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CIR: International Trade and Transaction Banking

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International Trade and Transaction Banking

International trade and transaction banking tests whether you can follow a transaction end to end - the goods, the documents and the money - and say which rulebook governs each leg. Questions cluster around Incoterms 2020 allocation of cost and risk, the choice between open account, collections and credits, and the documentary chain a bank actually examines.

Incoterms 2020: two families

Eleven rules. Any-mode: EXW, FCA, CPT, CIP, DAP, DPU, DDP. Sea and inland waterway only: FAS, FOB, CFR, CIF. Risk passes at the named place. Under C-terms (CFR, CIF, CPT, CIP) the seller pays carriage to destination but risk passes earlier - on board for CFR/CIF, on handing to the carrier for CPT/CIP. D-terms put risk at destination; DPU is the only rule requiring the seller to unload. Insurance is compulsory only under CIF (Institute Cargo Clauses (C) minimum) and CIP (Clauses (A)).

Three ways to get paid

Open account: the seller carries credit and country risk. Documentary collections under URC 522: banks handle documents but give no payment undertaking (D/P versus D/A). Documentary credit under UCP 600: a bank undertaking, independent of the sale contract. Interbank reimbursement runs under URR 725.

Worked example

CIF Shanghai, invoice USD 250,000 including USD 8,000 freight and USD 3,000 insurance. Goods are damaged mid-voyage. Risk passed to the buyer when the goods were on board at the load port, so the buyer claims on the endorsed insurance certificate. Had the term been CFR, the seller would still pay freight but the buyer would have arranged its own cover. Under FOB the seller's cost stops once the goods are on board, and the buyer also books and pays the freight. The invoice composition, not the risk point, is what changes between FOB and CFR.

Traps

  • FOB risk passes on board, not on arrival at destination.
  • FCA still permits an on-board bill of lading under Incoterms 2020.
  • Banks never guarantee payment under URC 522.
  • Clean describes a bill of lading with no damage remarks, not a collection type.