What are shipping documents?
Shipping documents are involved in the export and import of goods.
The exact set of documents varies from trade to trade, and depends upon the Incoterm that applies.
PrimaTrade is involved with shipping documents all the time. Our platform enables buyers to approve invoices at shipment against shipping documents - a 3-way match that enables suppliers to get paid very quickly and before they hand over control of their goods to the buyer.
Shipping documents now also include ESG documents - documents needed to support the ESG claims that importers might want to make about products that they are buying. This is a topic that is expanding quickly in terms of requirements, processes and organisation. For the implications of ESG documents, see this note from the regulators about product claims and how to substantiate them: click here.
Why are shipping documents important?
There are two main reasons:
Most trades involve a bill of lading. This is a physical document of "control". The person who holds the physical bill of lading has the right to take possession of the goods. Great attention is placed in how the bill of lading moves from the exporter to the importer, with cash moving in the other direction.
In most transactions, the buyer has to pay for the goods in cash, or provide a bank guarantee of future payment, before being able to get hold of the bill of lading and therefore get hold of the goods. This is why other shipping documents are involved. The buyer gets to see a copy of all the documents as evidence of what is being shipped, sufficient to assess whether the shipment is acceptable and whether payment should be made.
What are the typical shipping documents?
The standard list of documents for a typical FOB trade is:
Bill of lading, issued by the freight forwarder when the goods are loaded. The freight forwarder is a third party who is hired to load and transport the goods to the buyer.
The packing list is usually produced as the container transporting the goods is loaded ("stuffed"). The packing list shows the number, volume and weight of the packages of goods being shipped, and this should match the invoice and the bill of lading.
An inspection certificate is commonly required to make sure that the goods are okay to ship. This can be done by the buyer, a commercial inspection firm, or sometimes the factory is allowed to self-inspect and self-certify (which has a level of risk for the buyer).
A certificate of origin, or a declaration of origin on the commercial invoice.
A GSP form (if the goods are subject to any GSP regime) or other forms required by customs to calculate duties and taxes.
The commercial invoice is produced by the exporter and it specifies what has been shipped (quantity, price) and should match the other shipping documents.
These documents are needed by the buyer to approve payment for the goods some of the documents are essential to land the shipment.
What about shipping documents for ESG?
Increasingly importers are adding to the list of documents that need to be provided with shipments to cover ESG matters - environmental, social and governance.
When an importer wants to make a claim about an aspect of any product, they now have to be able to substantiate that claim with appropriate documentation.
For example, to claim that a T-shirt is made from organic cotton, the exporting factory has to supply an invoice showing the source of the cotton that they used.
PrimaTrade's platform supports the automated request, collection, digitisation of shipping documents and ESG documents shipment-by-shipment based on buyer requirements - which then allows buyers to approve invoices and payments quickly at shipment.
What happens to the shipping documents?
This depends upon the incoterms that apply to the shipment and who, between importer and exporter, is responsible for what.
On a typical FOB trade, shipping documents are collected by the exporter and, in conjunction with his local bank, used to clear the goods through local customs. The documents are then held under the control of the local bank pending either (a) receipt of cash from the importer, (b) a payment from an export finance company or (c) a guarantee of payment from bank under a documentary acceptance or letter of credit.
Sometimes documents are physically delivered to an import bank or even to the buyer but with reservations (called endorsements) which mean they cannot be used to land the goods without a further permission from an export bank or the buyer (called an NOC, "no objection certificate", which is electronically transmitted later when parties are happy).
As an importer, what do I need to think about?
Make sure that the shipping documents are what you need to land the goods and be confident that the supply is going to be acceptable before committing to pay. This can include other detailed matters, like fumigation certificates for pallets, hygiene and storage confirmations for certain products.
This also now needs to include ESG documents to support product claims - which means that the documents required can depend upon which purchase orders are being included in a given shipment. Platforms like PrimaTrade's are able to handle these kinds of requirements:
Automatically generate a list of required documents based on which purchase orders are included in the shipment.
Supplier uploads against that list
Documents are digitised by the supplier in the upload process
3-way match can then be done between required documents, commercial invoice and POs.
This can all happen at shipment, with the exporting supplier doing the work.
As an exporter, what do I need to think about?
For the exporter, it is very important that the importer gets what he needs, but also that the required documents are not so complex that gaps inevitably will occur - as this will delay payment and potentially hold up release of goods.
Exporters who face buyers that are developing or have complex documentary needs, especially around ESG documents, should contact PrimaTrade for advice on how to use technology to get things right first time - email: email@example.com with any questions.
Is blockchain coming?
Yes. But probably not any time soon.