The Exporters? Pocketbook Essay, Research Paper
Sam Vaknin’s Psychology, Philosophy, Economics and Foreign Affairs Web SitesI. The Export Transaction and its DocumentsThe Transaction
Finding a market for the goods (market research)
Selecting the marketing channels
Negotiations
Pricing
Distribution channels
Order
Contract
Commercial Invoice
Commercial Invoice must include (minimum):
Payment Terms
Mode of Payment
Division of Costs
Details of Carrier
Details of Receiving Party
Details of Buyer
Other Details
For best results use the ECE (Economic Commission for Europe) Standard Commercial Invoice
Packing List must include (minimum):
Contents of the Packaging (=of the shipment)
If more than one package or outer and inner packing ? all contents per each packing and per each package must be detailed separately
Permits and Licenses
Export licenses if needed
Standards certificates
Labeling
Quality control certificates (highest is ISO, such as ISO-9002 or ISO-9000)
Health and phytosanitary certificates
Veterinary certificates
Other permits, licenses and certificates
Service Providers
Marine Transport
Air Transport
Land Transport (lorry, train)
Insurance
Warehousing
Banking and other Financial Services (factoring, forfeiting, etc.)
Airway Bill of Lading (ABL)
(More details later ? see appendices for samples)
Holder of ABL does not own goods
Air Transport Contract not effected ? but ABL proof of existence of such contract, including weight, measurements, number of packages and invoice.
Marine Bill of Lading (MBL)
Proof of receipt of goods in a certain condition
Proof of existence of transport contract
MBL facilitates the transfer of ownership
Negotiable, transferable and assignable
Subject to the Hague conditions and MUST INCLUDE:
Name and address of sender
Port of loading and Port of discharge
Date of lading and place of issuance of bill of lading
Name of vessel and number of voyage
Identity marks of cargo
Description of goods ? number of packing units, weight, volume
Condition of goods ? statement of carrier (if not stated ? the goods are in good condition)
?Clean on Board? not ?Foul?
Types of Bills of Lading (BL)
Shipped BL ? Goods are on deck of ship
Received for Shipment ? Prior to loading onto ship
Direct BL ? From origin to destination, transshipment not allowed
Ocean Through BL ? In case of transit involving a few carriers. In such a case, each carrier imposes its own conditions on each leg of the voyage and for the limited duration it handles the cargo.
Pure Through BL ? First carrier must transport from port of loading to a mid-point and is responsible for damages to the goods.
Combined Transport BL ? Pure BL which covers shipment by all means of transport (sea, air, land).
Forwarder BL ? An agent?s BL. Issued by an international forwarder.
Freight Forwarder BL ? BLs of the International Forwarders Association ? FIATA
Types of Insurance Policies (IP)
The IP is prepared by the insurance agent or the insurance company.
Open Time IP ? One time IP, used in air/marine transport. Policy expires with the completion of the transport (with delivery).
Open IP ? Open or current policy used to insure a number of shipments. Payment of premium only for actual shipments. Entails a declaration by the insured to the insurer pertaining to each and every shipment on a pre-determined basis (ad hoc, weekly, monthly and so on).
The rights of the insured party are NOT effected if it BONA FIDE forgot or had no time to declare to the insurer as per above, or if it gave the insurer a declaration containing wrong information. The right declaration can be filed even after the goods are lost or delivered.
Types of Certificates of Origin (CO)
Required by the authorities as a basis for customs duties and taxes discounts or exemptions under trade agreements.
Some destination require CO per each shipment. Others require CO only for specific goods. Sometimes the buyer demands a CO.
The exporter sends the CO to the buyer separately or with the goods.
Issued by the Chamber of Commerce, or by the Customs, or by the exporter itself or by its forwarder in trust.
EUR1 ? To the European Union
FORM A ? To the USA / NAFTA (the customs union of the USA, Canada and Mexico)
CO
Warehouse Receipt proves warehousing of goods in the port area. Needed prior to commencement of the release of the goods by the customs.
Orders
Inquiry
Indication / Quotation
Order
Firm Order
Acceptance (the order becomes a contract by accepting it)
Revolving Orders are considered contracts
Order through an agent ? identical to order issued directly by a buyer (Important: demand from the agent proof of agency or representation, such as a power of attorney)
Should include:
Price of Goods (including price ex factory, shipment / transport ? freight costs, insurance, port taxes and expenses, other taxes, customs costs, forwarding costs, costs of issuing certificates, permits and licenses)
IMPORTANT: Make sure WHO pays WHAT
Specifications of Goods ? Type of goods, quality, packing, number of units / quantity per package, packing sub-units
IMPORTANT: Prepare a sample for the buyer ? which will be WORSE than actually delivered goods.
Quantity and Delivery Terms
If it is an on-going (revolving) order ? get from the buyer a projection of its purchases in the future.
TIME OF DELIVERY IS CRITICAL !!!
Mode and Method of Payment
Transaction Documents
Documents demanded by the authorities (permits, licenses, standards and quality certificates, veterinary certificates, health certificates, labeling, etc.)
Transaction documents (bill of lading, certificate of origin, commercial invoice and specifications, port and customs clearances, banking documents, etc.)
Packing, Freight and Insurance
Define outer and inner packing and sub-packing (materials, shape, size)
Quantities
Measurements
Quality
IMPORTANT ? Get freight offers from a few forwarders/carriers and make sure ALL the components are included in the price quoted!!!
Remember:
All costs, including the insurance premiums, are negotiable.
USE an insurance agent or an insurance expert within your company. Insurance is a complicated subject and the insurance companies do their best not to pay on claims.
Proforma Invoice (PI)
Is actually an order and constructed as a commercial invoice ?
But a commercial invoice MUST be provided separately.
Seller sends PI in duplicate (=2 copies)
Buyer signs one copy and returns it to seller
Buyer can prepare order or PI on its letterhead and send it to seller
Must include mode of payment
Sale Contract
Use in case of a complicated transaction, the provision of services (or of goods which contain a service element ? for example, maintenance or training)
Sole Distributorship Contract
In case of doubt, use the ICC (international Chamber of Commerce) Model Contract (see appendix).
A distributor BUYS the goods and distributes them through a network of sub-distributors. He participates in advertising, marketing and sale promotion of the products he distributes. In return, he gets exclusivity for a certain territory, for a prescribed period of time and under certain terms and conditions. He does not distribute competing products and he uses a brandname.
An agent get a commission on sales generated through him ? but does NOT buy the goods.
The Sole Distributorship contract MUST include:
Definition of territory and products
Commitment to act bona fide and with best efforts
Roles of the distributor
Non competition clause
Distributorship and distribution channels
Fairs, exhibitions, advertising, marketing and sales promotion
Delivery terms and retail price list
Sales plan and minimum sales obligations
Sub-distributors and agents
Information exchange
Prices to distributor (distributor price list)
Sales outside the territory
Brandnames and Trademarks ? protection and allowed usage
Inventories and spare parts levels, maintenance and service
Exclusivity
Direct sales (by the supplier in the territory of the distributor)
Updates and upgrades
Validity and Expiry of the contract
Termination of the contract
Compensation for damages in case of early termination of the contract
Obligation to return documents and inventory to supplier in case of termination of the contract
Agency Contract
In case of doubt, use the ICC Model Contract (see appendix).
A Del Credere Agent undertakes to compensate the producer / manufacturer if the buyers (clients) default.
MUST include as a minimum:
Appointment of the agent by the seller
First right of refusal regarding new products
Exclusion of OEM (sale to a third party which rebrands the goods with his own brand)
Type of clients the agent may sell to
Exact geographical definition of the territory
Exclusivity (or lack of it)
Bona fide collaboration and commercial fairness
The roles and functions of the agent
Endorsement and adoption of orders concluded by the agent with buyers
No competition clause
Marketing, advertising, fairs and exhibitions
Minimal sales targets
Sub-agency
Obligation to exchange information
Financial arrangements (Del Credere, other)
Trademarks and brandnames
Complaints of clients and buyers
Right of seller to sell directly in territory of the agent
Special clients / buyers
Fees and commissions and formulas for their calculation
Right of seller to reject business
Expiry or termination date or absence thereof
Survival clauses and unfinished business in case of termination of the contract
II. The Process of ExportingGeneralized Process of Export
Order received
Letter of Credit or other payment document opened
Production and pre-export phases
Preparation of documents (EUR1, FORM A, specified invoice, licenses and permits, certificates of origin, etc.)
Instructions to forwarder and customs agent
Checking the prices of freight, insurance and forwarding
Commercial export (at the port facilities or customs terminal)
Receipt of documents (bill of lading, confirmed certificate of origin, etc.)
Presentation of documents at the bank and their transfer to the buyer?s bank
Payment received
The Phases of the Export Process
Phase A ? Decision
Phase B ? Preparations
Phase C ? Performance
Phase D ? Post shipment
Phase A ? DECISION Collect Information (internet, specialized databases, market research, meetings, travel, fairs and so on)
Proforma Invoice
Production, quantity, quality, delivery terms, licensing
Price offer (firm offer)
Sale or Supply Contract
MAKE SURE THAT ?
You are allowed to export the goods (no export restrictions on your goods)
Is there credit available for purchasing imported and domestically produced raw materials and parts ? going into your exported goods?
Can you honor the order? Do you have sufficient capacity, the right manpower, the needed financing? It is better to say no than to renege on a contract.
Phase B ? PREPARATIONS Import of raw materials / parts (imported or foreign inputs)
Purchase of imported raw materials / parts in the local markets (domestic or local inputs)
Financing the imports
Financing the production
Production
Preparation of documentation
Engaging customs agents and international forwarders
Insurance
Quality certification
Export license
Freight and transport arrangements
Certificate of origin
Consular confirmation
Phase C ? PERFORMANCEForwarding instructions to the customs agent
Packing
Withdrawal by customs agent
Preparation of invoice and specifications
Preparation of VAT claimback
Inspection of exported goods by authorities
Warehousing at the port
Custom clearance
Inspection of exported goods by the client
Port clearance
Authorization to load
Loading and release of documents
Receipt of bill of lading
Receipt of confirmed certificate of origin
Receipt of other documents
Phase D ? Post ShipmentFinancing the documents (=receiving payment)
Presentation of documents in local bank
Statistical registration
Tax and port tax rebates (in some countries)
Pricing the Exported Goods
Fixed Costs (Overhead) ? Administration, rent, accounting, amortization / depreciation, etc. Should be divided by man-hours or product units to determine their contribution to the costs.
PLUS
Variable Costs ? Directly related to the production process. Wages, raw materials, fuel, etc. Increases with increased production.
Incoterms Costs ? See Incoterms hereunder
Transporting the goods from factory to export port or terminal
Shipping the goods from export port or terminal to import port or terminal
Transporting the goods from import port or terminal to buyer.
III. IncotermsIncoterms
Last determined by the ICC in 1994. There is also a 1936 American version.
Used by all parties to an international trade transaction: buyer, seller, banks, financial institutions, agents, forwarders, insurance companies, carriers, government authorities, lawyers and courts.
See Appendix for detailed analyses of all 13 Incoterms
EXW (Ex Works) ? Seller provides goods in his factory yard. Buyer is responsible for all the rest, including loading the goods onto trucks in the seller?s yards. Best to add: ?loaded upon departing vehicle?.
FCA (Free Carrier) ? Seller provides export licenses, customs clearances and port documents to first carrier (determined by buyer) in an agreed location within the export country. Useful for MultiModal Transport (MMT) in land, air, or sea. Seller pays all port and customs inspection expenses. Seller?s responsibility ends with delivery to carrier. Buyer pays all expenses from point of delivery (transport, insurance, special inspections).
FAS (Free Alongside Ship) ? Seller delivers goods to a loading quay, alongside a ship, in an agreed port in export country. Buyer obliged to clear goods for export after having received loading documents from seller. Buyer pays all port expenses and expenses related to required documentation. Use only for marine freight.
FOB (Free On Board) ? Seller delivers customs-cleared goods with bill of lading, export license, all taxes and duties paid clean (unharmed) on board a vessel. Seller pays all expenses until goods are clean on board. Buyer determines carrier and pays the carriage (including loading expenses if part of the transport costs). Marine freight only. Best to add: ?stowed and trimmed?.
Buyer must insure itself when using an ?F? Incoterm.
CFR (Cost and Freight) ? Seller pays all expenses and transport costs to port of discharge. But responsibility for damage or loss or additional expenses is buyer?s after goods loaded and stowed under deck. Seller obtains customs and port clearances, licenses, contracts with the carrier and with the insurance company regarding transport of goods to the point of loading. Buyer must obtain the import licenses, release the goods in port of discharge, issue insurance and pay for transit and inspection of goods. Marine freight only.
CIF (Cost, Insurance, Freight) ? Seller arranges marine freight insurance for buyer and provides buyer with valid insurance policy in addition to obligations under CFR. Unless otherwise agreed, seller buys a limited ?C? policy. Best to add: ?free out?. It is important to mention the type of insurance and coverage sought by buyer.
CPT (Carriage Paid To) ? Similar to CFR but when MMT involved (car, train, ship and then airplane, for instance). Instead of On Board ? use First Carrier.
CIP (Carriage and Insurance Paid To) ? Similar to CIF but when MMT is involved. Responsibility reverts to buyer when goods delivered to First Carrier.
DAF (Delivered At Frontier) ? Seller to deliver export cleared goods at a precise point at the border of either import or export country. Buyer obliged to clear goods through customs terminal, to obtain import license and to bear all import related duties, fees and charges. Seller must inform buyer ETD (Expected Time of Delivery) and precise location of delivery.
If preceded by international marine or air transport, point of delivery will follow the Main Carriage (used in train transport).
DES (Delivered Ex Ship) ? Marine freight only. Seller must deliver export cleared goods to buyer on board a ship in port of discharge but has no responsibility to clear the goods for import in the destination country, to unload them and to ship them to final destination within the buyer?s country.
DEQ (Delivered Ex Quay) ? Marine freight only. Seller must deliver goods buyer outside the quay after unloading them from the ship and clearing them for import through port authorities and customs. Seller pays import taxes and port expenses. Seller must provide buyer with bill of lading and gate pass. Buyer must transport goods to his yards and if he does not must pay demurrage and warehousing.