ABCs of Successful Importing, Part II

Jim Ryan, International Trade Specialist

In our last installment, we discussed some of the motivations for importing, such as a company’s need to source the cheapest or best materials or products overseas.  Putting rationales aside, there are some issues that most importers will have to contend; for example, all importers will deal with domestic, foreign and international legal and regulatory requirements.

Determining the Costs of an Import

However, the first step for an importer is to identify all the costs related to securing a product in a foreign country and then delivering it to a customer in the United States.  Often times, these costs are underestimated, such as when an importer fails to include the value of additional time spent managing the import.  This makes it difficult to determine if overseas sourcing is the best option or if a worthwhile profit can be made.

To get a better idea of how to calculate import costs, I would suggest taking a look at chapter seven of the SBA Export Business Planner  (www.sba.gov).  Although it is designed for exporters, it does provide a good framework for calculating the actual cost of goods.  Some common costs that importers need to account for are:

  • US tariffs
  • Insurance
  • Freight
  • Documentation fees including  consular legalizations and shipping documents
  • Export packing, fumigation and container stuffing
  • Banking fees
  • Courier service and wires
  • Inland transportation in the foreign country and the US, including loading and unloading fees
  • Terminal and port charges
  • Warehousing and demurrage
  • Professional fees for freight forwarders, customs brokers, inspection agents, lawyers, accountants and insurance agents

This is by no means an exhaustive list, and it ignores some significant sources of costs, such as determining whether the goods or its packaging use any trademarks or copyrighted material or are patented and if there is a legal right to import the goods.

Identifying Legal and Regulatory Requirements

The next step is to identify all U.S. import requirements, such as ensuring that goods are not purchased from an embargoed country or debarred individual.  U.S. Customs and Border Protection takes the lead in facilitating international trade and processing goods at ports of entry, as well as making import tariff determinations. 

However, it is the responsibility of the importer to identify what U.S. agencies regulate the import of the product.  For example, U.S. Customs may prevent a shipment from entering the United States if it was supplied by a debarred individual, but it is the Office of Foreign Assets Control of the U.S. Treasury Department that determines if an individual is banned (debarred) from selling to the U.S. . U.S. Customs provides some helpful guidance on identifying relevant agencies and their requirements on its website (www.cbp.gov).

While many importers will be able to rely on their foreign suppliers to satisfy foreign legal and regulatory requirements for exporting, at times it will be up to the importer to go through a process very similar to satisfying U.S. import requirements. 

This can be a straightforward process of accessing foreign custom’s and agencies’ websites for guidelines and then calling the numbers provided to ensure that the requirements are understood.  However, it is not uncommon for countries to publish outdated, contradictory or incomplete information.  In this case, a good relationship with a customs broker or freight forwarder is going to be invaluable. 

Negotiating Terms

The final step before purchasing goods and shipping them is negotiating the agreement with the manufacturer and/or the customer.  In addition to the purchase price, there are other issues that will be considered, such as what currency will be used, how payments will be made and delivery dates. Choice of law and jurisdiction clauses will also be agreed upon in case there is a dispute.  Moreover, if an importer is looking to distribute a product in the United States, he or she may want to negotiate a right to renew and territory granting terms.

At this point, the importer will begin discussing delivery terms, which most likely will include the use of Incoterms.  Incoterms are widely accepted commercial terms utilized in contracts to clearly define costs, risks and responsibilities associated with the transportation and delivery of goods.  And, of course, this negotiation is going to have a lot to do with the price the importer ultimately quotes.

While this overview does not cover all the issues surrounding importing, it is a good starting point for a prospective importer to ask questions and seek trade assistance.  If you have any questions on this article or importing in general, please contact us at jryan@bradley.edu or call (309) 677-3075.