What is the function of a pre-shipment inspection in international trade?

In international trade transactions, one of the biggest challenge for the importers is to make sure that the quality of the goods shipped are in conformity with the qualifications stated on the sales contract .

Importers can take several preventive steps to buy only high quality goods from their suppliers such as:

  • Auditing supplier companies on site before starting any sort of business relationship,
  • Buying with open account terms in order to make sure that payment will be released to the exporter only if goods are accepted by the quality department,
But none of these precautions may suffice to ascertain the quality of the goods, because of the fact that most of the exporters do not accept to work with an open account payment terms. They demand letter of credit or bank guarantee from the importers.

Additionally, supplier audit may not be effective method for a particular shipment, as it is possible to receive poor quality goods even from a reputable supplier for various reasons.

Pre-shipment inspection (PSI) is a kind security tool, which is demanded either by the importer companies or some governments, that verifies whether the goods dispatched are in conformity with buyer's specifications or not.

Today I would like to explain the function of a pre-shipment inspection in international trade.

What is a Pre-Shipment Inspection (PSI)?

Pre-Shipment Inspection can be defined as a systematic inspection of sample of goods, which are selected randomly from all batches of the order. 

When should the pre-shipment inspection be conducted?

Pre-shipment inspection can be conducted any time before shipment is dispatched from the exporter's factory. Even multiple pre-shipment inspection is possible throughout the production process of the goods.

But one time pre-shipment inspection generally conducted when at least 80% of the production is completed but before the goods are shipped.

What are the benefits of a pre-shipment inspection? 

  • Exporters could reduce their risks to receive poor quality and non-compliance goods.
  • Exporters could follow the production process and take corrective actions before the production is finished and goods are packed.
  • Exporters could make sure when the production will be finished and when the goods will be available for the shipment.
  • Exporters could get a pre-shipment inspection certificate after passing the inspection successfully. Some countries demand pre-shipment inspection certificate during the import procedures.
How much does it cost to have a pre-shipment inspection?

Pre-shipment inspection costs are changing from one audit company to another. 

Also the location of the inspection is another determinant of the cost. For example, production audit take place in China, USA or Germany may cost different amounts even if the inspection is performed by the same company.
Case Study : 2015 China Pre-Shipment Inspection Costs  
AsiaInspection conducts one man one day pre-shipment inspection services in China for 309USD. Price offer covers inspector transportation, accommodations, overtime, weekend and holiday inspections, same day online report and issuance of an inspection certificate to the supplier, upon customer's shipment approval. Laboratory testing and sample collection can be arranged with extra charge.
CIS (China Inspection Service) conducts one man one day pre-shipment inspection services in China for 238USD. They claim on their website that the price is all inclusive but it is reasonable to think that sample collection would be available with an extra cost.

What sort of qualification should the pre-shipment inspector possess?

Pre-shipment inspection should be made by a qualified inspector, who works for an independent inspection company. Inspector should have a related educational background supported with a sound job experience within the related sector.

How does a pre-shipment inspection work?

Pre-shipment inspection process may change from one audit company to another. But you can find below operational steps for a regular commercial pre-shipment inspection.
  • Importer or exporter, which will be called "applicant" company hereafter, applies to the inspection company in order to book a pre-shipment inspection.
  • The applicant company fills the forms either online or hard copy to get the price quotation for the inspection.
  • Once the inspection company receives the information supplied by the applicant company, prepares an offer outlining the inspection's borders.
  • If the offer is acceptable, then the applicant company pays for the inspection costs and books the inspection.
  • Inspection company calls the exporter in order to determine the inspection place and date.
  • Inspector company entrusts a qualified inspector for the inspection, who goes to the factory of the exporter at the determined date.
  • Inspector collects sample of goods for the inspection. Under pre-shipment inspections not whole production is investigated, but only a representative sample of goods are tested.
  • Once the inspection is completed, inspector writes his reports. The report may indicate either goods are in conformity with the qualifications stated on the sales contract or not.