Introduction to Freight Forwarding
International Trade
As its name implies, international trade is the exchange of products, services, and money transversely
national borders; fundamentally trade between countries. If you walk into a supermarket and are able
to buy Chinese toys and electronics, Swiss-made watches, Brazilian coffee and Italian shoes, you are
experiencing the effects of international trade.
What Is International Trade?
International trade means trading goods and services that are destined for a country other than their
country of origin. This kind of trade gives increase to a world economy, in which prices, or supply and
demand, affect and are affected by global events. Political change in Asia, for example, could result in
an increase in the cost of labor, thus increasing the manufacturing costs of a company based in
Pakistan, which would then result in an increase in the price that you have to pay to buy the leather
jacket at your local shopping center. A drop off in the cost of labor, on the other hand, would result
in you having to pay less for your new leather jacket.
Almost every kind of product can be found on the international market: food, clothes, spare parts, oil,
jewelry, stocks, water, etc. Services are also traded: tourism, banking, consulting and transportation.
A product that is sold to the global market is an export, and a product that is bought from the global
market is an import. Imports and exports are accounted for in a country's current account in the
balance of payments.
Increased Efficiency of Trading Globally
The basic interest of individual manufacturer is to sell the products. Principally there is not much
difference in individual trade and trade between countries. If all countries would have been self-
sufficient in all their needs there were no international trades and no need to spend fortunes on
developing transport.
Global trade lets rich countries to use their resources - whether labor, technology or capital - more
efficiently. Because countries are gifted with different assets and natural resources (land, labor,
capital and technology), some countries may produce the same goods more economically and
therefore sell it more cheaply than other countries. If a country cannot efficiently produce an item, it
can obtain the item by trading with another country that can. This is identified as specialization in
international trade.
Practically England imports tea because they cannot grow it, Japan imports grain from USA, Malaysia
exports vegetable oils…etc this is an endless list.
As if an individual would do, nations do what they best can do. They will produce what they have
advantage on producing and trade it to obtain what they cannot produce domestically in competitive
and efficient manner.
Demand, is what can be defines as Preference by Consumers. In a real world, specializing is not easy
to achieve, you can pick between a Japanese, German and American car. Because of international
trade, the market contains greater competition and therefore more competitive prices, which bring a
cheaper product home to the consumer.
The conclusion would be that every country is better off through specializing at what they are best at
and leaving the production of other goods to counties where these goods are the most efficient
outputs – consequently, a basis for trade exists. In economic theory, this often referred to as the “law
of comparative advantage”.
© PIFFA Training Institute Handout # 02 Page 1 of 3
Prepared by: Mr. Ahsan Ulhaq Siddiqui / Mr. Shahzad Awan
Introduction to Freight Forwarding
Opponents of global free trade have disagreed, though, that international trade still allows for
inefficiencies that leave developing nations compromised. What is convinced is that the global
economy is in a state of constant change and, as it develops, so too must all of its participants.
It is important to make clear that trade is not a zero-sum game where one side gains what other loses.
From trade every one gains or at least better off with some trade than no trade at all. Difference in
comparative costs of production is the basis for trade.
Other Possible Benefits of Trading Globally
International trade not only results in increased efficiency but also allows countries to participate in
a global economy, encouraging the opportunity of foreign direct investment (FDI), which is the
amount of money that individuals invest into foreign companies and other assets. In theory,
economies can therefore grow more efficiently and can more easily become competitive economic
participants.
For the receiving government, FDI is a means by which foreign currency and expertise can enter the
country. These raise employment levels and, theoretically, lead to a growth in the gross domestic
product. For the investor, FDI offers company expansion and growth, which means higher revenues.
Risk Issues in International Trade
In any business transaction, there are risks. Conversely, these risks call attention when dealing
internationally. Further to the commercial risks present in a domestic transaction are foreign
exchange with country risks.
International Trade Transaction:
At the core of international trade is ‘transaction’; commencing from int’l sales transaction.
International Sales Transaction: Trade and transport activities are inherently connected. The int’l sale
of goods direct to a chain of inter-related contracts i.e.:
Contract of Sales
Contract of Payment
Contract of Carriage
Contract of Insurance
In international trade main features are Buy–Ship–Pay. Parties involved in the process are Shipper,
Carrier, Port Authorities, Bankers, Insurance Company, Customs & Consignee.
© PIFFA Training Institute Handout # 02 Page 2 of 3
Prepared by: Mr. Ahsan Ulhaq Siddiqui / Mr. Shahzad Awan
Introduction to Freight Forwarding
During this transaction, four phases are involved:
1) Commercial Transaction
2) Transport
3) Payment
4) Official Control
Commercial Transaction
Includes documents applied between commercial parties in the production, sale and purchase phases
of a transaction.
Enquiry / Request for quote / Offer Order (Acknowledgement of order /
invitation Performa invoice)
Offer / Quotation Dispatch advises….etc.
Payment Sector
Includes documents related to the requirements of banks to ensure payment
Documentary credit application
Documentary credit, etc.
Transport
Includes documents relevant to the physical international transport of goods, including insurance
Consignment Instruction Rail Consignment Note
Forwarding Instruction Road Consignment Note
Forwarder Certificate Of Receipt Airway Bill
Warehouse Receipt Shippers Weight Certificate
Bill-of-Lading Insurance, etc.
Official Control
Include documents for the control of goods moving in international trade, conducted in various official
bodies in exporting, importing and transit countries. These are required for a number of purposes i.e.
collection of duties and taxes, safe guarding revenue, quantitative restrictions, control in foreign
exchange, safeguard public security, cultural heritage, sanitary, veterinary and plant controls.…etc….
Dangerous goods declaration
Certificate of origin, etc.
Buyer vs Seller Concerns
Product Transport
o Sampling o Mode (Sea, Air, Land)
o Quality (Certificates…) o Contract of Carriage
Sales Contract Payment
o INCOTERMS-2010 (Risks / o L/C (UCP-600)
Costs / Delivery) o DA / DP (URC-522)
Price & Negotiation o Open Account
Pricing o Advance Payment (SBP)
o Duty & Taxes rate Risk Management
o Exemption (if any) o Insurance
© PIFFA Training Institute Handout # 02 Page 3 of 3
Prepared by: Mr. Ahsan Ulhaq Siddiqui / Mr. Shahzad Awan