CE Trade Documentation & Payment Methods 2 — Questions and Answers
Question 1: A U.S. exporter ships goods to Brazil under a letter of credit requiring a 'clean on board' bill of lading. The shipping company notes a damaged carton on the B/L. What is the result?
- The bank will honor the LC since only minor damage is noted
- The B/L becomes a 'claused' or 'foul' document and the bank will likely reject it (Correct answer)
- The exporter can request the buyer to waive the discrepancy directly
- The LC terms automatically adjust to accept claused B/Ls
Correct answer: The B/L becomes a 'claused' or 'foul' document and the bank will likely reject it
A 'clean on board' LC requirement means the B/L must show no damage notation; any exception clause makes it a foul B/L that banks will reject.
Question 2: Which Incoterm places the MAXIMUM responsibility on the seller, including delivery to the buyer's named destination with import duties paid?
- CIF (Cost, Insurance and Freight)
- DAP (Delivered at Place)
- DDP (Delivered Duty Paid) (Correct answer)
- FOB (Free on Board)
Correct answer: DDP (Delivered Duty Paid)
Under DDP, the seller is responsible for all costs and risks including import customs clearance and duties at the named destination.
Question 3: An exporter receives a documentary collection instruction marked 'D/P' (Documents against Payment). When should the buyer receive the shipping documents?
- Upon signing a trade acceptance draft
- Immediately upon arrival of goods at port
- Only after making full payment to the collecting bank (Correct answer)
- After the LC is confirmed by the advising bank
Correct answer: Only after making full payment to the collecting bank
Under D/P (sight draft), the buyer must pay the full amount to the collecting bank before receiving the documents needed to claim the goods.
Question 4: What is the primary purpose of a Shipper's Export Declaration (now AES filing) in U.S. export transactions?
- To certify the country of origin of exported goods
- To collect export trade statistics and enforce export controls (Correct answer)
- To provide the buyer with proof of shipment date
- To authorize the freight forwarder to act on behalf of the exporter
Correct answer: To collect export trade statistics and enforce export controls
The AES (Automated Export System) filing, which replaced the SED, is required by the U.S. Census Bureau to collect trade statistics and by BIS to enforce export controls.
Question 5: Under UCP 600 rules governing letters of credit, how many banking days does an issuing bank have to examine documents and decide to honor or refuse?
- 3 banking days
- 5 banking days (Correct answer)
- 7 banking days
- 10 calendar days
Correct answer: 5 banking days
UCP 600 Article 14 gives banks a maximum of 5 banking days following the day of presentation to examine documents and determine compliance.
Question 6: A forwarder-issued FIATA Multimodal Transport Bill of Lading (FBL) differs from a standard ocean B/L in that it:
- Covers only the ocean leg of the shipment
- Can only be used for containerized cargo in Asia-Pacific trade lanes
- Covers the entire multimodal journey under a single document issued by a freight forwarder (Correct answer)
- Is not accepted under letters of credit under any circumstances
Correct answer: Covers the entire multimodal journey under a single document issued by a freight forwarder
The FBL is a negotiable multimodal transport document issued by a freight forwarder that covers door-to-door or port-to-port movements across multiple transport modes.
Question 7: When an LC specifies 'latest shipment date: August 15' and 'expiry date: September 5,' what does this mean for the exporter?
- Goods must arrive at destination by August 15 and documents by September 5
- Goods must be shipped on or before August 15 and documents presented to the bank by September 5 (Correct answer)
- The LC expires on August 15 and September 5 is the buyer's payment deadline
- Both dates are interchangeable and either can be used for shipment or presentation
Correct answer: Goods must be shipped on or before August 15 and documents presented to the bank by September 5
The latest shipment date controls when goods must be loaded, while the expiry date is the final deadline for presenting compliant documents to the bank.
CE Trade Documentation & Payment Methods 2
A U.S. exporter ships goods to Brazil under a letter of credit requiring a 'clean on board' bill of lading.
The shipping company notes a damaged carton on the B/L.
What is the result?