Resource Library

Trade Basics For Importers - Shipment

There is more to shipping than just the movement of goods. There are important things to consider in order to ensure the success of your importing endeavour, like guidelines, documentation and insurance - three key topics that are covered below:

	Shipping Guidelines: Guidelines to harmonize trade practices and prevent misunderstandings
	Common Trade Documentation: Documentation to help you manage your export risk
	Insurance Coverage: Coverage to consider to protect yourself against losses in transit

Shipping Guidelines

To harmonize trade practices and prevent misunderstandings, the International Chamber of Commerce (ICC) produces a series of universal guidelines for commercial trade. Incoterms (International Commercial Terms) have been derived by the ICC to enable exporters to quote prices that clearly assign the costs and responsibilities of transporting good to either the buyer or the seller.

The more common Incoterms, particularly those that relate to marine shipments, are outlined here. The key difference between these terms is the point at which risk is transferred from seller to buyer.

Shipping Arrangements

Responsibility of Exporter [E] or Importer [I]

ExW: Ex Works Specify location	E	I	I	I	I	I	I	I	I	I
FAS: Free Along-side ship. Specify port of shipment.	E	E	E	I	I	I	I	I	I	I
FOB: Free on board Specify port of shipment.	E	E	E	E	E	I	I	I	I	I
CFR: Cost & Freight Specify port of destination.	E	E	E	E	E	E	I	I	I	I
CIF: Cost, Insurance & Freight. Specify port of destination.	E	E	E	E	E	E	E	I	I	I
DES: Delivered Exship Specify port of destination.	E	E	E	E	E	E	E	I	I	I
DEQ: Delivered ExQuay [Duty Paid] Specify port of destination.	E	E	E	E	E	E	E	E	I	I

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Common Trade Documentation

Documentation can help manage export-import risk by clarifying the rights and responsibilities of each party. If you are dealing with larger overseas shipments or using Letters of Credit to arrange payment, you will need to be familiar with the most common documents and customs rules that govern international trade. Typical documents that you may encounter are outlined here.

Bill of Exchange

Commonly called a draft. An unconditional order, in writing, requiring a sum of money to be paid on demand or at a fixed future date. The exporter is typically the drawer of the draft, and the importer, the drawee (except in the case of Letters of Credit, where the drawee is normally the importers bank).

Insurance Certificate

Proof of the type and amount of insurance coverage is generally required for payment by Letter of Credit (especially under CIF and CIP Incoterms).

Commercial Invoice

A summary of the commercial transaction and full description of the shipment. It includes a precise account of the goods, the address and identity of exporter and importer, and freight and insurance premiums where applicable. Payment details, destination of shipment, along with shipping marks and the number of pieces shipped may also be provided. See a sample.

Bill of Lading (B/L) (Transport Document)

The most common transport document is the bill of lading - linking the contract of sale, the documentary payment contracts, and the contract of carriage. It entitles the legal holder to take physical delivery of the goods. Certain types of B/Ls are also transferable or negotiable, hence allowing goods to be sold in transit. Marine or ocean B/Ls and multi-modal transport B/Ls are typically negotiable. Examples of a non-negotiable B/L are air or sea waybills. See a sample.

Certificate of Origin

A certificate of origin is usually issued by a local Chamber of Commerce establishing the country where the goods are produced. This certificate is often required for exports from developing countries in order to benefit from preferential tariff treatment.

Packing List

A highly detailed list describing the weight, volume, content and packaging for each separate export package.

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Insurance Coverage

Both the buyer and the seller should consider their responsibility to adequately cover the shipment against loss in transit.

For example, a shipment from Montreal to Liverpool with terms F.O.B. Montreal, means that the buyer is expected to arrange insurance to the destination.

However, the seller should arrange coverage to the point where the shipment is loaded on board the vessel. An experienced insurance broker can provide advice on the type of coverage you need.

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