Chapter 12: SHIPPING YOUR PRODUCT

In This Chapter

  • How international freight forwarders can help you
  • How your product should be packed and labeled
  • What documentation and insurance you may need
  • International shipping companies and what services they offer

The hurdles you have to clear don’t end with the sale and the Web site. You still have to get the goods to the buyer, who is often located thousands of miles away where different rules may apply. When shipping a product overseas, you must be aware of packing, labeling, documentation, and insurance requirements and regulations. Make sure that the merchandise is:

  • Packed correctly so that it arrives in good condition
  • Labeled correctly to ensure that the goods are handled properly and arrive on time at the right place
  • Documented correctly to meet U.S. and foreign government requirements, as well as proper collection standards
  • Insured against damage, loss, pilferage, and delay

Because of the multitude of considerations involved in physically exporting goods, exporters often receive assistance from their air carrier or freight forwarder to perform those services.

FREIGHT FORWARDERS

An international freight forwarder is an agent for moving cargo to an overseas destination. These agents are familiar with the import rules and regulations of foreign countries, the export regulations of the U.S. government, the methods of shipping, and the documents related to foreign trade. Freight forwarders are licensed by the International Air Transport Association (IATA) to handle air freight and the Federal Maritime Commission to handle ocean freight.

Freight forwarders assist exporters in preparing price quotations by advising on freight costs, port charges, consular fees, costs of special documentation, insurance costs, and the freight forwarders’ own handling fees. They recommend the packing methods that will protect the merchandise during transit, or they can arrange to have the merchandise packed at the port or put in containers. If the exporter prefers, freight forwarders can reserve the necessary space on a vessel, aircraft, train, or truck. The cost for their services is a factor that should be included in the price charged to the customer.

Once the order is ready for shipment, freight forwarders should review all documents to ensure that everything is in order. This review is of particular importance with letter-of-credit payment terms. Freight forwarders may also prepare the bill of lading and any special required documentation. After shipment, they can route the documents to the seller, the buyer, or a paying bank. Freight forwarders can also make arrangements with customs brokers overseas to ensure that the goods comply with customs import documentation regulations. A customs broker is an individual or company that is licensed to transact customs business on behalf of others. Customs business is limited to those activities involving transactions related to the entry and admissibility of merchandise; its classification and valuation; the payment of duties, taxes, or other charges assessed or collected; and the refund, rebate, or drawback of those charges.

For more information, visit the National Customs Brokers and Freight Forwarders Association of America at http://ncbfaa.org.

PACKING

Your company should be aware of the demands that international shipping puts on packaged goods. You should also keep four potential problems in mind when designing an export shipping crate: breakage, moisture, pilferage, and excess weight.

Buyers are often familiar with the port systems overseas, so they will sometimes specify packaging requirements. If the buyer does not provide such specifications, be sure the goods are prepared using these guidelines:

  • Pack in strong containers that are adequately sealed and filled when possible.
  • Make sure the weight is evenly distributed to provide proper bracing in the container, regardless of size.
  • Put goods on pallets and, when possible, place them in containers.
  • Make packages and packing filler out of moisture-resistant material.
  • To avoid pilferage, avoid writing contents or brand names on packages.
  • Use straps, seals, and shrink-wrap to safeguard goods.
  • Observe any product-specific hazardous materials packing requirements.
  • Verify compliance with wood-packaging documentation and markings for fumigation and chemical treatment.

One popular method of shipment is to use containers obtained from carriers or private leasing companies. These containers vary in size, material, and construction. They accommodate most cargo but are best suited for standard package sizes and shapes. Also, refrigerated and liquid-bulk containers are usually readily available. Some containers are no more than semitrailers lifted off their wheels, placed on a vessel at the port of export, and then transferred to another set of wheels at the port of import.

Normally, air shipments require less heavy packing than ocean shipments, though they should still be adequately protected, especially if they are likely to attract pilferage. In many instances, standard domestic packing is acceptable if the product is durable and there is no concern for display packaging. In other instances, high-test (at least 250 pounds per square inch) cardboard or tri-wall construction boxes are preferable.

Finally, transportation costs are determined by volume and weight. Specially reinforced and lightweight packing materials have been developed for exporting to minimize volume and weight while reinforcing the packaging. The proper materials may save money as well as ensure that the goods are properly packed. You should hire a professional firm to pack the products if you are not equipped to do so. This service is usually provided at a moderate cost.

LABELING

Specific marking and labeling are used on export shipping cartons and containers. This labeling:

  • Meets shipping regulations
  • Ensures proper handling
  • Conceals the identity of the contents
  • Helps receivers identify shipments
  • Ensures compliance with environmental and safety standards

The overseas buyer usually specifies which export marks should appear on the cargo for easy identification by receivers. Products may require many markings for shipment. For example, exporters need to put the following markings on cartons to be shipped:

  • Shipper’s mark
  • Country of origin (in your case, “U.S.A.”)
  • Weight marking (in pounds and kilograms)
  • Number of packages and size of cases (in inches and centimeters)
  • Handling marks (i.e., international pictorial symbols) A BASIC GUIDE TO EXPORTING
  • Cautionary markings, such as “This Side Up” or “Use No Hooks” (in English and in the language of the destination country)
  • Port of entry
  • Labels for hazardous materials (i.e., universal symbols adopted by the International Air Transport Association and the International Maritime Organization)
  • Ingredients (if applicable, also included in the language of the destination country)

DOCUMENTATION

Your company should seriously consider having the freight forwarder handle the documentation that exporting requires. Forwarders are specialists in this process. The following documents are commonly used in exporting, but which of them are necessary in a particular transaction depends on the requirements of the U.S. government and the government of the importing country:

  • Air freight shipments are covered by air waybills, which can never be made in negotiable form.
  • A bill of lading is a contract between the owner of the goods and the carrier (as with domestic shipments). For shipment by vessel, there are two types: a straight bill of lading, which is not negotiable and does not give title to the goods, and a negotiable, or shipper’s order, bill of lading. The latter can be bought, sold, or traded while the goods are in transit. The customer usually needs an original bill of lading as proof of ownership to take possession of the goods.
  • A commercial invoice is a bill for the goods from the seller to the buyer. Many governments use commercial invoices to determine the true value of goods when assessing customs duties. Governments that use the commercial invoice to control imports will often specify the invoice’s form, content, and number of copies, language to be used, and other characteristics.
  • A consular invoice, a required document in some countries, describes the shipment of goods and shows information such as the consignor, consignee, and value of the shipment. Certified by the consular official of the foreign country, it is used by the country’s customs officials to verify the value, quantity, and nature of the shipment.
  • A certificate of origin, also a required document in certain nations, is a signed statement as to the origin of the export item. Certificates of origin are usually validated by a semiofficial organization, such as a local chamber of commerce. A certificate may be required even if the commercial invoice contains the same information. See Box 12.1 for more information about certificates of origin.
  • A NAFTA certificate of origin is required for products traded among the signatory countries of the North American Free Trade Agreement (Canada, Mexico, and the United States) if the goods are NAFTA qualified and the importer is claiming zero-duty preference under NAFTA.
  • An inspection certification is required by some purchasers and countries to attest to the specifications of the goods shipped. The inspection is usually performed by a third party, often an independent testing organization.
  • A dock receipt and a warehouse receipt are used to transfer accountability when the domestic carrier moves the export item to the port of embarkation and leaves it with the shipping line for export.
  • A destination control statement appears on the commercial invoice and on the air waybill or bill of lading to notify the carrier and all foreign parties that the item can be exported only to certain destinations.
  • A shipper’s export declaration (SED) is used to control exports and is a source document for official U.S. export statistics. SEDs, or their electronic equivalent, are required for shipments when the value of the commodities, classified under any single Schedule B number (the four-digit U.S. extension to the six-digit code under the Harmonized Tariff System—see Box 12.2), exceeds $2,500. SEDs must be prepared and submitted for all shipments, regardless of value, that require an export license or are destined for countries restricted by the Export Administration Regulations (see Chapter 10). SEDs are prepared by the exporter or the exporter’s agent and are delivered to the exporting carrier (e.g., the post office, airline, or vessel line). The exporting carrier will present the required number of copies to the U.S. Customs Service at the port of export. Sample Form 12.6 is an example of the reformatted SED, whose use became mandatory on July 18, 2003. The U.S. Census Bureau’s Foreign Trade Division is the controlling agency for this document. The bureau made electronic filing of the SED mandatory on September 1, 2008, using AESDirect. AESDirect is a Web-based application that is available to exporters free of charge. It permits the SED to be filed electronically. You can obtain more information on registering as an AESDirect filer and all filing options at www.aesdirect.gov. Often, the SED is prepared as a by-product of another document, the shipper’s letter of instructions.
  • An export license is a government document that authorizes the export of specific goods in specific quantities to a particular destination. This document may be required for most or all exports to some countries. For other countries, it may be required only under special circumstances.
  • An export packing list is considerably more detailed and informative than a standard domestic packing list. It itemizes the material in each package and indicates the type of package, such as a box, crate, drum, or carton. It also shows the individual net, tare, and gross weights and measurements for each package (in both U.S. and metric systems). Package markings should be shown along with references to identify the shipment. The shipper or forwarding agent uses the list to determine the total shipment weight and volume and whether the correct cargo is being shipped. In addition, U.S. and foreign customs officials may use the list to check the cargo.
  • An insurance certificate is used to assure the consignee that insurance will cover the loss of or damage to the cargo during transit.

Documentation must be precise because slight discrepancies or omissions may prevent merchandise from being exported, may result in non-payment, or may even result in the seizure of the exporter’s goods by U.S. or foreign customs officials. Collection documents are subject to precise time limits and may not be honored by a bank if the time has expired. Most documentation is routine for freight forwarders and customs brokers, but as the exporter, you are ultimately responsible for the accuracy of the necessary documents.

The number and kinds of documents that the exporter must deal with vary according to the destination of the shipment. Because each country has different import regulations, the exporter must be careful to provide all proper documentation. The following sources also provide information pertaining to foreign import restrictions:

SHIPPING

The handling of transportation is similar for domestic and export orders. Export marks are added to the standard information on a domestic bill of lading. These marks show the name of the exporting carrier and the latest allowed arrival date at the port of export. Instructions for the inland carrier to notify the international freight forwarder by telephone on arrival should also be included. You may find it useful to consult with a freight forwarder to determine the method of international shipping. Because carriers are often used for large and bulky shipments, you can reserve space on the carrier well before actual shipment date. This reservation is called the booking contract.

International shipments are increasingly made on a bill of lading under a multimodal contract. The multimodal transit operator (frequently one of the transporters) takes charge of and responsibility for the entire movement from factory to final destination.

The cost of the shipment, delivery schedule, and accessibility to the shipped product by the foreign buyer are all factors to consider when determining the method of international shipping. Although air carriers may be more expensive, their cost may be offset by lower domestic shipping costs (e.g., using a local airport instead of a coastal seaport) and quicker delivery times. These factors may give the U.S. exporter an edge over other competitors.

Before shipping, your firm should check with the foreign buyer about the destination of the goods. Buyers may want the goods to be shipped to a free trade zone or a free port, where they are exempt from import duties (see Chapter 10).

INSURANCE

Damaging weather conditions, rough handling by carriers, and other common hazards to cargo make insurance an important protection for U.S. exporters. If the terms of sale make you responsible for insurance, your company should either obtain its own policy or insure the cargo under a freight forwarder’s policy for a fee. If the terms of sale make the foreign buyer responsible, you should not assume (or even take the buyer’s word) that adequate insurance has been obtained. If the buyer neglects to obtain ad equate coverage, damage to the cargo may cause a major financial loss to your company.

Shipments by sea are covered by marine cargo insurance. Air shipments may also be covered by marine cargo insurance, or insurance may be purchased from the air carrier. Export shipments are usually covered by cargo insurance against loss, damage, and delay in transit. International agreements often limit carrier liability. Additionally, the coverage is substantially different from domestic coverage. Arrangements for insurance may be made by either the buyer or the seller in accordance with the terms of sale. Exporters are advised to consult with international insurance carriers or freight forwarders for more information. Although sellers and buyers can agree to different components, coverage is usually placed at 110 percent of the CIF (cost, insurance, freight) or CIP (carriage and insurance paid to) value.

TARIFFS

Because tariffs, port handling fees, and taxes can be high, it is very important for you to consider their effects on your product’s final cost. Typically, the importer pays the tariffs. Nevertheless, these costs will influence how much the buyer is willing to pay for your product.

MAJOR SHIPPERS

International shipping companies have become an excellent resource for exporters. In addition to transporting bulk freight, they now offer assistance with shipping documentation, warehousing in the foreign market, and—in some cases—payment collection from the foreign buyer.

See Also: Case Study