Should You Direct Import?

Have you thought about investigating the advantages and risks? Operating Strategies by Tom Craig, LTD Shippers Association

Most retailers know that their competitors and domestic suppliers are importing furniture, parts and accessories from overseas. You may periodically consider the advantages and risks of importing, but the decision to investigate more fully keeps getting placed on hold.

The suppliers you currently purchase from may be convenient, easy to reach and just a phone call away. You speak the same language and you can call the local rep if there is a problem. Besides you don’t have the time to really learn the jargon, the dangers and the opportunities presented by the import challenge.

Maybe now is the time to take a few minutes to understand why retailers are buying their products from China, Malaysia, Hong Kong, Indonesia, Brazil, Italy, India and other countries. Price is certainly a major factor that can turn into immediate competitive advantage… but don’t forget selection and exclusivity.

Sourcing from foreign suppliers is different than buying domestically. It will take a little time to understand and master the process. Here is an overview of some of the factors to consider.

Check out foreign suppliers

The first thing you need to do is to find appropriate products. Then you need to get more detailed information on the quality and reputation of the supplier. This is the same process you go through when sourcing domestically.

So where do you start? You can ask industry friends, contact your industry association, review trade magazine ads or browse the Internet. Contact foreign suppliers, get their catalogs and pricing. Then arrange to visit them at an international trade show or at their factory. You may even want to investigate hiring a local agent who knows the suppliers and local business practices to represent your interests.

Alternatively, you may want to start slower. If so, a good place to start looking is at industry trade shows. Meet with wholesalers and distributors, manufacturing representatives and trading companies. Look for good products, good pricing and the promise of good service. Ask for references and follow-up. You may want to start with a few suppliers, or you can try working with multiple suppliers, even if they are from the same country.

Delivery Dependability

Any domestic or overseas supplier can miss the scheduled delivery date for your order. When your supplier is located 10,000 miles away, however, the impact on sales, planned promotions and your ability to effect damage control can be limited. Check out your supplier’s record regarding his ability to meet delivery dates. This can reduce one of the chronic frustrations associated with importing. Your North American supplier may be able to ship your order within a day or two, but a missed date from Asia can mean a week’s delay or more because ships do not set sail every day… and with transit times of a month or more, the problems of missed schedules are magnified.

Paying Your Supplier

There are four basic options to consider. They are open account, documentary collection, letter of credit and cash in advance. Each has its benefits and risks.

• Open Account: The seller extends credit to the buyer until the goods are received. The seller absorbs the credit risk and goods are available to the buyer before payment.

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• Documentary Collection: Seller draws a draft on the buyer when the shipment is made. Draft and supporting documents are presented by the seller to his bank who, acting as his agent, forwards the documents to the buyer’s bank in the buyer’s country. This works like a C.O.D. with payment going through the banking system. If a sight draft is used, the goods are available to the buyer after payment. If a time draft is used, the goods are available before payment.

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• Letter of Credit: The buyer’s bank substitutes its name and credit for the buyer’s in order to facilitate payment when certain predetermined documents have been correctly and promptly presented to the bank. It is a vehicle for payment. It is like a conditional bank guarantee.

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• Cash in Advance: Buyer goes without his funds while the goods are in transit and cannot ensure receipt of the goods. This method is not for creditworthy customers.

The most common method is the letter of credit. Your bank will pay his bank when the conditions of the letter of credit are met. Carefully select a bank you can work with, meet with them and understand what they require, including documentation so that they can efficiently perform the transaction.

Remember too, that your supplier’s price, even if it is quoted in U.S. dollars, is based on his costs in his currency. Currency fluctuation is something to be aware of in establishing pricing.

Shipping Service

How do you want your order shipped? For furniture, the preferred method will be by ocean. Ocean takes longer than air, but is from 3 to 10+ times less costly depending upon place of origin and the type of product you are importing.

Understand what services you are buying with the ocean freight. Find out the transit time and the frequency that the carrier sails. You want to do this so you can plan your deliveries and to use the transit options to your advantage. The faster the transit, the better you can turn the order into a delivery and into cash.

Ocean carriers differ as to price charged and services offered. Carriers work on various schedules, specifying different ports of call and visiting them in different sequences. Some go to the West Coast and some go to the East Coast. Basically no carrier from Asia calls at a Gulf port. You can work directly with a carrier or with a third party, such as a shippers association.

That means that if you are located in the eastern US, your carrier may unload your container from the ship at, for example, Long Beach or Los Angeles, ship it by rail to Atlanta and from there truck it to you. Alternatively, the shipment could be sent by an all-water service through the Panama Canal (or even the Suez Canal) to Charleston or Savannah where it could then be trucked to Charlotte.

Assuming the following scenario, here are examples of your schedule options. Let’s assume that you are importing a 40-foot container of home furnishings from Hong Kong and are located in Charlotte, NC.
Schedule One: To East Coast port via the Panama Canal. Total transit time from Hong Kong to Charlotte is 30 days at a price of $3580.

Schedule Two: To East Coast port via the Suez Canal. Total transit time from Hong Kong to Charlotte is 38 days at a price of $3610.

Schedule Three: To West Coast port. Total transit time from Hong Kong to Charlotte is 22 days at a price of $3735.

Cargo Insurance

Ocean carriers have a limited liability for cargo damage of $500 per container. They do not have the full liability that domestic transportation carriers have. You will, therefore, have to arrange cargo insurance. Your regular insurance company should be able to help you arrange coverage. Some importers do not realize that international cargo liability is different from domestic. Do not learn the hard way about the difference when damage has occurred to your shipment.

Incoterms

These are a common set of trade terms that define buyer and seller responsibilities. There are thirteen terms. They do not indicate where title passes. Incoterms progress from Ex Work's, where you take delivery of the shipment at their factory to Delivered Duty Paid. The most commonly used term and way of doing business is CIF, Cost Insurance and Freight, which is what you, the buyer would pay for. Be aware that the term FOB, (Freight on Board) does not have the same meaning as when used to describe domestic shipments. For international shipments, FOB means on "board the vessel."The thirteen Incoterms are listed below.

Inspect Product

Verify what you receive, both as to quantity and quality. Check for damage, from the packaging used, to shifting in transit, water damage or any other cause. This is no different than you should normally do with any shipment received. It will give you time to react and perhaps stop payment to the seller. Also, foreign suppliers may not load cartons on pallets. Labor is less costly for them. So they may hand load your shipment. If you want pallets, then specify.

Customs

You must arrange for a customs broker to handle the entry of your shipment into the U.S. This should be done before you place your order. You will need to give your vendor this information so that the proper documentation can be sent to your broker for Customs entry. The customs broker can also help you with posting a bond for Customs (either you arrange your own or use his bond). Customs requires a bond to ensure that they are paid.

The broker can also tell you if there are any import duties due and their size. He can also specify the paperwork your supplier must prepare. Original ocean bills of lading, commercial invoice, packing slip and other documentation, such as Certificate of Origin may be needed. You should be aware of marking and labeling requirements, especially as to Country of Origin. Also, Customs may choose to inspect your shipment before it is delivered to you.

And do not forget to go over what U.S. Customs needs for record keeping and record retention and discuss this with your accountant.

Other Federal Regulations

Other Federal agencies may be involved with what you bring into the country. For example, the U.S. Department of Agriculture, in 1998, issued regulations about the Asian Longhorned Beetle. USDA was trying to stop the import of a destructive insect. They implemented requirements for solid wood packaging materials. Sellers in China in particular had to treat the materials with heat, fumigation or preservatives. They also had to certify that the material had been treated.

All this may sound complicated and time intensive. And initially it will be. You will quickly become comfortable in importing.

Tom Craig of LTD Shippers Association has 25+ years experience in logistics, both international and domestic. LTD Shippers Association leverages the buying power of its members for lower ocean freight rates; their members are manufacturers, wholesalers, distributors and retailers. \Questions can be directed to Mr. Craig care of FURNITURE WORLD at tcraig@furninfo.com.