Blog

How To Use A Letter Of Credit

Knowing how to use a letter of credit is an important part of international trade as it’s a very versatile instrument and when used correctly, a very import method of payment to have in your arsenal.

Simply put, under a letter of credit a bank guarantees payment which can allow the seller to receive funds before the goods are delivered, which can be advantageous if capital is needed up front.  This may sounds little confusing to start but we will break this down.

The Four Types of Letters Of Credit

Firstly, lets start with the four most common types of letter of credit and when to use them.

IRREVOCABLE:  An irrevocable letter of credit, once it’s born, cannot be changed or amended without the consent of both the buyer and the seller.

RED CLAUSED:   This clause is very useful when the seller needs to raise funds from the letter of credit, for example to buy raw material for a building contract. The amount available is usually printed on the letter of credit in red ink, hence the name “red claused”.

TRANSFERABLE:  This can used by the seller  to purchase goods needed to fulfill the contract from a third party. For example, steel, concrete and brinks to complete a building contract. This is extremely useful when the seller may not have available funds to purchase the goods to complete the contract, so could use this method to raise those funds by guaranteeing payment to the third party supplier.

CONFIRMED:  This is used when the seller is unsure of the buyers’ bank’s ability to honour the letter of credit perhaps due to political or financial unrest in the buyers country. The letter of credit is confirmed by a second bank which usually the sellers bank. The confirming bank becomes the prime payer and seeks reimbursement from the buyers bank.  This is a little complicated but will be made clear as we dive into the detail.

Types of Letters of Credit

Are Letters Of Credit A Method To Make Money Without Money?

A transferable letter of credit enables the seller to buy products to fulfill the sales contract from a third party without using their own funds, instead using the funds from the contract itself. Think of it as an advance on the payment that will be received on completion of the contract.  Once this “mother” letter of credit has been born, it can be split up and transferred to as many parties as needed as long as the total does not exceed the amount of the original “mother” credit.

Transferable letters of credit are often successfully used to purchase high value goods without having to dip into company funds where cash flow may be tight and the company may not be sitting on bundles of cash.  Be warned however, they are not as simple to obtain and use as some would like you to believe.  It certainly should not be a way to make money, without money.

Why Aren’t Letters Of Credit Always Used?

Letters of credit as you can see are a versatile method of payment and an excellent way for the seller to deliver a contract even if they don’t have the needed funds to hand.  However, as with anything in life, there’s advantages and disadvantages.  Here’s some of the pitfalls that you would be wise to be aware of:

  • The buyer may not want to give you a transferable letter of credit as they can be very expensive to establish. As we all know, banks seldom do anything for free and establishing a letter of credit is no different.  The bank will charge the buyer a fee for this service, something that the buyer may not be willing to pay.  This could be where your negotiating techniques will come in very handy in convincing your buyer that this is the best course of action.
  • If you are not familiar with letters of credit and do not have a good track record of trading under a letter of credit, you can make costly mistakes. Make sure you know what you’re doing.  There could be a lot of money at stake and you you certainly don’t want to chance it.
  • Some third party suppliers take a lot of persuading to release their goods against a transferable letter of credit, especially when they have no previous experience of trading under such a credit. It could take some time and reassurance explaining why a transferable letter of credit is a guaranteed payment and trust between you will have to be established.
  • You may have to do a lot of “hand holding” with your third party supplier and allow them gain their confidence in you and your ability to successfully negotiate the original “mother” credit and ensure that their “child” credit is a guaranteed payment. One way to establish confidence is by explaining once the contract is delivered, it is the bank themselves that will pay out all the “child” credits to the debtor, so there is no need to chase any payments.
  • You must be confident in your own ability to utilise a transferable letter of credit which really only comes about from hands on experience and training.

See below for a handy print guide that we have developed on letters of credit:

Letters of Credit

A Real World Example

Not so long ago we were asked to work with a small London based building company who had been awarded a nicely sized contract to build a brand new, modern sports facility in the United Arab Emirates.

The high end sports facility would include a swimming pool, saunas in the changing rooms, two basketball courts, a full size gym with aerobic equipment as well as a lounge area complete with table tennis and pool tables and health bar.  As you can imagine, this type of facility doesn’t come cheap and the contract value was negotiated and agreed at just over £1.6 million (GBP). This included the raw materials, exporting of the required materials that could not be sourced within the UAE and the construction of the facility.

How To Raise £1.6m

As you can probably imagine, most businesses don’t have £1.6m sitting in their company bank account so raising the funds to complete the project was something that needed to be handled.  This company took the traditional avenue and approached their bank for finance but for one reason or another weren’t granted the entire amount.  They subsequently approached other finance companies who offered them funds but the terms of repayment weren’t suitable.  At this point, the project looked to be in jeopardy and the contract had to be reconsidered.

On contacting ABTS Training, we suggested that they ask their client in the UAE for a transferable letter of credit from their bank.  What this meant was that the client approach their bank and ask them to issue a transferable letter of credit for the value of £1.6 million, which is passed to the UK building company.  This assures that funds are available and that the payment will be made if the correct documents are presented by the UK company, such as invoices, bills of lading, packing list and others.  The bank is guaranteeing the money and becomes responsible for the payment.  Negotiation skills need to be on point with this as, as mentioned before, there is a cost to the client in the UAE to issue this transferable letter of credit.

Breaking Down The Transferable Letter Of Credit

As this is a real-word example, lets break down what was actually included in this letter of credit and the inner workings of it.

CONFIRMED
This particular letter of credit was issued from the clients bank in the UAE via a bank located in the UK, so it was this UK bank that was ultimately responsible for paying out the £1.6m.  This UK bank was unknown to the building company in the sense, they had no relationship with the bank, so in order to minimise their risk, they asked their bank, Natwest to “confirm” the letter of credit.

What this means is, Natwest confirms the letter of credit exists (taking away the risk of any fraud, which unfortunately does happen) and that they (Natwest) will honour it on the presentation of all the relevant and correct documents.

As you may have guessed, Natwest do not do this for free and charge our building company a fee for this service but it’s a fee that gives our building company peace of mind.

TRANSFERABLE
A transferable letter is a letter of credit that simply means the building company can “break up” the letter of credit and use it to pay who they need to pay, for example, steel suppliers.  As mentioned earlier, a transferable letter of credit can be broken up from one “mother” credit, into “child” credits and distributed as long as the combined value does not exceed the mother letter of credit.

RED CLAUSED

As mentioned above, a “red clause” allows a stated percentage of the value of the credit to be received by the building company, effectively in cash and be used for immediate expenses, such as paying staff during the building period.

In this case of the UK builder requested a 5% red clause and used this money for up front costs such as architects fees and plans, staff costs and engineer’s site visits.

Know What Your Doing

Almost half of letters of credit received in the UK are unworkable according to some research, the buyer requests documents which the seller is unable to produce, so be aware and be proactive, not reactive.

As you can see, letters of credit are a great way to fulfill projects when cash is tight but it’s really important to know what you’re doing as they can be complicated. If you get it wrong, you could be left holding the can and unfortunately there are many horror stories of contracts going desperately wrong due to people not understanding how to properly establish and use letters of credit.  Don’t be one of them!

How To Source Products Internationally

Sourcing products around the globe is a much easier task than in years gone by. Jumping on to Google, makes it much easier and quicker and is certainly the first port of call but there are still other avenues that shouldn’t be ignored.

Finding An Edge

We once had an importer and retailer of pine furniture sign up to our online course as he wanted to learn other methods of sourcing and increase his options of suppliers and not be limited to his sole supplier in China.

This entrepreneur had seven furniture retail outlets throughout the UK and his business was growing. He felt he was vulnerable having just one supplier and for security needed to look at other options potentially in other parts of the world. At the same time, he wanted to gain a competitive edge being that all his competitors were selling the same furniture designs as him, so all he could compete on was price which was squeezing profit margins.

After some consideration and research with his customer base, he decided he needed to develop bespoke designed furniture, which he felt would give the needed edge and these designs would be marketed as exclusively his. After listening to his customers, he catered for their needs and desires and went about drawing up a range of furniture.

He approached his Chinese supplier and manufacturer and inquired about producing this range of bespoke pine furniture but they were unable to accommodate this request because of the large cost involved to them in retooling their machinery for a comparatively small order.

Sourcing New Suppliers

With this, we advised on sourcing alternative manufactures and looked closer to home. On doing some initial research, we suggested Cyprus as a first point to finding new sources as we found it to be a pine furniture manufacturing base and pine wood was in abundance, lowering the price of the raw material.

The next step was of course to find a supplier and manufacturer there, so we decided to contact the Cypriot embassy in London and ask them if they would be able to recommend any reputable and established companies. They were very helpful and of course, happy to promote Cypriot furniture makers and we were pleased to receive credible recommendations.

The Embassy made several introductions to manufacturers that were fit for purpose and eager to win the contract. Our entrepreneur discussed his needs for his bespoke pine furniture to be manufactured and exported to the UK which were well received and two reputable and established companies submitted quotations, both within the same ball park figure.

Both companies invited our entrepreneur to visit and have a tour of their factories, see firsthand the quality and craftsmanship of the furniture and discuss his final requirements.

Keeping It Competitive

After reviewing both proposals, further negotiations and being impressed with the manufacturing process of both companies, the order was actually split between the two companies giving our entrepreneur further security in having two reliable manufacturers but also being able to gain an air of competitiveness between them, ensuring that price would remain competitive.

The Chinese supplier was kept and continued to ship furniture and was offered to customers as a lower priced range, keeping this target market but putting our entreprenuer in a position to up-sell the bespoke range when possible.

All Your Eggs

The saying goes, “don’t keep all your eggs in one basket” and in this case it was great advice to follow. The result was an increase in customers, sales and profits due to people being unable to buy this range of furniture anywhere else and the retail business has gone from strength to strength.

The Internet is without doubt the easiest and fastest way to find suppliers and manufacturers but there are alternatives. In this case, it was beneficial to make contact with people that we were able to trust in the Embassy and use their knowledge and credibility to find these reputable manufacturers.

Keep Thinking Outside the Box

When starting of growing your business, it’s worth keeping your options open and checking all avenues as well as continuing to ask yourself, how can I keep my edge?

What Can I Import And Sell?

The story of Lord Alan Sugar is a great one, from selling radio aerials for cars and other electrical goods out of a van, to a market stall, to multimillionaire. Buying and selling really isn’t rocket science and can be hugely rewarding and make you financially successful.

However, as with any business venture, sometimes we need help getting ideas together as a kick start to moving things to the next level.  In setting up an import export business, the first question is always, “What can I import and sell?”.  Finding a niche or a gap in the market takes some time and research but there’s generally a market out there for everything.

There is literally a world of opportunity and the best part of researching what’s out there  to import and sell at home is the chance to travel and discover amazing products from other cultures and countries.

So pack your bags and grab your passport, here’s some ideas to get you thinking from six countries.  Once you’ve figured out what you want to sell, check out our guide on how to find buyers for your products.

India

Leather Products

Leather is a prominent industry in India with leather also being one of the most widely traded items in the world, always in demand and can be considered ageless.  Shoes and coats never go out of fashion and can last for years.  Leather purses, bags, briefcases, belts, wallets, gloves, the list goes on, there is a huge range of products to import.

There are more than 1000 leather exporting companies in India. Some of the prominent players are Prara Leathers Private Limited, Rahman Industries Limited, Farida Prome Tannery Private Limited, Tata International Limited, Super Tannery Limited and Blue Diamond Leaders.

ABTS Training also has a contact in India that has joined our Facebook group offering leather goods and handicrafts.

For more information and data see IBEF.

Jewelry and Precious Stones

India has long been considered to be the hub of the global jewelry market because of its low costs and and highly-skilled labour. India is the world’s largest cutting and polishing centre for diamonds. The gems and jewelry market in India is home to more than 300,000 players, with the majority being small players, so this is a great opportunity to go to India experience the culture, speak to jewelry dealers and see what opportunities are there.

Jewelry is such a huge market in India with a market size of US$75 billion as of 2017 and is expected to reach US$ 100 billion by 2025, there’s no reason why you can’t take a piece of the pie.

For more information and data see IBEF.

Egypt

Cotton

Egypt is famous for having the highest quality cotton in the world and is always in demand, worldwide. Production using fine Egyptian cotton includes  shirts, fabrics for trousers/shorts, worsted wool fabrics, denim, fleece, jersey, flat/woolen knits and much more. Apparel production includes active sportswear, outerwear, underwear, suits, socks, infant wear etc. Production of arguably the most famous use of Egyptian cotton includes a wide variety of bed sheets and bath towels.

Perfumes and Cosmetics

Egypt was once the prestigious center of the international perfume industry. Perfumes were created and mass-marketed elsewhere in the ancient world but it was Egypt that was most renowned and identified with the international perfume trade.

80% of the world’s natural jasmine products, come from Egypt, where specialists in this ancient art extract the aromatic oils from a profusion of flowers, leaves, roots and herbs and export them to perfumers in Paris, London, New York and even Moscow. Egyptian perfumes is a huge export market with some great opportunities.

Nigeria

Locally Made Weaves

According to some estimates, Africa’s dry hair market, this being the market for weaves, wigs and hair extensions, is right now worth over $6 billion a year and growing rapidly. Western countries, particularly the US and UK are in high demand of weaves and will pay top dollar for real human hair.  Incidentally, Thailand is also a great source for real human hair, sold in many of the markets for very reasonable prices.

Ginger, Garlic, Sesame Seeds and Nuts

Nigerian exports of nut related produce including oil seed, oleagic fruits, grain, seed, fruits is massive. Sesame seeds are in much higher demand too being that Sushi restaurants are now so popular.  Ginger is one of the most traded spices in the world and Nigeria has an abundance. Starting a Trans-Sahara or Trans-Atlantic trade with these products will be profitable but take some research and time to find buyers for your exports. Garlic is also on top of the list and is easily exportable from Nigeria.

In our Facebook group we have suppliers in Nigeria offering tigernuts, garlic, ginger, sesame seeds and palm kernal oil.

Turkey

Knitwear

Exports from Turkey are exploding with 2018 setting a record year of $168.1 billion, demonstrating the high level of demand for Turkish products.  Turkey is one of the world’s leading manufacturers of knitted fabrics, having the largest share in Turkish industrial production and being one of the first established industries in Turkey.  Turkish knitwear is known to be of the highest quality with worldwide competitive pricing making it an ideal product to import.  The potential for solid profits within this textile is huge.

Carpets

One of the world’s most prominent carpet manufacturers, Turkey is continuously expanding its global market share with increasing exports year-on-year. The Turkish carpet industry is renowned  worldwide due its superior-quality products and advanced technology in production. Turkey currently holds a 15 per cent world market share in carpet trade and ranks in the number two spot behind China who takes the top spot.

In our Facebook group we have supplier offering carpets from Gaziantep in Turkey.

Thailand

Mobile Phone Accessories

In every mall, high street and market stall, there are shops selling just mobile phone accessories. From unique looking earphones, crazy and cool phone cases, to selfie sticks and battery packs the appetite for the latest, coolest phone gadget is is enormous, worldwide. Importing these products  is a great opportunity and the cost of these products in Thailand are significantly lower than other countries worldwide, coupled with quality craftsmanship.

Shoes

Shoe shoppers love Thailand! There are a gazillion varieties of shoes available in Thailand and at great prices. Importing shoes is a relatively safe investment as demand is stable and profit margins are solid.  Street markets and local retailers are a good place to start when it comes to finding buyers.

South Africa

Wine

South Africa’s wines are held in very high esteem but South Africa is not taking full advantage of and could export more wine to the rest of the world. With a weaker currency, South African wines are comparatively cheaper to those of other countries with stronger currencies. South Africa is currently the 12th biggest exporter of wine, with wine exports of SA bringing in $661.6 million. However, South Africa’s wine exports was the 2nd cheapest of the top 13 wine exporting countries in the world. This is an export market waiting to be taken advantage of and will likely see comfortable profits.

Gems and Precious Metals

South Africa Exports of Pearls, precious stones and metals was US$14.9 billion in 2018. Needless to say there is always a demand for diamonds and gold around the globe. The nations with the highest demand are Japan, USA, UK, Hong Kong, Germany, UAE and Belgium.

Be Your Own Boss

Hopefully this have given you some ideas to starting up your own import export business. Some reports state that around 70% of us are unhappy in our job. This being true, it’s always possible to change career and take the plunge and start up your own business. It’s scary but for those that do it and are willing to take the time to learn a new business, do their research and have the guts to take action, it’s well worth it.  For a little inspiration, here’s a story of how one of our students did exactly that and is now exporting Spanish wine to China.

How to Find Buyers For Export

One of the most common questions we’re asked by entrepreneurs thinking about getting involved in importing and exporting is, “how to find buyers for my exports”. There is no single or straight answer to this question, as you can imagine it depends largely on what your exporting and to what country or region.

It’s wise to spend time researching the market online for your export in various countries and areas before you take the leap. Ask questions on forums, Facebook groups and any other ways of getting some opinions from local people. This will be valuable as you can’t beat the feedback from local people who live and work in your target area. Asking about pricing and even product opinion can be very beneficial feedback.

We recently wrote an blog on how to sell globally from your own website so we won’t go into any detail on this avenue in this blog but there are plenty of other ways to find buyers for exports to think about.

Do It Yourself

With so many websites now online that allow you to sell your own products, why not consider listing your products? The biggest and most well known are Ebay, Amazon and AliExpress and as they’re international this is a great place to start. Register an account and add your products to these sites and see if you place any orders. If you do, you can be more confident about demand for your product in that country or area.

There are many smaller but well known sites online that specialise in smaller retailers and handmade goods such as Etsy and NotOnTheHighStreet. A small amount of research for your target country I’m sure will reveal others.

Best Practice

If you take this approach, it’s worth spending some time studying the best practices for listing your products so that you can take full advantage. For example, make sure photos of your products are well lit and show enough detail. Take photos from various angles so potential buyers can clearly see all of the product and consider even developing a short promo video. Write a descriptive title and description and answer any of the most common questions about the product so users don’t have to contact you and wait for a reply in order to get the answer to their question. When they’re ready to buy, you want to make sure there are no obstacles in the way and they “Buy Now”.

Customer Service

Make sure you offer an excellent level of customer service. Answer questions promptly, when you have your confirmed orders, ship your goods quickly and don’t delay. Update the customer with shipping and tracking codes so they can keep track of where the delivery is. Zappos has sold over a billion dollars in shoes and it built this off the back of excellent customer service. There is a lot to learn from Zappos and how they made customer service their priority and in return their customers gave them loyalty.

We All Read The Reviews

In return for great customer service, ask for a favorable review which are obviously important for credibility. This gives your next potential customer confidence, not just in your product but your service. With some good reviews, they may not hesitate to click the “Buy” button.

Bringing It Together For Wholesale Export

Once you’ve sold some products and built up a base of customers and good reviews you can use this to a second advantage. Contacting wholesalers and having a credible track record can be a big advantage. To be able to say that you’re already selling your products in the local market reduces risk to the wholesaler. If you can say that you’ve already sold “X” number of products in their country and you have “X” number of positive reviews that your potential wholesaler can verify, this is a great way to begin a pitch of your products and will no doubt get the attention of both wholesalers and retailers.

This begs the next question of how to find wholesalers and retailers for your products?

Google Search

It may sound obvious but Google as we know is the king of search so start here. For example, if you are exporting rugs or carpets from Turkey, perform a Google search on “rug wholesalers in UK”.

You’ll get plenty of wholesalers that you can contact and see if you can generate any interest in your products. Wholesalers received many emails and calls, being offered products all the time, so try and stand out from the crowd. A well written email, with clear and professional photos of your products is a good start. We will write another blog on the best approach to contacting buyers and wholesalers.

Follow The Kompass

Kompass is an online business to business directory, with more than 20 million companies, in 70 different countries. This is a great business resource and have a good chance of finding buyers for your exports within its listings. The information is not free and you have to buy lists of companies but the contacts are a great place to start.

National Embassy’s

This is more of an old school approach but still relevant. National Embassy’s want to promote trade between their country and the world and are there to help create these links. Contacting the commercial section of a country’s embassy and asking if they can provide you with a list of wholesalers of your export product is well worth doing.

This also works in reverse, if you are looking to source particular products from a country, contacting the embassy of that country is a good idea. For example, some years ago, we had an entrepreneur looking to source pine furniture to import to the UK and sell. He contacted the Cypriot embassy in London, where he was based and asked if they could help. Cyprus has many pine trees and is well known for its furniture so this was an obvious place to source. The embassy was happy to help and promote its exports and give a list of reputable and well established factory wholesalers and our entrepreneur went on to negotiate some great deals and setup a successful business.

Chambers of Commerce

Chambers of Commerce (e.g. British Chamber of Commerce) are another good resource to make contact with, much like national embassy’s. The Chambers want to promote international business and commerce and have close links with many industries and companies in local areas. They can offer advice and help and often support businesses by offering training so are able to certainly push you in the right direction.

ABTS International Trade Facebook Group

Lastly, ABTS Training has recently setup a new Facebook Group free to join, where we hope we will be able to match up buyers and sellers worldwide and answer any questions on international trade as well as any tips and discussion.

Feel free to join our group.

Import Export Training Course Online

Hopefully this blog gives you a few ideas on how to get started with your import export business and in particular how to find buyers for your export products. There is one more option which is to find stockist or commercial agents but we’ll save this for another blog, so make sure to follow us.

We’re currently offering our online import export training course for just £99 so now’s a good time to get stuck in and get to grips with all aspects of international trade, particularly trading under WTO rules. Learn how to streamline your import export process and keep your profitability as strong as possible.

We were voted Best Trade Education Provider in 2017 by Trade Finance Global and our course has been validated by the London Institute of Shipping and Transport.

Check out our reviews on multiple sites and let us know if you have any questions.

What are Incoterms and How Are They Used

Knowing what Incoterms are and why they are so important is to going to be the foundation of your exporting process.  Think of Incoterms as code words that are used within international trade that make it 100% clear where everybody’s responsibility lies as far as the place of delivery, the division of cost and where the risk passes to the buyer.

Why Do We Need Incoterms?

When we buy something from eBay, we expect the seller to receive our money and send us the product that we’ve paid for. If we don’t receive this product, we can contact the seller and address the problem or should that fail,  contact either our credit card company and/or eBay and they will act on our behalf and settle the dispute.

Obviously in buying something on eBay the process is pretty simple but the seller may say once they put the product in the post and have the proof of postage, it’s no longer their problem.

If the package is lost in between, it could be the fault of the post office or maybe it was delivered to a neighbor.  There are variables that come into play and if something goes wrong, the responsibility of the buyer and seller is not so clear. However, on this small scale it’s usually reasonably easy to resolve.

Incoterms, or these “code words” were developed to clear up any issues on exactly who is responsible for what and make sure that there cannot be any misunderstandings.  The prime purpose in developing Incoterms is to identify where the buyers and where the sellers responsibilities lie under three main areas:

  1. The place of delivery from the seller to the buyer.
  2. The transfer of risk from the seller to the buyer.
  3. The division of costs between the seller and buyer.
How Many and What Are They?

There are 11 Incoterms that are divided into 4 categories.  There are new Incoterms due to be developed for 2020 so this may increase but these are currently the 11 Incoterms in use on the international logistics stage today:

  1. EXW (Ex Works)
  2. FCA (Free Carrier)
  3. FAS (Free Alongside Shipping)
  4. FOB (Free on Board)
  5. CPT (Carriage Paid To)
  6. CIP (Carriage and Insurance Paid To)
  7. CFR (Cost and Freight)
  8. CIF ( Cost, Insurance and Freight)
  9. DAT (Delivery at terminal)
  10. DAP (Delivery at place)
  11. DDP (Delivery Duty Paid)
Which One Should I Use?

It’s beyond the scope of this blog to go into detail on each Incoterm as it would take quite some time but as you’ve probably guessed, which Incoterm(s) you should be using depends on  various circumstances. Not least, your customer may ask you to deliver under a preferred set of Incoterms, so it’s wise to be well informed on what all 11 Incoterms mean and how to use them.

In my experience, the majority of companies that I deal with, tell me that they try to trade under EXW as its ‘Easy” and requires the minimum involvement in the logistics of delivering to their overseas customer.

Two Very Different Examples

Using the following two examples, you can see there are two very different ways to achieve the same thing, namely getting a delivery of your goods to your customer.

Scenario One Using EXW

Here’s an example of what’s needed if you as a seller were to export under the Incoterm EXW (Ex Warehouse):

  1. Place of Delivery: The sellers warehouse door
  2. Risk Passes: At the sellers warehouse door
  3. Cost: Cost of production plus profit (or the price on the invoice)
  • Export packing (if required)

 

As you can see, by using EXW, you have very little work to do other than preparing the goods, boxing them up and have the shipment waiting at your door ready for collection.

Delivery Ex Works is great if you can agree on that with your customer but what if they request any terms of delivery? This is where you’ll need to know and understand Incoterms.

Scenario Two Using CFR

Now let’s say that you’ve negotiated and landed a large order, that’s a profitable deal with a new customer and they’re potentially going to make many more orders in the future.

They don’t want to organise the logistics of collecting their order from your warehouse but instead want you to organise the delivery to them.  They ask you to complete the order under the Incoterm CFR.  This very much changes the work involved from the sellers point standpoint:

  1. Place of Delivery:  On board the vessel
  2. Transfer of Risk:  When goods are placed on Board the vessel
  3. Division of cost:  Cost of production plus profit (or the price on the invoice)
  • Export packing if required
  • Export Entry Declared to HMRC
  • Weight Certificate
  • Transport to dock of Export
  • Terminal Handling Charges
  • Security check if required

 

Contrary to EXW, by trading under CFR there is much more work to do in preparing the order for export and transferring the shipment to the dock in order to be transported, not to mention you as the seller are extending your risk because you’re not “off the hook” until the goods are on the vessel.

There may also be a cost implication as you’ll have to cover transportation from your warehouse to the dock and the various documentation as listed above.

As a seller, EXW is preferable of course but there will be times where a buyer asks you for something different, so be prepared.  In this case you would need to know that trading under CFR will require the following:

  • You as the  seller must have a basic knowledge of the export procedure
  • Obtain Export Licence IF required
  • Arrange transport to port of loading
  • Make an export entry to HMRC
  • Register for EORI status
  • Obtain freight quotation from Freight Forwarder or direct from shipping line
  • Issue Bills of Lading Instructions
  • Arrange for Bills of Lading to be forwarded to the seller according to the method payment involved in the contract between seller and buyer

 

There’s much to understand in exporting your orders around the world and if you really want to grow to a global scale, you must have an excellent grasp of export procedure.

Import Export Training Course Online

We’re currently offering our online import export training course for just £99 so now’s a good time to get stuck in and get to grips not just with Incoterms but all aspects that you need in order to streamline your import export process and keep your profitability as strong as possible.

We were voted Best Trade Education Provider in 2017 by Trade Finance Global and our course has been validated by the London Institute of Shipping and Transport.

Check out our reviews on multiple sites and let us know if you have any questions.

Profit From Britain’s Greatest Export For Next To Nothing

Britain is a country of innovation and excellent quality products. There’s so many incredible exports the United Kingdom has to offer that the opportunities are literally endless.

“Can Do”

I’m a big believer in the “can do” mentality. Elon Musk, Jeff Bezos, Warren Buffet, Bill Gates and Walt Disney all started with an idea. They took that idea, believed in it and never stopped running with it. Here’s a reality check, the photo on the left was Jeff Bezos office in 1999.

He is now the world’s richest man and he achieved it in less than 20 years.

Britain’s Visiting Tourists Will Spend £26.3 billion In 2018

A friend recently asked me to help him think up a business importing exporting. As I got to thinking, I realised his biggest advantage is where he lives, Oxford. On doing just a small amount of research, the figures show that Britain’s tourism industry is huge and only getting stronger. Here’s a few facts from Visit Britain:

  • 2017 set a record for inbound tourism to the UK in terms of both visits and spend. There were 39.2 million visits to the UK in 2017, up 4.3% on 2016, with these visitors spending £24.5 billion, an 8.7% increase on 2016. The growth in visits was in line with the trend seen over the past five years. The growth in spending was the highest since 2013 and the second highest since 2006; spend per visit rose by 4.3%.
  • Our revised forecast for visits for the calendar year 2018 is for continued growth. We are forecasting 40.9 million visits in 2018, an increase of 4.4% on 2017. Our forecast for spending by visitors in 2018 is £26.3 billion, an increase of 7.1% on 2017.
  • London obviously receives the most visitors but Oxford is already 8th on the list

A very interesting article in The Guardian gave interesting statistics on the amount of Chinese tourists that are now travelling the globe and the UK.

The Back of Your Hand

£26.3 billion is more than enough to go around so why not take your slice? My friend has lived all his life in Oxford and knows it like the back of his hand. His whole network is there so rather than think too far afield I suggested he start at home. Why not create tours of Oxford with your own flare. Sure there’s people doing it already but there’s no market in the world that’s untouched and without competition. He knows Oxford better than anyone and can take visiting tourists not just to the usual sites but his favorite places.

He can try and negotiate deals with local businesses, many of which he already knows, offering his tour groups a discount if brings them.

Home On The Range

One of the points we teach in our free import export training tips is the have a range of products. Always easier to come away with a sale if you offer a range of products opposed to just one. Our Oxford tours idea is no different, which could offer several tours to cater to different audiences:

  • The Pub Crawl: Who doesn’t love a pub crawl. Take your guests on a tour of some of the best local pubs, try some of Britain’s best beers and ale’s!
  • Food Tasting: Tour Oxford’s tea rooms, fish and chip shops, bakery’s, the many places that my friend knows and loves. Ask if they will cater for a group offering smaller portions as a few hours of eating at different places means you can’t eat the usual full size plate.
  • Movie Sets: There’s many movies and series that have been filmed in part in Oxford, running a tour visiting these and giving some local insight is something tourists love to see.
A Captive Audience

Once the tour group is in front of you, there’s a captive audience. Personality will make a difference so interjecting this would make the tour more enjoyable, interact with the group and this builds levels of trust. Building on trust then look to sell products to the group. We all love a souvenir, so negotiating with local businesses that offer fine, perhaps hand made products and these can be offered to the group.

I suggested my friend also makes sure to get the groups contact email and any other details as many tourists will return to a holiday destination. They may want to take another of the tours or hear about newly created ones.

Get their feedback and make changes as that feedback suggests.

Export Britain

Perhaps another piece of the jigsaw is to then get an online ecommerce site and promote this to the same audience and export Britain around the world. See our blog post with practical advice on how to go about getting online and exporting globally, without having to have a huge budget.

Offering tours as well as fine British products online is a double income stream.

You Won’t Know Until You Do It

As you can see, setting up this business really won’t cost a fortune and all you’re doing is taking the knowledge you have and using it to build a business. Take what interests you have and stick to what you know, this is key. Focus on one thing to start with, then grow your business organically.

Once you start to get the audience, you can market to them. The UK has some fantastic products and places to see and millions of people from around the world come here to experience it every day.

Creating your own import export business isn’t rocket science, it just takes a thought and a little imagination.

What Is A Freight Forwarder and How Do They Help Me Export?

Knowing what a freight forwarder is and how they can help you with your exporting process is really important as at some point you’re very likely going to need to work with one.

When it comes to freight forwarding, there’s three main questions to answer:

  1. What is the role of a freight forwarder?
  2. How do I select a freight forwarder?
  3. How do I find a freight forwarder?

I ran my own freight forwarding company for many years so I am well qualified to answer all three of these questions and I hope it will become clear to you the advantages of using a freight forwarder.

Exporting Isn’t The Same As Going To The Post Office

So let’s dive straight in and answer the question, “what is a freight forwarder?”.  When exporting, the most important thing to know is how to move your goods from the warehouse to your destination.  Unfortunately, once your exports get to a certain size, it’s not as easy as going to the post office or Fed Ex, paying the fee and sending.

Exporting larger loads is a multi-step process and that involves knowing how to find the most competitive freight rates, booking that freight for shipping, having to complete all the export documentation which can include an export entry, Certificate of Origin and Bill of Lading to name a few. Gaining the knowledge for this is wise, so that you can understand, manage and control every step of the process yourself and therefore know firsthand where problems may lie in your export process and fix them in order to constantly streamline that process and become as efficient as possible. ABTS Training offers an online import export training course that will do exactly that; help you streamline your export process.

However, if you don’t have the time to study as you’re juggling what may feel like a million things, there’s freight forwarders. A freight forwarder will take care of all these tasks for you and will likeley offer other services such as export packing, warehousing and local transport. They become your adviser and hopefully someone you can trust.

What Can I Ask A Freight Forwarder?

In short, anything you want about how to get your goods from your warehouse to your destination.  For example, if you need to get your products to China, you may want to ask them:

  • When is the next vessel sailing for your Shanghai?
  • How much is it to ship a FCL to Shanghai?
  • What is the air freight rate for 40 kilos to Hong Kong?

 

A phone call or email to your freight forwarder may answer many of your questions and you’ll likely get  some free advice as you only pay when they undertake an export consignment for you and send you the invoice. As you can see, the advantage of using a freight forwarder is they are a one stop shop and will take care of the entire process for you. But as you know, when there’s an advantage, there’s many times, a disadvantage.

A Little Knowledge Weeds Out The Bad Eggs

The big disadvantage of completely relying on a freight forwarder is that, like in any industry, some freight forwarders can take advantage of the fact that you have little or no knowledge of exporting and charge you accordingly, you didn’t think freight forwarders work for free did you?

I stress only SOME, there’s bad eggs in every industry and the vast majority of forwarders are very professional and eager to help you. It goes without saying that a freight forwarder has to make a profit but that’s very different from ripping you off.

My advice is, by all means use the services of a freight forwarder BUT understand export procedures yourself so you have a working knowledge of freight rate structures and the real cost of producing export documentation. Once you know these facts you can work successfully with your freight forwarder and be sure you’re not being taken advantage of and working towards a solid long-term, professional relationship.

Know What It Costs Or It’ll Cost You!

Not knowing your costs has real consequences.  We had an exporter that joined our training course in order to gain the knowledge he needed to understand his export process from start to finish.  Until then, he had given all his exports to a freight forwarder and had never known what questions to ask or what the real-world cost was of exporting his goods.

He had worked so hard with suppliers, negotiated deals with them, found a market for his products, got the deals done to sell but at the last hurdle, he was taken advantage of.

As he had little to zero knowledge of freight rates and blindly trusted his freight forwarder this particular forwarder could see his lack of knowledge and as a result charged £7.06 per Kilo while a commercial rate was £2.60 per kilo. This ended up costing him thousands in extra fees that he didn’t need to pay and would have obviously given him a much, much healthier profit margin had he had that knowledge.

After completing our course, he fixed that problem and went on to build a very successful business.

The point of this example is to emphasise that it’s very wise to have a working knowledge of exporting, not to insinuate that all freight forwarders will overcharge the innocent. As I mentioned, I was a successful freight forwarder for many years without overcharging my clients. All my colleagues in the freight forwarding business gave a good service for a fair price.

Finding a Freight Forwarder

Finding a freight forwarder is as easy as searching for one on Google.  Finding one that’s going to work well for you, is slightly different.

Follow this very simple rule: make sure that the freight forwarder can give you the service YOU require not what they WANT to give you.

For example, if a freight forwarder is strong in sea and airfreight to South America and Australia and that they can offer you very competitive rates to these destinations but your market is the Middle East, this is not a well fitting partnership. This may sound obvious but many times I’ve seen savvy exporters use suppliers in one way or another that aren’t a good fit for them, just because a friend uses them or they have a good name in a certain area.

We All Have A Wish List

Before agreeing any business or contracts with a freight forwarder, you should make out a wish list with the level of service YOU require from a freight forwarder. Here is an example:

  1. Can you offer UK collection from my local suppliers (here name your suppliers address)? If so please quote.
  2. Can you offer competitive air freight rates from the UK to (your destination)? If so please quote up to 1000 kgs.
  3. Can you offer competitive rates FCL/LCL rates to (your destination)? If so please quote. (This is where a knowledge of Incoterms 2010 is needed).
  4. Please quote to prepare the following documentation: Bills of Lading, Certificates of Origin.
  5. Can you offer local warehousing and export packing? Please quote.
  6. Please name the contact person responsible for servicing my account.
  7. What are your terms of payment?
  8. Please send me a copy of your trading terms and conditions.

The above is just indicative of questions you should ask in order to get the service YOU require for your particular exports.

Finding A Freight Forwarder?

This is an easy answer thanks to Google. Just type in “freight forwarding in (here mention you town or city)” and you will be swamped with local contacts.

You can also check the BIFA website and they will supply you with a list of all Freight Forwarders who are members.

If you want to go it alone or use the services of a freight forwarder, either way you need to understand the business of exporting so take the time to get yourself up to speed.  You won’t regret it and it really will streamline your business and add to your profit margin.

Quick Guide

Hopefully our handy guide will help you.

What Is A Freight Forwarder

How Sell Internationally Online

Once you know how to export, the bigger question becomes, how do you sell to an international market?  The Internet is the obvious way to reach a global market without needing millions in advertising budgets through traditional advertising.  Our simple guide below explains the basics of getting your website online and key points to marketing.

The Big Idea

That idea that began in your head, you acted on, you’ve found a way to take it and turn it into a reality. Congratulations indeed, you are part of the minority. For many, taking the risk, working that hard, probably your current job in the day, then getting home and working another shift on your own company is too much for the majority. Putting up your own money to finance your new company, keeping the motivation and drive can be difficult but you’ve not given up, what you’ve achieved is admirable and you’ve proven yourself braver than most.

You’ve achieved so much, you’ve sourced or are manufacturing your products, importing them to your warehouse and now they’re selling. The next question now is, how to sell to more of your products and how to sell to a global market?

It’s Not Easy But You Already Know That

Selling is not rocket science, you have to sell your products at a higher price than you buy them. However, especially in this day and age where competition is fierce, it’s easier said than done. It’s not easy but you already know that coming this far. You’re obviously up for the challenge. Selling globally is something that we can all do these days thanks to the Internet. That idea of making money and taking orders while you sleep is reality.

Buy A Domain

A domain is where it all starts online – www.mysite.com. Registering one is easy enough, go over to Go Daddy, search for your name and register it. Two quick tips:

1. Registering a domain name with your main keyword in it can help with rankings. You can register two names, one being your company name and the other more keyword friendly. You can promote your company domain on business cards, letterheads etc. but promote the keyword rich one within Google and online.

Don’t overdo the keywords though, keep it simple and still has to look professional.

2. The longer you buy the domain for, it could help your ranking in Google. Google ranks websites on many hundreds of points so buying a domain for 10 years won’t get you to the top on it’s own but it’s something that Google does measure.

Google’s logic is simple, if you spend the money to register it for a long period of time, you plan on being around, opposed to someone who is taking it year by year.

Build Your Site

It’s obvious but the best thing you can do is build yourself a website. Years ago this used to be an expensive and time consuming project but now it’s really become much more simple. There are “open source” free website platforms out there, the most common being WordPress. You will need a little tech knowledge but there are so many free tutorials on Google for WordPress that at every step you’ll be able to fall back on some video help.

Magento is a second step up, more powerful as a ecommerce platform but you’ll need more tech knowledge.

Shopify is an option as somewhere you can setup shop quickly and easily but doesn’t give you all the control you may find you need.

WordPress may well be the best place to start. It used to be that you had to find a designer that would create your design then a coder to implement that design. Now you can simply go to a site like Template Monster and search for WordPress templates. Buy one, grab some hosting and install. That is a little tricky and will take some time but here’s a quick guide on how to start . Check out Woocommerce as this is what you’ll need to install to actually run the ecomm side of your site.

Keep It Simple

The temptation when building your shiny new website is to put everything you can think of in it. There’s literally thousands of free plugins and features you can add. Best advice, keep it simple. The advent of the internet has made us much less patient. If we can’t find what we’re looking for in a few seconds, we hit the back button and bounce off the site. The same will be true of your website; your competition is one click away. Keep things simple, clear, to the point and quick.

Search For It And Make It Snappy

Add a site search or a product search, especially if your site has many pages and/or products. Allow people to find what they want quickly. Quick being another key point for Google, as something else it looks for in the site speed. If your site take a long time to load, Google penalises you. “Long” on the internet is measured in seconds. So keep your site light and make sure it loads quickly, especially on mobile as I’m sure you know, most of us access the web through our mobiles more than desktop now.

Speak Their Language

If you want to be global with clients worldwide, you’re going to have to speak to them. Translations of the site will be needed. You can try and sell to Spain in English but your sales will inevitably be stronger if you sell in Spanish. You’ll also have to consider what you’ll do if you have a Spanish customer that has an issue and can only talk in Spanish, a problem if you only speak English.

Customer Service Is All That Matters

Lessons can and should be learned from Zappos. Zappos has sold a billion dollars worth of shoes so if there’s anyone to learn from, it’s these guys. Customer service wins loyalty. When we call a company, we want to speak to a human, we don’t want to dial more numbers to get there, we want a response quickly. If we have a problem or a complaint, make it right. The best way of keeping customers loyal is to deal with problems and issues, quickly and to fix the problem. We all understand that there are problems in life, it’s how you correct them that can make a disgruntled customer, a happy and forever loyal customer.

Make that happen. Have a read on Forbes about Zappos customer service.

Analytics

Install Google Analytics on your site, it’s free. Setup goals and study the data. Without knowing what your audience is looking at on your site, what’s working, what’s not working, you won’t be able to progress. Analytics offers a wealth of information for you to study. Without using this, you’re blind.

Why No Traffic Jam?

After all this, you may find yourself wondering why you’re not getting any traffic or sales. Well, there’s around 645 million websites online today. How are people going to find yours if you don’t tell them about it? Means more work but we already know you’re not scared of that! Here’s a few ideas to get you thinking.

Google Adwords

Getting a high ranking in Google is what we all want but it’s no easy task. It takes time and a lot of work. A quick way to Google is using Adwords. Pay to appear at the top of Google. Yes it means you have to find more funds but it’s a quick way to get off the ground. The other advantage is that it will give you an idea of traffic, whether your site is working well, if you have customers calling you you’ll understand their needs better.

Blogging

WordPress is actually a blogging platform so use it. Create blogs that are interesting and relevant to people. I hope you are finding this blog useful and that you’re benefiting from the information. The next post I write, you will hopefully be interested in and continue to read. Over time, I hope you’ll become a loyal follower and share the information I’m writing about with others that will find it useful. The same applies to whatever you’re doing.

Don’t write blogs where you’re simply trying to get people to buy what you’re selling, drive people to your site with interesting and relevant content, then they may visit your site and look deeper, perhaps taking the plunge and buying something.

For example, if you sell cakes, don’t just try and sell your cakes on your blog. You can write recipes, make a few videos of how to make the best brownies at home, what are some of the best ingredients to use in cakes, what are your favorite cakes, whats the best cake tin…you get the idea. These subjects will be more interesting and if you post them out on social media, may get a lot more interest than, “Please Buy My Great Cakes”.

Be Social

Once you’ve written those great blogs or created a few great videos, send them out on Twitter, Facebook, Instagram, YouTube and all the networks. Use hashtags to gain more exposure.

The main thing to remember is not to get bored and give up. Blogging and gaining traffic takes time, you need to think of this as a 12 – 18 month project, it won’t happen over night. Be consistent and you’ll get there.

Take A Piggyback

Another idea is to use sites that allow you to sell but take a commission. This may not work for you if you’re working off tight commissions but in the long term it can still work, so consider it. Sites like Not On The High Street, Etsy and even Amazon and Ebay can really work to springboard some product awareness.

By adding your products to these, you’ll have to pay a commission on sales but you’re products may start to get exposure and any sales, means you’ll have the details of that customer to market to in future. Rather than looking at it as a commission on sales, you could look at it as paying to gain the customer.

Email Lists

Last point is to make sure you’re creating an email list of users. It’s an old form of marketing now but it’s still effective. Offer something for free on you’re site, a discount, an ebook, a free cake! Get the user to leave their email and you’ll be able to keep them up to date with new products, discounts and other exciting bits and pieces!

I hope this information helps get you off the ground towards finding your global market place and if it did, perhaps share it with others! (See what I did there?!)

Follow by Email
Twitter
Facebook
YouTube
Google+
https://www.abtslogistics.co.uk/category/free-import-export-training">
Download our Quick Guide:

How to Export and Sell Globally