The Basic Steps to Importing
Importing is often thought to be easier than exporting and perhaps in some ways it is, but there are many traps for the unwary and inexperienced.
It is important that you understand the basic steps:
- BEFORE thinking about placing an order on your overseas supplier, remember that you don't have to be an expert in all facets of importing.
Professional advice is available from your Customs Broker or Forwarding Agent or the Chamber of Commerce.
- A useful way of gaining an insight into the processes involved in importing is to attend the International Trade (Import/Export) Courses.
There are numerous reasons for importing goods. Perhaps you need to import a piece of capital machinery to be used in your company's operations, or perhaps the imported goods are components or inputs to be used in a manufacturing process.
The most common reason is to import for resale (and this is the side of importing we will concentrate on). Whatever the reason, it is important that you accurately determine the landed cost, i.e., the cost of the goods delivered to your warehouse, before you place an order.
The list price of a product in Taiwan or China for example may seem unbelievably cheap, but with on-costs (e.g., freight, insurance, import duty, Gst tax, bank charges, interest, etc.) the product might not be competitive on the Australian market, even before allowing for your profit margin.
It is important that you do your homework first. Having a firm idea that there is a real potential market in Australia for the type of products you wish to import.
Obtain a catalogue and/or sample plus prices from the supplier
The initial contact with a product may come through personal experience on an overseas trip or by contact with a supplier at a trade fare on a trade mission.
Other sources of assistance include foreign consulates, overseas Chambers of Commerce, banks, shipping agents etc. Before proceeding with an order, it may be prudent to obtain Bank or Commercial references as to the integrity and 'bona fides' of the supplier.
Having obtained what appears to be a satisfactory source of supply the next step is to get a firm quotation. Remember to enquire about quantity discounts. Some suppliers may also help to provide assistance with initial marketing expenses, particularly if a new market is being penetrated.
The price should be based on, and include a reference to, Incoterms (ICC publication - available) e.g., US$100 FOB Hong Kong Incoterms or A$500 CIF Melbourne Incoterms.
A reference to Incoterms in the contract price reduces the likelihood of misunderstandings between you and the supplier in transporting the goods to Australia.
You should familiarize yourself with the technicalities of Incoterms. If you require a CIF price, make sure you also ask the supplier to provide you with the FOB price, which will be needed to determine import duties & Gst tax that is payable.
By having both prices you can compare the freight/insurance rates you are able to obtain against those of the supplier. The price should be quoted in Australian Dollars or another major currency.
Exchange risks are eliminated if Australian Dollar quotes are used.
Apply to your customs broker for a classification opinion, import duty rates, gst tax rates, import restrictions and tariff concessions (if any) and quarantine requirement (if any): imported food will probably require Australian Quarantine certification, wooden items may require fumigation certificates.
Obtain freight and insurance rates. Obtain a freight rate from a freight forwarder, shipping company or airline. Obtain an insurance rate from a marine cargo insurance company, your freight forwarder may also be able to arrange this for you.
If you have been quoted a CIF or CIP price compare the insurance/freight components with those you have obtained. Remember also, that it may be easier to execute a claim with your marine insurer than with the Australian agent of exporter's marine insurer.
See the international division of your bank to discuss financial considerations, e.g., how will you finance the transaction and what will it cost to finance? What method of payment is to be used? This may be negotiable with the supplier. Whichever method is to be used, what will be the bank charges?
Prepare a cost analysis
Make sure you include all cost elements i.e., all freight costs into your warehouse, insurance, interest and bank charges, customs clearance charges, import duties, gst and your profit.
Your customs broker will undertake this exercise for you if you wish.
- Ensure you have logistics in place to follow up an order
- Is the infrastructure in place to follow up an order?
- Where will the product be warehoused?
- What inventory control mechanisms do you have in place?
- How and who will distribute the product?
- What marketing channels/promotion outlets will you use?
- How will you give after-sales service and back up to the product?
- What quality control procedures are in place?
- Do you have the necessary personnel?
- Is it commercially viable? - Analise your target market
- Where is your market going to be - local or national?
- Who are your customers?
- What is your competition?
- What market share do you expect?
- What is the growth potential in your sector of the market?
- What profit margin do you expect in the short/long term?
- Have you considered a trial order to test your product on the market?
- Many of the principles of research applied in analyzing an export market apply just as well to the local market The Australian Bureau of Statistics may be able to provide import and consumption statistics for categories of product.
- Publications such as the Grocery Industries Marketing Guide provide sales and market share statistics. However, the most valuable feedback will come from potential customers when shown the product.
- Place an order with the supplier
- Place an order with the supplier and request written confirmation of the receipt and acceptance of your order.
- Your order could be placed in one of several ways - on a printed purchase order form, which could be faxed or e -mailed, or by letter, email or internet.
Ensure that the terms and conditions of the resultant contract of sale are fully understood by both parties i.e.:
- The product/goods
- Price and price basis
- Payment terms
- Special requirements
All orders should be typed and include full cost, quantity and shipping procedure details. It is advisable to set up a structured order form as is required under letters of credit, whatever the method of payment.
As well as quality control from a marketing and retention of customer’s point of view, the importer should be aware of the various State and Federal Consumer standard regulations. The importer should also be aware that, whilst a letter of credit ensures that the exporter has supplied the required documentation, the quality of the goods is not guaranteed.
One way to ensure that the goods are as stated and meet specifications is to make it a condition of the LC or of payment that the goods are inspected prior to shipment by an independent inspection agency.
These agents may even inspect the production of goods at the exporter’s factory, if required. It should be noted however, that each inspection involves a cost, which usually has to be borne by the importer. Another way of testing the quality and delivery of goods is to place a small trial order with the exporter.
Packaging and packing
Packaging is an important aspect in the promotion of a product. Not only must this be attractive to the Australian consumer but must comply with Government regulations. For example, most products must display, in English, the country of origin.
If you are importing a product investigate whether it is appropriate that you obtain an Australian Product Number code (barcode) so that the product can be scanned at checkouts.
Price and price basis
Include reference to Incoterms , i.e., unit price, total price and unit of currency. If the shipment is to be paid for in foreign currency, are you going to hedge against currency fluctuations? If you don't the shipment may cost more, in Australian Dollar terms, than you originally anticipated.
Is payment to be against a letter of credit established by the importer or a documentary collection or some other method? What is the method of payment? i.e., a term or sight bill of exchange or a telegraphic transfer.
The method of shipment, air or sea, will depend on a number of factors, namely cost, type of produce and speed of delivery required.
For example, fumigation requirements, time constraints.
Documents that should be received by the importer's bank (under LC or collection) or by the importer (under open account) prior to the arrival of goods include: Order confirmation, Shipping Advice, Commercial Invoice, Customs Invoice, Packing Slip, Insurance Policy, Contract and legal considerations
Advice your customs broker of the shipping details as given by your supplier (unless you intend to clear the goods yourself). Do this as soon as you receive the details to avoid delays in clearing the goods.
In countries such as China, where the banks are responsible for processing documentation, the customs broker may not receive notification of the shipment until after the goods arrive. Your bank will advise when the shipping documents have arrived. Ensure the documents are in order before you accept them.
When goods arrive
When the goods arrive ensure that your customs broker is in the process of clearing them through customs and quarantine. To clear the goods your broker (or yourself if you intend clearing the goods) will need the bill of lading/air waybill, commercial invoice and any other relevant documents.
Take delivery and examine consignment immediately for Insurance. Give a clean receipt for the goods only when satisfied as to their quality, quantity and condition.
Why should I insure my cargo? We take every care to ensure the safe handling and transportation of your consignment. However, we recommend insurance because there is always a risk of unforeseen circumstances damaging your goods (e.g., fire or theft). Our question to you is, "Can you afford not to insure your consignment?"
It is the responsibility of importers to ensure consignments when the shipment is on a Free on Board (FOB) or Cost and Freight (CFR) basis.
It is the exporters obligation to arrange insurance in CIF/CIP contracts. Banks providing documentary credit will usually want insurance on at least the CFR value of the goods.