The Biggest Mistakes Importers and Exporters Make
Starting any business can be daunting, as the failure rate is disturbingly high – this is nowhere more true than with import and export businesses, where some of the biggest mistakes can occur.
The main reason for some of the biggest mistakes importers and exporters make, is a lack of understanding when it comes to red tape. But then there is also the common sense factor – so many realize later on that they made a series of simple errors in judgement that caused their business to fail.
According to some estimates, the failure rate for South African startups is as high as 64% – in the import/export industry, it might even be higher. This is a scary thought when you consider that many of these entrepreneurs invested everything they had, just to see their dream go down like (and sometimes because of) a sinking ship.
The Biggest Mistakes I Have Come Across
1. Not getting proper insurance for their goods
I wrote about this before but I need to reiterate that a lack of proper insurance can lead to the complete downfall of a business. This is probably one of the biggest mistakes importers/exporters can make.
Your goods can be damaged, stolen or simply lost at any point in the journey. Whether there is a break-in at a warehouse, pirates attack the cargo vessel transporting your goods or a ship’s crew is forced to jettison your goods during a storm at sea, not having it properly insured is a big mistake.
2. Not knowing Incoterms and other red tape
One might think that, to have an import/export business, you simply need to decide on a product to import/export, contact manufacturers and shipping companies and the rest is just marketing your goods. One of the biggest mistakes is over-simplifying the nature of the import and export industry. If you don’t know Incoterms and their impact on your transactions, you can be in for a rude awakening. It’s important to know exactly who carries not only the cost but also the responsibility for your goods at any specific point in the journey.
Import/export is probably one of the industries with the most red tape. If you try and export the wrong thing to the wrong country at the wrong time, it can get you into serious trouble. And be careful if you don’t know the rules and regulations in a specific country!
There was a case in the US that dragged on for quite some time, where an importer made one of the biggest mistakes by not adhering to the regulations laid down for the import/export of certain goods.
In the US, if a company imports goods subject to the Food and Drug Administration’s jurisdiction, the importer will hold those goods until the FDA approves their release. If the company fails to do so, it’s liable for liquidated damages amounting to three times the product’s value.
What happens if the importer fails to keep these shipments intact until the FDA approves their release? The case I’m referring to caused these rules to be changed.
The case involved six shipments of cheese, butter and bread from Central America. The FDA determined it wanted to inspect the shipments because of concerns about E. coli, Staphylococcus aureus and Salmonella, etc. However, the importer refused to disclose their location!
One would think that something like this could never happen, but it surely did.
As a result, the accused were indicted and convicted of smuggling goods into the U.S. and conspiracy to commit an offense against the U.S. or to defraud the U.S. A jury trial resulted in conviction. But wait, there was another surprise; the appellate court overturned the initial conviction. It found that, although the regulations allowed for civil liability, they did not support criminal liability because of how they were worded. After the initial convictions were overturned, the FDA quickly stepped up and reviewed their regulations so that they can see successful convictions in future.
3. Not knowing the import/export landscape
If the import/export business just entailed finding a product to import/export, negotiating with producers and manufacturers, organizing transport and marketing, everybody would do it and we would all be living in big mansions.
I heard of someone who left his job with the government and decided to use his severance package to import some high quality blankets from Egypt. He somehow got these blankets at a really low price and thought he would make a killing. But he never contacted Customs to find out about import duties. He simply bought containers full of blankets and had it shipped from Egypt. To his astonishment, after arriving at the destination, he had to pay much higher import duty than he initially estimated, which really ate into his budget.
He was not too concerned about this, as he was sure he would recoup the money quickly once he sold the blankets – Christmas was around the corner.
After paying all the necessary fees, he had to take possession of his cargo. In the back of his mind he thought he could store it in an extra room at his house. But once he saw the enormity of the load of blankets, he quickly realized he would have to get some storage space. That was easy enough and he arranged to have his goods stored for 30 days. He thought it would be enough time to get rid of all the blankets.
What he didn’t keep in mind, was that it was mid November and it was summer in the Southern Hemisphere. Nobody buys blankets for Christmas, no matter how beautiful or cheap they are. He went from one trader to the next – nobody was interested.
After the initial 30 day period, he had to renew the storage agreement. He soon realized he couldn’t keep this up as he had racked up some incredible expenses by now and had no more cash flow left. To avoid the storage owner selling his goods, he arranged to have it sold at an auction; he was barely able to sell the blankets at the price he bought it in Egypt for.
Although he had good quality blankets that should have seen him make a nifty profit, he not only underestimated the cost of bringing it to market, he also got his timing completely wrong. If he was able to get the same shipment of blankets 6 months later, he could have been a rich man today. Instead, he took a job as a clerk at a bank, working 9 to 5 every day again.
Let Macro Clearing Help You Avoid Your Biggest Mistakes
With more than 30 years’ experience in freight forwarding and customs clearing, we are geared to help you with our vast knowledge of the industry. We have seen so much happen to so many importers and exporters that we can see you make a mistake even before you make it.
If you consider becoming an importer or exporter, come and talk to us. We can help you with facts and advice to ensure that you avoid making any mistakes and your business will be a roaring success.