Direct export is defined as the process of a supplier selling their products directly to customers or a middle man (such as an import export agent) in a foreign country. There’s advantages to direct export, such as keeping complete control of your logistics operations and direct communication with your customers, allowing you to offer the level of customer service you want, rather than entrusting this to a third party logistics company.
How To Start A Direct Export Business
Knowing how to start an import export business will save you time, money and stress. Understanding that you must be proactive not reactive and learn the basics of international trade before you start on any new import export venture, knowing where the pitfalls are and what to look out for. Our webinar recording below goes into detail on what you’ll need to know.
How To Direct Export
Knowing how to export or import is important knowledge to have for many businesses for obvious reasons. If you’re selling products nationally and want to expand, the international market is available to you and the globe is a much smaller place today than it once was, which is where there is an advantage of direct export. Finding international buyers for your products now, isn’t as difficult with such a connected world. It’s actually possible to find buyers using a laptop, a few well written emails, some key negotiation techniques and importantly, your confidence.
Importing and selling products is an obvious business that many successful entrepreneurs begin with and build sizable companies as their experience and business network grows. As with anything, the more you do it, the more you learn and the easier it becomes. We are often asked, what’s out there so here’s 12 ideas from 6 different countries that we researched as far as some ideas for what you can import and sell.
So, the next question to answer becomes how to export, or import? This guide is going to touch on the basics that you’ll need to know. There’s a lot of content to cover if you want to import export as a career but this will get you started.
Direct Exporting Advantages and Disadvantages
As an example, Zappos in its early days entrusted its logistics operations to eLogistics, which took away the hassle of dealing with warehousing, scanning in their products when they arrived, dealing with customer orders, returns and shipping. The advantage was that they were able to focus on the business itself, marketing, growth and the many other things that are involved in running a business.
However as with everything in life, using export intermediaries had its problems. In short, eLogistics were not able to keep up with the level of shipments arriving at the warehouse nor customer orders. Customer service suffered and people became unhappy. Zappos took control themselves and went the route of direct export with their own warehouse and shipping operation using UPS. For the entire story, I recommend the book, “Delivering Happiness” which will clearly explain direct exporting pros and cons.
How To Export Direct
Even as a small business, learning the information about how to export and create a strategy to direct export to markets worldwide will give you some massive advantages. You’ll have control over your logistics operations which is important for your global market entry strategy.
Methods of Payment
Within international trade there are various methods of payment used. There’s obviously cold hard cash where banks and wiring transfers work well for “smaller” manageable budgets. However, what happens when contracts become larger, perhaps even into millions of dollars? How can you safeguard being paid and what if you have to buy stock or materials when you’re strapped for cash? The limitations of exporting is more often than not, cash!
One method for this is through the use of letters of credit. We have already written an in depth blog on this so we won’t repeat it all here but knowing what methods of payments are available to you and how to use them is very important. Letter of credit are one of the pros of exporting.
Other methods of payment are documentary collections or consignment but we will leave these to be discussed at a later date. One of the most important things to really consider when it comes to payments within international trade is that if you’re exporting products, a sale isn’t a sale until you get paid and for an importer, you haven’t bought the goods until the moment you receive them. Keep that in mind!
Your EORI Number
In the UK if you are going to trade internationally, you’ll need an EORI number. This is particularly relevant at this time as we are on the verge of leaving the EU, at the time of writing, without a deal. This means that while trading with the EU, before Brexit was relatively hassle free, it will adversely change and trading with any EU country post Brexit (as it stands) will be like trading with one outside the EU, for example Brazil.
This is a much more complex process and if you want to know more about this, see our recent blog, “How To Prepare Your Business For Brexit“.
Direct Export Using Freight Forwarders
Eventually you’re going to need to the services of a freight forwarder. These guys will be the guys that actually move your goods from the source to your destination. Using the post office is only so good as it only works for smaller packages that you can take to the post office and send. You obviously won’t be able to drive forklift trucks there and leave them with your pallets of amazing products.
There’s always Fedex and UPS but these can get expensive so it’s best to be aware of freight forwarders and how they can help you. Luckily, we also have a blog on that so we have you covered, “What’s a freight forwarder and how to they help me?“.
Insurance is never the most interesting subject and one that we would all like to skip over but it’s super important for direct export. If your goods don’t arrive at their destination, who’s fault is it? Who has to suffer the financial loss? How will it all be rectified? Being insured takes care of those issues, accidents happen and things get lost. Make sure you’re not on the wrong end of that scenario. As you’ve probably guessed, check out a recent blog on marine insurance to learn some of the details involved in covering yourself.
Pack It And Book It For Direct Export
Simple enough, when you’ve got your order, you’ve packaged up your products safely, got all your documentation together, it’s time to book it with your freight forwarder for direct export. Always best to get a few quotes as with anything, to make sure you’re paying a fair rate. By this time, you should have already nominated your freight forwarder and it’s time to get it booked in for shipping.
There’s a lot of documentation that’s required for moving goods internationally using direct export so make sure you know what you need and that it’s all correctly completed and processed. Airway bills, bills of lading, certificates of origin all need to be in order. It’s a little too much to go into detail here but we do offer an online course if you want to sign up and learn more about this important side of learning how to export.
Feel free to print out our handy guide as a reminder to these important 6 steps.
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Import And Export Top 10 Tips
Now we’ve got the basics, and they are just the basics, it’s a good idea for us to give you our 10 best tips for importing and exporting so you can become a direct export expert. This comes with years of experience and the pain of sometimes getting things wrong and having to suffer the financial loss of those mistakes so hopefully our top 10 will help you avoid doing the same:
1. The Tariff Book
If you’re importing any products, you must be aware of the tariff book and consult with this before you place any orders. The tariff book is the bible of international trade and tells you the rate of import duty, if you need a license to import the products you’re buying or if there are any restrictions on quantities that an enter the country. This is very important so don’t neglect to check the tariff book before you place any orders.
2. Get Written Quotations
It may seem obvious but it’s still worth stating, get written quotations from any third party that you’ll be doing business with. This can be freight forwarders, transport company’s or clearing agents for example. Once you’ve got a written quotation there can’t be any argument later on about what the cost was or what it was supposed to be. Make sure you have that written confirmation for a much more stress free direct export process.
3. Do NOT Estimate Costs
Estimating costs is painful lesson to learn in learning how to direct export. There is no place for estimating any costs for the simple reason that at times, you may find yourself working with very small profit margins. Deals can still be worth it and some good profit realised, even if the profit margin isn’t exactly what you want but by estimating the costs and getting it wrong, it can wipe out any profit and even leave you at a loss. Don’t do it.
Take the time to get quotations, get them in writing as mentioned in the previous point and open a spreadsheet and input all of your actual costs. From there you can do the numbers and see if the risk to reward is worth it.
4. Use Incoterms For Direct Export
When shipping your goods, it’s vital to use Incoterms 2010. If you’re not familiar with these, check out our blog on, “What are Incoterms and how are they used?” and it will hopefully become clearer to you.
Think of Incoterms as code words used within the shipping industry that let the parties involved know their exact responsibilities. We won’t go into it again, just check out the blog.
5. The Terms and Conditions
None of us really have any interest in reading the terms and conditions and the small print in anything. We’ve all got better things to do but a big lesson in learning how to export is to read the terms and conditions. In fact, read them and then re-read them.
You do not want to be caught out on something that you weren’t aware of that ends up taking a chunk out of you later. As boring as it is, read the terms and conditions!
6. Make Your Terms and Conditions Solid!
As boring as it is to read someone else’s terms and conditions, make sure your terms and conditions are solid and fulfill all the conditions that you need. You can always negotiate the terms with a particular client individually if they aren’t happy and it’s worth it but start off with everything in order and as you need.
If you can afford it, it’s worth consulting a lawyer just to make sure everything is legally water tight.
7. Understand Freight Rates
Understand the rates that you’re paying and shop around. In our blog discussing freight forwarders, we have an example of a client who was being heavily over charged for a long time by his freight forwarder. Had he have understood and done a little research he could have saved such a lot of money. Ignorance costs you, no one else.
8. Direct Export Costs
Understand all of the costs involved in sourcing, buying, shipping, duty, how long it will take, marketing and selling. You need to know your costs before you can figure out how much to sell your products for, whether anyone will buy them at that price and what your profit margin will be. Be precise.
9. Question Invoices
Don’t hesitate to question an invoice if it doesn’t look right. Don’t worry about coming across as rude, you can be polite but make sure you get an explanation if the invoice isn’t correct. This is where you can always fall back on your written quotation and show that the invoice amount is not in line with the amount you were quoted. If you got your quotation in writing there won’t be any arguments or problems and the invoice will be amended.
10. Don’t Be Blind
Knowing how to export is a fairly complicated process. There’s lots of parts and you must be aware of what you’re doing. Whatever you do, don’t wing it…it will cost you.
Keep this guide handy to remind you of our top 10 tips for importing and exporting:
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Direct Export Common Mistakes
So in this short journey of learning how to export, we’ve gone through the basics and you’ve got our top 10 best tips for importing and exporting. There’s much more to learn but this gives you a good foundation to spring board from.
Now it’s a good idea to run through the 9 most common and costly mistakes made by international traders, so you hopefully won’t!
1. Understand Sourcing
If you don’t know how to effectively find products you’re massively limiting your import business. You must know how to find the products you’re looking for, from price, build quality, working relationship with your supplier, reliability and credibility to name just a few of the aspects that are important. Knowing how to source goods internationally is huge.
Our blog goes into some ideas on how to do this to give you a head start so check it out. It’s going to be key to a successful importing business.
2. Not Identifying All Your Costs
Don’t cut corners, don’t guess, don’t estimate. Make sure you have the entire import or export process covered and you know your costs from start to finish, to the last penny. Keep track in a spreadsheet. If you don’t know your costs, you don’t know what you need to sell your goods for and you won’t have a clue what your profit margin is.
Include the products themselves, the shipping costs, the import duty, warehousing, cost for distributing to your customers, VAT and any other cost you can identify. You will lose money if you don’t do this.
3. Not Understanding Import Regimes And Correct Tariff Number
If you don’t understand how to correctly import your products, it’s likely to cost you more than you need to. You may end up paying more import duty than you should have for example. Take the necessary steps to ensure you understand the import regime and tariff number.
4. Not Understanding Air or Sea Freight Structure
Take the time to get to know how freight rates work and get a variety of quotes to make sure the company you want to use is competitive. Our blog on freight forwarders give you some good advice so make sure you check this out.
5. Not Understanding Methods of Payment
Whether you are paying your supplier or you are to be paid, make sure you understand the methods of payments available to you. A sale is not a sale until you’re paid and things can and will go wrong in between. Letters of credit is one such method of payment that all international traders should know how to use.
6. Not Doing Your Homework
We’ve all seen Dragon’s Den where the entrepreneur thinks he’s got a world changing product which is promptly shot down by the dragons after a little digging. You may think you’ve got a great product that’s going to sell like hot cakes but you need to know others think the same thing and want this product before you part with any cash.
If you don’t do your market research that container load of yo-yo’s that you were sure would be the next big thing may be stuck in your garage and spare bedroom for years to come.
Find your customer base for the products you’re selling and don’t limit that audience.
7. Not Identifying All Sales Channels
Not finding as many sales channels as you can is a waste. If you can sell your product directly to retail shops in the high street, wholesale to distributors or online globally, take advantage of all those opportunities.
Get out and make sure to meet people, go to meet ups and conferences and get your products out there.
8. Not Understanding Terms of Delivery
If you don’t understand the terms of delivery you could be charged for costs that you’re not actually liable for, further reducing any profit margins. Knowing exactly what your responsibilities are is important and can save you hard earned money.
9. Lack of Negotiation Skills
Negotiation skills are a massive part of international trade and business in general. You need to hone your skills and make sure that you are able to always get the best deal you possibly can. If you can crack this, you will very likely make it as a successful international trader and be able to run a very profitable business. Negotiation skills will increase with each deal that you seal and with that, your confidence will also grow.
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Be Proactive, Not Reactive
Obviously like any new business or career there’s a lot to learn and as you can see there are pros and cons of direct exporting but one of the best pieces of advice we can give is to be proactive, not reactive.
By being proactive, you will firstly make sure that you have gained the knowledge you need to import or export your products globally and really understand the issues that you’ll face. You’ll take all the necessary steps to have a streamlined import and export process, you’ll have done all your research and homework and your process will be organised, efficient and you will have all your costs to hand. You’ll be able to analyse your risk within the process and foresee any problems or issues and develop any contingency plans to handle these problems.
By being proactive it will save you a lot of time, stress and ultimately money, keeping your profit margins healthy and your work life relaxed.
Being reactive is usually the exact opposite. Not being fully prepared, not having a good understanding of what you’re doing, estimating costs and when there’s problems and issues, trying to deal with them at the time and figuring out how to handle on the fly. This obviously leads to hugely increased stress levels, valuable time been taking from you and of course, in many cases money being lost or wasted, which is critical, especially when working on on tight profit margins.
There are advantages and disadvantages of import and export and making sure you are aware of exactly what they are will be the difference.