Reducing the Risks of Exporting
Today’s business climate is fast and unforgiving. Add different governments, cultures, languages and time zones to the equation and the difficulty increases substantially. International business is a risky endeavor but, if these risks are understood and met with sound internal policies and procedures, the world becomes your marketplace and the profits will follow.
Your firm is exposed to four primary risk categories with international shipping: Compliance Risk, Documentary Risk, Transaction Risk, and Product Risk.
Compliance Risk involves your firm complying with U.S. Government Export Administration Regulations, commonly referred to as the “EAR”. Having a clear understanding of how to implement the EAR in your firm will prevent fines and penalties that exporters are exposed to each time the export a product globally. The U.S. Government’s goal is to track exports for economic and homeland security reasons. Economically, the government must know what is being exported to track performance and negotiate trade agreements. From a security perspective, the government does not want sensitive equipment or knowledge being transferred to unsavory characters.
Documentary risk refers to the transfer of transactional instructions from your export customer service and sales department to the various vendors and the overseas customer required to move your shipment form your facility to the client. Clear instructions make the difference. We recommend that exporters develop internal operating procedures, which workflow your international sales and shipping process: Sales/ Marketing – Order Entry – Fulfillment – Export Packaging – Export Documentation/Customer Service – Shipping. Developing the workflow will help identify where information must transfer. Developing checklists and forms to assist in standardizing the process reduces confusion. Documents such as Sales Agreements, Shipper’s Letter of Instruction, Shipping Quote Requests, and International Commercial Invoices are some examples. Learn more by contacting a local freight forwarder.
Before attempting to export management is immediately going to ask how payment will be made for the product. Protecting your transaction is dependent on good contracts, clear understanding of International Commercial Terms (INCO Terms), and a mutual agreement between yourself and your client how and when funds will transfer. INCO Terms help to determine at which point the responsibility for arranging the transport of a shipment to your client begins and ends. With this responsibility comes the understanding of what part of the transportation expenses will be borne by the exporter and importer. Generally we recommend choosing an INCO Term, which provides the exporter the greatest amount of control over the transportation process. Next deciding how and when you will be paid provides options to consider in order of less risk: Open Account Terms, Bank Drafts, Letter of Credit, or Cash In Advance. These methods allow for you to determine when you will be as well as the method of payment. BDG provide numerous tools to assist in reducing Transactions Risk.
The physical movement of items by air, sea, rail, and truck can be quite violent at times. Understanding your product and it’s sensitivity to the natural handling required to get a shipment from your facility to your client will assist you in making the correct packaging decisions. There are 6 degrees of motion while a shipment is moving via sea. Rail has high frequency vibrations. Trucks encounter quick start and stops, evasive maneuvers and rough road conditions. Can your product packaging handle this? After considering the potential for damage, the consideration now it is time to consider insuring for it. Marine Cargo Insurance provides coverage for unfortunate events in transit. It will not cover for a product that was poorly packed and arrives damaged.
These risks we have outlined can be well understood by even a novice exporter. Taking them into consideration and developing a cohesive plan will put your firm on the road to a profitable success in the international market.
