The identification and shipment of trending products into any business environment is a vital aspect of wealth creation. It is of great relevance to the economic development of a nation.
“Shipment” is the process of shipping, which is the movement of products from one place to another. Thus, shipping is important to the local and international business environments.
In developing nations like ours as well as in developed countries, shipping is mandatory because most domestically used products are not locally manufactured. Thus, they have to come from foreign markets via imports.
Although shipping traditionally referred to the process of transporting cargoes by sea, nowadays it has expanded to include air freights.
SHIPPING AT A GLANCE
What is shipping?
It is generally the movement of goods from one place to another. In this contest, shipping would refer to the various practices involved in transporting finished products from an oversee country into the Nigerian business environment. It is so because majority trending and quick selling products in Nigeria are not domestically produced. They, therefore, have to be outsourced in foreign markets (where they are readily available) by business-minded individuals who would then proceed to import them into the local markets for the sake of meeting demands and, of course, making profits. This whole process is more conveniently known as the shipping.
Before pursuing any business idea, it is always a best practice to investigate the state of the target market—an inquiry into how the environment reacts to the goods that you’re going to be offering.
There are lots of questions to be answered here, one of which would be “is this product in demand at the moment in this particular market?” is it of any value? Is it trending? Is it durable? How much of this product already exists in my target market? Answering these questions would help you make informed decisions when it “comes to the choice of goods.”
Choice of Goods
After answering the above questions, you would be able to tell whether the product you wish to bring in would thrive in the overall Nigerian markets. If not, then you will have to choose more suitable products.
The aim of any business-minded individual venturing into importations would be to make a profit at the end of the whole process. This is the reason why the choice of products is important. You do not just bring in products to keep in the warehouse, you must also be able to sell these products on time and with profits!
It is necessary to evaluate the cost required for the purchase of goods, as well as shipping costs. This would enable the business-minded individual looking to do imports, to determine whether he has the required financial capacity. It would also help in the evaluation of the viability of the business.
Warehousing: Arrangements have to be made for where the incoming cargo would be kept after clearance. A warehouse capable of containing and securing the goods should be arranged before they arrive at the port.
There are several items to be mindful of. The importation of certain products into Nigeria is prohibited by law. Some of the prohibited items are listed below:
- Ballpoint pens, including replacement parts
- Glass bottles with a higher capacity than 150ml
- Fruit Juice
- Mosquito repellent coils
- Soaps and other detergents
- Bags, suitcases, and all footwear, etc.
Items like the ones listed above are locally produced, so it would be unwise to bring in the same from abroad.
The scope of discussion in this piece only covers legal shipments, therefore legal procedures must be duly followed to avoid unnecessary glitches in the course of shipment.
Various guidelines are available as provided by the relevant local and international bodies; however, we would look at the “shipping guidelines as provided by the Nigerian Ports Authority (NPA)”
Procedures for Imports into Nigeria
The import process in Nigeria involves specific steps. The following procedures must be taken into consideration as provided by the Nigeria Ports Authority; the first three steps are pre-import processes without which the importer cannot be deemed as ready to do imports.
- Registration of business/company name in Nigeria: The first step is to register the company name in Nigeria to obtain a Certificate of Incorporation/Registration of the company in Nigeria.
- Tax Identification Number: The business must also be registered with the Federal Inland Revenue Services (FIRS) for tax purposes. Upon completion of registration, a Tax Identification Number (TIN) is assigned to the company/business tagged with a valid email address.
Note: Proof of Tax payments is required for this registration.
- Authorized Dealer Bank: Choose a bank in Nigeria that would act as the Authorized Dealer Bank (ADB). This bank will be responsible for the processing of the Form M / Pre-Arrival Assessment Report (PAAR), as well as an intermediary between the Nigeria Customs Service (NCS), the importer, and other relevant bodies.
Upon successful completion of the above, the importer is set to import into Nigeria, applying the following steps which are collectively known as the Import Customs Clearance:
Step 1: The importer gets his Regulatory Certificates, e.g., the Product Certificate (PC), for items that are regulated.
Step 2: The importer activates the PC on the Nigeria Single Window; this is done online.
Step 3: The importer opens a Form M on the Nigerian Trade Platform (Single Window System), attaching the required documents, e.g., the Insurance Certificate, the Proforma Invoice, the Product Certificate (when SON regulates the item), and submit it to the Authorized Dealer Bank (ADB).
Step 4: The ADB reviews and validates the Form M and sends it to the NCS.
Step 5: The NCS either accepts the Form M or rejects it when not correctly completed or lacking some information or documents.
Step 6: When the NCS accepts the Form M, the importer forwards a copy of the Form M to his exporter, who will, in turn, contact COTECNA, the International Accreditation Firm, with the Form M, the Final Invoice, the Bill of Lading/Airway Bill and the packing list, for the issuance of the SONCAP Certificate.
Step 7: The importer activates the SONCAP Certificate and applies for PAAR issuance on the Nigeria Single Window for Trade.
Step 8: The PAAR is issued, and the importer commences the clearance of his goods.
Step 9: Shipping Company; Submission of import manifest to customs/NPA/Terminal Operator, brings in the vessel, pays ship charges, pays NPA charges, and Issues bill of lading.
Step 10: Terminal Operator; Terminal Handling/Weighing, Loading of Cargo, Issue bills for handling/ rent, and delivers the goods.
Certain physical and documentation steps are involved in the shipping process before any shipment can move from the shipper (seller) to the consignee (buyer). Because there are cost implications for every step, the parties must ascertain and agree on who is responsible for which part, before the shipment begins.
These steps are listed and explained below:
The steps involved in the shipping process are;
- Export Haulage
- Export Customs Clearance
- Origin Handling
- Ocean Freight
- Import Customs Clearance
- Destination Handling
- Import Haulage
This process deals with the transfer of the shipments from the premises of the shipper to the origin warehouse of the freight forwarder. This is usually done using a truck, train, or a combination of trucks and trains. The duration for this process depends on distance and location, it can be from a few hours up to a few weeks.
WHAT ARE THE TRADING TERMS FOR THIS SHIPMENT?
Trading terms must be agreed between the shipper and the consignee in the contract. This would usually determine who pays for what, and from which point the consignee takes the responsibility of the shipment or cargo.
The consignee would be responsible for the arrangement of the export haulage if the agreement is that he takes the responsibility of the cargo right from the premises of the shipper. Otherwise, the export haulage would be arranged by the shipper. It is, therefore, necessary to reach this agreement at the beginning.
Also, the International Chamber of Commerce publishes a series of predefined terms known as Incoterms which can be adopted by the parties.
Incoterms EXW (ex-works) and FCA factory (free carrier) assign the responsibility of export haulage to the consignee. Note that you would be able to arrange haulage if you already have inside knowledge of the origin market, thus it is advised to agree with your shipper to take care of export haulage.
Export Customs Clearance (ECC)
Details of the cargo leaving the origin country would have to be registered with the customs to obtain clearance. This is carried out by a licensed customs house broker who submits a detailed declaration of the cargo and supporting documents which may differ from country to country. Export customs clearance is required for all legal exports.
The shipper would usually be responsible for arranging export customs clearance, using the freight forwarder. The shipper may also directly nominate a customs house broker to handle ECC.
Origin handling is done by the forwarder or his designated agents. This involves receiving and unloading the cargo from haulage trucks, inspecting, and recording. This is then validated, after which the shipper is issued a receipt showing that the forwarder has received the cargo for shipping. Proper handling and documentation are required here.
If the cargo is less than a container load of shipment, it would be stacked in the freight forwarders origin warehouse where it would later be loaded into a container with other shipments that are headed for the same destination port
The loaded container is then hauled to the port from the origin warehouse by a truck. Upon arrival at the port, containers that would be loaded on the same ship are stacked together and loaded into the ship when it is ready.
This usually takes place a few days before the ship’s departure. The handling is done by the freight forwarder or his agent but the monetary cost can be paid by either the shipper or the consignee depending on their initial agreement.
Applicable Incoterms in export haulage includes;
- EXW (ex-works)
- FCA (free carrier)
- FOB (free onboard)
- CNF (cost and freight)
- CIF (cost insurance and freight)
- DDU (delivered duty unpaid)
For cargos sold on EXW or FCA terms, the buyer would be responsible for the payment for the origin handling. While the responsibility of payment for the origin handling would be on the shipper if the cargo sold on CNF or CIF or DDU terms.
Ocean freight shipping accounts for about 90% of total shipments worldwide. In ocean freight, cargo containers are usually transported via shipping lines (i.e. companies that transport cargoes by ships).
There are two categories of charges for Ocean freights; FCL and LCL.
For shipments in the LCL (less container load) category, Ocean freight is charged on per Cubic meter basis or per ton basis. In this case, the international freight forwarder arranges for the carriage with a shipping line and splits the cost among the customers whose cargos are loaded in the same container.
But if the cargo is FCL (full container load), then the customer pays the price billed on the container for the shipping. The responsibility of paying for ocean freight charges depend on the terms of the contract entered at the beginning and does not necessarily concern the shipping line.
The charges are dependent on several factors, such as:
- Size of the container
- Duration of transit
- Type of cargo
- Weight and dimensions of the cargo
- There could be extra costs involved in the shipping, so the freight forwarder must consider this.
- Transshipment could occur along the line. This means that there may be a need to transfer the cargoes from one ship to another during the ocean freight.
Alternatives to Ocean freight:
There are only three alternatives to ocean freight, they are;
- Rail freight
- Road freight
Of the three available alternatives to Ocean freight, only Air freight is feasible in most cases because of several limitations involved in the other freight types.
Below are the advantages of Ocean freight over Airfreight, Rail freight, and Road freight.
Advantages of Ocean Freight
- Cheap freight cost: Freight rates are comparatively more affordable than other forms of transport.
- Low cost of maintenance: Water transport involves a lower cost of maintenance than other modes of transport, thereby contributing to the relatively lower freight rates.
- Can transport heavy and bulky goods: No matter the size of the cargo, vessels can transport them. Bulky items are best shipped by sea.
- Eco friendly: Ships do not emit as many carbons as airplanes and the likes, they also consume lesser fuels and as such are often preferred
- Efficiency: The arrangements of cargoes in containers makes ships highly efficient and cost-effective. Ships can transport in one trip what an Airplane would transport in several trips.
- Coverage: Ocean freight is best for international shipments because of its coverage. Every part of the world is somehow connected by water. Although air freights offer more coverage, ocean freights are still preferred due to capacity and other advantages.
Disadvantages of Ocean Freight
- Slow and time-consuming: Ships travel long distances and require much time to get to their destinations, their heavy cargo carrying ability doesn’t allow for speeding, and large vessels are not built for speed. This means that ocean freights can take up to weeks or months, depending on the distance and the weather conditions.
- High risk: The time required for shipping via ocean freights somehow puts cargoes at risk of damage. Improper handling could destroy cargoes during transshipment. As a result, ocean freight is not suitable for perishable goods.
- Poor infrastructure: Although ocean freight is one of the oldest known means of international transportation of goods, some regions of the world do not still have adequate infrastructure in terms of seaports and other relevant facilities. Shipping to such regions would require cargoes to be delivered at the nearest port, probably in a neighboring country or a state. The cargoes would then be hauled via train or trucks to their actual destinations. For example, in Nigeria, most shipping is done through the Lagos ports (i.e. Apapa and Tin Can).
Import Customs Clearance
This process usually starts before the arrival of the shipment to the destination port, it must be completed before the cargo gains entrance into the country. Cargoes without import customs clearance cannot go past the border or customs bounded areas.
All cargoes coming into Nigeria must have import customs clearance. The type of goods is declared and may need to be examined by customs authorities upon arrival. It involves the preparation and submission of necessary documents to the customs authorities. This would be used to determine duties and charges upon the cargo.
Note that the import customs clearance is not the same as customs duty.
The import customs clearance can be performed by the international freight forwarder, his agent or a customs house broker as long as they hold a valid license, and have the required documents. These documents may be scanned copies of the originals, although some authorities may demand a physical presentation of the original copies before the clearance can be completed.
The consignee (buyer) is responsible for the payments for import customs clearance unless the cargo is sold on DDP (delivered duty paid) terms. You can consult with your freight forwarder for the list of required documents. If the freight forwarder is unable to perform the import customs clearance, they would usually nominate a capable customs house broker to arrange it.
Cargo arriving at the destination port must be received and transported to a safe warehouse. This process is called destination handling, and it is mostly performed at the freight forwarder’s office at the destination. The freight forwarder submits the original copy of the carrier bill of lading to the shipping line, documents are inspected and verified after which the cargo or container is collected at the port. The cargo would then be hauled to the destination warehouse by truck.
At the warehouse, the cargo is unpacked, inspected and kept for collection by the consignee. Depending on the agreed terms, the cargo may need to be trucked to the consignee’s warehouse.
The destination handling is done by the freight forwarder or his agents, while the responsibility of payment is upon the shipper or the consignee depending on the commercial terms involved.
The shipper would pay for the destination handling and all costs till the consignment arrives at the premises or warehouse of the consignee if the terms are DDU (delivered duty unpaid) or DDP (duty delivered paid).
Otherwise, the destination handling would be paid for by the importer if the terms are EXW, FCA, FOB or CNF/CIF.
This involves the transfer of the cargo from the freight forwarders warehouse to the buyer’s address which is the final destination of the cargo. The import haulage may be done by truck or by train or a combination of both and can take from a few hours to days, depending on the distance involved and road network.
It can be performed by the freight forwarder, using his trucks or hired truck. The consignee is responsible for monies spent on import haulage except if the terms are DDU/DDP
However, if the forwarder cannot handle the import haulage, the consignee/importer can arrange to handle it.
With the aid of this article, every potential investor with the aim of venturing into import and export business especially in Nigeria business environment will be acquainted with the importance of shipment in every international trade. And will equally facilitate better decision making as it relates to the adoption of the best shipping method that will be suitable for his/her intending business line.
In summary, it is expected that every intending importer/exporter should harness every segment of this niche properly. The choice of business partners should be carefully selected especially in terms of making the choice of shippers, freight handlers, freight forwarders, custom clearing agents etc. Finally, every potential/practicing international trader should always apply the above-detailed principles and procedures of shipping products from one country to another in order to maintain sound shipment process in his/her business at all time.