Buyers introduction to shipping documents

When shipping products internationally, there are several documents that are required to ensure a smooth and hassle-free delivery. These documents vary depending on the destination country, the type of goods being shipped, and the mode of transportation. In this blog post, we’ll provide a Buyers introduction to shipping documents…

List of shipping documents

As an expert forwarder, it’s important to know the key shipping documents involved in international trade. Each document plays a vital role in ensuring goods are shipped smoothly, legally, and securely across borders. Below, we’ll explore the most common shipping documents, explain what they contain, and highlight their purpose in a simple and easy-to-understand way.

Commercial Invoice

The Commercial Invoice is one of the most critical documents in any shipment. It’s essentially a bill provided by the seller to the buyer that outlines the goods sold, the price of the goods, and the terms of the sale (such as Incoterms). The commercial invoice is used by customs authorities to determine the true value of the imported goods for assessing customs duties and taxes.

Contents: The buyer and seller’s contact information, a description of the goods, the price per unit, total price, payment terms, and shipping details.
Purpose: Acts as proof of sale and is required by customs to determine the value of the goods and any applicable taxes or duties.

Bill of Lading (B/L)

The Bill of Lading is a key legal document issued by the carrier to the shipper. It serves three main purposes: as a receipt for the goods, as evidence of the contract between the shipper and the carrier, and as a document of title, meaning it can be used to claim ownership of the goods.

Contents: Shipper’s and consignee’s details, a description of the cargo, the point of origin, destination, and the carrier’s information.
Purpose: Proves the carrier has received the goods for shipment, serves as a contract of carriage, and acts as a document of title to the goods.

Packing List

The Packing List is a detailed breakdown of the contents of the shipment. It lists every item in the shipment, including weight, dimensions, and how the goods are packed. It’s usually attached to the outside of the packages to help with identification during transit and customs clearance.

Contents: Description of goods, quantity, weight, dimensions, packaging type (e.g., boxes, pallets), and any markings or labels on the packages.
Purpose: Helps carriers and customs officials identify the contents of the shipment and verify that everything matches the commercial invoice.

Certificate of Origin

A Certificate of Origin (CO) is a document used to certify where the goods were manufactured. This is important because the country of origin can affect duties, taxes, and import restrictions. Some countries have specific trade agreements, and the CO ensures the goods qualify for any preferential treatment under these agreements.

Contents: Name and address of the exporter, name and address of the importer, description of the goods, and the country where the goods were produced.
Purpose: Verifies where the goods were made, helps determine tariffs, and qualifies goods for preferential trade agreements.

Shipper’s Letter of Instruction (SLI)

The Shipper’s Letter of Instruction is a document provided by the exporter to the freight forwarder or carrier. It gives clear instructions on how the shipment should be handled, including details on packaging, labeling, and documentation. The SLI also contains instructions about how the goods are to be shipped and often includes insurance requirements.

Contents: Instructions for handling, packaging, and transporting the goods, any specific export controls or restrictions, and sometimes details about the insurance required.
Purpose: Ensures that the forwarder or carrier knows exactly how to handle the shipment according to the shipper’s requirements.

Air Waybill (AWB)

An Air Waybill is similar to a bill of lading but is used for air shipments. It is a non-negotiable document issued by the air carrier that serves as a receipt of goods and a contract of carriage between the shipper and the airline.

Contents: Shipper’s and consignee’s details, flight information, description of the goods, and any specific instructions for handling the cargo.
Purpose: Acts as a receipt of goods for air transport and provides details about the shipment for customs and the airline.

Import/Export Licenses

An Import or Export License is sometimes required depending on the type of goods being shipped and the country of origin or destination. It is issued by a government authority and grants permission to ship certain controlled goods.

Contents: Description of the goods, details about the importer or exporter, and the specific permission granted for the transaction.
Purpose: Ensures compliance with government regulations for controlled goods like chemicals, pharmaceuticals, or military equipment.

Insurance Certificate

The Insurance Certificate proves that the goods are covered by insurance during transit. This document is essential in case the shipment is damaged or lost during transportation. The shipper or buyer may take out insurance depending on the terms agreed upon.

Contents: Details about the insurance policy, including the coverage amount, the goods being insured, and any specific conditions of the coverage.
Purpose: Provides assurance that the goods are insured against risks like theft, damage, or loss while in transit.

Proforma Invoice

A Proforma Invoice is similar to a commercial invoice but is typically issued before the goods are shipped. It serves as a preliminary bill and outlines the terms of the sale. Importers may need a proforma invoice to arrange financing or secure an import license before the actual shipment takes place.

Contents: An estimated invoice listing the goods, price, and shipping terms, but no final payment is required at this stage.
Purpose: Provides an initial quote for the buyer to arrange financing or necessary permits before the shipment occurs.

Export Declaration

The Export Declaration is a document required by customs authorities to track the movement of goods leaving a country. It provides detailed information about the shipment and is used for statistical purposes and to ensure compliance with export regulations.

Contents: Information about the exporter, consignee, and the goods being shipped, including their value and intended use.
Purpose: Helps the government track exports for statistical purposes and ensures compliance with export regulations.

Roles involves in a shipment

In any shipment, several key roles are involved in making sure goods move smoothly from the seller to the buyer. Each role has specific responsibilities that contribute to the successful transport of goods across borders. Here’s a brief introduction to the main roles involved in a typical shipment

1. Shipper (Exporter)

The shipper, also known as the exporter, is the party that owns and sends the goods. The shipper is responsible for ensuring the goods are properly packaged, labeled, and accompanied by the necessary shipping documents. In international trade, the shipper works closely with the buyer and freight forwarder to organize the shipment.

Key Responsibilities:
Prepares the goods for shipment.
Creates and provides necessary shipping documents (e.g., commercial invoice, packing list).
Coordinates with carriers and forwarders for the transportation of goods.

2. Consignee (Importer)

The consignee is the person or company that receives the goods at the destination. Typically, the consignee is the buyer, but it could also be a third party designated by the buyer. The consignee is responsible for clearing the goods through customs, paying any duties or taxes, and receiving the shipment.

Key Responsibilities:
Ensures that the shipment meets the import requirements.
Coordinates with customs for the clearance of goods.
Receives and inspects the goods upon arrival.

3. Freight Forwarder

A freight forwarder is a specialized agent who helps shippers coordinate and manage the shipment of goods. Forwarders handle all the logistics of getting the goods from the origin to the destination. They arrange for transportation by sea, air, rail, or road and often manage the necessary documentation, customs clearance, and insurance.

Key Responsibilities:
Organizes transportation of goods.
Ensures compliance with regulations and documentation.
Coordinates with shipping lines, airlines, or trucking companies.

4. Carrier

The carrier is the company responsible for physically transporting the goods. This could be an airline, shipping line, trucking company, or rail operator, depending on the mode of transportation. The carrier may issue a Bill of Lading (for sea shipments) or an Air Waybill (for air shipments) as proof that they have taken possession of the goods.

Key Responsibilities:
Safely transports the goods from origin to destination.
Issues transport documents like Bill of Lading or Air Waybill.
Provides tracking and updates on the shipment status.

5. Customs Broker

A customs broker helps with the clearance of goods through customs on behalf of the shipper or consignee. Brokers are experts in import and export regulations and ensure that all customs documentation is properly completed. They also help calculate and pay duties, taxes, and tariffs on imported goods.

Key Responsibilities:
Facilitates customs clearance for the shipment.
Prepares and submits customs documents.
Assists with calculating and paying any applicable duties or taxes.

6. Customs Authorities

Customs authorities are government agencies that regulate goods entering or leaving a country. They inspect the shipment and review the accompanying documentation to ensure the shipment complies with national laws. Customs authorities are also responsible for collecting duties, taxes, and tariffs on imported goods.

Key Responsibilities:
Reviews shipment documentation for compliance.
Inspects goods as needed.
Collects customs duties and taxes.

7. Insurance Provider

The insurance provider offers coverage for the goods while they are in transit. This is especially important for high-value or sensitive goods. The shipper or consignee may take out a policy to protect the goods from risks such as theft, damage, or loss during transportation.

Key Responsibilities:
Provides insurance coverage for the shipment.
Issues an insurance certificate to confirm the goods are covered.
Handles claims in case of damage, theft, or loss.

8. Third-Party Logistics (3PL) Provider

A Third-Party Logistics (3PL) provider is an outsourced service provider that can handle various aspects of the shipping process, such as warehousing, packaging, and transportation. They offer end-to-end logistics solutions, ensuring that the goods move efficiently from the point of origin to the final destination.

Key Responsibilities:
Provides logistics support like warehousing, transportation, and inventory management.
Coordinates with carriers and customs brokers.
Ensures the smooth flow of goods across the supply chain.

Key Aspects of INCOTERMS 2020 for Buyers

Division of Responsibility: INCOTERMS specify at what point the responsibility and risk transfer from the seller to the buyer. This includes risk of loss or damage, as well as who is responsible for shipping, insurance, and customs clearance.

Cost Allocation: Each INCOTERM specifies the point at which the costs are transferred from the seller to the buyer. It’s important for buyers to understand which costs they are liable for, such as transportation, insurance, and customs duties.
Transportation Modes: Different terms may be more suitable for different modes of transportation. Some terms are universally applicable (e.g., FCA – Free Carrier), while others are specific to sea and inland waterway transport (e.g., FOB – Free On Board).
Insurance Coverage: Terms like CIF (Cost, Insurance, and Freight) and CIP (Carriage and Insurance Paid To) include insurance coverage, but the level of coverage can differ. Buyers should be aware of the coverage extent to ensure adequate protection.

Division of Responsibility Between Buyer and Seller

EXW (Ex Works): The seller makes the goods available at their premises. The buyer bears all costs and risks involved in taking the goods from the seller’s location to the desired destination.
FCA (Free Carrier): The seller delivers the goods, cleared for export, to the carrier chosen by the buyer at a specified location.
CPT (Carriage Paid To)/CIP (Carriage and Insurance Paid To): The seller pays for transporting the goods to the destination but the risk transfers to the buyer once the goods are handed over to the first carrier.
DAP (Delivered at Place)/DPU (Delivered at Place Unloaded)/DDP (Delivered Duty Paid): These terms indicate varying levels of seller responsibility for delivery to the buyer’s location, with DDP including all duties paid.
FAS (Free Alongside Ship)/FOB (Free On Board)/CFR (Cost and Freight)/CIF (Cost, Insurance, and Freight): These are primarily used for sea and inland waterway transport. The point of risk transfer varies, but generally moves from the seller to the buyer when the goods are loaded on board the vessel.

Import and Export Reporting

Customs Compliance: While INCOTERMS specify who is responsible for the carriage of goods, insurance, and delivery, the responsibility for customs compliance, including import and export reporting, must be determined separately by the parties involved.
Responsibility Allocation: Some terms, like DDP (Delivered Duty Paid), imply that the seller assumes all risks and costs, including duty payment and compliance with customs formalities. In contrast, under terms like EXW (Ex Works), the buyer typically takes on these responsibilities.
Clarification in Contracts: Parties are advised to clarify in their contracts who will handle customs declarations and other formalities, as INCOTERMS do not inherently assign responsibility for these tasks.

Intrastate Reporting

Not Covered by INCOTERMS: INCOTERMS are designed for international trade and do not explicitly address intrastate reporting requirements within a single country or economic zone like the European Union.
Local Regulations Govern: Intrastate reporting, such as reporting for tax or statistical purposes within a country or region, is governed by local laws and regulations, not by INCOTERMS.

Make sure the Incoterm you choose suits your logistics

As with all business, the terms you can negotiate ultimately depend on how important a customer or supplier is to you or you are to the other party in the transaction. You may have to accept the terms, or get something more advantageous.

Be attentive so that you do not get Incoterms that hinder your operation. Ex-Works (EXW), for example, means that you are responsible for arranging all transportation and bearing all risks from the time the supplier has made the goods available to you at their premises. If you want to control the supply chain from that stage, it can be a good solution for you. However, you will be able to use loading areas at the supplier’s factory as extra storage space – and thus need an additional agreement that regulates when the goods must be picked up.

Ex-Works is common in the automotive industry, where just-in-time and just-in-sequence manufacturing mean that car manufacturers want as much control as possible over suppliers in the chain. Another Incoterm may be more commonly used in your industry.

Other points to consider are:

Be detailed regarding the place

Be as specific as possible. The name of a city or port is not enough. A supplier can deliver to a port or airport in the named city, while you might expect delivery to the door.

Think about customs duties and customs handling

Be clear about who pays customs duties and customs handling. With Delivered Duty Paid (DDP), it is the seller who pays. With Cost and Freight (CFR) and Cost, Insurance and Freight (CIF), it is the buyer who pays. CFR and CIF mean that your goods will be unloaded from the plane or ship at the airport or arrival port, which is the time when you take over.

Ownership does not mean responsibility

Incoterms do not mention ownership, which may seem strange. They only define when possession, control, and risk transfer from seller to buyer. Buying insurance must be a well-founded choice. Understanding who bears the responsibility simply indicates which party needs to decide if they want insurance or not. See what our experts say about the carrier’s and forwarder’s responsibility, the factors you should consider when deciding on insurance, what a cargo insurance covers, and when you need it. Incoterms may seem complicated, but become quite simple once you get used to them, especially the ones you use most frequently. The key to successful import and export is to agree on the most appropriate Incoterms for your business and conditions.

Make sure you know which Incoterms suit, which you prefer when negotiating, and that your goods are sufficiently insured. Talk to our experts about suitable Incoterms for your industry and your shipments.

Summary – Buyers introduction to shipping documents

Each of the shipping documents plays a crucial role in ensuring that your shipment is processed smoothly, legally, and securely. Understanding what each document is for and when to use it is essential for anyone involved in shipping or freight forwarding. By ensuring that the right documents are prepared and accurate, you can avoid delays, reduce risks, and ensure a successful shipping process.

These roles work together to ensure that goods are shipped from the seller (shipper) to the buyer (consignee) efficiently and legally. Understanding each role helps streamline the shipment process, avoid delays, and ensure that goods are transported safely and on time. Whether you’re working as a buyer or forwarder, being aware of who handles each part of the process is crucial for success in international trade.

For buyers, a thorough understanding of INCOTERMS 2020 is essential for successful international procurement. These terms provide a framework that helps in managing the transportation risks and costs effectively. Knowing the specific responsibilities and obligations under each term ensures better control over the shipping process, cost optimization, and reduced potential for disputes in international trade transactions.

Learn the basics about the tactical buyer responsibilities in the course Introduction to Tactical procurement and to the operative buyer responsibilities in the course Operative procurement processes.

The Tactical buyer role must understand the cost implications of shipment in general and Import/Export license implications specifically.

The Operative buyer role must have a good understanding of product shipping, specially if the delivery terms allocate the responsibility to the buyer.

Hope you enjoyed this first Buyers introduction to shipping documents.

Learn How to Source is an online platform based in Sweden, offering a range of procurement courses accessible globally. It serves as a community where procurement experts share their knowledge through online courses, designed for various experience levels from introductory to expert. Courses are concise, about 30 minutes each, and cover different aspects of procurement, tailored for different buyer roles. The courses focus on practical knowledge, presented by seasoned professionals, and include quizzes and certificates. They can be accessed from any device, emphasizing microlearning for flexibility and efficiency. More about LHTS in Swedish.

Note: Illustration to the blogpost “Buyers introduction to shipping documents” was created by ChatGPT on September 15, 2024.

Tags: incoterms shipping documents