The Institute of Export and International Trade’s (IOE&IT) Kevin Shakespeare gave prospective food and drink exporters a series of key tips in a Food Manufacture webinar hosted yesterday (27 September).
Among the takeaways, the strategic projects and international development director offered tips on how to ensure regulatory compliance and mitigate risks arising from currency devaluations and generous payment terms.
Pricing for exporters
Shakespeare told exporters to be mindful of how they arrive at their price points, explaining the difference between passing all export costs onto the customer and the more competitive marginal cost pricing:
“It’s important, whichever pricing method you use, to bear in mind that exporting will have additional costs.”
He highlighted additional factors – such as freight costs, customs clearance, trade documentation and insurance – that traders will need to consider when selling overseas.
Payment terms
Introducing one of the riskier elements of exporting, Shakespeare delved into the considerations for choosing payment terms, the options being money ‘up front’ (advanced payment), money after goods received (open account) or part-payment, a mix of the first two options.
Naturally, offering the buyer the chance to pay after receiving the goods makes the deal more appealing.
However, Shakespeare warned: “being more competitive on your payment terms increases your chance of winning the export sale, but it doesn’t come without risk”, chiefly that the buyer won’t pay upon receiving the goods.
Currency risk
Ploughing into further exporter hazards, the focus switched to trading in another currency.
The first step being to “recognise there is risk if you’re buying or selling in another currency”, as many traders enter a new market before considering this key financial detail.
The second step is to mitigate the risk. Shakespeare recommended opening a currency account in the target market if buying and selling in the same currency. He also suggested forward foreign exchange contracts in order to better hedge against bad movements in the currency market.
“Ultimately, you don’t want to be in a situation where your profit margins are negatively impacted by fluctuations in currency value.”
Tariff, non-tariff barriers
Another key to keeping profit margins healthy is targeting markets where free trade agreements are already in place to prevent tariffs.
Shakespeare emphasised this, as agricultural products, “especially meat, are among the highest tariffed products globally”.
He went on to caution that businesses need to do their research to ensure they meet the criteria of various free trade agreements. In particular, meeting the rules of origin specifications, or “economic nationality” of goods.
Compliance
Moving into regulatory compliance more broadly, he advised companies to give the topic the serious consideration is deserves:
“Businesses can view compliance as a chore, but increasingly in the world of trade, customs authorities and other national government departments are looking for evidence of compliance.”
This is especially important given the new trusted trader schemes piloted next year. Shakespeare said that it’s vital exporting companies “build a good compliance history”, demonstrating they can correctly complete documentation in order to be accepted for the schemes and reap their time-saving benefits.
Among the list of important admin was: using the correct commodity code, quoting the correct destination of origin and customs valuation, and ensuring the correct licences and permits were also submitted.
More information
To get further benefits from Shakespeare’s expertise, you can hear from him during the IOE&IT’s webinar on the implementation of the Border Target Operating Model, next Wednesday 4 October.