ADVANCED TRAINING ON CARGO

LOGISTICS OPERATIONS AND

CUSTOMS CLEARANCE MANAGEMENT

Trainer: Abdirahman African Academy for Professio

Mohamed 08 – March – 2025
BASIC FUNDAMENTALS OF
INTERNATIONAL TRADE
 INTRODUCTION
 International trade is the exchange of goods and
services between countries.
 Internationaltrade allows countries to expand their
markets and access goods and services that otherwise
may not have been available domestically.
 As a result of international trade, the market is more
competitive. This ultimately results in more competitive
pricing and brings a cheaper product home to the
consumer.
 Today, international trade is the heart of the global
economy, which derives the development and poverty
reduction.
 International trade basically takes place for mutual satisfaction
of wants and utilities of resources flowing to supply chain
system through;
 Import: The inflow of goods or service in a country
 Export: The outflow of goods or service from a country
 Entrepot: Many times goods are imported or exported for
the purpose of re-export or re-import after some processing
operations.

 The supply chain involves a series of steps involved to get a

product or service to the customer. The steps include;
 Moving and transforming raw materials into finished
products,
 Transporting those products, and distributing them to the
end-user.
 1.1 SUPPLY CHAIN
 Supply Chain Management refers to the
MANAGEMENT
coordination of production, inventory,
location, and transportation among the
participants in a supply chain to achieve the
best mix of responsiveness and
efficiency for the market being served.

 As explained by Michigan State University

Supply Chain Management, involves
collaboration between firms to connect
suppliers, customers, & other partners as a
means of boosting efficiency and producing
value for the end consumer.
 RAW MATERIAL
SUPPLIER

MANUFUCTURER
END USER

SUPPLY CHAIN
MANAGMENT

RETAILER WHOLESALER
Logistics is just one small part of the
larger, all-encompassing supply chain
network.
SUPPLY CHAIN OPERATIONS
 1.2 LOGISTICS
 The Council of Supply Chain Management
Professionals defines logistics as “part of
the supply chain process that plans,
implements and controls the efficient,
effective forward and reverses flow and
storage of goods and related
information between the point of origin
and the point of consumption

 Hence, Logistics Management deals with

the efficient and effective management
of day-to-day activity to produce your
firm's desired and commendable
The objective behind logistics is
to make sure the customer receives
the desired product
 at the right time and place
 with the right quality and price.

This process is divided into two

subcategories:
 inbound logistics
 outbound logistics.
 INBOUND & OUTBOUND
LOGISTICS
 Inbound logistics covers the activities
concerned with obtaining materials and then
handling, storing and transporting them.
 Outbound logistics covers the activities
concerned with the collection (clearance),
maintenance and distribution to the
customer.
 Other activities, such as packing and
fulfilling orders, warehousing, managing
stock and maintaining the equilibrium
between supply and demand also factor
 1.3 LOGISTICS OPERATIONS

Suppliers Corporation Customers

Domestic/Import Inbound Throughflow Outbound Domestic/Export

Sourcing Materials Materials Distribution
Order Order
Order Order Processing Placement
Processing Processing
Transportation
Supplier-Firm Transportation
Interface
Physical Costumer-Firm
Transportation Transportation Materials Distribution Interface
Management Management Physical
Customer
Service Distribution
Management

Storage Storage Inventory Storage Inventory Inventory

Management Management Management

Forward and Reverse Flow of Information, Products, and Funds

13
 Logistics operations are the essential part of the supply
chain.
 The entire inbound and outbound logistics process
consists of:
 Order fulfillment,
 Managing inventory,
 Warehousing,
 Shipping orders,
 Customs clearance
 Transporting
 Distributing

 Cumulatively they all play a key role in optimizing

logistics service.
CARGO LOGISTICS
OPERATIONS
 WITH CARGO LOGISTICS
OPERATIONS
1. Spatial management: Logistics
requires sufficient space for goods;
 Warehouse and material handling
equipment;
 People to receive, store, pick, package,

label, marking and ship goods.

 Your warehouse management strategy
should focus on making wise use of
space so that goods are handled efficiently
while keeping square footage and
maintenance costs as low as possible.
2. Staffing: One of the greatest expenses
in any warehouse is staffing, so reducing
picking time is a money saver.
 Inventory management software can show
staff exactly where items are shelved and the
best routes to take when pulling more than one
item.
 Is your business seasonal? Plan for the

necessary upsizing and downsizing in

staffing to meet demand.
 Being more productive: there must be

benefits packages, workers’ compensation or

insurance and other HR-related functions that
are crucial to a well-managed logistics team.
3. Equipment: Logistics requires specialized
equipment, such as a truck fleet, conveyor
belts and forklifts or some combination,
depending on the type of materials or
goods your company handles and how
much of the work you outsource.

4. IT infrastructure: Your IT infrastructure

must to be optimized to accommodate
functions from online ordering and
purchasing to warehouse automation,
 2.2 7 R’S OF CARGO
LOGISTICS OPERATIONS
1. Right product: delivering the
product that was ordered
according to specifications:
 Color
 size,
 brand,
 quality.
2. Right quantity: Say an
item can be purchased as
either a single unit or in
packs (doz, gross & etc),
which are also considered a
unit.
 Getting quantity right
demands clarity, in how
inventory is listed as well as
proper picking and packing.
3. Right condition: New, used or
refurbished, customers expect a
product to function properly and
otherwise be useable.

 Products should therefore be

inspected for flaws and damage
prior to shipping.
 And, return shipping processes
should be simple and convenient
for customers.
4. Right place: Tracking to ensure
receipt and that the items were
delivered to the right address are
essential parts of logistics
management.
 A package that is delivered to a
wrong place or never received
 increases the costs incurred

by the company
 and damages the customer
relationship.
5. Right time: Often, from the customer’s
perspective, timing is everything. Whether it’s a
 Commercial ordering for eid festivals or
graduations
 consumer ordering for birthdays or
holidays gift
 a manufacturer that needs a raw material
for production to meet its schedules,

LATE ARRIVALS may cost the customer

or be returned as no longer needed.
6. Right customer: Order mix-
ups, address errors and other
mishaps communicate a lack of
respect for the customer and
inattention to detail.

7. Right price: It’s important

that your pricing be
competitive. It is also imperative
to adjust pricing—up or down—
according to demand.
 FOR CARGO LOGISTICS
OPERATIONS

Through the implementation of

cargo logistics, the firm can
implement cost-saving
programs such as;
 Just-in-time (JIT),
 Electronic data interchange (EDI)
 Early supplier involvement
(ESI)
2.4 CARGO TRANSPORTATION
 A firm’s logistics platform is
determined by a location’s ease and
accessibility of market reach under
favorable cost circumstances.

 The logistics manager must learn

about existing and planned
infrastructures abroad and at home
and factor them into the firm’s
strategy.
VESSELS USED IN OCEAN SHIPPING
 AIRFREIGHT
 Airfreight is available to and
from most countries, including the
developing world.
40% percent of the world’s
manufactured travel by air.
Items that are high-value tend to
travel by air.
CONSIDERATIONS FOR SELECTING
THE MODE OF TRANSPORT
2.5 COST CONCEPTS OF CARGO
LOGISTICS
 TOTAL COST CONCEPT
 Total logistics costs consider the
whole range of costs associated with
logistics, including
 Order processing costs
 Warehousing costs
 Packaging costs
 Transportation costs
 Handling and clearance cost
 Administration costs
 CONCEPT
A logistics system is a network of
 organizations,
 people,
 activities,
 information,
 and resources

 involvedin the physical flow of

products from supplier to customer.
 TRADE-OFF COST CONCEPT

The existence of trade-offs - The

knowledge that logistics costs have
heterogeneous behaviors

 an increase in the cost of one

logistics activity can be compensated
by an increase in revenue (due to the
improved level of service) or a
reduction in the costs of other
logistics activities, and vice-versa;
 2.6 EXPORT
 BILL DOCUMENTATION
OF LADING/AIRWAY BILL: a
contract between the exporter and the
carrier indicating that the carrier has
accepted responsibility for the goods
and will provide transportation in return
for payment.

A packing list is a shipping document

that is widely used in international trade.
 As its name suggests, it contains
information about the contents of
the exported goods.
 COMMERCIAL INVOICE: a bill for the
goods stating basic information
about the transaction, including a
 description of the merchandise,
 total cost of the goods sold,
 addresses of the shipper and seller
 the delivery terms (INCO TERMS)
 payment terms/methods of
payment
 LOGISTICS PARTIES
 Looking at the growth trend of logistics
parties demonstrates the increasing attention
and investments of firms on logistics
outsourcing
 The decision to outsource logistics activities
brings about the use of other companies to
handle logistics affairs such as transportation
and warehousing.
 Therefore, this heading supports the decision
to choose;
 logistics activities to outsource,
 select suitable parties for partnership,
TYPES OF LOGISTICS PARTIES
 FIRST PARTY LOGISTICS PROVIDER

 1PL: First-party Logistics Provider: is a

company or individual that needs to have
cargo airfreight, goods or products
transported from one point to another.
 Examples of 1PLs would be the cargo

sender and the cargo receiver.

 SECOND PARTY LOGISTICS
PROVIDER
A 2PL is an asset-based carrier that is
responsible for the method of transportation.
Examples of 2PLs include
 shipping lines, which operate the ships,
 airlines that operate the planes
 and haulage companies that operate
vehicles.

 Note the shipping line, airline or Haulage

Company may own, lease or charter
their ships, aircraft or vehicles rather than
own them outright.
 THIRD PARTY LOGISTICS
PROVIDER
 3PL provides outsourced or ‘third party’ logistics
services to companies for all or part of their
supply chains such as fulfilment, storage and
distribution or additional services such as
customs brokerage, logistics software such as
analytics and track and trace.

 Forexample, Quickly in Logistics is a 3PL

service provider. We are going to specialize in
outsourcing, B2B, B2C, warehousing, freight
handling, clearing and transporting. We are also
going to provide fulfilment services such as
real-time stock data and same day
dispatch.
 FOURTH PARTY LOGISTICS
A PROVIDER
4PL (sometimes referred to a Lead Logistics
Provider) manage a customer’s supply chain by
coordinating the resources and technology of its
own organization along with the services of other
companies such as 3PLs to create the best
solution.

4PLs are similar to 3PLs, yet they take on a more

strategic role in helping a customer meet its
organizational goals and have accountability for
the entire supply chain.
 Their role usually includes analyzing vast
amounts of data, managing transport and
warehouse operations, managing third party
suppliers and generally operating any other
 FIFTH PARTY LOGISTICS
PROVIDER
 5PL is a relatively new term in the
logistics industry and reflects the
development of full logistic
integration through many outsourced
providers.
 Critical to success in achieving this is
the effective integration of IT and
computer systems to ensure real-
time visibility and control of the
entire supply chain no matter how
many different suppliers are involved.
2.8 MAIN STEPS OF GLOBAL LOGISTICS
 The strength of your cargo logistics operations
affects the ability to meet customer demand.
 It is very important to execute the logistics
services with the right processes, technology, and
logistics infrastructure in place to ensure your
ability to deliver a quality service to your
customers.
 Without modernized and streamlined
logistics operations, businesses will end up
with several loose ends that affect both your profit
margins and customer satisfaction.
 Therefore, having a cost-effective and streamlined
logistics operations process in place will help
to keep logistics costs down, reduce risk and
human error, and keeps your customers
 INTERNATIONAL
COMMERCIAL TERMS OF
TRADE

INCOTERMS OF
TRADE
 3. INTRODUCTION
 Before considering a freight transport
abroad, it is important to answer this
question: at what time the risks and costs
become the responsibility of the buyer
and the seller?

 Intrade terms and conditions, incoterms

clearly mentions who is going to pay the
freight in the different steps of the cargo
delivery and who has the responsibility for
those cargoes in the different steps of the
cargo delivery between the seller and the
 INCOTERMS are Set of international rules for
the interpretation of the most commonly used
foreign trade terms

 International Chamber of Commerce (ICC)

established codes that rule the conditions of
goods delivery in international trade
operations.

 They ease the management of global

commerce under an understandable and by all
parties commonly known framework.

 Thereon, those (International Commercial

Terms) are validated internationally.
 3.1 THE MAIN GOALS OF INCO-
TERMS
Define the mutual obligations of seller


and buyer arising from the movement

of goods under an international
contract from the standpoint of risks,
costs and documents.
1. Define cost openly.
2. Define risks pass on or transfers.
3. Define the place where the goods will be
dispatched.
4. Define customs processes &
documentation.
 ICC regularly updates the codes for
ruling the conditions of goods delivery
in international trade operations;
 To ease the management of global
commerce under an understandable and
by all parties commonly known
framework.
 To minimize or eliminate uncertainties
that could arise from divergent
interpretations of rules in different
countries
 To simplify the negotiations involved in
international commerce.
 Each Incoterm contains a set of rules of
interpretation for the obligations of both the
seller (A1-A10) and the buyer (B1-B10)
covering the following issues:

1. A1/B1 – General Obligations,

2. A2/B2 – Delivery,
3. A3/B3 – Transfer of risks,
4. A4/B4 – Carriage,
5. A5/B5 – Insurance,
6. A6/B6 – Delivery/transport document,
7. A7/B7 – Export/import clearance,
8. A8/B8 – Checking/packaging/marking,
9. A9/B9 – Allocation of costs, and
10. A10/B10 – Notices.
 3.2 INCO TERMS RULES USED
FOR ALL MODES OF TRANSPORT
1. EXW – Ex Works (named place of
delivery)

 The seller makes the goods available at their

premises, or at another named place.
 The buyer has the maximum obligations and
the seller has the minimum obligations.
 The Ex Works term is often used while making
an initial quotation without any costs included.
 Either the seller does not load the goods on
collecting vehicles and does not clear them for
export,
 if the seller does load the goods, he does
 However, in common practice the
buyer arranges the collection of the
freight and is responsible for clearing
the goods.

 The buyer is also responsible for

completing all the export
documentation,
 the seller does have an obligation to

obtain information and documents at

the buyer's request and cost.
2. FCA. Free Carrier (named
place of delivery)
 The seller deliver the goods at a named
place;
 the seller's own premises or
 not the seller’s own premises.

 The goods can be delivered to

 a carrier nominated by the buyer,
 or to another party nominated by the
buyer.
If delivery occurs at the seller's
premises, or at any other location
that is under the seller's control,
 the seller is responsible for
loading the goods on to the
buyer's carrier.
 If delivery occurs at any other
place, the seller is deemed to
have delivered the goods once the
transport has arrived at the named
place;
3. CPT – Carriage Paid To
(named place of destination)
 The seller pays for the carriage of the
goods up to the named place of
discharge.
 The goods are considered to be
delivered when the goods have been
handed over to the first or main carrier
 So that the risk transfers to buyer

upon handing goods over to that

carrier at the place of shipment in the
country of Export.
 In this respect, the seller has an
obligation to contract, at its
expense, for the carriage of the
goods from the point of delivery to
the place of destination.

 The existence of the contract of

carriage has no impact on the
transfer of risk from the seller to
the buyer which occurs at the
point of delivery.
4. Carriage and Insurance Paid to
(named place of destination)
 Under the CIP Incoterm, the seller has the same
obligations as under the CPT Incoterm, with the
addition of an obligation to contract for insurance in
order to cover against the buyer’s risk to the goods
from the place of delivery to, at least, the place of
destination.
 CIP requires the seller to insure the goods for
110% of the contract value under at least the
minimum cover of the Institute Cargo Clauses or any
similar set of clauses.
 NEW 2020: now requires at least an insurance with the
minimum cover of the Institute Cargo Clause (A) (All risk,
subject to itemized exclusions).
5. DPU – Delivered At Place Unloaded
(named terminal at port or place of destination)

 According to the DPU Incoterm, the delivery of the

goods by the seller to the buyer occurs when the
goods are unloaded from the transportation vehicle
and put at the disposal of the buyer at the place of
destination or at the agreed point.
 The terminal can be a Port, Airport, or inland freight
interchange, but must be a facility with the
capability to receive the shipment.
 DPU Incoterm covers all the costs of transport
(export fees, carriage, unloading from main carrier
at destination port and destination port charges)
and assumes all risk until arrival at the destination
port or terminal.
6. DAP – Delivered At Place (named
place of destination)

 The seller delivers when the goods are placed at

the disposal of the buyer on the arriving means of
transport ready for unloading at the named place of
destination.
 Under DAP terms, the risk passes from seller to
buyer from the point of destination mentioned in
the contract of delivery.
 Under DAP terms, all carriage expenses with any
terminal expenses are paid by seller up to the
agreed destination point.
 The necessary unloading cost at final destination

has to be borne by buyer under DAP terms.

7. DDP – Delivered Duty Paid (named
place of destination)

 Selleris responsible for delivering the goods

to the named place in the country of the buyer
 pays all costs in bringing the goods to the

destination including import duties & taxes.

 The seller is not responsible for unloading. ––
This term is often used in place of the non-
Incoterm "Free In Store (FIS)".
 No risk or responsibility is transferred to the
buyer until delivery of the goods at the named
place of destination.
3.3 INCO TERMS RULES USED FOR SEA
AND INLAND WATERWAY TRANSPORT
1. FAS – Free Alongside Ship (named
port of shipment)
 The seller delivers when the goods are
placed alongside the buyer's vessel at the
named port of shipment.
 Theseller is under no obligation to conclude
a contract of carriage.
 TheFAS term requires the seller to clear the
goods for export.
 However, if the parties wish the buyer to
clear the goods for export, this should be
made clear by adding explicit wording to
this effect in the contract of sale.
2. FOB – Free on Board (named
port of shipment)

 Under the FOB Incoterm, the goods are

deemed to be delivered by the seller to the
buyer when they are delivered on board the
ship nominated by the buyer at the named
port of shipment
 The seller shall clear the goods for export,
not import.
 The buyer pays cost of marine freight
transportation, bill of lading fees, insurance,
unloading and transportation cost from the
arrival port to destination.
3. CFR – Cost and Freight (named
port of destination)

 The seller pays for the carriage of the

goods up to the named port of
destination.
 Risk transfers to the buyer when the
goods have been loaded on board the ship
in the country of Export.
 The Shipper is responsible for origin
costs including export clearance and
freight costs for carriage to named port.
4. CIF – Cost, Insurance & Freight
(named port of destination)

 The goods are to be delivered under the CIF

Incoterm when the seller places them on board
the ship.
 Although the transfer of risk takes place at the
port of delivery.
 The seller must bear all costs related to
unloading at the port of destination resulting
from the contract of carriage, unless agreed
otherwise.
 The seller's obligation ends when the
documents are handed over to the buyer. Then,
CIF requires the seller to insure
the goods for 110% of their value
under at least the minimum cover
of the Institute Cargo Clauses or
any similar set of clauses.

NEW 2020: requires at least an

insurance with the minimum cover
of the Institute Cargo Clause (C)
(Number of listed risks, subject to
itemized exclusions).
 TRADE FINANCE AND INCOTERMS
 When applying for trade finance
services, the incoterm is the best
one of the (many) variables
considered when assessing the
application.

 Asa company involved in international

trade, it is hard and risk to avoid
Incoterms, because they ENSURE
the mutual understanding and avoid
mistakes when formulating and
 COSTS INVOLVED WHEN SELECTING
INCOTERMS

 Changing the Incoterm of an

international trade contract should not
be taken lightly and need to be the
subject of detailed discussion between
the buyer, shipper and financial
intermediaries.

 There are many implications for

shipment arrangements, customs
clearance, tax liability, local
transportation and insurance of goods.
 When taking responsibility for shipping, it is necessary to
ensure that all documents are in order to meet customs
clearance requirements, including;
 Shippers export goods declaration form,
 Certificate of Origin,
 bill of lading or airway bill,
 purchase order,
 invoice,
 packing list,
 Import Goods Declaration Form
 manifests (including details of the cargo, the shipper,
consignee, weight, measurement and packing list),
 export and import licences,
 as well as any other specific documentation as specified
by the buyer, or as required by financial institutions or
L/C terms or as per importing country regulations.
 The arrangement of physical inspection of goods is also
necessary to complete this process.
 METHODS OF
PAYMENT IN
INTERNATIONAL
TRADE
 INTRODUCTION
 International trade presents a field of risk, which
causes uncertainty over the timing of payments
between the foreign seller and foreign buyer.
For exporters, any sale is a gift until payment is


received.
 Therefore, exporters want to receive payment as

soon as possible. ––preferably as soon as an order

is placed or before the goods are sent to the
importer.
For importers, any payment is a donation until


the goods are received.

 Therefore, importers want to receive the goods as

soon as possible. ––preferably sending the

payment until after the goods are resold to
 1 CASH-IN-ADVANCE
 Withcash in advance payment terms,
an exporter can avoid credit risk
because payment is received before the
ownership of the goods is transferred.
 For international sales, wire transfers
and credit cards are the most
commonly used cash-in-advance
options available to exporters.
 Foreignbuyers are also concerned that
the goods may not be sent if payment
is made in advance.
 Withthe cash-in-advance payment method, the
exporter can eliminate the risk of non-payment.
 Wire transfers are the most secure and
commonly used cash-in-advance
 Credit cards are a viable cash-in-advance
option for small consumer transactions
 Advance payment by check is a less
attractive option for exporters
 Escrow services is used when the buyer
demand assurance that the goods will be sent
in exchange for advance payment
 However, cash-in-advance is the least attractive
option and is not often a competitive option.
 LETTERS OF CREDIT
 An LC, is a contractual agreement whereby the
issuing bank, acting on behalf of its customer,
and promises to make payment to the exporter
against the receipt of “complying” required
shipping documents.
 The issuing bank will typically use intermediary

banks to facilitate the transaction and make

payment to the exporter.
 The bank’s obligation to pay is solely conditioned
upon the compliance of the exporter’s
documents with the terms and conditions of the
LC.
 In LC transactions, banks deal in documents

only, not goods.

 The LC is a separate contract from the sales
contract on which it is based; therefore,
 the banks are not concerned with
determining the quality of underlying goods
 or whether each party fulfills the terms of

the sales contract.

 Unless the conditions of the LC state

otherwise, it is always irrevocable,
 which means the document may not be

changed or cancelled unless the importer,

banks, and exporter agree.
PARTIES TO A LETTER OF
CREDIT
Applicant The importer (foreign buyer)

Beneficiary The exporter (seller).

Issuing Bank Importer's bank that opens the LC in favor of

the exporter
Nominating Exporter's bank that facilities the eventual
Bank payment from the importer's bank.
Advising Bank Exporter's bank that informs the beneficiary of
the opening of the LC and verifies its
authenticity and legitimacy.

Confirming Exporter's bank that adds its own guarantee to

Bank pay if the importer's bank fails to do so.
Exporter's Bank Generally, the exporter will ask that their own
bank be used by the importer's bank as (1)
advising bank and (2) confirming bank. The
advising bank is normally also given the
 ILLUSTRATIVE STEPS OF LETTER
OF CREDIT TRANSACTION
1. Applying: The importer applies for an
LC to a local bank, which evaluates the
importer’s creditworthiness.
2. Opening: The importer’s bank opens an
LC in favor of the exporter.
3. Transmitting: The importer’s bank
transmits the LC to the exporter’s bank
for forwarding to the exporter.
4. Forwarding: The exporter forwards the
goods and documents to a freight
5. Dispatching: The freight forwarder
dispatches the goods and either it or the
exporter presents the documents required by
the LC to the exporter’s bank.

6. Checking: The exporter’s bank checks

documents for compliance with the LC and
collects payment from the importer’s bank for
the exporter.

7. Debiting: The importer’s bank debits the

payment for the goods from the importer’s
account.

8. Releasing: The importer’s bank releases

documents to the importer to claim the goods
 3 DOCUMENTARY COLLECTIONS

A documentary collection (D/C) is a

transaction, whereby the exporter
assigns the collection of the payment
for a sale to its bank (remitting bank),
which sends the documents that its
buyer needs to the importer’s bank
(collecting bank).

 Fundsare received from the importer

and remitted to the exporter through
the banks involved in the collection in
exchange for those documents.
 D/Csinvolve using a bill of exchange
(commonly known as a draft) that
serves as a legal demand for the
importer
 either to pay the face amount
immediately or at sight called
“documents against payment” or
“cash against documents”
 or to sign a promise to pay the draft
on a specified future date called
“documents against acceptance” or
“cash against acceptance”.
I. DOCUMENTS AGAINST PAYMENT (D/P) COLLECTION

 Time of Payment: After shipment, but

before documents are released.
 Transfer of Goods: After payment is
made at sight.
 Exporter Risk: If the draft is unpaid,
arrangements may need to be made to
have the goods disposed of or returned
or delivered to someone else in the
importer’s country.
II. DOCUMENTS AGAINST ACCEPTANCE
(D/A) COLLECTION

 Time of Payment: On maturity of draft at a

specified future date.
 Transfer of Goods: Before payment, but
upon acceptance of draft.
 Exporter Risk: No control over goods after
acceptance and payment is not assured at
due date.
 If the draft is not accepted to begin with,
arrangements may need to be made to
have the goods disposed of or returned or
delivered to someone else in the
WHEN TO USE DOCUMENTARY
COLLECTIONS
 When the exporter and importer have a well-
established relationship.
 When the exporter is confident that the
importing country is politically and
economically stable.
 When an open account sale is considered too
risky, and an LC is unacceptable to the
importer.
 When the importer is unable to take delivery of
the goods without documents, such as an
ocean bill of lading, controlled by the exporter.
 TYPICAL STEPS SIMPLIFIED
DOCUMENTARY COLLECTION
TRANSACTION FLOW

1. Shipping: The exporter ships the goods

to the importer and receives the
documents from the contracted shipper.

2. Complying: The exporter compiles and

presents the documents to their bank with
payment and document release
instructions.

3. Sending: The exporter’s remitting bank

sends the documents to the importer’s
collecting or presenting bank.
4. Clearing: The importer uses the
documents to obtain the goods and
to clear them at customs.

5. Remitting: Once the collecting

bank receives payment, it forwards
the proceeds to the remitting bank.

6. Crediting: The remitting bank

then credits the exporter’s account.
 OPEN ACCOUNT
 The goods are shipped before payment is due,
which is typically in 30, 60 or 90 days.
 This option is advantageous to the importer, but
it is consequently a risky option for an exporter.
 open account terms enhance export
competitiveness,
 Exporters always examine the political,
economic, and commercial risks to ensure that
payment will be received in full and on time.
 Exporters mitigate the risk of non-payment by
using trade finance techniques such as export
credit insurance, factoring and standby letters of
credit.
 The exporter should be
confident that the importer will
accept shipment and pay at the
agreed time.
 Open account terms offer
importers to pay in their local
currency with the use of a proper
foreign exchange risk hedging
technique, such as forward
contracts.
 5 CONSIGNMENT
 Consignment in international trade is a
variation of open account in which
payment is sent to the exporter only
after the goods have been sold.

 Sinceconsignment is very risky, yet it

helps exporters become more
competitive.

 It
can also help exporters to reduce the
direct costs of storing and managing
 Exporting on consignment can help
exporters enter new markets and increase
sales in competitive environments on the
basis of better availability and faster delivery
of goods.
 Consignment can also help exporters
outsource the burden of storing and
managing inventory, thereby making it
possible to reduce costs and keep selling
prices in the local market competitive.
 Partnership with a reputable and trustworthy
foreign distributor or a third-party logistics
provider is essential for success.