Learning Objectives Welcome to class of Export Import Practices Dr. Satyendra Singh

Learning Objectives  Identify some sources of export financing  Describe the activities of a foreign freight forwarder  Understand the kinds of export documents required  Identify import sources  Explain why firms export and problem areas of exporting  Identify the sources of export counseling and support  Discuss the meaning of the various terms of sale Objectives:

Why Export? Reasons to export –To serve markets where the firm has no or limited production facilities –To satisfy a host government’s requirement that the local subsidiary have exports –To remain price-competitive in the home market –To test foreign markets and foreign competition inexpensively

Reasons to export? –To offset domestic market’s cyclical sales –To achieve additional sales –To extend a product’s life cycle –To respond strategically to foreign competitors –To achieve the success the firm’s management has seen others achieve –To improve the efficiency of manufacturing equipment

Reasons not to Export Two major reasons –Preoccupation with the vast American market –Reluctance to become involved in a new, unknown and therefore risky operation Not active in international markets due to –Lack of knowledge Locating foreign markets Payment and financing procedures Export procedures

Sources of Export Counseling Trade Information Center (TIC) –The federal government has to set this up as a first stop for information –Visit International Trade Administration (ITA) –Offers a wide range of export promotion activities that include Market Access and Compliance (MAC) Trade Development U.S. and Foreign Commercial Services (US&FCS)

Sources of Export Counseling Small Business Administration (SBA) –The office of International Trade of the SBA works through Small Business Administration offices Score Program Small Business Development Centers Centers for International Business Education and Research (CIBERs)

Show and Sell Trade events to facilitate international trade –U.S. pavilions –Trade missions –Product literature center –Reverse trade missions

Export Marketing Plan Essentially same as domestic marketing plan Specific about –Markets to be developed –Marketing strategy for serving them –Tactics to make the strategy operational

Terms of Sale… INCOTERMS –Universal trade terminology developed by the International Chamber of Commerce –Ex-Works Risk passes at factory door US equivalent: FOB (free on board)

Terms of Sale –FAS Free alongside ship, port of call –CIF Cost, insurance, freight, foreign port –CFR cost and freight, foreign port –DAF Delivered at frontier

Payment Procedures… Payment terms offered by exporters to foreign buyers –Cash in advance When credit standing of the buyer unknown or uncertain –Open account When sale is made on open account –Seller assumes payment risk –Offered to reliable customers in economically stable countries

Payment Procedures… –Consignment Goods shipped to buyer; payment made when sold Payment risk assumed by seller –Letter of credit (L/C) Document issued by buyer’s bank –Promise to pay seller specified amount when bank has received documents stipulated in letter of credit

Payment Procedures Letter of credit Confirmed L/C –Correspondent bank in seller’s country agrees to honor issuing bank’s L/C Irrevocable L/C –Once the seller has accepted L/C, buyer cannot alter or cancel it without seller’s consent

CFR  Cost, Freight, Foreign Port; FAS  Free Along Side  leave it there after clearing for export FOB  Seller will load on board after clearing for export (Cost and risk shared INCOTERMS 2010) FCA  Free Carrier – clear for export and handover to named carrier CPT  Carriage Paid To – seller pays – named place of delivery DEQ/DES  Delivered Ex Quay/Ship – named port of delivery DDP/DDU  Delivered Duty Paid/unpaid ; EXW  Just keep outside/warehouse CIF  insurance for maritime; DES  CIF + insurance for goods as well In 2010, eliminated! DES, DAF, DEQ, DDU

Letter of Credit Transaction

Documents Air Waybill –A bill of lading issued by an air carrier Pro Forma Invoice –Exporter’s formal quotation: description of the merchandise, price, delivery time, method of shipment, ports of exit and entry, and terms of sale

Export Financing… Private Source – Commercial Banks –Banker’s acceptance Time draft with maturity of less than 270 days that has been accepted by the bank on which the draft was drawn, thus becoming the accepting bank’s obligation; may be bought and sold at a discount in the financial markets like other commercial paper –Factoring Discounting an account receivable without recourse

Export Financing… –Forfeiting Purchasing without recourse an account receivable whose credit terms are longer than the 90 to 180 days usual in factoring; unlike factoring, political and transfer risks are borne by the forfeiter

Export Financing Public Sources –Export-Import Bank (Ex-Imbank) Principal government agency that aids American exporters by means of loans, guarantees, and insurance programs –Overseas Private Investment Corporation (OPIC) U.S. government corporation that offers American investors in developing countries insurance against expropriation, currency inconvertibility, and damages from wars and revolutions

Other Public Incentives Foreign Trade Zone –Duty-free area designed to facilitate trade by reducing the effect of customs restrictions Free Trade Zone –An area designated by the government as outside its customs territory Customs drawback –Rebate on customs duties

Export Procedures Foreign freight forwarders act as agents for exporters –Prepare documents –Book space –Offer advice about Markets Regulations Transportation Packing –Supply cargo insurance

Official Procedures for Importing and Exporting

Shipping Documents… Shipper’s Export Declaration –U.S. Department of Commerce form to control export shipments and record export statistics Validated export license –Document issued by the U.S. government authorizing export of strategic commodity or shipment to unfriendly country General Export License –Covers export commodities for which validated license not required; no formal application required

Shipping Documents Export Bill of Lading –Contract of carriage between shipper and carrier: straight bill of lading is nonnegotiable; endorsed “to order” bill gives holder claim on merchandise Insurance Certificate

Collection Documents Commercial invoice Include origin of goods, export packing marks, and clause stating goods will not be transshipped –Consular invoice Purchased from the consul and prepared in local language –Certificate of origin Issued by local Chamber of Commerce –Inspection certificate Frequently required for grain, food, live animals

Export Shipments…  Containers  Reduce theft and handling costs  LASH (lighter aboard ship)  Barges for shallow inland waterways  RO-RO (roll on-roll off)  Can drive onto vessel  Air Freight  Can arrive in one day

Sea-Air Total Cost Comparison, Shipment and Spare Parts

Air Freight Total cost may decrease Either the firm or the product may be air- dependent The market may be perishable Competitive position may be strengthened

Importing Ways to identify import sources –If similar imported products are already in the market, visit a retailer and examine the product label –If the product is not being imported, call the nearest consul or embassy of that country –Use the electronic bulletin boards of the World Trade Centers

Customhouse Broker Independent business that handles import shipments Acts as agent for importer –Customhouse broker brings goods through customs –May arrange transportation for goods after they leave customs –Need to know when imports are subject to import quotas and how much of the quota has been filled

Importing Bonded warehouse –Area authorized by customs for storage of goods on which payment of import duties is deferred until goods are removed Automated Commercial System (ACS) –Used to track, control, and process all commercial goods imported into U.S. Import Duties –Importer must know how U.S./Canada calculates import duties The Harmonized Tariff Schedule of U.S. (HTSUSA) –American version of the Harmonized System used worldwide to classify imported products