The Major Players You'll Work With When Running an Import/Export Business
Before you dive in and launch an import/export business, find out just who and what agencies you'll need to work with to make your business a success.
Let’s take a look at the agencies you may be working with as you manage your import/export business. While they can be divided in broad strokes into importers and exporters, there are many variations on the main theme.
Export management company (EMC). An EMC handles export operations for a domestic company that wants to sell its product overseas but doesn’t know how (and perhaps doesn’t want to know how). The EMC does it all -- hiring dealers, distributors and representatives; handling advertising, marketing and promotions; overseeing marking and packaging; arranging shipping; and sometimes arranging financing. In some cases, the EMC even takes title to (purchases) the goods, in essence becoming its own distributor. EMCs usually specialize by product, foreign market or both, and -- unless they’ve taken title -- are paid by commission, salary or retainer plus commission.
Export trading company (ETC). While an EMC has merchandise to sell and is using its energies to seek out buyers, an ETC attacks the other side of the trading coin. It identifies what foreign buyers want to spend their money on and then hunts down domestic sources willing to export, thus becoming a pseudo-EMC. An ETC sometimes takes title to the goods and sometimes works on a commission basis.
Import/export merchant. This international entrepreneur is a sort of free agent. He has no specific client base and doesn’t specialize in any one industry or line of products. Instead, he purchases goods directly from a domestic or foreign manufacturer, then packs, ships and resells the goods on his own. This means that unlike his compatriot, the EMC, he assumes all the risks (as well as all the profits).
Let’s say you’re an exporter with a really hot product to sell. Who do you look for? A buyer, otherwise known as an importer. Here’s the rundown on the various types of importers:
Commission agents. These are intermediaries commissioned by foreign firms searching for domestic products to purchase.
Commission representatives. Similar to independent sales reps in the United States, these folks usually work on a commission basis, and because they don’t purchase (take title to) the product, they don’t assume any risk or responsibility.
Country-controlled buying agents. These foreign government agencies or quasi-governmental firms are charged with the responsibility of locating and purchasing desired products.
Foreign distributors. Similar to wholesale distributors in the United States, these merchants buy for their own account, taking title to and responsibility for the merchandise.
State-controlled trading companies. Some countries have government-sanctioned and controlled trading entities. These agencies often deal in raw materials, agricultural machinery, manufacturing equipment and technical instruments.
The major players
There are, of course, more players than just the importers, exporters and their cast of distributors and representatives. You’ll also be dealing with the major players in the game: the government entities.
Two important goals of the U.S. Customs Facilitation and Trade Enforcement Reauthorization Act of 2009 were enhancement of supply chain security and enhancement of trade facilitation. Toward those goals, the U.S. government created the U.S. Customs and Border Protection Agency (CBP) and the U.S. Immigration and Customs Enforcement Agency (ICE). Together these two agencies take on many more tasks than just checking for contraband souvenirs. According to their websites, they also:
- assess and collect customs duties, excise taxes, fees and penalties due on imported merchandise;
- intercept and seize contraband, including narcotics and other illegal drugs;
- process people, baggage, cargo and mail;
- administer certain navigation laws;
- protect American business, labor and intellectual property rights by enforcing U.S. laws designed to prevent illegal trade practices, including provisions related to quotas and the marking of imported goods;
- enforce the Anti-Dumping Act;
- provide customs records for copyrights, patents and trademarks;
- enforce import and export restrictions and prohibitions, including the export of technology used to make weapons of mass destruction;
- protect against money laundering;
- collect import/export data to translate into international trade statistics;
- secure the national borders;
- enforce immigration laws;
- strive to guard against terrorism.
The Bureau of Industry and Security (BIS) is another entity that governs the exportation of sensitive materials such as defense systems, plutonium and encrypted software. Headed by the Department of Commerce, BIS administers export controls, coordinates Department of Commerce security activities, and oversees defense trade. The BIS manages the export of most merchandise through the Export Administration Regulations, also known as EAR.
Beyond CBP, ICE and BIS, various agencies regulate the importation and exportation of sundry products. To find out which agencies oversee your particular product(s), contact visit the CBP’s website.
Depending on whether you’re importing or exporting, you can also get answers to your pesky procedure questions from a customs broker or a freight forwarder.
The customs broker (sometimes called a customhouse broker) is the importer’s pal. It’s their job to know the ins and outs of importing in intimate detail and to handle them for you. Some brokers are small outfits; others are large corporate entities. The U.S. Customs and Border Protection (CBP) licenses them all.
When you hire a customs broker, they act as your agent during the entry process. They prepare and file the entry documents, acquire any necessary bonds, deposit any required duties, get the merchandise released into their custody or yours, arrange delivery to the site you’ve chosen and obtain any drawback refunds. A customs broker isn’t a legal necessity, but a good one will make your life considerably easier.
While the customs broker is the importer’s best friend, the freight forwarder is the exporter’s pal. Acting as the exporter’s agent, the international freight forwarder uses their expertise with foreign import rules and regulations as well as domestic export laws to move cargo to overseas destinations.
Freight forwarders can assist with an order from the get-go by advising you of freight costs, port charges, consular fees, special documentation charges and insurance costs. They can recommend the proper type of packing to protect your merchandise in transit, arrange to have the goods packed at the port or containerized, quote shipping rates and then book your merchandise onto a plane, train, truck or cargo ship. Like a concierge in a really good hotel, they can get anything you’ve got anywhere you want it to go.
Like customs brokers, freight forwarders are licensed, but in this case, by the International Air Transport Association (IATA) and Federal Maritime Commission (for ocean freight). You don’t have to use the freight forwarder’s services to transport your goods, and not all exporters rely on such services, but they’re a definite plus.
'Swimming the trade channel'
Now it’s time to take a swim in the trade channel, the means by which the merchandise travels from manufacturer to end user. A manufacturer who uses a middleman who resells to the consumer is paddling around in a three-level channel of distribution. The middleman can be a merchant who purchases the goods and then resells them, or they can be an agent who acts as a broker but doesn’t take title to the stuff.
Who your fellow swimmers are will depend on how you configure your trade channel, but for now, let’s just get acquainted with the group:
Manufacturer’s representative. This is a salesperson who specializes in a type of product or line of complementary products, such as home electronics. He often provides additional product assistance, such as warehousing and technical service.
Distributor or wholesale distributor. A company that buys the product you’ve imported and sells it to a retailer or other agent for further distribution until it gets to the end user.
Representative. A salesperson who pitches your product to wholesale or retail buyers, then passes the sale on to you; differs from the manufacturer’s rep in that they don’t necessarily specialize in a particular product or group of products.
Retailer. This is the tail end of the trade channel where the merchandise smacks into the consumer. As yet another variation on a theme, if the end user is not Joan Q. Public but an original equipment manufacturer (OEM), you don’t need to worry about the retailer because the OEM becomes your end of the line. (Think Dell purchasing a software program to pass along to its personal computer buyer as part of the goodie package.)