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Export
101 – Export Shipping & Documentation
Introduction
Although often underrated and overlooked, export
documentation and shipping concerns are an integral part of the export process and should
be considered as important as anything else related to the sale. The term
"export" documentation is actually a misnomer, since in reality they function
more as "import" documents. Most of the paperwork is really being prepared on
behalf of the buyer, and is used for customs clearance and other legalities at the port of
import. Companies that are successful in exporting usually are very adept at preparing
export documents (or they use service providers who are). Problems with documentation can
lead to delay in shipment, penalties, and unwanted storage costs, all of which will
aggravate your relationship with your buyer. Always think of how you would feel if you
were an importer and you lost business because your supplier had problems with their
paperwork. Before long, you would likely consider another business partner.
All of the following are important aspects of
Export Documentation:
- Explanation of the buyer and seller agreement.
Export documentation should clearly identify
the buyer and seller, product, methods of shipment, INCOTERMS used, packing, marking,
weight and dimensions and any other information required by either party, service
provider, or country involved.
- Defining the written agreement between the buyer
and seller and their service providers.
Export documents are used by such service
providers as freight forwarders, packing companies, carriers, banks, customs agents, and
insurance companies. This is done to determine handling, shipping, payment and licensing
issues.
- Satisfying the regulations of both the exporting
and importing countries.
On the export side, the shipper’s export
declaration is used for export clearances and statistical data, and licensing
requirements, if any. The document package is also used at the destination to determine
the origin of manufacture, the appropriate tariff number, the valuation, and the
application of the appropriate duties and taxes.
- Qualifying the products for preferential tariff
treatment, if applicable.
In trade agreements such as NAFTA, the Certificate
of Origin is provided to determine qualification for either duty-free importation, or to
qualify the goods for the lowest rate of duty applicable. (See the NAFTA chapter of this Export 101 section for further details.)
FAQ’s
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.
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.
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.
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.
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.)
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.)
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.
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.
Export Documentation Links
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