Importing stock from overseas entails more complexity than merely placing an order and awaiting delivery. Before diving into your first import order, several considerations warrant attention. Here are 10 tips to help evaluate whether the appeal of cheaper prices or superior products from overseas aligns with your expectations.
1. Is there a local market for the goods you want to import?
Importing for resale
Venturing into importation for resale requires thorough market research in your local area to ensure a viable demand for the goods you plan to import. Prioritize understanding your potential customer base and consider conducting surveys to gauge the profitability of importing. It is crucial to assess the market dynamics; otherwise, you may find yourself stuck with excess inventory that proves challenging to sell, potentially resulting in financial losses.
Importing for use in manufacturing
If you’re gearing up to launch a new product through manufacturing, it’s crucial to assess the market demand to justify importing the necessary stock. Whether you’re importing materials for production or considering local suppliers for existing items, a prudent step is to ensure that current demand levels are stable or on the rise. Failing to align with market trends could lead to tying up excessive working capital in imported stock sitting idly on your warehouse shelves in the event of a demand decline.
Additionally, conducting comprehensive market research is essential to understand your competitors’ product offerings. Maintaining a detailed list of product names, specifications, and retail prices is a wise practice. This ensures that your imports possess a competitive edge or a unique selling point, setting them apart from the products offered by your competitors.
How to research your market and competitors
2. Are you legally able to import these items into New Zealand?
Before delving into extensive research efforts or investing resources, it’s crucial to ensure the legality of importing your desired goods into New Zealand. The country imposes various restrictions on imported items, spanning from complete prohibitions—such as chemicals or medicines—to specific limitations on products or items sourced from particular countries.
Certain products might necessitate approval from authorities like the New Zealand Customs Service or the Ministry for Primary Industries, especially concerning biosecurity matters.
Importing cars entails adhering to special regulations overseen by the New Zealand Transport Agency.
Moreover, the Ministry of Health oversees the importation of controlled drugs, underscoring the importance of navigating these specific guidelines before initiating any importation process.
- Prohibited imports — New Zealand Customs Service
- Start importing — New Zealand Customs Service
- Importing— Ministry for Primary Industries
- Importing a motor vehicle — New Zealand Transport Agency
- Bringing medicines into New Zealand— Ministry of Health
3. The costs of importing
Absolutely, it’s crucial to have a clear understanding of all the expenses and charges associated with placing an order from an overseas company. These costs might encompass:
- transport and insurance costs (depending on the trade terms you negotiate)
- GST
- customs duties and levies
- storage
- finance charges
- charges for services like the use of customs brokers or freight forwarders.
Determining the appropriate customs clearance tariff for the goods slated for import is likely essential to ascertain the corresponding customs duties. It’s probable that you’ll also be required to provide details such as the country of origin and the value of the goods (excluding shipping) to accurately calculate the amount payable.
4. Is importing actually cost-effective?
Once you’ve estimated the ultimate landed cost of an item, it’s vital to evaluate if importing aligns with your business’s cost-effectiveness. Beyond the per-unit cost from an overseas factory, numerous additional charges come into play, potentially accumulating significantly. Ensuring a reasonable return on investment becomes pivotal once all these expenses have been thoroughly considered.
Engaging with an accountant, business advisor, or customs broker to review your calculations is a prudent move in ensuring a thorough assessment of anticipated costs. Their professional insight can validate your estimations, ensuring no expense in your importation process goes unnoticed.
5. Can you afford to import?
Ensuring financial preparedness is key when considering the costs of importing. Importing demands a substantial cash flow for two primary reasons. Firstly, due to elevated shipping expenses, it’s more financially prudent to consolidate orders into fewer, larger shipments, making import orders substantial and capital-intensive.
Secondly, importing involves tying up working capital. Suppliers often request upfront payment or require a letter of credit from your bank, restricting access to these funds for your business operations during the period between placing and paying for orders, which could extend over several months.
Conducting a comprehensive cash flow forecast is essential to guarantee your business can operate effectively while funds remain tied up in import orders. Seek advice from your accountant, bank manager, or financial adviser to ensure all crucial aspects have been considered.
6. The risks of importing
Importing introduces a set of risks that surpass those associated with local purchases, necessitating a proactive approach to effective risk management. Among the challenges to be mindful of are quality and delivery concerns:
- The considerable distance between you and your supplier poses challenges, making it more difficult to oversee and address issues such as quality control.
- The extended delivery distance and longer transit times complicate the process of returning goods.
- Due to extended delivery times, you might face a situation where accepting subpar goods becomes inevitable. In such cases, sourcing the right quality replacement product promptly might be unfeasible if your supplier falls short on delivery.
Ensuring the reliability of your suppliers is crucial. Place orders with terms that safeguard you against non-delivery, incorporating penalties for late delivery or substandard goods. Having alternative suppliers provides a backup plan in case of any unforeseen circumstances.
7. Dealing with exchange rate fluctuations
Importers face the potential risk of exchange rate fluctuations when purchasing goods priced in a foreign currency, impacting the final payment in New Zealand dollars. This volatility can either work in their favour or pose challenges depending on the rate’s movement.
There are several strategies available to address this issue:
- Shift the risk to the supplier by requesting quotes in New Zealand dollars.
- Invest in forward cover as a shield against currency fluctuations.
- Incorporate exchange rate risk into your margins and personally manage the risk.
8. Choosing a reliable overseas supplier
The least expensive supplier might not always be the optimal choice for imports. Prioritising a reputable supplier holds greater significance. You aim to locate a supplier whom you’re reasonably confident:
- won’t disappear overnight with your cash
- will deliver on time
- will deliver the products you have specified and at the level of quality expected
- will keep you informed if there are any problems or delays.
Request a list of customers that your potential supplier serves and reach out to them for references. Conduct a credit check on the company, and if feasible, consider investing in a physical visit to inspect their premises, plant, and the quality of their output. In the absence of a site visit, insist on receiving samples before finalising your order.
9. Dealing with overseas suppliers
Engaging with suppliers in a foreign country often presents a significant learning curve. Communication barriers due to language differences and diverse cultural values can complicate interactions. The potential for misunderstanding and miscommunication significantly increases compared to dealing with local suppliers.
Research extensively about conducting business in the country you intend to import from. While industry associations or local Chambers of Commerce can provide valuable insights, speaking with individuals currently involved in importing from or exporting to the country in question offers unparalleled knowledge. Organisations like New Zealand Trade and Enterprise offer beneficial country-specific information for exporters, which can also prove valuable for importers seeking insights into those markets.
International engagement — New Zealand Trade and Enterprise
10. Trading terms and customs requirements
Trading terms
Before finalising an import order, it’s crucial to comprehend the trading terms commonly used by importers and exporters. Ensuring mutual understanding and alignment between both parties regarding these terms is essential before signing any agreements.
Understanding terms like EX (ex works or ex factory, warehouse, or plantation), FAS (Free Alongside Ship), and FOB (Free on Board) doesn’t have to be daunting. The International Chamber of Commerce has established standardized rules, known as Incoterms, to interpret trade terms. While Incoterms 2010 is the current norm, an updated edition, Incoterms 2020, was anticipated to be implemented in 2020. Seeking guidance from your bank’s international trade department, a freight forwarding agent, or your local Chamber of Commerce can provide valuable assistance in navigating these terms.
Customs requirements
Starting an import venture involves understanding various customs requirements. Engaging a freight forwarder or customs broker to assist with the customs entry or declaration paperwork is advisable. New Zealand Customs Service extends support to first-time commercial importers, although all importers are responsible for managing their paperwork. Professional service providers can be employed for subsequent imports.
For those inclined to manage this process independently, the Custom Brokers and Freight Forwarders Federation offers training programs to equip individuals with the necessary skills.
New Zealand freight courses — Customs Brokers and Freight Forwarders Federation
Next steps
Next steps to consider include:
- Ensure a sustainable demand for the product you intend to import, and verify that legal requirements allow for its importation into New Zealand. Assess the feasibility of selling the item at a reasonable profit or incorporating it into your manufacturing process to enhance profit margins.
- Compile a list of reputable suppliers and inquire about their capacity and equipment to meet your import requirements. Create a shortlist and request samples tailored to your specifications, if applicable.
- Hire a freight forwarding or customs broker to aid in comprehending trade terms. Additionally, consult your bank to gain insights into the financial implications associated with the orders you plan to place.
- Negotiate trade terms to safeguard against non-delivery, delayed delivery, or subpar quality goods. Especially if the item is crucial to your business, consider having a backup supplier ready in case it becomes necessary.
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