Onkvisit S., Shaw J. International Marketing: Analysis and Strategy

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Breakage

Although overpacking is undesirable, so is under-

packing, since the latter allows a product to be sus-

ceptible to breakage damage.The breakage problem

is present in every step of ocean transport. In addi-

tion to normal domestic handling, ocean cargo is

loaded aboard a vessel by use of a line (with several

items together in a net), conveyor, chute, or other

methods, all of which put added stress and strain on

the package. Once the cargo is on the vessel, other

cargo may be stacked on top of it, or packages may

come into violent contact with each other during

the course of the voyage. To complicate matters,

handling facilities at an overseas port may be unso-

phisticated. The cargo may be dropped, dragged,

pushed, and rolled during unloading, moving in and

out of customs, or in transit to the ﬁnal destination.

In China, primitive methods (i.e., carts, sampans,

junks, and so on) are used to move a great deal of

cargo. Therefore, packing must be prepared to

accommodate rough manual handling.

To guard against breakage, it may be desirable to

use such package-testing equipment as vibration,

drop, compression, incline-impact, and revolving

drum.The cargo must not exceed the rated capac-

ity of the box or crate.Attempts should be made to

ensure that internal blocking and bracing will dis-

tribute the cargo’s weight evenly. Cushioning may

be needed to absorb the impact. Cautionary mark-

ings, in words and symbols, are necessary to reduce

mishandling due to misunderstanding.

One universal packing rule is “Pack for the tough-

est leg of the journey.” To accommodate this rule,

cargo should be unitized or palletized whenever pos-

sible. Palletizing is the assembly of one or more

packages on a pallet base and the securing of the load

to the pallet. Unitizing is the assembly of one or

more items into a compact load,secured together and

provided with skids and cleats for ease of handling.

These two packing methods force cargo handlers to

use mechanical handling equipment to move cargo.

Moisture and temperature

Certain products can easily be damaged by mois-

ture and temperature. Such products are subject to

condensation even in the hold of a ship equipped

with air-conditioning or dehumidifying equipment.

Another problem is that the cargo may be unloaded

in the rain. Many foreign ports do not have covered

storage facilities, and the cargo may have to be left

in the open subject to heat, rain, cold, and other

adverse elements. In Morocco, bulk cargo and large

items are stored in the open. Mozambique does the

same with hazardous, bulk, and heavy items. Cargo

thus needs extra strong packing, containerization,

or unitization in order to afford some measure of

protection under these conditions.

One very effective means of eliminating mois-

ture is shrink wrapping, which involves sealing

merchandise in a plastic ﬁlm. Water prooﬁng can

also be provided by using waterproof inner lines or

moisture-absorbing agents and by coating ﬁnished

metal parts with a preservative or rust inhibitor.

Desiccants (moisture-absorbing materials), mois-

ture-barrier or vapor-barrier paper, or plastic

wraps, sheets, and shrouds will also protect cargo

from water leakage or condensate damage. Cargo

can be kept away from water on the ground if placed

on skids, pallets, or dunnage while having drain

holes in crates.

There are several steps to ensure the proper way

of packing to minimize moisture and breakage prob-

lems.

These steps are as follows:

1 Place water-barrier material on interior of

sides and roof.

2 Use vertical sheathing.

3 Block, brace, and tie down heavy items.

4 Use new, clear, dry lumber and provide ade-

quate diagonals.

5 Use multiple similar items.

6 Use waterproof tape to seal ﬁberboard boxes.

7 Palletize shipping bags.

8 Use proper gauge, type, and number of straps.

Pilferage and theft

Cargo should be adequately protected against theft.

Studies have ﬁxed such losses in all transportation

modes in a range from $1 billion to in excess of $5

billion.

In the USA alone,the annual value of cargo

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stolen in transit exceeds $2.5 billion. Annual loss

through theft is well over £100 million in Great

Britain, with employees’ criminal activity being the

main contributing factor.

Pilferage levels are con-

sistently high in Bangladesh and substantial in India.

There are a few techniques that may be used as

deterrents. One method of discouraging theft is to

use shrink wrapping, seals, or strapping. Gummed

sealing tapes with patterns, when used, will quickly

reveal any sign of tampering. In addition, only

well-constructed packing in good condition should

be used.

Another area of concern is marking. The main

purpose of marking is to identify shipments so that

the carrier can forward the shipment to the desig-

nated consignee. Markings thus should not be used

to advertise the contents, especially when they are

valuable or highly desirable in nature. A ﬁrm is

also wise to avoid mentioning the contents, trade

names, consignees’ names, or shippers’ names on

the package because these markings reveal the

nature of the contents. Because markings are still a

necessity, they should be permanent, though so-

called blind marks should be used.To avoid handlers

becoming familiar with the markings, blind marks

should be changed periodically. Bright color coding

helps in spotting the pieces.

Packing alone should not be expected to elimi-

nate theft. Packing should be used in conjunction

with other precautionary measures. One of the

most effective means of reducing exposure to theft,

pilferage, and hijacking is to insist on prompt

pickup and delivery. Another good idea is to avoid

shipping the cargo if it will arrive at its destination

on a weekend or holiday. One Chicago importer of

jewelry found, when he went to pick up his mer-

chandise at the O’Hare airport on a Monday, that

the cargo had already been claimed by someone else

over the weekend.

Cargo theft is a signiﬁcant concern everywhere,

especially in developing countries. In Mexico, since

the mid-1990s,truck hijackings have become an epi-

demic. Criminals prefer medicines, clothing, food,

and consumer electronics because these items can be

quickly sold. Because of the rising claims and losses,

insurance companies have drastically increased the

premiums on cargo insurance while requiring higher

deductibles. As a result, some companies (e.g.,

Nestlé) no longer insure cargo, choosing to cover

losses themselves. For protection, they have beefed

up security.Trucks may travel in convoys, or they are

accompanied by armed escorts. Global positioning

systems are used to track trucks.

Containers

An increasingly popular method of shipment is con-

tainerization. The growth of the use of containers

has been explosive.About 90 percent of the world’s

cargo now travels via containers.

A container is a large box made of durable

material such as steel, aluminum, plywood, and

glass reinforced plastics. A container varies in size,

materials, and construction. Its dimensions are typ-

ically 8 ft high and 8 ft wide, with lengths usually

varying in multiples of 10 ft up to a maximum of

40 ft.A container can accommodate most cargo but

is most suitable for packages of standard size and

shape. Some containers are no more than truck

bodies that have been lifted off their wheels and

placed on a vessel at the port of export.These con-

tainers are then transferred to another set of wheels

at the port of import for inland movement. This

type of container may be loaded on to a ship, or may

become a barcar when placed on a railway ﬂatcar,

or may be made into a trailer when provided with

a chassis. Containers are ordinarily obtained from

either carriers or private parties.

Containers can take care of most of the four main

packing problems. Because of a container’s con-

struction, a product does not have to have heavy

packing. The container by itself provides good pro-

tection for the product against breakage, moisture,

and temperature. Because breaking into a container

is difﬁcult, this method of shipment discourages

pilferage and theft as well. In addition, containers

have substantially reduced the average transit time

of ocean-shipped goods.

It is important to select the right container

because containers come in varying sizes and types.

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There are two basic types of container: (1) dry cargo

containers, and (2) special purpose containers. Some of

the various types of dry cargo containers are end

loading, fully closed; side loading, fully enclosed;

and open top, ventilated, insulated. Special purpose

containers come in different types for refrigerated,

liquid bulk, dry bulk, ﬂat rack, auto, livestock, and

sea shed.

Exporters may have to plan for the return of

secondary packaging or the container, or both.

Argentina’s inefﬁcient exports force those who do

business with Argentina to ship most containers back

empty.

One US car maker, after experimenting

with containers, resumed shipping parts in wooden

crates instead. Japanese ﬁrms have partially solved

the Argentina problem by using collapsible racking

and shipping systems so that items can be more

densely packaged for return shipment.

Shipments by air do not usually require the heavy

packaging that ocean shipments need. Standard

domestic packing should prove sufﬁcient in most

cases.When in doubt, however, a company should

consult the carrier or a marine insurance company

for the best packing strategy. For a case in which a

ﬁrm is not equipped to do its own packing, there

are professional ﬁrms that package for export.

FREIGHT FORWARDER AND CUSTOMS

BROKER

There are two intermediaries whose services are

quite essential in moving cargo for their principals,

across counties as well as within countries: freight

forwarders and custom brokers. Their differing

roles in the distribution process are shown in

Figure 13.5.A freight forwarder generally works for

exporters, whereas the customs broker generally

works for importers. Because the functions are

similar, freight forwarders sometimes act as customs

brokers and vice versa.

A freight forwarder is responsible for the for-

warding of freight locally as well as internationally.

He or she is an independent businessperson who

handles shipments for compensation. The kind of

freight forwarder of concern here is the foreign or

international freight forwarder who moves goods

destined for overseas destinations.

A foreign freight forwarder is an exporter’s agent

(shipping agent) who performs virtually all aspects

of physical distribution necessary to move cargo

to overseas destinations in the most efﬁcient and

economic manner. To comply with export docu-

mentation and shipping requirements, the freight

forwarder can take care of cargo from “dock to

door.” The services, when needed, include “the

correct ﬁling of export documentation, all arrange-

ments with carriers, packing, crating and storage

needs.”

This freight forwarder can represent ship-

pers in both air and ocean freight shipments because

the procedures and documents required are very

similar.

The freight forwarder’s major contribution to

the exporter is his or her ability to provide trafﬁc

and documentation responsibilities for international

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PHYSICAL DISTRIBUTION AND DOCUMENTATION

US manufacturer US customs

Freight forwarder

Foreign buyerForeign customs

Custom broker

Figure 13.5 Intermediaries that facilitate physical distribution

freight movements. This middleman handles the

voluminous paperwork required in international

trade, and is highly specialized in (1) trafﬁc opera-

tions (methods of shipping), (2) government export

regulations,(3) overseas import regulations, and (4)

documents connected with foreign trade and

customs clearance. In brief, the freight forwarder

arranges all necessary details for the proper ship-

ping, insuring, and documenting of overseas

shipments.

The freight forwarder can assist an exporter

from the very beginning in preparing a shipment for

overseas. Once the exporter receives an inquiry, it

can turn to the freight forwarder for assistance in

preparing its quotation. The freight forwarder can

advise the exporter on freight costs, port charges,

consular fees, cost of special documentation, insur-

ance costs, and the forwarder’s handling fees, as well

as recommend the degree of packing needed, or

arrange to have the merchandise packed or have it

containerized.

The freight forwarder also prepares ocean bills

of lading and any special consular documents, and

reviews letters of credit, packing lists, and so on to

ensure that all procedures are in order. After the

shipment is made,the freight forwarder forwards all

documents to the customer’s paying bank with

instructions to credit the exporter’s account.

The freight forwarder can assist the exporter in

other areas.This person can reserve space aboard an

ocean vessel. He or she may consolidate small ship-

ments into full container loads and, by so doing, can

receive a lower rate from the carrier and pass on the

savings to the shipper. The freight forwarder can

arrange to clear goods through customs and to have

the goods delivered to the pier in time for loading.

This middleman then handles the goods from exit

port to destination. If desired, the freight forwarder

can further move goods inland in a foreign country

through various afﬁliates. According to one study,

freight forwarders feel that the United Kingdom is

the easiest and China is the most difﬁcult with regard

to arranging international freight operations.

The freight forwarder receives a fee from

exporters. The service cost is a legitimate export

cost and should be ﬁgured into the contract price

charged to buyers. In addition, this person may

receive a brokerage fee and/or rebates from ship-

ping companies for booked space. In such cases, the

freight forwarder’s commission is paid by the ship

lines. Because freight forwarders control most of

the smaller shipments and because the less-than-

container (LTC) trafﬁc accounts for 17 to 18

percent of the business, carriers woo freight for-

warders with extra rebates.

The counterpart of the freight forwarder for an

exporter is the customs broker for an importer. As

an individual or ﬁrm licensed to enter and clear

goods through customs, a customs broker is a

person or ﬁrm employed by an importer to take

over the responsibility of clearing the importer’s

shipments through customs on a fee basis.A licensed

customs broker named in a Customs Power of

Attorney can effect entry. This broker is bonded,

and the broker’s bond provides the required cover-

age to carry on the responsibilities of the job. A

customs broker may also act as a freight forwarder

once the shipment is cleared. In the USA, a customs

broker must be licensed by the Treasury Depart-

ment in order to perform these services.

The customs broker is indispensable in the

receipt of goods from overseas. The services are

valuable because the requirements for customs

clearance are complicated.To effect entry, a person

must have evidence of right to entry (carrier’s cer-

tiﬁcate), in addition to the commercial invoice,

packing, and surety. Moreover, the person must ﬁll

out forms with regard to dutiable status and must

also have the goods examined under conditions

that safeguard the goods before they are released.

Overall, entry is a two-step process – getting goods

released and providing information for duty assess-

ment and statistical purposes. The customs broker

is in the best position to fulﬁll these requirements.

DOCUMENTATION

It is not an exaggeration to say that “paper moves

cargo.” To move cargo, documentation is a necessity.

American ﬁrms used to complain about the cost of

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documentation and shipping in the EU. Documenta-

tion alone added 3 to 5 percent of the total cost of

goods sold (see Marketing Strategy 13.1).

International direct marketers need to ensure

that their delivery methods are convenient for their

customers. As in the case of WearGuard Work

Clothes, a US company, it has four options to ﬁll

orders for Canadian customers: US Postal Service

parcel post, courier companies, bulk shipment, and

local fulﬁllment. In the end, it chose TNT Mailfast

to bring WearGuard’s parcels into Canada, clear

them at customs, and give them to Canada Post for

local delivery. This method allows Canadian cus-

tomers to receive the merchandise without having

to pay duties or additional fees. The company also

has a Canadian address so that Canadian customers

can conveniently mail packages in case of customer

returns.

Product transportation in the European Union

has become easier and more efﬁcient. As of 1993,

border controls were removed. Border stops are

limited to checking on legal matters such as illegal

immigration and drug trafﬁcking. Since 1995, some

EU states have allowed people to move freely within

the EU without having to show their passports.

To facilitate cargo movement, nations have been

working toward automated customs – paperless

international customs procedures. The Customs

Cooperation Council, representing more than 130

nations, has approved a plan whereby customs

administrations around the world can work toward

electronic data interchange. The main standards

body for international electronic message is a

United Nations-backed group called Edifact

(Electronic Data Interchange for Administration,

Commerce, and Transport). While Japanese com-

panies do business with one another electronically,

they use their own standards, which force outsiders

wanting to establish computerized links to engage

in expensive programming and translation efforts.

Edifact, however, works everywhere. Japan has

ﬁnally agreed to join with Singapore to create a

regional Edifact board. By sending standardized

digital messages at computer speeds, importers can

bypass piles of bureaucratic paperwork. Use of

paperless trading technology should signiﬁcantly

improve the speed and efﬁciency of data and global

trade.

Exporters may want to consider purchasing an

export-automation software package. Some of the

export software incorporates the electronic data

interchange (EDI) technology, making it possible

for exporters to send computer-generated forms

electronically rather than mailing the documents to

freight forwarders, customers, banks, and govern-

ment agencies.

To ﬁll out the required documents, a company

must insert the proper identiﬁcation number for its

product. All products must be “shoehorned” into

some kind of category. If a product is constructed

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At one time, New Zealand Customs ofﬁcials inspected

every shipment as well as interacting with every

person at the border. These practices are time-

consuming and inefﬁcient, so the country has begun

to use risk-management strategies that allow the

ofﬁcials to focus on a truly suspicious activity while

permitting legitimate goods and persons to quickly

cross the border. Prior to customs reforms, for

example, boat builders had to pay a duty on imported

boat parts and later obtain a refund after the expor-

tation of a completed craft. The process necessitated

a great deal of paperwork ﬂowing back and forth.The

reforms have made it possible for boat makers to

merely register the parts with the Customs Service

without having to tie up capital for months – not to

mention less paperwork. New Zealand now collects

relevant taxes and duties with a minimum of inter-

vention.

Source:

Mike Moore, “Tariff Reductions Aren’t Enough,”

Asian Wall Street Journal

, June 19, 2001.

MARKETING STRATEGY 13.1 LESS IS MORE

out of several materials, it may be classiﬁed by the

material that gives it its essential character. On

January 1, 1989, the Harmonized Tariff System

(HTS) went into effect. This system, designed to

replace previous systems for classifying exports,

contains logically structured nomenclature. There

are twenty-one sections and ninety-nine chapters

to arrange commodities according to general

economic activity. The sections and chapters are

arranged according to levels of processing, with

primary commodities classiﬁed ﬁrst, followed by

the technically more complex products.

The HTS assigns a number to each product that is

traded internationally to ensure that customs ofﬁ-

cers and statisticians around the world are referring

to the same thing when they classify a particular

product.Almost all countries now use the HTS.The

HTS number refers to a six-digit product-speciﬁc

code. To meet each country’s statistical and tariff

requirements, the remaining digits are country-

speciﬁc. Certain countries also use either alphabeti-

cal subdivisions after the six digits or combined

alphanumerical systems, making the entire number

ten digits long. This is what the USA does with

its Schedule B system when describing US

imports.

As an example,the HS code for “widgets”

is 12.34.56.78.90, the breakdowns are 12 (chap-

ter), 12.34 (heading), 12.34.56 (subheading),

12.34.56.78 (tariff item), and 12.34.56.78.90 (HS

classiﬁcation number).When researching tariff rates

for any region, it is important to ﬁrst have the

Harmonized System Number (HS) that corresponds

to the product in question in order to obtain the

exact rate.

Due to terrorist activities, security has assumed

much greater prominence. The focus has shifted

from drug smuggling to smuggling of biological,

chemical, and nuclear weapons. In the aftermath of

September 11, 2001 attacks on the USA, a more

secure shipping network is a necessity. Some secu-

rity measures that can be employed are: greater

security at a plant or loading dock, greater security

during transport, submitting information on cargo

in advance, and using electronic seals for container

shipments.

Documentation now plays a signiﬁcant role in

combating terrorism. The twenty-four-hour rule

requires a ﬁling of detailed cargo information a full

day before containers are loaded aboard US-bound

vessels. In the past, it was hardly unusual for a con-

tainer to be loaded at the last minute. Once on

board, the cargo could still be sold, necessitating a

change in destination. Freight forwarders could

simply forward cargo information just ﬁve days

before the cargo reached a US port. The cargo

descriptions could be vague (e.g.,“freight-any-kind”

or “general freight”). These descriptions are no

longer accepted. US Customs now requires shippers

and freight forwarders to electronically submit a

cargo manifest (a complete description of the cargo)

to the National Targeting Center. Any suspicious or

incomplete lists receive “no-load” messages. There

are plans to require air, rail, and truck companies

(just like their ocean counterparts) to list cargo

manifests well in advance of arrival at airports, rail

yards, and truck depots. Before the events of

September 11, only 2 percent of cargo containers

were inspected.The percentage has gone up to only

3 or 4 percent due to the sheer number of contain-

ers at US ports.

There are many kinds of documents, and they

can be grouped under two broad categories: (1)

shipping documents, and (2) collection documents.

Shipping documents are prepared to move shipment

through customs, allowing the cargo to be loaded,

shipped, and unloaded. Collection documents,

in contrast, are submitted to a customer or the

customer’s bank for payment.

Shipping documents

There are several kinds of shipping documents. Such

documents include export license and shipper’s

export declaration forms, among others.

Export license

An export license is a permit allowing merchandise

to be exported, and virtually all countries require

some form of export permit. In the case of the

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USA, an export license is needed on all exports,

except for shipments going to Canada and US ter-

ritories and possessions. The USA has two broad

categories of export licenses: general and validated.

The difference between the two has to do with

whether a particular license requires prior, written

approval from the US Department of Commerce.

The type of license required depends on the sophis-

tication of the product, the destination country, the

end use, and the enduser.

General license

A general license is a license for which no applica-

tion is required and for which no document or

written authorization is granted. It is a general

authorization permitting the export of certain com-

modities and technical data without the necessity of

applying for a license document. A general license

allows the export through the Export Administra-

tion Regulations of all goods published in an autho-

rization list and covers the export of nonstrategic

goods (commodities not under restriction or

control). Products that meet speciﬁc conditions may

be shipped by merely inserting a correct general

license symbol on the export control document

known as a shipper’s export declaration.

Validated export license

If an exporter does not qualify for a general license,

the exporter may apply for a validated export

license which, in effect, is a formal authorization

document.The USA requires this kind of licensing

for reasons of national security (strategic signiﬁ-

cance), short supply, or foreign policy. National

security controls were necessary to prevent the

export of strategic commodities and technical data

to communist countries. Foreign policy controls,

such as the restrictions placed on exports to South

Africa and Namibia, are instituted by such licensing

to promote US foreign policy. In the case of short-

supply controls, the licenses are granted with an

eye to preventing the depletion of scarce materials

(e.g.,Western red cedar and petroleum).

Many of the products shipped under individual

validated licenses (IVLs) and special licenses need

pre-export paperwork (e.g., a foreign consignee/

purchaser statement or a government-issued import

certiﬁcate) to obtain the necessary license. IVLs

authorize individual sales of a certain product to a

certain customer in a certain country. Special

licenses (e.g., project and distribution licenses)

authorize the sale of a range of products to many

customers if exporters can show that they have

implemented a strict control process.

For control purposes, the USA regulates com-

puter exports by creating four tiers of countries.

The Tier 1 countries are the closest allies. Tier 2,

the largest group, has most of the rest of the world.

Countries in Tier 3 are those that USA is wary of,

and they include China, Israel, and Russia. The

Tier 4 countries are American enemies and rogue

states (Cuba, Iran, Iraq, Libya, North Korea, Sudan,

and Syria), and computer exports to them are

prohibited.

Frequently, export controls are coordinated at

the international level. Most of the export controls

maintained by the USA are multilateral controls in

the sense that they are maintained in cooperation

with other countries.To coordinate export controls

for security purposes, Western allies relied on an

organization known as COCOM (Coordinating

Committee on Multilateral Exports Control).

COCOM, the most signiﬁcant multilateral export

control group, was created in 1949 to restrict the

availability of strategic Western technology to con-

trolled economies. In response to the rapidly chang-

ing international political and military environment,

COCOM was disbanded in the 1990s.

For the USA, sensitive items continue to require

an individual validated license (IVL) for export

to the West. The sensitive items include advanced

computer equipment, certain underwater detection

equipment, and cryptographic equipment. Items

that are controlled for foreign policy reasons con-

tinued to require an IVL. On the other hand, in

1989, the Commerce Department removed unilat-

eral export restrictions on a broad group of goods

and technology. The new rule makes it possible to

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ship without prior approval many commonly avail-

able items that were controlled for national security

reasons for more than twenty-ﬁve years. Decon-

trolled items include general industrial equipment,

photographic equipment, servo-mechanical units

and synchronous motors, and a broad range of

industrial chemicals.

The Export Administration of 1979 requires

the Commerce Department to remove licensing

requirements for US exports when items of com-

parable quality are freely available to Eastern Bloc

countries in sufﬁcient quantities to render US

export controls ineffective. The 1988 Omnibus

Trade Act also requires lifting export controls on

high-technology products already available to

former Eastern Bloc nations from other sources.

Seagate Technology Inc. ﬁled a petition in 1989

to remove small-capacity disk drives from long-

standing export controls by demonstrating that a

Bulgarian company, using its own technology, has

been manufacturing comparable products.

Foreign and US ﬁrms that illegally export US

products risk losing their export privileges. Exhibit

13.1 describes how business ﬁrms can watch out for

illegal export schemes.

In spite of the export control, many US com-

panies have been found to violate export laws.

Hughes Electronics and Boeing Satellite Systems,

the two top US aerospace companies, paid a record

$32 million in ﬁnes in 2003 for unlawfully transfer-

ring rocket and satellite data to China in 1990s.The

technology used to launch civilian rockets and satel-

lites is similar to the technology for launching mis-

siles.The companies “express regret for not having

obtained licenses that should have been obtained”

and “acknowledge the nature and seriousness of the

offenses charged by the Department of State,

including the harm such offenses could cause to the

security and foreign policy interests of the USA.”

To settle similar cases, Lockheed Martin and Loral

Space and Communications paid ﬁnes of $13 million

and $20 million.While regulations can be complex,

it is difﬁcult to understand how these large com-

panies, with all their resources and export know-

ledge, have failed to understand the export

regulations of the USA.

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The following are some possible indicators that an ille-

gal diversion might be planned by an export customer:

■ The customer or purchasing agent is reluctant to

offer information about the end use of a product.

■ The product’s capabilities do not ﬁt the buyer’s line

of business: for example, an order for several

sophisticated computers for a small bakery.

■ The product ordered is incompatible with the tech-

nical level of the country to which the product is

being shipped. Semiconductor manufacturing

equipment would be of little use in a country

without an electronics industry.

■ The customer is willing to pay cash for a very

expensive item when the terms of the sale call for

ﬁnancing.

■ The customer has little or no business background.

■ The customer is unfamiliar with the product’s

performance characteristics but still wants the

product.

■ Routine installation, training, or maintenance ser-

vices are declined by the customer.

■ Delivery dates are vague, or deliveries are planned

for out-of-the-way destinations.

■ A freight forwarding ﬁrm is listed as the product’s

ﬁnal destination.

■ The shipping route is abnormal for the product and

destination.

■ Packaging is inconsistent with the stated method

of shipment or destination.

■ When questioned, the buyer is evasive and espe-

cially unclear about whether the purchased

product is for domestic use, export, or re-export.

Source:

US Department of Commerce.

EXHIBIT 13.1 POSSIBLE INDICATORS OF ILLEGAL EXPORT SCHEMES

Shipper’s export declaration (SED) form

In the majority of cases, exporters need to declare

their shipments. American exporters, for example,

are required to ﬁle SEDs for virtually all shipments,

including hand-carried merchandise, and they must

be deposited with an exporting carrier regardless of

the type of export license. Exemptions apply to

shipments to certain countries when the value is

$2500 or less and when the shipment is not moving

under a validated export license.

The SED is a multipurpose document. One of its

purposes is to serve as an export control document.

It declares the proper authorization for export by

making reference to some type of export license.

Another purpose of the SED is to compile basic

statistical information on export shipments. These

data are compiled and published to show the types

of commodities exported and the countries that

imported them.

Hazardous certiﬁcate

To export hazardous cargo, an exporter must use a

shipper’s certiﬁcation or declaration of dangerous

cargo. This document, required for all hazardous

shipments, is used to describe the contents by pro-

viding the details and qualities of the items being

shipped, their proper classiﬁcation, required labels,

and so on. This declaration must always be com-

pleted by the shipper (preferably on the shipper’s

letterhead) and signed by the shipper. There is no

prescribed form for ocean shipments of hazardous

materials at the present time. For all hazardous ship-

ments moving via air freight, a shipper’s declaration

of dangerous cargo (air cargo) must be submitted to

the airline.

Packing list

A packing list is a document that lists the type and

number of pieces, the contents, weight, and mea-

surement of each, as well as the marks and numbers.

Its purpose is to facilitate customs clearance, keep

track of inventory of goods, and assist in tracing lost

goods. For insurance purposes, the packing list can

be used in determining the contents of a lost piece.

Furthermore, it is also useful in estimating shipping

cost prior to export.

Shipper’s letter of instructions

The shipper’s letter of instructions is a form pro-

vided to the freight forwarder from the shipper

giving all pertinent information and instruction

regarding the shipment and how it is to be handled.

When signed by the shipper, it also authorizes the

forwarder to issue and sign documents on behalf of

the shipper.

Dock receipt

A dock receipt is proof of delivery for goods

received at the dock or warehouse of the steamship

line.This document is required for shipments sailing

from ports on the US East and Gulf coasts. Six

copies of the dock receipt must be lodged at the

receiving warehouse before freight can be accepted.

Collection documents

Before a seller can request payment, the seller must

provide the buyer with a number of documents

showing that the terms agreed upon have been ful-

ﬁlled.The buyer requires such documents to protect

itself and to satisfy its government’s requirements.

Commercial invoice

To collect payment, an invoice is needed.There are

two kinds of invoices: (1) pro forma and (2) commer-

cial. A pro forma invoice is an invoice provided by

a supplier prior to the shipment of merchandise.The

purpose of this invoice is to inform the buyer of the

kinds and quantities of goods to be sent, their value,

and import speciﬁcations (weight, size, and so on).

The buyer may also need the pro forma invoice in

order to be able to apply for an import license

and/or a letter of credit.

A commercial invoice is a document that

provides an itemized list of goods shipped and

other charges.As a complete record of the business

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PHYSICAL DISTRIBUTION AND DOCUMENTATION

transaction between two parties, it provides a com-

plete description of merchandise, quantity, price,

and shipping and payment terms. It is desirable that

this invoice contains a breakdown of charges such

as those related to inland transportation, loading,

insurance, freight, handling, and certiﬁcation.

Because the invoice is required to clear goods

through customs,all necessary information required

by the buyer’s government must be included.

The requirements of the exporter’s country must

be satisﬁed as well.The USA prohibits certain goods

from being diverted to countries such as North

Korea and Cuba.Therefore, the invoice may have to

be prepared so that it includes an antidiversion

clause or destination control statement. According

to section 387.6 of the Export Administration

Regulations, “No person may export, dispose of,

divert, direct, mail or otherwise ship, transship, or

re-export commodities or technical data to any

person or destination or for any use in violation of

or contrary to the terms, provisions, or conditions

of any export control document, any prior repre-

sentation, any form of notiﬁcation of prohibition

against such action, or any provision of the Export

Administration Act or any regulation, order, or

license issued under the Act.”

Foreign customs invoice

A customs invoice is a special format invoice

required by customs ofﬁcials in some countries in

lieu of the commercial invoice, as those ofﬁcials may

not recognize the commercial invoice for customs

purposes. A foreign customs invoice is shown in

Figure 13.6.This type of invoice generally contains

the same information as the commercial invoice and

may also contain certiﬁcation with regard to value

and origin of the shipment.

Consular invoice

In addition to the regular commercial invoice,

several countries, notably those in Latin America,

require legalized or visaed documents that often

include a special kind of invoice known as a consular

invoice. A consular invoice lists detailed comments

prepared by a seller in the importing country’s lan-

guage on an ofﬁcial form supplied by the importer’s

government. Its purpose is to monitor merchandise

and capital ﬂows. Exhibit 13.2 lists those countries

that require such documents.

A consular invoice must have an ofﬁcial stamp,

seal, or signature afﬁxed to it.This is the responsi-

bility of the consulate general, who is a representa-

tive of the government of the importing country.

The resident consul is supposed to verify the con-

tents of the invoice (e.g., value, quantity, and nature

of shipment) and to certify its authenticity and cor-

rectness. Usually, there is a fee for this service;

Bolivia’s consular fees for the notarization of

invoices are 1 percent of the FOB value.

It is signiﬁcant to keep in mind that the consulate

is not obligated to facilitate imports by approving

the submitted documents quickly. Because the

consul may take his or her time in returning the

visaed documents, an exporter should allow rea-

sonable time for the processing of a consular

invoice. It can be a frustrating experience to rush

the consulate for the documents while the shipment

is waiting.

Since a consular invoice is a legal document, any

errors noted later require special consideration.An

exporter cannot simply make corrections on a con-

sular invoice that has been certiﬁed. Such correc-

tions are considered forgery, and the criminal

penalty can be quite severe.

Although a consular invoice usually contains

the same information as a commercial invoice, the

actual information required by the consulate

depends on where the shipping is to be made. The

best way to ﬁnd out what is speciﬁcally required is

to speak directly with the consulate or to consult

one of the reference manuals available, such as Dun

and Bradstreet or the International Trade Reporter of the

Bureau of National Affairs (BNA).

Certiﬁcate of origin

A certiﬁcate of origin is a document prepared by

the exporter and used to identify or declare that

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PHYSICAL DISTRIBUTION AND DOCUMENTATION