Answer the Folliwing questions…
(1) You are importing medical equipment from a supplier in Frankfurt, Germany. The Incoterms of the transaction are CIF New York. The contract calls for shipment to occur no later than October 15. Under which of the following scenario(s) is the seller deemed to have shipped late:
(a) The merchandise is placed on board a vessel in Germany on October 1 and the shipment arrives in New York on October 16
(b) The merchandise is placed on board a vessel in Germany on September 30 and the shipment arrives in New York on October 15
(c) The merchandise is placed on board a vessel in Germany on October 15 and the shipment arrives in New York on October 30
(d) The merchandise is placed on board a vessel in Germany on October 16 and the shipment arrives in New York on October 31
Answer: (d) The merchandise is placed on board a vessel in Germany on October 16 and the shipment arrives in New York on October 31
Explanation: The date of arrival has no relevance. The relevant factor is the date of shipment which the bill of landing establishes. Hence, the shipment which is considered to be late is the one that took place on October 16.
(2) You are a New York-based exporter of apples. You are selling to your buyers in Japan under the Incoterms FCA Newark airport. Under which scenario(s) do you, the seller, suffer a loss
(a) If when delivering to Newark Airport, the truck carrying the apples is involved in an accident outside the airport
(b) If when loading the apples onto the truck at the farm, the apples are damaged
(c) If when unloading the apples at Narita in Tokyo, the apples are damaged
(d) If when the airplane is taxing on the runway at Newark, the apples are damaged
Answer: (a) If when delivering to Newark Airport, the truck carrying the apples is involved in an accident outside the airport
(b) If when loading the apples onto the truck at the farm, the apples are damaged
Explanation: Under the terms of FCA, the passing of risks from the seller to the buyer takes place during the merchandise being delivered to the guardianship of the carrier.
(3) Which of the following costs should not be included in the sales price, under CFR terms
(a) Inland freight in the country of the exporter
(b) Ocean freight from the port of loading to the port of unloading
(c) Export clearance
(d) Inland freight in the country of the importer
Answer: (d) Inland freight in the country of the importer
Explanation: The inland freight in the country from which the importer belongs, is for the account of the buyer.
(4) When estimating the final cost of an imported product, which of the following Incoterms comes closest to the final cost
(a) FCA
(b) DPU – buyer’s warehouse
(c) DAP – buyer’s warehouse
(d) CFR
Answer: (c) DAP – buyer’s warehouse
Explanation: The Incoterm that comes closest to the final cost of the buyer is the DAP. The three other Incoterms which have been mentioned in the options incur several other costs, for example, inland freight in the country of importation and international transportation.
(5) The importer/buyer is required to purchase insurance under which of the following Incoterms
(a) CIF
(b) DAP
(c) CIP
(d) None of the above
Answer: (d) None of the above.
Explanation: The purchasing of insurance is not required for the importer or buyer, under any of the Incoterms mentioned above. However, in the case of CIP and CIF, the purchasing of insurance is done by the seller on behalf of the buyer.
(6) For an export sale from Turkey utilizing the Incoterm DDP buyer’s warehouse in New York, the date merchandise is considered delivered is:
(a) The date the merchandise is delivered to the carrier at the port of loading in Turkey
(b) The on-board bill of lading date
(c) The date the merchandise is unloaded from the vessel and made available to the buyer at the agreed-upon terminal in New York
(d) The date the merchandise is delivered to the customer’s warehouse
Answer: (c) The date the merchandise is unloaded from the vessel and made available to the buyer at the agreed-upon terminal in New York
Explanation: The date merchandise is transported to the pier at the port of shipment is irrelevant under DAT (Delivered at Terminal).
(7) Which of the following is not a valid Incoterm:
(a) CPT port of loading country of export
(b) FOB port of loading country of export
(c) FCA port of loading country of export
(d) CFR port of unloading country of import
Answer: (a) CPT port of loading country of export
Explanation: The flow of the risk is through the terminal or port of loading at a certain point, while the application of the term is done to the terminal or port of delivery.
(8) You are an importing company located in New York. You are purchasing silk pillows from a supplier in Thailand. While you will not be responsible for export clearance, the seller does not want to have any risk after shipment from Thailand (via ocean), nor do they wish to pay for international transportation. Which of the following Incoterms® addresses both parties’ concerns?
(a) EXW Thailand port
(b) DAP New York Warehouse
(c) FAS Thailand port
(d) CPT New York airport
Answer: (c) FAS Thailand port
Explanation: When cargo is added to existing the ship at the port of shipment, the risk transfers to the importer.
(9) You are a New York exporter of medical imaging equipment. You have a potential customer in Karachi, Pakistan. Export of the equipment requires an export license from the U.S. government. Under which Incoterm® are you not required to obtain the necessary license:
(a) FCA New York
(b) CPT Karachi
(c) FAS New York
(d) EXW New York
Answer: (d) EXW New York
Explanation: The seller is only needed to acquire export approval if the term EXW is used. When exporting under the terms of EXW, the exporter, would not have been obliged to get an export license.
(10) For the following, assume:
The seller is in Paris, France. The buyer is in New York
The original EXW Paris quotation is $25,000
Inland freight to the port of export – $250
Export documentation (export clearance) – $150
Ocean freight to New York – $900
Marine insurance – $100
Duty (import clearance) – 10% of EXW value
Inland freight from the pier in New York to the buyer’s warehouse – $200
The CIF New York price the seller should quote is:
(a) $25,000
(b) $26,300
(c) $26,600
(d) $26,400
Answer: (d) $26,400
Explanation: The calculation of CIF New York price starts with the EXW pricing and adds the costs of insurance, export documentation, inland freight, and ocean freight, that is,
$25000 + $250 + $150 + $900 + $100 = $26400
In the calculation of the CIF price inland freight from the pier in New York to the buyer’s warehouse, the cost of import clearance is not included since the costs are separate for the buyer.
