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When you have decided to export the products of your small business, or you are considering the possibility of exporting, in addition to marketing and financial aspects, another consideration is logistics: how you are going to deliver your products to your customers abroad. Logistics includes various aspects, such as the packaging of your products, the mode of transportation, and the export documentation that has to be prepared. Why Use a Freight Forwarder? International freight forwarders form an integral part of the logistics for delivering your products. They act on behalf of exporters in preparing products for export and making arrangements for air, ocean, or land transportation services. They are familiar with U.S. government regulations on exports, the import rules and regulations in foreign countries, and the documentation related to foreign commerce. What Does a Freight Forwarder Do? A freight forwarder acts as the exporter's agent and performs various functions involved in foreign trade. A freight forwarder can give advice on how the goods should be packaged and the marks and labels that are required, and can make arrangements to have the goods packaged and placed in containers for export. They contract space with ocean, air, and land freight companies on the exporter's behalf, to transport the goods to their destination abroad. They can arrange for storage in a warehouse if necessary, while the goods are in transit, and contract insurance to protect the cargo while in transit. Freight forwarders can obtain credit from the different service providers involved in the export process, and then collect money from the exporter to pay these service providers on behalf of the exporter. Freight forwarders can advise exporters regarding letters of credit or other banking documents for collecting on the export sale. They prepare the documentation required for exporting, and obtain the necessary authorizations according to U.S. government regulations on exports. They can provide advice on the permits, licenses, inspections, and other documents and proceedings that are required according to the import laws in the country of destination. And they help with customs clearance in the country of destination, working with a customs broker. Product Preparation Freight forwarders understand the different types of packaging and containers best suited for your shipment. They know the markings and labels the products need in order to get through customs and be able to enter the country of destination, and to meet the requirements of the different free trade agreements, in order to take advantage of duty-free treatment as applicable. When the shipment is relatively large, it will most likely be transported in a container by ship, where it is possible to share space with other exporters. The freight forwarder knows how to secure the cargo against changes in temperature, vibrations, and impacts that result when the cargo is loaded and unloaded. In the majority of cases, insurance does not cover damages that are due to inadequate packing, and it is therefore important to count on the experience of packing professionals. Freight Freight forwarders have a thorough knowledge of ocean freight companies and their relative strengths and weaknesses. There are hundreds of ocean freight companies and it could be that there are only a few that are in the best conditions to carry your specific product from your origin to its destination, within the timeframe required and at an advantageous cost. The advice of a freight forwarder will be very valuable in making that determination. Many freight forwarders have ample knowledge and experience with air, ocean, and land freight companies, such as airlines, trucking companies, and railroads, so they can offer a complete service, from your place of production or sale to the customer abroad. In many cases, an exporter has to choose between air, ocean, and land freight, or a combination. The mode of transportation you choose will depend on the type of product you are shipping, the timeframe you have for delivery, and the cost. Ocean freight would normally be less costly than air freight, but you have to consider the amount of time it will take for your product to reach the customer. When payment conditions depend on the date of delivery, the time factor can affect the exporter's cash flow. A freight forwarder can help the exporter evaluate the pros and cons of the different modes of transportation, providing an estimate of delivery times and costs. Documentation When goods are transported internationally, packaging and documentation are critical to the export process. One of the main differences between selling inside the country and exporting is the documentation required. Export documentation requirements are very specific. A missing document or one that is not correctly filled out can delay the shipment in customs or in some other point along the way. Freight forwarders are familiar with the documentation requirements and can advise the exporter, and even prepare the documents that are required, in order to ensure an expeditious shipment. When the order is ready to be shipped, the freight forwarder can review the letter of credit, the commercial invoice, and the packing list to ensure that everything is in order, and can prepare the bill of lading and any other special documentation that may be required, depending on the product being shipped. And after the shipment, the freight forwarder can send all the documentation directly to the customer, or the customer's bank that is going to pay for the import on the customer's account. Cost Estimates A freight forwarder can provide the exporter with an estimate of the costs involved in the exporting process. This estimate is very important when the exporter quotes a price to a customer abroad, because the price must be sufficient to cover all the costs related to the delivery of the product to its destination. Therefore, it may be advantageous to consult a freight forwarder before negotiating the price, in order to get a quote for the freight costs, port costs, insurance costs, customs fees, charges for special documentation, and the freight forwarder's fees. Freight forwarders work on the basis of a fee they charge the exporter, which normally consists of an agreed-upon amount plus charges for documentation. Freight forwarders also collect a percentage of the freight they contract with transportation companies. Once you have an estimate of all the costs involved in delivering your product to the customer abroad, you are in a position to quote a final price to the customer, and if your quote is accepted and the customer sends you an order, you can prepare the pro forma invoice, with a complete breakdown of all the components of the amount billed. How to Find a Freight Forwarder There are numerous freight forwarders in the principal export and transportation services markets. A good way to look for a forwarder would be to ask other exporters, especially companies similar to yours in terms of size of the company, point of origin, target market, and your line of business or the product you are exporting. By consulting directly with another exporting company, you can obtain their personal perspective regarding the freight forwarder, and their overall experience, such as the services provided, the results achieved, and any particular advantage or problem they encountered. You can inquire in exporters' associations, trade associations, and in the U.S. Export Assistance Centers. In the International Trade section of the Small Business Administration website at www.sba.gov you will find a directory of these assistance centers. There are websites with directories or search tools for finding freight forwarders, such as Freightnet (www.freight.net), Directory of Freight Forwarding Services (www.forwarders.com), Logistics World (http://logisticsworld.com), Freight Forwarders and Customs Brokers (www.1800miti.com), and Freightgate (www.freightgate.com). You can also consult the website of The National Customs Brokers & Forwarders Association of America, Inc. at www.ncbfaa.org to find companies that are members. Considerations in Selecting a Freight Forwarder Exporters each have their own needs to consider when selecting a freight forwarder, and the following are presented as suggestions regarding factors to be taken into account. General It's important to look for a freight forwarder that is accredited. They must have a license from the Federal Maritime Commission in order to handle ocean freight. Freight forwarders that handle air freight must be registered with the International Air Transport Association (IATA). You should determine whether the freight forwarder is financially stable. You can request credit references and confirm them. You could also consult freight companies to see whether the freight forwarder has a good payment record. If the freight forwarder is a large company, you could see whether it is listed on the New York Stock Exchange or the NASDAQ and request a copy of their annual report. You could ask the freight forwarder for references from its customers, and then call those customers to ask about their satisfaction with the service provided. You could ask the freight forwarder directly, or its customers, if the forwarder has knowledge and experience with your company's product, your preferred mode of transportation, and the destination country. You should find out whether the forwarder is large enough to meet your company's exporting needs. Do they have an office in your destination market? Do they have a network of agents abroad? Do their offices and agents have the ability to communicate on line? Do they have warehouse facilities, in case you need that service? Do they have sufficient staff to manage the volume and needs of your exporting company? Do they have insurance against errors and omissions? Are they willing to take the necessary time to explain the terms and procedures in a way that you can clearly understand? You should inquire about the cost of using the freight forwarder's services. How do they charge for their services? Do they charge the exporter a fixed fee plus reimbursable expenses? Do they charge the freight company a percentage of the cost of freight? How much do they charge for packing and documentation? Packaging Depending on the type of product you are shipping, you may need a freight forwarder who can advise you and help with packaging. The freight forwarder should be able to explain the different types of packaging that can be used to export your product, any special packaging and labeling requirements for your product according to your destination market, and the type of packing that will best protect your products while in transit. Modes of Transportation The freight forwarder should be able to evaluate the relative advantages of transportation by air, ocean freight, truck, or rail, and make recommendations regarding the best mode of transportation based on your product and the timeframe for delivery. You should find out how the freight forwarder determines how long a shipment will take to reach its destination, what stops the shipment makes along the way, and what changes have to be made from one mode of transportation to another. Freight forwarders should explain the factors they take into account in order to avoid problems with the shipment. Freight Cost Quotation The cost of freight can be a significant component of the overall cost of exporting, so the freight forwarder should be able to explain how they get freight quotes from shipping companies; whether freight rates are quoted based on volume, weight, type of product, or some other criteria; the formulas used to calculate the cost of freight, the factors that affect the cost of freight; how long a freight quote is valid; and the trends the freight forwarder sees in the cost of freight, and its projection for changes in freight costs in the future. Insurance The freight forwarder should be able to explain the different types of insurance available, what events are covered by insurance, the cost of insurance, the process for presenting a claim for lost or damaged cargo, who is responsible for preparing the loss report and presenting the claim, how the claim is processed, and the timeframe in which a reimbursement can be expected. Customs You should be able to understand from the freight forwarder how your products will clear customs in the destination country, whether the freight forwarder works with a customs broker, how much the customs broker charges and who pays that cost, who pays the duties and customs fees, and who processes duty drawbacks when applicable. Documentation You should determine whether the freight forwarder is familiar with the export documentation required, which documents are prepared by the freight forwarder and which you must prepare as the exporter, how much the forwarder charges for preparing the documentation, the process for reviewing export documentation, and whether documents can be transmitted electronically. If you are exporting using a letter of credit, you should determine how the freight forwarder ensures that all documents are in accordance with the terms of the letter of credit, and the responsibilities and the relationship between the exporter, the freight forwarder, and the bank regarding the presentation of the documentation required according to the letter of credit. Once you have been able to get answers for as many of these questions as possible, you will be in a better position to select the best freight forwarder for your company, and you will also know a lot more about the export process. |
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