Exporting and LogisticsSpecial Issues for The

Small BusinessChapter

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Feb. 3 - Trade Show and Order

Mar. 3 - Financing

Jul. 3 - Import License and Letter of Credit

Aug. 1 - Closing The Deal

Sep.4 - Production and Shipment

Nov. 1 - Submission of Letter of Credit

Dec. 12 - Final Inspection of Shipping Schedules

Dec. 13 - Test Run

Jan. 2 - “It’s on the way”

An Export Sale From Show to Installation

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The Exporting Process

Licenses

General

Validated

Documentation

Export declaration

Commercial invoice

Bill of lading

Consular invoice

Special certificates

Other documents

Leaving the Exporting Country

Physical Distribution

International shipping

and logistics

Packing

Insurance

Entering the Importing Country

Tariffs, Taxes

Non-tariff Barriers

Standards

Inspection

Documentation

Quotas

Fees

Licenses

Special certificates

Exchange permits

Other barriers

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Export Administration Regulations (EAR)

1. A new country and commodity classification system has been devised, making it the exporter’s responsibility to select the proper classification number for an item to be exported.

2. The exporter must decide if there are end-use restrictions on the items, such as their possible use in the development of nuclear, chemical, and biological weapons.

3. The exporter now has the responsibility to determine the ultimate end customer and ultimate end uses, regardless of who may be the initial buyer, or face the legal consequences of doing business with unauthorized trading partners.

4. A special category for the control of encryption-related products has been established.

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Typical Commerce Control List (CCL) Description for OA984

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OA984 Shotguns, barrel length 18 inches (45.72 cm) or over; buckshot shotgun shell; except equipment used exclusively to treat or tranquilize animals, and except arms designed solely for signal, flare, or saluting use; and parts, n.e.s.License Requirement.

Reason for Control: CC, FC, UN Control(s)

Country ChartFC applies to entire entry. FC Column 1CC applies to shotguns with a barrel length greater than or equal CC Column 1 to 18 in. (45.72cm), but less than 24 in. (60.96 cm) or buckshot shotgun shells controlled by this entry, regardless of end-user. CC applies to shotguns with a barrel length greater than or equal CC Column 2 to 24 in. (60.96 cm), if for sale ore resale to police or law enforcement.CC applies to shotguns with a barrel length greater than or equal to CC Column 3 24 in. (60.96 cm) if for sale or resale to police or law enforcement.UN applies to entire entry. Rwanda; Federal

Republic ofYugoslavia (Serbiaand Montenegro).

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Typical Commerce Control List (CCL) Description for OA984

License Exceptions

LVS: N/A

GBS: N/A

CIV: N/A

List of Items Controlled

Units: $ value

Related Controls: This entry does not control shotguns with a barrel length of less than 18 in. (45.72 cm). These items are subject to the export licensing authority of the Department of State, Office of Defense Trade Controls.

Related Definitions: N/A

Items: The list of items controlled is contained in the ECCN heading. 1465

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Export License

15-7 General LicenseGeneral License

Validated LicenseValidated License

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Commerce Country Chart: Reasons for Control (Selected Countries)

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Country Chemical & Nuclear Non- National Missle Regional Firearms Crime Anti-

Biological Weapons Proliferation Security Tech Stability Convention Control Terrorism CB 1 CB 2 CB 3 NP 1 NP 2 NS1 NS2 MT 1 RS1 RS2 FC 1 CC1 CC2 CC3 AT1 AT2

Albania X X X X X X X X X X X

Argentina X X X X X X X X X

Australia X X X X

Canada X

China X X X X X X X X X X X

France X X X X

India X X X X X X X X X X X

Mexico X X X X X X X X X X X X

Sudan X X X X X X X X X X X X

Syria X X X X X X X X X X X X

Source: “Supplement No. 1 to Part 738, Commerce Country Chart,” Export Administration Regulation, January 2001. Available at http//www.access.gpo.gov/hxa/ear/ear_data.htmlIrwin/McGraw-Hill

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Innovations Developed to Ease The Acquisition of Export Licenses

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Export License Application and Information Network (ELAIN)

System for Tracking Export License Application (STELA)

Electronic Request for Item Classification (ERIC)

Simplified Network Application Process (SNAP)

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Indicators for Possible Unlawful Diversion

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1. The customer or purchasing agent is reluctant to offer information about the end of a product.

2. The product’s capabilities do not fit the buyer’s line of business; for example, a small bakery places an order for several sophisticated lasers.

3. The product ordered is incompatible with the technical level of the country to which the product is being shipped. For example, semiconductor-manufacturing equipment would be of little use in a country without an electronic industry.

4. The customer has little or no business background.

5. The customer is willing to pay cash for a very expensive item when the terms of the sale call for financing

6. The customer is unfamiliar with the product’s performance characteristics but still wants the product.

Source: “Red Flag Indicators.” Bureau of Export Administration, http://www.hxa.doc.gov/Enforcement/redflags.htm.Irwin/McGraw-Hill

Indicators for Possible Unlawful Diversion

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7. The customer declines routine installation, training, or maintenance services.

8. Delivery dates are vague, or deliveries are planned for out-of-the-way destinations.

9. A freight-forwarding firm is listed as the product’s final destination.

10. The shipping route is abnormal for the product and destination.

11. Packaging is inconsistent with the stated method of shipment or destination.

12. When questioned, the buyer is evasive or unclear about whether the purchased product is for domestic use, export, or reexport.

Source: “Red Flag Indicators.” Bureau of Export Administration, http://www.hxa.doc.gov/Enforcement/redflags.htm.Irwin/McGraw-Hill

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Import Restrictions

Tariffs

Exchange Permits

Quotas

Import Licenses

Boycotts

Standards

Voluntary Agreements

Other Restrictions

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CIF- (Cost, Insurance, Freight) to a named overseas port of import. A CIF quote is more meaningful to the overseas buyer because it includes the costs of goods, insurance, and all transportation and miscellaneous charges to the named place of debarkation.

C&F- (Cost and Freight) to a named overseas port. The price includes the costs of goods and transportation costs to the named place of debarkation. The cost of insurance is born to the buyer.

FAS- (Free Alongside) at a named U.S. port of export. The price includes cost of goods and charges for delivery of the goods alongside the shipping vessel. The buyer is responsible for the cost of loading onto the vessel, transportation, and insurance.

Terms of Sale

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Terms of Sale

FOB- (Free on Board) at a named inland point of origin, at a named port of exportation, or at a named vessel and port of export. The price includes the cost of goods and delivery to the place named.

EX- (Name Port of Origin). The price quoted covers costs only at the point of origin (example, EX Factory). All other charges are the buyer’s concern.

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Who’s Responsible for CostsUnder Various Terms?

* Who absorbs export packing? This charge should be clearly agreed on. Charges are sometimes controversial.

** The seller has responsibility to arrange for consular invoices (and other documents requested by buyer's government). According to official definitions, buyer pays fees, but sometimes as a matter of practice, seller included in quotations.

Export packing* Buyer Seller Seller SellerInland freight Buyer Seller Seller SellerPort charges Buyer Buyer Seller SellerForwarder's fee Buyer Buyer Buyer SellerConsular fee Buyer Buyer Buyer Buyer **Loading on vessel or

plane Buyer Buyer Buyer SellerOcean freight Buyer Buyer Buyer SellerCargo insurance Buyer Buyer Buyer SellerCustoms duties Buyer Buyer Buyer BuyerOwnership of When goods on When goods When goods When goods

goods passes board an inland unloaded by alongside on board aircarrier (truck, rail, inland carrier carrier, in or oceanetc.) or in hands hands of air carrier at

portof inland carrier or ocean carrier of shipment

FOB (Free on FOB (Free on FAS (Free CIF (CostBoard) Inland Board) Inland Along Side) Insurance,Carrier at Carrier at Vessel or Freight) atFactory Points of Plane at Port Port of

Shipment of Shipment Destination

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Letters of Credit

Revocable Irrevocable

Bills of Exchange

Cash in advance

Open Accounts

Forfaiting

Getting PaidForeign Commercial Payments

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A Typical Letter of Credit Transaction

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1. After you and your customer agree on the term of sale, the customer arranges for his or her bank to open a letter of credit. (Delays maybe encountered if, for example, the buyer has “insufficient funds.” In many developing countries, foreign currencies, such as the U.S. dollar, may be scarce.

2. The buyer’s bank prepares an irrevocable letter of credit, including all instructions.

3. The buyer’s bank sends the irrevocable letter of credit to a U.S. bank requesting confirmation. (Foreign banks with more than one U.S. correspondent bank generally select the nearest one to the exporter.

4. The U.S. bank prepares a letter of confirmation to forward to you, along with the irrevocable letter of credit.

5. You review carefully all conditions in the letter of credit, in particular, shipping dates. If you cannot comply, alert your customer at once. (Your freight forwarder can help advise you.

Source: “A basic Guide to Exporting.” U.S. Department of Commerce,

International Trade Administration. Washington D.C.Irwin/McGraw-Hill

A Typical Letter of Credit Transaction

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6. You arrange with your freight forwarder to deliver your goods to the appropriate port or airport. If the forwarder is to present the documents to the bank (a wise move for new-to-export firms), the forwarder will need copies of the letter of credit.

7. After the goods are loaded, the forwarder completes the necessary documents (or transmits the information to you).

8. You (or your forwarder) present documents indicating full compliance to the U.S. bank.

9. The ban reviews the documents. If they are in order, it issues you a check. The documents are airmailed to the buyer’s bank for review and transmitted to the buyer.

10. The buyer (or agent) gets the documents that may be needed to claim the goods.

Source: “A basic Guide to Exporting.” U.S. Department of Commerce,

International Trade Administration. Washington D.C.Irwin/McGraw-Hill

Export Payment Terms Risk/Cost Tradeoff

Risk to Exporter

Least Risk____________________________________________ Highest Risk

Confirmed Irrevocable Bank BankCash in Irrevocable Letter of Collection Collection OpenAdvance Letter of Credit Credit Sight Draft Time Draft Account

Cost to Buyer

Highest Cost ___________________________________________ Least Cost

SOURCE: Business America, February 1995.Irwin/McGraw-Hill

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Export Documents

Export Declaration

Consular Invoice or Certification of Origin

Bill of Lading

Commercial Invoice

Insurance Policy or certificate

Licenses

Others Health Certificates Packing Lists Etc.

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Customs-Privileged Facilities

Foreign Trade ZonesForeign Trade Zones

Maquiladoras, In-Bond Companies,

Twin Plants

Maquiladoras, In-Bond Companies,

Twin Plants

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Real Physical Distribution Costs Between Air and Ocean Freight - Singapore to the United States

In this example, 44,000 peripheral boards worth $7.7 million are shipped from a Singapore plant to the U.S. West Coast. Cost of capital to finance inventories is 10 percent annually; $2,109 per day to finance $7.7 million.

Transport costs $31,790 $ 127,160 (in transit 21 days) (in transit 3 days)

In-transit inventory financing costs $ 44,289 $ 6,328

Total transportation costs $ 76,079 $ 133,487Warehousing inventory costs (60 days @$2,109/day)Singapore and U.S. $ 126,540Warehouse rent $ 6,500Real physical distribution costs $ 209,119 $ 133,487

Ocean Air

SOURCE: Adapted from: "Air and Adaptec'c Competitive Strategy,” International Business, September 1993, p.44.Irwin/McGraw-Hill

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