Introduction
Like an export, import of goods is also associated with
various types of risks. Some of these are
-
Transport Risk – This risk is associated with the loss
of goods during transportation.
-
Quality Risk – This risk is associated with the final
quality of the products.
-
Delivery Risk – This risk arises when the goods are not
delivered on time.
-
Exchange Risk – This risk arises due to the change in
the value of currency.
These risks are explained more fully below.
Transport Risk
For a better transport risk management, an importer must ensure that the goods supplied by
the exporter is insured. Whether the goods are transported by Sea or by Air, the
risk can be covered by Insurance. It is always advisable to set out the
agreement between the parties as to the type of cover to be obtained in the
Contract of Sale. Often Importers will wish to obtain Insurance cover from their
own Insurance Company under a 'blanket cover' called an 'Open Policy' thus
taking advantage of bulk billing and other relationships.
Quality risk
The proper quality risk analysis is important for the importer to ensure that the final products are as good
as the sample. Occasionally, it has been found that the goods are not in
accordance with samples, quality is not as specified, or they are otherwise
unsatisfactory. To handle such situations in future, importer must take
necessary protective measures in advance. One the best method to avoid such
situation is to investigate the reputation and standing of the supplier. Even
before receiving the final product, inspection can be done from the importer
side or exporter side or by a third party agency.
In case of Bill of Exchange, with documents released against acceptance, the
Importer is able to inspect the goods before payment is made to the Supplier at
the maturity date. In this method of payment, if the goods are not in accordance
with the Contract of Sale the Importer is able to stop payment on the accepted
draft prior to maturity. Importers should consider what measures can be taken to
ensure that the need for legal action does not arise. If the Importer has an
agent in the Supplier's country it may be possible for closer supervision to be
maintained over shipments.
Delivery Risk
Delivery of goods on time is important factor for the importer to reach the
target market. For example any product or item which has been ordered for
Christmas is of no use if it is received after the Christmas. Importer must make
the import contract very specific, so that importer always has an option of
refusing payment if it is apparent that goods have not been shipped by the
specific shipment date. Where an Importer is paying for goods by means of a
Documentary Credit, the Issuing Bank can be instructed to include a 'latest date
for shipment' in the terms of the Credit.
Exchange Risk
Before entering into a commercial contract, it is always advisable for the
importer to determine the value of the product in domestic currency. As there is
always a gap between the time of entering into the contract and the actual
payment for the goods is received, so determining the value of the good in
domestic currency will help an exporter to quote the right price for the
product.
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Contracting to import in Indian Rupees.
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Entering into a Foreign Exchange Contract through Bank.
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Offsetting Export receivables against Import payables
in the same currency by using a Foreign Currency Account.
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Where Pre / Post-Shipment Finance is provided with a
Foreign Currency Loan in the currency of the transaction and Export receipts
repay the loan.
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