Managing the freight risks of exporting to emerging markets

A fast growth opportunity for exporters is emerging markets, however these markets present different forms of high risks. We will be addressing how to manage the associated freight risks of exporting to emerging markets.

Before we proceed, let’s examine what is classified as an emerging market.

What are emerging markets?

Emerging markets are in the process of transitioning from low income, less developed economies into modern industrial economies. These markets have increasing engagement with the global economy, increasing trade volumes, foreign direct investment and transport infrastructure. They typically will offer higher returns to investors but also expose these investments to higher inherent risks.

With the African Continental Free Trade Area (AfCFTA) agreement, possibly coming into effect soon, it’s expected more emerging markets would open within Africa enabling further Intra-African trade.

Why are emerging markets a fast growth opportunity for exporters?

Prior to the year 2000, about 62% of bilateral trade was conducted between North America and Europe as reported by Bloomberg. The current emerging markets, which were more frontier markets at the time, had lower incomes levels and significantly lower investments in infrastructure.

Over the past two decades and beyond, emerging markets have been and will continue to industrialize and improve the standard of living. This, of course, results in a higher demand for agricultural products, consumer goods, energy, building materials etc in these economies. As at 2017, the proportion of global trade between two emerging economies was at 14% and this is set to grow to make up the majority by the end of the century according to the same Bloomberg report.

Herein lies the opportunity for exporters to target emerging markets.

Freight Risk Considerations

International trade will perpetually come with risks. However when trading with emerging markets, these risks can be heightened.

A key source of inherent risks is the various number of regulatory and market inefficiencies. The consequences of the occurrence of these risks include:

• sizable fines at the country borders,
• criminal charges in the case of suspected fraud,
• suspension of import license,
• seizure of goods by the customs authorities due to failure to pay tax or duties and by regulatory bodies for standard violations.

While there are multiple risks to be considered when exporting, our key focus for this article is the associated freight risks of exporting to emerging markets. It is essential that exporters are fully aware of these risks and take relevant measures to mitigate them.

These risks include:

• Complex Customs and Duties Procedures: Many emerging markets have complex or inefficient customs procedures, hence it is important to research each country’s processes before shipment. This helps ensure that the exporter complies with all regulations and avoids delay in clearance of shipment. Duties and tariffs also vary by country, existing trade agreements and types of goods being transported. Prior to shipping, it is advised to estimate these costs to avoid significant unplanned fee payments and other costs of doing business peculiar to certain emerging markets.

We recommend that exporters consult with trade compliance and customs law experts to effectively mitigate this risk.

• Lengthy and unpredictable transit times: Intra-african shipping is poorly connected and co-ordinated. Shipping from any African country to Europe for example, takes an average of 25–30 days, while intra-african shipping (for example West to East Africa) takes an average of about 75 days. In addition to poor coordination, operational inefficiencies at ports of emerging markets contribute to unpredictable transit times. These ports usually face labour challenges, lower equipment efficiencies as well as congested terminals and a lack of intermodal exit points

We advise that exporters avoid carriers that adopt more flexible schedules, hence may be more tolerant of delays and select carriers that are oriented towards service regularity and reliability.

• Inland transport infrastructure considerations: This applies to contracts that require door-to-door cargo delivery to the buyer rather than door-to-port. Poor inland infrastructure creates the risk of cargo theft or damages.

We recommend that exporters use CIF INCOTERMS in markets that they are unable to partner with reliable logistics providers.

• Payment Risks: This is closely associated with credit risk. It is common practice to delay payment to the seller till the buyer has received the cargo. This exposes the exporter to the possibility of longer than agreed credit period. It also exposes the exporter to dubious bargaining down techniques used by unscrupulous importers to devalue cargo received in order to pay a much lower than agreed total.

Exporters are advised to explore export credit Insurance products such as the one offered by the Nigerian Export Import Bank (NEXIM).

• Other Transit Risks: These include storms, collisions, piracy, leakages, explosions, and other damages. It is critical that exporters secure marine insurance that provides the required protection from loss due to any of these occurrences.

Using the OnePort 365 platform, you are able to book affordable marine insurance that gives broader coverage and settles claims faster.

Conclusion

While shipping to emerging markets provides fast growth opportunities, trading regulations and freight risks need to be carefully managed to prevent heavy penalties and losses. A key success factor to optimally partake of the opportunity is to partner with a reliable and innovative freight forwarder.

OnePort 365 is Africa’s digital channel to seamless global trade. We simplify your trade with emerging markets with end-to-end digital access to world-class freight forwarding.

Use the OnePort 365 platform to get instant and competitive quotes to your destination market. We’ll eliminate the complexities of freight shipping and arrange your freight transport.

OnePort 365 is optimised for ease and powered by technology, we are always available to serve you.

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