International Business

  1. EXW: Ex-Works (followed by the named place). When EXW specified, the seller or exporter presents goods on the premises of production, the buyer bears all cost and risk onward from the seller’s named place of business. Sellers do not clear their goods for export, and do not load them for transport. An ex-works arrangement pushes responsibility onto the buyer, who bears all risk from the moment that the seller makes the goods available. Ex-works is often synonymous with “factory gate pricing” (FGP), which refers to the price paid for goods less any transportation and export/customs-related charges.

The International Chamber of Commerce created Incoterms to codify and standardise the clarification of cost, risk, and the various obligations of buyers and sellers performing international commercial transactions. Incoterms are internationally accepted trading codes defining the responsibilities of both importers and exporters concerning the arrangement of shipments and the transfer of liability entailed at various phases in the journey of freight. Practically every foreign purchase or sale references Incoterms. The definitions of Incoterms have been established since 1936, but modifications have occurred frequently ever since. The ubiquity and standardisation represented Incoterms affords several advantages:

  • Agreement on respective shipping responsibilities can be rapidly established between parties who are familiar with Incoterms. Incoterms abbreviate the shipping negotiation process so can be used as a form of shorthand.
  • The convenience of using standardised trading terms simplifies international business.
  • Most internationally experienced companies have at least a functional knowledge of the Incoterms that are relevant to them and preferred.
  • Incoterms and the conventions they represent embody the orthodoxy of practical international shipping.

Currently, there are 13 Incoterms, and these are divisible into four categories (E, F, C, and D).


This collection of documents concerns the transportation element of the goods’ journey. The following documents are required:

  • Carnet
    This is usually international transportation, particularly in overland European shipping. A carnet is issued when a container is sealed at origin for opening only on arrival at its declared final destination.
  • Certificate of Origin
    This is required when preferential tariff treatment exist between countries. The certificate proves the country of origin. The inclusion of the certificate is intended to prevent shippers receiving favourable import duties by falsely declaring the country of the goods’ origin.
  • Bill of Lading
    An export bill of lading (B/L) covers the whole journey of a shipment. Bills that combine sea, air, and land are commonplace. ...continue reading

The inclusion of a comprehensive export sales contract reduces time and cost. Such a document will clearly describe the nature of the commodity, the price paid, the terms of payment, the transportation mode, the nature of the insurance and the identity of the insurer, the carrier, and any other details of special arrangements required. Sales documentation typically consists of invoices.

  • The seller uses the commercial invoice to identify the goods value less freight and other charges. The commercial invoice also acts as the invoice for the goods’ sale. An invoice is a requirement of the letter of credit. Companies and agents use invoices to determine the value of goods for insurance and import duty purposes.

Customs regulations protect domestic industry by the levying of import duties on incoming products. Charges are usually imposed on the importing party. Customs checks the following:

  • the declared value of the goods matches the value stated on the shipment documentation,
  • the goods are correctly marked labelled according to the law of the country of sale,
  • the goods are legal and meet local standards and the laws of the country into which they are being imported,
  • the quantities reported on the shipping documents are true,
  • the invoice is correct and true, and
  • the shipment does not breach quota amounts (these will be set by the government of the importing country to prevent dumping and maintain the competitiveness of domestic industry).

Goods will not be released until customs are satisfied with the documentation. Any errors or oversights result in costly delays and charges. Firms often use customs brokers to help with customs processing and resultant transactions.  ...continue reading


The documentation used in international trade and freight is extensive and complicated. Inexperienced firms can find the process troublesome and costly. Incorrectly completed or missing documentation can result in fines, compensation claims, and transportation costs for good returned. To make the entire shipping process easier, firms often use the services of international freight forwarders. It is normal for firms to use different freight forwarders for different jobs, and to obtain three quotes from different freight forwarders, then select the freight forwarder who offers the best quote for services that best fit requirement. ...continue reading


"Capacity" is the authorisation to make purchase orders/enter into contracts to procure goods and services on behalf of a commercial organisation.

Authority for purchasing transactions is usually placed with specified individual, typically a senior purchasing manager or the general procurement manager, depending on the rules of the organisation and the purchasing strategy of the corporation. For example, large, multinational corporations will likely use regional purchasing offices to secure local supply for some categories of product. Other categories of product will be bought through the central office only, and local purchasing of a similar product would be a serious misdemeanour. Smaller organisations might not centralise purchasing so effectively, and if operating internationally, may view purchasing as a local, that is independent, activity and leave all capacity to the local purchasing office and its manager. ...continue reading


Purchasing contracts usually consist of a statement acknowledging the nature of the order in precise and descriptive terms. Purchase orders are typically issued to suppliers in response to quotes or requests for services or products. In terms of commercial purchasing, a typical agreement consists of a description of the product or service offered by the seller, followed by a statement of acceptance on the part of the buyer. These constitute offer and acceptance (consensus ad idem), i.e. the essential components of a legally binding contract and the fundamental proof of the contract’s existence (the written contract represents documentary evidence and a formal record of both parties’ original intention to transact). ...continue reading


English common law is the basis for most commercial contract law. A contract consists of an agreement between two or more parties to perform or not perform specified actions. When recourse to contract occurs, the initial step is to establish the existence of a contract, and then to examine the wording of the contract for legal and adherence and coherence. For a contract to be legal and binding, it must feature several elements (listed below). The first step in a contract issue is always to make sure that a contract actually exists. For a contract to be legally binding, it must satisfy several legal criteria: ...continue reading


When Checklist 1 and Checklist 2 have been completed, the mode of payment for goods must be correctly prepared.

If a letter of credit or document collection is being used as the instrument of payment, these will then be presented to the specified bank. All other documents travel with the shipment, to the buyer, or to the agent, depending on the buyer’s stated disposal directions. A copy of the commercial invoice will be made and sent to both the agent and the export manager of the selling company. On receiving the shipment, the buyer or agent will check that it matches the quality, quantity, time, and other conditions specified in the letter of credit. Pending satisfaction, funds will then be transferred to the seller. The seller’s finance department will acknowledge receipt of the payment, confirm the payment by bank account statement, then adjust and report the export/payments receivable account balance accordingly. A record of the payment might also be transferred to the production department to provide a ready reference in the event of a service or replacement issue arising. All involved intermediaries will then receive their commissions (agents, brokers, freight forwarders, distributors). ...continue reading