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Customs Brokers and Freight Forwarders

There are two important things you should do before you start buying. The first thing you need to do is find yourself a Customs Broker, also referred to as a Customhouse Broker. Customs brokers are listed in the yellow pages and they are the people who clear your shipments through the US Customs. They are independently owned private companies licensed by the US Customs. Although in theory, you can enter the goods through the US Customs on your own, I recommend you hire a broker to do it for you. After all, the US Customs licensed the customs brokers to have the entries done the way they want them to be done. The process involves lots of paperwork to fill out and the US Customs officials don’t have time to guide you through the necessary paperwork.

A good customs broker will tell you what you need to know about the product you want to import. He/she will let you know what description you should use on your invoice. The broker will find the description in the Harmonized Tariff Schedule, the US Customs manual that classifies all products that are being entered through the US Customs. It is important that you, the importer, will clearly understand what classification your broker will use to enter the product through US Customs. Based on the description, your broker selects the appropriate classification and informs you if the product will be subject to any duty. This information will be necessary for you to take into consideration for it will effect your ultimate landed price and help you determine if you will be able to import the product effectively in terms of total costs involved and still be able to sell the product at a profit.

 

 
 
 
 
 
 
 
 
 
 
The second thing you need to do is find a Freight Forwarder. Your customs broker should be the one that may recommend the freight forwarder based on the country or place of origin from which you intend to import.

Freight forwarders are companies that route your cargo from the point of origin, for example, Bombay, India, to your point of destination, for example, Denver, Colorado. They book your cargo on different carriers, rail, truck, air or sea. You want to chose preferably a US based forwarder with a branch office in the city you want to ship from. That can save you money if the forwarder here in the US can help track your shipment as opposed to you having to contact the shipper/forwarder you used in the country you shipped from.

The forwarder the United States can assist you in the entire process from here. You can book and prepay the freight from here or he can recommend a forwarder you should use in the country of origin; in some cases this may be an affiliated forwarder or the forwarder here will recommend a forwarder they have had a good working relationship with in the city you intend to ship from. In both of these instances you will have a better recourse should you have some problems. If you are forced to use shippers-forwarders overseas, be alert that in many Third World countries you may encounter a shipper whose name sounds like that of a recognized worldwide forwarder but in reality his shingle is but that of an imposter! Beware!

In essence, the freight forwarders will give you a freight quote for your cargo, a so called routing order. They’ll book your air or ocean cargo, place a Marine Insurance coverage on your goods, prepare all the necessary shipping documents, even arrange for warehousing an route, if necessary. In many Third World countries, freight forwarders typically call themselves by the generic term “shippers” and often will also be AITA travel agents, ready to sell you an airline ticket; some will also operate a trucking service, or perhaps be involved even in manufacturing and exporting of their own products. Once again, beware!

Good freight forwarders will advise you on which Sea Line or Airline to use. They can save you money on your freight bill thus in turn lower you product landed price. Other forwarders in many Third World countries, however, may cost you more money than you anticipated - beware!

In any case, the freight forwarder here in the United States should advise you on the best routing and carriers to use and warn you of possible problems.

Price quote in import/export business

OK, you have found a product you want to buy, received a sample in the mail, or found a source of supply overseas and now you are standing in the manufacturer’s/exporter’s office or a showroom and you just asked him the price of the product.

In import/export business, the price quoted reflects responsibility for the movement of goods. It clearly delineates which expense is for the account of the Buyer and which for the account of the Seller.

Based on the Revised American Foreign Trade Definitions, 1941, following are some of the most common ways how price is quoted in the import/export business.

* Ex (point of origin): price at a shop/showroom/warehouse/factory

* FOB (Free On Board) Named inland carrier at named inland point of departure/shipping point
-FOB Mysore, India (Madras Express, Indian Airlines, Tamil Trucking)
-freight-collect to the buyer or buyer prepays freight
-Seller provides Clean B/L (Bill of Lading)
-Seller at Buyer's request assists in obtaining necessary documents

* FOB Named inland carrier at named point of Exportation.
-FOB Madras (means that the Seller pays for the cost of transportation up to the port of embarkation)

* FOB Vessel & Named port of shipment
-FOB Madras, APL President Lincoln
-Seller to place goods On Board the vessel designated

* FOB Named inland point in the country of importation
-FOB Seattle
-Seller to pay all costs of landing - taxes, wharf fees, all costs of Customs Entry, customs duties

* FAS Vessel & Named port of shipment: Free Along Side
-FAS President Lincoln, APL, Bombay, India
-Buyer is responsible for storage charges in a warehouse or on a wharf

* C & F (cost and freight) Named point of destination:
-C&F Seattle
-Seller to pay freight to destination, provides Clean B/L
-Buyer takes delivery from vessel at named point of destination
-Buyer pays insurance

* C. I. F. Named point of destination (cost, insurance and freight)
-CIF Seattle

* Ex dock (Named point of importation)
-Ex dock Seattle
-Seller agrees to pay all freight costs to place the goods on the dock at the named place of importation

Please note, if you will be buying from village markets, cottage industries or small dealers which may not be licensed exporters in a particular country, you will be quoted typically on the bases of a cash price that will not include cost of anything else, whether transportation or any necessary documents you may need to take the product out of that country. Thus before you’ll decide to buy, make sure you check with the shippers in that country what extra expenses you may incur, if any difficulties may arise as a result of you buying from unlicensed exporters.

Sales Contract

Sales contract is an instrument meant to be more psychological than enforceable although it could be in countries where you may stand a legal chance of having your case heard in court and a just decision may be expected. Your chances of succeeding in such a legal battle will be increased if you’re a recognized business. When you may be doing business in a Third World country, however, where courts are notoriously slow in acting on cases in front of them, not to mention possibly corrupt, please do understand that this contract is but an agreement between you, the Buyer, and the Seller for your mutual benefit, meant to discourage either one of you from breaching your agreement, knowing that you had agreed on some issues of importance and to a mutual benefit.

Any issue which you may feel could result in a disagreement can be addressed in this form. Namely, you, the Buyer, and the Seller can agree on some things that could potentially become unclear later on in your transaction and addressing the issue beforehand may prevent the other party from negligence or from unduly forcing the responsibility on the other party. For example:

-Decide what expenses will be for the account of the Buyer, and what for the account of the Seller; up to which point/from which point Buyer or Seller are responsible for movement of goods.

-Not having a clear Sales Contract specifying whose responsibility starts and ends where may be the reason why shipments end up at portside and buyer's broker may have to arrange for inland transport to final destination. Example: your shipment arrives to Los Angeles instead of all the way to Denver, the final destination; you, the buyer, has to provide for transportation to Denver, the final destination.

-Decide on who pays if there are losses while the goods are in port.

-Decide on the method of the inland transport, namely, how do you want your goods to go from the inland point of origin, where you purchased the goods, to the seaport, the point of embarkation, and, how do you want your goods to go from the coast to destination in the United States on arrival, say from Los Angeles to Denver - by air, rail or truck?

-Decide who pays warehouse fees, unloading, reloading, and document handling?

-Remember, Buyer is to obtain Marine Insurance, but Seller may do it for him if asked!

There are other reasons for Sales Contract and will be mentioned below.

Packing

In most western countries, freight forwarders are freight forwarders and call themselves freight forwarders. In the Third World, however, freight forwarders may also call themselves "export agents, shipping agents, and packers." And, yes, in those countries, everybody has a cousin in an export/shipping business! For that simple reason and many other reasons (e.g. notoriously low wages), a bribe or a baksheesh may be at times the only way to get your goods safely home!

In any case, a good freight forwarder, alias shipper, can do the following for you: get your goods packed, prepare your documents, and book your cargo (truck, air, sea).

When it comes to packing, I recommend when you are just starting to ship from a particular country and you have had no experience with the shipper you use, be there when your cargo is being packed!

Freight forwarders charge you by weight/kilo if you ship by air and by a cubic meter if you ship by sea. In a Third World country, if you may not be there when they pack your cargo, you may get “over-packed” and thus overcharged, meaning you’ll end up with four cubic meters instead of two you estimated to be the volume of your purchases... which means your landed price will be higher than you anticipated, calculated, thus diminishing your potential profit.

Bill of Lading (B/L) or Airway Bill (AWB)

Bill of Lading is a receipt for the goods shipped by sea and Airway Bill is a receipt for goods shipped by air. It’s an evidence of the carrier's obligation to transport the goods to the port of destination. It shows the name of exporter, carrying vessel, port of shipment/port of embarkation, final destination, consignee, and party to be notified on arrival at destination.

Commercial Invoice and Packing List

Commercial invoice shows goods sold, unit costs and quantity. Typically, it will be in US dollars but it can also be written in a local currency.

There are two things you need to watch out for. Watch out for mistakes in extensions and watch out for discrepancy against the packing list! The fact that the invoice and the packing list may not match will be enough for the US Customs to ask your broker for the shipment to be moved to an inspection site where the customs officials then look at the goods to assure themselves that the discrepancy is but a typing error. In any case, the move to an exam site constitutes an additional expense, not to mention a delay, and often results in potential damages that may occur during the inspection.

Quota Documentation

Quota is a quantitative restriction on some imports, i.e. farm products, pharmaceuticals, glass products etc. but most well-known products that are subject to a quota are garments and textiles.

Beware - without Quota documentation attached with your shipment's other documents, the goods will not be allowed to enter the United States!

You must do research through your Broker before you buy and also check with the US Embassy/US Dept. of Commerce overseas the current status and/or forthcoming changes to the quota regulations on specific products you intend to import!

Do not buy merchandise unless you know you can get the necessary quota documentation to accompany your shipment, otherwise your goods may sit for months at your point of origin, the place from where you bought and want to ship from into the United States!

Textile Visa

Textile visa is a certification of goods belonging to a specific product category - i.e. pillows, table cloth, blankets, etc. - as listed in the Harmonized Tariff Schedule. It is a document that must be attached to your goods in order for your goods to clear US Customs. The document is typically obtained by the seller, the company/people you bought from, or by the shipper/freight forwarder if you had bought from unlicensed exporters. They get the document for you from the Trade Department of their country.

In the event, your goods arrive into the United States without the necessary documentation, you won’t be able to clear US Customs and your broker will have to contact the seller and/or even the necessary trade office in the country of origin in order to obtain the necessary document. Needless to say, the process may often take a few weeks to accomplish all the while your merchandise will sit in a US Customs bonded warehouse of a carrier that brought it into the United States, a service for which you’ll pay storage charges that in turn will diminish your anticipated profit. To avoid such a problem, make sure your shipment will have the necessary document attached.

Leather Certificate

Similar to the textile visa, Leather Certificate is an assurance of quality, a compliance to certain standards for specific leather products. It is established by a mutual agreement between the US and foreign governments. As in the case of the textile visa, the absence of the document with your shipment will result in extra delays and costs before you’ll be able to clear the US Customs.

 

Insurance

 

Airlines do cover the damages to your goods in transit and the insurance coverage is worked into the costs of the airfreight charges, however, they do not cover the freight charges incurred unless you buy an extra insurance coverage. This means that if you have a loss due to damages to goods shipped, the airlines will reimburse you for the invoice value of the goods shipped but not for the freight charges you paid!

For your sea freight cargo, you are advised to purchase Marine Insurance. Before you buy the insurance, check what is and what isn’t covered! Make sure, for example, that the coverage is All Risk, in other words that Civil Strife induced damages are covered should you be importing from or transit through a potential war zone. In any case, buy the insurance preferably from a US-based insurance company for in the event of a claim, there are good chances you’ll probably never collect if the policy was underwritten by an obscure insurance firm in some Third World country.

 

Certificate of Origin or Form A

 

Certificate of Origin or Form A is an evidence of a country of manufacture.

In the early 1970s, the US Congress set up the GSP classification. GSP stands for the Generalized System of Preferences. It was designed to help scores of developing nations to speed up their economic development by allowing their exports to enter the United Sates duty free. The only requirement was that a particular country be first approved for the GSP list of countries. To meet such a standard was not only based on the economic criteria but also subject to meeting certain political guidelines. That meant that even though a particular country could meet the economic criteria of being but a poor developing nation, having a communist government in power or being subject to some other social form of instability such as civil war, prone to violence, or human rights violations and similar manifestations of an unstable regime (perhaps with unfavorable political connotations, for example being governed by an oppressive military regime), it was not included on the list or thrown out of the list.

If a country is on the GSP list, you, as an importer, can import goods from that country duty free provided that your shipment is accompanied with a Form A document. If, however, your shipment arrives without such a document or the country loses the GSP classification while your goods are in transit, you will have to pay duty for your goods according to each category under which your goods are entered through the US Customs. The only products, typically, that do not qualify for the duty free exemption, regardless of the economic condition of the country of origin, are garments and textile products.

 

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