An Introduction Global Trade?

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Just about everybody and their cat has a different definition for what global trade is, but one of the definitions the original author of this wiki-paper likes best is the following:

Global Trade Management is the practice of streamlining the entire life-cycle of global trade across order, logistics, and settlement activities to significantly improve operating efficiencies and cash flow.

If you consider everything that's involved with an order, from both the supplier's perspective and the buyer's perspective, the logistics of getting the product from its origin to its final destination, and the issues that revolve around the collection of payment, you'll eventually bump into just about everything that global trade encompasses, even if you don't know where to start.

Why is global trade important? According to Global Data Mining, research indicates that error rates in global trade processes approach 10% to 20% and effective control of global trade processes is often 100 to 200 times worse when compared to accounts payable processes in a company. Considering that international trade surpassed nine trillion dollars in 2005, this is very significant.

The original author thinks the best place to start is to overview the complete import-export cycle associated with a reseller in the United States who buys product in bulk from a Manufacturing Company in China and then sells it to Mid-Size Retailers (who are not set-up to source globally) in Canada. This cycle would, more-or-less, look like the following:



The Global Trade Import Cycle

This section briefly defines each of the stages in the global trade import cycle, which this wiki-paper has defined as:

  • Supplier Selection
    This stage would utilize Strategic Sourcing
  • Purchase Order Generation
    Via the buyer's e-Procurement system.
  • Transport Insurance
    Preferably by way of a 3rd party.
  • Financing
    Either through a letter of credit, open account, or other form of an acceptable promisory note.
  • Carrier Selection
    Who is going to ship the product and how are they going to ship it?
  • Document Creation
    Foreign Customs, affected Government Bodies, Ports of Exit, and Carriers, to name a few, are going to require the proper documents before the goods will be allowed to move.
  • Goods Departure
    Once the paperwork is in order, the goods are loaded and they leave the supplier's warehouse.
  • Shipment Tracking
    Probably using RFID and an on-line web-portal that lets the buyer know when their goods reach certain checkpoints.
  • Importation
    Assuming the buyer created the appropriate documents for Customs, affected Government Bodies, Ports of Entry, and local carriers, and, gave appropriate notice, the goods clear customs and begin the final stage of their journey to the warehouse.
  • Goods Receipt
    The goods are received and a receipt is sent to the supplier's system.
  • Invoice Receipt
    An invoice, generated by the supplier's system, arrives in the buyer's e-Procurement system.
  • Reconciliation
    3-way matching is performed against the purchase order, goods receipt, and invoice and, if everything checks out, the purchase is approved for payment.
  • Payment
    An electronic payment is sent to the supplier through an e-Payment system or gateway.
  • Tax Reclamation
    If the purchases included refundable value added tax, for example, the appropriate data is collected and documentation created for tax reclamation.

The Global Trade Export Cycle

This section briefly defines each of the stages in the global trade export cycle, which this wiki-paper has defined as:

  • Customer Approval
    Before an order can be approved, the buyer must be checked against restricted and denied party lists.
  • Sales Order Receipt
    Entered into your CRM (Customer Relations Management) system.
  • Order Approval
    Additional screening may be required if the product is a restricted export or is subject to regulatory compliance in the destination country.
  • Transport Insurance
    Preferably from a 3rd party.
  • Receipt of Financing
    Either a letter of credit, open account, or other acceptable promisory note would be required before shipment.
  • Carrier Selection
    Who is going to ship the product and how are they going to ship it?
  • Document Creation
    Local Customs, affected Government Bodies, Ports of Exit, and Carriers, to name a few, are going to require the proper documents before the goods will be allowed to move.
  • Shipment Tracking
    Probably using RFID and an on-line web-portal that lets the buyer know when their goods reach certain checkpoints.
  • Exportation
    If all of the documents were properly created, the goods are allowed to leave the country.
  • Goods Delivery
    After they are imported into the buyer's country, a goods receipt is created by the buyer and sent to the supplier's system.
  • Invoice Creation
    An invoice is generated by the CRM system and sent to the buyer's system.
  • Payment Receipt
    The buyer sends an electronic payment through an e-Payment system or gateway.
  • Reconciliation
    The payment is reconciled with the invoice.
  • Tax Reclamation
    If the exports included refundable value added tax, for example, the appropriate data is collected and documentation created for tax reclamation.

The Core Elements of Global Trade

Strategic Sourcing

Strategic Sourcing is a systematic corporate/institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company . (Wikipedia) Although it is reduced to one of 28 steps in the overview of the global import and export trade cycle, it is still one of the most important steps as the supplier selected impacts everything: the home country of the owners of the supplier corporation impacts financial status and trade restrictions, the location of the supplier impacts logistics, the supplier's financial status impacts financing, and the supplier's overall capability impacts quality, risk, and visibility.

Since Strategic Sourcing is exhaustively covered in the wiki-papers linked below, this wiki-paper will not devote any additional space to the subject.


eProcurement is the counterpart to eSourcing, starting where eSourcing ends and ending where eSourcing begins. It is the "e" implementation of the procurement cycle which is concerned with the requisitioning, receiving, and reconciliation of the received goods as opposed to the analysis, auction, and award that takes place in the sourcing cycle. It is essentially the automation of the non-strategic and transactional activities that consume the majority of a buyer's time, but one that comes with increased enterprise level visibility of all purchases.

Purchase orders, goods receipt, invoices, payment records, and taxation records, including those required for tax reclamation, all come from, and live in, the e-Procurement system. Since the basics of e-Procurement, and of an e-Procurement system, are well defined in the (forth-coming) wiki-paper, it will not be discussed further within this wiki-paper.

Supply Chain Finance

Supply Chain Finance is the optimization of both the availability and cost of capital within a buyer-centric supply chain. The availability and cost of capital is usually optimized through the aggregation, integration, packaging, and utilization of all of the relevant information generated in the supply chain in conjunction with cost analysis, cost management, and various supply chain finance strategies.

A Supply Chain Finance Solution, in comparison, is a combination of trade financing provided by a financial institution, a third-party vendor, or an enterprise itself, and a technology platform that unites the trading partners and the financing partners electronically and provides visibility into the various supply chain events that can serve as financing triggers. (These include the issuance of the purchase order, work in progress payments, Vendor Managed Inventory or VMI, inventory in transit, proof of delivery via Forwarder Cargo Receipt (FCR), and invoice approval by the buyer.)

Supply Chain Finance is not a new concept. "For decades -- maybe centuries, in developed economies -- supply chain finance has existed in various forms. In the past, the most basic legitimate form of supply chain finance on the payables side was called factoring. Factoring is essentially a loan-shark arrangement where a financial institution or third party buys receivables from a supplier at some material -- read: often outrageous -- discount relative to the face value of the obligation." (Jason Busch, Live Dispatch: Ariva and Orbian Partner to Take on the Banks, Spend Matters) However, it's a lot more than just factoring, early payment discounting, or inventory shifting. It's balancing credit, financing options, inventory management, and other supply chain variables to optimize working capital, and much more - which you can read all about in the corresponding wiki-paper.

Trade Document Creation

Simply put, trade document creation is the creation of the necessary documentation to satisfy import, export, customs, security, safety, port, and carrier requirements. Numerous documents are required by government bodies, customs, ports, and carriers, just to name a few, to move your products internationally. One industry estimate has noted that a single global shipment can require approximately 35 documents consisting of over 200 data elements to be created for up to 15 different parties.

Trade documentation is not something that should be taken lightly. Considering that a Purdue University Study concluded that the average cost per day of shipping time is approximately 0.5 percent ad-valorem and that a single error in documentation can cause a multi-day delay, it's easy to see how critical trade documentation can be.

This section overviews over five dozen different types of documents and variants that might be required when trading globally. The specific documents will depend upon the country being exported from, the country being imported o, the goods being shipped, the carriers shipping the goods, the ports and free trade zones being used, and other parties that the goods will come in contact with on their journey. In order to determine which specific documents are required, consult the affected customs agencies, ports, carriers, third parties, and a good lawyer versed in international law.

For more information on some customs and security regulations that mandate strict documentary requirements, please see the wiki-paper on Customs and Security Regulations.

  • Airway Bill / Air Transport Documents
    A document made out by, or on behalf of, the shipper which evidences the contract between the shipper and the carrier(s) for carriage of goods.
  • Application for Foreign-Trade Zone Admission and/or Status Designation
    An application made to a government authority to allow goods to enter a foreign trade or special economic zone with appropriate status to take advantage of the special regulations and reduced taxes that the zone offers.
  • Application for Permit
    An application made to a government agency for an import permit.
  • BCL: Bank Comfort Letter
    A document from the buyer's bank to inform the seller that the buyer has the financial capacity to issue a Letter of Credit, subject to bank formalities, should the buyer contract with the seller.
  • Bill of exchange
    An unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money to a third party at a future date.
  • Bill of lading
    A contract between an exporter and an international carrier for transport of merchandise to a foreign market.
  • CCD: Cargo Control Document / Cargo Declaration
    An itemized list of shipment contents, also known as a manifest.
  • Certified Invoice
    A signed invoice, usually witnessed by a third party, issued by an exporter to certify a statement required by the importer.
  • Certificate of Analysis
    A certificate that contains an analysis of the goods in question. Often required to demonstrate compliance with regulations.
  • Certificate of Authenticity
    A certificate is a document from a seller verifying that the goods being sold are indeed authentic.
  • Certificate of Compliance
    A certificate that states the goods have been inspected by an appropriate third party and found to be in compliance with the appropriate regulation(s).
  • Certificate of Damaged Goods
    A certificate that indicates the goods are damaged. This is often required if a shipper wants to avoid certain import duties on goods that are not going to be sold (as-is).
  • Certificate of Importation
    A certificate that states the goods in questions were imported.
  • Certificate of Origin
    A certificate used to authenticate the country of origin of the indicated goods.
  • Certificate of Ownership
    A certificate used to specify the owner of the indicated goods.
  • Certificate of Registration
    Usually used to specify the designated entity is registered to act in a certain authority with one or more government agencies.
  • Charter Party
    A contract between a merchant and a ship owner by which a ship is hired for the conveyance of goods on a specified voyage.
  • CI: Commercial Invoice
    A common document used for clearing a shipment through customs that is used by customs officials to classify merchandise for proper assessment of duties and taxes.
  • Consular Invoice
    A document certified by a consular official of a foreign country that describes a shipment of goods and is used by customs officials to verify the value, quantity, and nature of the shipment.
  • Courier receipt
    A receipt by a courier used to indicate that goods have been received and shipped by the courier.
  • Custom Clearance Document(s)
    Generally used for goods which are the property of, or destined to be used by, the US Armed Forces.
  • Customs (Pro Forma) Invoice
    A basic entry document accepted by customs brokers and officers that is used to declare returned goods.
  • Customs Value Declaration
    A document used to declare the value of the goods in the shipment.
  • Declaration of Consignee
    A declaration made by an agent on behalf of a buyer or seller when goods enter or leave a country.
  • Declaration of Owner
    A declaration made by an owner of goods when they enter or leave a country.
  • Deed of Assignment
    Banking arrangement, under a letter of credit, whereby the Beneficiary of a letter of credit assigns part of the proceeds to a third party.
  • Delivery Certificate for Purposes of Drawback
    A certificate indicating goods that are to be drawn-back have been delivered. Goods that are to be drawn-back are to be exported or destroyed without having been used in the country of importation.
  • Delivery Ticket
    A document meant to signify delivery of a shipment.
  • Drawback Entry
    The document containing a description of the exported or destroyed article on which a drawback is claimed.
  • Drawback Notice
    An official notice that a drawback is about to be claimed.
  • Entry/Immediate Delivery or Summary
    Used when the immediate release of imported goods to an importer or customs broker is required.
  • (EIS) Export Information Sheet
    A document that specifies all of the relevant information about the items being exported.
  • Export Permit
    A document that allows a corporation or individual to export goods.
  • FCR: Forwarder Cargo Receipt
    Used to provide validation that a vendor has delivered the specified cargo and all related documents to the designated receiver.
  • FCO: Full Corporate Offer
    A document prepared by the seller in response to an ICPO (Irrevocable Corporate Purchase Order) from a buyer indicating receipt and acceptance of the ICPO.
  • Facilitated Transit Document
    An authorization for facilitated transport across land.
  • Foreign Assembler's Declaration
    A declaration by the foreign party that manufactured the goods that accurately describes the goods, their unit value, and the contact information of the foreign party.
  • Health certificate
    A certificate that indicates the goods are compliant with any relevant health codes.
  • ICPO: Irrevocable Corporate Purchase Order
    A purchase order that states the full details of an order, including the details that will appear on the (pro-forma) invoice, that cannot be revoked.
  • Import Declaration
    Used to declare goods being imported to a customs agency.
  • Import Permit
    A document that allows a corporation or individual to import goods.
  • Insurance document
    A document that specifies the type of, and conditions for, insurance on the corresponding goods.
  • Inward Cargo Manifest
    A document that must be prepared by a carrier and presented to customs before the goods can be imported.
  • Letter of Instructions
    Usually a document prepared by a seller or a buyer for a third party handling import and export of goods that contains instructions for the third party on the transport of such goods.
  • LC: DL/C Documentary Letter of Credit
        SL/C Standby Letter of Credit
        RL/C Revolving Letter of Credit

    A (documentary) letter of credit is a legal document issued by a buyer's bank that indicates payment will be made upon presentation of required documents. A revolving letter of credit is used for regular shipments of the same commodity between the same exporter and importer in place of a documentary letter of credit. A standby letter of credit allows for the pledge of securities in an eligible account as collateral in lieu of traditional cash or bond down payment.
  • LOI: Letter of Intention
    A document that acknowledges a willingness and ability of the parties to do business together.
  • Manifest of Goods / Merchandise
    A list of goods being shipped.
  • Multimodal transport document
    A document that contains instructions and information for two ore more different modes of transport.
  • Non-negotiable sea waybill
    A waybill that allows goods to be delivered to the consignee without transfer of the waybill as soon as the bill of lading is processed.
  • Notice of Intent
    An informational document generally filed to specify an upcoming import or export activity.
  • Post receipts
    Documents generally used to confirm payments.
  • Packing list (Export)
    Another term for a manifest.
  • Power of Attorney
    A legal instrument used to designate legal authority to another person or entity.
  • Pro-forma Invoice
    A document that states a commitment from the seller to sell goods to the buyer at specified prices and terms.
  • Quality Certificate
    A certificate, usually issued by a third party, that indicates the goods meet a certain recognized quality rating.
  • Returned Goods
    A document that indicates the goods are goods that are being returned.
  • Road / Rail transport documents
    A document used to transport goods by road and rail, commonly used in the European Union.
  • SAD: Single Administrative Document
    A standardized document that has replaced most of the customs declarations forms existing in the European Union member states.
  • SED: Shipper's Export Declaration
    A declaration made by an exporter of the goods being exported and their associated value.
  • SLI: Shipper's Letter of Instruction
    A document that provides shipping instructions to the shipper's freight forwarder.
  • SSE: Shipper's Security Endorsement
    Generally speaking, a certification that the cargo does not contain any unauthorized explosives, incendiaries, or hazardous materials.
  • Temporary Import License
    A license to temporarily import goods from a first country into a second country for the purpose of exporting them to a third country.
  • Third party inspection certificate
    A certificate that confirms the goods have been inspected by a third party and found to be in compliance.
  • Weight certificate
    A certificate that verifies the weight of a shipment.


Logistics is determining how the goods are going to get from the point of origin to the point of destination. What methods of transportation are going to be used? Which ports? Which carriers? Which third parties are going to be contracted to assist in managing the process?

Logistics is quite involved, especially when goods are being exported. First and foremost is the determination of the proper Export Control Classification Number (ECCN), filling out the Shipper's Export Declaration (SED), identifying the appropriate Harmonized Tariff Schedule (HTS) classification (revised January 1, 2007), and the identification of any Value Added Tax (VAT) or Sectoral Promotion Programs (PROSEC) rebates for which the products are eligible. Then there are foreign trade zones (FTZs) to contend with, with the Free Trade Zone equivalents in China and the Special Economic Zone (SEZs) equivalents in India, preferential trade agreements, such as the North American Free Trade Agreement (NAFTA), the Central American Free Trade Agreement (CAFTA), and the MercoSur Latin American Regional Trade Agreement, which are summarized in the Free Trade Primer. Finally, there are transportation acts, such as the Transportation Recall, Enhancement, Accountability and Documentation (TREAD) Act, and documentary regulations, such as 21 CFR 11 on Electronic Records and Electronic Signatures and the Machine Readable Travel Documents (MRTD) standards, that need to be considered.

Furthermore, in the US, an organization could be subject to the regulations of the Federal Aviation Administration if the organization is shipping by air, the Department of Transportation if the organization is shipping by land, the Federal Communications Commission if the organization is shipping electronic media, the Food and Drug Administration if the substances are controlled by the Bioterror Act of 2002, and the Department of Defense if the products fall under the International Traffic in Arms (ITAR) regulations. Internationally, an organization may also need to contend with the International Civil Aviation Organization (ICAO) and the World Health Organization (WHO). For more information on the ITAR, and Bioterror Act, and related security acts, see the Customs and Security wiki-paper.

Export Control Classification Number

The Export Control Classification Number (ECCN), as defined by the U.S. Bureau of Industry and Security (as per the Export Administration Regulations, 15 Code of Federal Regulations 300-799), is a specific alpha-numeric code that identifies the level of export control for articles, technology and software being exported from the United States. All items must be identified with the proper ECCN before they can be exported. <p> Although this can often be a time-consuming and difficult process, the U.S. Bureau of Industry and Security makes the Simplified Network Application Process - Redesigned (SNAP-R) system available to all exporters to submit export license applications, re-export applications, commodity classification requests, Agriculture License Exception notices, and associated supporting documentation. More information on SNAP-R can be found here.

Harmonized Commodity Description and Coding System

The Harmonized Commodity Description and Coding System (HS) of tariff nomenclature is an internationally standardized system of names and numbers for classifying traded products developed and maintained by the World Customs Organization (WCO). The HS is a sig-digit nomenclature for the global generic identification of produts and services. Most individual countries have extended it to 10 digits for customs purposes and 8 digits for export purposes.

Harmonized Tariff Schedule

The Harmonized Tariff Schedule of the United States (HTSUS) is the extended version of the HS used by the United States for customs and export classification of item that was massively overhauled on Januray 1, 2007 to reflect the World Customs Organization (WCO) recommended HTS code. (The recent modifications affected 83 chapters and 240 headings of the HTSUS.)

Transportation Recall, Enhancement, Accountability and Documentation Act

Even though Metallica might be insistent about their Don't Tread on Me position, the reality is that any manufacturer wishing to import or produce tires for vehicles manufactured or imported into the United States must conform to the requirements of the Transportation Recall, Enhancement, Accountability and Documentation Act (TREAD) of 2000. This act was created and legislated to prevent motorists from additional fatalities caused by bad tires, as highlighted in the Ford/Firestone catastophe which was responsible for the death of at least 88 Americans.

As nicely summarized in the Wikipedia entry, there are three major components of the TREAD act. First, it requires that vehicle manufacturers report to the National Highway & Transportation Safety Administration (NHTSA) when it conducts a safety recall or other safety campaign in a foreign country. Second, vehicle manufacturers need to report information related to defects, reports of injury or death related to its products, as well as other relevant data in order to comply with "Early Warning" requirements. Third, there is criminal liability where a vehicle manufacturer intentionally violates the new reporting requirements when a safety-related defect has subsequently caused death or serious bodily injury. Needless to say, all vehicles you use must be in compliance if you wish to keep them on the road.

21 CFR 11 on Electronic Recods; Electronic Signatures

The Wikipedia entry provides a good summary for Title 21 CFR Part 11 on Electronic Records and Electronic Signatures as well. Practically speaking, Part 11 requires drug makers, medical device manufacturers, biotech companies, biologics developers, and other FDA-regulated industries (not including food manufacturers) to implement controls, including audits, validation systems, and documentation for software and systems involved in processing many forms of data as part of business operations and product development. It also defines a digital signature and electronic signature for the purposes of commerce.

(5) Digital signature means an electronic signature based upon cryptographic methods of originator authentication, computed by using a set of rules and a set of parameters such that the identity of the signer and the integrity of the data can be verified.

(7) Electronic signature means a computer data compilation of any symbol or series of symbols executed, adopted, or authorized by an individual to be the legally binding equivalent of the individual's handwritten signature.

Regulatory Compliance

Even though the customs, logistics, and security requirements are enough to make an average person's head spin, there is an ever dizzying away of acts and directives that a supply management professional needs to be aware of. In addition to the attention grabbing Sarbanes-Oxley Act (SOX), especially section 404 on the management assessment of internal controls, there is the Hazardous Materials Safety (HAZMAT) in the US, the European Union (EU) Restriction Of the use of certain Hazardous Substances in electrical and electronic equipment (RoHS), the forthcoming RoHS equivalent in China and other Asian countries, and the European Commission (EC) Directive on Waste Electrical and Electronic Equipment (WEEE); there's also the EC Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), the EC End of Life Vehicles (ELV), and the EU Cosmetics Directive; and there's the Kyoto Protocol / Clean Air Act, EU Electromagnetic Compatibility Directive (EMC), and the Electronic Industry Code of Conduct (EICC). Thus, it might be a good idea to check out the Regulatory Compliance wiki-paper.

Risk Management

Underlying each of the previous six aspects of global trade is risk. Failure to address Supply Risk Management today could be devastating to an organization. Thus, be sure to read the Supply Risk Management wiki-paper in its entirety to find out how you can plan for and mitigate the various internal, network, industrial, environmental, and compliance risks that your organization will need to deal with on a regular basis.

A Selected Bibliography

5 Ways to Increase the Business Value of Trade Compliance by Beth Enslow of Aberdeen Group, June 2007

Buy Globally, Think Globally: Implications of Global Economics for Sourcing Professionals by Simon Harper & Lora Thompson, 2007

Developing an End-to-End Global Trade Management Functional Map by C. Dwight Klappich of Gartner Research

(A) Flat World is a World of Opportunity by Randy Weston of AMR Research, June 2007

Globalization and the Supply Chain: Today's Risks are not Yesterday's Risks by Lora Cecere of AMR Research, January 2007

Global Movement Management: Securing the Global Economy by W. Scott Gould & Christian Beckner, November 2005

Global Supply Chain Benchmark Report: Industry Priorities for Visibility, B2B Collaboration, Trade Compliance, and Risk Management by Beth Enslow of Aberdeen Group, June 2006

(The) Global Supply Visibility and Performance Benchmark Report by Sudy Bharadwaj of Aberdeen Group, August 2006

Global Trade: Are High-Tech Manufacturers' Supply Chains Up To The Challenge? by Accenture, 2004

Global Trade Management Strategies: Surviving Growing Complexities in 2007 by Aberdeen Group, May 2007

Global Trade Maturing in Time to Support DDSN by Greg Aimi of AMR Research, August 2004

How to Build a Success Global Operations Model by James Ferrer & Johan Karlberg, 2006

Managing a Global Supply Chain in a "Flat" World by Andrew Reese

Managing a Global vs. Domestic Supply Chain by Andrea MacDonald, July 2006

(The) Market | Event Report: Globalization is Getting Us by Jordan K. Speer, May 2007

New Strategies for Global Trade Management: How Enterprises are Mastering Cross-Border Supply Chains by Synchronizing Logistics, Compliance, and Finance by Beth Enslow of Aberdeen Group, March 2005

No Time To Lose: Developing a Global Traceability Strategy to Deliver Savings, Reduce Risk, and Strengthen Your Brand by Bob Baxendale, 2006

Risk in the Global Supply Chain by Shoumen Palit Austin Datta

Supply Chain Management: The Perils of Going Global by Robert Bowman, August 2006


Michael Lamoureux, Ph.D. of Sourcing Innovation

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