Some exporters don’t want the hassle of delivering their own products internationally. They make international buyers pick up products at the U.S.-based warehouse and think the transaction is done. The international buyer manages and pays for the export of those products from the U.S., and manages and pays for the import of those products to their country. Easy and cheap for the seller, right? Except for one important detail. The U.S.-based company is responsible for complying with all government regulations and requirements for exporting, regardless of where the transfer of ownership takes place. Said another way, the U.S.-based company is liable if the international buyer messes up.
“EX-Works” is a shipment method where the foreign-based buyer arranges for transport and other export formalities at an agreed upon place in the seller’s country. The buyer bears the risk of physical loss and damage, and the expense of getting the goods to the international destination. Some U.S. business executives say, “exporting and transportation arrangements are not our core business, so why bother?” David Bryant, Trade Services Account Executive at John S. James Co., a full-service international transportation and logistics firm, sums up the reason in one word - liability.Let’s review the basics:
- A shipper always works for a principle, whether the principle is the U.S. exporter, known as the U.S. Principle Party in Interest (USPPI) or the foreign buyer, known as the Foreign Principle Party in Interest (FPPI).
- Regardless of who the Principle is, the U.S.-based exporter is responsible for compliance with all U.S. laws and regulations, even if they elect to take a “hands off” approach to exporting.
- Foreign buyers are likely not experts in U.S. Export Administration Regulations (EAR), nor necessarily understand the 33-unique pieces of detail required to fulfill electronic export filing.
- Even worse, they may not understand the importance of deadlines in receiving vital information and instructions.
David relates a cautionary tale about a U.S .exporter who thought they were taking the path of least resistance by using a freight forwarder paid for by the foreign buyer. The U.S. company provided all of the required documentation to the freight forwarder in a timely manner. Imagine their dismay when they received a fine of $4,400 from the U.S. Census Bureau for late filing. Imagine their further consternation when then learned they had no recourse against the freight forwarder, because the principle in the transaction was the foreign buyer – the only person the freight forwarder is responsible to. The response from the government was, “If you choose to outsource your oversight, visibility and control of your shipments that is a business decision for you; though this does not excuse you from breaking the law.”David goes on to point out some additional pitfalls:
- The freight forwarder for an FPPI has no obligation to provide any details to the U.S. seller other than the details which the seller provided for them.
- The seller may not receive documents required for record keeping, opening them up to customs violations in the U.S.
- Violations of U.S. export laws can result in criminal and civil penalties for the seller of $250,000 per occurrence and/or prison time.
When asked what advice he has for U.S. exporters, Mr. Bryant says, “Exporting is the key to growth. Be smart, don’t take short cuts and work with an experienced freight forwarder.”
Sometimes the easy way is fraught with peril. Learn more about unleashing opportunity while reducing risk by meeting with your local EXIM Bank representative today.