Exporting and Logistics: Special Issues for Business Chapter 15 McGraw-Hill/Irwin© 2005 The McGraw-Hill Companies, Inc. All rights reserved. PowerPoint presentation prepared by: Professor Rajiv Mehta Associate Professor of Marketing New Jersey Institute of Technology Newark, N.J.

Chapter Learning Objectives 1. How the U.S. government helps exporters 2. The additional steps necessary to move good across country borders 3. How various import restriction are used politically

Chapter Learning Objectives 4. Means of reducing import taxes to remain competitive 5. The main instruments of foreign commercial payments 6. The mechanics of export documents and their importance 7. The logistics and problems of the physical movement of goods

Introduction Exporting is an integral part of all international business Goods manufactured in one country and destined for another must be moved across borders to enter the distribution system of the target market It is important to be knowledgeable about the export and import documents, tariffs, quotas, and other barriers to the free flow of goods between countries The rules and regulations that cover the exportation and importation are discussed in this chapter

Export Restrictions Export regulations may be designed to conserve scarce goods for home consumption or to control the flow of strategic goods to actual or potential enemies To comply with various regulations, the exporter may have to acquire export licenses or permits from the home country To alleviate problems of exporting, the Department of Commerce has published a revised set of export regulations known as the Export Administration Regulations (EAR)

Determining Export Requirements In general, there are three steps to determine the proper Export Control Classification Number (ECCN) for the commodity to be exported as follows: 1.If you are the exporter of the product but not its manufacturer, you can contact the manufacturer or developer to see if they already have an ECCN 2.Compare the general characteristics of the product to the Commerce Control List and find the most appropriate product category 3.The third step is to consult the Commerce Country Chart (CCC), to (Exhibit 15-to determine the reason(s) for control associated with your item A general license permits exportation of certain products that are not subject to EAR control with nothing more than a declaration of the type of product, its value, and its destination A validated license, issued only on formal application, is a specific document authorizing exportation within specific limitations designated under the EAR

Import Restrictions Tariffs Exchange Permits Quotas Import Licenses Standards Boycotts Voluntary Restrictions Import regulations may be imposed to protect health, conserve foreign exchange, serve as economic reprisals, protect home industry, or provide revenue in the form of tariffs The most frequently encountered trade restrictions include:

Import Restrictions ad valorem duties, which are based on a percentage of the determined value of the imported goods; specific duties, a stipulated amount per unit weight or some other measure of quantity; and a compound duty, which combines both specific and ad valorem taxes on a particular item, that is, a tax per pound plus a percentage of value 1. Tariffs: Custom duties are based on value or quantity or a combination of both and are classified as follows: Custom duties are based on value or quantity or a combination of both and are classified as follows: To conserve scarce foreign exchange many countries impose restrictions on the amount of their currency they will exchange for the currency of another country To conserve scarce foreign exchange many countries impose restrictions on the amount of their currency they will exchange for the currency of another country 2. Exchange Permits:

Import Restrictions (contd …) 3. Quotas: Countries may also impose limitations on the quantity of certain goods imported during a specific period Countries may also impose limitations on the quantity of certain goods imported during a specific period 4. Import Licenses: As a means of regulating the flow of exchange and the quantity of a particular imported commodity, countries often require import licenses As a means of regulating the flow of exchange and the quantity of a particular imported commodity, countries often require import licenses 5. Standards: Health standards, safety standards, and product quality standards are necessary to protect the consuming public from imported Health standards, safety standards, and product quality standards are necessary to protect the consuming public from imported

Import Restrictions (contd …) 6. Boycotts: A boycott is an absolute restriction against trade with a country, or trade of specific goods A boycott is an absolute restriction against trade with a country, or trade of specific goods 7. Voluntary Restrictions: Countries may themselves impose restrictions on firms exporting to specific countries Countries may themselves impose restrictions on firms exporting to specific countries

Terms of Sale 1. CIF (cost, insurance, freight) to a named overseas port of import. It includes the costs of goods, insurance, and all transportation and miscellaneous charges to the named place of debarkation (cost, insurance, freight) to a named overseas port of import. It includes the costs of goods, insurance, and all transportation and miscellaneous charges to the named place of debarkation 2. C&F (cost and freight) to a named overseas port. It includes the cost of the goods and transportation costs to the named place of debarkation. The cost of insurance is borne by the buyer (cost and freight) to a named overseas port. It includes the cost of the goods and transportation costs to the named place of debarkation. The cost of insurance is borne by the buyer 3. FAS (free alongside) at a named U.S. port of export. The price includes cost of goods and charges for delivery of the goods alongside the shipping vessel. The buyer is responsible for the cost of loading onto the vessel, transportation, and insurance (free alongside) at a named U.S. port of export. The price includes cost of goods and charges for delivery of the goods alongside the shipping vessel. The buyer is responsible for the cost of loading onto the vessel, transportation, and insurance

Terms of Sale (contd..) 4. FOB (free on board) at a named inland point, at a named port of exportation, or at a named vessel and port of export. The price includes the cost of the goods and delivery to the place named (free on board) at a named inland point, at a named port of exportation, or at a named vessel and port of export. The price includes the cost of the goods and delivery to the place named 5. EX (named port of origin). The price quoted covers costs only at the point of origin (example, EX Factory). All other charges are the buyer’s concern. (named port of origin). The price quoted covers costs only at the point of origin (example, EX Factory). All other charges are the buyer’s concern.

Getting Paid: Foreign Commercial Payments 1.Letters of Credit 2.Bills of Exchange 3.Cash In Advance 4.Open Accounts 5.Forfaiting The five basic payment arrangements for exported goods include:

Export Documents 1.Export Declarations 2.Consular Invoices or Certificates of Origin 3.Bill of Lading 4.Commercial Invoice 5.Insurance Policy or Certificate, and 6.Licenses Each export shipment requires many documents to satisfy government regulations controlling exporting as well as to meet requirements for international commercial payment The most frequently required documents are:

Customs-Privileged Facilities 1.Foreign trade zones (also known as free trade zones) 2.Free ports, and 3.In-bond arrangements or Maquliadoras To facilitate export trade, countries designate areas called customs-privileged facilities, where goods can be imported for storage and/or ­processing with tariffs and quota limits postponed until the products leave the designated areas Customs-Privileged Facilities include:

Logistics and Physical Distribution Activities 1.Logistics management refers to all activities involved in physically moving raw material, in- process inventory, and finished goods inventory from the point of origin to the point of use or consumption 2.A physical distribution system involves: (1) transportation mode (2) inventory quantities, and (3) packing 3.A decision involving one activity affects the cost and efficiency of one or all others 4.Total cost of the system is defined as the sum of the costs of all these activities 5.It is important to reduce the total cost instead of reducing the cost of each component of the logistics system

Foreign Freight Forwarder The foreign freight forwarder arranges for the shipment of goods as the agent for an exporter The forwarder is an indispensable agent for an exporting firm that cannot afford an in-house specialist to handle paperwork and other export trade mechanics A freight forwarder double-checks all assumptions made on the export declaration, such as commodity classifications, and will check the list of denied parties and end uses