By: Kenneth Weiss
I started my career dealing with domestic and global regulations within the medical device industry. Shipping products globally was a large part of the business model. I have been curious about what that would look like in my current career of multifamily real estate. There are some in our industry that import building materials from all 4 corners of the globe. So I picked up this book to look at importing from a different lens compared to my previous career.
This book was a good overview of the process and provided several checklists of what you need at each step. But first…
Do I need to create an import export business?
“They were so preoccupied with the thought of whether they could that they didn’t stop and think if they should.” – Ian Malcolm
Here are Twenty Important Questions to ask yourself:
- Why are you thinking of starting a business? What are your objectives?
- What do you have going for you?
- Do you plan to import, export, or both? If you import, you will be selling in your own environment (the US).
- Do you plan to work as a merchant, an agent, a broker, or combination of these?
- Merchant: Buying and reselling goods where you take possession of products.
- Broker: Buying and reselling of goods without taking title to or possession of products.
- Agent: Booking orders from foreign buyers for products of US manufacturing firms. An agent is performing fewer functions and taking very little risk.
- When you start, will you be working full-time or part-time?
- Who, if anyone, can help you with the work in the beginning?
- What is your target market?
- How do you plan to sell to customers in the target market?
- Which type(s) of product(s) do you plan to deal in?
- What will be your sources of supply – companies and countries?
- How will you ship your merchandise?
- Which method of international payment do you plan to use?
- Which US and foreign government regulations will concern you?
- What will be your company’s name and form of organization?
- What will you do for an office and office equipment?
- How will you communicate with your suppliers and customers?
- Which service companies will you need, and how will you select them? When you start, you will need a freight forwarder and perhaps a customs broker.
- Where will you get information and help as your business develops?
- How much will you invest, and where will the money come from?
- What is your income and profit potential?
- Form a company
- Open a bank account
- Determine product by beginning with a buyer
- Find suppliers
- Select the right suppliers
- Get contractual agreements and proper documentation in order
Opening A Bank Account
You may be tempted to go with your friendly neighborhood bank, but its personnel will probably not be able to give you advice on international payments. It’s better to try to get in with a bank that has a letter of credit department somewhere in the United States. This effectively limits you to a large banking firm that operates internationally, such as Bank of America, Citibank, or JP Morgan Chase.
Beginning with a Buyer
If you can start with someone who will buy from you, you’ll be miles ahead.
Your customers are most likely to be wholesalers, retailers, or distributors who buy products and resell them. To them, value is a function of volume and their gross margin. Gross margin is their cost for goods divided by their selling price.
Finding Buyers as an Importer: Your eventual customers are more likely to be chain stores or wholesalers. One way to identify wholesalers is simply to ask people who operate retail stores who they buy from.
Finding Buyers as an Exporter: The US Department of Commerce and numerous other federal and state agencies offer a great deal of help in finding buyers and other aspects of exporting.
- Go to: www.constructionweblinks.com/Organizations/International_Organizations/export_agencies.html.
- Click on “US Government Agencies that Provide Export, International Trade Assistance,” and scroll down to where the US listings begin.
Finding Foreign Suppliers
How might you find companies whose products you can sell?
www.wtca.org If you click on “Search by alphabetical listing,” you will see a list of hundreds of world trade centers. Click on any of these and you will find contact information. Any trade center will help you look for members who can supply the products you want.
There is a much newer system (founded in 2000) called the World Trade Point Federation (www.tradepoint.org).
Selecting the right foreign supplier
A good indication that a firm wants to deal with you is that its export manager or salesperson responds promptly to your requests for information and samples. Try contacting these people by phone as well as by email to see how they react.
You may be content to buy from a middleman under some conditions, for example:
- Your orders will be too small for a manufacturer to accept.
- You want small quantities of goods from each of several manufacturers.
- You are buying from a country such as Japan in which exporting is normally done by trading companies.
- You will be dealing in handmade products. Most producers of handicrafts are too small and unsophisticated to do their own exporting.
Agreements, Transactions, and Documentation
Formal Supply Agreement: Once you have found and selected a supplier, you will want a formal agreement as to how you will do business with that firm.
Bill of Exchange Transaction:
- The exporter fills out a form online or at his bank.
- The exporter sends goods and documents to the freight forwarder.
- The freight forwarder sends the goods and gets a bill of lading signed by the carrier.
- The freight forwarder sends the documents to the exporter’s bank.
- That bank sends the documents to the importer’s bank.
- The importer pays or accepts and gets the package of documents.
- The importer gives the documents to the carrier and gets the merchandise.
- The importer’s bank transmits funds to the exporter’s bank, which credits his or her account.
- Letter of Credit: a formal payment document opened by the importer and communicated through banking channels. The party obligated to pay the exporter is the opening bank. The cost for this service to the importer is often a fixed fee plus a percentage or a percentage with a minimum, for example, 0.25 percent, with a minimum commission of $120. The exporter will pay various costs that usually come to at least $300. The total is higher if an LC is not payable at sight, if more than two banks are involved, if there are amendments or discrepancies, or if the exporter wants the credit to be confirmed.
- Payment in Advance: This is the best method if you are an exporter.
- Consignment: not actually a form of payment but a type of agency arrangement in which the buyer takes possession of goods but does not take title to them.
- Packing, Shipping, and Insurance: Export packing companies and some insurance companies can often provide information on how specific kinds of goods are normally packed.
- Airfreight: Air Freight rates are nearly always higher than ocean rates, but other costs are often so much lower that air becomes the cheaper way to ship.
International Trade Documents: The documents you need to import or export products.
- Commercial documents: Prepared by the buyer and the seller for each other.
- Request for quotation
- Pro forma invoice
- Terms and conditions of sale
- Purchase order
- Order acceptance and confirmation
- Sales contract
- Commercial invoice (Must show)
- Port of entry of the merchandise.
- The date of the sale if merchandise was sold, and the date of the shipment if it is on consignment.
- Names of the seller and the buyer
- A detailed description of the merchandise, including the name and quality of each item, marks used in domestic trade in the country of origin, and marks and numbers on the export packing.
- The quantity of each item by the number of pieces, by weight and/or by volume, as specified in the product classification known as the Harmonized System.
- The purchase price of each item in the currency actually used for the transaction.
- Charges involved in moving the freight from FOB vessel to where the US Customs inspection takes place may be shown on an attachment to the invoice, which the customs broker can prepare.
- Any rebates or similar incentives the exporter will receive from his government for having made the exportation.
- The country of origin of the merchandise.
- Any “assists,” which are goods or services, usually provided by the importer to the manufacturer, that are not included in the invoice price.
- Banking documents: Processes of paying and getting paid
- Application for letter of credit
- Letter of credit
- Advice of letter of credit
- Drafte (drawn on a bank for payment)
- Transportation and insurance documents: Legal forms of documentation to keep track of merchandise as it passes from one hand to another and to make sure it isn’t delivered to someone who is not supposed to receive it.
- Packing list
- Delivery instructions to domestic carrier
- Inland bill of lading
- Dock receipt
- Insurance request and insurance certificate
- Shipper’s letter of instructions
- Ocean bill of lading or airway bill
- Booking request
- Arrival notice
- Carrier’s certificate and release order
- Delivery order and freight release
- Government formalities documents: Governments all want to know which goods enter and leave their countries. The US does not use import licenses (except for a few commodities). Like many foreign countries, the US requires that all significant outgoing shipments be accompanied by export licenses.
- Import license, foreign exchange authorization
- Export license application, validated license
- Certificate of origin: obtain from the local chamber of commerce
- Inspection report
- Commercial, special, and consular invoices
- Shipper’s export declaration
- Customs entries
Regulation of Foreign Trade
Applications for export licenses are supposed to be approved within 2 weeks, unless they have to be reviewed by more than one government department. Then it can take much longer.
- Free trade areas: member countries eliminate most or all of their tariffs to trade with each other but keep their own barriers to the rest of the world.
- Customs unions: member countries eliminate most of all of their tariffs to trade with each other and agree on a common external tariff to the rest of the world.
- Common markets: Customs unions that reduce or eliminate barriers on the movement of labor and capital.
The General Agreement on Tariffs and Trade (GATT): The GATT is the world’s most far-reaching global trade agreement. After its formation in 1947, the GATT developed into an international forum and organization devoted to increasing international trade to improve standards of living and to promote peace (by making countries more dependent on one another).
The World Trade Organization (WTO): Was formed on April 15, 1995 as an organization to facilitate the implementation of trade agreements, to provide a forum for future trade negotiations, to administer the Understanding on Rules and Procedures Governing the Settlement of Disputes and the Trade Policy Review Mechanism, and “to further greater coherence in global economic policy-making.”
The North American Free Trade Agreement (NAFTA): Was formed on January 1, 1994 as an expansion of the US-Canada Free Trade Agreement, intended to enhance prosperity in its member countries by increasing trilateral trade and investment, through elimination of both tariff and nontariff barriers.
There is so much to this process. If I have learned anything in business, it is that when doing something you have never done, it is best to find experts to help you. This is no different. Think “who can I partner with or hire?” Great overview of a complex process.