Chapter 1: Introduction
Introduction
This chapter offers a comprehensive introduction to the current study, outlining the research problem, objectives, and questions that underpin its rationale It also presents an overview of the methodology employed and defines the scope of the study Finally, the chapter concludes with a detailed structure of the study, guiding readers through its organization and content.
Research background
Foreign trade plays a crucial role in Vietnam's economic development, particularly as the country continues its industrialization and modernization efforts following its accession to the WTO A vital component of these trade activities is international payment, which has become increasingly significant in facilitating economic relations and trade between nations As an essential tool in global commerce, international payment systems are indispensable for fostering robust economic connections worldwide.
Scope and methodology of the study 1.6 Structure of the study payment forms an important part in promoting domestic financial markets integrating into the world
International payments are crucial for facilitating import and export activities, which in turn foster the growth of foreign trade They serve as the foundation for developing international financial relations and enable the circulation of goods, services, and capital By promoting and streamlining trade, foreign investments, and the flow of overseas remittances, international payments enhance the overall financial ecosystem.
International payments are complex due to varying geographical, cultural, economic, and political factors among participants As a result, both importers and exporters seek the most effective payment methods that minimize risks In Vietnam, the most commonly used international payment methods are T/T (Telegraphic Transfer), Collection, and L/C (Letter of Credit), chosen based on the specific needs and agreements of the parties involved.
To successfully expand into overseas markets, enterprises must rely on a secure payment system, with commercial banks playing a crucial role Vietnamese overseas commercial counselors provide essential information to local banks and businesses, enhancing the payment process Additionally, forwarding and logistics companies serve as vital intermediaries, managing merchandise and closely monitoring cargo conditions, delivery dates, and transit times These companies can act as trustworthy representatives for importers and exporters, making them integral to international payments Utilizing international freight forwarding and logistics services offers a safer, faster, and more cost-effective payment method, particularly advantageous for small shipments, samples, or specific goods.
In Vietnam, the primary payment methods include Telegraphic Transfer (T/T), Collection (D/A, D/P, D/OT), and Letter of Credit (L/C), each with distinct advantages and disadvantages This report explores a new payment method that addresses the needs of low-value merchandise by utilizing Cash Against Document (CAD) or Cash on Delivery (COD) through forwarding and logistics companies.
The report aims to assess Vietnam's current international payment landscape and identify a more suitable and convenient mode of payment for local import and export enterprises, particularly small and medium-sized entities This new approach is expected to streamline transactions, reduce costs, and ensure safety for small and regular shipments, including air cargo, scarce, and perishable goods, as well as samples.
This report summarizes the unique features, limitations, and conditions of using CAD/COD methods for overseas payments, based on feedback from customers who regularly engage with international freight forwarding and logistics companies.
1.5 Scope and methodology of the study
This research focuses on the case study of forwarding and logistics companies in Vietnam, utilizing data collected from various sources, including bank websites, annual reports, and published studies from both local and international universities, as well as articles from books and journals Additionally, primary data was gathered through an online survey targeting key staff in import-export companies, email interviews with individuals responsible for overseas forwarding, and direct interviews with managers of local forwarders in Vietnam.
An online survey was distributed to 120 key personnel in import-export companies, yielding a response rate of approximately 68.33% with 82 executives participating.
We conducted an email interview with international forwarding and logistics companies in 15 key import-export markets for Vietnam, including the USA, France, Switzerland, Belgium, Australia, Korea, Hong Kong, China, Taiwan, Japan, Thailand, Indonesia, Malaysia, Pakistan, and the UAE, achieving a 100% response rate Remarkably, 73.33% of participants expressed their acceptance of this payment method and their willingness to collaborate with Vietnamese counterparts, indicating a smooth payment settlement process.
The study consists of 6 main section:
This innovative method has yet to be implemented in Vietnam, leading to a lack of experience in its application As a result, this report may have certain limitations We greatly appreciate and welcome the valuable assessments, contributions, insights, and suggestions from the Board of Examiners.
Settling CAD/COD via Forwarding and logistics companies in Vietnam
Research objective
Scope and methodology of the study 1.6 Structure of the study payment forms an important part in promoting domestic financial markets integrating into the world
International payments play a crucial role in facilitating import and export activities, thereby fostering the growth of foreign trade They serve as a foundation for the establishment and evolution of international financial relations, enabling the circulation of goods, services, and currency By enhancing and streamlining import-export operations and foreign investments, international payments also contribute to the influx of overseas remittances and other financial resources, ultimately supporting economic development.
International payments are complex due to the diverse geographical, cultural, economic, and political backgrounds of the involved parties As a result, participants seek the most effective payment methods that minimize risks for both importers and exporters In Vietnam, the most commonly chosen methods for international payments are T/T (Telegraphic Transfer), Collection, and L/C (Letter of Credit), depending on the specific needs and agreements of the parties involved.
To successfully expand into overseas markets, businesses require a reliable payment system, with commercial banks and Vietnamese overseas commercial counselors playing a crucial role in providing valuable information However, another intermediary that can offer control and monitoring of merchandise is forwarding and logistics companies, which can track cargo situations, routine, and transit times These companies can also act as reliable representatives on behalf of importers or exporters, providing exact delivery dates and cargo information As a result, settling via international freight forwarding and logistics companies has emerged as a safer, quicker, and more cost-effective payment method, particularly suitable for small lots, samples, or shipments of specialized goods.
In Vietnam, the primary payment methods include Telegraphic Transfer (T/T), Collection (D/A, D/P, D/OT), and Letter of Credit (L/C), each with distinct advantages and disadvantages This report aims to explore a new payment method that effectively addresses the needs of low-value merchandise transactions The proposed solution involves settling payments through Cash Against Documents (CAD) or Cash on Delivery (COD) via forwarding and logistics companies.
The report aims to assess the current landscape of international payments in Vietnam and identify a more suitable and convenient payment method for local import and export businesses, particularly small and medium enterprises This innovative approach is designed to save time and reduce costs while ensuring safety for small and regular inbound and outbound shipments, especially for air cargo, fragile and perishable goods, and samples.
This report summarizes the unique features, limitations, and conditions of the CAD/COD payment method in international freight forwarding and logistics, based on feedback from customers who regularly engage in overseas transactions.
Structure of the study
payment forms an important part in promoting domestic financial markets integrating into the world
International payments are crucial for facilitating import and export activities, thereby fostering the growth of foreign trade They serve as a fundamental component in the establishment and evolution of international financial relations, enabling the circulation of goods, services, and capital By promoting and streamlining import and export operations, attracting foreign investments, and enhancing overseas remittances, international payments play a vital role in bolstering financial resources and economic development.
International payments are complex due to the diverse geographical, cultural, economic, and political backgrounds of the involved parties As a result, participants seek the most effective payment methods that minimize risks for both importers and exporters In Vietnam, the most commonly used international payment methods are T/T (Telegraphic Transfer), Collection, and L/C (Letter of Credit), chosen based on the specific needs and agreements of the participants.
To successfully expand into overseas markets, businesses must rely on a secure payment system, with commercial banks playing a crucial role, particularly through the support of Vietnamese overseas commercial counselors who provide essential information Additionally, forwarding and logistics companies serve as vital intermediaries, offering precise monitoring of cargo, delivery dates, and transit times These companies can act as trustworthy representatives for importers and exporters, enhancing the international payment process Utilizing international freight forwarding and logistics firms is an effective payment method that is safer, faster, more cost-efficient, and especially advantageous for small shipments, samples, or specific goods.
In Vietnam, the primary payment methods include Telegraphic Transfer (T/T), Collection (D/A, D/P, D/OT), and Letter of Credit (L/C), each with distinct advantages and disadvantages This report explores a new payment method that addresses the needs of low-value merchandise, specifically settling Cash Against Documents (CAD) or Cash on Delivery (COD) through forwarding and logistics companies.
The report aims to assess the current state of international payment systems in Vietnam and identify a more suitable and convenient payment method for local import and export businesses, particularly small and medium enterprises This new approach is designed to save time and reduce costs while ensuring safety for small and regular shipments, including air cargo, fragile items, perishable goods, and samples.
This report gathers insights from customers who regularly engage in overseas payments, highlighting the unique features, limitations, and conditions associated with CAD/COD transactions through international freight forwarding and logistics companies.
1.5 Scope and methodology of the study
This research focuses on a case study of forwarding and logistics companies in Vietnam, utilizing data sourced from bank websites, annual reports, and published studies from both local and international universities, as well as relevant articles from books and journals To gather primary data, an online survey was conducted with key personnel from import-export companies, supplemented by email interviews with overseas forwarders and direct interviews with managers of local forwarding firms in Vietnam.
An online survey was conducted among 120 key staff members of import-export companies, resulting in a participation rate of approximately 68.33% with 82 executives responding.
To gather insights from international forwarding and logistics companies in key Vietnamese import-export markets, we conducted an email interview with firms located in 15 countries, including the USA, France, Switzerland, Belgium, Australia, Korea, Hong Kong, China, Taiwan, Japan, Thailand, Indonesia, Malaysia, Pakistan, and the UAE We are pleased to report a 100% response rate, with 73.33% of participants expressing acceptance of the proposed payment method and a willingness to collaborate with Vietnamese partners, ensuring smooth payment settlements.
The study consists of 6 main section:
This innovative method has yet to be implemented in Vietnam, resulting in a lack of experience in its application As a result, this report may contain unavoidable shortcomings We greatly value and appreciate the insights, contributions, and suggestions from the Board of Examiners.
Settling CAD/COD via Forwarding and logistics companies in Vietnam
Chapter 2: Literature Review
Introduction
This chapter focuses on reviewing pertinent theories from the literature to enhance the understanding of CAD/COD processes The primary objective is to analyze and develop the transition of CAD/COD from commercial banks to freight forwarding and logistics companies, providing a comprehensive framework for the study.
2.2 CAD/COD in international payment
International payments, such as trade debt settlements and capital investments, are critical concerns for economists and governments These transactions can be settled through various methods, including the use of foreign currency balances, loans from creditors, International Monetary Fund resources, or national gold reserves Effectively managing these international debts is crucial for maintaining a country's balance of payments and overall economic stability.
Conclusion
Cash against documents is a transaction method where an importer requests the exporter’s bank to establish a trust account based on the sales contract This arrangement ensures that payment is made to the exporter upon receipt of all agreed-upon documents.
Settling COD/CAD via post office has been implemented by Saigon Post before
1975 It also carried out by forwarders around the world, mostly in EU, USA, and some developing country nearby Vietnam, such as Thailand, Indonesia, Singapore, Hong Kong, Taiwan…
Numerous master's theses from the University of Economics and Ho Chi Minh City (UEH) concentrate on international payment methods, particularly the Letter of Credit (L/C) approach Notable works include Du Minh Sen's 1998 thesis on enhancing L/C operations at Incombank, Nguyen Thi Ngoc Mai's 2008 study on developing the L/C method at Vietin Bank's Long An Branch, and Hoang Thi Hai Yen's 2010 research on L/C applications for import payments at Vietin Bank's Ho Chi Minh Branch However, a search of the library database reveals a lack of topics focusing on Cash Against Documents (CAD) or Cash on Delivery (COD) methods.
This method of payment has been compilated on lectures in international payment of authors specialized in this field such as Dr Tran Hoang Ngan, International
Payment, Publisher of Statistic, 2001 (page 244-245), MSc Ho Thanh Tung, Lectures of International Payment, TDT University, 2009, with payment process are as follows:
Firgure 2.1 CAD/COD payment process
Based on the sales contract with an international customer, the importer requests the exporter’s bank to establish a trust account for the full value of the contracted goods, ensuring that this amount will be settled in favor of the exporter as outlined in a memorandum between both parties.
(2) The bank notifies to the exporter
(3) The exporter ships all merchandises to the importer as per the terms and conditions negotiated in the sales contract
(4) The exporter submits all necessary documents as required
(5) The bank carefully check all document against the memorandum, if they meet all requirements, the bank will disburse to the exporter from the importer’s trust account
(6) The bank then releases all documents pertaining to the transaction to the buyer and closes the trust account
Many banks impose fees for cashing documentary transactions, often resulting in the seller absorbing these costs However, it is more typical for buyers to pay these charges at the conclusion of each transaction Generally, sellers include bank fees in the invoice amount, as all charges are deducted from the trustee account upon payment.
2.2.2 Condition for CAD/COD application
This method of payment should be applied in case both importer and exporter totally trust each other
Merchandises should be so precious and scarce
The transaction should be performed rapidly in a short period of time
It requires the importer’s representative in exporter’s country to attest cargo delivery
2.2.3 Advantages and disadvantages of CAD/COD
Further to Mr R N.Bose, Institute of Banking studies, Calcutta, West Bengaal, India, CAD/COD is safer than T/T, D/A, faster and more saving cost than L/C as well
Exporters face several significant disadvantages when dealing with importers There is no guarantee that the importer will accept the consignment, and delays in delivery can lead to additional costs, such as demurrages, which weaken the exporter's negotiating position Legal remedies for contract breaches can be lengthy and expensive, and in the event of an importer’s failure, exporters may incur further costs either in returning goods or finding new buyers Trust issues arise as importers often hesitate to make prepaid payments without binding contracts, leading to a lack of confidence between both parties Even with signed agreements, complications can result in costly debt collection and returned shipping fees, leaving exporters to bear most of the risks, especially in complex international trade environments To mitigate these risks, exporters should work with reputable carriers or freight forwarders that provide effective cargo tracking and tracing, and seek guidance from Vietnamese Commercial Affairs when facing challenges.
Exporters enjoy several advantages, including a straightforward payment process that allows them to receive the full value of goods immediately upon successful delivery Additionally, the documentation required for payment settlement is minimal, making transactions efficient and hassle-free.
Importers face several disadvantages when dealing with international shipments They cannot take possession of goods or verify their quality and quantity until payment is made, and once paid, reclaiming funds is only possible with the Exporter's consent Additionally, delays occur as shipping documents are sent separately, typically taking 2-3 business days to reach the bank after the cargo departs Importers are also required to have representatives or branches in the Exporter's country to inspect goods before shipment Furthermore, if the exporter fails to deliver on time, the importer will not earn any interest on their bank deposit.
Logistics in commerce emerged and evolved significantly after World War II In Vietnam, the initial successful applications of logistics in military operations were exemplified by the renowned King Nguyen Hue, who executed a rapid campaign to the North, effectively defeating the Qing army.
1789 and the second was the victorious campaign of Dien Bien Phu led by General
Throughout history, logistics and research have played a crucial role in business operations In the context of business, "logistics" typically refers to supply chain management and the management of physical distribution within an organization.
There are many different concepts of logistics in the world based on industry and research purposes of logistics services Some key concepts are as follows:
1 According to the United Nations (Training Course on International Multimodal Transport and Logistics Management, Foreign Trade University, October 2002): logistics activities are the management of materials transfer through stock, producing and delivery products to consumers as per their demand
2 According to Logistics Management Committee of the United States 1988, logistics is the process of planning, selecting the optimal method to manage, control raw materials, semi-finished and finished products with fastest transportation and most saving cost of storage, as well as transferring corresponding information from pre-production until the goods reach the final consumer to meet their requirements
3 The Vietnamese Commercial Law in 2005 (Article 233) stipulates: Logistics is a trading service, in which, traders implement one or more stages, including picking up the goods, transporting, storaging, demurring, declaring customs and other procedures, consulting, packing, coding, delivering or other services related to merchandises as agreed with the customer in order to get remuneration
Experts’ studying on logistics services has summarized several basic characteristics of this service as follows:
Logistics encompasses three main aspects: existing logistics, operating logistics, and system logistics Existing logistics addresses fundamental human needs, focusing on the essentials of what, how much, when, and where we require resources, forming the foundation of all logistics activities Operating logistics builds upon this foundation, integrating with the entire production system of an enterprise by managing the transportation and storage of raw materials as they move through the production process and into distribution channels for final consumers System logistics ensures the smooth operation of the logistics framework, incorporating vital elements such as machinery, equipment, human resources, technology, infrastructure, and warehouses Together, existing, operating, and system logistics are interconnected, creating a comprehensive logistics system essential for efficient enterprise functioning.
Logistics plays a crucial role in supporting business operations by facilitating the movement and storage of products, from production lines to final consumers Companies can tailor their logistics strategies by integrating various logistics factors based on their specific needs Additionally, effective logistics management enhances the transportation and storage of raw materials and semi-finished products, ensuring smooth business processes and efficient supply chain management.
Logistics represents an advanced evolution of transportation and forwarding services, encompassing a range of interconnected activities As logistics has evolved, it has expanded the traditional concepts of forwarding and transportation Modern forwarding and logistics companies not only manage essential tasks such as booking, packing, recycling, and customs clearance but also offer comprehensive door-to-door services They serve not only as agents but also as trusted partners, assuming full responsibility for legal and operational compliance To operate effectively, these companies must implement a robust management system that oversees everything from transportation and raw material supply to inventory storage and timely distribution, utilizing electronic information for monitoring and inspection Consequently, transportation agencies are transforming into logistics delivery agencies.
Chapter 3: Methodology
Introduction
This chapter offers an overview of business research and outlines the research methodology utilized for developing and evaluating measurement scales It also details the statistical techniques applied for data analysis, providing a comprehensive framework for understanding the research process.
Business research
Business research aims to gather objective information that enhances the study's credibility The methods employed in business research differ based on the research's scope, purpose, data sources, and the specific information required A well-crafted business research paper showcases the author's deep understanding of a particular topic and presents insights that extend beyond its conventional application.
Research design
Pilot test
Conclusion
Based on the purpose of research, researchers often use one of the three types: exploratory study, descriptive study, causal study
Basing on the characteristics of data needed and research purpose, researchers can choose either qualitative or quantitative approach or a combination of these two types
Data can be acquired via a variety of strategies such as experiment, survey, case study, grounded theory or action research
The initial phase of business research involves clearly defining the research objectives Following this, the research design allows the researcher to choose suitable methods to effectively achieve these objectives.
This report employs a qualitative methodology with a descriptive study approach, utilizing online surveys, email interviews, telephone, and direct interviews This method was selected to effectively capture customer attitudes towards settling COD/CAD through forwarders While email and online surveys are relatively new, their impact on sampling bias remains largely unexplored Nonetheless, they offer a cost-effective and rapid means of survey distribution Furthermore, the profiles of the chosen interviewees represent key individuals whose insights and attitudes are crucial to the research findings.
Data for this study was collected using a survey technique This technique
“provides a quick, efficient and accurate means of assessing information on a population, especially in the case of a lack of secondary data” (Zikmund, 1997)
Questionnaire research design follows a structured and systematic approach, where each step relies on the successful completion of the preceding ones, making it crucial not to omit any phase The flow chart includes two feedback loops, enabling revisions to both the methodology and the instruments used.
Design Methodology Determine Feasibility Develop Instruments Select Sample
Conduct Pilot Test Revise Instruments Conduct Research Analyze Data
The pilot test aimed to enhance the questionnaire by addressing potential issues that respondents might face while answering questions, ultimately improving the quality of data collected for the main survey.
The initial phase involved two key steps: first, an exploratory study was conducted to evaluate the preliminary draft of the measurement scale The questionnaire was originally created in Vietnamese and subsequently translated into English for further analysis.
Associate Professor Dr Le Thanh Lan, Vice Director of Vietin Bank Branch No 5, an expert in international payments, provided valuable insights on a questionnaire aimed at evaluating its clarity and comprehensiveness This review ensured that all survey questions were clearly understood and adequately addressed the research topic Following Dr Lan's recommendations, several amendments were implemented to enhance the instrument's effectiveness.
Key staff from import-export companies, including Ms Pham Huong Nhu (Haili Co), Ms Nguyen Thi Bong (Viet Hung Co), and Ms Tran Khanh Chi (Estec Vina), participated in discussions to provide consultancy and feedback This phase aimed to gather insights from the customer's perspective, similar to the initial discussions Adjustments were made to the questionnaire based on participant recommendations, ensuring that the terms were more concrete and sensitive to their needs.
The final version of questionnaire was made in Vietnamese and then was translated back into English (Appendix 1)
There are 3 main surveys has been conducted
The initial survey, aimed at managers and key staff of import-export companies, was distributed via an introductory email containing a link to the survey A total of 108 key individuals from import-export firms in Hanoi, Ho Chi Minh City, Dong Nai, and Binh Duong provinces were contacted Out of these, 82 responses were collected, yielding a usable response rate of 75.92% This sample size exceeds the minimum requirement of 50, as stated by Dr Le Van Huy (DUE, 2009), making it sufficient for drawing conclusions.
We conducted a comprehensive email survey targeting operators in overseas forwarding and logistics companies across 15 key import-export markets of Vietnam, including the United States, France, Switzerland, Singapore, Australia, Korea, Hong Kong, China, Taiwan, Japan, Thailand, Indonesia, Malaysia, Pakistan, and the United Arab Emirates, achieving an impressive response rate of 100%.
We conducted eight brief interviews, both via telephone and in-person, with key personnel from forwarding and logistics companies in Ho Chi Minh City The majority expressed a strong interest in managing international payments and demonstrated a willingness to take on this responsibility Notable participants included Ms Thai Trang Nha from BEL Logistics and Ms Nguyen Ngoc Quy from SDV.
Ms Nguyen Hoang Dan Thanh from Worldwide Logistics and Ms Le Thi Thanh Nguyen from DAMCO emphasize the importance of optimizing processes that require minimal time investment while maximizing profits and enhancing customer service.
This chapter outlines the research methodology and design utilized in this study, emphasizing the creation of the questionnaire and the analytical techniques used for evaluating measurement scales and conducting data analysis The subsequent chapter will present the research results and findings.
Chapter 4: Settling CAD/COD via forwarding and logistics companies 33 1 Introduction
Forwarding and logistics in international payment, in reality
Encroaching of forwarding and logistics companies in international payment
Forwarding and logistics in international payment, in reality
Undertaking CAD/COD via forwarders
Customer behaviour toward settling CAD/COD via forwarders4.6 Petitions to authorities
To thrive in the international business landscape, forwarding and logistics companies must establish a robust and extensive network of dependable subsidiaries, branches, and overseas agents These essential partners play a crucial role in expanding market share, boosting transaction volumes, and ensuring that all payments are meticulously monitored and settled.
The most widely used method of international payment among forwarding and logistics companies is T/TR (Telegraphic Transfer or Telex Transfer), known for its speed, safety, and convenience SWIFT messages are promptly sent to the receiving bank after dispatch, with payments becoming effective on the value day, typically two business days from the transaction date The SWIFT system incorporates robust security features, ensuring a reliable electronic funds transfer method The combination of simplicity, efficiency, and security makes tele-transmissions an ideal choice for international remittances.
- Door to Door Service including packing, picking up, clearing customs, door delivery… under EXW, DDU, DDP current Incoterms
- Data Management/ EDI clearing house
- Barcode scanning and Label Production
- System Track and Trace /Web base Visibility
- Fourth Party Logistics (FPL): consulting specialized in logistics, transportation, and supply chain management.
Encroaching of forwarding and logistics companies in international payment
Forwarding and logistics companies meet the essential criteria for engaging in international payments, including a vast global network of subsidiaries, branches, and partners, substantial financial resources, and a high volume of international transactions Their extensive experience in overseas money remittances, combined with strong relationships with international colleagues, enables these companies to operate efficiently For instance, Schenker, a 125-year-old logistics firm with approximately 28,000 employees across 1,000 offices worldwide and annual revenues of around 5.2 billion Euros, exemplifies this capability by offering round-the-clock service in multiple languages globally.
Regularly sharing experiences with international partners, particularly from developed nations, enhances the professionalism of forwarding and logistics staff in communication and commercial writing This collaboration also allows them to stay informed about international laws and the global economic landscape Additionally, efficient overseas transportation is essential in international trade When logistics companies handle both delivery and payment information, they streamline the process, ensuring swift transactions that save customers both time and money.
In the service industry, particularly within forwarding and logistics companies, the importance of accurate, safe, and swift operations cannot be overstated These companies rely on a global integrated data network, enabling detailed shipment tracking and monitoring from any office or branch worldwide.
Currently, international payment is a habitual activity of Accounting Department in every forwarding and logistics companies
4.4 Undertaking CAD/COD via forwarding and logistics companies
4.4.1 Procedure for settling CAD/COD via freight forwarders
Firgure4.1: Payment process of undertaking CAD via forwarding and logistics companies
(1) A sales contract with all terms and conditions related to prices, details and nature of goods, delivery and so on has been signed by the Importer and the Exporter
(2) A Memorandum drafted by the Importer has been memorized by the forwarding and logistics company in the importer’s country
(3) The forwarding and logistics company will notice to their agent in the Exporter’s country
The exporter delivers the goods along with all necessary shipping documents to the forwarding and logistics company in their country Depending on the trade terms outlined in the contract, either the seller or the buyer is responsible for freight and insurance fees This logistics company can monitor the cargo status on behalf of the importer and will verify all shipping documents according to the Memorandum.
The forwarding and logistics company informs the Importer before the cargo arrives at its destination The Importer then hands over the relevant documents to the carrier, who is responsible for the entire cargo and delivers it to the agent in the Importer's country Additionally, the Importer manages customer clearance, which is supported by the company as part of a comprehensive door-to-door service.
The importer sends the delivery payment, including any applicable fees, to the forwarding and logistics company, typically using cash, a check, or other financial instruments like a bill of exchange or promissory note made out to themselves.
(7) The two forwarding and logistics companies will clear the balance periodically of course via the banking system
There are two settlement alternatives for exporters, with daily settlements offering the advantage of safety, as payments are made upon delivery of goods or release of commercial documents However, establishing a competent team for managing debt settlements, whether accounts payable or receivable, can be challenging Banks often view forwarding and logistics companies as valuable coordinators that facilitate their operations.
The second alternative combines CAD (Cash Against Documents) with a clearing method, where forwarding and logistics companies collect payment from the importer upon delivery of the consignment, advising their correspondent in the exporter’s country The correspondent pays the exporter upon receiving authenticated notice This method allows funds collected in local currency to remain in place for future payments to exporters, reducing the need for foreign currency transactions as long as local exchange control regulations permit Additionally, this approach minimizes the risk of non-payment and delays in payment.
There are some of popular shipping and relevant documents required in international trading, as follows:
Ocean / Marine Bill of Lading
Export quota Certificate / Export License
There’s should be a good relationship between the Importer and the Exporter; both should totally trust each other in terms of good credit rating
The merchandise traded is usually so scarce
Total value of the sales contract should not exceed $30,000 (we have conducted a survey to search for this value)
Small quantities, samples etc can be sent by post parcel or VPP (value payable post), small LCL, air cargo or samples will be suitable to this method of payment
The export environment should be fairly straightforward
4.4.2 Advantages of undertaking CAD via forwarding and logistics companies 4.4.2.1 Advantages to the Importer
After payment for the goods, the buyer takes possession and verifies the accuracy of the onboard date and quantity, as managed by the local forwarding and logistics company By checking the actual weight and volume of the cargo, they can estimate the quantity contained within the cartons.
Before making any payments, ensure that all details in the memorandum have been thoroughly verified by the local forwarding and logistics company This process typically incurs lower costs compared to settling with a vendor or purchasing an office in the exporter’s country.
In the event of non-delivery, the importer is not obligated to make payment; conversely, if payment is not received, the forwarding and logistics company will manage the shipment or negotiate interest on the deposit for the exporter.
Upon notification from the correspondent in importer’s country via authenticated manage; the forwarding and logistics company pay the exporter, so there is no risks of delay a non-payment
With simple and swift procedures, they can get the money as soon as merchandise delivered
A simple set of shipping documents are required, and no need to be checked word by word
Goods are in his effective possession until Drawee/Buyer/Importer pays for them;
Bills based on sight ensure that exporters receive immediate confirmation of the drawee's willingness to pay, eliminating delays in the payment process Additionally, logistics and forwarding companies can efficiently track and collect standard bills, streamlining the overall transaction process.
For exporters, Cash Against Documents (CAD) offers a safer alternative to Documents Against Acceptance (D/A) bills While Letters of Credit (LC) provide even greater security, they come with higher costs If you are confident that the importer will accept the goods, and you wish to minimize bank charges, opting for CAD or Cash on Delivery (COD) can be a practical choice.
4.4.3 Significances of applying CAD via forwarding and logistics companies
According to Ms Bui Tuong Minh Anh, Director of HSBC Transaction Center, 70% of local import-export companies using HSBC for international payments need to revise their Letters of Credit (L/C) Many Vietnamese enterprises struggle with a lack of understanding of L/Cs, necessary documentation, and the details of their sales contracts They often overlook critical shipping procedures, purchase orders, and risk management related to documentation, interest rates, and exchange rates Additionally, their limited experience in foreign trade transactions leads to a failure to consider the regulatory environment and potential business risks, which can result in oversight of crucial details within their sales contracts.
To execute an international payment transaction, customers typically visit their banks multiple times to gather necessary requirements, submit documents, and complete bank forms, before returning for the official's signature and stamp.
Customer’s behaviors towards settling payment via freight forwarders
Patern Fre Ex Im Method Mode
Patern Frequency Percent Valid Percent Cumulative Percent
Table 4.1: Respondents’ profile in patern
Fre Frequency Percent Valid Percent Cumulative Percent
Table 4.2: Respondents’ profile in pprequency
KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy .727
Table 4.3: KMO and Bartlett's Test
Condition 1: KMO>0,5 (Hair and partner, 2006, cited by Huy, 2009)
Condition 2: Sig (Bartlett’s Test) 1, Eigenvalues Cumulative > 0.5 (50%) (Gerbing and Anderson,
- Eigenvalues Cumulative = 70.10%, so 70.10% of data variability is explained by 2 factors
With Eigenvalues > 1, Eigenvalues Cumulative = 70.10% ( > 0.5 (50%) (Gerbing and
Anderson, 1988), so data variability is explained by 2 factors
- Sig (Bartlett’s Test) = 0.000 = 0.6, but >0.70 is the better (Nunnally and Burnstein, 1994, cited by Huy, 2009)
Scale Mean if Item Deleted
Scale Variance if Item Deleted
Cronbach's Alpha if Item Deleted
3 Correlation between the importer’s, exporter’s behavior toward forwarding service with their decision in settling payment via forwarders
H 0 : There is no relation between behavior toward forwarding service with their decision in settling payment via forwarders
Model Sum of Squares df Mean Square F Sig
Total 126.718 77 a Predictors: (Constant), Shorttime, CADOUT, Convenience, CODIN, Safety, Pleasant b Dependent Variable: Handle
Model B Std Error Beta t Sig Tolerance VIF
Std Error of the Estimate Durbin-Watson
1 599 a 359 305 1.070 1.523 a Predictors: (Constant), Shorttime, CADOUT, Convenience, CODIN, Safety, Pleasant b Dependent Variable: Handle
VIF < 10, so there is no autocorrelation
4.5.1.1 Their difficulties in settling payment via the banks and forwarder’s workarounds
In response to the question about challenges in settling international payments through banks, we received insightful feedback from customers with extensive experience in foreign trade.
Exporters using letters of credit (L/C) often face delays due to a lack of reminders from banks to submit original documents immediately after cargo departure, leading to storage and demurrage charges at the destination Although the cargo is nearly at its destination, importers must wait for the bank to endorse the shipping documents However, freight forwarders typically keep their customers informed by receiving both pre-alerts from overseas partners and arrival notices from local carriers.
Banks’ progress is rather slow with complicated procedure but settling via forwarder, required document is rather simpler with faster process
Bank regulations impose numerous restrictions, yet buyers often evade compliance due to a lack of goodwill In the case of freight forwarders, cargo can be released based on the collection value of the goods.
Frequent troubles and delays arise from fluctuating exchange rates and a shortage of USD supply These issues can be mitigated if forwarders recommend that their customers conduct transactions in local currencies.
Bank consultancy services often fall short of customer satisfaction, as transaction documents are rarely sent via email or other convenient communication methods In contrast, forwarders offer greater flexibility and dynamism, providing round-the-clock service and a reliable door-to-door delivery option that meets customer demands.
4.5.1.2 How much convenient do they feel?
A recent survey reveals that a majority of respondents find international freight forwarding and logistics services convenient, with 33% expressing high satisfaction and another 23% feeling moderately satisfied Only 6% reported difficulties in dealing with these companies, while 11% indicated dissatisfaction with the services provided Meanwhile, 33% remained neutral about their experiences, highlighting a generally positive perception of the industry.
A survey revealed that only 15% of respondents perceive forwarding and logistics companies as unsafe, while 26% remain neutral on the matter Additionally, 23% believe these services can save time, and a significant 33% feel they can greatly enhance time efficiency.
A recent survey revealed that 24% of participants believe the collection limit for freight forwarding and logistics companies should be under $30.00, while 56% advocate for a percentage-based approach relative to the transaction amount Additionally, 32% of respondents suggest that fees should be lower than those charged by banks Meanwhile, 31% remain neutral on the issue, 21% feel the fees should be slightly higher, and 14% argue for significantly higher limits.
4.5.1.5 Point of views in terms of maximum goods value
A significant 74% of respondents believe that forwarding and logistics companies should handle consignment payments up to $20,000, while 13% support a payment range of $20,000 to $50,000 Additionally, 7% are comfortable with amounts ranging from $50,000 to $70,000.
4% for the amount of $70,000 to $100,000, and 3% for cargo value exceeding
4.5.2 What do International Forwarding and Logistics companies say?
We conducted a comprehensive mail survey targeting international forwarding and logistics companies in 15 key import-export markets of Vietnam, including the USA, France, Switzerland, Belgium, Australia, Korea, Hong Kong, China, Taiwan, Japan, Thailand, Indonesia, Malaysia, Pakistan, and the UAE, achieving a remarkable 100% response rate Among the respondents, 26.67%, primarily from Japan, China, Malaysia, and Pakistan, reported restrictions on applying CAD/COD through forwarding and logistics companies Conversely, 73.33% of participants expressed the ability to settle payments freely and showed a willingness to collaborate with Vietnamese agents.
4.5.2.1 Background for local forwarding and logistics staff in international payment
Many professionals in forwarding and logistics hold degrees from institutions such as Foreign Trade University, University of Economics, University of Maritime, and University of Transportation, providing them with a solid foundation in international trade and payment Consequently, enhancing their knowledge of international payment is relatively straightforward through various resources like documentation, books, workshops, conferences, and seminars.
4.5.2.2 Experiences of local staffs in international payment
In their daily operations, forwarding and logistics staff manage various fees from local customers and international partners, including airfreight charges, ocean freight, Delivery Order fees, Terminal Handling Charges, surcharges, customs clearance fees, and trucking fees Their experience with these financial transactions ensures they are well-equipped to handle payment processes efficiently.
4.5.2.3 Interest and willingness to participate in international payment
After conducting approximately eight interviews with key forwarding and logistics staff in Ho Chi Minh City, it is evident that there is significant interest in international payment processes Notable professionals such as Ms Nguyen Ngoc Quy (SDV), Ms Thai Trang Nha (BEL), Ms Rosy Le (CASS), and Ms Nguyen Hoang Dan Thanh, Ocean Manager of Worldwide Logistics, expressed their eagerness to implement these systems They believe that integrating international payment solutions can enhance profitability and improve customer service, all while requiring minimal time investment.
4.6.1 Solution for forwarding and logistics companies
Human resources are crucial for the success of enterprises, particularly in Vietnam's thriving logistics sector, which boasts 800 to 900 forwarding and logistics companies nationwide The Department of Planning and Investment in Ho Chi Minh City reports that, on average, one new forwarding logistics company is licensed each week Among these, nearly 100 are large enterprises with 200 to 300 employees, predominantly state-owned, foreign-invested, or joint-venture firms Notable companies in this sector include Vinatrans, Vinalines, Gemadept, TNT, Schenker, Panalpina, DHL, SDV, NYK Logistics, OOCL Logistics, Maersk Logistics, DSL Star Express, and Damco.
As per Vietnam Freight Forwarders Association (VIFFAS) statistics, there are about
5000 official members considered as register professionals Besides, there are about
4000 to 5000 people working in logistics business, beyond VIFFAS control Most of them have graduated from first class Vietnamese universities such as Foreign
Trade University, University of Economics, University of Maritime, and University of Transportation, along with other institutions offering foreign language training, provide courses in international payment These programs typically require 3 to 5 credits, translating to 45 to 75 hours of instruction, ensuring that most participants gain essential knowledge in international payment processes.
Training in colleges and universities: International Payment is trained in many universities and colleges, especially in those specialized in banking and economics
Conclusion
The implementation of CAD/COD payment methods through forwarding and logistics companies offers significant advantages for Vietnamese importers and exporters We are confident in the approval and timely execution of these methods However, it is crucial for forwarding and logistics businesses to receive comprehensive support from government authorities to ensure mutual benefits for all stakeholders involved.
