What is the best practice for responding to a Trade Lead?
Q: I need some help, and probably should have reached out earlier. I received a request for quotation for 3 pallets of corn chips from an importer in Dubai through the Online Product Catalog. This would be our first export. The importer asked for “EXW, FCA, CPT and CIP” which is four different prices. I learned they are Incoterms from Food Export’s webinar. I gave my pallet weights/sizes to a freight forwarder who sent back the pricing for shipment, but I don’t understand it. I have it attached. I also know nothing about the documentation for this product and market, so I need help with that too.
A: You’ve come to the right place and congratulations on the opportunity and the efforts you have made so far. This is a well-regarded importer who is likely doing comparative pricing for the shipment to make sure it is competitive. Dubai is the largest city in The United Arab Emirates and is a good U.S. export market for snack foods. Through July 2022 they have imported almost the same value of corn chips and savory snack foods as they did in all of 2021, which totaled $5.4 million, ranking them 15th overall and with outstanding growth of 64% on a year to date (July). This means there is a trade pattern there which is understood and not highly regulated, with transparent customs procedures and a market and region that demands quality U.S. food products.
To be effective and successful as an exporter, you need to use the correct trade terminology, clearly define the transfer of interest and liability, select the right method of payment, and send the best quotation possible. You should also convey how long the quote is good for as these days prices can change quickly. After the sale has been made, it is essential that you select, prepare, and distribute documents in a proper and timely manner. To be successful, you need to be adept at preparing export documents and/or using service providers. Let’s look at the weights and measures and export costs and then take a look at the documentation. It can seem daunting at first but once you go through it the process becomes quite familiar, not to mention beneficial for the exporting company.
Once you have your quotation (or in this case quotations) ready the pro forma invoice is usually the first export document prepared. It is generated by the exporter in response to an opportunity for export business, often from a trade lead, whether from an unsolicited direct inquiry or as follow-up from a trade event. Virtually nothing is accomplished in an export transaction without the issuance and acceptance of a pro forma invoice or some form of written offer. It can be adjusted and reissued more than once and negotiations with buyers progress, and once it is completed it becomes the all-important commercial invoice which is used to clear customs at the destination and affect payment. You can issue four proformas to be specific or you can point out the price based on the Incoterm as the value aggregates.
Do the Math
You sent your weights and measures to the forwarder in the imperial system which is not used for international trade. The forwarder returned the information in the metric system, so it does not look like it matches but it does. You have 12 5.5-ounce bags in a carton and were able to stack 105 cartons on a pallet. The dimensions of the loaded pallet were 40 inches by 44 inches by 60 inches high. That was 105,600 cubic inches and once divided by 1728 (or a cubic foot) was 61.11 cuft. The forwarder converted that into cubic meters; they divided that by 35.314 and arrived 1.7305 M3. To fulfill the estimated volume, she would need a total of 3 pallets, which added up to Cubic feet or 5.191 cubic meters or “M3.”
The quote was for a total of 3780 bags, which was within the volume guideline of 3000-4000 bags a month. Each pallet weighed 1490 pounds which was converted by the forwarder to 675.86 kilos. With three pallets the actual weight is 2027.588 kilos. Weights in metric for export are extended beyond rounding for complete pricing accuracy. You had created an export price which added up to $1.56 per bag, which hopefully with the export costs and margins at destination it may sell for an attractive retail price.
The ocean freight fees seemed low compared to all the other charges. This was common since domestic transportation usually was much higher than international ocean freight especially in today’s transportation environment. The price for ocean freight is $115 on a weight and measure basis whichever was higher. The weight is a metric ton, or 1000 kilos and the measure is a cubic meter, which again is 35.314 cubic feet. And since corn chips have no real density, they take up more space than they weigh. Therefore, you are paying on measure (5.191) and not by weight (2027.588). It was also explained to her that when she created her pro forma invoice she could consolidate the documentation fees and handling onto one line item to save space.
Export Prices Based on Incoterms
EXW – Ex Works (named place) – EXW is the only “origin term” in the Incoterms, meaning the cargo has yet to be priced to move. You as the seller are only responsible for having the goods packed made available at the seller’s premises. Using the EXW shipping term, the buyer bears the full risk and costs from there to the destination – including (although unlikely) the loading of the cargo and is responsible for all transportation. If the quotation was for EXW the proforma invoice would say only: Total Ex-Works, Union IL – US$5896.80 (Export Packing Included.) You are to provide the proper documents for them upon their request, which we will review below. All other charges would be collect to the importer.
FCA – Free Carrier (named place) – You as the seller are only responsible for delivery to the named place, which in this case is from Union to Chicago, an international origin port on bills of lading. You are responsible for the loading. Risk and cost are transferred to the buyer as soon as delivered at the named place. Unloading is the buyer’s responsibility. Up to 40% of all export transactions use FCA as the term of sale and trade. F terms are “pre-main carriage” which means they are up to the point or port of export only. Technically export customs clearance is the responsibility of the importer as they (or their forwarder) are the exporter of record. In practice the exporter often will provide a power of attorney (POA) to the forwarder for the issuance of the customs clearance on the outbound. If the quotation was for FCA the proforma invoice would say only: Total FCA Chicago IL – US$6180.74 (This includes the EXW value of US$5896.80 in addition to the Inland Freight & Services Pickup of US$283.94. All other charges would be collect to the importer.
CPT – Carriage Paid To (named place) – Using the shipping term Carriage Paid to (CPT), the seller has an obligation to take responsibility for both the transportation and costs to the named place at destination. Check also if THC (Terminal Handling Charges) are included or not in your quote. Risk is transferred to the buyer once delivered at the first carrier. If the quotation was for CPT the proforma invoice would say only: Total CPT Port of Jebel Ali UAE (unloaded) US$7042.24. This includes the EXW value of US$5896.80 in addition to the Inland Freight & Services Pickup of US$283.94. It also would include the Documentation & Handling of US$264.53 and the Main Carriage Chicago/Norfolk/Jebel Ali of US$596.97. Because it is being consolidated the terminal handling charge at Jebel Ali is included. The buyer would be responsible for all charged from that point on.
CIP – Carriage and Insurance Paid To (named place) – The seller is responsible for the cost of carriage as well as all-risk insurance coverage. Insuring the goods is not an item to overlook if you are the seller and it is important to check your minimum insurance and levels of cover, as with value added foods additional insurance may be required. As with Incoterm CPT, the delivery of the goods takes place, and risk transfers from seller to buyer, at the point where the goods are taken in charge by a carrier. The buyer is responsible from that point onwards regardless of the mode of transport. If the quotation was for CIP the proforma invoice would say only: Total CIP Port of Jebel Ali UAE (unloaded) US$7100.33. This includes the EXW value of US$5896.80 in addition to the Inland Freight & Services Pickup of US$283.94. It also would include the Documentation & Handling of US$264.53 and the Main Carriage Chicago Norfolk/Jebel Ali of US$596.97. It would also include the Marine Cargo Insurance (CFR x 110% @ .75 per $ 100.00) which adds up to US$58.09
Note: The standard formula for purchasing a Marine Cargo Insurance policy is to take the CFR/CPT value and increasing it by 10%. This is done to add value to cover the cost of the insurance policy as well in case of a claim. It also can ensure some additional expenses in handling and documentation which might occur during a long export transit. On this proforma quote the CFR Jebel Ali value was $7042.24.
Export Documentation Required
Documents used in international trade are a reflection of the agreements between the seller, the buyer, and third-party service and regulatory agencies. Some are provided by the exporter, such as your proforma and commercial invoice as well as packing list, and others are provided by third party service companies such as carriers (ocean, air, and inland), freight forwarders and consolidators. Other documents such as General Use Certificates of Origin are provided by business organizations such as Chambers of Commerce. Food exporting may also require different documents depending on the product and the destination country and are issued by State or Federal organizations such as a Department of Agriculture or Department of Health or Food and Drug Administration.
The EEI serves the dual purpose of providing export statistics and export controls and is the main source of U.S. export data. The EEI reports all pertinent export data of an international shipment transaction. Much of it remains confidential. The EEI needs to be filed when the value of the commodity classified under each individual Schedule B number is over $2,500.00 or if a validated export license is required to export the commodity, which with food products is quite rare.
One document required for this shipment despite the product and for all destinations except for Canada is the Electronic Export Information which is also abbreviated as “EEI”. According to the US Census Bureau, it is the US Principal Party in Interest’s responsibility. The USPPI is defined as the person or legal entity in the United States that receives the primary benefit, monetary or otherwise, from the export transaction. That of course is most often the exporter so in this case it is your responsibility. The CIP Jebel Ali quote totals over $7100.00, so you will need an EEI filed. However, the freight forwarder has already included the fee for that service in their quote to you (under documentation and handling), so if the proforma invoice is accepted they will file it for you if they have your Power of Attorney or “POA” on file.
FAS “FAIRS and “CERTS”
There are regulatory export requirements for high value-added processed food products which are also considered “dry goods”. That basically means processed with little or no animal proteins in them. To arrive at what is required for each specific market and product you should review what are called The Food & Agricultural Import Regulations and Standards “Narrative” (FAIRS), and The Food & Agricultural Import Regulations and Standards “Certification” (CERTS). They are available in the website of the Foreign Agricultural Service, FAS in their database on food export marketing and regulations called the Global Agricultural Information Network which has an acronym of “GAIN”. You can access the GAIN database at https://gain.fas.usda.gov/#/home
Tips on navigating the GAIN database for both the “FAIRS” and “CERTS” reports for the UAE or any other market where available: When the search icon is opened you will have some programming to do in order to select the regulatory reports. You should always use a custom date, or you will only get the last weeks reports. We recommend going back at least 1–2 years to capture the most recent information. Under the “Categories” section, scroll down to “Food and Agricultural Import Regulations and Standards (FAIRS)”. Then open that tree to select the FAIRS and CERTS. Then on the right panel you use the drop down to select the specific market which in this case is the UAE.
What you will find in the UAE CERTS for any product being exported there says “All products require the issuance of a Certificate of Origin issued by a recognized Chamber of Commerce under the law of the United States as required by the Customs Authority of the United Arab Emirates”. A Certificate of Origin is required every time you export products to a country. Origin is an important term in international trade as most tariffs for example are applied based on where the product was made, and not always the country where it was exported from.
Apart from just the country of origin or manufacture, the certificate has other important information. The type of item, size of consignment, shipping details and destination are all listed on it. Mostly, the exporter or supplier obtains the certificate from a Chamber of Commerce. They are a recognized pro-business third party with the resources to verify whether the product was actually made in the U.S. or not. These “General Use” Certificates of Origin are not the same as those available for use in claiming preferential tariff treatment in Free Trade and Trade Promotion Agreements such as USMCA. Those Certificates of Origin need to be prepared by the exporter or the producer and third parties such as a Chamber of Commerce do not issue them.
The report also pointed out that in addition for all processed products a Certificate of Free Sale is also a regulatory requirement.
There is a line item in the CERTS that says, “All other products not listed above Note: This applies to shelf stable processed products.” A Certificate of Free Sale, often called a “COFS”, is evidence that goods—such as food items are legally sold or distributed in the open market, freely without restriction, and approved by the regulatory authorities in the country of origin, in this case the United States. Under issuing authority, it said “Any related government entity this may include Departments of Agriculture or Health at the U.S. State level”. The purpose and attestation is to show that “The product is fit for human consumption” It needs to be presented to the Food Control Sections at Municipalities at the port of entry.
Sounds like a lot? Perhaps the first time through but with practice and repetition you will develop a process by which these steps become normal. As they are expected by the buyer, they are integral to success in the export business. It is suggested to work through them for any potential buyers you will meet with at any Buyer’s Mission or other promotion that you attend, as well as OPC leads and any other that arrive in any form. These are the steps to what we call being “Export Ready”.
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