International Trade: Exporting, Documents, and Risk Management
Exporting Benefits and Risks
Benefits: Improve competitiveness, spread risk, increase visibility, improve market position, better resource utilization.
Risks: Knowledge loss abroad, lack of personal contact, different payment terms, costs of exporting, exchange rate fluctuation.
Company and Product Readiness for Export
Company Readiness: Production capacity, barriers abroad, adequate personnel, power of substitutes abroad, new departments.
Product Readiness: Competitive in the new market, product adaptability, sales growth in the home market, ability to compete in another market.
Essential Documents for Dispatching Goods
- Transport Document (Bill of Lading): Supplied by the shipping company.
- Commercial Invoice: Necessary for letter of credit processes.
- Packing List: Obligatory for initiating transportation; accurate inventory list.
Modes of Carriage
Air (air waybill), road (CMR), sea (bill of lading). Depends on products, distance, and price.
Conditions of Sales
Sales price, Incoterms (EXW, CAD), time draft, credit check and insurance, sight draft. Payment terms: documentary collection, documentary credits, and credit insurance.
Risk Management
Credit risk, customer risk, country risk, foreign exchange (areas of conflict and risk).
Customs Documents
Commercial invoice, packing list, transport document, customer declaration, document of inspection, delivery note.
Importance of Origin of Manufacture
Affects taxes, customer information, and country regulations. Confirms nature, quantity, value, and place of manufacture.
Harmonized System
Establishes global classification standards for goods for fiscal and statistical purposes. Main goal: recognition of all goods across marketplaces.
TARIC, SAD, INTRASTAT, and Incoterms
TARIC: Integrated tariff of the EU, regulated by the European Commission. Applies to goods imported into and exported out of the EU. Includes all customs duty rates.
SAD: Single Administrative Document. Basis for customer declarations in the EU.
INTRASTAT: System for collecting trade statistics between EU countries.
C Incoterms: More interesting for the seller as risk transfers before costs. CIF (Cost, Insurance, and Freight).
CMR: Road transport document confirming receipt of goods and a contract between trader and carrier.
Documentary Credit
In Favor of Both Parties: For exporters, payment is assured if documents are correct. For importers, they don’t pay if documents are incorrect. Documents include: clean bill of lading, commercial invoice, certificate of origin, packing list, delivery note.
Differences in Payment Methods
D/P (Documents against Payment) vs. D/A (Documents against Acceptance): In D/P, documents are released upon payment. In D/A, documents are released upon acceptance of the draft.
D/C Sight vs. D/C Accepted: Sight payment occurs upon receipt of documents. Accepted payment occurs upon a promise to pay.
Contingency Cover
A contingency plan is devised for outcomes other than the usual expected plan, often used for risk management.
Risk Assessment in Various Conditions
- DDP Marrakech, new business, document collection: Cash in advance is recommended.
- FOX/EXW: Acceptable.
- FOB Port of Valencia, regular customer, swift transfer: Acceptable.
- DDP customer’s warehouse, new business, document collection at sight: Too risky.
- FOB Valencia or CIF (named place): FOB is better as the named place is unknown. Payment: cash in advance or L/C.
- CIF New Orleans, new business, document collection: Letter of credit is recommended for large orders.
- CPT Perth Airport (AUS): Acceptable.
Documentary Credit vs. Collection
Documentary Credit: Guarantees payment to the seller with a bank guarantee. Can be revocable or irrevocable.
Documentary Collection: Seller instructs their bank to forward documents to the buyer’s bank with a request for payment, without a bank guarantee. Can be against payment or acceptance.
Required Documents for Documentary Credit
Commercial invoice, packaging list, transport document, insurance policy, origin certificate, consular invoice, and inspection certificate.
Internal and External Documents
Internal Documents:
- Proforma Invoice: Seller’s commitment to provide goods at specific prices.
- Purchase Order: Buyer’s first official offer.
- Order Confirmation
- Packing List: Internal order of articles needed.
- Delivery Note: Accompanies shipment, listing descriptions and quantities.
- Packaging List: Describes what is packed.
- Invoice: Necessary for initiating a letter of credit.
External Documents:
- Pre-shipment Inspection: Certificate of quality.
- Consular Invoice: Issued by the buyer’s consulate.
- Certificate of Value
- Bill of Lading: Transport document.
- Certificate of Origin: Origin and purposes.
- Commercial Invoice: Describes goods and total price.
- Packaging List/Delivery Note
External Shipping Required: Bill of lading, certificate of origin, consular invoice, certificate of value, and internal documents: proforma invoice, packing list, confirmation purchase order, delivery note, and commercial invoice.
Bill of Lading: Document detailing merchandise, title of goods, and requiring the carrier to release to a named party. A ‘dirty’ bill of lading is not accepted by banks.
Open Account: Seller ships goods and documents directly to the buyer, who agrees to pay at a future date.
Check: Negotiable instrument to pay a specific amount.
Electronic Fund Transfer: Electronic exchange of funds between accounts.
Contract of Sales: Legal contract for the exchange of goods, services, or property.
Approaches to Exporting: Indirect export is passive, good for newcomers. Direct export is dynamic, requiring full involvement.
Packaging: Important for reducing damage risks and optimizing transport capacity.