Question

transport company in Melbourne has just won a one-year contract to move 5,000 cartons (each carton weighs 15 kgs and measures 20cmx20cmx20cm) of standardized components to be welded into the electrical board of photocopier machines assembled in Hong Kong.

1) Describe the international freight transportation process.

2) Between air and sea transportation, discuss which service characteristics would affect your decision on which is the preferred mode of transportation.

the first answer contain like Buyer-Seller Agreement •Relevant INCOTERMS •Order preparations •Manufacture •Pick items •Packing •Documentation •Export License• Sales•Bills of Lading

the second likeShipment characteristics must be analyzed to influence modal selection.–Service and operating characteristics of both air and maritime should be comparatively analyzed.

–Maritime transportation should be selected due to not urgent shipments.•They are regular shipments, therefore, the shipment can be moved via maritime transportation.–Road and/or rail transportation would be selected to ensure completeness of service i.e. door to door deliveries.–Usage of freight forwarders especially at importing country.

Answer 1

The shipping process involves the flow of goods and documents from the place of origin to the place of destination. For the process to be completed successfully, the transfer of goods and the documents from one party to another must take place in synchronization.

Many companies use freight forwarders to assist with shipping and documentation. A freight forwarder is an agent for moving cargo to a foreign country. Freight forwarders can provide companies with quotes for shipments, make freight arrangements, and produce export documents. Although a Freight Forwarder is not absolutely required for a successful export shipment, a licensed Customs House Broker is required to clear goods imported into any country.

Shipping is an integral and critical part of international trade. The success of an international trade transaction is more often than not dependent on how one manages the entire shipping process.

Main participants in the procedure:

1. Importer: Importer is the buyer. He identifies the need for a product (goods) at a specific location, searches for the best supplier - globally, and places an order for purchase.

2. Exporter: Exporter is the seller. He manufactures or procures the products required by the buyer.

3. Banks: Banks play multiple roles in international trade. They act as financiers, negotiators of the trade contract, and custodians of the goods/documents.

4. Insurance Company: Insurance is a crucial part of the shipping process. Insurance companies help cover the risks involved in transportation.

5. Freight Forwarders: Freight forwarders are agents who coordinate with the other participants in the shipping process on behalf of the importer/exporter.

6. CHA: Customs House Agents assist the exporters and importers in getting clearance from custom authorities.

7. Shipping Company: The company that owns the carrier (ship) that carries the goods from port of loading to port of destination.

8. Customs: In any international trade, custom authorities of at least two countries - country of export and country of import - are involved. The customs authorities provide clearance for the goods to leave the country of export and enter the country of import.

9. Port Authorities: Like the customs, port authorities of at least two countries are involved in the shipping process. The port authorities in the exporting country provide clearance for the goods to be loaded on the ship. The port authorities in the importing country provide clearance for the goods to enter the country of import.

10. Intermodal Transport Providers: Rail/road transport providers are also an important part of the shipping process. They facilitate the movement of goods from factory/warehouse to port of loading and the movement of goods from port of destination to the final destination.

PROCESS OF INTERNATIONAL FREIGHT TRANSPORTATION PROCESS

STEP 1. Terms of Sales Agreed Upon (Buyer and Seller)

1. Buyer and seller agree on what is to be purchased (color, size, item etc.).

2. Buyer and seller agrees on the purchase cost of the item.

3. Buyer and seller agree upon Incoterms.

A. (Intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation

and delivery of goods).

B. Mode of transportation is typically determined at this point (Air or Ocean) (Also banking terms i.e. Letters of Credit)

Cost, Insurance, and Freight (CIF) and Free on Board (FOB) are international shipping agreements used in the transportation of goods between a buyer and a seller. They are among the most common of the 12 international commerce terms (Incoterms) established by the International Chamber of Commerce (ICC) in 1936.12 The specific definitions vary somewhat in every country, but, in general, both contracts specify origin and destination information that is used to determine where liability officially begins and ends, and outline the responsibilities of buyers to sellers, as well as sellers to buyers.

CIF (COST INSURANCE AND FREIGHT)

CIF is considered a more expensive option when buying goods. This is because the seller uses a forwarder of his or her choice who may charge the buyer more in order to increase the profit on the transaction. Communication can also be an issue because the buyer relies solely on people who are acting on behalf of the seller. The buyer might still have to pay additional fees at the port, such as docking fees and customs clearance fees before the goods are cleared.

FOB (FREE ON BOARD)

FOB contracts relieve the seller of responsibility once the goods are shipped. After the goods have been loaded—technically, "passed the ship's rail,"—they are considered to be delivered into the control of the buyer. When the voyage begins, the buyer then assumes all liability.2 The buyer can, therefore, negotiate a cheaper price for the freight and insurance with a forwarder of his or her choice. In fact, some international traders seek to maximize their profits by buying FOB and selling CIF.

STEP 2. Order Awarded & Initiated

1. Buyer creates order and sends to seller.

2. Order confirmation typically received by the buyer from the seller.

STEP 3 Ready Date Agreed Upon

Seller communicates when the goods will be ready for export/import.

STEP 4 Manufacturing Occurs

After communucating the date the manufacturing actually take place and the production initiated with the product agreed upon by the buer and seller at seller's plant.

STEP 5 Shipment is Ready for Export

After manufacturing completed the seller informed the buyer that shipment has been manufactured.and ready for exporting.

STEP 6 Vendor Contacts Buyer or Freight Forwarder (Depending on the Terms of Sale, it could be the buyer or seller’s Freight Forwarder)

A. Typically, regardless of Terms of Sale and specific relationship with the freight forwarder, the vendor will contact the origin office when the freight is ready.

B. Buyer is notified and begins working with local office to prepare for the shipment.

STEP 7 Freight Forwarder Arranges Booking with the Carrier

Freight Forwarder reserves space on a vessel or aircraft depending upon agreed mode of transportation.

STEP 8 Cargo Loaded on Vessel or Aircraft

Cargo is delivered to seaport or airport. depending upon the contarct of seller to the buyer the products is loaded to vessel or aircraft

Freight forwarder prepares BOL (Bill of Lading) and collects required commercial documents for export.

Bill Of Ladding :A bill of lading (BL or BoL) is a legal document issued by a carrier to a shipper that details the type, quantity, and destination of the goods being carried. A bill of lading also serves as a shipment receipt when the carrier delivers the goods at a predetermined destination. This document must accompany the shipped products, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper, and receiver.The bill of lading is a legally binding document that provides the carrier and shipper with all of the necessary details to accurately process a shipment. It has three main functions. First, it is a document of title to the goods described in the bill of lading. Secondly, it is a receipt for the shipped products. Finally, the bill of lading represents the agreed terms and conditions for the transportation of the goods.

This information is sent to the notify party, (typically a customs broker), to start the customs clearance preprocess.

STEP 9 Customs Broker Submits Documentation for Customs Clearance

Broker submits entry via ABI (Automated Broker Interface) to Customs. Customs issues a release to the Customs Broker.

STEP 10 Arrival in Destination Country / Customer or Customs Broker Notified

Customs Broker will start entry process to clear customs up to 5 days prior to arrival at seaport of entry (or 4 hours after wheels up for air freight).

STEP 11 Tendered for Final Delivery : Customs Broker/Freight Forwarder tenders shipment for delivery.

STEP 12 Shipment is Cleared / Duties and Taxes Paid

1. Duty payment initiated and processed via ACH (Automated Clearing House).

2. Post entry documents are submitted.(Record retention is 5 years)

DOCUMENTS REQUIRED FOR SHIPPMENT OF CARGO

1. Proforma Invoice

In a typical export exchange, everything starts when you receive an inquiry about one or more of your products. That inquiry may include a request for a quotation.A proforma invoice looks a lot like a commercial invoice, and if you complete it correctly, they will be very similar indeed. A proforma invoice specifies the following:

• The buyer and seller in this transaction.
• A detailed description of the goods.
• The Harmonized System classification of those goods.
• The price.
• The payment term of the sale, which would typically be expressed as one of the 11 current Incoterms.
• The delivery details including how and where the goods will be delivered and how much that will cost.
• The currency used in the quote, whether it’s U.S. dollars or some other currency.

Be sure to date your proforma invoice and include an expiration date. There can be a lot of volatility in the export process, so minimize your risk by setting a specific time frame for your quote.

2. .Commercial Invoice

Once you’ve sent a proforma invoice to your international prospect and received their order, you need to prepare your goods for shipping, including the paperwork that must accompany the goods. Of those documents, the commercial invoice is one of the most important.The commercial invoice includes most of the details of the entire export transaction, from start to finish.The commercial invoice may look similar to the proforma invoice you initially sent your customer to serve as a quote, although it should include additional details you didn’t know before. For example, once you have the commercial invoice, you probably have an order number, purchase order number, or some other customer reference number; you may also have additional banking and payment information.Make sure to include any relevant marine insurance information, and any other details that will ensure prompt delivery of the goods and full payment from your customer.

3. Packing List

An export packing list may be more detailed than a packing list or packing slip you provide for your domestic shipments.

• Your freight forwarder may use the information on the packing list to create the bills of lading for the shipment.
• A bank may require that a detailed packing list be included in the set of documents you present to get paid under a letter of credit.
• Customs officials in the U.S. and the destination country may use the packing list to identify the location of certain packed items they want to examine. It’s much better that they know which box to open or pallet to unwrap rather than have them search the entire shipment.

The packing list identifies items in the shipment and includes the net and gross weight and dimensions of the packages in both U.S. imperial and metric measurements. It identifies any markings that appear on the packages, and any special instructions for ensuring safe delivery of the goods to their final destination. Watch this four-minute video to learn how to create a packing list.

4. Certificates of Origin

Some countries require a certificate of origin for your shipments in order to identify in what country the goods originated. These certificates of origin usually need to be signed by some semi-official organization, like a Chamber of Commerce or a country’s consulate office. A certificate of origin may be required even if you’ve included the country of origin information on your commercial invoice.

Usually a Chamber of Commerce will charge you a fee to stamp and sign your certificate or requires you to be a member of the chamber. You’ll need to deliver a completed form to the chamber office where they will stamp and sign it for you.

More and more companies are foregoing the time-consuming process of relying on expensive courier services or taking the time to hand-deliver a certificate of origin to a chamber of commerce for certification and are relying on electronic certificate of origin (eCO) for their shipments. An eCO is often quicker to turn around, allows you the option of delivering the certificate electronically to the importer, and can be registered with the International Chamber of Commerce to provide added credibility.In addition to the generic certificate of origin form, there are also country-specific certificates of origin.

5. Shipper’s Letter of Instruction

One of the most important people you will work with in the export process is your freight forwarder, who usually arranges the transport of your goods with a carrier and helps ensure you’ve taken care of all the details.

Depending on your agreed-upon terms of sale—remember, that’s typically the Incoterm you choose—either you hire a freight forwarder to work for you, the exporter, or, in the case of a routed export transaction, the buyer hires a freight forwarder.

Regardless of who hired the forwarder, it’s important you provide him or her with a Shipper’s Letter of Instruction (SLI) containing all the information needed to successfully move your goods. (Here are several good reasons why a letter of instruction is necessary).

I often describe the SLI as a sort of cover memo for your other export paperwork. Depending on whether or not the forwarder works for you, the SLI may include a limited Power of Attorney giving him or her authority to act on your behalf for this shipment.

6. Bills of Lading

There are three common bill of lading documents: inland, ocean, and air waybill.

Inland Bill of Lading

An inland bill of lading is often the first transportation document required for international shipping created for your export. It can be prepared by the inland carrier or you can create it yourself. It’s a contract of carriage between the exporter and the shipper of the goods that states where the goods are going; it also serves as your receipt that the goods have been picked up.

In an international shipment, the inland bill of lading is not typically consigned to the buyer. Instead, it is consigned to the carrier moving the goods internationally or, if not directly to the carrier, to a forwarder, warehouse or some other third party who will consign your goods to the carrier when ready.

Ocean Bill of Lading

If your goods are shipping by ocean vessel, you’ll need an ocean bill of lading. An ocean bill of lading can serve as both a contract of carriage and a document of title for the cargo. There are two types:

• A straight bill of lading is consigned to a specific consignee and is not negotiable. The consignee takes possession of the goods by presenting a signed, original bill of lading to the carrier.
• A negotiable bill of lading is consigned “to order” or “to order of shipper” and is signed by the shipper and sent to a bank in the buyer’s country. The bank holds onto the original bill of lading until the requirements of a documentary collection or a letter of credit have been satisfied.

Air Waybill

Goods shipped on a plane require an air waybill. Unlike an ocean bill of lading, an air waybill cannot be negotiable. It is a contract of carriage between the shipper and the carrier.

7.  Dangerous Goods Forms

If your products are considered dangerous goods by either the International Air Transport Association (IATA) or the International Maritime Organization (IMO), you need to include the appropriate dangerous goods form with your shipment. Shipping dangerous goods or hazardous materials can be tricky. Before you do it, the appropriate people at your company need to be trained in the proper packaging, labeling and documentation of these shipments.

The IATA form—the Shipper’s Declaration for Dangerous Goods—is required for air shipments. There is a different version of the form for ocean shipments. Again, these forms need to be completed by someone who has been trained to handle dangerous goods shipping.

8.  Bank Draft

A bank draft is an important part of the international sales process for transferring control of the exported goods from the seller in exchange for funds from the buyer. It is often called a documentary collection, because the seller attaches various documents to a bank draft and a cover letter.

Usually the seller’s bank will send the bank draft and related documents via the freight forwarder to the buyer’s bank or a bank with which it has a relationship in the buyer’s country. When the buyer authorizes payment for the goods, the buyer’s bank releases the documents to the buyer and transfers the funds to the seller’s bank.

The bank draft may or may not include a transmittal letter, which includes details of the bank draft transaction including the types of additional documents that are included and payment instructions.