What are the best steps-to-follow to head start my importation business? I’ve been importing for years, is there any way I could improve? –– In this quick guide for importers, you’ll learn the industry best-practices in dealing with risks and costly mistakes from marketing, procurement, logistics and more.
As an importer, you need to ensure an efficient sourcing and purchasing process. Accurately managed shipping and logistics movements. And sustainable pipeline to strengthen your position in the market.
Handling business operations from importation up to delivery to your clients – errors are bound to happen. To avoid or lessen them, you need to read a bit and consult experts for guidance before getting started. This guide will walk you through from most common loopholes in importation business, to rarely considered costly incidents.
Each point explains the magnitude it brings to your business in general, and ease in handling the processes in particular – applicable to newbies or old-timer in business.
1. Study Procurement Ethics
Having an expertise on what product you’re looking for, helps to shorten the sourcing process, as you’re able to easily qualify the right supplier.
Nowadays, sourcing is getting simpler due to the rise of price comparing websites (PCWs). You can now find and compare products in platforms like Alibaba, Amazon or others alike.
As you enter into purchasing phase, a kind of culture to your supplier matters. It will shape how you interact and negotiate the product price and setting agreements.
Our pleasure to meet you
Normally, your supplier is trying to build business relationship with you, with the end view of pushing their selling standards. Your response on the tone of your supplier creates the climate of your communication. If you want to haggle things, that’s when negotiations stage opens.
It might sound easy, but when discussion points unfavorable to you, your temper could be triggered, and it might cause friction. Remember, keeping your calmness makes difference. To address this type of situation, practicing integrity, respectfulness and legally compliant would draw the kind of customer you are.
I don’t tolerate this
Also, one of the damaging traits in procurement process is when your team accepts bribery, coercion or any form of favoritism to a certain supplier. Either to award the business or cover-up mistakes. Obviously, when this happens – the business profitability is at risk.
I know Incoterms
Moreover, another key factor in international purchasing is using the right international commerce terms (Incoterms), developed and published by International Chamber of Commerce (ICC). It is the standard ruling to define who’ll pay the shipping cost, is it you or supplier. It also tells when you assumed the responsibility concerning damages or loss of your shipment during shipping.
In its latest version, the Incoterms 2020, it consists of 11 terms that you can choose from. The final product price is affected based on these terms. On flip side, if FOB and FCA Incoterms, you will be the one to look for your logistics provider who will facilitate the shipping from country of origin to yours. Considered as collect Incoterms. This gives you room to haggle the shipping rates.
Both prepaid and collect Incoterms have benefits to you, depending on the frequency and volume of your importation. As an importer, you have the liberty to ask your supplier for another quotation using different Incoterms. The purpose is getting the lowest total cost in bringing the goods into your place.
I can pay now
Lastly, your liquidity matters. Consider opening letter of credit (LC) from banks for payment to your supplier; or somehow ask payment terms. Normally, suppliers would not approve payment terms during early transactions, still ask them upfront – it would show that you might have repeat order in the future.
Quick thought: Finding the right product internationally, building good rapport to supplier, able to negotiate the best price and in managing cash-flow, it’s worth to re-calibrate your: product knowledge, attitude in communication, Incoterms familiarity, spot under the table transaction and consider LC, if necessary.
2. Understand Shipping Cost
Shipping is about movement of the goods from the time it departs from supplier’s door to your door. All activity in between entails cost.
In importation, international commerce terms (Incoterms) is everything. As mentioned in commandment number one, you have an option to use either prepaid or collect Incoterm.
If your supplier has high-volume of shipments across different countries, they may have gained good credit standing in shipping community. In this case, the shipping cost using prepaid might be lower than collect Incoterms.
Send me another quotation
However, inquiring shipping rates from your logistics provider, whatever the standing of your supplier using collect Incoterms, is still recommended to explore, to determine which is the cheapest.
Conversely, if you have regular importation from different suppliers, using collect Incoterms is highly recommended. This way, you’ll earn good account standing in the shipping community as well – as a leverage to haggle for lower rates in the long run. Also, by using collect Incoterms you’ll have full control over your shipment, which has positive implication for commandment number four.
Can you itemize the charges
Finally, your shipping cost is composed of different tier of service description. To further explore for lower expense, asking the break-down of charges is a technique to identify whether charges are properly billed – and ask to waive some charges, if allowed. This works sometimes.
Quick thought: To get the best shipping cost, with an intention to build good account status in shipping, it’s worth to understand: prepaid Incoterms, collect Incoterms and charges break-down
3. Anticipate Shipping Risk
“A ship in harbour is safe, but that is not what ships are built for”, William G.T. Shedd said.
According to Japan Transport Safety Board, 155 cargo ships were involved in marine accidents in 2019 as of November 30. Imagine the number of shipments on board that were affected?
You know that your cargo needs to move, which along the way – things happen. The safety of your shipment puts in vain with human error, technical problem and force majeure. Anticipate them and take measure.
How?
Show me the photos
Require photos from supplier before and after final packing of the shipment – prior to ship-out; same goes with your logistics provider, instruct to have pictures once the cargo is in their custody.
If possible, pay a third-party surveyor to check the quality of the product at supplier’s premises before departure.
Is this insured?
Although it is not required, but always procure local marine insurance, especially if your shipment is not under cost insurance and freight (CIF) or carriage and insurance paid to (CIP). But, though under these CIF and CIP, it’s still great option to have your own insurance to add an extra layer of claim when things went wrong.
In purchasing insurance, it requires a bit understanding on how to do things. Ask clarification from the insurance company if any terms, conditions and coverage is not clear to you.
Lastly, choose logistics provider that has an office in your country for easy access in cases of claims.
Quick thought: Securing the safety of your shipment while in transit and to defined fall back in times of loss or damage, the strategic approach you can take is to: require photos, purchase insurance policy and choose logistics company with local office
4. Prepare for Customs clearance
All items imported into your country must be cleared at Customs office. This include even the small packages like parcels.
The purpose of such clearance is to check whether an item imported needs permit or certification for safety usage, consumption, environment-friendly and won’t threat the stability of domestic industry.
Another purpose is to collect duties and taxes, if the importation is dutiable. So, in this stage, you may loss the entire business if your importation is not properly documented – either incurring cost more than the value of your importation or confiscation in favor to the government.
I have complete documents
To be prepared, know the total cost for Customs clearance, and secure necessary requirements from the time that you’re thinking an item to source outside your country.
Once you have identified the product you want to import, you or your company may be required to apply certain registration or accreditation, depending on your local laws.
To fast-tract your preparation, consult at least two Customs Brokers or logistics companies. They will tell you whether your importation is restricted or not. Also, they’ll give you the estimated computation of customs duties, taxes and other charges.
This proactive approach in pre-importation is applicable regardless of the Incoterms you’ve agreed with supplier. However, when it comes to who’s responsible for paying these costs, either you or the supplier – the answer is again Incoterms.
Quick thought: In knowing the total cost of your importation and avoid confiscation, surcharges and penalties to Customs authorities, you need to do the following ask your logistics partner to specifically compute for customs duties and taxes, and secure the required documents for your company and product
5. Mindful on Local Taxes
Taxes is the lifeblood of the country. In importation, you are required to pay Customs duties or not, depending on the tariff rate in your country.
Incoterms is always in play. Except delivered duty paid (DDP), all Incoterms say that the buyer, which is you, is responsible for the taxes during Customs clearance.
Our best option
Meaning, if you’re using DDP, your supplier is responsible to settle everything. Up to delivery to your place, ready for unloading. This sounds easier to you as an importer, but the tendency is higher product price as a result of possible additional margin from your supplier. To compensate all the task, they’ve done for you.
In other words, thru proper implementation of commandment number one, two and four, DDP is not a best option.
Imported item for sale
Moreover, when you sold the product, another tax computation must be considered. In this area, ask your accountant upfront on the tax implication as a result of your importation.
Quick thought: To derive the cheapest cost for your importation – by dealing with taxes, you need to consider below: choose the best Incoterm for you, ask Customs Broker for customs duties and other charges computation, and ask an accountant for taxes when product will be sold.
6. Choose Right Delivery Provider
This pertains to the delivery of shipment from port of discharge to your door-step, up to delivery to your customer.
The type of delivery providers varies depending on the nature, size and weight of your shipment, from four-wheeler to 10-wheeler van. It can be trailer truck for 20 or 40-footer container van, dry or temperature-controlled, or any type of vehicle for cargo transport.
Please deliver here
For the delivery from port of discharge to your designated address, again, Incoterms defines who will pay the cost.
Your supplier is responsible to deliver, if Incoterms are delivered at place (DAP), delivered at place unloaded (DPU) and delivered duty paid (DDP). While the delivery cost of the remaining Incoterms is borne to you.
Most likely, the rate of delivery is higher if arranged by supplier due to their possible mark-up. So, better to hire your delivery provider. If you have your own fleet, then it’s more economical.
Who are you?
In trucking business, middleman do also exist. To choose the right delivery provider, it’s recommended to transact the direct trucker. The reason is to cut the double mark-up.
Another consideration if your shipment is perishable or heavy cargo, which require additional service feature, is to assess the number of similar jobs they completed. Yes, logistics companies do also have specialties.
Quick thought: To save cost in deliveries, and ensure the safety of your shipment, it’s worth to find time in studying the: Incoterm that enables you to arrange the delivery, and strength of trucking company.
7. Consider Warranty Conditions
Imagine the inconvenience if the item you purchased doesn’t work as expected? And you need to negotiate the terms for warranty due to unfixed and incomplete warranty policy.
In this regard, you need to explicitly verify the warranty of the product you want to import during your sourcing stage.
We know that warranty of products differs according to its nature and usage; either for replacement or service. Talking about service, it can be done within your country or shipping the item back to supplier.
So, if the service warranty should be outside your country, all shipping costs including taxes must be properly defined in advance before you purchase. Otherwise, if for replacement – all tasks and costs must also be agreed upfront.
If the phrases in the policy use deep legal terms, it’s recommended to consult a lawyer for clear interpretation. It may cost you a penny, but being proactive is far better than reactive.
Quick thought: To lessen or even avoid the trouble in filing warranties, you need to: discussed terms clearly, and ask a lawyer, if necessary.
8. Expect Audit
Audit happens when the government is suspicious with the activity and documentation compliance of your business, mostly. Sometimes, it’s random. While regarding on the procedure, it depends on your local laws.
In importation, audit can be a review on the authenticity and completeness of documents at the time the subject goods in question were cleared for withdrawal from Customs custody. And, the correctness of your declaration on customs duties and taxes paid.
This could happen one year, two years or any time after importation. So always keep records of all your transactions, whether in digital storage or printed – for years, depending on the length of time stated on your local law – ask your logistics provider for more information.
Stay out of trouble
Incidentally, your company becomes subject for records verification if any person whom you have previous transaction is subject for audit, which has strong link to your business. You might not the direct party in question, but if you can’t produce an important document to defend your ground, then you’ll be in trouble as well.
Quick thought: One rule of thumb in importation business is record-keeping. You’re more likely subject to audit than the local trader.
9. Develop Competition Strategy
“Every man in the world is better than someone else and not as good someone else.” – William Saroyan
A worth to ponder quote also from James Cash Penney, “A merchant who approaches business with the idea of serving the public well has nothing to fear from the competition.”
In building a competition strategy, you have to consider first your market, second is yourself and third is your competitor.
I have what you need
First, it’s about putting your feet on the shoes of your customer. Think about the solution you want to place on the table. Also, understand their buying behavior. Like, do they prefer cheaper products despite of possible lower quality? Or, high-valued brands for a premium feel.
Second is about your company. The strength and weaknesses, which leads to the third – your competitor. It’s not about comparing yourself to them but rather finding your unique selling factor that the market might not yet realise they need it.
Lastly, it’s time to communicate. From market awareness to selling pitches, boost your competition strategy using the combination of traditional and modern marketing platform. These are billboards, TV ads, radio, magazines, trade fairs as traditional, while digital marketing for modern. Choose only what suits your budget.
We know each other
Another thing is, different industries have different competition level. Some are dominated with personal relationship between sales person and purchasing heads. In this type, sometimes product quality and pricing doesn’t matter a lot. While others are relying on store location, online promotion or occasion. How about your product?
I want sample?
One more thing, product quality leverages. In importation, always ask for sample product from supplier before the actual purchase, or visit their factory, if possible. Added value if ISO certified.
In this stage, pull-up an enough data to support your decision on choosing what brand you want to carry, based on your findings regarding the market buying preferences – which becomes your reference in looking the best supplier for you.
Quick thought: In developing competition strategy, you have two options to consider – study the pattern of the market then follow them or drive your business to become the industry game changer.
10. Build Business Pipeline
Business pipeline is the cornerstone of your business. As we all know, even you have the best product in the world if you don’t have the market to sell, your business doesn’t move.
This pipeline is the number of business that you’re expecting for the next days, months or years, depending on your product niche.
I’m a salesman
Building pipeline is about crafting your sales funnel. Qualifying group of people or persona as prospects, reaching-out and present your case, and follow-up to close the deal. In other words, the cycle is prospect, present and follow-up.
A popular sales funnel tip by Brian Tracy is 80/20 Rule, that says “Spend 80% of your time prospecting and presenting and spend only 20% of your time following up”. And, “Never allow yourself to run out of prospects. Keep your sales funnel full. Remember, you have to go through a lot of prospects to get a very few sales”, he added.
I know digital marketing
Nowadays, there are various ways to build your list of prospects. This includes, chat bot automations and google analytics if you have websites. Analyzing the reactions on your social media campaigns, and other community engagement like public forums and trade fairs.
Another way to generate prospects are conducting free public training in your area, sponsoring an event related to your industry and doing webinars.
Quick thought: In building a reliable pipeline, the proven formula used by world’s top professional sales person are: mastering the prospect, present and follow-up selling cycle, and developing a habit of 80/20 rule.
Wrap Up
You have learned the 10 commandments to become a competitive importer. Through this quick guide, you’re able to penetrate the market without squeezing your profit margin just to win the business and compete your fellow importers.
We have discussed the power of attitude in communication during procurement stage in your importation. Simultaneously, inserting clarification on warranty policies. How Incoterms familiarity saves tons of dollars in your shipping and delivery cost. The impact of favoritism in the process, and the possibility to consider bank letter of credit for cash flow.
Now, you also have an idea on how to address shipping risks, customs clearance compliance, taxes and the weight of trouble if you don’t anticipate audit.
Finally, you’ve learned the simplified way of building business pipeline and competition strategy for business growth and sustainability.
People are also reading
Content in this article is based on real-life best practices and research by the author, which do not necessarily reflect the stands of supplychainpedia.org. Michal Jarmoluk, Gerd Altmann, Alfred Derks, Skeeze, PublicDomainPictures, Steve Buissinne, Tumisu from Pixabay.com, and Kinsey, Ben Neale, Helloquence, Austin Distel, Ryoji Iwata, Matthew T Rader, Jeshoots.com, Nikolai Chernichenko, Randy Fath, Kelly Sikkema on Unsplash.com.
Thank you for the tips. Hope you can add more details.
Thanks for the compliment and feedback, Kenneth. Sure, will update this topic. If you have specific questions, please feel free to ask.
Thanks for sharing these tips, Mark. These are great tips if you want to improve your importing business.
Thanks for the compliment, Cherry. Highly appreciated.
Helpful article, Mark. Appreciate it’s contains really useful information. if you can explain number 8 further it would great.
Love to hear back from you.
Thank you.
Hi Ajayathwal, thanks for your feedback. The item number eight has been updated. If you have further question or other concern, please feel free to ask. Again, thank you.