Chapter 4 Packing Clause
Learning Objectives
（1）To understand the meaning of packing and its functions in international trade；
（2）To understand the different types of marking in shipment packing；
（3）To understand the definition of sales packing and the meaning of bar code, UPC and ENA；
（4）To understand the concept of neutral packing and its major classifications；
（5）To understand the packing content, method, material and cost in terms of packing clause.
Case Study
A trade company of China exported a batch of ginseng root to UK. It is specified in the contract that moisture,12% maximum; admixtures,3% maximum and packing these ginseng in a special container with dry and waterproof conditions. Meanwhile, the Chinese trade company has sent the sample to the buyer before transaction is accepted. And the seller also phoned the buyer to confirm that the delivered goods are similar to the sample after contracting.
However, after the goods arriving in UK, the buyer provided an inspection certificate stated that the quality of the goods is lower than that of the sample by 7% due to bad packing and high temperature during transportation, and according to this, they also claimed for 600 pounds as the compensation against the losses.
Question:Does this Chinese trade company ignore the claim for the reason that the deal was not conducted based on ambiguous packing requirements？
4.1 Packing
In most of international trade transaction, the goods or commodities are required to be packed in order to insure their integrity of value in use during the long distance transportation. Usually, different goods should adopt properly packing methods based on the differentiation in the types, shapes and characteristics of goods. Moreover, the packing of goods has its special importance both in circulation and sales in international market. Therefore, the packing clause plays a vital role as the two parties who involved in sale and buy should draw a clear conclusion in terms of packing contents, methods, materials, expenses and so on during signing the international trade contracts, which is beneficial for avoiding business disputes and insuring quality of commodities as well.
4.1.1 The Meaning of Packing
Generally, the term of packing refers to a device that adapted to packing goods in order to protect the quality and quantity of the goods. Most internationally traded goods typically have to travel long distance, experiencing multiple transit and storage before arriving final destination, so that it is essentially to bundle and pack goods during transportation process. In the course of transit, exported goods are often required to packed in certain ways in order to avoid damage, otherwise purchaser will not receive the goods. Moreover, some national laws specify that if the packing of commodities is incomplete or not in accordance with the standard set by state or international laws, these goods are not allowed to be imported. Meanwhile, the maritime law of all countries also stipulates that any goods damage causing by packing problem, the shipping company will not be responsible for compensation.
In a word, packing is a continuation of the production of goods. For the goods to be packed, the production process can only be completed through packaging, so that these goods can be entered into circulation and consumption, and ultimately achieved its value of commodity as well as value of use. Additionally, in international market, the quality of goods packing is significantly related to its price level and sale performance, and also can impact on the reputation of a country, a company and its products.
4.1.2 The Function of Packing
With the booming of globalization, the packing of goods or commodity is considered as an important method to increase sale in international trade by many countries. Especially in export trade, the packing is not only bring great importance to protect, promote and embellish goods, but also act an curtail role in storage, transportation and sale of goods. Additionally, the high technology with in packing of commodities in large extent can reflect the culture, economy and art of the country of origin. The major functions of packing for exported goods can be briefly classified as follows：
（1）Protecting Goods
The main purpose of packing of goods is to protect the quality and quantity of goods or commodity in circulation field, especially for international export and import trade that goods have to travel long distant, so that strong packing can prevent the goods from damage and lose.
（2）Facilitating Delivery
In international trade, the packing not only can insure the safety of goods, but also can make it convenient to store, transport, load, unload, and count and distribution. For example, the packages for fresh fruits need ventilation air holes, and the fragile items such as glass, porcelain must be filled with safety mat to prevent break.
（3）Reducing Cost
Reasonable packing in large extent can optimize the use of shipping space, containers and vehicles, which can greatly reduce transportation cost. Furthermore, packing is also regarded as a tool to increase the added value of goods, thus the sellers should continuously improve the technology with the packing of goods that ultimately can bring economic returns.
（4）Promoting Sales
The commercial function of packing of goods has drawn lots of concerns in international trade. A unique and attractive package can increase products image, expand brand, convert culture and ultimately promote sales.
4.2 Shipment Package
In international trade, according to the function of packing of goods in circulation process, package can be classified into two main categories as shipment package and sale package.
Shipment package is also named as large packing or out packing.It is a type of packing that aims to guarantee the safety of goods, convenience of transportation and reduction of cost. The shipment package is generally solid and durable, which can be divided into single piece packing and collective packing based on different packing methods.
Single piece packing means the goods are packed as single unit during transportation, such as cases, bundles, bags, bales, barrels, cans, bottles and so on.
The collective packing is also called unionization packing that refers to a certain number of single piece goods are packed together in a big container in order to convenient for transiting loading, unloading and distributing. The container of collective packing includes containers, pallets and flexible containers.
Apparently, with the development of modern logistics, adopting the collective packing not only can increase the amount of transport of goods in single time, but also can speed up loading and unloading and provide better to goods as well.
4.2.1 Shipping Mark
Shipping mark refers to certain special marks, which agreed by the buyer and seller to fa cilitate the transportation, loading, unloading, identification of the goods and customs clearance. These marks are often be written, print and brushed on the outside of package with obvious diagrams, words and figures.
In international trade, the shipping marks mainly includes the following four aspects：
（1）Consignee's code:usually use the different geometric figures, like circle, triangle or rhombus, and write down initial or abbreviation of a consignee inside these figures to identify goods easily.
（2）Reference number:the number of the relevant contract, order, receipt, invoice and so on.
（3）Destination:the name of the place or port of the final receipt.
（4）Packing number:the consecutive number of each package.
Adopting standard shipping marks can not only make it easy to identify and transport the commodities, but also can simplify the process of checking the relative documents and certificate in order to avoiding short-loading and mis-loading
4.2.2 Indicative Mark
Indicative mark is also named as safety mark or caution mark, which are diagrams or simple words written on outside of package to remind the relevant people to pay attentions when they handling, transiting, storing, loading or unloading goods. The indication marks on the shipment package should be selected correctly according to the nature of the goods, and it is better to adopt the language in exporting and importing countries of goods or writing in English.
Some of indicative mark examples：
（1）“FRAGILE”
（2）“KEEP DRY”
（3）“USE NO HOOK”
（4）“HANDLE WITH CARE”
（5）“THIS WAY UP”
（6）“NO TURING OVER”
（7）“STACKING WEIGHT LIMIT”
4.2.3 Warning Mark
During the international transportation process, it is often to use warning marks to indicate dangerous goods and ensure safety of transit. Warning marks are composed of specific patterns, colors and written instructions, such as“POISON”, “OXIDIZER”, “INFECTIOUS”, “INFLAMMABLE GAS”or“EXPLOSIVES”.
4.2.4 Original Place Mark
The mark of original place is an important requirement for customs statistics and taxation in international trade. In many countries, mark of origin is compulsory for importing commodities, which must be marked in legible and indelible and clear ways, including the specific lan guage, words, or size of letters of marking that required by particular country. Generally, the exporting country that is responsible for marking the original place mark on goods and should understand the relevant marking regulations of importing country before packing and shipping.
4.3 Sale Package
Sale package is regarded as inner packaging, small packaging or marking packaging, which refers to the initial packing of commodities in the proper material or container after they have been produced. The main purpose of sales packaging is to protect commodity, promote sale and more important is to comply with the laws and regulations of the importing country. Thus, in international trade, there are strict requirements for the sales packaging of goods in its materials, structural modeling, decoration design and written instructions.
4.3.1 Bar Code
In recent years, bar codes are commonly used in the sales packaging of international trade, which significantly increases the function of settlement. Bar code consists of a selection of black and white stripes with varying width and space, which can be scanned by computer automatically in order to confirm the information in data base, such as the commodity name, specifications, quantity, manufacturer, original place, date in produced and so on.
Currently, there are two main type of commonly used bar code as follows.
4.3.2 UPC
UPC is also called universal product code, which is a universal bar coding system complied by the Universal Code Council in US and Canada. It contains five versions of UCP from A to E, especially; Version A is the basic version, which is most commonly used on store items. The version E is next common and used on packing.
4.3.3 EAN
Another universally used coding system in international trade is the European article numbering system（EAN）, which is compiled by European Article Number Association. In this system, there are two basic EAN versions individually. The first one is standard EAN（also called EAN-13）that refers to 13 digits or numeric charters, including prefix code, manufacture identification code, goods item code and check code. Different country has different prefix code in order to distinguish the place of origin; generally the prefix code is 690695 for China, which means any products beginning with any of these digits indicates that it is of Chinese origin.
Another version is EAN-8, consisting of digits, which is actually the abbreviation from EAN-13, and is only used in small items or narrow space that is not enough for EAN-13 or when an EAN-13 may use more than 25% of the front space of the item.
4.4 Neutral Packing
Besides aforementioned shipment packing and sales packing, there is also another major sort of packing which plays significant role in terms of international trade as well, and that is neutral packing.
4.4.1 The Meaning of Neutral Packing
Generally, neutral packing refers to a special type of packing that does not mark out the name of manufacture and place of origin both on its outer and inner package. In other words, when neutral packing is required, it should not appear name or other relevant manufacture information on products.
It is a common method to adopt neutral packing in international trade, which aims to break the tariff barriers or non-tariff barriers that restrict to import. Thus, neutral packing not only can strengthen competition and expand sales, but also can adjust restriction and struggle against discrimination.
4.4.2 The Type of Neutral Packing
There are some main types of neutral packing as follows：
（1）Neutral Packing with Designated Brand
In international trade, when exporter is required to use certain specific brand or trademark designed by its importer, it is called neutral packing with designated brand.
（2）Neutral Packing Without Designated Brand
Oppositely, neutral packing without designated brand means neither the export nor importer to use brand or mark or the country of origin that indicated on the packing.
（3）OEM
OEM is abbreviated from original equipment manufacturer. It refers to sellers using the brand name or trademark designated by buyers on their manufactured goods. OEM is very common in international trade, as sellers not only can take advantage of the brand name or trademark established by buyer to expand sales, but also can increase their reputation and status to promote competitive ability in global market. Therefore, many supermarkets, large department store, and retailer chain in various countries are willing to adopt OEM for the goods sale in order to ensure a rise both in their reputation and price.
Additionally, in the case of neutral packing with brand designated by the buyer or OEM, it should pay more attention to concerning the issues of infringement, trademark copycat or intellectual property right on a third party when using the brand name or trademark they designated. Moreover, it is advisable for sellers to add a safeguard clause or similar stipulations in the packing contract to avoid dispute.
4.5 Packing Clause in the Contract
Packing clause is one of the most important terms of transaction in international trade, and it is an integral part of the quality specification of the goods. Thus, both the sellers and buyers must specify the packing clause in the contract for export and import of the goods to be packed.
A packing contract will be examined as follows：
4.5.1 Packing Contents
Generally, the contents of packing contract should include the name of goods, the way of packing, packing size, shipping mark, packing expense and so on. For example：
（1）“In wooden cases of 50 kilogram net each.”
（2）“Each set packed in one export carton,810 cartons transported in one 40 ft container.”
（3）“In cloth bale each containing 30 pcs of 50 yds.”
（4）“The sellers bears all costs to pack each pair in a box,12 pairs to an export carton.”
It is worth to attach importance to the contents of packing clause in the import and export business. On one hand, as for the packing terms agreed by both parties must be specified clearly in the contract, and the important contents should avoid to misunderstanding or ambiguity. On the other hand, it is better for sellers to not accept the packing requirements that are not available to clients, especially the foreign customers.
Moreover, the buyer has the right to claim for loss or even to reject the goods if the packing of the goods is inconsistent with the provisions of the contract or the customs of the trade. Therefore, in order to reduce the trade disputes caused by packaging, the exporter not only should pay attention to the regulations and customs of the importing country on transport packaging and sales packaging, but also should strengthen the negotiation between buyers and sellers, and specific packaging terms should be specified in the contract.
4.5.2 Packing Methods and Material
Additionally, the method and material of packing should also be indicated in packing contract, such as the material used, the dimension, the weight of each single piece, the filling material, and the reinforcement conditions.
The details of packing methods, size and shape must be clear in packing clause, for ex-ample：
（1）30 cm×40 cm×50 cm cartons；
（2）New iron drums containing 190 kg net weight；
（3）4 ply Kraft paper bags containing 30 kg.
Additionally, it is also should properly stipulate the reinforcement or filling material, such as：
（1）Packed in wooden drums reinforced with iron band；
（2）Packed in cartons,12 cartons to a plastic pallet；
（3）The eggs to be packed in cartons with beehives lined with shake-proof corrugated paperboard, each carton containing 300 eggs, weighing not over 20 kilograms.
It is worth noting that the ambiguous words like“seaworthy packing”, “customary packing”should be avoided in the contract according to the international packing and transportation convention. When the importer is required to supply the shipping mark, wholly or partly, the exporter should also stipulate in the contract the time limit within which the packing material and shipping mark shall arrive. For instance：
（1）Shipping mark:at seller's option；
（2）Shipping mark:at buyer's option, the relevant shipping marks should reach the seller 30 day 15 days before the time of shipment.
4.5.3 Packing Cost
The cost or expense of packing is another important terms that should be specified in packing contract. According to the international trade practice, the cost of packing should be included in the expense of goods, which need not to pay separately. However, as for the buyer and seller, the two parties should make a specific stipulation in terms of who bears the cost in packing provision. Generally, there are three methods as follows：
Firstly, the packing expense can be included in the price of commodity; in this case, it is the seller who bears the packing cost.
Secondly, the packing expenses exclude from the price or the packing cost only covered partly by the buyer. In this case, the seller should specify in the contract the cost to be paid by buyer and the method of payment as well.
Thirdly, it is called gross for net, which means the cost of packing materials are calculated the same as the price of commodity.
In most international trade, the cost of packing is included in the price of commodity, and it is unnecessary to sign separately in contract provision. However, in some circumstances, the buyers require certain special packing method for commodities or the goods with strong packing technology, which should be clearly specified in the contract as“packing charges exclude”in order to avoid business disputes.
Noticeably, while negotiating packing clause, both the two parties should consider the following tips in order to ensure the safety and quality of goods during the long distance transportation process：
— Feature of the goods determine the packing methods, material and the size as well.
—The different way of transportation requires different package conditions, such as, for ocean transport the package must be able to withstand rough handling and bad weather.
— The packing regulations of the imported country must be fully understood and strictly complied with. Otherwise, the buyer has the right to claim against seller or even reject the goods.
— Try to minimize the cost of packing both environmental-friendly and economic purpose on the basis of guaranteeing package quality.
— Considering local customs but do not easily accept country-specific packing conditions, especially the requirements related to intellectual property protection, religion and so on.
—The terms of packing need to be clear and definite. Some vague expressions like“sea worthy, customary packing or packing in the usual way”should be avoided as they are likely lead to dispute and misunderstanding.
Thus, for both the buyer and the seller should pay much more attention to the stipulations of packing contract, and avoid ambiguous words when drafting packing clause.
Exercises
1. Blank filling.
（1）In international trade, packing refers to________for packing goods to protect the________and________of the goods.
（2）The most common types of assembly packages are________,________and________.
（3）Packing is regarded as a________of the production of goods as the production process can only________through packaging.
（4）The goods can only be entered into________and________,and ultimately achieved its________as well as value of________.
（5）The major functions of packing for exported goods can be briefly divided as________,________,________and________.
2. Multiple choice.
（1）Different goods should adopt properly packing methods based on the differentiation in the types, ________ and characteristics of good.
A. colors
B. sizes
C. shapes
D. prices
（2）In international trade, some goods are not allowed to be imported as the packing of goods is incomplete or not in accordance with________.
A. UN laws
B. religion beliefs
C. local or international laws
D. maritime law
（3）The container of collective packing of the major type in shipment packing, which includes following items except________.
A. containers
B. barrels
C. pallets
D. flexible containers
（4）Which of the following terms are not included in shipment mark?________.
A. Manufacturer ID number
B. Consignee's code
C. Reference number
D. Packing number
（5）Which of the following marks are not belong to warning mark?________.
A. EXPLOSIVES B. POISON C. KEEP DRY D. MATERIAL RADIOACTIVES
3. True of false.
（1）（ ）After packing, the goods can be entered into circulation and consumption, and ultimately achieve its value of commodity rather than value of use.
（2）（ ）The main purpose of packing of goods is to increase the price of commodities.
（3）（ ）The shipping mark can only be decided by the buyers.
（4）（ ）The indication marks on the shipment package should be selected correctly on the basis of the nature of the goods and proper language.
（5）（ ）A decoration package design that has proved successful in one market usually turns out to be another success elsewhere.
4. Answer the following questions.
（1）What is the main purpose for sales packaging？
（2）What points should a foreign company note when it comes to terms of packing in a contract？
（3）What factors influence the type of packing for shipment？
（4）What issues should the buyer and the seller concern when they draft a packing con-tract？
（5）Why does the packing clause take an important role in terms of international trade？
（6）What marks usually appear on the transport package? What is their purpose？
（7）According to you, what elements should a good package process？
（8）Under what circumstance should the exporter avoid the use of neutral packing？
5. Case analysis.
（1）A Chinese export company exported to Canada a batch of goods valued at RMB 1.28 million. The contract prescribed package in plastic bags, each labeled in French and English. However, while delivering the goods, the export company employed different package labeled only in English. In order to meet the sales requirements of the local market, the importer had to have all the package and labels changed. Later, the importer lodged a claim against the exporter who had to pay the compensation.
Question：
1）Was the importer justified in lodging the claim? Why？
2）If you were the exporter, how should you handle this case？
（2）An export company in China signed a fruit export contract with a French firm, payment to be made upon the acceptance inspection after the arrival of the goods. However, the goods arrived were found to be 10% short in total weight; the individual weight was also less than that stipulated in the contract. The French firm neither made payment nor took the delivery. The fruits all rot away. And then this French company charged the Chinese export firm 50,000 euros for the shortage and disposal of goods. The export company got into a panic.
Question：
1）Who should be held responsible for the damage？
2）What should have been done to avoid damage？
（3）A foreign buyer negotiated a contract of 10,000 bicycles with a Chinese bicycle manufacturer. The buyer required that the manufacturer use the brand“sword”instead of the original brand name“phoenix”. In addition, it could not be indicated on the outer packages that the products were“Made in China”.
Question：
1）Why did this buyer make such a requirement？
2）Should the manufacturer accept the requirement? Why？