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International Trade Documentation – What Suppliers Need to Prepare for The Export Market
Leaping into the export market can be an exhilarating time for suppliers with ambitions to emerge as a global brand. The prospect of having new markets sprout up all over the world can be transformative for any company breaking out of its home territory – but it also poses the more pressing problem of how to decode that nebulous web of procedures built into the structure of international trade that must be understood before goods can get moving.
This becomes even more of an issue when dealing with difficult export markets such as China and the various economies of ASEAN, each with their own unique complications to address. Get all the paperwork right, however, and suppliers will have a corner of the market all for themselves in the world’s most populous region.
When a supplier receives a formal letter of enquiry from a buyer in a foreign market, the documentation trail begins to unfold – and in most cases it’s a clearly established process. That initial letter will outline the terms of interest for the purchase and make a quotation in the form of a proforma invoice, a standard document that – beyond its basic purpose as an invitation to buy – may be used by the importer to procure a letter of credit or an import license
It’s incumbent on the supplier to screen the buyer and the destination country for any known restriction on trade before the proforma invoice is issued. Denied party lists are maintained by government agencies to help exporters identify bad trading partners before entering into a ruinous deal – and it’s advisable for suppliers to perform this check a second time once the whole documentation process is complete, just in case the prospective buyer has been entered onto such a list at some point along the way. This due diligence is particularly important in the Asian region, where an inconsistent approach to regulatory controls can derail trade contracts even after goods have been shipped.
Once the proforma invoice has been issued, negotiations move to finalising the sale by either agreeing to its original terms or negotiating a contract. Either way, questions of price, terms, shipping method and the responsibilities of both parties will be settled at this point. The terms of sale are critical: they determine which party is to be liable for which costs, and they should fall within the parameters of the official international commercial terms known as Incoterms 2020.
They range from the EXW (ex-works) model, under which the seller is not responsible for any costs related to the trade after the goods reach customs before leaving the country; through to the DDP (delivery duty paid) model, under which the seller essentially pays all applicable fees, including customs charges on the receiver’s side. Pay attention to FOB shipping terms, indicating the point where title and responsibility for shipped goods transfer from the seller to the buyer when the goods are placed on the delivery vehicle. The Incoterms serve to make the complicated division of responsibilities absolutely clear and are invaluable in avoiding disputes over the more obscure costs that might otherwise be overlooked at this point of the process.
The shipment of the goods is a complex operation guided by multiple documents designed to cover all eventualities. The supplier will be expected to release a commercial invoice to supersede the proforma invoice – and unlike an invoice for accounting purposes, this will lay out a road map of the entire transaction, from details of seller and purchaser through to the agreed terms of sale and a full description of the merchandise being traded. This should be accompanied by an official packing list, which identifies all items in the shipment by their dimensions and markings, along with instructions for all parties involved in handling the goods – such as whether the goods need special temperature handling, which would be the case if the products are frozen or chilled food items. The attached certificate of origin is official proof of the originating country, instrumental in ensuring compliance with international trade agreements.
As an important record of the trade – as well as a detailed memo that covers all the information necessary to coordinate the movement of goods, and details of whom to contact should any questions arise – a shipper’s letter of instruction is a key resource for the freight forwarder handling the shipment. This letter can also be essential if the freight forwarder is to be authorised to file information with the Automated Export System, a necessary step if the goods being shipped are relatively valuable.
Perhaps the least understood aspect of the exporting process is the contractual relationship with shippers and carriers – as distinct from any contract with the purchaser of the goods. These bills of lading are contracts of carriage that exporters will sign with shippers of the product, stating their destination as well as providing evidence that the goods have been collected and are on their way. They vary according to whether the shipment is being made overland, by air or by sea.
These are the central documents exporters need to be familiar with in order to embark on the adventure of international trade. There are others – such as forms to accompany dangerous goods or bank drafts to arrange the release of funds – but regardless of what additional documentation is needed, it’s critical that the supplier keep full and detailed copies of every one of them so as to retain a complete record of the entire transaction and be completely covered against any hiccup along the way. Keep all the papers in order and in a safe place, and the complex world of exporting will be far simpler to navigate.
In part two of this series, we will take a closer look at the unique requirements of Mainland China, applicable to food exporters.