malaysia or Singapore - usually requires a Certificate of Origin
/ By tjchinafreight ivy / International

GSP

What is GSP?

The GSP is a preferential tariff system that provides a formal exemption from the more general rules of the World Trade Organization (WTO). In short, this means that WTO members must treat imports from all other WTO members equally as they treat imports from their "best" trading partners.

  • The Generalized System of Preferences (GSP) is an umbrella that covers most of the preferential schemes that industrialized countries give to developing countries.
  • It involves reducing most-favored-nation (MFN) tariffs or enabling tax-free entry of eligible products exported from beneficiary countries to donor markets.

Developing countries automatically receive the GSP if:

  • Classified by the World Bank as an income level below "upper middle income"
  • Do not benefit from other arrangements (such as free trade agreements) that give them preferential access to the EU market
  • In addition, if GSP+ is granted, the beneficiary must ratify 27 international conventions (see GSP+ above) and work with the Commission to monitor the implementation of these conventions.

LDCs automatically get the benefits of the "everything but arms" arrangement, even if they have another arrangement.

GSP benefits

  • Promote economic growth and development in developing countries by helping beneficiary countries increase and diversify trade with developed countries.
  • Jobs - The transfer of GSP imports from terminals to consumers, farmers and manufacturers has provided tens of thousands of jobs in developed countries.
  • The GSP increases the competitiveness of firms because it reduces the cost of imported inputs that firms use to manufacture goods.
  • GSP promotes global values ​​by supporting beneficiary countries in providing workers' rights to their people, enforcing intellectual property rights and supporting the rule of law.

There are several ways that GSP regulations can ensure that the interests of European industry are safeguarded:

  • GSP beneficiaries who are “high-middle-income” countries will be removed from the GSP.
  • GSP beneficiaries may lose preferences for specific product categories deemed sufficiently competitive: Suspension of tariff preferences 2017-2019External link.
  • EU industries can request safeguards based on evidence that imports from GSP beneficiary countries have caused serious economic hardship to the industry: safeguards for Cambodian and Myanmar rice.
/ By tjchinafreight ivy / International

Different types of letters of credit

What is a letter of credit?

A letter of credit is a guarantee or assurance to the seller that they will get paid on a large transaction. They are especially common in international or foreign exchange transactions. Think of them as a form of payment insurance provided by financial institutions or other accredited parties to the transaction. The earliest letters of credit were common in the 18th century and were called travelers' letters of credit. The most common contemporary letters of credit are commercial letters of credit, standby letters of credit, revocable letters of credit, irrevocable letters of credit, revolving letters of credit, and red-term letters of credit, although there are several others.

Commercial letter of credit
This is a standard letter of credit commonly used in international trade. It can also be called a "Documentary Credit" or "Import and Export Credit". 1 The bank acts as a neutral third party to release funds when all the conditions of the agreement are met.

Standby Letter of Credit
This type of letter of credit is different: it offers payment if something doesn't happen. 2 Standby letters of credit do not facilitate a transaction, but provide compensation in the event of a problem. A standby letter of credit is usually similar to a commercial letter of credit, but only pays if the payee (or "beneficiary") can prove they didn't get what was promised in the agreement. Standby letters of credit are a form of insurance that ensures you get paid, and they also guarantee that services will be performed satisfactorily. They can be used with negotiable letters of credit.

Irrevocable letter of credit.
This Letter of Credit may not be cancelled or amended without the consent of the beneficiary (Seller). This Letter of Credit reflects the Bank's (Issuer's) absolute liability to the other party.

Revocable Letter of Credit.
The bank (issuing bank) can cancel or amend this type of letter of credit at the customer's instruction without the prior consent of the beneficiary (seller). After the L/C is revoked, the Bank shall not assume any responsibility to the beneficiary.

Red Clause LC.
The seller may require prepayment of a letter of credit for an agreed amount prior to shipment of the goods and presentation of the required documents. This red clause is so called because it is usually printed in red on the document to draw attention to the "advance payment" clause of the letter of credit.

Revolving letter of credit
A revolving letter of credit can be used for multiple payments.
If buyers and sellers want to repeat business, they may not want to obtain a new letter of credit for each transaction (or each step in a series of transactions). This type of letter of credit allows a business to conduct multiple transactions using a single letter of credit before the letter of credit expires, and the validity period of the letter of credit may be three years or less.

Negotiable letter of credit
A transferable letter of credit can be transferred from one "beneficiary" (payee) to another. They are usually used when an intermediary is involved in a transaction.

Back to back
Back-to-back letters of credit can be used when an intermediary is involved but a negotiable letter of credit is not suitable.

What are the benefits of using a letter of credit?

A letter of credit places the risk of the transaction on the bank rather than the buyer or seller. They provide a secure payment method that ensures funds get where they need to be. Letters of credit also provide parties with the opportunity to incorporate safeguards, regulations or other quality control measures.

How to get a letter of credit?

Many banks offer letters of credit, so you can get one by contacting your bank's representative. Banks with dedicated international trade or business departments are likely to offer letters of credit. If your bank doesn't offer a letter of credit, it may point you to an institution that does.

/ By tjchinafreight ivy / International

Bank Guarantee vs. Letter of Credit

Bank guarantees are similar to letters of credit in that they both instill confidence in the transaction and the parties involved. The main difference, however, is that the letter of credit ensures that the transaction goes smoothly, while the bank guarantee reduces any losses that arise if the transaction does not go as planned.

Letter of Credit - Reduce Risk

A letter of credit is a financial institution's commitment to fulfill a buyer's financial obligation, thereby eliminating any risk that the buyer will not perform payment. Therefore, it is often used to reduce the risk of non-payment after delivery.

In addition, a letter of credit is issued to the buyer after the necessary due diligence has been carried out and sufficient collateral has been collected to cover the secured amount. The letter is then submitted to the seller as proof of the buyer's credit quality.

Types of Letters of Credit

Just like bank guarantees, letters of credit vary according to need. Here are some of the most commonly used letters of credit:

  • An irrevocable letter of credit ensures that the buyer is obligated to the seller.
  • The confirmed letter of credit is from the second bank, which guarantees the letter of credit when the credit of the first bank is in question. If the company or the issuing bank fails to meet its obligations, the confirming bank will ensure payment.
  • An import letter of credit allows importers to make immediate payments by giving them a short-term cash advance.
  • An export letter of credit lets the buyer's bank know that it must pay the seller, provided that all the conditions of the contract are met.
  • A revolving letter of credit allows customers to make withdrawals within a certain range within a certain period of time.

Bank Guarantee – Failure to perform contractual obligations

Bank guarantees help companies mitigate any risk arising from both sides of a transaction and play an important role in facilitating high-value transactions. The agreed-upon amount is called the guaranteed amount and will always benefit the beneficiary.

In venture capital, both parties are obligated to perform certain duties in order to successfully complete a transaction, and both parties often use bank guarantees as a way to demonstrate their creditworthiness and financial standing.

Also, if one party fails, the other party can invoke the bank guarantee and get the guaranteed amount by filing a claim with the lender. Unlike a LOC, a bank guarantee protects the parties involved.

Types of Bank Guarantees

Bank guarantees are just like any other type of financial instrument - they can take a variety of different forms. For example, banks provide direct guarantees in both domestic and foreign operations. Indirect guarantees are usually issued when the subject of the guarantee is a government agency or other public entity.

The most common types of guarantees include:

  • Shipping Guarantee: This guarantee is provided to the carrier for shipments that arrive before any documentation has been received.
  • Loan Guarantee: An institution that issues a loan guarantee promises to assume financial obligations in the event of a borrower default.
  • Advance Payment Guarantee: This guarantee is used to support the performance of the contract. Basically, this security is a form of security to repay the advance payment if the seller does not deliver the goods specified in the contract.
  • Confirmed Payment Guarantee: With this irrevocable obligation, the bank pays the beneficiary a specific amount on behalf of the customer by a specific date.

Summary: What is the difference between a bank guarantee and a letter of credit?

Letter of Credit (LC)
A letter of credit is a promise by a bank to pay the beneficiary after certain conditions are met.
Often used by merchants engaged in the import and export of goods.
Protects both sides of the transaction, but benefits the exporter.
Example: A letter of credit can be used to transport goods or complete services.

Bank Guarantees (BGs)
A bank guarantee is a promise by the bank to pay the beneficiary in the event that the counterparty does not fulfill its contractual obligations.
Typically used by contractors to bid on large projects, such as infrastructure projects.
Protects both parties to the transaction, but benefits the beneficiary (usually the importer).
Example: A bank guarantee is used when a buyer buys an item from a seller, then the seller is in financial difficulty and cannot pay.

/ By tjchinafreight ivy / International

Export business risks

In recent years, the risk and even bad debts in the import and export business have been increasing, which not only causes interest loss, but also increases the risk factor with the passage of time, which has a serious impact on the sustainable development of foreign trade enterprises. Therefore, the issue of risk has increasingly become a topic of concern. Under normal circumstances, the risk of export receipts mainly includes the following six situations:

01The risk of receiving foreign exchange due to the inconsistency of the delivery specifications and dates with the contract

The exporter did not deliver as stipulated in the contract or letter of credit.

1. The production plant is late for work, resulting in late delivery;
2. Replace the products specified in the contract with products of similar specifications;
3. The transaction price is low, and it is shoddy.

02 Risk of foreign exchange collection due to poor document quality

Although it is stipulated that the foreign exchange should be settled by letter of credit and shipped on time with high quality, but after the shipment, the documents submitted to the negotiating bank did not match the documents and documents, so that the letter of credit promoted the due protection.

At this time, even if the buyer agrees to pay, it pays the expensive international communication fee and the deduction for discrepancies in vain, and the time for collection of foreign exchange is greatly delayed, especially for the contract with a small amount, the 20% discount will lead to a loss.

03 Risks caused by trap clauses stipulated in the letter of credit

Some letters of credit stipulate that the customer inspection certificate is one of the main documents for negotiation.
The buyer will seize the seller's eagerness to ship, deliberately picky, but at the same time propose various payment possibilities to induce the company to ship. Once the goods are released to the buyer, the buyer is very likely to deliberately inspect the goods for discrepancies, delay payment, or even empty both money and goods.

The letter of credit stipulates that the shipping documents will expire abroad within 7 working days after the issuance of the shipping documents, etc. Neither the negotiating bank nor the beneficiary can guarantee such terms, and must be carefully verified. Once a trap clause appears, it should be notified to modify it in a timely manner.

04 There is no complete set of business management system

The export work involves all aspects, and the two ends are outside, which is prone to problems.

If the enterprise does not have a complete business management method, once a lawsuit occurs, it will cause a rational and unwinnable situation, especially for those enterprises that only focus on telephone contact.

Secondly, as the company's customer base is expanding every year, in order for the company to have a target in trade, it is necessary to establish a business file for each customer, including creditworthiness, trade volume, etc., and screen them year by year to reduce business risks.

05 Risks caused by operations contrary to the agency system

For export business, the real practice of the agency system is that the agent does not advance funds to the client, the profit and loss is borne by the client, and the agent only charges a certain agency fee.

In actual business operations now, this is not the case. One of the reasons is that he has few customers and his ability to collect foreign exchange is poor, and he has to strive to complete the target;

06 Risks arising from the use of D/P, D/A forward payment methods or consignment methods

The deferred payment method is a forward commercial payment method, and if the exporter accepts this method, it is equivalent to financing the importer.

Although the issuer voluntarily pays the deferred interest, on the surface it only needs the exporter to make advances and loans, but in essence, the customer waits for the arrival of the goods and checks the quantity of the goods. If the market changes and the sales are not smooth, the importer can apply for the bank to refuse to pay.

Some companies release goods to classmates and friends who do business abroad. I thought it was a relationship customer, and there was no problem of not being able to receive foreign exchange. In the event of poor market sales or customer problems, not only the money cannot be recovered, but the goods may not be recovered.

/ By tjchinafreight ivy / International

Foreign exchange risk

What is foreign exchange risk?

Foreign exchange risk refers to the possible loss of international financial transactions due to currency fluctuations. Also known as currency risk, foreign exchange risk and exchange rate risk, it describes the likelihood that the value of an investment may decline due to changes in the relative value of the currencies involved. Investors may be exposed to jurisdictional risk in the form of foreign exchange risk.

Where does foreign exchange risk come from?

Foreign exchange risk arises when a company receives payments in one currency but pays fees in another. From the importer's point of view, the risk is that the foreign currency will appreciate because it means they will have to pay more for the imported goods. Instead, for exporters, the risk is that the foreign currency will depreciate against the Canadian dollar. If the exporter's foreign currency depreciates after selling to an international customer, the exporter's Canadian dollar will end up being lower than expected.

Companies are also exposed to foreign exchange risk when they create price lists at the start of the season, long before they invoice foreign customers, or when infrastructure projects require payment after each step of the project is completed. Once a formal agreement is reached with a supplier or customer, the company is at risk.

There is no one-size-fits-all strategy for reducing foreign exchange risk. A company's exposure is affected by many factors, including the volume of imports and exports, whether payment is made at the time of sale or at a later date, the currencies involved, and the countries where customers and suppliers are located.

All currencies fluctuate in value, and the Canadian dollar is no exception. Decisions about major interest rates by Canadian banks, energy prices, geopolitical conflicts, foreign acquisitions of Canadian businesses and many other factors can affect the value of our currency. Predicting currency movements is very difficult, and analysts' forecasts are not always reliable. That's why it's so important for companies to have policies in place to minimize this risk and protect their profitability.

Characteristics of foreign currency export sales

Applicability
Recommended for (a) highly competitive markets and (b) when foreign buyers insist on buying in local currency

Risk
Exporters are at risk of exchange rate losses unless foreign exchange risk management techniques are used

Advantage
Enhanced export sales terms to help exporters remain competitive
Reduce the risk of non-payment due to local currency devaluation

Shortcoming
The cost of using certain foreign exchange risk management techniques Foreign Exchange Risk Management
burden

Foreign exchange risk is divided into three categories:

Transaction Risk: This is the risk a company faces when purchasing products from a company located in another country. Product prices will be in the selling company's currency. If the selling firm's currency appreciates relative to the buying firm's currency, the firm making the purchase will have to make a larger payment in its base currency to reach the contract price.

Conversion risk: A parent company with a subsidiary in another country may face losses when the subsidiary's financial statements (which will be denominated in that country's currency) must be converted back to the parent's currency.

Economic Risk: Also known as forecast risk, refers to the continued exposure of a company's market value to the risk of inevitable currency fluctuations.
Companies exposed to foreign exchange risk can implement hedging strategies to reduce this risk. This often involves forward contracts, options and other exotic financial products that, if done right, can protect companies from unwanted foreign exchange fluctuations.

Currency Exchange Tips

Please be aware of any issues with currency exchange. Not all currencies can be freely or quickly converted into dollars. Fortunately, the U.S. dollar is widely accepted as an international trade currency, and U.S. companies can often ensure payments are made in U.S. dollars.
If the buyer requires payment in a foreign currency, you should consult an international banker before negotiating a sales contract. Banks can advise on any foreign exchange risk associated with a particular currency. The most direct way to hedge foreign exchange risk is forward contracts, which enable exporters to sell a certain amount of foreign currency at a pre-agreed exchange rate, with a delivery date ranging from 3 days to 1 year in the future.
If you can do business entirely in U.S. dollars, you may be able to avoid many of the difficulties and problems associated with currency exchange.