The Logistics of International Buying

By Mike Easton

Why Import?
1. To purchase raw materials that are unavailable in the United States
2. To obtain products not manufactured in the U.S.
3. To source direct from the manufacturer in a foreign country as opposed to buying from a middle party
4. To exercise direct contact with the foreign manufacturer minimizing quality problems
5. To pay lower cost by eliminating additional parties
6. To obtain control of the foreign manufacturer for custom made products
7. To expand existing business by offering foreign product lines or services
8. To take advantage of lower pricing

Importing into the United States can be very profitable and enjoyable experience, or it can be a world of trouble with exposure to additional costs for storage, detention, demurrage, Customs fines, penalties, delays, and even cargo seizure.
To enjoy a level of success, knowledge of the entire import process from finding suppliers, to transporting the goods, arranging customs entry and clearance, and proper record keeping are required.

In recent years, U.S. Customs has refocused their view of the process. Customs places a more rigorous accountability on the importer and imposes heavy penalties for non compliance. Keeping out of trouble with U.S. Customs requires a knowledge of the rules and regulations and a structure of internal procedures and controls that ensure the rules are properly applied.

The rules and regulations have been part of the import process since importing into the United States began. There have been some changes in the rules, but they are not new. What is new is how Customs enforces the rules requiring that the importer and customhouse brokers are in compliance.

To be a successful importer, preliminary planning is required. The plan must include the necessary tools to obtain knowledge and skill to avoid expensive pitfalls. Easy access to the rules and regulations and proper training of how to apply the rules are vital to your success. The rules and regulations for importing into the United States are found in primarily two publications:
. United States Code of Federal Regulations, Title 19, "Customs Duties", Volume I and II. And (The Customs Regulations)
. Harmonized Tariff Schedules of the United States

Both publications may be purchased from the U.S. Government Printing Office. The import process begins with back and forth correspondence between buyer and seller. Policies and procedures should be in place to conduct imports successfully. A firm understanding of trade terms is essential. The INCOTERMS 1990 detail the rules buyers and sellers are to follow in completing the transaction in the form and manner both parties intend.

To prevent misunderstandings in documentary requirements and third party responsibilities when structuring a purchase, the INCOTERMS must be thoroughly understood. INCOTERMS will specify:
. who is responsible for what costs
. where risk transfers
. where delivery obligations are fulfilled
. what document fulfills delivery obligations
. what transport document should be required by the letter of credit to receive payment
. who selects the forwarder
. who selects the carrier
. who has responsibility for what documents.

INCOTERMS are not legal statutes and are not enforceable in law. For INCOTERMS to be binding, the sales contract (quotation/pro forma) should expressly state trade terms according to INCOTERMS 1990 or preface the term (for example: INCOTERMS 1990 FCA Jeddah, Saudi Arabia, or CIP importer door, Cleveland, Ohio, INCOTERMS 1990). Expressing terms in this manner clearly defines intent of the INCOTERMS used and establishes obligations between buyer and seller. When requesting pricing information from a foreign seller, request that the terms and conditions that define buyer/seller responsibilities are according to the INCOTERMS 1990.

How payment is made and how payment is received are key concerns of the Buyer and Seller. Establishing methods and terms of payment agreeable to both parties is vital in a successful sales contract. Choosing an appropriate method of payment depends on several factors. These factors, along with established company policy, will serve as a guide in selecting the best method of payment for various international transactions. These factors are:

Country Restrictions-Some countries restrict use of open account and draft collections to control foreign exchange.

Country Stability-Is the buyer's country politically and economically stable?

Buyer Credit Worthiness-Information obtained through normal credit check channels, directly from the buyer, from other firms who have sold to buyer, or from various credit report services, may determine buyer's creditworthiness.

Continuing Relations and Size and Type of Transactions-Is this a "one time" transaction or the beginning of a continuous relationship? The size of the transaction or product manufactured to buyer specifications may warrant additional security.

Competition-Decisions may be influenced by the competitive environment. What method of payment is offered by competition worldwide? What is the custom of doing business?

Seller's Financial Resources-Seller's own financial resources will determine flexibility of payment terms.

International business cannot be accomplished without some risk. To reduce risk, a seller and buyer must:
(1) know what the risks are,
(2) develop resources to analyze those risks, and
(3) mitigate risks to the point they are controllable.

Buyers and sellers must be concerned with their choice of reliable sourcing. Buyers must take measures to ensure the company accepting their order will manufacture and ship according to specifications and within the time agreed. Sellers also must ensure if an order is shipped, payment will be received in a timely manner. How well do you know each other? Both parties must communicate company history, reputation, balance sheet information, and ability to meet payment and delivery requirements.

A seller and buyer's own financial strength must be part of the overall credit evaluation. An international transaction may consume credit lines or require obtaining extended credit lines. Default or delay of payment by a buyer or delay of shipping by a seller, may have an impact on your financial condition which should not be overlooked.

Mike Easton is the President of Star International Training Center, a Division of Star USA, Inc. Star USA companies provide import/export training and international trade services. They may be reached at 800-230-5554, fax 330-948-1629 or e-mail starusa@apk.net.