By Matt Everard
International trade plays a vital part in sustaining the US economy. According to the AAPA, an incredible $3.8 billion worth of goods is transported through U.S. seaports each day, and international trade accounts for nearly 30 percent of the U.S. GDP. Small businesses and solo entrepreneurs contribute a fair amount to these statistics, as it is often far cheaper to produce products abroad, rather than sourcing them locally.
Importing goods from overseas can be an attractive prospect. However, there are a number of associated risks – many of which are unique to international trade.
Trade barriers and regulations exist between various countries, prohibiting the movement of certain goods between the two. You can research existing barriers when drafting your business plan – however, as political situations rarely remain stable for long, new restrictions can spring up at any time. Some countries are safer than others – look for trade agreements between governments when sourcing your products. However, the key to surviving a sudden crisis is prior preparation, so it may also be worth identifying an alternative source for your products.
Global currency rates fluctuate on a daily basis, and a drastic change in the exchange rate could leave your business significantly out of pocket. Research the history of the currencies you’ll be dealing in – are they reliably constant? If not, your bank may be able to help – many offer currency hedging, which is a type of insurance against exchange rate fluctuations. Insurance, of course, isn’t a preventative measure. However, it can significantly soften the financial blow if something does go amiss.
Lost or Damaged Goods
The further your products have to travel, the greater the possibility they won’t arrive intact. For example, around 2000 shipping containers are lost at sea every year, and those shipments that do survive the journey can often arrive damaged. Cargo insurance – which protects against the loss or damage of goods in transit – is therefore an important purchase. There are numerous plans available, from single-shipment cover to annual policies.
When importing goods from overseas, delays are often unavoidable. Products can be held up in customs, transport can be disrupted in any number of ways, and your supplier might not have the products ready to ship on time. Successful importers plan ahead – you should know exactly when your source country celebrates holidays, the times of year when local weather could prove disruptive, and other factors. If possible, try to maintain a stockpile of goods in your own country at all times, in case of emergency.
There is a large degree of trust involved when importing goods from overseas. It is highly impractical – if not completely impossible – for the buyer to physically visit the manufacturing site and assess the quality of the goods before purchase. As a result, you run the risk of receiving a crate full of flimsy, broken, or potentially even dangerous items. You should always request an initial sample shipment – if there’s any doubt about the quality, have them thoroughly tested before investing in them.
As with any business, importers must rely on other individuals and companies to fulfil their contractual obligations. If an overseas supplier takes payment and then fails to deliver the order, it can be incredibly difficult to recover the money. Using a service such as PayPal or Escrow can offer you some protection as a buyer – and as a general rule of thumb, only pay through a wire transfer once you’ve built up a working relationship with a supplier.
It’s impossible to mitigate all of the risks involved with importing – there are simply too many variables and uncertainties. However, a thorough understanding of the overseas market will help you to foresee and potentially avoid certain pitfalls.