Small Is the New Big

“There has been an awakening.  Have you felt it?” says Supreme Leader Snoke in “Star Wars Episode VII The Force Awakens”.  He was referring to something entirely different from what I’m getting at, but there is some kind of change going on in the business world.  It’s more than a trend or fad.  The fact is that all things “small” are not just “cool”, but actually in high demand and perceived to be of higher value than “big”.  This is not exactly breaking news though.  We’ve seen small scale burger production from Shake Shack do things for fast food that McDonald’s and Burger King simply can’t adapt to.  Not an hour of the day goes by when someone doesn’t come up with another take on Uber and its disruptive effect on the market for everything from taxis to messenger services – a concept that is built entirely on the fragmented and somewhat diminutive (pardon the pun) chassis of good old fashioned cab drivers.  For 36 years Tom’s of Maine was a small stand alone brand that fought major consumer goods conglomerates until it was finally bought by Colgate-Palmolive in 2006 (more on that in a future post) & more recently another TOM(S) has emerged as a small “do-gooder” brand that is scaling up its fashion business by selling comfortable shoes and simultaneously donating pairs to children in need.  AirBnB is rocking the hotel industry by parlaying small, fragmented accommodations into what will amount to the world’s largest hotel business.  And there are a lot more examples popping up by the hour.  There are 2 things about this trend that I find really interesting:

  1. Unlike the old days when a company like Ben & Jerry’s was more of an anomaly or a fluke, today a clear cut market preference has emerged to do things the “small way” or in “artisanal” fashion without accepting the trade offs that can come from limited infrastructure.  
  2. The power of small business (or even the “soloprenuer”) is being harnessed in an unprecedented fashion to achieve what used to require large scale capital expenditure and investment.   

So about this catalyst – well, we know what it is: technology.  More specifically, it’s the internet and if you wanted to rephrase things a little bit you could attribute the phenomenon to widespread, inexpensive communication.  But here’s the thing – technology is doing what it’s always done.  Combustion engines, automatic transmissions, digital calculators, commercial aircraft and other such inventions deemed “routine” today were the leading edge high tech inventions of their time.  That is, technology is enabling better, faster, higher productivity at a continuously decreasing cost.  

The other phenomenon, and the one that I really am intrigued & impressed by is the rise of small business enabled by the internet and how this preference is almost inherent to the human condition or the business condition.  It’s almost as if the whole world was waiting for the chance to root for small business or work with small business or incorporate small business into their supply chains and that moment appears to have arrived.

What’s behind this rise in small business interest?  Are we at heart a society of secret owner operators?  Is there some greater myth that inspires us? Or do we believe that small businesses somehow “do it better”?  

The answer may just be: all of the above.  But more realistically, I think it boils down to service and process.  That sounds incredibly unexciting doesn’t it?  I am a huge believer in the power of myth and its connection to all things in the world (including data, revenue, business cycles, and other “quant” stuff) so I’d like to tell you that our fascination with small business lies in some myth centered around a Skywalker-esque hero perhaps.  However, the reality is that small businesses just “get” service better than anyone.  So, why not break up every conglomerate or large business and offer the world a “service utopia”?  Well, here’s the catch with service: it’s not easily scaleable.  You can empower managers to make decisions, reward employees for great customer service, and give training seminars all day long, but you cannot truly scale service.  Here’s the paradox then – if a large business runs itself like a small business, it will collapse under the weight of it’s own transaction volume.  This is frequently referred to as micro-managing.  Meanwhile, if a small business tries to run itself like a bigger business it will either collapse under the weight of the overhead that such a structure requires, or, more likely (and especially relevant for the purposes of this blog post), it would never be able to satisfy any of its customers in terms of price or service offerings.  

Fortunately, there is a middle ground.  There is a magical intersection of the scale curve and the service curve that can yield a superior customer service experience which doesn’t force customers to overpay nor sacrifice quality in favor of price.  It’s a relatively new dynamic and one that is going to proliferate over the years to come and it is a direct result of internet technology being applied to business processes coupled with the desire to be small and focused.  I like to think of it as the rise of the business platform.  

Platforms, hamburgers & scale

To understand platforms and what they can do for the B2B and B2C markets in the future, let’s look back at the age old concept of franchising.  There’s no need to repeat the whole Ray Kroc and McDonald’s story, instead just ask yourself this: “when was the last time I saw a chef at McDonald’s?”.  All those billions of burgers sold every year, and no chef in site!?  The reason is that McDonald’s has built the franchise concept to perfection and made it into a small business platform.  Each burger is pre-made to a precise size.  Each french fry is cut to a precise width.  The fryer that cooks them chimes when the fries are done and even builds in time to account for the delay between its chiming and the time the attendant actually pulls the fries out of the oil, etc.  All of this is done for one reason: to give customers one great, Fast foodstandardized product over and over again.  That’s the kind of undertaking a big business with ample resources is uniquely equipped to deliver.  But who makes it work?  For all of the R&D that goes on at McDonald’s headquarters, and for all the billions that the parent company spends on marketing, advertising, corporate structure, etc. the fact remains that it’s the franchisees who make the stores work on a daily basis.  They are the ones who face the customers, ensure the lights are on, the floors are cleaned and make sure that the front facing, retail end of the experience is so good that customers will want to come back over and over again.  Can McDonald’s survive without its franchisees?  Absolutely not.  But, let’s think about how many franchisees earn their livings or have amassed considerable wealth thanks to McDonald’s.  Could they have done it without McDonald’s by building burger outlets of their own?  Maybe a handful would have succeeded over time, but the vast majority would never even successfully run one store without the support of the McDonald’s platform.  

Now this is where things start to get interesting.  In theory, we should all just save money or maybe get a loan from a franchise finance company and open up a McDonald’s or Wendy’s or Subway, and start our entrepreneurial journey this way.  The ambitious ones can scale up to multiple outlets and those who want to use it as a “lifestyle business” (a term I don’t especially like, but it does fit here) can simply own one or two, pay off the bank, make a good salary and exit the business when the time comes to retire.  But that’s not feasible.  The list of reasons is long, but let’s just accept the fact that not all of us want to own a franchise restaurant for a career or even as an investment.  So, what do we do?  Well, that’s a conversation for some other time, but let’s speed things along and say you’ve decided to start a business that isn’t a franchise, and that you’re using your own money for now (with some plans to raise money in the future perhaps) and so conserving capital is key for you, but at the same time you need to access opportunities and infrastructure that you don’t necessarily have the money for. Here’s a look at your “McDonald’s” – the platform that now enables small businesses to compete against the big ones and deliver the service day in & day out.

Flip the funnel

Technology has flipped the dynamics of customer aggregation.  Time was, a business needed to build the revenue to drive the profits which were then reinvested into infrastructure to support more customers, who would then provide more revenue to drive more profits to build more….etc. and so went the cycle.  Now, thanks to technology the equation looks considerably different: the moment a small business goes live with their website they effectively become global.  Think about that: the neighborhood exterminator’s website can be accessed by a web user in Singapore, Moscow or any other location on earth.  So now you have an audience, or at least access to an audience. If you used a service like Wix or WordPress you actually established this web presence for free or for no more than the cost of buying a domain ($2.99 in some cases on GoDaddy).  (It actually cost me $60,000 to launch one of the first freight e-commerce websites in the industry back in 2001.  Wish I had my money back!).

Now that your small business has an audience, you need to have a way to be contacted.  You might start with free contact tools like email, but let’s say you still want a phone number and phone system (startup founders may roll their eyes at this, but trust me, a lot of small businesses – including ones looking to scale – still need phones and phone systems) you could opt for any number of VoIP systems.  These are great tools, and I personally had such a system from Broadview Networks that literally saved my business in the aftermath of Hurricane Sandy in October 2012.  So now, for no money upfront, and a very low monthly cost, you could have a communications platform in place that rivals what your larger Fortune 500 competitor has.  Pretty cool!  

With a web presence and the infrastructure to actually talk to clients in place, you’re ready to put these tools to use.  Somewhere above, I neglected to mention that you’ll need high speed internet, but if you’re home based you already have this and if you have an office or store you can get it for $85 per month or less.  And if you’re neither (i.e. you work off a WiFi connection at the nearby Starbucks) there are still a lot of free or low cost options available to you.  

So now you’re online and reachable by phone or email.  Let’s get some traffic coming to that website.  The easiest place to begin, for free, is with social media.  Yes, these are platforms.  How you choose to use them is up to you but for business purposes you can use LinkedIn, Facebook or YouTube (amongst many, many other options) to get the word out about your business.  Launch a series of YouTube videos on how to tie a bow tie (because you sell the widest selection of bow ties in the tri-state area).  Create a LinkedIn group on the value of ongoing truck maintenance.  Create Instagram and Pinterest pages/boards to promote your line of coffee mugs.  In the old days, small business owners like me would spend $300 or more per year on a listing in the Yellow Pages.  That was small business marketing and all it got you was exposure to people in your zip code or county.  For far less money, in fact often for no money at all, social media gets your marketing message out to a limitless audience.  Once again, behold the power of the platform.  You used to need Procter & Gamble money to reach a global audience.  Now you don’t.  Even better, P&G knows it and they feel you coming.  

Infrastructure secured, marketing messaging en route to the world, you’re off to a good start and you haven’t had to flip a single burger.  So far you are feeling good about not becoming a McDonald’s franchisee. The marketing channel is clicking.  Phone calls are routing from your desk to your cell phone thanks to your VoIP system and now you find that you need a little support.  Maybe you want someone to update the social media channels while you fill orders.  Or perhaps you’re not filing all of your receipts or updating the checkbook on time.  You can only dream of your first full time hire, but in the mean time there is help. Tim Ferriss 4 hour work week Virtual Assistants, popularized by Tim Ferriss in his book “The 4-Hour Workweek” have become crucial providers of support for startups in recent years.  VA’s (as they are often known) can work on almost any task, can cost as little as $10 per hour, work remotely (no office space required), work offshore (24 hour work potential), and sit on somebody else’s books (no unemployment withholdings, payroll taxes or medical insurance costs to drive overhead).  Strictly speaking, VA’s are just service businesses rather than platforms, but consider how you got your VA!  Sites like Upwork or Fiverr deliver customers, billing and payment solutions to a global army of assistants, contractors, designers, consultants, etc.  That’s a platform at work for sole operators, freelancers and small businesses.  

Manufacturers and distributors drop ship, courier companies like UPS take care of deliveries and any number of freemium or low cost software packages such as Marketo and QuickBooks allow you to keep track of it all.  Just like that, you now have a fulfillment function and a list of vendors to support your business.  The freemium, SaaS and contract service providers are key here.  You can access their services for free, and only as needed.  That’s almost like a credit line: do business now, pay later and that too for only the business you actually secure.  People who launched businesses as recently as 2000 have to be jealous.  

Now maybe you’re ready to spend some real money.  Remember how we boiled the cycle down to revenues to profits to reinvestment in order to get more revenues?  Perhaps now maybe you’re ready to reinvest in advertising or infrastructure.  For the moment let’s look at advertising.  

The theme here is platforms, remember.  McDonald’s takes a cut of franchisee revenues for advertising expenses but theirs is a closed system: the only beneficiary of their ad platform is themselves and their franchisees – so while they take a big cut, they deliver value exclusively to their business.  You and I don’t have that luxury, but thankfully we have access to a vastly larger platform for delivering advertising.  The grand daddy of that space is Google and their incredible Adwords platform. Yes, it is a platform.  Google gives you the tools to find keywords relevant to your business.  They give you analytics to see the real time results of your advertising spend, they disseminate those ads across several internet properties, etc.  The famous retailer Marshall Field mused about not knowing which 50% of his advertising budget was wasted.  Thanks to Google, we actually know what’s working and what’s not, without any wastage at all.  They even give you free Adwords vouchers so that you can get $150 of free advertising on their platform.  Similar paid advertising platforms exist on Bing, Yahoo, Facebook and LinkedIn amongst others.  

So where do you suppose this is all headed?  We know about barriers to entry and that as they get lower, more participants get in on the action and drive down the value of the business opportunity until it becomes commoditized, at which point consolidation happens.  Well, in some ways the commoditization of platforms is happening already.  Adwords are not expensive, but the conversion rates are low relative to other forms of marketing.  AliBaba storefronts are generally discounted to 10% of list price (whether this is a marketing tactic or not, the fact that you can be on a massive platform for less than $500 per year is really cheap).  Facebook ads were cheap, now they’re not, but someday they will be again.  The same is true for LinkedIn and other platforms, all of which are economical and allow you to set a spending limit so that you’re never “burning” advertising dollars.  

Now if we’re reaching a point of commoditization, then I believe the future belongs to value added platforms and niche platforms.  You see, digital business is still…business.  While there may be disruption and a re-ordering of hierarchies, some of it is going to feel a bit like shuffling deck chairs on the Titanic.  Brick and mortar trends will simply turn into digital trends.  So, as platforms grow and become the norm, the winning platforms will be those who find ways to do more than drive down price. The winners in the world of digital business will be the ones who help add value to the businesses of their customers by increasing access to markets and opportunities.  For small businesses this focus will have to be on niche markets, products and services.  

Let’s look at some popular B2B platforms and understand what they might mean for your business.  If you’re in the business of international trade, and sourcing from China is part of your plans, then AliBaba is the best game in town.  By allowing Chinese manufacturers to gain access to overseas sales, AliBaba is providing the platform to be a primary or supplementary sales channel.  Additionally, their investments in logistics, credit services (trade finance), inspection services and various other support services in the export process enable their platform to add tremendous value to their clients businesses.  I actually feel the same way about the Amazon Marketplace.  While all the attention these days is focused on Amazon’s growth in sales, the thing that many people overlook is the company’s fulfillment services and the marketing channel it offers via its Marketplace.  This is a sensational service that really smart phone appsallows a business owner to just focus on product and sales.  Amazon and suppliers can provide the turnkey services of drop shipping, order fulfillment, and final delivery.  I also think one of the hidden marketing gems of Amazon is it’s list of “Top 100 Products on Amazon” and the data it publishes on top sellers in each category.  This is akin to an app maker landing on the Apple app store Top Free Apps list. It really has the potential to keep sales growth going in a manner that very few businesses can do on their own.  

A smaller platform that was successful in recent years, and one that has had a significant impact on my vision for CoLoadX is OpenTable.  While most consumers knew it as a business that drove reservations (transactions) to restaurants, very few people were aware of the fact that OpenTable software literally ran the front end of the restaurant.  This represented a significant value add for its customers and allowed them to remain ahead of their competition.  At CoLoadX we’re taking a similar approach by not only providing a marketplace for freight forwarders and NVOCC’s, but also by delivering technological solutions that actually help our clients run their businesses better.  As a result, we offer a sales channel, a dynamic procurement tool, a marketing capability currently not available in house, and eventually a completely streamlined and re-defined approach to logistics that fits with the trade dynamics of the 21st century.  This is a platform that’s about much more than shopping for rates and driving down prices.

coloadx cta

Small Business Turns the Tables

If you’ve had the good fortune of working for Altria, Coca-Cola, Pepsico or Procter & Gamble and companies of this caliber then you’ve been part of the finest marketing organizations the world has ever known.  A few years spent with them will provide you with more marketing knowledge and insight than most MBA programs ever can.  Their resources are virtually unmatched, their product mixes can withstand market segmentation down to very minute levels (looking for natural sugar soda at a Caribbean grocery store in Richmond Hill, NY?  Pepsi has you covered!) and their supply chains guarantee they’ll always have the lowest cost of inputs and raw materials.  

And now…your small business is making them sweat bullets!  The small enterprise actually stands a chance.  Homemade soda from  Brooklyn can get the same level of attention as Coca-Cola.  The very size that has given big business its advantage over small business is now becoming it’s hold back.  As the internet levels the playing field in terms of access to customers and business infrastructure, the company who loses the most is the one with the largest structure, biggest payroll, most amount of office space, etc.  That is not your small business!  

Now if a restaurant software platform and an ocean freight logistics platform represent a value added approach beyond buying, selling and driving down prices, what might a niche platform look like?  Well this is where I think technology will enable the development of small, closed platforms that benefit sole entities.  Think back to the McDonald’s marketing budget example here: franchisees pay a piece of revenue for marketing and advertising support but wind up being the sole beneficiaries of that expenditure.  

Screen Shot 2016-04-10 at 7.55.27 PMSimilarly, small businesses will have the ability to make larger investments in digital platforms that are meant for the sole benefit of themselves and their customers.  Depending upon the size of the undertaking, this may require substantial investment from outside sources, or may be achieved by allocating funds saved through the digitization of other business processes (do you really need to pay someone $40,000 annually to simply “keep track” of office supplies in this day and age!?).  However the platform is financed, the key to remember is that the benefits accrue solely to your business in the form of improved customer service, higher value add to clients, and ultimately sales and profit growth.  

Imagine you are a customs broker specializing in the fashion industry. Finding a cheap trucking rate from the airport to the downtown showroom is not how you’re adding value to your customers business. You’re adding value with your knowledge of import regulations, and the ability to facilitate clearance through various government agencies (Customs, health bodies, environmental agencies, etc.).  The other value you’re adding is in centralizing the process and making it turnkey, and hence easy, for your client to do business.  (Trust me, “easy” is one of the biggest value add features you can ever give someone).  Why not build a platform that centralizes all the flow of information related to such work AND attracts customers in need of such service in one step?  Once you’ve created a solution like this, the sales and marketing becomes easy.  Customers will pay for your knowledge and expertise if you make it easier for them to work with you.  AliBaba and Amazon are going to fulfill orders but they are not going to stand in line at the nearest Fish and Wildlife Service office with a stack of documents in need of stamping.  This is where your business gets to preserve its lead in the very specialized market you’ve been servicing for decades or more.  

I have the privilege of running the best air freight business in America at Crescent Air Freight and these are exactly the types of initiatives we’re working on for our clients.  In verticals such as automotive accessories and parts, chemicals, medical equipment and petroleum industry products we’re working on platforms that will allow our customers to gain much more than transportation services as they interact with us.  We’re actually going to enable market opportunities for our clients that they never could have accessed before.  Better yet, we’re going to provide these opportunities to our clients with no sunk costs or up front investments for them to make.  This is how technology is empowering the small business like never before.  We couldn’t even dream of this stuff 5 years ago!  

If you’re looking for a more B2C approach to platforms, imagine being a wholesaler of cosmetics who creates a one stop services platform that enables a small French manufacturer to sell directly to customers in Malaysia.  Or perhaps a platform could be built by an individual in Bahrain allowing consumer products to be sold directly into her country from anywhere in the world – a single person distributorship powered by market knowledge.  Yes, AliBaba, IndiaMart and so many others are doing this, but they’re still going to struggle with scaling those services which only a small business can provide.  Also, the existence of large platforms won’t cannibalize small business sales.  Uber did not end the taxi, instead it exists in parallel with the traditional taxi business model.  The same will be true of all small businesses.  You can work with the big guys for higher volume, lower margin business and yet build your own platform for higher margin direct to consumer sales.  No more wholesalers to squeeze your profits, and no more risk of being tied to one giant customer as is often the case with small businesses.  

Going forward, the challenge for small businesses will be to update and modernize business processes without losing sight of what made them so successful to being with.  

via GIPHY

Remember, what I said earlier in this post: “…you cannot truly scale service”.  That doesn’t mean small business owners can afford to sneer at “Internet mumbo jumbo” or sit around and reminisce about the days when business was done with a handshake.  What it does mean is that now, more than ever, small businesses need to completely change their approach to doing business and it starts with customer acquisition.  Businesses at any given moment can have multiple problems, but if revenue is addressed then all other problems become easier to fix.  Platforms – both large scale ones as well as small private ones – will be the primary path to revenue growth from here onwards.  The application of technology to the “back end” processes must follow in order for the business to be in sync of course, and some companies would be wise to start by getting their house in “digital” order before going after more business.  The point here is that price, capital and investment risk are no longer excuses for small businesses not to pursue growth.  

Earlier on in this post I touched on the concept of myth and its relevance to everything around us including quantitative elements such as data.  Myth can be expressed in many forms including religious law, superstition, cloud formations and just about anything else one could imagine.  The myth that America thrives on – the very cornerstone of the country in fact – is that of opportunity.  Wealth is of course measured in any number of resources, but the one thing that America – and really any society – rises and falls on is it’s ability to spread opportunity.  So what does this all mean for data, platforms, and doing business online?  It’s all about spreading opportunity.  Today the internet is pushing opportunity beyond America’s borders.  Businesses operating in societies where opportunity is scarce can use an internet connection to “make a sale”.  Ebay can find a buyer for grandpa’s collection of bottle caps from Pakistan.  Etsy can deliver opportunity for handmade goods from a home based business in Sudan. This is how we get from myth to opportunity to data and finally commerce via platforms.  The place where opportunity delivers measurable, exciting results is in the field of commerce and every small business embodies the very hope that this opportunity brings to life.  Building a marketplace that facilitates leather wallet imports from Bangladesh; setting up a company page on LinkedIn; showcasing goods on Instagram and Pinterest – these are the opportunities your business needs to avail today in order to ensure growth.  Your future depends on it!  

top 10 us ports infographic

 

 

 

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The Traffic Managers Tip Sheet

Are you a Traffic Manager in the know?

traffic manager shirtManaging traffic is one of the most important roles in the logistics industry.  When a shipment of car parts is delayed, a pallet of iPhones is misrouted or the authorities come calling about a compliance issue, it’s the traffic manager who usually has to face such matters before anyone else in the organization.  A traffic manager is essential to ensure these types of incidences do not happen. To be successful, traffic managers have to juggle many tasks while also being knowledgeable and up to date on anything and everything that may affect freight movements domestically or anywhere in the world.

 

While every organization has its unique requirements in terms of freight handling, compliance, key performance indicators (KPI’s) etc., here are some details which are relevant to all traffic managers:

 

traffic manager cta

  1. Freight Density – How do you calculate freight dimensions?
  2. Costs – What are all the costs included those that are hidden as well as landed costs?
  3. Equipment – What size and type of container is needed?
  4. Demurrage – How can you avoid demurrage costs?
  5. Compliance – Are you aware of all the compliance regulations?
  6. Options – When should you move freight by air, by truck, rail or ocean?
  7. Cargo – Do you know if your freight is hazmat?
  8. Risks – Earthquake, strike or electrical outage, are you prepared?
  9. Incoterms – What are the terms of sale?
  10. Industry Trends – What are the industry trends and outlook?

 

To help the traffic manager, we’ve created a handy infographic with links to additional information for each tip to serve as a daily reminder that you can download here.

Check it out and let us know what you think.  Did we miss anything?  Send us additional tips and we’ll compile the additional tips for a later blog post.

Opportunities in the Ocean Freight Business and U.S. Ports

Opportunities in the Ocean Freight Business and U.S. Ports

Port View _Small

Over-capacity and falling rates define a struggling ocean freight market. According to industry analysts, the collapse in rates has not only been attributed to declining demand but also to over investment in shipping capacity by ocean carriers. Indeed, the introduction of new capacity has primarily been in the form of larger ships; however, the expected profits from these ships have yet to materialize. Meanwhile, investments in ports are underway to not only improve efficiencies but to also attract these “mega-ships”. While ocean carriers grapple with declining rates and profitability in addition to launching larger and larger ships, ports are undergoing their own transformation.

Top 10 US Ports

According to the Journal of Commerce, Los Angeles and Long Beach are the two largest ports in the US in terms of total TEUs for 2014. Along with Seattle/Tacoma, Oakland and other West Coast ports, 2015 was a difficult year due to a number of issues including prolonged labor negotiations, chassis shortage and preparations for handling mega-ships.

East Coast ports along with the Houston Port Authority appeared to benefit from West Coast labor issues and as a result, many ports reported record TEU throughput for the year. For example, the Georgia Port Authority noted an 11.7% year-over-year increase in TEUs for the Port of Savannah and the Virginia Port Authority recorded a 6.5% gain over 2014. In terms of total cargo, the Houston Port Authority also enjoyed a record year in 2015, moving 30.5 million tons of cargo at its facilities, surpassing the record set in 2014 of 30.3 million tons.

For 2015, it is likely the top 10 port ranking will not shift much despite the issues the West Coast ports endured during the year. Los Angeles and Long Beach will probably maintain the top two spots once again as over 40% of all Asian imports arrive at these two ports alone; however, East Coast ports are gaining ground and many of these ports have high expectations with the opening of the expanded Panama Canal later this year; but an even bigger question is, are the ports prepared for the mega-ships?

top 10 us ports infographicMake Way for the Mega-Ships

It appears the handling of mega-ships at US ports is going to be one of trial and error. The two largest container ships ever to unload in North America reached Los Angeles in late December. According to the Port of Los Angeles, the larger of the two ships, the CMA CGM Benjamin Franklin, stretched 1,300 feet — about as long as the Empire State Building is tall and approximately 1,500 longshoremen spent almost 56 hours moving nearly 11,230 containers on and off the ship before the visit ended Dec. 30.

Other US ports may not be as fortunate as Los Angeles to ably handle container ships of this size. Although the Georgia ports and Charleston ports have benefitted from record TEU volumes, neither are capable of handling these ships; but each of these ports has received funding for dredging projects while the Jacksonville port has received a financial commitment from the state government. Meanwhile, many bridges on the West and East coasts, such as in New York/New Jersey are too low or narrow to accommodate the mega-ships.

But as ports prepare harbors and structures to accommodate mega-ships, the question arises: do these ports have the necessary equipment and infrastructure in place for the loading, unloading and transport of increased container volume?

Investing in Efficiencies

As ports raced to prepare for the mega-ships, 2015 was also the year of efficiency improvements for many ports. For the Georgia Port Authority, investments were made to truck gates, container yard space, container handling equipment and ship-to-shore cranes. Meanwhile, the South Carolina Port Authority and the Virginia Port Authority improved truck turn times to support productivity of the trucking industry.

In an interesting move, to better compete against Canadian ports, the Seattle and Tacoma ports formed an alliance, Northwest Seaport Alliance, which aims to nearly double cargo volume by 2026.

Is It Enough?

The ocean freight market is changing rapidly – larger ships, falling rates, the opening of the expanded Panama Canal – to name just a few changes. But questions remain….

  • Are the top US ports really ready for the changes?
  • What will these industry trends mean for individual ports?
  • Will the changes affect the rankings of the top 10 US ports?

And as we enter 2016, not only is the ocean freight market faced with many uncertainties but new requirements such as SOLAS container weight verification will come into play effective July 1. Once again, more questions for a market that is still reeling from 2015. Will the Ports adapt?  It remains to be seen.

What This All Means For U.S. Importers & Exporters

As we have shown in previous posts, here at the Exporting Excellence™ blog, we really like macroeconomic data and all things related to international trade.  Investment in air and ocean port infrastructure is pretty much the perfect real world intersection of trade and economic data.

Opportunities abound for U.S. importers, exporters and their freight forwarders to take advantage of falling ocean freight rates.  Over 50% of U.S. import traffic comes from Far East Asia, and hence signing favorable contracts with steamship lines in Q1 2016 can yield considerable savings in terms of landed cost even over the already low pricing importers benefitted from in 2015.

Download the Top 10 Ports Infographic Now!

Download Top 10 Ports Infographic

For U.S. exporters a similar opportunity exists to lock in savings for the next 12 months.  As ocean freight contracts are typically renegotiated in March, the timing is right to forecast volumes for the year to come.  Some trade lanes are already showing signs of stability, such as trans-Atlantic services from the U.S. East Coast.  However, the arrival of more capacity, resulting from the expansion of the Panama Canal will continue to pressure rates especially for exports to Asian markets such as China.

Take a moment to look at your international business and invite your freight forwarder in on the discussion.  It’s likely that a little bit of collaboration now can save a lot of time, money and effort in the form of shopping for prices further down the road. Most importantly, take a moment to download our free infographic on the Top 10 US Ports!

 

U.S. Exports of Banking Equipment

U.S. Exports of Banking Equipment

Here’s What We’ve Noticed:

If you follow the world of online transactions and mobile payments, then you’ve heard about such important events as the IPO of Square, Inc. and the spinoff of PayPal from global ecommerce giant Ebay. While these startups and relative new comers to the financial markets are gaining market share the fact remains that banks continue to be the most important players in the global market for financial services, products, payment processing, and the like. So what exactly does this have to do with logistics and exports? check scannerCertainly there are the super high value logistics services of transporting currency, gold and other cash equivalents, but at Crescent Air Freight we’ve been seeing something more compelling in the banking business. Specifically we’ve experienced considerable growth over the past year in the export of banking equipment such as check scanners, ATM’s, money counters and the like. What is becoming clear from these traffic patterns is that the global banking industry is undergoing a huge change and new technologies threaten to disrupt financial business models as a growing percentage of populations in emerging markets reach middle class status. As such, the demand for banking equipment will increase in the years to come.

Emerging Markets

As the base of middle class consumers around the world expands, a variety of banking or commerce related products have seen their demand grow. Point-Of-Sale terminals for example have seen a sharp increase in demand over the past few years. Additionally, beyond payments, the proliferation of inventory management systems, loyalty programs and advanced vending machines has spurred demand for both software and hardware that is required to support such transactions. As such, Transparency Market Research forecasts point-of-sales terminals market growth to be at 11.6% annually from 2014 – 2020. Considering the market size was estimated to be $36.86 billion in 2013 there’s clearly a great deal of growth yet to come.

Aside from banking, retail and healthcare are two areas that are expected to continue to feed demand for point-of-sale and payment processing equipment. In terms of countries, U.S. exporters in this segment will find demand in many of the emerging markets of the world. According to The World Bank, cash demand in Europe is growing at 4.5% per year and within BRIC countries cash demand rates are growing at 11% per year. South Africa is another bright spot in terms of the demand for cash and banking equipment.

If cash demand is influenced by population then it stands to reason that China and India need to be at the very top of the list of potential growth markets for this sector. Indeed the number of ATM’s in China has tripled since 2009 making it the largest ATM market in the world.

India has also experienced rapid growth over the past decade, ranking as the world’s fourth largest ATM market in 2014, and trailing only China, the United States and Japan. However, as rural development increases in India and as cash demand increases proportionately, it is expected that India will surpass the United States as the second largest ATM market in the world.

In addition to ATM’s, we have observed (and U.S. export data confirms) growth in demand for U.S. exports for check scanners and money counters over the past year. In addition to emerging markets we have seen upgrade cycles and bank branch expansion in markets such as Qatar and the United Arab Emirates drive significant project demand in 2015.

The Trade Data

According to U.S. Census Bureau statistics, 2014 exports of point-of-sale equipment were valued at US$202.3 million which reflected a slight decrease from 2013 levels. The largest markets for U.S. exports in this category were Canada, Mexico and China.

ATM exports are even more appealing for U.S. companies and 2014 overseas sales stood at $103.80 million which was almost a 100% increase over 2013 levels of $50.7 million. Leading markets for U.S. exports of ATM’s were the Philippines, South Africa, and India.

The Outlook

The outlook for banking equipment exports will likely remain strong for several years to come. The combination of technology, population growth and increased global consumption will ensure a steady need for equipment to support all segments of this market and its transactions.

Banking equipment is of high value and generally has a long life cycle. Hence, its logistics and transport are similar in many ways to that of other capital goods such as oil & gas equipment or even sensitive electronics. A combination of direct flights and sailings, high quality trucking services and destination delivery options and a good system of tracking in transit will ensure that exporters get true value from the logistics process that supports their export sales.

 

Saudi Arabia – Not Just for Oil

oil fieldsSaudi Arabia – Not Just for Oil

When one thinks of Saudi Arabia and international trade, oil typically comes to mind first, but times are changing. The price of oil has been on the decline over the past couple of years and as such Saudi Arabia has been diversifying its economy. As a result, opportunities exist for exporters.

Saudi Arabia is the 19th largest exporter and the 20th largest import market in the world. Among the top exports is of course, oil, but also plastics, metal goods, construction materials and electrical appliances. In terms of imports, the country’s leading commodities are vehicles, machinery, electronic equipment and pharmaceuticals. U.S. exporters of these products have found Saudi Arabia to be an excellent market for decades.

Trade Lanes

Diversification and Infrastructure

Diversification is important for Saudi Arabia in order to grow its economy and as such government investments in infrastructure and non-oil industries are on the rise. Not surprising, the construction sector is the largest driver of economic activity in Saudi Arabia after oil particularly as government-sponsored projects such as hospitals, specific industry-related economic hubs and infrastructure are driving most of this need.

Indeed, ambitious infrastructure projects are underway with five rail projects to connect not only the major cities within the country but also to serve as a link between the Red Sea and the Persian Gulf as well as with the six other countries of the Gulf Cooperation Council (GCC). This is an interesting development for many reasons, as the Arabia Peninsula is one of the only regions of the world that jumped to modern air and ocean ports infra structure without first developing a rail network. For U.S. exporters, especially those shipping to major inland points such as Riyadh (the nation’s capital), the presence of rail cargo could lower the cost of inland delivery substantially and increase delivery times.

Expansion plans are also underway at airports in Riyadh, Jeddah, Madinah, Nijran, and Tabuk primarily for passengers but will undoubtedly benefit cargo also.

Furthermore, ocean port projects include expansion of the country’s largest port in Jeddah, as well as improvements to ports in Jazan, Al-Madhaya and Fursan. Inland ports are also being built in specific industry-related economic hubs known as Economic Cities.

Along with infrastructure investments, Saudi Arabia has identified several industries for further development such as healthcare, life sciences, automotive, information technology, logistics, alternative energy and manufacturing.

Because of the high volume of imported automobiles and automobile parts, there are particularly high expectations to expand the domestic automobile manufacturing industry. Currently there is local production of light trucks only on a small scale by Isuzu, Daimler, Volvo and MAN. Tata, Jaguar and Land Rover are considering local assembly operations in Saudi Arabia.

In addition, Saudi Arabia is the world’s largest importer of defense equipment and as a result, the government is also working towards developing a manufacturing base for weapons parts and components.

Trade

The Department of Customs at the Ministry of Finance oversees all merchandise moving through Saudi customs ports. In addition, the Saudi Food and Drug Authority (SFDA) are empowered by the Saudi Council of Ministers to have a representative at eight Saudi ports of entry with Saudi Custom officials to regulate and control the entry of medical devices. As such, medical devices are only allowed entry into Saudi Arabia through the three major international airports, two seaports in Jeddah and Dammam, and three land entry points.

On the global front, Saudi Arabia joined the World Trade Organization (WTO) in 2005 and as part of this trade organization is committed to its rules including transparency in trade requirements and more accommodating to non-Saudi businesses. Being a WTO member, Saudi Arabia is expected to bind its tariffs on over three fourths of U.S. exports of industrial goods at an average rate of 3.2%, while tariffs on over 90% of agricultural products are set at 15% or lower.

Additionally, as a member of the Gulf Cooperation Council (GCC), Saudi Arabia applies an external tariff of 5% for most products, with a limited number of GCC-approved country-specific exceptions.

Despite being a member of WTO, Saudi Arabia still favors Saudi businesses. In addition, there are also concerns of counterfeit products. In some consumer goods, for example, it is estimated that as much as 50% of the entire Saudi market is counterfeit. In order to restrict the entry of counterfeit products, the Saudi Customs Authority now requires all imported goods to clearly display the “Country of Origin” or “Made in ….” on items in an irremovable manner.

So, Saudi Arabia is much more than oil. True, oil still remains a leading export commodity but the country is working hard to diversify from its dependence and as such suppliers of numerous industries such as automotive, pharmaceutical, consumer goods and manufacturing should benefit as this country opens its doors further to global trade.

Trade with the largest European Economy – Germany

Trade with the largest European Economy – Germany

germany importsAs one of the largest producers of automobiles, Germany offers great opportunities for U.S. automotive equipment suppliers. It is the largest European economy and the third largest export and import economy in the world. Centrally located in Europe, Germany’s 2014 GDP was $3.8 trillion with real growth rate of 1.6%.

Germany is home to such automobile manufacturers as Adam Opel AG, BMW, Daimler AG and Volkswagen. Besides being a large producer of automobiles, Germany also is the home to chemical conglomerates such as Siemens and BASF as well as to pharmaceutical companies such as Bayer. As a result these particular sectors of the German economy are especially well suited for export as well as for the import of inputs and raw materials from overseas markets such as the United States. For imports, automobiles and vehicle parts are the largest such commodities along with electronics equipment.

Trade lanes

  • Top export destinations from Germany are France, the US, UK, China and the Netherlands.
  • Top import origins into Germany are the Netherlands, China, France, the US and Italy

Infrastructure and Logistics

Germany has a well-defined and mature transportation infrastructure. It is home to Europe’s second largest container port, Hamburg as well as Europe’s largest inland port, Duisburg. In addition, the Rhine and Elbe rivers serve as major thoroughfares for barge traffic.

Its airport network consists of 23 airports that offer international service including Frankfurt which is the 9th largest airport in the world in terms of cargo with 2,132,132 tonnes moved in 2014.

Much of the cargo within the country is transported by truck as opposed to rail. As a result, because of the preference of truck, tolls are utilized. However, there has been an attempt to shift more cargo on rail to reduce emissions and road congestion.

The rail is operated by private operator, Deutsche Bahn, but receives government funding. With 37,900 kilometers of track it is one of the largest networks in the world. In recent years, Deutsche Bahn has been successful in extending its German network to China providing an alternative solution to that of air or ocean for shippers. For U.S. exporters the presence of such a well developed infrastructure means that the entire country is accessible for potential sales and distribution opportunities.

Because Germany is a member of the European Union, it follows European Union trade requirements in addition to its own requirements. The Integrated Tariff of the Community, referred to as TARIC (Tarif Intégré de la Communauté), is designed to show the various rules which apply to specific products being imported into the customs territory of the EU or, in some cases, exported from it. To determine if a license is required for a particular product, check the TARIC.

Some European directives to be mindful of include REACH, “Registration, Evaluation and Authorization and Restriction of Chemicals”, which requires chemicals produced or imported into the EU in volumes above 1 metric ton per year to be registered with a central database handled by the European Chemicals Agency (ECHA). Another directive, Waste Electrical and Electronic Equipment (WEEE), requires U.S. exporters to register relevant products with a national WEEE authority or arrange for this to be done by a local partner.

According to the US’ website www.export.gov , Germany’s regulations and bureaucratic procedures can be a difficult hurdle for companies wishing to enter the market. Complex safety standards complicate access to the market for many U.S. products. It is advised that U.S. suppliers do their homework thoroughly and make sure they know precisely which standards apply to their product and that they obtain timely testing and certification.

Goods imported into Germany from non-EU states are subject to an import turnover tax. The import turnover tax rate equals the value-added tax rates of 19% levied on domestic products and has to be paid to the customs authority.

A mature market, Germany continues to offer great opportunity for exporters particularly in automotive, chemical and pharmaceutical manufacturing. Be mindful of the intricacies associated with customs and duties within Europe and to Germany; otherwise enjoy the benefits this country has to offer.

Exporting to South Korea

Exporting to South Korea.

Earlier this year, here at the Exporting Excellence blog, we put out a lot of research on leading markets for U.S. exports. Examples included the Top 7 Markets for US paint coatings manufacturers, Top 6 Markets for automotive equipment exporters,  as well as the list of Top 10 markets for U.S. exports in general. What struck us as interesting is that for all the attention paid to Canada, China and Mexico one of the most important trading partners that the United States has is South Korea. Despite not being a very large country in terms of size or population, nor being in possession of abundant natural resources, South Korea has built itself into one of the most important economies of the world.

Screen Shot 2015-12-14 at 5.37.23 PM

South Korea’s ability to supply high quality inputs such as steel as well as finished products like automobiles is an excellent example of the depth of its industrial base. Meanwhile, South Korean demand for U.S. agricultural and consumer goods sets it apart from other trade partners as an excellent source of two way trade for U.S. companies.

South Korea’s trade and political stability, as well as its long history of friendly relations with the United States has resulted in the establishment of a Free Trade Agreement between the two countries. Known as the KORUS FTA, this agreement allows U.S. companies access to greater opportunities in the South Korean market than ever before. U.S. exporters of specialty chemicals, advanced automotive technology, agricultural products and wide array of commercial and industrial products can now sell product in South Korea free of tariffs (also known as duties and taxes) and quota (effective restrictions on nature and quantity of specific products). In 2014 $24 billion worth of U.S. exports benefitted from the FTA with South Korea and that number has grown in 2015 and will continue to grow.

The key benefit associated with a free trade agreement is an easier trade environment. South Korea proves this as it is not a difficult country to trade with. South Korean Customs and various government ministries are not unusually difficult to deal with when it comes to obtaining import permits and clearances. As a result, U.S. exports to South Korea do not find their landed costs inflated by duties or other bureaucratic formalities.

South Korea’s logistics infrastructure is amongst the best in the world. Incheon Airport services Seoul, which is the country’s largest city and capital. Ocean port facilities in Busan are world class and are serviced by most major steamship lines. Costs of logistics, however, can be slightly high. While South Korea has an excellent labor force, it also faces high labor costs and expensive facilities costs which can impact warehousing and storage. This can be acutely felt by importers of large air freight shipments, as they are subject to storage charges at Incheon airport 24 hours after cargo arrival. Hence, freight arriving on Friday night or Saturday is likely to incur an expensive bill for storage. This can have a significant impact on the profitability of export sales to this market.

Standard international trade practices apply when dealing exporting to South Korea. Exporters must furnish originals or copies of commercial invoices and packing lists for all goods being exported to South Korea. Exporters of foods and pharmaceuticals must also provide necessary licenses and permits from the Ministry of Health and Welfare in order to have their goods cleared for import into the country.

In our industry we always focus on the big guys: Canada, China, Mexico.. it’s refreshing to read about another market that perhaps was never considered . South Korea certainly fits that bill and is worth a second look when considering new markets for your company.

IoT In the Logistics Space

IoT In the Logistics Space.

IoTEvery once in a while the logistics business gets to be “cool”. We’re not using a tired old pun here about the “cool chain” or perishable transportation solutions. Instead, we’re excited at the moment by the phenomenon known as the “Internet of Things” or IoT. As we’ve shown in some previous posts here at the Exporting Excellence™ blog we really like data and how it can be applied to (or derived from) international business, and IoT is all about the data.  From tracking passenger baggage to initiating preventative maintenance orders on aircraft, IoT is having a profound impact on the field of logistics and there are several ways that your business can benefit from this trend.

As we had mentioned in our post on big data, routine business processes create a great deal of data. This is primarily a byproduct of the increase in digital and online business processes – quite simply, every click we make in a browser, app or other program generates a data point that gets recorded somewhere, somehow. Big Data essentially focuses on how to compile, sort and interpret such data. IoT on the other hand is more concerned with how to “make” more data by bringing devices and gadgets that were previously inanimate and silent to “life” using network and digital communications. The result of compiling all this extra data is to enable businesses to use their resources more efficiently which in turn can increase sales, profitability, or other key business performance attributes.

We were really impressed with this recent report published by Deloitte University (part of accounting and consulting giant Deloitte Touche Homatsu) that offers some great insights into how IoT has been successfully adopted into supply chain and logistics processes as well as the many opportunities that it offers.

So what is the opportunity that IoT brings to the freight business? At the moment, most of the attention is focused on tracking cargo. The ability for an importer to determine how far from port their material sits, for example, seems to hold value for major wholesalers and retailers. Some specialized applications such as temperature monitoring for perishables and transit time tracking for pharmaceuticals seem to be gaining traction as well. A recent example of IoT technology hard at work that we came across was in the logistics of beer kegs. Already a high value segment of the logistics business, IoT is now enabling beer distributors to know how much beer actually remains in a keg. This information actually allows a bar to waste less beer (and more importantly increase yield per keg) and at the same time allows distributors to plan deliveries more efficiently. The “pre-IoT” way of measuring the amount of beer in a keg was to physically tilt it and see how heavy or light the keg was. New kegs, equipped with sensors and IoT technology can actually report the accurate quantity thereby enabling a more efficient supply and utilization process. It’s a product called iKeg from SteadyServe and you can learn more about the concept from this Wall Street Journal blog post or the company’s website. 

All of us in the logistics industry need to embrace our moment of “cool.” There is no need to expound on the many, many ways the internet has changed the world around us … we feel it everywhere. The logistics industry has lagged a bit in technological advancement because we are still a hands on, deliverable operation. It’s easy to leave the “cool” internet technology to those businesses that don’t have so many moving, physical parts. With IoT we are getting a chance to pull the technology available everywhere else, into our business. If IoT can make us operate smoother, track shipments easier, regulate temps better on perishable cargo….. what isn’t “cool” about that? And really, is anything “cooler” than increased profitability and efficiency derived from your supply chain?

 

 

The Pain of Demurrage Costs

The Pain of Demurrage Costs.

At Crescent Air Freight we spend a lot of time focusing on the hidden costs of logistics. We get clients and prospects to see what bad logistics can cost them far beyond the freight invoice by examining the impact on cash flow, profitability and brand equity. The concept is simple: poor logistics decisions (usually based on price alone) can result in delayed deliveries which can cause delayed payments, lost sales, and lack of product availability in overseas markets. However, there’s also a very real cash cost that comes with improper logistics planning and it’s known as demurrage.

demurrage costs

Demurrage, also known as detention, is a cost resulting from extended use of equipment, warehouse space, or other transportation resources. Basically, it’s a penalty charged for using someone else’s equipment or space. For example, railcars accrue demurrage if they are not unloaded in a timely manner; Vessels accrue demurrage if they are forced to wait at a port beyond a standard free time allotted by the port authority; Truckers charge detention when vehicles or drivers are made to wait for cargo pick up or discharge.

The problem that arises is when a demurrage or detention scenario arises, cargo owners often find their goods being held at ransom. Demurrage or detention charges are almost always expensive and your goods cannot be released until those charges are paid. Even worse, since such charges accrue on a daily basis, there’s very little room for negotiation and the final cost can change based on the time of receipt of payment!

NEW INCOterms CTAUnlike standard INCOTERMS which sets protocols for “who pays what”, the unfortunate reality is that demurrage costs are basically paid by the party who wants their goods so badly, they’ll even pay a penalty just to get them. Honestly, this can be avoided…it doesn’t have to happen. The solution to the problem, almost always lies in being prepared ahead of time and planning for eventualities. Matters like vessel detention or railcar detention tend not to be very relevant to the supply chains of our customers. However, port detention of export or import containers, airport storage of air freight shipments, and carrier demurrage charges for ocean freight containers gated out beyond “free time” are all examples of demurrage that occur on a daily basis. Obviously, this imposes heavy costs on cargo owners and can be avoided with better logistics planning.

Solutions to the demurrage/detention problem begin with the proper planning of a shipment and all the formalities associated with the arrival or departure of those goods. For example, we once had a client who wanted their export cargo out of their warehouse and into a container 7 days prior to the cut off date for a vessel headed to Australia. The problem was that the steamship line only allowed the container to be pulled out for loading purposes 5 days prior to the vessel cut off. Our client was unaware of the fact that they would have to pay a penalty for being 2 days too early. The solution was rather simple: we researched the details of the fees, calculated the cost of the extra storage and asked the client if they were willing to pay for it. Guess what happened? The client said “no”! They were very appreciative of us taking the time to research the cost associated with their plan and helping them to understand their true costs. However, had we not done this, it would have resulted in a few hundred dollars of charges that their trucker would have to pay upon returning the container. That’s right, the trucker would have been on the hook, and that’s one of the tricky parts of demurrage costs – it doesn’t just affect the cargo owner, but can also create headaches for their vendors or customers.

At other times, the problems can be caused by documentation mistakes in customs paperwork resulting in cargo being held at the port of destination. In such an instance, the delay might be caused by the exporter or importer of record, and it is the local customs authority that raises the objection, but the storage expense accrues at the airline terminal and often has to be advanced by the customs broker or trucker collecting the cargo at time of release. We once saw a client lose tons of a perishable food product in Turkey this way just because their logistics service provider at the time neglected to get documentation approved in advance of the shipment. That one step alone would have prevented thousands of dollars in unnecessary freight charges plus the confiscation of product.

Sometimes, the shipper can choose to take the cost of demurrage or detention as a cost of doing business. It can be strategic at times, although still a cost. Remember the client who tried to ship too early? Well, some months later they actually asked us to pull a container ahead of the free time allotted by the vessel operator just so they could have their product shipped out before the end of the quarter. In this scenario, it was actually beneficial for them to pay for detention rather than to have the good be in inventory at the start of a new month.

And, every once in a while, we get to see a cool scenario unfold where the shipper gets the last laugh. For example, at various times during the ISAF war effort in Afghanistan, ocean freight containers were delayed at the border crossing between Afghanistan and Pakistan. At certain times of heightened tensions, the delays stretched into weeks and demurrage applied to the shipping containers to the tune of thousands of dollars. The liners demanded these charges of truckers when the unloaded containers were brought back to the port and shippers, including many U.S. companies, were forced to pay penalties that were vastly more expensive than the cost of freight or even the merchandise itself. However, with some crafty logistics support on their side, some shippers simply decided to buy their own containers and ship them full of goods. The cost of buying a “shipper owned container” is higher than the cost of using one owned by the liner, but shipper owned containers are not liable to “in & out” demurrage costs. In effect the shipper’s were treating the containers as disposable and not bothered if they came back at all. This actually was the most cost effective solution to countering exorbitant detention costs that shippers were forced to pay.

These are just a few examples of how logistics costs can have a devastating impact on order profitability. However, the good news is that many of these problems can be avoided if your logistics service provider takes the time to understand your business, specific product requirements, and your import/export goals.

 

 

 

 

Does Your Export Need a Special License?

Does Your Export Need a Special License?

Screen Shot 2015-08-27 at 3.08.41 PMLast month we received a call from an exporter who wanted to know how they could determine the ECCN of a product they were planning to ship overseas. The first problem they had was that they didn’t know what an ECCN was, or how to go about obtaining it. We did some work to help the client get the information they needed, but afterwards realized how interesting it was that something so basic to the exporting process could get totally overlooked in this manner. So while we spent the last month or two focusing on complications in the exporting process that may arise from regulations such as ITAR and EAR, we never actually considered what may happen if a shipper’s merchandise requires no license at all. Accordingly then, here are some insights into the means for determining whether your exports are in need of special licenses and if not, what does that mean in terms of your shipping and logistics processes.

Step 1:  Q: Does your shipment actually require an export license?  

A: Maybe. As we’ve detailed in earlier posts, the U.S. Department of Commerce has oversight over most export licensing matters. Factors such as the nature of the commodity or technology it uses will determine whether licenses are required.

Step 2:  Q: How do we figure out if our product requires an export license?

A: The first step in determining this is to find the Export Control Classification Number (ECCN) for your product or commodity. To find this information, exporters typically have 2 convenient options:

  1. The Department of Commerce maintains a Commerce Control List (CCL) on their website, which lists reasons for controls and requirements for export to specific destinations.
  2. Check with the manufacturer of the goods you are exporting. Most manufacturers with international sales not only know the ECCN’s of the products they’re shipping, but also make this information readily available through their websites, sales representatives and international sales & marketing personnel.

ITAR CTA

 

Step 3:  Q: What if there’s no ECCN available for your product?

A:This is not unusual at all. Most products that are not licensed do not have ECCN’s and carry the designation “EAR99”. While you are still required to comply with regulations that prohibit export to certain countries, the product itself likely won’t require any licenses from the Commerce Department if it can be categorized as EAR 99.

Step 4:  Q: So there’s no ECCN, our product falls under EAR99, and you’re not shipping to any embargoed country. Are you now free to ship out your goods?  

A: The short, simple answer is “YES”. There are other requirements to satisfy such as filing a Shipper’s Export Declaration for goods valued at $2,500 or more. Also, goods that may not require a license but that are being sold to a U.S. or foreign military or government, for example, may require compliance with licenses from the U.S. Department of State or Defense, and we have addressed those in earlier posts here on The Exporting Excellence blog.

Step 5:  Q: Shipping requires a freight forwarder. Can all of these processes be outsourced to them?

A: No. Not all export compliance can be outsourced to your freight forwarder. Filing of the Shipper’s Export Declaration and research of the required Schedule B numbers are common practice for freight forwarders. In fact a good forwarder can often give your company guidance on how to properly or better classify your goods. Also, forwarders tend to know a good deal about embargoed countries and destinations. However, where it comes to ECCN’s and licenses from other agencies, freight forwarders are usually not privy to technical data, intellectual property and other details that go into classifying a product and determining it’s relevance to export controls. Shipper’s need to do their homework and can have a forwarder assist in the process, but cannot hand off liability to any outside parties where it comes to such matters of compliance.