A TYPICAL EXPORT TRANSACTION
Step 1– The exporter establishes initial contact by responding to an overseas buyer’s advertisement (ad ) for a product that she/he can supply. Such ads are available in various trade publications. The exporter’s letter briefly introduces the company and requests for more information on the product needed as well as bank and trade references.
Step 2 — The prospective buyer responds to the exporter’s letter or fax by specifying the type and quantity of product needed, with a sample where appropriate. The potential importer also sends his/her trade references.
Step 3 — The exporter checks with the consulate of the importer’s country to determine:
Whether the product can be legally imported and any restrictions that may apply, and
Whether there are any requirements that need to be met .
The consulate may indicate that a certificate of origin is needed to clear shipment at the foreign port. The exporter also verifies the buyer’s bank and trade references through its bank and other U.S.government agencies, such as the Department of Commerce.
Step 4 — The exporter ( if an agent ) contacts manufacturers of the product to a) establish if the given product is available for export to the country in question, b) obtain and compare price lists, catalogs and samples.
Step 5 — The exporter selects the product from responses submitted by manufacturers based on quality, cost and delivery time. The sample selected is sent by airmail to the overseas customer to determine if the product is acceptable to the latter. In the meantime, the exporter prepares and sends a price quotation suggesting the mode of transportation and letter of credit terms. The price quotation should include commission and markup.
Step 6 — The exporter obtains a positive response from the overseas customer, and is requested to send a pro forma invoice to enable the latter to obtain an import and foreign exchange permit. The exporter sends the pro forma invoice.
Step 7 — The overseas customer receives the pro forma invoice, opens a confirmed irrevocable letter of credit for the benefit of the exporter, and sends an order to the latter to ship the merchandise.
Step 8 — The exporter verifies with its bank about the validity of the letter of credit and finds that it meets the agreed conditions in the export contract and that it will be honored by the bank if the exporter meets the terms. The exporter ships the merchandise, and submits the required documents (such as bill of lading, commercial invoice, consular invoice, certificate of origin, packing list etc.) to the bank with a request for payment. The exporter is paid, the merchandise is on transit, and the transaction is completed.
EXPORT PRICING: EXAMPLE
|Ocean freight and insurance|
|Import duty (12% landed cost)|
|Wholesaler markup (15 %)|
|Importer or distributor markup (22%)|
|Retail markup (50%)|
|Final Consumer Price|