Welcome To Same World Networking

Sameworld.net is the networking blog for Supply Chain Specialists interested in creating channel partners around the globe.

A key essence for success in a new market is to identify the ‘Right Partner’. We appreciate the huge importance of this aspect and are willing to invest the necessary time and effort to get it right. There is NO substitute for "Grunt Work" and it is essential to meet the prospective partner, understand their technical capabilities, visit their manufacturing unit and assess the management team. With the partners who add to this blog we hope to achieve that. Mark Kennedy Same World Trading


Wednesday, 16 June 2010

Understand Incoterms for exporting and importing



Mark Kennedy
Same World Trading Ltd


Incoterms are standard trade definitions most commonly used in international sales contracts. Devised and published by the International Chamber of Commerce, they clearly divide the rights and obligations of the buyer and seller in relation to the delivery of the goods.

There are 13 Incoterms - or International Commercial Terms - and in order to be sure you are using the correct one it is recommended that you consult the full ICC texts. It is recommended that investment is made in purchasing a copy of the official rules for the interpretation of trade terms (INCOTERMS 2000) from the International Chambers of Commerce or the Institute of Export. Unfortunately, there are many unauthorised summaries and approximate versions available on the internet that are not legally binding. Using these can cause confusion and prove costly.

Types of Incoterms

Incoterms have been grouped into four categories, applicable for sea and inland waterway transport or for all modes of transport. The point of risk and cost transfer in the transport chain moves from the seller's premises to the buyer's place.

Below are the 13 Incoterms - for full details of the risk and cost obligations refer to the Incoterms 2000 wall chart.

1. Departure term
Applicable for all modes of transport, including water:

• EXW (Ex Works) (...named place)

2. Shipment term, main carriage unpaid
Applicable for sea transport only:

• FAS (Free Alongside Ship) (...named port of shipment)
• FOB (Free On Board) (...named port of shipment) Only use when the goods pass the ship's rail otherwise use the term FCA.

Applicable for all modes of transport, including water:

• FCA (Free Carrier) (...named place)

3. Shipment term, main carriage paid
Applicable for sea transport only:

• CFR (Cost and Freight) (...named port of destination) Only use when the goods pass over the ship's rail otherwise use the term CPT.

• CIF (Cost, Insurance and Freight) (...named port of destination) Only use when the goods pass over the ship's rail otherwise use the term CIP.

Applicable for all modes of transport, including water:

• CPT (Carriage Paid To) (...named port of destination)
• CIP (Carriage and Insurance Paid to) (...named port of destination)

4. Delivery term
Applicable for sea transport only:

• DES (Delivered Ex Ship) (...named port of destination)
• DEQ (Delivered Ex Quay) (...named port of destination)

Applicable for all modes of transport, including water:

• DAF (Delivered At Frontier) (...named place)
• DDU (Delivered Duty Unpaid) (...named place of destination)
• DDP (Delivered Duty Paid) (...named place of destination)

Choosing the right terms

There are a number of factors to consider when choosing the right Incoterms for your export/import contract:

• Relationship with buyer/seller
• Economic and political climate of the import/export market
• Mode of transport
• Carriage of goods
• Costs
• Risks

Benefits

• Prevents misunderstandings and disputes, especially when the buyer's and seller's countries have differing trading practices
• Reflects current worldwide trading practices
• Suitable for every mode of transport
• Authorised translations available in 31 languages

Action Checklist:

• Visit the Incoterms 2000 website for more information
• Choose the right Incoterms for your import/export contract
• Ensure all trading parties understand the terms

If you need help with frieght forwarding please contact me at my website:

www.sameworldtrading.com

Tuesday, 8 June 2010

.... 10 ways to avoid the Pitfalls of Sourcing from China . . .. .parts 8,9&10…



8. Understand Payment terms

You should be aware that if you’re starting a new relationship with a Chinese manufacturer. If they have not dealt with you before, they will require Cash with Order on your first shipment.
If you have been referred to them by an influential contact, then they may settle for a large deposit.
I’ve never found a manufacturer in China that did not ask for cash up front when embarking on a relationship with a new customer.
What follows is a careful climb up the “trust ladder”.

1. Fist business - Cash with Order
2. Dependent on volume - repeat business - Cash before Shipping
3. Several trades later - May get payment terms.

Whilst once you’ve established a good relationship with a supplier, getting payment terms is a good way of doing business, there’s a huge problem for those companies in the UK looking to place their business for the first time. Cash with order effectively means you have to finance the manufacturing yourself, and don’t forget it could easily be 6-8 weeks before you receive your goods. This means you’ll have to raise finance to place an order, which is a fairly risky exercise if you’ve never placed business with that particular manufacturer before.

There are UK companies that specialize in financing Chinese trade, but, as you would expect, they are not cheap.
There are also huge issues relating to balance of risk and title to goods.
Put very simply you don’t want to pay for and own goods until you are satisfied with quality and availability.
There are many horror stories of products received in the UK that bear no resemblance to specification or approved samples.
This would be huge problem to your supply chain anyway, but this becomes a complete disaster if you have used up your capital paying for defective goods.

Seeking redress in China is very difficult indeed.
Is there a way around this problem?
There are options.
For example, you could partner with someone who already has a credit line with local Chinese manufacturers. This will involve sacrificing some margin, but could save you thousands of pounds.
Financial solutions that balance risk for both sides, such as letters of credit are also very useful.

In this case your supplier knows that as long as he fulfils the terms of the letter of credit he will get paid. However, should he fail to satisfy all the legal criteria, he will only get paid at your discretion.

9. Don’t get involved with Bureaucracy

It’s certainly not making any great claim to say that corruption exists in China.
There doesn’t appear to be any clear rules on tax and moving goods around the country can be difficult. Also, you’ll tend to find the rules vary somewhat from province to province, so from the outside China can be a very confusing place to do business.

When trading with any foreign country it’s always wise to work with the system, rather than try and battle against it - because you certainly won’t win!
When I started trading with China, the only effective way I found to deal with this issue was to have a trustworthy local presence in the country that knew how to solve problems and keep things moving. This can sometimes be rather a crude way of doing business, but it can often be the difference between success and failure.
Even the biggest companies struggle to get the various licences , and there are many, required to trade goods.

Therefore, you should always allow for some disruption from local Bureaucracy, and ensure you have some local capability in place to deal with it.

10. The 3 Golden Rules you should NEVER break

1. Respect the local culture You often find that things you take completely for granted in the UK, are not the same in China. For example if you have a business meeting over dinner, it’s can, depending upon the region, be considered rude to discuss terms etc. over dinner. It’s considered much more polite to discuss your family, and areas outside business. It’s also considered bad luck if you meet on the way out when leaving a restaurant, so it’s polite to allow your guest 10 minutes to leave.

2. Maximise your touch time If a project hit’s a snag it’s not unusual for the normal communication lines of business such as email and telephone, to go very quiet indeed. This problem can be exacerbated by the 7 hour time difference between the UK and China (almost the whole working day!) You should seriously consider, when sourcing a new project in China, working with a project manager that’s experienced in solving problems with manufacturers, and has easy access to them. The alternative tends to be a lot of flights to China, unsuccessful meetings, delays and inflated costs. i.e. Failure!

3. Only ever place business on a referral basis! I cannot stress this rule enough! There is such scope for variation in China that you must place business with manufacturers that have been recommended to you, preferably by one of their existing customers from the UK with a similar product. I can still remember the day I found out that despite following all the steps discussed above, a simple error had left to the wrong steel being used in an injection moulding mould we had procured from Guang Zhou.

We were now at the mercy of the supplier to correct the problem. The only guidance to the outcome was that the Mould Maker came highly recommended by a trusted contact. In the end the Mould Maker remade the tool at his own cost, working around the clock.

Our project was delayed by the mistake, but the situation was recovered.
I still get goose bumps imagining what might have happened had we not used a Mould Maker with a proven track record. .

And the biggest Pitfall of all…..FINANCE!

One of the biggest risks you’ll find when sourcing parts and components from China, is that you’ll find that you’ll have to finance the cost of producing your product - upfront!
Often bespoke tools and moulds have to be produced, from which your product will be made, which you’ll have to finance before even just one of your products has been produced.
So if you get any of the 10 other pitfalls wrong, you’ll probably lose your money! -undoubtedly one of the biggest risks you need to overcome when sourcing from china.
Before you give up - I may be able to help.
If your project is viable, I may be able to give you the necessary finance to kick start your project in China.

Just send me the details of the product you’re trying to source from a manufacturer, and I’ll try to help, if I can. Just contact me via my website www.sameworldtrading.com

Tuesday, 1 June 2010

.... 10 ways to avoid the Pitfalls of Sourcing from China . . .. Part 6/7



6. Ignore shipping at your peril

One of the most commonly overlooked areas when sourcing from China is that of shipping your goods to the UK. Often an afterthought once goods have been produced, this is an area that can cause huge delays, massively inflated costs - or even worse.. your goods disappear!

There are several areas to be aware of

1. Original costs and quotes can rise Familiarise yourself with the different terms e.g. FOB means goods are just shipped to the port in China. CIF includes shipping and insurance of goods. When negotiating, you can get a ‘door to door’ price for your shipping, so that you can ensure that you’ve covered all costs in your calculations. However, if your Chinese supplier arranges transport, he will expect to make a margin on it.

Engineering your supply lines to the UK is every bit as important as finding a Chinese supplier, and managing the manufacturing process.
All your hard work in China can come undone between the factory gates and your UK warehouse.

2. Over packaging can increase costs Be aware that goods can often arrive from China with a huge amount of packaging to protect them during transit. Whilst this ensures your goods will arrive in sound condition, the impact on your business can be significant. For example, say you receive a shipment of 100,000 components individually package, even though you didn’t request this. Now the cost of packaging these goods individually in China with labour rates of 15p per hour will have been insignificant, but you’ll need to pay your staff £8 per hour to unpack them for assembly. If a worker can unpack an average of 20 components per hour, it will cost you nearly £40,000 just to unpack your goods! As mentioned in my section on quality be sure to specify the level of packaging upfront.

3. Pest Control can damage products. Assume your products will be treated with chemicals during shipping, so their packaging must be able to withstand this process.

4. Pay attention to product descriptions Import tariffs vary according to product description, so you should make sure your products are described accurately on your shipping documentation. E.g. if you goods are components and not a finished product, you must ensure that your documents state this clearly, to avoid unwarranted costs.

5. Allow for delays You should allow 4 to 5 weeks from your goods leaving Shanghai / Hong Kong to arriving in the UK. Bureaucracy in China can sometimes add further delays of 2 weeks or more, and if your documentation is incorrect, your shipment will suffer further delays clearing UK customs.

6. Economies of scale pay dividends As already covered in section 3 of this report, you’ll find that if you’re placing repeat and bulk business with your shipping agent you’ll receive a completely different level of service than if you’re just placing occasional business with them. I have a great relationship with my shipping agents, as I’ve built up my business with them over the years, and have become a key account for them.

7. Learn a different kind of negotiation.

One of the hardest things I had to get to grips with when I first started sourcing from China was that of negotiation.

Unlike the UK, you’ll commonly find if you ask if something can be made for a certain price, the answer is always “YES”.

So that’s no problem, you’ll get exactly what you want, right?

WRONG!

Just because a manufacturer in China has said they CAN do something, it doesn’t mean they WILL do it.

To negotiate effectively you need to become a master of asking the right questions, and in many different ways.

I was once introduced to a manufacturer in China by a business contact.

The people were skilled and had excellent communication skills.

Their products were similar to those I needed to source.

Location, core competence, experience, quality systems? They had it all.

Despite running through the logistics of the project many times, I could not fault their grasp of what was involved.

I was on the point of arranging to visit their factory in Dongguan, when I decided to probe a little deeper into their financial position.
Everything checked out!

They clearly understood all financial aspects of the project. However, I could not help noticing that their Finance Director was looking a little unhappy and kept sipping, almost convulsively, at his drink.

I decided to dig deeper, almost to the “teaching Granny to suck eggs” level that would be very rude in the UK. It transpired that the working capital cycle for the project would account for 3 times the entire annual sales turnover of their company.

Of course they realised this as soon as I explained the quantities involved, but just could not make themselves say “NO” to the project.

Often a UK salesman will play the game of “first get the order and then we’ll work out how to process it”. However, I suspect the Chinese invented this game thousands of years ago, and furthermore a black belt is the minimum qualification required for a commercial person before being turned loose on customers.

If I can help with finding a manufacturer that CAN and WILL manufacture your product, just contact me via my website. www.sameworldtrading.com

Mark Kennedy