The International Logistics Proces

In export-import transactions, the following steps represent the approximate order of physi­cal movement and distribution of goods to a foreign buyer.

Step 1

As a result of previous correspondence between the prospective seller and buyer, the prospec­tive customer (buyer) places an order to purchase the desired merchandise, including such essential items as terms of sale, payment method, and other conditions. The parties must ensure that there are no restrictions on the export or import of the merchandise in ques­tion. The prospective exporter confirms receipt of the order and commits to fill the order on the basis of the given terms and conditions. The seller’s acceptance without modification of the terms creates a binding contract. In the event of any modification by the prospective seller, a binding contract is created only upon acceptance of the proposed modification by the prospective customer. A pro forma invoice is then prepared by the exporter, stipulating the essential terms and conditions of sale; when accepted by the overseas customer, it may also serve as a contract. The prospective exporter must meet packaging, labeling, and other documentary requirements. In cases in which the exporter has inventory in different loca­tions or countries, a determination has to be made as to which goods should be supplied on the basis of proximity to customer, tariff benefits, and so on. The exporter prepares the order for transportation. The order is then picked, packed, and labeled.

Step 2

A freight forwarder arranges for goods to be picked up and delivered to a carrier. The freight forwarder selects the transportation mode (e.g., airline, ship, truck) and the carrier and books the necessary space for the cargo. Such decisions influence packing and documentation require­ments. The forwarder confirms booking with the supplier, who in turn confirms with the over­seas customer. If the consignee is different from the buyer, the forwarder notifies the consignee.

Step 3

The carrier loads the cargo, and the merchandise is transported to the customer. Unless other­wise stipulated in the contract, the buyer is responsible for the cost of preshipment inspection. Many developing countries have adopted this practice primarily to conserve foreign currency earnings and to control illegal flights of currency through transfer pricing, that is, overinvoic­ing of imports and underinvoicing of exports. Preshipment inspection also ensures that the shipment conforms to the contract of sale. However, it is costly and time consuming for ex­porters and delays the physical movement and distribution of merchandise. Appropriate pre­cautions should be taken to detect and control possible diversion of merchandise into the gray market. Export products may be sold below domestic prices if domestic advertising or R&D is not allocated to the export price. Such export products, if diverted to the domestic market, could potentially undermine the exporter’s market position. Some of the warning signs of potential diversion include offers of cash payment when the terms of sale would normally call for financing, shippers with little or no background in the particular business, vague delivery dates, or shipping instructions to domestic warehouses. After the merchandise is transported, the forwarder sends the necessary documentation, that is, the commercial invoice, customs invoice, packing list, bill of lading or air waybill, and certificate of origin, to the customs bro­ker, who clears goods for the overseas customer at the port of destination.

Step 4

The customs broker submits documents to customs to obtain release of the merchandise. In some countries, assessed taxes and duties have to be paid before release of the merchandise. Customs may also physically examine the merchandise. Penalties may be imposed if any seri­ous errors or problems are found in the documentation or with the imported merchandise. The customs broker informs the forwarder of the release of the merchandise.

Step 5

If the terms of sale provide for the seller to obtain release of merchandise from customs and deliver to the consignee, the forwarder picks up the merchandise from customs and arranges for delivery to the consignee. This step depends on the terms of sale. The consignee signs the bill of lading or air waybill, noting any irregularities, and accepts the merchandise (see International Perspective 6.1).

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.

One thought on “The International Logistics Proces

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