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Want To Start An Import Business – Here Are The Importing Terms And Documents Involved

An informative guide to understanding the terms, tariffs and documents involved with importing.

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Tax Tariffs, Custom Duty & Certificates

How are tax tariffs and custom duty charges levied on goods imported to South Africa?

A tax tariff is the duty imposed by a government on imported goods. The duty changes from product to product and in order to pay the correct duty, importers must use the correct tax tariff. “In the case of the import of model cars, the best and correct tariff code to use is 9502.00.90. The VAT payment on this type of import is 14%”, explains SARS, Lester Millar.

All the tax tariff codes that are required when importing goods to South Africa are clearly listed on the SARS site which will take you directly to the tariff code guide which consists of 1023 useful pages of codes and information.

  • Schedule 1 Part 1: This schedule lists “Ordinary Custom Duty” codes
  • Schedule 1 Part 2A: Lists specific excise duties and specific customs duties on imported goods of the same class or kind.
  • Schedule 1 Part 2B: Explains Ad Valorem excise duties and Ad Valorem customs duties on imported goods of the same class or kind.

Related: Everything You Need to Know About Starting an Import Business

How is customs duty calculated?

Customs duty is levied on imported goods and is usually calculated as a percentage on the value of the goods (set in the schedules to the Customs and Excise Act). However meat, fish, tea, certain textile products and certain firearms attract rates of duty calculated either as a percentage of the value or as cents per unit (for example, per kilogram or metre).
The amount and type of duty imposed on a product is determined by:

  • The value of the goods (the customs value);
  • The volume or quantity of the goods; and
  • The tariff classification of the goods (the tariff heading).
  • Value-Added Tax at the rate of 14%

When to pay duty?

Many goods, especially industrial inputs, enter duty free. Where duties apply, the rates generally fall between five and 25%. Goods not exceeding a value of R400 are not liable for customs duty and do not have to be entered on a bill of entry.

To establish if goods imported into South Africa are free of duty refer to the South African Revenue Services. All the tax tariff codes that are required when importing goods to South Africa are clearly listed on the SARS site.

  • Schedule 1 Part 1: This schedule lists “Ordinary Custom Duty”
  • Schedule 1 Part 2A: Lists specific excise duties and specific customs duties on imported goods of the same class or kind.
  • Schedule 1 Part 2B: Explains Ad Valorem excise duties and Ad Valorem customs duties on imported goods of the same class or kind.
  • Schedule 3: Specifies general industrial rebate

What are the ranges of tariffs levied on imported goods to South African and how are they categorised?

South African tariffs on imported goods are categorised as follows:

  • 0% on agricultural products and implements, capital and intermediate goods, manufacturing inputs, essential foods.
  • 15% on aircraft, vehicles, earthmoving equipment, computer software, appliances, etc.
  • 40% on luxury consumer goods, for example, televisions, tape recorders, video machines, antiques, jewellery, etc.

When is a Certificate of Origin required?

The South African Declaration (or certificate) of Origin, Form DA-59, certifying the country of origin, description of goods, weight, is required for:

  • Stainless steel tableware
  • Kitchen items
  • Household articles
  • Iron or steel except stainless steel
  • Motor vehicle air filters, motorcycle oil or petrol filters, and parts for motor vehicle filters
  • Reception apparatus for radio telephone or radio broadcasting apparatus

Other basic documents required for importation include:

A commercial invoice that shows the price charged to the importer in addition to the cost of placing goods on board ship for export.

  • Bill of Lading
  • Insurance documents
  • Packing list
  • At least three copies of the invoice should go forward under separate cover to the consignee prior to the arrival of the goods
  • Other special documentation may be required by the importer.

This is what you’ll need: Importing Documentation


importing-payment-terms

Payment Terms

As an importer how do you structure payment terms?

How you will be paid, when you will be paid and for what you will be paid are referred to as your ‘payment terms’. Payment term refers to the way payment will be made as well as the period over which the importer is allowed to pay for the goods.

If you offer a period after which the importer can pay, you are extending credit to the importer and instead of using the phrase ‘payment term’, you should refer to a ‘credit term.’ Payment terms ranging from 30 to 90 days are quite common in export markets. Be careful when extending longer payment terms, as longer credit periods may increase the risk of default.

Related: Overcoming Importing Cash Flow Challenges

The most common payment methods in exporting are:

  • Payment in Advance

This is certainly the most preferred form of payment from the exporter’s point of view. However, it is the hardest to negotiate.

  • Letter of Credit

Other than Payment in Advance, this is the safest method of payment in exporting. The customer arranges a letter of credit with their bank – known as the issuing bank. The letter of credit contains the instructions that must be followed and documentary evidence that must be supplied to a correspondent bank in South Africa.

  • Bill of exchange

Documentary collections are probably the safest method. This is when an overseas bank, acting on your bank’s behalf, only releases the documents necessary for your customer (i.e. the importer) to take possession of the goods once they formally accept the terms of a bill of exchange. In accepting the bill of exchange, the customer essentially pays the overseas bank.

  • Open Account

This is an agreement you should only enter into with a very good client – one that you trust. This is because you agree with the buyer that they only need to pay 30 days after receiving your invoice. With an open account, the exporter carries all the risk.

Other issues to consider

As an importer or exporter, it is important to consider how you will get your export earnings paid, the various challenges of import/export, starting an import or export business, and import payment terms and exchange control.

Cash Flow is Going to Be Key to Success. Here’s How to Manage It


import-agents-and-transport-options

Agents and Transport Options

When to use a clearing agent

The first time that you import goods into the country, there is nothing stopping you from clearing the goods yourself. However, if you repeat the process and import on a regular basis, you will have to use a clearing agent,” explains Margie Pedder of the South African Association of Freight Forwarders.

“The reason for this is that the import process has become a fully automated process, which means that as a small importer you don’t have the infrastructure to use Electronic Data Interchange systems (EDI) which is why you need the services of a clearing agent, says Pedder”.

In July 2009 in terms of Government Notice R814 SARS enforced the use of EDI for the submission of certain cargo and goods declarations and reports.

What is EDI?

EDI organises the flow of information from one end of the supply chain to the other. The EDI revolution benefits customs and trading partners because it offers a number of advantages and in this way, South Africa can  keep up-to-date with global import and export data requirements.

  • EDI is a fully automated process that needs little or no intervention by either party
  • Declarations that can be accepted round-the-clock
  • The quicker retrieval of cargo through the reduction of clearance times
  • A reduction in manual administrative processes resulting in fewer errors and no duplication

Harmonised business relationships with other bodies such as Transnet Port Terminals, Transnet Rail Terminals, airlines and container depots.

Drop shipping

Drop shipping’ is a technique used in supply chain management where the retailer transfers customer orders and shipment details directly to either the manufacturer or a wholesaler instead of physically keeping goods in stock. The manufacturer or wholesaler then ships the goods directly to the customer.

As in the case of all retail businesses, the retailers make their profit on the difference between the retail price and the wholesale price. The upside of using drop shipping is that you the retailer avert the risk of capital outlay in purchasing or importing products. You also remove the risk of sitting with unpopular products that you may battle to sell.

As in all business ventures, you will have to have a detailed contract with the partners with whom you drop ship. This contract will contain details including when and how you obtain your payments and details on fulfilment on orders, product guarantees, etc.

How would using a clearing agent affect import costs?

“It is vital that a small import company conducts proper research to determine the most economical and cost effective method of importing products. Clearing agents have years of experience, keep up to date with legislation, exchange control and banking regulations. They want to save money for their clients,” says Pedder. “It’s wrong to think that using a clearing agent isn’t cost effective. They only make 2% on disbursement”, advises Pedder. According to the South African Revenue Services, (SARS), if you are importing goods frequently into South Africa you must have an import licence and if the value of the goods exceeds R400 you have to pay full duty.

Regulatory bodies for different imported products

Statutory regulations state that to import any product to South African you must register as an importer with the Department of Trade and Industry (DTI). If your shipment is customs-dutiable, it needs to be accompanied by an invoice especially if it is a commercial shipment with a commercial value. A commercial invoice must show the price you have been charged, the importers and exporters names and details.

Other documents you may need include:

  • Bill of Lading
  • Insurance documents
  • Import permit number
  • Packing list.

Related: Expert Advice on Importing


sars-logo

Check for import restrictions with SARS

However if you intend to import products to South Africa you will have to contact the South African Revenue Services (SARS) to establish whether or not the products you wish to import are restricted.

You can check this information yourself by going to the SARS website:

  • On the right-hand side of the home page is a drop down menu. Select “All publications”
  • A list of all the publications will appear on the screen
  • Scroll down until you find “Customs – Operating Procedures – custom rulings”
  • Click on “More”

If the products you intend to import do have restrictions, then it is best to contact SARS for more information.

New and second-hand cell phones

SARS

If you are importing new cell phone products to South Africa you have to register with the South African Revenue Services (SARS) as an importer and you also have to register separately to obtain an import code.

  • Timeframe: To register with SARS for an import permit and import code takes approximately 14 working days.
  • Cost: No cost to register
  • Contact: Visit the SARS website for more information.

ICASA

When registering with ICASA a variety of documents including a test report from the manufacturer of the product will be required.

Documents are:

  • Two identifying colour photographs of at least postcard size of the equipment to be type approved.
  • A functional description of the equipment, at least at block diagram level.
  • Operating instructions.
  • The original or a certified copy of the test report (both RF and EMC), issued by an accredited communication testing facility.
  • Detailed circuit diagrams, approved and stamped by the test facility and highlighting any modifications which have been incorporated.
  • The originals or certified copies of the test report and certificate of compliance – issued by an approved test facility.
  • The original or a certified copy of the test report for Safety Regulations issued by an approved safety test facility.
  • Timeframe: To register with ICASA takes 2 weeks

Cost: ±R4 000
Contact: www.icasa.org.za

SABS

In the case where an importer is unable to supply a test report, they must contact the South African Bureau of Standards SABS to perform product testing so that the product conforms to national and international standards. The tests undertaken by the SABS are Electronic Magnetic Compatibility (EMC) and safety testing (RF).

  • Timeframe: 4-6 weeks
  • Cost: R10 000 – R20 000
  • Contact: To apply to the SABS for a test report
  • Call: +27 012 428 7911 or visit the SABS website

Importing Second Hand Cellular Goods

If you import second cellular products to South Africa, you need to register with SARS, ICASA and the International Trade Administration Commission of South Africa, ITAC.

ITAC

Not all goods or products are subject to import and/or export control measures. All used goods and second-hand goods, are subject to import control measures. This is why you have to register with ITAC when importing second hand goods. A list of goods subject to import control and export control measures is available and can on submission of your contact details be mailed, faxed, or e-mailed to you by ITAC

  • Timeframe: To register with ITAC to import second hand goods is immediate
  • Cost: No cost
  • Contact: http://www.itac.org.za

SARS

If you are importing new cell phone products to South Africa you have to register with the South African Revenue Services (SARS) as an importer and you also have to register separately to obtain an import code.

Timeframe – To register with SARS for an import permit and import code takes approximately 14 working days.

  • Tinned, bottled and dried food

The right route would be to obtain samples of the products you wish to import and request that the SABS test and check them. If the products do not fall under their umbrella, they will refer you to the correct organisation in order to meet with South African compliance regulations.

  • Hair products

Register with the Cosmetic, Toiletry & Fragrance Association of South Africa (CTFA). This organisation regulates the hair and cosmetic industry in South Africa and works hand-in-hand with the South African Bureau of Standards, the Department of Health and other important international bodies to set up responsible self-regulation for cosmetics in South Africa.

Related: Legal Pitfalls to Avoid


regulations

Regulations

All the regulations from the ingredients of what may or may not be used, to labelling are found in CTFA Cosmetic Compendium, which lays out all the guidelines, Codes of Practice and Standards for the industry. The hair and beauty industry in South Africa abides by the requirements which appear in the CTFA Compendium which you can obtain from them.

These requirements have been developed by industry, government, the CTFA and South African Bureau of Standards (SABS) and are based on the EU Directive.

Labels on Imported Products

Labels on imported products must be printed in English. The law requires that the information and ingredients must appear in one or more of the official languages.

The SABS publish a book which can be obtained directly from them which includes all the regulations that must be adhered to with regard to labelling. You can order it online or it can be posted to you.

Related: 5 Simple Steps to Importing into South Africa for Small Business Owners

Contact

Nicotine-based products

According to the South African Revenue Services (SARS) nicotine falls under restricted goods. It is only allowed to be imported under certain conditions. Restricted goods can be imported to South Africa under certain conditions i.e. on production of a permit, certificate, or authority from the relevant authority.

For example, medicine (excluding sufficient quantities for one month for own personal treatment accompanied by a letter or certified prescription from a registered physician) can only be imported if there is  a permit/licence issued by the Director-General: National Health and Population Development.

Products containing Peroxide

Whether or not restrictions apply depends on how much peroxide the product contains. The best thing to do is to contact the South African Revenue Services (SARS) and explain more about the product to Customs and Excise. They will be able to provide more information based on the amount of peroxide contained in the product.

Solar panels

A permit is required to import solar panels.

Soft drinks

Approval from the Department of Health is necessary. Before you attempt to start an import business that imports any kind of food product, even soft drinks, you need approval by the Department of Health.  It monitors the source of food for consumption at ports, airports, on vessels and on aircraft.

Food is detained by Customs and Excise for clearance. Entry into the country can be denied if the food does not comply with the requirements of the Act. (Foodstuffs, Cosmetics and Disinfectants Act, 1972 (Act No 54 of 1972).

Medical supplies

As a once-off situation, you would probably be allowed to enter the country with medical supplies providing you have the correct paperwork and a commercial invoice. As it is not clear what type of products you intend to import, you would have to contact the Medicines Control Council of South Africa (MCC) and establish if you are permitted to import these products.

Complementary medicine

Complementary medicine in South Africa includes a wide range of therapies ranging from traditional practices that have only recently been regulated, to widely accepted alternative therapies that are recognised by some medical aids in South Africa.


medicines-control-council-of-south-africa-logo

Professional councils regulate the industry

Professional councils regulate and monitor complementary health products in South Africa. This is to ensure that the public is protected against dangerous products and scams. Therefore, the import of most medical products requires permission from the Department of Health. However, as it is not clear what type of complementary products you intend to import, you would have to contact the Medicines Control Council of South-Africa (MCC) for more information: www.mccza.com

Most complementary health systems focus on a natural approach. Some of the common complementary health practices in South Africa that are recognised by the South African Department of Health include:

  • Acupuncture
  • Ayurveda
  • Aromatherapy
  • Homeopathy
  • Western herbal medicine
  • Naturopathy
  • Chiropractic treatment
  • Osteopathy
  • Traditional Chinese Medicine
  • Reflexology
  • Traditional African medicine
  • Personal care products.

These are regulated by the South African cosmetic industry which is a powerful self-regulation system and this industry abides by the requirements as set out in the CTFA. Some of the products are classified as “Free Sale.” This mean that a document issued for certain commodities (such as pharmaceuticals), certifying that the specified imported goods are normally and freely sold in the exporting country’s open markets and are approved for export.

You need to establish if South Africa is an open market for the product that you intend to import. Contact the South African National Consumer Union for confirmation.

Related: Basic Guide to Importing From China


importing-cigarettes-and-alcohol

Cigarettes and Alcohol

“The import of ‘Sin Products’ (i.e. liquor and tobacco) are subject to specific Customs Duties based on either weight or litreage (measurement of liquid capacity). Providing regulations are followed to the letter you can import these products into South Africa. On cigarettes you have to pay duty at source, meaning that you pay duty before you can sell the product. Because of this you need to have enough start-up capital for it to work,” says spokesperson, Una van Zyl, The Tobacco Institute of South Africa.

All the customs regulations that apply can be found on the SARS Website, under ‘Legal & Policy’, ‘Legislation’, ‘Harmonised Tariff System’, ‘Schedule 1 Part 1 – Ordinary Customs Duty’, p. 456 of 1023.

Duties on tobacco products

Excise duties are also available on website of National Treasury under these headings, ‘Budget Information’, ‘National Budget’, ‘2010’, ‘Chapter 5’ p.80.

Health Warnings

Tobacco control legislation (health warnings, tar and nicotine readings etc) must be adhered to. This information is available on The Tobacco Institute of South Africa’s website under ‘Legislation’. “If there are particular issues you would like to check contact the Department of Health who are the custodians of the tobacco control legislation,” advises van Zyl. Contact the Health Promotion section by clicking on www.tobaccosa.co.za.

Draft regulations

Late last year draft regulations were published on Reduced Ignition Propensity (RIP) Cigarettes. The introduction of reduced ignition propensity cigarettes means that the cigarette paper has to be changed to a slow burning paper. This will reduce the pleasure from smoking since cigarettes won’t burn as easily. See draft regulations on www.gov.za, ‘Documents’, ‘Notices’, ‘2009’, ‘Dec’, 4 December 2009. The final regulations on RIP have not been published yet.

Trademark Registration

If you are intending to import a brand into South Africa, it is advisable that you register the trademark in South Africa through trademark lawyers if this has not been done. For more information contact the Tobacco Institute of South Africa offices on +27 21 421 0011.


importing-liquor

Importing Liquor

You will require a permit to import liquor into South Africa. You will also need an import certificate. An import certificate is required in order to import a liquor product (excluding beer) to South Africa. The import certificate or a copy will be required before a consignment can be released from the port of entry.

An importer applies for an import certificate only once in the lifetime of a product. After that, the same import certificate number can be used if the composition, content, bottle size and label of that product do not change.


Importing Diesel

You have to have a license to import petroleum products from oil producing nations such as Russia and Saudi Arabia to South Africa. The term “petroleum products” refers to aviation gasoline, bio-fuels, diesel, jet fuel, liquefied petroleum gas, paraffin and petrol.

Diesel is classified as 1D, 2D and 4D. Key differences between these are the pour point, the lowest temperature a liquid will flow; and differences in viscosity, or the resistance of a liquid to flowing. 1D diesel fuel has lower viscosity and a lower pour point than 2D, so is preferred for use in cold weather areas.  4D fuels are only used in very low-speed engines such as stationary units.

Who issues Petroleum licences?

Wholesale, retail, import and export petroleum licenses are issued through the Department of Energy. Call the Controller of Petroleum Products +27 12 317 8982 or visit http://www.energy.gov.za/ or www.dem.gov.za

The application process is complicated

It is easier to deal through a consulting firm who has the necessary expertise in dealing with complicated petroleum licensing requirements in South Africa. Tour Media is a consultancy that helps individuals apply for new wholesale and retail petroleum licences.

Duty and surcharges may apply

If you are importing in “bulk” (1 500 litres or more), per transaction you require a wholesale licence. Duties, excise taxes and import surcharges levied on goods can be obtained from the International Trade Admission Commission of South Africa by clicking on: http://www.itac.org.za/guidelinesofpetrolium.asp


Other regulations

Register the business as an importer with the South African Revenue Services, and with the Department of Trade and Industry.

Products that require import permits are:

  • Used equipment
  • Food products
  • Clothing
  • Fabrics
  • Footwear
  • Books
  • Wood
  • Paper products
  • Motor and aviation fuels
  • Refined petroleum products
  • Industrial products
  • Materials imported as original equipment for the manufacture of motor vehicles.

importing-from-china-to-south-africa

Importing from China to South Africa

Dealing with imports from China means that you have to face the issue of quality control. Ensure that the company you are dealing with doesn’t take shortcuts, and when the consignment arrives, it meets the original specifications,” explains Duncan Bonnett, director of Whitehouse & Associates, a research and consulting company in Johannesburg.

Quality Control

Quality control can be difficult. Try to cover yourself when arranging the commercial terms of the consignment agreement with your supplier. Hold back payment or part payments until you are satisfied that the goods are the genuine article that you ordered. If there is a specification which has been agreed to, make sure that the supplier truly understands the specification. Global companies such as SGS offer global inspection, verification, testing and certification services.

SGS is recognised for setting a global benchmark for quality and integrity. The company has 48 000 employees and a network of over 1 000 offices and laboratories around the world. This kind of testing agency will ensure that the exporter meets the specifications that have been agreed to. On the Internet there are many scams and dubious traders. “Dealing over the Internet is the worst way to do business with China,” says Bonnett.

Price Negotiations

Negotiating the price is a skill which Westerners are not experienced at. The Chinese are renowned for their practice of cutting corners on materials and quality to regain any lost margin or simply to make more money. “Often small companies are at the mercy of those they are dealing with. Avoid dealing with Internet companies as it is even harder to check if they are reputable. There is no easy fix – I can only recommend that you put your hand in your pocket and spend on proper research,” advises Bonnett.

Language & Cultural Barrier

Another big issue in dealing with Chinese business is communication. It can be very frustrating negotiating complex business issues when the thinking processes, ethics, morals, expectations, culture, politics, laws and government involvement in everyday business life are very different to those of South Africa. Learn as much as you can about how Chinese business operates. A must-read for anyone wanting to do business with China is Where Underpants Come From? by Joe Bennett. It’s a fun but very informative guide to the do’s and don’ts of doing business with China.

Getting Through Customs

Every importer needs to understand the customs procedure for clearing imported goods. Determining which customs duty applies can be complex and when starting out rather get expert advice. You could make use of clearing agents or a distributor to take over the customs clearing side of the business. If you go this route, be careful – you must find an agent that is experienced in customs regulations. If you don’t, this could lead to problems which could have negative financial implications.

Exchange Rate

To cover your business against fluctuating exchange rates, it’s wise to take out forward cover (an agreement to buy or sell currency at a specific price). This guarantees an exchange rate on a given date. Forward Cover (FEC) will help if the rand slides against the dollar. Banks are able to arrange forward cover for dollars against the Rand.


More information

SAAFF:

For more information, contact the South African Association of Freight Forwarders (SAAFF) for more advice with regard to clearing agents.

SA Customs:

You can contact SA Customs in Cape Town for more information by calling +27 21 413 6733.

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Import Export

How do I know whether my product is export-ready?

Your product has to tick several boxes before you can consider exporting it.

Entrepreneur

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I want to start exporting my product into Africa. I’ve made contact with some buyers in Nigeria and they’re interested in signing a contract. How do I make sure that my product is ready for export?

Whether or not your product is export ready depends on the buyer’s needs, your product’s ability to meet those needs, and how your product will shape up against international competition.

In order to determine export readiness, you need to research the following:

  • Your target market
  • Any potential competitors
  • The buyers themselves.

Common factors that would affect the exportability of a product include:

1. Market

Unless there is a market for it, your product won’t sell. Look at your domestic market for an indication. If you are meeting a need locally, you should be able to meet the same need internationally.

This, however, is not the only consideration. International markets are usually further away, meaning that you will have to add transport costs, and will most probably have to include the cost of import duties and taxes in the final delivery price.

2. Product adaptability

A key quality of an export product is its ability to adapt to suit an international market. Cultural differences between countries could affect the use or acceptability of a product in each country. A product name could have a totally different and possibly derogatory meaning in another language and might have to be changed for that market.

3. Cost structure

The cost structure of the product will obviously impact on its competitiveness. For example, depending on the cost of materials, and whether or not those materials can be locally sourced, international transport costs and customs duties in the importing country will collectively determine the final delivery price.

4. Competitors

The more you know about your competitor’s product, the better your position when determining your own chances of succeeding. Price is an important factor in determining success, but not the only way to compete. You can also differentiate your product by highlighting some of its unique selling points.

5. Product complexity

The greater the complexity of your product, the more important the strength of your business. Products that need a high level of support or installation assistance will need a strong local network with trained staff to support them. The investment in setting up a sales and support structure in the importing country could be prohibitive, making it unviable to export the product.

For more information, read more here.

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Import Export

How do I verify foreign suppliers?

Do your homework to reduce the likelihood that you’ll end up out of pocket.

Entrepreneur

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I run a small import business and want to find some new suppliers in the Far East. How do I establish their credibility from South Africa?

It’s essential to establish that any new suppliers that you intend to do business with are credible and reliable. Here are some ways that you can check up on their credentials:

  • Use internet trading forums such as that on eBay to establish whether the supplier has a history of being trustworthy and dependable
  • Do online research to find out more about the company, including how long it’s been in business for and how long it’s had the product line that you’re interested in.
  • What does their website look like? Has it been professionally designed and kept up to date? Does it have proper contact details including a physical address and telephone number?
  • If you can’t afford to visit the supplier, contact them by phone or email and discuss your requirements. Find out about delivery times, payment methods and ability to deliver what you need, when you need it. These discussions should give you a feeling for how professional the supplier is in conducting its business.
  • Ask for references and check them.
  • You can consider using the services of a reputable inspection agency to make absolutely certain that the supplier is trustworthy.
  • Obviously a site visit is the number one way of establishing a supplier’s credibility.

See the full article here.

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Import Export

What insurance does an importer or exporter need to take out?

Being under-insured can cost you dearly in the long run.

Carmen Pasqualle

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Can you point out some of the common insurance mistakes that SA exporters and importers should avoid?

As South Africa continues to strengthen its trade ties with countries like China, Germany, Japan and the United Kingdom, it is becoming increasingly important for exporters and importers to get to grips with the complexities of arranging marine cargo insurance.

With the rise of cargo ship accidents worldwide, including the bulk carrier Smart, that recently ran aground off the main beach at Richards Bay, exporters and importers can least afford skimping on cover, or making costly mistakes that could present their businesses with even bigger problems, in the event of an accident.

Marine cargo insurance helps exporters and importers to cover the physical damage or loss of their goods while being transported by sea. Failing to arrange appropriate cover can potentially harm a business and have a serve impact on its revenue stream.

Exporters and importers should take note of the following when taking out marine cargo insurance cover:

  • Limited cover:  Inexperienced exporters and importers often view insurance as a grudge purchase and risk not having adequate cover in place. This exposes their businesses to financial and liability risks in the event of an accident.
  • Picking on price: During tough economic conditions, exporters and importers have the tendency to shop around for cover only using price as determining factor. Businesses should rather focus on what the policy covers, instead of basing their decision solely on price. Rushing to sign a contract without fully understanding the terms and condition of the policy is a mistake. Each business is unique and has its own insurance needs. For example, a perishable goods importer will have different insurance needs to a components importer.
  • Reducing liability: Opting for lower liability, or other limits, in order to save on monthly premium costs is certainly not advisable. Exporters and Importers should seek advice from their brokers and insurers to arrange the right amount of cover for their business, as well as to protect personal assets.
  • Unaffordable deductibles: Exporters and importers should avoid opting for deductibles that they cannot afford. A deductible, commonly known as excess, is the amount that a business will have to pay upfront before an insurer can settle a claim. While choosing a higher deductible may help to reduce monthly premium costs, it is best to choose a deductible that will be affordable in the event of a claim.

Know about the general average

Exporters and importers should also be familiar with general average, which is independent from marine cargo insurance. It is an agreement between the ship owner and cargo owners, to share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole during an emergency.

General average claims can arise from the ship being stranded, catching fire, damaged engine, and when the ship is in any danger of sinking.

The 2 types of policies

Marine cargo policies come in two forms, namely, open policy, which covers a number of consignments and a specific policy, which normally covers specific consignments.

There is also an option to take out an all-risk or total loss cargo policy, which covers against all fortuitous losses.

Regardless of the nature of business, it is advisable to seek advice from a broker or insurer before arranging any type of marine cargo cover, to fully understand exclusions and avoid being over and underinsured in the event of a loss.

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