EXPORTING ESSENTIALS: SELLING PRODUCTS AND SERVICES TO THE WORLD SUCCESSFULLY (2014)
Chapter 12. Booking, Marking, Labeling, and Insuring
Beware of little expenses. A small leak will sink a great ship.
Many US companies lose more business in moving products overseas than in any other phase of the export process. In this chapter, I’ll explain what the reason for this is and take you through the final steps of sending off your large-volume shipment. I’ll also show you how to book your order with a global freight forwarder and how to pack, mark, and insure your cargo for a safe and timely delivery to your customer.
As I discussed in Chapter 9, an experienced global freight forwarder is worth its weight in gold because it will spare you the need to master all the complexities required to send off a shipment. Further, an experienced freight forwarder will let you work “on your export business” (thinking beyond what the day to day reality of your business calls you to do)1 as opposed to working “in your business”—a classic line by Michael E. Gerber, who wrote The E-Myth Revisited.2 In other words, you don’t want to get buried in minutiae that someone else with experience can easily handle; instead, you can spend your time working on getting more export business. Too many details can make you crazy, so my intent here is not to overwhelm you. Rather, it’s to provide you with the fundamentals of moving products overseas. After that, it’s up to you to use the information as a guide while you work with transport experts to export your products.
A quick note: This section is not about the Everyday Joe who buys a single product online. In this chapter, I will treat big customers—those who buy from a couple of cases to thousands of cases at a time.
Ready? Let’s move it!
Booking Your Order
Once you have a legitimate order and finalized terms of payment, it is time to call your freight forwarder and give it the go-ahead to book your shipment. The company should pull up your quote reference number and reconfirm the quote first. Once it books your shipment, it will give you a booking confirmation number. Write it down or track it somewhere safe (Evernote.com, for example), because if there’s ever a problem later on, you will need to refer to that number constantly.
By now, after my warnings about the necessity of negotiating payment terms to minimize your risk, you’re probably a bit nervous about sending off the shipment. What do you do if the payment terms you set up with your customer fall through at the last minute? You do have a means of escape, but it’ll cost you. All the way up until it gets loaded onto the vessel, you can ask your forwarder to hold your shipment, but remember, you are liable for all freight costs even if the shipment never leaves port. If your cargo leaves port and you still don’t have a guaranteed payment method from your customer, request that the cargo not be released to your customer when it arrives at the port of destination. Normally, it wouldn’t be released anyway because your customer needs to produce certain documents in order to clear it—which he won’t have received unless payment has been settled—but you never know. When in doubt, always take extra precautionary measures to reduce your risks.
Caution The scenario where a shipment leaves port and you still have not secured payment illustrates how an export can go wrong. Secure your payment term upfront to ensure you are not left holding the bag.
Let’s say you have been assigned the booking number FAN 31063. (The booking number enables the steamship line or freight forwarder to keep track of your shipment from the point of origin to the final destination.) The freight forwarder then gives you sailing information that looks like this: “Dresden Express, V14E30; sailing out of Oakland on 8/19 with ETA Hamburg, Germany 9/20.” The forwarder will also tell you the absolute latest you can have your goods ready at your factory door in time to meet the sailing date. You must prepare the necessary shipping documents before then. Pay careful attention to that date, because it’s critical information, especially if you are shipping against a letter of credit (L/C) that has an unreasonable expiration date—in this case, September 20. If you miss that August 19 sailing date, you miss meeting one of the conditions of your L/C. When that happens, you lose your guarantee of payment from your customer! Naturally, you want to avoid this at all costs.
Tip You can find global sailing schedules at JOC Sailings (http://www.jocsailings.com/). There, you can filter search results by port locations, carrier, vessel type (break-bulk or container, for instance), departure and arrival dates, and so forth. I use it to do a fast check on transit times to port destinations worldwide. If I were to receive a client’s order on July 19, as in the previous example, I would know that I have less than a month to produce goods in time to meet the sailing date out of Oakland. It works the same if a customer says she wants goods delivered to her port of entry by the middle of November. You can check the schedule to see when you need to get goods produced in time to meet the sailing date.
One of the first documents your freight forwarder needs is a Shipper’s Export Declaration Form 7525-V (SED; http://aesdirect.census.gov). An SED is required anytime you use a freight forwarder or export directly using a steamship line or air carrier, the value of your shipment is greater than US$2,500 (or US$500 by mail), or the commodities require a license or license exemption (we’ll discuss this in Chapter 13). This document specifies your product’s commodity number, reaffirms what you have already communicated to the freight forwarder, and formally instructs the company to carry out the shipment. The freight forwarder will refer to the SED to verify that the ocean bill of lading is prepared exactly as your customer specified in the originally accepted pro forma invoice and to confirm the method of payment. The document also helps customs to keep track of exports and to monitor the type of license being used to cover each shipment. It is also used by the Census Bureau to compile statistics on US trade patterns. It must be prepared prior to shipment and presented to the carrier.
Whoever is handling your shipment will be able to provide the online link to the form and, in some cases, can even prepare the document on your behalf provided you authorize the company to do so with a power of attorney form (transport companies typically have this form template online for easy access). If the company does not provide it to you, the SED can be electronically filed at http://www.aesdirect.census.gov. Ask your freight forwarder or shipper how to prepare the form if you are unsure and the company will walk you through the process.
Tip When in doubt about anything, ask. Be fearless about getting answers. When you see a required field on the SED form, Port of Export code (where your shipment is leaving the country), for example, be sure to consult with your freight forwarder because this field can easily generate errors, penalties and delays in your export shipment if filed incorrectly. In fact, according to U.S. Customs Border Patrol (CBP), it is considered one of the top mistakes they issue penalties for!
Details, Details, Details: Preparing Goods for Overseas Shipment
Let’s say you’re an exporter specializing in handcrafted figurines and you’re all set to move a carton of porcelain angels to your customer in Argentina. Piece of cake, right? Think again! Here are some of the logistics you will have to attend to before this shipment can get out the door:
1. How sturdy is the carton?
2. How secure is the seal that holds the carton together?
3. Is the inside packing strong enough to keep the porcelain undamaged if the box is thrown into a truck?
4. What is the weight of the carton?
5. Is your product a temperature-sensitive export (ice cream, chocolates, or fresh fruit, for example)?
6. What markings should you show on the outside of the carton?
7. Is it important that the package arrives at your customer’s doorstep by a certain date?
8. Is any special documentation required to accompany the package?
9. Is it acceptable to leave the shipment outside your customer’s factory door should he not be there when it arrives?
10.Do you require that your customer be notified one way or several different ways prior to delivery?
11.Do you require a confirmation of that delivery?
12.What about insurance? If the package gets lost or is damaged in transit, then what?
Caution I once had a client in Chicago who was shipping cookies to Japan in early September in a regular twenty-foot container. The weather is typically cool in Chicago around that time of year, but as it turned out, the temperature abruptly went up to 90°F the week the shipment was leaving. Although warned about the unsuitable weather conditions, the client decided to stay with the regular twenty-foot container to save money instead of using a refrigerated one. When the cookies arrived in Japan, they were a mushy mess due to the unusual heat during transit. It took us weeks to figure out how to correct the situation, a tricky issue since the client had also elected not to insure the shipment. Needless to say, we did come up with a solution, but not without experiencing a lot of stress, needless aggravation, and delays. This illustrates two more examples of what can go wrong on an export shipment—those being the wrong choice on the mode of transport and a bad decision on insurance coverage!
Fortunately, not all products will be as much of a headache as porcelain figurines can be. But every export shipment calls for appropriate attention to the packing and shipping process so that your customers will receive their goods in perfect order. You need to pack your goods carefully so that they will survive the trip undamaged and mark your packages liberally with all the information necessary to ensure proper handling and tracking. You also need to envision the route step by step, from the time it leaves the factory door to the time it gets to your customer, and provide for all contingencies.
Carton Markings for Export
To pack your product effectively for export, you must provide complete, appropriate, and accurate package markings. There are several considerations that govern your shipment marking. First, you must make sure that whatever markings you put on the outside of a carton can easily be read by anyone, anywhere in the world. Second, you must meet shipping regulations and ensure the proper handling of your goods. Finally, you must know when it is appropriate to mark the outside of your cartons with what is truly in the inside—there are times when that’s the last thing you should do. Your customer should be your best advisor as to how to mark your cartons for export, but if she seems ill informed or cannot be reached for consultation, the following guidelines ought to cover most situations.
If you are shipping a container-load or more, simple identification of your cargo should be enough, but take extra precaution so that reading your package is easy on the cargo handlers. Pretend the lights are out and your flashlight is dead—and you have to read your cartons. If you were in a gloomy warehouse trying to identify the contents of a stack of cartons, what would you hope for? That whoever prepared the cartons for shipment would have given some thought to making sure their goods could be identified even in the worst-case scenario and marked them accordingly. Mark your cartons with big, bold letters that can be read even at a distance and in poor light. Think about moisture; think about dust; think about accidental grease splattering all over your cartons. Use waterproof markers or waterproof labeling with durable adhesive. The more aggressive and durable your markings, the better your chances of avoiding misunderstandings and delays in shipping.
If you are shipping a smaller quantity of goods, such as a single carton or several cartons to be placed on a pallet, you also need to provide much more detailed identification on the outside of the carton, including the following:
1. A shipping address label: Your consignee’s (customer’s) name, address, and key contact person, and preferably also a telephone number, e-mail address, and fax number should be placed on your shipping label, along with the customer purchase or order number.
2. A return address label: Your company name, address, key contact person, and communications numbers (telephone, fax, and/or e-mail) should be placed on each carton, so that if a problem arises en route you can be notified immediately.
3. The country of origin: Your return address label should show your country in which you do business, which may not be the actual origin or place where the goods are manufactured. Check with your customer, transport company, or local consulate to see how the country of origin should be represented on the carton. This marking supports all your documentation and streamlines processing at the port of destination.
4. A description of the contents: What’s included in the package should be marked on the outside—unless you’re shipping a product in high demand. If you’re shipping a low-price product that you consider a commodity item—canned peas, for example—you might think it’s all right to mark the outside of your carton “Canned Peas,” right? Not always! If the demand for the product in the importing country is phenomenal and the country can’t keep up with it locally, you could be asking for theft or hijacking. Talk to your customer about substituting a different product identification on your carton to make your goods less tempting. For example, if Malaysian consumers love peas and hate green beans, you and your customer can agree ahead of time that, for purposes of your shipment, “Canned Green Beans” means “Canned Peas.” This practice, sometimes referred to as blind marking, is simple but effective. However, you and your customer must change your code names every so often or else you’ll attract the notice of the smarter and more organized thieves who keep track of what is moving in and out of the ports. More obvious high-value products, such as cameras, computers, or televisions, can also be shipped under blind markings. In all other cases, of course, it’s best to mark the outside of your carton with exactly what’s inside. That minimizes confusion for customs, your customers, and intermediary handlers at every stage of the shipment.
5. Markings that are in English: Unless notified otherwise, everything you write on the outside of your package should be in English. Your customer or your transportation company should be able to tell you whether it is required to provide any carton markings in the language of the importing country as well. If such markings are required, call up a local translator and have the necessary language rendered appropriately. Better yet, contact the country’s local consulate to help you—they are always eager to facilitate trade, and it may even provide the service at no charge. But be sure to get your translation approved by your customer. You don’t want to be too eager to finish up the labeling chore, only to find that your translation is inaccurate, ambiguous, or even offensive! Note: Foreign law might dictate the need for a translation in the foreign country’s language, especially if the item is a hazardous substance. Be sure to check.
6. Phrases and symbols for immediate identification of packages needing special handling: There are numerous standard international phrases that signal the need for careful handling of hazardous or breakable products, such as “This side up,” “Fragile—Handle with care,” “Flammable,” and “Keep dry.” The International Organization for Standardization (ISO) provides a set of graphical symbols to help overcome language and other barriers (refer to “The International Language of ISO Graphical Symbols,”http://www.iso.org/iso/graphical-symbols_booklet.pdf). In addition, they offer a shipping container handling symbol report (refer to “Shipping Container Marketing Specification,”http://lineagepower.com/docs/ContainerMarking.pdf).3 Be sure to also find out which international symbols apply to your product. When in doubt, label your cartons with both words and standard symbols.
7. An identification of the number of cartons you are shipping: This should be written on each carton. For example, number each of the respective cartons “One of three,” “Two of three,” and “Three of three.” This ensures that all of the cartons in your shipment will arrive—together—at the port of destination.
8. A marking on all sides of the package: If possible, have your cartons marked on five sides—that is, on all four sides and the top. If your plant or transport company cannot do all sides, have markings placed on at least two of them—the long and short ends. But, again, the ideal strategy is to mark five sides. That way, no matter how your cartons are positioned, they can easily be read from any direction. Also, don’t forget to remove any old markings. You do not want to create confusion for the receiver of your package.
9. Weight and measurement markings: Make sure that your container is marked with the net and gross weight and measurements (dimensions) on the outside and in the appropriate system of measurement, which is generally accepted to be metric.
Caution A lot can go wrong on a shipment when you are in a hurry, because the focus generally tends to be on the quality of the product and how excited the customer will be when he receives it. There’s more to getting an export shipment from Point A to Point B. To minimize risks, always take your time and do your homework to avoid awkward surprises that can cause delays, nonpayment, or a customer refusal.
Insure, Insure, Insure!
Insurance is as vital to your product delivery plans as safe vehicles and good sturdy cartons. When you ship important cargo many miles away and it is completely out of your control, you do not want to take any chances on your vessel foundering in a massive midocean storm or your airline simply losing track of your cargo altogether. If situations like these occur, you must be compensated for your cargo’s value.
Insurance coverage for export shipments is traditionally provided either through your airline or freight forwarder or by an insurance company specializing in ocean and air cargo. There are three types of coverage commonly provided for export shipments: perils, broad-named perils, and all-risks. Since most transport companies offer an all-risks plan and few, if any, shippers are likely to want to skimp on coverage, I will concentrate on this type of coverage here.
An all-risks policy covers all physical loss or damage incurred by any external occurrence, excluding loss or damage caused by an extenuating circumstance such as war, riots, strikes, or civil disobedience. This type of policy generally costs between 1 and 2 percent of the declared value of your shipment. Coverage varies according to your product type and your destination point—you can get coverage for a portside-to-portside shipment or from the factory door to the customer’s door, for example—so be sure to ask your policy provider which type best suits your needs and those of your customer. Keep in mind, though, that no insurance coverage protects you against your customer refusing your cargo or against her failure to secure a required import license delaying shipment clearance, so plan accordingly.
Here are four points to consider when securing air or marine insurance:
1. Get enough coverage. Talk to your transportation company about what amount of insurance coverage you will need should your cargo get lost or destroyed. Many people ask for coverage of 110 percent of their transaction value, including freight costs and the insurance. The extra 10 percent is to compensate for your lost time, profits, and any legal or other expenses you might incur from the ordeal. You do not want to find out later (insurance claims typically take anywhere from one to six months to settle) that you are only covered for 20 percent of your transaction value!
2. Decide who will secure the insurance. How much control do you want as the exporter (seller) should something go wrong with your shipment? Your terms of sale usually determine this. Your liability ends at the point at which the title to the goods changes from seller to buyer. If you are guaranteed payment for your shipment regardless of its condition upon arrival, you might be more easygoing about letting your customer handle insurance. In addition, if you are shipping open account, I recommend that you not only secure the insurance yourself but also do so through a US company to see that any claims will be settled expeditiously. Don’t forget: Your customer is usually the first to discover damage or loss of cargo. He must take all reasonable measures to minimize the loss or damage and to keep the merchandise as evidence for claim settlement.
3. Decide who pays for it. Sometimes your customers will request the insurance and offer to pay for it, and sometimes they won’t. How you and your customer assign financial responsibility for insurance depends on the cost of the coverage and how the expense will affect each party’s bottom line. Negotiate the point to achieve a win-win situation.
4. Leave a paper trail. No matter who arranges and pays for the insurance, there are specific documents you must be prepared to present in the event of filing a claim. These include a letter of claim along with a copy of the bill of lading covering the shipment; a copy of an insurance certificate (prepared by your transport company or if you purchased insurance through an independent carrier, by you); and a survey report issued by a claim agent, plus an invoice showing the amount of damage or loss. Timeliness is of the essence—do not miss filing deadlines.
One export shipment that doesn’t reach your customer’s door is one too many! You could sustain severe financial loss as a consequence; maybe even the collapse of your enterprise. So, protect your business, your cargo, and your customer’s interests before releasing merchandise by securing the appropriate insurance coverage.
At this stage, you will be able to sit back and congratulate yourself because your export goods are on their way! But don’t get too comfortable. Within a week, you’ll need to prepare all necessary export documentation to ensure that you get paid and that your customer receives the cargo without undue delay. In the next chapter, I will cover the most essential documents as well as the less common ones you might be required to present. In addition, I will talk about the two types of export licenses, when a license is required, and how to procure it. After a final review of terms of payment and documentation, your export transaction will be complete.
1. “The Book, The Brand, The Business | Working On It™,” accessed November 3, 2013, http://www.michaelegerbercompanies.com/1311-the-book-the-brand-the-business-working-on-it/.
2. Michael E. Gerber, The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It (New York: Collins Business, 2005).
3. “ISO International Packaging Symbols,” accessed November 3, 2013, http://www.gobookee.org/iso-international-packaging-symbols/.