International BusinessTransport riskProfessor: Marc Arza email@example.com
1. Transport riskTransport plays a key role in internationalbusiness. International trade is always defined bylonger and more complicated transport that trade ata national level. Lost goods, damaged goods,delayed shipments and other specific risks are highwhen talking about international transport andinternational trade involves a set of practices anddocuments directed to reducing these risks.
2. IncotermsIncoterms: are a set of internationally agreed transport terms that clearly clarifybuyer/seller transport responsability (Who does what. Who pays what. Who takesresponsability for damaged/lost goods at any given stage in between shipment anddelivery).International Commercial Terms: - Set or rules about intl trade terms - Standard agreed global rules - Clarify buyer & seller obligations - Functions / costs / risks - Incoterms 2000 (mentioning year)
2. IncotermsIncoterms are split into four distinct groups:Group E - where the goods are made available to the buyer at the sellers premisesGroup F - where the seller must deliver the goods to a carrier appointed by the buyerGroup C - where the seller must contract for the carriage of the goods without assumingriskof loss of, or damage to the goods or additional cost due to events occurring aftershipmentGroup D - where the seller has to bear all costs and risks required to bring the goods tothe place of destination.
CASE Found at Alibaba.com:Medalta Potteries (2000) Ltd. ("Medalta") manufactures ceramic pottery dishes(tableware). Medalta was started by a relative of the original Medicine Hat potterycompany, created in 1912. This original company, along with other ceramic companies,caused Medicine Hat’s economy to thrive in the early 1900’s. Medalta has had success inthe dishware market in Canada, with many department stores and other retail chainscarrying its product. One of the important reasons for its popularity is the unique,proprietary glaze applied to the dishware, which uses dye some plants found uniquely inthe Medicine Hat region. Medalta’s CEO, Jeff Burns, has received expressions of interestfrom a European company, based in London, UK, Dishes Extraordinaire PLC to act asMedalta’s distributor throughout Europe. As well, Medalta has been approached by a U.S.distributor, Star Kitchenware Inc. to distribute Medalta’s dishes throughout North America.At this point, Jeff Burns wishes to pursue only 1 international opportunity and, thus, mustdecide between the 2 distributors and the regions they intend to do business in.My questions are:1. Which Incoterms to use when exporting products to Europe? Why?2. Which Incoterms to use when exporting products to North America? Why?
3. Trade and transport documentsMost of the different documents involved in any international trade transaction exist tominimize transport risk and assign responsability after any possible damage or loss.Documents are directly involved in one of the most important international payment tools,the Letter of Credit. Without a good knowledge of international trade documents it isimpossible ot understand and use an L/C.Documents may be boring but they are IMPORTANT!An export transaction and its docs: - Negotiation: Proforma Invoice - Sale: Invoice Packing List - Transport: Bill of Lading (B/L) Air Waybill (AWB) CMR - Origin: Certificate of origin EUR-1 ATR-1
4. Proforma invoiceA proforma invoice is a formal offersumming up a costumers request forinformation on products and prices. Adocumen that states a commitment fromthe seller to the buyer at teh specifiedprices and terms.It is a negotiation tool and a formal bindingdocument. Used for negotiation purposesit is also a safety tool as it avoids anymisunderstanding in offer requirementsand quotations. For any doubt on whatwas ordered and the offer conditions bothparties can refer to the Proforma Invoice.
5. InvoiceAn invoice sums up a closed transaction when it is executed. It confirms the sale and itsdetalils (products, units, type, prices, delivery, ...)The basic content of an invoice includes: - The word invoice - Buyer ref. number - A ref. number - Product description - Date - Product unit price - Seller info - Total amount - Buyer Info - Payment terms - VAT (EU) - Incoterms
4. Packing List (P/L)A Packing List (P/L) is a transportdocument issued when shippinggoods from the seller to the buyerwhich lists the packages shipped(Ex.: number of boxes) and itscontent.It details weight, volume and quantityof the different shipped items and it isissued from control. It sums up whatgoods left the seller premises andcan be helpful to know whethergoods not reaching the buyer wherelost during transport or nevershipped.
5. Bill of Lading (B/L), Airway Bill (AWB) and CMRA Bill of Lading (B/L) is a receipt for goods shipped by sea which actually represent thegoods and will grant delivery of the goods when shown at destination.It is a transferable document (may be endorsed) and, when goods have been shipped bythe seller, will be sent by the seller to the buyer so that he can claim the goods at the portof destination.The Airway Bill (AWB) is the B/L of air transport. It allows for tracking of the merchandiseand usually makes Payment on Delivery possible (paying for the goods when claimingthem at destination).The CMR is the B/L-AWB of road transport. A receipt confirming goods have beenshipped.
6. Certificate of Origin:A Certificate of origin is a document stating the goods origin (where were the goodsactually made). The goods origin stated in the certificate will be used by customs forstatistical purposes, decide the appliable tariff and possible health and sanitation issues.The origin of goods incorporating components from different uses and manufacturingprocesses at different locations is decided on the “last substantial modification” rule usingadded value (price) as a measuring tool.Some regions use specific origin documents in order to get special custom conditions.EUR-1 is a document granting origin from the EU used in some countries with which theEU has a special relation. ATR-1 is a similar document used in Europe-Turkey trade.