1	Importing An Overview
2	Welcome Introductions & Expectations
3	Agenda Introduction & Overview The Global Supply Chain The Players in the Import Process Incoterms Country of Origin Marking Payment Strategies Shipping Clearance Classification – Harmonized Tariff Schedule of the United States (HTSUS) Quotas Documentation Duty Payment/Deferment Strategies Customs & Border Protection Initiatives Importing Resources
4	Introduction and Overview Operational Longer Supply Chain Loss Damage Delay Financial Currency fluctuations Collection exposure Expensive and burdensome remedies See operational and administrative issues Administrative Customer Service Language Currency Convenience Time Zones Procurement Distance to Supplier Language Culture
5	Introduction and Overview New markets Increased sales Broader exposure New business partnerships Customers Suppliers
6	Introduction and Overview Logistics Transportation Weather Customs Cultural Language The way business is done Financial Payment considerations Terms of sale Foreign currency exposure
7	The Global Supply Chain Starting with unprocessed raw materials and ending with the final customer using the finished goods, the supply chain links many companies together. The material and informational interchanges in the logistical process stretching from acquisition of raw materials to delivery of finished products to the end user. All vendors, service providers and customers are links in the supply chain.
8	The Players
9	Government Agencies Customs and Border Protection (CBP) U.S. Customs and Border Protection (CBP) is the unified border agency within the Department of Homeland Security (DHS). CBP combined the inspectional workforces and broad border authorities of U.S. Customs, U.S. Immigration, Animal and Plant Health Inspection Service and the entire U.S. Border Patrol CBP "Twin Goals" - Anti-Terrorism and Facilitating Legitimate Trade and Travel
10	Government Agencies (cont’d.) Drug Enforcement Administration (DEA) The mission of the Drug Enforcement Administration (DEA) is to enforce the controlled substances laws and regulations of the United States and bring to the criminal and civil justice system of the United States, or any other competent jurisdiction, those organizations and principal members of organizations, involved in the growing, manufacture, or distribution of controlled substances appearing in or destined for illicit traffic in the United States; and to recommend and support non-enforcement programs aimed at reducing the availability of illicit controlled substances on the domestic and international markets.
11	Government Agencies (cont’d.) Food and Drug Administration (FDA) To protect the health of American consumers, FDA cannot limit its activities to the United States. More than 80 percent of all seafood, 20 percent of all fresh produce, and millions of other FDA-regulated products consumed or used in the United States are produced abroad. Products regulated by the agency that are made in other countries must meet the same standards as those manufactured domestically. Thus, FDA's international activities encompass: Food Pharmaceuticals Medical Devices Biologics Animal Drugs and Feed Radiation-Emitting Products Cosmetics
12	Government Agencies (cont’d.) Nuclear Regulatory Commission (NRC) The NRC's mission is to regulate the Nation's civilian use of byproduct, source, and special nuclear materials to ensure adequate protection of public health and safety, to promote the common defense and security, and to protect the environment.
13	Incoterms International Terms of Sale
14	What are Incoterms? The word Incoterms stands for international commercial terms. The chosen Incoterm is a term of the contract of sale. Their purpose is to: Standardize the trade terms used in international contracts of sale. Develop the rules of interpretation for these terms. Explain the division of costs and risks between the various parties to an international sale.
15	Where do Incoterms come from? Developed and published by the International Chamber of Commerce First edition published in 1936 Revised every ten years or so Preceding revision dating back to 1990 Current version released in 2000 improved consistency of application updated to reflect current commercial practice
16	The 13 Incoterms EXW – Ex Works FCA – Free Carrier FAS – Free Alongside Ship FOB – Free On Board CFR – Cost and Freight CIF – Cost, Insurance & Freight CPT – Carriage Paid to CIP – Carriage & Insurance Paid to DAF – Delivered at Frontier DES – Delivered Ex Ship DEQ – Delivered Ex Quay DDU – Delivered Duty Unpaid DDP – Delivered Duty Paid
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19	Incoterms - An Illustration
20	Country of Origin Marking Each imported article produced abroad must be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article permits, with the English name of the country of origin, to indicate to the ultimate purchaser in the United States the name of the country in which the article was manufactured or produced. If the article is not properly marked at the time of importation, a marking duty equal to 10 percent of the customs value of the article will be assessed unless the article is exported, destroyed, or properly marked under Customs supervision.
21	Country of Origin Marking (cont’d.) Ultimate Purchaser The last person in the United States who will receive the article in the form in which it was imported. Could be a manufacturer for raw materials or components. Could be retail purchaser if finished good sold at retail. Permanence The marking on the article (or its container) must remain until it reaches the ultimate purchaser.
22	Country of Origin Marking (cont’d.) Where is article is exempted from or incapable of being marked, the immediate container must be marked in its place.
23	Shipping Getting from here to there
24	International Freight Forwarders and Carriers An Overview
25	International Freight Forwarders Transportation and logistics intermediaries typically offering the following services Freight consolidation Document preparation Banking services Cargo insurance Door-to-door capability Shipment visibility Customs brokerage Warehousing Export packing
26	International Freight Forwarders Round up the usual suspects BAX Global DHL Danzas EGL Exel Expeditors GeoLogistics Kuehne & Nagel Menlo Forwarding Panalpina Schenker
27	Ocean Freight Container Ships Bulk Carriers Ro-Ro Vessels Break-Bulk
28	Ocean Carriers APL COSCO Hapag-Lloyd Evergreen Maersk Sealand P&O Nedlloyd OOCL Zim Container
29	Ocean Freight Pricing Pre-carriage – Trucking to port Terminal Handling (THC) – movement at pier Loading Ocean Freight (line haul) Bunker Adjustment Factor (BAF) Currency Adjustment Factor (CAF) Peak Season Surcharges (PSS) Terminal Handling (THC) – movement at pier Unloading On-Carriage – Trucking to destination Assorted other minor charges
30	Ocean Freight Pricing The basis for the line haul Full containers (FCL) are priced at a flat fee per box. LCL (less than container load) is priced by the weight or the measure (W/M) of the shipment, whichever produces the greater revenue for the carrier. Weight or measure (W/M) represents 1,000 kgs. or 1 m³. $30 W/M would mean you would pay $30 per 1,000 kgs. or per cubic meter, whichever produces the greater revenue for the carrier.
31	Airfreight Carriers All major commercial airlines FedEx UPS BAX Global DHL Polar Air Atlas Air
32	Airfreight Pricing The line haul rate (airport to airport) is generally priced on a cost per kilo basis. Typically, the higher the weight, the lower the cost per kilo. The most common weight breaks are: Minimum,<100kg, >100kg, >300 kg, >500kg, >1,000kg, >1,500kg.
33	International Freight Rate Negotiation Contender selection RFQ (Request for Quote) Bid analysis Supplier interviews Supplier selection Implementation Follow-up
34	Hazardous Materials Transportation Hazardous materials transportation is a complex, highly regulated process that requires formalized training and strict compliance with the applicable regulations. Before you ship any hazardous materials, you must be formally trained. If you ship haz-mat, and you are not formally trained, stop what you are doing and get trained immediately. There is both corporate and personal liability involved here if it is discovered that you are not complying with the law.
35	Hazardous Materials Transportation There are nine major classes of hazardous materials: Class 1 - Explosives Class 2 - Gases Class 3 - Flammable Liquids Class 4 - Flammable Solids/Spontaneously Combustible/Dangerous When Wet Class 5 - Oxidizers/Organic Peroxides Class 6 - Poisons/Infectious Substances Class 7 - Radioactives Class 8 - Corrosives Class 9 - Miscellaneous
36	Hazardous Materials Transportation Package marking and labeling
37	Hazardous Materials Transportation Shipping Papers
38	Cargo Insurance Don’t leave home without it…
39	Cargo Insurance - Overview If it is their responsibility, the exporter should either obtain its own policy or insure the cargo under a freight forwarder's policy for a fee. Shipments by sea are covered by marine cargo insurance. Air shipments may also be covered by marine cargo insurance or insurance may be purchased from the air carrier. Export shipments are usually insured against loss, damage, and delay in transit by cargo insurance. Carrier liability is frequently limited by international agreements. The coverage is substantially different from domestic coverage. Arrangements for insurance may be made by either the buyer or the seller, in accordance with the terms of sale. Coverage is usually placed at 110 percent of the CIF (cost, insurance, freight) or CIP (carriage and insurance paid to) value.
40	Cargo Insurance - Terminology Average A verified loss. General Average A legal requirement that all parties in a voyage contribute proportionately to cover expenses incurred as a result of damage to a ship and/or its cargo. Particular Average Partial or total loss or damage to a single shipment, caused by a peril that does not cause a loss to other cargo in general or to the vessel. The opposite of general average. Peril A specific kind of risk.
41	Cargo Insurance - Coverage Free of Particular Average (FPA) Minimum coverage. Limited to general average and risks that affect the vessel and multiple shipments, e.g. fire, boiler burst, vessel structural defects, explosion, stranding, sinking, and navigational errors. Only losses directly caused by these few types of perils are covered.
42	Cargo Insurance - Coverage With Particular Average (WA) Adds partial losses for heavy weather, lightning, sea water, and jettison to the perils covered by FPA. All Risk Broadest coverage Adds water damage, ship’s sweat, steam, condensation, damage by hook, improper stowage, theft, pilferage, mud & grease, non-delivery, breakage, and leakage to the with particular average perils. War Risk Strikes, Riots & Civil Commotion
43	Customs Clearance Where the rubber meets the road…
44	Customs Clearance The steps to clearance Entry Inspection Appraisal Classification Liquidation
45	The Entry Process The Right to Make Entry Owner Purchaser Licensed Customs Broker Typically, entry is made by a person or firm certified by the carrier bringing the goods to the port of entry. This entity is considered the owner of the goods for customs purposes. The document issued by the carrier for this purpose is known as a Carrier’s Certificate.
46	The Entry Process (cont’d.) Types of Entries Consumption Entry – Goods for use or sale Immediate Delivery Warehouse Entry Mail Entry Transportation of Merchandise In-Bond
47	The Entry Process (cont’d.) Formal Entry vs. Informal Entry Informal Under $2,000 in value Not subject to quota or visa (generally footwear and textiles) No surety requirement Goods liquidated on the spot. Formal Over $2,000 in value Requires surety bond to guarantee duties Liquidation within one year of entry
48	The Entry Process (cont’d.) Consumption Entry – Goods going directly into the commerce of the United States without any time or use restrictions placed upon them. Within 5 working days of the date of arrival, entry documents must be filed at a location specified by the port director Entry manifest (Customs Form 7533) or Application and Special Permit for Immediate delivery (Customs form 3461) Evidence of right to make entry Commercial invoice or proforma invoice if commercial invoice is unavailable Packing lists if appropriate Other documents necessary to determine merchandise admissibility Entry Summary (Customs Form 7501) must be filed and estimated duties deposited at the port of entry within 10 working days of the release of the merchandise at a designated customhouse.
49	The Entry Process (cont’d.) Surety Bond guaranteeing the payment of duties to Customs Single entry bond – usually for three times the value of the goods Continuous bond – usually for 10 percent of the customs duties paid in the previous year but not less than $50,000.
50	Commodity Classification Harmonized Tariff Schedule of the United States (HTSUS)
51	Tariff Classification What is the Harmonized System? Uniform numbering system to identify commodities in international trade Integrated the TSUSA with the CCCN Implemented in the late-1980’s through the General Agreement on Tariffs and Trade (GATT) Divided into 22 sections, and sections into 99 chapters 1200 four-digit general headings 5200 six-digit international subheadings More than 30,000 entries U.S. application further expanded this to 10 digits
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53	Quotas Restrictions on Importation
54	Types of Quotas Absolute Once a specific quantity has been entered into the United States, no further imports are permitted. Currently, wheat gluten is the only commodity subject to absolute quota. Tariff-Rate A certain quantity of merchandise is entered at one duty rate, once that quantity has been exceeded, the tariff duty rate increases.
55	Payment Strategies Toto, I don’t think we’re in Kansas anymore…
56	Methods of payment Payment before shipping Payment with order Cash in Advance Never use the CIA abbreviation Strongly favors the seller Open Account Same as in U.S., but with far greater risk Strongly favors the buyer
57	Methods of payment (cont’d.) Letter of Credit Normally referred to as an L/C The most common method of reducing payment risk in international sales transactions. A conditional undertaking by a bank, issued in accordance with the instructions of the account party, addressed to or in favor of the beneficiary. The bank promises to pay, accept, or negotiate the beneficiary’s draft up to a certain sum of money, in the stated currency, within the prescribed time limit, upon the presentation of stipulated documents. Any errors in the execution of the L/C are called discrepancies.
58	Methods of payment (cont’d.) Types of Letters of Credit Documentary letter of credit Guarantee from a financial institution that permits beneficiaries to draw payment(s) when producing documentation conforming to the detailed requirements contained therein. Standby letter of credit Guarantee from a financial institution that permits beneficiaries to draw payment(s) without the need of providing documentary evidence that certain tasks have been accomplished.
59	Methods of payment (cont’d.) Factoring Selling short-term accounts receivable at a discount. Forfaiting Selling longer-term accounts receivables or promissory notes at a discount. Usually applies to large export transactions.
60	Methods of payment (cont’d.) Electronic Transactions Web-based communities where members can settle payment. TradeCard Bolero
61	Import Documentation Where the rubber meets the road…
62	Commercial Invoice This is the primary document used in international trade. As specified in the Tariff Act of 1930, it must contain the following information: Port of entry where merchandise is destined. Names of shipper (seller) and consignee (buyer). Detailed description of merchandise. Quantities in weights and measures. Purchase price in the currency of settlement. Kind of currency. All charges upon the merchandise, viz. freight, insurance, packaging, commissions. Rebates, drawbacks and bounties. Country of origin Goods or services furnished for the production of the merchandise not included in the invoice price.
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64	Packing List Another common document is called a packing list. This document specifies what you are shipping, how it is marked and packaged, and the weights and dimensions of the goods. It is important for the consignee from a handling and receiving perspective.
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66	Proforma Invoice Thee primary uses Quotation Information to obtain an import license In lieu of a commercial invoice at time of importation into the United States. A bond is given for production of the required invoice not later than 120 days from the date of entry.
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68	NAFTA Certificate of Origin Used to validate that the item shipped is a product of one of the NAFTA countries, viz. Canada Mexico United States
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70	Duty Payment Strategies Features and Benefits
71	Free Trade Agreements North American Free Trade Agreement (NAFTA) Trade between U.S., Canada, Mexico Effective 1994 Goal is totally free trade in NAFTA-eligible goods among the three countries by 2008 U.S. - Israel Free Trade Agreement Effective 1985 As of January 1, 1995, all eligible reduced rate imports from Israel were accorded duty-free treatment U.S. - Jordan Free Trade Agreement Signed December 2001 Free Trade area by 2011
72	Free Trade Agreements (cont’d.) U.S. - Singapore Free Trade Agreement Effective January 15, 2003 Singapore guarantees zero tariffs immediately on all U.S. goods, and the FTA ensures that Singapore cannot increase its duties on any U.S. product. For Singapore products entering the U.S. market, duties are phased-out at different stages, with the least sensitive products entering duty-free upon entry into force of the FTA and tariffs on the most sensitive products phased-out over a ten-year period.
73	Free Trade Agreements (cont’d.) U.S. – Chile Free Trade Agreement Effective January 1, 2004 On that date, tariffs on 90% of U.S. exports to Chile and 95% of Chilean exports to the United States were eliminated. Chile is currently ranked as the 36th largest export market for the United States. U.S. – Australia FTA Signed May 18, 2004 Will eliminate more than 99 percent of manufactured goods tariffs between the two countries from day one, open services and agricultural markets, and further deepen their already strong economic ties.
74	Free Trade Agreements (cont’d.) U.S. - Central America Free Trade Agreement (CAFTA) Signed May 28, 2004 More than 80 percent of U.S. exports of consumer and industrial goods will become duty-free in Central America (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) immediately, with remaining tariffs phased out over 10 years. Key U.S. export sectors will benefit, such as information technology products, agricultural and construction equipment, paper products, chemicals, and medical and scientific equipment. Most Central American goods already enter the U.S. duty-free. Under the Caribbean Basin Initiative (CBI), other U.S. preference programs, and MFN duty-free trade, nearly 77% of regional imports entered the U.S. duty-free in 2003. A free trade agreement would be reciprocal, giving U.S. goods duty-free treatment in Central America. Dominican Republic to be added.
75	Free Trade Agreements (cont’d.) U.S. – Bahrain FTA Signed September 14, 2004 100% of bilateral trade in consumer and industrial products will become duty-free immediately upon entry into force of the Agreement. Bahrain will provide immediate duty-free access for U.S. agricultural exports in 98% of agricultural tariff lines. Bahrain will phase out tariffs on the remaining products within ten years. The U.S. will provide immediate duty-free access on 100% of Bahrain’s current exports of consumer, industrial, and agricultural products to the United States. The United States will phase out remaining tariffs under the Agreement within ten years.
76	Duty Drawback Drawback is a refund of the duty paid (less 1% retained by U.S. Customs as a processing fee) which may be claimed if the imported merchandise is subsequently exported from the United States. The most common types of duty drawback are: Manufacturing – Drawback may be claimed on an exported article that has been manufactured from imported merchandise. You can also substitute domestically produced merchandise of the same kind and quality (fungible) as the imported duty-paid merchandise in the process of manufacture of and exported product being claimed for drawback. Unused – Drawback may be claimed on duty-paid merchandise that is exported from the U.S. without having been used in a process of manufacturing. Rejected merchandise – Drawback may be claimed on merchandise which does not conform to sample or specification, if it is exported under Customs supervision.
77	Duty Drawback (cont’d.) Benefits Manufacturers and exporters who take advantage of drawback are able to compete more effectively in foreign markets. How? Cash flow and profits are substantially improved because drawback reduces the cost of imported materials by the amount duty paid.
78	That’s all folks… Summary Questions Review
79	Thank you!
80	Importing: An Overview Presented by