For anyone working in international business, documents are a major part of their everyday work. This becomes especially important when finalizing deals, or when transporting goods across borders.

Documents vary in how they look and how they are presented. The documents generated by business organizations, exporters, importers, carriers, freight forwarders, governments of different countries have different colours, different logos, different layouts, but essentially, for international trade, the required information will be very similar if not the same.

Incorrectly completed documents can result in delays at borders, entry refusal, lost goods, penalties and fines, and non-payment. The following case study highlights the importance of ensuring that documents are managed properly and filled out correctly.

Case Study: Piaggio vs. Bank of Nova Scotia

In 2011, the Ontario Superior Court of Justice considered an application by Piaggio C.S.P.A. (“Piaggio”), an Italian manufacturer of motorcycles and scooters, arising from a dispute in connection with the refusal of payment under three letters of credit. Piaggio had presented three letters of credit (the “LCs”) to the Bank of Nova Scotia (the “Bank”) for payment. The LCs were in connection with goods supplied by Piaggio to a Canadian company on 90-day payment terms.

The Bank had refused to pay funds to Piaggio in accordance with the LCs. The Bank refused on the basis that the draw documents did not conform to the terms of the LCs in a material respect. In particular, it was of the view that the named beneficiary of the LCs did not conform to the draw documents. The Bank also refused to honour one of the LCs on the basis that Piaggio did not provide all of the original amendments to the first LC.

There were material discrepancies between the named beneficiary “PIAGGIO AND C.S.P.A. “APRILIA” or “PIAGGIO AND C.S.P.A. (APRILIA)”, and Piaggio’s legal name as set out in the presentation documents “Piaggio & C.S.P.A.”

Piaggio argued that the discrepancies between the letters of credit and the presentation documentation were minor and that there was no question that Piaggio was the only entity that could possibly be the proper beneficiary under the LCs. There was no legal entity called either “Piaggio & C.S.P.A./APRILIA” or “Piaggio & C.S.P.A. (APRILIA)”,

Although minor discrepancies between the letters of credit and the presentation documents are not fatal, the Ontario Superior Court of Justice determined that the correct name of the beneficiary was fundamental. It was not the Bank’s responsibility to determine the true name of the beneficiary; it was up to the Canadian customer or Piaggio to correct the mistake.

Had Piaggio insisted on amending the letters of credit to reflect its proper legal name, Piaggio would have avoided this problem. On this basis, the Bank was justified in refusing to pay Piaggio under the LCs.

The Court noted that even if the misnamed beneficiary was due to a minor discrepancy, the Bank would still have been justified in refusing to pay the first LC. This is because Piaggio failed to produce all of the original amendments relating thereto or, in lieu thereof, to provide the Bank with an affidavit deposing that the original LC amendment could not be found and had not been sold, assigned or transferred together with a comprehensive indemnity and a bond.

Lesson: Letters of credit should be carefully reviewed prior to acceptance, and any conditions negotiated in advance. Errors on the face of the letters of credit should not be accepted. Beneficiaries of letters of credit are cautioned to review their existing letters of credit for any errors, and at the time of presentation to ensure that the letters of credit and presenting documentation match.

In the event of loss of the original letter of credit, it may be possible in some cases to draw on the letter of credit by presenting the bank with a copy of the letter of credit, an affidavit relating to its loss, together with an indemnity and bond.

It should be noted that “Aprilia” was the brand name of one of the scooters manufactured by Piaggio.

Based on Piaggio vs. Bank of Nova Scotia, 2011 ONSC 2567

What to check to ensure full compliance in your trade documents

Once the necessary documents for exporting or importing goods and services have been determined, it is necessary to make sure they are filled out correctly and that all the documents have the same information. The case study illustrates the consequences of not having the same information in all of the documents. The following are guidelines for document compliance:

• Input all required information (e.g. all boxes, all fields), determine what to leave blank or enter for non-applicable fields or boxes
• Make sure documents are completed in the required language
• Always use legal names of all stakeholders
• Use additional pages as provided, do not add own pages
• Confirm that contact information is current, i.e. individual names, addresses and phone numbers are up to date
• Check for and use only allowed abbreviations, e.g. in-house jargon or terms may cause confusion
• Clearly spell out date in full if format is not specified. For instance, use September 04, 2016 instead of 09/04/16
• Use properly registered names for carriers and numbers for ships, box car numbers, container numbers, and vehicle numbers
• All references to the goods being transported should be identical across all transport and commercial documents (i.e. the description, the number of packages, the types of containers, the weights or volume and markings), and should add up to the same amounts, e.g. the packing lists of all the containers in a shipment must total what is on the waybill or bill of lading.
• Make sure monetary values are stated in the correct currency
• Make sure dates for departure and delivery are the same across all documents, e.g. different forms may use different formats
• Make sure all numbers related to carriage are correct and the same across all documents
• Clearly describe the locations of shipment origin and delivery and use the same description across all the documents

The post Learn from Piaggio why it’s so important to double-check your trade documents appeared first on Trade Ready.

In essence, FCA takes the burden off of the seller to arrange the transportation and allows the buyer to:

(a) Keep transportation related costs out of the price of the goods

(b) Use their own preferred carriers and brokers

(c) Leverage consolidation opportunities

(d) Maintain care and control of the material from origin to destination.

The trade-off for these benefits for the buyer is, of course, more risk.

In a simple example, assume you are a Canadian buyer placing a purchase order with a seller in Europe.

Using the FCA Incoterm, the European seller must ensure the goods are ready and cleared for export. They will do this either directly, by taking care of all of the details themselves, or indirectly, by providing you with everything required to do so.

Normally this would include the standard information necessary to pass through customs, and is fairly straightforward for a simple direct Country A to Country B export of most goods.

Know who’s in charge when documentation gets more complicated

But what if the export requirements for the seller or the import requirements for the buyer are more complex? And what if the goods will be transiting through one or several other countries? This can quickly complicate the export from origin to final destination.

As your supply base expands into the global trade arena, sellers and buyers need to be acutely aware of how this may impact purchases under the FCA Incoterm.

With respect to the first question, both the seller and the buyer must either provide, or render assistance in obtaining any documents or information. This includes security related information and everything that each party needs for the successful export, import and transport of the goods.

In complex transactions, there is often a strong co-dependence between the importer and exporter for documents and information from beginning to end (i.e. export permits linked to import licenses).

Assistance provided by the seller is reimbursable by the buyer and vice versa. This requirement is contained in FCA sections A10 and B10, but is often misunderstood or overlooked.

As an example, in order for the European seller to obtain their export license, you, the Canadian buyer, may already have had to obtain an International Import Certificate from Global Affairs Canada.

Don’t let multi-country transit slow your goods down

With respect to the second question, when the transport of the goods involves transiting one or several other countries, reference sections A10 and B10 (“transport through any country”). These sections are vague on exact responsibilities, but imply the majority of the burden would be on the seller.

In practice, this will really depend on what the requirements and regulations of the transited countries are, and which party is either bound or in the best position to fulfill them (i.e. language barriers, time zones).

Again, assistance provided by either party is reimbursable.

Shipping goods through other counties may require additional authorizations from foreign government departments, as determined by trade agreements and international conventions for the commodities being shipped. This can take up to 6-10 weeks to secure prior to shipping, depending on the circumstances.

Other considerations may include the mode required and specific carrier, depending on the value, controlled status, classification and dimensions of the freight.

As examples, certain air or ocean carriers will not accept military cargo. If your cargo is out of gauge and the typical passenger or commercial carrier cannot accept it, the default would be a freighter. This can be a challenge, as most freighters transit the U.S. before coming to Canada.

The U.S. controls what is allowed to transit through their country. If goods are considered controlled by the Department of State or Department of Commerce, U.S. Customs could seize your material if you fail to provide the right documentation.

Getting through government authorities is going to take some teamwork

Authorities in the countries being transited often require complete disclosure of the full transaction between the buyer and the seller. This would include all documents, such as end user certificates, in determining whether or not they will grant permission.

For example, if you are shipping  material from northern European countries and need to transit Germany for the required flights to Canada, you will require transit permits from the German Authorities if the material is considered restricted. For example weapons of war, medicinal products, textiles etc.

It is therefore very important for both the buyer and seller to work together, and with their respective transportation departments and/or freight forwarder.

This should be done well in advance, in order to identify any transshipment requirements, ensure they will be able to get any supporting documentation they may need from each other, and understand what each will do.

It is equally important to start this dialogue as early as possible, so that there is adequate time to understand and execute each country’s requirements to support the contractual delivery schedules.

One way to provide transparency and accountability is to maintain an action item log containing points of contact, target dates, and tasks assigned to individuals. This living document should be provided with shared access to all accountable parties.

Failure to know and understand the exact route, country by country, port by port, that an international shipment will take can lead to delays, additional costs, compliance violations and potential contractual default.

Taking the time to properly prepare under the FCA Incoterm will save you these unpleasant repercussions. And we all know in international commerce, there are always enough surprises.

Do you have much experience using the FCA Incoterm? How could using it present opportunities or challenges to your business?

The post Do your homework if you plan on using the FCA Incoterm appeared first on Trade Ready.

Ill-conceived decisions are likely to incur an additional degree of risk and the potential for significant extra costs.

At a minimum, the shipper, exporter or consignor must ask the following questions:

• What facilities are available for unloading, moving and storing the shipment?
• Can the port handle the types and sizes of containers or other packing that is proposed for the shipment?
• If the goods are perishable, are refrigeration facilities available? If so, at what cost?
• Who will ensure off-loading? Does the shipper have a representative, agent, distributor or customs broker available to take charge of the shipment?
• Who is responsible for clearing the goods through customs?
• What authorization do the customs officials in the target market require to allow goods to be cleared?
• What documents will be required to clear the goods through the port and through customs?
• Will the goods have to be stored while awaiting customs clearance?
• What charges and fees are payable?
• How are duty and taxes to be paid?
• How will the goods be moved out of customs? Will they have to be stored again before delivery?
• Who will oversee and manage the movement of the goods through the port and to the importer?
• What transportation and handling facilities are available to move the goods from customs to their ultimate destination?
• How long is this process likely to take?
• What are the possible risks and costs associated with the logistics of delivery?

These and a number of other issues must be thought through and dealt with long before the goods are actually shipped.

If not planned for, any one of these issues could present a delay in transporting goods to the customer. If the goods are perishable or otherwise time sensitive, the delay could result in the complete loss of a shipment.

Talented agents on the ground can be real difference makers

There are several ways of dealing with the challenge of ensuring smooth delivery to a foreign client. A preferred strategy, however, is to have an on-site representative or agent.

The agent can provide vital information about packing and documentation requirements before the shipment leaves the country of origin, prepare for receipt of the shipment and direct the shipment through customs and to the importer.

Agents normally work on a commission basis and, apart from making sales, they often offer a complete range of additional services to an exporter, including receiving, clearing goods through customs and shipping goods.

Companies that export frequently should have a network of representatives or agents distributed throughout their target markets.

Because such individuals can deal with all aspects of a shipment, the company can offer its importers a comprehensive and timely service with goods delivered right to their doorstep.

Searching for and qualifying an agent can involve a lot of research. This can be simplified, though, because many well-structured agents are members of organizations such as the International Union of Commercial Agents and Brokers.

Entering into a first-time agency contract requires a framework and proper guidance, so as to avoid costly errors or disputes. The ICC has developed a model agency contract, publication no. 496, which can be adapted to suit specific requirements.

This contract incorporates prevailing practice in international trade as well as principles generally recognized by domestic laws on agency agreements.

Find the right warehouse facilities for your business needs

On arrival, goods might have to be stored and an appropriate foreign warehouse facility must be arranged.

Various questions should be considered:

• Are the facilities appropriate to the goods being stored? For example, are the facilities temperature controlled?
• Are the storage facilities secure against weather conditions and pilferage?
• Are they secure against fire?
• Does the warehouse have proper control and tracking of goods?
• What are the insurance arrangements?
• Who is responsible for loading and unloading from the warehouse?
• What kind of charges apply?

The extent to which the shipper, exporter or consignor needs to be concerned with storage and warehousing matters will depend upon the terms of sale negotiated, as will distribution requirements and procedures.

If goods are sold to a distributor, the distributing firm will normally store them in its own facility for subsequent resale through its own network. An agent may or may not agree to store goods.

What are your tips to planning for a smooth international export delivery process for all parties?

The post What you need to know to ensure a smooth international export delivery appeared first on Trade Ready.

These issues can have a dramatic impact on the costs of importing a product and can even make a supply deal unprofitable. If regulations are not adhered to, companies might find their goods seized by customs or be subject to fines.

Managing global export compliance regulations

Most countries have some form of export control. For example, about forty 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 license from its government, usually by providing an import certificate or other documentation.

Where an export license is required, both the importing and exporting companies should take the time that will be required to obtain it into consideration when planning delivery schedules. The importing company must also include clauses in its agreements to require the exporter to obtain all required licenses.

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.

Handling exchange control licenses

Most countries also have some form of foreign exchange control. This means that exporters must provide proof that they will be paid by the importer before they will be permitted to export valuable products.

Conversion of received payment from importers into local currency will often require a license.

Importers should check whether this is necessary because otherwise, delays might result while the exporter waits 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.

Export documentation

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

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

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

What are some other international export compliance measures you’ve encountered during your international business endeavors? Share your experience!

The post The importance of managing your international export compliance appeared first on Trade Ready.