/ By TJ China Freight / International • Moving • Shipping

The Importance of Freight in Import Customs Declaration

In International trade, customs declarations is crucial in shipping. Here, you will learn some importance of freight in import customs declaration.

  1. Documents are the means and proof of contract performance

The three types of trade contracts commonly used in international trade (FOB contract, CFR contract and CIF contract) are explained in accordance with the International Chamber of Commerce’s “Incoterms 2000” (INCOTERMS 2000). Both are based on the seller’s submission of documents related to the goods as its fulfillment of the delivery obligation, while the buyer’s payment responsibility is based on the receipt of the documents submitted by the delivery party.

  1. Documents are the basic tool for international settlement

With the development of international trade, international trade goods are documented, so that the sale of goods is realized through the sale of documents. In today’s export settlement payment method, the most important payment method is the letter of credit. This method of payment has transformed the charity sale of actual commodities into the sale of documents; the seller’s presentation of the documents means that the goods have been delivered, and the buyer can redeem the documents after payment, which means that the goods have been bought. Naturally, the settlement between the two parties is no longer based on goods, but on documents. The principle of convection of documents and goods has become the general principle of commodity sales and payment in international trade. It can be seen that in the export business, correct, complete and timely preparation of documents can ensure safe and timely collection of foreign exchange, otherwise it will bring double losses in terms of economy and reputation to the enterprise and the country.

  1. The vast majority of modern international trade adopts the method of delivery against documents and payment against documents. Especially in the letter of credit business, some parties deal with the documents instead of the actual goods. If there is something in the document that does not meet the requirements of the letter of credit, the buyer can refuse to pay the payment. Therefore, more stringent requirements are imposed on the documents.

Declaration of freight in the import declaration form

The declaration of freight in the customs declaration is closely related to the transaction method. The common transaction method and the declaration of the freight column of the corresponding import declaration are as follows:

The total price in the CIF transaction price generally includes the value of goods + freight + insurance, and the columns of freight and insurance in the customs declaration form do not need to be filled in;

The total price in the FOB transaction price generally includes the value of the goods + the inland transportation, loading and unloading and other terminal fees from the factory to the shipment, and the freight and insurance columns need to be filled in the customs declaration form;

The total price in the EXW transaction price generally only includes the value of the goods, and the freight and insurance premium columns of the customs declaration form need to be filled in.

  1. Relevant regulations

According to the Announcement No. 20 of 2016 of the General Administration of Customs (announcement on revising the “Regulations for Completing Customs Declaration Forms for Imported and Exported Goods of the Customs of the People’s Republic of China”)

  1. Transaction method

This column should be based on the actual transaction price terms of the imported and exported goods, and the corresponding transaction method code should be selected and reported according to the “Transaction Method Code Table” stipulated by the customs. There is no actual customs declaration form for entry and exit, fill in CIF for import and FOB for export.

  1. Freight

Fill in this column to report the transportation cost of imported goods before they arrive at the import location in my country, and the transportation expenses of export goods after they are shipped to the export location in my country.

Freight can be reported in one of three ways: freight unit price, total price or freight rate, and the freight mark should be indicated (freight mark “1” indicates the freight rate, “2” indicates the unit price of freight per ton of goods, and “3” indicates the total price of freight ), and fill in the corresponding currency code according to the “Currency Code Table” stipulated by the customs.

The declaration source of the import customs declaration freight

The international transportation link is generally completed by the consignee and consignor entrusting the import customs declaration company to act as an agent. How to clarify the freight charges that should be declared through the documents, and are different types of documents helpful for the review of freight charges? Zoe details the source of the freight declaration:

  1. Confirm the transaction method

The different costs included in the total price in different transaction methods are very important for the declaration of freight charges. It can be obtained from the invoice that the transaction method is FOB. The column of the transaction method of the import declaration form needs to be filled with FOB, and at the same time, the freight and insurance premium of the imported goods need to be filled in the column of freight and insurance premium of the customs declaration form.

  1. Freight data source

Domestic shipping invoice. Taking import by sea as an example, in the case of EXW or FOB transactions, the sea freight is generally paid on delivery, and the shipowner or agency company chosen by the consignee is mainly a company with an office or agency in the country to ensure convenient communication. In this case, the ocean freight is paid directly by the consignee to the shipowner or agency. logistics agreement. The annual service agreement signed between the consignee and the shipowner or agent, in the price clause, the name of the fee, the standard of the fee, the currency system, the settlement period, etc. are all detailed. Shipping instructions. In special circumstances, if the shipowner or agency cannot provide the freight invoice in time, they can negotiate with them to provide an explanation of the freight amount.

The above is a small introduction to the importance of customs declaration documents how to reflect the relevant content. Through the above introduction, I think you understand the importance of customs declaration documents, if you are looking for freight forwarding needs in the import and export of goods from China, you can come to us TJ CHINA FREIGHT, where there will be experts to serve you.

 

/ By TJ China Freight / Cargo • China Freight News • Logistic

How To Choose The Right Shipping Method for Your Business

Among various modes of transportation, how to choose an appropriate mode of transportation is an important issue in logistics rationalization. Generally speaking, it should be determined from the service level required by the logistics system and the allowable logistics cost. Either one shipping method or an intermodal shipping method can be used.

 

When deciding the mode of transportation, the following five specific items can be carefully studied and considered on the basis of considering the specific conditions:

(1) the variety of goods;

(2) the transportation period;

(3) the transportation cost;

(4) the transportation distance;

(5) ) to ship in bulk.

Regarding the variety, nature, and shape of the goods, it should be explained in the packaging item, and the transportation method suitable for the characteristics and shape of the goods should be selected, and the affordability of the goods should also be carefully considered.

The shipping period must be linked to the delivery date, and the shipping time limit should be guaranteed. The transportation time required by various transportation means must be investigated, and the transportation means should be selected according to the transportation time. The order of transportation time is generally air transportation, automobile transportation, railway transportation, and ship transportation. Each means of transport can be grouped according to its speed to arrange the schedule, plus the operation time of its two ends and transit, the required transportation time can be calculated. In commodity circulation, it is a basic requirement to study the status quo of these transportation methods, carry out planned transportation, and hope to have an accurate delivery date.

The transportation cost varies with the type, weight, volume and distance of the goods. Moreover, the transportation cost will vary depending on the means of transportation. When considering the transportation cost, it must be noted that there is a mutually beneficial relationship between the freight and other logistics subsystems. The transportation method cannot be determined only by considering the transportation cost, but the total cost.

From the perspective of transportation distance, in general, the following principles can be followed: within 300 kilometers, transport by car; within 300 to 500 kilometers, by rail; more than 500 kilometers, by ship. Generally, this option is more economical and reasonable.

Let’s look at the impact of transportation batches. Because the transportation cost of large batches is low, the goods should be concentrated as close as possible to the final consumers. Selecting appropriate transportation means for transportation is a good strategy to reduce costs. Generally speaking, commodities under 15 to 20 tons are transported by automobile; commodities over 15 to 20 tons are transported by rail; commodities such as raw materials over hundreds of tons should be transported by ships.

Pay attention:

  1. Due to the imbalance of development between countries, the logistics method that can be selected in one country may not be adopted in another country due to the lack of the necessary infrastructure to adopt this method. In the selection, if this problem is not considered, it is impossible to form an effective logistics system.
  2. In international freight, I hope that through the above introduction, I can choose the appropriate freight method according to the actual situation of my goods. To save the cost of international freight, improve the timeliness of international freight, and ensure the safety of international freight.
  3. Generally speaking, the shipping time is long and the cost is low. If it is a cargo with a large volume or weight and a low value, it is more suitable for shipping by sea. On the other hand, for goods with smaller volume or weight and higher value, air freight can be considered. Although air freight is higher, the transit time is also shorter, and the business can be completed more efficiently and profitably.For example, if you have a valuable shipment of jewelry that needs to be shipping from China to USA, the best way to do this at this time is by air.
/ By TJ China Freight / China Freight News • International • Logistic • Shipping

Do You Know What Role H.S. CODE Plays in Freight Transport? | 2022

We all know that there are different regulations for different cargoes, that different countries have their own special customs regulations and different tariffs for different cargoes, so how can you identify these different cargoes quickly and efficiently?

The H.S.CODE system is very useful in shipping operations because it allows customs officials to identify goods faster and easier, thus speeding up the clearance of goods.

Also known as the Harmonised System Code (H.S.CODE), H.S.CODE is the primary tool used by customs officers and duty officials to classify imported goods. Developed by the World Customs Organisation (WCO), H.S.CODE is a multi-purpose international product nomenclature that describes the type of goods being transported. Each H.S.CODE is a six-digit number, and many goods have multiple H.S.CODEs associated with them – for each country of origin or destination, or for each brand or manufacturer, etc.

The H.S.CODE can also be used to provide a common identifier for import and export goods, to identify the category of goods, to manage the classification of goods, to review tariff rates, etc.

How many numbers are there in the H.S.CODE?

The Harmonised System (HS) code is used by border agencies to identify the international trade status of goods and consists of three parts: a 2-digit code, a 4-digit code and a 6-digit code.The first 6 digits of the HS code can be used in conjunction with a country’s local customs identification number to indicate the trade status of the goods.

Are the HS codes different for each country?

Each country can adapt the HTS code with a 2 or 4 digit code without changing the first 6 digits. In other words, the first 6 digits remain the same in each country. However, it is important that countries do not modify the first six digits when adding numbers to more accurately classify and define goods. Countries that are part of the Harmonised System codes must be content to define the basic commodity at the six-digit level, however they can also introduce more detailed descriptions in those six digits

To determine if an HS code is valid you must first find out what type of HS code it is. There are three types: commodity codes, statistical codes and auxiliary codes. Commodity codes are used for raw materials and intermediate products, statistical codes are used for customs only, and auxiliary codes are used for other types of data that do not fall into the other two categories.

After determining which type of HS code it is, you must then look at the first two digits to see if that HS code has a four-digit extension. If the first two digits are 00 to 21, then there is no four-digit extension. If the first two digits are 22 to 47, then it has a four-digit extension. If it has a four-digit extension, you will have to find out what it means by looking at an additional table showing all the possibilities. After you have determined what type of HS code it is, you will have to look at the first two digits to find out if that HS code has a four-digit extension. If the first two digits are 00 to 21, then there is no four-digit extension. If the first two digits are 22 to 47, then there is a four-digit extension. If there is a four-digit extension, you have to find out what it means by looking at the additional table showing all possible extensions.

For more detailed information, please head to the official website. And you can contact us if you are looking for a China freight forwarder to help ship your cargo from or to China for your business. Our professional team is committed to providing the best service with expertise. Sea, Air and rail freight, FCL & LCL, DDP & DDU, Door to Door, Port to Port, just let us know your requirements, and we will provide you with excellent forwarding service at a reasonable price.

/ By tjchinafreight ivy / Shipping

7 Container Interesting Facts

7 Container Interesting Facts
7 Container Interesting Facts

In this blog post, we've rounded up some of the most interesting and exciting facts about containers. Hope you like it!

1. Only about half of the containers are owned by shipping lines. The rest are leased, usually for 1 to 10 years.

2.Once an ISO tank has been labelled for food, it cannot be used for other types of goods. The same goes for ISO tanks marked as chemicals. This is to prevent contamination risks.

3.Once an ISO tank is marked as a chemical, the type of chemical it can transport next depends on the three chemicals it has previously transported.

4. Maersk is the only shipping company with GPS on reefer containers. All 270,000.

5. Reefer containers don't generate cold air, they just keep the temperature! They cannot return to their original temperature.

6. About 97% of the containers are made in China. This is due to lower labor costs. Also, it is easier to produce containers close to where most products in the world are produced.

7. With proper maintenance, a container can last about 30 years - maybe more! 40ft containers tend to last longer than 20ft containers. This is because, unlike 20-foot containers, they are usually not packed within their weight limit.

/ By tjchinafreight ivy / Shipping

What are the 5 largest ports in the US?

What are the 5 largest ports in the US?
What are the 5 largest ports in the US?

With the U.S. accounting for more than 26% of the world's total consumption, it's no surprise that the maritime industry is critical to its economy. That said, some of the largest and busiest ports in the world originate from their coastal regions. If you're considering importing, exporting to or importing from the US, in addition to checking container shipping rates, I suggest you do some research on the major US ports. In this article, we'll take a more detailed look at the top 10 US ports.

1. Port of Los Angeles

The Port of Los Angeles is located in San Pedro Bay, California, in the western United States. Given its strategic location, it's no wonder it is responsible for much of the trans-Pacific trade. Also known as Port of America, it covers 7,500 acres and has 43 miles of waterfront. Currently, it is the 19th busiest port in the world in terms of container volume. It is estimated that approximately $1.2 billion in cargo is shipped to and from the Port of Los Angeles every day.

2. Port of Long Beach

Next to the Port of Los Angeles is its sister port, the Port of Long Beach. Together with the Port of Los Angeles, they are responsible for more than a quarter of the total North American container trade. The Port of Long Beach is worth $180 billion in annual trade activity. Container shipping to and from Long Beach is very popular as it is considered one of the main gateways for trade with Asia.

3. Ports of New York and New Jersey

On the East Coast, the Port of New York and New Jersey are the top ports. It is the largest and busiest port on the East Coast of the United States and the third largest port in the United States. It offers access to one of the most concentrated consumer markets in the world.

4. Georgia Port

The main ports of the Port of Georgia are the Port of Savannah and the Port of Brunswick. The Port of Savannah has the largest single-dock container facility in North America and the largest concentration of import distribution centers on USEC. The Port of Brunswick is considered the port of choice for new car imports, with over 500 acres leased or owned by the automotive industry.

5. Port of Seattle-Tacoma

Washington State's two major ports merged in 2015 to jointly operate their cargo terminals. The Ports of Seattle and Tacoma are jointly operated by the Northwest Seaport Alliance. The two ports combined accounted for 5.3% of the North American market in 2015, handling more than 2.1 million TEUs. As container traffic to the ports of Seattle and Tacoma increased in April 2017, both ports recorded their strongest international container traffic in the first quarter since 2005.

/ By tjchinafreight ivy / Shipping

How to properly prepare a LCL shipment

How to properly prepare a LCL shipment
How to properly prepare a LCL shipment

When we send LCL (Less than Container Load) shipments, the merchandise needs to be prepared carefully. When you are preparing an LCL shipment from an FCL (full container load) shipment, it is important to keep the differences in mind. More specifically, since LCL shipping requires container sharing, you should be extra careful.

The most common cause of LCL shipment damage is insufficient packaging. It is important to note that some insurance companies do not provide coverage in this situation. That said, the right packaging and finding the right material is almost a science in itself. This is not a risk you should take. The difference between using the best and most adequate material and using material that may be a little too big or too small is huge.

If you are a frequent exporter/shipper, you should already know the specifications for preparing LCL shipments. However, if you're just starting out in the export world, here's a tip: Before you start looking for container shipping rates, it's recommended that you read what to expect and how to properly prepare a LCL shipment.

This problem is best broken down into the various factors that ensure the safe transportation of goods. This includes whether your item contains fragile items and the total number of boxes. Once we have these answers, we need to reflect that as clearly and accurately as possible on packaging and labels.

Some aspects to consider include:

1. Box and Packaging

Pack all items in boxes. Not in a suitcase, nor in a bag or any other type of container. Certain companies sell boxes designed for export. If you are shipping delicate items, it is recommended to first fill the box with plastic wrapping bubbles to protect your item. Additionally, each box must be properly sealed. Keep in mind that these boxes may be susceptible to strenuous exercise during sea travel.

2. Labels

Clearly identify each box: shipper name, consignee name, destination country, freight forwarder name and booking number.

If possible, mark these details on each side of the box. This ensures visibility of cargo as it is palletized and stacked in containers. As containers are consolidated, your cargo may go through various stages of loading and unloading.

3. Counting

Mark each box with a number that indicates its position relative to the total number of boxes. For example, if your shipment consists of 30 boxes, you should label your boxes as follows: 1 of 30 boxes, 2 of 30 boxes, 3 of 30 boxes, So on and so forth.

You can include this number on the main label of the box or write it separately.

4. Fragile labels

If shipping fragile items, be sure to label them clearly and visibly on each box that contains fragile items.

Just like the number of the box, you can note it on the main box label. But we recommend that you put a special "fragile" label on the box. Place it on all four sides of the box to ensure visibility as your box may move around in transit.

5. Palletizing and shipments

To get a LCL shipment quote, you need to provide the total amount of the item. If you are not sure how to calculate it, the following video will explain how.

6. Labeling of non-stackable pallets

As mentioned before, you should properly palletize the cargo inside the container. It is not uncommon for trays to be stacked together. However, you may not always want your cargo to be stacked, especially if they contain fragile items. If you want your pallets not to be stacked, you should explain this to your forwarder when booking. We also recommend putting this label on the box - on the four sides of each box.

7. Automatic palletizing

Palletizing of goods usually takes place when the goods arrive at the warehouse. If you prefer to DIY this part of the shipping process, be sure to use plastic pallets or fumigated wood. This prevents the risk of your shipment being rejected by customs authorities at your destination port for non-compliance.

8. Uniform packaging

Arrange your items evenly and uniformly. Avoid a section protruding too high or having an unbalanced weight. Shipping charges are calculated based on the cubic volume of the item. Uneven distribution can increase your numbers and lead to higher costs.

/ By tjchinafreight ivy / Shipping

Why you should choose FOB over CIF when importing from China

Why you should choose FOB over CIF when importing from China
Why you should choose FOB over CIF when importing from China

Significance of choosing a CIF

Under CIF, the buyer takes ownership of the goods only at the port of destination. The seller is responsible for cost and shipping, and the transfer of title takes place at the port of destination. This is usually subject to a third person, usually a customs agent whose consignee is listed on the bill of lading.

This means that the agent, not the buyer, has the legal right to claim against the goods. The agent will then ask the buyer to pay for the destination, including customs clearance, taxes, etc.

Many novice buyers find this option particularly advantageous because they are relatively not responsible for the goods - logistically and financially. Also, Chinese suppliers often offer lower prices if buyers agree to CIF Incoterms.

Why are you so obsessed with CIF?

As you can imagine, there is a problem with choosing a CIF. This is a pretty bad practice for imports from China. Here are some features of CIF incoterm:

  • Prices for purchasing items under CIF are very low and competitive - often much lower than under FOB incoterms.
  • You usually don't know about item management as this is handled by the seller.
  • You are also often unaware that the consignee on the bill of lading is listed as the clearing agent (at destination), not yourself. (This applies to MBL or Carrier B/L)
  • After the goods arrive at the port of destination, certain decisions made by the agent may result in you having to pay five times the actual required fee. In addition to the arrival fee that every importer should pay above, you run the risk of ending up having to pay more. These include handling fees, exit fees, entry fees, etc. - basically the agent's concept of "own" to drive up prices, or unexpected surcharges on standard fees such as terminal fees.
  • Plus, having control over merchandise means they have better control over time. This means they may be in their favor - waiting for your item to arrive before notifying you. This will incur additional charges because you do not have enough time to schedule the delivery. This results in delays and additional charges that you must pay and settle before picking up your shipment.

FOB or CIF: Investigate Before Choosing

Common practices include an agreement between the destination agent and the seller to set a low price for the item being sold. This is to lure you before the destination inflates the cost, and then divide that profit among them. This has happened quite a bit with products imported from China, and such cases have been on the rise in recent years, especially in Latin America.

FOB works well for LCL as profit margins tend to be lower. As a result, this gives sellers and agents more power to drive up prices. If you're considering choosing a CIF Incoterm, you should ask yourself if it's really worth exposing yourself to such a risk at a low cost.

Advantages of choosing FOB over CIF

Unless you are dealing with a seller or agent you can trust, or have an agreement to list yourself as the consignee on the bill of lading, it is best to choose FOB Incoterm to avoid risk. FOB Incoterm provides features that CIF Incoterm does not. The responsibility for paying, contracting and managing the goods rests with you, the buyer.

Although it requires some extra effort on your part compared to a CIF, it is much less risky as you get immediate clarity on the costs involved. That said, problems like delays and unexpected extra costs can be avoided with good planning.

FOB also has the following advantages:

  • By controlling the agents involved, the buyer is able to exert pressure to lower the commercial price.
  • By minimising costs, it enables buyers to obtain tax benefits, such as a reduced VAT burden.
  • FOB also allows buyers to get better insurance prices, as you'll be looking for deals that cover most of your logistics. Unlike CIF, CIF only covers the movement of goods from the port of destination to the buyer's facility.

FOB or CIF: Considerations

One thing to keep in mind when choosing FOB is that complications can arise if the supplier refuses to work with the shipping company of your choice. Suppliers sometimes receive certain rebates for using specific freight forwarders and may therefore be reluctant to work with other consignees. This is a fairly common question. Therefore, the consignee should be prepared to put pressure on the shipper to help the freight forwarder smooth the process.

In short, new importers should not commit to CIF Incoterm unless you are familiar with seller practices. This is especially true when dealing with products imported from China. It is always recommended to use the services of a freight forwarder and choose FOB Incoterm when the situation allows. This is to avoid unpleasant surprises when the goods arrive. If you have any questions about choosing FOB or CIF, please feel free to contact our sales experts at TJ chinafreight!

/ By tjchinafreight ivy / Shipping

Why your NVOCC should be FMC licensed

Why your NVOCC should be FMC licensed
Why your NVOCC should be FMC licensed

Choose NVOCC: Make sure it is FMC licensed

Given the number of NVOCCs in the world, choosing the right NVOCC for you can be a daunting task. How do you know which one is best for you? The first and most important step in this process is to ensure that your NVOCC is licensed by the Federal Maritime Commission (FMC).

What is NVOCC?

Let's start with the basics. N VOCC stands for Non-Vessel Operating Common Carrier. Its role includes contracting sea freight and shipping companies to move cargo from one point to another. It has agreements with carriers to provide its ships with a fixed number of slots each year in exchange for low rates.

NVOCCs are the largest traders in the container shipping industry. It issues bills of lading, takes responsibility and liability for the goods, and can also own and operate its own or leased containers.

NVOCCs and Freight Forwarders

NVOCC and freight forwarders are OTIs (Ocean Transportation Intermediaries). But they are not synonyms. NVOCCs can issue their own bills of lading, freight forwarders cannot; they can only work against carrier (or NVO) bills of lading.

Perhaps the most important difference is that, in some cases, NVOCC accepts all responsibility and liability for the goods. On the other hand, freight forwarders are not responsible for this. In addition, freight forwarders can act as agents or partners of NVOCC, but the reverse is not possible.

What does FMC do?

The Federal Maritime Commission is the U.S. federal agency responsible for regulating international shipping by U.S. ocean freight. FMC was established in 1961 to take over the responsibilities of the Federal Maritime Commission and has since been responsible for administering the regulatory provisions of shipping law. Today, it has more than 6,250 NVOCC registrations in its database.

What does it mean for NVOCC to have an FMC license?

With the FMC license, NVOCC can negotiate contracts with steamship companies. It also allows them to confirm their own House Bill of Lading as a Carrier Bill of Lading. For customers and suppliers, this is proof that the NVOCC is legally conducting business within the regulations set forth in the United States.

What happens if you work with a non-FMC licensed NVOCC?

This is the equivalent of hiring an unlicensed and uninsured contractor to work on your property. If something goes wrong, you have nowhere to go for help and support. In a more drastic way, basically, the only rules unlicensed NVOCCs have to worry about is getting paid and doing minimal work for the carrier/customs to accept your cargo as they are not subject to the regulations set by the FMC and obligations.

/ By tjchinafreight ivy / Shipping

6 Facts About Drug Shipping

pharmaceutical transportation
pharmaceutical transportation

Pharmaceutical transportation

If ocean shipping is not a sufficiently challenging process, try to imagine pharmaceutical shipping. We are talking about the logistics of drugs, pharmaceuticals, biomaterials, etc. Not only do these need to be kept at extremely precise temperatures, any issues in shipping can result in huge financial losses or worse, without potentially saving a life.

Logistics companies are often under enormous pressure to deliver medicines under high demand. These typically include zero damage, zero lateness and the possibility of track and trace.

To maintain accurate temperatures during transport, companies often use special equipment, including cryogenic containers, dry ice, thermal blankets, and insulating packaging. Sometimes temperature sensors are also included to monitor the temperature of the product throughout shipping.

But, of course, it never goes as smoothly as it looks in transit, and it's always a good idea to have extra resources on hand. In the event of delays such as Food and Drug Administration (FDA) inspections or other unexpected setbacks, further steps may be required.

Here are six interesting facts about pharmaceutical shipping.

  • Medicines need to be kept at precise temperatures to maintain their efficacy. These include the flu shot and insulin.
  • Pallet insulation blankets can be used to protect from sunlight, humidity, etc. It maintains a constant temperature range around 15°C to 25°C.
  • 7 out of 10 leading pharmaceutical products require temperature-controlled shipping.
  • Biological materials (e.g. blood, tissue, reproductive material) and clinical trials need to be stored in cryogenic containers that can be kept at -150°C for at least 10 days.
  • A temperature change of as little as 2°C can completely destroy a drug product.
  • Pharmaceutical companies lose an average of $150,000 per small package shipped due to cooler temperatures. For larger shipments, this can cost millions of dollars.
/ By tjchinafreight ivy / Shipping

What is a letter of credit?

There is no shortage of complex paperwork and documentation in the maritime world. You may know the more important bill of lading and packing list etc. But there are other equally important ones. In this article, we'll learn more about a letter of credit, what it is, and how it works.

What is a letter of credit?

According to the International Chamber of Commerce, a letter of credit is:

What is a letter of credit?
What is a letter of credit?

“On behalf of the buyer (customer/importer), the bank undertakes to pay the seller (beneficiary/exporter) the specified amount in the agreed currency, provided that the seller submits the required documents within the predetermined period.”

In other words, a letter of credit is a way, and one of the most common, where an importer promises to pay its foreign seller. It acts as a formal, binding legal agreement. Additionally, shippers generally consider this to be one of the safest payment methods.

In every transaction, there are sellers and buyers. In the vast world of trade, there is no way to know if the person you are dealing with is reliable. Given that it takes a long time for the goods to arrive by sea, the importer needs to guarantee payment before the goods arrive. This guarantee comes in the form of a letter of credit.

How does a letter of credit work?

It serves as a regular instruction from the importer's bank to the bank guaranteeing advance payment to the exporter. However, this first requires both parties to meet certain requirements. Buyers usually set these terms and conditions, which usually include:

  • Port of departure and port of destination
  • Shipping method
  • Route
  • Product description, including technical description (if applicable)
  • Number of Products
  • Needed file
  • Consignee details
  • Notifying Party Details
  • Latest shipping date

Once the seller agrees to these terms, the buyer's bank (or issuing bank) proceeds to issue the letter of credit. This will be sent to the seller and his bank (designated bank). According to these conditions, the seller prepares his goods and documents. After shipment, the seller will bring the copy of the document to the designated bank for verification.

When the nominated bank verifies that the documents match those listed on the letter of credit, it pays the seller. Then it goes to the issuing bank with the documents. The issuing bank then certifies itself. Upon satisfaction, it will refund the amount paid to the seller to the nominated bank.

When complete, it notifies the buyer that the shipment is complete and that all documents are correct and in their possession. The buyer then pays the issuing bank, which signs the bill of lading to allow the goods to be released to the buyer.