Potential export markets like India, Taiwan, and China are far away, and although piracy no longer looms as the signal danger, potential exporters remain leery of other risks. Like whether they will be able to collect payment on the far end.
Yet with many manufacturers and resellers of goods struggling to sell domestically, Dan Petrosini, a freight forwarder and president of Alpha International in Elizabeth, suggests they take advantage of the weak dollar and look at opportunities for selling abroad.
Petrosini’s business involves preparing the paperwork companies need to move their goods and protect themselves from risk. Because forwarders make their money on repetition, he adds, their fees are low — $125 on $20,000 worth of shipping.
Petrosini will conduct a workshop on “Export Shipping and Documentation,” Friday, October 31, at 10 a.m. at Monmouth University. Cost: $40, which includes a buffet luncheon. The exporter workshop is sponsored by the United States Department of Commerce Trenton Export Assistance Center. For information, contact Thomas Mottley at Thomas.firstname.lastname@example.org or call 732-571-3641. For registration details, E-mail email@example.com or call 732-571-3636.
Forwarders are knowledgeable about all aspects of shepherding exported goods from point of origin to point of sale. They understand the intricacies of the International Terms of Sale, which set out the responsibilities and risks for both parties, as well as issues of export license and control around hazardous material and goods with both military and conventional purposes.
Marking hazardous goods must be consistent internationally so that everyone must know how to act appropriately and avoid any risk of spills even if they speak a different language. “This is important especially if you are dealing with air freight, where physical properties of goods change and can become more dangerous in landing and takeoff,” notes Petrosini.
Because forwarders handle all required documentation to move goods out of the United States and clear customs in foreign countries, exporters focus more on deciding how best to ensure they get paid. The choices range from being paid in advance (“pay and pray” that the good will arrive) to paying on delivery (“ship and pray” that you will get paid in the end).
Advance payment is ideal for the exporter but unusual, although it sometimes happens in a niche market where demand is high. Shipping on open account is, in Petrosini’s estimation, incredibly dangerous for an exporter. It is through documents that exporters and buyers come to an agreement that bridges the extremes:
Commercial letter of credit. This instrument guarantees payment to an American exporter as long as he ships the goods by a specified time, produces the required documents, and gives them to the bank that is serving as an intermediary.
An Indian buyer, for example, who has ordered 10,000 widgets for $1 each is required to go to a bank to open a checking account and deposit $10,000, which will be used to pay the exporter if all the conditions are met.
As long as the seller has shipped the widgets in time, no matter what happens along the way, he will receive payment for the goods. “There is a transfer of risk for the American seller from the credibility of the Indian buyer to an Indian bank,” explains Petrosini, “and there is some measure of comfort for the Indian buyer, who will get assurance that he is not going to pay for goods unless the supplier proves he ships them.”
Letters of credit are relatively costly, but are absolutely necessary if the exporter fears the credibility or financial stability of the buyer or the political stability of the buyer’s country. With a letter of credit, an exporter selling to Venezuela would be paid even if Chavez chose to close the borders, as long he can produce evidence that he has shipped what the buyer has bought. Similarly, if the ship goes down, the exporter still gets paid.
Documentary collection. This less costly alternative puts the bank between the exporter and the importer, but the bank itself is under no obligations. The American exporter ships the goods and prepares all documents necessary to control the shipment and then sends them to an American bank.
The bank reaches out to the buyer and says, “I have these documents to clear these goods you bought. If you want the goods, please send me the cash.”
That’s where the risk comes in. “If the Indian buyer decides he doesn’t need the goods or wants a better price, the risk is to the seller,” says Petrosini. “The bank is just a clearing house.”
United States Import-Export Bank program. As long as 51 percent of the goods are of American origin, the Import-Export Bank will insure the receivable in case the buyer does not pay the exporter.
The insurance is very inexpensive, and the government can pressure the buyer through the United States embassy or through the buyer’s government.
An exporter also needs other types of insurance for protection against loss and theft and other risks — for example, bill of lading transport risks where the cost to fix a ship that blows a boiler or gets into an accident in transit is borne by the ship’s clients. “It’s like taking a cab ride and paying for a flat tire to be fixed,” says Petrosini.
Petrosini was born in Brooklyn and comes from a line of shoemakers — his grandfather, who came from Italy and settled in Coney Island 70 years ago, and his father who was 11 when the family immigrated. His mother was in sales for Sears. Petrosini has lived in Holmdel since 1983.
Petrosini started out in premed at New York University and also attended Brooklyn College. He dabbled in psychology and economics and in 1975 got his first job with someone he knew in the freight forwarding business.
“In 1975 international trade was an obscure business,” he says, but once he got started, he loved dealing with exotic locations and traveling to visit foreign sellers and buyers.
After passing difficult tests on the laws and regulations that deal with international trade, Petrosini became a licensed customs broker and freight forwarder and started his own business in 1979.
He summarizes the essential role that forwarders play in international trade: “The forwarding community is licensed to work on behalf of importers and exporters in solving the transportation maze: holding their hands, telling them what to do and what to watch out for, and making sure they get paid.”