COVID-19 is continuing to influence international trade. The supply chains of small and medium-sized enterprises (SMEs) are facing all kinds of disruption due to the current fast-moving and ever-changing situation. The reality is that many SMEs are struggling to continue their businesses, an element of which has been conflicts or disputes with their suppliers.

The Incoterms® rules are an internationally recognized standard and are used worldwide in international and domestic contracts for the sale of goods. Incoterms® help businesses operating internationally avoid costly misunderstandings by defining the costs, risk and obligations in each international trade transaction, protecting both parties.

Incoterms are one element of many in building strong, clear contracts that can protect both SMEs and their vendors, ensuring proper communication, expectations, and clear procedures in the case of disruptions. For SMEs especially, this is critical to their success, and even survival in challenging times.

To help get some answers on how SMEs can protect their supply chains and their businesses during this time of disruption we brought together experts in supply chain management, contracts, customs and the Incoterms® 2020 rules to answer key questions on how SMEs can protect themselves and have confidence in their international transactions.

The conversation was led by moderator Emiliano Introcaso, CITP – Export Advisor, Export Development Canada, EDC

Emiliano has close to two decades of experience working with manufacturers and exporters looking to increase their global growth by providing them with support and guidance in all things export.

His work focuses on navigating companies through the complexities of global supply chains, but also in the small details that can make or break an international trade transaction. Emiliano is an Export Advisor at Export Development Canada (EDC), a Certified International Trade Professional (CITP) with the Forum For International Trade Training (FITT) and an International Chamber of Commerce (ICC) Registered Trainer on Incoterms® 2020.

Incoterms rules are key to mitigating risk with your suppliers

Floyd Simpkins, CITP – Founder Simcor Solutions Inc., Incoterms^® 2020 Trainer

Floyd Simpkins has over 35 years of international business experience in both the private and public sectors. He’s worked as a senior trade consultant with the government of Ontario, led multiple private sector companies to success in their international ventures as Founder of Simcor Solutions and is a certified Incoterms^® 2020 trainer.

Emiliano: How can Incoterms rules be used to ensure contracts have covered all the different key areas of risk and provided proper instruction for any disruptive scenario of the deliveries?

It’s a very important question in today’s environment, and what it comes down to depends on the risk tolerance of both parties. How much risk is a seller willing to take given its size and capabilities, and correspondingly, how much risk is the buyer willing to assume, and how will this affect the prospective sale?

Using Incoterms in a COVID environment requires first and foremost, a whole lot of upfront discussion between sellers and buyers about that risk tolerance before the contract is established, and then the acceptable Incoterm can be applied to the shipment, because if we don’t have that, we’re not going to have any agreement on the contract.

Deciding which Incoterm to use is also more important now for sellers and buyers to access certain practical capabilities of their carriage partners, because we’re moving goods from seller to buyer.

For example: protocols that our providers have in place to manage COVID risk on delivery. Does a carrier now use some form of digital confirmation that delivery has taken place like a “no-touch” solution? An example of a possible solution to this matter is  what Conestoga College is doing – they are building a mobile software application that will help supply chain workers maintain physical distancing, and still obtain the necessary signatures to complete their delivery documentation.

For delivery drivers, typically when they arrive, they have to go into a building and get a physical signature, but this application will use geo-fencing to get a reading on where the trucks are, how they can be monitored to travel within that range to their destination, and then be routed to the correct door to deliver, and then stay in their truck and complete their documentation digitally. Those kinds of innovations might help us with a critical element, which is ensuring delivery has taken place.

Emiliano: What are some of the specific Incoterms that are particularly important for contracts in this type of environment?

If we look at it from the seller’s perspective, any term where the seller takes more responsibility for getting the shipment closer to the customer before officially transferring risks is particularly important. We can also think of Incoterms as a marketing and sales tool to keep our customers satisfied that delivery is going to be in their hands where, and when they want them. Using Incoterms to clarify risk where risk actually transfers in the contracts of carriage is the most critical at this time, especially where many different carriers are being used to deliver contracted product to buyers.

So we want to use the terms that get the product closer to the customer:

• CPT “Carried To Pay”
• CIP “Carriage and Insurance Paid”
• DAP “Delivery At Place”
• DPU “Delivered At Place Unloaded”
• DDP “Delivery Paid”

Those are terms that are particularly important in this environment to make sure that, above all, we’ve got the delivery point clearly identified because we’re trying to get it in the buyer’s hand safely and securely, and ensure that delivery is in the right place at the right time.

Learn more about the latest edition of Incoterms® and learn how to properly incorporate them into sales contracts and invoices

Emiliano: Since Incoterms® 2020 was just updated in January, what are some of the changes that importers and exporters should know about? Are there any specific resources that you would recommend?

There are a few technical terms that have changed. And one of the big ones was FCA where the buyer selects the means of transport. This is one to look at because FCA was clarified to make it very clear that when the goods are handed over to the buyer’s means of transport, that’s when delivery takes place. There are a lot of resources out there, both public and private.

I would suggest that FITT’s Incoterms training, now delivered online, is as good as any resource out there because it’s based directly on the partnership that they have with the International Chamber of Commerce – ICC, who defines the Incoterms in trading guides and materials.

Customs issues can quickly eat up profits and damage your reputation with customers. Avoid them by doing due diligence and working with experts.

Audrey Ross, CITP – Logistics & Customs Specialist, Orchard Custom Beauty

Audrey is the in-house expert on global shipping, supply chain operations, customs and international tax for Orchard Custom Beauty, a cosmetics and private labeling global project management specialist where she also manages the logistics coordinator position.

Emiliano: What are some of the problems that people are dealing with at the border with international shipments right now? And what are some of the tips you could provide to businesses on how to prevent those common issues?

The current situation specifically around COVID is just an increased scrutiny, which a lot of businesses weren’t prepared for. Depending on your product line, if your business had made pivots into making hand sanitizer or making fabric face masks, for example, there will be increased scrutiny because these are highly regulated health and safety products.

For most businesses it was a great idea to pivot, but at the same time when there were some regulatory concerns that they may not have been aware of.

So for those kind of the hot items, anything around PPE fabric, face masks, even hand sanitizer pivots in general, the most common custom problems are around HS codes.

Make sure that your businesses is using the tariff tools, there’s a number of resources on TariffFinder.ca. The World Customs Organization can also help you out there. If you’re going into different countries, the World Trade Organization has lists as well. In terms of customs, HS codes are really the most important kind of descriptor. The next problem you might encounter is that your descriptions are too vague. Along with your HS code, customs authorities have to see what the description of your product is because they want to ensure that matches. So if you say that it’s say a bag, you need to specify what kind of bag, because as it turns out in chapter 42, there’s something like 50 different types of bags. Is it made of leather? Is it made a PVC? Is it a handbag? Those kinds of key descriptor words on your commercial invoice and even on your bill of lading are very important to helping match that HS code.

When you’re dealing with free trade agreements and cross border trade, there’s country of origin versus country of transit. I know here in house there can be some confusion from my teammates around this. If you see that a product or component is coming from this country and it’s going to the U.S., where was it made? Was it actually made in Canada? Was it made somewhere else? Because that’s going to have a big impact on the usability of those free trade agreements.

Another thing I’ve noticed is that the parties who were involved in the transaction are unclear. Now your business might be a bit more straight forward and you are a seller and you have a buyer. But for some of us, it’s much more complicated and we have a manufacturing partner. You might have an agent involved and you yourself are the overseeing party, which is sort of what Orchard does. We call these contracts triangulation. And then we have a buyer and we also have the party we are delivering to, and that might be five different addresses. How do you fill out that paperwork?

It’s important to be really clear on who’s doing what and show in your Incoterms who’s responsible at each point.

If you are doing importing, depending on what your Incoterm is and what you’ve set up, if you are the importer of record, you should be aware that in some countries you can’t have a foreign importer. For example if you’re making Canadian exports and you’re shipping down to Mexico, Mexico, doesn’t have a non-resident importer program. You need to rely on the person who’s buying the goods or another party to be able to import on your behalf because they have to be Mexican resident. And if you are the importer of record, the key from a customs department’s perspective is who’s making the payment of these duties and taxes? CBSA here in Canada wants to know who they’re getting the money from and that they’re going to get it.

Supply chain management has never been more complicated for SMEs. In today’s environment, it’s all about risk management.

Bruno Morin, CITP – Global Market Manager, Axens

Bruno has been working in international trade for 25 years. During that tenure he has been to more than 60 countries negotiating contracts. He has experience and expertise in all aspects of international trade, including shipping, customs, and finance. He also served on the FITT Board of Directors.

Emiliano: What are some of the main issues that suppliers and shippers are facing in terms of delivering the products and how can the SMEs work with their vendors to prevent them?

As an SME or a buyer, it’s perfectly normal to be nervous these days. So many things can go wrong.

And it’s not always the fault of the buyer or the supplier. We saw the strike at the Montreal port earlier this year, and all the COVID related problems and shut downs around the world at the ports. A common problem historically, is when a container gets damaged at the transshipment port, while in transit. That wouldn’t be the fault of the supplier or the buyer. It just happens.

So for me, it’s really important as a buyer, and as an SME, that you make sure your supplier has a good insurance policy, and that when you make a list of the required shipping documents, that the insurance certificate is included in that list. This you know your supplier is serious, and that if there’s a problem you have an insurance company that’s going to help both the supplier and buyer to resolve the problem, because the problem in international trade is the costs go up.

If you have a problem in transshipment or at arrival at the seaport, and you don’t have your documents done properly, your goods will get stuck at customs. The fees you have to pay will be on a per day basis. And if you are small, it won’t be long before the buyer is going to abandon this cargo because the fees are more than the value of the goods. So as a supplier, you’re stuck. Right now, again, it’s perfectly normal to be nervous, to ask for extra time. As an SME you probably can’t afford to go for just in time delivery. In my opinion, you need to plan for extra time for delays from A to Z. Your trucking company might not have a driver, because there was an explosion of COVID cases in that specific city. It’s better to receive the goods a little bit earlier than to wait until the last minute and risk having problems.

Emiliano: So what happens in the inverse situation where the buyer is dealing with a supplier delinquency? How would you address that?

The main point is as a buyer, you need to document each step. Before you signed the contract, you should have made sure the supplier had a good insurance contract. So with that assumption as a buyer, you need to document everything you did. As soon as you have a problem with the supplier, you need to file an “intent to claim” letter and send it to the freight forwarder and the buyer. Then, six months down the road after you went back and forth with the supplier and the insurance company, it’s documented that your intention was to get your money’s back either from the supplier or the insurance company.

Emiliano: Where should you position your suppliers and manufacturers to prevent disruptions and/or build in redundancy in case of emergency? Should you go closer to your customer base?

This is the whole other aspect of risk management.

In general, it’s recommended to have more than one supplier, because particularly these days with COVID, it’s quite risky to put all your eggs in one supplier.

For example, you might have a local supplier that has higher costs and the product that they sell is not perfect. But as a backup plan, it’s really important that you keep a good relationship with that local supplier, because your international supplier, that may have a better product at a lower price is physically very far away and therefore riskier in times of disruption.

Negotiating and signing a contract that clearly defines risk and responsibility is key to protecting your business, and even more important during times of disruption.

Clarecia Christie, CITP – Founder, Global Compass Consulting

With over a decade of experience, Clarecia’s professional focus is the intersection of international market access and women’s economic empowerment. She has managed projects commissioned by regional and international development agencies such as Global Affairs Canada, in various sectors in the Caribbean region, Central and South America.

Emiliano: Before the contract is written, what should SMEs be asking for from their suppliers/manufacturers to ensure that they cover their bases? As a buyer, what can you expect the suppliers to ask for during negotiations?

From an SME perspective, it’s always good to have an understanding of your supply chain from end to end.

And you need to know the rules of the game – the trade rules. If you’re going to be supplying to a country where you have a trade agreement, understand what you can capitalize on within that trade agreement and what you’d have to do to that product to make sure that it can enter that country. 

Capitalize on different trade rules or different provisions that are in a trade agreement that you can utilize. You may have to modify your product to adhere to the rules of that trade agreement which will have associated costs, so it’s extremely important to be aware of these considerations. Another thing that you’d have to look at is your suppliers to produce the goods, or if you’re manufacturing the goods offsite from out of your country, will they be able to deliver and what are their costs? Do you expect any change in the cost to produce that modified product? When you’re doing the costing of your product, you’re going to have to include that in it, to come to your final price.

So the questions you’re going to be asking that supplier include the cost to deliver time, and the capacity to deliver. You should also know before going into negotiations, are you going into a country where the culture is different from yours? Do you have to look at language changes? These are some of the many aspects that you have to take into consideration before the contract is written. And even before going to negotiate, you have to pull your costs together. Then, think about how you’re going to get the goods from one place to the next. Are there any problems or anticipated risks along the way? These are some of the things that an SME will be asking their suppliers and manufacturers, to ensure that they can actually deliver on the promise that they’ve made to their potential buyer.

Emiliano: What are some red flags that may come up during contract negotiations?

There are many red flags that can come up during a contract negotiation. Let’s take a look at something that’s a creative product. During your negotiations the other party may ask for transfer of your IP. You have to be diligent to understand why they would want that. Will that restrict you, your IP, or your product from selling to another company? So that is a red flag to look for. Another thing that we could look at is non-competition. Why would you ask for a non-competition clause for a product? Maybe you have plans to go into that field. And eventually the person who is your first supplier will be pushed out. Look out for payment. If someone is asking for payment upfront, from a buyer perspective that’s a red flag.

If you have a lead, you have to do your due diligence to learn more about who your buyer is and what their performance has been with other suppliers.

Emiliano: What are the most common contract errors SMEs make and how can they fix them/ prevent them? And when should an SME engage lawyers, or contract experts to help?

A common error I see is that a business gets an order and they’re really excited about it. It’s just a verbal agreement, and because the seller may be inexperienced and excited to fulfill this opportunity, they go ahead and start making preparations without due diligence. They haven’t thought about risk. Who’s going to take on the risk at what point of the logistics chain? A verbal contract is not a sound contract.

Another common error is also is flip-flopping on price.

You have to do your costing analysis and pricing analysis so that you know that the price that your contract is proposing is the price that will give you your profit will cover your costs and cover your risk.

I have seen instances where a price was quoted and the seller was very happy about that price, but inflation, foreign exchange, fluctuation rates have eaten away that profit. You don’t want to come back to a buyer who you have signed a contract with to say, I can’t supply these goods at that price.

Another thing that you have to be clear about is in which jurisdiction will any sort of dispute settlement occur and which method of dispute settlement. Make sure you have all your I’s dotted and your T’s crossed before going into a contract negotiation. It’s always good to pull together a team so that you have the expertise to cover all your bases. You’re covering most favored nation. You’re covering certificate of origin. Making sure you have the right HS code because you don’t want to be a burden on the buyer, but you also don’t want to be losing anything on your end.

And yes, you have to have legal counsel, whether you’re a seasoned exporter or a new exporter, because laws change. Even if you have a revolving contract, there are instances when laws change and whether you have a revolving contract or not, you’re going to have to make amendments to those contracts to go with the law of the land, especially if you’re using a third party jurisdiction for dispute settlement.

Watch the full webinar including a live Q&A with the panel!

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We usually write contracts based on good faith and mutual understanding, but we read the contract just two times, once, when we sign it, and the second time, when we encounter a dispute.

The contract should help us settle our disputes cases where amicable negotiation does not work. Unfortunately, COVID-19 will increase trade disputes around the globe.

General effects of COVID-19 on international trade and supply chains

Coronavirus will continue to be a proximate cause for delay and non-delivery of goods and services from previous months to the next few months.

The delays in the supply chain are mainly because of:

• Factory shutdowns and production with low capacity
• Governmental prohibitions and restrictions on export and import
• Drastically increased prices for certain goods
• Transportation and logistics companies’ limitations; and
• Order cancellations by the customers

Companies have responsibility toward societies, employees, suppliers, and customers while still being profitable. This is an exceedingly difficult balance for business owners to handle all of these issues together.

Since the first main consequence of COVID-19 to businesses worldwide is delays in the supply chain, how will these delays effect international trade processes?

Delays in sales and purchase contract

COVID-19 seems to be a case of “Force Majeure”. Force Majeure generally means unavoidable, uncontrollable, and unforeseeable events. And much like some travel insurance providers, insurance companies have the ability to alter the dates around known and unknown hazards. This is why it is so important for companies to fully understand the details of their contracts and coverage.

When a party is encountered with a Force Majeure case, it should be deemed relieved of its duties and obligations, and, therefore, the contract may become suspended or, in some situations, terminated when the Force Majeure case endures over weeks and months, rather than a more limited time period.

Parties should have defined the consequences of termination and suspension in the contracts. What happens to advance payments, consignments, delays, and non-deliveries?

Some parties may abuse the current situation and increase the prices or not deliver the sold goods. In a situation where  a party claims that has encountered a Force Majeure, it is expected to mitigate the consequences, notify the counterparty, and provide proving documents indicating that its business is affected by the case.

Delays and Incoterms

Based on the EXW rule, the Seller is not responsible for export and import clearance, but the Seller is expected to deliver the product at the named place. In DDP rule, the Seller is responsible for both export and import clearance. In the other rules, the Seller is just accountable for export clearance. What happens if a government prohibits the exportation of a product, which is highly crucial for a supply chain in the Buyer’s country? What if the Seller is not able to deliver because of the factory shutdown?

Delays and cargo shipping insurance

If the delay is because of the seller’s activity and the product is not delivered to the shipping company or has not left the warehouse or place of storage that is named in the insurance policy, the underwriter or insurance company has no obligation because the insurance contract is not effective yet. See Section 8 Duration of the Maritime Cargo Clauses.

In case the delay occurs after starting the transportation, and such delay is the proximate cause of loss, it might not be covered by the insurer based on the Exclusions section.

Delays and international transport

Many international conventions govern carriage contracts, which are usually mentioned on the Bill of Lading. We can name Hague-Visby, Hamburg, Rotterdam (for marine transport), Warsaw and Guadalajara (for air transport), CMR, and Vienna convention (for road transport), COTIF and OTIF (for rail transport).

These conventions govern the transportation relations between the Shipper, Consignee, and Carrier. Each convention indicates unique responsibilities and liabilities for delay, and in most situations, carriers assume limited liability based on the weight or quantity of packages.

The important point that many companies neglect, is that the carriers’ liability is limited and not always equal to the actual value of the product in most situations.

There are too many articles in different conventions about delay and its consequences. This issue should be investigated based on the nature of the consignment, the governing convention, and the specific agreement of transportation. For example, in article 5.7, 6.1.b and 19.5 of Hamburg convention, it is mentioned:

5.7. Where fault or neglect on the part of the carrier, his servants or agents combines with another cause to produce loss, damage or delay in delivery the carrier is liable only to the extent that the loss, damage or delay in delivery is attributable to such fault or neglect, provided that the carrier proves the amount of the loss, damage or delay in delivery not attributable thereto.

6.1.b The limit of liability of the carriers for the delay in delivery, according to the provisions of article 5, is limited to an amount equivalent to two and a half times the freight payable for the goods delayed, but not exceeding the total freight payable under the contract of carriage of goods by sea.

19.5 No compensation shall be payable for loss resulting from delay in delivery unless a notice has been given in writing to the carrier within 60 consecutive days after the day when the goods were handed over to the consignee.

In some situations, like bulk cargoes and charter contracts, the delay may occur due to quarantine regulations at departure and destination. This issue may cause demurrage charges in charter contracts when the carrier has properly issued the NOR (Notice of Readiness), and the port authorities may not allow berthing.

In case the laytime is over a certain period, the importer may be liable for demurrage and any related charges. The details of the demurrage and dispatch (DEM/DES) article of the charter contract are essential for analyzing this issue. We should also pay attention to the 4W acronyms in the DEM/DES article (WIPON, WIBON, WIFPON, WICCON).

Delays and international payment

Based on Incoterms 2020, the first primary obligation of the buyer is the payment of the price as provided in the contract of sale. Considering the current situation, delay in payment may happen because of problems on the Buyers’ end, banks working days, country of origin or limitations in governmental departments.

The payment terms article in the sales agreement and Force Majeure should be accurately analysed and investigated.

Delay and customs clearance

Governments and customs administrations may take special measures for health and sanitary controls at the border. This issue may be more affected by the country of origin and departure. On the one hand, the controls may decrease to make the delivery process faster for some necessary products, such as food and produce. On the other hand, some products may get stuck at the border for customs care for necessary products. Therefore, warehousing charges in border/port holding facilities and freight surcharges may increase.

Customs administrations and other government departments may start to request health or quarantine certificates for the products that has never previously required this type of documentation. In some bulk cargoes, fumigation, health, sanitary, and phytosanitary certificates may be added to necessary shipment documents.

Resources and advisors who can help

We are experiencing a Force Majeure and emergency for all players in the supply chain, especially for exporters and importers. The first and most applicable solution is mutual understanding of exact and on-time coordination of shipping and delivery.

Understandably, companies try to make a profit for their owners and shareholders while respecting the interests of society, employees, suppliers, and customers.

For a while, the goal of business owners should change from singularly making a profit to broader social purposes such as survival.

And higher levels of mutual understanding should be established between importers and exporters to avoid disputes. More prominent companies are expected to protect their suppliers and customers as much as possible.

We interact based on the good faith principle, but business owners should be prepared for disputes. Consultation and cooperation with professional teams in the following areas help to mitigate the effect of this specific situation:

Government trade agencies

These experts can provide insight and advice on the ever-changing landscape regarding any country restrictions/bans.

In house legal, trade, and finance compliance team

This team is responsible for taking protective measures and foreseeing probable issues in the company’s supply chain.

Insurance companies

Consult with your insurer and check for all the solutions they may offer you. It’s not just about cargo transportation insurance.

Transport and shipping companies

Transport companies do not necessarily have control over the process. Most of them are a type of intermediary. Study your contracts carefully and consult with your shipping company for the right time, route, and shipping details such as stuffing, packaging, and documentation.

Banks and Financial institutions

Consult with your bank’s experts. When we encounter discrepancy in a documentary credit, the applicant (Buyer) and banks may treat it on an approval or collection basis. In some situations, there are national restricting rules by central banks or other government departments in which the buyer is not permitted to approve the discrepancy. In other words, the buyer may decide to accept delays or other discrepancies, but the governmental organizations do not respect such a decision.

Get a customs broker to help with customs clearance process

The final and most important governmental physical controls on the product happens during the customs clearance process. Companies should hire professional, experienced, and knowledgeable customs brokers.

The first contact with the customs broker should be before finalizing the order, and brokers should search and transmit the most updated information to their customers. This information includes rules and regulations about prohibitions, quotas, documents, HS codes, valuation, and in one phrase, comprehensive trade compliance.

Customs brokers are expected to act proactively and inform traders about the most recent decisions of governmental departments. As a customer, companies deserve to have dedicated teams to support their business and products which are responsive to the unique needs and questions whenever required.

24/7 service is crucial because of time differences between countries and customer service expectations.

Most companies love win-win cooperation, but we might not win too much in the current situation. Survive-survive is a more reasonable and logical strategy for some businesses these days. Those companies who like to gain more by employing the Win-lose strategy will be accused by society for neglecting social and corporate responsibilities. It’s not a good time to pursue profit over social well-being.

It is a good time to position your company as a pioneer in respecting human values.

Sources:

https://iccwbo.org/

https://www.admiraltylaw.com/statutes/hamburg.php

https://www.letterofcredit.biz/index.php/2018/10/05/mt-700-swift-message-field-specifications/

https://www.marrisk.com/pdf/clauses/INSTITUTE%20CARGO%20CLAUSES.pdf

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Governments use export clearance, customs and security clearance processes to monitor trade, collect revenue and prevent criminal and terrorist activity. These processes also provide data that assist governments in assessing the state of their economies and the need for regulatory changes.

As countries continue to move towards integrating their economies and removing trade barriers, the regulatory processes of exporting and importing should become easier, however that does not remove the need for continued collection of data, therefore documentation will continue to play an important role in the import and export clearance processes.

Given the number of countries in the world, it is impossible to offer one set of guidelines that would cover all eventualities, especially because requirements and procedures can change frequently. However, due to the WCO and the adoption of international recommendations for customs and border security practices, there are some common activities required of exporters and importers.

First, take care of the basics of export clearance

The export clearance process will differ depending on several variables:

• The trade regulations of the exporting and importing countries
• Type of goods being exported, e.g. restricted, food products
• Free trade agreements currently in force
• Level of customs and border security agency’s use of information and communication technology, e.g. Electronic Data Interchange (EDI)

With consideration of the above variables, typical activities for obtaining export clearance could include all or some of the following:

• Registering with customs and border security agency, e.g. obtain export/ import business number
• Determining country of origin for the goods being exported
• Ensuring product is exportable, i.e. not a prohibited good or service
• Ensuring product is allowed into importing country
• Determining HS code for product
• Filing export declaration, if required
• Obtaining export licences or permits, if required
• Obtaining product-specific/packing certificates and import specific documentation
• Determining shipping method and identifying reporting time frame

Want to learn more about how to keep your customers, clients and suppliers happy by transporting goods in a timely manner and in compliance with all regulatory requirements? Check out the FITTskills Global Value Chain online course.

What do the Incoterms® rules say?

Submitting export declaration and other documentation to customs and border security agency prior to shipping, if required

• Shipping goods as agreed upon with importer
• Providing certificate of origin and other documents to importer or importing country’s customs and border security agency
• Keeping export records for required time period

The responsibility for the cost and completion of these tasks will vary depending on the sales contract agreement, usually defined by the agreed upon Incoterms® rules. It is to the mutual benefit of both the importer and exporter if they help each other complete the export clearance process.

Next, check the local laws and regulations for further requirements

There are other factors that must be considered when exporting goods, including:

International export regulations:

Most countries have some form of export control. For example, 41 countries are signatory members of the Wassenaar Arrangement, which was established in 1996 to establish controls over sales of arms and dual-use products and technologies.

The control lists covered by the Wassenaar Arrangement cover a wide range of goods and technologies, including protective clothing, materials used in aircraft construction, metal alloys, many chemical compounds, submersible vehicles, robots designed for underwater use, telecommunications equipment, satellite components and many forms of software.

In order to export any of the controlled products or technologies, certain procedures must be followed. The importing company will often have to assist the exporter to obtain an export licence from its government, usually by providing an import certificate or other documentation.

Where an export licence or permit is required, both the importing and exporting companies need to consider the time it will take to obtain exporting and importing licences/permits when planning delivery schedules. The importing company must also include clauses in its agreements to require the exporter to obtain all required licences.

Exchange control licences:

Most countries also have some form of foreign exchange control, i.e. controls over the amounts of foreign currency in their economies. This means that exporters may have to provide proof that they will be paid by the importer in a specific currency before they will be permitted to export valuable products. Importers may also require a licence from the exporting country to convert payments into local currency to pay exporters. Importers should check whether this is necessary because otherwise delays might result while exporters wait for payment.

Some countries require payment to be made by specific means, such as a letter of credit. Some governments also impose strict payment regulations on all foreign trade contracts in order to ensure payment.

Export quotas:

Export quotas are restrictions imposed by a government on the amount or number of goods or services that can be exported annually. The purpose is to ensure that domestic prices of this good or service do not increase because of exports. Importing companies must make sure there are no foreign government quotas that could make their purchase agreement unsustainable.

Have all your documents ready – here’s what else you may need

Standard export transactions require that the exporter provide standard documentation to accompany shipments of goods:

• Commercial invoice
• Bill of lading or transport document
• Export declaration
• Packing list
• Insurance documentation
• Certificate of origin

Documentary requirements can vary significantly, due to the specifics of a transaction or shipment, as well as the payment and financing arrangements, which may be based on the tendering of documents by the exporter, depending on the agreed mechanism of settlement.

In addition to this standard list of documents, some export trades might require additional documents because of complications or the nature of the goods being transported.

These documents include the following:

• Export licences or permits: Either general (permitting any good to be exported, usually for shipments exceeding a specific value) or specific (required for restricted or controlled goods).
• Dangerous goods declaration: A statement about the contents and emergency handling of a dangerous goods shipment.
• Exchange control document: A declaration that the payments received for the shipped goods follow regulations.
• Inspection certificates: A certificate confirming that certain products (including packing materials) have been inspected for safety or conformity purposes.
• Consular invoices: Invoices provided by the importing country’s consulate located in the exporter’s country approving the shipment for import. It is important that the information on documents is complete, consistent, and accurate, whether electronic or hard copy.
• Intellectual property registration: When exporting to another country, it may be necessary to ensure that intellectual property is protected. It is prudent to check and register patents, trademarks, and copyright in the importing country to prevent infringement. Despite efforts, protection will depend on how rigorous the importing government’s regulations are, as well as the level of enforcement.

The post Use these lists to get through the export clearance process more quickly appeared first on Trade Ready.

The United States and Canada have the most extensive trade relationship between any two nations in the world. In 2013, goods traded between Canada and the U.S. totaled C$782 billion (US$585 billion).

In fact, the trade of goods moving back and forth across the Ambassador Bridge between Windsor, Ontario and Detroit, Michigan alone is equal to all of the trade between the United States and Japan, the U.S.’s fourth largest trading partner.

The security requirements at the Canada – United States border have been significantly enhanced since 9/11. The CBSA has now made submitting eManifest (cargo and conveyance details) mandatory in order to further sustain cross-border security requirements.

It also supports new initiatives with the United States such as the Beyond the Border Initiative. Understanding these regulations, and being able to comply with them, will improve your competitive edge and contribute to the success of your business.

How will these regulations affect trade for U.S and Canadian businesses?

While delivering a North America-wide webinar for the Canadian Produce Marketing Association, I had a question from a participant from the eastern seaboard of the United States. The question was, “I am a grower, packer, and shipper; how do these cross-border regulatory requirements apply to me?”

I answered,

“Well, if a carrier of your choosing arrives at your farm, you will load them up with your produce, after which you will provide your customer in Canada with an invoice in the amount of $50,000.00, for example.

The invoice value is what you expect to be paid for the shipment. If your carrier arrives at the border and is unable to meet these regulatory requirements set out by the Canada Border Services Agency (CBSA) in order to be admissible to Canada, your shipment may be delayed at the border.

That delay may leave your shipment valued at only $500.00, and sold for cattle feed rather than appearing on the shelf of a major vendor in Canada.

As you are the supplier in the United States shipping your product to Canada, you choose the carrier in most cases. Familiarity with these types of regulatory changes is important for you to be better informed, and able to choose a carrier who can clearly meet these cross-border requirements.”

She responded with a very long “Oh, I see.”

The major challenges for shippers and carriers

With the new regulations, carriers are challenged by the monumental requirement of having to provide manifest information electronically, particularly before they even arrive at the border. In fact, their information must be transmitted, received and officially “accepted” by the CBSA before their truck arrives at the border.

These are the 5 main challenges exporters will face in adapting these new requirements.

1. Added time and costs

For highway carriers who make their living by checking electronic load boards for shipment postings, booking them, and picking up and delivering cargo, adding this cross-border requirement is a significant challenge.

At one time, carriers could bid on shipments posted on an electronic load board (over the internet), pick up the shipment, make the delivery and get paid. Now they must ensure that they have the ability to transmit manifest, or cargo and conveyance data, to the respective Customs Agency electronically AND in advance. The cross-border shipments are a very lucrative part of the transportation industry.

They also know that these additional requirements will cost them money to complete, which makes matters even more complicated. The additional costs will be incurred by the carrier whether they will be able to meet these new electronic requirements themselves, or contract a service provider to complete them on their behalf.

2. Extra details from in-bond conditions

Delivering cargo in Canada arriving from the United States, where the destination is not a border crossing or border city, requires in-bond conditions, posing an even greater demand on the carrier.

In this case, they must explicitly identify, by number, the inland warehouse (or inland destination) where the shipment will report to customs for release, and eventually be delivered to the actual importer.

In order to do this, the carrier must know not only the destination of the freight (consignee’s address), but also the specific sufferance/bonded warehouse where the goods will arrive inland.

All of this information, including the specific warehouse-designated, unique identifying number, must be included in the electronic or eManifest transmission to the CBSA. This must be transmitted to and accepted by the respective customs agency, a minimum of one hour prior to arrival at the first port of entry.

This is a major adjustment for carriers, who used to be able to present paper documents upon arrival, rather than send them ahead, with the final delivery address (cosignee) only.

3. Dealing with order changes

Changes are a common occurrence in the transportation of cargo. This includes a wide variety of circumstances, most often that the bill of lading generated for the shipment and the driver do not match the Canada Customs Invoice and/or the eManifest transmission (i.e. piece count).

This requires what is known as a “change” to the original eManifest submission to the CBSA, because the order was loaded on the truck slightly differently than what was originally ordered.

This driver is then responsible for ensuring that once he has the exact details regarding his shipment, his eManifest submission is identical and amended to be accurate, if necessary.

This new process for making these changes is not easy for the carrier. If the driver fails to make the correct changes they could face steep fees. This common inconvenience is costing them time, money, and creating a lot of stress and confusion over the accuracy of reporting.

4. Reporting discrepancies

If carriers fail to make the proper changes to their documents, they are now dealing with discrepancies. For example, occasionally, there will be a few extra pieces loaded onto the shipment by the shipper (i.e. cargo missed on another earlier shipment) that the driver is unaware of.

When these discrepancies are discovered after delivery in Canada, the importer has an obligation to notify their customs brokers, amend their commercial entry to account for the value for duty and submit any additional revenue owed to the government.

Accordingly, the carrier is also obliged to go back into their records to the transaction for this delivery and amend the details of the original submission to correctly reflect the shipment details.

Consequences for failing to amend the carrier’s records may result in penalties (AMPS as they are known in the industry) after these unchecked discrepancies are discovered through audits.

A carrier will not only incur penalties, their compliance record with the CBSA will also take a hit.

This could seriously affect a company’s future access to preferred Trusted Trader Programs like CSA or CTPAT.

5. Keeping detailed records

It has always been a challenge for carriers to maintain accurate records of each and every trip. Tracking and detailing every trip that delivered freight into Canada is a time-consuming process. Many, many carriers are still maintaining their records in a paper format.

The CBSA identifies that carries must maintain all records for three years, plus the current year. These new regulatory policies have been amended so that carrier records must also contain the details for all submissions made to, and received from, the CBSA. One of the great benefits for a carrier using a service provider is that they are able to maintain a database containing all of this pertinent information for their carrier clients.

Keeping track of all the crucial details

Carriers have often had difficulty maintaining accurate records because of the logistical challenges presented by drivers often working away from their home office, and the fact that the administrative personnel often work Monday-Friday 9 to 5, while drivers are working 24 hours a day, 7 days per week.

The engagement of a good service provider can, in most cases, easily solve this logistical nightmare for them. The challenge then becomes the cost to the carrier to engage such a service provider.

This reflects why it is so important for U.S. vendors, manufacturers and shippers to have a much better understanding of the cross border regulatory requirements.

Canadian companies also need to be aware of these types of regulatory requirements, so that they can make this part of the conversation they have with their vendors in the United States prior to placing orders. Not inquiring at the time of order could add significant costs to any goods being imported into Canada.

The post How new CBSA regulations impact your US-Canada trade activity appeared first on Trade Ready.

Dr. Kannan Vanumamalai, CITP®|FIBP®, is the Marketing Manager at Kheeran Inspection Services Inc. in Edmonton, Alberta.

With twenty years of international trade experience and an exceptional academic background in trade, Kannan’s skills and knowledge are equaled only by his passion for his work.

Kannan’s career started when, after completing both his Bachelor’s and his Master’s degrees in commerce, he became a management trainee with Varadhalakshmi Mills Ltd in Madurai, India.

At the end of his trainee period, the company decided to give him the opportunity to select the area of business in which he wanted to specialize.

“I chose international trade,” he explains.

I realized that, for an international trade professional, each work day will be a lively day composed of lots of challenges, problems, solutions, decision making situations, rules, regulations and so on.

Kannan spent a total of just over five years at the company, under the title of Executive (Purchase and Imports).

With the sole responsibility for all man-made fiber imports, he monitored inventory, made purchases when needed, ensured all documents and licenses were in place and guided it through all customs clearances to get materials to the mills when needed.

After a brief stint taking care of exports for another mill, Kannan returned to the import side of trade as an Assistant General Manager (Imports) for Machado Sons P Ltd—a leading Custom House Agents company at the port in Tuticorin, India.

In the role, he was able to expand on his previous import experience by combining responsibilities for customs clearance and import documentation with a broader-scale marketing role.

His new duties included bringing in new customers, providing them guidance, updating customers with any changes in the import policies/rules, ensuring customer satisfaction and retention, and promoting the company’s import clearance services.

Kannan also expanded his educational credentials during the thirteen years he spent in the role. Since it required a greater focus on marketing than his previous positions, he earned his MBA with a focus in marketing, as well as his M.Phil in international business.

He then followed those up by earning his Ph.D in Management in 2011 from the Birla Institute of Technology in Mesra, India, with a focus on international logistics and marketing.

In 2011, Kannan also received two international awards. First, he won ‘The Emerging Economies Doctoral Student Award (EEDSA)’ from the Production and Operations Management Society (POMS), USA for his contributions to the subject ‘operations management’.

He then also received the ‘Highly Commented Award for Excellence 2011’ from the Emerald Literati Network in the UK, for a research article he had published in ‘Benchmarking: An International Journal’ the previous year.

On top of these awards, he has published several articles in reputed management journals, and is a regular presenter at Indian as well as international conferences on topics related to international logistics, shipping, export/import, services marketing, etc.

In 2013, Kannan transitioned to his current role, which allows him to focus on international marketing full-time.

Balancing everything from market research studies to product development to client satisfaction, budgeting, accounts management, and training, he has found the opportunity to excel in a role where he can draw from all of his education and experience.

When Kannan learned about FITT and the CITP®|FIBP® designation, he immediately recognized the benefits it could have for his career and decided to apply.

I understand that the CITP®|FIBP® designation will bring international recognition to my knowledge and experience in international trade. I also realize that it will help me to develop networking with other international trade experts.

Kannan described his reaction to earning the designation as “elated.” He says he hopes it will help him toward his goal of gaining a top-level management position in a global corporation in the shipping, freight forwarding or international logistics industry.

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