Download Ch 15 Large-scale Retail Store Law

Chapter 15
15-0
Exporting and Logistics
Special Issues for The
Small Business
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
An Export Sale From Show to Installation
15-1

Feb. 3 - Trade Show and Order

Mar. 3 - Financing

Jul. 3

Aug. 1 - Closing The Deal

Sep.4

Nov. 1 - Submission of Letter of Credit

Dec. 12 - Final Inspection of Shipping Schedules

Dec. 13 - Test Run

Jan. 2 - “It’s on the way”
Irwin/McGraw-Hill
- Import License and Letter of Credit
- Production and Shipment
©The McGraw-Hill Companies, Inc., 1999
The Exporting Process
15-2
Leaving the
Exporting Country
Physical
Distribution
Licenses
International shipping and Tariffs, taxes
General
Validated
Documentation
Export declaration
logistics
Packing
Insurance
Entering the
Importing Country
Non-tariff Barriers
Standards
Inspection
Documentation
Commercial invoice
Quotas
Bill of lading
Fees
Consular invoice
Licenses
Special certificates
Special certificates
And other documents
Exchange permits
And other barriers
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Import Restrictions
15-3

Tariffs

Exchange Permits

Quotas

Import Licenses

Boycotts

Standards

Voluntary Agreements

Other Restrictions
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Examples of Commerce Control List
Export Regulations
15-4
4997B Viruses or viroids for human, veterinary, plant, or laboratory use, except hog cholera
and attenuated or inactivated systems.
Controls for ECCN 4997B:
Unit: Report in "$ value."
Validated License Required: Country Groups QSTVWYZ.
GLV $ Value Limit: $0 for all destinations.
Processing Code: CM.
Reason for Control: National security.
Special Licenses Available: See Part 373.
3D94F "Software" specially designed for the "development" "production," or "use" of items
controlled by 3A80C, electronic test equipment controlled by 3A93F, or manufacturing and
test equipment controlled by 3B91F.
Controls for 3D94F:
Unit: $ value
Validated License Required: Country Groups S, Z, Iran, Syria, South African military
and police.
Reason for Control: FP (foreign policy)
GTDU (general license): Yes, except destinations listed under Validated License
Required.
SOURCE: Export Administration Regulations,
Commerce Control List, Part 799, 1, March 1994.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
4996B Western Red Cedar (Thuja Picata Logs and Timber,
and Rough, Dressed and Worked Lumber Containing Wane
Listed in Supplement No. 4 to Part 377)
15-5
CONTROLS FOR ECCN 4996B
UNIT: Report in "Million Board Feet Scribner."
VALIDATED LICENSE REQUIRED: Country Groups QSTVWYZ
and Canada.
GLV $ VALUE LIMIT: $0 to all destinations.
PROCESSING CODE: SS.
REASON FOR CONTROL: Short Supply.
SPECIAL LICENSES AVAILABLE: None.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Terms of Sale
15-6

CIF- (Cost, Insurance, Freight) to a named overseas
port of import. A CIF quote is more meaningful to the
overseas buyer because it includes the costs of goods,
insurance, and all transportation and miscellaneous
charges to the named place of debarkation.

C&F- (Cost and Freight) to a named overseas port. The
price includes the costs of goods and transportation
costs to the named place of debarkation. The cost of
insurance is born to the buyer.

FAS- (Free Alongside) at a named U.S. port of export.
The price includes cost of goods and charges for
delivery of the goods alongside the shipping vessel.
The buyer is responsible for the cost of loading onto
the vessel, transportation, and insurance.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Who’s Responsible for Costs
Under Various Terms?
15-7
Export packing*
Inland freight
Port charges
Forwarder's fee
Consular fee
Loading on vessel or
plane
Ocean freight
Cargo insurance
Customs duties
Ownership of
goods passes
FOB (Free on
Board) Inland
Carrier at
Factory
FOB (Free on
Board) Inland
Carrier at
Points of
Shipment
FAS (Free
Along Side)
Vessel or
Plane at Port
of Shipment
CIF (Cost
Insurance,
Freight) at
Port of
Destination
Buyer
Buyer
Buyer
Buyer
Buyer
Seller
Seller
Buyer
Buyer
Buyer
Seller
Seller
Seller
Buyer
Buyer
Seller
Seller
Seller
Seller
Buyer **
Buyer
Buyer
Buyer
Buyer
When goods on
board an inland
carrier (truck, rail,
etc.) or in hands
of inland carrier
Buyer
Buyer
Buyer
Buyer
When goods
unloaded by
inland carrier
Buyer
Buyer
Buyer
Buyer
When goods
alongside
carrier, in
hands of air
or ocean carrier
Seller
Seller
Seller
Buyer
When goods
on board air
or ocean
carrier at port
of shipment
* Who absorbs export packing? This charge should be clearly agreed on. Charges are sometimes
controversial.
** The seller has responsibility to arrange for consular invoices (and other documents requested by
buyer's government). According to official definitions, buyer pays fees, but sometimes as a matter
of practice, seller included in quotations.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Getting Paid
Foreign Commercial Payments
15-8


Letters of Credit
 Revocable

Irrevocable
Bills of Exchange

Cash in advance

Open Accounts

Forfeiting
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Export Payment Terms
Risk/Cost Tradeoff
15-9
Risk to Exporter
Least Risk____________________________________________ Highest Risk
Cash in
Advance
Confirmed
Irrevocable
Bank
Bank
Irrevocable
Letter of
Collection Collection
Letter of Credit
Credit
Sight Draft Time Draft
Open
Account
Cost to Buyer
Highest Cost ___________________________________________ Least Cost
SOURCE: Business America, February 1995.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
A Short Hedge - U.S. Company
Selling to a Japanese Firm
15-10
Spot Market Transactions
February 6
July 6
(same year)
U.S. company agrees to
sell 100 gross of western
shirts to a Japanese
retailer for 10 million yen
for delivery in may, with
payment due July 6.
Current spot market for yen
is $0.010106 (U.S.)/yen
$ 101,060
U.S. company receives 10
million yen and exchanges
the yen for dollars at the
current price of $0.008952
(U.S.)/yen to receive.
$ 89,520
The company realized a
loss due to decreasing
value of the yen during the
time of exposure.
$101,060 - 89,520 =
($ 11,540)
Futures Market Transactions
To hedge the risk of a
falling price for yen, the
company sells August 5
yen contracts for $0.010196
(U.S.)/yen and receives a
credit (10 million times
$0.010196=) for
$ 101,960
The U.S. company
completes the hedge by
buying August 5 yen
contracts for $0.008955
(U.S.)/yen (10 million times
$0.008955=)
The company realized a
gain the futures market
with which to offset the
loss in the spot market.
$101,960 - 89,550 =
$ 89,550
$ 12,410
Note: The $ 12,410 gain in the futures market less the $ 11,540 loss in the spotmarket transactions left the company with a slight gain of $ 870. After
commissions are paid, there will be a slight loss on this transaction.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Transaction Exposure
15-11
Transaction Exposure Occurs When a Company:

Has assets in one currency that it expects to convert to
another to realize a profit.

Has assets denominated in one currency that must be
converted into another at some expected value.

Borrows money in one currency that, when repaid, must
be exchanged to make repayment.

Purchase goods for resale in one currency, sells them
in another, and needs to convert the proceeds into a
third currency to realize planned profits.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Export Documents
15-12

Export Declaration

Consular Invoice or Certification of Origin

Bill of Lading

Commercial Invoice

Insurance Policy or certificate

Licenses

Others
 Health Certificates
 Packing Lists
 Etc.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Customs-Privileged Facilities
15-13
Foreign Trade Zones
Offshore Assembly (Maquiladoras)
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999
Real Physical Distribution Costs Between Air and
Ocean Freight - Singapore to the United States
15-14
In this example, 44,000 peripheral boards worth $7.7 million are shipped from a
Singapore plant to the U.S. West Coast. Cost of capital to finance inventories
is 10 percent annually; $2,109 per day to finance $7.7 million.
Transport costs
In-transit inventory
financing costs
Total transportation costs
Warehousing inventory costs
Ocean
Air
$31,790
(in transit 21 days)
$ 127,160
(in transit 3 days)
$ 44,289
$ 76,079
(60 days
@ $2,109 per day)
Singapore and U.S.
$ 126,540
Warehouse rent
$ 6,500
Real physical distribution costs $ 209,119
$ 6,328
$ 133,487
$ 133,487
SOURCE: Adapted from: "Air and Adaptec'c Competitive Strategy," International Business,
September 1993, p.44.
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1999