Identifying the Risks and

Opportunities of Global
Purchasing and Trade

This chapter reviews much of what will be covered in this guidebook. It is critical
for import/export supply chain executives to understand all the risks that are in-
volved in global trade. Once those are understood, the options to eliminate the
risks or reduce their consequence can be thoroughly reviewed.
Minimizing
To exposures
minimize the and
exposures maximizing
and profits
maximize the is is
profits, ananexcellent
excellent import/ex-
import/ex-
port strategy that is emphasized throughout this book. This chapter provides the
reader with the background of how this strategy comes into play in developing a
sound and profitable import/export program.

Facing the Challenges of World Trade

The typical U.S.-based manufacturer is finding tremendous opportunities in
sourcing products from foreign suppliers. Equally, they are also finding an expan-
sion of overseas markets looking to buy U.S. products.
With these opportunities come risks and exposures new to the executives meet-
ing these challenges. How successfully these challenges are met is ultimately how
the company’s international initiatives will prosper or be doomed.
My contention and hyperbola is simple: Those international executives that
build a sound and comprehensive foundation of the “basic skill sets” of global
trade will fare the best.
fair the best. Those
Those that
that recognize
recognize that they must raise the bar of resource
gathering, paying
paying attention
attentionto todetail
detailand
anddeal
dealing in safe,
in safe, secure
secure, and compliant
and compliant sup-
supply chains,
ply chains, willwill do better
do better thanthan
thosethose
thatthat don’t.
don’t.
It becomes a choice. Pay for building a firm and comprehensive foundation up
front by building in the costs in your budget or don’t; roll the dice and be exposed
for paying for it later in less efficient supply chain logistics, fines and penalties, de-
nied access to import/export privileges, etc., which can all put a company out of
business, or certainly
certainly in ainless
a less competitive
competitive position.
position.
In addition, U.S. companies engaged in global trade need to rise to the occasion
and directly meet the challenges of competing in world markets. American com-
panies are
are up
upagainst
againstsignificant
significantcompetitive
competitivepressures
pressuresfrom trading
from giants,
trading suchlike
giants, as
Japan, England, Germany, and China, who are attempting to challenge U.S. pene-
tration and growth in foreign markets.
Competition from these nations, many with unfair trading practices, presents
several obstacles to American interests. This forces U.S. companies to climb to the
top using four critical steps for global success: (1) creative marketing and purchas-
ing, (2) improved logistics, (3) cost savings, and (4) key resources.

1
 Using Creative Financing as a Marketing Tool for Exports and Purchasing
for Imports
One excellent creative approach for U.S. companies is to offer credit terms on a
transactional basis in lieu of the letter of credit (L/C) or requiring payment in ad-
vance. The cost of a L/C in some countries can be as high as 13 percent, which puts
the landed cost of the U.S. product at a disadvantage, even before it is shipped. De-
spite this, U.S. exporting companies have typically been unwilling to risk overseas
collections, an arrogant and costly position.
Export credit insurance can be obtained that provides protection from foreign
receivables losses. Export credit and political risk insurance are available from
many private and governmental entities. One of the best and leading options is
available through the Export-Import Bank in Washington, D.C. Receivable protec-
tion combines the better of two worlds. You create sales that would not exist with-
out the coverage, and you protect your receivable assets in the event of commer-
cial default or political eventuality.
For imports, finding alternative sources of products from overseas suppliers
often provide opportunities for cost savings. In addition, certain manufacturing
practices can be accomplished in foreign domiciles that cannot be done on
U.S. soil.

Improving Logistics
Logistics is often a secondary consideration that is used after a sale or transaction
is negotiated. However, when logistics is part of the sales and negotiation process,
it offers another potential competitive tool to gain a global advantage.
Foreign competition
“Foreign competitionmakes international
makes business
international businessincreasingly
increasinglyprice-sensitive.
price-sensi-
Bringing
tive.” cost-effective
Bringing supply
cost-effective chain
supply management
chain management tools into
tools intothe
theinternational
international
sale results in less costly imports and exports. For example, a foreign trade zone
(FTZ) or custom-bonded (CB) facilities allow you to hold your product in foreign
entry gateways in secure storage and offer timely availability of products to your
customers overseas. Instead of taking three to four weeks for delivery, you can
clear and deliver your product in two to three working days. To some customers,
this can be a critical factor in selecting a supplier. In addition, the FTZ or CB will
defer the costs of duties, taxes, value-added taxes (VATs), and clearance costs un-
til the goods are cleared and shipped to the customer. (This is discussed in more
CD-Rom15.)
detail in Chapter File 7.)
In the United States, bonded warehouses
States bonded warehouses and
and FTZs
FTZs can provide significant re-
ductions of the import landed costs.

Providing Import/Export Cost Savings

Foreign competition makes international business increasingly price sensitive.
Steps must be taken to reduce the landed costs on imports or on sales to overseas
customers. Five integral actions can ensure success.
1. Identify all the components of the landed cost and act on each one in-
dividually. The small price considerations will add up to favorable
savings.
2. Identify the correct harmonized tariff code (Harmonized Tariff Schedule
the United
of the United States
States [HTSUS]),
[HTSUS], which
which isis sometimes
sometimes referred
referred to as the
Schedule B number). Dutiesare
number. Duties are calculated
calculated on
on the
the HTSUS.
HTSUS. Sometimes a dif-

2
 ferent HTSUS will produce a different classification and therefore lower du-
ties. For imports into the United States, this is a regulatory requirement that
could have serious consequences if not done correctly. This is covered in
of more
Chapter 10 in the book in more detail.
detail.
3. When shipping, look for consolidators. Though sailings or flights are less
frequent, depending on availability, consolidators often save as much as
20–50 percent on freight costs.
4. Proper documentation, marking, and labeling will assure safe, timely, and
competitively priced shipments. When done incorrectly, freight will be held
up in customs resulting in clearance delays and additional handling and de-
murrage charges.
5. Analyze ways to reduce weight and dimensions to lower freight costs.
Proper packing is important, but more often than not, lightweight cartons,
pallets, and alternative shipping materials can be used.

Developing Key Resources

The complications of global trade are difficult at any level. But to achieve the
pinnacle of success, an American company and its supply chain executives need
to devote the time and money necessary to accumulate and propagate articu-
late, responsive, and comprehensive sources of support intelligence and re-
sources.
Read global trade publications. Participate locally in international trade asso-
ciations. Develop integral networking contacts with consultants, bankers, insur-
ance executives, freight forwarders, accountants, and international carriers and
spend at least 5 to 10 percent of your time developing these contacts. Associa-
tions such as the
like the Professional
Professional AssociationofofImport/Export
Association Import/ExportCompliance
Compliance managers
(www.compliancemaven.com) are excellent resource facilities. Ultimately, they
will provide options in reducing the cost of international services. This is an-
other way to reduce the landed cost and make you more competitive in global
sales.
Stepping up to face the challenges and stepping forward wisely will minimize
the risks and maximize the profit opportunities in global business.

Shipping to a New Market–Potential Exposures

American companies are increasing their export markets and adding new coun-
tries to their list of ultimate destinations. Many companies ship to more than thirty
destinations, spanning five to six continents.
Traditional export markets of Western Europe have now grown to include the
newly formed Commonwealth of Independent States (CIS) countries, Latin
America, the Middle East, and Asia. The information superhighway cannot keep
up with this rapid growth and cannot meet the need to develop the information
and capabilities necessary to service the needs of U.S. exporters that would assure
them successful and profitable international transactions.
The American exporter must be more disciplined when entering a new market
to reduce risk and maximize trade profits. The following five guidelines will help
the exporter accomplish this goal:
1. Establish a network of resources.
2. Carefully manage the terms of sale and payment.

3
 3. Execute preplanned logistics.
4. Know the document requirements.
5. Know the export insurance issues.
The exporter needs to integrate all of these areas because one area can be di-
rectly affected by the others. Care should be taken before acting on any one mat-
ter. The information that one would require to profile the world is not available in
any one source. The exporter must rely on a vast network of contacts and sources
of timely data and intelligence.

Establish a Network of Resources

The Department of Commerce in Washington, D.C. is one of the best places from
which to start when entering a new market. The Department of Commerce provides
various means of critical support. It provides timely commercial data
on most countries in the world. In addition, country desk officers are available who
maintain daily communication with the U.S. Foreign Commercial Service and the
Department of State, U.S. embassies around the world, foreign consulate offices
here and abroad, and many commercial contacts worldwide. Individuals within the
department are experts on specific countries. State and local government, freight
forwarders, bankers, international marketing consultants, accountants, marine in-
surance companies, local world trade associations, and port authorities also can be
important networking sources for local market and country information.
The Export-Import Bank, Foreign Credit Insurance Association, National Cus-
toms Brokers and Forwarders Association, American Institute of Marine Under-
writers, U.S. Small Business Administration, U.S. Department of State, The World
Academy, and the National Institute for World Trade are important network re-
sources. Major
Majorcompanies
companiesinvolved
involvedinininternational support
international services,
support such
services, as Price
like
Waterhouse Coopers, AT&T, Sprint, American Express, Federal Express, KPMG,
and Citibank, are also sources for international trade data in various countries.
They often have direct experience or know someone who does, and they can read-
ily provide the required information.

Carefully Manage the Terms of Sales and Payments

Banks, freight forwarders, and friendly competitors are often excellent resources
for determining the best terms of sales. A new market can present a significant ex-
posure here, as each country will have a different set of laws, regulations, and
have different
practices that have differentmeanings
meaningsfor forterms
termsofofsale.
sale.Incoterms
INCO Terms,
2010, a book pub-
Publishing,inNew
lished by ICC Publishing NewYork
YorkCity,
City,outlines
outlineswhat
whatcountries
countries subscribe
subscribe to the
InternationalCommercial
International Commercial(INCO)
(INCO) standards
standards andand terms
terms of sale,
of sale, andoffers
offerscommon
common and
agreed upon meanings for the exporter and importer. If a country does not sub-
scribe, specific knowledge of local laws and practice must be obtained and under-
stood in the event a dispute arises.
New emerging markets of Eastern Europe and Latin America should be
watched carefully and surveyed before an international transaction is closed and
the terms of sale finalized. The key to making a transaction successful in a new
market is getting paid, which makes the terms of payment critical. A new mar-
ket does not necessarily require prior trading experience. Banks may provide
sources for customer credit worthiness through their local branch networks. In-
ternational credit
credit agencies,
agencies,such
like as D&B
D&B andGraydon
and GraydonAmerica,
America,are
are good
good alterna-
tives at a price.

4
 Initially,selling
Initially, sellingon onmore
moresecured
securedpayment
payment terms,
terms, likeasL/C
such L/Cand
andpayment
payment in in ad-
vance, may be viable options before selling on more relaxed terms. Should com-
petitive pressures force you to sell on an open account, purchasing export credit
insurance may transfer your risk to a third party.
The U.S. Government, through the Export-Import Bank, will provide options
commercialinsurance
and commercial insurance.Companies,
Companiessuch likeas
the
theForeign
ForeignCredit
CreditInsurance
Insurance Associa-
tion (FCIA) (Great American), Continental, CNA, and the American International
Group (AIG) also provide options.
Keep in mind that once the goods are shipped, you will have little influence on
the exposures affecting the shipment, which makes the wording of terms of sale
paymentcritical
and payment criticaltotofinalizing
finalizingthe
the transaction
transaction andand obtaining
obtaining youryour dues.
dues. INCO
Incoterms
terms are covered
are covered in greater
in greater detail indetail in Chapter
Chapter 2.
9 of the book.

Execute Preplanned Logistics

New markets challenge the best of logistics professionals. New markets present
a different geography, different physical profile, and an infrastructure that may
not be matured. Your prior modus operandi of shipping 40-foot ocean containers
may not work in certain countries where the roads are small and narrow. They
may only accept 20-foot containers or less than container load (LCL) freight only.
This change in container size may increase unit costs and hamper your competi-
tive edge. Some landlocked countries may best be reached by air and truck only.
Some emerging
emergingmarkets,
markets,such
like as Mexico,
Mexico, areundergoing
are undergoingaamajor
majorinternal
internal enhance-
enhance-
ment of their transportation infrastructure. This makes long-term planning
obsolete.
Packaging, labeling, and unitization become critical factors. Materials han-
dling methods in certain countries may be inadequate for handling large unitized
pallet loads, forcing the exporter to ship several smaller units that can be handled
manually by human labor. Warehousing and distribution systems could be lack-
causing the
ing, causing theU.S.
U.S.exporter
exportertoto reconsider
reconsider issues
issues, likeaspackaging,
such packaging, unitization,
timing of the shipments, and protecting the freight for longer inventory cycles in
exposed areas. “Just in time” (JIT) inventory management takes on new meaning
in global trade. The U.S. exporter must review and scrutinize the entire distribu-
tion chain from point of packaging and shipping to the time it is received by the
consignee.

Know the Documentation Requirements

The responsible exporter understands that the document requirements for coun-
tries around the world vary greatly. The freight forwarders or shipping agents are
typically the best sources for this information. Another great source is your cus-
tomer’s clearance agent in the importing country. Always obtain the names and
communication numbers for your customers.
The typical documents required are an invoice, a packing list, a bill of lading,
and a certificate of origin. Other documents include import/export license, insur-
ance certificates, inspection certificates Societe General Surveillance (SGS), North
American Free Trade Agreement (NAFTA) certificates, consolidation bills, and
health and sanitary certificates.
Poor document handling is the chief cause of customs delay and late deliveries
to customers. Exporters must know what the needs are before shipping and exe-
cute the paperwork or have their freight forwarders handle it on their behalf.

5
 Know the Import and Export Insurance Issues
The importer and exporter should control the marine insurance policy, which
would typically provide an “all risk,” “warehouse-to-warehouse” coverage. In
some foreign
foreign countries,
countries, like
suchVenezuela
as Venezuela
and and Nigeria,
Nigeria, this coverage
this coverage mustmust be
be pur-
purchased
chased in thein local
the local markets.
markets. ThereThere
may bemay be another
another twenty20to to 30 countries
thirty countries that
have similar provisions. Your local insurance brokers and marine underwriters
can advise on the local requirements and assist in arranging the coverage.
In local purchase situations or when the importer is controlling the coverage,
contingent insurance should be secured in case the other policies fail.
When entering a new market, coverage should be extended or started in the fol-
lowing areas: life and health, disability, workers’ compensation, property and in-
ventory, inland transit, general liability, and automobile. Many times policies writ-
ten in the United States will give extension privileges for writing coverages
abroad. All types of insurance claims occur for which no coverage exists. Review
the scope of coverage before the claims occur. The insurance companies can assist
in providing coverage in host countries.
The U.S. exporter/importer has vast marketing/purchasing potentials in new
and emerging markets. The opportunities are endless, but they pose an array of ex-
posure problems. By following the guidelines outlined in this chapter, the exporter
can minimize the exposure and be a successful international trader.

Staying Competitive While Reducing Exposure

Years ago, when U.S. corporations were selling particular products overseas with
little or no competition they could demand that their foreign customers pay cash
up front or with a L/C. Today, U.S. corporations are in intense competition with
companies from countries all over the globe. One of the standard business prac-
tices now required in international trade is for companies to give their foreign buy-
ers thirty-,
30-, 60-, and and
sixty-, 90-day credit terms.
ninety-day In some
credit terms. In cases, creditcredit
some cases, termsterms
can can
extend
ex-
to 120
tend todays or more.
120 days In Brazil,
or more. forfor
In Brazil, example,
example, importers
importersexpect
expecttotoreceive
receive up
up to
360 days.
days.
Credit is not just a way of doing business overseas. Attractive credit terms can
provide the competitive edge needed to close the deal. However, as the interna-
tional activity of U.S. companies increases, the overseas exposure also increases
from commercial and political risks. One of the biggest concerns of U.S. companies
is if their foreign customers will pay for the goods and services provided. U.S. com-
panies have an estimated annual overseas exposure of more than $40 billion, and
that is serious potential jeopardy.
Various international service providers offer consulting services to companies on
how to conduct business overseas and minimize exposure. Banks, insurance bro-
kers, customhouse brokers, freight forwarders, consultants, accountants, and attor-
neys are a few of the professionals who can assist you with export trading activity.
The question is how can America’s global traders remain competitive against
companies from Asian and European countries while protecting their exposure?
Exposure for a U.S. company venturing offshore is sitting in the United States with
a liability in accounts receivable while having a product or service delivered
abroad. What happens if the local customer in that country just doesn’t pay for
whatever reason,
whatever reason,“legitimate
“legitimateorornot.” The
not”? lines
The of recourse
lines the the
of recourse American
Americancompany
com-
has
pany arehas
limited. The more
are limited. Thethird world
more or world
third developing nations younations
or developing get, theyou
morework
lim-
ited
with,thetherecourse.
more limited the recourse.

6
 Problems can arise from a variety of sources. A foreign currency can be deval-
ued, or if the customer pays in the local currency, the government may not have
the foreign exchange to transfer the money into U.S. dollars. Companies must also
worry about
aboutpolitical
politicalrisks,
riskssuch
like as foreignconfiscation,
foreign confiscation,embargoes,
embargoes,and and expropria-
tions and wars, strikes, and riots overseas.
This is part of the fear factor that is making many U.S. companies hesitate to
trade offshore.
In other countries, government agencies and industry associations back private
transactions that guarantees payment and enables the company to offer attractive
credit terms with minimal exposure. This permits America’s competitors to com-
pete abroad more effectively.
We
“Welack
lackthat
thatthrust
thrustinin the
the United
United States.
States.”There
Thereareareprograms
programs available
available in the
States to
United States to help
help companies
companies compete
compete offshore.
offshore.“What
What the
the government
government has
been unable to do is make all of these programs available to all of the companies
that would like
like to
to trade
trade overseas.”
overseas. We Weestimate
estimatethat
that8585 percent
percent of
of the
the money avail-
able to promote overseas trade is consumed by about 15 percent of the U.S. com-
panies trading abroad. In other countries it is made very simple to get things done.
So, U.S. companies are left at a disadvantage.
Larger corporations have the expertise to evaluate country risk and write com-
prehensive contracts overseas, but small to mid-size U.S. companies lack the ex-
perience and staffing to evaluate how to do business overseas. These companies
also have more of a risk because a greater percentage of their business is involved
in a foreign transaction.
There are numerous government and private programs available for U.S. com-
panies to finance their overseas transactions and protect their exposure. The Ex-
port-Import Bank of the United States and the Foreign Credit Insurance Associa-
tion (FCIA) offer a variety of programs to assist U.S. companies.
Professional service providers work with the people who are going to do busi-
ness overseas and measure and evaluate their exposure. They then provide op-
tions for
for transferring
transferringexposure
exposuretotothird parties,
third such
parties, likeasbanks,
banks,insurance
insurancecompanies,
companies, or
another trading company. Professional service providers provide quality informa-
tion and various options to reduce the risk and make it easier to export. In addi-
tion, they are networked into the international business community to connect the
right people to get the deal or transaction done.

Facing the Risks of Global Trade

American firms face new challenges when competing in world markets that pre-
sent an array of exposures that are different from traditional domestic trade prob-
lems. However, with these new challenges come opportunities for greater market
share, export success, and profit potentials.
The first challenge is understanding the competition. Every major nation in the
world, led
world, ledby
bycountries,
countriessuch
like Japan, Germany,
as Japan, Germany,Great
GreatBritain,
Britain,and
andFrance
France,are
are profes-
profes-
sional exporters and international entrepreneurs. Export activity represents more
than 50 percent of these countries’ gross national product (GNP) and is the focus
of new business development. In addition, the export role of the governments of
these countries is substantive and very supportive.
U.S. firms are not competing on equal terms. Recognizing that, we must use a
greater sense of creativity to combat competition where we are at a disadvantage.
ForFor example,
example, offer
offer better
better paymentterms:
payment terms:Sales
salesthat
thatwere
weretraditionally
traditionally done on
a L/C now need to be offered on open account, sixty days site draft, ninety-day

7
 consignment, etc. The additional receivable exposure can be mitigated by securing
export credit and political risk insurance that allows transfer of the exposure to a
third party.
The cost of transporting the goods to destination and maintaining a competitive
advantage is an additional challenge. This is very visible in a sale to a European
buyer when we are competing directly with a European supplier. Geography pro-
vides the European a natural advantage.
Creatively using distribution warehouses located at strategic points close to the
point of sale can reduce this disadvantage. Freight can be sourced in bulk in less
costly modes and distributed directly to customers from these distribution facili-
ties at competitive transportation prices.
Another potential solution rests in scrutinizing some of the components of total
transportation costs and taking steps to reduce the expense of those components.
For example, marine insurance is a transportation expense. Send out competitive
bids. The insurance market currently is “soft” and rate reductions of 10 to 25 per-
cent can be achieved. Assuming higher deductibles or limiting policy terms and
conditions are other options for reducing marine insurance rates.
Packaging is another cost of transportation and for some product lines can be a
large part of the total expense. Options are to seek competitive bids from packag-
ing suppliers with incentives for these vendors to reduce costs of your export pack-
ing. Keep in mind that transit rates are typically predicated on weight or volume.
If these two variables are reduced by 20 percent, the freight charges will be re-
duced. In analyzing packaging options, one must review materials handling con-
siderations. For example, if pallets are used that might add up to 15 percent of the
total transit weight, one might consider using slipsheets to replace the pallets and
reduce the gross weight by 12 to14 percent. Cargo safety and ease of handling
should be considered before making this change. Other options might be to use
less heavy plastic or fiberboard pallets and determine if over packing is necessary.
Another cost of transportation is the mode and carrier selected and the rates
they charge. Shipping is very competitive. When was the last time you reviewed
their rates? When was your forwarder last challenged to reduce freight rates by 10
percent and their fees by 5 percent? Have consolidators been looked at? Have non-
vessel operating common carriers (NVOCCs) been considered as a less costly ship-
ping option? The bottom line to reducing shipping costs is to present several op-
tions that need to be reviewed thoroughly for cost-effective results to be achieved.
Another option in evaluating distribution costs is reviewing the time element is-
sues. Air freight is a faster means to transport cargo and is typically more expen-
sive. Is shipping by air necessary? However, ocean freight usually requires pre-
shipment warehousing. Perhaps air freight would be less costly when the cost of
warehousing and
warehousing andthe
theancillary
ancillarycosts
costs associated
associated with
with storage
storage, like
such asinsurance,
insurance, secu-
rity, accounting, inventory management, etc. are considered. All of these issues
need to be considered when evaluating total transportation costs. Carefully scruti-
nizing these areas and effecting some changes will result in savings in 75 percent
of most situations.
Another area for American firms to consider is providing “value-added,” that
is, provide more than just the product. Provide additional services or benefits from
you rather than a competitor. An example might be to offer technical assistance in
the use of the product or service you are selling. This can come in several forms.
You can bring your clients to your offices for education and training or send your
own technicians to their sites; provide better technical manuals and training aids,

8
 etc.; or structure an ongoing update and modernization program by providing
credits for upgrades
upgrades and
andrepurchasing,
repurchasing,etc.
etc.This
Thiswill
willbebeappreciated,
appreciated,and
and it assists
in building and enhancing long-term relationships with your clients.
Another option is to offer an ongoing system for providing spare parts and sup-
plies that is easier and less expensive than the system the customer is currently using.
A clear example of this value-added concept are the automobile retailers in the
United States who, in addition to selling the car, provide an array of services that
differentiates one dealer from another and at the same time provides opportuni-
ties for additional revenue and excellent customer rapport!
The final area of action is product and service adaptation. The exporter needs to
meet the needs of the international customer in lieu of the expectation that they
will compromise and accept a product or service that is less than adequate. Too of-
ten Americans take an arrogant attitude and force customers to accept a product
or service adapted for the American market.
All that is needed is a little market research and some refinements in the design
and manufacturing stages to provide a product that will meet or surpass customer
expectations. A few of the elements that can make products and services sell over-
seas in greater abundance and with higher profit potentials are sizes, use of the
metric system, alternative languages, made-to-order sales, variation of ingredi-
ents, compliance with local regulations, consideration of religious and ethnic is-
sues, environmental, weather-related concerns,
concerns, and
and politics
politics.are
The keyThe
but. is to
keybeisag-
to
gressive,
be competitive,
aggressive, creative,
competitive, and ultimately
creative, to mitigate
and ultimately risk risk
to mitigate and and
maximize
maximize the
opportunity
the opportunityfor profit potential.
for profit potential.
All of the factors, steps, and details required for successful exporting are pre-
sented in this book, affording an excellent resource to determine the opportunity
and the means to be “export wise.”

Navigating the Obstacles of Global Trade

Most shippers face poor service and high freight rates that ship on an LCL, and the
less frequently
frequently they
they ship,
ship,the
theworse
worsethe
thesituation
situation.
is.Their
Their“unit
“unitcost”
cost” for
for shipping,
whether it be per pound, per kilo, per cubic meter, or per container load, etc. will
be much greater than shippers with a high frequency of exports.
The reduction in the scope of authority of the Federal Maritime Commission
(FMC) potentially makes matters worse for the smaller shipper/exporter as larger
shippers will have greater clout in carrier negotiation on the “backs” of the less fre-
quent and LCL shipper. This means higher ocean rates for shippers with less than
500 trailer exchange units (TEUs) annually and even more so for shippers with less
volume. The new to export company will have a hard time obtaining competitive
ocean freight rates.
The following recommendations might afford the best value for your trans-
portation dollar and offer service and freight rates that are competitive. The cost of
transportation and the ability to deliver product on a timely basis is critical to the
U.S. exporter. These suggestions can provide the competitive advantage you need
as they help mitigate the competitive advantage of larger shippers.
1. Know your options. Dealing direct with carriers is limited as most do not ac-
cept LCL freight. Your best options are freight forwarders, consolidators, and
NVOCCs. They already have volumes of freight on particular trade routes with
prenegotiated freight rates with carriers and discounts of which a portion can be
passed on to you.

9
 They can also provide an array of logistics services that can assist you in com-
trade. including:
pleting your export trade,
• Inland transit options
• Warehousing
• Consolidation points
• Documentation and banking
• Import and export packing
For those shippers with LCL freight, in the long run a relationship with a qual-
ity forwarder, consolidator, and NVOCC will be the difference between profit and
loss and success or failure. Some traditional trucking companies are now also of-
LCL ocean
fering LCL oceanfreight
freightservices,
services,such
likeas
Yellow
YellowFreight/Roadway,
Freight/Roadway,Schneider,
Schneider, and
AIT. Potential savings may be available from these trucking options.
2. Maximize clout with your forwarder, consolidator, and NVOCC. Give
them as much “of the pie” as feasible, then negotiate all your transportation costs
inclusive of loading, storage, handling, and freight. This could easily provide an
additional savings of 10 to 15 percent.
3. Work with your overseas buyers and/or suppliers to time your ship-
ments to take advantage of larger orders. Potentially reaching the size of even
20-foot containers would greatly decrease your freight costs on a “unit cost
basis.”
Know your break-even point in shipping LCL versus full container load (FCL).
There will be some point where it is cheaper to buy a container than to ship LCL. LCL,
Depending
depending onon product,
product, dimension,
dimension, weight,
weight, trade route, etc. This can range from 40
percent to as much as 80 percent of container capacity. In some circumstances you
may be better off paying a little more and buying the container. This provides the
following:
• Exclusive use of space
• Control over stowage, blocking, and bracing
• More security
• Less exposure to multiple handling and diverting of freight
• Potential for more direct routing
Your freight forwarder, NVOCC, and carrier can work with you in this regard
to determine the break-even point for your specific situation.
4. Look to trade associations that offer membership and clout in the pur-
chasing of freight services for the smaller importer/exporter. Many associa-
tions are trade-specific, including forest products, wine and distillers, citrus
growers, to name a few. The Small Business Exporters Association (SBEA),
based in Washington, D.C., recently secured a program for the small exporter
for all different types of freight. Two other groups are the North American As-
sociation of Export Companies (NEXCO), Long Island Import/Export Associa-
tion (LIIEA), and the LTD Shippers Association, which focuses on imports from
the Far East.
The key to import/export success in logistics for the smaller, less frequent, and
LCL exporter is knowing the options and establishing strategic relationships and
alliances with forwarders, NVOCCs, and trade associations.
International trade by itself is competitive enough without logistics becoming
an obstacle. By being smart and playing all strokes to your advantage, the obstacle
can be mitigated and competitiveness maintained.

10
Exposures in Today’s Foreign Market
U.S. corporations are experiencing an increase in the export of their products and
services and are augmenting their investment in foreign countries; most interna-
tional economists agree that the survival of the U.S. corporation depends on the
ability to expand successfully into foreign markets. With this expansion, however,
U.S. companies also face more exposure related to foreign economic and political
climates. To trade successfully abroad, American companies must be familiar with
the available options that will reduce these international trading exposures.
The exporter faces a myriad of risks,
risks like
suchwar, strikes,
as war, riots,riots,
strikes, civilcivil
commotion, ter-
commotion,
rorism, embargoes,
terrorism, embargoes,andandcurrency
currencyinconvertibility.
inconvertibility.Of
Ofthese
theseexamples,
examples, currency
currency in-
convertibility is typically considered the most serious.
Take for
Take, for instance,
instance, the
the Long
Long Island
Island manufacturer that lands a contract to provide
its product to a company based in Brazil. The terms of sale are freight on board
(FOB) in New York, but the payment terms are 360 days sight draft (these condi-
tions mean the risks are transferred to the buyer in New York, but the buyer does
not pay until one year after delivery). The Long Island manufacturer has no choice
but to sell on these terms because the company knows that the competition in
Japan, Germany, and Great Britain would welcome the opportunity to step in and
assist the Brazilian corporation. At the end of the year, the Brazilian company pays
its invoice to the Long Island manufacturer in local currency, however, the Brazil-
ian government bank is unable to produce enough U.S. currency to transfer the
amount into American dollars. As a result, the Long Island company must wait an-
other ten to eleven months for payment. The cost to the manufacturer in terms of
time, effort, and depreciation of funds has reduced its profit margin to zero.
Had the manufacturer purchased political risk insurance to protect itself from
the currency inconvertibility exposure, this problem could have been significantly
reduced. In only thirty to sixty days after default, the seller could have been in-
demnified by an insurance company for the full value of its loss plus interest.
Another risk associated with the case described is that of the local buyer refus-
ing to pay its obligation to the producer. This exposure, called credit risk, can also
be insured through various governmental and private insurance companies.
The U.S. company making a fixed investment overseas also faces the risk of
losing its investment, profit, and personnel through such exposures as civil com-
motion, terrorism, nationalization, confiscation and war. Take the example of the
California-based trading company that decided to build a packaging and distri-
bution warehousing facility in the Philippines to provide a product that will
eventually be sent back to the United States. To assist with this project, the com-
pany sent ten management personnel overseas and spent $2.3 million in materi-
als and supplies. It anticipated $1.5 million of gross revenue per annum that will
produce annualized profits of $300,000. This company can protect its personnel
against terrorist attacks through several kidnap and ransom insurances that not
only provide indemnification in the event of a loss, but also attempts to prevent
losses from occurring at all and mitigate losses if they do occur. Fixed invest-
ments can be protected with various insurance policies designed to protect
against these types of overseas exposures. Lastly, the California company can
protect its anticipated revenue and profit base through policy endorsements and
specialized wordings.
Another significant exposure the American exporter faces abroad is related to
product liability and how the politics and laws of a particular country determine
its handling of a foreign company’s transaction occurring within its borders.

11
 U.S. trade abroad sometimes includes the “dumping” of a product not sold in
the United States or shipping goods of lesser quality or standard. In these cases,
the American company often stands to lose thousands of dollars because of fines,
penalties, and legal liabilities. Other risks include the possibility of developing a
poor trading reputation and the potential for personal fines and imprisonment
for the employee representing the company’s interests. Even products of supe-
rior quality might not meet certain national standards, or local customs and laws
might be restrictive causing considerable exposure.

International Freight Shipments—Avoiding the Major Pitfalls:

Where Did My Shipment End Up?
Documentation makes all the difference. Just a simple mistake can cause substan-
tial delays in obtaining clearance in a foreign country. It can also mean additional
costs to complete customs clearance. Lost time and money makes for unhappy cus-
tomers and adds to your aggravation.

Start with the Correct Documents

Some of the many documents that may be required include an:
• Invoice
• Packing list
• Export declaration
• Health/sanitary certificate/quality
• Certificate of origin
• Export/import licenses
• SGS inspection certificates
• Bills of lading
• Carnets
• Import customs documents

Complete Those Documents

Take the time to be sure you have the correct answers to the following questions:
✓ What language should be used?
✓ Is the spelling totally accurate?
✓ How many copies are required?
✓ What is the proper format?
✓ Does the form require notarization or consularization?
✓ Does it get shipped ahead or travel with freight?
✓ Who must sign?

Obtaining Support
Even the experienced exporter occasionally needs the support of an expert. When
venturing into new territory, you should check with several sources to make sure
you have the latest data. Laws, customs, politics/economics, and local regulations
can change swiftly and completely.
Sources you can turn to include the following:
• Your own professional freight forwarder
• Your customer who probably has resources and relationships with the local
authorities that will cut down on the cost and hassle

12
 • Department of Commerce country desk officers
• International Trade Reporter, Bureau of National Affairs
• Export Yellow Pages
• Official Export Guide
• Council for International Trade
• Shipping Digest: International Trade Desk Manual
• Journal of Commerce Handbook of International Trade
An Important Tip: Fax samples of the documentation ahead of the shipment to
your customer or the customer’s agent. This will assist in preclearance and confirm
that all documents are in order.

Accurate Documents Equals Prompt Payment

An important function of the documentation can be to make sure the exporter gets
paid and that collection is available under the agreed terms of sale and payment.
One example is a L/C transaction, where the exporter expects to receive payment
once the goods are shipped. In reality, once the goods are loaded and an original
bill of lading is available, a presentation of all the required documents is made to
the bank, typically by the freight forwarder. The bank never sees the freight, but
compares the documents presented with the requirements of the L/C. The bank is
actually making payment on the “quality” of the documentation. The paperwork
is scrutinized carefully and must be in perfect order to avoid payment delays, ad-
ditional costs, and penalties if discrepancies are found. Do not avoid going into
new territory because the process is intimidating. Your freight forwarder will help
you avoid the pitfalls.
CD-Rom
Chapter 1File 2 provides
provides an overview
an overview of all
of all thethe risks
risks andissues
and issuesfor
forthe
theexporter.
exporter. It
also began the process of outlining the steps in mitigating these risks and expo-
sures, assuring export success. The foundation has been established leading to the
balance of comprehensive detail, resources, and knowledge necessary for the ex-
porter to know and to follow.

Operating in a Post 9/11 Era

Importers and exporters need to be keenly aware of all the changes that the U.S.
Government and other foreign powers are making that greatly affect how global
supply chains function.
This book
bookwill
willcover
coveriningreat detail
great in Book
detail Chapters
in Chapters 8 and
8 and 1212just
justhow
howsupply
supply chain
managers should respond to the post 9/11 era.
For example, one of the more visible changes emanates from U.S. Customs.
Prior to September 11, 2001, customs always took the position that their purview
began once the goods coming from overseas reached the American border.
The threat of nuclear, biological, and other exposures has caused customs to re-
think their position. They are now of a mind set that if they are truly to protect the
borders that they must begin the process of scrutiny from point of source in the ori-
gin foreign market.
Customs began the 24 Hour Manifest requirements early in 2003 and now de-
mands that importers post electronically to U.S. Customs’ detailed manifests of
inbound products, 24 hours prior to when the vessel sails from the foreign port.
As we write this book, regulations are forthcoming for air, truck, and rail
shipments.

13
 Customs began the Container Security Initiative (CSI) which places U.S. Cus-
toms officers in foreign ports to prescreen inbound freight and work alongside for-
eign customs officers to assure the exactness of inbound freight to the United
States and that no weapons of mass destruction, nor chemical agents or biological
hazards, etc. leave from these ports destined for the United States. Originally
The Customs Trade Partnership Against Terrorism (C-TPAT) is a customs out-
reach program enlisting companies to join. Basically companies, principally im-
porters, service providers, and carriers, identify to customs their individual sup-
ply chains and how they will operate in a compliant and secure manner. You
become an approved C-TPAT member and receive certain privileges. It has been
clearly defined that non-C-TPAT members will struggle with imports if another
terrorist attack as occurred on September 11, 2001 occurs and will have limited ac-
cess to import privileges.

Concluding Remarks
The reader can now understand the magnitude of risks and exposures involved in
importing and exporting. However, these should not be insurmountable obstacles
if they are managed successfully. This chapter presented an overview of options
for the importer and exporter and specific solutions and resources available to help
them deal and manage the exposures to a successful conclusion. The balance of this
book will now discuss in detail specific solutions and import/export supply chain
strategies for managing import/export business development, compliance, secu-
rity, sales, logistics, and operations.

14