How To Import Raw Materials: What to Know Before the Barge

From reduced production cost to improved cash flow, importing raw materials can benefit Latin American manufacturers in several ways. However, it is important to understand the trading landscape before placing an order. Here are some key insights that you need to know about importing raw materials.

Having a basic understanding of the international supply chain, along with common trading terminology, is important when importing raw materials.

This section provides a high-level look at the international supply chain and trading terms. Read our article about international supply chains for a more in-depth look.

Lead time is one of the most important factors to consider in the international supply chain. While the lead time for any raw materials order can be lengthy, it is even longer for imports orders since the material travels overseas.

Leeco Trading is currently seeing lead times of about 95 days between the time an order is placed and the time an order is delivered. This includes 30 days for production time, 20 days for the material to be delivered to the country of purchase and 45 days for the material to clear customs and reach its final destination.

Incoterms – also known as international commercial terms – are internationally recognized rules that define whether material sellers or buyers are responsible for the cost and coordination of shipments, insurance, customs clearance and other order logistics.

Incoterms are crucial to understand, as they are extensively referred to in the imports process and determine whether the purchaser or the seller is responsible for paying for and coordinating the order’s logistics.

Below are four incoterms that we commonly see used in the importing process.

FOB (Free On Board): The seller is responsible for loading purchased cargo and all costs.

CFR (Cost & Freight): Exclusive to ocean freight shipping, the seller is responsible for delivering goods to the port specified by the buyer and bears the transportation costs.

DDP (Delivered Duty Paid): The seller assumes all responsibilities and costs for delivering the goods to the named place of destination.

CIF (Cost, Insurance & Freight): The seller is responsible for loading goods onto the vessel, the cost of transport to the desired port of the buyer and insurance to the point of destination.

Normally, we find that about 70% of manufacturers in North America and South America buy their imported raw materials CIF or CFR.

Brokers are a key player in the imports process. Brokers are logistics companies that have expertise in and will handle customs clearance and inland transportation for your raw materials. Working with a broker means that importers can save time spent on logistics and utilize that time to focus on other aspects of their business instead.

Leeco Trading strongly recommends that manufacturers work with a broker when sourcing raw materials abroad. Our team has strong connections with brokers who have expertise in metals and fine chemicals logistics in Latin America, and we are happy to support importers in finding a broker.

Financing and cash flow are common concerns with international trading, as there is a wide range of time between when an order is placed and when the order arrives to its destination. However, manufacturers should consider using an international credit line as a tool to alleviate cash flow challenges.

An international credit line is a credit instrument that does not require real guarantees from the importer. The importer sends the last two financial statements to the exporter, who analyzes these based off the balance sheet numbers and determines the value of the credit line to be used during the year. This then allows the importer to make payment for the credit line within 90 days of the time the order shipped.

It is no secret that importing raw materials can offer several benefits to Latin American manufacturers, but it is important to ensure that you utilize these benefits to strengthen your business.

One benefit of importing is to improve your cash flow. We discussed international credit lines above, which allow businesses to purchase materials without immediately paying for them. This flexibility allows for more availability in your cash flow to utilize for business investments while you wait for your imported materials to arrive.

Drawback is another advantage to importing. If manufacturers produce goods that are later exported, they can use drawback to avoid paying an import tax on the raw materials they imported. Let’s say, for example, that a manufacturer imports steel to make a car door. If this door is being produced in their country but exported for sale elsewhere, they can utilize drawback on their imported steel.

It is important to work with a trading partner who aligns with your business values and can help you successfully import the raw materials you need. Some of the key factors you should consider when seeking a trading partner include:

• Sourcing Reach: What countries do they source raw materials from? Do they source globally?
• Logistics & Supply Chain Services: Do they offer logistics services to help with transportation and customs clearance?
• Expertise: What experience does the trading partner’s team have? Do they have experience working with customers in your country or sourcing the materials you require?
• Quality: Does the trading partner have a system in place to check material quality? Do they partner with any external vendors who can test and certify the materials?

These are just some of the factors that should be considered. Read our guide on choosing an international trading partner for more considerations.

Leeco Trading’s leadership team has over six decades of combined experience in sourcing raw materials. Our strong connections with logistics brokers, mills and material testers across the globe enable us to source high-quality raw materials and deliver them efficiently and cost-effectively.

Contact Leeco Trading today to receive a quote for your next project.