Common Pitfalls With Importing and Exporting
International trade is not easy. If it were, more people would be doing it. As you navigate through the process, mistakes are bound to happen, but to avoid a few of the missteps, do some homework well before you get started. Below I highlight areas where international traders experience the most turbulence. Focus on these trouble spots and you will put yourself on the path to what we all crave—a glitch-free international trade experience.
1. Lack of Knowledge on Exchange Rates
If you don’t know the exchange rates when trading internationally, you are exposed to potential currency fluctuations and are restricted when planning ahead or trying to get the best price.
The workaround? Consult with your banker on how best to lock in your profit on a transaction and protect yourself from exposure to risk. If you are too busy, sell only in U.S. dollars. That way you hedge against the roller coaster ride of currency fluctuations.
Additionally, in another article, I talk about the difference between a spot versus a forward foreign exchange and how to hedge against currency fluctuations.
2. Lousy Relationship With Customs Officials
Don’t underestimate the importance of a good relationship with customs officials, transportation folks and customs brokers. And never assume you know more than they do! You are responsible for compliance with all U.S. import and export laws, so get along with everyone and listen to what they have to say. Even if you hire a firm to carry out import-export procedures on your behalf, the buck still stops with you.
3. Making a Bribe
If you are conducting business in a foreign market, you must be familiar with and comply with the Foreign Corrupt Practices Act (FCPA). You should learn about the Foreign Corrupt Practices Act and discover how to avoid or handle bribery disputes.
4. Being Clueless About Import Restrictions or Control on a Product
Import restrictions comprise of quotas, import licensing requirements and so forth. Importing goods that violate quota restrictions or are unsafe could end up costing you money in fines and penalties, and that will erode your profits. Are you complying with both state and federal government import regulations?
5. Failure to Conform to Packaging, Marking, and Language (Localization) Laws
What are the laws of the country you are entering? Consult with your transportation specialist and your customer and then compare notes. For example, do labels on your product have to be in the local language? How sturdy must the carton be? What markings need to be on the outside of the cartons to comply with the law? Is there any taboo to the number of products packed in the box—eight chocolate bars versus 13, for instance? The point is to leave no stone unturned when it comes to honing in on the details of your product movement.
6. The Unfamiliarity of Incoterms and How They Affect a Sale
Incoterms are considered essential to use in contracts for the sale of goods internationally. For example, here I discuss preparing a proforma invoice using one of the common terms, CNF, which means cost and freight—you are responsible for paying the freight costs and collecting from your customer later. You must understand the costs and responsibilities that come with using a specific Incoterm. If you don’t, it can lead to underpayment to you, for instance, on an export sale or overpayment to your supplier on an import.
It can also lead to customs problems, including documentation that might be prepared incorrectly. You can reduce the risk of the sale of goods internationally by negotiating effective trade terms.
7. Bad Record Keeping
On all your international transactions, keep good records for as long as you keep IRS records—from how you declare a good (Harmonized code, for instance) to termination of a transaction whether by email or some other means, to the financing of a deal.
8. Never Verifying the Reputation and Legitimacy of a Supplier or Customer
Have you done your due diligence on who you are about to conduct business with? Verify prospective manufacturers. If you find them on a global sourcing site such as Global Sources or Alibaba check to see whether they have a website on their own. If not, why not? What does that tell you? Conduct a search on the Internet to see what pops up.
On verifying customers, conduct an online search and see what bubbles up on search engines. Also, contact government officials to see what they know about the customer. If you are exporting from the United States to a customer in Brazil, contact one of the International Trade Specialists based on your sector of activity to find out more on the customer. You might also reach out to the U.S. Embassy in Brazil to see what they know.
Whether you are working with a supplier or customer, ask for references. Check them carefully. Ask the references for references on the supplier or customer you are about to do business with.
Master these eight common pitfalls and you’ll be on your way to a successful import-export business.