International Trade

The recent developments in the business environment have seen an expansion of trade from the local level to the international arena. The International business environment and trade comes with many laws, regulations, and policies which regulate the contracts and other operations of the trading partners. There are various documents which are involved in the international trade, and the trading partners must be cognizant of them. The business report delves deeper into International trade and the environment by taking a case scenario of an importer and exporter. The importer is an Australian pharmaceutical firm known as Sky Healthcare Limited, while the exporter is sizeable Chinese pharmaceutical firm known as Xi-King. The primary products involved in the international trade are pharmaceutical drugs meant to be sold on wholesale and retail terms by the importer-Sky Healthcare Ltd. The report also clarifies the key documents involved in the international trade or the checklist that the traders should follow during their transactions, the international trade laws and regulations, and the recommended carrier option based on the available ones.

Map showing the drugs transportation from China to Australia (Retrieved from https://www.google.com/search)

The Key Documents that Sky Healthcare Ltd and Xi-King Ltd Must Consider During the International Trade

According to Vernon (1992,p.415), there are various critical documents that are either prepared by the importer or the exporter. This section names the document type, the content and the party responsible for its preparation.

Letter of Inquiry

The letter of inquiry is a document sent by the importer to the exporter inquiring if the latter has the specific goods which the former requires (Vernon, 1992, p.417). The Sky Healthcare Limited would send the letter of inquiry to Xi-King concerning the availability of drugs like painkillers, Anti-Retrievals (ARV) and body-building products.

Pro Forma Invoice

The proforma invoice is a document generated by the exporter to the importer (Vernon 1992, p.418). In the case scenario, Xi-King Ltd would prepare a proforma invoice detailing goods; description, the price of all goods, the terms of payment, the importer’s delivery details and the currency to be used in the quote. For example, Xi-King would specify that drugs weighing over 4500kg would be priced at 10% less compared to the export of less than 4000kg.

Commercial Invoice

The commercial invoice is sent to the importer after the exporter has received a notification that there exists a trade and that delivery of the goods will be done (Vernon 1992, p.419). In the case where the delivery is done via ship, Xi-King would prepare the commercial invoice to capture the specific order number, the purchase number, banking or payment information; the marine insurance information and any other order detail which would help in ascertaining a quick delivery of the drugs.

Packing List

The packing list is essential in ensuring that the exporter sends precisely what was ordered by the importer (Vernon 1992, p.421). The XI-King's packing list would include the weight of the drugs, in this case being 4700kg, the markings on the packages like PK to mean painkiller drugs, and the specific guidelines of ensuring the drugs are submitted like the methods of opening of the packed boxes. For example, Xi-King would include statements like ‘do not accept if the seal is broken’ to ensure that the package is not tampered with along the Indian Ocean as it gets delivered to Australia. The packing list is essential in three ways. First, the list would be used by a freight forwarder to generate bills of lading. Second importance is that banks sometimes require the detailed packing list to issue payments and finally, the list enables examination of the freight by the governments.

Certificate of Origin

The certificate of origin is a document prepared by the exporter and stamped by the local government to prove the origin of the goods (Vernon 1992, p.423). For example, Xi-King Company would have to design a certificate of origin before the shipment of drugs to enable the Australian government, and Sky Healthcare Limited verify the actual origin of the drugs.

The Shipper’s Letter of Instruction (SLI)

The document helps the freight forwarder to know the details of the cargo, the terms of engagement and the ability to work on behalf of the exporter (Vernon 1992, p.423). For example, Xi-King Ltd would pay a freight forwarder a sum of 100,000 Australian dollars to move the 4700kg drugs from China to Australia via the Indian Ocean.

Ocean Bill of Lading

The document would be used as a contract of the carriage between Xi-King Ltd and the freight forwarder and also as a document acting as a title for the cargo (Vernon 1992, p.425). The ocean bill of lading can either be straight or negotiated. In a straight bill of lading, the consignee takes control of the goods while in the negotiated ocean bill of lading; the bank takes control of the original bill of lading up to the point when the terms of a letter of credit have been met.

Dangerous Goods Form

The document is a requirement by the International Maritime Organization. Drugs and other health-related products are considered hazardous, and Xi-King Ltd would have to include the form among the shipment documents. The dangerous goods form indicates that all dangerous goods have been properly packaged and that only specialised staff should handle them. For instance, the form would require particular employees from Sky healthcare to receive the drugs once they dock at the Australian port along the Indian Ocean.

The Bank Draft

The bank draft is the final document which closes the contractual terms of two international traders (Vernon 1992, p.425). Once Sky Healthcare receives the goods, the freight forwarder takes the bank draft and other payment documents to an Australian bank which seeks approval from the Sky Healthcare Ltd to make payments.

If the importer is satisfied that the 4700kg drugs are in line with what was ordered, the company authorizes the Australian bank to make payments, which are denominated in the Australian dollar, to the exporter, Xi-King Limited. However, depending on the terms of the agreement, the exporter may or may not cater for the adverse effects of the foreign exchange fluctuations. On the same note, the exporter may or may not share the benefits arising from a favorable variation of the exchange rates.

International Trade Rules and Regulations which May Affect the Trade between XI-King Ltd and Sky Healthcare Ltd

According to Hawkins (1996, p.75), the Maritime Law is made up of conventions, treaties and fundamental laws which affect international trade done via oceans and other water bodies. The first law that governs the international trade is the International Maritime Organization Conventions of 1958. The convention came up with three primary areas of concern regarding international trade. These areas include the safety at sea, prevention of pollution and standards of training. Before selecting a carriage option, Xi-King would have to have an insurance cover to safeguard the value of drugs during shipment and to ensure that the carriage forwarder is a qualified ship operator. Second, the enforcement convention of 2010 adopted ways of dealing with infringements for example; a ship transporting goods must have the original certificate of origin to avoid fines of violation.

Finally, the Nationality of Ships Law indicates that all ships must fly their national flags for easy identification in what is known as the ‘flag of convenience’ (Hawkins 1996, p.77). Besides, the two firms may benefit from the existing Tariffs and duties which are only at 10% between Australian and China for the goods transported via sea (Klein and Rothwell, 2009, p.60). The Australian government has also removed bottlenecks on the import regulations which would make it easier for Sky Healthcare Limited to process the entry of the delivered drugs into the country. Other regulations which would affect the trade between Xi-King and Sky Healthcare companies include quotas, ban on importation or exportation of drugs and customs duty.

Choosing a Carrier: Carrier A and B

Depending on the contract terms, the cost of the carriage forwarder, or the carrier, may be catered for by the importer (SkyHealthcare Ltd), or the exporter (Xi-King Ltd). Be it as it may, the choice of a carrier must depend on various factors. The general considerations would include: the political and economic situations of the trading countries, price changes risks, the terms of the competitors and the characteristic of the goods. However, there are more specific factors that must be considered when arriving at a freight forwarder in the international trade (Fink et al. 2002, p.100). These factors are discussed below.

Choice Based on Trade Terms

There are four terms of trade that a carrier may offer known as the Incoterms. These are EX Works (EXW), Free On Board (FOB), Cost, Insurance and Freight (CIF) and Delivered At Place (DAP) (Fink et al. 2002, p.111). Assuming carrier A offers the services on EXW and FOB terms while carrier B offers services on CIF and DAP terms, thenthe implication would be that carrier A allows Sky healthcare Ltd to hire it directly and pay for the services while carrier B only allows Xi-King Ltd to hire it and make payments which would be included in the expense s to be paid for by the Sky healthcare Ltd.

Choice Based on Insurance Service Offered

Maritime insurance is critical since accidents may occur at any given time (Fink et al. 2002, p.100). In case of carrier A has an insurance policy which requires Sky healthcare to pay 70 Australian dollars, while B offers the same service but requires an insurance fee of 100 Australian dollars, the importer, Sky Healthcare should choose carrier A because insurance should depend on the invoice value.

Choice Based on the Container Type

Carrier ships have three types of containers which are 20 and 40 feet for the general purpose and the 40 feet specific purpose containers. For goods weighing 4700kg, the importer should consider a ship whose container’s cargo capacity exceeds the weight and has a tare weight of more than 3000kg (Fink et al. 2002, p.102). Assuming that Carrier A offers 20 feet general purpose containers while carrier B offers 40 feet containers, the traders should consider choosing carrier B since the 40 feet general purpose containers are meant to carry a voluminous cargo which has relatively less weight like drugs. The 20 feet general purpose containers are suitable for the transportation of heavy cargo like metals.

Choice Based on the Shipment Type

Different carries may provide different shipment types, namely the Full Container Load (FCL) or the Less than Container Load (LCL). The Sky healthcare Ltd should choose a carrier which offers the Full Container Load because of two reasons (Stahlbock et al. 2009, p.50). First, the carrier would charge less cost per unit since all the drugs and health-related imports would be put into a single container. Second, the offloading process would take less time since the drugs would not be mixed with other customers’ goods. If carrier B offers the LCL shipment type, Sky Healthcare should decline its services because drugs are highly sensitive and should not be mixed with other products. Besides, the traders should choose a carrier which guarantees packaging services like the use of inner and outer cotton, plastic wrapping and freight marks.

Choice Based on Rates

Apart from the standard fees charged for the Full Container Load or Less than Container Load, there are other numerous fees which the carries charge. These fees include the destination port charges, customs duty, ocean freight charge, loading fees, and insurance and import customer's charges (Fink et al. 2002, p.89). If carrier A gives a 10% discount on all the extra charges while carrier B gives 5% discount, then Sky Healthcare Ltd should choose carrier A.

Choice Based on Technological Advancement

China has one of the largest carriers known as the COSCO ship which collects about 8.3%of the entire revenue from the international maritime trade (Wong and Grinols 1995, p.45). Xi-King company and Sky Healthcare Ltd should choose a shipping company that has advanced technology which can enable them to track the cargo, and also use the fast speed to deliver in about 10-to-13 days.

Recommendation

If the terms of a contract with specification of the rates, shipment type, container type, insurance service offered and trade terms, the traders should choose Carrier A. In the case scenario, it is assumed that carrier A offers a discount on the extra charges like loading fee, provides Full Container Loading (FLC) services at a lower fee, has more advanced technology compared to B, has better incoterms and offers better insurance terms as compared to carrier B.

The Merits and Demerits of Sea Freight Transportation Services

There are various advantages which the two companies, importer, and exporter, would get out of the Indian Ocean transportation services using carrier A. First, the method of transport is less costly as compared to air or road transport. Besides, the method is environmentally friendly since there are little carbon emissions as compared to the other means of transportation.

The ocean transport is also secure because of the packaging methods and general security of the oceans which protects the goods from theft. For example, the there is no traffic in the Indian ocean hence it would be difficult for any thief to attack without being noticed. The final merit is that the means of transport allow for flexible international trade since it can connect neighbouring countries and also countries which are far apart like China and Australia. However, maritime trade faces challenges such as low speed of the ships, lack of physical infrastructure because some countries are land-locked and having a high risk of losses in cases of accidents (Wong and Grinols 1995, p.215).

General Issues in International Trade Which are Affected by Laws and Policies

Sky Healthcare and Xi-King may experience challenges caused by the enactment of laws meant to safeguard the respective nations' economic or political interests. These challenges include political instability risks, changes in foreign exchange rates which may cause a significant change on the fright cages, credit risk in case the imports are on credit terms and the difficulty of hedging against inflation in the countries which affect the importation or exportation costs. Nevertheless, the international trade between Sky Healthcare Ltd and Xi-King would enhance international economic growth among the two involved nations.

Conclusion

The international business environment is regulated by laws which help in balancing the international trade. The report has discussed the documents required by law for two international traders to transact. The discussed documents include letter of inquiry, proforma and commercial invoices, packing list, shipper’s letter of instruction, the certificate of origin, bill of lading, dangerous goods form, and bank draft. The particular laws discussed are the International Maritime Organization Convention laws of 1958, the International Laws on customs duty and the laws relating to bureaucracies of import processing system. Besides, the report has explained the criteria for selecting a carrier for the transportation of the 4700kg drugs from China to Australia. The criteria include choices based on trade terms, insurance services, technological advancements, shipment and container type, and rates. The report has also recommended carrier A as the best carrier for the trade between Sky Healthcare and Xi-King Ltd. The merits, demerits and general issues of international maritime trade have also been canvassed. Some of the advantages mentioned are the expansion of international economic growth and trade competitiveness while the demerits include the risky nature of ocean transport and the slow delivery of goods like drugs.

References

Fink, C., Mattoo, A. and Neagu, I.C., 2002. Trade in international maritime services: how muchdoes policy matter? The World Bank Economic Review, 16(1), pp.81-108.

Hawkins, J.R., 1996. Reconsidering the maritime laws of finds and salvage: A free market alternative. Geo. Wash. J. Int'l L. & Econ., 30, p.75.

Klein, N. and Rothwell, D.R., 2009. Maritime security and the Law of the Sea. In Maritime Security (pp. 48-62). Routledge.

Stahlbock, R. and Voß, S., 2008. Operations research at container terminals: A literature update. OR Spectrum, 30(1), pp.1-52.

Vernon, R., 1992. International investment and international trade in the product cycle. In International economic policies and their theoretical foundations (Second edition) (pp. 415-435). Cambridge, MA: Academic Press Inc.

Wong, K.Y. and Grinols, E.L., 1995. International trade in goods and factor mobility. Cambridge, MA: MIT Press.

Appendix A: Insurance Contract

Assignment of Insurance with Letter of Credit as Collateral (Contents of the Insurance Contract)

1. Assignment of the Insurance. The Sky healthcare Ltd hereby assigns an insurance cover of 4700kg drugs to be transported via Carrier A to the insurer having held the Letter of Credit as Collateral.

2. Rights of assignee

3. Right to exercise non-forfeiture rights by the insured.

4. Rights reserved to the assignor

5. Agreements between the assignee and the assignor

.

Appendix B: Copy of the contract

Contract for the sale of Drugs

To

Sky Healthcare Ltd

By

Xi-King Ltd

Terms of the contract Pages

Statement of Work......................................................................................................1

Pricing.........................................................................................................................2

Payments...................................................................................................................4

Damages for delivery................................................................................................ 6

Purchaser’s Insurance..............................................................................................8

Damage or Loss of the ship.....................................................................................11

Remedies .................................................................................................................13

Conditions ...............................................................................................................15

Obligations .............................................................................................................17