INB355 – Import/Export

Procedures I
CHAPTER 1
INTRODUCTION TO THE
EXPORT/IMPORT PROCESS
Introduction to
International Trade
 What is International Trade: Occurs when a firm imports or
exports goods or services to consumers in another country or
invests in another region via FDA (Foreign Direct Investment).
Exports: Are goods & services that firms sell in
another country. Ex. LNG is sold from Canadian firm
to Indian Government.
Imports: Are goods & services that firms will
purchase from another country. Ex. I placed an
order to import 30,000 500 ml bottles of Rice Bran
Oil from India to sell in the Canadian market.
 Global Trading Volume: More than $20 Trillion US worth of goods
and services are traded on an annual basis globally.
• Globalization: refers to the trend towards a more integrated
global economic system
• Two key facets of globalization are:
• The globalization of markets
• The globalization of production
Import Export Business
 What is an Import Export Business: It involves a group of
players engaging in moving goods from one country to
another, these players include:
Manufacturing Firms: Produces the goods by
purchasing raw material, processing the raw material to
produce finished product.
Exporting Firms (Trading Houses): In some cases
manufacturing companies will sell their goods to a local
exporting firm, who will then arrange to find foreign
buyers and export goods into the target market.
Agents: Manufacturing or exporting firms may appoint a
third party agency/agent in the target market who will
represent them in the target market and find
customers/buyers who will purchase their goods/services.
Importing Firms: They are the importer of record in the
host country who will bring the goods in and clear
customs. The importer may also be the
Distributor/Wholesaler as well.
Import Export Business Con’t
Wholesalers/Distributor (Trading Houses): These
firms are located in the host/importing country and
they may also be the importer of record as well. They
will store the products in their warehouse, employ local
sales people, sell and distribute goods to retailers and
end users etc.
Freight Forwarder: A third party firm hired either by
the buyer or seller, and they will arrange the freight
including containerization, local transportation, ocean
freight, air freight, rail etc. They may also provide
custom brokerage services as well.
Custom Brokers: Deals with customs officials at the
border when clearing goods, fills out documentation
required to clear customs B3 form (Customs
Declaration), collects all documents required to clear
shipment. In many cases the Freight Forwarder will also
offer custom brokerage services as well.
Risks in Import or Export
When shipping goods into another country there are
various types of risks that are involved which include:
Commercial Risks: Some of this risks include not be
paid, non-delivery of goods, bankruptcy or insolvency by
the buyer, competition and disputes over product,
warranty issues, repairs etc.
Foreign Exchange Risks: When you are dealing with
another currency for example US vs Euro or CAD vs Euro
etc. with today’s volatile market currency fluctuations do
occur and if the value of the dollar or euro decreases you
could end up losing money on the shipment.
Political Risks: Political or civil wars, expropriation,
expulsion, foreign exchange controls, and cancellation of
import or export licenses.
Shipping Risks: Risk of damage and or loss at sea via
other transportation. Marine insurance can be purchased
to mitigate risk.
Needs Assessment
Companies need to examine its internal
organization and capacities and determine
if it is ready to enter foreign markets.
Corporate Objectives: What are the long
term objectives of the company regarding
export markets or import sourcing:
 Maximizing profits
 Increasing market share
 Maximize cash flow
 Reposition the business
 Acquire Resources
Needs Assessment Con’t
Corporate Resources: Does the company
have the capacity to take on new markets
or manage new sources of supply:
Finance: The resources to support expanded
production or purchases for anticipated
foreign market demand.
Administration: The resources in personnel
and process to handle staffing, increased
office/warehouse space, workflow
management etc.
Control: The resources to assure quality
control of the product to and handle product
flow into the export sales stream or into the
domestic distribution stream.
Exporters
Financial Risk
 Financial capacity to acquire additional goods for export
markets:
 Are capital, loans or lines of credit sufficient to support increased
purchases, warehousing costs, transport and handling costs.
 Financial capacity to carry increased accounts
receivable until company gets paid.
 Financial capacity to absorb losses from any number of
events: buyers failure to pay, loss of goods during
shipment, failure of an export license or import license.
General Risks
 Look of the goods from your shipping point due to:
Lack of adequate insurance against perils to the goods
Release of the goods to the buyer prior to payment or
without a buyers firm obligation to pay.
Buyers claim that goods do not conform to the contract or
otherwise fail to perform as agreed.
Identifying Risks: Importers
Financial Risk
 The ability to finance the purchase of the goods.
Access to loans, lines of credit, or capital sufficient to pay
for the goods in accordance with the sellers requirements.
 Cash in advance means cash out immediately
 Open account means payment is due at some agreed later date
 Something in between Ex. Consignment or Letter of Credit
The ability to carry the goods in inventory and or
receivables until sold and payment in received.
 The capacity to absorb loss of sales failures or if local customers do
not pay.
General Risks
 Goods to not arrive when agreed and the shipment onward is delayed or
late.
 Goods are lost and you are unable to meet delivery commitments.
 Goods are lost and not insured or adequately insured
 Goods are not as ordered and you have paid.
 Initial Trade Transaction Process
• Issued from buyer as a form of RFQ (Request for
Quotation)
• This is a simple letter indicating what the buyer
Letter of needs, it can be in a letterhead or in an email.
Interest
Also known as an inquiry.

• Issued by the Supplier as a form of a

quotation/Initial price, not a final document and
can be changed & altered.
Pro forma • Identical to a Commercial Invoice and has all the
Invoice
features a Commercial invoice has

• Issued by the buyer confirming the order,

quantity & price
Purchase • The purchase order gives the seller the
Order authority to start the ordering process.
Letter of Inquiry (Intent)
A form of an RFQ (Request for
Quotation) sent to the supplier from the
buyer.
The inquiry is a formal or also can be an
informal letter via email indicating an
interest in the suppliers products.
Need to include small introduction of
your firm, the reason for your interest in
the products, the number of products
you need, ex. One full container, one
skid etc. Incoterms, location and closing
remarks
Pro-forma Invoice
 Issued by the seller as a form of a detailed quotation.
 Following details are included:
Shipper Exporter (Seller)
Consignee/Notifying Party (Buyer)
Country of Origin
Final Destination
Terms of Sale
Terms of Payment
Destination Port
Description of Product
HS Code
Quantity
Total Selling price including transportation &
Insurance
Purchase Order
Issued by the buyer to the seller
authorizing the seller to go ahead with
the sale.
PO has similar details as the Pro-forma
Invoice & Commercial Invoice.
It is important for the information on the
pro forma invoice to match the PO.
The buyer needs to place his or her
signature on the PO to make it an
authentic document approving the
terms & conditions of the sale.