Bonus Module B: Export and Import
letter of credit
Document issued by the buyer's bank in which the bank promises to pay the seller a specified amount under specified conditions
RO-RO Ship (Roll on roll off)
-multi level ferry ship
What are the two ways of financing exports that have their roots in ancient Mesopotamian international trade?
1) Factoring 2) Forfaiting
What are the three units of ITA?
1) Global Markets Unit 2) Industry and Analysis Unit 3)Enforcement and Compliance Unit
What are two advantages FTZs offer to exporters?
1) If the exported goods qualify for customs drawbacks, then moving the goods to FTZ can accelerate the rebate process because a product is exported as soon as it enters the FTZ 2) When manufacturing or assembly is done in FTZs using imported components, no duties need ever be paid if the finished product is exported
What are the two ways in which pro forma invoice are used?
1) bank will use it when opening a letter of credit 2) countries requiring import licenses or permits to purchase foreign exchange will insist on receiving copies
What are the three kinds of marine insurance policies?
1) basic named perils 2) broad named perils 3) all risks
Once the firm knows that a potential market exists, it needs to choose between what two options?
1) exporting indirectly through U.S.-based exporters 2) exporting directly using its own staff
What are the three areas in which some companies find themselves lacking as far as exporting goes?
1) identification of foreign markets 2) payment and financing procedures 3) export procedures
Overseas Private Investment Corporation (OPIC) is a government corporation formed to stimulate private investment in developing countries by doing what three things?
1) investors insurance against expropriation 2) currency inconvertibility 3) damages from wars or revolutions
What are the three purposes of the export bill of lading (B/L)?
1) it is a contract for carriage between the shipper and the carrier 2) a receipt from the carrier for the goods shipped 3) a certificate of ownership
What are three advantages of FTZs to importers?
1) no import duties need to be paid while goods are in the zone 2) finished product often incurs lower duty than would the disassembled parts due to differences in import tariff schedule 3) importers of machinery and automobiles improve their cash flow by storing spare parts in an FTZ because duty is not paid until they are withdrawn from the free trade area
What are two reasons why companies do not export?
1) preoccupation with the home market 2) the reluctance to embark on a new and unknown operation
What are the three sources for identifying import sources?
1) similar imported products may already be in the market 2) online bulletin boards 3) accidental importing also occurs with some frequency
Most of what is contained in the contract for a domestic representative can be used in export also, but what two areas require special attention?
1) the designation of the responsibilities for patent and trademark registration 2) designation of the country and state or province whose laws will govern any contractual disputes
Even when total shipping costs are higher for air freight, why is shipping by air still advantageous?
1) total cost may decrease because customers get their products faster which lead to faster payment and so on 2) strengthen the firm's competitive position because of the fast delivery time
Incoterms describes what three issues that arise in a commercial transaction?
1) which party does which task 2) which party covers the costs 3) which party bears the risk
pro forma invoice
Exporter's formal quotation containing a description of the merchandise, price, delivery time, method of shipping, terms of sale, and points of exit and entry
Customhouse Brokers
Independent businesses that handle import shipments for compensation (parallel those of foreign freight forwarders but on the import side)
foreign freight forwarders
Similar in function to domestic counterpart. Knowledgeable in all areas of international shipping
Shipper's Export Declaration (SED)
U.S. Department of Commerce form used to control export shipments and record export statistics
Through forfaiting, the exporter can convert its long-term, credit-based sale into what?
a cash transaction
confirmed L/C
a correspondent bank in the seller's country confirms that it will honor the issuing bank's letter of credit
Conformite Europeene (CE) mark
a mark required by the EU which indicates that merchandise conforms to European health, safety, and envioronmental requirements
Before opening a letter of credit, a buyer frequently requests what?
a pro forma invoice
Straight bill of lading
a straight bill of lading is nonnegotiable. only the person stipulated in it may obtain the merchandise on arrival.
banker's acceptance
accepting a time draft and therefore assuming the responsibility for making payment at maturity of the draft
What does all-risks marine insurance cover?
all physical loss or damage from any external cause and is more expensive than the other two types of policies
Export.gov is the U.S. government's trade portal, where you can find what?
almost everything from the federal government related to trade, including case studies of recent export successes and announcements of foreign trade mission and training programs
Order bill of lading
an order bill of lading is negotiable. it can be endorsed like a check or left blank, therefore the holder is the owner of the merchandise
Factoring permits the exporter to be more _________ by selling on _________ account rather than the the more costly _________ method
competitive; open, letter-of-credit
Payment terms are often a _________ factor in obtaining an order.
decisive factor
What is the first step in locating foreign markets?
determine whether there is a need for the firm's products
air waybill
document used when goods are shipped by air
Free Trade Zone (FTZ)
duty-free and tax-exempt industrial parks for foreign corporations (most common of the foreign trade zones)
Foreign trade zones (FTZs)
duty-free areas designed to facilitate trade by reducing the effect of customs restrictions
The Small Business Administration (SBA) offers business development and financial assistance through it Office of International Trade to do what?
encourage small businesses to export
Why is air freight a better choice than ocean freight?
everything is just cheaper when looking at the total costs
For exporters, the preferred pricing method is the use of what?
factory door cost (production cost without domestic marketing and general administrative costs)
New importers would do well to follow what advice?
fully disclose to the US Customs Service all foreign and financial arrangements before passing the goods through US customs
An inspection certificate is required frequently by buyer of what?
grains, foodstuffs, and live animals
Industry and Analysis Unit promotes the trade interest of U.S. industries by doing what?
helping to shape industry-specific trade policies and promotion strategies, including trade missions, fairs, and seminars
FREE ON BOARD (FOB) at a named port of export
in addition to FAS, the seller loads the goods on the vessel.
What is the goal of Industry and Analysis Unit (ITA)?
increase U.S. exports
How does factoring work?
it passes the risk to the factor (like a bank) who approves of the export order thus giving the exporter complete protection against bad debts and political risks
Exporters that insist on less risky payment terms, such as a letter of credit, may find that they are what?
losing business to competitors who do sell on open account
bonded warehouse
merchandise can be stored without paying duty and wait for the rest of the year, abandon them, or send them to another country
Enforcement and Compliance Unit does what?
monitors and enforces U.S. trade law and trade agreements Ex: looks for dumping and subsidies that distort trade
In an export sale, what do the sales agreement needs to specify as simply as possible of both the firm's foreign representative (the buyer) and the firm?
needs to specify as simply as possible the duties of both the firm's foreign representative (the buyer) and the firm
Is war risks covered by marine insurance policies?
no it is covered under a separate contract
International Trade Administration (ITA)
offers export promotion activities that include export counseling, analysis of foreign markets, assessment of industry competitiveness, and development of market opportunities and sales representation through export promotion events
If the seller feels like the risks involved are not that bad, they can instead agree to payment on what?
on a documentary draft basis (export draft), which is less costly to the buyer
Irrevocable L/C
once the seller has accepted the credit, the customer cannot alter or cancel it without the seller's consent.
What does basic name peril insurance include?
perils of the sea, fires, jettisons, explosions, and hurricanes
FREE ALONGSIDE SHIP (FAS) at a named port of export
price for goods includes charges for delivery of the goods alongside a vessel.
COST & FREIGHT (CFR) to a named overseas port
price for goods includes cost of transportation to a named overseas port
COST, INSURANCE & FREIGHT (CIF) to a named overseas port
price includes insurance and all transportation and miscellaneous charges to the port of disembarkation for the ship or aircraft
If there is high competition in a market, then what kind of pricing should you choose?
price penetration to quickly build your customer base
If there is low competition, then what pricing should you choose?
price skimming to earn back your investment
U.S. Export-Import Bank (Ex-Im Bank)
principal government agency that aids American exporters by means of loans, guarantees, and insurance programs
customs drawbacks
rebates (partial refund) on customs duties
Forfaiting
sale of an exporter's accounts receivable on capital goods, commodities, and other high-value goods, with payment due at least 180 days out, and possibly extending to as long as five years
Factoring
sale of an exporter's accounts receivable on ordinary goods
EX-WORKS (EXW) at the point of origin
seller agrees to deliver goods at point of origin or some specified place, all other charges are borne by the buyer.
FOB (free on board)
seller loads the goods on board the ship identified by the buyer and clears them for export, and both cost and risk transfer to the buyer at the ship's rail
Incoterms
series of 11 internationally standardized terms that describe the conditions of sale and the responsibilities of the buyer and seller in international trade transactions
In sale made on consignment, goods are shipped to the buyer and payment is not made until they have been _______. All payment risk is assumed by the _______, so you gotta do a lot of research on the buyer
sold; seller
Global Market Unit provides U.S. firms with what?
specific country assistance on export promotion and advocacy for market access
Export marketing plans need to be drafted as soon as possible because it does what?
spells out what must be done and when, who should do it, and what the costs are
For U.S. firms that are already exporting, what offers more expert advice?
the International Trade Administration (ITA)
What is the simple concept behind L/C?
the bank as the intermediary between buyer and seller
Harmonized Tariff Schedule of the US
the classification of goods used to determine tariffs on specific products imported into the US
What happens if the letter of credit in not confirmed?
the correspondent bank has no obligation to pay the seller when it receives the documents listed in the letter of credit. Only the issuing bank is responsible
In HTSA each product has a unique six digit number. What digits are used in the US?
the last four
What does broad named perils insurance include?
theft, pilferage, non-delivery, breakage, and leakage in addition to the basic perils
Unlike domestic carrier, oceangoing steamship companies assume no responsibility for the merchandise they carry unless what?
their own negligence causes the loss
CIF and CFR terms are more convenient for foreign buyers because?
they merely have to add the import duties, landing charges, and freight from the port of arrival to their warehouses to establish their cost.
T/F: More than 90% of the U.S. Export-Import Bank's transaction in 2016 supported U.S. small businesses
true, by helping them obtain working capital to cover their export sales by guaranteeing private bank working capital loans
LASH (lighter aboard ship)
vessels provide direct access to ocean freight service for exporters and importers located on shallow inland wateways
Once a product has the Conformite Europeene mark, can it travel to any other EU member country without modification?
yes it can
Export Draft
An unconditional order drawn by the seller that instructs the buyer to pay the draft's amount on presentation (sight draft) or at an agreed future date (time draft) and that must be paid before the buyer receives shipping documents
What is the percentage of error for export and import documentation?
50 to 70% despite it being vital to the success of any export shipment because they are prepared by different parties
What is one important difference between a documentary draft and a letter-of-credit?
A confirmed letter of credit guarantees payment to the seller if the seller conforms to its requirements, meanwhile, there is no guarantee with a documentary draft
