EXPORTING TROPICAL PRODUCTS
contemplating the export of any product, producers must decide whether they can
overcome the difficulties involved in international marketing and transport.
nothing else, this book demonstrates the huge variety of tropical products. Some
valuable essential oils and gums are sold in quantities of only a few tons at
a time. Some gains are exported by the shipload. Many natural chemicals will
keep for years without deteriorating. Some fruit will rot in a few says unless
it is kept in cool conditions. This chapter contains general information designed
to be of use to exporters of tropical products.
almost universal method of shipping products these days is the container – sometimes
simply called a ‘box’. Containers come in two sizes, based on their length: the
20 ft and the 40 ft container. The 40 ft containers are generally used for transporting
low-density manufactured products between developed countries. Third-world exporters
will almost invariably be offered 20 ft containers. These are the classic oblong
boxes with doors at one end. They are generally designed to take a maximum of
about 20 tons or goods of a maximum cubic metre. Many ‘soft commodities’ are
not sufficiently dense to allow 20 tons to be fitted into a container.
container is designed to fit on the back of a lorry and to be lifted from the
chassis of the lorry directly on to the ship (and to be put back on a lorry at
the other end of the sea trip). Refrigerated containers, known as reefers, or
temperature controlled containers are also available at most large ports for transporting
perishable goods, but they cost a great deal more to use than regular containers.
Exporters need to know if the cranes at any particular port have a limit on the
weight they carry and, hence, the maximum weight regulations, which limit the
axle weight of lorries in the country of destination, which may also affect the
amount of goods, which can be placed in the container.
goods can be transported in a container but they should first be appropriately
packed in drums, sacks, boxes or cartons according to the buyer’s wishes. The
buyer may also specify that the goods should be stacked on wooden pallets within
the container so that they can be unloaded with a fork-lift truck.
order to get an accurate estimate o f the shipping costs (freight rate), the exporter
needs to specify not only the ports of embarkation and destination, but also the
number and type of containers required and how and where the containers are to
be filled. The arrangement whereby the producer delivers goods to a shipping
line at the port and has the shipping line put the goods into the container (or
‘stuff the box’ as it is called), is known as ‘less than container load’ or LCL.
The arrangement whereby the shipping line delivers an empty container to the producer
to be filled by the producer with its goods (and when the full container is delivered
to the producer’s customer’s address in the country of destination) is ‘full container
load’ or FCL. Some shipping lines offer their customers FCL stuffing facilities
at the port.
may be only one shipping line serving a port, but if there is more than one, the
producer needs to find out which line serves the destination port best and needs
to compare the regularity of service and the transport cost, otherwise known as
the ‘freight rate’.
producers do not make all the necessary shipping arrangements themselves but use
the services of a forwarding agent. Such expensive means of transportation by
sea and land and may help the exporter to complete the necessary customs forms
and arrange for the bills of lading and any other documents to be sent to the
destination specified by the producer or owner of the goods.
should be remembered that the space for a container aboard a vessel should be
booked with the shipping line as early as possible and as soon as thee exporter
is absolutely sure that the goods can be delivered to the port during the period
specified by the shipping line to fit in with the loading schedule of the particular
very large quantities of a product need to be shipped it may be cheaper and more
appropriate to charter a whole vessel. This is done either by direct negotiation
with the shipping line or through a specialist-shipping broker. Alternatively,
large shipments of certain types of goods on certain classes of vessel can be
made not in containers but in bulk cargoes are based on the weight or the cubic
capacity of the cargo and often subject to various surcharges.
of ships and their estimated times of arrival at their various destinations are
contained in Lloyds Loading Lists.
BILLS OF LADING
the goods have been loaded onto the vessel, the shipping company issues bills
of lading. These documents give title to the goods. This means that whoever
is designated by the seller of the goods on the bills of lading as the ‘consignee’
has the legal right to the goods, provided this consignee can present an original
bill of lading covering those goods at the destination port when the vessel arrives
there. A full set of bills of lading usually consists of three negotiable, or
original, bills, which have been signed on behalf of the shipping line, and three
non-negotiable, or copy, bills. Each will show how many bills should be sent
to the consignee by different routes. been issued for that particular parcel of
goods and any consignee should refuse to accept them if the full set of negotiable
bills is not received.
of lading carry a number of pieces of information – the quantity and/or weight
of the goods, their identification marks, a short description of what they are
and whether the freight charge has been paid or not (known as ‘prepaid’ or ‘collect’
ocean bills of lading). The reverse side of the bill carries the shipping line’s
terms and conditions. The exporter can have the bills made out to a named customer,
the consignee. This customer will then be the only person or organisation with
the legal right to take over the goods when they are unloaded from the vessel.
The exporter can also have the bills made out to ‘order’. This means that the
consignee can endorse the bills in favour of any other party – usually the company
to whom the consignee has sold the goods on. In this case the exporter (called
the shipper or consignor on the bill of lading - this could be the owner of the
goods or a forwarding agent acting on the owner’s behalf) must endorse the reverse
side of all the original bills. The exporter can also have the bills produced
with no mention of the consignee. These are known as ‘blank endorsed’ bills,
where the goods belong to anyone who holds the bills of lading and presents them
at the port of discharge. They ate then just like bearer bonds.
of lading must be sent (preferably by courier) to the customer as soon as they
are drawn up by the shipping line. If they are not presented at the port of destination
as the vessel arrives, the consignee will either not be entitled to the goods
or will have to authorise a bank guarantee to the shipping line for the value
of the goods and the freight costs, if unpaid. The reason that more than one
bill of lading is issued for most shipments is to ensure that one, at least, gets
to its correct destination on time. So where delivery services are in doubt,
bills should be sent to the consignee by different routes.
exporter will be required to send other documents as well as bills of lading to
the customer, either to give the customer some vital information or to enable
him or her to get the goods through customs on importation. These will include
an invoice for the goods, which should state clearly whether the terms of the
sale are on a cif basis, an fob basis or some have been sold with the costs of
shipping and insurance added to the cost of the goods, and fob, or free on board,
means that the freight and insurance costs have to be paid by the buyer.
specialised terms are used in shipping and for more information exporters should
obtain incoterms, a very useful book in both English and French published
by the International Chamber of commence, 38 cours Albert 1er, 75008 Paris, France.
this case of cif sales, the documents should include an insurance certificate
showing that the goods have been insured – normally for 110 per cent of their
the case of many edible products a phytosanitary health certificate may be required
by the customer. This signifies that the goods are have a certain minimum purity
or cleanliness. The type of phytosanitary certificate required may depend on
the type of goods to be shipped and the individual rules of the importing and
exporting countries. Applications for such certificates may need to be backed
up by the test certificates of the authorised laboratory that tested the goods.
TRANSPORT BY AIR
days’ supermarkets in the developed world are able to stock fresh goods in every
continent. This is made possible by air transport and the relative affluence
of supermarket customers. Air transport is many times more expensive than transport
by sea but it is administered in much the same way. Space aboard an aircraft
has to be booked in advance form the airline or carrier. The services of forwarding
agents are available at almost all airports. Goods have to be delivered to the
carrier’s warehouse or loading bay at the local airport. The goods are packed
by the carrier into small aluminium containers and the goods must have been previously
parcelled up by the exporter in such a way that they fit into these containers.
It must be noted that perishable goods deteriorate quickly inside these containers
if they are left for too long in the sun or the extreme cold.
equivalent document to a bill of lading in air transport is the ‘air waybill’,
but this is more of a receipt for goods than a document of title. Nevertheless,
the ultimate consignee will need to know the number of the air waybill if he or
she is to claim the goods from the airport of destination
developing countries impose restrictions on the convertability of their currencies.
For this reason, exporters are required to comply with banking regulations which
usually means making a written declaration stating the amount of foreign currency
that is to be paid for the exported goods. It may also include agreeing to receive
the equivalent in local currency that is to be paid for the exported goods. It
may also include agreeing to receive the equivalent in local currency at the rate
of exchange laid down by the central bank, and making sure that the payment is
made according to specified rules.
may be different rules governing payment for perishable products, which can often
only be sold after they have arrived at their destination and been inspected.
All governments are keen to promote exports, however, and most of them make special
provision for such difficulties.
the exporting country has no currency restrictions there is nothing to stop an
exporter sending goods to his or her customer and trusting the customer to pay
by cheque, telegraphic transfer or banker’s draft at some agreed time. If, however,
such trust is not total, exporters are well advised to insist that the foreign
customer opens a letter of credit (L/C) in favour of the exporter. The L/C puts
the onus on a bank to pay the exporter for the goods once they have been delivered
in the way, which has been agreed between buyer and seller.
L/C should be drawn on a bank (usually a so called first-class bank), which is
acceptable to both buyer and seller. It should be both ‘confirmed’ and ‘irrevocable’
to avoid the seller breaking the terms of the sale once agreed. The L/C can be
drawn up in any agreed way so that, for example, payment is to be made 10 days
after the bank has receives the shipping documents. The cost of opening an L/C
is usually between 0.25 and 0,5 per cent of the value of the goods.
exports made from tropical countries are sold for hard currency. The rate of
exchange in the sales agreement is likely to change between the time that the
terms of the sales are agreed and the time that payment is made. This may not
matter to exporters who expect the value of their local currency to fall, but
if it is necessary to ensure in advance that a particular sum in local currency
is going to be earned on the sale, the exporter must make forward sale of the
foreign currency at a known exchange rate through an authorised bank. Each country
has its own rules on how this can be done, so exporters should seek advice from
their local bank managers.
book should give tropical producers some idea of the scale and character of the
export market for their particular goods. Only the producers themselves can tell
if they are capable of making foreign sales or whether it is best to remain selling
only to the local market.
producers in tropical countries have a great deal of know-how and capital, it
is very difficult for them to sell to individual customers in other countries.
Most tropical goods are imported into industrialised countries in large quantities
by specialist traders. This importer then sells the goods on in smaller parcels
to wholesalers or processors, who themselves sell them on to retailers who, in
turn, sell them to thousands of individual customers.
importers obtain their goods by growing them on their own plantations situated
in tropical countries. Sometimes the importers are international merchants who
take on the task of finding a tropical producer who is willing to export the product
in question. These merchants may have branch offices in the countries where the
goods are produced, or they may employ agents in those countries to find the goods
for them. Some international dealers constantly tour the world to find such producers.
Most links between buyers and sellers of tropical goods have been established
over many years.
producers who want to export for the first time it is important to work out which
is the most appropriate partner to arrange for the goods to be sold abroad. It
is very important to approach more than one potential buyer or merchant. It is
only by making potential customers compete with each other that the best sales
terms can be discovered.
is likely that some producers need to be paid straight away for their goods, in
which case they have no option but to sell the goods while they are still in the
country of origin – possibly on fob terms. Many international merchants or their
agents make their money out of buying for export from local suppliers. Such sales
are unlikely to be at such good prices as could be obtained by selling to a customer
(an importer) based in the overseas country of consumption. In order to make
sales based on delivery to the foreign country, it is usually necessary to wait
until the goods arrive and have been inspected at their destination before they
are paid for. If the seller has the necessary funds or credit to do this, the
next problem is to find the appropriate partner in the consuming country.
producer must first be sure of the type of industry in which the product is used
and in which countries it is likely to be used. It may then be possible to approach
the consul, embassy or high commission of the importing country and ask them to
supply a list of companies involved in importing products in the sector in which
the product is used. It should be noted that actual consumers or processors
of tropical products (unless they are very large) do not often buy directly from
importing companies can be contacted to ask if they have an interest in a new
source of the product. Any positive reply will specify a way of proceeding.
This will almost certainly involve the seller being asked to give the potential
buyer a full description of the quality and quantity of the goods, together with
the details of when and where they will be available. They will also be asked
their idea of an acceptable price. Once these details have been given the buyer
will probably ask for representative samples of the product and if these prove
to be satisfactory, the buyer may ask for a trial shipment to be made of a small
quantity of the goods at some agreed, but fairly nominal, price. If this shipment
can be made successfully, the buyer will know that the seller is capable of overcoming
the logistical problems involved in the export process. If business is to proceed
it will then be necessary to engage in some very hard bargaining, mainly over
price, before commercial quantities of goods can be sold.
exporters in tropical countries prefer to work with sales agents based in the
importing country. These agents do not often themselves buy the goods involved
but act on behalf of the producer to try and find customers, present samples and
arrange for them to be tested, negotiate prices and other terms, arrange for the
goods to be imported, chase the customer for payment, give the producer regular
market reports, etc. They do all this work for a fee which should be based on
a percentage of the value of the goods they sell on the producer’s behalf. This
way they have an incentive to sell the maximum quantity at the best price. The
sales agent’s fee varies according to the work they are required to do and the
volume and value of the goods involved. For sales worth about US$100,000 per
year a sales agent might expect a fee of 5 per cent. Producers should not engage
the services of an agent on a long-term contract unless they are sure that the
agent performs well.
is sometimes possible to find the names of sales agents from the relevant embassies
or write to the appropriate association, many of which are listed in part Three.
Sales agents for trade references before engaging their services and these references
should be checked as being valid with the referees.
PRICES AND OTHER INFORMATION
to market information is much more difficult for the tropical producer than it
is for the trader based in the developed world. Traders are constantly in touch
by phone and fax with producers, consumers and other traders. Those in an industrialised
country have easy access to reliable daily newspapers and trade journals, television
and radio reports. Unlike the producer based in a third-world country, most Northern-based
traders are going to know how the market is behaving and have a very good idea
about how it is likely to behave in the future.
prices of many tropical products are constantly moving up and down and most international
traders and other middlemen expect to make their money out of buying before the
price moves up and selling before the price falls. It is up to the producer to
try to find out the market price at any given time. This is another argument
in favour of employing the services of sales agent based in the consuming country.
But if the producer finds this difficult to arrange, prices of many products are
regularly published in the appropriate trade journals and financial newspapers.
The same journals will carry other important information about the markets of
many commodities. Taking out a subscription to such a journal or newspaper might
enable the producer to negotiate on more equal terms with traders and customers.
very little market information is available on the more obscure tropical products
on which many communities of producers depend. Producers of these products should
be aware, however, that most commodity prices rise and fall in concert. This
is perhaps, not surprising. The bulk of the world’s economic transactions take
place within and between industrialised countries. The economies of these countries
are intimately linked, as one country is forced to inflate or deflate its economy
to remain competitive with the others. The ability of industrialised countries
to spend more money generally, and import tropical products in particular, therefore
moves in cycles, which match the price cycle of commodities. For this reason
the price of even obscure wax or oil will normally be affected by these global
factors. Producers of such a product should expect its international price to
rise if they also see the US dollar price of, say, rice, palm oil, coffee or even
can be seen from the pages of this book, the markets for some tropical products
are in terminal decline due to changes in technology, fashion and the availability
of synthetic substitutes. On the other hand, new uses are being found for many
others, often owing to the recent trend towards the use of ‘natural’ products
and ingredients or because of the new techniques that have been developed for
assessing the useful qualities of substances. Most producers are likely to be
aware of these trends in the market for the item that they produce and must try
to make every effort to diversify away from products with poor market prospects
and into products where the outlook is more favourable.
the most useful way in which producers can inform themselves about the markets
for their goods is to link with other producers of the same product. Different
producers have different market experiences and different market experiences and
different contacts and sources of information. By pooling this information, producers
can stop competing with each other and start to benefit each other. But how is
contact with other producers to be arranged? Many third world governments are
not very well equipped to arrange multilateral exchanges between producers, but
there are non-government development agencies working with groups of producers
who may be able to arrange the establishment of such links.
contracts between parties of different nationalities is not an exact science.
At base, a contract is only as good as the parties that make it. In circumstances
where both parties to a contract are equally equipped with funds and administrative
resources, the seller of goods usually issues a sales contract immediately after
negotiations have been finalised. The buyer then formally acknowledges receipt
and acceptance of the terms of this contract, and the processes of executing the
deal commence. In the often-unequal conditions of trade between tropical exporters
and their customers, however, buyers usually insist on writing the fine details
of the terms of the contract. This usually includes making the contract subject
to the law of the buyer’s country and nominating a firm of inspectors or arbiters.
The buyer knows, however, that if the terms of the contract are unreasonable,
the seller is unlikely to want to sell to him again.
for any reason beyond his control the seller cannot perform in accordance with
the terms of the contract, he should not be expected to compensate the buyer for
any loss, by reason of force majeure. A local chamber of commerce should
be able to advise producers of their rights in these circumstances.
deals between tropical exporters and their customers are not framed in a strictly
legal contract. Sellers try to meet all the agreed conditions of sale because
they need regular customers. It is worthwhile, however, making sure that customers
do not take advantage of their superior market information and sellers should
regularly compare their arrangements with the terms being offered by other buyers.
SERVICING A CONTRACT
producers may find it difficult to understand why customers in developed countries
are so particular about the quality of the products they buy. The standard of
living for many people in most developed countries has improved enormously over
the last few decades and they are spoilt for choice in the products and services
available to them. The supplier of goods to this market has no option but to
meet these very exacting demands.
is first important to remember that the buyers must be given accurate information
about the progress of the deals that they make. In the developed world customers
are used to getting instant answers from their suppliers. If, for instance, the
exporter finds that there is a delay in delivering goods to a port, he should
not simply hope that such a delay will not matter but should immediately inform
the buyer of the change. In this way the buyer might be able to speed up delivery
from another supplier or to warn the customer of the delay and thereby retain
a good relationship.
is also important for suppliers to promise only what they can be sure of delivering.
Let us say that a supplier hopes to be able to find new steel drums to pack honey
in and tells the customer that he will do this. If it becomes impossible to get
the new drums and the honey becomes contaminated with some substance that has
not been cleaned out of the used drum, the buyer is not likely to pay for the
goods when they arrive or trust the supplier sufficiently to do business with
in developed countries demand that products look perfect. Every mango in a box
should not only be unblemished but should look as similar to all the others as
possible. If fruit and vegetables are not packed in the correct type of carton
they cannot be marketed in the industrialised world. Nuts cannot be imported
unless they have low levels of aflatoxin. Every single lump of gum Arabic should
be free of bark if it is to attract the best price. Western supermarket shoppers
would not dream of buying spices unless they were packed in pretty little jars
and, in fact, frequently pay more for the jars than the spices they contain.
small producer based in a developing country is often unable to comply with the
standards required by international buyers. For this reason exporters tend be
larger and their suppliers and arrange their own local sorting and packaging.
Small farmers can only compete if they pool their resources in cooperatives or
famers’ associations. Only better capitalised producers, or locally based merchants
who are able to pick and choose in this way can they afford the necessary quality
control systems, laboratory testing, packing materials, communication equipment,
etc to compete in the international market.
all the difficulties facing the exporter of tropical goods, access to trade finance
is the greatest. Small farmers have been preyed on since time immemorial by local
moneylenders who demand high rates of interest on money lent to farmers until
harvest time. Most farmers in developing countries live from hand to mouth and
have no savings or collateral. For this reason they are unable to use the conventional
banking system. Since the money lender to whom they are in debt also the local
trader in the goods produced by the farmer is often obliged to sell to the money
lender to clear his debt or to arrange a further credit. It is unlikely that
such a person will pay a reasonable price for the goods.
there are no easy answers to this problem. Some international buyers will pay
quickly for goods that are regularly supplied on time and of good quality. Once
again, farmers or gatherers of tropical products who form themselves into local
associations can better protect themselves from exploitation and even form credit
unions to help fund their trading activities. International aid and development
agencies are beginning to realise the importance of trade credit and in some cases
are prepared to fund trading. Some small ethical banks and savings associations,
usually based in rich countries, regularly finance trade from developing countries,
regularly finance trades from developing countries. It has to be said, however,
that these efforts are as yet almost insignificant compared with the magnitude
of need for such assistance.
>Market information > Tropical
commodities and their markets> Chapter 1.2