Expanding sales opportunities overseas

Export sales can be an attractive method to grow business and to expand markets. With local economies often experiencing wild swings, concentrating on building export sales can help a company to even out some of the more severe peaks and valleys.

Although global interdependency has caused upturns or downturns in one country to affect other regions’ economies, the effect may not be uniform. During the downturn in the United States and Europe in the last two years, certain Latin America and Far East markets were better able to maintain their relative positions and to bounce back more quickly.

The first concern in expanding export sales may well be in locating suitable overseas customers or distributors. One way to make these contacts is to participate in international, regional or local trade shows or conferences. Embassies or state delegations of some countries sponsor contact booths or catalog shows to facilitate liaisons between local companies and suppliers in their own countries. Advertising in your industry’s specialized trade publications can be an effective avenue to quickly make contacts. If the intention is to grow your business internationally, publications with extensive international readership will be best. Another option is booking travel for face-to-face meetings with potential customers.

Once a mutual interest has been established between a supplier and the foreign customer, it is very likely that a pro forma invoice will be requested as a quotation for materials required. The pro forma invoice may be needed to secure an import permit or to estimate what the costs will be to import these goods. The information imparted on this pro forma may vary according to the customer’s needs. However, some of the customary information that may be included on the pro forma are a reference number, date of the quotation, shipper particulars, ship to name and address, terms and conditions of sale, mode of transportation, payment terms, part number and description, quantity and unit of measure, unitary and extended prices, harmonized code for the goods, estimated freight costs, estimated weights and measurements, and origin of the goods. Often times the pro forma should also include a certification that the invoice is true and correct, and it should be signed by an authorized company employee.

The terms of sale on the pro forma invoice and eventual commercial invoice are important. This establishes at which point ownership transfers from the seller to the buyer and who will bear the responsibility if problems should occur with the shipment at that point. Some of the more commonly used standardized International Chamber of Commerce Incoterms are the following:

Ex-Works - at a named point of origin (e.g. ex-warehouse or ex-dock). Liability turns over to the buyer at the seller’s own facilities. These terms are not always preferred by the buyer, since they may have to make arrangements for shipment within the seller’s own country.

FCA - Free Carrier. These terms of sale include the cost of the goods as well as inland transportation to the port of shipment.

FAS - Free Along Ship. These terms are similar to FCA charges but also include delivery alongside the vessel to be used for the overseas shipment but not loading onto the vessel.

FOB - Free on Board. This is similar to FAS but does include all charges up to the loading on board the vessel. Also included in FOB may be the charges for freight forwarder services.

C&F- Cost and Freight. These charges include those to ship the materials overseas to the port of entry in the customer’s country. They do not generally include costs for customs clearance and duties at the country of destination.

CIF- Cost, Insurance, and Freight. Similar to C&F except freight insurance to the port of destination is also included.

DDP - Delivered Duty Paid. Includes all charges to the customer’s overseas facility.

Since not all resources for collections are available with an overseas company as with domestic customers, payment terms also need to be considered. Some of the payment terms that can be offered to foreign customers in descending order of security are the following:

Prepayment - Prepayment prior to shipment can be made from overseas by cash, check, bank-to-bank wire transfer, credit card, etc. Foreign exchange controls in some countries may prohibit prepayment as an option.

Letter of Credit - These terms guarantee payment from the bank issuing the L/C to the seller provided the terms listed therein are followed to the letter. Caution must be made to adhere to all stipulated terms, since even a misspelled word can cause a discrepancy and reason for nonpayment. The payment term can be at sight of the presentation of the collection documents or after a pre-agreed period of time. The Letter of Credit may also be used directly in payment of the shipment or held as a backup guarantee in the event other conditions (e.g. non-payment with alternate stipulated terms) are not met on time. The overseas bank will oftentimes confirm their payment guarantee; however, the correspondent bank in the seller’s country may or may not extend its own confirmation.

Bank Draft - With a bank draft the original shipping documents are presented to a bank with a collection draft. This draft may be made out for payment at sight or at some agreed period of time of presentation of the documents. In theory the bank will turn over the documents to the consignee overseas when either they pay the amount of the draft at sight or commit to pay on the date of maturity of the time draft. In actuality, and particularly with airfreight shipments, original documents are sometimes turned over to the consignee prior to receiving payment.

Open Account - If the customer is one that is considered credit worthy, open account terms at whatever period is agreed may be an option offered.

Depending on the type of goods being shipped, special protective packing may be required. If the shipments are of a certain size, they may be containerized or consolidated by a shipping agent with other materials in a container. Customers may specify that their particular markings be etched on shipments to facilitate identification. Certain countries or carriers may impose weight or height restrictions, particularly for airfreight shipments. Of late more countries are prohibiting use of wooden pallets or packing materials or else requiring that those wooden articles first be fumigated and treated.

For export shipments, selecting a reliable forwarding/shipping agent can be of great benefit. Reliable agents will likely be aware of any special shipping or documentary requirements to that country and will book and negotiate space with the appropriate carrier. Sometimes because of the volumes of business they conduct with the carriers, they will negotiate special rates. They can complete the commercial invoice with freight and incidental charges and allow sellers to avail themselves of their shipping insurance to protect against damages in transit.

The documents that will need to be presented will vary by customer and country of destination. For most it will likely be necessary to prepare a commercial invoice with information similar to that required for the pro forma invoice, a packing list, and a bill of lading. Other documents may be required depending on requirements of the country of origin, the country of shipment, and the consignee. For example, a North American Free Trade Agreement (NAFTA) Certificate of Origin is necessary to limit or waive duties for goods manufactured and traded between the United States, Canada, and Mexico. An export license or approval may be required in some countries for many products, particularly if these are of sensitive technological or military value. An insurance certificate should be included if insurance has been contracted in the country of shipment. The Letter of Credit and Bank Draft may be required depending on payment terms. When these payment terms are involved, the original negotiable documents should be sent to the negotiating bank, not the consignee. Non-negotiable copies are normally sent to the consignee. A competent forwarding agent should be able to help in determining what documents will need to be presented for each country.

Export sales can present attractive opportunities for growth of your business and to help compensate for the volatility in your local markets. Be aware, however, that there can be special requirements for these international customers that are different from selling to your domestic accounts. The issue is learning to negotiate these international waters.