#import101

Before we delve into our next chapter, which is all about how to get your goods through customs, let’s take a look at what we’ve already covered in this Import 101 series:

What to import Choosing a country to source your goods from Key concepts in importation 3 effective ways to find your supplier abroad What to know when developing International Purchase Agreements 4 ways to arrange payments with your supplier

Now that you have the background, there’s one final step: making sure your goods get through customs. As with the rest of our subjects, it can be complex. So we’ll try to make it easy to understand.

Step 1: Complete Importer Security Filing This process actually starts with you completing the Importer Security Filing with CBP (Customs and Border Protection) before your merchandise can even leave its home country. If you’re working with an international freight forwarding company or a customs broker, they will file this information on your behalf. The purpose of the Importer Security Filing program, aka 10+2 program, is to capture twelve data elements. This is where we get the 10+2 name: ten pieces of information are provided by the importer before the goods are shipped, and the other two by the carrier. This information includes: those that are from the importer: manufacturer, seller, buyer, ship-to party, container stuffing location, consolidator, importer of record, consignee number, country of origins, Harmonized Tariff Number, and those that are from the carrier: the vessel stow plan, container status message.

Step 2: Round up your documents You’ll need the following documents in order to clear the merchandise with Customs:

1. Bill of Lading (BoL): Once the merchandise is handed to the carrier, the carrier will issue a BoL. This document proves that the carrier has received the goods and agreed to transport them to the destination. Air carriers issue only one BoL, while ocean carriers issue three copies, one of which is the master copy that can be used to obtain the release of the goods. The exporter obtains the BoL from the carrier; and forwards it to the buyer via mail or banking channels once the payment is made by the buyer.

Remember: only with a BoL can you retrieve the goods from the carrier. Usually the seller will mail you this all-important document only after they have their money.

The BoL can either be non-negotiable (straight) or negotiable. Non-negotiable means the carrier must release the goods only to the consignee named in the BoL. A negotiable BoL, on the other hand, is usually issued to the shipper’s order instead of a specific consignee, and the owner of the BoL has the right to reroute the shipment. The law requires the BoL to be negotiable, unless the two parties agreed on a non-negotiable in their international purchase agreement. When a negotiable BoL is in effect, the importer needs to present it to the transportation carrier and to customs with other applicable documents in order for the goods to be released.

2. Commercial Invoice (CI): The CI is usually sent to the buyer together with the BoL. CBP requires certain information to be clearly specified in the CI, otherwise the shipment can be detained. You as the buyer are responsible for checking with customs and informing your exporter which specialized information to include on the CI.

3. Packing List: Although submitting a packing list is optional, very often the exporter attaches it with the CI and BoL. A packing list comes in handy when the buyer needs to claim insurance for any damage or defect. Therefore if you are the one who pays for the insurance, remember to ask your exporter to prepare a packing list for you. You never know when you may need it.

Step 3: Arrival Notice As the goods arrive at the port, the transportation carrier will send the importer (or the hired freight forwarder/customs broker) an Arrival Notice. Once the notice is received, the importer will have five days to prepare and provide CBP with all the necessary documents to clear the shipment.  

Step 4: Filing Entry/Immediate delivery As a rule, an importer has to pay for all customs duties before CBP can release his goods. However, with a customs bond, the importer can obtain immediate release of the goods by filing an Entry/Immediate Delivery form. Customs brokers or freight forwarding companies who are allowed to use Automated Broker Interface (ABI) or Automated Commercial Environment (ACE) can file the Entry/Immediate delivery online. They can also pay the duties on a monthly basis using the Automated Clearing House wire-transfer process. The Entry/Immediate delivery request will then be evaluated based on different criteria, such as the import/export history, classification, and country of origin. This analysis is done by computers, but the decision whether or not more examination is required, or whether the merchandise will be released can be changed upon valid justification by local customs authorities.

Step 5: Filing Entry Summary Within ten days after the Entry/Immediate delivery submission, and within five days after the merchandise arrives at the port, the importer must file an Entry Summary – the main document to clear the goods at customs. If no Entry/Immediate Delivery was filed prior to the Entry Summary’s submission, the Entry Summary will be considered as Live Entry. While Live Entry is common and necessary to certain types of goods, filing an Entry/Immediately delivery is strongly recommended since it gives CBP advanced notice and therefore speeds up the clearing process. The form and instructions how to complete it are here. All the customs duties and fees, including a merchandise processing fee and the harbor maintenance fee, must be paid with the Entry Summary submission.

Step 6: Receiving the Goods If an exporter agrees to deliver the goods to the buyer, he will also issue a Delivery Order to the buyer’s freight forwarder in the US once the goods arrive. This will activate the transportation between the US port of arrival and the buyer’s preferred location. Once the customs process is cleared, the customs broker or the freight forwarder will instruct the trucking company to pick up the goods and deliver it to the importer.

Now, what’s left to do is CELEBRATE. 

You’ve successfully received the goods! It’s time to start making money from what you just imported. 

In our previous entries, we covered half of the importation process: choose a product, pick a country, find a supplier, and hammer out a sales agreement with him. But before your products can be shipped to you, you need to make a payment to the seller. As mentioned from the beginning, international money transactions tend to be complicated, which is why we’re dedicating a whole entry to explain the different payment methods you might see in global trade.

In international agreements, it is common to use methods that give the seller a certain level of protection. This is because if the buyer decides to skip out on the payment, it is more difficult for the seller to travel to the buyer’s country, file a lawsuit, and make the other party pay. Usually the seller would agree to a less-than-secure method only if the buyer has already established a good purchasing history, or if the buyer has great bargaining power (for example, if the buyer is a major name in retail and the seller does not want to lose the chance to supply such a big client). The five methods we discuss here are presented in the ascending order of buyer’s security. Remember, the more secure it is for the buyer, the less it is for the seller.

Wire-transfer: this method is the most direct. All you need your supplier’s bank account information and you can instruct your bank to transfer the money. Suppliers like this method the most and they usually require you to wire-transfer when you purchase on a trial basis, place small orders, or if you do not have any purchase history with them. However, this is also the least secure for buyers since once the money is transferred, there is not much you can do if the product delivered differs from what you ordered. (That is why choosing a supplier is so important, we cannot stress that enough!)

Letter of credit: a letter of credit can be understood as the bank’s guarantee of the buyer’s payment. This is how it works: the seller will require the buyer to obtain a letter of credit issued by the buyer’s bank (sometimes the seller will have his bank verify the validity of this letter). To eliminate any confusion, the seller will tell the buyer exactly how he wants the buyer’s bank to issue the letter of credit in a document called the letter of credit instruction. At the time of shipment, the ocean carrier will give the seller a Bill of Lading (a document that defines the ownership and title passage of the goods). To retrieve his payment, the seller will submit this bill of lading as a proof that he has shipped the goods along with a copy of a commercial invoice, and the letter of credit to his bank.

Documentary Collection – Documents against Payment (D/P or Sight Draft) and Documents against Acceptance (D/A or Time Draft): this method is similar to letter of credit in the sense that payment collection is done through bank services. The difference in this case is there is no guarantee of the buyer’s payment. A draft (sometimes is also called a bill of exchange) is an instrument that is both drawn up by and made payable to the seller. When it is accepted by the buyer, it has the same value as a check written by the buyer to the seller. How D/P and D/A work are demonstrated below, and you can download the pdf version here: 

The main difference between them is that if using D/P, or sight draft, the buyer has to make payment before the documents (bill of lading) is released to him. If he fails to pay, he will not get the goods. If using time draft, the buyer has a certain period of time to make payment upon his acceptance of the goods.

Sale on Open Account: This is the best method for buyers, but since it involves a lot of risk for sellers, sellers only agree on this method with big importers. Upon shipping the goods, the seller will send the bill of lading and commercial invoice directly to the buyer; therefore, the buyer can always retrieve the shipment whether or not payment is made.

We’ve gone through more than half of the journey to import goods:

Deciding what to import

Choosing a country to source the goods from

Understanding the basic concepts in importation

Sourcing suppliers abroad 

The next step is that you and your supplier will exchange multiple documents all of which are parts of your sales agreement. In this post we’ll share how that should go: the names, flow, and order of these documents. First, check out this handy diagram:

It is important to note that this process is common when you have isolated purchase transactions with your suppliers. Isolated purchase transactions happen when you buy on an infrequent basis, or when you only order samples before committing to a larger amount over a period of time. When you enter such a commitment with your supplier, a more comprehensive agreement should be in place, with important provisions that you do not usually see in a domestic contract.

Request for quotations (RFQ): The process usually starts with the buyer sending the seller a Request for Quotation, asking for a quotation for a specific quantity of products, and a shipping date. If you are a buyer on Alibaba, Alibaba has a platform for you to open a RFQ which multiple suppliers can respond to. RFQ can be an informal document, but you should still give as many details as possible about your products (quantity, color, materials, standards) and shipping requirements (destination port, incoterms).  

Quotation: In response to a request for a quotation, the seller will send you his Quotation which usually includes his terms and conditions (T&C) of sales. You should carefully review these terms and clarify any discrepancies or any terms that were referred to but not expressly stated in the quotation. It’s to your benefit to clear anything up that concerns you now, before going any further in the process. You may also want to check the validity of the quotation; it is common that the quotation is only valid within a certain period of time or under special conditions.

Purchase Order (PO) is issued by the buyer. Although PO can also be informal just like the RFQ, it is actually your most important document. The PO should contain all of the additional T&C you want the seller to agree to and include in the purchase agreement. To prevent the seller from using only his terms and conditions to govern the agreement, you should specify that the PO is effective only with the T&C you agree on; any other PO with different T&C will be invalid unless your acceptance is in writing. You may want to give the seller a deadline to accept your PO. One last note, It is to your benefit to make clear that the PO is governed by the law of the state where you do business as well as the United States, and is not governed by the Convention on Contracts for the International Sales of Goods  (CISG)

Purchase Order Acknowledgements and Acceptance and Sales Confirmation: Upon receiving the PO, the seller will issue a PO Acknowledgement or PO Acceptance to acknowledge that he has received the PO and is now evaluating it. A Sales Confirmation serves the same purpose as a PO Acceptance. Check this document carefully, as it may once again include only the seller’s T&C. It is important for you to make sure that both sides – you and the seller – have reached a common agreement regarding T&C; especially if this is your first time working with the seller. 

Pro-forma invoice (PI): Pro-forma invoice, issued by the seller, can be understood as an initial or draft version of the invoice. It is not as effective as a Commercial Invoice since the numbers in a pro-forma invoice may not be final, but it does give the buyer an idea about the estimated costs and charges, quantity of goods, their values, weight, etc.

Commercial Invoice (CI): CI is the formal statement for payment which is issued by the seller to the buyer once the goods are manufactured and ready for shipment. The main difference between PI and CI is that PI is not a request for payment, while CI is. CI includes T&C, and it is always important to check that the T&C in the CI are consistent with what was agreed on by both parties. The CI usually comes with a Packing List – a document that specifies how the shipment is packed and labeled. When packaging and labeling is done appropriately, it will facilitate customs’ inspection and examination and minimize delays in the shipment’s release from customs.

When you’re putting together a sales agreement with your foreign supplier, here are the most vital things you should remember from this post:

Always review the T&C in every document: RFQ, Quotation, PO, PO Acceptance, and CI.

Never commit to a purchase if you have not reached an agreement with your seller regarding T&C.

So you have decided what you will import, you have found the best country to source your merchandise from, and you understand basic things that are usually involved in a typical importation process. You’re ready for the next big step: finding a reliable supplier.

Most potential suppliers come from one of three sources: online marketplaces, exhibitions, or personal contacts. Online marketplaces such as Alibaba, AliExpress, GlobalSources, or HKTDC are the most common platforms to find suppliers. Alibaba is the largest supplier directory on the Internet, and it recently introduced a new service called Trade Assurance that aims to protect small businesses from their biggest fears when sourcing merchandise overseas: product quality and on-time delivery.

Alibaba, despite its numerous suppliers, can be overwhelming to new users due to the sheer amount of information available. There are too many suppliers with little or no indication, such as a rating system, on whether or not those suppliers will actually come through when you need them. Alibaba does have many forums for different topics based on industries, regions, etc. – but browsing your way through all of the irrelevant information to find exactly what you’re looking for is a hassle (and many times the info you want is nowhere to be found).

While Alibaba is suitable for established businesses – the kind of businesses that are already familiar with the market, usually place larger orders, and highly customized goods – a superior option for new businesses who are trading for the first time, or those who work with smaller quantities – is AliExpress. Goods on AliExpress are more ready-made, in-stock, and can be shipped more quickly than those on Alibaba.

A second option for tracking down a great supplier comes via in person meetings at exhibitions and tradeshows. Tradeshows are not only fun, but with one trip you can meet and multiple suppliers face-to-face, as well as see and try the products yourself. Canton Fair[link], which occurs twice a year in Guangzhou, China, is probably the world’s most popular and largest import and export tradeshow. Even seasoned tradeshow vets need multiple days to get through all the vendors’ booths. This event attracts thousands of sellers and buyers from all over the globe. You’ll walk away with more than just a few supplier options: you’ll walk away with inspiration for your project. Bottom-line, do not skip Canton Fair! It is a must for anyone who thinks about sourcing goods from China. [photo of Canton Fair]

Photo: The massive venue of Canton Fair – yet the area is not big enough for all exhibitors at once. Canton Fair is three-week long and consists of 3 phrases happening one after another, with one or two days in between for tear down and set up.

You can visit www.tsnn.com or www.eventseye.com to check calendars of more global events and tradeshows.

If you’re already somewhat connected to the business, or just have a good sense of what you need, your third option for finding suppliers is by using personal contact. Don’t be afraid to ask around. Ask folks in your network of friends and colleagues for contacts that provide what you need, or things that are related to what you need. For instance, someone your mom knows from her yoga class may be purchasing leather shoes from a supplier. That same supplier can supply you with leather bags if you plan to import some. You never know who might have information you can use.

Doing research on potential suppliers is vital: browse through the information on their websites and request testimonials from previous customers. Ask the important questions up front to determine what kind of products and services they offer, their payment terms and options, production lead time, minimum order quantity, their packaging materials, etc. Don’t forget to ask for samples, especially if you plan to import a large quantity. Do this type of research on multiple suppliers so you can compare their products and services, and also so you can get some ideas about whether you should (and how much you can) negotiate pricing.