Cross trade shipment is a type of shipment organized between 2 countries – none of which the seller (consignor) is based in. It is also commonly known as foreign-to-foreign, third-party or triangle shipments.
This is an example of how a cross trade shipment works: A Singapore consignor wants to sell its products manufactured in Indonesia to a buyer (consignee) in Japan. Instead of shipping the products from Indonesia to Singapore to Japan, the consignor ships the products directly from Indonesia to Japan.
This eliminates the need to send the goods through Singapore, thereby saving time and costs.
Advantages of Cross Trade Shipments
- Shorter transportation time
By eliminating the need to send the goods through the consignor’s country, cross trade shipments help to save transportation time and improve efficiency.
- Lower supply chain costs
As goods are transported directly from the manufacturer to the consignee, the consignor will only incur expenses for shipping. This reduces the overall supply chain costs.
If the goods are shipped to the consignor before being transported to the consignee the consignor may incur additional freight and warehousing costs, and import taxes (for importing goods into the consignor’s country).
- Accessing new markets
The lower costs associated with cross trade shipments make it easier for companies to break into new markets. Cross trade shipment is, in fact, especially favorable for those shipping to countries near the manufacturer.
Disadvantages of Cross Trade Shipments
- Restrictions on goods from certain countries
Depending on the destination country, there may be restrictions or limitations on imported goods originating from certain countries. In such cases, cross trade shipment may not be feasible and companies may opt for transshipment or trans-loading instead.
- Process can be complicated
As the consignor is not based in either the port of loading’s or discharge’s country, they may be unfamiliar with the shipping policies and restrictions. As such, cross-trade shipments can get quite tricky. If not done properly, additional time and money may be incurred.
Hence, companies may choose to engage an experienced freight forwarder to handle their cross trade shipments.
- Customer is aware of the origin of the shipment
As with any type of freight, a Bill of Lading (applicable for sea shipments) or airway bill (applicable for air shipments) is required. These documents will contain the port of loading and discharge, meaning that the consignee would be aware of the goods’ origin.
With this information, the consignee may bypass the consignor and purchase their goods directly from the manufacturer in future.
To address this, many companies opt to use Switch Bill of Lading.
Switch Bill of Lading
A Switch Bill of Lading is a substitute document that replaces the original Bill of Lading (BoL) issued at the time of shipment. They primarily serve the same purpose:
- A transportation contract between the consignor and the carrier
- A document of title of the goods
- A receipt for the goods shipped
Certain information will be removed from the Switch BoL to ensure that the origin of the goods is kept confidential from the consignee. This prevents the consignee from contacting the supplier directly, which may result in a loss of potential business for the consignor.
A Switch BoL can only be requested by the cargo owner and they must possess the full set of original documents.
Risks of Switch Bill of Lading
- Discrepancies between documents
When a Switch BoL is requested, a new invoice and packing list must be issued to reflect the changes made. The information provided should not differ from the original BoL. However, human errors are inevitable and this may result in discrepancies between the various documents.
These inconsistencies can have legal consequences and can lead to heavy penalties on the carrier.
- Multiple BoLs
As a best practice, a Switch BoL can only be issued when all copies of the original are collected and canceled. However, there may be instances where multiple BoLs are in circulation.
This can increase the risk of fraud or theft, in which the goods are released to the wrong person.