Foreign Trade III: Documents Used in Foreign Trade – SS1 Commerce Lesson Note (Second Term)

Documents used in foreign trade are the papers that exporters, importers, shipping companies and customs authorities use to record, prove and control the movement of goods between countries. They show who owns the goods, what is being sent, how much it is worth, how it is transported and insured, and what duties are payable.

Behavioural objectives

By the end of the lesson, students should be able to:

• list the documents used in foreign trade;
• explain the bill of lading and state its importance;
• distinguish between a clean bill and a dirty bill of lading;
• distinguish between an open indent and a closed indent;
• state the purpose of documents such as the airway bill, certificate of origin, consular invoice, freight note and export invoice.

Which documents are used in foreign trade?

1. Bill of lading
2. Airway bill
3. Indent
4. Certificate of insurance
5. Consular invoice
6. Ship manifest
7. Mate’s receipt
8. Certificate of origin
9. Weight note
10. Dock landing account
11. Export/import licence
12. Customs specification
13. Dock warrant
14. Export invoice
15. Ship report
16. Freight note
17. Bill of health
18. Shipping note

What is a bill of lading?

A bill of lading is a document which enables the holder to claim ownership of the goods on arrival. It is a document of title to goods on board. It contains the name of the ship, the names of the shippers, the quantity and types of goods, etc. It is usually prepared by the ship owner in copies, one each for the exporter, the shipper and the importer.

Types of bill of lading

A bill of lading can be a dirty bill or a clean bill.

• Dirty bill: issued when there are some damages or deficiencies in the goods.
• Clean bill: signed by the transporter to show that the goods are in perfect condition or free from damage.

Importance of the bill of lading

1. It is a document of ownership.
2. It acts as a contract of carriage between the exporter and the shipping company.
3. It represents a receipt for the goods shipped.
4. It is a document of evidence.

What are the other documents used in foreign trade?

Airway bill

An airway bill is a document used, like a bill of lading, when goods are sent by air. It is made in triplicate: one copy for the exporter or consignor and one for the importer or consignee. It is not a document of title.

Certificate of origin

This is a document that states the country from which the shipment of goods comes or in which the goods were manufactured. It helps to determine customs duties and to obtain preferential tariffs. It also enables the customs and excise authority to determine the duties the importer should pay on the goods.

Consular invoice

This is a document signed by the buyer’s consul. It is used to assess liability for import duties and to ensure that the goods have been correctly priced. It lists the prices of the goods being sent.

Weight note

A weight note is a document supplied by a seller to the buyer which specifies the weight and measurement of the goods when the sale is effected. The port authorities also issue it to the exporter when he delivers the goods at the dock, specifying the weight and measurement of the goods.

Indent

An indent is an order to buy goods, sent by the buyer or importer to the seller, the exporter or his agent. It is a foreign order which gives details of the goods required by the purchaser. An indent can be open or closed.

• Open indent: the indent allows the agent to buy the goods from any source, that is, the choice of producer is not specified.
• Closed or specified indent: the importer sends an indent to an agent in another country with the instruction to buy specific goods from a main manufacturer.

Certificate of insurance

This is a document which proves that the parties to the transaction have insured the goods in transit. It is a marine insurance certificate, also known as a policy of insurance. The insurance may be taken out by the exporter or the importer, depending on the agreement between the two parties.

Export/import licence

Developing countries impose protectionist laws to control international trade, which may otherwise lead to the dumping of goods. Authority to import or export must therefore be obtained in the form of a licence before goods are exported or imported.

Dock warrant (also called wharfinger’s receipt or dock receipt)

A dock warrant is a receipt for goods stored in a warehouse, which entitles the holder to take possession of the goods. It states that the exporter has kept the goods at the warehouse waiting for loading, or that the importer’s goods are waiting to be cleared.

Freight note

This is issued by the shipping company to the exporter or importer, whoever is responsible for paying the cost of transportation, to inform them of the transport charges.

Shipping note

This is a document sent by an exporter to his shipping agents, containing instructions for shipping the goods. It is a request to ship the goods to their destination.

Export invoice

This is the document sent to the importer by the exporter, giving full details of the goods despatched: description, terms of sale, quantity, price, etc., and the total amount to be paid.

Customs specification

This is a document submitted to the customs authorities, who are responsible for recording the value of imports and exports. The information is needed to calculate the balance of trade, because it shows the value of goods exported and the country to which they have been consigned.

Evaluation

1. List five documents used in foreign trade.
2. Distinguish between a clean bill and a dirty bill of lading.
3. State the importance of the bill of lading.
4. Distinguish between an open indent and a closed indent.
5. What is the purpose of a certificate of origin?

Assignment

1. Write short notes on any three of the following: freight note, export invoice, dock warrant, consular invoice, airway bill.
2. Explain why an export/import licence is required before goods are exported or imported.