Key Exporting Terms
International markets offer huge opportunities for UK businesses. Finding and developing new markets for products is a hugely valuable avenue for expansion. For first-timers, however, even the terminology can be daunting.
Here is a straightforward explanation of the key export terms that new exporters are likely to encounter related to the movement of goods overseas:
An individual or firm that serves as the foreign representative of a domestic supplier and assists a business in transporting and/or selling their products abroad.
A transport document used when goods are transported by air freight, typically issued by the carrying airline or freight forwarder. It acts as a receipt for the goods being shipped, and confirms the terms and conditions of the contract of transport
Goods to be delivered ‘alongside’ are to be placed on the dock or barge within reach of the ship's lifting tackle so that they can be loaded aboard the ship.
A set of documents used when goods are despatched internationally as temporary exports (for instance for exhibitions), the carnet replaces formal customs clearance formalities on entry into, and exit from each country, and avoids the need to pay import duties. A carnet is usually obtained in advance from Chambers of Commerce.
Authorised Economic operator (AEO)
A status awarded to traders within the UK who demonstrate that they achieve high standards of supply chain security and / or compliance in customs matters. AEO status is a part of an international “Trusted Trader” programme, designed to increase global supply chain security. Companies who achieve AEO status can benefit from simpler and less rigorous customs controls, access to customs procedures, and lower requirements to provide financial guarantees.
Bill of exchange
A written unconditional order in writing from one party (the drawer) to another (the drawee), to pay a specified amount either immediately (a sight bill) or on a fixed future date (a term bill) for payment of goods and/or services. Used primarily in international trade, it is non-interest-bearing.
Bill of lading
A legal document between the shipper and a transportation company that confirms the terms of a contract under which freight is to be moved by sea between specified points for a specified charge. It must be signed by an authorised representative from the carrier.
It acts as a receipt for goods shipped and identifies the nature of the goods, the number of packages, their quantity and weight and their condition at the time of loading. Bills of lading can also act as documents of title.
A consignee usually needs at least one original to take possession of the goods.
Bunker Surcharge, also Bunker Adjustment Factor (BAF)
“Bunker” refers to fuel used by vessels, planes and other conveyances. Carriers may typically charge a Bunker Surcharge over and above standard freight rates, in order to compensate for frequent fluctuations in the cost of fuel, as an alternative to constantly adjusting freight rates. Surcharges may be in the form of a percentage of the freight cost, or a fixed amount per freight unit.
Cargo insurance (also known as “marine” or “goods in transit” insurance)
Insurance undertaken by an exporter or importer to protect themselves against the risk of loss or damage to goods in transit, over and above the limited liability cover offered by carriers or forwarders. Cargo insurance is required under some Incoterms®, and may be a requirement when selling through a letter of credit.
Certificate of inspection
Following an inspection, usually performed by a third party, this document certifies that goods were correct and in good order, immediately prior to their shipment.
Certificate of Origin
This certificate proves that your goods have been manufactured or processed in a particular country. A Certificate of Origin is usually required for overseas customs clearance and can determine the level of duties payable.
It is generally issued by a Chamber of Commerce and is required by some countries to establish the place of manufacture or production of the goods.
The document should include the name and address of the exporter, the manufacturer (if different), the importer and a description and origin of the goods.
CHIEF (Customs Handling of Import Export Freight)
This is the computerised operating system and interface used in the UK by H.M. Revenue & Customs which is responsible for controlling and recording all of the UK’s international trade movements. It links UK Customs offices to thousands of sea-and airports, inland facilities, freight Customs agents, UK businesses and European Customs authorities.
A term inserted onto a transport document, such as a bill of lading regarding the condition of the goods. This is usually a negative comment, reflecting actual or possible damage to goods or packaging, so a “claused bill of lading” can have negative implications for a seller and buyer. A claused bill of lading may also be referred to as a “foul” bill, while a “clean” bill of lading, containing no adverse clauses is considered as desirable, and is usually required for letters of credit.
“Clean” bill of lading
See “clause” above, a clean transport document is one containing no adverse comment about the condition of the goods.
The commercial invoice is the primary document used in international trade to provide information about a shipment or transaction and identify products being shipped. It is used to support customs declarations in valuation and duty determination, and when submitting certificates of origin or other documents for certification. In many cases a commercial invoice will be the same as a sales invoice, although specific version, containing particular information may be required in certain circumstances, or when trading with specific countries.
Commodity or Tariff Code
A sequence of digits, used to identify goods for customs purposes. When trading internationally, you will need to know the correct commodity code for your goods so you can fill out customs paperwork correctly. UK and European Union tariff codes are usually 8 digits long for exports, and 10 digits (or sometimes more) for imports.
Most tariff codes globally are based on the Harmonized System of classification, and are often referred to as Harmonized System, or H.S. codes. The harmonized system covers only the first 6 digits of codes.
Delivery of goods from an exporter (the consignor) to an overseas party (the consignee) under agreement that the agent sell the goods on behalf of the exporter.
The consignee sells the goods for commission and remits the net proceeds to the consignor. The consignor retains title to the goods until the consignee has sold them and bears legal responsibility for paperwork and customs declarations made.
A steel transport unit, constructed in standard dimensions and structure, which enables cargo to be moved quickly, safely and efficiently by sea, road, rail or inland waterway.
Credit Reference Agency
A company that assesses a person's or an organisation's credit standing and/or ability pay back money they are lent or provided on credit terms.
Dangerous Goods, (also Hazardous goods)
Dangerous goods are cargoes which have the potential to cause harm, damage or loss of life if released. Dangerous goods are subject to strict requirements to ensure safe handling and transportation. Each mode of transport has specific procedures and regulations for dangerous goods, which are governed by international regulations. Dangerous goods can include explosives, compressed gases, flammable liquids and solids, oxidising substances, toxic materials, radioactive substances, corrosive materials, as well as various miscellaneous articles, including lithium batteries and electronic devices containing lithium batteries. Traders dealing in these commodities are advised to seek expert advice.
All goods leaving the EU must be declared to customs. The declaration is a customs form completed and submitted by the exporter at the port of export.
It provides information on amount, nature, and value of exports to the statistical office for compilation of foreign trade data, and serves as an export control document.
An overseas sales partner which buys products, usually in bulk volumes, for resale to individual clients. A distributor will typically generate revenue by negotiating special price rates from the principal, and adding their own mark-up to the resale price. A distributor should normally support the principal’s marketing strategy by providing local promotional and sales activities, as well as after-sales service, and by providing market intelligence.
Goods which have a valid commercial or civilian function, but which could also be used for strategic, or military purposes. They are therefore subject to export controls (see below). Examples of dual use goods include advanced materials, chemicals or metals, high technology machine tools and instruments, software and other technology.
Economic Operator Identification Registration (EORI) Number
A unique identification number used in customs declarations across the European Union to identify the trader (exporter or importer). EORI is generally based on a company’s VAT number. Any business wishing to engage in export or import in the UK should apply to HM Revenue & Customs for an EORI number.
The name of a type of movement certificate (a form of certificate of origin) which can be issued within the EU to prove that goods are of EU origin, and therefore qualify for a preferential rate of duty when imported (see “Preferential Trade” below). The form must be stamped by a Chamber of Commerce or customs authority, but the exporter must demonstrate that the goods meet the required conditions of origin.
The common currency used in 19 of the 28 member states of the European union; it is currently used in Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain. In addition, Andorra, Monaco, San Marino and Vatican City, which are not EU member states, also have formal agreements with the EU to use the Euro.
There are several reasons why governments aim to control the export of goods, depending on the nature and destinations of the proposed export.
Certain types of goods are flagged as strategically important as military goods or high tech products that could be used in a strategic military way without modification or have the inherent capabilities to assist in the delivery or manufacture of chemical or biological weapons. The export of strategic goods and technology is the specific remit of the Export Control Organisation (ECO). Military and dual-use controlled goods require an export licence before they can leave the UK.
Export controls are not unique to the UK. All countries should have some form of an export control policy, legislation and enforcement mechanisms.
Export Credit Insurance
Credit insurance provides cover against default by debtors (customers), and may also protect against “country risks”, (factors within the buyer’s country which prevent the buyer’s ability to pay, such as social unrest). Cover can protect all of the debtor book or specific debtors. Some credit insurance companies also provide credit reference services.
International credit insurance is provided by a number of commercial organisations. In circumstances where commercial organisations are unwilling to provide cover due to commercial risks, cover may be obtained from a government department, such as U.K. Export Finance, previously known as the Export Credit Guarantee Department.
Ex Works (EXW)
One of the 11 current Incoterms® (see below). Under ex works terms, a seller is only responsible for supplying goods at the nominated place (usually their premises), and plays no further part in the transportation process.
Free on Board (FOB)
One of the 11 current Incoterms® (see below), usually used in conjunction with the name of a place or port. Under FOB terms, a seller is responsible for all costs and bears the risk until the goods are placed on board a vessel in the nominated port in the country of export.
Freight forwarders are transport and logistics experts who help importers and exporters to move their goods around the world.
They can select the best routes and modes of transport and, by consolidating loads, they can often save exporters money.
Many freight forwarding companies offer services such as completing customs clearances and paying duties or taxes on behalf of the exporter, supplying key documents including a Bill of Lading, and providing insurance.
However, they are not legally responsible for any errors or omissions. Liability and duty of care rests with the consignor.
A convention in international maritime transport which can occur when an “extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of
preserving from peril the property involved in a common maritime adventure." This involves both the vessel and also the cargo being transported during the voyage; such that all parties are required to
make a contribution towards the costs and financial sacrifice incurred.
If “General Average” is declared by a shipping line, all exporters or importers with cargo on board will have to make a proportionate contribution, and cargo will usually be held by the carrier under a lien until payment or some form of guarantee is received to cover the outlay.
See “Less than Container Load” below.
Bonds and guarantees give international customers extra confidence that sellers will meet their part of a deal. It has become increasingly common, particularly in international trade, for a buyer to request that a bank guarantee or bond be provided on behalf of their seller. This provides a means of securing performance or other obligations under the terms of a contract.
They provide the beneficiary with access to a sum of money should the seller fail to fulfil contractual or other obligations in respect of an underlying transaction, contract or order.
Harmonized System Codes (also H.S. Codes)
See “Commodity codes” above.
See “Dangerous Goods”, above
Stands for Her Majesty’s Revenue & Customs; this is the body which oversees customs and tax matters within the United Kingdom.
House Bill of Lading (or airwaybill)
A form of transport document issued by a freight forwarder, rather than the main carrier of the goods. This type of document may not be allowed when goods are sold with a letter of credit.
A document required and issued by some national governments authorising the importation of goods into their individual countries.
International Commercial Terms (known as Incoterms®) are a series of trade terms that set out responsibilities of both parties in a contract of sale involving carriage of goods. They are frequently abbreviated to 3 letter terms.
Published by the International Chamber of Commerce, they are recognised and accepted around the world. They are intended to take the uncertainty out of trading in order to protect both the buyer and seller and, as such, are regularly incorporated into sales contracts worldwide.
The most recent version, Incoterms® 2010 contains 11 terms which establish at a glance who is responsible for transport costs and insurance to duties and customs clearance. They also specify where the goods should be picked up from and transported to and who bears the risk in case of loss or damage to the goods at each stage of transportation.
Intellectual property describes intangible assets or “creations of the mind” which enable a business to operate, and which are the property of the business or the individual. This can refer to trademarks, patents, industrial designs or copyright. Any business intending to trade internationally should protect all intellectual property effectively in all markets in which their product or service may be exposed. Traders are advised to seek expert advice from the UK Intellectual Property Office: https://www.gov.uk/government/organisations/intellectual-property-office
The Intrastat system collects statistics on the trade in goods within the EU. All VAT-registered businesses trading with other EU member states must provide details of the total value of goods dispatched to other EU member states and the total arrivals of goods acquired from other EU member states, on their VAT return. The supply of services, however, is excluded from Intrastat.
A term used in conjunction with certificates of origin, particularly for shipments to Middle East destinations. A certificate of origin (and / or other documents) may have to be legalised (certified) by a representative of the destination country, usually the Embassy in the country of export. Legalisation is an additional form of verification over and above that which is undertaken by the chamber of commerce.
Less than Container Load (LCL)
When goods are shipped by container (see above), a shipper may not have enough cargo to fill a container. Less than Container Load (or LCL.) services are operated by carriers or forwarders to cater for such shippers. LCL operators will receive small shipments from multiple shippers at receiving depots in the country of export, and consolidate them into cost-effective full container shipments, charging each shipper for the weight or volume of cargo shipped, and issuing a transport document (usually a Bill of lading) to each client. On arrival in the destination country, goods will be deconsolidated from containers at a freight depot, for transfer or delivery to the client.
Similar services can also apply when goods are transported by road or air; in such cases they are typically known as “groupage” or “consolidation” services respectively.
Letter of credit
Importing and exporting involves risks. Exporters run the risk of buyers failing to pay for goods, while importers may risk paying but never receiving anything. Because of the distances involved, it may be difficult to resolve any disputes.
A letter of credit is a written undertaking given by a Bank to pay the seller (the beneficiary) an amount of money within a specified time provided that the beneficiary presents specified documents which are in compliance with the terms of the letter of credit
By using a Letter of Credit, the seller knows the precise terms and conditions which must be met in order to obtain payment and when that payment will be received. It is provided by the buyer’s bank — for a fee.
Preferential trade is a trading agreement that gives more favourable access to certain products from the participating countries. This means that manufactured goods may enter those countries at a lower customs duty rates. Preferential trade can occur either within a Free Trade Area, or between countries or trading blocs which sign Free Trade Agreements.
An advance draft of a sales invoice, which can act as a format for a sales offer, or may be used to facilitate payment in advance by a client. A proforma invoice may also be requested by a client in order to secure an import licence, foreign exchange or to initiate a letter of credit.
Shipped on Board
Confirmation that the goods have been loaded and dispatched for shipment on a maritime vessel. This clause is usually inserted onto a Bill of Lading (See Above), with conformation of the vessel name and date of international departure.
The term used when cargo is not dispatched on the international vessel or flight which it was booked onto.
See “Commodity Codes”, above
A trademark is “a sign capable of distinguishing the goods or services of one enterprise from those of other enterprises” (World Intellectual Property Office). Trademarks are protected by intellectual property rights. See “Intellectual Property” above.
The cost of a shipment can be affected by the amount of space that it occupies on an aircraft or ship, rather than the actual weight. This is the volumetric (or dimensional) weight.
Generally freight charges are calculated on the actual weight of the goods plus packing (gross weight) but if the goods are a low weight but large in volume then the freight carrier may charge for the amount of space the goods use. In this case an estimated weight is calculated from the length, width and height of a package.
The concept of volumetric weight has been adopted by the transportation industry worldwide as a uniform means of establishing a minimum charge for the cubic space a package occupies.
A form of transport document; waybills are frequently issued by small parcel or express courier companies, although many operators no longer issue paper documents. The term “waybill” is also used as a generic term for an unspecified transport document.