The idea of exporting can be bewildering.
For a step-by-step how-to guide, ExportWise attended Invest Ottawa’s “The Basics of the Exporting Process” delivered by Christian Sivière, a trade expert with Solimpex Montréal & Ottawa.
Here is Christian’s advice:
Step 1: Activate your business number for export
If you’re an entrepreneur, you likely have a GST/HST number. To start exporting, call the Canada Revenue Agency and adjust your business number for this purpose. This becomes your exporter number.
Step 2: Investigate the applicable laws in the countries you’re targeting
“Looking at exporting laws is a complex issue, and I’m not a lawyer, but I want to point that out that you have to investigate it,” Sivière said. “If you’re selling to Germany or Brazil or China, see which laws apply.” The Vienna Convention, ratified by 84 countries, states the obvious — the seller transfers ownership with relevant documentation; the buyer pays — but this isn’t a global solution because it doesn’t establish ownership during the transfer, leaving that to each country’s national laws. Ownership could stay with the seller, or could be transferred to the buyer as soon as the contract is formed.
Step 3: Understand what the “Incoterm” is
“Incoterms” are rules defining the obligations for the delivery of merchandise. Short for “international commercial terms,” they outline who pays for what costs and where risks shift from buyer to seller. Incoterms are updated every 10 years; the current terms were updated in 2010. EXW, FCA, FAS and FOB are acronyms for Incoterms that state that the buyer pays the shipping costs. Under CFR, CPT, CIF and CIP Incoterms, the exporter pays for shipping costs, but if something happens during shipping, it’s the buyer’s loss. For the last three, DAT, DAP and DDP, the exporter pays to ship and bears all the risk. When you state a price, attach an Incoterm so terms for each party are clear. Sivière says many exporters aren’t well-versed in Incoterms.
Step 4: Getting paid and letters of credit
A letter of credit acts as a guarantee of payment for the seller. The payment is set aside at an issuing bank and the letter of credit is sent to an advising bank in the exporter’s country. For the buyer, it’s a guarantee the seller won’t get paid until the goods have been shipped. It’s an irrevocable instrument, governed by international rules. It protects both parties for payment, but doesn’t protect either on quality of goods. Letters of credit also expire, so ship the goods before the expiration date and be sure your documents follow instructions “to the letter.”
“If you have a transaction, for example, with a country such as Venezuela, which has a shortage of hard currency, you’ll want your buyer to get a letter of credit and, for a price, you have the option to get a Canadian bank to confirm it,” Siviere said.
Step 4B: Consider credit insurance
If your buyer refuses a letter of credit, consider credit insurance, “a great way to manage risk if your partner defaults on payment or goes bankrupt,” Sivière said. He recommended Export Development Canada (EDC), which sells account receivable insurance through an easy-to-use online portal.
Step 5: Beware of exchange rate fluctuations
Exchange rates can fluctuate during negotiations and the amount you’re promised may change due to this. Some got caught in this with the British pound’s plunge after Brexit. Sivière recommends opening a U.S. and/or euro account at your bank to minimize exchange losses.
Step 6: Cargo insurance
You’ll want this if cargo is damaged in transit. Every insurance company will have different rates, but they share the same internationally established rules. The cheapest options won’t cover loss due to theft and will apply only if there is total loss (for example, if the ship sinks; if it capsizes and only half the load is lost, the insurance won’t apply.) The most expensive options will cover total and partial loss. If you don’t buy insurance, read the fine print — carriers have limits of liability. Many have contractual obligations of, say $2/lb for your goods — but that’s usually not enough. In addition, there are time limits on these claims, so note the expiration date. The Canadian International Freight Forwarders’ Association is a good reference.
Step 7: Documentation
The commercial invoice is a standard invoice issued by the exporter. A pro forma invoice is for customs purposes only, when items, such as product samples and goods for a trade show that will be coming back, aren’t to be sold.
Other documents are also required. If you’re exporting food or plant material, you’ll need certificates for them. On these forms, describe the product, quantity, unit price, and total price in the currency being paid. Be clear: If you’re sending a Samsung Galaxy 7, say it’s a phone; it may otherwise sound like a missile to a customs officer. Also include the Incoterms that apply and the terms of payment. Some countries will require a certificate of origin, particularly those in the Middle East and Latin America. This document is usually certified by a Chamber of Commerce.
Other items of note:
- Canada has more than a dozen free-trade agreements. Many exporters don’t leverage them.
- Wood packaging materials must be heat-treated or fumigated and noted by a seal.
- Sometimes you need an export permit, as you do to export to North Korea. See Global Affairs Canada’s “area control list.” Also check the export control list, which deals with products. It mainly applies to military goods, but there are other provisions, including technology.
- Be mindful of sanctions Canada has with certain countries — Iran, Russia, Belarus and Zimbabwe, for example. You might still be able to export, but make sure you comply with the sanctions and get an export permit. Also check American sanctions. Airbus sold 118 planes to Iran in Jan. 2016, but needed clearance from the U.S. because more than 10 per cent of the planes’ parts were of U.S. origin. Canadian products often have U.S. parts and components, so be mindful of that.
- Complete an export declaration if you’re shipping goods at a value of $2,000 or more, keeping in mind we have an exemption with the U.S.