Frequently Asked Questions (FAQs)
- What is a "pro forma" invoice and when is it used?
- What is a commercial invoice?
- What is the difference between a commercial
invoice and a packing list?
- What are customs and consular invoices?
- What is a Certificate of Origin?
- What is the Shipper’s Export Declaration?
- What is the importance of a bill of lading?
- What is the difference between an air waybill
and an ocean bill of lading?
- On air freight shipments, what is the
difference between "actual" and "dimensional" weight?
(from Nov. 2000 MIATCO newsletter)
- How do I determine the
"density" of my cartons, if my freight forwarder needs
that information to prepare a quote?
(from March 2001 Food Export Association of the Midwest USA (formerly MIATCO)
newsletter)
1. What is a "pro forma" invoice and when is
it used?
The term pro forma is from the Latin term,
which translates "as a matter of form.’ This document is very important in the
quotation process, and a company often includes it in their response to a potential
buyer’s trade lead.
In actuality, the pro forma is a
"snapshot" of your commercial invoice, lacking some finishing details. The buyer
may decide to accept your pro forma offer as is, or request a different trade term, such
as eliminating insurance or even transportation, if they have a better price than you.
They may even ask you to add to the order, if they are satisfied with all of your prices
quoted to them. That is another reason why being flexible in your export pricing is so
important. (See the Export Pricing and Quoting chapter of this Export 101 section.)
The pro forma is especially important when it is
used as a formal quotation. In a formal quotation, the buyer is using your offer to obtain
import permits and currency exchange. This means that if the buyer’s government
allows them to buy your product, it may only be at the exact amount and price that you
quoted. If you have made a mistake on your pro forma invoice, you may not be able to
renegotiate at a later date. Proper understanding of INCOTERMS, and obtaining a
competitive quotation from the service providers, is paramount to success. With our major
trading partners, formal quotes are rare because they can easily obtain dollars to pay
you, and they have fewer restrictions on imports.
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2. What is a commercial invoice?
The commercial invoice is considered the most
important document in international trade, because merchandise is not allowed to clear
customs at the destination without one. That is even true if the goods are samples and
have no commercial value. This document is usually the one that all the service providers
first look to for information about your shipment. It is important to prepare the
commercial invoice as clearly and accurately as possible to avoid problems with your
shipment.
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3. What is the difference between a commercial
invoice and a packing list?
The packing list is used by customs to apply
certain types of duties, and it is a required document for customs clearances. It is also
used by shipping companies to identify the weight and dimensions of your product, and
should be completed in metric form. It does not usually require any value for the
merchandise, but a very complete list of all the products, their packing material (i.e.,
cartons, boxes, crates, barrels, bags), their gross and net weights, their cubic feet and
cubic meters, and any markings or handling issues.
Many exporters simply block out the price on their
commercial invoices, and use it as a packing list, but this is not recommended. You would
not want foreign customs to confuse your commercial invoice with your packing list, since
they may consider your document package to be incomplete. You should create your
commercial invoice in "portrait" form and your packing list in
"landscape" form to clearly point out the differences.
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4. What are customs and consular invoices?
Some countries also require other
"invoices" which need to be prepared in addition to the commercial invoice.
These forms are often country-specific, and they can usually be purchased from the foreign
consulate or your freight forwarder. For example, Saudi Arabia has its own consular
invoice, which needs to be presented to their Consulate for inspection and processing
along with your other export documents. Canada also has an additional requirement known as
the "Canadian Customs Invoice," which needs to be presented with shipment for
all goods over C$1000.00. Many exporters prepare one for every shipment as a matter of
courtesy, regardless of the value. This document may also be prepared by the importer or
their customs broker.
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5. What is a Certificate of Origin?
The certificate of origin is used so that a neutral
third party can clearly identify the origin of manufacture of the good. The origin of
manufacture of the good, not the origin of export, is important to determine the proper
duties to be applied by customs at destination. Many chambers of commerce in areas around
ports of export sell and prepare the certificate of origin, or allow local freight
forwarders to do so on their behalf. Some countries have specific certificates of origin,
but many will allow the "general use" certificate to satisfy their requirements.
Most shipments paid by letters of credit will require a certificate of origin (usually as
a bank requirement). In this case, the certificate of origin will need to be prepared in
strict accordance to the requirements spelled out in the Letter of Credit.
In many cases, these documents are used in free
trade agreements, such as with NAFTA.
The NAFTA Certificate of Origin may only be
prepared by the exporter or manufacturer of the goods being exported, and not by a third
party. If accepted by Canadian or Mexican customs, the shipment will clear either
duty-free or at least at the most favorable rate of duty allowed under the Agreement.
(Note: See the NAFTA chapter of this Export 101 section for more information.)
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6. What is the Shipper’s Export Declaration?
Commonly referred to as the "SED," the
Shipper’s Export Declaration is a document required by our government for all
shipments valued over $2500. It is also required if the shipment is under an export
license, although a license is generally not required for the export of food products
(unless it is to an embargoed country). The shipper or their agent, usually an
international freight forwarder, is usually the one responsible for preparing the SED. The
forwarder keeps a copy and submits two copies to the carrier, who then presents them to
U.S. customs prior to export. Customs evaluates the shipment for control and accuracy
purposes, and sends another to the U.S. Bureau of Census, who records the data for
statistical purposes. (Note: This statistical information – specifically the first 6
digits of your Schedule B number - is very useful in searching for Trade Leads on the Internet.)
Although it is often submitted to customs
electronically, you should keep a copy in each of your export shipment files, as it is a
legal document recording an international sale.
This document does not leave the country, and is not
evaluated by foreign customs or the buyer.
Note that the Shipper's
Export Declaration (SED) was significantly revised as of April 1,
2001. Click here to download these new requirements (pdf file).
(For information on the correct way to fill
out the Shipper’s Export Declaration, refer to the DHL International web site at www.dhl-usa.com/shipping/documentation/exp-dec.html.)
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7. What is the importance of a bill of lading?
A bill of lading is a contract of carriage between
an exporter and a service provider (i.e. airline, steamship line, freight forwarder or
shipping company, etc.) that identifies the parties to the transaction and their
responsibility for payment of transportation and other accessorial fees, such as transfers
and delivery. In international trade, the origin and the destination on the bill of lading
are usually for the "main carriage" transportation between the port of departure
and the port of importation. Trucking services may also provide bills of lading for
export, if they are leaving the U.S. under that conveyance.
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8. What is the difference between an air waybill
and an ocean bill of lading?
The primary difference between the two (other than
the obvious) is that ocean bills of lading can be made "negotiable" and air
waybills cannot. Negotiable bills of lading are a common practice in international trade,
designed to protect the seller by allowing them to consign the document to their
"order," instead of the consignee, or buyer. In this case, the seller may
transfer the document to or through a third party, usually a bank, who then would collect
the funds from the buyer before turning the documents over to them. The transit time in
ocean freight may allow the bill of lading to be bought and resold, which in a sense makes
the document have a distinct value.
If you consign a bill of lading to the buyer
directly, you have in a sense turned title of the goods over to them, which is not
advisable unless you have already been paid or have assurances that you will be. This type
of bill of lading is most often used when a Letter of Credit is the payment mechanism. In
other cases, ocean bills of lading may be consigned to the buyer’s bank, if they are
not made negotiable, in order to control title to the goods.
An air waybill is not negotiable, and is mostly
consigned directly to the consignee. It is not negotiable or transferable because of the
speed at which the goods arrive, since there wouldn’t be time to transfer the title
between parties.
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9.On air freight shipments, what is the
difference between "actual" and "dimensional" weight?
Each shipment tendered to air freight
forwarders will be weighed and measured according to IATA (International
Air Transport Association) regulations. The costs of transporting
air freight are dependent upon the aircraft space and weight
limitations. Thus, bulky shipments, requiring considerable aircraft
space, are often charged as dimensional weight. It is very important
to know the chargeable weight of shipments before quoting freight charges
to the buyer.
For example, if you had 100 boxes of popped
popcorn, you might quote freight at 500 pounds. But you'd actually
be charged for 1100 pounds! At even $1.00 per pound of freight, that
is a difference of $600. This $600 comes out of your bottom line, so
it's certainly to your benefit to quote air freight correctly.
Actual weight is determined by measuring the
shipment on a certified floor platform scale. Dimensional weight is
calculated as follows: length x width x height divided by dimensional
factor (cubic inches per pound). Dimensional weight is always rounded up to the next whole
pound.
Currently, 166 cubic
inches = 1 pound of chargeable weight. To convert into metric,
multiply 166 x 2.2046, which would make it 366 cubic inches = 1 kg of chargeable
weight.
Example A: You are shipping boxes of unpopped
popcorn . The box
dimensions are 10" x 12" x 15", each containing 50 pounds of unpopped
popcorn.
Actual weight = 50 pounds.
Dimensional weight
= 12 x 10 x 15 = 10.84 = 11 pounds.
166In
this example, the actual weight exceeds the dimensional weight.
Thus, the actual weight (50 lbs.) will be used as the chargeable weight
for the shipment.
Example B: You are shipping boxes of popped
popcorn. The box dimensions are
the same as in Example A above, but each box only weighs 5 pounds.
Actual weight = 5 pounds.
Dimensional weight =
12 x 10 x 15 = 10.84 = 11 pounds.
166
In this example, the dimensional weight
exceeds the actual weight. Thus, the shipment will be charged as 11
pounds per box instead of the actual weight of five pounds.
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10. How do I determine the
"density" of my cartons, if my freight forwarder needs
that information to prepare a quote?
Density is expressed in pounds per
cubic foot. To determine density, you must first determine the
volume of the shipment. Volume is calculated by multiplying
length x width x height.
If measured in inches, the result of this volume equation must be
divided by 1728 to determine cubic feet. Then, the weight needs to
be divided by cubic feet to determine density or pounds per cubic
foot.
Example A: A box of
unpopped popcorn 10' x 12' x 15', weighs 25 pounds.
- Step One: 10 x 12 x 15 = 1800 volume.
- Step Two: 1800=
1.04 cubic feet
1728
- Step Three: 25 lbs. = 24 lbs. per cubic foot.
1.04
According to international shipping standards,
average density is 10.4 pounds per cubic foot. So 24 pounds per
cubic foot is considered "dense" freight and therefore is subject to
better freight rates, as it allows the forwarder to put a lot of weight in a smaller area.
Example B: A box of popped popcorn, with the same
dimensions as in Example A, weighs only 5 pounds.
- Step One: 10 x 12 x 15 = 1800 volume.
- Step Two: 1800
= 1.04 cubic feet.
1728
- Step Three: 5 lbs. = 4.81 lbs. per cubic foot
1.04
With such low density, this product would be considered "fluff," as
they say in the business. Thus, it's not really attractive,
especially as air cargo. Charges would be based on volume weight
instead of actual and thus rather expensive.
Shipping popped popcorn, therefore, is not considered cost effective on
a weight to value ratio. However, unpopped corn would be shipped more
efficiently, due to its density.
All of this means that if you know you have "dense" freight, you should negotiate
for better rates, especially if your shipment will be part of a
consolidation heading overseas.
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