International Trade Documentations

Presented by : Vikas Gupta Date : 12th June 2011

Introduction International market involves various types of trade documents that need to be produced while making transactions. Each trade document is differ from other and present the various aspects of the trade like description, quality, number, transportation medium, indemnity, inspection and so on. So, it becomes important for the importers and exporters to make sure that their documents support the guidelines as per international trade transactions.

A small mistake could prove costly for any of the parties. For example

A trade document about the bill of lading is a proof that goods have been shipped on board, while

Inspection Certificate, certifies that the goods have been inspected and meet quality standards

So, depending on these necessary documents, a seller can assure a buyer that he has fulfilled his responsibility whilst the buyer is assured of his request being carried out by the seller

What is Export Documentation

The paperwork that is required for an export sales transaction

The means by which the shipping process is facilitated and recorded.

Documentation is essential for moving goods through the channels of distribution, transferring responsibility or possession, clearing goods through customs, and facilitating payment according to the agreed upon terms

Purpose of Export Documentation

Export documentation provides evidence that the negotiated terms between the buyer and the seller have been complied with This is essential if the seller wishes to get paid

Export documentation provides important information that is used by the seller, the freight companies, governments, and the buyer

Steps in the Documentation process

Receive the order under accepted terms & consult with a banker or a freight forwarder.

Begin organizing information for required export documents and export license applications.

Evaluate modes of transportation, requirements for perishable products, and cost of various alternative modes.

Prepare goods for shipping (marking / labeling, packing, consolidating / containerizing, insuring)

Complete and forward required export documents

Steps in the Documentation process….. Transport goods to port of export Complete Customs documentation Transfer goods to carrier Ship goods and forward appropriate export

documents Unload goods at foreign port. Clear customs. Transport goods from foreign port to intermediate

and/or ultimate consignee Note: Responsibility for different steps in the documentation & shipping process depends on the terms of sale & the method of payment and collection

The terms of Sale ... INCOTERMS Understanding the Incoterms, also called the terms of sale, is the first step in responding to a trade lead or starting to prepare a quote.

Definition: An international rule for pricing terms which represent different levels of financial responsibility for the buyer and seller in an export transaction

The INCOTERMS establish :

the geographical location where the buyer becomes responsible for the goods

payment of shipping, handling, insurance, inland freight, etc. the point where ownership of the goods or the title for the goods

changes ownership Note: The terms of sale should always be followed by a physical location so that the buyer cannot surprise the seller and select a costly or infeasible location

The Thirteen INCOTERMS EXW : Exported when removed from Works FCA : Free Carrier FAS : Free Alongside Ship FOB : Free On Board C&F or CFR : Cost (of the Product) & Freight CIF : Cost, Insurance and Freight CPT : Carriage Paid To CIP : Carriage & Insurance Paid to DAF : Delivery At Frontier DES : Delivered Ex-Ship DEQ : Delivered Ex-Quay DDU : Delivered Duty Unpaid DDP : Delivered Duty Paid

EXW: Exported when removed from Works EXW signifies a precise location where the product is made ready to the buyer.

When offering a “EXW” quotation: the price includes only those costs involved up to an agreed point of origin, usually the shipper’s factory. The shipper / seller places the product at the control of the buyer at a concurred place, date, time, etc.

EXW costs can include:

Raw or processed product

Standard packaging

Pallets, banding, shrink-wrap, slip sheets, slings, one-ton-big-bags

Special labeling

Translation and printing

Inspection certificates (Phytosanitary, Health, Quality, or Export License)

Bracing or inspecting a container

Export packaging

FCA {Free Carrier (named place)}

FCA signifies a precise location where the product is turned over to a carrier

or person who will ensure carriage, and the goods are cleared for export.

When offering a “FCA” quotation: the price includes those costs involved

up to that agreed point, including transportation and loading if required

FCA costs can include ( in addition to the EXW costs): Loading on board carrier

Transportation to the carrier Insurance coverage to carrier (optional)

FAS : Free Alongside Ship

FAS signifies a precise ocean port location where the product is turned

over to a carrier, and the goods are cleared for export

When offering an “FAS” quotation: the shipper/seller places the

product alongside the vessel

FAS costs can include ( in addition to the FCA costs): inland transportation (from your plant to the port)

port charges (including Terminal Handling or Receiving Charges, or

stevedore, wharf age, forklift, off-load, etc.)

FOB : Free On Board

When offering an “FOB” quotation: the shipper / seller places the

product over the ship’s rail. FOB only applies to sea or water

transportation

The costs associated with FOB include:

loading on board ship

heavy lift charges

These costs are correct in theory, but actually the loading and heavy lift

charges will be included in the shipping cost from the port to the final

destination which the buyer will pay

C&F : Cost & Freight C&F signifies that the seller loads the product on board a carrier, clears the

goods for export, arranges and pays the ocean freight and other charges.

The risk during carriage is transferred to the buyer, and the goods change

hands when they pass the ship’s rail at the port of shipment. (the final

destination)

The charges associated with CFR include (in addition to the FOB costs):

Ocean Freight

Fuel Adjustment Factor

Currency Adjustment Factor

Destination Delivery Charges or Container Service Charges

CIF : Cost Insurance & Freight

CIF signifies that the seller loads the product on board a carrier,

clears the goods for export, arranges and pays the ocean freight

and other charges.

The seller insures the shipment, and the goods change hands

when they pass the ship’s rail at the port of shipment

Costs associated with CIF include (in addition to C&F);

Marine cargo insurance

Frequently used Documents in International Trade

The following is a list of documents often used in international trade:

Air Waybill

Bill of Lading

Certificate of Origin

Combined Transport Document

Draft (or Bill of Exchange)

Insurance Policy (or Certificate)

Packing List / Specification

Inspection Certificate

Air Waybills

Introduction

Air Waybills make sure that goods have been received for shipment by air. A typical air waybill sample consists of three originals and nine copies. The first original is for the carrier and is signed by a export agent; The second original, the consignee's copy, is signed by an export agent; The third original is signed by the carrier and is handed to the export agent

as a receipt for the goods

Air Waybills serves as: Proof of receipt of the goods for shipment An invoice for the freight A certificate of insurance A guide to airline staff for the handling, dispatch and delivery of the

consignment.

Principal requirement for an Air Waybill

The proper shipper and consignee must be mention.

The airport of departure and destination must be mention.

The goods description must be consistent with that shown on other documents.

Any weight, measure or shipping marks must agree with those shown on other

documents.

It must be signed and dated by the actual carrier or by the named agent of a

named carrier.

It must mention whether freight has been paid or will be paid at the destination

point.

Bill of Lading (B/L)

Introduction

Bill of Lading is a document given by the shipping agency for the goods shipped for transportation form one destination to another and is signed by the representatives of the carrying vessel Bill of landing is issued in the set of two, three or more. The number in the set will be indicated on each bill of lading and all must be accounted for. This is done due to the safety reasons which ensure that the document never comes into the hands of an unauthorised person. Only one original is sufficient to take possession of goods at port of discharge so, a bank which finances a trade transaction will need to control the complete set

Basic Features

The bill of lading must be signed by the shipping company or its agent, and must show how many signed originals were issued It will indicate whether cost of freight/ carriage has been paid or not : Freight Prepaid: Paid by shipper Freight collect: To be paid by the buyer at the port of

discharge

The bill of lading also forms the contract of carriage

Basic Features

To be acceptable to the buyer, the B/L should : Carry an "On Board" notation showing the actual date of

shipment, (Sometimes however, the "on board" wording is in small print at the bottom of the B/L, in which cases there is no need for a dated "on board" notation to be shown separately with date and signature.)

Be "clean" have no notation by the shipping company to the

effect that goods/ packaging are damaged.

Main parties involve in Bill of Lading

Shipper

The person who send the goods

Consignee

The person who take delivery of the goods

Notify Party

The person, usually the importer, to whom the shipping company or its agent

gives notice of arrival of the goods

Carrier

The person or company who has concluded a contract with the shipper for

conveyance of goods

Requirements of the credit as well as compliance with UCP 500 The bill of lading must meet all such requirements:

The correct shipper, consignee and notifying party must be shown

The carrying vessel and ports of the loading and discharge must be stated

The place of receipt and place of delivery must be stated, if different from port of

loading or port of discharge

The goods description must be consistent with that shown on other documents

Any weight or measures must agree with those shown on other documents

Shipping marks and numbers and / or container number must agree with those

shown on other documents

It must state whether freight has been paid or is payable at destination

It must be dated on or before the latest date for shipment specified in the credit

It must state the actual name of the carrier or be signed as agent for a named carrier

Certificate of Origin

Introduction

The Certificate of Origin is required by the custom

authority of the importing country for the purpose

of imposing import duty.

It is usually issued by the Chamber of Commerce and

contains information like seal of the chamber, details

of the good to be transported and so on

Principal requirement for a Certificate of Origin

The certificate must provide that the information required by the credit and be

consistent with all other document, It would normally include:

The name of the company and address as exporter

The name of the importer

Package numbers, shipping marks and description of goods to agree with

that on other documents

Any weight or measurements must agree with those shown on other

documents

It should be signed and stamped by the Chamber of Commerce

Combined Transport Document

Introduction

Combined Transport Document is also known as Multimodal Transport

Document, and is used when goods are transported using more than one mode

of transportation. In the case of multimodal transport document, the contract

of carriage is meant for a combined transport from the place of shipping to the

place of delivery. It also evidence receipt of goods but it does not evidence on

board shipment, if it complies with ICC 500, Art. 26(a).

The liability of the combined transport operator starts from the place of

shipment and ends at the place of delivery. It need to be signed with

appropriate number of originals in the full set & proper evidence which

indicates that transport charges have been paid or will be paid at destination

Principal requirement in a Multimodal Transport document Multimodal transport document would normally show :

That the consignee and notify parties are as the credit

The place goods are received, or taken in charges, and place of final

destination

Whether freight is prepaid or to be collected

The date of dispatch or taking in charge, and the "On Board" notation, if any

must be dated and signed

Total number of originals

Signature of the carrier, multimodal transport operator or their agents

Commercial Invoice

Introduction

Commercial Invoice document is provided by the

seller to the buyer. Also known as export invoice

or import invoice, commercial invoice is finally

used by the custom authorities of the importer's

country to evaluate the good for the purpose of

taxation.

Principal requirement in a Commercial Invoice The invoice must :

Be issued by the beneficiary named in the credit (the seller)

Be addressed to the applicant of the credit (the buyer)

Be signed by the beneficiary (if required)

Include the description of the goods exactly as detailed in the credit

Be issued in the stated number of originals (which must be marked

"Original”) and copies

Include the price and unit prices if appropriate

State the price amount payable which must not exceed that stated in the

credit

include the shipping terms

Bill of Exchange

Introduction

A Bill of Exchange is a special type of written

document under which an exporter ask importer a

certain amount of money in future and the importer

also agrees to pay the importer that amount of

money on or before the future date. This document

has special importance in wholesale trade where

large amount of money involved.

Persons involved in Bill of Exchange

Following persons are involved in a bill of exchange:

Drawer: The person who writes or prepares the bill.

Drawee: The person who pays the bill.

Payee: The person to whom the payment is to be made.

Holder of the Bill: The person who is in possession of the bill

Types of Bill of Exchange

On the basis of the due date there are two types of bill of

exchange:

Bill of Exchange after Date: In this case the due date is counted

from the date of drawing and is also called bill after date

Bill of Exchange after Sight: In this case the due date is

counted from the date of acceptance of the bill and is also

called bill of exchange after sight

Insurance Certificate

Introduction

Also known as Insurance Policy, it certifies that goods transported

have been insured under an open policy and is not actionable with

little details about the risk covered.

It is necessary that the date on which the insurance becomes

effective is same or earlier than the date of issuance of the

transport documents. Also, if submitted under a LC, the insured

amount must be in the same currency as the credit and usually for

the bill amount plus 10 per cent

Principal requirement in a Insurance Certificate The requirements for completion of an insurance policy are as follow :

The name of the party in the favour which the documents has been issued

The name of the vessel or flight details

The place from where insurance is to commerce typically the sellers warehouse or the port of loading and the place where insurance cases usually the buyer's warehouse or the port of destination

Insurance value that specified in the credit

Marks and numbers to agree with those on other documents

The description of the goods, which must be consistent with that in the credit & on the invoice

The name and address of the claims settling agent together with the place where claims are payable

Countersigned where necessary

Date of issue to be no later than the date of transport documents unless cover is shown to be effective prior to that date.

Packing List

Introduction

Also known as packing specification, it contain details about the

packing materials used in the shipping of goods. It also include

details like measurement and weight of goods.

The packing List must :

Have a description of the goods ("A") consistent with the other

documents

Have details of shipping marks ("B") and numbers consistent

with other documents

Inspection Certificate

Introduction

Certificate of Inspection is a document prepared on the request of seller

when he wants the consignment to be checked by a third party at the

port of shipment before the goods are sealed for final transportation.

In this process seller submit a valid Inspection Certificate along with the

other trade documents like invoice, packing list, shipping bill, bill of

lading etc. to the bank for negotiation

On demand, inspection can be done by various world renowned

inspection agencies on nominal charges

Negotiation of Shipping Documents

Negotiation

Negotiation means the purchase by the nominated (negotiating)

bank of drafts and shipping documents under a complying

presentation by advancing or agreeing to advance funds to the

beneficiary

An exporter presents a draft (a bill of exchange) and shipping

documents specified in the letter of credit to a nominated bank or

any bank if there is no nominated bank, which becomes a

negotiating bank, to get paid

Instructions for opening Letter of Credit

Items usually included in the instructions to open an L/C

An Irrevocable letter of credit subject to Buyer’s country regulations

The name and address of the beneficiary - in favor of exporter

Whether the L/C is to be transferable or not

Terms of payment such as at sight or usance

Where negotiation or payment is to be effected

Whether the payment is to be made in U.S. dollars or other foreign

currency

What trade terms are to be used: FOB, CFR or CIF?

Instructions for opening Letter of Credit Coverage of marine insurance: All Risks, WA, FPA, War Risks, Warehouse

to warehouse or any special coverage such as a rejection clause

Whether partial shipments are allowed or not

Whether transshipments are allowed or prohibited

Presentation period / date: A period of time for presentation of

documents after shipment

Ports of loading and unloading

The latest shipping date

The expiry date

Documents for Negotiation Documents to be required for negotiation Commercial invoice

Packing list

Marine insurance policy or certificate

Ocean bill of lading

Other documents requested by the buyer and

accepted by the seller

Examination of Letter of Credit

When a letter of credit is received, exporter must:

Examine the conditions and documents specified in the L/C and determine

whether he can meet them or not.

If there are any conditions he cannot meet, request his buyer to amend the

L/C before he starts manufacturing export goods.

If the L/C calls for a time draft, have the L/C specify that the discount

interest for the time draft shall be for account of importer, when agreement

was a sight draft but L/C is opened with a time draft

(4) Hold off shipping the order until he receives an amendments to the L/C

as requested

Common Discrepancies of LC

(1) Drafts

a. Draft amount is different from invoice

b. Draft tenor is different from the L/C

c. Wrong drawee

(2) Commercial invoices

a. Different merchandise description from the L/C

b. Invoices is not issued by the beneficiary

c. Insufficient copies are presented

d. Incorrect accountee's name and address are stated

e. Different prices from the L/C

f. Terms of trade such as FOB, CFR or CIF different from the L/C

Common Discrepancies of LC….

(3) Packing List

a. Different description of merchandise from the L/C

b. Different number of unit, net weight and gross weight from the L/C

(4) Marine Insurance Certificate or Policy

a. Different coverage from the L/C

b. Insufficient coverage

c. Not the same currency as the L/C

d. Different merchandise description

e. The effective date later than the shipping date

f. Broker's cover note presented instead of insurance certificate or policy

Common Discrepancies of LC….

(5) Ocean Bill of Lading

a. Less than a full set of original B/L is presented

b. The B/L not properly endorsed

c. The B/L not marked with "On Board“ notation, if B/L contains the indication “intended

vessel” or "Received for shipment"

d. In the case of CFR or CIF, the term "Freight Prepaid" is not marked

e. Merchandise description is different from the L/C

f. Different ports of loading and / or unloading from the L/C

g. Notations on the B/L that the merchandise or packages are damaged

h. The B/L indicates the "On Deck" shipment

i. Stale B/L : Not presented within time limit after shipment as stipulated in the L/C

j. Late shipment: The bill of lading date marked later than the shipping date specified in

the L/C

Negotiation with Discrepancies

In case discrepancies are found by negotiating bank, exporter must correct the

discrepancies.

If exporter cannot correct them such as the shipping date, then exporter should

a. request the issuing bank to amend the letter of credit to cover discrepancies

or authorize to pay in lieu of discrepancies

b. At the same time, inform the buyer of the discrepancies and request his

acceptance and amendment to the Letter of Credit.

c. Release shipping documents to issuing bank after the L/C is amended. Buyer’s

acceptance of discrepancies are not enough. The Letter of Credit must be

amended.

d. Do not send the shipping documents to the issuing bank on a collection basis.

Presentation of Documents

Draft and all shipping documents must be presented to a negotiating bank

together with the original letter of credit.

Presentation must be made within a specified period of time after shipment in the

L/C, but not later than 21 days after shipment

A bank must determine whether or not presentation is a complying presentation

in 5 banking days In case discrepancies are found by negotiating bank, exporter

must correct the discrepancies

If a nominated (negotiating) bank, a confirming bank, if any, or the issuing bank

determines that a presentation does not comply,

it may refuse to honor or negotiate, then

it must give a single notice to presenter no later than the close of the 5th

banking days

Presentation of Documents…

The notice must state

The bank is refusing to honor or negotiate

Each discrepancy

The bank’s disposal of shipping documents:

The bank is holding documents pending instructions from the

presenter or

The issuing bank is holding documents until it receives a waiver from

the applicant & agrees to accept it or

The bank is returning documents or

The bank is acting according to the previous instructions from the

presenter

Presentation of Documents…

If a bank does not follow these negotiation and notice provisions,

The bank cannot claim that the documents do not constitute a

complying presentation.

The bank must honor or negotiate.

A document presented but not required by the Credit will be

disregarded.

If a Credit contains a condition without stipulating the document to

indicate compliance with the condition,

Banks will deem such condition not stated and will disregard it.