Introduction to A Business of Details
From Conception to Connection
From Connection to Collection
The 40 Steps
Video: "A Business of Details"
Top Reasons Why Exporters Make Mistakes
How to Sort This All Out
In this final section, the following step-by-step analysis will take you through the export transaction in detail, integrating the trade promotion services along with those of other export service providers. Beginning with the initial interest and concluding with payment, this section provides a handy flow-chart for consideration and guidelines of exactly how to execute a successful transaction, from conception through connection and up until collection. This section can be reviewed multiples times as it indicates options available to the exporter based on size and value of shipment, country of destination and type of buyer.
No matter how a company begins exporting, it more than likely is unaware that a specific industry exists to help counsel on various export topics, such as export readiness and general market opportunities and constraints. It can also provide: marketing research and promotional opportunities, introductions to potential overseas business partners, assistance with state and federal regulations and information on import requirements in overseas markets. Help is also available for export planning and strategy, financing and methods of payment, quoting prices and shipping as well as a variety of other services, which have been identified throughout these sections.
A Step-by-Step Analysis
The following is a step-by-step analysis of how an average company would go through the stages of establishing an export business. Individual company differences may alter the approach, but this is what you might call the “blank slate” template to start exporting.
Interest in Export
Companies and individuals become interested in the export business hundreds of times per day across the United States. Because of this, there are a variety of ways to approach finding out what is involved. There are some industries, such as the value-added, consumer-oriented food industry that are more specific than others, which is a fact that many companies need to know.
Many of the mechanics of exporting are quite similar despite the product. However, product marketing varies according to consumer habits, channels of distribution, regulations and trade promotions. Before marketing, obtain counseling from trade specialists within the industry. Contacting your State Department of Agriculture, Foreign Agricultural Service, or staff from Food Export-Midwest of Food Export-Northeast is a worthwhile effort.
During the course of that meeting, or online with FAS or other programs, an export readiness evaluation should be taken. Typically, a company new to export might score as follows on the nine-question “Export Readiness” evaluation from the FAS:
The answer usually is “Yes” to:
Whether or not these responses would be true in practice, as they are relatively unknown, they show a willingness to get involved based on the strength of domestic sales and commitment of staff, time and service. Many companies fit into this category, as they have a good product or product line, production capacity available, resources to dedicate and experience in providing customer service that they feel can be extended into international markets.
The answer is usually “No” to:
A “no” answer would be expected on these questions in most cases, since the company is only beginning to evaluate the export business. It shows that more work is needed in the areas of marketing research, strategic planning and gathering information on food regulations, standards and cultural preferences. It also shows a need for assistance with export finance and promotional opportunities, and support and education with shipping, freight forwarding, documentation and payments.
The score for a response such as this is 60 out of 100, but this is not an academic score like a “D” grade. It means that, “You are well on the way to becoming a successful exporter.”
All of the assistance you require from this point can be provided by Food Export-Midwest and Food Export-Northeast.
Much of the material in the previous sections has been designed to provide support in the areas in which a “No” answer was made, which corresponds with the mission of the organizations.
Those new to export should talk to other companies in the food industry that export already, to get an idea about their experiences. Educational opportunities, such as courses on international trade from a local community college, small business development center or seminars offered by Food Export-Midwest or Food Export-Northeast should be considered. The fact that you are reading this information right now has put you on the right path for export information and education as well, but cannot stand along in its “virtual” state.
Research Opportunities: Country & Market Profiles
After determining your level of export readiness, begin obtaining marketing research information, in order to evaluate the value and volume of sales of similar products into overseas markets. Steps taken to accomplish that goal should include:
Develop a Marketing Plan & Strategy
Target markets should become apparent after conducting adequate research on the market and obtaining qualified export counseling. At this point, you should also consider use of the Branded Program funding, which requires a country marketing plan, and of course, necessitates the use of research first. Even the most basic strategic plan about how to approach the targeted markets over the course of a year is very helpful. Section Four provides many guide lines in this area.
Make Use of Trade Events and Promotions
Stay focused and combine your research results with activities that support them, such as promotions offered by Food Export-Midwest and Food Export-Northeast. Consider using a Market Builder activity in one or more countries that appear to have the most potential. Any Buyers Missions, Trade Missions, Trade Shows or Food Show Plus! events, which match up with your targeted countries and specific industry, should be considered. Use the information in Section Five for clarification on programs and opportunities which best meet your company’s needs.
Consider subscribing to trade leads sent to your e-mail or following up with some of the distributors listed on the marketing information in your research. Distributors usually know they are listed in these reports and expect contact from U.S. suppliers. There are also other trade lead systems, both public and private, to evaluate.
Simultaneously develop marketing materials, adapt your website to include an international orientation and convert weights and measures to the metric system. Develop an export pricing sheet and policy. Section Four has more information on these topics. Contact a local freight forwarder or two in your area and get an idea about costs for shipping product to your targeted markets in a variety of sizes, based on your desired trade terms.
As mentioned, use the distributor evaltuation form from Section 5, edited to suit your needs and to obtain bank and trade references, if required. Discuss the importance of mutual cooperation and long-term profitable business for your firm. Invite them to visit your facility the next time they are in the area.
At this point, a potential buyer will often make a request for quotation. Determine whether or not the quotation is formal or informal, and if an import permit is needed in order to obtain the proper currency exchange. Review the term of sale, whether American Foreign Trade Definition or Incoterm, and clarify any questions you may have. Use the information provided in Section Six to determine what is required in order to make the proper quotation and how to go about making it. Determine the preferred method of payment the buyer wants and confirm is that is acceptable to your company.
Review Request & Determine Capabilities
In addition to preparing a pro forma invoice as a quotation device, you should also evaluate whether or not there are any constraints that may keep you from filling the proposed order during this period. Consider the regulations in the destination market on the product labeling and ingredients, and clarify those with the buyer. The customs broker of the buyer, and perhaps your own freight forwarder, may be excellent resources to determine any particular regulation that needs to be known. Make sure you have the current capacity to fill the order and appropriate staff to work on it.
Figure Out the Quotation & Issue the Pro Forma Invoice
It may be possible to determine that you are unable or unwilling to pursue this business opportunity at the current time. This is not necessarily a bad decision, as pursuing it anyway might not be in the best interest of your company. Contact the potential buyer and advise them of your decision based on the circumstances.
It is also possible to want to pursue the opportunity, but it might take more time and resources than anticipated, so you could politely ask for an extension of the original time frame in order to prepare your company properly. Decisions don’t get made overnight in international trade and the long-term view is more important than rushing into something you are not prepared for. If you are going to export, take all the time you need to do it correctly, and don’t be rushed into anything.
If you are ready to make the quotation, then you should prepare the following:
Contact the forwarder and review your options in shipping and go over all of the pricing for their services, in addition to the main carriage of freight from port of export to port of import. Take their information and integrate it with your product pricing and prepare a clear and concise pro forma invoice. Use the examples provided in Section Three or Section Six as guidelines.
If the payment method is to be a letter of credit, also prepare a letter of instruction to the buyer on opening it, using the example in Section Nine. On top of both of those, prepare a quotation cover letter, explaining both documents in summary form. Then send them off in the buyer’s preferred method of delivery, if indicated, and wait to hear from him, or follow up in an appropriate period of time.
This final area of the sections focuses on the elements of the transaction from point of shipment to delivery. Many new to export companies consider this to be crucial in understanding not just “what happens,” but also “how it happens.” Taking the mystery out of the export process helps build confidence, which can lead to further market development and company profits.
Quote is Accepted, Countered or Rejected
After sending the pro forma invoice along with the cover letter and letter of instructions for opening the letter of credit, three things can happen:
Complying with Terms & Conditions
When you receive a letter of credit, chances are it won’t appear exactly per your instructions. This is because the buyer and their bank have some say in the way it will be processed. Careful analysis is required upon receipt, usually from the advising bank in the United States, which may or may not be your own bank. An exporter needs to determine on a line-by- line basis whether or not the requirements can be met. This is also true for requirements that do not use a letter of credit for payment.
If you have questions about the document, ask your freight forwarder, who made the original quote, or the buyer for guidance. You might need to request an amendment to the terms and conditions in order to execute the transaction. If you receive the amendment to your satisfaction, then proceed with completing the order. If you cannot get an amendment and the payment could be jeopardized, you might have to cancel out of your commitment. Section Nine has a lot more information about these processes.
Process the Order & Coordinate the Shipment
If the letter of credit and/or the amendment are satisfactory, then you can begin processing the order. The freight forwarder can coordinate the dates of pickup and delivery to port. He can begin working on the documentation; make the booking for transport and complete any drayage or stowage arrangements. Someone from your shipping department should be in contact with the forwarder.
Then, the product can be shipped to the port of export and loaded on board the vessel. Once the shipment departs, the forwarder can recover the bill of lading from the carrier. The forwarder can assemble the appropriate documents for banking purposes and present the document package to the bank for negotiation.
The Payment Procedures
The negotiating bank will evaluate the documents submitted by the forwarder and check them for accuracy. If there are discrepancies in the documents, the freight forwarder will be notified as to whether they can be corrected or not. If they can be corrected, the freight forwarder will correct them and notify you. If they cannot be corrected, the exporter will maintain control over the shipment by processing the title documents and negotiating with the buyer and their bank for acceptance of documents in lieu of the discrepancy.
In most cases, when the details of the shipment are considered carefully, the advising bank accepts the documents and pays the exporter based on the instructions given to them by the issuing bank, which is the buyer’s bank. The advising bank sends the documents to the issuing bank, which exchanges them with the buyer for payment, or obligation to pay at a later date. The buyer can then arrange for customs clearance and possession of the goods with the title documents.
Integrating all These Steps
The United States Department of Agriculture’s Agricultural Marketing Service (AMS) has revised their “Agricultural Export Transportation Handbook” in 2004. This is an excellent source for food exporter to access detailed information on the export process. Among the valuable contributions from the international trade community, Maersk SeaLand, one of the world’s largest ocean carriers, has produced a list of “40 Steps of an Export Shipment, ”which has been included here and enhanced with comments based on the concepts from the ten sections.
To access the entire handbook, click here. Note: This PDF is large and may take several minutes to download.
A typical export shipment from the United States involves approximately 40 steps that are carried out by 11 separate entities, which have been identified in Section Seven. The following is an outline of an export shipment by ocean transport using a confirmed irrevocable letter of credit as the method of payment.
2. The seller responds by sending a pro forma invoice. The buyer uses the pro forma invoice to apply to its bank for a letter of credit. (The buyer is also known as the applicant on the letter of credit and the consignee, or importer.) Along with the pro forma, there should be a cover letter and letter of instructions for opening the letter of credit for the buyer and their bank.
3. The buyer’s bank issues the letter of credit, which transmits it to the advising or confirming bank in the seller’s country.
4. The buyer sends a purchase order and copy of the letter of credit to the shipper. The original letter of credit arrives at the advising or confirming bank. The seller analyzes the letter of credit carefully for any discrepancies between their instructions and what was produced and checks with their freight forwarder or with the buyer if they have any concerns about fulfilling their obligation.
5. The shipper issues instructions to their freight forwarder for shipping the goods.
6. The freight forwarder books space with an ocean carrier and inland carrier, if requested by the shipper. When the booking is made, the carrier assigns a booking number to identify the shipment.
7. The freight forwarder issues a bill of lading master and shipper’s export declaration, which are sent to the ocean carrier and to customs in that order. The export declaration should have the correct Schedule B number(s) for the products on it for all products valued over $2500.00, (with the exception of Canada) unless on an export license, in which case products of any value would need to be declared.
8. The shipper’s freight forwarder transmits the inland bill of lading and delivery instructions to the selected inland carrier, which could be a truck, rail or barge line.
9. The inland carrier picks up the cargo at the specific location and issues a cargo receipt to the shipper.
10. The cargo is delivered, along with a set of prepared dock receipts, to the outbound pier terminal.
11. After taking delivery of the cargo, the outbound terminal gives a signed copy of the dock receipt to the inland carrier.
12. A copy of the dock receipt is also sent to the ocean carrier’s office.
13. The ocean carrier’s office matches the dock receipt with the booking number and prepares a loading stowage plan.
14. The cargo is lifted aboard and stowed on the vessel, according to the stowage plan.
15. After the cargo has been loaded, the terminal sends the bills for terminal handling and loading of the container to the outbound carrier’s office.
16. The outbound carrier’s office issues an ocean bill of lading with on-board certification, when required, to the shipper’s freight forwarder. This bill of lading acts as title to the goods. If the consignee box on the bill of lading indicates “To Order of Shipper,” it has been made negotiable. Another instruction could come from the buyer’s bank to consign the bill of lading to the order of the bank. As long as it’s not the buyer in the consignee box, the seller is protected from the buyer recovering the goods at the destination without paying for them.
17. Upon receipt of the due bills from the outbound carrier’s office, the shipper’s freight forwarder pays the amounts due (if prepaid). Payment terms between origin and destination are based on the international trade term used, anywhere between EXW and DDP using the Incoterms, and EX Point of Origin and EX Dock using the American Foreign Trade Definitions.
18. If the terms of sale indicate that the shipper is responsible for all transportation costs, and the shipper has not prepaid, then the forwarder collects payment from the shipper in exchange for the transportation documents. The term of sale that might require this could range from C&F or CIF using the American Definitions, or CPT and CIP, as well as CFR and CIF using the Incoterms.
19. The freight forwarder usually prepares and submits a commercial set – the documents required for collection of payment as stated in the letter of credit – typically a negotiable bill of lading, an invoice, insurance certificate and a customs invoice, if necessary – to the advising bank.
20. The bank carefully reviews the documents in the commercial set to guarantee that there are no discrepancies. After acceptance of the commercial set, the bank pays the shipper in accordance with the letter of credit issued by the buyer’s bank. This could range anywhere from two days to six months depending whether it is confirmed or not and what type of draft is being used, sight or time.
21. The shipper’s bank transmits the commercial set and a debit invoice to the consignee’s bank. This bank is known as the issuing bank and has the final say in all payment matters.
22. A non-negotiable copy of the bill of lading is sent to the consignee and notification that the cargo has been shipped. This is a common courtesy that allows the buyer’s customs broker to arrange a “pre-clearance,” if allowed by customs in that country.
23. After the vessel has sailed, the manifest, freight bills (if sent freight collect), delivery receipts, container list and arrival notice are sent to the carrier’s overseas office.
24. Within four working days of the vessel’s clearance, U.S. Customs receives a non- negotiable bill of lading copy.
25. Copies of the manifest are provided to the inbound pier terminal.
26. The consignee’s bank releases the commercial set to the consignee against payment of the invoice amount. The consignee needs the documents in order to take title to the goods and cannot obtain them until paying the issuing bank their fees and monies. This also demonstrates the security mechanisms that a consignment-controlled shipment offers the exporter.
27. Before the ship’s arrival, the carrier’s office issues an arrival notice and invoice covering the ocean freight and other charges due if freight charges are on a collect basis.
28. The buyer sends the commercial set, arrival notice and invoice, and forwarding instructions to its customs broker. The customs broker will use the HS code numbers, which are the first six digits of the Schedule B number on the export declaration. For example, with baked goods used in Section Two, it is “190590.”
29. The customs broker prepares the endorsed negotiable bill of lading to the inbound carrier’s office as proof of title to the goods and pays the ocean freight if on a collect basis.
30. Upon receipt of freight due and the negotiable bill of lading, the carrier releases the cargo to the customs broker.
31. At the same time, the carrier’s office notifies the inbound pier terminal that the consignee’s cargo may be released.
32. The consignee’s customs broker submits to the local customs office the proper documents and duties due for clearance in accord with local regulations.
33. The customs office reviews the documents and may elect to inspect the shipment. Once it is satisfied that the shipment is in compliance with the law, the customs office authorizes release of the cargo to the customs broker.
34. In the case when the release is not done at the berth, the customs office notifies its inspector at the inbound pier terminal that the cargo may be released.
35. The customs broker issues a delivery order to the inbound pier terminal authorizing delivery of the cargo to the designated inland carrier.
36. The consignee’s customs broker issues an inland bill of lading to the selected inland carrier.
37. The inland carrier picks up the cargo at the inbound pier terminal. 38. The cargo is delivered to the buyer.
39. The inland carrier issues a freight bill to the consignee’s customs broker.
40. With the shipment completed, the consignee’s customs broker issues a bill to the consignee covering the ocean freight, terminal charges (if these bills are charged to the buyer’s account), inland freight and fees for the customs broker’s services.
A Note on Air Cargo Shipments
Many similar steps are employed using air cargo shipments. The process works much more quickly though as the mode of transport is only days and not weeks. The air waybill cannot be made negotiable like the ocean bill of lading, although it can also be cosigned to the buyer’s bank.
A Note on Other Payment Mechanisms
Other consignment controlled shipments, such as sight and time drafts, also keep the title documents out of the hands of the buyer until they pay the draft upon sight, or endorse it promising to honor it at the due date. The role of the bank is limited as there is no obligation for them to pay since there is no letter of credit. This is also why these payment mechanisms are less expensive to utilize. If the payment had been made in advance, or the seller extended open account terms to the buyer, the role of the banks and all of the steps referring to them would be reduced further.
The USDA, AMS, Transportation and Marketing Programs (TMP) have produced a video, “A Business of Details – Exporting High-Value U.S. Agricultural Products,” which follows an agricultural shipment from the farm to an overseas market. It comes with a handbook, which includes export documents, flow-charts and a sample letter of credit, which is also used in Section Nine. The video demonstrates the information covered in this section.
You can order a free copy from:
U.S. Department of Agriculture
AMS, Transportation and Marketing
1400 Independence Ave. SW
Room 1217, South Building, or Stop 0267
Washington, D.C. 20250-0267
“What do an exporter and his shipment of Fuji apples encounter between the farm in California and the market in Taiwan?” (Most of the details apply to any export product)
You will learn about:
Most U.S. exporters - regardless of destination and product exported - have made one or more of the following mistakes. Included with each one is a recommendation for solution as well.
Companies have historically had problems because they:
1. Failed to obtain qualified export counseling.
Recommendation: When considering starting exporting or growing your export business, call on your State Department of Agriculture’s International Marketing Division for support and information. They can advise you on:
2. Failed to develop an international marketing plan before beginning to export.
Recommendation: Use the resources and tools provided in these sections to arrive at a basic functioning export marketing plan. From this website alone you will be able to:
3. Lacked total commitment of top management in the initial stages of exporting.
Recommendation: Discuss the long term view required with management on developing profitable business for the future, while realizing it usually does not fall into your lap. Make sure that abandoning efforts when success is not immediate does not waste the investment made in the venture. Build consensus on pursuing exporting as an integral part of your company’s future, and not as a band-aid for a decrease in domestic sales. Don’t begin allocating budgets until completely prepared with all of the important questions answered.
4. Selected overseas representatives too quickly without thorough investigation.
Recommendation:Although successful business relationships can arise from unexpected sources, it is wise to carefully qualify all potential buyers in advance of a binding commitment, if even for one shipment. Every effort should be made to meet with qualified buyers by way of introduction from export assistance providers, both public and private, as they may have advance knowledge about the company and experience in working with them. Don’t hesitate to ask for trade and bank references from both the U.S. the buyer’s country. Create and use a form for qualifying potential buyers that suits your particular needs, based on the template available in Section Five.
5. Chased orders around the world instead of using a systematic marketing plan.
Recommendation: Spreading your valuable time and efforts over too wide an area can be frustrating and result in less production than you anticipated. Proper marketing research and promotional activities in a set of specific countries or industries has proven more efficient again and again. Currently there are a number of online scams that waste exporter’s time, effort and occasionally money. These should be avoided at all costs. Be wary of any unsolicited offers by email which do not address such details as regulations, labeling and shipping.
6. Neglected new export customers when the domestic market was booming.
Recommendation: This is an area that qualified and active importers of U.S. food products have made observations about, which basically means many firms have wasted export business opportunities over the years. It is wise not to treat exporting like a seasonal activity (unless your product is seasonal), but also not to try and accomplish too much too quickly. Moving forward at a pace that is balanced between domestic and export sales can be accomplished with even part-time attention by designated staff. Part-time does not mean half the year though; it means 10-20 hours per week on a consistent basis.
7. Failed to treat international and domestic customers on an equal basis.
Recommendation: This is in part similar to #6, but can mean much more than that. Many food importers have the potential to be excellent sources of business for U.S. companies, and are always surprised when their requests are delayed or go ignored. Until proven otherwise, all potential pre-qualified customers should be treated as equals, and importers can certainly tell which American companies are serious and which are not.
8. Refused to modify products to met foreign regulations and local preferences.
Recommendation:The most common requirement is labeling modifications, which usually needs to be prepared in the local language. Re-labeling is not really considered to be a product modification, which could be more expensive and risky. If the local requirements make no financial sense to your company or compromise the product’s integrity, perhaps you should consider other markets, which may accept the product with little or no adaptation.
9. Did not print sales, service and warranty messages in local languages.
Recommendation:Once you have established one or more target markets, it makes perfect sense to develop promotional materials and labels in the local language. With food products there are not as many manuals, warranty, repairs and installations materials required, so the expense of translation is not nearly as high as in other industries. Allow the potential or actual buyers to guide you through the process of determining which materials should be translated. Many buyers are aware of the Branded Program, which is an invaluable resource in this area.
10. Did not consider using an Export Management Company (EMC) or other intermediary in less promising or more complex markets.
Recommendation: Whether to export directly or indirectly, or a combination of both is an important decision which does not present itself only at the outset. There are many fine exporting intermediaries around the country who may find out about your company through a variety of means, even well after you have started exporting. But this is also how many companies increase sales through exporting at the outset, either selling to or selling through an export management or trading company, as well as other types of exporters.
Consider carefully which target markets you will pursue directly over time and listen to what an intermediary has to offer in terms of expertise, distribution and markets. It is not unusual for exporters to have direct business for their best or existing markets and then work with intermediaries where it makes sense to, such as in highly complex or regulated markets with strong local responsiveness requirements.
The sponsors of this website are here to help. Fortunately, Food Export-Midwest and Food Export-Northeast offer many services to help exporters, including the Food Export Helpline, Market Builder Service, Trade Missions, Food Show Plus!, Buyers Missions, Online Product Catalog and the Branded Program.
Keep in mind that there is no substitute for experience in exporting as in all other aspects of business. It takes time, effort and patience to develop export skills and solid fundamental operations. Once a company does develop export experience, it may enjoy the economies of scale in its knowledge and procedures and use that to develop a long term and profitable export business.
A Final Note:
The first section made a point in mentioning that there probably has never been a better time to begin exporting value-added food products from the United States. The globalization of markets, increase in free trade agreements, progress in the World Trade Organization, new patterns of distribution and the increase in retail food markets around the world have made this possible.
There has also been a significant increase in the levels of export assistance provided by both public and private organizations, which have helped fuel this growth. In many instances, organizations join together to increase their coverage, capabilities and their skills in order to offer the kind of export assistance small and medium-sized, value-added food companies need and require. For an overview of all the export assistance agencies, their services and contact information, you can access the “Exporter’s Matrix: Handbook for U.S. Agribusiness.”
The Matrix is the result of a cooperative effort between the U.S. Department of Agriculture’s Foreign Agricultural Service, The U.S. Department of Commerce’s Commercial Service and the State Regional Trade Groups (SRTG’s), which include the sponsors of this course, Food Export -Midwest and Food Export-Northeast. In it, you will find a resource for just about any food-related export assistance you could need, along with a description of the services the organizations provide collectively and individually.
For more detailed exporting information relative to your specific business please register for our Food Export Helpline™ service. There are always specific issues and questions that are unique to your company, products, and export markets. With the Food Export Helpline™, you’ll speak with an industry expert who’ll put his more than 20 years of experience to work for you. There are no canned answers, only insightful, customized advice specifically for you.
Click here for the Food Export Helpline.
Or, register for our Market Builder program. This service provides customized, in-market research to help you determine if a market is right for your product. Exporters can find new distributors or importers, receive valuable feedback about their product and gain industry insights on topics such as the distribution process and import regulations and restrictions for 18 international markets.