1. the nature of logistics the growing

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1. The Nature of Logistics

The growing flows of freight have been a fundamental component of contemporary changes ineconomic systems at the global, regional and local scales. These changes are not merely quantitative(more freight), but structural and operational. Structural changes mainly involve manufacturingsystems with their geography of production, while operational changes mainly concern freighttransportation with its geography of distribution. As such, the fundamental question does not

necessarily reside in the nature, origins and destinations of freight movements, but how this freightis moving. New modes of production are concomitant with new modes of distribution, which bringsforward the realm of logistics; the science of physical distribution.Logistics involves a wide set of activities dedicated to the transformation and distribution of goods,from raw material sourcing to final market distribution as well as the related information flows.Derived from Greek logistikos (to reason logically), the word is polysemic. In the Nineteenthcentury the military referred to it as the art of combining all means of transport, revictualling andsheltering of troops. Today it refers to the set of operations required for goods to be made availableon markets or to specific destinations.

The application of logistics enables a greater efficiency of movements with an appropriate choice ofmodes, terminals, routes and scheduling. The implied purpose of logistics is to make available

goods, raw materials and commodities, fulfilling four major requirements:

Order fulfillment: Implies that the transaction between the supplier and the customer is beingsatisfied with the specified product provided in the agreed quantity.

Delivery fulfillment: The order must also be delivered at the right location and at the right time.Both involve the scheduling of transportation and freight distribution activities.

Quality fulfillment: The order must be provided intact (in good condition), implying that any formof damage must be avoided during transport and delivery. This is particularly important forproducts that are fragile, perishable or sensitive to temperature fluctuations.

Cost fulfillment: The final costs of the order, including manufacturing and distribution costs, mustbe competitive. Otherwise, other options will be considered.

Logistics is thus a multidimensional value added activity including production, location, time andcontrol of elements of the supply chain. It represents the material and organizational support ofglobalization. Activities comprising logistics include physical distribution; the derived transportsegment, and materials management; the induced transport segment.

Physical distribution is the collective term for the range of activities involved in the movement ofgoods from points of production to final points of sale and consumption. It must insure that themobility requirements of supply chains are entirely met. Physical distribution includes all thefunctions of movement and handling of goods, particularly transportation services (trucking,freight rail, air freight, inland waterways, marine shipping, and pipelines), transshipment and

warehousing services (e.g. consignment, storage, inventory management), trade, wholesale and, inprinciple, retail. Conventionally, all these activities are assumed to be derived from materialsmanagement demands.

Materials management considers all the activities related in the manufacturing of commodities inall their stages of production along a supply chain. It includes production and marketing activitiessuch as production planning, demand forecasting, purchasing and inventory management.Materials management must insure that the requirements of supply chains are met by dealing witha wide array of parts for assembly and raw materials, including packaging (for transport and


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retailing) and, ultimately, recycling discarded commodities. All these activities are assumed to beinducing physical distribution demands.

The close integration of physical distribution and materials management through logistics isblurring the reciprocal relationship between the induced transport demand function of physicaldistribution and the derived demand function of materials management. This implies that

distribution, as always, is derived from materials management activities (namely production), butalso, that these activities are coordinated within distribution capabilities. The functions ofproduction, distribution and consumption are difficult to consider separately, thus recognizing theintegrated transport demand role of logistics. Distribution centers are the main facilities fromwhich logistics are coordinated.

Distribution Center. Facility or a group of facilities that perform consolidation, warehousing,packaging, decomposition and other functions linked with handling freight. Their main purpose isto provide value-added services to freight. DCs are often in proximity to major transport routes orterminals. They can also perform light manufacturing activities such as assembly and labeling.

Since it would be highly impractical to ship directly goods from producers to retailers, distribution

centers essentially act as a buffer where products are assembled, sometimes from otherdistribution centers, and then shipped in batches. Distribution centers commonly have a marketarea in which they offer a service window defined by delivery frequency and response time toorder. This structure looks much like a hub-and-spoke network.

The wide array of activities involved in logistics, from transportation to warehousing andmanagement, have respective costs. Once compiled, they express the burden that logistics imposeon distribution systems and the economies they support, which is known as the total logistics costs.The nature and efficiency of distribution systems is strongly related to the nature of the economy inwhich they operate. Worldwide logistics expenditures represent about 10-15% of the total worldGDP. In economies dependent on the extraction of raw materials, logistical costs are comparativelyhigher than for service economies since transport costs account for a larger share of the total added

value of goods. For the transport of commodities, logistics costs are commonly in the range of 20 to50% of their total costs. How challenging individual countries are perceived to be in the setting andmanagement of supply chains can be assessed, as done by the Logistic Performance Index.

2. Infrastructure and Technology

Contemporary logistics was originally dedicated to the automation of production processes, inorder to organize manufacturing as efficiently as possible, with the least cost-intensive combinationof production factors. A milestone that marked rapid changes in the entire distribution system wasthe invention of the concept of lean management, primarily in manufacturing. One of the mainpremises of lean management is eliminating inventories and organizing materials supply strictly ondemand, replacing the former storage and stock keeping of inventory. The outcome is aspecialization of production and a greater variety of products.

Modern distribution systems require a high level of control of their flows. Although this control is atstart an organizational and managerial issue, its application requires a set of technical tools andexpertise. If technology can be defined by the level of control over matter, technology applied tologistics can be defined as the level of control of its flows, let them be physical and informationrelated. An important technological change relates to intermodal transportation, particularlycontainerization, which has been shaping the logistics system in a fundamental way.Containerization is now imbedded within production, distribution and transport.


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Logistics and integrated transport systems are reciprocal endeavors. More recently, theapplication of new Information and Communication Technologies (ICT) for improving the overallmanagement of flows, particularly their load units, has received attention. Thus, the physical as wellas the ICT parts of technological change are being underlined. The ICT component is particularlyrelevant as it helps strengthen the level of control distributors have over the supply chain. Thetechnological dimension of logistics can thus be considered from five perspectives:

Transportation modes. Modes have been the object of very limited technological changes inrecent decades. In some cases, modes have adapted to handle containerized operations such asroad and rail (e.g. doublestacking). It is maritime shipping that has experienced the most significanttechnological change, which required the construction of an entirely new class of ships and theapplication of economies of scale to maritime container shipping. In this context, a global networkof maritime shipping servicing large gateways has emerged.

Transportation terminals. The technological changes have been very significant with theconstruction of new terminal facilities operating on a high turnover basis. Better handlingequipment lead to improvements in the velocity of freight at the terminals, which are among themost significant technological changes brought by logistics in materials movements. In such a

context, the port has become one of the most significant terminals supporting global logistics. Portfacilities are increasingly been supported by an array of inland terminals connected by highcapacity corridors.

Distribution centers and distribution clusters. Technological changes impacted over thelocation, design and operation of distribution centers; the facilities handling the requirements ofmodern distribution. They tend to consume more space, both from the site they occupy and thebuilding area. From a locational standpoint, distribution centers mainly rely on trucking, implying apreference for suburban locations with good road accessibility supporting a constant traffic. Theyservice regional markets with a 48 hours service window on average, implying that replenishmentorders from their customers are met within that time period. They have become one storeyfacilities designed more for throughput than for warehousing with specialized loading and

unloading bays and sorting equipment. Cross-docking distribution centers represent one of theforemost expressions of a facility that handles freight in a time sensitive manner. Another tendencyhas been the setting of freight distribution clusters where an array of distribution activitiesagglomerate to take advantage of shared infrastructures and accessibility. This tends to expand theadded-value performed by logistics.

Load units. Since logistics involves improving the efficiency of flows, load units have becomeparticularly important. They are the basic physical management unit in freight distribution andtake the form of pallets, swap bodies, semi-trailers and containers. Containers are the privilegedload unit for long distance trade, but the growing complexity of logistics required a more specificlevel of load management. The use of bar codes and increasingly of RFID (Radio FrequencyIdentification Device) enables a high level of control of the load units in circulation.

E-commerce. Consider the vast array of information processing changes brought by logistics. Thecommodity chain is linked with physical flows as well as with information flows, notably throughElectronic Data Interchange. Producers, distributors and consumers are embedded in a web ofreciprocal transactions. These transactions mostly take place virtually and their outcomes arephysical flows. E-commerce offers advantages for the whole commodity chain, from consumersbeing exposed to better product information to manufacturers and distributors being able to adaptquickly to changes in the demand. The outcome is often more efficient production and distributionplanning with the additional convenience of tracking shipments and inventories.


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For logistics, ICT is particularly a time and embeddedness issue. Because of ICT, freight distributionis within a paradigm shift from inventory-based logistics to replenishment-based logistics. The shiftfrom a push to pull logistics is particularly important in a market economy. Demand, particularly inthe retailing sector, is very difficult to anticipate accurately. A closer integration (embeddedness)between supply and demand enables a more efficient production system with less wastes in termsof unsold inventory. Logistics is thus a fundamental component of a market economy.

3. Distribution Systems

In a broader sense distribution systems are embedded in a changing macro- and microeconomicframework, which can be roughly characterized by the terms of flexibilization and globalization:Flexibilization implies a highly differentiated, strongly market and customer driven mode ofcreating added-value. Contemporary production and distribution is no longer subject to single-firmactivity, but increasingly practiced in networks of suppliers and subcontractors. The supply chainbundles together all this by information, communication, cooperation, and, last but not least, byphysical distribution.

Globalization means that the spatial frame for the entire economy has been expanded, implying thespatial expansion of the economy, more complex global economic integration, and an intricate

network of global flows and hubs.

The flow-oriented mode affects almost every single activity within the entire process of valuecreation. The core component of materials management is the supply chain, the time- and space-related arrangement of the whole goods flow between supply, manufacturing, distribution andconsumption. Its major parts are the supplier, the producer, the distributor (e.g. a wholesaler, afreight forwarder, a carrier), the retailer, the end consumer, all of whom represent particularinterests. Compared with traditional freight transport systems, the evolution of supply chainmanagement and the emergence of the logistics industry are mainly characterized by threefeatures:

Integration. A fundamental restructuring of goods merchandising by establishing integrated

supply chains with integrated freight transport demand. According to macro-economic changes,demand-side oriented activities are becoming predominant. While traditional delivery wasprimarily managed by the supply side, current supply chains are increasingly managed by thedemand.

Time mitigation. Whereas transport was traditionally regarded as a tool for overcoming space,logistics is concerned with mitigating time. Due to the requirements of modern distribution, theissue of time is becoming increasingly important in the management of commodity chains. Time is amajor issue for freight shipping as it imposes inventory holding and depreciation costs, whichbecomes sensitive for tightly integrated supply chains.

Specialization. This was achieved by shifts towards vertical integration, namely subcontractingand outsourcing, including the logistical function itself. Logistics services are becoming complexand time-sensitive to the point that many firms are now sub-contracting parts of their supply chainmanagement to what can be called third-party logistics providers (3PL; asset based). More recently,a new category of providers, called fourth-party logistics providers (4PL; non asset based) haveemerged.

Logistics is thus concomitantly concerned by distribution costs and time. In addition, manydimensions are added to the function of distribution. While in the past it was a simple matter of


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delivering an intact good at a specific destination within a reasonable time frame, severalcomponents have become linked with distribution:

Distribution time, notably the possibility to set a very specific ETA for deliveries and a lowtolerance for delays.

The reliability of distribution measured in terms of the availability of the ordered goods and thefrequency at which orders are correctly serviced in terms of quantity and time.

The flexibility of distribution in terms of possible adjustments due to changes in the quantity, thelocation or the delivery time.

The quality of distribution concerns the condition of delivered goods and if the specified quantitywas delivered.

4. Geography of Freight Distribution

Logistics has a distinct geographical dimension, which is expressed in terms of flows, nodes andnetworks within the supply chain. Space / time convergence, a well known concept in transport

geography where time was simply considered as the amount of space that could be traded with aspecific amount of time, including travel and transshipment, is being transformed by logistics.Activities that were not previously considered fully in space / time relationships, such asdistribution, are being integrated. This implies an organization and synchronization of flowsthrough nodes and network strategies:

Flows. The traditional arrangement of goods flow included the processing of raw materials tomanufacturers, with a storage function usually acting as a buffer. The flow continued via wholesalerand/or shipper to retailer, ending at the final customer. Delays were very common on all segmentsof this chain and accumulated as inventories in warehouses. There was a limited flow ofinformation from the consumer to the supply chain, implying the producers were not well informed(often involving a time lag) about the extent of consumption of their outputs. This procedure is now

changing, mainly by eliminating one or more of the costly operations in the supply chainorganization. Reverse flows are also part of the supply chain, namely for recycling and productreturns. An important physical outcome of supply chain management is the concentration ofstorage or warehousing in one facility, instead of several. This facility is increasingly being designedas a flow- and throughput-oriented distribution center, instead of a warehouse holding costintensive large inventories.

Nodes and Locations. Due to new corporate strategies, a concentration of logistics functions incertain facilities at strategic locations is prevalent. Many improvements in freight flows areachieved at terminals. Facilities are much larger than before, the locations being characterized by aparticular connection of regional and long-distance relations. Traditionally, freight distribution hasbeen located at major places of production, for instance in the manufacturing belt at the North

American east coast and in the Midwest, or in the old industrialized regions of England andcontinental Europe. Today, particularly the large-scale goods flows are directed through majorgateways and hubs, mainly large ports and major airports, also highway intersections with accessto a regional market. The changing geography of manufacturing and industrial production has beenaccompanied by a changing geography of freight distribution taking advantages of intermediarylocations.

Networks. The spatial structure of contemporary transportation networks is the expression of thespatial structure of distribution. The setting of networks leads to a shift towards larger distribution


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centers, often serving significant trans-national catchments. However, this does not mean thedemise of national or regional distribution centers, with some goods still requiring a three-tierdistribution system, with regional, national and international distribution centers. The structure ofnetworks has also adapted to fulfill the requirements of an integrated freight transport demand,which can take many forms and operate at different scales. Most freight distribution networks,particularly in retailing, are facing the challenge of the "Last Mile" which is the final leg of a

distribution sequence, commonly linking a distribution center and a customer (store).

Since cities are at the same time zones of production, distribution and consumption, the realm ofcity logistics is of growing importance. This issue is made even more complex by a growingdislocation between production, distribution and consumption, brought by globalization, globalproduction networks and efficient freight transport systems (increasingly by logistics).

Total logistics costs consider the totality of costs associated with logistics, which includes transportand warehousing costs, but also inventory carrying, administration and order processing costs. Theabove graph portrays a simple relationship between total logistics costs and two importantcomponents; transport and warehousing. Based upon the growth in the shipment size (economiesof scale) or the number of warehouses (lower distances) a balancing act takes place between

transport costs and warehousing (inventory carrying) costs. This function differs according to thenature of freight distribution. There is a cutting point representing the lowest total logistics costs,implying an optimal shipment size or number of warehouses for a a specific freight distributionsystem. Finding such a balance is a common goal in logistical operations.

Standard Advanced CompleteWarehouse managementTransportationDispatchingDelivery documentationCustoms documentation AssemblyPackaging

ReturnsLabelingStock accountingOrder planning and processingIT managementInvoicingPayment collection

Services Offered by Third Party Logistics Providers

In addition to offering standard transportation services to its customers, such a transportation andwarehousing, third party logistics providers are delving into value added activities within

commodity chains.

Logistics & Physical Distribution

Introduction to Logistics & Physical Distribution The Exporter International Freight Forwarders Other Carriers and Operators


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Customs Inspectors & Brokers Packing Methods Cargo Insurance

Introduction to Logistics & Physical Distribution

Competence in logistics and transportation is an important component to the overall exportprocess. Assigning responsibility to a staff member to evaluate the various weights andmeasurements of potential shipments in different modes of transport is a good place to startunderstanding the quoting and shipping process.

Analyzing the different services of freight forwarders, airlines, steamship lines, inlandcarriers, packing companies and marine cargo insurance providers is a task which should benefitthe company greatly, whether it be for the first-time exporter or one that is considering expansioninto the overseas marketplace. Working together with export assistance agencies and exportservice providers will aid the progress and profits of the exporter.

This section discusses:

The parties involved in an international shipping transactionThe importance of weights and measures in the metric systemThe proper packaging of goods for export and information on marine cargo insurance

Physical Distribution & Export Strategy

Export distribution involves the physical act of moving products and is an integral part ofinternational trade. Companies of all sizes should become familiar with the distribution systemsbetween the origin manufacturing location and the targeted markets.

While many aspects of international marketing allow an exporter to be creative and unique,there is little room for error in export mechanics. The role of service providers in internationallogistics and transportation cannot be underestimated. Exporters should not operate in the Do ItYourself mode on these highly volatile and crucial procedures. It is best to leave this process to the

experts, who make their living by learning the most efficient and ethical transportation methodsavailable.

Numerous variables impact shipment logistics and distribution. Transportation modesimpact the total cost of the goods, which may fluctuate between nations in regards to requirementson packaging, labeling, transit times, perishability, and damage or loss of cargo. Mistakes in thisprocess lead to increased labor costs. Many hours of work can go into solving problems that couldhave been avoided by taking the time to learn the process in the first place. Familiarizing yourselfwith how a market imports its goods and how the goods reach the consumer before activelymarketing is a gesture that potential buyers appreciate.

Parties to the International Shipping Transaction

Often a number of businesses have temporary control over cargo and therefore haveresponsibility for its processing, handling, integrity and/or movement. The following parties areoften involved in an export shipment:

ExporterFreight ForwarderNon-Vessel Operating Common Carrier (NVOCC)


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Inland CarrierTerminal OperatorsOcean CarrierAir CarrierCustoms InspectorsCustoms Brokers

Note: In order to learn the international trade terms used in this and other sections, youmay wish to access the export glossary from the USDA, Foreign Agricultural Service section on"Recipe for Export Success: A Brief Tutorial for New Exporters."

The Exporter

The exporter, also known as the shipper or consignor, is responsible for accuratelydescribing the details of the merchandise being transported. When the exporter contacts anycarrier, freight forwarder or consolidator, he/she must relay a detailed description of the productsin order to obtain the correct prices and information for the handling, stowage, insurance andtransit time, among other details. These details include:

Description of the cargoOrigin and destination of the shipmentOrigin of manufacture of the goodsGross and net weight of each packageCubic measurement (in cubic feet or cubic meters)Marks and numbers on the goods for identificationType of quotation required based on the term of sale: EXW, FOB, CIFThe material value of the goodsType of marine cargo insurance required (also depending on the term of sale)

In some cases, the exporter may arrange for inland freight to the port of export and preparethe inland bill of lading, dock receipt and shippers export declaration, but these services are usuallyprovided by the freight forwarder. The exporter also usually prepares the commercial invoice,packing list and other regulatory documents to submit to the freight forwarder. Depending on thecountry of destination and the existence of a Free Trade Agreement, they may also prepare acertificate of origin. In the case of exports to NAFTA partners, only the exporter or themanufacturer of the goods can prepare the Certificate of Origin.

Weights & Measures

Most active exporters spend time creating pro forma invoices in order to offer their goodsfor export, in a given amount and at a specific location. This requires contacting service providers inthe business of moving cargo within the U.S. or between the U.S. and the foreign destination. This

includes trucking companies, logistics providers, freight forwarders, steamship lines and airlines.Their immediate interest is not just in the product itself, but also in the physical displacement of thegoods, measured in the metric system for export.

In order to arrive at a correct price for shipping, an exporter needs to convert allmeasurements into metric units. The following link is a helpful tool in accomplishing this task,although there are a variety of resources available.


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Dimensions & Density

Once you have the applicable conversions for your products, you can determine both thechargeable weight of your potential shipment and its density. Most transportation charges arebased not only on the actual weight of the shipment, but also on the chargeable weight, which is thevolume of space the shipment takes up in any given container. (This is most sensitive to air cargo,

but applies to other modes of transport as well.)

For air cargo, you need to multiply the length, width and height of each piece of freight toget a total amount of cubic inches. Divide that amount by 166 cubic inches, which is known as theDim Factor for dimensional weight. If the amount is lower than the actual weight, you pay on theactual weight. If it is higher, you pay on the Dim Weight and it will cost you more in freightcharges. Exporters should do this prior to requesting quotations from service providers.

Density is expressed in pounds per cubic foot. The higher the density, the more attractivethe freight rates should be. The volume is calculated by multiplying the length, width and height ofthe cargo, but in this case you would divide that by 1728, which is the amount of cubic inches in acubic foot (12x12x12 = 1728). Average density is 10.4 pounds per cubic foot, which is 1728/166(the dim factor). Anything less than 10.4 pounds per cubic foot will be charged on volume and

anything more should begin to lower your price because of the density of the freight, which allowsfor some negotiation in pricing.

Even with ocean freight, these formulas are good to know. For less than container load(LCL) ocean freight rates, the price is based on weight or measure of the cargo. Its based on onemetric ton or one cubic meter, whichever is greater. An example would by $125.00 W/MPhiladelphia to Rotterdam. The W/M stands for weight or measure.

If your cargo volume has a density of lower than 10.4 pounds per cubic foot, you will becharged in cubic meters rather than actual weight. For example, if you have 2 tons of goods and 3cubic meters of volume, you will be charged:

3 x $125.00 = $375.00

Instead of

2 x $125.00 = $250.00

Knowledge of these formulas is helpful to negotiate lower freight rates and makecompetitive pro forma quotations.

International Freight Forwarders

International freight forwarders handle both direct and consolidated shipments. A directshipment is sent on its own without being co-loaded with other goods. This could be an entirecontainer, truckload or airfreight shipment. Consolidated shipments are those where goods from

two or more parties are shipped together, adding weight and security to the shipment, and usuallylowering the cost of freight.

Services of an International Freight Forwarder

Freight forwarders facilitate shipments by air, vessel or other common carrier. Theirservices may include, but are not limited to:


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Ordering cargo to the port of exportPreparing export declarationsBooking, arranging for and confirming cargo spacePreparing delivery orders or dock receiptsPreparing ocean bills of ladingPreparing consular documents or arranging for their certification

Preparing and processing letters of creditArranging for warehouse storageClearing shipments in accordance with U.S. government export regulationsPreparing and sending advance notifications of shipments or other documents to banks,

shippers, consignees or agents as neededHandling freight or other monies advanced by shippersRemitting or advancing freight, monies or credit in connection with the dispatching of

shipmentsCoordinating the movement of shipments from origin to vesselObtaining the best possible ocean freight rates on the exporters behalfGiving expert advise to exporters concerning letters of credit, export documents, licenses,

inspections or complications with the cargos dispatch

Organizational Structure of Forwarders

Twenty years ago, companies specialized in direct air shipments, ocean shipments, airconsolidations, ocean consolidations or other distinct services based on product, market andindustry. Today, many international freight forwarders provide a complete logistical solution forexporters, from door to door. There are still exceptions which require a brief review of howforwarding services are organized.

The International Air Freight IATA Agent

International Air Transport Association, or IATA, is a governing body that allows

forwarders to collect a modest commission from the airline based on the freight rate applied to thecargo. IATA certification is based on the forwarder meeting specific financial and creditrequirements, having a presence of physical facilities and possessing professional qualifications andethical business practices. In turn, they are permitted to issue airline air waybills and represent theshipper to the airline and vice versa.

IATA agents may provide additional services to their customers. They often focus oncrating, packing, labeling and logistics and turn the cargo over to the airline or an air cargoconsolidator. In the food business, an exporter might find an IATA agent that specializes in certainperishable items, such as produce or seafood. IATA agents do not publish their own rates or issuetheir own waybills, so they do not provide consolidation services directly, although they couldassist in making those arrangements on behalf of an exporter.

The International Air Freight Forwarder

These companies are IATA agents as well, meaning they can handle direct shipments andprepare the airline air waybill. In addition, they issue their own air waybills, known as House airwaybills and publish their own rates. With the issuance of house air waybills, they are transportingmerchandise under their own name, with what is known as a Master airway bill. In a consolidatedshipment there can be multiple house air waybills associated to a master air waybill.


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International Air Freight Forwarders provide consolidations of air cargo shipments todestinations around the world, and in providing the airline with volume shipments, are able tocollect the IATA commission in addition to commission based on performance. They usually have anetwork of their own offices or agents in major cities around the world and now in developingcountries as well. The overseas offices can provide valuable information about regulations, duties,taxes and prices for services provided at the destination. Taking advantage of air consolidation

freight rates makes your landed cost more attractive to the buyer and should be considered if themode of transport is airfreight.

International Ocean Freight Forwarder

These companies need to be licensed by the Federal Maritime Commission (FMC). Like IATAagents, they do not publish their own rates or issue their own bills of lading, as they dont provideconsolidation services. Their services to the exporter include: coordination of cargo, booking withthe steamship line, crating, packing and document preparation.

The International Ocean Freight Consolidator

This type of company is referred to as an NVOCC, Non-Vessel Operating Common Carrier, oran NVO. NVOs provide services that are very similar to the International Air Freight Forwarder.They are licensed by the FMC and can also provide the services of an Ocean Freight Forwarder.They are licensed to publish their own rates and issue their own ocean bills of lading, transportinggoods under their own name. This is a very similar process as the master and house air waybillsused with air freight consolidations.

If an exporter has a shipment that needs to move by sea freight and does not have enoughvolume to warrant the purchase of an entire container, the NVOCC is a logical choice, as they canload the shipment into a container with other cargo and provide a competitive rate for theirservices. As mentioned in previous sections, many value-added food importers today are askingtheir suppliers to send the shipment to a location near an ocean port and have the shipmentconsolidated into a container with similar sized shipments from other suppliers.

Many international freight forwarders provide both export services for ocean and airfreight, directly and consolidated.

This means that:Whatever mode of transport you need,In whatever size shipment,To whatever destination you need,You are often able to use the same company to accomplish all of your export transactions.

Documentation Services

Exporters can either prepare the export documents they are responsible for or choose touse the services of a forwarder. Under normal circumstances, the freight forwarder prepares theinland bill of lading or dock receipt, but can also prepare:

Ocean bill of lading master: The forwarder provides this to the steamship line, which inturn produces its own original bill of lading after the departure of the vessel.


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Consolidator bill of lading: This is issued by the NVOCC for ocean shipments which are beingexported in a consolidation with other goods.

Master air waybill: This is different from the ocean bill of lading and is the airline airwaybill that the carrier allows the freight forwarders to prepare on their behalf. They are usedeither alone on direct shipments, which cannot be consolidated due to their perishable nature or in

some cases lack of other cargos destined for certain locations, or as the master of a consolidated airshipment which is accompanied by two or more house air waybills in a consolidation.

House air waybill: These are issued by the freight forwarders in-house and are contractsof carriage between the forwarder and shipper as the master becomes a contract of carriagebetween the forwarder and airline on consolidated shipments.

Consular invoice: When the consulate of the foreign country requires their own invoice andpresentation of the export documents to them for inspection, the forwarder usually makes thesearrangements.

Shippers export declaration: This document is required for all exports from the U.S. whichare valued over $2500 per Schedule B number, or those on an exporter license, such as exports toCuba or other controlled destinations. The forwarder usually submits this electronically on behalfof the exporter, although the exporter may also submit it himself.

Insurance certificate: When the forwarder issues a marine insurance policy, he/she can alsoissue a certificate of insurance for a nominal fee. If the export will be paid under a letter of creditand insurance is required, this becomes mandatory as the buyers bank will need proof of insuranceto effect the payment.

There may be other documents prepared, depending on the nature of the goods, the type ofshipment, the regulatory requirements of the U.S. and foreign government and requests by thebanks, seller and buyer.

To review a document which illustrates the services of the freight forwarders coordinationwith other service parties and regulatory agencies, click here.

Selecting the Right Freight Forwarder

International forwarders are not all alike in size, services and capability. Some have acompetitive advantage in shipments going by ocean rather than airfreight, while others havestrength in cross-border trade to Mexico or Canada. Some might have more volume in business;therefore better pricing for certain destinations worldwide. If an exporter has shipments tocompletely different areas of the world or of different sizes, he/she may want to employ more thanone freight forwarder. It is always important to choose the right forwarder for your type ofbusiness, unless the buyer has selected a forwarder and is paying for all or most of the charges on acollect bases. (This is known as routed cargo in the international freight forwarding business, but

is usually more common with airfreight than sea freight shipments.)When choosing a freight forwarder, consider your own level of experience in international

trade. Your experience will dictate how dependent you will be on their advice, support andhandling of cargo. If you are new-to-export, your level of dependence will be greater. Some generalguidelines for selection include:

FMC or IATA licensing,NVOCC or airfreight consolidation servicesKnowledge and experience with products similar to yours


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Capability to work with your mode of transportAn office or agent in the destination market and good communication with the officeThe ability to provide reference from other customers, carriers and banksProperly located facilities with adequate equipmentPatience in explaining terms and procedures so you can understand them

This link will take you to the database of forwarders from the Agricultural MarketingServices Transportation Services Branch.

Other Carriers and Operators

Inland Carriers

Inland carriers are independent companies that perform services for shippers or freightforwarders. Because the U.S. has such a large interior, inland transit time and costs play a crucialrole in competitive export pricing and service. Inland carriers usually provide the followingservices, with prices based on origin, distance to port and type of merchandise:

Pick up shipment from exporterReceive delivery instructionsDeliver cargo to port of export (or other location)Obtain signed dock receiptNotify forwarder or exporter of delivery to port (or other location)

There are a couple of other names used for inland carriers, based on the mode of transportfor the export and the distance from pick up to delivery. Cartage agents are usually involved inlocal pick up and delivery within a 50-mile radius of a metropolitan area. They handle pick-ups foreither air cargo shipments or for ocean freight that is to be consolidated locally. Drayage agentswork at a local trucking company that spots (drops off) and picks up containers once they areloaded for export. They either deliver the container to the port of export or to a rail line for further

inland transport. Rail carriers are also integral to the export business, as they can deliver oceancontainers or truck trailers from an inland location to the port of export.

It is a good idea to evaluate the costs and services of all carriers in order to determine themost efficient method of inland transport. Freight forwarders will also provide this service.

A Note on the Inland Bill of Lading

Although not considered an export document, the inland bill of lading is an importantdocument used to communicate the pre-main carriage details of the shipment. This B/L as theindustry says, is used by a variety of service providers in order to place the goods at the rightlocation at the correct time to take the appropriate action in the processing of the export. Thefollowing companies are the ones with direct interest and responsibility for acting on the

information provided in the inland bill of lading:The carrier which picks up the shipment at your facilityThe terminal of the carrier at the port of export (or other location)The workers in the warehouse where the shipment is deliveredThe cartage agent who delivers the shipment from the terminal of the carrier to the airport

or pierThe terminal operators who position the shipment according to the instructionsThe freight forwarder who is handling the shipmentThe exporter or forwarder responsible for paying for the inland carriage


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Terminal Operators

Terminal operators control the logistics of the port on behalf of the steamship lines and theport authorities. Their main task is to coordinate the flow of goods into and out of the port. They areusually involved in the following procedures:

Controlling truck or rail trafficChecking delivery orders or dock receiptsAssigning a checker for loading and unloadingLoading containers at the container freight stationControlling the parking location of containersAssigning stowage allocationsCoordinating movement of containers to vesselsLoading and securing the containers on the vessel

Ocean Carriers

Ocean carriers provide the main carriage from port of export to port of import, but also may

be involved in the pre-main carriage or post-main carriage transport. Exporters should obtainmultiple quotations for these services, as rates vary among service providers. Their services includethe following:

Accepting cargo bookings from shippers or forwardersDispatching containers to origin locations (known as drayage)Processing bills of lading (not master but original)Preparing freight invoices, manifests, arrival notices, delivery receipts and stow plansFiling export declarations with customs (if not done by shipper or forwarder)Notifying consignees (buyers) of arrival and availability of cargoArranging inland transportation at destination (if required)

Air CarriersAir carriers, such as FedEx and UPS work with shippers directly. However, in the export

business, most work with freight forwarders on consolidated cargos. Chilled, frozen, perishable orother controlled goods cannot be consolidated and a direct shipment is required. In this case, anexporter might work with the air carrier directly. The airfreight business moves at a much morerapid pace than that of sea freight and involves fewer steps.

In some cases, you might get a better overall price if you ship your goods in an air containerrather than in a consolidation. This depends on the carrier price, the size, weight and dimensions ofthe cargo and the destination. Often your air shipment may move in an air container that has beentendered by the freight forwarder if part of a larger consolidation.

To review the types of containers used by airlines click here.

Customs Inspectors and Brokers

Customs Inspectors

The word customs is generally associated with imports, but export shipments must clearcustoms as well. The shippers export declaration includes a customs evaluation prior to exportfrom the United States. If the shipment is suspicious in any way, customs may call for a document


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inspection. If there is still concern, the cargo may be inspected and the exporter may be charged forthe inspection time. Customs inspections may also delay the departure of the shipment.

In both the U.S. and abroad, customs enforces import laws and regulations and collectsduties and taxes. Customs uses the Harmonized System (HS) codes, the declared value of the goodsand the country of origin of manufacture, among other more specific details, such as complete

documentation, for regulation.

An exporter should know the tariff number of the goods before shipping them in order toassist the importer and the customs broker. Accurate invoicing, complete shipment details andproviding the correct country of origin help to simplify the import process.

Customs Brokers

A customs broker represents the importer to customs in order to admit the goods into theircountry. Brokers can help the exporter understand the regulations and documentation required forsuccessful customs clearance. If an exporter is in doubt regarding shipment requirements, it isappropriate to have the buyer check with their customs broker, or to contact the broker directly.

Many overseas offices or agents of U.S.-based freight forwarders employ customs brokersand can provide on-the-ground information about customs requirements. If the exporter maintainstitle to the goods at the destination and is responsible for clearing and delivering the goods, he orshe will probably use the services of this office as well. At a minimum, customs brokers provide thefollowing services:

Evaluate exporters documents for accuracyPrepare required customs entry forms and file with customsPay customs duties and taxes on behalf of the importerEffect customs and freight releaseVerify information on bill of lading and prepare delivery ordersCoordinate with the inland carrier for pick up and delivery of imported cargo

Packing Methods

In addition to obtaining competitive freight rates and services, a shipper should ensure thatthe product will arrive in excellent condition. Of particular concern are products of a perishablenature, such as frozen and chilled foods as well as processed and packaged foods, drinks and juices.Important considerations include:

Effective packaging and labelingTemperature, humidity and other environmental controlsWell-maintained transportation equipmentProper loading, in-transit monitoring and unloading

Products must be protected from:Rough handling during loading and unloadingCompression from the overhead weight of other product containersImpact and vibration during land, ocean and air transportationRolling, pitching, yawing, heaving, swaying and surging during ocean transportationLoss or gain of moisture due to the surrounding airHigher or lower than recommended temperatures


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Cross-contamination or odors from other products or residues

By using top-quality packing products, shippers can help ensure good arrival condition oftheir goods. Effective packaging, environmental controls and proper transportation equipment areessential. The complexity of packaging often calls for specialized responsibility within a company orthe use of third party experts who can evaluate and design specific solutions for any given situation.

Packaging materials should be chosen based on product and environmental considerations.Factors to be considered include: method of packing, temperature, humidity and desiredatmosphere around the product, packaging strength, cost, availability, buyer specifications,graphics, labeling, freight rates and government regulations. Packaging manufacturers, foreignbuyers, wholesale markets, retail stores, packaging magazines and consultants are importantsources of information on current packaging trends and desires.

Packaging should be standardized to facilitate unit loading on standard-size, reusablepallets in the United States, Europe and other countries. Pallet handling and leasing companies havebeen established in response to economic and environmental concerns.

Boxes should be sized and filled in accordance with the importers desires. Oversized boxesthat weigh more than 20 kg (44 lbs) encourage rough handling, product damage and containerfailure. Excessive weights and damaged packaging are common complaints of importers of U.S.meat products who receive boxes weighing up to 45 kg (100 lbs).

Overfilling causes product damage and excessive bulging of the box, which leads to reducedcompression strength and container failure. Under-filling also may cause product damage. Theproduct may be bruised as it moves around inside the box during transport and handling.

Widely used packaging materials include:Fiberboard: Pallets, slip-sheets, bins, boxes, lugs, trays, flats, dividers and partitionsWood: Pallets, bins, crates, baskets, trays and lugs

Paper: Bags, sleeves, wraps, liners, pads, excelsior and labelsPlastic: Pallets, bins, boxes, trays, bags, containers, sleeves, film wraps, liners, coatings,dividers and slip-sheets

Polystyrene: Foam boxes, trays, lugs, sleeves, liners, dividers and pads

Product packaging checklist for exporters

Before shipping, consider the following:

The mode of shipping. Does it make sense to use air or ocean freight? Will you have to useroad or rail for part of the journey? Look into the options and conduct a cost/benefit analysis.

Whether to ship directly or indirectly. Will your goods be sent to the buyer directly? Is therea distributor or warehousing facility involved in the process? How will this affect your costs andability to fill the order?

Suitable packaging for the shipment. This will depend on the mode of shipping, thedestination, the number of stops (and storage), the fragility of the goods and their sensitivity toenvironmental changes. It is critical to use suitable internal protection as well as a durablecontainer. You may also want to consider shock and tilt indicators for packages that may besusceptible to overzealous handling.


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Application of appropriate markings to the package. While they do not guarantee damage-proof shipping, handling labels may potentially minimize the abuse your shipment experiences. Ofcourse, handling labels are most effective when the people handling the packages can understandthe language or symbols used.

Including all relevant information on packages. This information includes port of

destination, transit instructions, contact information of the consignee, package dimensions andweight, package number and invoice or order number.

Cargo Insurance

Marine Cargo Insurance

Most food companies are very familiar with transportation insurance, where they areresponsible for loss or damage in transit. Insurance that covers loss or damage to goods beingshipped internationally is called marine cargo insurance.

The potential for loss to the exporter is much greater than doing business domestically. Thedifference is in insurable interest. Shipping domestically in the US, a company generally quotesFOB, Factory. Under U.S. law, when this trade term is used, a company is able to pass the risk of loss

and title of the goods to the buyer, at their dock. At this point in the domestic transaction, theshipper no longer has an insurable interest in the product shipped. In international trade, theopportunity to pass risk of loss at the dock is much less frequent, and therefore, a company mayhave an insurable interest in the goods all the way to the port of import or beyond.

Where to Purchase Marine Cargo Insurance

Most international freight forwarders will provide marine insurance to you under theirblanket policy. The cost per $100 of value may be higher due to the fact that their policy must beable to cover a multitude of products and coverage. One of the advantages of purchasing insurancethrough the forwarder that handles the shipment is that the transaction is well known to them andthey already have most of the paperwork on file.

The second means of obtaining air cargo and ocean marine insurance is through anindependent agent or marine insurance broker. The agent or broker often represents insurancecompanies that specialize in ocean and air cargo insurance. The insurance agent can offer a range ofcoverage options. Depending upon the size and scope of the shippers operation, the marineinsurance policy will come in the form of an open cargo policy or a special marine policy.

Open Cargo Policy

Open cargo policies are used when the shipper has a continuous flow of goods beingshipped over a period of time. The open cargo policy contains no expiration date and providesautomatic coverage when needed. The policy is customarily issued on a warehouse-to-warehouse

basis which provides the shipper continuous coverage throughout the normal course of transit.Open cargo policies can also be tailored to meet a shippers many specific needs, such as returnedor refused shipments, warehouse exposures outside the scope of the policy, inland transit andshipments sold on terms other than under CIF/CIP.

Since the policy provides automatic coverage, it usually lists the insured partys name, thecargo covered, the insuring conditions, areas of the world that coverage is granted and theinsurance rates. The shipper is required to submit a monthly report of all shipments that haveoccurred under the policy and pay a premium on those shipments at the agreed upon insurance


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rates. Depending on the shippers needs, the open cargo policy may offer the broadest possibleinsurance terms for the lowest price.

Special Marine Policy

The special marine policy is designed to provide coverage to individual shipments. This

policy provides the same coverage available under the open cargo policy. However, it does notprovide automatic coverage. Once the shipment has been completed and coverage has ceased, thispolicy automatically terminates.

When to Insure

Whenever goods leave the U.S. to a foreign country, the goods should be insured, either bythe seller or the buyer. For the seller, insurance may be obtained either by using your own openpolicy or that of your freight forwarder. Whenever you insure the goods, make sure that coverage isin force from warehouse to warehouse, plus 60 days. This allows time for the buyer to discoverconcealed damage. An alternative to using your own policy or that of your forwarder is purchasinginsurance from the carrier. The carriers insurance will only cover the goods while they are in th e

hands of the carrier and concealed damage will result in only partial recovery from the carriersinsurance.

How Much to Insure

Typically, international shipments are insured for 110% of the total CFR/CPT value of thegoods. The terms CFR and CPT include the cost of the goods and all costs of transportation,forwarders fees and export boxing, up until the time that the goods arrive at the foreign port ofunloading. Some buyers or letters of credit require an insured amount of 115-120% of the goodssold, but 110% is an industry standard.

The reason for the increase is to cover the value of the insurance in the policy, as well as any

unexpected increases in handling, storage or other accessorial fees during transit that add to theoverall value of the invoice and the landed cost of the goods. Marine insurance can cost as little as$0.15 per $100 of value to $2.50 per $100 of value, depending on the coverage the deductiblesincluded in the policy and the standard risk of loss normally experienced by your product.

Calculating the Value for Insurance

The following is a basic example of how an exporter might issue a pro forma invoice for aCIF or CIP quotation, which includes marine cargo insurance. This represents a Cost, Insurance andFreight quotation according to the Incoterms, based on the mode of transport, which is all thatseparates the two. This is similar to the American Foreign Trade Definition of CIF. It is a verycommon method of export quoting, especially if done by ocean freight.

The sale price of the goods, $9,200.00 is added to the packing costs, inland transport,documentation and main carriage, which brings the Cost and Freight or Carriage Paid To priceto $11,500.00. (Again, the two terms are used here based on the mode of transport CFR and CIPquotations are for inland waterway and maritime shipments only; CPT and CIP are for all modes oftransport.) Multiply the CFR/CPT by 110% and get a value to be insured of $12,650.00.


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The insurance rate in this example is $0.55 per $100.00 of value. Take the value to beinsured $12,650.00 and multiply it by .0055 to make it $0.55 per $100.00 and not $0.55 per $1.00.The insurance premium is $69.58. Add this amount to the total CFR/CPT price, not the value forinsurance, which is 10% higher. The total CIF/CIP price then is $11,569.58.

Invoice Value $9,200.00

Packing $200.00

Inland Transport $400.00

Documentation $200.00

Main Carriage $1,500.00

Total CFR/CPT $11,500.00

Total CFR/CPT + 10% $12,650.00

Insurance Rate $0.55/$100.00

Insurance Value $12,650.00 x 0.0055

Insurance Premium $69.58

Total CIF/CIP $11,569.58

Kinds of Losses Covered

The Standard All Risk marine insurance policy covers losses incurred due to perils of thesea, fire, explosion, collision, derailment, overturn, wind, earthquake, flood or collapse of docks.Additional coverage can be added such as theft, pilferage, non-delivery, fresh water damage, oil

damage, damage due to sweat and condensations, breakage, leakage, etc. In addition, a clause in theinsurance free of particular average means that the insurance will cover partial losses in additionto total losses.

General Average is a coverage found on most policies. It represents a loss to the carrierbased on the value of the goods on board. For example, if an ocean vessel requires a tug to pull it offof a sand bar; those companies that have cargo on the ship will pay the cost of tug services. This feewill be charged against the cargo and the goods may not be claimed at the destination withoutpresenting either evidence of insurance coverage or a cash deposit representing the proportionalamount of the claim due for the goods.

Other additional clauses that are generally added by endorsement are riots and civil

commotion, and war risk. When you purchase your own policy or use the forwarders, be sure todetermine the coverage that is included under the policy and the deductible that will apply to eachcoverage. The deductible or franchise is expressed as a percentage.

Several important risks are generally not covered by the marine insurance policy. Theseinclude: marring or scratching, delays, inherent vice (a condition whereby the goods were bound tobe damaged or deteriorate because of the nature of the goods), losses due to insufficient orimproper packaging that does not protect the goods from the risks of transportation and thephysical handling and environmental conditions at the port of import.


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Responsibilities of the Insured Party

The policyholder must meet certain obligations when a loss occurs, and these should beclearly understood. First, the insured must make every reasonable effort to minimize the loss.Reasonable charges incurred for this purpose are collectible under the policy, under what is knownas Sue & Labor. For example, when a shipment of canned foods arrives with some leaking cans ineach of several cartons, the leaking cans must be taken out to minimize rust and label damage. The

expense incurred in this operation may be recovered under the insurance policy.If the cargo is damaged or if any damage or loss is suspected, the insured party must

immediately file a claim with the carrier to avoid filing deadlines. If the insured fails to take thisstep, or signs a waiver of carrier responsibility, it may result in the loss of coverage. In the case ofconcealed damage, a claim should be made within three days of the delivery or as soon as thedamage is known.

The letter of claim to the carrier should include the following information:Company name of ocean or air carrierBill of lading or air waybill numberVoyage (ocean) or flight numberDestination arrival date

Container numberDescription of cargoDollar amount of claim

Filing a Claim

In the case of international shipments, the importer (consignee) will most likely be the firstto discover any damage to, or loss of, a shipment. The importer must thoroughly inspect eachshipment and note any signs of damage or loss on the delivery receipt. Even if no outward evidenceof loss or damage exists, it is important to inspect the entire shipment as soon as possible for anyhidden damage.

The consignee, or insured, must contact the nearest claim agent so that a survey of damagecan be arranged. The carrier or carriers agent should be notified of the time and location of thesurvey so that he or she can be represented. When filing a claim the insurer may request some or allof the following documents:

Non-negotiable copy of the bill of lading or air waybill (both front and back)Certificate of insurance or declaration of insuranceCopies of letters of claims filed with carriersCorrespondence or verbal advice from carriersCommercial invoicePacking listEvidence of loss or damage

Delivery receiptInland waybillConsignees receiving reportCustoms documents

Confirmation of non-delivery by carrierSurvey reportValued inventoryRepair estimates (if applicable)


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Sue & labor reimbursementsOther (as specified by the insurer)

Carriers Limited Liability

Air and ocean carriers provide limited liability coverage while a shipment is in theirpossession. The bill of lading states the liability that the carrier assumes. It is critical that the

shipper understand that the carrier is not responsible for such perils as Acts of God. When filing aclaim with a carrier, the shipper must prove the cause of loss that the loss occurred while in thecarriers possession and that the carrier is directly liable for the loss.

Airlines are liable up to $9.07 per pound or $20 per kilo on shipments to foreigndestinations and $0.50 per pound on domestic shipments. Shippers have the option of declaring ahigher value for the shipment and paying higher freight charges based upon this declared value. Ifthe value of your shipment goes well beyond this amount, you can clearly see the need for increasedcoverage with a marine cargo policy.

Similar to the airlines, ocean carriers provide a limited amount of coverage, $500 percustomary shipping unit (CSU), as stated on the back of the bill of lading. The CSU is generallyinterpreted as the ocean container. This coverage is rarely sufficient in covering the cost of the

goods shipped, as it is not based on weight or value, but only on the container.

Introduction to Export Documentation & Procedures

Export documentation is far more than just shipping paperwork; it includes all of theimportant records of an international transaction. Using the correct trade terminology, clearlydefining the transfer of interest and liability, selecting the right method of payment and sending thebest quotation possible are the keys to effective exporting. After the sale has been made, proper andtimely selection, preparation and distribution of documents are essential.

Documents used in international trade are a reflection of the understanding of theagreement between the seller, the buyer, and third party service and regulatory agencies. It is vital

for the seller to understand that any document produced with their name as a party to thedocument is totally responsible for the actions of the service provider in the course of theirperformance.

Although often underrated and overlooked, export documentation and procedural concernsare an integral part of the export process and should be considered as important as anything elserelated to the sale. The term export documentation is actually a relative misnomer, as mostpaperwork is really being prepared on behalf of the buyer, and is used for customs clearance andother legalities at the port of import, and thus are really import documents.

Successful exporters usually are very adept at preparing export documents, or else useservice providers who are. Problems with documentation can lead to delay in shipment, penalties,unwanted storage costs and an aggravated buyer. An exporter should always put themselves in theimporters shoes. Consider what you would do, if as an importer, your supplier caused delays andextra expenses due to a lack of proper paperwork. Eventually, you would probably find a newsupplier.

Differences Between Exporting and Domestic Business

The basic intent of a quotation for international trade is the same as it is for quotes made inthe U.S.; but the rules and procedures are different. The following are examples of the differencebetween international and domestic quotations.


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Trade terms: Domestic sales use trade terms such as FOB Factory as defined under theUniform Commercial Code of the United States. One of the benefits of this trade term is that title ofthe goods passes to the buyer at our dock. When businesses engage in international trade, theycannot rely on the Uniform Commercial Code or domestic trade terms and should use the tradeterms recognized by international traders, the Incoterms as described in Module 6.

Methods of payment: Where open account or cash in advance are the primary waysbusinesses have of collecting domestic accounts receivable, they may not be as common ininternational trade. Equally as common in international trade are letters of credit and drafts. Thedocument preparation and procedures on these consignment controlled shipments requirescareful analysis and handling.

Methods of packaging: Shipping goods internationally exposes the in-transit product torisks it would not otherwise encounter. Among the greatest risks for damage to goods in foreigntrade are: theft; environmental risks such as heat, cold and moisture; transportation by oceanfreight or rail; and lack of mechanized physical handling equipment in some of the lesser developedcountries. There may be certain documentation required in international trade that would reflectthe proper packaging, packing, handling and stowing of goods in order to satisfy the importers

requirements as well as their governments.

Methods of shipment: Businesses normally ship goods by mail, truck or airfreight to theircustomers in the United States. In international trade, truck shipments are limited to Canada andMexico and most processed food products are shipped by air or ocean freight. Air freight differsonly in the bill of lading used. Meanwhile, ocean freight can include drayage to move oceancontainers to your facility, railroads to get the cargo to the port of export and another drayagetrucking to transport your products to the ocean carrier at the pier. Because these modes oftransportation differ a great deal, particularly in the area of carriers liability, they need to beunderstood thoroughly before making a quotation. There are specific documents for internationalshipments that vary in detail, handling and distribution from the domestic equivalent.

Insurance covering damage or loss: The seller has primary responsibility for loss or damageto the goods, in most cases, all the way to the port of unloading in the foreign country. Insurancecoverage is therefore a must for all international transactions. Insurance certificates are requiredfor proof of coverage on many exports, especially those that are being paid under a letter of credit.

Validity period: The validity period of an international quotation is usually 90 days. Thisallows the buyer to arrange for payment and any import permits that may be necessary to make thepurchase decision of your product. Any changes to the quotation during that time must also bereflected in the documentation.

Import laws in the foreign country: Before making a quotation to a buyer in a foreigncountry, it will be necessary to determine what restrictions exist. Common considerations areavailability of exchange, country of origin of the product you are offering, import permits,certificates and inspections. The importer may also have documentary requirements in thedestination market that must be matched with the exporters prior to customs clearance.

Banking fees: Unless the importer used U.S. dollars as their currency, international salesgenerally begin with payment by the buyer in their own currency. The buyers bank will then makearrangements to pay the exporter through a U.S. bank in U.S. dollars. The banks charge a fee for thisprocess, part of which will be for the sellers account. These fees vary depending on the method ofpayment being used.


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The Pro Forma Invoice - First Step

The pro forma invoice is usually the first export document prepared. It is generated by theexporter in response to an opportunity for export business; often from a trade lead, whether froman unsolicited direct inquiry or as follow-up from a trade event. Virtually nothing is accomplishedin an export transaction without the issuance and acceptance of a pro forma invoice. Pro forma

invoices can be either formal or informal documents depending on the requirements of thedestination country.

Formal quotations usually require a letter of credit as the method of payment. For the buyerto obtain permission to exchange or to import the product, they will need to receive a quotation inthe pro forma format. A pro forma invoice is a snapshot of the offer as it stands at the moment.The seller should carefully develop the quote, because once the buyer accepts the offer to sell at acertain price, a formal contract for the exact amount exists.

Informal quotations are usually prepared for exports to industrialized countries that havefew exchange restrictions and no regulation-requiring amount of product or value for import. Thismeans that the quotation could be adjusted without penalty during the course of negotiating the

sale. The Commercial Invoice

The commercial invoice is considered to be the most important international tradedocument and should be prepared as accurately as possible. It is the main document used bycustoms to accept or reject the customs entry prepared by the customs broker. Even with a sampleshipment, a commercial invoice is required, and needs to state the fact that the goods are not forresale - are samples only - and have little commercial value.

The commercial invoice should reflect the exact nature and terms of the agreement thatexist between the buyer and the seller. Most duties are applied at an Ad Valorem rate, which are onthe value of the goods upon their arrival, usually CIF, Cost Insurance and Freight. The invoicewould be totaled to that amount and the duties paid accordingly, so it is key in most customsclearances. Often, the commercial invoice will be prepared by the seller and totaled to the desiredtrade term, then depending on the method of payment, submitted through banking channels or sentdirectly to the importer for payment. These arrangements need to be agreed upon between theseller and the freight forwarder prior to shipping the goods.

Although there is no standard form for a commercial invoice, the following informationshould be included:

Sellers name and addressBuyers name and addressExact description of goods (kind, grade, quality, weight)Agreed-upon price in U.S. dollars (in order to reduce foreign exchange risk)

Description of packages (number, kind, markings, dimensions)Type of containerDelivery pointTerms of paymentDate and place of shipmentMethod of shipmentSignature of shipper/seller


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Parties to the Transaction and the Commercial InvoiceThe parties involved in the export transaction that need an original or copy of the document

underscores the importance of the commercial invoice. They are:The Exporter: As a record of the shipment and the payment mechanism.The Importer: Also a record of shipment and payment mechanism.The Freight Forwarder: Uses the invoice in part to prepare the documentation they provide

as part of their services.The Customs Broker: Uses the invoice to prepare the customs entry forms at the point of

import.U.S. Customs: May require a document evaluation if they have concerns about the

shipments integrity.Foreign Customs: May also require a document evaluation in order to allow the customs

clearance at the point of import.The Sellers Bank: If the bank is involved in the payment, they would evaluate the invoice as

part of their document review.The Buyers Bank: If the buyers bank is making the payment on behalf of the importer, they

would require an invoice as part of their document review.

The Insurance Company: The company that provides the marine cargo insurance for theshipment may also require an invoice as part of their file.

The Shipper's Letter of Instruction

This document is completed by the shipper and includes all of the information necessary forthe freight forwarder or carrier to make transportation arrangements and complete the bill oflading and other related documents. Like the shippers export declaration, the SLI does not leavethe United States. The shippers letter ofinstruction should include:

Shippers company name, address, phone, fax and contact nameShipper employee identification numberShipper reference numbers (bill of lading, invoice, purchase order, etc.)Product information (description of goods, product quantity, number of packages, weight in

pounds, cubic feet, marks)Consignee informationNotify party Importer, Agent, Customs BrokerProduct invoice valueSchedule B numberFreight and documentation billing informationSpecial instructionsSignature and dateCustoms and Consular InvoicesSome countries require country-specific invoices that should be submitted along with the

exporters commercial invoice. A prime example of this is the Canadian Customs Invoice that isrequired for shipments exceeding a specific Canadian dollar amount, currently at C$1600. Because

this amount and the exchange rates vary from time to time, you should check at the time ofshipment, or prepare the Canadian Customs Invoice as a matter of policy for each and everyshipment.

The Canadian government uses the more detailed information on the invoice to evaluatetrade relations, ports of import, statistical data and trends in business between the U.S. and Canada.To review a Canadian Customs Invoice (CCI), including instructions for completing it, click here.


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A consular invoice could also be required along with the regular commercial invoice. Theconsulate of the destination country often sells these documents, or they might be available throughyour freight forwarder. The forwarder not only prepares and validates the consular invoice, butalso handles the courier delivery and pick-up of the documents with the consulate. Check with yourforwarder for an updated list of which countries require consular invoices or pre-shipmentinspections.

The consular invoice is used along with the other export documents by the consulate toscreen the transaction for fraud, and could be part of the pre-shipment inspection process manydeveloping countries use to verify the description and value of the shipment prior to export.

Customs fraud is a serious problem in the world. Many importers may ask the seller for adummy invoice at a much lower value to avoid paying the proper duty on the goods. This is not awise procedure to get involved in and can get an exporter into trouble if he/she is identified as aparty to defraud customs in another country.

Product Specific Documentation

Some food and agricultural products require product specific documentation certifyingtheir safety, purity and accordance with U.S. or foreign government regulations. The ForeignAgricultural Service, FAS, has a portal for companies to access a variety of regulatory sites for foodproducts, which is a good place to start evaluating your document requirements in this area. Theserules need to be used in conjunction with the regulations at destination as well, and they allrecommend confirmation with the buyer or their customs broker in order to arrive at the correctcompliance prior to shipment. In this site, you will find the following:

U.S. Trade Restrictions: The list of trade restrictions that may require an export licenseapplication. These rules may apply for embargoes of foreign countries, domestic shortages or otherreasons.

Shippers Export Declaration: This is the main document required by the U.S. government,

and is covered later in this section. The Bureau of the Census and International TradeAdministration uses it for compiling U.S. export statistics and it is also used by customs for exportcontrol purposes.

USDA Food Safety Inspection Service:The FSIS includes the Library of ExportRequirements for products such as red meat and poultry.

Export permits for alcoholic beverages:The Bureau of Alcohol, Tobacco and Firearms, ATF,requires a Wholesalers Basic Permit for any resale, domestic or foreign.

Food and Agricultural Regulations & Standards:The FAIRS reports, which were reviewedin an earlier section, describe import requirements and contacts for assistance. These reports are

focused on consumer-ready products.

USDA/APHIS: The Animal and Plant Health Inspection Service provides inspection andveterinary services for plants, meat, poultry, live animals and animal products to help ensure theproduct meets foreign import requirements.

USDA National Organic Program:The NOP has information on export certificates and tradeissues for organic products.


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Seafood and Aquaculture: The Seafood Inspection Program offers information on importrequirements for seafood products.

Food and Drug Administration: The FDA issues export certificates for various products thatmay have that requirement.

Certificates of Origin

The certificate of origin is used by a neutral third party to identify the origin of manufactureof the good. The origin of manufacture, not the origin of export, is important to determine theproper duties to be applied by customs at the destination. Many chambers of commerce in areasaround ports of export sell and prepare the certificate of origin, or allow local freight forwarders todo so on their behalf. Some countries have specific certificates of origin, but many will allow thegeneral use certificate to satisfy their requirements. Shipments paid by letters of credit mayrequire one as mandated by the issuing bank. In this case, the certificate of origin will need to beprepared exactly to the letter of credit requirements.

However, there are some specific requirements for certain countries. For example,shipments to Canada and Mexico require a NAFTA Certificate of Origin for preferential dutytreatment under the NAFTA to apply. Chambers of Commerce and freight forwarders are notallowed to prepare NAFTA Certificate of Origin on behalf of the exporter or producer who must self-certify. The most frequently issued certificate of origin in the U.S. is the NAFTA, based on thetremendous volume and value of goods crossing the North American borders each day.

NAFTA Certificate of Origin

Customs Form 434, or the NAFTA Certificate of Origin, as it is commonly known, is uniformin all three countries and printed in Spanish, French and English. At the exporters discretion, it canbe completed in the language of the origin or destination country. Importers shall submit a

translation of the certificate to their own customs administration when requested. Anunderstanding of the Harmonized System (HS) and the NAFTA Rules of Origin are imperative for anexporter to legally and correctly prepare the documents. The HS number for each product needs tobe placed on the NAFTA Certificate of Origin. This document must be completed and signed by themanufacturer of or the exporter of the goods. Where the exporter is not the producer of the goods,the exporter may complete the certificate on the basis of:

A completed and signed Certificate of Origin for the good voluntarily provided to theexporting company by the producer.

Where no claim for preferential tariff treatment is made at the time of the importation, yourbuyer may request preferential tariff treatment no later than one year after the date on which the

goods were imported, provided a valid certificate of origin is obtained and presented. If thecertificate is not presented at the point of import, the most-favored nation (MFN) tariff will apply.MFN rates are reserved for members of the WTO, World Trade Organization, of which the NorthAmerican countries are members. If the product does not qualify for NAFTA tariff preference, thecertificate should not be submitted. In this case the product is subject to the MFN tariff rate. Thecompleted NAFTA Certificate of Origin certifies that the product meets the NAFTA Rules of Origin.

A certificate of origin may cover a single importation of goods or multiple importations ofidentical goods. The NAFTA defines identical goods as goods that are the same in all respects,


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including physical characteristics, quality and reputation, irrespective of minor differences inappearance and that are not relevant to the determination of origin of those goods under theNAFTA Rules of Origin. Certificates that cover multiple shipments are called blanket certificates andmay apply to goods imported within any twelve-month period on the certificate.

A NAFTA Certificate of Origin is not required for shipments to Mexico or Canada. The

exporter should only prepare a NAFTA Certificate if the product qualifies for preferential tarifftreatment under the NAFTA rules of origin.

A NAFTA Certificate of Origin is not required for the commercial importation of a goodvalued at less than US$1,000. However, for goods to qualify for NAFTA preferential duties, theinvoice accompanying the commercial importation must include a statement certifying that theyqualify as originating goods under the NAFTA rules of origin. The statement should be handwritten,stamped, typed on or attached to the commercial invoice.

In order to review a NAFTA Certificate of Origin, including the instructions on how tocomplete it, click here.

In order to review the NAFTA Rules of Origin, the interactive website for completing theCertificate of Origin, click here.

The Shipper's Export Declaration

The shippers export declaration is required on shipments valued greater than $2,500 (perSchedule B number) or shipments, regardless of value, of goods requiring permission from the U.S.government to sell outside the U.S. (i.e. export licenses), and shipment to certain countriesregardless of value. The lone exception to the requirement is for exports to Canada that are not onan export license and terminating there. The U.S. obtains its export data for Canada from CanadianCustoms.The export declaration is a form designed and approved by the Bureau of Census, and isused to collect census information regarding exports.

This document goes by multiple names. Customs Form 7525-V is the technical name, but itis also known as the SED, EX-DEC, or Shippers Export Declaration. It can be prepared by theinternational freight forwarder handling your shipment and submitted electronically prior toexport. This is a legal record of the shipment and a copy of the SED should be placed in theshipment file. You can obtain a copy from the forwarder, or save your own if you complete ityourself. In order to review the export declaration,

Starting October 1, 2008, the Census Bureau requires mandatory filing of exportinformation through the Automated Export System (AES) or through the AESDirect for allshipments where a paper Shippers Export Declaration is required. Penalties may be imposed perviolation from $1,100 to $10,000both civil and criminalfor the delayed filing, failure to file,false filing of export information, and/or using the AES to further any illegal activity. Also, all AES

filers will face new filing dead lines by mode of transportation for reporting export information.

For many filers, one option may be to use AESDirect, the free Internet filing alternativeavailable at their website (www.aesdirect.gov) At that site, you can also download their AESPcLinksoftware, which is a standalone version of AESDirect. Other options include purchasing customizedsoftware from a certified software vendor, or developing your own in-house software application.You may file to the AES from a Value-Added Network (VAN), through a service center, or you mayauthorize an agent to file on your behalf. The cost of the software and equipment will beproportional to the sophistication of the system you choose.


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The Bill of Lading

A bill of lading is a contract of carriage between an exporter and a service provider, such asan airline, steamship line, freight forwarder or shipping company. It identifies the parties to thetransaction and their responsibility for payment of transportation and other accessorial fees, suchas transfers and delivery. In international trade, the origin and destination of the bill of lading are

usually for the main carriage. This is usually the transportation from the port of export t