8-Step Importing Guide For First Timers
Importing goods is all about utilizing a country’s comparative advantage. Other countries outside of yours will have an advantage in producing certain goods because of lower costs, a highly-tuned supply chain or an abundance of raw materials and labour. The import process, however, is fraught with regulatory, procedural and business risks.
Here, we’ve produced an 8-step summary about bringing in goods for sale and distribution. However, at best, this can only be a general guide. Each country will have different prohibitions and tariffs on certain goods. Please use your common sense and seek clearance and advice from your customs authority before embarking on any import business venture.
At the end of this blog post, we hope that you appreciate the steps, twists and turns that are involved in importing goods from abroad. This should serve as a general framework to source products from different countries according to their strengths. For example, China for just about everything that can be made, Vietnam for clothing and shoes, and Bangladesh for garments. And the list goes on.
1. Check Import Laws & Regulations
Before you even think about the type of goods you want to import, you need to observe your country’s laws on importing goods. This is controlled by the customs authority in your country. Every country has its own laws and regulations about the inbound flow of goods. Do your homework and study them. Ignorance is no excuse here.
Prohibitions vs Restrictions
Generally, each country controls the importation of goods in two ways:
First, by prohibiting certain goods. You absolutely cannot import the goods into the country. There is simply no way around these prohibitions. Any attempt is likely to be highly illegal and suspect.
Secondly, by putting restrictions on certain kinds of goods. You need to apply for a permit or licence to import the goods from relevant authorities in your country. Not possessing a permit or licence will also be illegal and your goods will likely be confiscated.
Some Country Examples
Australia, for example, prohibits the import of dangerous dog breeds. These include the Japanese Tosa and the American Pit Bull Terrier. The prohibition also covers advertising material about the breeds as well! So you should put to rest any business venture to import fighting dogs.
Also, like many countries with an agriculture industry, the European Union restricts the import of foodstuffs as well. This is to ensure food safety, maintain quotas and apply tariffs where necessary. For example, fresh herbs, pineapples and peanuts from certain countries are regularly inspected at points of entry for pesticide residues and toxins.
And, if you’re importing goods into the United States, the U.S. Customs and Border Protection enforces hundreds of laws for 40 other government agencies! If you want to deal in cars, the imported vehicles must meet the fuel-emission requirements of the Environmental Protection Agency; and the safety, bumper and theft prevention standards of the U.S. Department of Transportation.
Pro Tip. Don’t be silly and try to attempt to stretch or circumvent these import prohibitions and restrictions. Passing off dangerous puppies as some other breed or falsely declaring goods will only attract prosecution, stiff fines, and possible jail terms. As an importer, you are responsible for observing your country’s laws.
2. Search For Products & Suppliers
Once you’ve shortlisted your product category by eliminating the prohibited ones or applying for permits or licences where necessary, it’s time to start searching for the actual goods that you want to import. The easiest way is to search online at Alibaba or attend a trade show to meet suppliers in person. We’ve got a great guide on sourcing products from China, for example.
Pro Tip. Don’t jump into the import business as your first startup. Or deal with goods that you have no experience with. The biggest mistake an importer can make is going with a viral fad, meme or passing fashion. By the time you source, produce and receive the goods, the trend would have passed. And you’ll be stuck with curious dead stock to clear for a year or two.
However, remember that not all suppliers are present at these trade shows. Depending on your products, you might need to seek out smaller or even bespoke suppliers. The Internet is still your friend here as every respectable supplier should at least have a web presence. You might need to do more independent research to find unique suppliers. Or you might need an interpreter if you’re sourcing from a country where English is not widely spoken.
Manufacturers vs Trading Companies
Manufacturers make the product themselves and will sell the goods directly to you. They may even entertain custom requests if a minimum order quantity (MOQ) can be met. Also, they are usually less pushy in closing sales. You will develop the business relationship directly with them and will enjoy better terms as you make more purchases.
Trading companies, on the other hand, are simply middlemen. They work with many suppliers and they want to close as many deals as they can. Their business model, after all, is the buying and selling of goods. They offer one-stop convenience at a higher price. Such firms are typically distinguished by having “Trading” or “Import & Export” in their company name.
Pro Tip. Make sure that you deal directly with manufacturers and not trading companies. Sometimes it’s not easy to differentiate the two on a busy and noisy trade show floor. But it never hurts to ask directly. If representatives are reluctant or sound cagey, then move on to find someone else that you can trust.
3. Calculate Landed Costs
Now that you’ve shortlisted a supplier or two, it’s time to get down to the nitty-gritty. Ultimately, you’re importing these goods because you spy an untapped market, a business opportunity and a decent profit to be made if things work out. So crucial to this is landed costs.
Here, landed cost includes the original price of the product, transport fees, customs, duties, taxes, insurance, currency conversion and handling fees. Basically, it’s all the costs necessary to bring the goods to your door. Be careful that landed costs can quickly add up if your goods are subjected to country-based tariffs.
Closely related to this is the Harmonized System (HS) Code of your goods. This is an international standardized system of names and numbers for the classification of commodities. You need to know what category that your goods fall into. These codes are then used for customs declarations, levying of tariffs and duties, and collection of trade data.
Pro Tip. Landed costs can quickly be a headache when you’re importing goods at different times. How do you apportion landed costs to different items in the order? You could do it manually but why do it when smart inventory management systems, such as EMERGE App, can automatically calculate landed costs for you?
4. Order Product Samples
It goes without saying that you need to order a batch of samples before you fully commit to a supplier or two. The nice samples that you see online or at a trade show stand may not tell the full story.
These samples could have been the best ones out of a large production run. The final goods may differ from what you have seen in person. Manufacturers can and will change their products’ specs with little or short notice.
Exercise common sense and order a few pieces of each size, color or variant. These samples and their shipping will cost you. But it’s a small price to pay before committing to a supplier and developing the relationship further. Do also note the time it takes for the samples to reach your door. This can be a sign of whether the supplier can be trusted to deliver orders on time and accurately.
Pro Tip. Ordering a batch of samples will give you an idea of what it’s like to deal with your prospective supplier. Do they communicate clearly? Do they reply quickly to every email? Are they responsive to issues? Do they over promise and under deliver? Any nagging doubts here will resurface when you engage them for your final orders. So, trust your gut feeling.
5. Negotiate Purchases
A rule of thumb here is don’t just go with the cheapest price. Remember, you get exactly what you pay for. You need to weigh up the quality of the samples along with their asking prices. Buying the cheapest travel bags, for example, might invite problems later with poor quality zippers that get stuck or separate at the worst possible time. Later, this can only mean a high rate of returns and very unhappy customers.
Pro Tip. You will get cheaper prices but you won’t get them now. Few suppliers will offer you their best or lowest price on your first order. You need repeat business to earn their trust and let them know that they’re a preferred or your sole supplier. Also, if your goods sell well, economies of scale will kick in and you can negotiate lower prices with a higher MOQ.
Once you’ve decided on a supplier, you need to see their standard terms and conditions. Unfortunately, you’re not in a position to dictate terms just yet but you need to pay attention to the committed price and quantity involved. If you agree to their terms and conditions, the supplier will prepare a sales confirmation or a pro-forma invoice. These terms are used interchangeably.
Usually, you’ll send a purchase order in anticipation of your purchase. Then the supplier will reply with a sales order confirmation that summarises your purchases. The supplier uses this document to record the sale and confirm their acceptance of the order.
At a very minimum it should describe:
- Type and quantity of goods
- Value of goods
- Weight of goods
- Transportation charges
Pro Tip. Sales confirmations or pro forma invoices are typically used as preliminary invoices with a quotation and for customs purposes. They are not a normal invoice because there is no demand or request for payment.
Pro Tip. It’s very likely that you won’t physically be in the country of your manufacturer. So the next best thing is to hire an inspection company. Yes, this will cost additional fees but hiring someone to inspect the goods before they leave the country will reduce the risk of problems later on. And it’s just like you being there to oversee the goods.
Inspection services can happen at various stages of the import process:
- During the manufacturing process to identify quality or production problems.
- During dispatch and packing to ensure the right goods and quantity are shipped out.
- At the dock to ensure that the correct goods are loaded and shipped.
International Currencies & Taxes
When you’re buying goods in another country, you may have to deal with international currencies if the sales confirmation order is not in your home currency. For consistency, most countries will happily price the agreement in US Dollars but this will also expose you to foreign currency risks if your currency isn’t US Dollars.
Pro Tip. Decent inventory management software should be able to handle multiple currencies without any issues. Simply define the currencies that you trade in and exchange rates for the currency pairs. The software will then use the foreign currencies in transaction documents but it will generate financial reports in your home currency.
6. Arrange Cargo Transport
The International Commercial Terms (Incoterms) basically define the responsibilities and risks that buyers and sellers assume when the goods make their way from the seller’s warehouse to the buyer’s warehouse. This way when issues and problems occur, it will be easier to apportion the fault according to the pro-forma invoice.
Pro Tip. For first-time importers, it can be confusing speaking in acronyms that are widely used in global trade. However, do note that the terms differ slightly in some countries. So don’t assume that these standardized terms mean the same thing everywhere.
FOB (Free On Board) is the most common term that you will hear. This is traditionally used for sea freight but it has been used for other modes of transport as well. FOB means that the seller will bear all the costs and risks until the goods are loaded on board the ship. This usually includes getting export clearance as well.
CIF (Cost, Insurance and Freight) requires the seller to pay for the transport of goods and insurance up to the named port of destination. The risk transfers to the buyer when the goods have been loaded on board the ship in the country of export. The seller must also present the invoice, insurance policy and the bill of lading to the buyer.
EXW (Ex Works) tells the seller to only have the goods ready at their factory or another place. The buyer pays all transportations and bears all the risks until they receive the goods. This is typically used for initial quotations where other costs are excluded.
Pro Tip. If all this is making your head spin, I agree. It might be easier to appoint a professional shipping agent. For a fee, they will transport your goods from the manufacturer to your warehouse. They will negotiate shipping terms, arrange freight forwarding, clear customs, store your goods and, finally, deliver the goods to you.
Again, do note that a shipping agent’s fee will eat into your already slim profit margins. It’s very likely that landed costs will be a lot larger in the end after adding inspection and shipping agent fees. It will be worthwhile engaging professional services for the first few shipments at least until you understand the import process and take over from there.
7. Prepare for Customs
Typical Customs Documents
The type of documents that need to be submitted to customs authorities tends to be similar around the world. They include the following documents at a minimum:
- Invoice. Sale document describing the goods, the quantity and their price in the currency of sale.
- Letter of Credit. A letter from your bank that states that they will guarantee payment provided the required documents are in order. If none is provided, you may have to provide a credit card so that your goods will be released to you once they have cleared customs.
- Purchase Order. Used to arrange bank financing or to show customs that your order is what you say it is.
- Certificates of Origin. A document that verifies the country from which you have imported the merchandise. The country of origin is used by customs to assess tariffs, observe quotas or compel inspection of goods.
- Bill of Lading. Description of the purchase and contents for shipments by sea.
- Airway Bill. Description of the purchase and contents for shipments by air.
- Inspection Report. Report from inspection service before leaving the originating country.
- Packing List. List of all the boxes contained in the container and the contents lists inside the boxes.
Pro Tip. At this stage, you may also consider using a customs broker. They will help you clear your goods for a fee, of course. Their services include proper classification of your goods for tax and duties purposes, verifying your commercial documents for correctness, and submitting all necessary documents to the customs authority.
Another good reason to use a customs broker is to make sure that you’re on the right side of laws and regulations. If you want to be in the import game and keep your business going, then it’s in your best interest to be honest. Declare the type and value of your goods correctly, and pay all relevant duties and taxes.
8. Receive Shipment
If you’ve engaged a shipping agent or customs broker then give yourself a pat on the back and take a well-deserved break. They will handle all aspects of clearing customs while you wait patiently for your shipment to be delivered directly to your warehouse. This includes getting all the paperwork in order and presenting them to the customs authority.
Pro Tip. We don’t recommended the DIY route for receiving and unpacking shipments. It takes a few days for your documents to be processed by customs. Meanwhile, you will incur storage costs for a bonded warehouse if your shipment is less than a container load (LCL). Once it clears, you have a few hours to unload the cargo yourself.
There’s no obligation or requirement to use a pre-shipment inspection service, shipping agent or customs broker. But their services can save you much headache and time. And that time could be better spent on other pressing matters at your business. If their professional fees are worth your time and you’re still earning a decent profit margin, then, by all means, appoint agents and brokers to streamline your purchasing workflow.
You’ve seen that the process to import goods into a country is very procedural and regulatory in nature. Above all, you need to observe your country’s laws and regulations on the import of certain goods. With enough experience after importing a few shipments of goods, I’m sure you’ll be ready to seek unique products around the world and tackle bits of the import process yourself.