1.

The Nature of Logistics

The growing flows of freight have been a fundamental component of contemporary changes in
economic systems at the global, regional and local scales. These changes are not merely quantitative
(more freight), but structural and operational. Structural changes mainly involve manufacturing
systems with their geography of production, while operational changes mainly concern freight
transportation with its geography of distribution. As such, the fundamental question does not
necessarily reside in the nature, origins and destinations of freight movements, but how this freight
is moving. New modes of production are concomitant with new modes of distribution, which brings
forward the realm of logistics; the science of physical distribution.
Logistics involves a wide set of activities dedicated to the transformation and distribution of goods,
from raw material sourcing to final market distribution as well as the related information flows.
Derived from Greek logistikos (to reason logically), the word is polysemic. In the Nineteenth
century the military referred to it as the art of combining all means of transport, revictualling and
sheltering of troops. Today it refers to the set of operations required for goods to be made available
on markets or to specific destinations.

The application of logistics enables a greater efficiency of movements with an appropriate choice of
modes, terminals, routes and scheduling. The implied purpose of logistics is to make available
goods, raw materials and commodities, fulfilling four major requirements:

Order fulfillment: Implies that the transaction between the supplier and the customer is being
satisfied with the specified product provided in the agreed quantity.

Delivery fulfillment: The order must also be delivered at the right location and at the right time.
Both involve the scheduling of transportation and freight distribution activities.

Quality fulfillment: The order must be provided intact (in good condition), implying that any form
of damage must be avoided during transport and delivery. This is particularly important for
products that are fragile, perishable or sensitive to temperature fluctuations.

Cost fulfillment: The final costs of the order, including manufacturing and distribution costs, must
be competitive. Otherwise, other options will be considered.

Logistics is thus a multidimensional value added activity including production, location, time and
control of elements of the supply chain. It represents the material and organizational support of
globalization. Activities comprising logistics include physical distribution; the derived transport
segment, and materials management; the induced transport segment.

Physical distribution is the collective term for the range of activities involved in the movement of
goods from points of production to final points of sale and consumption. It must insure that the
mobility requirements of supply chains are entirely met. Physical distribution includes all the
functions of movement and handling of goods, particularly transportation services (trucking,
freight rail, air freight, inland waterways, marine shipping, and pipelines), transshipment and
warehousing services (e.g. consignment, storage, inventory management), trade, wholesale and, in
principle, retail. Conventionally, all these activities are assumed to be derived from materials
management demands.

Materials management considers all the activities related in the manufacturing of commodities in
all their stages of production along a supply chain. It includes production and marketing activities
such as production planning, demand forecasting, purchasing and inventory management.
Materials management must insure that the requirements of supply chains are met by dealing with
a wide array of parts for assembly and raw materials, including packaging (for transport and
retailing) and, ultimately, recycling discarded commodities. All these activities are assumed to be
inducing physical distribution demands.

The close integration of physical distribution and materials management through logistics is
blurring the reciprocal relationship between the induced transport demand function of physical
distribution and the derived demand function of materials management. This implies that
distribution, as always, is derived from materials management activities (namely production), but
also, that these activities are coordinated within distribution capabilities. The functions of
production, distribution and consumption are difficult to consider separately, thus recognizing the
integrated transport demand role of logistics. Distribution centers are the main facilities from
which logistics are coordinated.

Distribution Center. Facility or a group of facilities that perform consolidation, warehousing,

packaging, decomposition and other functions linked with handling freight. Their main purpose is
to provide value-added services to freight. DCs are often in proximity to major transport routes or
terminals. They can also perform light manufacturing activities such as assembly and labeling.

Since it would be highly impractical to ship directly goods from producers to retailers, distribution
centers essentially act as a buffer where products are assembled, sometimes from other
distribution centers, and then shipped in batches. Distribution centers commonly have a market
area in which they offer a service window defined by delivery frequency and response time to
order. This structure looks much like a hub-and-spoke network.

The wide array of activities involved in logistics, from transportation to warehousing and
management, have respective costs. Once compiled, they express the burden that logistics impose
on distribution systems and the economies they support, which is known as the total logistics costs.
The nature and efficiency of distribution systems is strongly related to the nature of the economy in
which they operate. Worldwide logistics expenditures represent about 10-15% of the total world
GDP. In economies dependent on the extraction of raw materials, logistical costs are comparatively
higher than for service economies since transport costs account for a larger share of the total added
value of goods. For the transport of commodities, logistics costs are commonly in the range of 20 to
50% of their total costs. How challenging individual countries are perceived to be in the setting and
management of supply chains can be assessed, as done by the Logistic Performance Index.

2. Infrastructure and Technology

Contemporary logistics was originally dedicated to the automation of production processes, in
order to organize manufacturing as efficiently as possible, with the least cost-intensive combination
of production factors. A milestone that marked rapid changes in the entire distribution system was
the invention of the concept of lean management, primarily in manufacturing. One of the main
premises of lean management is eliminating inventories and organizing materials supply strictly on
demand, replacing the former storage and stock keeping of inventory. The outcome is a
specialization of production and a greater variety of products.
Modern distribution systems require a high level of control of their flows. Although this control is at
start an organizational and managerial issue, its application requires a set of technical tools and
expertise. If technology can be defined by the level of control over matter, technology applied to
logistics can be defined as the level of control of its flows, let them be physical and information
related. An important technological change relates to intermodal transportation, particularly
containerization, which has been shaping the logistics system in a fundamental way.
Containerization is now imbedded within production, distribution and transport.
Logistics and integrated transport systems are reciprocal endeavors. More recently, the
application of new Information and Communication Technologies (ICT) for improving the overall
management of flows, particularly their load units, has received attention. Thus, the physical as well
as the ICT parts of technological change are being underlined. The ICT component is particularly
relevant as it helps strengthen the level of control distributors have over the supply chain. The
technological dimension of logistics can thus be considered from five perspectives:

Transportation modes. Modes have been the object of very limited technological changes in
recent decades. In some cases, modes have adapted to handle containerized operations such as
road and rail (e.g. doublestacking). It is maritime shipping that has experienced the most significant
technological change, which required the construction of an entirely new class of ships and the
application of economies of scale to maritime container shipping. In this context, a global network
of maritime shipping servicing large gateways has emerged.

Transportation terminals. The technological changes have been very significant with the
construction of new terminal facilities operating on a high turnover basis. Better handling
equipment lead to improvements in the velocity of freight at the terminals, which are among the
most significant technological changes brought by logistics in materials movements. In such a
context, the port has become one of the most significant terminals supporting global logistics. Port
facilities are increasingly been supported by an array of inland terminals connected by high
capacity corridors.

Distribution centers and distribution clusters. Technological changes impacted over the
location, design and operation of distribution centers; the facilities handling the requirements of
modern distribution. They tend to consume more space, both from the site they occupy and the
building area. From a locational standpoint, distribution centers mainly rely on trucking, implying a
preference for suburban locations with good road accessibility supporting a constant traffic. They
service regional markets with a 48 hours service window on average, implying that replenishment
orders from their customers are met within that time period. They have become one storey
facilities designed more for throughput than for warehousing with specialized loading and
unloading bays and sorting equipment. Cross-docking distribution centers represent one of the
foremost expressions of a facility that handles freight in a time sensitive manner. Another tendency
has been the setting of freight distribution clusters where an array of distribution activities
agglomerate to take advantage of shared infrastructures and accessibility. This tends to expand the
added-value performed by logistics.

Load units. Since logistics involves improving the efficiency of flows, load units have become
particularly important. They are the basic physical management unit in freight distribution and
take the form of pallets, swap bodies, semi-trailers and containers. Containers are the privileged
load unit for long distance trade, but the growing complexity of logistics required a more specific
level of load management. The use of bar codes and increasingly of RFID (Radio Frequency
Identification Device) enables a high level of control of the load units in circulation.

E-commerce. Consider the vast array of information processing changes brought by logistics. The
commodity chain is linked with physical flows as well as with information flows, notably through
Electronic Data Interchange. Producers, distributors and consumers are embedded in a web of
reciprocal transactions. These transactions mostly take place virtually and their outcomes are
physical flows. E-commerce offers advantages for the whole commodity chain, from consumers
being exposed to better product information to manufacturers and distributors being able to adapt
quickly to changes in the demand. The outcome is often more efficient production and distribution
planning with the additional convenience of tracking shipments and inventories.
For logistics, ICT is particularly a time and embeddedness issue. Because of ICT, freight distribution
is within a paradigm shift from inventory-based logistics to replenishment-based logistics. The shift
from a push to pull logistics is particularly important in a market economy. Demand, particularly in
the retailing sector, is very difficult to anticipate accurately. A closer integration (embeddedness)
between supply and demand enables a more efficient production system with less wastes in terms
of unsold inventory. Logistics is thus a fundamental component of a market economy.

3. Distribution Systems
In a broader sense distribution systems are embedded in a changing macro- and microeconomic
framework, which can be roughly characterized by the terms of flexibilization and globalization:
Flexibilization implies a highly differentiated, strongly market and customer driven mode of
creating added-value. Contemporary production and distribution is no longer subject to single-firm
activity, but increasingly practiced in networks of suppliers and subcontractors. The supply chain
bundles together all this by information, communication, cooperation, and, last but not least, by
physical distribution.

Globalization means that the spatial frame for the entire economy has been expanded, implying the
spatial expansion of the economy, more complex global economic integration, and an intricate
network of global flows and hubs.

The flow-oriented mode affects almost every single activity within the entire process of value
creation. The core component of materials management is the supply chain, the time- and space-
related arrangement of the whole goods flow between supply, manufacturing, distribution and
consumption. Its major parts are the supplier, the producer, the distributor (e.g. a wholesaler, a
freight forwarder, a carrier), the retailer, the end consumer, all of whom represent particular
interests. Compared with traditional freight transport systems, the evolution of supply chain
management and the emergence of the logistics industry are mainly characterized by three
features:

Integration. A fundamental restructuring of goods merchandising by establishing integrated

supply chains with integrated freight transport demand. According to macro-economic changes,
demand-side oriented activities are becoming predominant. While traditional delivery was
primarily managed by the supply side, current supply chains are increasingly managed by the
demand.

Time mitigation. Whereas transport was traditionally regarded as a tool for overcoming space,
logistics is concerned with mitigating time. Due to the requirements of modern distribution, the
issue of time is becoming increasingly important in the management of commodity chains. Time is a
major issue for freight shipping as it imposes inventory holding and depreciation costs, which
becomes sensitive for tightly integrated supply chains.

Specialization. This was achieved by shifts towards vertical integration, namely subcontracting
and outsourcing, including the logistical function itself. Logistics services are becoming complex
and time-sensitive to the point that many firms are now sub-contracting parts of their supply chain
management to what can be called third-party logistics providers (3PL; asset based). More recently,
a new category of providers, called fourth-party logistics providers (4PL; non asset based) have
emerged.

Logistics is thus concomitantly concerned by distribution costs and time. In addition, many
dimensions are added to the function of distribution. While in the past it was a simple matter of
delivering an intact good at a specific destination within a reasonable time frame, several
components have become linked with distribution:

Distribution time, notably the possibility to set a very specific ETA for deliveries and a low
tolerance for delays.

The reliability of distribution measured in terms of the availability of the ordered goods and the
frequency at which orders are correctly serviced in terms of quantity and time.

The flexibility of distribution in terms of possible adjustments due to changes in the quantity, the
location or the delivery time.

The quality of distribution concerns the condition of delivered goods and if the specified quantity
was delivered.

4. Geography of Freight Distribution

Logistics has a distinct geographical dimension, which is expressed in terms of flows, nodes and
networks within the supply chain. Space / time convergence, a well known concept in transport
geography where time was simply considered as the amount of space that could be traded with a
specific amount of time, including travel and transshipment, is being transformed by logistics.
Activities that were not previously considered fully in space / time relationships, such as
distribution, are being integrated. This implies an organization and synchronization of flows
through nodes and network strategies:

Flows. The traditional arrangement of goods flow included the processing of raw materials to
manufacturers, with a storage function usually acting as a buffer. The flow continued via wholesaler
and/or shipper to retailer, ending at the final customer. Delays were very common on all segments
of this chain and accumulated as inventories in warehouses. There was a limited flow of
information from the consumer to the supply chain, implying the producers were not well informed
(often involving a time lag) about the extent of consumption of their outputs. This procedure is now
changing, mainly by eliminating one or more of the costly operations in the supply chain
organization. Reverse flows are also part of the supply chain, namely for recycling and product
returns. An important physical outcome of supply chain management is the concentration of
storage or warehousing in one facility, instead of several. This facility is increasingly being designed
as a flow- and throughput-oriented distribution center, instead of a warehouse holding cost
intensive large inventories.

Nodes and Locations. Due to new corporate strategies, a concentration of logistics functions in
certain facilities at strategic locations is prevalent. Many improvements in freight flows are
achieved at terminals. Facilities are much larger than before, the locations being characterized by a
particular connection of regional and long-distance relations. Traditionally, freight distribution has
been located at major places of production, for instance in the manufacturing belt at the North
American east coast and in the Midwest, or in the old industrialized regions of England and
continental Europe. Today, particularly the large-scale goods flows are directed through major
gateways and hubs, mainly large ports and major airports, also highway intersections with access
to a regional market. The changing geography of manufacturing and industrial production has been
accompanied by a changing geography of freight distribution taking advantages of intermediary
locations.

Networks. The spatial structure of contemporary transportation networks is the expression of the
spatial structure of distribution. The setting of networks leads to a shift towards larger distribution
centers, often serving significant trans-national catchments. However, this does not mean the
demise of national or regional distribution centers, with some goods still requiring a three-tier
distribution system, with regional, national and international distribution centers. The structure of
networks has also adapted to fulfill the requirements of an integrated freight transport demand,
which can take many forms and operate at different scales. Most freight distribution networks,
particularly in retailing, are facing the challenge of the "Last Mile" which is the final leg of a
distribution sequence, commonly linking a distribution center and a customer (store).

Since cities are at the same time zones of production, distribution and consumption, the realm of
city logistics is of growing importance. This issue is made even more complex by a growing
dislocation between production, distribution and consumption, brought by globalization, global
production networks and efficient freight transport systems (increasingly by logistics).

Total logistics costs consider the totality of costs associated with logistics, which includes transport
and warehousing costs, but also inventory carrying, administration and order processing costs. The
above graph portrays a simple relationship between total logistics costs and two important
components; transport and warehousing. Based upon the growth in the shipment size (economies
of scale) or the number of warehouses (lower distances) a balancing act takes place between
transport costs and warehousing (inventory carrying) costs. This function differs according to the
nature of freight distribution. There is a cutting point representing the lowest total logistics costs,
implying an optimal shipment size or number of warehouses for a a specific freight distribution
system. Finding such a balance is a common goal in logistical operations.

Standard Advanced Complete

Warehouse management
Transportation
Dispatching
Delivery documentation
Customs documentation Assembly
Packaging
Returns
Labeling
Stock accounting
Order planning and processing
IT management
Invoicing
Payment collection

Services Offered by Third Party Logistics Providers

In addition to offering standard transportation services to its customers, such a transportation and
warehousing, third party logistics providers are delving into value added activities within
commodity chains.

Logistics & Physical Distribution

 Introduction to Logistics & Physical Distribution

 The Exporter
 International Freight Forwarders
 Other Carriers and Operators
  Customs Inspectors & Brokers
 Packing Methods
 Cargo Insurance

Introduction to Logistics & Physical Distribution

Competence in logistics and transportation is an important component to the overall export
process. Assigning responsibility to a staff member to evaluate the various weights and
measurements of potential shipments in different modes of transport is a good place to start
understanding the quoting and shipping process.
Analyzing the different services of freight forwarders, airlines, steamship lines, inland
carriers, packing companies and marine cargo insurance providers is a task which should benefit
the company greatly, whether it be for the first-time exporter or one that is considering expansion
into the overseas marketplace. Working together with export assistance agencies and export
service providers will aid the progress and profits of the exporter.

This section discusses:

The parties involved in an international shipping transaction
The importance of weights and measures in the metric system
The proper packaging of goods for export and information on marine cargo insurance

Physical Distribution & Export Strategy

Export distribution involves the physical act of moving products and is an integral part of
international trade. Companies of all sizes should become familiar with the distribution systems
between the origin manufacturing location and the targeted markets.

While many aspects of international marketing allow an exporter to be creative and unique,
there is little room for error in export mechanics. The role of service providers in international
logistics and transportation cannot be underestimated. Exporters should not operate in the “Do It
Yourself” mode on these highly volatile and crucial procedures. It is best to leave this process to the
experts, who make their living by learning the most efficient and ethical transportation methods
available.

Numerous variables impact shipment logistics and distribution. Transportation modes

impact the total cost of the goods, which may fluctuate between nations in regards to requirements
on packaging, labeling, transit times, perishability, and damage or loss of cargo. Mistakes in this
process lead to increased labor costs. Many hours of work can go into solving problems that could
have been avoided by taking the time to learn the process in the first place. Familiarizing yourself
with how a market imports its goods and how the goods reach the consumer before actively
marketing is a gesture that potential buyers appreciate.

Parties to the International Shipping Transaction

Often a number of businesses have temporary control over cargo and therefore have
responsibility for its processing, handling, integrity and/or movement. The following parties are
often involved in an export shipment:

Exporter
Freight Forwarder
Non-Vessel Operating Common Carrier (NVOCC)
 Inland Carrier
Terminal Operators
Ocean Carrier
Air Carrier
Customs Inspectors
Customs Brokers

Note: In order to learn the international trade terms used in this and other sections, you
may wish to access the export glossary from the USDA, Foreign Agricultural Service section on
"Recipe for Export Success: A Brief Tutorial for New Exporters."

The Exporter
The exporter, also known as the shipper or consignor, is responsible for accurately
describing the details of the merchandise being transported. When the exporter contacts any
carrier, freight forwarder or consolidator, he/she must relay a detailed description of the products
in order to obtain the correct prices and information for the handling, stowage, insurance and
transit time, among other details. These details include:

Description of the cargo

Origin and destination of the shipment
Origin of manufacture of the goods
Gross and net weight of each package
Cubic measurement (in cubic feet or cubic meters)
Marks and numbers on the goods for identification
Type of quotation required based on the term of sale: EXW, FOB, CIF
The material value of the goods
Type of marine cargo insurance required (also depending on the term of sale)

In some cases, the exporter may arrange for inland freight to the port of export and prepare
the inland bill of lading, dock receipt and shippers export declaration, but these services are usually
provided by the freight forwarder. The exporter also usually prepares the commercial invoice,
packing list and other regulatory documents to submit to the freight forwarder. Depending on the
country of destination and the existence of a Free Trade Agreement, they may also prepare a
certificate of origin. In the case of exports to NAFTA partners, only the exporter or the
manufacturer of the goods can prepare the Certificate of Origin.

Weights & Measures

Most active exporters spend time creating pro forma invoices in order to offer their goods
for export, in a given amount and at a specific location. This requires contacting service providers in
the business of moving cargo within the U.S. or between the U.S. and the foreign destination. This
includes trucking companies, logistics providers, freight forwarders, steamship lines and airlines.
Their immediate interest is not just in the product itself, but also in the physical displacement of the
goods, measured in the metric system for export.

In order to arrive at a correct price for shipping, an exporter needs to convert all
measurements into metric units. The following link is a helpful tool in accomplishing this task,
although there are a variety of resources available.
 Dimensions & Density

Once you have the applicable conversions for your products, you can determine both the
chargeable weight of your potential shipment and its density. Most transportation charges are
based not only on the actual weight of the shipment, but also on the chargeable weight, which is the
volume of space the shipment takes up in any given container. (This is most sensitive to air cargo,
but applies to other modes of transport as well.)

For air cargo, you need to multiply the length, width and height of each piece of freight to
get a total amount of cubic inches. Divide that amount by 166 cubic inches, which is known as the
“Dim Factor” for dimensional weight. If the amount is lower than the actual weight, you pay on the
actual weight. If it is higher, you pay on the “Dim Weight” and it will cost you more in freight
charges. Exporters should do this prior to requesting quotations from service providers.
Density is expressed in pounds per cubic foot. The higher the density, the more attractive
the freight rates should be. The volume is calculated by multiplying the length, width and height of
the cargo, but in this case you would divide that by 1728, which is the amount of cubic inches in a
cubic foot (12x12x12 = 1728). Average density is 10.4 pounds per cubic foot, which is 1728/166
(the dim factor). Anything less than 10.4 pounds per cubic foot will be charged on volume and
anything more should begin to lower your price because of the density of the freight, which allows
for some negotiation in pricing.

Even with ocean freight, these formulas are good to know. For “less than container load”
(LCL) ocean freight rates, the price is based on weight or measure of the cargo. It’s based on one
metric ton or one cubic meter, whichever is greater. An example would by $125.00 W/M
Philadelphia to Rotterdam. The W/M stands for weight or measure.

If your cargo volume has a density of lower than 10.4 pounds per cubic foot, you will be
charged in cubic meters rather than actual weight. For example, if you have 2 tons of goods and 3
cubic meters of volume, you will be charged:

3 x $125.00 = $375.00

Instead of

2 x $125.00 = $250.00

Knowledge of these formulas is helpful to negotiate lower freight rates and make
competitive pro forma quotations.

International Freight Forwarders

International freight forwarders handle both direct and consolidated shipments. A direct
shipment is sent on its own without being co-loaded with other goods. This could be an entire
container, truckload or airfreight shipment. Consolidated shipments are those where goods from
two or more parties are shipped together, adding weight and security to the shipment, and usually
lowering the cost of freight.

Services of an International Freight Forwarder

Freight forwarders facilitate shipments by air, vessel or other common carrier. Their
services may include, but are not limited to:
 Ordering cargo to the port of export
Preparing export declarations
Booking, arranging for and confirming cargo space
Preparing delivery orders or dock receipts
Preparing ocean bills of lading
Preparing consular documents or arranging for their certification
Preparing and processing letters of credit
Arranging for warehouse storage
Clearing shipments in accordance with U.S. government export regulations
Preparing and sending advance notifications of shipments or other documents to banks,
shippers, consignees or agents as needed
Handling freight or other monies advanced by shippers
Remitting or advancing freight, monies or credit in connection with the dispatching of
shipments
Coordinating the movement of shipments from origin to vessel
Obtaining the best possible ocean freight rates on the exporters’ behalf
Giving expert advise to exporters concerning letters of credit, export documents, licenses,
inspections or complications with the cargo’s dispatch

Organizational Structure of Forwarders

Twenty years ago, companies specialized in direct air shipments, ocean shipments, air
consolidations, ocean consolidations or other distinct services based on product, market and
industry. Today, many international freight forwarders provide a complete logistical solution for
exporters, from door to door. There are still exceptions which require a brief review of how
forwarding services are organized.

The International Air Freight IATA Agent

International Air Transport Association, or IATA, is a governing body that allows

forwarders to collect a modest commission from the airline based on the freight rate applied to the
cargo. IATA certification is based on the forwarder meeting specific financial and credit
requirements, having a presence of physical facilities and possessing professional qualifications and
ethical business practices. In turn, they are permitted to issue airline air waybills and represent the
shipper to the airline and vice versa.

IATA agents may provide additional services to their customers. They often focus on
crating, packing, labeling and logistics and turn the cargo over to the airline or an air cargo
consolidator. In the food business, an exporter might find an IATA agent that specializes in certain
perishable items, such as produce or seafood. IATA agents do not publish their own rates or issue
their own waybills, so they do not provide consolidation services directly, although they could
assist in making those arrangements on behalf of an exporter.

The International Air Freight Forwarder

These companies are IATA agents as well, meaning they can handle direct shipments and
prepare the airline air waybill. In addition, they issue their own air waybills, known as “House” air
waybills and publish their own rates. With the issuance of house air waybills, they are transporting
merchandise under their own name, with what is known as a “Master” airway bill. In a consolidated
shipment there can be multiple house air waybills associated to a master air waybill.
 International Air Freight Forwarders provide consolidations of air cargo shipments to
destinations around the world, and in providing the airline with volume shipments, are able to
collect the IATA commission in addition to commission based on performance. They usually have a
network of their own offices or agents in major cities around the world and now in developing
countries as well. The overseas offices can provide valuable information about regulations, duties,
taxes and prices for services provided at the destination. Taking advantage of air consolidation
freight rates makes your landed cost more attractive to the buyer and should be considered if the
mode of transport is airfreight.

International Ocean Freight Forwarder

These companies need to be licensed by the Federal Maritime Commission (FMC). Like IATA
agents, they do not publish their own rates or issue their own bills of lading, as they don’t provide
consolidation services. Their services to the exporter include: coordination of cargo, booking with
the steamship line, crating, packing and document preparation.

The International Ocean Freight Consolidator

This type of company is referred to as an NVOCC, Non-Vessel Operating Common Carrier, or

an NVO. NVOs provide services that are very similar to the International Air Freight Forwarder.
They are licensed by the FMC and can also provide the services of an Ocean Freight Forwarder.
They are licensed to publish their own rates and issue their own ocean bills of lading, transporting
goods under their own name. This is a very similar process as the master and house air waybills
used with air freight consolidations.

If an exporter has a shipment that needs to move by sea freight and does not have enough
volume to warrant the purchase of an entire container, the NVOCC is a logical choice, as they can
load the shipment into a container with other cargo and provide a competitive rate for their
services. As mentioned in previous sections, many value-added food importers today are asking
their suppliers to send the shipment to a location near an ocean port and have the shipment
consolidated into a container with similar sized shipments from other suppliers.

Many international freight forwarders provide both export services for ocean and air
freight, directly and consolidated.

This means that:

Whatever mode of transport you need,
In whatever size shipment,
To whatever destination you need,
You are often able to use the same company to accomplish all of your export transactions.

Documentation Services

Exporters can either prepare the export documents they are responsible for or choose to
use the services of a forwarder. Under normal circumstances, the freight forwarder prepares the
inland bill of lading or dock receipt, but can also prepare:

Ocean bill of lading “master”: The forwarder provides this to the steamship line, which in
turn produces its own “original” bill of lading after the departure of the vessel.
 Consolidator bill of lading: This is issued by the NVOCC for ocean shipments which are being
exported in a consolidation with other goods.

“Master” air waybill: This is different from the ocean bill of lading and is the airline air
waybill that the carrier allows the freight forwarders to prepare on their behalf. They are used
either alone on direct shipments, which cannot be consolidated due to their perishable nature or in
some cases lack of other cargos destined for certain locations, or as the master of a consolidated air
shipment which is accompanied by two or more “house” air waybills in a consolidation.

“House” air waybill: These are issued by the freight forwarders in-house and are contracts
of carriage between the forwarder and shipper as the master becomes a contract of carriage
between the forwarder and airline on consolidated shipments.

Consular invoice: When the consulate of the foreign country requires their own invoice and
presentation of the export documents to them for inspection, the forwarder usually makes these
arrangements.

Shipper’s export declaration: This document is required for all exports from the U.S. which
are valued over $2500 per Schedule B number, or those on an exporter license, such as exports to
Cuba or other controlled destinations. The forwarder usually submits this electronically on behalf
of the exporter, although the exporter may also submit it himself.

Insurance certificate: When the forwarder issues a marine insurance policy, he/she can also
issue a certificate of insurance for a nominal fee. If the export will be paid under a letter of credit
and insurance is required, this becomes mandatory as the buyer’s bank will need proof of insurance
to effect the payment.

There may be other documents prepared, depending on the nature of the goods, the type of
shipment, the regulatory requirements of the U.S. and foreign government and requests by the
banks, seller and buyer.

To review a document which illustrates the services of the freight forwarder’s coordination
with other service parties and regulatory agencies, click here.

Selecting the Right Freight Forwarder

International forwarders are not all alike in size, services and capability. Some have a
competitive advantage in shipments going by ocean rather than airfreight, while others have
strength in cross-border trade to Mexico or Canada. Some might have more volume in business;
therefore better pricing for certain destinations worldwide. If an exporter has shipments to
completely different areas of the world or of different sizes, he/she may want to employ more than
one freight forwarder. It is always important to choose the right forwarder for your type of
business, unless the buyer has selected a forwarder and is paying for all or most of the charges on a
collect bases. (This is known as “routed” cargo in the international freight forwarding business, but
is usually more common with airfreight than sea freight shipments.)
When choosing a freight forwarder, consider your own level of experience in international
trade. Your experience will dictate how dependent you will be on their advice, support and
handling of cargo. If you are new-to-export, your level of dependence will be greater. Some general
guidelines for selection include:

FMC or IATA licensing,

NVOCC or airfreight consolidation services
Knowledge and experience with products similar to yours
 Capability to work with your mode of transport
An office or agent in the destination market and good communication with the office
The ability to provide reference from other customers, carriers and banks
Properly located facilities with adequate equipment
Patience in explaining terms and procedures so you can understand them

This link will take you to the database of forwarders from the Agricultural Marketing
Service’s Transportation Services Branch.

Other Carriers and Operators

Inland Carriers

Inland carriers are independent companies that perform services for shippers or freight
forwarders. Because the U.S. has such a large interior, inland transit time and costs play a crucial
role in competitive export pricing and service. Inland carriers usually provide the following
services, with prices based on origin, distance to port and type of merchandise:

Pick up shipment from exporter

Receive delivery instructions
Deliver cargo to port of export (or other location)
Obtain signed dock receipt
Notify forwarder or exporter of delivery to port (or other location)

There are a couple of other names used for inland carriers, based on the mode of transport
for the export and the distance from pick up to delivery. “Cartage” agents are usually involved in
local pick up and delivery within a 50-mile radius of a metropolitan area. They handle pick-ups for
either air cargo shipments or for ocean freight that is to be consolidated locally. “Drayage” agents
work at a local trucking company that “spots” (drops off) and picks up containers once they are
loaded for export. They either deliver the container to the port of export or to a rail line for further
inland transport. Rail carriers are also integral to the export business, as they can deliver ocean
containers or truck trailers from an inland location to the port of export.

It is a good idea to evaluate the costs and services of all carriers in order to determine the
most efficient method of inland transport. Freight forwarders will also provide this service.

A Note on the Inland Bill of Lading

Although not considered an export document, the inland bill of lading is an important
document used to communicate the pre-main carriage details of the shipment. This “B/L” as the
industry says, is used by a variety of service providers in order to place the goods at the right
location at the correct time to take the appropriate action in the processing of the export. The
following companies are the ones with direct interest and responsibility for acting on the
information provided in the inland bill of lading:
The carrier which picks up the shipment at your facility
The terminal of the carrier at the port of export (or other location)
The workers in the warehouse where the shipment is delivered
The cartage agent who delivers the shipment from the terminal of the carrier to the airport
or pier
The terminal operators who position the shipment according to the instructions
The freight forwarder who is handling the shipment
The exporter or forwarder responsible for paying for the inland carriage
 Terminal Operators

Terminal operators control the logistics of the port on behalf of the steamship lines and the
port authorities. Their main task is to coordinate the flow of goods into and out of the port. They are
usually involved in the following procedures:

Controlling truck or rail traffic

Checking delivery orders or dock receipts
Assigning a “checker” for loading and unloading
Loading containers at the container freight station
Controlling the parking location of containers
Assigning stowage allocations
Coordinating movement of containers to vessels
Loading and securing the containers on the vessel

Ocean Carriers

Ocean carriers provide the main carriage from port of export to port of import, but also may
be involved in the pre-main carriage or post-main carriage transport. Exporters should obtain
multiple quotations for these services, as rates vary among service providers. Their services include
the following:

Accepting cargo bookings from shippers or forwarders

Dispatching containers to origin locations (known as “drayage”)
Processing bills of lading (not “master” but original)
Preparing freight invoices, manifests, arrival notices, delivery receipts and stow plans
Filing export declarations with customs (if not done by shipper or forwarder)
Notifying consignees (buyers) of arrival and availability of cargo
Arranging inland transportation at destination (if required)

Air Carriers
Air carriers, such as FedEx and UPS work with shippers directly. However, in the export
business, most work with freight forwarders on consolidated cargos. Chilled, frozen, perishable or
other controlled goods cannot be consolidated and a direct shipment is required. In this case, an
exporter might work with the air carrier directly. The airfreight business moves at a much more
rapid pace than that of sea freight and involves fewer steps.
In some cases, you might get a better overall price if you ship your goods in an air container
rather than in a consolidation. This depends on the carrier price, the size, weight and dimensions of
the cargo and the destination. Often your air shipment may move in an air container that has been
tendered by the freight forwarder if part of a larger consolidation.

To review the types of containers used by airlines click here.

Customs Inspectors and Brokers

Customs Inspectors

The word “customs” is generally associated with imports, but export shipments must clear
customs as well. The shipper’s export declaration includes a customs evaluation prior to export
from the United States. If the shipment is suspicious in any way, customs may call for a document
inspection. If there is still concern, the cargo may be inspected and the exporter may be charged for
the inspection time. Customs inspections may also delay the departure of the shipment.

In both the U.S. and abroad, customs enforces import laws and regulations and collects
duties and taxes. Customs uses the Harmonized System (HS) codes, the declared value of the goods
and the country of origin of manufacture, among other more specific details, such as complete
documentation, for regulation.

An exporter should know the tariff number of the goods before shipping them in order to
assist the importer and the customs broker. Accurate invoicing, complete shipment details and
providing the correct country of origin help to simplify the import process.

Customs Brokers

A customs broker represents the importer to customs in order to admit the goods into their
country. Brokers can help the exporter understand the regulations and documentation required for
successful customs clearance. If an exporter is in doubt regarding shipment requirements, it is
appropriate to have the buyer check with their customs broker, or to contact the broker directly.

Many overseas offices or agents of U.S.-based freight forwarders employ customs brokers
and can provide on-the-ground information about customs requirements. If the exporter maintains
title to the goods at the destination and is responsible for clearing and delivering the goods, he or
she will probably use the services of this office as well. At a minimum, customs brokers provide the
following services:

Evaluate exporters’ documents for accuracy

Prepare required customs entry forms and file with customs
Pay customs duties and taxes on behalf of the importer
Effect customs and freight release
Verify information on bill of lading and prepare delivery orders
Coordinate with the inland carrier for pick up and delivery of imported cargo

Packing Methods
In addition to obtaining competitive freight rates and services, a shipper should ensure that
the product will arrive in excellent condition. Of particular concern are products of a perishable
nature, such as frozen and chilled foods as well as processed and packaged foods, drinks and juices.
Important considerations include:

Effective packaging and labeling

Temperature, humidity and other environmental controls
Well-maintained transportation equipment
Proper loading, in-transit monitoring and unloading

Products must be protected from:

Rough handling during loading and unloading
Compression from the overhead weight of other product containers
Impact and vibration during land, ocean and air transportation
Rolling, pitching, yawing, heaving, swaying and surging during ocean transportation
Loss or gain of moisture due to the surrounding air
Higher or lower than recommended temperatures
 Cross-contamination or odors from other products or residues

By using top-quality packing products, shippers can help ensure good arrival condition of
their goods. Effective packaging, environmental controls and proper transportation equipment are
essential. The complexity of packaging often calls for specialized responsibility within a company or
the use of third party experts who can evaluate and design specific solutions for any given situation.

Packaging materials should be chosen based on product and environmental considerations.

Factors to be considered include: method of packing, temperature, humidity and desired
atmosphere around the product, packaging strength, cost, availability, buyer specifications,
graphics, labeling, freight rates and government regulations. Packaging manufacturers, foreign
buyers, wholesale markets, retail stores, packaging magazines and consultants are important
sources of information on current packaging trends and desires.

Packaging should be standardized to facilitate unit loading on standard-size, reusable

pallets in the United States, Europe and other countries. Pallet handling and leasing companies have
been established in response to economic and environmental concerns.

Boxes should be sized and filled in accordance with the importer’s desires. Oversized boxes
that weigh more than 20 kg (44 lbs) encourage rough handling, product damage and container
failure. Excessive weights and damaged packaging are common complaints of importers of U.S.
meat products who receive boxes weighing up to 45 kg (100 lbs).

Overfilling causes product damage and excessive bulging of the box, which leads to reduced
compression strength and container failure. Under-filling also may cause product damage. The
product may be bruised as it moves around inside the box during transport and handling.

Widely used packaging materials include:

Fiberboard: Pallets, slip-sheets, bins, boxes, lugs, trays, flats, dividers and partitions
Wood: Pallets, bins, crates, baskets, trays and lugs
Paper: Bags, sleeves, wraps, liners, pads, excelsior and labels
Plastic: Pallets, bins, boxes, trays, bags, containers, sleeves, film wraps, liners, coatings,
dividers and slip-sheets
Polystyrene: Foam boxes, trays, lugs, sleeves, liners, dividers and pads

Product packaging checklist for exporters

Before shipping, consider the following:

The mode of shipping. Does it make sense to use air or ocean freight? Will you have to use
road or rail for part of the journey? Look into the options and conduct a cost/benefit analysis.

Whether to ship directly or indirectly. Will your goods be sent to the buyer directly? Is there
a distributor or warehousing facility involved in the process? How will this affect your costs and
ability to fill the order?

Suitable packaging for the shipment. This will depend on the mode of shipping, the
destination, the number of stops (and storage), the fragility of the goods and their sensitivity to
environmental changes. It is critical to use suitable internal protection as well as a durable
container. You may also want to consider shock and tilt indicators for packages that may be
susceptible to overzealous handling.
 Application of appropriate markings to the package. While they do not guarantee damage-
proof shipping, handling labels may potentially minimize the abuse your shipment experiences. Of
course, handling labels are most effective when the people handling the packages can understand
the language or symbols used.

Including all relevant information on packages. This information includes port of

destination, transit instructions, contact information of the consignee, package dimensions and
weight, package number and invoice or order number.

Cargo Insurance
Marine Cargo Insurance
Most food companies are very familiar with transportation insurance, where they are
responsible for loss or damage in transit. Insurance that covers loss or damage to goods being
shipped internationally is called marine cargo insurance.

The potential for loss to the exporter is much greater than doing business domestically. The
difference is in “insurable interest.” Shipping domestically in the US, a company generally quotes
FOB, Factory. Under U.S. law, when this trade term is used, a company is able to pass the risk of loss
and title of the goods to the buyer, at their dock. At this point in the domestic transaction, the
shipper no longer has an insurable interest in the product shipped. In international trade, the
opportunity to pass risk of loss at the dock is much less frequent, and therefore, a company may
have an insurable interest in the goods all the way to the port of import or beyond.

Where to Purchase Marine Cargo Insurance

Most international freight forwarders will provide marine insurance to you under their
blanket policy. The cost per $100 of value may be higher due to the fact that their policy must be
able to cover a multitude of products and coverage. One of the advantages of purchasing insurance
through the forwarder that handles the shipment is that the transaction is well known to them and
they already have most of the paperwork on file.

The second means of obtaining air cargo and ocean marine insurance is through an
independent agent or marine insurance broker. The agent or broker often represents insurance
companies that specialize in ocean and air cargo insurance. The insurance agent can offer a range of
coverage options. Depending upon the size and scope of the shipper’s operation, the marine
insurance policy will come in the form of an open cargo policy or a special marine policy.

Open Cargo Policy

Open cargo policies are used when the shipper has a continuous flow of goods being
shipped over a period of time. The open cargo policy contains no expiration date and provides
automatic coverage when needed. The policy is customarily issued on a warehouse-to-warehouse
basis which provides the shipper continuous coverage throughout the normal course of transit.
Open cargo policies can also be tailored to meet a shipper’s many specific needs, such as returned
or refused shipments, warehouse exposures outside the scope of the policy, inland transit and
shipments sold on terms other than under CIF/CIP.

Since the policy provides automatic coverage, it usually lists the insured party’s name, the
cargo covered, the insuring conditions, areas of the world that coverage is granted and the
insurance rates. The shipper is required to submit a monthly report of all shipments that have
occurred under the policy and pay a premium on those shipments at the agreed upon insurance
rates. Depending on the shipper’s needs, the open cargo policy may offer the broadest possible
insurance terms for the lowest price.

Special Marine Policy

The special marine policy is designed to provide coverage to individual shipments. This
policy provides the same coverage available under the open cargo policy. However, it does not
provide automatic coverage. Once the shipment has been completed and coverage has ceased, this
policy automatically terminates.

When to Insure

Whenever goods leave the U.S. to a foreign country, the goods should be insured, either by
the seller or the buyer. For the seller, insurance may be obtained either by using your own open
policy or that of your freight forwarder. Whenever you insure the goods, make sure that coverage is
in force from “warehouse to warehouse, plus 60 days.” This allows time for the buyer to discover
concealed damage. An alternative to using your own policy or that of your forwarder is purchasing
insurance from the carrier. The carrier’s insurance will only cover the goods while they are in the
hands of the carrier and concealed damage will result in only partial recovery from the carrier’s
insurance.

How Much to Insure

Typically, international shipments are insured for 110% of the total CFR/CPT value of the
goods. The terms CFR and CPT include the cost of the goods and all costs of transportation,
forwarders fees and export boxing, up until the time that the goods arrive at the foreign port of
unloading. Some buyers or letters of credit require an insured amount of 115-120% of the goods
sold, but 110% is an industry standard.

The reason for the increase is to cover the value of the insurance in the policy, as well as any
unexpected increases in handling, storage or other accessorial fees during transit that add to the
overall value of the invoice and the landed cost of the goods. Marine insurance can cost as little as
$0.15 per $100 of value to $2.50 per $100 of value, depending on the coverage the deductibles
included in the policy and the standard risk of loss normally experienced by your product.

Calculating the Value for Insurance

The following is a basic example of how an exporter might issue a pro forma invoice for a
CIF or CIP quotation, which includes marine cargo insurance. This represents a “Cost, Insurance and
Freight” quotation according to the Incoterms, based on the mode of transport, which is all that
separates the two. This is similar to the American Foreign Trade Definition of “CIF.” It is a very
common method of export quoting, especially if done by ocean freight.

The sale price of the goods, $9,200.00 is added to the packing costs, inland transport,
documentation and main carriage, which brings the “Cost and Freight” or “Carriage Paid To” price
to $11,500.00. (Again, the two terms are used here based on the mode of transport CFR and CIP
quotations are for inland waterway and maritime shipments only; CPT and CIP are for all modes of
transport.) Multiply the CFR/CPT by 110% and get a value to be insured of $12,650.00.
 The insurance rate in this example is $0.55 per $100.00 of value. Take the value to be
insured $12,650.00 and multiply it by .0055 to make it $0.55 per $100.00 and not $0.55 per $1.00.
The insurance premium is $69.58. Add this amount to the total CFR/CPT price, not the value for
insurance, which is 10% higher. The total CIF/CIP price then is $11,569.58.

Invoice Value $9,200.00

Packing $200.00

Inland Transport $400.00

Documentation $200.00

Main Carriage $1,500.00

Total CFR/CPT $11,500.00

Total CFR/CPT + 10% $12,650.00

Insurance Rate $0.55/$100.00

Insurance Value $12,650.00 x 0.0055

Insurance Premium $69.58

Total CIF/CIP $11,569.58

Kinds of Losses Covered

The Standard “All Risk” marine insurance policy covers losses incurred due to perils of the
sea, fire, explosion, collision, derailment, overturn, wind, earthquake, flood or collapse of docks.
Additional coverage can be added such as theft, pilferage, non-delivery, fresh water damage, oil
damage, damage due to sweat and condensations, breakage, leakage, etc. In addition, a clause in the
insurance “free of particular average” means that the insurance will cover partial losses in addition
to total losses.

“General Average” is a coverage found on most policies. It represents a loss to the carrier
based on the value of the goods on board. For example, if an ocean vessel requires a tug to pull it off
of a sand bar; those companies that have cargo on the ship will pay the cost of tug services. This fee
will be charged against the cargo and the goods may not be claimed at the destination without
presenting either evidence of insurance coverage or a cash deposit representing the proportional
amount of the claim due for the goods.

Other additional clauses that are generally added by endorsement are “riots and civil
commotion,” and “war risk.” When you purchase your own policy or use the forwarders, be sure to
determine the coverage that is included under the policy and the deductible that will apply to each
coverage. The deductible or franchise is expressed as a percentage.

Several important risks are generally not covered by the marine insurance policy. These
include: marring or scratching, delays, inherent vice (a condition whereby the goods were bound to
be damaged or deteriorate because of the nature of the goods), losses due to insufficient or
improper packaging that does not protect the goods from the risks of transportation and the
physical handling and environmental conditions at the port of import.
 Responsibilities of the Insured Party
The policyholder must meet certain obligations when a loss occurs, and these should be
clearly understood. First, the insured must make every reasonable effort to minimize the loss.
Reasonable charges incurred for this purpose are collectible under the policy, under what is known
as “Sue & Labor.” For example, when a shipment of canned foods arrives with some leaking cans in
each of several cartons, the leaking cans must be taken out to minimize rust and label damage. The
expense incurred in this operation may be recovered under the insurance policy.
If the cargo is damaged or if any damage or loss is suspected, the insured party must
immediately file a claim with the carrier to avoid filing deadlines. If the insured fails to take this
step, or signs a waiver of carrier responsibility, it may result in the loss of coverage. In the case of
concealed damage, a claim should be made within three days of the delivery or as soon as the
damage is known.

The letter of claim to the carrier should include the following information:
Company name of ocean or air carrier
Bill of lading or air waybill number
Voyage (ocean) or flight number
Destination arrival date
Container number
Description of cargo
Dollar amount of claim

Filing a Claim

In the case of international shipments, the importer (consignee) will most likely be the first
to discover any damage to, or loss of, a shipment. The importer must thoroughly inspect each
shipment and note any signs of damage or loss on the delivery receipt. Even if no outward evidence
of loss or damage exists, it is important to inspect the entire shipment as soon as possible for any
hidden damage.

The consignee, or insured, must contact the nearest claim agent so that a survey of damage
can be arranged. The carrier or carrier’s agent should be notified of the time and location of the
survey so that he or she can be represented. When filing a claim the insurer may request some or all
of the following documents:

Non-negotiable copy of the bill of lading or air waybill (both front and back)
Certificate of insurance or declaration of insurance
Copies of letters of claims filed with carriers
Correspondence or verbal advice from carriers
Commercial invoice
Packing list
Evidence of loss or damage
Delivery receipt
Inland waybill
Consignee’s receiving report
Customs documents

Confirmation of non-delivery by carrier

Survey report
Valued inventory
Repair estimates (if applicable)
 Sue & labor reimbursements
Other (as specified by the insurer)

Carriers Limited Liability

Air and ocean carriers provide limited liability coverage while a shipment is in their
possession. The bill of lading states the liability that the carrier assumes. It is critical that the
shipper understand that the carrier is not responsible for such perils as “Acts of God.” When filing a
claim with a carrier, the shipper must prove the cause of loss that the loss occurred while in the
carrier’s possession and that the carrier is directly liable for the loss.
Airlines are liable up to $9.07 per pound or $20 per kilo on shipments to foreign
destinations and $0.50 per pound on domestic shipments. Shippers have the option of declaring a
higher value for the shipment and paying higher freight charges based upon this declared value. If
the value of your shipment goes well beyond this amount, you can clearly see the need for increased
coverage with a marine cargo policy.

Similar to the airlines, ocean carriers provide a limited amount of coverage, $500 per
customary shipping unit (CSU), as stated on the back of the bill of lading. The CSU is generally
interpreted as the ocean container. This coverage is rarely sufficient in covering the cost of the
goods shipped, as it is not based on weight or value, but only on the container.

Introduction to Export Documentation & Procedures

Export documentation is far more than just shipping paperwork; it includes all of the
important records of an international transaction. Using the correct trade terminology, clearly
defining the transfer of interest and liability, selecting the right method of payment and sending the
best quotation possible are the keys to effective exporting. After the sale has been made, proper and
timely selection, preparation and distribution of documents are essential.

Documents used in international trade are a reflection of the understanding of the

agreement between the seller, the buyer, and third party service and regulatory agencies. It is vital
for the seller to understand that any document produced with their name as a party to the
document is totally responsible for the actions of the service provider in the course of their
performance.

Although often underrated and overlooked, export documentation and procedural concerns
are an integral part of the export process and should be considered as important as anything else
related to the sale. The term “export” documentation is actually a relative misnomer, as most
paperwork is really being prepared on behalf of the buyer, and is used for customs clearance and
other legalities at the port of import, and thus are really “import” documents.

Successful exporters usually are very adept at preparing export documents, or else use
service providers who are. Problems with documentation can lead to delay in shipment, penalties,
unwanted storage costs and an aggravated buyer. An exporter should always put themselves in the
importer’s shoes. Consider what you would do, if as an importer, your supplier caused delays and
extra expenses due to a lack of proper paperwork. Eventually, you would probably find a new
supplier.

Differences Between Exporting and Domestic Business

The basic intent of a quotation for international trade is the same as it is for quotes made in
the U.S.; but the rules and procedures are different. The following are examples of the difference
between international and domestic quotations.
 Trade terms: Domestic sales use trade terms such as “FOB Factory” as defined under the
Uniform Commercial Code of the United States. One of the benefits of this trade term is that title of
the goods passes to the buyer at our dock. When businesses engage in international trade, they
cannot rely on the Uniform Commercial Code or domestic trade terms and should use the trade
terms recognized by international traders, the Incoterms as described in Module 6.

Methods of payment: Where open account or cash in advance are the primary ways
businesses have of collecting domestic accounts receivable, they may not be as common in
international trade. Equally as common in international trade are letters of credit and drafts. The
document preparation and procedures on these “consignment controlled” shipments requires
careful analysis and handling.

Methods of packaging: Shipping goods internationally exposes the in-transit product to

risks it would not otherwise encounter. Among the greatest risks for damage to goods in foreign
trade are: theft; environmental risks such as heat, cold and moisture; transportation by ocean
freight or rail; and lack of mechanized physical handling equipment in some of the lesser developed
countries. There may be certain documentation required in international trade that would reflect
the proper packaging, packing, handling and stowing of goods in order to satisfy the importers’
requirements as well as their governments’.

Methods of shipment: Businesses normally ship goods by mail, truck or airfreight to their
customers in the United States. In international trade, truck shipments are limited to Canada and
Mexico and most processed food products are shipped by air or ocean freight. Air freight differs
only in the bill of lading used. Meanwhile, ocean freight can include drayage to move ocean
containers to your facility, railroads to get the cargo to the port of export and another drayage
trucking to transport your products to the ocean carrier at the pier. Because these modes of
transportation differ a great deal, particularly in the area of carrier’s liability, they need to be
understood thoroughly before making a quotation. There are specific documents for international
shipments that vary in detail, handling and distribution from the domestic equivalent.

Insurance covering damage or loss: The seller has primary responsibility for loss or damage
to the goods, in most cases, all the way to the port of unloading in the foreign country. Insurance
coverage is therefore a must for all international transactions. Insurance certificates are required
for proof of coverage on many exports, especially those that are being paid under a letter of credit.

Validity period: The validity period of an international quotation is usually 90 days. This
allows the buyer to arrange for payment and any import permits that may be necessary to make the
purchase decision of your product. Any changes to the quotation during that time must also be
reflected in the documentation.

Import laws in the foreign country: Before making a quotation to a buyer in a foreign
country, it will be necessary to determine what restrictions exist. Common considerations are
availability of exchange, country of origin of the product you are offering, import permits,
certificates and inspections. The importer may also have documentary requirements in the
destination market that must be matched with the exporters’ prior to customs clearance.

Banking fees: Unless the importer used U.S. dollars as their currency, international sales
generally begin with payment by the buyer in their own currency. The buyer’s bank will then make
arrangements to pay the exporter through a U.S. bank in U.S. dollars. The banks charge a fee for this
process, part of which will be for the seller’s account. These fees vary depending on the method of
payment being used.
 The Pro Forma Invoice - First Step

The pro forma invoice is usually the first export document prepared. It is generated by the
exporter in response to an opportunity for export business; often from a trade lead, whether from
an unsolicited direct inquiry or as follow-up from a trade event. Virtually nothing is accomplished
in an export transaction without the issuance and acceptance of a pro forma invoice. Pro forma
invoices can be either formal or informal documents depending on the requirements of the
destination country.

Formal quotations usually require a letter of credit as the method of payment. For the buyer
to obtain permission to exchange or to import the product, they will need to receive a quotation in
the pro forma format. A pro forma invoice is a “snapshot” of the offer as it stands at the moment.
The seller should carefully develop the quote, because once the buyer accepts the offer to sell at a
certain price, a formal contract for the exact amount exists.

Informal quotations are usually prepared for exports to industrialized countries that have
few exchange restrictions and no regulation-requiring amount of product or value for import. This
means that the quotation could be adjusted without penalty during the course of negotiating the
sale.
The Commercial Invoice

The commercial invoice is considered to be the most important international trade

document and should be prepared as accurately as possible. It is the main document used by
customs to accept or reject the customs entry prepared by the customs broker. Even with a sample
shipment, a commercial invoice is required, and needs to state the fact that the goods are not for
resale - are samples only - and have little commercial value.

The commercial invoice should reflect the exact nature and terms of the agreement that
exist between the buyer and the seller. Most duties are applied at an Ad Valorem rate, which are on
the value of the goods upon their arrival, usually “CIF,” Cost Insurance and Freight. The invoice
would be totaled to that amount and the duties paid accordingly, so it is key in most customs
clearances. Often, the commercial invoice will be prepared by the seller and totaled to the desired
trade term, then depending on the method of payment, submitted through banking channels or sent
directly to the importer for payment. These arrangements need to be agreed upon between the
seller and the freight forwarder prior to shipping the goods.

Although there is no standard form for a commercial invoice, the following information
should be included:

Seller’s name and address

Buyer’s name and address
Exact description of goods (kind, grade, quality, weight)
Agreed-upon price in U.S. dollars (in order to reduce foreign exchange risk)
Description of packages (number, kind, markings, dimensions)
Type of container
Delivery point
Terms of payment
Date and place of shipment
Method of shipment
Signature of shipper/seller
 Parties to the Transaction and the Commercial Invoice
The parties involved in the export transaction that need an original or copy of the document
underscores the importance of the commercial invoice. They are:
The Exporter: As a record of the shipment and the payment mechanism.
The Importer: Also a record of shipment and payment mechanism.
The Freight Forwarder: Uses the invoice in part to prepare the documentation they provide
as part of their services.
The Customs Broker: Uses the invoice to prepare the customs entry forms at the point of
import.
U.S. Customs: May require a document evaluation if they have concerns about the
shipment’s integrity.
Foreign Customs: May also require a document evaluation in order to allow the customs
clearance at the point of import.
The Seller’s Bank: If the bank is involved in the payment, they would evaluate the invoice as
part of their document review.
The Buyer’s Bank: If the buyer’s bank is making the payment on behalf of the importer, they
would require an invoice as part of their document review.

The Insurance Company: The company that provides the marine cargo insurance for the
shipment may also require an invoice as part of their file.
The Shipper's Letter of Instruction

This document is completed by the shipper and includes all of the information necessary for
the freight forwarder or carrier to make transportation arrangements and complete the bill of
lading and other related documents. Like the shipper’s export declaration, the SLI does not leave
the United States. The shipper’s letter of instruction should include:
Shipper’s company name, address, phone, fax and contact name
Shipper employee identification number
Shipper reference numbers (bill of lading, invoice, purchase order, etc.)
Product information (description of goods, product quantity, number of packages, weight in
pounds, cubic feet, marks)
Consignee information
Notify party – Importer, Agent, Customs Broker
Product invoice value
Schedule B number
Freight and documentation billing information
Special instructions
Signature and date
Customs and Consular Invoices
Some countries require country-specific invoices that should be submitted along with the
exporter’s commercial invoice. A prime example of this is the “Canadian Customs Invoice” that is
required for shipments exceeding a specific Canadian dollar amount, currently at C$1600. Because
this amount and the exchange rates vary from time to time, you should check at the time of
shipment, or prepare the Canadian Customs Invoice as a matter of policy for each and every
shipment.

The Canadian government uses the more detailed information on the invoice to evaluate
trade relations, ports of import, statistical data and trends in business between the U.S. and Canada.
To review a Canadian Customs Invoice (CCI), including instructions for completing it, click here.
 A consular invoice could also be required along with the regular commercial invoice. The
consulate of the destination country often sells these documents, or they might be available through
your freight forwarder. The forwarder not only prepares and validates the consular invoice, but
also handles the courier delivery and pick-up of the documents with the consulate. Check with your
forwarder for an updated list of which countries require consular invoices or pre-shipment
inspections.

The consular invoice is used along with the other export documents by the consulate to
screen the transaction for fraud, and could be part of the pre-shipment inspection process many
developing countries use to verify the description and value of the shipment prior to export.

Customs fraud is a serious problem in the world. Many importers may ask the seller for a
“dummy” invoice at a much lower value to avoid paying the proper duty on the goods. This is not a
wise procedure to get involved in and can get an exporter into trouble if he/she is identified as a
party to defraud customs in another country.

Product Specific Documentation

Some food and agricultural products require product specific documentation certifying
their safety, purity and accordance with U.S. or foreign government regulations. The Foreign
Agricultural Service, FAS, has a portal for companies to access a variety of regulatory sites for food
products, which is a good place to start evaluating your document requirements in this area. These
rules need to be used in conjunction with the regulations at destination as well, and they all
recommend confirmation with the buyer or their customs broker in order to arrive at the correct
compliance prior to shipment. In this site, you will find the following:

U.S. Trade Restrictions: The list of trade restrictions that may require an export license
application. These rules may apply for embargoes of foreign countries, domestic shortages or other
reasons.

Shipper’s Export Declaration: This is the main document required by the U.S. government,
and is covered later in this section. The Bureau of the Census and International Trade
Administration uses it for compiling U.S. export statistics and it is also used by customs for export
control purposes.

USDA Food Safety Inspection Service:The FSIS includes the “Library of Export
Requirements” for products such as red meat and poultry.

Export permits for alcoholic beverages:The Bureau of Alcohol, Tobacco and Firearms, ATF,
requires a Wholesalers Basic Permit for any resale, domestic or foreign.

Food and Agricultural Regulations & Standards:The “FAIRS” reports, which were reviewed
in an earlier section, describe import requirements and contacts for assistance. These reports are
focused on consumer-ready products.

USDA/APHIS: The Animal and Plant Health Inspection Service provides inspection and
veterinary services for plants, meat, poultry, live animals and animal products to help ensure the
product meets foreign import requirements.

USDA National Organic Program:The NOP has information on export certificates and trade
issues for organic products.
 Seafood and Aquaculture: The Seafood Inspection Program offers information on import
requirements for seafood products.

Food and Drug Administration: The FDA issues export certificates for various products that
may have that requirement.

Certificates of Origin

The certificate of origin is used by a neutral third party to identify the origin of manufacture
of the good. The origin of manufacture, not the origin of export, is important to determine the
proper duties to be applied by customs at the 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. Shipments paid by letters of credit may
require one as mandated by the issuing bank. In this case, the certificate of origin will need to be
prepared exactly to the letter of credit requirements.

However, there are some specific requirements for certain countries. For example,
shipments to Canada and Mexico require a NAFTA Certificate of Origin for preferential duty
treatment under the NAFTA to apply. Chambers of Commerce and freight forwarders are not
allowed to prepare NAFTA Certificate of Origin on behalf of the exporter or producer who must self-
certify. The most frequently issued certificate of origin in the U.S. is the NAFTA, based on the
tremendous volume and value of goods crossing the North American borders each day.

NAFTA Certificate of Origin

Customs Form 434, or the NAFTA Certificate of Origin, as it is commonly known, is uniform
in all three countries and printed in Spanish, French and English. At the exporter’s discretion, it can
be completed in the language of the origin or destination country. Importers shall submit a
translation of the certificate to their own customs administration when requested. An
understanding of the Harmonized System (HS) and the NAFTA Rules of Origin are imperative for an
exporter to legally and correctly prepare the documents. The HS number for each product needs to
be placed on the NAFTA Certificate of Origin. This document must be completed and signed by the
manufacturer of or the exporter of the goods. Where the exporter is not the producer of the goods,
the exporter may complete the certificate on the basis of:

A completed and signed Certificate of Origin for the good voluntarily provided to the
exporting company by the producer.

Where no claim for preferential tariff treatment is made at the time of the importation, your
buyer may request preferential tariff treatment no later than one year after the date on which the
goods were imported, provided a valid certificate of origin is obtained and presented. If the
certificate is not presented at the point of import, the most-favored nation (MFN) tariff will apply.
MFN rates are reserved for members of the WTO, World Trade Organization, of which the North
American countries are members. If the product does not qualify for NAFTA tariff preference, the
certificate should not be submitted. In this case the product is subject to the MFN tariff rate. The
completed NAFTA Certificate of Origin certifies that the product meets the NAFTA Rules of Origin.

A certificate of origin may cover a single importation of goods or multiple importations of

identical goods. The NAFTA defines identical goods as “goods that are the same in all respects,
including physical characteristics, quality and reputation, irrespective of minor differences in
appearance and that are not relevant to the determination of origin of those goods under the
NAFTA Rules of Origin. Certificates that cover multiple shipments are called blanket certificates and
may apply to goods imported within any twelve-month period on the certificate.

A NAFTA Certificate of Origin is not required for shipments to Mexico or Canada. The
exporter should only prepare a NAFTA Certificate if the product qualifies for preferential tariff
treatment under the NAFTA rules of origin.

A NAFTA Certificate of Origin is not required for the commercial importation of a good
valued at less than US$1,000. However, for goods to qualify for NAFTA preferential duties, the
invoice accompanying the commercial importation must include a statement certifying that they
qualify as originating goods under the NAFTA rules of origin. The statement should be handwritten,
stamped, typed on or attached to the commercial invoice.

In order to review a NAFTA Certificate of Origin, including the instructions on how to

complete it, click here.

In order to review the NAFTA Rules of Origin, the interactive website for completing the
Certificate of Origin, click here.

The Shipper's Export Declaration

The shipper’s export declaration is required on shipments valued greater than $2,500 (per
Schedule B number) or shipments, regardless of value, of goods requiring permission from the U.S.
government to sell outside the U.S. (i.e. export licenses), and shipment to certain countries
regardless of value. The lone exception to the requirement is for exports to Canada that are not on
an export license and terminating there. The U.S. obtains its export data for Canada from Canadian
Customs.The export declaration is a form designed and approved by the Bureau of Census, and is
used to collect census information regarding exports.

This document goes by multiple names. Customs Form 7525-V is the technical name, but it
is also known as the “SED,” “EX-DEC,” or Shipper’s Export Declaration. It can be prepared by the
international freight forwarder handling your shipment and submitted electronically prior to
export. This is a legal record of the shipment and a copy of the SED should be placed in the
shipment file. You can obtain a copy from the forwarder, or save your own if you complete it
yourself. In order to review the export declaration,

Starting October 1, 2008, the Census Bureau requires mandatory filing of export
information through the Automated Export System (AES) or through the AESDirect for all
shipments where a paper Shipper’s Export Declaration is required. Penalties may be imposed per
violation from $1,100 to $10,000—both civil and criminal—for the delayed filing, failure to file,
false filing of export information, and/or using the AES to further any illegal activity. Also, all AES
filers will face new filing dead lines by mode of transportation for reporting export information.

For many filers, one option may be to use AESDirect, the free Internet filing alternative
available at their website (www.aesdirect.gov) At that site, you can also download their AESPcLink
software, which is a standalone version of AESDirect. Other options include purchasing customized
software from a certified software vendor, or developing your own in-house software application.
You may file to the AES from a Value-Added Network (VAN), through a service center, or you may
authorize an agent to file on your behalf. The cost of the software and equipment will be
proportional to the sophistication of the system you choose.
 The Bill of Lading

A bill of lading is a contract of carriage between an exporter and a service provider, such as
an airline, steamship line, freight forwarder or shipping company. It 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 destination of the bill of lading are
usually for the “main carriage.” This is usually the transportation from the port of export to the port
of importation. Trucking services may also provide bills of lading for export, if they are leaving
under that mode of transport.

The International Air Waybill

The air waybill is the contract for carriage (bill of lading) for shipments made by airfreight.
The air waybill is normally issued by a freight forwarder acting as the agent for the airline who
transports the goods, or an airfreight consolidator, who may use the airline to transport the goods
of several companies under its own master bill of lading. The airline air waybill is known as the
“master air waybill” or “Mawb.” If your shipment is consolidated with other cargo, the forwarder
will issue his “house” air waybill. The house bills are then consolidated into the master air waybill.

The most important things to know about the air waybill are:

If you consign the air waybill directly to the buyer in the foreign country, the buyer can
clear the goods immediately upon arrival at the destination port. If the air waybill is consigned to a
third party (normally the buyer’s bank), you can control possession of the goods until the buyer
pays or signs a promissory note, or time draft, to pay at a later date.

Options for declared value for carriage are best discussed with the freight forwarder who is
handling your shipment. A minimum cost per kilo will be charged based on either weight or
volume, depending on the density of the cargo. (Density is calculated as the amount of pounds per
cubic foot. The higher the density usually means more attractive pricing for the shipment.)

International Ocean Bill of Lading

The ocean bill of lading is the contract for carriage, or bill of lading, for shipments made by
ocean freight. The ocean bill of lading is normally issued by a freight forwarder acting as the agent
for the ocean carrier who transports the goods, or by an ocean freight consolidator, who will use
the ocean carrier to transport the goods of several companies under its own master bill of lading.
The most important points regarding the ocean bill of lading are:

If you consign the ocean bill of lading directly to the buyer in the foreign country, the buyer
can clear the goods immediately upon arrival at the destination port.

If you consign the ocean bill of lading “to the order of the shipper,” you can control the title
or possession of the goods until the buyer pays or signs a promissory note to pay at a later date. A
“To Order” bill of lading makes the document negotiable, as it also includes an endorsement on the
back by the shipper or their agent. This is quite similar to your paycheck or the checks you write,
which say “To the order of” instead of “To”. Negotiable bills of lading, when signed, represent
ownership of the goods and need to be protected from any other party obtaining them other than as
directed by the shipper.
 The carrier’s liability and where the liability begins. For example, if the carrier picks the
goods up from the exporter’s dock, the ocean carrier’s liability for loss or damage will be limited by
the amount of liability stated in the ocean bill of lading.

If less than a container load, LCL, shipment, and the charges will be based on either weight
or volume depending on the density of the cargo. The carrier will charge the higher of the two costs.

Differences between Air Waybills and Ocean Bills of Lading

The primary difference between the air waybills and ocean bills of lading (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, gives the
document a distinct value. If you consign a bill of lading to the buyer directly, you have in a sense
turned title to the goods over to them, which is not advisable unless you have been paid already or
have assurance you will be paid. A negotiable 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 not 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 rather limited transit time. There is no time to transfer the
title between parties in the limited amount of time it takes for the goods to arrive.

The Packing List

The packing list is used by customs to apply certain types of duties, and is a required
document for customs clearance. Most duties are applied on a basis of value, known as “Ad
Valorem” duties, and the commercial invoice is key for those. There are also two other types of
duties applied to imports; specific and compound. Specific duties require the packing list as they
are applied on the physical nature of the goods, such as their pieces, weight or measure and this
information comes from the packing list. Compound duties are applied as both Ad Valorem and
Specific tariffs together and thus both the commercial invoice and packing list would be required
for customs clearance.

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 (example: 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 customers to confuse your
commercial invoice and packing list, as they may consider your document package to be
incomplete. It is recommended to create your commercial invoice in portrait form and your packing
list in landscape form to clearly point out the differences.
 The export packing list is considerably more detailed and informative than a standard
domestic packing list. An export packing list itemizes the material in each individual package and
indicates the type of package—box, crate, drum, carton, etc. It shows the individual net, legal, tare
and gross weights and measurements for each package (in both imperial and metric units).

Package markings should be shown along with the shippers and buyer’s references. The
packing list should either be included in or attached to the outside of the package in a waterproof
envelope marked “packing list enclosed.” The shipper or forwarding agent to ascertain the total
weight and volume in addition to determining whether the correct cargo is being shipped uses the
list.

The average international shipment involves 46 separate documents. The specific

documents required for any given shipment depend on U.S. Government regulations, the importing
country’s regulations, the importer’s requirements, terms of sale, method of payment and mode of
transportation.

Slight discrepancies or omissions in documentation may prevent goods from being

exported, may result in the shipper not getting paid or may even result in seizure of the goods by
customs agents. Completion of much of the documentation is routine for freight forwarders or
customs brokers, but the exporter is ultimately responsible for the accuracy of the documentation.
As such, documentation becomes a crucial function of the export process.

Introduction: The Four "P"s of Marketing

This section examines the marketing mix, or the “Four P’s” of marketing: Product, Price, Placement
and Promotion.
Once a company has researched an export market, it needs to consider the marketing mix for its
products. The marketing mix is the set of choices a company offers to its target markets. It is a tool
that can be adjusted to meet each customer’s or country’s needs.

An effective marketing mix also includes market segmentation, targeting and positioning the
product for competitive advantage. These marketing concepts are outlined toward the end of the
section. Proper execution of these procedures requires quality research and consultation from
export assistance providers, export service providers and customers in the foreign market.

The Marketing Mix

The Marketing mix and the 4 P’s are the controllable elements of business. In other words, a
company has control over what product it makes, what price it sells the product for, how it wishes
to place (distribute) the product and how it wishes to promote it.

A company may need to adjust its marketing mix for each individual market due to the
uncontrollable elements. Uncontrollable elements include geography, infrastructure, culture,
technology, politics, laws and competition.

The 4 P’s and the 4 C’s: the Importer’s Perspective

An importer is most concerned about the 4C’s: Customer solution, customer Cost, Convenience and
Communication. The 4 C’s emphasize customer needs and wants over just trying to sell products.
Below is a comparison of the 4 P’s and the 4 C’s from the importer’s perspective.
  Product as “Customer Solution”
 Price as “Customer Cost”
 Place as “Convenience”
Promotion as “Communication”
The exporter’s goal is to sell a product; the importer’s goal is to provide a solution for his/her
customers. For either party to succeed, both must consider the total cost of shipping, insurance,
customs clearance, duties, delivery fees and their own costs of business. Importers want the
product to be handled, shipped and delivered to them as conveniently as possible. An importer also
desires good communication in regards to product availability, transit times, problem-solving and
marketing support.

Product Basics

Each product contains a set of attributes. Included in the attributes is customer service, which is
used to support business relationships. Although the sale is about the product, purchase decisions
are also based on your ability to add value to the transaction. Exporters who are reliable,
supportive, helpful in financing promotional materials and activities and good communicators often
add to the company’s export success.

Stressing a product’s comparative advantage is essential to make a sale. With so many products to
choose from, you must convince a buyer why yours is the best. Is your product healthy, nutritious,
organic, shelf-stable, ready-to-eat, high in protein, low in carbohydrates, or great for dipping in
sauce? Emphasize features as selling points.

Next, consider if any changes should be made to the product before selling internationally. Are any
label modifications required? Are the product packaging, size, color and name of the product
appropriate? Considering these and other attributes are essential to positioning your product in a
market.

Product analysis includes:

 Quality
 Features
 Brand Name
 Packaging
 Labeling
 Product Assortment
 Product Length & Depth
Quality
Quality is the most important feature of a product, and is defined by the customer. Promoting and
communicating product quality is imperative. An exporter often needs to educate the buyer and the
market about a product’s inherent quality.

Features

Food features differ from other product categories. Ingredients make up a food and can be an area
of competitive advantage. The way food is processed is also an important feature. A manufacturer’s
care, creativity and technical skills can make up other important product features.

Brand Name
Successful branding of a product is a distinctive marketing skill. Branding includes creating,
maintaining, protecting and enhancing the identity of a good to differentiate against the
competition. A product’s brand is a combination of symbolic design, name, term or sign that gives
the product a unique position within the market. The brand often influences customer perception
and purchasing decisions.

Packaging

A product’s design and container or wrapper is its packaging. Packaging is closely connected with
the design and style of the product. An importer understands the packaging’s importance, and
might choose one product over another based upon it. A trade event in Singapore involved a
tabletop display of over 60 U.S. food products and hosted buyers from a variety of chains and
wholesalers within Southeast Asia. The primary research conducted at the event sent a clear
message to these exporters. Although many products themselves were tasty, attractive and
interesting, the packaging oftentimes left a lot to be desired. Most packages were considered to be
designed poorly or could not withstand the long journey to Southeast Asia.

Packaging needs to be both attractive and durable. An exporter should also consider packing
options, which better protect the product and the product’s packaging.

Labeling

Proper labeling is both a science and an art. Labels contain several key components. First, the
design and artwork of the package is oftentimes part of the label. Label information should include:
brand and product name, the origin and date of manufacture, a list of contents and ingredients,
applicable nutritional and health claims, as well as proper use and shelf life.

Many countries have very specific labeling regulations, which are detailed in the USDA, Foreign
Agricultural Service's FAIRS reports. The importer should provide a final consultation and label
input, as he/she is the one who is subject to appropriate labeling and customs clearance.

Label modifications can be expensive. However, there are programs to help. The Branded Program
supports the expense involved in labeling changes to comply with import regulations.

Private Labeling

Private label is a brand created by a store or re-seller of another company’s products. Private
labeling in the international retail food industry has continued to grow in the past decade and
shows particular success in certain categories and countries. Private label products have become
competitive with brands, due to their lower cost and perhaps better shelf space allocation.

Many manufacturers have created their own private label for different market segments using
essentially the same product as the branded options. Private labeling has grown into its own
industry with its own trade events. Some trade shows are exclusively for private label products. In
addition, Food Export-Midwest and Food Export-Northeast arrange Buyers Missions each year for
private label products.

Product Assortment

Most small and medium-sized companies have some consistency in their assortment of products.
This means that they do not stray very far away from their core competency, such as making
sauces, condiments or salad dressings. These products are grouped closely together in the same
subheading in the harmonized system.

This is a benefit, as many buyers are interested in working with a firm that specializes in certain
types of products. Many buyers believe that a small company sacrifices quality if their product line
is too large. It is good to have product mix consistency, which is to say, not too wide of an
assortment of products to market.

Length & Depth

Product length and depth are important considerations in product assortment. Moderate length
strengthens export opportunities, as it often refers to available product flavors. For example, having
twelve flavors of margarita mixes allows a potential buyer to make choices on which products they
are interested in distributing. In international trade, providing choices allows for customers to try
new flavors or stay with the ones they are already familiar with.

The number of versions available for a product is referred to as product line depth. Product depth
usually refers to the different sizes a product is available in. Many countries prefer small product
sizes due to limited store shelf space and smaller storage spaces in customer homes. Appropriate
portion sizes also differ among countries, especially when compared to the U.S. During a retail store
tour in the U.S., an international buyer referred to a 32 oz. bottle of soda as “family size.”

Pricing Basics

Firms relatively new to exporting should aim to keep their pricing simple. What is commonly
referred to as the cost-plus method of pricing may not be too different than how a company prices
their products domestically. In fact, domestic pricing for many companies that have been in
business some time include discounts, commissions, broker fees and other allowances that are
more complicated than export pricing. Try to be as competitive as possible to gain market share,
and remember that the importer has a variety of costs to deal with that you do not.

Experienced importers have a good idea about what the market price for a product should be and
will let you know what is required to establish distribution. If they ask for pricing considerations
from you, it often does not mean your price is too high, but that their cost is too high. If both you
and the importer agree that the business has potential, there are ways to deal with the price
escalation of export. If your pricing cannot match the importer’s needs or the market conditions,
then continue trying other importers in other markets. Each transaction will provide a valuable
lesson in export pricing.

 Pricing Variables
 Export Price Escalation
 Discounts
 Payment Period
 Payment Terms
 Use of the Pro forma Invoice
Export Price Escalation
Export pricing from your facility to the ultimate destination is usually segmented into three main
parts:
Shipping within the United States to the port of export. This is commonly referred to as inland
transportation or “pre main-carriage” transport. The further your facility is from the port of export,
the more expensive shipping becomes.
Shipping from the port of export to the port of import. This is also referred to as “main carriage”
and is usually listed as the origin and destination on the shipping documents. The main carriage is
usually the longest leg of the journey, although there are exceptions.

Shipping from the port of import to the ultimate destination. This is referred to as “post main-
carriage” and involves the expenses of getting a product from the port to the importer’s warehouse
or end use location.

Every step requires organization, documentation and a logistical plan. Each function may vary
between country of destination and type of buyer. As mentioned previously there are service
providers that specialize in the process, such as international freight forwarders, consolidators,
customs brokers and shipping companies.

Discounts

As price escalation between your warehouse and the ultimate destination can cost the importer
more than the domestic buyer, the importer may request some form of discount off of your regular
price. Many considerations go into discounting sales. However, the worth of the sale to the company
in terms of volume, value, profit and long-term business should all be taken into consideration.
Discount options could include:

Cash discount: Many businesses offer cash discounts to their customers in order to fuel demand of
the products over a given period of time. Another type of discount could be offered for early
payments, such as one percent per week prior to the invoice coming due.

Quantity discount: This is often used in the export business, and reduces price based on volume. For
example, an exporter offers a product for $17.00 per carton of 12 boxes of product, under 100
boxes. The price could be reduced to $16.00 for amounts between 101-499 boxes; $15.00 for
amounts between 500-999 and so on. It gives the importer an incentive to purchase more and
increases sales for the seller.

Seasonal discount: Many foods and ingredients are produced in seasonal cycles. Sometimes, it
makes sense to offer an off-season discount to the importer to make sure products move in the
periods when consumption might be down.

An allowance might also be considered. An allowance may be promotional support for distributors
or retailers who specially feature your products. The Branded Program provides cost sharing in
many types of promotional activities, and is of great benefit to many small businesses in developing
export markets for their products.

Payment Period

Export payments may usually take longer than the domestic equivalent sale. As a result, prices
should be designed to recover the cost of capital during a lengthy open account sale. For example, if
it would cost a company $300.00 to finance an open account sale of 90 days, it is a good idea to
include that cost in the pricing to absorb the loss. If the importer agrees to pay 50% of the invoice in
advance, you could reduce the equivalent amount of the cost of financing.

Payment Terms

If open account sales are not an option for one or both parties, the use of a consignment controlled
payment is an option. This payment method is also referred to as payment by documentary
collection, or draft, either at sight or on a time basis. It restricts access of the commercial
documents prepared for the shipment, which are required to take title of the goods at the
destination. The documents are only released to the buyer when payment has been made (sight
draft) or when an endorsement of the draft obligates them to make payment within a given time
frame (time draft).

Letters of Credit (which also make use of a draft), documentary collections (payment by draft only)
and cash against documents help protect both the seller and the buyer in the transaction as their
banks become directly involved. When using these methods a variety of banking fees must be paid
by both parties. Many exporters include those fees in their price to absorb the costs of financing the
exports.

Use of the Pro forma Invoice

Most export prices are quoted via the use of a pro forma invoice, which is essentially a quotation to
the buyer for a particular shipment. In actuality, it becomes the first draft of the commercial invoice,
the key document in the export business. Many importers request pro forma invoices on a
consistent basis, and most successful exporters have become skilled at issuing them.

The Pro forma invoice includes information about the product’s value, metric weight and
dimensions, costs for inland transport, main carriage and insurance, if requested by the importer.
International freight forwarders and other shipping companies can provide advice on export
pricing and rates for these services. Some countries require the pro forma invoice for the issuance
of import permits and financing at the destination, which makes them formal and non-negotiable
once accepted. For a sample pro forma invoice, click to view the document.

Placement (Distribution) Basics

Export distribution can be broken into three steps. During the first step, products leave the factory
or pick-up location and are taken to the port of export. Next, the shipment leaves the port of export
and arrives at the port of import. Finally, the product moves from the port of import to the ultimate
destination for storage, sale or use. More than one service provider is usually required to perform
all of these functions, and because of the distance, paperwork and cost it is very important for all of
these functions to work together in a seamless fashion, at least from the eye of the exporter and
importer.

Placement Considerations
Distribution Channels
Indirect vs. Direct Exporting – Who Owns the Goods?
Exporting Logistics
Intermodal Transportation
Consolidations
Exclusive Distribution
Export Diversion
Distribution Channels
Channels of distribution vary greatly from one market to the next. For example, distribution
channels in Japan are vastly different from those in Mexico or India. One of the major
considerations of distribution concerns the length of the channel. The length of a channel refers to
the number of intermediaries in the chain, all of whom are seeking a profit. The longer the channel,
the more expensive the product is at the retail level. Thus, a shorter channel costs less and delivers
the goods to market more quickly.

Indirect vs. Direct Exporting: Who Owns the Goods?

Many U.S. companies specialize in exporting products for others and do not produce any goods
themselves. These companies may be called: Export Management Companies, Export Trading
Companies, Export Merchants or Buying Offices from overseas firms. Regardless of the name, if you
sell to another firm and they export your product, you are exporting indirectly, as you have given
up title to the goods. Indirect exporting is a common way for small and medium-sized businesses to
enter into foreign markets, as it requires little in the way of capital, time and staff compared to
exporting directly. After some time and experience in the field of international trade, many
companies begin to develop their own export business, often in other markets than the ones served
by the exporting company.

In direct exporting, a company retains title to the goods until it is transferred to the buyer. Direct
exporting involves setting up your own export operations and requires a long-term commitment,
direct contact with buyers and increased cost and risk. However, it gives a company greater control
over their export marketing. In addition, it is often more profitable than indirect exporting as at
least one level of distribution is eliminated and the final cost of goods is lowered.

Exporting Logistics

Logistics includes all of the activities in moving merchandise from the origin of manufacture to the
point of use or consumption. Export logistics include getting the right amount of product to
customers within the required time frame at a cost that leaves a margin of profit for both parties.
Recent estimates indicate that logistics in trade account for 15% of the total volume, or $1.5 trillion
annually. Therefore, controlling logistical costs should be a priority and can result in more profit for
the exporter.

Physical distribution has evolved in recent years and has become a competitive advantage for U.S.
Exporters. Many firms refer to their distribution systems as “marketing logistics” instead of just
“shipping.”

Importers are more concerned about the landed cost of a product than of the individual product
price. An exporter’s ability to provide logistical solutions to help lower the landed cost influences
that company’s ability to be competitive.

While it is important to remain cost-competitive, choosing transportation on price alone is not

advised. The cheapest method of transportation is usually not the best, and it is often risky to save a
few cents by selecting an unknown logistics service provider or carrier. If goods are misrouted, lost
or not properly serviced, future business could be lost. A savvy exporter will look for savings at
each step beginning with the method of packing goods for shipment and ending at product delivery,
without sacrificing the quality of shipment. When an exporter can add value to the transaction,
he/she always should.

Intermodal Transportation
Many exports are shipped by intermodal transport, which is the use of two or more modes of
transport between origin and destination. The further a product has to be shipped, the more likely
it will require intermodal transportation. Many shipments are picked up by local trucking firm,
transferred to another truck for the interstate haul, loaded onto a container at a port and then
loaded onto a vessel for export. After arriving at the port of import, the shipment may then be
offloaded onto a train, a truck or another vessel prior to its arrival at the ultimate destination.
When choosing a transportation mode for products, the buyer’s needs should be weighed. Transit
time, level of service, availability of choices and cost are all considerations which factor into a
decision. Air cargo can be expensive, but the goods arrive within days rather than weeks. Live,
fresh, chilled or frozen products with high value often warrant the extra cost of transportation.
However, if the value is lower and there is not an urgent need for the product, then ocean freight
would be a likely choice. In other markets, such as Canada and Mexico, truck or rail may be a
suitable option.

Consolidations

Many food importers consolidate their shipments, which means that they request the exporter to
deliver the shipment to the warehouse of a freight forwarder, NVOCC (non-vessel operating
common carrier), or other consolidator. This company then builds a consolidation of multiple
suppliers’ products into an air or ocean container and ships it to the port of import. By
consolidating, the importer saves in freight charges, customs clearance fees and protects the
integrity of shipments by having everything arrive in one lot rather than in partial shipments.

Even if the importer does not request consolidations, consider using a consolidator for your exports
if they are less than a container load. In some cases, the buyer may not have enough orders to have
their own consolidation and may ask you to include your shipment into a consolidation which
arrives at port with multiple other importers’ products.

Exclusive Distribution It can work to the benefit of both the buyer and seller to enter into an
exclusive distribution agreement. If an importer is truly excited about marketing a product in their
country, they will often request the legal right to be the only one to do so. For an exporter, giving
exclusive rights to the right partner can give his/her brand the best chance of gaining identity and
market share.

Make sure the potential distributor has the proper network, sales support, promotional capabilities
and customer base. If this cannot be determined, then a decision should not be made until sufficient
information is gathered. Granting exclusive rights to an unqualified or unmotivated distributor can
severely hinder your efforts in a market.

One key consideration regarding exclusivity is coverage. In some countries, most of the market may
be within the coverage area of one distributor. In places like Canada, Mexico or Australia, there are
multiple markets that are geographically spread apart and adequate coverage might not be possible
with one partner. In these countries, you might choose more than one distributor and limit the
exclusivity to a certain territory that can be properly managed by each one.

Export Diversion

Despite the channel, mode of distribution or type of distributor you work with, your exports could
be compromised by diversion. Simply put, diversion occurs when your shipments do not reach the
stated destination and are sent elsewhere without your knowledge. Diversion usually occurs when
you have negotiated a special export price, based on the fact you are free from most domestic
equivalent costs like commissions, broker fees and rebates. The goods are picked up from your
facility on behalf of the buyer, who then resells them to another U.S. customer and they are in turn
sold below your domestic price.
Protect yourself with a written agreement forbidding the buyer from diverting product from the
intended destination and placing destination control statements on your commercial documents,
cartons, or other packaging. If goods leave the country and are returned and sold without your
knowledge, or never leave the country at all, it becomes an illegal transaction based upon your
written agreement and destination control statements. To further prevent diversion and other
unethical practices, check a buyer’s credibility through bank and trade references before
conducting business.

Example of a Destination Control Statement:

"These commodities were exported from the United States in accordance with the export
administration regulations for the ultimate destination of the United Arab Emirates. Diversion
contrary to U.S. law is prohibited."

Promotion Basics
Promotions explain the merits of a product and its company and are oftentimes referred to as
communications. Products that require significant promotion in the U.S. may find a similar need in
international markets.
Promotion Variables

 Advertising
 Sales promotion
 Public relations
 Personal selling
 Direct marketing
Website for Export – “E-Marketing”
Together, these elements make up the promotional mix. In the export business, a company may find
that one or more components of the promotional mix may vary in effectiveness based on the
market, the buyer or the product being sold. When used at the same time, they are collectively
known as “Integrated Marketing Communications", or IMC. It is helpful to take advantage of as
many promotions as possible to grow a brand overseas. If a company does not have direct overseas
communications, it should work with the importer to establish effective promotions.

Advertising

Advertising is known as any paid form of non-personal presentation and promotion of goods. While
a small business exporter might not ever get involved in advertising internationally, the
opportunity to do so is increasing with new media and lower costs in specific targeted markets.

If the proper opportunity to advertise does occur, it should be considered. In many cases
advertising can be used to find potential distributors. Some targeted magazines are distributed
overseas by federal government agencies for the purpose of bringing exported products to a
market.

It is possible to maintain your domestic theme in international advertisements, and in some cases,
preferred by the importer as well. It is imperative to have the message translated properly though,
if the destination market does not use English, and in some cases even if it does use English.
Interpretation of the message is most important, especially as most advertising has a humorous
angle, and humor is often the most difficult aspect of language to interpret.

Examples of creative international advertising include:

A popcorn company targeted children by advertising their products alongside a new children’s
movie. Placemats were made for restaurants that had fun and games for the children with popcorn
and movie images.
A honey company hired a local in Greece to paint its car with the company’s logo and information.
Their products were promoted all over town at a minimal cost.

One innovative company used product placement in key British soap operas to get their products
into the living rooms of consumers. Their products could be seen in these fictitious supermarkets
and convenience stores throughout prime time viewing hours.

Sales Promotions

Sales promotions are described as short-term incentives that encourage the purchase of a product
within a given time frame. The use of coupons, cents-off, contests, premiums and other deals may
be restricted in overseas markets, and are not nearly as common as they are in the United States.
However, promotions can be a strategy used by your importer, who owns the goods and can decide
how and when to promote a product.

Many promotions are designed to stimulate immediate sales. Some effective methods include:
tastings, samplings and other similar events. Export assistance providers are often involved in
overseas food promotional events, which may also qualify for Branded cost sharing.

Many international sales promotions can be found in grocery stores. In-store demonstrations with
product giveaways and cooking demonstrations are popular along with end-of-aisle gondolas that
highlight new products. Some companies even give away recipe cards as an incentive to buy the
product if it’s an item consumers may not be familiar with.

Public Relations (PR)

Public Relations are based on obtaining favorable publicity and building up a good image as a
“corporate citizen.” Public relations often make more of an impact than advertising. This is in part
because they are true and believable. They are also an effective and economical way to create
awareness about your products, your company and in some cases, yourself. Many small and
medium-sized companies have effective public relations in place, even if that is not how they refer
to them.

For example, many small farms, ranches, dairies and breweries have tours available for groups
interested in learning about the operations. They also have shops on-site which sell their food
products and other gift items such as hats, glasses, aprons and so on. Gift items often become a form
of subtle advertisement. Many other firms donate proceeds to various charities, are involved in
environmental issues, support local sports teams and provide food to the homeless and poor. These
all make an impression on buyers as well as their customers. Displaying PR projects on a company
website is a great way to develop a positive public image.

Personal Selling

Personal selling can pose a challenge with international customers. Cold calling distributor lists is
less efficient than a properly set meeting such as a Buyers Mission, Trade Mission or meeting at a
domestic or overseas trade show. However, it is important to note that many importers listed in the
marketing reports outlined in Section 2 are aware they have been included in those reports and
have requested to be included in order to be introduced to new suppliers. Food Export-Midwest
and Food Export-Northeast also offer an online product catalog that has been customized to match
buyer needs with registered companies’ products. Click here to learn more about the Online
Product Catalog.

Personal selling is subject to “Culture’s Consequences.” In the U.S., we are used to being approached
by strangers who would like to sell a product or service. But, in many countries this is not common
or acceptable. Many cultures have distinctly different approaches to doing business, including both
verbal and non-verbal communications, negotiations, thinking and decision-making processes.
Before meeting with a potential buyer, learn about various business cultures of that country.
Prepare yourself in advance by becoming familiar with their habits, as you can bet they are
prepared to deal with U.S. businesses. And finally, try not to sell. Instead, focus on establishing a
relationship and communicating why it makes sense for you to do business together.

Direct Marketing

Direct marketing involves carefully targeting existing or potential customers by a variety of media
including telephone, fax, e-mail, the internet or direct mailing in order to cultivate or maintain
business relationships. It is difficult in the export trade, as it is not directly aimed at consumers, but
at businesses. Direct marketing is most effective if you have actually met with or communicated
with the targeted business before. It is also used to introduce yourself and your company or to
create awareness about your products and international trade intentions.

Continued communications with those you have met at a buyers’ mission, trade show, through a
trade lead or even via your website can demonstrate commitment and create a good impression.
Information on new products and recipes, market developments, a booth or attendance at a trade
event, or even moving to a new location could spark an interest in the buyer, and often might put
your company in the right place at the right time.

Websites for Export – E-Marketing

Internet advancements have given small and medium-sized firms a boost and have allowed many to
expand their business internationally. Many of the promotional concepts presented in this section
can be achieved through a carefully designed website. E-Marketing can provide a low cost
implementation of an export strategy.

It is highly recommended that your website includes an international section where potential
importers can learn about your products and your company. Many food importers have indicated
that they often try and locate new suppliers via the internet, but are puzzled at the lack of mention
of trade opportunities, and refrain from contact in order to focus on firms who indicate direct
experience or interest in exporting.

A clearly defined mention of “International Inquiries Welcome” along with a specially designated
area to describe your exporting policies and procedures and a pricing list for export gives your
company a competitive advantage. Companies can also incorporate their own trade lead form to
collect buyer data and interests. Literally hundreds of food and agricultural product firms are
establishing export business through their websites today; so if your company is not yet doing so,
you should consider adding yours to that proactive group.

Market Segmentation, Targeting & Positioning

Once your top markets have been identified through market research, each market should be
segmented, targeted and positioned properly for overall export success. This process helps a
company to focus on those clients or market segments that offer the most potential, rather than
using a de-segmented marketing approach.

Market segmentation, target marketing and market positioning are integral components to a
successful marketing plan. Market segmentation involves separating markets into distinct groups
with defined needs, wants and demands. Target marketing requires the firm to rank and select
target segments based upon overall sales potential. Market positioning involves communicating a
consistent message about your products in order to differentiate them from those of the
competition.

Market Segmentation

In order to segment a market, it must be divided into separate groups which have distinct needs
and characteristics. Each segment may hold potential for different products or require a separate
marketing mix.

There are many ways to segment markets, especially in export marketing. Below are a few
segments that will be discussed in more detail throughout the section:

 Geographic Segmentation
 Demographic Segmentation
 Psychographic Segmentation
 Global Market Segmentation
Geographic Segmentation
Geographic segmentation divides markets into different groups based on regions, countries or even
regions within countries. For example, the “North American” market could include the United
States, Canada and Mexico. However, Mexico could also be segmented into the “Latin American”
market.

Other geographic segments throughout the world might include:

Western Europe
Central Europe
Pacific Rim
Asia
Southeast Asia
Middle East
Caribbean
These regions are too large to be target markets, but they are regions where targets might be
located. Within each segment there are differences in population density, climate and purchasing
power which will help you to further refine your target.
Demographic Segmentation

Demography is the study of people, and is an important variable in market segmentation. If you
have a good idea about whom your customers are in the domestic market, it makes sense to try and
locate them in other areas of the world. The following is a list of some common demographic
segments.

Age – Children, teenagers, young adults, adults, middle-aged, elderly

Gender – Male or female
Family Size – Ranging from single to 5+
Family life cycle – Young, single, married, kids, empty-nest or older
Income – Under $10,000 to beyond $100,000
Education – Grade school, high school, college, graduates
Nationality – Any individual within a country or different nationalities within countries
The variables depend on types of products you are marketing and your current customers. From
this list you might target single women who are college graduates and in a profession that leaves
them little time to prepare meals; or, you may choose to target high-income families with more than
five kids. In both cases, you are not limited to any specific geographic segment, but to
demographics. Because many demographic traits are universal, you can often target the same
“types” of people with success no matter where they live.
Psychographic Segmentation

People in the same demographic may have different social classes, lifestyles and personalities.
Psychographic segmentation divides markets by how individuals feel about themselves, their
aspirations and goals in life. Marketing is often described as creating a “psychic bond” with
customers and making them feel good about buying your products.

For example, many customers around the world are interested in U.S. products that represent the
“American West” for its sense of freedom, adventure and open space. A company based in South
Dakota has used this fact to gain a foothold in the Japanese market. The company exports gourmet
mustard to customers in Japan who not only use the product, but collect the decorative jars as a
prized possession of Americana. This might also be considered a form of “benefit” segmentation,
where there is a distinct social advantage to using an imported product that is unique in content as
well as packaging.

Another type of segmentation is by occasion, such as a particular holiday or event that might
increase the use of a certain type of food. For example, exports of kosher food always increase in
advance of the Jewish Holy Days.

Global Market Segmentation

Global consumers often have similar needs and purchasing behaviors despite their geographic
location. Many consumer-oriented food exports are global in scope. Just as you might find some U.S.
states to have strong sales; very similar markets can be found across the globe. Many customers
have comparable tastes, regardless of language, culture, economics or politics. This is also referred
to as “Intermarket Segmentation”.

Market Targeting

With proper segment profiles, a company may begin the process of evaluating each market and
choosing one or several markets to enter into. Consumers in similar segments with common needs
and characteristics can then been separated into the initial target markets.

In order to determine which target markets to begin with, a set of factors for evaluation should be
set. These factors include market segment size and growth and overall attractiveness of the market.
Each factor should be evaluated based on your company’s goals, capabilities and resources.

Market segment size & growth: The right size and market growth rate are unique to each exporter.
The best market is not always the largest one.
Overall attractiveness: Market research should provide a good idea about how competitive a
market is for products like yours or potential substitutes to yours, as well as price sensitivity for
distributors and consumers.

Company goals, capabilities and resources: Consider your own goals and objectives against your
company’s ability to provide marketing support.

Market Positioning

When introducing a product into a market, it is important to consistently relay its attributes to
potential customers. Your message should provide a clear and distinct advantage of choosing your
product over the competitions’.

“Positioning” the product is an important component of the promotional mix. Positioning begins
with identifying where your products have a comparative advantage. In the business of food export,
the comparative advantage sought is often on innovation, quality and value. A product’s position
needs to have a relative advantage to be chosen over other products, and needs to be seen as
distinct and superior. Products should produce profit for the importer while remaining affordable
for the consumer.

The recipe for Market Positioning success includes: an appropriate business partner, export
assistance agencies and support and long-term commitment from the company’s management.