What are shipping documents?
Shipping documents are involved in the export and import of goods.
The exact set of documents varies from trade to trade, and depends upon the incoterm that applies.
As a trade finance company, here is involved in managing the shipping documents for transactions where we provide finance.
Why are shipping documents important?
There are two main reasons:
- Most trades involve a bill of lading. This is a physical document of “control”. The person who holds the physical bill of lading has the right to take possession of the goods. Great attention is placed in how the bill of lading moves from the exporter to the importer, with cash moving in the other direction.
- In most transactions, the buyer has to pay for the goods in cash, or provide a bank guarantee of future payment, before being able to get hold of the bill of lading. This is why other shipping documents are involved. The buyer gets to see a copy of all the documents as evidence of what is being shipped, sufficient to assess whether the shipment is acceptable and whether payment should be made.
What are the typical shipping documents?
The standard list of documents for a typical FOB trade is:
- Bill of lading, issued by the freight forwarder when the goods are loaded. The freight forwarder is a third party who is hired to load and transport the goods to the buyer.
- The packing list is usually produced as the container transporting the goods is loaded (“stuffed”). The packing list shows the number, volume and weight of the packages of goods being shipped, and this should match the invoice and the bill of lading.
- An inspection certificate is commonly required to make sure that the goods are okay to ship. This can be done by the buyer, a commercial inspection firm, or sometimes the factory is allowed to self-inspect and self-certify (which has a level of risk for the buyer).
- The GSP form A (if the goods are subject to any GSP regime) and certificate of origin are forms required by customs to calculate duties and taxes.
- The commercial invoice is produced by the exporter and it specifies what has been shipped (quantity, price) and should match the other shipping documents.
These are needed to land the shipment.
What happens to the shipping documents?
This depends upon the incoterms that apply to the shipment and who, between importer and exporter, is responsible for what.
On a typical FOB trade, shipping documents are collected by the exporter and, in conjunction with his local bank, used to clear the goods through local customs. The documents are then held under the control of the local bank pending either (a) receipt of cash from the importer, (b) a payment from an export finance company like PrimaDollar or (c) a guarantee of payment from bank under a documentary acceptance or letter of credit.
When the bank is happy, the documents are released. PrimaDollar is involved in these discussions.
Sometimes documents are physically delivered but with reservations (called endorsements) which mean they cannot be used without a further permission from a bank (called an NOC, “no objection certificate”, which is electronically transmitted later when parties are happy).
I am an importer: what do I need to think about?
Make sure that the shipping documents are what you need to land the goods and be confident that the supply is going to be acceptable before committing to pay. This can include other detailed matters, like fumigation certificates for pallets, hygiene and storage confirmations for certain products.
I am an exporter: what do I need to think about?
For the exporter, it is very important that the importer gets what he needs, but also that the required documents are not so complex that gaps inevitably will occur.
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