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Glossary of Trade Terms
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Factoring
In the export trade: the financial service consisting of the granting of a cash advance against accounts receivable from foreign customers. More generally, a range of financing and risk management services offered by specialised firms, called factors, to sellers/exporters, particularly those who deal with a stream of low-value, short-term foreign accounts receivable. The exporter transfers title to its foreign accounts receivable to a factoring house in exchange for cash at a discount from the face value. Other basic services offered by factors include: foreign credit risk assessment, collection of overdue foreign accounts, and administration of accounting ledgers.
FAK
A tariff term used for air freight, allowing for any type of commodity to be consolidated. A forwarder with a bulky light product can pack it with a smaller denser product allowing them to maximise the space and weight available.
FAS
Free Alongside Ship.
FAWG (Free at Wharf Gate) Loading Port/Discharge Port
An expression that is sometimes used in trans-Tasman trade because the trans-Tasman service sea freight rates include wharfage and wharf-handling charges at both ends. Marine insurance cover should be negotiated separately and clearly specified in contracts and invoices.
FB
Freight Bill.
FCA
Free Carrier.
FCL
Full container load
FCL/FCL
A way of quoting container freight rates in which the shipper loads the container and the consignee unloads the container.
FCL/LCL
A way of quoting container freight rates in which the shipper loads the container and the carrier unloads the container.
F&D
Freight and demurrage.
Fixed Term Contract
A Forward Exchange contract due on a specific date. These best suit a customer who wants to be certain of the date of delivery. If delivery takes place prior to due date (pre-delivery), the contract rate may be subject to adjustment.
FO
Free out.
FOB
Free on Board.
FOB Airport
Free on board airport; a trade or delivery term used when delivery is effected at an airport. Warning! No longer a valid Incoterm. It was withdrawn from use as a valid Incoterm because it was felt that the term was the source of much potential disagreement, especially as regards allocation of customs clearance and export handling charges. The suitable Incoterm to use is FCA.
F.O.C.
Free of charge.
F.O.D.
Free of Damage.
FOR
Free on rail. Warning! No longer a valid Incoterm, but still used by some traders. The problem is that there is on occasion confusion as to whether it only applies to rail shipments. The suitable term from Incoterms 2000 is FCA.
Force Majeure
A clause which protects the parties to a contract in the event that a part of the contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by exercise of due care. These causes may be earthquakes, floods, storms or war.
Foreign Exchange
The system or process of converting one national currency into another and of transferring money from one country to another.
Foreign Sales Agent
An individual or firm that serves as the foreign representative of a domestic
Foreign Trade Zone (also FTZ)
Special commercial and industrial areas in or near ports of entry where foreign and domestic merchandise may be brought in without being subject to payment of customs duties. Merchandise, including raw materials, components, and finished goods, may be stored, sold, exhibited, repacked, assembled, sorted, graded, cleaned or otherwise manipulated prior to reexport or entry into the national customs authority. Duties are imposed on the merchandise (or items manufactured from the merchandise) only when the goods pass from the zone into an area of the country subject to the Customs Authority. Foreign trade zones are also called free trade zones, free zones, free ports or bonded warehouses.
Forfaiting
The purchase by the forfaiter of an exporter’s accounts receivable which are based on negotiable instruments such as bills of exchange and promissory notes. In contrast to factoring, forfaiting involves a series of independent, medium to longer term obligations of higher value. Since the forfaiter purchases the bills on a non-recourse basis, they assume both commercial and political risk.
Forward Contract -Fixed Term
These contracts specify a ‘fixed’ future date at which it is anticipated delivery of the foreign currency will be effected. If delivery is made on the fixed date (expiry of the contract) the contract rate applies. However, delivery may be made at any time during the term of the contract but if prior to the stated due date (i.e. a pre-delivery) the contract rate may be adjusted in accordance with forward margins then applicable.
Forward Contract - Optional Term
Where an importer is uncertain of delivery date, they are faced with the possibility of an adjustment of the contract rate against them if they take out a fixed term contract and must deliver some considerable time before expiry date.
To remove this uncertainty, they may take out a contract with a firm rate quoted for delivery at any time within a stated period, e.g. usually 15 30 days.
Delivery within the optional period would be effected at the contract rate, while earlier deliveries would necessitate an adjustment to the rate as is the case for pre-deliveries under fixed term contracts.
Forward Deal
An agreement to buy or sell foreign currency against either New Zealand Dollars or another foreign currency for value on a date more than two business days from date of deal.
Forward Discount
The term applied to a foreign currency which is less expensive to trade forward than for spot settlement. A forward discount favours the buyer of the foreign currency and is always added to the spot rate e.g. importer.
Forward Exchange (FEC)
An arrangement entered into between customer/bank wherein customer agrees to buy/sell foreign currency from/to bank for delivery by an agreed future date.
Forward Margin
The premium or discount on forward rates against spot rates.
Forward Premium
The term applied to a foreign currency which is more expensive to trade forward than for spot settlement. A forward premium favours the seller of the foreign currency and is always subtracted from the spot rate e.g. exporter.
Forward Rate
The price of a foreign currency which is bought or sold for delivery and payment at a fixed future time, usually 30, 60 or 90 days. Forward transactions enable importers and exporters who will have to make, or will receive, payment in a foreign currency at a future time, to protect themselves against the risk of fluctuations in the spot rate.
FOT
Free on truck. Warning! No longer a valid Incoterm, but still used by some traders. The problem is that there is on occasion confusion as to whether it applies to motor vehicle or to rail shipments. The suitable term from Incoterms 2000 is FCA.
Franchising
A system based on the licensing of the right to duplicate a successful business format or industrial process. The franchiser (licenser) permits the franchisee (licensee) to employ its business processes, trademarks, trade secrets and ‘know-how’ in a contractually-specified manner for the marketing of goods or services. The franchiser usually supports the operation on the franchisee’s business through the provision of advertising, accounting, training and related services and in many instances also supplies products required by the franchisee for the operation of the franchise. The franchisee, in return, pays certain moneys to the franchiser (in terms of fees and percentage commissions) and agrees to respect contractual provisions dealing, inter alia, with quality of performance. The two principal kinds of franchise contracts are master franchise agreements, under which the franchiser grants another party the right to sub-franchise within a given territory, and direct or unit franchise agreements, which are direct contracts between the franchiser or sub-franchiser and the operator of the franchise unit.
Franco
The French term, in the context of European shipping, for ‘Free delivered’:the shipper pays all charges to a particular point. Warning! Non-standard term.
Free In and Out (FIO)
A transport or freight term which indicates that loading/discharging costs are not included in the freight; in the charter party context this means that loading/discharging are not the ship owner’s responsibility - the charterer is responsible for loading/discharging. Also possible to use either Free in (FI) or Free out (FO) independently. Also used with addition of stowed (S) and/or trimmed (T), e.g. FIOS or FIOST.
Free Into Store (FIS)
This is a price basis rather than a shipping term or an Incoterm. It is commonly used in sales to Australia.
The correct Incoterms are DDU or DDP, i.e. Delivered Duty Unpaid and Delivered Duty Paid .
Free Trade Area
A group of countries which agree to eliminate tariffs and other import restrictions on each other’s goods, while each participating country applies its own independent schedule of tariffs to imports from countries that are not members. Well known examples are the North American Free Trade Association (NAFTA), the European Free Trade Association (EFTA) and Mercosur.
Freight All Kinds (FAK)
A tariff term used for air freight, allowing for any type of commodity to be consolidated. A forwarder with a bulky light product can pack it with a smaller denser product allowing them to maximise the space and weight available.
Freight Forwarder
Assembles and consolidates small shipments into a single lot and assumes,in some cases, full responsibility for transportation of such property from point of receipt to point of destination.
FTZ
A group of countries which agree to eliminate tariffs and other import restrictions on each other’s goods, while each participating country applies its own independent schedule of tariffs to imports from countries that are not members. Well known examples are the North American Free Trade Association (NAFTA), the European Free Trade Association (EFTA) and Mercosur.
Funding
The placing of funds in overseas accounts in order to meet the bank’s daily requirements.
FX
The system or process of converting one national currency into another and of transferring money from one country to another.
 
 

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  • Agricultural and Processed Food Products Export Development Authority (APEDA)
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  • NCUI Building 3, Siri Institutional Area, August Kranti Marg, New Delhi - 110 016
    Phone : 91-11-41486013, 20863919, 20867008, 20867007