Export
101 – Export Shipping & Documentation
Frequently Asked Questions (FAQs)
The term pro forma is from the Latin term, which translates "as a matter of form.’ This document is very important in the quotation process, and a company often includes it in their response to a potential buyer’s trade lead. In actuality, the pro forma is a "snapshot" of your commercial invoice, lacking some finishing details. The buyer may decide to accept your pro forma offer as is, or request a different trade term, such as eliminating insurance or even transportation, if they have a better price than you. They may even ask you to add to the order, if they are satisfied with all of your prices quoted to them. That is another reason why being flexible in your export pricing is so important. (See the Export Pricing and Quoting chapter of this Export 101 section.) The pro forma is especially important when it is used as a formal quotation. In a formal quotation, the buyer is using your offer to obtain import permits and currency exchange. This means that if the buyer’s government allows them to buy your product, it may only be at the exact amount and price that you quoted. If you have made a mistake on your pro forma invoice, you may not be able to renegotiate at a later date. Proper understanding of INCOTERMS, and obtaining a competitive quotation from the service providers, is paramount to success. With our major trading partners, formal quotes are rare because they can easily obtain dollars to pay you, and they have fewer restrictions on imports. [Back to Top]2. What is a commercial invoice? The commercial invoice is considered the most important document in international trade, because merchandise is not allowed to clear customs at the destination without one. That is even true if the goods are samples and have no commercial value. This document is usually the one that all the service providers first look to for information about your shipment. It is important to prepare the commercial invoice as clearly and accurately as possible to avoid problems with your shipment. [Back to Top]3. What is the difference between a commercial invoice and a packing list? The packing list is used by customs to apply certain types of duties, and it is a required document for customs clearances. It is also used by shipping companies to identify the weight and dimensions of your product, and should be completed in metric form. It does not usually require any value for the merchandise, but a very complete list of all the products, their packing material (i.e., cartons, boxes, crates, barrels, bags), their gross and net weights, their cubic feet and cubic meters, and any markings or handling issues. Many exporters simply block out the price on their commercial invoices, and use it as a packing list, but this is not recommended. You would not want foreign customs to confuse your commercial invoice with your packing list, since they may consider your document package to be incomplete. You should create your commercial invoice in "portrait" form and your packing list in "landscape" form to clearly point out the differences. [Back to Top]4. What are customs and consular invoices? Some countries also require other "invoices" which need to be prepared in addition to the commercial invoice. These forms are often country-specific, and they can usually be purchased from the foreign consulate or your freight forwarder. For example, Saudi Arabia has its own consular invoice, which needs to be presented to their Consulate for inspection and processing along with your other export documents. Canada also has an additional requirement known as the "Canadian Customs Invoice," which needs to be presented with shipment for all goods over C$1000.00. Many exporters prepare one for every shipment as a matter of courtesy, regardless of the value. This document may also be prepared by the importer or their customs broker. [Back to Top]5. What is a Certificate of Origin? The certificate of origin is used so that a neutral third party can clearly identify the origin of manufacture of the good. The origin of manufacture of the good, not the origin of export, is important to determine the proper duties to be applied by customs at destination. Many chambers of commerce in areas around ports of export sell and prepare the certificate of origin, or allow local freight forwarders to do so on their behalf. Some countries have specific certificates of origin, but many will allow the "general use" certificate to satisfy their requirements. Most shipments paid by letters of credit will require a certificate of origin (usually as a bank requirement). In this case, the certificate of origin will need to be prepared in strict accordance to the requirements spelled out in the Letter of Credit. In many cases, these documents are used in free trade agreements, such as with NAFTA. The NAFTA Certificate of Origin may only be prepared by the exporter or manufacturer of the goods being exported, and not by a third party. If accepted by Canadian or Mexican customs, the shipment will clear either duty-free or at least at the most favorable rate of duty allowed under the Agreement. (Note: See the NAFTA chapter of this Export 101 section for more information.) [Back to Top]6. What is the Shipper’s Export Declaration? Commonly referred to as the "SED," the Shipper’s Export Declaration is a document required by our government for all shipments valued over $2500. It is also required if the shipment is under an export license, although a license is generally not required for the export of food products (unless it is to an embargoed country). The shipper or their agent, usually an international freight forwarder, is usually the one responsible for preparing the SED. The forwarder keeps a copy and submits two copies to the carrier, who then presents them to U.S. customs prior to export. Customs evaluates the shipment for control and accuracy purposes, and sends another to the U.S. Bureau of Census, who records the data for statistical purposes. (Note: This statistical information – specifically the first 6 digits of your Schedule B number - is very useful in searching for Trade Leads on the Internet.) Although it is often submitted to customs electronically, you should keep a copy in each of your export shipment files, as it is a legal document recording an international sale. This document does not leave the country, and is not evaluated by foreign customs or the buyer. Note that the Shipper's Export Declaration (SED) was significantly revised as of April 1, 2001. Click here to download these new requirements (pdf file). (For information on the correct way to fill out the Shipper’s Export Declaration, refer to the DHL International web site at www.dhl-usa.com/shipping/documentation/exp-dec.html.) [Back to Top]7. What is the importance of a bill of lading? A bill of lading is a contract of carriage between an exporter and a service provider (i.e. airline, steamship line, freight forwarder or shipping company, etc.) that identifies the parties to the transaction and their responsibility for payment of transportation and other accessorial fees, such as transfers and delivery. In international trade, the origin and the destination on the bill of lading are usually for the "main carriage" transportation between the port of departure and the port of importation. Trucking services may also provide bills of lading for export, if they are leaving the U.S. under that conveyance. [Back to Top]8. What is the difference between an air waybill and an ocean bill of lading? The primary difference between the two (other than the obvious) is that ocean bills of lading can be made "negotiable" and air waybills cannot. Negotiable bills of lading are a common practice in international trade, designed to protect the seller by allowing them to consign the document to their "order," instead of the consignee, or buyer. In this case, the seller may transfer the document to or through a third party, usually a bank, who then would collect the funds from the buyer before turning the documents over to them. The transit time in ocean freight may allow the bill of lading to be bought and resold, which in a sense makes the document have a distinct value. If you consign a bill of lading to the buyer directly, you have in a sense turned title of the goods over to them, which is not advisable unless you have already been paid or have assurances that you will be. This type of bill of lading is most often used when a Letter of Credit is the payment mechanism. In other cases, ocean bills of lading may be consigned to the buyer’s bank, if they are not made negotiable, in order to control title to the goods. An air waybill is not negotiable, and is mostly consigned directly to the consignee. It is not negotiable or transferable because of the speed at which the goods arrive, since there wouldn’t be time to transfer the title between parties. [Back to Top]9.On air freight shipments, what is the difference between "actual" and "dimensional" weight? Each shipment tendered to air freight forwarders will be weighed and measured according to IATA (International Air Transport Association) regulations. The costs of transporting air freight are dependent upon the aircraft space and weight limitations. Thus, bulky shipments, requiring considerable aircraft space, are often charged as dimensional weight. It is very important to know the chargeable weight of shipments before quoting freight charges to the buyer. For example, if you had 100 boxes of popped popcorn, you might quote freight at 500 pounds. But you'd actually be charged for 1100 pounds! At even $1.00 per pound of freight, that is a difference of $600. This $600 comes out of your bottom line, so it's certainly to your benefit to quote air freight correctly. Actual weight is determined by measuring the shipment on a certified floor platform scale. Dimensional weight is calculated as follows: length x width x height divided by dimensional factor (cubic inches per pound). Dimensional weight is always rounded up to the next whole pound. Currently, 166 cubic inches = 1 pound of chargeable weight. To convert into metric, multiply 166 x 2.2046, which would make it 366 cubic inches = 1 kg of chargeable weight. Example A: You are shipping boxes of unpopped popcorn . The box dimensions are 10" x 12" x 15", each containing 50 pounds of unpopped popcorn. Actual weight = 50 pounds. Example B: You are shipping boxes of popped popcorn. The box dimensions are the same as in Example A above, but each box only weighs 5 pounds. Actual weight = 5 pounds. In this example, the dimensional weight exceeds the actual weight. Thus, the shipment will be charged as 11 pounds per box instead of the actual weight of five pounds. [Back to Top]Density is expressed in pounds per cubic foot. To determine density, you must first determine the volume of the shipment. Volume is calculated by multiplying length x width x height. If measured in inches, the result of this volume equation must be divided by 1728 to determine cubic feet. Then, the weight needs to be divided by cubic feet to determine density or pounds per cubic foot. Example A: A box of unpopped popcorn 10' x 12' x 15', weighs 25 pounds.
According to international shipping standards, average density is 10.4 pounds per cubic foot. So 24 pounds per cubic foot is considered "dense" freight and therefore is subject to better freight rates, as it allows the forwarder to put a lot of weight in a smaller area. Example B: A box of popped popcorn, with the same dimensions as in Example A, weighs only 5 pounds.
With such low density, this product would be considered "fluff," as they say in the business. Thus, it's not really attractive, especially as air cargo. Charges would be based on volume weight instead of actual and thus rather expensive. Shipping popped popcorn, therefore, is not considered cost effective on a weight to value ratio. However, unpopped corn would be shipped more efficiently, due to its density. All of this means that if you know you have "dense" freight, you should negotiate for better rates, especially if your shipment will be part of a consolidation heading overseas. [Back to Top]
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