8-7. Intermediary Trade and Switch Bill of Lading装飾用

Overview

IINO san

How’s your study going? Today, let’s learn about triangular trade and its required documents.

We covered that in Lesson 2, it’s just an exchange between three countries, right?

Rookie

IINO san

Well, I briefly explained, but it actually gets a bit more complicated.

Oh, okay. The memories came back to me gradually. I’m concentrating on studying!

Rookie

What You Learn in This Topic

• What is Triangular Trade
• What documents are used
• Switch Invoice
• Switch B/L
• In case of using Origin Certificates

What is Intermediary Trade?

Triangular trade, or Intermediary trade, is a type of trading where goods are bought from a middleman or trader instead of directly from the manufacturer or factory.

In this type of trade, the physical movement of goods may not match the commercial agreements made.

Considerations

Keeping the exporter’s information hidden from the importer is crucial in triangular trade. Because if the exporter’s information leaks, the exporter and importer may start trading directly.

In practice, sometimes, they don’t need to hide the exporter’s info physically, as they’ve got contracts in place. However, usually, switched documents are used to prevent information leaks.

IINO san

The key is how the exporter, importer, and intermediary are listed on each document.

Documents used for triangular trade

Here are the documents used in Triangular trade:

1. Invoice (for export customs)
2. Switch Invoice (for import customs)
3. Initial Bill of Lading (B/L)
4. Switch B/L

Switch…?

Rookie

IINO san

We’ll explain that in the next paragraph.

Switch Invoice

Two types of invoices are used for Intermediary Trade. It’s important to note that the exporter, importer, and amount are different in these invoices.

For this case, below, two types of invoices are prepared.

• Invoice used for Export Customs
• Switch Invoice used for Import Customs

The details listed for each are different.

Invoice used for Export Customs

Seller: Thai Company
Buyer: American Company
Notify Party: Japanese Broker (“Bill To”).
Invoice Amount: The price at which the broker purchased the goods

Switch Invoice used for Import Customs

Seller: Japanese Broker
Buyer: American Company
Notify Party: Same as the buyer
Invoice Amount: The price at which the intermediary sells the goods

KEY POINT

Mismanaging switch documents can cause trouble. Be careful in handling them.

IINO san

If the importer sees this export invoice, it could reveal not only the actual exporter’s information but also the intermediary’s profit! 

Switch B/L

Usually, a Bill of Lading (B/L) is issued by the shipping company or forwarder once the cargo is loaded onto a ship. This B/L includes the actual exporter’s information.

To hide this information, a Switch B/L is used.

A typical B/L is issued in the exporting country. However, a Switch B/L is issued by the shipping company or forwarder in the intermediary country (a third country).

IINO san

Not all shipping companies are flexible about switching B/Ls, so using a House B/L alongside the Master B/L is advisable.

1st B/L

This is a specific example using the above-mentioned triangular trade case. Similar to the invoice, the exporter and importer differ in the two BLs.

• Shipper: Thai Company
• Consignee: American Company
• Notify: Japanese Broker

Switch B/L

• Shipper: Japanese Broker
• Consignee: American Company
• Notify: Same as Consignee

This is how the Switch B/L substitutes the broker’s name for the actual exporter’s. Consequently, the exporter’s details stay confidential.

IINO san

Don’t forget to write the broker’s name on the first B/L.

Origin Certificates in Triangular Trade

The final topic is about considerations for obtaining origin certificates in triangular trade. When countries that signed Economic Partnership Agreements (EPAs) trade with each other, having an origin certificate can get them tariff preferences.

In this case, obtaining the certificate in the exporting country and presenting it in the importing country are required.

Wait a minute! Won’t the certificate of origin reveal the exporter’s information?

Rookie

IINO san

Might be! It’s recommended to check beforehand if you need a certificate of origin.

One option is for the exporter to send the certificate of origin directly to the importing forwarder instead of sending it to the importer. In this way, the forwarder can handle the customs clearance process.

Summary

In this topic, we explained Triangular Trade and discussed the documents used in the process.

In this explanation, we’ve focused on cases where you must conceal the exporter. However, if you don’t need to hide anything, you can use one invoice to handle everything, including information about the exporter, importer, and broker.

IINO san

There are cases where switch documents are not needed.

In those cases, there’s no requirement to switch the B/L. However, a switch B/L may be necessary for a Letter of Credit (L/C) depending on the situation.

IINO san

Many trade transactions are case-by-case, you know. But remembering even one example can enhance your ability to apply the knowledge.

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Take the Test

Reinforce your understanding of this topic by working through the exercises. Attempting the exercises without referring to the material as much as possible is advisable.

IINO san

The act of “remembering” makes it more readily retained in the memory.