Banking and Custom Clearing BA IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT COURSE MATERIAL FOR BANK AND CUSTOMS CLEARING (LSCM3053) CREDIT HOUR: 2 (3ECTS) COMPILED BY: YEMANE KAHSAY DEPARTMENT OF MANAGEMENT PROGRAM OF LOGISTICS AND SUPPLY CHAIN MANAGEMENT COLLEGE OF BUSINESS AND ECONOMICS MEKELLE UNIVERSITY APRIL 2020 Chapter One 1. Meaning of Import and Reasons of Importing Commodity Page 1 Banking and Custom Clearing Learning Objectives After studying this chapter you should able: Examine the reasons for importing materials. Explain the parties that facilitate importing materials. Explain import procedures in international practice.
Understand the trade terms in import transaction. Understand the responsibility and duty of sellers and buyers of each trade terms. Explain compulsory documents in import transaction. Introduction In this stiff and intensive competition Companies go overseas to obtain lower manufacturing costs and protect themselves from lower-priced imports being sold in their own country; importing enables them to be competitive with other companies doing business in their country.
Free trade agreements help strengthen business climates by eliminating or reducing tariff rates, improving intellectual property regulations, opening government procurement opportunities, and easing investment rules. In connection with the flow of goods and services in the international market, boundaries are shrinking and disappearing, and what’s becoming apparent is that global purchasing and domestic purchasing are flowing, blending, and converging in to one stream. The inter dependence of countries is increasingly growing, however, their advantages may not be of equal terms, and in fact with big gaps, particularly, between the developed and developing countries. What is importing? Importing is bringing goods into your country from another country in order to sell them.
Reasons for importing Page 2 Banking and Custom Clearing Although strengthening domestic sources can be justified from its multi- effect on national socio- economic aspects, it is difficult, and now a day’s seems even impossible to be a closed economy, to become self- supporting in all requirements. Particularly the poor countries like ours are highly dependent on international sources. As the consequence of the only being poor, but also the globalization has further strengthened the inter-dependence of countries of the world where the issue of self- sufficiency became almost a far cry, particularly in the poor countries. Importing should not, however, understand from the pressures it creates on balance of payments only.
It has to be recognized as an essential economic function since many of the technological output and industrial products required in the production systems are missing in many of the developing countries. Such imported materials would be fundamental in the endeavors made for self- sufficiency including from the long – term perspective. Infect though the exchange may not be in a balanced manner where developing countries who depend on only very few export items of mostly raw nature, with less value added and mainly agricultural products are at a disadvantaged position, the developed countries also are not self- sufficient. So the industrially advanced countries also import items from other countries.
As stated above, importing is an essential economic function which cannot be completely eliminated. In connection with this, Ricardo’s principle of comparative advantage states that it would be beneficial for an economy to concentrate on the production of items in which it specializes, export these items and import its requirement of other items. The principle, though not totally practical, cannot be dismissed. International trade is undoubtedly governed by political motives and, as such, a country cannot totally rely on another country for its requirements of specific items.
Accounting various parameters, countries have their respective policies on imports. These days import policies are liberated in many countries as possessed the import substitution policies that were common practices and procedures are very important to industries which depend on import for their production. Policies consider, among others, the impact of imports on indigenous production and its influences on foreign exchange resources. Generally, policies need to be Page 3 Banking and Custom Clearing neither liberalized nor restrictive, but with a balance between the need for import and export production.
In relation to the classification of the purchasing process as to the possible source, the points highlighted above suffice to indicate that foreign purchase is one important source. But the detail aspects of the importing are looked in to the following chapter. Most businesses go overseas to obtain lower manufacturing costs and protect themselves from lower-priced imports being sold in their own country. It enables them to be competitive with other companies doing business in their country.
Developing countries are highly dependent on technological and industrial product imports for the progresses they endeavor especially in the industrial sector. Not only they have to import machineries but the spare parts for their maintenances as well as other inputs for their continuous production. The reason for importing goods from abroad are many and actually vary with the specific commodity needed, however, the underlying principal and governing reason for using foreign vendor is that better value is perceived to be available from that source than from a domestic vendor. Importing goods and services of foreign origin can be highly challenging.
Importing requires additional efforts when compared with domestic sourcing, though may be with higher rewards. One of the complexities of buying goods and services of foreign origin is the wide variability among the production countries in characteristics such as quality, service, and dependability. With this perception in mind, however, there are common reasons for importing/ purchasing goods and services from international sources as highlighted below. Quality Page 4 Banking and Custom Clearing Although the issue of quality is argumentative, for there can be practices when foreign items are purchased while their quality may not be better than domestic products, the key reason forwarded by purchasing managers for international sourcing is to obtain the required level of quality.
This is not to imply infect there are no higher quality products in the international market than in domestic markets. Especially in developing countries like Ethiopia, there may not be domestic sources for many industrial products and hence this may eventually lead to developing lack of confidence one’s own products. Such understanding impedes their progresses and domestic industrial development potential. Price It may seem surprising to see a foreign vendor producing and transport an item several miles at the lower cost than domestic supplier(producer).
But, it actually is observed in the international trade through additional costs, import duties, and transportation expenses are required on international sourcing. Several factors can influence the issue and be reasons for the specific commodity, such as: I. The labor costs in the producing country may be substantially lower than the costs incurred domestically. The exchange rate may favor buying foreign.
The equipment and processes used by the foreign vendor may be more efficient than those used by domestic vendors. The foreign vendor may be concentrating on certain products and pricing export products at particularly attractive levels to gain volume. Product and Process Technologies International sources in some industrial products are more advanced technologically than their domestic counter parts. So importing may be advisable than an attempt to produce an item.
Unavailability of Items Domestically Some items may only be available in foreign sources. In such situations there may not be option than depending on foreign purchase. Faster delivery and continuity of supply Page 5 Banking and Custom Clearing Because of limited capacity of the domestic sources, foreign vendor can deliver faster than the domestic supplier. The foreign supplier may even maintain an inventory of products.
In related connection professional buyers want to develop and maintain an adequate supply base for required materials. It may be necessary to develop international suppliers in order to have a completive supply base. Better Technical Service If the foreign vendor has a well – organized distribution network in various areas; better supply of parts, warranty service, and technical advice may be available than from domestic suppliers. Counter Trade The term “counter trade” refers to any transaction in which payment is made partially or fully with goods instead of many.
Counter trade links two normally unrelated transactions; the sale of a product in to a foreign country and the sale of goods out of that country. Under such arrangement countries require their domestic suppliers to purchase materials in their country as part of the sales transactions, which commonly are called barter, offsets, or counter trade. Tie – in with Foreign Subsidiaries Firms can consciously be made to operate in foreign countries to support the local, foreign economy by purchasing there and for export to own country. What is importing? ____________________________________________ __________________________________________________________________ __________________________________________________________________ 2.
List the reasons for importing commodity? ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ Page 6 Banking and Custom Clearing 1. Parties That Facilitate Import/Export Commodity There are several participants in facilitation of international trade. An exporter or importer can draw on a greater number of professional services-bankers, transporters, freight forwarders, and insurers-for advice and assistance. The following diagram depicts the parties that are among the active participants of international trade.
Freight forwarders For the smooth flow of customs clearing activities in any country customs Authority/House, freight forwarders or Customs Clearing Agents (CCA) play critical roles. Freight forwarding is the representation of a consignor or consignee locally or internationally in fulfilling customs, port and other formalities for import and export cargo. The freight forwarder is a person who is licensed to carryout freight forwarding. In other words, freight forwarder refers to a service provider working from his/her premises and taking care of a range of operations relating to his/her clients’ goods: transshipment, handling, storage and various commercial and administrative formalities.
He/she is generally also a customs broker. The exporter or importer must take appropriate policies in order to insure risks as per the terms of sales contract such as CIF (cost insurance and freight). A freight forwarder is an independent company that acts as your agent in moving the cargo from its point of origin to its overseas destination. Freight forwarders provide a valuable service to exporters.
They coordinate the shipment of the goods from the factory, arrange to have the cargo loaded onto the vessel, and process the documentation on the shipment. Especially when you’re new to importing, having a freight forwarder you can trust helps ease the stress of sending your first shipments overseas. Freight forwarders also assist exporters by advising them about freight costs, port charges, consular fees, cost of special documentation, and handling fees. They do this as part of their price quote process for their prospective customers.
So you don’t have to worry about getting slammed with a charge you hadn’t expected. Every charge you pay should be spelled out ahead of time, allowing you to budget and plan accordingly. Page 7 Banking and Custom Clearing Freight forwarders can recommend proper packing so that the goods arrive in good condition, and they can also arrange to have the cargo export packed at the point of shipment or coordinates the packing of goods into a container. When the order is ready for shipment, the freight forwarder coordinates the preparation of all shipping documents required by the foreign government, as well as those required as part of the payment process.
Freight forwarders also arrange to have the goods delivered to the carrier in time for loading, prepare the bill of lading and any special required documentation, and forward all documents directly to the customer or to the paying bank, if applicable. Custom Clearing Agent Customs brokers act as agents for importers in the transaction of their Customs business.