Importing can give a business a unique niche at home, and can also be necessary to manufacturing products for export. Adeline Teoh looks at the crucial steps for setting up for import, and where you can find specific answers to particular questions.
Importing can be a rewarding way to sell to the Australian market, but many businesses make the mistake of being underprepared. Make sure you understand the costs and paperwork involved in the import business before you buy overseas.
Before you begin, make sure you know why you need the product, whether for direct resale or as a component of products that you manufacture. Most small businesses are interested in resale, so we will cover resale in more depth than importing materials for manufacture.
Understand the reasons why you need to import the product. It may be that the product is not available in Australia, or that it is significantly cheaper or of better quality coming from elsewhere. If the product is not available here, consider an opportunity to manufacture (or grow) it here.
The next step involves considerations you should have addressed in starting your business–namely, identifying demand and competitors. If the product is not available in Australia, consider whether it is because there is not enough demand for it or whether you will need to create demand.
If another company imports the same or similar products, find out whether there is sufficient demand for the product for you to compete successfully. Also, find out whether a competitor has exclusive rights to the product, preventing you from importing.
If you are the first importer to obtain this product, consider applying for a sole distributor agreement, which means that you have the exclusive right to import to an area (for example, your state) for a certain length of time, which may be ongoing. Most suppliers recognise that giving sole distribution rights to you limits their business, so the agreement usually makes you responsible for adequate promotion and sale of the product in your given district. You may also be responsible for repairs and warranties.
Be wary about entering into a sole distribution agreement that gives too much power to the supplier, and understand that while you may have a sole distribution agreement with that supplier there may be other suppliers that manufacture similar products for other importers.
Restrictions & Standards
In addition to trade restrictions, you may need to research other restrictions relating to the product, including its legality and any applicable Australian Standards (www.standards.org.au). Some standards are required by law—these usually relate to health and safety—while others are voluntary but recommended. You may need to have the product tested to attain certification, which will depend on the type of product you’re importing. A good place to start is the Joint Accreditation System of Australia and New Zealand, but you may need to find the specific regulatory body that oversees your product category.
The Australia Customs Service regulates all imports into Australia so you will need to check the status of the product with regard to labelling requirements, health-related issues, specific quotas, and whether fumigation or a quarantine period applies. You may also need to provide minimum specifications for the product so your customers know what they are buying. This is typically the case with food products, where you are obliged to list ingredients and their origin, but may also apply to other products, for example electrical goods that require a particular power supply.
Lastly, it would be wise to check that the product does not infringe existing intellectual property rights in Australia, including copyrights, patents, and trademarks. Your supplier may lawfully manufacture and distribute their product in their own country but may not be aware of the legal status of the product in Australia. The Australian Customs Service has more information on intellectual property rights.
The product may be cheap, but have you considered other costs associated with importing? In addition to the product itself, you will need to allow extra in your budget for freight, including transport from overseas and local movement from the port to your place of business. If you plan on storing the goods in a warehouse, you need to factor in the cost of using this storage space.
Find out the applicable taxes (such as GST), customs duties and clearing charges. These taxes vary depending on the type of product you wish to import–for example, you may be eligible for a concession if the product will eventually become an export (see Tradex box). It may be worth hiring a customs broker, a professional who does the paperwork to clear your cargo through customs and quarantine, to help you navigate the importing maze.
How you pay for your goods may also affect the cost of importation. The riskiest way is to pay cash in advance, which is where you pay for the goods before dispatch, whereas the most beneficial is an open account where the supplier sends the relevant documentation to you for payment after dispatch.
The most important cost in account management is the exchange rate. To avoid falling victim to fluctuations in foreign currency, try to secure a price in Australian dollars. If you can’t do this directly, establish a forward deal with your financial services provider to guarantee a certain rate over a specific period so you can conduct imports without being at the mercy of changes.
Other payment methods involve banks, such as a Letter of Credit, which is arranged through your bank and a bank in your supplier’s country. Your bank pays the amount to the supplier’s bank and you pay your bank the arranged amount. The advantage is that the supplier doesn’t receive money until you have received the goods, although this arrangement can be expensive. Sight drafts also involve banks but cost less and require less paperwork than an LOC. In a sight draft arrangement, the lender possesses the freight until the importer sights goods and pays the outstanding amount. A term draft is similar to a sight draft except that payment is due at the end of a fixed term rather than on sight.
Lastly, because of the number of steps involved in importing—from finding a reliable supplier, to shipment, delivery and distribution—it is important to buy insurance. Some freight companies may offer insurance as part of their shipment package, if not, consult your business insurer to see if they cover importation.
Finance & Legalities
Assuming you’ve found a supplier and you’ve decided on the best way to organise payment, the next step is ensuring that you have the means to finance stock not yet sold. If you run an established business, this is generally a matter of incorporating the purchase in your regular business expenditure as you would any other stock.
However, most financial institutions offer a form of credit called inventory finance. This is basically money to buy stock and ensures that you, the importer, can concentrate on the best deal–for example, buying in bulk or buying when the Australian dollar is strong, rather than limiting your purchase because you haven’t pre-sold the product or you’re not sure what you can afford.
As an importer you have a few options in terms of repaying the loan. Often inventory finance involves a fixed term repayment that begins after you receive the goods and start selling. If you have a proven business record, some providers may allow you to nominate a term of repayment.
In addition to the legal issues involved with a sole distribution agreement, you may need to clarify who is liable for the product when it reaches the consumer. Most often, after-sales service is the responsibility of the importer bar exceptional circumstances, for example, a luxury watch company may require that a certified repairer in the country of origin conduct warranty repairs.
Other situations are not so
clear and you will need to set out the procedure for dealing with circumstances involving faulty items. This will determine whether faulty items come under Australian law or the law of the supplier country, and whether you have the right to financial compensation in the event that you need to recall the item from sale.
Keep in mind that this is just a basic guide to importing and that you will still need to do your research in terms of finding the right supplier and understanding Australian trade legislation to profit from importation. See our list of contacts that can assist you in understanding import trading in more depth.
Find out more about importing, accreditation, customs and freight.
Custom Brokers and Forwarders Council of Australia (CBFCA)
The CBFCA website has a directory of members–customs brokers, freight forwarders and other professionals in the industry.
Phone: (07) 3252 1348
Australian Federation of International Forwarders (AFIF)
AIFI members are international forwarders or companies and employees that provide ancillary services to forwarders.
Phone: (02) 9314 3055
The Australian Freight Councils Network
Hosted by the Department of Transport and Regional Services, this network is a portal for freight councils, government and non-government, around Australia.
Food Standards Australia New Zealand (FSANZ)
This agency sets and regulates food standards in Australia and New Zealand.
Phone: (02) 6271 2222
Joint Accreditation System of Australia and New Zealand (JAS-ANZ)
The JAS-ANZ website has a register that allows you to search for accredited regulatory bodies.
Phone: (02) 6232 2000
Logistics Association of Australia (LAA)
LAA members specialise in logistics and supply chain management.
Phone: 1300 651 911
Develops and recommends standards applicable to products available in Australia.
Phone: (02) 9237 6000
Tradegate is a non-profit organisation whose members specialise in international trade and transport e-commerce.
Phone: 1300 552 393
Australia Customs Service
Australian Quarantine and Inspection Service
(under the Department of Agriculture, Fisheries and Forestry
Australian Trade Commission (Austrade)
Your state government may also have a ‘trade’ or ‘import’ section as part of their online business services guide.
What is Tradex?
Tradex is a government-run import scheme that gives importers an upfront exemption from customs duties and GST if the product they import is intended for later export. The aim of the scheme is to encourage Australian business exports while recognising that businesses may need to import some elements of their product from overseas.
There are a few prerequisites to attain Tradex eligibility, namely that the imported goods must be exported or used in manufacturing other goods to be exported and that exportation must take place within a year of importation or within a period pre-approved by AusIndustry. A company that breaches these conditions by discarding or selling the imported goods without exporting them will be liable to pay the relevant duties and GST.
Visit the AusIndustry website (www.ausindustry.gov.au ) for more details or request an information kit by calling 13 28 46 or emailing email@example.com.