28/07/2026
How International Trade Works
International trade is the exchange of goods and services between countries. It allows businesses to sell products to customers in other countries (exports) and buy products from other countries (imports).
Key Terms
* Export: Selling goods or services from your country to another country.
* Example: A Nigerian company sells sesame seeds to Japan.
* Import: Buying goods or services from another country.
* Example: A Nigerian company buys machinery from China.
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Why Countries Trade
No country can produce everything efficiently. Countries trade because of:
1. Natural resources
* Nigeria exports crude oil, sesame seeds, hibiscus flowers, ginger, and cocoa because they are abundant.
2. Climate
* Different climates support different crops and products.
3. Technology
* Some countries manufacture advanced machinery and electronics.
4. Lower production costs
* A country may produce certain goods more cheaply than others.
5. Consumer demand
* People want products that are not available locally.
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How International Trade Works (Step by Step)
Step 1: Find a Product
Choose a product that has demand in another country.
Examples:
* Hibiscus flowers
* Sesame seeds
* Ginger
* Cashew nuts
* Shea butter
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Step 2: Research the Market
Answer questions such as:
* Which countries buy this product?
* What quality do they require?
* What price are buyers paying?
* What regulations apply?
Example:
Germany may require strict quality standards for imported ginger.
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Step 3: Find a Buyer
Potential buyers include:
* Importers
* Wholesalers
* Manufacturers
* Retail chains
You can find buyers through:
* Trade fairs
* B2B marketplaces
* Business directories
* Chambers of commerce
* Industry associations
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Step 4: Negotiate the Sale
Agree on:
* Price
* Quantity
* Product specifications
* Delivery terms (Incoterms)
* Payment method
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Step 5: Sign a Sales Contract
The contract should specify:
* Product details
* Quantity
* Price
* Delivery schedule
* Payment terms
* Responsibilities of each party
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Step 6: Prepare the Goods
The exporter:
* Sources the products
* Checks quality
* Packages them correctly
* Labels them as required
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Step 7: Prepare Export Documents
Common documents include:
* Commercial Invoice
* Packing List
* Bill of Lading (sea freight)
* Air Waybill (air freight)
* Certificate of Origin
* Phytosanitary Certificate (for many agricultural products)
* Insurance Certificate (when applicable)
* Customs export documents
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Step 8: Customs Clearance
The goods are inspected and cleared for export by the appropriate authorities before leaving the country.
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Step 9: Ship the Goods
The shipment may travel by:
* Sea freight
* Air freight
* Road transport
* Rail transport (where available)
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Step 10: Buyer Receives the Goods
After the shipment arrives:
* The buyer clears the goods through customs.
* Duties and taxes (if applicable) are paid.
* The goods are delivered to the buyer’s warehouse or destination.
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Parties Involved in International Trade
* Exporter – Sells the goods.
* Importer – Buys the goods.
* Freight Forwarder – Organizes transportation.
* Shipping Line or Airline – Moves the cargo.
* Customs Authority – Regulates imports and exports.
* Bank – Processes international payments.
* Insurance Company – Covers shipment risks.
* Inspection Agency – Verifies quality or quantity when required.
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Methods of Payment
1. Advance Payment
* Buyer pays before shipment.
* Lowest risk for the exporter.
2. Letter of Credit (LC)
* A bank guarantees payment if the exporter meets the agreed conditions.
* Common for larger international transactions.
3. Telegraphic Transfer (TT)
* Electronic bank transfer.
* Often used with a deposit before shipment and the balance after shipment or before documents are released.
4. Documentary Collection
* Banks handle shipping documents but do not guarantee payment.
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Common Shipping Terms (Incoterms)
* EXW (Ex Works): Buyer collects the goods from the seller’s premises.
* FOB (Free On Board): Seller delivers the goods onto the ship; the buyer takes responsibility after loading.
* CIF (Cost, Insurance and Freight): Seller pays for transport and insurance to the destination port.
* DDP (Delivered Duty Paid): Seller delivers the goods to the buyer and pays duties and taxes.
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Example: Exporting Sesame Seeds from Nigeria
1. A farmer produces sesame seeds.
2. An exporter buys and cleans the sesame.
3. The exporter finds a buyer in India.
4. They agree on price, quantity, and delivery terms.
5. The exporter prepares the required documents.
6. The shipment is loaded into a container at the port.
7. The container is transported by sea.
8. The buyer clears the goods on arrival.
9. Payment is completed according to the agreed terms.
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Common Challenges
* Delays in shipping
* Poor product quality
* Incorrect documentation
* Exchange rate fluctuations
* Payment risk
* Changes in import regulations
* Damage during transport
