9 Common Challenges You Could Face When Exporting Commodities
Have you ever heard the phrase; “In shipping, nothing is guaranteed”? If you have, you’re not entirely wrong, but knowing most of the things that are not fully guaranteed can help you create procedures and structures to provide the most guarantee both for yourself and your clients.
The international trade industry may be highly lucrative for traders who have learnt the ropes and can successfully chart a course that is mostly bound for success, but not knowing some key things could cause you to lose your investments whether you’re trading from Nigeria, Asia, Europe, America, Africa or other parts of the world.
To help you know some unexpected challenges you may face when shipping commodities, here are 9 challenges most international traders in Nigeria and many other parts of the world face:
1). Extended & Cancelled Vessel Arrival & Departure Times:
Shipping timelines are always given by the shipping line when a booking is first made, but the reality is even if you managed to get the container loaded and moved into the port the same day, which is highly unlikely, there’s no guarantee that your cargo will still sail with the scheduled vessel.
Vessel arrival times change a lot, and sometimes, the vessel expected to arrive could cancel its arrival altogether, causing an elongated waiting time for the exporter as a new vessel would have to be reassigned and the waiting would start all over again.
Always ensure you make your clients understand that the moment the goods are inside the port, you cannot control the timelines of vessel arrival and departure times, as that is entirely in the hands of the customs officials and the shipping line.
2). Increased Terminal Charges If Container Weight Is Lower Or Higher Than Declared Value:
This is one of the most unexpected events that many exporters experience at some point. You weigh and standardise your goods, load them in a shipping container, and move them into the port, only to get a message sent to you that your cargo’s weight is either overdeclared or underdeclared, and as such you’re to pay VGM (Verified Gross Mass) charges or your container will not be loaded onboard the vessel.
In some cases, you’d be requested to take out the container to reduce the weight and that would cost you a lot of money to do.
To be safe, after using standardized digital scales to weigh the goods, lease the scales at the port’s loading terminals to reweigh the goods again so that the terminal would recognise you used their own scales and would less likely charge you if it’s over the declared weight.
3). Demurrage In The Event That The Container Remains In The Terminal For Longer Than Allowed:
In some cases, many things could cause a shipping container to remain in the port for a long period of time. These could range from a cancelled contract to miscellaneous delays on you or your agent’s part, customs seizure, and much more.
If your container remains at the origin or destination port for longer than the stipulated time, you’d start to incur daily demurrage costs and as such, your expenses would start to grow very quickly.
Before moving your container into the port, ensure you’re 100% certain that you’re ready to ship the consignment, else, it could incur demurrage costs for delays, and even if you choose to take it out of the port, that would cost you a lot of expenses ranging from loading, transportation, labour, warehousing, and much more.
4). Charges For Damaged Container:
When you pick up a shipping container to load products into, you’re literally renting the container from the shipping line and would be expected to take good care of it. If the container ends up damaged while in your care, you’d be required to pay for it, and that can cost thousands of dollars.
One solution is to always take out insurance and to ensure that the insurance policy covers not just the goods in the goods in the container, but also the container itself.
5). Shipping To An Inland Container Depot At The Destination Port:
This is a huge mistake a lot of people make that can cost them their investments. Some clients would require that you don’t just ship to a seaport in their country, to an inland container depot (ICD).
Now, while there’s no problem with this, most exporters fail to realise that shipping to an ICD would mean they’re to cover the costs of the destination inland transportation charge of the container to the depot in question.
First, it’s best to only agree to ship to a seaport and nothing beyond it. If you must agree to ship to an ICD, then ensure you get the full transportation costs for the consignment from the origin port to the ICD, ensure the cost is booked for at least 45 days from when the quote is given, and that you pass all the transportation charges into the cost of the product.
If the buyer insists the transportation charges are too high, then tell them you’d either do FOB at origin port, CIF to the destination port, or CIF to the ICD with the caveat that all destination charges including inland transportation would be covered by the buyer.
If the buyer refuses any of these, it’s better you leave the transaction altogether or risk losing a bulk of your investment.
6). Sudden Ban On The Export Of Goods Already Stuffed In A Container:
This happens a lot all over the world and can be devasting to exporters. Sometimes you could have an agreement with a buyer, spent so much money procuring the commodities, and when it’s time to move them to the port for shipping, and local law is suddenly passed that bans the export of that commodity with immediate effect or the country you’re shipping it to passes a law banning the import of the commodity from your country.
For instance, a dangerous commodity to export from Nigeria is Charcoal as there are always unexpected bans at various times of the year, leaving exporters that have already procured the commodity stranded.
It’s important that you mitigate these risk by always taking out an export credit insurance to protect you from all political, payment, and currency risks so that if you fall victim to something like this, you can, at the very least, retrieve your investments.
7). Paying Sea Freight In USD Despite Fast-Rising Inflation In Origin Country:
All shipping lines prefer receiving freight payment in US Dollars. The problem now is most exporters fail to negotiate this factor at the beginning when they get a freight quote because they work with the belief that they’d be able to pay the USD freight cost, only to sometimes get caught in a nasty currency inflation frenzy that makes paying the freight cost extremely difficult for them.
To avoid these problems, negotiate to pay the sea freight in the local currency at the beginning so that you’re not caught in inflation that could make you lose so much more when paying for freight.
8). Elongated Time In Withdrawing FX Inflow At A Reasonable Price:
In Nigeria, there’s a Central Bank policy that any export inflow into the country cannot be withdrawn from the bank account it was paid into, but can only either be used by the exporter if they have a valid import license to procure commodities from outside the country, be sold to an importer who have valid documents with the bank regarding import transactions or is sold by the exporter to the bank at the prevailing currency rate on the I&E window.
The challenge now is if the black market rate at the time is 478 Naira to a dollar and the prevailing bank rate is 384 Naira to a dollar, then it means an exporter looking to sell $100,000 would be potentially losing 9,400,000 Naira.
To avoid this, most exporters with USD inflows spend a lot of time searching for importers with valid transactions in the bank (also looking for FX) to buy theirs at the official I&E Window price, while they pay the difference of the black market rate separately. And this works because FX is scarce for importers and they’re willing to negotiate with exporters as long as they can buy at a reasonable price lower than the black market rate.
9). Not Making It Clear On Who’s To Cover Destination Charges:
Just as described in the ICD section of the article, many exporters fail to agree on who’s responsible for the destination charges, and as a result, some importers would want to pin the charges on them.
It is important that as an exporter you must clearly state and agree to which incoterms rule you’re working with on the transaction and must clearly state on the contract that you are only responsible for the local charges while the buyer is responsible for any and all destination charges in whatever form they may come.
What are your thoughts on these 9 challenges you could face while exporting commodities? Let me know by leaving a comment below.
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