Freight Services Export Guide
If you are intending to export to an overseas customer for the first time here’s a step by step guide as to what you need to do to get the goods from your door here in New Zealand to your overseas customer.
Step 1. Quoting a Price & Terms of Trade:
The first thing to determine is on what basis you are quoting your overseas customer. You may have come across 3 letter acronyms such as FOB, CFR, CIF, DDP, DDU, and FAS etc. These are Industry terms & are vitally important, as they determine when your cost & liability ends, and the customer’s begin. To give an example; if you quote FOB terms, you are responsible & bear the costs for the goods to be loaded “Free On Board” the vessel. In other words you pay for the goods to be delivered from your factory, to the port, and any terminal handling costs at the port, including export documentation fees. If you quote DDP that means you will deliver to the overseas customer’s door, and pay all duties and taxes in the destination country.
Step 2. Getting a Quote for Freight & Delivery Costs
Before quoting a price to your overseas customer you need to ascertain what the additional costs are going to be to get your goods from your door to your overseas customer. If you are quoting on an Ex Works basis you are only required to pack the goods ready for shipment ex your premises & all costs ex your premises to your overseas customer is to the account of the overseas customer. If you are quoting terms other than Ex Works, e.g. CFR or DDU you will need to obtain the additional costs from a freight forwarder. To be able to give any real idea of costs, any freight company needs fairly accurate details including terms of trade, detailed description of the goods you intend to export & weights & dimensions of the consignment. If selling on a DDU or DDP basis the forwarder will also require the full delivery address of your overseas customer including post code & any special requirements such as ‘delivery to 1st floor’ etc.
Step 3. Choosing a Freight Forwarder
When importing or exporting to or from overseas, it is important to choose a professional freight forwarder who can help you with making the right decisions, and help you understand the conditions of transit. They can also help you with any specific documentation requirements and customs clearance. Most importantly, they get your goods to market on time and cost effectively. Freight forwarders can handle all your logistical requirements and negotiate freight rates, arrange customs clearance, insurance & delivery to your customer’s door. It is also advisable to choose a forwarder who is a member of a reputable trade organization who you can refer to if something goes wrong. Snedden Freight Services can provide you with the professional support and services you need to move your product to and from overseas markets & is a member of CBAFF (The Customs Brokers and Freight Forwarders Federation of New Zealand)
Step 4. Selecting the right method & transit time to move your goods
Selecting the right method(s), or combination of shipping methods, is vital to getting your goods to market on time and at the right place.
Here are three common shipping options:
- Ocean: Ideal for shipping larger or bulk items or goods that do not require fast delivery.
- Air: Ideal for shipping smaller quantities which are required urgently.
- Truck and Rail: Both of these land-based services are effective when used with ocean and air exports.
You need to determine how quickly you need the goods to get there & whether it needs to be sent via air or sea. Generally speaking airfreight can take from 1-4 days, and sea freight can take several days to 6 weeks or more. This obviously has a bearing on the cost of shipment. For small amounts (up to 100kg, depending on volume, terms & destination) it is often cheaper to send via Air, as the minimum costs for sea freight can often outweigh the total airfreight cost.
You also need to determine what transit time is needed. In most instances freight costs for a slower transit time or an indirect route are less than the quicker transit or direct route.
If you don’t need your goods to arrive as quickly as possible and can afford a few more days’ transit, or the possibility of an off load with a transshipment service, then why pay for the more expensive service when a slower service would suffice?
Of course the opposite applies as well. It’s all very well going for the cheaper route and slower transit to save money on freight, but if it absolutely has to be there by a particular date then there is an opportunity cost of missing a delivery deadline or holding up production.
Your freight forwarder can advise you on method of shipment & transit times; at Sneddens Freight Services we always offer the best transit/cost combination for your needs.
Step 5. Cargo Insurance
It is highly recommended that you obtain insurance for your goods. Both parties involved in the export transaction must be fully aware of their responsibilities.
Exporters may often have an insurable interest long after the goods have left their possession, while the buyers could be ‘on risk’ before the goods are actually received.
The terms of cover are usually laid down in the sale contract or letter of credit. There are three internationally used insurance categories:
- Free of particular average (FPA) is the narrowest form of cover as the insurance company does not cover you for partial loss or damage to the cargo. You are only covered if the entire consignment is lost or damaged, for example when a ship sinks, or by fire. FPA cover is usually purchased to cover used goods, such as scrap metal.
- With average (WA) cover extends the FPA clause to include partial loss arising from heavy weather and seawater damage. Both FPA and WA can usually be extended to include protection from theft and pilferage.
- All risks (AR) cover is the most comprehensive cargo insurance, providing protection against loss or damage from external causes. The term ‘all risks’, can be misleading, as it does not cover loss or damage arising from delay, inherent vice (deterioration or damage without outside help, e.g. milk souring). Losses as a result of inadequate packaging, weight loss from drying out, or market changes are also not covered. Risks from war, strikes, riots and civil unrest are also not covered, but can be covered at extra cost.
At Sneddens Freight Services we can give on the spot quotations for insurance & quickly arrange insurance on your behalf at a competitive price.
Step 6. Export Restrictions & Prohibitions
Before exporting your goods it is advisable to ascertain if there are any restrictions or prohibitions applicable to the goods you wish to export so that you are aware of all costs of getting your goods to your customer. The goods may require special treatment or documentation at origin before they can be exported or they may be a prohibited export such as Greenstone. Sneddens will be able to advise if there are any export restrictions or prohibitions applicable to the goods you wish to export.
Step 7. Payment Terms
Having confirmed the price & terms of trade to your overseas customer & costs of shipment including insurance, you need to decide which of the below methods of payment you require from your overseas customer:
Telegraphic Transfer or Telex Transfer, often abbreviated to TT, is an electronic means of transferring funds overseas. Funds are transferred into your bank account and you can then ship your goods. Whilst telegraphic transfer is the most common payment method used and the most secure method for the exporter, it is the least secure method of payment for the importer as they have no guarantee you will in fact send the goods.
Credit Card Payment
Credit card payments can be accepted if the exporter has a merchant agreement with an international credit card company. Many purchases relating to internet shopping, mail order or other forms of distance selling depend on customers providing a valid credit card number. They must also sign or otherwise confirm their wish to purchase. In most cases this will be with a company operating out of New Zealand and the transaction will be settled in New Zealand dollars. Purchasing at a distance by providing credit card details by fax/phone/email involves risk for both parties. The technology is improving, but online credit card security remains an issue, despite fast growth in electronic trading. Your bank will be able to advise you on accepting credit card payments.
Letters of Credit
Letters of credit are a method of payment frequently used in international trade and has advantages and disadvantages. A letter of credit is a promise made by an importer to an exporter to the effect that the exporter will be paid upon production of certain documents. This promise is normally transmitted through (and backed up by) a bank. Your bank & forwarder will be able to advise you regarding accepting a Letter of Credit for payment.
L/Cs provide the highest level of security, but are more expensive than other methods of payment and can cause delays.
Sight and Term Drafts
A simpler method of undertaking international transactions is a “bank draft against documents”. This simply means the importer must instruct his bank to transfer funds to the exporter before the bank will let him have the documents. This provides some measure of security to the exporter, but not as much as an L/C. The importer has the option of simply refusing to accept the draft, in which case he cannot take possession of the goods, but neither does the exporter receive payment. In cases where the importer’s business collapses, the exporter can be left exposed.
Drafts can also be drawn at sight, i.e. payment is made on the spot, or subject to terms. If a term is specified, the banks will recover interest in accordance with the terms of the draft.
This is the method used by most companies who have transactions with associated companies or where there are no issues of security, for example long standing trading relationships developed on the basis of mutual trust. This method, incidentally, is used for most domestic transactions in New Zealand.
Most companies will extend credit terms to their clients, subject to them meeting certain criteria. While this is the most efficient and less costly option, it also has the biggest level of risk. Many traders are prepared to accept those risks domestically, but are reluctant to do so internationally, where debt recovery can be more complicated.
Some exporters will simply demand payment in advance before they will ship the goods. This way, the importer assumes all the risks.
The selection of the method of payment is in essence a function of risk assessment. There are substantial penalties for seeking too much security (in the form of delays and charges & loss of the sale) and equally substantial penalties for running an unacceptable level of risk.
Our advice is to look at these matters from a risk assessment perspective and then decide on the best method.
- Telegraphic transfers, credit cards, drafts and open accounts are simpler and less expensive than L/Cs, but less secure.
- The selection of method of payment is a risk assessment decision.
Step 8. Arranging Shipment
Having received payment or an agreement to pay for the goods, shipment can then be arranged. If you are selling on terms that include the overseas freight, you will need to arrange shipment of your consignment with your freight forwarder. In most instances this is a simple matter of contacting your freight forwarder, completing a Shipper’s Letter of Instruction, which is a form detailing the consignor, consignee, details of the shipment including weights & measures & terms of sale, & sending back to your forwarder along with a copy of the export invoice & any other necessary documents. Your forwarder can then book the consignment on your behalf & arrange collection of the goods. If you are selling on terms that do not include the overseas freight your customer will specify the forwarder they wish to use to arrange shipment & you will still be required to complete a Shipper’s Letter of Instruction & send to the nominated forwarder along with a copy of the export invoice & any other necessary documents.
Step 9. Documentation Required
Certain documentation will be required to arrange export Customs & MAF Clearance & delivery to your customer’s door overseas, this includes:
Shipper’s Letter of Instruction: The Shipper’s Letter of Instruction is a form the Shipper partly fills in, instructing the Freight Forwarder how and where to send the export shipment. In preparing this form, the Shipper fills in most of the information required by the Freight Forwarder to make a booking & complete export documentation including consignee, package details etc and the Freight Forwarder will complete the rest.
Commercial Invoice: This is the ‘charge’ document, containing details of the seller, buyer, goods, price & terms of trade.
Bill of Lading (B/L): This is issued by or for the shipping company (Ocean Bill of Lading), or the freight forwarder (House Bill of Lading), in the country of export and serves as a receipt for goods uplifted for shipment. It is also a contract of carriage and a legal document of title to the goods. On delivery of the goods the consignee is required to surrender a negotiable copy of the bill of lading to take possession. Certain exceptions do apply such as Express Bills of Lading or Waybills. This is usually issued after the vessel sails
Airway Bill (AWB): The AWB is equivalent to a bill of lading for goods sent by air. In addition, courier companies often have their own documentation, unique to that transaction, which travels with the goods.
Certificate of Origin: The origin of goods may have a direct bearing on the rate of Customs duty. Certificate of Origin may be incorporated in the commercial invoice, but a separate document, issued or countersigned by the Chamber of Commerce in the country of origin may be necessary.
Packing Slip: The packing slip includes the weight and measurement of each item on the commercial invoice but shows no value on it. These weights and measurements may be needed to complete Customs clearance.
NB: Depending on your terms of trade you may be required to forward documentation to your overseas customer. Minimum documentation required by your overseas customer is the commercial invoice/s and a copy of the bill of lading or air waybill.
Step 10. Export Customs/MAF Clearance
Once the shipment has been booked & before the goods can be exported, export Customs Clearance is required. All exports with a value over NZ$1000 FOB (unless otherwise exempted) must be supported by an export entry lodged with the New Zealand Customs Service.
Information declared on Customs Export entries is passed daily to Statistics New Zealand for direct input into balance of trade reporting. The information also forms part of the assessment of particular industries and markets, assisting in the identification of development and trade opportunities. Your freight forwarder/Customs Broker will arrange export Customs clearance on your behalf.
As an exporter you need to have a Customs Client Code (Please refer to the Library section of our website www.doortodoor.co.nz for ‘NZ Customs-Client Code Application’) your Customs Broker can assist you with completion & lodgment of the form.
Step 11. Delivery to Your Customer’s Door
Depending on the terms of trade which you have sold the goods, delivery arrangements may be the responsibility of your customer in which case it is important that you forward copies of the documents (minimum documents required being a commercial invoice & waybill) to him and/or present to the bank as the case may be, as soon possible. If selling on a DDU or DDP basis your forwarder’s overseas representatives will arrange Customs clearance & delivery to your overseas customer’s door on your behalf.
That’s our basic step by step guide to exporting, it does not cover all possible situations & intricacies of exporting but does give a good guide to start with – for help contact us.