Managing Cash Flows in the Import-Export Process
Cash flow challenges are common for most growing businesses, and doubly so for companies engaged in global trade where the time lag between purchasing goods overseas and selling them in the United States can be several months or more. Throughout that time, the importer will incur many supply chain expenses, so having an in-depth understanding of the import-export process is key to building a strong predictive model of your cash flows.
It’s hard enough to design an awesome product that people want to buy, and perhaps even harder to get it produced at scale. Getting the products from your supplier to your customers should be straightforward, but the process of importing goods from other countries can be tricky to navigate.
Throughout this overview, we’ll break the import-export process down into its component steps below, and then explore each of them in some depth to give you a straightforward understanding of the challenges involved in global trade. We then finish with an overview of all the common costs of importing, which you can use to better model the cash flows in your supply chain.
- Vendor selection
- Quality control and shipment inspections
- Compliance with regulatory agencies including CBP, FDA, USDA, CPSC, EPA, DOT and others
- Freight forwarding
- Cargo insurance
- Warehousing and fulfillment
Each of these steps in the importing process will cost you time and money and merely being aware of what lies ahead can put you on a stronger competitive footing.
Identifying reliable suppliers of high quality products is one of the hardest parts about global trade, and there are no silver bullets.
Many importers find their suppliers at industry trade shows, as they allow you to interact with many competing vendors at a single time and place, saving you time and money on travel costs. Two of the best trade show listing sites are EventsEye.com and TSNN.com, both are definitely worth checking out if you’re in the market for new suppliers.
B2B web portals like Alibaba.com and GlobalSources.com are also good for identifying manufacturers, although importers should be aware that all the suppliers listed on those sites have paid for the privelege.
Perhaps more useful are tools like ImportGenius.com, a business intelligence service for the import-export industry. Subscribers get access to a database of the complete shipping histories of any companies importing products by ocean into the United States. This allows you to see the suppliers for all your competitors, as well as the customers of any supplier you are thinking about working with.
Once you’ve narrowed your choice down to a few candidate suppliers, we highly recommend you visit them in person if at all possible. A face to face meeting can go a long way to build the mutual understanding and respect you’ll need.
Quality control and shipment inspections
Be aware that suppliers may have a real incentive to cut corners over time, so stay vigilant about quality control throughout. Just because your first two orders went off without a hitch doesn’t mean that order number three will arrive in the same condition.
One way to beef up your quality control efforts is to enlist a third party quality control company to inspect each shipment before it leaves. Companies like AsiaInspections.com, AsiaQualityFocus.com or SGS.com can run your products through a series of customized quality control tests for as little as $299. Money well spent if you identify problems before the goods ever leave the factory, where they can be fixed quickly.
Customs and Regulatory Compliance
Any product imported into the U.S. will need to be cleared through U.S. Customs and Border Protection. This can be a major pain, as there are as many as 43 government agencies that may take an interest in your product, depending what you’re importing. Because of complexity involved, the vast majority of importers choose to work with a licensed customs brokerage to represent their interests.
Customs brokers charge between $99 and $300 per shipment for their services. Those fees can sometimes be higher, as many customs brokers also assist with global freight forwarding, cargo insurance and other supply chain services.
Many importers rely on their overseas suppliers to coordinate their supply chain services.
To the extent that the suppliers handle some of the logistical complexity and perhaps even get you better deals on freight. If your supplier books the freight for you, be sure you get them to state the exact terms of the deal in writing. The default when a supplier pays for freight to your destination is to leave off customs brokerage, arrival agent and container freight station charges. These generally add up to about $1,000 and are the most common cause of disillusionment for importers. Getting hit with a surprise $1,000 bill is never fun, least so when you are preparing to launch a new product on a shoestring budget.
Your customs broker or freight forwarder will likely be able to provide you with freight quotes to compare with the freight service provided by your supplier’s partner.
Note that freight forwarders are notorious for price discrimination with better rates going to clients with bigger shipping volumes and frequencies. Don’t be afraid to ask for a better deal as your business grows. Shopping around for better rates is often a good idea, and combining services from different freight providers for the international and domestic shipping legs of your goods’ journey may help you save money.
Warehousing and Fulfillment
Once your goods arrive in the U.S., many great fulfillment companies with API integrations to major shopping carts so they automatically ship your products out to your customers as soon as a sale takes place on your site. If the rest of your supply chain were as easily automated as the fulfillment leg, you’d be in a very happy place.
Overview of the Common Costs of Importing Goods
Flexport’s list of common costs for importing goods into the U.S. is a good starting point for estimating your costs and optimizing your cash flows:
Common Costs of Importing
For most commodities, purchasing your product represents the majority of the importing cost.
|Quality Inspection||$300 / day per inspector|
Problems are much cheaper to fix before the goods have departed from your supplier’s facility, so quality inspections often pay for themselves.
Freight prices vary dramatically based on the size of your shipment, the mode of transport, the delivery terms, and the origin and destination. Take great care to understand what you are paying for whenever you book international freight.
- Is the shipment going by air or ocean?
- Does the freight include pickup from the factory and delivery to the door?
- Does your vendor hold the necessary export licenses to ship your product out of the country?
- Are arrival agent and warehouse fees included at destination?
- Is there any on-time delivery guarantee?
Customs requires wood products or wood packaging material to be fumigated against insects and stamped as such or you might incur extra costs due to delays and re-exporting.
Purchase cargo insurance to protect against damages or theft in transit. Your freight carrier is probably not going to reimburse you for these problems, but your insurance provider will.
- Flexport provides cargo insurance for just 0.30% of merchandise value for shipments to and from Europe and Asia and just 0.50% for most other regions.
|U.S. Customs Bond, ISF Filing & Customs Clearance||$450 – 700|
For imports into the U.S., if your Importer Security Filing (ISF) is not filed on time, you risk a penalty from $5,000 to $10,000. These costs vary by customs broker.
- Continuous entry bond ($300), valid for one year
- Customs clearance fee ($100 – $300), per shipment
- Importer Security Filings ($50 – $100), per shipment
|Arrival Agent Fees||Avg: $300 – $500|
The arrival agent is the U.S. partner for your freight service provider.
- If the arrival agent fees were not included in your shipping arrangements, you will need to pay the arrival agent for arranging the U.S. side logistics.
|U.S. Customs exams||Varies|
U.S. Customs may examine your goods at their discretion.
- Non-intrusive exams (or x-ray exams) cost ~$125.
- Intrusive exams cost from $225 to $1,000+ depending on the quantity and volume of your goods.
|Warehouse Fees||Avg: $50 – $150|
If the warehouse fees were not included in your shipping arrangements, you will need to pay the warehouse for holding your goods before pick-up.
- Fee could vary depending on the quantity and volume of your goods.
- Demurrage or late storage fees could apply if your shipment is not picked up by a certain, specified date ($30 – $500 per day).
|Drayage & Trucking Fee||Varies|
Be sure to schedule a drayage or trucking service to pick up your goods from the warehouse if you are not picking up the goods yourself. Get this organized well in advance of your shipment’s arrival to avoid costly delays.
|U.S. Customs Duties and Fees||Varies|
The Customs duties owed on a shipment will depend on the HS Code(s) (http://hts.usitc.gov/) of your products. There will also be two additional mandatory fees that are applied to every importer’s shipments:
- Merchandise Processing Fees (MPF): 0.3464% of your shipment total value (with a minimum of $25 and maximum of $485)
- Harbor Maintenance Fees (HMF): 0.125% of your shipment total value (no min / max)
Bringing new products into the U.S. may seem like an ordeal, but with reliable partners and sound advice, you’ll find it’s far more straightforward than it appears! Hopefully this guide can help you get started on sailing through the importing process as smoothly as possible.
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