International business course at ESEC BCN. Bachelor 3. Lesson 5: Transport risk

1. International Business
Transport risk
Professor: Marc Arza
marza@rjce.net

2. 1. Transport risk
Transport plays a key role in international
business. International trade is always defined by
longer and more complicated transport that trade at
a national level. Lost goods, damaged goods,
delayed shipments and other specific risks are high
when talking about international transport and
international trade involves a set of practices and
documents directed to reducing these risks.

3. 2. Incoterms
Incoterms: are a set of internationally agreed transport terms that clearly clarify
buyer/seller transport responsability (Who does what. Who pays what. Who takes
responsability for damaged/lost goods at any given stage in between shipment and
delivery).
International Commercial Terms:
- Set or rules about int'l trade terms
- Standard agreed global rules
- Clarify buyer & seller obligations
- Functions / costs / risks
- Incoterms 2000 (mentioning year)

4. 2. Incoterms
Incoterms are split into four distinct groups:
Group E - where the goods are made available to the buyer at the seller's premises
Group F - where the seller must deliver the goods to a carrier appointed by the buyer
Group C - where the seller must contract for the carriage of the goods without assuming
riskof loss of, or damage to the goods or additional cost due to events occurring after
shipment
Group D - where the seller has to bear all costs and risks required to bring the goods to
the place of destination.

5. CASE Found at Alibaba.com:
Medalta Potteries (2000) Ltd. ("Medalta") manufactures ceramic pottery dishes
(tableware). Medalta was started by a relative of the original Medicine Hat pottery
company, created in 1912. This original company, along with other ceramic companies,
caused Medicine Hat’s economy to thrive in the early 1900’s. Medalta has had success in
the dishware market in Canada, with many department stores and other retail chains
carrying its product. One of the important reasons for its popularity is the unique,
proprietary glaze applied to the dishware, which uses dye some plants found uniquely in
the Medicine Hat region. Medalta’s CEO, Jeff Burns, has received expressions of interest
from a European company, based in London, UK, Dishes Extraordinaire PLC to act as
Medalta’s distributor throughout Europe. As well, Medalta has been approached by a U.S.
distributor, Star Kitchenware Inc. to distribute Medalta’s dishes throughout North America.
At this point, Jeff Burns wishes to pursue only 1 international opportunity and, thus, must
decide between the 2 distributors and the regions they intend to do business in.
My questions are:
1. Which Incoterms to use when exporting products to Europe? Why?
2. Which Incoterms to use when exporting products to North America? Why?

7. 3. Trade and transport documents
Most of the different documents involved in any international trade transaction exist to
minimize transport risk and assign responsability after any possible damage or loss.
Documents are directly involved in one of the most important international payment tools,
the Letter of Credit. Without a good knowledge of international trade documents it is
impossible ot understand and use an L/C.
Documents may be boring but they are IMPORTANT!
An export transaction and its docs:
- Negotiation: Proforma Invoice
- Sale: Invoice
Packing List
- Transport: Bill of Lading (B/L)
Air Waybill (AWB)
CMR
- Origin: Certificate of origin
EUR-1
ATR-1

8. 4. Proforma invoice
A proforma invoice is a formal offer
summing up a costumers request for
information on products and prices. A
documen that states a commitment from
the seller to the buyer at teh specified
prices and terms.
It is a negotiation tool and a formal binding
document. Used for negotiation purposes
it is also a safety tool as it avoids any
misunderstanding in offer requirements
and quotations. For any doubt on what
was ordered and the offer conditions both
parties can refer to the Proforma Invoice.

9. 5. Invoice
An invoice sums up a closed transaction when it is executed. It confirms the sale and its
detalils (products, units, type, prices, delivery, ...)
The basic content of an invoice includes:
- The word invoice - Buyer ref. number
- A ref. number - Product description
- Date - Product unit price
- Seller info - Total amount
- Buyer Info - Payment terms
- VAT (EU) - Incoterms

10. 4. Packing List (P/L)
A Packing List (P/L) is a transport
document issued when shipping
goods from the seller to the buyer
which lists the packages shipped
(Ex.: number of boxes) and its
content.
It details weight, volume and quantity
of the different shipped items and it is
issued from control. It sums up what
goods left the seller premises and
can be helpful to know whether
goods not reaching the buyer where
lost during transport or never
shipped.

11. 5. Bill of Lading (B/L), Airway Bill (AWB) and CMR
A Bill of Lading (B/L) is a receipt for goods shipped by sea which actually represent the
goods and will grant delivery of the goods when shown at destination.
It is a transferable document (may be endorsed) and, when goods have been shipped by
the seller, will be sent by the seller to the buyer so that he can claim the goods at the port
of destination.
The Airway Bill (AWB) is the B/L of air transport. It allows for tracking of the merchandise
and usually makes Payment on Delivery possible (paying for the goods when claiming
them at destination).
The CMR is the B/L-AWB of road transport. A receipt confirming goods have been
shipped.

12. 6. Certificate of Origin:
A Certificate of origin is a document stating the goods origin (where were the goods
actually made). The goods origin stated in the certificate will be used by customs for
statistical purposes, decide the appliable tariff and possible health and sanitation issues.
The origin of goods incorporating components from different uses and manufacturing
processes at different locations is decided on the “last substantial modification” rule using
added value (price) as a measuring tool.
Some regions use specific origin documents in order to get special custom conditions.
EUR-1 is a document granting origin from the EU used in some countries with which the
EU has a special relation. ATR-1 is a similar document used in Europe-Turkey trade.