Internet Doorway to Global Business

Internet Doorway to Global Business

Copyright 2002, Traffic World Magazine

As the Internet is making communications transparent between countries, you may be receiving foreign inquiries for your product. How should you prepare to handle international orders? Should you contact an international freight forwarder or ship via United Parcel Service, FedEx or DHL? International shipments aren't that difficult or are they? What sort of questions should a new "exporter" take into account? Here are some answers to the questions you may be asking about international business.

The most important question to ask is how will I get paid? If you have the ability to take credit card payments, that is the easiest solution for smaller payments. The customer can pay you via credit card and you can ship based on that payment. This is a flexible solution since the bank is collecting for you.

But if you don't accept credit cards or they don't have one for the United States, an alternative is a wire transfer by the buyer to your bank before you ship. The buyer is paying $25 for this service. Your bank will charge $20 to $25 to handle the payment too. This is generally the least expensive solution for shipments valued at $2,000 or more. However, some customers are not willing to send you money up front. To lessen their risk you can have your shipment picked up by your international freight forwarder. The forwarder prepares the airway bill or bill of lading and faxes it to the customer with a commitment to ship upon proof of wire transfer. The customer wire transfers the money and you authorize the forwarder to ship.

A third alternative is to ship "freight collect" and let the customer pay you upon receipt. Of course, then you are taking the risk of not getting paid and the customer must have an account with the carrier allowing collect shipments. For lower-value shipments this may get you started in the transaction. I have one customer who made three shipments of increasing size into a Third World country. He wasn't paid on the fourth transaction worth $40,000. He found it impossible to collect and it crippled his small business.

The fourth and fifth alternatives require shipment through a freight forwarder via the airlines or an ocean vessel rather than a package service. You can send a shipment and receive payment before releasing it in the foreign country by consigning the shipment to a bank. Or make a shipment against a letter of credit established in your favor by the buyer. These methods protect both parties but are much more complicated and expensive to initiate. Contact an experienced international freight forwarder if you need this type of help. You can find many forwarders on the Internet or send us an e-mail and we will recommend one.

The second question is what is the real cost to my customer?

In order to answer the cost question, you must answer several other questions. The first is, what is the freight charge? Small-package services now are quite sophisticated at shipping internationally. To check the cost of shipping, you must know the package weight, the dimensional measurements and the postal code of the customer for most major Western destinations. Small-package rates are available on the Internet from the major package carriers. But shipping to international locations is expensive. For example, a 10-pound package from the West Coast can cost about $100 to ship to England.

The second part of the cost question involves duties and taxes. Be sure to check the box for duties and taxes to be paid by the receiver of the shipment. Trying to collect two months later can be very difficult! For lower-value items (less than $200) the duties and taxes may be waived. Higher-value items generally are charged a duty based on the classification of the merchandise. Any customs broker can help you or your customer assign a harmonized classification number. The buyer also will pay local value-added taxes that can be 20 percent or more. Taxes in India and Brazil can exceed the value of the product.

There is still one more recommended cost: insurance. Insurance is worth having on international shipments. The carrier can provide insurance if you ask for it. With regular shipments there are many lower-cost opportunities from international cargo insurance brokers. Your customer may want to use his own insurance. Forty or fifty cents per $100 value is a reasonable starting price.

Finally, we come to the third question. Is there anything I can't ship? Yes. In most cases, you cannot ship apparel manufactured outside the United States to many foreign countries. Special export permits, the original documents, are required. You cannot ship certain items of short supply in the United States or items that would harm the security of the United States. (New software encryption information and nuclear technology information are security-risk examples. The Bureau of Export Administration can answer questions about these matters if you think you might fall into one of these categories.) Hazardous materials and chemicals can ship but they must be specially labeled and packaged. Freight forwarders specialize in this type of shipment. You can find freight forwarders on the web search engines very easily.

So how do you get started? There are a greater variety of items that can ship. It can be very worthwhile to expand into a new market. If the Internet is exposing you to new customers, get the name, address and phone number from the customer and give the customer your product specifications, photos and prices on an ex factory basis (excluding freight duty taxes and insurance).

-- Stanton is an international pricing analyst at AFMS Inc. He can be reached at Tom.Stanton@afms.com.