1.2 EXPORTING TROPICAL PRODUCTS
Before contemplating the export of any product, producers must decide whether they can overcome the difficulties involved in international marketing and transport.

If 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.

SHIPPING BY CONTAINER

The 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.

The 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.

Most 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.

In 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.

SHIPPING LINES

There 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’.

Most 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.

It 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 vessel required.

If 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.

Details of ships and their estimated times of arrival at their various destinations are contained in Lloyds Loading Lists.

BILLS OF LADING

Once 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.

Bills 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.

Bills 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.

OTHER SHIPPING DOCUMENTS

The 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.

Many 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.

In 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 cif value.

In 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

These 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.

The 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

PAYMENT

Most 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.

There 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.

If 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.

The 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. 

Most 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.

MARKETING

This 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.

Unless 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.

Sometimes 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.

For 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.

It 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.

The 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 producers.

These 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. 

Many 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. 

It 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

Access 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.

The 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.

Unfortunately, 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 copper rising.

As 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.

Perhaps 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

Making 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.

If 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.

Most 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

Tropical 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.

It 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.

It 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 him again.

Customers 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.

The 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.

TRADE FINANCE

Of 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.

Unfortunately, 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.

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