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

Learning Objectives
Welcome to class of
Export Import Practices
Dr. Satyendra Singh
Learning Objectives
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
Identify some sources of export financing
Describe the activities of a foreign freight forwarder
Understand the kinds of export documents required
Identify import sources
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
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
– To achieve the success the firm’s
management has seen others achieve
– To improve the efficiency of manufacturing
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 http://www.edc.ca
• 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
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
• Specific about
– Markets to be developed
– Marketing strategy for serving them
– Tactics to make the strategy operational
Terms of Sale…
– 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
• Free alongside ship, port of call
• Cost, insurance, freight, foreign port
• cost and freight, foreign port
• Delivered at frontier
Payment Procedures…
• Payment terms offered by exporters to foreign
– 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
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
In 2010, eliminated!
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
Letter of Credit Transaction
• 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
– Prepare documents
– Book space
– Offer advice about
– Supply cargo insurance
Official Procedures for Importing and
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
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
– 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 airdependent
• The market may be perishable
• Competitive position may be strengthened
• Ways to identify import sources
– If similar imported products are already in the
market, visit a retailer and examine the product
– 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
• Acts as agent for importer
– Customhouse broker brings goods through
– 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
• 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.
– American version of the Harmonized System used worldwide to
classify imported products