Making a great product and finding a willing buyer outside the United States is only half the battle for an exporter. After the sale is made, the product has to be shipped to its destination.
Getting a product to market outside the United States requires attention to detail and good partners, starting with a reliable freight forwarder. Here are four export fundamentals to keep in mind before shipping your product overseas.
Freight Forwarders: The Logistics Partners
Shipping your product to its overseas destination usually requires the services of a freight forwarder. While some big companies can handle logistics internally, most small- and medium-sized exporters use a third party to handle the required export documentation and coordinate the heavy-lifting.
“Freight forwarders can help exporters expedite their shipments, and assist the exporter to ensure their shipments comply with U.S. regulations," says Jan Fields, a certified export specialist and corporate manager at John S. James Co. in Savannah, Georgia.
—Greg Sandler, international trade and content development expert, ThinkGlobal
In fact, freight forwarders can help with all the technical details related to shipping your product, from product classification and admissibility requirements in overseas markets to customs duties and taxes. A good starting point to learn about freight forwarding is the National Custom Brokers & Forwarders Association of America.
Incoterms: The Language of Shipping
Incoterms provide an international standard for the terminology used in international and domestic contracts related to how goods will be transported, and who is responsible for the costs. The rules, first published in 1936, are maintained and periodically updated by the International Chamber of Commerce (ICC).
The Incoterms include one group of terms that apply to all modes of transport, and another group specifically for goods shipped by sea or inland waterways. All total, there are 11 Incoterms rules. The list is available on the ICC's website.
When using Incoterms, it's important to understand exactly what the starting and ending points are for a particular shipment, and to use the correct terms in all contracts. One of the most commonly used terms is FOB, which stands for Free on Board. The term FOB “port," for example, means the shipper pays for transportation to the point of shipment, plus the costs to load the goods at the designated point of departure for export. The buyer is responsible for carrier costs and transportation to the final destination.
An incomplete Incoterm can add cost for the shipper, says Fields. For instance, if an exporter in Atlanta uses the term FOB and does not name a place, the exporter may intend to only pay charges to a rail station in Atlanta. But the buyer may interpret the term to mean the freight is paid to the Port in Charleston (FOB Charleston). Since inland freight is not explicitly covered by either party, it is the seller's responsibility. In this example, failing to define the proper Incoterm “FOB Atlanta" would mean higher shipping costs for the exporter.
Certificates of Origin: The Documentation for Exporting
A Certificate of Origin is a document that is used to indicate where an export originates from, and how it is classified in the country it is being shipped to. Certificates can be used for a variety of purposes, such regulating quotas for products shipped to a particular country or ensuring compliance with health regulations.
Certificates also can be used to classify the exported goods under the customs regulations of the destination country, which defines how much duty must be paid. Certificates are sometimes required in order to comply with the terms of a Letter of Credit, or to meet foreign customs requirements.
Certificates of Origin come in two basic flavors, non-preferential and preferential. According to the ICC, a non-preferential certificate certifies that a particular product does not qualify for preferential treatment in the destination country. A preferential certificate certifies that the export does qualify for special treatment, such as a tariff reduction or exemption.
Certificates of Origin can be tricky. “Each country/trade agreement may have a different definition of “origin" in their required certificates," says Fields. “Using the wrong definition can subject the shipper to seizure, penalties and/or additional fees for ultimately getting their goods delivered to an overseas destination."
Before concluding an export transaction, the exporter and importer should clarify if a Certificate of Origin is required. Once the parties agree on the form and content of the required certificate, the document can be issued by the exporter with confirmation by a neutral third party, such as a notary, a chamber of commerce, or the local consulate of the destination country.
Export Licenses: The Rules for Controlled Products
Not every product requires an export license, but it is important to do your homework before you try to export a regulated product or technology. In fact, many products do not require specific government approval. But every exporter should perform their own “due diligence" to determine if its products are subject to export controls.
Various federal agencies have specific jurisdiction depending upon the product or technology. Export licenses in the United States are issued by the departments of State, Energy, Commerce and Agriculture, along with the Nuclear Regulatory Commission, Drug Enforcement Administration, and Food and Drug Administration. The U.S. Bureau of Industry and Security publication, "A Guide to Export Licensing Requirements," is a good starting point for learning about export controls.
It is not always obvious whether a product is controlled by the nature of the item. For example, “paraffin wax" is currently on the U.S. control list as “SS," meaning it's in short supply, and there may be limits on how much of it can be exported. “Any item can appear on the Control Classification List if is in short supply in the United States," says Fields.
Moreover, exporters who ship without the required licenses can be fined and/or have their goods impounded. “We often see companies who have not checked the export control lists for commodities, countries and parties that require a license because they do not realize it is their responsibility to do so," says Fields. “Exporters are responsible for providing an Export Control Classification Number to the freight forwarder."
An Export Control Classification Number (ECCN) is a five character alpha-numeric designation used on the federal Commerce Control List (CCL) to identify dual-use items for export purposes. A company with a product on the CCL needs to verify whether a potential export is subject to restrictions. These types of controls can apply, for example, to products that have both a commercial and military use.
By understanding the rules that govern international trade, U.S. exporters can position themselves to help minimize the likelihood of being surprised by government regulations, unexpected customs duties or other hidden costs.