4: GREENING THE SUPPLY CHAIN THE ROLE OF CRITICAL SUCCESS FACTORS IN GSCM

OVERVIEW • The following are the identified six key critical success
Embedding environmental issues in day to day supply chain factors for putting green supply chain management into
issues has become inevitable for sustainable development practice to attain better environmental sustainability
leading to the growing interest in green supply chain ✓ Ethical Leadership/Internal Management
management. ✓ Customer management
✓ Supplier management
WHAT IS GREEN SUPPLY CHAIN MANAGEMENT? ✓ Competitiveness
• The term sustainable or green supply chain refers to the idea ✓ Societal
of integrating sustainable environmental processes into ✓ Regulatory
the traditional supply chain.
• This can include processes such as supplier selection and SIX KEY CRITICAL SUCCESS FACTORS FOR PUTTING GREEN
purchasing material, product design, product SUPPLY CHAIN MANAGEMENT INTO PRACTICE
manufacturing and assembling, distribution and end-of- ETHICAL LEADERSHIP/INTERNAL MANAGEMENT
life management. • Support and encouragement from senior managers is a key
• Instead of mitigating harmful impact of business and supply critical success factor for enterprises to adopt green
chain operations, green supply chain involves value addition practices.
and/or value creation through the operations of whole chain. • The perception of environmental risks involved could bring
• Green supply chain makes the applications of the key positive change in adoption of green practices.
sustainable development strategy outstand. CUSTOMER MANAGEMENT
• It emphasizes how green practices can be adopted in firms • Indeed, developing nations’ firms are facing heavy pressure to
to mitigate the environmental degradations and increase adopt green practices in their business operations of supply
the economic and operational performance of firms. chain to meet their customers’ demand so that they can be
competitive in the market.
• Cooperation with customers becomes very useful to attain
fruitful advantages from green supply chain management.
SUPPLIER MANAGEMENT
• Strong collaboration with suppliers enhances incentive
systems, boosts the adoption and development of innovative
ecofriendly ideas.
• Technologies, green partnership agreements and
openness in implementation of innovative green practices
may generate enhancement in operational and
environmental performance so as to achieve economic goals
of firms.
COMPETITIVENESS
Figure 2 – Simple Model of GSCM by Khan et al • Competitiveness has been perceived as a significant factor to
implement green practices rather than organizations’ wish to
ILLUSTRATION OF GREENING THE SUPPLY CHAIN: CRIB protect environmental sustainability.
Undeniably, reducing air, water and waste pollution is the main SOCIAL
goal of green supply chain, while green operations also enhance • With growing attention of regulatory bodies and awareness of
firms’ performance in terms of less waste manufacturing, reuse customers on environment, firms have to exchange end-to-
and recycling of products, reduction in manufacturing costs, end information regarding their supply chain operations’
greater efficiency of assets, positive image building, and greater effect on local community and people lives.
customer satisfaction. • In addition, NGOS (nongovernment organizations),
electronic and social media are more effective in exerting
pressure on firms to adopt green practices.
REGULATORY
• Increasing prominence of environmental concerns has
forced regulatory authorities to strict their environmental
laws and policies. To control climate change, global
warming and pollution
• Firms are required to reduce their supply chain’s negative
effect on environmental sustainability.

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DRIVERS OF GSCM GREEN PRACTICES IN SUPPLY CHAIN MANAGEMENT
1. Government Regulations GREEN MATERIAL SOURCING
2. Certification of Supplier Environmental Management System • Green sourcing means sourcing or purchasing materials and
3. Environmental Collaboration with Supplier (ECS) components which have such enviable ecofriendly
4. Collaboration with Customer (CC) characteristics as reusability, recyclability and non-use of
5. ISO 14000 Certification hazardous/dangerous chemicals.
6. Customer Pressures/Requirement (CP/CR) • With more and more concerns on environmental protection,
7. Social Responsibility/Ethics (SRE) procurement professionals have been motivated to
8. Business Benefits (BB) reconsider their existing sourcing, purchasing strategy
9. Employee Pressure/Morale (EP) and their impact on environmental sustainability.
10. Export and Sales to Foreign Customers (EFC) GREEN MARKETING
11. Competition (marketing, product differentiation and • A broad range of marketing activities (e.g., planning,
competitive advantage, brand reputation) production, process, price, promotion and after-sale service)
12. Sustainability Resources (SR) are designed to illustrate the goal of organization to mitigate
13. Lowered Cost LC/ Return On Investment (ROI) the harmful effects of their products.
14. Organization factors (commitment, awareness and • Green marketing practice promotes the products with
experience) environmentally friendly properties
• Enhances firms’ competitiveness and financial and
BARRIERS AND CHALLENGES IN GLOBAL GSCM environmental performance with positive corporate
• Lack of sufficient government support reputation and image
• Insufficient environmental awareness of customers GREEN MANAGEMENT
• Financial barriers • Green Management Practices (GMP) provide a firm with
• Insufficient support among stakeholders for green supply supplementary sources of information that can enhance their
chain management business and environmental objectives.
• Inadequate information systems • Adoption of green management practices help with improved
• Lack of control of manufacturers on reverse logistics service firm image, increased efficiency, environmental
• Lack of training of employees on green supply chain compliance improvement, cost savings, achievement of
management societal commitment and reduction of carbon emissions.
GREEN DISTRIBUTION AND WAREHOUSING
BENEFITS OF IMPLEMENTING GREEN SUPPLY CHAINS • Green distribution and warehousing can reduce the waste
• Increased Legal Compliance and play an important role in energy reduction and value
• Increased Compliance with Governmental Regulations addition of green products in warehousing significantly
• Increased Revenues improve overall performance of organization with better
• Satisfaction Of Moral and Social Obligations corporate image.
• Improved Brand Equity • Green distribution helps enterprises to obtain superior
• Better Relationships with Suppliers financial and environmental performance.
• Better Relationships with Customers GREEN MANUFACTURING
• Better Employee Relations • Green practices in production improve efficiency of
• Long Term Sustainability of The Firm processes. This practice involves the application of the green
• Community Development resources, which may lead towards competitive advantage
through reduction in products’ cost and improvement in
GREEN PRACTICES IN SUPPLY CHAIN MANAGEMENT products’ quality.
• With numerous green practices adopted, companies in their • Lean and green manufacturing industry both are working for
business and supply chain operations improve their eliminating waste and improving the efficiency of
productivity with better environmental growth. While some manufacturing processes.
well-known green practices are as follows ECOLOGICAL DESIGN
➢ Green Material Sourcing • Ecological design incorporates many ideas such like using
➢ Green Marketing cleaner technology processes, green raw material and
➢ Green Management components.
➢ Green Distribution and Warehousing • Green design of products reduces ecological impacts of
➢ Green Manufacturing products during their life, supports reusing, recycling and
➢ Ecological Design remanufacturing of products.
➢ Green Transportation and Reverse Logistics GREEN TRANSPORTATION AND REVERSE LOGISTICS
➢ Renewable Energy and Biofuels • Logistics overheads can be saved through promoting
transportation system’s efficiency and enhancement of
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 customer association also can be obtained to create more • Low pollution
profitability. • Recycled contents
• The logistics activities integrated with rehabilitation comprise • Packaging
the practice of reverse logistics (reusing, recycling, and
remanufacturing), which can produce the products that can APPROACH TO GREEN PURCHASING
be used again for customers.
RENEWABLE ENERGY AND BIOFUELS
• Undeniably, global logistical and supply chain operations
mainly depend on energy as well as fossil fuel, which are the
main cause of climate change, global warming and pollution
with greater carbon and greenhouse gas emissions.
• Renewable energy and biofuels are required in supply chain
operations so as to obtain sustainable environmental and
economic growth.

ENVIRONMENTALLY PREFERABLE PURCHASING (EPP)

• Environmentally Preferable Purchasing (EPP), commonly
called green purchasing, is defined as an environmentally GREEN PURCHASING TRENDS
conscious purchasing practice that reduces sources of waste • Eco-labeling
and promotes recycling and reclamation of purchased • Conforming to hazardous chemical substance restriction
materials without adversely affecting performance regulations spreading in the world
requirements of such materials (min, et al., 2001). • Purchasing from the point of preventing global warming
• It is important to consider that it covers both, products and • Supply chain environmental management
services, and they have to successfully minimize negative • Carbon footprint in eco-labels
environmental impacts throughout the supply chain until the ➢ The carbon footprint labeling is an initiative to calculate
disposal of such materials. and show the carbon footprint on products.
➢ Shows the amount of co2, emitted on products and that
THE WHY’S OF GREEN PROCUREMENT? the manufacturer/retailer is committed to reducing the
• Conserve Natural Resources amount.
• Minimize Pollution
• Reduce Water and Energy Use ENVIRONMENTAL MANAGEMENT SYSTEM
• Avoid Environmental Health Hazards on Our Campus and • A set of methods and procedures for aligning corporate
Within Our Community strategies, policies and operations with principles that
• Divert Material from Landfills protect ecosystems.
• Improve The Availability and Use of Environmentally • INTERNATIONAL ORGANIZATION FOR STANDARDIZATION:
Preferable Product ISO 14001
• Encourage Suppliers to Reduce their Environmental Impact
and To Send That Message Up Their Supply Chain AIMS OF EMS
• Support Locally Produced Goods and Services • TO INCREASE COMPLIANCE AND REDUCE WASTE
• Educate and Inform Ourselves, End Users, And Suppliers of COMPLIANCE
The Best Environmentally Responsible Procurement Choices • The act of reaching and maintaining minimal legal standards
REDUCE WASTE
BASIC PRINCIPLES OF GREEN PURCHASING • To reduce environmental impact
• Consider whether a product is needed before purchasing it.
• Purchase a product considering the various environmental
impacts over its life cycle from extraction of raw materials to
disposal.
• Select suppliers who make a conscious effort to care for the
environment • Sept. 1996, Standardization published the first edition of ISO
• Collect environmental information on product and suppliers 1400, the EMS standard – describing the specific
requirements for an EMS
• Support greening your supply chain.
Environmental Issues to consider: • 2004 – second edition of ISO 14001 – dominant
environmental management system in the world
• Low energy
• 2015 – latest edition for the family of EMS standards
• Longer life
• Locally produced
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 ISO 14001 9. Improve overall environmental impact
• ISO 14001 is the international standard that specifies 10. Manage environmental obligations with consistency
requirements for an effective Environmental Management
System (EMS). ISO 14001 CERTIFICATION
• It provides a framework that an organization can follow, • TO GET STARTED WITH ISO 14001:2015:
rather than establishing environmental performance 1. Review existing quality management system
requirements. requirements (ISO 9001:2015)
• The International Organization for Standardization (ISO) 2. Purchase ISO 14001:2015
defines an environmental management system as “part of the 3. Get ISO 14001 training
management system used to manage environmental 4. Certify to ISO 14001
aspects, fulfill compliance obligations, and address risks and
opportunities.” ISO 14000 FAMILY OF STANDARDS
• The framework in the ISO 14001 standard can be use within a • ISO 14001 is the most popular standard of the ISO 14000
plan-do-check-act (PDCA) approach to continuous family, which also includes standards such as the following:
improvement. 1. ISO 14004:2016 - environmental management systems -
general guidelines on implementation
WHO SHOULD USE THE ISO 14001:2015 REVISION? 2. ISO 14006:2011 - environmental management systems -
• ISO 14001:2015 should be used by any organization that guidelines for incorporating ecodesign
wishes to set up, improve, or maintain an environmental 3. ISO 14015:2001 - environmental management -
management system to conform with its established Environmental Assessment of Sites and
environmental policy and requirements. Organizations (EASO)
• The requirements of the standard can be incorporated into 4. ISO 14020:2000 - environmental labels and
any environmental management system, the extent to which declarations - general principles
is determined by several factors including the organization’s 5. ANSI/ISO 14025:2006 - environmental labels and
industry, environmental policy, products and service declarations – Type III environmental declarations -
offerings, and location. principles and procedures
• ISO 14001:2015 is relevant to all organizations, regardless of 6. ISO 14031:2013 - environmental management -
size, location, sector, or industry. environmental performance evaluation – guidelines
7. ISO 14040:2006 - environmental management - life
ISO 14001:2015 FRAMEWORK cycle assessment - principles and framework
At the highest level, ISO 14001:2015 covers the following topics 8. ASQ/ANSI/ISO 14044:2006 - environmental
with regard to environmental management systems: management - life cycle assessment - requirements
✓ Context of the organization and guidelines
✓ Leadership 9. ISO/TR 14047:2012 - environmental management - life
✓ Planning cycle assessment - illustrative examples on how to
✓ Support apply iso 14044 to impact assessment situations
✓ Operation 10. ISO/TR 14049:2012 - environmental management - life
✓ Performance evaluation cycle assessment - illustrative examples on how to
✓ Improvement apply iso 14044 to goal and scope definition and
inventory analysis
11. ISO 14050:2009 - environmental management -
vocabulary
WHAT ARE THE BENEFITS OF ISO 14001:2015? 12. ISO 14063:2006 - environmental management -
• Using ISO 14001:2015 has many benefits for organizations environmental communication - guidelines and
with environmental management systems. Organizations and examples
companies find that using the standard helps them: 13. ISO 14064-1:2018 - greenhouse gases - Part 1:
1. Improve resource efficiency specification with guidance at the organization level for
2. Reduce waste quantification and reporting of greenhouse gas
3. Drive down costs emissions and removals
4. Provide assurance that environmental impact is being 14. ISO 14064-2:2019 - greenhouse gases - Part 2:
measured specification with guidance at the project level for
5. Gain competitive advantage in supply chain design quantification, monitoring and reporting of greenhouse
6. Increase new business opportunities gas emission reductions or removal enhancements
7. Meet legal obligations 15. ISO 14064-3:2019 - greenhouse gases - part 3:
8. Increase stakeholder and customer trust specification with guidance for the verification and
validation of greenhouse gas statements
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 16. ISO 14067:2018 - greenhouse gases - carbon footprint of - This level requires a high level of coordination and
products - requirements and guidelines for communication and the development of standardized
quantification procurement policies and procedures.
17. ISO/TS 14071:2014 - environmental management - life 5. AN INTEGRATED GLOBAL SOURCING STRATEGY
cycle assessment - critical review processes and - Is the highest level of sourcing and involves global
reviewer competencies: additional requirements and coordination and integration.
guidelines to ISO 14044:2006 - At different levels, businesses use global sourcing to source
18. ISO/TS 14072:2014 - environmental management - life and trade from a wide range of suppliers.
cycle assessment - requirements and guidelines for
organizational life cycle assessment BENEFITS OF A GLOBAL SOURCING STRATEGY
19. ISO 19011:2018 - guidelines for auditing - 1. Cost savings
management systems 2. Access to new markets and suppliers
3. Increased flexibility.
---------------------------------------------------------------------------------- 4. Improved quality
5. Competitive advantage
5: INBOUND LOGISTICS
CHALLENGES OF GLOBAL SOURCING
INTERNATIONAL PURCHASING AND GLOBAL OUTSOURCING • LEGAL AND REGULATORY ISSUES
• INTERNATIONAL PURCHASING - Is an aspect of - IT’S IMPORTANT TO DO DUE DILIGENCE WHEN WORKING
international trade. It is the process of allowing firms and WITH SUPPLIERS FROM DIFFERENT COUNTRIES.
buyers to obtain goods and services from another country for - THIS INCLUDES RESEARCHING LOCAL LAWS AND
the running and maintaining their operational activities under REGULATIONS AND MONITORING SUPPLIERS FOR ANY
the most favorable conditions. ISSUES.
• GLOBAL SOURCING - Is a procurement strategy used to • CURRENCY AND EXCHANGE RATE FLUCTUATIONS
acquiring goods or services from suppliers in other countries - Different currencies can fluctuate in value, which can affect
at the best possible price. the cost of goods and services.
- To mitigate this risk, it’s important to monitor these
WHAT ARE THE TYPES OF GLOBAL SOURCING? fluctuations and understand how they could affect your
Businesses can use five levels of global sourcing to enhance bottom line.
procurement. • POLITICAL AND ECONOMIC INSTABILITY
1. DOMESTIC PURCHASING - Changes in government or in the wider economy can affect
- Is sourcing goods and services from suppliers within the the cost of goods and services and can make it difficult to do
same country. business.
- This is the most basic level of procurement strategy, and - To mitigate this risk, monitor news reports and stay up to date
businesses may use it for various reasons, such as reducing with any changes that could affect your operations.
shipping costs or supporting local businesses. • LANGUAGE AND CULTURAL BARRIERS
2. INTERNATIONAL SOURCING - This can make it difficult to communicate effectively and can
- Is the second level and involves expanding the procurement lead to misunderstandings and delays.
strategy to include suppliers from different countries. - Cultural differences can also create challenges when it
- This level of sourcing can provide access to emerging comes to global sourcing. For example, a supplier in China
economies and opportunities for cost savings through the might be used to working with a different set of ethical
international market and suppliers. standards than one in the us.
3. INTERNATIONAL PROCUREMENT
- Involves formalizing international sourcing processes and INCOTERMS: INTERNATIONAL COMMERCIAL TERMS
establishing relationships with suppliers in different • The international chamber of commerce (icc) publishes a set
countries. of incoterms, officially known as INTERNATIONAL
- This level requires a more strategic approach to procurement, COMMERCIAL TERMS.
including understanding global efficiencies, developing • Prevent confusion in foreign trade contracts by clarifying the
vendor selection criteria, establishing contracts, and obligations of buyers and sellers.
implementing quality control processes. • Some incoterms apply to any means of transportation, while
4. CENTRALIZED PROCUREMENT ACROSS GLOBAL others apply strictly to transportation across water.
LOCATIONS
- Aligns procurement processes between regions or business
units.

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 6. DPU -DELIVERED AT PLACE UNLOADED (INSERT PLACE
OF DESTINATION)
7. DDP -DELIVERED DUTY PAID (INSERT PLACE OF
DESTINATION)

EXW - EX WORKS
- Ex-works outlines the seller and buyer’s responsibilities
for transporting and selling goods.
- The seller must deliver the goods to an agreed-upon location.
- The buyer
✓ Is liable for all shipping costs
UNDERSTANDING INCOTERMS
✓ Bears responsibility for possible risks such as loading
• The International Chamber of Commerce (ICC) developed
and transferring the shipment and passing customs
INCOTERMS in 1936 and updates them periodically to
regulations
conform to changing trade practices.
✓ Assumes responsibility for picking up these goods and
• The ICC’S mission is to promote open markets and ensure transporting the cargo from origin to the port of
global economic prosperity through trade. destination
• While adherence to its INCOTERMS is voluntary, the ICC- ✓ Takes on the shipping costs and risk of loss until the
established rules are commonly used by buyers and sellers inventory reaches the destination port
as a regular part of trade transactions. ✓ Must orchestrate all aspects of transport, including
• INCOTERMS provide a universal set of rules and guidelines choosing the mode of transportation, product loading,
that help facilitate trade. and the customs clearance process.
• In essence, they provide a common language that traders can
use to set the terms for their trades. FCA -FREE CARRIER
• Buyers and sellers can use INCOTERMS in a variety of • Free carrier is more favorable for the buyer regarding
activities necessary to conduct business. Typical activities transport obligations and the risk of loss.
that call for the use of INCOTERMS include filling out a • The seller
purchase order, labeling a shipment for transport, completing ✓ Is responsible for the entire shipment until it reaches
a certificate of origin, or documenting a Free Carrier an agreed location or destination port, such as an
Agreement (FCA). ocean dock, air cargo terminal, warehouse, or another
• INCOTERMS specify who is responsible for paying for and specified facility
managing the shipment, insurance, documentation, customs ✓ Provides a quote that covers the full-service cost,
clearance, and other logistical activities. including export clearance fees, licensing, and
additional supply chain costs.
INCOTERMS 2020 • However, once the shipment arrives at the designated
• The INCOTERMS are a set of 11 individual rules issued by the location, the buyer assumes responsibility for the cargo,
International Chamber of Commerce (ICC) which define the including arranging and covering the cost of unloading the
responsibilities of sellers and buyers for the sale of goods in merchandise.
international transactions.
• Each INCOTERMS rule clarifies the tasks, costs, and risks to CPT -CARRIAGE PAID TO
be borne by buyers and sellers in these transactions. • CPT is similar to FCA, but the seller is responsible for the
• The INCOTERMS2020 rules are updated and grouped into two entire delivery process, from the point of origin to the end
categories reflecting modes of transport. Of the 11 rules, customer’s front door. They take on all costs, risks, and
there are 7 for any mode(s) of transport and 4 for sea or land potential losses until the goods are in the customer’s
or inland waterway transport. possession.
• If intermodal transport is needed, risk transfer remains with
7 INCOTERMS 2020 RULES FOR ANY MODE(S) OF TRANSPORT the seller for each leg of the journey. The seller must handle
1. EXW -EX WORKS (INSERT PLACE OF DELIVERY) all costs and customs clearance procedures. However, they
2. FCA -FREE CARRIER (INSERT PLACE OF DELIVERY) can include these services and fees in their quote.
3. CPT -CARRIAGE PAID TO (INSERTPLACE OF
DESTINATION) CIP -CARRIAGE AND INSURANCE PAID TO
4. CIP -CARRIAGE AND INSURANCE PAID TO (INSERT • CIP states that the seller must pay freight charges and cargo
PLACE OF DESTINATION) insurance to ensure the inventory arrives safely and securely
5. DAP -DELIVERED AT PLACE (INSERTPLACE OF at a contractually set location. The liability and risk of goods
DESTINATION) passes when the cargo is delivered to the buyer or a
nominated third party like a 3PL.
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• Full-form insurance coverage is mandatory. The seller must • The buyer must pay unloading and ocean freight costs and
insure the goods for 110% of their contracted value. The buyer cargo insurance.
and seller can also agree on additional coverage.
FOB: FREE ON BOARD
DAP: DELIVERED AT PLACE • The FOB incoterm states that the seller is only responsible for
• The dap incoterm places the majority of risk and cost on the goods until they are loaded onto a designated vessel at an
the seller. They must pay full shipping costs, export assigned loading port.
formalities, loading expenses, and the final delivery fee. They • The buyer manages the export clearance process. When the
are also responsible for damages or losses while the goods merchandise is safely on board, liability transfers to the buyer.
are in transit. • The buyer assumes the most responsibility, assuming liability
• The buyer for any damage after the goods are loaded onto the shipping
✓ Covers the cost of unloading, local taxes, and import vessel. The buyer pays for ocean freight and takes care of
taxes when the inventory arrives at the agreed-upon import formalities.
location
✓ Takes responsibility for import clearance formalities. CFR: COST AND FREIGHT
• Under the CFR trade terms, the seller must orchestrate the
DPU: DELIVERED AT PLACE UNLOADED ocean transfer of goods via sea freight, pay the freight costs,
• The ICC introduced DPU with the release of the 2020 and fulfill all paperwork obligations.
incoterms. However, it is simply a name change of a • However, the seller isn’t required to obtain marine insurance
previous rule, called delivered at terminal or DAT to cover potential damages while the goods are in transit.
(incoterms 2010). • The buyer has the option to insure the goods against
• The seller is responsible for unloading the inventory at the damages incurred on the ocean liner.
port of arrival
✓ Is also held accountable for the carriage paid and the CIF: COST, INSURANCE, AND FREIGHT
delivery of goods • Like with CFR, the seller is responsible for all aspects of the
• The liability transfers to the buyer once the items are shipment from when it leaves the storage facility until it
unloaded. The buyer covers import duties and local taxes and arrives at the destination port.
manages import clearance formalities. • However, the seller must pay minimum marine insurance
against potential losses or damages. The insurance coverage
DDP: DELIVERED DUTY PAID is agreed upon between the buyer and seller and detailed in
• DDP incoterms are one of the more buyer-friendly the contract of sale.
agreements. • Risk transfer occurs when the inventory is removed from the
• The seller absorbs all risks and covers total transportation vessel. At this point, the buyer assumes liability for the goods
costs from the point of origin to the destination. and must pay additional costs, like product inspection,
• These risks include export and import duties, insurance, and customs duties, licensing fees, taxes, and further
extra costs that may occur during the time in transit to an transportation costs
agreed location. If a shipment is delayed or damaged, the
seller is held accountable. INCOTERMS DO NOT COVER THE FOLLOWING:
• Address all the conditions of a sale
4 INCOTERMS 2020 RULES FOR SEA AND INLAND WATERWAY • Identify the goods being sold nor list the contract price
TRANSPORT • Reference the method or timing of payment negotiated
1. FAS - Free Alongside Ship (Insert Name of Port of Loading) between the seller and buyer
2. FOB - Free On Board (Insert Named Port of Loading) • Determine when the title, or ownership of the goods, passes
3. CFR - Cost and Freight (Insert Named Port of Destination) from the seller to the buyer
4. CIF - Cost Insurance and Freight (Insert Named Port of • Specify which documents must be provided by the seller to
Destination) the buyer to facilitate the customs clearance process in the
buyer’s country
FAS: FREE ALONGSIDE SHIP • Address liability for the failure to provide the goods in
• According to FAS, the seller conformity with the contract of sale, delayed delivery, or
✓ Remains responsible for orchestrating the delivery until it dispute resolution mechanisms
arrives at a specific port of shipment,
✓ Must dock next to a designated vessel where the cargo is
set to be transferred,
✓ Handles export clearance formalities.

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WHO ARE THE MAIN ACTORS IN INTERNATIONAL TRADE - It is a written order for a certain amount of money to be
(EXPORT AND IMPORT)? transferred on a certain date from the person who owes
• EXPORTER - a person or organization that sells products and the money or agrees to make the payment
services in foreign countries that are sourced from the home • SIGHT DRAFT
country - A bill that is due to be paid upon receipt (i.e., when it is
• IMPORTER - a person or organization that buys products and “seen”)
services that are sourced from other countries • TIME DRAFT
• CARRIER - the entity handling the physical transportation of - A bill that is payable 30, 60, 90 or 120 days in the future
the goods, such as UPS, FEDEX, and DHL • FACTORING
• CUSTOMS - governmental agency that monitors imports and - The situation in which an exporter sells a time draft at a
collects import duties on goods coming into the country. discount to an intermediary (often a bank) that will pay the
exporter immediately and then collect the full amount
ROLE OF INTERMEDIARIES from the importer at the later date
• Intermediaries can get involved at the discretion of the • CASH IN ADVANCE
importer or exporter - An arrangement in which the exporter requires payment
- Entrepreneurs and small and midsize businesses make from the importer before shipping the goods
use of intermediaries, rather than expending their • OPEN ACCOUNT
resources to build these capabilities in-house - An arrangement in which the exporter ships the goods and
- Freight forwarder: entity that typically prepares the then bills the importer
documentation, suggests shipping methods, navigates
trade regulations, and assists with details like packing BASICS OF EXPORT FINANCING
and labeling • SECURED FINANCING: financing granted against collateral,
which can be the imported/exported goods
WHAT’S NEEDED FOR IMPORT AND EXPORT TRANSACTIONS? • COMMON SOURCES OF FINANCING:
• BILL OF LADING o A loan from a commercial bank
- The contract between the exporter and the carrier o A loan from an intermediary, such as an export
authorizing the carrier to transport the goods to the management company that provides short-term
buyer’s destination financing
• COMMERCIAL OR CUSTOMS INVOICE o A loan from a supplier, for which the buyer can make
- The bill for the goods shipped from the exporter to the a down payment and ask to make further payments
importer or buyer incrementally
• EXPORT DECLARATION o A loan from the corporate parent
- Documentation that provides the contact information of o Governmental or other organizational financing
both the exporter and the importer (i.e., buyer) as well as
a full description, declared value, and destination of the
products being shipped
• CERTIFICATE OF ORIGIN
- Documentation that declares the country from which the
product originates
• INSURANCE CERTIFICATE
- Documentation that shows the amount of insurance
coverage on the goods and identifies the merchandise
• LICENSE
- Purchased permission to export goods from a country
• LETTER OF CREDIT
- A legal document issued by a bank at the importer’s (or
buyer’s) request in which the importer promises to pay a
specified amount of money when the bank receives
documents about the shipment

WHAT OPTIONS DO COMPANIES HAVE FOR EXPORT AND

IMPORT FINANCING?
• DRAFT (OR BILL OF EXCHANGE)
- The document by which the exporter tells the importer to
pay a specified amount at a specified time
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