Shipping office services, helpline, consultancy and supply chain security

Friday, 28 June 2013


I would like to start this Tale by exploding a myth. Independent private international trade consultants can make a real difference to your business! It’s a matter of matching the project with the right consultant, because there is no consultant on earth who can offer a total solution for all your international trade needs. My own business, Exportaid, focuses on offering practical help in international sales & marketing, in empowering businesses to get properly organised for their international journeys, and in taking some of the fear out of exporting. But there are things that we can’t do, and things that we would not attempt. We prefer instead to refer customers to one of the many specialists with whom we work.

Exportaid has been in business since 2002, and we work with a number of companies who can offer a range of specialisms from Strong & Herd’s regulatory and licensing expertise to MJ Hayward’s deep knowledge of letters of credit and other bank payment methods. We know that if we refer companies to our trusted partners they will get good service and quality help. And we receive referrals in return where our experience and knowledge is better suited to providing a customer with first class services. And there is a whole network of us out there!

I work with a company in North Yorkshire who wanted me to help them with meetings arranged by UK Trade & Investment at two consecutive Ecobuild exhibitions in London. On the first occasion, we met a very promising contact from Hong Kong, the Managing Director and his Technical Director. When I introduced myself as my client’s Export Consultant, their reaction was that my client must be serious about doing it right if they were prepared to invest in working with an International Trade Consultant.  18 months on, and with my direct input and coaching, my client now has an exclusive agreement with one of the major distributors of building materials in Hong Kong, with offices across China.

There were several occasions during the process where the Yorkshire company became a little impatient, and concerned about locking themselves into something they might find it hard to extricate themselves from. That was borne out of unfamiliarity with the market, lack of knowledge of the distributor, and the mistrust that can come from that, and a whole range of other issues. However, I knew that to persist was the right thing for my client. I learned more about them and found that they also distributed for another highly respected and possibly complementary UK brand. I contacted them for a reference, and it was probably the most glowing reference I have ever heard about any distributor I have had dealings with. A great result.

A couple of years back I was introduced by RBS to The Customs People, a company of VAT specialists, and they had just saved a client of theirs £140,000 by scrutinising their VAT returns. David Miller from The Customs People is now also an Associate of Strong & Herd. David referred Strong & Herd to a company in Berkshire who were having a significant Export Licensing issue at the time. By analysing the issues and communicating effectively with HMRC, Sandra Strong provided a solution that put the company back on track and gave them a formula for the future that would ensure they did not repeat the same errors.  My accountant referred one of my clients to a company who specialises in R&D tax credit claims, and that resulted in a £16,000 windfall net of his commission. A couple of years ago I referred Virtuoso Legal to an Exportaid client in Scotland, and Liz Ward, Principal of that company, helped them obtain an EU wide trademark for their brand of fabrics. And to complete a rather nice loop, it was Virtuoso Legal who referred Exportaid to the company in North Yorkshire! These are examples of the kind of deep knowledge and professional support that can only be found in professionals who have been in a certain line of business for the whole or most of their working lives.

Finding good quality international trade help can feel like a bit of a minefield, but there is plenty of help out there, from the UKTI services outlined in Tale #30 through to the recent and ongoing examples in the paragraphs above. There are multiple ways in which you can connect with our informal network of independent and professional international trade specialists, so give us a call, send us an email, contact us through our websites, or connect with us via our multiple social network pages. We would love to hear from you.

Tuesday, 25 June 2013

Exporters - 10 major causes of sleepless nights (with some suggestions to help)

Exporters face a whole plethora of risks, and evaluating those potential threats to the business can be a challenging procedure. The following 10 causes of sleepless nights for exporters has been collated from delegates in export themed workshops, with the attendees being asked to nominate their main concerns and anxieties relating to their company's overseas sales. The findings are in no particular order of priority, but it is based on comments obtained during 2013. In addition to some commentary on the actual risks there is also some potential mitigants or suggestions which might help to ease those restless nights.

1. "Ensuring that we get paid"
A seemingly obvious but vitally important consideration. Securing payment is usually the initial and overriding concern of any seller of goods, and worries about buyer risk are very common. Exporters regularly attempt to mitigate the risk by requesting Documentary Letters of Credit or other methods of payment which effectively transfer the risk from their buyer to their buyer's bank. However, this request may make the exporter appear uncompetitive if alternative suppliers are quite willing to manufacture and ship comparable  goods, without requesting a "secure" method of payment.

2."Terms of payment - concerns about having to offer lengthy terms to buyers"
Long credit terms are expected by buyers as a matter of course in some territories, notably the Middle East, but having to accommodate these terms can be challenging for exporters. If component parts have been sourced from overseas suppliers, followed by manufacture, shipment and in some cases, installation - the wait to be paid can be extremely protracted. Financial Controllers and Directors will potentially experience real cash flow issues but financiers may be able to assist by accelerating payment especially if a Letter of Credit has been received in support of the transaction.

3. "War, civil unrest, political instability in my buyer's country"
The "Arab Spring" which began in December 2010, has had a marked effect on exporters who were considering selling their wares to the Middle East, and also to more experienced exporters who in some instances appear to have been taken by surprise at the extent and spread of the unrest and conflict. Whilst clearly recognising the country risks involved in trading with some of the more obviously unstable territories, the civil unrest and protests in states such as Bahrain, Oman, Kuwait and Jordan have caused UK exporters some real issues. In one particular instance the civil war in Libya resulted in a small exporting company in East Anglia actually going out of business as the vast majority of its trade was in Libya.

4. Buyer selection - identifying new clients.
The process of identifying new trading partners is considered a challenging task, especially as fraud in international trade is not uncommon. Trade fairs/shows in certain sectors are a favoured place to meet new clients in relatively informal surroundings. UK Trade and Investment, the government backed entity along with the more proactive Chambers of Commerce may be able to assist sellers finding clients. Foreign embassies often have departments which can assist UK exporters who are seeking new buyers in their country. In reality nothing can compare to a face to face visit, when an exporter can make a decision based on a personal assessment of the buyer's integrity and trustworthiness, backed up by some robust financial due diligence.    
5. Foreign Exchange Risks/Treasury Management.
In some instances this issue is cited as one of the most important risks to consider for an exporting company. The foreign exchange market, unsurprisingly experienced enormous swings in 2008 at the start of the global economic crisis, and more recently in 2011 the USD/GBP rate moved from 1.65 to 1.54 in a little over two months in the autumn of that year. This shift may have resulted in a surprise windfall for exporters who may have received in USD and exchanged their Dollars for Sterling and received more than they had budgeted for - it could easily have gone the other way. If exporters restrict themselves to dealing in the spot market, just selling their USD on the day, they are speculating. Most banks or advisors would suggest that exporters (and importers) cover their risk by protecting a percentage of their foreign exchange exposure by taking out simple protection measures. The choice of FX providers is still wide, although some banks (who provide rates for the FX providers) have exited these relationships as they deem the risk too high, so caution needs to be exercised in choosing your provider.          

6. Poor internal communication (within the own exporter's company).
This is a regularly voiced worry and concern which is often raised by financial administrative staff in medium to large companies. Typically in these circumstances, a salesperson has negotiated a sale with an overseas buyer and agreed that payment will supported by a Letter of Credit. The problems occur when the Letter of Credit is received from the advising/nominated bank in the UK, and the admin staff identify that the actual terms and conditions as stated in the Letter of Credit are totally unworkable. In order to prevent this happening the sales staff would benefit from some rudimentary training in understanding Letters of Credit, and they also need to involve their administration team at the earliest opportunity. In most well run export departments, the administration staff will have sent a completed template to the buyer stating what terms and conditions they would wish to see in the Letter of Credit, and this proactive approach helps to cut down on amendments to the Letter of Credit. However, in many companies this cohesive approach is sadly lacking, and worries about being suddenly confronted with an unworkable Letter of Credit seem to abound.

7. "Funding the manufacturing period"
Most banks/financiers are much more willing to consider funding the post shipment phase of a export, especially if they are the confirming bank in a Letter of Credit. Many companies state that unsurprisingly, they require some funding when they are buying raw materials/component parts and incurring labour costs during the manufacturing process. In simple terms most mainstream banks have a conservative appetite to financing this period, but they will consider advances in selected instances, usually requiring the manufacturer to have already received in a Letter of Credit. The pre-shipment advance is usually for between 50% - 70% of the value of the Letter of Credit, and recipients of the advance must have robust financials and have a sound record of presenting compliant documents under previous Letters of Credit. It is all about assessing risk from the bank's perspective, and post shipment finance is far less risky, as the bank will have examined the shipping documents, found them to be compliant and will have marked the risk on the issuing bank.

8. "Our performance risk - fears about claims on contract guarantees/bonds"
Many exporters have mentioned their fears about claims under contract guarantees which their bank will have issued in favour of their overseas buyers. It is very common in certain parts of the world for the overseas buyer to request the issuance of contract guarantees to support the seller's performance of their contractual obligations. These guarantees/bonds may include - tender bonds, advance payment bonds, performance bonds, warranty bonds and retention bonds. In the vast majority of cases the guarantees/bonds are simple demand guarantees, which effectively means that the buyer is not bound by any conditions or has to obtain approval from an independent arbitrator that the claim is a fair and legitimate demand. In truth UK sellers are vulnerable to unfair claims, and recent statistics state that up to 15% of performance guarantees are claimed upon, but of course many of these may well be legitimate claims, with the seller having failed to perform their obligations under the contractual terms. It is also worth stating that if UK sellers refused to supply the guarantees in the first instance, they would not participate in the business, so in effect they have no choice, but they still worry about potential spurious (or genuine) claims.

9. Bank Charges!!! - (eroding our profit margins.)
Many delegates moan about their banks almost as a matter of course, but charges for transacting a number of trade products has become a topical issue and a concern for many companies. The largest bank charges levied are usually confirmation charges on a Letter of Credit, and these can amount to many thousands of pounds, if the Letter of Credit is of significant value and the country and issuing bank risks are assessed by the confirming bank as high. On a number of recent occasions, exporters have been surprised by unexpectedly high confirmation charges, and to compound their frustration, the UK bank has not explained how these charges have been arrived at, just stating a stark figure on their Letter of Credit advising schedule. Bank charges vary quite considerably and best advice for exporters who are seeking a trusted bank to add confirmation to an incoming Letter of Credit, is to shop around. Having said that, some banks are getting quite cautious about adding confirmation for beneficiaries who are not known to them, so even shopping around these days may be quite a fraught process.

10. "Discrepant documents under Letters of Credits? - why are banks so picky!"
Concerns and general anxieties surrounding documentary presentations against Letters of Credit are common, and generally provoke some strong reactions amongst exporters. The general consensus (whether fair or not) is that banks will look to find discrepancies and therefore avoid paying the Letters of Credit. This feeling amongst exporters almost certainly emanates from heated discussions with banks over whether a documentary presentation is truly discrepant or the bank is not using common sense and is being in the exporter's usual words "over picky". Banks should use the International Standard Banking Practice which provides intelligent guidance to document examiners, and a new version of this publication is due to be released in the near future. The current version does offer common sense advice, and helps to provide some clarity to banks, in how they should interpret UCP 600 - the rules that govern Letters of Credit. However there will always be some grey areas, and exporters will continue to voice their opinions on the quality of  documentary examination by banks.

These 10 worries/concerns are not intended to be a definitive list, but they do represent issues which exporters have raised on a regular basis at workshops/seminars in 2013.         

Friday, 21 June 2013


As someone who has both used and delivered government services for international trade, I have seen the good and the bad from both sides of the fence, and it has to be said at the outset that my experiences have been mainly positive. As an Export Sales Manager for companies between the mid ‘80s and 2004, I used a number of the services offered by UK Trade & Investment (UKTI). Latterly, I helped to deliver Passport to Export Services to North West exporters, including Passport to Export training, and I was also involved at the time in delivering Passport To International Trade Success, with the unfortunate acronym of PITS!

Having now run my own international trade consultancy since 2002, overlapping with the last two years of my employment (with the blessing of my employers I hasten to add!), there are occasions where it has been important and necessary to refer companies to UKTI services. There is a vital partnership to be had between both public and private services for international traders. The two cannot exist without each other. Consultants like me do not have direct access to a pot of funding that supports companies with their exporting activities: grants for exhibitions; free and subsidised training; match funded schemes; the Export Market Research Scheme and other incentives. However, private consultants frequently possess a depth of experience in specialist areas, either sectoral or regional, where they can open doors and shortcut routes to market, introductions to the right market influencers, agents, distributors and other salespeople, and offer detailed knowledge that local UKTI services or the Commercial officers out there in the Posts may not be able to provide. 

From my many years of international selling experience, I know that if your product or service happens to be in a niche or specialist sector, there will very often only be a few key companies you really need to talk to in your chosen export markets, with the possible exception of the geographically larger markets such as the USA and the BRICs. So there are occasions when direct knowledge of and access to a market can be a better route to success than a lengthy programme of market research. Conversely, it may take a lengthy programme of market research to identify not just the companies who are already established and active in a given sector, but also the new kids on the block, and those on the periphery of the sector who might be more open to new ideas on how to market and sell your products or services. Sometimes, combining both is the best way forward, but one thing is for certain, there is no ‘one-size-fits-all’ solution.

When I was selling Passport To Export, I worked with a UK greetings cards distributor who were planning to use some of the Passport funds to exhibit at the National Stationery Show in New York. As part of their programme while in the market, we arranged for a room to be made available to them at the British Consulate in New York, and for meetings there with two of the world’s top greetings cards manufacturers. The cudos of inviting these key companies to the Consulate really helped in providing a reason for them to confirm the meetings.  When the UK company returned from the USA, I reviewed their visit and asked what was the single best experience of their trip? Their answer was unequivocally the meetings at the Consulate, both with the target companies and with the highly knowledgeable Commercial Officers who handled Creative & Media.

I have worked with some excellent Commercial Officers in the Posts over the years, and as an international business traveller I would encourage others to strike up a relationship with the local Commercial Officers whenever you have the opportunity, even if it is only for a quick introductory visit over a cup of coffee. The Posts are there to help you to succeed. I was researching the floor coverings market in France one year and decided to take myself off to the Charles De Gaulle Library, and incredibly impressive complex a twenty minute train ride from the centre of Paris. I was there for four hours, and as a British person with schoolboy French, trying to find information about French business I soon had the impression that the shutters were going up. I was being shunted from one queue to another and was receiving no help at all. So I commissioned one of the British Embassy’s Commercial Officers to repeat the exercise the following week, and it took her about half an hour to obtain all the information I was looking for!

Those are just two practical examples of how government help can make a real difference to a company’s international activities. The next ‘Tale’ will show how private international trade consultants have helped UK businesses to succeed in their international markets. 

Tuesday, 18 June 2013

International Trade Compliance Tales of Woe - Ignoring the Basics: Export Licensing – well everything seemed ok

I visit lots of companies and see many more people at training courses and I’m worried about the trend I’m seeing – companies and their staff don’t know why they are doing things and they’ve forgotten (if they ever knew) the basics.

Take the control and procedures for using Export Licences.  Often there is no procedure, so what they should be doing is in someone’s brain and if they leave (or are made redundant) the people taking over can only follow previous examples.  And then they forget to do something, eg notify HMRC in Southampton of the use of an individual licence for goods going into the EU, mild panic – the other person had always done that  … but nothing happens.  No one chases them, no letter from HMRC about breaking the law … well, then, let’s not bother – it’s time consuming and delays shipment to do it and if no-one seems worried I’ve got plenty more things to get on with.  But it’s a legal requirement – the staff just hasn’t been trained and fail to understand how important it all is.

I was asked to assist one company recently to create a Corrective Action Plan - they are under HMRC investigation over numerous offences against the Export Control Act – the offences include exporting licensable goods without a valid licence; not checking end-user details (diversion via EU to controlled destinations occurred); not being able to identify controlled goods/technology internally; military technology being hand-carried overseas on laptops, etc.  The offences date back 4 years … coincidently it was just over 4 years ago that they had made their logistics manager redundant.  He was a nuisance anyway – always asking lots of questions, stopping exports, expecting them to turn down orders, slowing things down.  Everything worked so much better without him … until, of course, HMRC caught up with them.  By not acknowledging the importance of export licensing controls and intentionally ignoring previous procedures the company is in a very difficult position (potentially 10 years imprisonment looms over the Chief Exec).  First step – their right to export was removed; 3 months later we have re-established export control compliance and they are exporting again but the fines and criminal penalties still hang over the business.  I wonder what happened to that nuisance of a logistics manager.  They’d have him back in a shot, now!

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Friday, 14 June 2013


Travelling used to be a pleasure. I remember the times when quite regularly in the ‘1990s I would ask for, and frequently get, an upgrade to business class. I remember arriving at Copenhagen Airport once with minutes to spare before my flight home and still being processed through quickly and efficiently by the airport staff.  I remember waiting in standby queues. I remember stepping down from a flight because it had been overbooked in return for $100 and a night in a good quality hotel with meals and drinks thrown in. Some of these things still occasionally happen, but the whole travel process has become a tedious and frustrating experience for the regular business traveler.

After Lockerbie and 9/11, it was essential that something was done to improve airport security. However, with all the smart technology now available to the security services, one can’t help feeling that some of the processes are somewhat over the top, or nobody is prepared to put their head above the parapet to change the irritations that we have had to become accustomed to. The shoe bomber caused airport security to insist on the removal of shoes, but thankfully they thought again about the extent of clothing removal after the underpant bomber! It has all gone a bit silly.

Consistency can be a wonderful thing. Travelers expect the same kind of security activity at every airport, ferry port, or border crossing. Conversely, it remains important for security to retain an air of unpredictability, but there is a balance to be struck. For example, I was waiting to board a flight from Brussels to Boston, when a delay was announced to its departure. At first no reason was given, but then I watched as an engineer climbed onto the wing to inspect one of the engines, and the food trolleys that had just been loaded were unloaded again, a process that took some time to complete. It is always a bit unnerving to see the aircraft on which you are about to fly being given the once over like that, but it is also good for passengers to be able to see the level of care and detail in ensuring flight safety.

In total the wait was just over four hours, and most passengers had already gone through security into the boarding area. Apart from two fur clad Latino women, who kept checking in and out of through security so that one of them was in and one was out at all times until the flight was almost ready to go. Yes I know, it’s amazing the sort of entertainment one can find when stuck in a boarding area! There was clearly something not quite right about these two, but it was impossible to work out exactly what. Everything became crystal clear on touchdown in Boston. As we arrived at the gate and the aircraft doors opened there were booming shouts of “Armed Police!” and “Everybody get back in your seats, NOW!” And in stormed six heavily armed meat heads whose physical presence blocked all light for the few moments they were on the plane. They knew who they were targeting and they whisked the two women away in a matter of seconds. Probably a drugs bust, but who knows for sure?

That whole experience was oddly reassuring, but the removal of belts and shoes, change out of your pockets, mobile phones, jewellery etc. would all be rendered unnecessary of the security services invested in body scanners such as those that were trialled at Manchester Airport. And for those who worry about images of body parts that they would otherwise wish to remain under wraps, it’s an X-Ray for goodness sake! It is also quicker, and prevents those embarrassing moments after successfully going through security where people have to readjust clothing and make themselves decent again before the person behind starts to get agitated at how long it takes for men to put belts and shoes back on! There really has to be a better way.

There was another occasion when we were returning from a combined business/family weekend in Prague via a transfer at Frankfurt Airport. The queues at Frankfurt security for our Manchester flight were so long, and security so slow, that there was a very real danger of missing the flight. As we approached security, we did the usual belt and shoes thing, and they then took both my son and my wife to one side for a more thorough check, letting through this balding and occasionally menacing looking 50+ year old male without so much as a second glance. Clearly they thought my wife and son were possible mules! And what was even more bizarre, is that one of my customers had given me a gun shaped bottle of plum brandy which had gone through the scanner without question.

So yes, let’s have the right level of security and for the passengers’ part, let’s not carry gun shaped bottles of anything just in case! Everyone has a part to play in making travel an enjoyable and safe experience. 

Tuesday, 11 June 2013

Grumbling about …. The Spelling of Licence/ License

Why can’t we get it right?  In the UK you apply for an export licence but the act of applying is licensing the goods … yet even in official documents you see the words spelt Export License and licencing.  There is correct way of using these spellings they are not interchangeable, and it’s got nothing to do with international trade it’s an old fashioned grammar/spelling questions. 

Under the rules of the English language a change from a “C” to “S” changes it from a noun to a verb.  It happens with other words such as practice and practise.  For me, the easiest way to remember is if you can see -“C” - it and touch it you write LICENCE, everything you can’t “C”, the process or doing something, eg applying for permission, is LICENSE. 

The USA complicate this understanding by just using LICENSE for everything  – this was thanks to Mr Noah Webster.  Webster was a revolutionary during the American War of Independence from English rule but he also wanted to make America independent from the cultural thralldom to Britain.  So, in 1828, he published a dictionary which purposely split USA spellings of words from their parent English getting rid of a lot of rules and superfluous letters (eg colour/ color).   I suppose we could do a little link to international trade here, as our older readers will be aware, Webster’s Dictionary was Morocco bound! (Sorry)

If you’re in the UK there is no excuse for spelling Licence incorrectly.  I have an export licence in my hand after licensing the goods!!!   Easy

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Friday, 7 June 2013


One of the very few drawbacks of being involved in international business is that almost wherever you travel for family holidays or weekends away, there will generally be a sense of familiarity, whether of surroundings, language, culture or atmosphere. So as much as possible I have tried to avoid taking my family to places where I have been previously on business, preferring instead to explore new ground and share that special experience of adventure and finding something new.

But sometimes it just hasn’t worked out that way. Villa holidays are not something I have ever really aspired to or wanted to do, and many of the main villa companies tend to offer packages way outside the amount I have been prepared to pay for a bit of sunshine. There was once a time when I could get all the sun I needed on my allotment two streets away! I have always aimed to do something off the beaten track, so when I found a company in Huddersfield who seemed to offer everything I needed apart from ABTA insurance, including – against the grain – a very reasonably priced villa with a full sized swimming pool set in 8 acres of orange groves and about 6 miles from Albufeira in a remote spot in the middle of the Algarve countryside, and a week in a nice hotel in the centre of Lisbon, I booked it.

At the time I was working with a distributor in Lisbon, run by two avid Benfica fans, who also sponsored Benfica’s handball team. Eduardo and Aries and their families were possibly the most hospitable people I have ever had the pleasure to do business with, and we struck up a very good business relationship and friendship. I had told Eduardo about my holiday and he went on to explain that they had a house in the Algarve and would be in the area at the same time as us, but that also they would like to show us some of Lisbon. So we had tentatively agreed that if time allowed and we weren’t doing other things, we would meet up at some stage during our holiday.

Well, they met us at the hotel on day one, took us on a day out to Sintra via one of the best restaurants that I will never be able to find again, to Estoril to a restaurant where they had taken me many times, and on our final night in Lisbon to a fun fair until the early hours. And when, after the long drive to the Algarve, we finally arrived at our villa, the British owners told us that they had received three phone calls already from Eduardo to see if we had arrived, and a fourth came through as they were telling us that! It was clear that he and Aries and their families wanted to meet us there and then, but we needed a couple of days to settle in. And I told them so.

Eduardo, Aries, and their families were astonishingly kind and took us to beaches away from the main holiday areas, out to the point where the Atlantic and the Mediterranean meet, and then treated us to a fabulous meal outside on Eduardo’s veranda. However we must have spent at least four days of our two weeks in Portugal in their company or under threat of it, and at times it didn’t feel as much like a family break as it should have done!

I have been very fortunate in business to meet and work with so many nice people. It is because I have put a lot of effort into developing long lasting business and friendships in many different parts of the world, and they have reciprocated, often with interest in the way that Eduardo and Aries did. Similarly, we met with a distributor and his wife when on holiday in County Mayo, were wined and dined in Prague by a distributor there, and met up with a machinery customer on Toronto waterfront where he moored his yacht, though none of those had the intensity of our experience in Portugal.

I have sometimes wondered why it is that people with whom I spend very little time have seemed really to value the relationships that have developed. There are probably a number of reasons:
  •   I expect excellent performance from distributors but I don’t expect immediate results because that is often unrealistic. Patience reaps rewards.
  •   I invest time and effort in product training and supporting them with samples and brochures, and at exhibitions, giving them the tools to do a first class job.
  •  I plan with them how we are going to achieve our agreed targets and objectives.
  •  I do what I say I am going to do. No half measures. No backtracking. No disappointments. I expect them to do the same.
  •  I like to spend time getting to know the people as well as their businesses, their other suppliers, their customers and their competitors.
  •    I listen. I am prepared to be flexible with terms where a good case is made.
  • And I signal that I intend to know as much about their market as they do.
In the final analysis, people do business with people. Managing agents and distributors is not so  different to managing a team of staff. It was my job to get the best out of each of them. I was given the freedom and time by my employers to do just that, to support, manage and motivate an international selling network. And now they seem to want to come on holiday with me!!

Tuesday, 4 June 2013

Importers - 10 major causes of sleepless nights (with some suggestions to help)

With an ever increasing number of companies in the UK sourcing their component parts or finished goods from  every corner of the globe, it is unsurprising that there are a whole host of issues/worries/concerns relating to those purchases which may interfere with a good night's sleep for staff/management/directors who are responsible for the procurement. This blog collates the 10 most common concerns which have been voiced during import finance themed workshops run either as a public course or in-house for specific companies in 2013. 

1. "The quality of the goods - our biggest worry".
UK importers who are sourcing finished goods often from Asia will almost always have quality apprehensions uppermost in their minds, and will generally quote these concerns as their chief 
worry. Importers will attempt to allay these fears with a variety of measures and in some instances they will appoint independent inspection agencies to examine the manufactured goods to check that they are as per required specifications. If the UK buyer has arranged for their bank to issue a Letter of Credit in favour of the overseas supplier and the terms require the beneficiary to submit a clean report of findings relating to the finished goods, this provides additional comfort for the UK buyer, as without the report, the supplier is unable to present a full set of documents under the Letter of Credit. However, the goods are routinely checked in the manufacturer's factory and rarely when they have been loaded into a container for shipment, so an unscrupulous seller could switch the goods for substandard products. Many UK importers will appoint local agents to oversee production and if the importer's customers in the UK are major retailers, who will impose very exacting standards then rigorous quality checking during and after manufacture will be required.

2. "Cash flow - having to pay suppliers with order/on shipment"
As liquidity issues continue to be an important factor in the major manufacturing powerhouses in the world, and with relatively high interest rates charged by banks in those territories to finance the production of finished goods, the demand for cash to be paid by UK importers as early as possible has increased in recent years. It is fair to say that the demand for Letters of Credit issued by UK banks in favour of particularly Asian suppliers has decreased, often replaced by the dictate of 30% payment of the purchase price with order (enabling the purchase of the raw materials and help with initial labour costs) and payment of 70% of the purchase price on proof of shipment of the goods. These are very common terms of payment, but the risks for the UK importer are clear, in that they will have fully paid for the goods when the supplier sends a copy of the transport document, generally a copy of the Bill of Lading or Air Waybill. They will not have personally inspected the goods, and if the goods are being transported via a vessel from the Far East to the UK, they will have to wait a further 28 - 30 days before they are able to clear the goods. Cash flow is impaired if the 30% payment with order is paid 30 - 60 days prior to shipment, and the balance paid on shipment, with as stated goods taking around 30 days to reach the UK, then perhaps the goods are held in stock for an average of a  further 60 days and finally once sold the debtor takes 60 days to pay for the goods. The period of being "out of funds" can be very substantial.

3. Foreign Exchange Risk Management
Foreign exchange risk is seen by many financial controllers/directors as a major risk to their business, and some the more senior of these will remember the USD/GBP rate at almost parity in 1985 and the more recent 2 Dollars (and above) to the Pound, of just a few years ago. An unexpected major shift in the rates can wipe out the profit on a deal for many small to medium companies especially if margins are thin on the transaction. Banks will offer a number of simple devices which will allow customers to effectively manage their foreign exchange exposure, but the most popular, the basic forward contract, will require the customer to agree a facility with their bank, which will have to be backed up with some security/collateral. More complex hedging structures are more heavily regulated than ever, especially since the well publicised interest rate protection issues hit the headlines recently, with small companies complaining that they had not understood the consequences for them if rates moved effectively against them and they had to reimburse the financier. It would appear that most companies will consider protecting a portion of their exposure, perhaps up to 50%, leaving the remaining 50% unprotected (speculating that the rates will move in their favour). There is no definitive right or wrong to foreign exchange risk management, but whatever strategy a company decides to follow, it is essential that it is regularly reviewed and assessed.

4. Stock - worries about unsold stock
All UK importers of finished goods will seek to turn the purchased stock into cash as quickly as possible, helping to reduce any finance costs involved in purchasing/stocking/selling the goods and to realise a healthy profit. A bank or financier will want to understand, on average how many days it takes for stock to turn into a sale, and they will check that these quoted averages match to those stated in the company balance sheet. Banks will unsurprisingly be resistant to providing finance for, in often quoted terms "a warehouse full of unsold stock", so confirmed orders for purchases are an important factor if an importer is seeking finance from a provider. Some UK importers have worries about their goods becoming obsolete and unsaleable when they are in stock, especially if the products are subject to fashion etc. In essence unsold stock is always a cause for concern amongst UK importers.

5. Late deliveries/delays - missing important deadlines/events.
Christmas sales are a vital element to many retailer's profitability, and Christmas stock is usually on the shelves by the third week in October at the latest, often to coincide with the school's   Autumn half term breaks. This will require the finished goods being received into a UK importer's warehouse in good time to ensure these deadlines are achieved, but delays and late deliveries are a constant concern and cause of anxiety. Some importers will arrange to issue Letters of Credits in favour of their overseas suppliers and use the latest date of shipment and expiry dates to effectively manage the issues regarding delivery date requirements. Whilst not being a perfect solution, as events in the manufacturer's supply chain may still cause these dates to be missed and a request from the supplier for an amendment to the Letter of Credit terms, may be received. However it does provide a defined structure to the shipment, and the supplier is aware that if they present discrepant documents, showing late shipment, the buyer's bank, (the issuing bank) is not obligated to pay.

6. Identifying new suppliers.
The UK government has a particular focus on encouraging exports and provides some assistance in matching sellers with potentially suitable buyers in overseas markets through UK Trade & Investment initiatives. It is no surprise that there is not a similar enthusiasm or initiative to help importers, so they need to more resourceful and it must be said, careful when seeking new suppliers. Identifying new trading partners is fraught with potential pitfalls, with fraud being uppermost in most company's minds. The worry about prepaying and not receiving the ordered goods is a major concern. Most delegates use trade shows/fairs as a popular, relatively informal environment to evaluate new suppliers.

7. Damage to goods in transit/goods lost in transit.
A natural worry for importers with goods travelling thousands of miles, usually of course in a container. The packing of certain goods is extremely important, especially with LCL loads and thankfully the instances of damage to goods in transit is not especially high. The issue of who is responsible for damage or loss is determined by the Incoterms ® rules which have been incorporated in the contractual sale agreement. Suffice to say that there is a high degree of confusion regarding the use and interpretation of the rules amongst importers and exporters, and some education would really help to demystify this important area.   

8. Fraud.
Fraud is a worry, particularly for smaller importers, who may not have a nominated local agent in the supplier's country to help oversee and police production. The importer may have visited the supplier and carried out some due diligence checks etc. but if there is no or little track record/trading history between the parties to date, there will always be a thought in the importer's mind that fraud is a possibility. This may occur, if the UK importer has arranged with their bank to issue a Letter of Credit in favour of the supplier, and the supplier presents fake documents. Banks will take care to ensure that the documents presented under a Letter of Credit are genuine, but article 34 in UCP 600, headed up as Disclaimer on Effectiveness of Documents is clear that the bank  "assumes no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document....". Thankfully fraud is not especially common, with most suppliers wanting to build up lasting relationships with buyers in the UK.          

9. Chinese New Year effect.
The Chinese New Year effect is mentioned in almost every instance, by UK importers who regularly purchase goods from China, as a potentially serious risk to their business. An increasing trend had developed where migrant workers return to their home towns or cities for the new year celebrations, and then decide not to return to their most recent place of work, but to seek alternative employment. Traditionally the holiday period lasts for 2 weeks, but the effect on manufacturing seems to last up to 4 weeks, with in excess of 2 billion passenger journeys causing virtual human gridlock in some areas. It would appear that the overall impact on manufacturing has probably increased in recent years, and UK importers have to attempt to cope with the resulting fall out.    

10. Political/Economic Risks.
It is a real challenge for importers (or exporters) to evaluate the political/economic risks associated with trading globally, other than assessing the risks of dealing in the most obviously politically unstable territories. Economic issues can spring up quite suddenly, with Cyprus as a typical example earlier this year. It is helpful having local agents to provide feedback on exactly what is going on in a  particular region, but ultimately the UK buyer makes a decision on whether to trade and the risk of  sudden civil unrest or an unexpected economic issue arising is always a possibility.       

These 10 worries/concerns are not intended to be a definitive list, but they do represent issues which importerss have raised on a regular basis at workshops/seminars in 2013.