Sales Contract and Export Logistics Guide

6
SALES CONTRACT
AND EXPORT LOGISTICS
6.1 Framework for a Sales Contract
During the export operation, the exporter may be involved, to differing

degrees, in different types of contract: sales, carriage, finance and insurance.
Each contract needs to be explicit in regard to what is paid, to whom and
what obligations each party is to fulfil.
The INCOTERMS is one of the most important contract clauses, after

parties, good and price. They constitute a contract of supply and all
additions or alterations made to them need to be laid out clearly and
explicitly, to be agreed by all parties. Although verbal agreements are
binding in theory, in court they will be difficult to uphold.
Each sales contract may differ between markets, countries and even
individual customers, but as a guideline it should include the following: the
purpose of the contract (e.g. the exchange of specified merchandise); the
price and the currency to be used; terms of delivery (INCOTERMS) and
payment; methods of shipment, packing, etc and insurance terms; details of
the export licence and any freight/ documentary requirements; general
contract conditions (e.g. performance/ quality of the goods, arbitration, etc.);
signatures and details of both parties.
With such a detailed document, it is important that each clause is in writing

and is clearly understood by all. The sales contract will also have
implications for the related contracts, e.g. terms of carriage, insurance and
finance, and any problems can be costly in terms of litigation and loss of
trade. The language that the contract will use is very important, as this will
help to narrow down areas of confusion between differing translations.
International Business
A traditional export contract therefore includes: parties involved,

description of the goods, price, a point or destination at which the ownership
of goods passes from the seller to the buyer (or INCOTERMS),
responsibilities for carriage and insurance; the method by which goods will
be despatched; the documents required by the buyer; bonds and guarantees;
the method, period and currency of payment; the seller’s bank through
which payment is to be conducted; the name of the arbiter should there be a
dispute over a contract; details of which party is to be responsible for bank
charges and so forth.
The contract will, therefore, encompass the movement of goods,

documentation and a financial transaction. The way the contract is formed
will affect the benefits, risks and often the relative levels of duty rose on the
transaction. It is, therefore, critical to: study the pros and cons of each
element of the contract; understand the effects different contracts may have
on customs duties and procedures; ensure risks to both buyer and seller are
minimised.
Generally, the obligations of the parties involved are the following: the
seller has to deliver the merchandise according to the clauses of the contract,
to issue the delivery documents; the buyer has to pay the agreed price and to
take the merchandise from the delivery place.
Basically, the price is considered the central element of the sales contract. It
is defined as the amount expressed in currency which a partner pays to the
other partner in exchange for the commodity 1 . It is also referred to as tariff,
commission, fee, remuneration. In certain international transactions, the
price may be expressed in quantities of merchandise (for example, offsets).
6.2 Covering the Risks Involved in an Export Operation
The risks of the exporter include: defaults on payment by the importer;

failure of the importer to obtain foreign exchange; fluctuations in exchange
rates.
The exporter has to find ways of reducing these risks. It is important

therefore to consider them at the contract stage. There are a number of
choices which are appropriate under different market conditions.
1
Turcu, Ion; Pop, Liviu; Contractele comerciale, Bucureşti, Editura Lumina Lex, volumul 1,
1997, p. 140
Sales Contract and Export Logistics
The basic market research and customer credit status information will help
the exporter to estimate the risks involved with the customer’s status and
prevailing foreign exchange controls in the customer’s market. The
exporter’s bank may be able to help him asses his foreign exchange risks,
but in a turbulent world this is considerably more difficult. The dynamics of
the world money market can make rapid and unexpected short-term shifts in
relative currency values. The following aspects have to be evaluated in
order to create a set of options most likely to reduce risks and the costs of
insuring against them: methods of payment, methods of managing foreign
exchange risk, credit insurance, cargo insurance.
The Non-Payment Risk
There are three basic methods of payment: advance payment, documentary

credits and open account (they are listed in order of increasing risk).
All these methods will be treated in the next chapter of this paper. However,
here it is a brief presentation.
Advance payment is often quoted as the best method for the exporter. It is a
method often used for unsolicited business from unknown buyers, yet the
advantages to the exporter outweigh the disadvantages to the buyer who will
have to tie up funds in advance of delivery. Furthermore, advance payment
provides no guarantee as to the final destination of the goods purchased.
Other methods, at least ensure that goods are cleared into the country to
which they are destined. Where advance payments are made guarantees or
bonds may be required by the importer. In practice, only a very small
proportion of export sales are conducted in this way.
The next most secure method of payment is through a Documentary Letter

of Credit, which in simple terms can be defined as: a written undertaking
given by a bank on behalf of the buyer, to pay the seller an amount of
money within a specific time, provided the seller presents documents
strictly in accordance with the terms laid down in the letter of credit. In
effect, the buyer provides the seller with guarantee of payment in return for
an assurance from a bank that the required export documents have been
delivered to the bank’s satisfaction.
Where an established buyer-seller relationship exists and where foreign

exchange availability is not a problem, then business can be conducted on
an open account basis. Competitive pressures frequently make this a
necessity. This method of payment is naturally the highest in terms of risk.
It is therefore essential that the exporter trust customers whom he intends to

trade with on open account and mark credit limits very carefully – both in
terms of exposure and time period allowed.
The Foreign Exchange Risk
Whilst many financial experts will argue for and against different foreign
exchange policies the two issues that the exporter need to be especially
aware of are: the impact of price fluctuations on his market and the effect of
exchange fluctuations on his own company’s profitability. The danger, of
course, is in being overly concerned with the second of these- the impact of
currency movements on individual transactions – where the real problem is
ensuring the development of the exporter’s market. Whilst the ups and
downs of exchange rates tend to balance themselves out over time,
fluctuating market prices may have an extremely weakening effect on the
market on long term. The overriding aim as always is to worry about the
market and its development rather than the short-term effects of currency
movements. While the exporter may lose some margin in the short term it is
vital not to lose his markets and the investments he has made in them.
It is essential in planning export contracts to have a knowledge of how

foreign currency deals work. Yet it is also important for the exporter to take
expert advice from his bankers on how to cover against risks.
The problem of transactions involving two currencies is that their relative

conversion rate changes. Thus a price agreed, say, six months ago based on
the rate prevailing for the conversion between a foreign currency and the
exporter’s currency may be quite different when it is converted back on
receipt of payment. Sometimes it will be more than expected, or other times
less. So how can the exporter guard against losses? There are basically three
approaches he might evaluate for suitability for his own business. These
will depend to a certain extent on the exporter’s spread of markets and
frequency of transactions, his own “in house” expertise in international
financial transactions and the level of risk he is prepared to take.
Frequent transactions across a number of markets enable the exporter to

provide a range of markets against which to reduce risks. In effect, he will
have a “basket” of currencies against which to average his own currency
gains and losses. A sophisticated approach would be to apply the moving
average exchange rate to each of his markets, thus enabling him to make
planned price adjustments. However, where a disproportionate amount of
sales or where risks are especially severe in an individual market, he may be

better advised to isolate the transactions and protect them using forward
exchange contracts.
If the exporter has frequent transactions in very few markets, again the
frequency of transactions may average out his currency gains and losses.
However, the exporter may wish to forecast an average moving exchange
rate against which to make adjustments to the price he charges his customer,
the aim being to smooth price adjustments so as not to upset his prices in the
foreign market concerned. However, where risks are forecast, the safest
route is to make forward exchange contracts.
When the exporter makes infrequent or seasonal transactions it is difficult to

balance risk. One way, of course, would be to operate currency accounts
where he would buy an equal value of materials from the market. If this
were possible he would balance his risks exactly. It is certainly a technique
used by larger, sophisticated organisations with a regular two-way flow in a
given currency and if applicable to his company would be worth evaluating.
The other option would be to make forward exchange contracts. This,
however, involves a premium on the exporter’s exchange rate quotation. It
pre-empts the fall in relative values of currencies. It may provide windfall
profits, but this is not the point of the exercise, for what he in fact is doing is
passing the exchange risk to the bank for a predetermined cost.
Forward exchange rate contracts are legally binding agreements between a

bank and its customers. The contract ensures that the currency is exchanged
at some future time at a predetermined value. The exporter is protected from
an adverse currency movement for once a contact is entered into it does not
matter how much the current “spot” rate of exchange may vary between the
time of entering the contract and its maturity. This is because he has
negotiated a fixed rate with his bank. Covering currency risk on a forward
basis thus provides a form of insurance and is a prudent step where currency
exposure could threaten the profitability of transactions.
A forward exchange contract can take two forms. It either specifies a fixed
future date or provides an option for the customer to deliver or take delivery
of the agreed currency within an agreed time. The option in a forward
exchange contract, unlike a stock exchange option, is not one offering a
choice as to whether to exercise it or not. It is an option which concerns
only the timing of the delivery when one currency is exchanged for another.
The way in which banks arrive at forward rates is to take the current spot
rate and add a “premium” or “discount”. The calculation is based on interest
rates. Thus, if the exporter enters a forward exchange contract for his
currency against a foreign currency with a lower interest rate than his, he
would expect it to be at a premium against his own currency. Conversely,
one with a higher interest rate against his own currency will be at a discount.
Premiums are deducted from the spot rate and discounts are added.
Cargo Insurance
The two essential points to remember about cargo insurance are: the
exporter must ensure that goods are insured at every point between the time
they leave his warehouse until they are safely delivered to his customer; he
must establish for which parts of the journey the responsibility for insurance
of the goods rests with him and which parts rest with his customer.
It is important, therefore, that the exporter and his customer reach an

agreement on the terms, methods of shipping and insurance.
The ‘conditions’ clauses of a documentary credit will cover insurance. It is

absolutely vital that the insurance strictly complies with the conditions of
the documentary credit. Failure to do so will hinder the payment process.
The purpose of insurance is obviously to recover the value of the goods

should they be lost, damaged or destroyed. In most cases goods are insured
to cover their value (plus 10%) and the cost of freight. Should the exporter
need to make a claim then he will receive either the whole amount of the
value if goods are lost or damaged or a proportion only of the value if they
are damaged. If they are damaged beyond economic repair, then the goods
will be written off under the provision of “total constructive loss”. However,
when this occurs the underwriters have the right to whatever remains of the
original goods and the right to dispose of them.
The exporter can insure his goods for almost any risk provided that he is
prepared to pay the premiums demanded. The exceptions are, however: he
cannot insure against damage which is inherently probable because of the
nature or composition of the goods (e.g. propensity to go off or attract
odours); he cannot insure unlawful cargo. These exceptions come under the
heading of ‘inherent vice’. Insurance is listed in three clauses: A, B and C.
Clause A is an “all risks clause”, clauses B and C provide only basic

insurance for shipments which are relatively low risk. All cargo clauses
exclude war risk, damage due to strike, riots and civil commotions. It is
important for the exporter to examine the exclusion clauses for all cargo
insurance so that he knows exactly what he is covered for.
All carriers have a legal responsibility of custodianship. A body of common

law stipulates that carriers exercise a reasonable amount of care. The general
principles governing custodial care are subject to a number of treaties: for
road, CMR Convention conditions, for air Warsaw Convention, for sea
Hague Visby Rules.
The insurance certificate is an important document needed to complete the

full set of shipping documents. It is essential if the importer or anyone else
who has an insurable interest to whom the certificate can be endorsed, is to
make a claim. The claims process is advised by the insurer but usually
involves: obtaining a survey report from the insurer’s agent; forwarding the
survey report together with all relevant shipping documents (invoices, bills
of lading, or airway bill, and the certificate of insurance), plus a claim in
writing against the carrier or other party who is responsible for the loss.
6.3 Delivery Terms
Delivery terms are of major importance for international contracts, because

transport, insurance and taxes expenditures may represent a significant
percentage of the price. Therefore, any confusion about delivery terms may
lead to very costly disputes.
The delivery terms follow international rules, so that their meaning is

commonly interpreted all over the world. The principal delivery terms are
set out in INCOTERMS. 2 Essentially, each delivery term refers to the
moment when the risks of loss or deterioration and the responsibility for
costs are transferred from the seller to the buyer. In all INCOTERMS, the
transfer takes place in the delivery point. The contract clauses regarding the
delivery terms imposes deciding on the following aspects very important in
any export-import operation: where the risks of loss or deterioration of
goods are transferred from the seller to the buyer; which part is held
responsible for customs formalities (both in the exporting and importing
country); who is in charge of goods transport in the exporting country; who
will pay for goods transport; who will take out and pay the insurance.
2
INCOTERMS is the abbreviation for International Commercial Terms which are
published by International Chamber of Commerce, last revision year 2000
INCOTERMS are classified in four groups:

the group of delivery terms whose name starts with letter “E” includes
only one delivery term (EXW) which states that the importer takes the
goods from the exporter’s place (factory, warehouse);
the group of delivery terms whose names start with letter “F” (FCA,
FAS, FOB) state that the seller has to transport the goods to a certain
place (generally a port) for delivery;
the group of delivery terms whose names start with letter “C” (CFR,
CIF, CPT, CIP) includes the terms that demand that the seller is
responsible for contacting and paying the transport of the goods. The
buyer takes on the risks of loss or deterioration of goods or the costs
caused by transit;
the group of delivery terms whose names start with letter “D” (DAF,
DES, DEQ, DDU, DDP) states that the seller has to deliver the goods to
a certain destination. The risks of loss or deterioration of goods are in
seller’s charge until the goods reach the mentioned destination.
All INCOTERMS are followed by a specific place, clearly indicated

(Ex: EXW Bucharest, FOB Amsterdam, DDP Paris).
INCOTERMS Presentation:
EXW (Ex Works)
Under this term, the buyer takes costs and responsibility quite literally from
the factory gate. All the seller is expected to do is to pack the goods and
make them ready for collection, according to the indications of the buyer.
No costs of freight or insurance of cargo are necessary. The advantages for
the seller are great, as the cost and time required in preparing shipping and
insurance arrangements are saved.
Often EXW terms apply to customers who marshal goods from several
suppliers for onward shipment to their own markets. Well-organised buyers
using their own export houses will insist on this type of arrangement.
The costs saved can either be passed on by the importer for competitive
pricing or retained as additional contribution. The advantages to the buyer
are thus obvious.
Risks to the exporter do however arise, especially where the buyer is

relatively unknown. The reason being that it is not at all uncommon for
buyers to divert shipments to markets where the seller had no intention of
letting them go. A breed of export entrepreneurs from both home and abroad
have learned to buy in bulk at export discounts (especially with large cash
transactions) to ship goods to markets where they undercut the exporter’s
appointed representatives. The effect is to undermine prices in those
markets. There is one of the ways in which “parallel traders” operate. Not
all transactions are strictly legal where the buyer circumvents duty or VAT
in disposing of the goods. It is, however, difficult for sellers to avoid such
transactions, for the “professional” parallel trader is all to well acquainted
with European Community Law. This law, in effect, debars companies from
restricting the sale of goods to specific customers in an attempt to reduce
competition. It is also important to note that that the EC legal constraints
covering competition cover all transactions in the Community regardless of
whether the goods are to be shipped outside the Community.
FCA (Free Carrier)
Under this term, the seller complied with its selling obligation when he gave
the goods to the freighter indicated by the buyer in the agreed place, with
the export customs formalities accomplished. This delivery term is suitable
to all transportation modes.
The seller’s obligations are: to supply the goods and the commercial invoice
according to the contract; as regards the transport he does not have any
obligation, however, he can conclude a transport contract on buyer’s risk and
expense; he does not have any obligation related to the insurance contract; he
has to deliver the goods to the freighter indicated by the buyer; he is
responsible for risks of loss or deterioration of the goods until they are
delivered to the freighter; he has to support all the expenses related to the
goods until they are delivered to the freighter and he also supports the
expenses with customs formalities and all the other taxes in export; he has to
notify to the buyer that the goods were delivered to the freighter; he pays the
cost of verifying operations such as quality control; he supplies on his
expense the packaging necessary for the transportation of the goods according
to the buyer’s indications; the packaging has to be marked properly.
The buyer has the following obligations: to pay the price according to the
sale contract: to conclude on his expense the transportation contract; to take
the goods; to take on the risks of loss or deterioration of goods from the
moment when they have been delivered to the freighter; to pay all the
expenses related to the goods from the moment they have been delivered to
the freighter; he pays all the taxes related to possible import customs
formalities and, where necessary, to transit of goods through a third country;
to inform the seller early enough about the freighter’s name, the
transportation mode and the date when the goods have to be delivered.
FAS – Free Alongside Ship
FAS refers to terms which mean that the goods are transferred to the buyer
before the goods actually go over the side of the ship. It is suitable for sea
transport.
The seller has the following obligations:
he has to supply the goods and the commercial invoice according to the
contract; as regards transport and insurance he has no obligation; he has
to deliver the goods alongside the ship indicated by the buyer in the
forwarding port at a specified date; he takes the risks of loss or
deterioration of the goods until they are delivered alongside the ship; he
pay all the expenses related to the goods until they are delivered
alongside the ship, including any export customs formalities; he has to
inform the buyer that the goods have been delivered alongside the
indicated ship in real-time; he has to send to the buyer the necessary
documentation proving the delivery of the goods; he has to pay for any
necessary verifying operations such as control of quality, weight; he has
to supply the packaging according to the transportation conditions.
When this delivery term is specified in the contract, the buyer has the
following obligations: he has to pay the price settled in the sale contract; he
has to conclude on his own expense a transportation contract; he takes the
risk of loss or deterioration of the goods from the moment they have been
delivered by the buyer alongside ship; he pays all the expenses related to the
merchandise from the moment it has been delivered by the buyer; he
informs the seller in real-time about the name of the ship, the loading place
and date; he pays the inspection expenses before forwarding.
FOB (Free on Board)
Where goods are sold on FOB terms, the exporter is responsible for all costs
and responsibilities for goods until they are put on board a ship or aircraft.
In effect, the buyer takes possession of the goods once loaded.
The advantages of FOB terms to the exporter are the following:

it is quicker and easier to calculate an offer price to the customer
the buyer takes possession of the goods before actual shipment and is
thus contractually responsible for payment regardless of what happens
to the goods
it may suit the buyer
the exporter does not have to finance freight and insurance beyond the
point of embarkation.
The disadvantages to the exporter revolve around the problems of securing

insurance payments from the customer should the goods go astray or be
damaged.
The advantages for the buyer are the discretion he can exercise in selecting
shipping companies and insurers and the control over the shipment which
this entails.
The disadvantages to the buyer are:

he has to finance the cost of freight from time of shipment. Any delays
or demurrage fall automatically on to him;
he is entirely responsible for handling insurance claims which may tie
up working capital whilst claims are being settled;
any mistakes in documentation made by the seller (whilst reclaimable
later) have initially to be sorted out by the importer, as ownership rests
with the purchaser;
problems and disputes are left to the buyer to sort out. Whilst this may
be in theory an advantage to the exporter, the friction and costs may
damage the relationship between seller and buyer, to the seller’s long-
term disadvantage.
CFR (Cost and Freight)
Cost and freight relates to the fact that the seller has to pay the cost and
freight necessary to bring the goods to the agreed destination port, but the
risk of loss or deterioration of goods and any other expenses are transferred
from the seller to the buyer as soon as the goods are on the board of the
ship. CFR is suitable for sea transport.
The seller has the following obligations: to supply the goods and the
commercial invoice according to the sale contract; to conclude on his own
expense a contract which ensures the transportation of the goods until the
destination port on a ship; he takes the risk for any deterioration or loss of
the goods until they are on the board of the ship; he pays the costs related to
the goods until they are delivered, including loading expenses; he has to
send to the buyer the transport document; he supplies the proper packaging.
The buyer is responsible for the following: he pays the price stipulated in
the sale contract; he has no obligation regarding the transport; he has to take
the goods from the freighter in the agreed destination port; he takes all the
risks regarding the goods from the moment they have been loaded on the
board; he pays all the expenses related to the goods from the moment they
are on the board of the ship including discharge expenses; he also pays the
import customs duties; he informs the seller about the destination port and
forwarding date.
CIF (Cost, Insurance and Freight)
Under CIF delivery term, the seller has the same obligations required by
CFR, plus the transport insurance against risks of loss or deterioration of the
goods. The seller takes out the insurance contract and pays the insurance
premium.
The buyer has to know that under this delivery term, the seller has to
provide insurance for a minimum coverage of risks.
CIF requests for the seller to be in charge of export customs formalities and
it is suitable for sea transport.
To sum up, the exporter has to:

conclude both an insurance and a transport contract; the minimum
insurance has to cover the price stipulated in the sale contract plus 10%
and is has to be issued in the currency of the contract;
pay all the expenses regarding the goods until they are delivered to the
destination port;
send the transport document to the importer.
On the other hand, the importer has to pay the price stipulated in the sale
contract, to take the merchandise from the freighter in the agreed destination
port, the risks and expenses related to the goods are in his charge from the
moment they are on the board of the ship in the forwarding port.
CPT (Carriage paid to…)
CPT delivery term implies that the buyer pays the transport of the goods to a
named destination. Any risk of loss or deterioration of the goods or expense
related to the goods is transferred from the seller to the buyer when the goods
are delivered to the carrier. If there are more carriers in charge of transport of
the goods, the risk is transferred when the goods are delivered to the first
carrier. Under this term, the seller is in charge of export customs formalities.
CPT is suitable for any transport mode.
According to this delivery term, the seller has the following obligations: to
deliver the goods and the commercial invoice as stated in the contract; to
conclude on his own expense a transport contract until the named
destination (as regards the insurance, he has no obligation); to deliver the
goods to the carrier at a certain date; to pay all the expenses related to the
goods until they are delivered to the carrier; to inform the buyer that the
goods have been delivered and send him the transport document; to supply
the necessary package for the goods.
The buyer has the following obligations: to pay the price mentioned in the
sale contract (he has no obligation related to the transport); to take delivery
from the carrier; he is responsible for the risk of loss or damage of the goods
from the moment they have been delivered to the carrier; to pay all the
expenses related to the goods from the same moment, including the import
customs duties and other taxes where necessary.
CIP (Carriage and Insurance Paid to…)
This delivery term is the same as CPT with the exception that the exporter is
responsible for insurance. He is responsible, therefore, for goods until they
arrive at a specific destination. This type of contract is not to be
recommended where the exporter has to take care of import procedures on
behalf of the customer. This delivery term is suitable for any transport
mode.
To sum up, the seller has to: deliver the merchandise ,the commercial
invoice and any other document requested by the contract; to conclude on
his own expense a transport contract until the named destination; to pay the
insurance premium (the minimum insurance has to cover the price stipulated
in the sale contract plus 10 % and has to be issued in the currency of the
contract); he is responsible for the risk of damage or loss of goods until they
are delivered to the carrier; he pays all the expenses related to the goods
(freight, loading cost), including the export customs duties and any other
taxes imposed when exporting; he supplies the necessary packaging and
marking and pays for the control of the goods before exported.
The seller has the following obligations: to pay the price; (he has no
obligation concerning the transport); to take delivery from the carrier in the
named destination; to bear all the risks of loss or damage of goods from the
moment they have been delivered to the carrier; to bear all the expenses
related to the goods from the moment they have been delivered to the carrier
(these expenses include also import customs duties and, where necessary,
transit duties).
DAF (Delivered at Frontier)
DAF delivery term shows that the seller fulfilled with his selling obligation
when the goods have been delivered to the frontier agreed by the parties, but
not to the destination. The term “frontier” may be used for any frontier
including that of the exporting country. According to INCOTERMS 2000,
this delivery term may be used only in case goods are transported by rail or
road.
According to this delivery term, the seller has the following obligations: to
deliver the goods to the buyer in the named frontier at a certain date; to
ensure on his expense the transport of goods to the agreed frontier even if
transit through a third country is necessary (he has no obligation related to
insurance); to bear the risk of loss or damage of the goods until they arrive
to the named frontier; to bear the expenses related to the goods until they are
taken by the buyer ( including export customs duties and any other taxes); to
send to the buyer the transport document which proves that the goods have
been delivered.
The buyer has the following obligations: to pay the price; to take delivery
from the frontier; to bear any risk related to the merchandise from the
moment it arrives at the frontier; to pay all the taxes concerning the goods
from the moment they are taken from the frontier.
DES (Delivered ex Ship)
DES delivery term states that the seller fulfilled the selling obligation when
the goods are at the board of the ship in the agreed port. The seller bears all
the expenses and risks implied by the transport of the goods to the agreed
destination port. This delivery term is suitable only for sea transport.
The seller has, therefore the following obligations: to deliver the

merchandise (without import duty-paid) at the board of the ship in the
named destination port at a certain date; to send to the buyer the commercial
invoice, the transport document and any other necessary documentation; to
conclude on his own expense a transport contract so as to ensure the
transport of the goods to the named destination port (as regards the
insurance, he has no obligation); to bear all the risks and expenses related to
the goods until they are delivered as mentioned above; to supply on his
expense the packaging of the merchandise and to mark it properly.
The buyer has the following obligations: to pay the agreed price; to take
delivery from the board of the ship; to bear the risk of damage or loss of the
goods from the moment they are at the board of the ship in the named port
of destination; to bear unloading costs and import customs duties.
DEQ (Delivered ex Quay…)
DEQ delivery term shows that the seller fulfilled its selling obligation when
the goods reach the quay of the agreed destination port. The seller has to
bear all the risks and costs caused by the delivery of the goods. According to
INCOTERMS the buyer is in charge of the import customs duties and other
import taxes, but before that date, they were the seller’s obligation. Anyway,
the parties may agree that these taxes be partially or totally the seller’s
responsibility.
To sum up, the seller has the following obligations: to deliver the
merchandise on the quay of the named destination port; to supply the buyer
with the commercial invoice, the transport document and any other
necessary documentation; to conclude on his own expense the transport
contract (related to insurance, he has no obligation); to bear the risks and
expenses related to the merchandise until it arrives on the quay; to supply
the packaging of the goods and to mark it properly.
On the other hand, the buyer has to: pay the price agreed in the sale
contract; take the delivery from the quay; to bear all the risks and expenses
related to the goods from the moment they are on the quay.
DDU (Delivered Duty Unpaid…)
DDU delivery term means that the seller has to deliver the merchandise at a
named place in the importing country. He has to bear all the risks and costs
implied in transporting the merchandise to the agreed place except for the
import duties and unloading costs. If the parties agree that the seller is in
charge of customs duties, this has to be specified in the contract.
Under this term ,the obligations of the seller are: to deliver the merchandise
in the importer’s country at a named place; to supply the necessary
documentation (commercial invoice, transport document and all the other
required documents); to conclude the transport contract on his own expense
(regarding the insurance he has no obligation); to bear all the risks and
expenses related to the merchandise until it arrives at the agreed place in the
importer’s country; to supply the packaging and to mark it properly.
The buyer has the usual obligations: pays the price; take delivery from the
named place in his country and from that moment bears all the risks and
costs related to the merchandise.
DDP (Delivered Duty Paid…)
While EX WORKS implies minimum obligations to the seller, this delivery

term implies maximum obligations to the seller. He has to deliver the goods
in the importer’s country at a named place. Unlike DDU, he is in charge of
import customs duties too. The discharge of the goods at the destination
place is made on the buyer’s expense and risk.
The following table will summarise the obligations of the parties regarding
delivery according to INCOTERMS groups.
Table 6.1 INCOTERMS: Obligations of Parties Involved

in Export Operations 3
Group
E F C D
Obligations
Packing exporter exporter exporter exporter
Storage exporter exporter exporter exporter
Loading importer exporter exporter exporter
Export
importer exporter exporter exporter
customs
Main
importer importer exporter exporter
transport
Insurance For CIF
Unspecified
of main unspecified unspecified and CIP
(exporter)
transport exporter
Importer
Import
importer importer importer (DDP
customs
exporter)
Unloading importer importer importer importer
As regards the obligations of the parties concerning the delivery documents,

they are summarised in the table below 4 :
3
Popa Ioan, Tranzacţii de comerţ exterior, Bucureşti, Editura Economică, 2003, p. 230
4
D. Chevalier, Memo Guide MOCI, no 3/1999
Table 6.2 Obligation Summarised
Certificate
Inspection
Certifying
certificate
of origin∗
Insurance
Consular
Delivery
invoice∗
licence∗
licence∗
delivery
Packing
Invoice
Export
Import
Trans.
policy
Doc.
term
doc.
list
EXW… S (S) B B (B) (B) B (B) (B) B
FCA… S (S) S B (B) (B) S B (B) B
FAS… S (S) S B (B) (B) S B (B) B
FOB… S (S) S B (B) (B) S B (B) B
CFR… S (S) S B (B) (B) - S (B) B
CIF… S (S) S B (B) (B) - S S B
CPT… S (S) S B (B) (B) - S (B) B
CIP… S (S) S B (B) (B) - S S B
DAF… S (S) S B (B) (B) S S (S) -(B) B
DES… S (S) S B (B) (B) S S (S) B
DEQ… S (S) S B (B) (B) S S (S) B
DDU… S (S) S B (B) (B) S S (S) B
DDP… S (S) S B (S) (S) S S (S) S
S= documents on seller’s expense

B= documents on buyer’s expense
( ) = INCOTERMS do not specify on whose expense the document will be
obtained
∗= if it is the case
6.4 International Distribution
Delivery Preparation
Depending on the transport method, the physical processes of exporting can

be numerous, and can leave the products vulnerable to damage at various
points during their journey to the customer. As well as initial loading and
final unloading procedures, and potential hazards during transportation
itself, goods may be moved and reloaded at intermediate points in the
journey. Technological developments have made packing methods
increasingly sophisticated and wider use of vehicles such as fork lift trucks
means that manual handling of goods in transit has been reduced.
Unfortunately, this doesn’t serve to eliminate risks altogether.
The strategy for export packing therefore should be to ensure that such
hazards are minimised, and that goods are protected as far as practicable
against even the most calamitous of handling incidents. Packing should

nonetheless be as simple as possible so that overheads are kept low, and
profitability high. In some cases, the letter of credit will specify packing
details.
Packing factors to consider include:

The nature of the goods-are they fragile, heavy, large? What will be
necessary to protect them from damage en route? Fragile goods will
require fairly extensive precautionary packaging. Awkwardly shaped
loads should be avoided where possible as these may incur additional
charges at ports.
The value of the goods- this means calculating not only the risks of high
value goods being damaged in transit, but also their vulnerability to
pilferage (this will be linked in to transport method).
They will be transported- the key factor is how much handling will be
required, whether goods will be loaded and unloaded during transit, or
will remain undisturbed throughout. Many modern containerisation
methods offer what are effectively door-to-door services, and goods
require little protection against mishandling incidents. Goods which are
to be transported on board ship may require quite sturdy, wooden
packaging, whilst air travel requirements are less. Some methods of
transport, e.g. long overland rail journeys, may expose goods to extreme
changes in temperature and this should be taken into account when
planning packing.
In some countries import duty is calculated on the weight of the goods
and their packing. The customer may therefore require the lightest
possible packing materials. These should always be investigated with
reference to other factors such as fragility or perishable nature of goods.
It is essential to remember that transport providers will be looking to make

the best possible use of the freight capacity they have. Developments in
containers for transporting of a wide range of goods – including refrigerated
containers and those with open tops for awkwardly shaped machinery etc. –
mean that this method is becoming increasingly widely used, and
corresponding advantages, such as advances in ‘though’ documentation, are
growing accordingly. For smaller consignments, particularly those sent by
air, palletization is a fast-growing packing option. This involves the
attaching of the cargo to a ‘pallet’ – a wooden or metallic framework – often
with a plastic wrapping, throughout the journey.
Palletisation has many of the same benefits of containerisation in reducing

packing and limitating handling-pallets are particularly compatible with fork
lift truck use. It may also reduce some shipping and port handling charges.
Another aspect that should be considered is the relevant legal requirements

of the export market – for example, packing of dangerous cargo will usually
be tightly controlled, especially where there is a risk of leakage. And all
marking requirements must be adhered to. Food and other perishable
products are usually subject to temperature restrictions. In some countries
straw is an illegal method of packing for imported goods, because of the risk
of insects and bacteria being imported within it. Many countries are stricter
still, banning the use of wood, straw and any organic material.
The marking and labelling is another requirement that the exporter has to
accomplish. The exporter will write accurately, in letters and numbers, the
elements of identification of the goods, the consignee and the destination
place. The marking is also useful to identify the origin of the merchandise.
It is advisable that the marking should be made on three different sides of
the packing: up, down and lateral. Marking is not used for advertising
purposes. On the packing there can be also pictograms in order to stress
some features of the merchandise (for example ‘fragile’) or to offer handling
indications (‘up’, ‘down’ etc.).
Modes of Transportation
When faced with the decision of selecting a mode of transportation, the

exporter has six basic types available from which to choose, depending, of
course, upon the geographical proximity of the countries of export and
import: ocean, air, rail, road, inland water and containers. Another alternative
is pipeline which transports very specialized products. The choice between
available methods of transportation is usually determined by a combination
of cost, time and security.
Ocean transportation is the most dominant mode of international

transportation, and air transport is the most ‘glamorous’ and fastest growing.
The significance of the other basic types of international transportation
varies depending upon the countries involved.
Ocean transportation is widely used because it is a relatively low cost way

to transport goods and it can easily handle large shipments. However, this
method has some disadvantages: the length of time involved; the shipments
have to be booked well in advance; the method is politically sensitive-

disputes frequently cause long delays at ports; there are frequent customs
delays en route. In addition, certain geographic conditions may make it
impossible to use overland transportation to some foreign markets and
infeasible to use it to others.
The exporter should keep two major factors in mind when selecting the
route of an ocean shipment. These are: (1) the route that will bring the
shipment to its port of destination in the shortest possible time and (2) the
route that will be the most economical. Frequently the quickest route is not
the most economical.
Frequency of sailings from a given port is more important than the actual
duration of the voyage. When a shippment just misses one sailing and has to
be held over for the next, several days or weeks later, demurrage (charges
for the use of the freight car or container in which sent)and storage charges
may accumulate. This is one of the reasons why , in spit of possible higher
port costs for individual shipments, major ports are usually the best to use
for shipment.
When the products to be exported are delivered to a railroad (or trucking

company) at an inland point, either a railroad bill of lading5 or a through bill
of lading is issued. If just a railroad bill of lading is issued, a second bill od
lading will have to be issued at the port for the ocean portion of the
shipment. Upon arrival of the merchandise at the port, a notice reffered to as
an arrival notice is sent by the railroad to the domestic consignee at port of
shipment. The representative of the exporter then accepts the merchandise
from the rail carrier and makes delivery to the ocean carrier. The
representative of the shipper then becomes responsible for all details
connected with starting the merchandise on its ocean journey.
Ocean freight rates may be obtained directly from shipping lines or through
the foreign freight forwarder. In some countries, the shipper is faced with
the question of whether to use independent carriers or ocean carriers
belonging to a conference. Shipping conferences are associations of ocean
transportation companies. They are organized by formal agreement, with
governmental sanction, primarily to set freight rates and sailing schedules
over specified routes. A shipper may take an annual contract with the
5
bill of lading is a transportation document whose functions will be explained further in
this chapter.
conference to ship all of the company’s cargo to places served by the

conference on vessels operated by conference companies. By sisning such a
contact, the shipper gets a lower rate than shippers that do not have a
contract. Independent carriers may also offer discounted rates for shippers
who are willing to sign annual contracts. While both conference carriers and
independent carriers have government-approved schedules of rates (Tarrifs)
by which they must abide, the independent carrier’s are often lower. The
lower rates must be balanced against the possibly less frequent sailings
available from one or a few independent carriers as compared with the often
greater number of conference members.
Once the decision is reached as to the particular ocean transportation

company to use, the next task is to secure a freight space reservation on a
particular ship. An inland shipper may secure space by contacting the line or
its agent. However, as he usually does not know sailing schedules to the
destination, it may prove better to contact a foreign freight forwarder, who
will make the space reservation at no cost to the exporter.
All the merchandise that is not handled in bulk like petroleum or wheat, is
packed in large, standard-sized containers. Containers may be filled on the
dock before loading on the vessel, or they may be filled at the exporter’s
plant. Some ocean transport comppanies will provide containers to
producers within a reasonable distance at a lower charge than usual inland
freight rates. 6
Many diverse types of products are being transported to foreign markets by

air in large volume: electronic computers, office machines, electrical and
electronic equipment, automobile parts, television sets, pharmaceuticals,
certain metal manufactures, and wearing apparel to name but a few. Thus,
even with existing technology, it is evident that air cargo movements are no
longer confined to fast shipments of emergency suppliers, goods of high
value (for example, jewelry) and perishable products (for example, fresh cut
flowers), although it is widely used for such products. To conclude, on one
hand this method has important advantages such as speed, which means that
goods which are urgently required or perishable can be delivered rapidly to
most destinations, it advances the whole transaction, meaning that payment
is quicker and cash flow healthier and packing requirements are less than for
shipping. On the other hand, it is almost always the most expensive freight
method and air transport is usually impractical for heavy loads.
6
Hall, 1993, pp. 215-221
Rail transport has been rendered particularly effective in Europe by the

opening of the Channel Tunnel and the abolition of most border controls
within the single market. However, rail freight users are still faced with the
question of transporting goods to and from railway terminals (transhipment)
and the risks accompanying the increased handling involved.
The advantages of this transportation mode are: it is generally relatively

inexpensive, most markets have some form of rail network, it is a good
method for transporting bulk consignments. Despite these advantages, rail
transport has quite many disadvantages: it often exposes goods to extremes
of temperature and adverse weather conditions, it is often subject to delays
in more remote areas, not fast overall, gauges can vary between rail
networks, causing delays for remarshalling of wagons and transhipment will
be necessary unless you have access to a private siding at either/both ends of
the journey.
Road transportation across Europe is greatly improved by the dropping of

internal tariffs and bonding procedures for en route countries, as well as the
use of the TIR system (Transport International Routier) 7 . This allows
vehicles to be sealed in one country, which reduces customs procedures to a
minimum at the destination port or customs posts. The greatest advantage of
road transportation is that it avoids the repeated loading and unloading
associated with shipping, and minimises warehousing. It also involves less
chance of damage to, or loss of, stock and makes possible door to door
delivery. The method also has disadvantages such as: problems with
restrictions oh size of vehicle and load, limitations on drivers’ hours can
lengthen transit times, overland transport often exposes goods to extremes
of temperature and adverse weather conditions.
Containers are being used increasingly in export transportation.

Containerisation is an assemblage system whereby goods, either from one
exporter or a number of smaller manufacturers, are grouped together to fill a
‘container’ (usually steel or aluminium and varying in capacity) which can
then be transported via ship, road or rail to its final destination. In many
cases it is possible to have the container checked and sealed by Customs at
an Inland Clearance Depot before departure. As long as the seals remain
unbroken, the contents of the container will not usually be disturbed during
the journey. Containerisation is particularly useful where a number of
transport methods are being used, e.g. road/ship/road. The advantages of
7
TIR represents a convention signed in Geneva in 1949
this transportation method are: container transport usually means door-to-

door delivery, lessens risk of damage/theft of goods, usually faster transport
times than containerised methods, minimises packing requirements. Some
disadvantages may be: containerisation is not compatible with all cargoes
and not all ship-owners can afford to use it.
Small shipments may be sent by international parcel post, air parcel post, on
air courier service rather than pay the higher minimum bill of lading charges
for ocean freight or air shipments. While larger shipments are charged on
the basis of weight or measurement, very small shipments are charged a set
flat fee because of the costs involved in documentation and handling.
There are times when a combination of transportation methods is used. One

commonly used arrangement is air-sea, wherein cargo is transferred
between air and ocean carriers, usually without the same intermodal
container. Containers used by each of these types of carriers have
characteristics that are incompatible with the other. The intent in using such
an intermondal combination is to take advantage of the speed and cost
efficiencies of each. Products that are particularly well suited for the air-sea
arrangement are high-value, large-volume consumer electronics, automated
office equipment, and high-technology components that are less time
sensitive that other products using air freight.
The method of transportation is usually selected by the importer. The route

selected for the export shipment may be determined either by the exporter or
the importer.
Facilitating Organizations and Services
In addition to the transportation carriers, freight forwarders and public

warehouses are other types of organizations providing service to the
exporter. Most companies can benefit at one time or another from utilizing
the services of such facilitating organizations. This is particularly true for
those companies whose export marketing operations are small or irregular,
and for the firm located away from the main exit or entry ports of its
country. Functioning as integral parts of an export marketer’s physical
distribution system, these facilitating organizations often can be powerful
marketing tools in that their existence in a system can make the difference in
whether a particular transaction is consummated.
Freight Forwarders
Foreign (export) freight forwarders also known as consolidators, have two

principal classes of functions. One group is concerned with the forwarding
of an export shipment from the point of origin to the ultimate destination in
some foreign market; the other is concerned with the engaging of space on
transportation carriers.
The services that foreign freight forwarders perform in carrying out these
basic functions are many. Although a forwarder usually can perform every
necessary physical distribution service from the time an order is placed until
the shipment is delivered at the foreign destination, perhaps a forwarder’s
major contribution lies in the taking over of traffic (arrange for shipping to
the port, book space on the carrier, and arrange insurance) and
documentation work on international freight movements. In addition, by
being able to consolidate small shipments into larger ones, the forwarder is
in a better position to secure lower transportation rates than any single
shipper. Such saves in freight charges can then be passed on to the shipper.
Some freight forwarders also may offer advice on markets, government
regulations and potential problems.
More recently, forwarders have expended their activities to include

production planning, inventory management, parts assembly, distribution
warehousing, real-time tracking, wheels-up clearance and electronic reporting.
A forwarder can be designated as a non-vessel operating common carrier

(NVOCC). To the exporter an NVOCC is a transport carrier and to a carrier
it is a shipper. The NVOCC issues a bill of lading to the exporter and is the
responsible party to the exporter. The carrier, on the other hand, issues a bill
of lading to the NVOCC. Air freight consolidators work in a manner similar
to the ocean freight NVOCC.
Although all foreign freight forwarders will handle shipments by air

transportation as a routine service, some specialize in air cargo. In the same
way as regular forwarders, these special air freight forwarders provide
complete services from point of origin to point of destination.
Warehousing
When it is necessary and profitable for an exporter to maintain an inventory

in foreign markets a storage or warehousing branch can be established. Such
facilities may be part of a foreign sales branch. If so connected, the buyer is
afforded greater convenience. A potentially powerful marketing tool is

created in that a greater volume of business might be generated than would
be the case if storage facilities were absent. The same situation occurs when
the warehousing branch is a separate entity, set up to fill orders made by
overseas distributors or agents.
As an alternative to establishing branch warehouses in foreign markets, the

exporter can utilize the services of public warehouses. A branch warehouse
may not be practical because of irregular demand for warehouse space or if
such demand is regular its magnitude is not large enough to support the
investment required and the regular operating costs incurred. Many public
warehouses are being established in the various free areas of the world.
International public warehouses provide all the usual services of warehousing:

unloading, storing, packing and so on. Such warehouses in many foreign
markets may offer other services such as customer freight forwarding,
packaging, insurance, and transportation service. In addition, many such
warehouses are designated as customs bonded warehouses, which means that
the goods from abroad may be stored there, and certain manipulations
performed on the goods, without payment of duty until such time as they are
released from storage and delivered to a buyer. The manipulations may
include manufacturing activities, although such activities may be allowed
only if the finished products are exported. The activities carried on in bonded
warehouses are under strict supervision of customs authorities.
It is not necessary that a foreign storage or warehousing operation provide

stocks for a single market area. In fact, many exporters, as they increasingly
apply the total cost concept to their physical distribution or logistics
problems, are establishing such branches as central distribution centers to
serve a wide area. Where several market areas are to be served by a single
storage or warehousing branch, it may be best for these facilities to be
located in a free port or trade zone. By locating in a free area 8 , it is
relatively easy for a manufacturer to serve many markets since the usual
customs procedures and regulations of the country where the free area is
physically located do not apply. In addition to free areas, an exporter doing
business in Europe might have one or more warehouses to serve the entire
EU. These could be located in any member state.
8
A free trade zone is basically an enclosed, policed area without resident population in, in
adjacent to, or near a port of entry, into which foreign goods may be brought without
formal customs entry.
Two distinct types of free areas can be found throughout the world. They
are similar in that all are considered to be outside the customs area of a
country. Products may be brought into and exported from such areas easily.
In addition, other activities may be allowed, such as repacking and
manufacturing. A reason why many companies use a free trade zone facility
is for cash flow savings. Realized savings can be accrued on lower cost
items as well as high cost products.
A related type of area is an export processing zone, which is an area where

foreign manufacturers enjoy favored treatment on the import of intermediate
goods, taxes, provision of infrastructure, and freedom from industrial
regulations applying elsewhere in the country. Developing countries use
these areas as a means of stimulating exports.
Transportation Insurance
One of the most important risks involved in an export transaction is that of

loss or damage to goods during their physical movement from seller to
buyer. In most instances, full protection from this risk can be provided
through special transportation insurance, such as marine insurance.
Protection can be provided to cover all transport risks from the time the
goods leave the seller’s warehouse or factory – whether located inland or at
a port of exit from the exporter’s country – until they reach the final
destination stipulated by the foreign buyer. In its most basic form, such
insurance provides the means to reimburse the owners of goods being
transported to overseas markets for any losses or damages incurred for
which the carriers cannot legally be called upon to make payment. In
addition to legal owners, no owners many times have an interest in seeing
that a shipment is adequately protected.
From the point of view of the parties involved in an international marketing

transaction – the seller and the buyer – a deciding factor in the question of
who needs transportation insurance, and then to insure, is insurable interest.
Generally speaking, insurable interest depends upon whether a company
will benefit from the safe arrival of the carrier and its cargo or whether the
firm will be injured by its loss, damage, or detention. This covers a wide
range of situations in that not only do the owners of the carrier and cargo
have such an interest, but so may certain no owners. For instance, in some
situations the seller can have an insurable interest as a nonowner even
though the buyer already has become the legal owner of the goods.
The liability of the transportation carrier in international trade is severely

limited. Additionally, the owner of cargo on board a vessel is a participant
in a ‘joint venture’ and may become subject to a general-average 9 claim
which is liability for loss or destruction of merchandise of other persons
which is sacrificed to save the vessel. Therefore, shipments on ocean-going
vessels are invariably covered by marine insurance. Most frequently,
coverage is secured by the shipper or exporter; however, importers
customarily also maintain coverage to provide protection if for any reason it
is not provided by the exporter. So universally is marine insurance
necessary that most firms engaged regularly in export business maintain an
open policy with a reliable marine insurance company.
When a CIF price is quoted to a buyer the exporter must furnish marine
insurance. If no special coverages are requested by the buyer, the exporter
provides that which is customary and which has been found necessary or
desirable for that particular type of shipment.
Shippers by air may obtain insurance coverage for their shipments from the
initial air carrier or through the shipper’s insurance broker. Airlines provide
a limited amount of insurance coverage on shipments of selected products.
If insurance coverage is made by the airline concerned, it should be noted
that the insurance company usually imposes a maximum limit upon the
value of merchandise carried on any one flight. This fact sometimes
accounts for the refusal of an airline to carry some physically small, but
highly valuable shipment.
Insurance is also furnished by the air freight forwarder. Merchandise,

therefore, may be covered from the time of pickup to the time of delivery to
the air port.
The regular form of open or floating policy used for marine insurance is also
used for insurance of air cargo, but air insurance requires a special rider,
which is attached to the open policy. If the exporter makes regular
shipments by air, it is to his or her advantage to obtain an open policy
covering all shipments. Such a policy can be arranged to cover door-to-door
shipments from exporter to importer.
9
In insurance average refers to ‘loss less than total’.
A general average loss is one affecting all cargo interests on a particular vessel plus the
vessel itself.
Documents Required
The common export documents include: transportation documents (bill of

lading, dock receipt, air waybill, railway consignment notes, and insurance
certificate), banking documents (usually letter of credit), commercial
documents (commercial invoice, pro forma invoice, customs invoice),
government documents (export declaration, consular invoice, certificate of
origin). Getting the documentation right has only advantages: reduces
chances of delay in shipment and delivery, minimises customs clearance
problems, avoids potential fines and penalties, serves as evidence of the
ownership of goods, saving any dispute, reduces delay in obtaining payment
, ensures that the exporter provide a swift and professional service, and gain
a positive reputation which will secure further orders.
Export Licence and Export Declaration
In addition to the export licence 10 , the shipper may be required to complete

a shipper’s export declaration. Most countries require that shipments abroad
be accompanied by such a declaration. This document is prepared by the
exporter, given to the shipping company, and then filled with customs
officials at the port of export. In some countries the document can be filled
electronically with the proper government agency by the exporter or
forwarder.
The export declaration lists the descriptions, quantities, and values of the
various types of merchandise in the shipment. It also lists the name of the
shipper, the name of the agent of the shipper, and the destination and
consignee. It is a basic document used in the collection of statistical data on
exports and also used by governments for control over exports.
Commercial Invoice
In exporting, the bill that the exporter or consignor sends to the importer or
consignee is called a commercial invoice. This invoice lists particulars of
the shipment. The marks, the number of packages, an accurate packing list,
and a full description of the merchandise should appear on the commercial
invoice. It should state the name of the ship (if ocean transportation is used),
the name and address of the consignee, the contract number, the code word
10
The export licence document is discussed in the first chapter
for the contract if one is used, the price per unit of the merchandise, and the
total price of the shipment. The commercial invoice should also show the
nature of the price quotation- whether the merchandise is sold FOB factory,
FAS vessel, or CIF port of destination- and the terms of payment (that is,
letter of credit, sight draft, 60 or 120 days after sight, documents against
acceptance or documents against payment, or other terms).
Various countries differ widely in the number of copies of the commercial

invoice required with each shipment. The general practice is to send at least
two copies to the bank with the other shipping documents and with the draft
drown either against letters of credit or filled with the bank for collection
(drawn directly on the buyer). Many exporters send at least two copies of
the commercial invoice direct to the consignee by separate mail. Other
copies of the commercial invoice in large quantities are frequently required
by consular offices of the importer’s country.
In countries using common law, the commercial invoice generally carries no

legal title to the merchandise and is, therefore, not a negotiable instrument.
At best, it is evidence of the intentions of the parties and is a notification to
the consignee of all the facts and the amount to be paid. On those counties
where civil law is used, however, the commercial invoice is of much greater
importance in determining the passage of title. In such countries, it may
even become evidence of the fact that title has passed.
The commercial invoice is also important in connection with insurance

claims and is frequently filed with underwriters and surveyors when claims
for damages are made.
Consular Invoice
Another essential shipping document for shipments to some countries, but

not all, is the consular invoice, ‘special customs invoice’, or ‘facture’. This
is a document obtained by the exporter in his country from the
governmental representative of the importer’s country. Thus the exporter
must prepare and have certified before the foreign consul or representative a
document containing all essential details of the sale. After certification, the
document is forwarded to the buyer for presentation to customs with the
customs declaration, ostensibly for use in determining the amount of tariff
to be levied.
The fees charged to certify the document by the consul of the foreign
government vary widely from country to country. Some fees are nominal,
but a few countries, particularly some of the less developed countries, have
found that the consular invoice can be a good source of revenue.
According to INCOTERMS, the buyer has to pay to the seller the cost of the
consular invoice which the later procured on the behalf of the importer.
Where they are required, consular invoices must be filled out with
meticulous care. Some countries will not accept a form containing erasures
or corrections of errors. When errors are detected by the customs officials, a
substantial fine may be levied, or the shipment may be subject to
confiscation.
Packing List
The packing list is sometimes shown on the commercial invoice, or it may

be a separate document, depending on the number of packages and the
complexity of the list. It should contain, item by item, the contents of cases
or containers in a shipment. The items should be listed separately with their
weight and description set forth so as to make a complete check of the
contents of each package possible upon arrival at the port of destination of
the customs office. This information is also useful for the consignee. Any
variation in description from the commercial invoice or consular invoice
usually subjects the consignee to large fines, which are then passed on to the
exporter.
Certificates and other Documents
There are a number of other documents that may be necessary for a

complete set of shipping papers. Among the most important are certificates
of origin and special certificates.
Certificates of origin are documents certifying the place of origin of the

merchandise. They have different formats, but all ask for essentially the
same type of information. They are required by some countries for all
products and by other countries for only certain types of products or only for
products originating in certain countries. In addition to such general
certificates, special cover may be required for shipments between countries
having special arrangements.
In some countries, the certificate of origin is the only special document

required. In other countries, a combined consular invoice and certificate of
origin is required. In still others, a separate certificate of origin is required in
addition to the consular invoice.
The certificate of origin is not treated, generally with anything like the
formality of the consular invoice. The form is generally filed out by the
consignor or his agent, and is then certified by officers of a local
commercial organization, not consular officials. In some cases a consular
official has to authorise the signature of the person representing the local
commercial organization.
Special certificates include a wide variety of special inspection certificates

issued by various authorities and may be required by the importer to meet
his own or government requirements. These documents certify as to purity
and absence of disease, and are issued to cover food products, plants, seeds,
and live animals. Frequently, they must be vized or legalized by the
consular representative of the importing country. Food products are those
for which sanitary certificates are most often required.
Special certificates are also issued for certain types of merchandise, to

certify a required composition or the existence of specific ingredients. Some
types of steel, for example, are sold on analysis. Certain chemical mixtures
must be analysed and certified with respect to the presence of desired
constituents.
The importer can be expected to specify what special certificates may be

required, and the exporter must provide them. All required certificates
should be attached to the commercial invoice and forwarded to the importer
together with the other shipping documents.
The Ocean Bill of Lading
The bill of lading used in ocean transportation is a document serving three

distinct purposes:
1. it is a contract of carriage between the shipper and the transportation
company;
2. it is a receipt for the goods issued by the steamship company
3. it is evidence of title to the merchandise
The conditions under which the steamship company accepts goods for
conveyance are stated on the ocean bill of lading. Although the contract
between the ocean carrier and the shipper of the merchandise is set forth in
great detail, it is rare indeed that the shipper reads all of its conditions.
Every sentence has been interpreted in courts, and a great body of law now
surrounds and interprets this contract. The shipper’s rights are fully protected.
As a result of these years of litigation, ocean carriers are almost completely

exempt from the responsibility of loss of the shipment through theft or by
pilferage, or its damage by breakage, water or fire. The only responsibility
ordinarily assumed by ocean carriers is the damage rising out of their own
or their employees’ negligence or for failure to make sure that the vessel is
seaworthy before it leaves port.
Bills of lading (B/L) may be classified on several bases to title to the goods
and the type or receipt.
Signed and Unsigned B/L’s
Bills of lading are frequently prepared in as many as 25 copies. Sometimes

even more may be required. Only those signed by the master of the vessel or
his authorized agent are legally binding documents. In the case of a to-order
bill of lading, each of the signed copies carries with it the title to the
shipment. Any one may be used by the shipper, the consignee, or his agent,
or by some person or persons to whom the merchandise has been conveyed
for claiming ownership and taking delivery. However, when any of the
signed copies is presented the others automatically become void (Only one
copy can be presented to the carrier to claim shipment). Signed non-
negotiable copies, issued in the case of straight bills of lading, are used as
proof of shipment.
Unsigned copies of the bill of lading nave no legal status, yet they are
essential. Several are needed for the files of the shipper and the consignee; a
number are used by the steamship company for recording and billing
purposes; and others may be necessary for purposes such as preparing and
settling insurance claims, and by banks participating in the financing or
collection process.
Straight and Order B/L’s, and Data Freight Receipts
Ocean bills of lading may be either straight or order. A straight bill of lading
is made out to a specifically named consignee at the destination, who is the
only person authorized to take delivery. An order bill of lading may be
made out to the order of the shipper, a bank, an agent, or merely ‘to order’.
Whoever legally holds the document may take delivery of the shipment.
The straight bill of lading is non-negotiable. By its provisions the

transportation company accepts receipt of the freight and contracts to move
it from the point of shipment to the point of delivery. Anyone who holds the
arrival notice of a shipment and can establish the fact that he is the
consignee, or represents the consignee, may obtain possession of the
merchandise. This could be a bank, a customhouse broker, or an agent.
An order bill of lading is a negotiable instrument, and the surrender of the

original, properly endorsed, is required for delivery of the merchandise.
Title remains with the person to whose order it is made out – if made out ‘to
order’, title remains with the shipper-until it is endorsed. The ultimate
recipient is usually shown as the person or organization to be notified of
arrival at the destination by the carrier.
Data freight receipts are often used in place of straight bills of lading. Under
this system, no original bills of lading are issued. The arrival information is
simply telexed tot he carrier’s agent at the port of discharge.
Received for Shipment and on-Board B/L’s
Unless the bill of lading specifically shows on the face that the cargo has
been loaded on board the vessel, it is no more than a received-for-shipment
bill of lading. This may be done when space on the vessel has not been
reserved in advance and the carrier agrees to load it only if space should be
available. Received-for-shipment bills of lading are only used when there is
no urgency in delivery of the shipment to its destination and when other
than letter-of-credit of draft financing is used.
On-board bills of lading carry with them the legal guarantee by the master
of the vessel, acting as agent for the carrier, that the goods have actually
been loaded on the vessel.
Clean or Foul B/L’s
Cargo checkers inspect shipments carefully when they are delivered to the
pier and when they are loaded on board the vessel. If any damage is
observed or if the quantity is less than that specified when the goods are
delivered to the pier, a notation is entered to the dock receipt, and the
shipper is usually given the opportunity to make repairs or complete the
quantity. If any exception to the apparent good order of the cargo is noted
when the cargo is loaded on the vessel a notation is made on the bill of
lading, which then becomes a foul bill of lading. If, however, the
merchandise is in apparent good order and there are thus no notations, it is
referred to as a clean bill of lading.
Special types of B/L’s
A special type of bill of lading, used more frequently than generally

supposed, is the accommodation bill of lading. If the shipper is well
(and favourably) known to the steamship company and wants a bill of
lading dated on a certain day and the merchandise has not yet been delivered
at the pier, the shipper may be issued a bill of lading in the regular form and
properly signed by the company. This is an accommodation bill of lading.
There is, however, no evidence on the face of it to indicate its character.
The shipper might want the bill of lading in order to meet the expiry date in
a letter of credit and may be willing to give such guarantees as the
steamship company may require.
Forwarders and NVOCC 11 B/l’s
Another form of bill of lading that is sometimes used is the forwarder’s bill
of lading. The reason for the use of this particular form is the fact that most
steamship companies have a minimum bill-of-lading fee. This imposes a
heavy charge on the shipper who wishes to send a single box, crate, or small
lot of merchandise. The export freight forwarder can combine several small
shipments from individual shippers and send the lot under one bill of lading
to a destination. At the destination, the forwarder’s branch office or
correspondent breaks out the shipment and delivers the individual pieces to
the several consignees. At the time of shipment, the foreign freight
forwarder delivers a forwarder’s bill of lading to each of the original
11
NVOCC is the abbreviation for Non-Vessel Ocean Carrier Company, an entity
authorized to issue regular bills of lading
exporters. This consolidation function is now often performed by a

NVOCC. The development of the NVOCC arose largely because of
containerization which makes consolidation into much larger amounts
desirable from the standpoints of cost, ease of handling and security.
In some places, the receiving clerk signs a dock receipt when the shipment
has been delivered to the pier. At the time the shipment is checked at the
pier, the packages are examined to determine if they are all in good
condition. Any that is not a re noted on the dock receipt. If any such notices
appear on the dock receipt, it is then described as a ‘foul dock receipt’ and
these notes will, if not examined by the required repairs, appear later on the
bill of lading. Dock receipts for full containers show only the condition of
the container, which is not opened for inspection of contents.
Airway Bills
With the rapid expansion of international air freight, an ever growing

number of shippers are utilizing this means. Moreover, considering savings
in inland freight, packing, inventories, and working capital investment,
some shippers are finding that movement by air is actually cheaper even
though air freight rates are somewhat higher. In short, following a total cost
approach to physical distribution may lead an exporter to using air transport.
Up to the point of overseas movement, the procedures for an ocean

shipment and an air shipment are usually similar. One difference that may
prove significant is that some international air carriers serve inland points;
hence, no trans-shipment at an export point is necessary.
The major difference in procedure arises at the time the shipment is turned
over to the international air carrier. International air lines have been able to
eliminate some of the routine of the export procedure required of ocean
carriers. Most important, an airway bill 12 is used rather than a standard bill
of lading. In some cases, the airway bill may also replace the commercial
invoice, the consular invoice, the certificate of origin, and the insurance
certificate. These simplified procedures have been devised and promoted by
the International Air Transport Association (IATA), which has brought
about a high degree of uniformity in the international use of the airway bill.
12
the ‘airway bill’ is variously designated as an ‘airway bill’, ‘air waybill’, ‘international
airway bill’, ‘air consignment note’
The application and use of the airway bill differs in different countries.
Usually the abbreviated procedure applies only to shipments of small value.
In some countries consular invoices and certificates of origin are still
required, whereas in others they are not. In certain cases the shipper may
elect to use his regular marine insurance coverage, especially where
warehouse-to-warehouse protection is desired; in other cases insurance
provided by the air lines is sufficient.
When foreign freight forwarders prepare the airway bill for the shipper, the
information usually includes a description of the merchandise conforming to
the export declaration and any other shipping documents, and whether or
not insurance coverage is desired. The shipper must also make a statement
of value for carriage and customs purposes. The value for carriage serves
three purposes:
1. It may be required for computing the transportation rates when a special
commodity rate is based on value.
2. It is the limit of liability of the carrier for loss or damage to the
shipment.
3. It is the amount on which the carrier’s valuation charge and insurance
premium will be computed.
As a general rule, the shipper uses the as value for carriage the amount
declared as value for customs, plus shipping charges, plus 10%. Although
the shipper may declare any value, the carrier’s maximum liability may be
limited to the actual value plus 10%.
The airway bill is not negotiable. It is not, therefore, a complete substitute

for an ocean bill of lading. Hence, international shipments made by air
cannot be financed in exactly the same way as the majority of shipments
made by surface carriers; modifications must be made. The elapsed time
between dispatch and delivery is so short that financing during the
transportation period normally is unnecessary. Generally, Air lines will not
deliver or change consignment without the original or shipper’s copy of the
airway bill. Finally, consignees always have the privilege of specifying that
the airway bill shall be acceptable as the document against which payment
will be made.
Since most air lines provide COD facilities as a service to shippers, this
method may be utilized if the shipper requires quick reimbursement. Also,
arrangement can usually be made for cable notification of collection to the
home office of the air line, which can then issue a check immediately to the
shipper. If the importer has a satisfactory reputation and it is desirable to
extend credit, a clean time or acceptance draft can be used. When used, the
draft would be forwarded for collection in the usual manner.
These methods, however, can only be used in sales to countries in which

there are no foreign-exchange restrictions. For those countries in which
exchange controls are still in effect, the letter of credit would still have to be
used with necessary modifications in document specifications so as to
permit utilization of the non-negotiable airway bill.
If the shipper believes that credit protection is necessary, the merchandise

may be consigned to a bank, an agent, or a foreign freight forwarder with
instructions regarding conditions of delivery to the buyer. This method is
similar to that used for surface shipments to those countries that do not
permit the use of the order bill of lading.
The Clearing of the Customs
The merchandise transported internationally has to receive a customs status

both in the country of origin and in the destination country, and if necessary,
in transit countries. The custom status refers basically to the origin of the
merchandise, its customs value and its position in the customs tariff. On this
basis, the customs procedure is followed. It consists of: presenting the
merchandise to the competent customs authority so as to be checked;
establishing the customs status of the merchandise in order to compute the
taxes that have to be paid; setting a detailed declaration about the
merchandise at the customs, the customs declaration; checking the
merchandise and, if necessary, paying the taxes, so as to declare the
merchandise as being customs-duty free.
The Customs Status
The customs status indicates on one hand, if and where the customs duties
will be paid and on the other hand, if and in what conditions the
merchandise will be checked.
As regards the export, generally the countries world-wide try to create

favourable conditions and stimulate the exports in order to support national
producers in the international market.
Therefore, the goods that leave the national territory are just formally
checked and the customs duties are either eliminated or applied just for
certain goods.
The customs status of the merchandise is determined, basically, by three

elements: the customs value; the tariff position; the origin of the
merchandise. These elements are in fact the content of the customs
declaration, the document which represents the support for the customs
formalities.
The customs value serves for three purposes: to compute the customs duties;
to establish the financial guarantee requested by the customs officers; to
apply, if the case, other measures of commercial policy.
In what concerns the export, the customs value of the exported goods is free
of duties at the customs of the national territory and it includes the transport
expenses till the frontier. Therefore, the VAT is reimbursed to the exporter.
The size of the customs value is computed according to the transport mode.
For example, for road transport we use Franco frontier of the exporting
country.
The tariff position represents the place allocated to each type of

merchandise in the customs tariff. This position influences the size of the
customs duties, the measures of non-tariff policy. It is also important for
statistics regarding international trade.
The origin of the merchandise is an important element of the customs policy

because according to it, the goods are treated differently (different sizes of
customs duties are applied). The origin of the merchandise has to be stated
on every customs declaration.
The determination of the origin of the merchandise is not always a simple

operation because the merchandise is not always totally produced in one
country. Therefore, the customs authorities established some criteria in
order to define the origin of this type of merchandise. These criteria are
commune to all countries in the EU.
The origin of the merchandise is proved by the documents provided by the

exporter according to the requirements of the customs authorities from the
importer’s country. The most used document is the certificate of origin
issued by authorised institutions from the exporter’s country (trade houses,
customs officers etc.). This document has to include the necessary elements
in order to identify the merchandise: the nature of the merchandise, the
weight, the number of packages, the mark and the name of the consigner.
The Customs Procedure
The merchandise that passes the customs frontier of a country are stored in
warehouses or customs areas in order to be placed under a customs status.
Before initiating the customs formalities, a customs file must be created. It
has to include the customs declaration and also other documents required by
the authorities in the country where the clearing of the customs takes place.
The customs declaration is a written document issued by the owner of the

merchandise in which there are stated the elements necessary for the
clearing of the customs. It has to be issued and handed to the customs
authorities by the customs declarant. This person may be: the exporter, the
importer, a legal representative, a customs commissioner. The authenticity
of the customs declaration is given by the signature of the customs
declarant. The original signature has to be on the declaration retained by the
customs authorities and it is reproduced on the other copies of the
declaration.
By handling the declaration to the customs authorities, the declarant:

requests for a customs status for the merchandise (export, import,
reexport etc.);
embarks upon complying with the obligations arising from the customs
status (for instance, to pay the customs duties);
delivers the necessary information in order to establish the fiscal duties
and also for statistic purposes.
Starting with January 1 1988, the countries of the EU have introduced an

unique administrative document. This document has some features: it is a
harmonised communitar form, used in the external trade of EU; it applies
for all customs status; it includes on the same form the declaration for
export, import and transit.
The main elements of the customs declaration are: the tariff position, the
origin of the merchandise and the customs value.
There are two types of documents enclosed to the customs declaration in

order to form the customs file: basic documents (requested in general by the
customs authorities world-wide) and those requested only by few countries.
The basic documents are: the commercial invoice, which represents the
support for computing the customs value of the merchandise; the packaging
list which serves for the physic control of the merchandise (the declared
number of packages is compared with the existing one); the transport
documents; the certificate of origin in order to apply preferential tariffs if
the case; healthy documents according to the nature of the merchandise and
the regulations of the importing country.
Other documents may be requested by the customs authorities from certain

countries: these may be the consular invoice or a certificate of inspection.
When handling the customs declaration, the authorities may decide to check
partially or totally the merchandise. This formality is made in the presence
of the declarant and on his spent, in the place where the merchandise is
located. If there are some differences between the declaration and the results
of the control, the merchandise may be rejected and also a fine is charged.
The clearings of customs may take place at the customs offices from the
frontier or at the offices inside the country.
The exporter may subcontract the customs activities to a specialised

intermediary: the customs commissioner. His role is to accomplish in the
name and on behalf of the exporter the customs formalities: to make the
customs declaration, to present the merchandise for control and to pay the
duties. The customs commissioner is usually a mandatory: he executes the
orders of his principal; he cannot subcontract and he is guilty only for his
own mistakes. In order to have this quality, the commissioner has to obtain
an authorisation from the customs officers. The customs commissioner may
also act in his own name. In this case he is responsible for the content of the
customs declaration and pays the customs duties crediting this way the
principal.
The customs procedure has more stages: verification of the customs

declaration; recording; control; duties payment; taking away the goods.
The verification of the customs declaration is made by the customs service

to which the document was handled. It checks if the declaration was handled
in the legal delay, and the integrity of the other documents enclosed.
The declaration may be rejected if mistakes are found. The declaration is

recorded if the customs file is correct. It receives a record number and also
the date of recording is mentioned in a register. The declaration is also
stamped by the customs authorities. From this date it starts the period within
which the customs duties have to be paid.
The control is made on the documents and sometimes on the merchandise.

The control of the quantity refers to weight, number of packages, cods and
marks, document figures (unit/total price, payment currency, exchange rate).
The qualitative control refers to tariff position, origin of the merchandise,
customs value. After the documents are verified, the customs inspector may
request for a partial or total control of the merchandise.
The payment of customs duties is made before taking away the goods.
However, in some countries, there are some payment facilities such as the
customs credit in France.
The customs duties represent the quotas indicated in the customs tariff
applied to the merchandise according to its tariff position. However, such
taxes do not apply to the exported goods.
After the controls are finished and the customs duties paid, the merchandise
is considered ‘free of duties’ and it can be taken away.
Review Questions:
Ö INCOTERMS group C versus group D.
Ö Present the main types of Bills of Lading.

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6

6.1 Framework for a Sales Contract

During the export operation, the exporter may be involved, to differing

The INCOTERMS is one of the most important contract clauses, after

With such a detailed document, it is important that each clause is in writing

A traditional export contract therefore includes: parties involved,

The contract will, therefore, encompass the movement of goods,

6.2 Covering the Risks Involved in an Export Operation

The risks of the exporter include: defaults on payment by the importer;

The exporter has to find ways of reducing these risks. It is important

The Non-Payment Risk

There are three basic methods of payment: advance payment, documentary

The next most secure method of payment is through a Documentary Letter

Where an established buyer-seller relationship exists and where foreign

It is therefore essential that the exporter trust customers whom he intends to

The Foreign Exchange Risk

It is essential in planning export contracts to have a knowledge of how

The problem of transactions involving two currencies is that their relative

Frequent transactions across a number of markets enable the exporter to

sales or where risks are especially severe in an individual market, he may be

When the exporter makes infrequent or seasonal transactions it is difficult to

Forward exchange rate contracts are legally binding agreements between a

It is important, therefore, that the exporter and his customer reach an

The ‘conditions’ clauses of a documentary credit will cover insurance. It is

The purpose of insurance is obviously to recover the value of the goods

Clause A is an “all risks clause”, clauses B and C provide only basic

All carriers have a legal responsibility of custodianship. A body of common

The insurance certificate is an important document needed to complete the

6.3 Delivery Terms

Delivery terms are of major importance for international contracts, because

The delivery terms follow international rules, so that their meaning is

INCOTERMS are classified in four groups:

All INCOTERMS are followed by a specific place, clearly indicated

EXW (Ex Works)

Risks to the exporter do however arise, especially where the buyer is

FCA (Free Carrier)

FAS – Free Alongside Ship

The seller has the following obligations:

FOB (Free on Board)

The advantages of FOB terms to the exporter are the following:

The disadvantages to the exporter revolve around the problems of securing

The disadvantages to the buyer are:

CFR (Cost and Freight)

CIF (Cost, Insurance and Freight)

To sum up, the exporter has to:

CPT (Carriage paid to…)

CPT is suitable for any transport mode.

CIP (Carriage and Insurance Paid to…)

DAF (Delivered at Frontier)

DES (Delivered ex Ship)

The seller has, therefore the following obligations: to deliver the

DEQ (Delivered ex Quay…)

DDU (Delivered Duty Unpaid…)

DDP (Delivered Duty Paid…)

While EX WORKS implies minimum obligations to the seller, this delivery

Table 6.1 INCOTERMS: Obligations of Parties Involved

As regards the obligations of the parties concerning the delivery documents,

Table 6.2 Obligation Summarised

S= documents on seller’s expense

6.4 International Distribution

Depending on the transport method, the physical processes of exporting can

against even the most calamitous of handling incidents. Packing should