Top 10 Risky Challenges for Importing Companies
One Key to Success is Planning for What Can Go Wrong
May 20, 2009
Importing quality products from around the globe can be highly profitable for entrepreneurs who do their homework. However, there are many hidden traps for novice importers that can result in expensive losses and even bankruptcy.
Below is an analysis of the top 10 risks that can drain importer profits.
1. Damaged or Incorrect Shipments
The worst scenario for any importer is when damaged or incorrect products are delivered to an importer. This sometimes happens when an exporter inadequately packs fragile goods like glass tabletop furniture for long-distance deliveries. Importers must photograph and clearly document the damaged or incorrect products. Importers must also have organized and have on hand all pertinent commercial, transportation and financial documents associated with the unsatisfactory delivery.
2. Currency Fluctuations
Often, importers are affected by a strengthening or weakening of their local currency against the currencies of their global clients. When the US dollar appreciated to 35.2 Taiwan dollars on March 2 from 32.5 on December 18, American importers could buy 17% more with the stronger US currency compared with the earlier period. When the US dollar went back down to 32.7 Taiwan dollars in May, American imports from Taiwan cost about 15% more due to a weakened US currency.
3. Pilferage and Pirating
Pilferage is a concern during the loading and unloading products in ports and inland hubs. This is particularly true for stops in certain developing countries like Nigeria and Angola. Still, theft is also a problem in more developed nations and even more so as the global economy sinks into recession.
Pirating is a severe threat while shipments are in transit, particularly as vessels carrying valuable cargoes pass by Somalia’s pirate-infested eastern coast. Pirates are becoming increasingly violent, and frequently demand multi-million ransoms before they will release captured cargo ships.
4. Dishonest Exporters
Many importers have issued payments to exporters in other countries basing their trust on verbal or written assurances only. In return, they received nothing. Import entrepreneurs must thoroughly investigate a prospective exporter or supplier, including that exporter’s history with other clients. Importers can visit the respective websites for Moody’s and Standard and Poors to request information on a company. In Canada, entrepreneurs can contact the trade services of a commercial bank or Export Development Canada to check up on a potential supplier in another country.
5. Competing with Cheap Imports
One of the biggest headaches for importers is battling cheap imports procured by other competitors. Cheap imports force regular importers to reduce the prices of their products, which in turn eats into company profits. In the past, importers have tried to win court injunctions that prohibit shipments of particular products into their territories. However, injunctions are highly expensive and difficult to obtain.
A closely related issue is dumping, where importers bring goods into a country at a rate lower than the goods’ net price. Governments do treat dumping issues seriously, since dumping can play havoc on local economies.
6. Gray Market Competition
A gray market is where discounted or refurbished goods are sold below market prices. For example, many DVDs are available on eBay or Amazon online stores. These are legal markets, although consumers must be sure to receive and keep a receipt for any purchase. Also, gray market products are often sold without any warranties and the consumer risks receiving a faulty product. Still, importers should carefully analyze the degree to which gray markets could cut into their own sales and profits.
7. Technological or Fashion Changes
A major disadvantage that many importing businesses have to face is a change in technology or fashion within the importer’s industry. Market trends fluctuate steeply which can result in high levels of unsold inventory and lower profits. For example, importers who stocked up on VHS tapes and CDs now face falling demand as consumers migrate to DVDs and iPod players. Similarly, bell-bottom jeans haven’t been in demand since the disco craze of the 1970s.
Importers also face issues when there is lack of standardized technology among different countries. For example, electrical standards and voltages for Australian goods are much different than those in Canada. Therefore, importing a Canadian-made hair dryer into Australia requires a converter. Failure to do so will result in a minor explosion.
8. Exports Delays
Delayed shipments from an exporter often lead to poor relations between importers and their ultimate buyers. Importers should therefore be knowledgeable of cyclical trends in the exporting country. Most importers require continuous supplies of product, and have demand peak periods around Christmas. To arrange alternative sources of supply during these peak periods, importers should contact their local Trade Commissioner Services for assistance.
9. Inadequate Cargo Insurance
Novice importers pay to include the wrong clauses in their international cargo insurance policies, simply because they are unfamiliar with those contracts. To mitigate these risks, importers can work with established shipping companies such as UPS and Purolator or third-party freight forwarders to choose the most appropriate insurance policies for specific shipments.
10. High Banking Costs
Banking costs can run very high in international trade. One of the first things that importers should do is request a cost schedule from his bank. These banking costs should be properly accounted for and incorporated into the final costs for a shipment.
Importing Challenges and Opportunities
As global trade becomes more accessible, import entrepreneurs face challenges ranging from counter-trade (bartering) to onerous shipping document requirements. By carefully preparing for common pitfalls in advance, importers can then focus on selling the competitive advantages of the imported goods that they bring into local markets.
Sources for this Article
This article presents independent insights and comments based on a review of Dr. Harmeet Singh Kohli’s analysis titled International Trade – A Simple View to a Complex Process (Global Training Center, Inc).
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