Tutorial - 01

Question 01

a) Explain the theory of comparative advantage and its significance in international trade.

Answer:
The theory of comparative advantage, introduced by David Ricardo, states that countries should
specialize in producing goods they can produce more efficiently (at a lower opportunity cost) and
trade with others to obtain goods they produce less efficiently.

Significance:

 Promotes efficient resource allocation.

 Increases global output and trade.

 Enables countries to benefit from economies of scale.

Example:
Sri Lanka has a comparative advantage in tea production due to favorable climate and expertise,
while Japan excels in electronics. By trading, both nations benefit.

b) Discuss the role of tariffs and quotas in international trade. Provide examples.

Answer:
Tariffs are taxes imposed on imported goods, while quotas limit the quantity of imports.

Roles:

 Protect local industries from foreign competition.

 Generate revenue for governments.

 Regulate trade balances.

Examples:

 The US imposes tariffs on steel imports to protect domestic producers.

 The EU limits sugar imports from non-member countries through quotas.

Question 02

a) Describe the main components of a Bill of Lading (B/L) and explain its significance in
international trade.

Answer:
Components of a Bill of Lading (B/L):

 Shipper and consignee information

 Description of goods

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  Vessel name and voyage number

 Port of loading and discharge

 B/L number and date

 Freight terms (prepaid/collect)

Significance:

 Serves as a receipt for goods shipped.

 Acts as a document of title to the goods.

 Functions as a contract of carriage between shipper and carrier.

 Used in bank transactions, e.g., under Letter of Credit (L/C).

b) Explain the role of shipping documents (excluding B/L) in international trade and their
importance in import and export processes.

Answer:
Other key shipping documents include:

 Commercial Invoice: Contains price, description, and terms of sale.

 Packing List: Details contents and packaging of the shipment.

 Certificate of Origin: Certifies the country of manufacture.

 Insurance Certificate: Confirms cargo insurance coverage.

 Import/Export Licenses: Official permissions for cross-border trade.

Importance:

 Ensure smooth customs clearance.

 Verify cargo identity and legality.

 Facilitate payments and compliance with regulations.

Question 03

a) Define Incoterms and explain their significance in international trade.

Answer:
Incoterms (International Commercial Terms) are standard trade terms defined by the International
Chamber of Commerce (ICC) to clarify responsibilities between buyers and sellers in global trade.

Significance:

 Clarify obligations on delivery, risk, and cost sharing.

 Reduce misunderstandings and disputes.

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  Used in international sales contracts and customs processes.

b) Analyze the responsibilities of buyers and sellers under three (03) different Incoterms 2020
rules.

Answer:

1. FOB (Free On Board):

o Seller: Loads goods on the vessel at port of shipment.

o Buyer: Takes over from the port; handles freight and insurance.

2. CIF (Cost, Insurance, Freight):

o Seller: Covers cost, insurance, and freight to destination port.

o Buyer: Bears risk after shipment, handles import formalities.

3. DAP (Delivered at Place):

o Seller: Delivers goods to agreed destination, covers all risks and costs until arrival.

o Buyer: Pays for import duties and unloading.

Question 04

a) Differentiate between the various types of charter contracts (e.g., time charter, voyage charter,
bareboat charter) and their respective features.

Answer:

1. Voyage Charter:

o Hired for a specific trip.

o Owner pays all operational costs.

2. Time Charter:

o Hired for a fixed time period.

o Charterer pays voyage costs; owner provides crew and maintenance.

3. Bareboat Charter:

o Charterer takes full control of vessel.

o Responsible for crew, maintenance, insurance, and operation.

b) Discuss the factors influencing the decision to charter a vessel rather than owning one for
specific cargo transportation needs.

Answer:

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  Cost savings for short-term or irregular transport.

 Avoidance of capital investment in ship ownership.

 Flexibility in changing market demand.

 Lower risk of maintenance and crew management.

Question 05

a) Define multimodal transport and explain its significance in modern supply chains.

Answer:
Multimodal transport involves the movement of goods using more than one mode of transport (e.g.,
sea, road, rail) under a single contract and operator.

Significance:

 Enhances speed and reliability.

 Reduces handling and documentation.

 Supports door-to-door delivery.

 Minimizes delays and risk of damage.

b) Discuss the advantages and challenges of using multimodal transport compared to single-mode
transportation (e.g., road, rail, sea).

Answer:

Advantages:

 Improved logistics coordination.

 Cost-effective for long distances.

 Reduced risk of theft and damage.

 Faster transit time.

Challenges:

 Legal complexities in multiple jurisdictions.

 Infrastructure compatibility issues.

 Higher coordination requirements.

Question 06

a) Define freight forwarding and elaborate on its role within the broader supply chain.

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Answer:
Freight forwarding is the process of arranging the shipment of goods on behalf of
exporters/importers through various transport modes.

Roles:

 Prepares documents (invoices, customs forms).

 Books transport and handles logistics.

 Coordinates with carriers, insurers, and customs.

 Ensures compliance and timely delivery.

b) Evaluate the significance of choosing the right transportation mode in freight forwarding.
Discuss the factors influencing the selection between air, sea, road, and rail transportation.

Answer:

Significance:

 Impacts delivery speed, cost, and cargo safety.

 Influences customer satisfaction and cost efficiency.

Factors:

 Urgency (air for speed, sea for bulk).

 Cargo type and size (fragile, perishable, heavy).

 Cost constraints.

 Destination and infrastructure.

 Environmental concerns.

Question 07

a) Write down four (04) Incoterms.

Answer:

1. FOB – Free On Board

2. CIF – Cost, Insurance, Freight

3. EXW – Ex Works

4. DDP – Delivered Duty Paid

b) What are the three (03) main types of vessel chartering and briefly explain them?

Answer:

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 1. Voyage Charter: For one trip; shipowner manages operations.

2. Time Charter: Vessel hired for a period; charterer controls routes and cargo.

3. Bareboat Charter: Full control and responsibility transferred to the charterer.

c) Explain under which conditions you need to select one out of the above three (03) types.

Answer:

Annual Cargo Vessel Trip Suitable

For regular high-volume shipments,

Ideal for one-off shipments or low

Question 08 – Plant Quarantine in Sri Lanka

a) What is plant quarantine?

Answer:
It is a regulatory measure to prevent the entry and spread of harmful pests and diseases in plants
and plant products during international trade.

b) What is the latest legislature in Sri Lanka that governs this space?

Answer:
Plant Protection Act No. 35 of 1999

c) Which government organization (service) in Sri Lanka helps with plant quarantine?

Answer:
Plant Quarantine Service under the Department of Agriculture, Sri Lanka.

d) Name three (03) plant quarantine strategies other than inspection at the port of entry.

Answer:

1. Pest Risk Analysis (PRA)

2. Post-Entry Quarantine (PEQ)

3. Phytosanitary certification at origin

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e) There are 8 different treatments done at a plant quarantine facility. Name four (04) of them.

Answer:

1. Fumigation

2. Heat treatment

3. Cold treatment

4. Irradiation