Under Delivered Duty Paid (DDP) Incoterms 2020, which is one of the 11 trade terms in the incoterm (international commercial terms) series published by the International Chamber of Commerce (ICC), the loading and unloading of goods, its related costs and risks are borne by the seller. Here, the exporter is responsible for loading goods from the place of origin and ensuring it safely reaches the destination. The end point may be the importer’s place, warehouse, a port or any other area agreed on by both the parties.
According to the DDP Incoterms, the procedure of loading and unloading shipments takes place in three phases. The initial stage involves loading the goods and transporting them to the port; the second stage consists of unloading the goods and preparing them for shipping, the third comprises loading the goods for shipping. According to these incoterms, the exporter has to carry out DDP expenses such as packing/loading cost, transportation/delivery cost, freight charges, terminal/loading charges till the port, insurance/duty charges and customs clearance charges (both for export and import).
Whether you are an importer or exporter, make sure you understand the different incoterms thoroughly so that the responsibilities of both the parties are clear during the international transport process.
Modes of Transport
According to the United Nations Conference on Trade and Development (UNCTAD), around 80% of global trade by volume and over 70% of international trade by value happens via sea. Besides maritime trade, goods can be shipped via road, rail or air, depending on the nature of the product and requirements of the consignment.
The means of transport is crucial to the profitability and efficiency of the exporter. Sellers must zero in on the type of transport that best suits their needs early on. As speed is directly proportional to delivery cost, the choice of transportation must be made after keeping the cost-benefit factor in mind.
At this juncture, exporters need to consider the current supply-chain disruptions that have shot up freight costs and resulted in the shortage of containers, which may hamper their business strategies. From deciding the kind of containers, to opting for a Full Container Load (FCL) or a Less than Container Load (LCL) depending on the delivery deadline, import destination, volume, weight, and quantity of the consignment, an exporter needs to minutely plan the logistics requirements.
Sometimes, you have to modify your product for a variety of reasons such as to suit the buyer’s preferences, to meet the import country’s packaging and labeling guidelines or to satisfy the legal requirements of the foreign nation. For instance, if you want to sell apparel in the European market, you need to comply with several legal and non-legal requirements. According to the Centre for the Promotion of Imports, Ministry of Foreign Affairs, the Netherlands, the most well-known legal requirement for exporting apparel to the European Union (EU) is “Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH)”. Moreover, according to industry standards, any item on sale in Europe must comply with the EU’s General Product Safety Directive (GPSD) 2001/95/EC.
Although this information is specific to a particular sector and niche market, a seller should have a thorough understanding of all industry-related regulations and interact with the buyer before starting production to avoid any confusion and losses. While planning business strategies, you must keep the market potential in mind and make a conscious decision on whether the costs of product adaptation are rewarding or not. The seller also needs to mention to the buyer the warranty of the products and the installation guidelines, if required.
Risk management enables a company to pursue an export business only if the accompanying risks are lesser than the expected market opportunities. Considering this, a country’s risk analysis must be done before confirming the potential market for your products for various reasons. One being that the exporters need to know the credit performance of the geographies they are planning to ship their goods to. This will give them an idea if they will get paid on time and how. Often, it may so happen that specific geographies have poor financial infrastructure, causing inefficiencies and delays in payments. However, even beyond credit issues, if the geographies are undergoing geopolitical tensions (like in Afghanistan now), it may lead to immense delays and disruptions for the exporter’s supply network and business plan.
It is equally important to understand a buyer’s history in international trade as this helps the seller comprehend which countries and products a particular buyer usually deals with. This further aids the exporter in studying the buyer’s risk and the payment cycles to understand the reliability and consistency of when the exporter will get paid. Secondly, as the buyer is mostly a stranger from a foreign land, it pays well to know the buyer’s default rate. Only then can a conscious decision be made whether to deal with them or not. From the market point of view, it is always good to study the business mannerisms of the buyer from what people in the market have to say about them.
Export credit insurance in India is designed to protect the receivables of an exporter. The scheme’s primary role is to provide a variety of risk insurance products that cover losses and bad debts on exports. One such product that exporters can opt for is marine insurance. This type of insurance covers the loss/damage of ships, cargo, terminal and includes any other means of transport by which goods are transferred, acquired, or held between the points of origin and the final destination.
Exporters who stay abreast of the market trends, build a good rapport with their buyers, and possess the basic knowledge of global trade are likely to succeed in this highly competitive field. After following this checklist to the tee and, after compiling all the necessary documents, you can hope to be export-ready. Good luck!
(The writer is CEO/Co-Founder of Drip Capital)
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