Freight forwarding is a game in two halves
Dotting the i’s and crossing the t’s is an expression so rooted in history that we continue to use it even though it is well past its use-by date in an age of word processing. The underlying principle has not been lost with the passage of time, however. It is that no deal should be done; no contract signed until the details have been checked from every perspective. As the basis for an agreement which will end up with a payment being made, the paperwork must be accurate, watertight, and set out precisely how payment will be forthcoming, and under what conditions.
For the majority of ‘domestic’ transactions, which do not involve large amounts of money, the terms are unwisely taken as read. Disputes over payment are then resolved through arbitration or the court room if all else fails.
Make the deal more complex by having at least one of the parties based outside the UK, for example, and the quality of the paperwork assumes much greater significance. Physically moving goods from one country to another is probably the easiest part of an international transaction – check out any import restrictions, insure the goods against loss or damage, and pack them up for despatch by a freight company. Most businesses would see the job as complete at that stage – just a case of waiting for the payment.
Most difficult part of exporting can be getting paid
And therein lies the problem. According to a seasoned specialist in the freight forwarding sector, the most difficult stage is getting paid, and there are many reasons why this might not happen. Or, when it does, the amount received is less than had been expected. Rather than fight for the last penny, many businesses will simply accept the situation, if indeed they realise that what they receive is less than the amount due.
That is the view of Dave Nisbet, a long-time freight forwarder and now a consultant to shipping agents. He has advice for the SME community: “Without a real understanding of the terms and technicalities of international trade, it is very easy to miss a point that will cost you money unnecessarily. Have the fine print of any contract checked out to ensure that you have not accepted unnecessary charges or hidden costs along the way – or omitted to check that there are costs which you will necessarily incur yet which have not been built into your calculations.“
He illustrated this with the example of a British company which won an order for engineering equipment and which it had to ship into one of the Gulf States. The value of the deal was close to £5 million. The manufacturer had entered into a valid contract but had missed out on some important details. “It was set up as ‘delivered duty paid’, for example, when that would not apply in that situation. That oversight meant that £250,000 – that’s 5% of £5 million – was lost in the process, and would have been the same each time the order was repeated if the problem had not been spotted”
Then there was a certificate of origin – vitally important on deals with customers in the region. “What the supplier did not realise was that the certificate could only be issued by the UAE Embassy in London – at a cost of £12,000. All the way along, errors and a lack of knowledge caused delays and reduced the manufacturer’s profit margin.”
LCs failed on first presentation 80% of time in 2015
Letters of Credit, which are treated as cast-iron guarantees of payment, turn out not to be such reliable ‘assets’ if the numbers widely quoted in the export community are to be believed; 80% of all LCs were not paid on first presentation in 2015.
Nisbet has developed a service for exporters which he believes will overcome the payment obstacles and help ensure that exporters are paid on time and for the full amount due. TAEFL will be involved as appropriate to help exporters finance the orders which give rise to the payments which Dave Nisbet has set out to protect. Fortunately, TAEFL’s track record in writing letters of Credit is excellent; the in-house team being well versed in the art of creating tradable ‘paper’ which banks in Europe are prepared to release funds against.
The consultancy will complete the export process, ensuring that at every stage of the way, the necessary paperwork is in place and payment will be released. And busy executives can go on thinking that as the freight forwarder’s vehicle leaves their factory, the money is as good as being in the bank.