Tutorial - 03
**01. You are required to recommend the most suitable INCOTERM for an importer with
justifications, real international trade examples and should cover the following:
a. Cost
b. Risk
c. Obligations**
(12 marks)
Answer:
Recommended INCOTERM: CIF (Cost, Insurance & Freight)
Cost: Under CIF, the exporter pays for goods, freight, and insurance until goods reach the
destination port. The importer pays unloading, customs, and inland transport. For example, a
Sri Lankan company importing machinery from Germany under CIF Colombo pays only after
arrival.
Risk: The risk transfers to the importer once goods are loaded on board at the origin port.
Insurance is covered by the exporter.
Obligations: Exporter arranges export clearance, freight, and insurance. Importer handles
import clearance and delivery to final destination.
Real example: A Sri Lankan tea packager importing packaging machines from Italy using CIF terms,
reducing their exposure to shipping risks.
02. The business of ABC Importers and Traders Ltd is limited to the local market and they have
hired you as a consultant. Explain the business opportunities in the international market and how
to make money without bringing goods to local ports. Discuss the special import and export
scheme offered by the Sri Lankan government.
(12 marks)
Answer:
ABC can engage in merchant trading—buying goods from one foreign country and selling them to
another without importing goods into Sri Lanka, earning profits on the price difference.
Special schemes:
The Merchant Trading Scheme under Sri Lanka’s Exchange Control Regulations permits this
with proper documentation and inward remittance.
BOI incentives may also support export-oriented merchant trade.
Example: Buying solar panels from China and selling directly to Maldives, goods never enter Sri Lanka
but ABC profits from the trade margin.
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03. "Shipping documents play a vital role in international trade" and serve different purposes at
different stages in the import and export process. Discuss with examples.
(12 marks)
Answer:
Commercial Invoice: Details price and quantity, needed for customs and payment.
Bill of Lading: Serves as receipt of goods, document of title, and contract of carriage.
Packing List: Details packing for customs inspection.
Certificate of Origin: For tariff benefits under FTAs.
Insurance Certificate: Proof of cargo insurance.
Letter of Credit: Guarantees payment upon document presentation.
Example: A Sri Lankan exporter shipping textiles to the UK uses a Letter of Credit and Bill of Lading to
ensure payment and cargo ownership transfer.
**04. Free trade agreements are important but must be win-win and not harm domestic
industries.
a) Advantages of free trade agreements
b) Types of free trade agreements with examples
c) Disadvantages of free trade agreements**
(12 marks)
Answer:
Advantages: Lower tariffs, increased exports, more investment, job creation, innovation.
Types:
o Bilateral (e.g., Indo-Sri Lanka FTA)
o Regional (e.g., SAFTA)
o Multilateral (e.g., ASEAN FTA, RCEP)
Disadvantages: Loss of tariff revenue, local industry vulnerability, complex rules, possible
trade imbalances.
Example: Sri Lanka benefits from ISFTA for garment exports but local dairy farmers face competition
from cheaper imports.
**05. ABC (Pvt) Ltd has received a shipment of an item with equal merit of functions. Guide ABC to
find the correct H.S. Code covering:
a. Structure of the H.S. Code tariff
b. Factors to consider when classifying a commodity
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c. Purpose of the H.S. Code**
(12 marks)
Answer:
a. Structure: HS Code is a 6-digit international code:
o 2 digits: Chapter (product group)
o 2 digits: Heading (category)
o 2 digits: Subheading (specific product)
Countries may add 2+ digits for national classification.
b. Factors: Product composition, function/use, form, packaging, trade terminology, technical
specs.
c. Purpose: Standardize classification for tariffs, customs clearance, trade stats, FTA eligibility,
and compliance.
Example: For a multifunction kitchen appliance, classification depends on the function with the
“essential character” as per HS rules.
06. Explain the functions of a Bill of Lading and describe the concept of "clean bill of lading" and its
importance to buyers and sellers in international trade.
(12 marks)
Answer:
Functions:
o Receipt of goods by carrier
o Document of title (ownership)
o Evidence of Contract of carriage between shipper and carrier
Clean Bill of Lading: Shows goods received in good condition, no damage noted. Essential for
buyers to ensure shipment integrity and for sellers to secure payment under L/C.
Clause B/L
Example: Sri Lankan spice exporter uses clean B/L to assure UAE buyer of undamaged shipment and
to get payment from bank.
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07. Define the main types of ship charters and explain the role of the chartering broker.
(12 marks)
Answer:
Types:
o Voyage Charter: Hire ship for single voyage; owner covers crew/fuel.
o Time Charter: Hire for fixed time; charterer pays fuel and port costs.
o Bareboat Charter: Lease vessel without crew; charterer operates ship fully.
Chartering Broker Role: Acts as intermediary between owners and charterers; negotiates
terms, finds vessels, and advises market conditions.
Example: Sri Lankan cement importer hires a broker to charter a bulk carrier on a voyage charter
from Indonesia.
**08. a) Describe containerized multimodal transportation including container sizes, types,
advantages and disadvantages.
b) Describe import and export container receiving/delivery procedure to the port/terminal.**
(12 marks)
Answer:
a. Containerized Multimodal Transport: Combines transport modes using containers.
o Sizes: 20ft (TEU), 40ft (FEU), 40ft High Cube.
o Types: Dry, Reefer (refrigerated), Open-top, Flat rack, Tank container.
o Advantages: Reduced handling, less damage, efficient transfers.
o Disadvantages: Requires infrastructure, possible delays, coordination complexity.
b. Container Procedures:
o Export: Booking → container stuffing → delivery to port → customs clearance →
vessel loading → B/L issued.
o Import: Unloading at port → customs clearance → arrival notice → duties paid →
container gate-out → delivery.
Example: Freight forwarder manages container export from factory in Negombo to Colombo Port,
customs clears and loads on ship; importer clears and collects container at destination.
