Exporting and Logistics: Special Issues for Business

Chapter 15

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

The Exporting Process

Export Restrictions

• Export regulations may be designed to conserve scarce goods for home consumption, and to control the flow of strategic goods to actual or potential enemies.

• Export regulations may be designed to conserve scarce goods for home consumption, and to control the flow of strategic goods to actual or potential enemies.

• To comply with various regulations, the exporter may have to acquire export licenses or permits from the home country.

• To comply with various regulations, the exporter may have to acquire export licenses or permits from the home country.

• To alleviate problems of exporting, the Department of Commerce has published a revised set of export regulations known as the Export Administration Regulations (EAR).

• To alleviate problems of exporting, the Department of Commerce has published a revised set of export regulations known as the Export Administration Regulations (EAR).

Determining Export Requirements

• In general, there are three steps to determine the proper Export Control Classification Number (ECCN) for the commodity to be exported as follows:

1. If you are the exporter of the product but not its manufacturer, you can contact the manufacturer or developer to see if they already have an ECCN.

2. Compare the general characteristics of the product to the Commerce Control List and find the most appropriate product category.

3. The third step is to consult the Commerce Country Chart (CCC) (see Exhibit 15.3) to determine the reason(s) for control associated with your item.

• A general license permits exportation of certain products that are not subject to EAR control with nothing more than a declaration of the type of product, its value, and its destination.

• A general license permits exportation of certain products that are not subject to EAR control with nothing more than a declaration of the type of product, its value, and its destination.

• A validated license, issued only on formal application, is a specific document authorizing exportation within specific limitations designated under the EAR.

• A validated license, issued only on formal application, is a specific document authorizing exportation within specific limitations designated under the EAR.

Commerce Control List Requirements

Commerce Country Chart

Red Flags

Export Documents

1. Export Declarations

2. Consular Invoices or Certificates of Origin

3. Bill of Lading

4. Commercial Invoice

5. Insurance Policy or Certificate, and

6. Licenses

• Each export shipment requires many documents to satisfy government regulations controlling exporting as well as to meet requirements for international commercial payment

• Each export shipment requires many documents to satisfy government regulations controlling exporting as well as to meet requirements for international commercial payment

The most frequently required documents are:The most frequently required documents are:

Principal Export Documents

Import Restrictions

• Tariffs

• Exchange Permits

• Quotas

• Import Licenses

• Standards

• Boycotts

• Voluntary Restrictions

• Import regulations may be imposed to protect health, conserve foreign exchange, serve as economic reprisals, protect home industry, or provide revenue in the form of tariffs.

• Import regulations may be imposed to protect health, conserve foreign exchange, serve as economic reprisals, protect home industry, or provide revenue in the form of tariffs.

• The most frequently encountered trade restrictions include:• The most frequently encountered trade restrictions include:

Import Restrictions

• ad valorem duties, which are based on a percentage of the determined value of the imported goods;

• specific duties, a stipulated amount per unit weight or some other measure of quantity; and

• a compound duty, which combines both specific and ad valorem taxes on a particular item, that is, a tax per pound plus a percentage of value.

1. Tariffs:1. Tariffs: Custom duties are based on value or quantity or a combination ofboth and are classified as follows:

Custom duties are based on value or quantity or a combination ofboth and are classified as follows:

To conserve scarce foreign exchange many countries impose restrictions on the

amount of their currency they will exchange for the currency of anothercountry.

To conserve scarce foreign exchange many countries impose restrictions on the

amount of their currency they will exchange for the currency of anothercountry.

2. Exchange Permits:2. Exchange Permits:

Import Restrictions

3. Quotas:3. Quotas: Countries may also impose limitations on the quantity of certaingoods imported during a specific period.

Countries may also impose limitations on the quantity of certaingoods imported during a specific period.

4. Import Licenses:4. Import Licenses:

As a means of regulating the flow of exchange and the quantity of a particularimported commodity, countries often require import licenses.

As a means of regulating the flow of exchange and the quantity of a particularimported commodity, countries often require import licenses.

5. Standards:5. Standards:

Health standards, safety standards, and product quality standards are necessaryto protect the consuming public.

Health standards, safety standards, and product quality standards are necessaryto protect the consuming public.

Import Restrictions

6. Boycotts:6. Boycotts:A boycott is an absolute restriction against trade with a

country,or trade of specific goods.

A boycott is an absolute restriction against trade with a country,

or trade of specific goods.

7. Voluntary Restrictions:7. Voluntary Restrictions:

Countries may themselves impose restrictions on firms exporting to specificCountries.

Countries may themselves impose restrictions on firms exporting to specificCountries.

Terms of Sale

1. CIF1. CIF (cost, insurance, freight) to a named overseas port of import. Itincludes the costs of goods, insurance, and all transportation andmiscellaneous charges to the named place of debarkation.

(cost, insurance, freight) to a named overseas port of import. Itincludes the costs of goods, insurance, and all transportation andmiscellaneous charges to the named place of debarkation.

2. C&F2. C&F (cost and freight) to a named overseas port. It includes the cost ofthe goods and transportation costs to the named place ofdebarkation. The cost of insurance is borne by the buyer.

(cost and freight) to a named overseas port. It includes the cost ofthe goods and transportation costs to the named place ofdebarkation. The cost of insurance is borne by the buyer.

3. FAS3. FAS (free alongside) at a named U.S. port of export. The priceincludes cost of goods and charges for delivery of the goodsalongside the shipping vessel. The buyer is responsible for thecost of loading onto the vessel, transportation, and insurance.

(free alongside) at a named U.S. port of export. The priceincludes cost of goods and charges for delivery of the goodsalongside the shipping vessel. The buyer is responsible for thecost of loading onto the vessel, transportation, and insurance.

Terms of Sale

4. FOB4. FOB (free on board) at a named inland point, at a named port ofexportation, or at a named vessel and port of export. The priceincludes the cost of the goods and delivery to the place named.

(free on board) at a named inland point, at a named port ofexportation, or at a named vessel and port of export. The priceincludes the cost of the goods and delivery to the place named.

5. EX5. EX (named port of origin). The price quoted covers costs only at thepoint of origin (example, EX Factory). All other charges are thebuyer’s concern.

(named port of origin). The price quoted covers costs only at thepoint of origin (example, EX Factory). All other charges are thebuyer’s concern.

Who’s Responsible for Costs Under Various Terms

Getting Paid: Foreign Commercial Payments

1. Letters of Credit

2. Bills of Exchange

3. Cash In Advance

4. Open Accounts

5. Forfaiting

The five basic payment arrangements for exported goods include:

The five basic payment arrangements for exported goods include:

Letter-of-Credit Transaction

Customs-Privileged Facilities

1. Foreign trade zones (also known as free trade zones)

2. Free ports, and

3. In-bond arrangements or Maquliadoras

• To facilitate export trade, countries designate areas called customs-privileged facilities, where goods can be imported for storage and/or processing with tariffs and quota limits postponed until the products leave the designated areas.

• To facilitate export trade, countries designate areas called customs-privileged facilities, where goods can be imported for storage and/or processing with tariffs and quota limits postponed until the products leave the designated areas.

Customs-Privileged Facilities include:Customs-Privileged Facilities include:

Logistics and Physical Distribution Activities

1. Logistics management refers to all activities involved in physically moving raw material, in-process inventory, and finished goods inventory from the point of origin to the point of use or consumption.

2. A physical distribution system involves: (1) transportation mode (2) inventory quantities, and (3) packing

3. A decision involving one activity affects the cost and efficiency of one or all others.

4. Total cost of the system is defined as the sum of the costs of all these activities.

5. It is important to reduce the total cost instead of simply reducing the cost of any one component of the logistics system.

Transporting Product

Physical Distribution Costs

Foreign Freight Forwarder

• The foreign freight forwarder arranges for the shipment of goods as the agent for an exporter.

• The foreign freight forwarder arranges for the shipment of goods as the agent for an exporter.

• The forwarder is an indispensable agent for an exporting firm that cannot afford an in-house specialist to handle paperwork and other export trade mechanics.

• The forwarder is an indispensable agent for an exporting firm that cannot afford an in-house specialist to handle paperwork and other export trade mechanics.

• A freight forwarder double-checks all assumptions made on the export declaration, such as commodity classifications, and will check the list of denied parties and end uses.

• A freight forwarder double-checks all assumptions made on the export declaration, such as commodity classifications, and will check the list of denied parties and end uses.