International trade carries its own particular terminology. The following are general trade expressions that new exporters will encounter in published sources and trade discussions.
Agent
A representative who tries to sell your product in the target market. The agent does not take possession of – and assumes no responsibility for – the goods. Agents are paid on a commission basis.
Bill of Lading (Ocean or Airway)
A contract prepared by the carrier or the freight forwarder with the owner of the goods. The buyer needs this document to take possession of the goods.
Certificate of Origin
A document prepared by the exporter or freight forwarder, and required by the buyer, to prove ownership and arrange for payment to the exporter. It should provide basic information about the transaction, including description of goods, address of shipper and seller as well as delivery and payment terms. In some cases, the commercial invoice is used to assess Custom duties.
Commercial Invoice
Represents a complete record of the transaction between exporter and importer with regard to the goods sold. Also reports the content of the shipment and serves as the basis for all other documents about the shipment.
Countertrade
A general expression meaning the sale or barter of goods on a reciprocal basis. There may also be multilateral transactions involved.
Customs Invoice
A document used to clear goods through Customs in the importing country by providing documentary evidence of the value of goods. In some cases, the commercial invoice (see above) may be used for this purpose.
Distributor (Importer)
A company that agrees to purchase an exporter’s product(s), and then takes responsibility for storing, marketing and selling them.
Dock Receipt
A receipt issued by an ocean carrier to acknowledge receipt of a shipment at the carrier’s dock or warehouse facilities (see also Warehouse Receipt).
Landed Cost
The cost of the exported product at the port or point of entry into the foreign market, but before the addition of foreign tariffs, taxes, local packaging/assembly costs and local distributors’ margins. Product modifications prior to shipment are included in the landed cost.
Packing List
A document prepared by the exporter showing the quantity and type of merchandise being shipped to the buyer.
Export Permit
A legal document that is necessary for the export of goods controlled your by government, specifically goods included on the Export Control List of goods destined for countries on the Area Control List.
Ex Factory
Used in price quotations, an expression referring to the price of goods at the exporter’s loading dock.
Ex Works (EXW)
A price that normally includes export credit insurance, financing charges and profit margin. It excludes costs related specifically to domestic marketing activities.
Freight Forwarder
A service company that handles all aspects of export shipping for a fee.
Import Tariff
A tax levied on imported goods by the importing country’s government. Canada imposes tariffs on some imported items. (Under the NAFTA, most import tariffs on goods originating from the US and Mexico have been eliminated.)
Insurance Certificate
A tax levied on imported goods by the importing country’s government. Canada imposes tariffs on some imported items. (Under the NAFTA, most import tariffs on goods originating from the US and Mexico have been eliminated.)
Landed Cost
The cost of the exported product at the port or point of entry into the foreign market, but before the addition of foreign tariffs, taxes, local packaging/assembly costs and local distributors’ margins. Product modifications prior to shipment are included in the landed cost.
Packing List
A document prepared by the exporter showing the quantity and type of merchandise being shipped to the buyer.
ProForma Invoice
An invoice prepared by the exporter prior to shipping the goods, informing the buyer of the goods to be sent, their value and other key specifications.
Quotation
An offer by the exporter to sell the goods at a state price and under certain conditions.
Trading House
A company specializing in the exporting and importing of goods produced or provided by other companies.
Warehouse Receipt
A receipt identifying the commodities deposited in a recognized warehouse. A non-negotiable warehouse receipt specifies to whom the deposited goods will be delivered or released. A negotiable receipt states that the commodities will be released to the bearer of the receipt.
Shipping terms set the parameters for international shipments, specify points of origin and destination, outline conditions under which title is transferred from seller to buyer, and determine which party is responsible for shipping costs. They also indicate which party assumes the cost if merchandise is lost or damaged during transit. To provide a common terminology for international shipping, the following are the most common INCO terms developed under the auspices of the International Chamber of Commerce.
All Risk
This is the most comprehensive type of transportation insurance, providing protection against all physical loss or damage from external causes.
Cost and Freight (C&F)
The exporter pays the costs and freight necessary to get the goods to the named destination. The risk of loss or damage is assumed by the buyer once the goods are loaded at the port of embarkation.
Cost, Insurance and Freight (C.I.F.)
The exporter pays the cost of goods, cargo and insurance plus all transportation charges to the named port of destination.
Delivered at Frontier
The exporter/seller’s obligations are met when the goods arrive at the frontier, but before they reach the “Customs border” of the importing country named in the sales contract. The expression is commonly used when goods are carried by road or rail.
Delivered Duty Paid
This expression puts maximum responsibility on the seller/exporter in terms of delivering the goods, assuming the risk of damage/loss and paying duty. It is at the other extreme from delivered Ex Works listed below, under which the seller assumes the least responsibility.
Delivered Ex Quay
The exporter/seller makes the goods available to the buyer on the quay or wharf at the destination named in the sales contract. There are two types of Ex Quay contracts In use: Ex Quay duty paid, whereby the seller incurs the liability to clear the goods for import, and Ex Quay duties on buyer’s account, whereby the buyer assumes the responsibility.
Delivered Ex Ship
The exporter/seller must make the goods available to the buyer on board the ship at the location stipulated in the contract. All responsibility/cost for bringing the goods up to this point falls on the seller.
Delivered Ex Works
This minimal obligation requires the seller only to make the goods available to the buyer at the seller’s premises or factory. The seller is not responsible for loading the goods on the vehicle provided by the buyer, unless otherwise agreed. The buyer bears all responsibility for transporting the goods from the seller’s place of business to their destination.
Free Alongside Ship (FAS)
The goods must be placed on the dock by the seller, alongside the vessel. The seller’s obligations are fulfilled at this point.
Packing List Free Carrier… (Named Port)
Recognizing the requirements of modern transport, including multimodal transport, this principle is similar to FOB, except that the exporter’s obligations are met when the goods are delivered into the custody of the carrier at the named port. The risk of loss/damage is transferred to the buyer at this time, and not at the ship’s rail. The carrier can be any person contracted to transport the goods by road, sea, air, rail or a combination thereof.
Free of Particular Advantage (FPA)
This type of transportation insurance provides the narrowest type of coverage – total losses, and partial losses at sea if the vessel sinks, burns or is stranded, are covered.
Free on Board (FOB)
The goods are placed on board the vessel by the seller at the port of shipment specified in the sales contract. The risk of loss or damage is transferred to the buyer when the goods pass the ship’s rail.
Free on Board Airport (FOB Airport)
Based on the same principles as the ordinary FOB expression, the seller’s obligation is fulfilled by delivering the goods to the air carrier at the specified airport of departure, at which point the risk of loss or damage is transferred to the buyer.
Free on Rail and Free on Truck (FOR/FOT)
Again, the same principles apply as in the case of ordinary FOB, except that the goods are transported by rail.
With Average (WA)
This type of transportation insurance provides protection from partial losses at sea.
The following are the most commonly used terms in international trade financing.
Cash in Advance (Advance Payment)
A buyer pays an exporter prior to actually receiving the exporter’s product(s). It is the least-risk form of payment from the exporter’s perspective.
Confirmed (or Irrevocable) Letter of Credit
An exporter’s bank confirms the validity of a letter of credit issued by an importer’s bank on behalf of the importer, guaranteeing payment to the exporter provided that all terms in the document have been met. An unconfirmed letter of credit does not guarantee payment; therefore, if the importer’s bank defaults, the exporter will not be paid. Exporters should accept only confirmed/ irrevocable letters of credit as a form of payment.
Confirming House
A company, based in the buyer’s country, that acts as the exporter’s agent and places confirmed orders with exporters. They guarantee payment to the exporters.
Consignment
Delivery of merchandise to the buyer or distributor, whereby the latter agrees to sell it and only then pay the exporter. The seller retains ownership of the goods until they are sold, but also carries all of the financial burden and risk.
Document of Title
A document that provides evidence of entitlement to ownership of goods, e.g., carrier’s bill of lading.
Documentary Collection
The exporter ships the goods to the foreign buyer without a confirmed letter of credit or any other form of payment guarantee.
Documentary Credit (Sight and Term)
A documentary credit calling for a sight draft means the exporter is entitled to receive payment on sight, i.e., upon presenting the draft to the bank. A term documentary credit may allow for payments to be made over terms of 30, 60, or 90 days, or at some specified future date.
Draft (Bill of Exchange)
A written, unconditional order for payment from one party (the drawer) to another (the drawee). It directs the drawee to pay an indicated amount to the drawer. A sight draft calls for immediate payment. A term draft requires payment over a specified period.
Export Financing House
A company that purchases an exporter’s foreign receivables on a non-recourse basis upon presentation of proper documentation. It then organizes export arrangements and provides front-end financing to the foreign buyer.
Factoring House
A company that buys export receivables at a discount.
Letter of Credit
This is the most common method of payment in international trade as it provides protection to both parties involved in a transaction.
Open Account
An arrangement in which goods are shipped to the buyer before the exporter receives payment.
The following expressions define the various types of partnership or alliance arrangements common in international trade.
Co-Marketing
Carried out on the basis of a fee or percentage of sales, co-marketing is an effective way to take advantage of existing distribution networks and a partner’s knowledge of local markets.
Co-Production
This arrangement involves the joint production of goods, enabling firms to optimize their own skills and resources as well as to take advantage of economies of scale.
Cross-Licensing
In this form of partnership, each firm licenses products or services to the other. It is a relatively straightforward way for companies to share products or expertise.
Cross-Manufacturing
This is a form cross-licensing in which companies agree to manufacture each other’s products. It can also be combined with co-marketing or co-promotion agreements.
Franchise
This is a more specific form of licensing. The franchise is given the right to use a set of manufacturing or service delivery processes, along with established business systems or trademarks, and to control their use by contractual agreement.
Joint Venture
An independent business formed co-operatively by two or more parent firms. This type of partnership is often used to avoid restrictions on foreign ownership and for longer-term arrangements that require joint product development, manufacturing and marketing.
Licensing
Although not usually considered to be a form of partnership, licensing can lead to partnerships. In licensing arrangements, a firm sells the rights to use its products or services but retains some control.
Strategic Venture
This covers a wide range of agreements such as licensing which usually are incremental to normal agency agreements. Both parties benefit over the long term and the sophistication of the arrangement goes beyond the exchange of goods.