The Ecosystem Of Foreign Trade

When running an import and export business you’ll need various services that will make your operations proceed in a proper way. Otherwise you’ll end up with a number of losses and failures like incorrectly prepared documents, faulty organization of shipment, false declarations to the government, miscalculation of duties and other costs.

You should always keep in mind that; just as you cannot know everything in your business, you cannot know everything in foreign trade, which consists of a wide range of specialties. There are private and quasi-government agencies to help you export/import safe and secure. These include:

  • Customs broker
  • Bank
  • Freight forwarder
  • Insurance company
  • Testing and Inspection company
  • Export credit agency (ECA)

Along with above mentioned service providers, there are other institutions you’ll need (in most cases obligatory, especially for certain goods that are subject to preliminary authorisation) in order to export/import:

  • Chambers of Commerce or Consulates
  • Laboratories
  • Government Agencies

Customs Broker

As customs regulations and laws concerning import and export of goods are constantly changing all over the world, it’s a bit risky for the exporters to handle the process by themselves. Customs brokers are responsible for knowing all of these regulations and ensuring that they are followed. They serve as intermediary communicating with agencies and government throughout the shipping process to ensure that all of the proper procedures have been followed.

Bank

Banks play a critical role between exporter and importer, in that no matter what the payment term agreed between parties is, money transfer is made through banks. Besides, certain payment terms like L/C, BPO, CAD are more than just a money transfer. There is serious work going on behind the scene that requires a speciality. The documentation and operation process is carried out by experts at the banks to make both parties fully satisfied.

Freight Forwarder

Freight forwarders are agencies that provide companies with transportation service. A Freight forwarder acts as an intermediary between exporter and importer to arrange the shipment of the goods from the shipper’s place to the final destination in coordination with logistics companies.

Insurance Agency

In the nature of international trade, there are always insecurities which may cause exporters or importers trouble. Most common mishaps occur when the goods are in transit; they might be lost, partly or completely damaged; the transport vehicle could be attacked and so forth. Although you can not ensure the shipping is 100% safe and secure, you can mitigate the risks by insuring your cargo. Insurance companies provide coverage against these damages and losses.

Testing and Inspection Company

Another risk in international trade is ordering a container of shoes and receiving a container of second hand flip flops. Inspection companies help you be sure about receiving the very exact goods you have ordered in terms of the appearance, quality, ingredients, content, packaging, number; whatever instructions you have given. At the end of the day, you get what you ordered without any surprise.

Export Credit Agency (ECA)

Unfortunately the only risk is not shipping related. There is also nonpayment risk which hurts more than shipping risks. The importer may not make the transfer for a reason and whatever the reason is, you’re not paid in the end. Besides, most SMEs hesitate to run towards export for that reason alone. At this point ECAs step in. They provide exporters with loans, loan guarantees and insurance to eliminate the payment related risks. This way SMEs can confidently dive in foreign trade.

Chamber of Commerce/Consulate

Some countries stipulate invoices to be signed by the Chamber of Commerce the exporter is a member of, or consular invoice signed and sealed by a consul who is posted in the exporting country.

Laboratory

Certain products like food, chemical products, textile products, plants and plant products, etc. may be subject to analysis at the customs laboratories before entering the country. These laboratories also do analysis to determine tariff classification and the level of duties and other taxes. In order to prevent yourself from unintended consequences, you may want to have your products analyzed at an accredited laboratory beforehand.

Government Agency

There are some certain products that are subject to pre-authorisation for export or import. These are generally endemic foods, plants, animals; warfare vehicles and equipment, weapons, ammunition and spare parts, military explosives and related technologies; goods on the control of transboundary movement and disposal of hazardous wastes; pharmaceuticals. To be able to import or export these sort of products, an import/export license is required, plus authorization certificate or import/export permit got by relevant government agencies or departments.

Let’s create a story of an exporter’s export process:

The journey of the exporter who doesn’t want to leave anything to chance starts with getting credit insurance from an ECA. Then the seller and buyer sign a sales contract. With this contract both parties agree on the terms and conditions of the sale in question. Right after, the seller starts production and subsequently prepares the export documents, gets the cargo insured and informs its customs broker and forwarder about the shipment at the same time. Customs broker handles the legal procedure while the forwarder makes the booking.

Production is finished, packaging is done, papers are ready and it’s the inspection company’s turn to check the goods. After the approval, the container is free to go. Upon the transport vehicle’s leaving, all the required documents are collected and submitted to the bank. For this shipment we assume that the payment term is CAD (Cash Against Documents). The customer representative at the bank gets the documents, checks them in detail and sends to the buyer’s bank. Buyer’s bank notifies it’s client about the import documents and the buyer gets the documents on making the payment. When the goods arrive at the destination, the buyer clears the goods at the customs and everyone is happy.

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