The business world is inundated with jargon and the import and export scene is no different.
Global merchants must have a comprehensive knowledge of these technical terms to dominate overseas markets.
In this article, we’ll unmuddy the water for you by sharing 10 key international trade terms that you’ll frequently come across when exporting overseas.
We’ll cover every key international trade term — from bills of lading and air waybills to exporting insurance and letters of credit.
A bill of lading is a legal document or receipt acknowledging that a cargo shipment has been loaded. It also serves as a title of goods and shows that the owner of the original bill owns the goods.
The bill of lading lists the type, quantity, condition, and destination of the freight shipment. It follows the goods during the whole freight process as it provides the details needed to process a shipment. The carrier issues the bill of lading upon the pass over of goods from the shipper to the freight or shipping company.
Example
Fields Company Limited (the shipper) in Vietnam is sending 500kg of rice to Kedah in Malaysia (the consignee) using a freight company called Forwarders (the carrier). A representative of Forwarders issues a bill of lading when they take control of the rice. Upon reaching the port in Kedah, the receiving or ‘notify party' checks the goods and signs the bill of lading to signal the receipt of goods.
Also known as an air consignment note, an air waybill is a type of bill of lading that accompanies goods shipped by airlines or air couriers (the carrier), indicates receipt or handover of goods, and acts as a contract between the shipper and carrier. The International Air Transport Association (IATA) issues air waybills.
Air waybills come in two forms — airline-specific, and generic bills. An air waybill usually displays the shipper’s name and address, the consignee’s name and address, origin and destination airport codes, content description, quantity and value of goods, gross weight, and handling instructions (e.g. fragile).
The example of AWB can be found here
A certificate of origin (CO) is an international trade document certifying a product’s country of origin. A local Chamber of Commerce would attest to a CO statement signed by an exporter or agent. It is also a customs, trade, banks, or private shareholders requirement.
COs are essential because they determine whether your goods will pass customs clearance.
There are two types of certificates of origin. There are the aforementioned ‘non-preferential' COs, whereas preferential COs are issued when exporting to countries which are signatories to a free trade agreement. For example, a Canadian exporting a product to Mexico would use a preferential CO in line with the North American Free Trade Agreement (NAFTA).
A distributor is a middleman who links the supplier with the buyer.
Upon receiving an order from a buyer, a distributor will seek out suppliers who manufacture or process the goods ordered. They handle everything from shipping and customs clearance to then hand them over to the buyer, who in turn sells the product to consumers. Distributors are often referred to by their product lines. For example, an electronics distributor.
The flow of Goods and Payments through a distributor
Freight forwarders act on behalf of importers and exporters, allowing them to move goods efficiently and safely across borders.
A freight forwarder is a non-vessel operating common carrier (NVOCC) who orchestrates the shipment of goods by advising on the best shipping method. They arrange transport details for the goods — from the producer to the end distribution point.
Freight forwarders organise all the necessary documents, fees, and insurance involved in international trade and navigate different countries' rules and regulations on imports and exports on behalf of merchants. Examples of freight forwarders include Kuehne + Nagel, DB Schenker, Panalpina, and Expeditors.
‘Free on board' is a term to describe the liability of the goods that were shipped — essentially, whether the buyer or seller takes on the risk of loss or damaged goods during shipment. ‘FOB origin', or ‘FOB shipping point' indicates that the responsibility is transferred to the buyer once the goods are shipped out, while ‘FOB destination' means that the seller continues to take on the risk of losses or damages until the buyer receives the goods.
This affects balance sheets, as buyers and sellers need to know when to count the goods as inventory or assets, and who will cover the freight and insurance costs for the goods.
A free carrier agreement describes the seller’s responsibility to deliver the goods to a pre-specified location — either to a carrier or any third party selected by the buyer. Usually, the transfer takes place at a seaport, warehouse, or airport — even the seller’s premises.
The seller isn’t obligated to unload the goods but must ensure that the items are cleared for customs clearance. The price of goods set by the seller includes transportation costs, and the seller is liable for any losses until the carrier receives the goods.
Knowledge of the shipping weights and volumes of the countries you deal with is useful. If you ship by truck in the United States, for example, you will come across terms like TL/FTL (trailer load or full-trailer load) or LTL (less than a trailer load).
Ocean carriers use the term full container load (FCL) or less than a container load (LCL).
Transporting by air requires you to pay for one metric ton as long as your load exceeds six cubic meters in volume. Beyond six cubic meters, you pay by volume instead. Nonetheless, you can negotiate to pay per pallet instead of per kilogram, which is often cheaper.
Also known as documentary or bankers' commercial credit, a letter of credit is a form of guarantee made by a bank on behalf of their client — it states that they will pay the beneficiary (the exporter) when the beneficiary complies with all the terms and conditions of the letter of credit within a specified time.
The beneficiary must present trade documents such as commercial invoices, insurance certificates, or bills of lading to claim the payment.
The bank charges a fee for issuing a Letter of Credit and requires collateral from the buyer. Letters of Credit are useful because they minimise the risk of non-payment.
Letter of credit processPhoto source: https://www.dripcapital.com/resources/blog/letter-of-credit-lc
Export credit insurance insures the value of an exporter’s receivables from non-payment by an international buyer. An ECI typically covers commercial and political risks like late payment, buyer’s insolvency or bankruptcy, war, riots, and so on.
Moreover, export credit insurance also covers expropriation, currency inconvertibility and transfer restrictions, and regulatory changes. Unlike the letter of credit, you don’t need to involve the buyer in insuring your goods, and generally, it’s easier and less expensive than a Letter of Credit.
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