One third of the whole Ukrainian export is the agricultural products. It’s not a big deal to sell a lot; more important is to have a good profit. The manufacturer has to make the decision whether it is safer to export the products to the USA and EU countries or to Asia. If they choose the first variant, there is a less chance to be cheated by the client but the requirements for products’ quality are very high. Sometimes the exporter may already deliver the products to the country but if their quality is not up to the standards, the importer will be fined significantly. The exporter itself can get into the black list. Due to this, the Americans and the Europeans don’t like working with Ukrainian, Russian or Chinese exporters very much. They already know that the quality of the products can be different. For example, one exporter of candies was asked to show the European partners the document proving that the candies and the packages are not touched by bare hands in the production process. It’s clear that a responsible producer will never let that happen, but for the EU importers the relevant procedures at the enterprises and the proving documents are very important. The best decision for a Ukrainian exporter is to get all necessary documents in advance or to undergo voluntary certification.
With Asia everything is usually different. They are ready to accept any products but risks are much higher. It is not safe to work with some Asian partners even on partial prepayment scheme. The case from our practice is a bright example of the situation. One of Ukrainian grain exporters had a deal with a British broker, which supplies grain to Turkey. They agreed to deliver some thousand tons of products. They worked with no prepayment, as the British partner was an approved company and they had a positive collaboration history. The Ukrainian part had to ship the grain in CIF terms, to a destination port in Turkey. To everybody’s surprise Turkish buyer refused to pay for the load after shipment to the port. Loaded with grain vessel had stayed in the port for three months. The demurrage size reached the product’s price. Ukrainian side decided to cover the loss in arbitrage court, but it came out that neither Turkish buyer nor British broker possessed any assets for compensation.
What are the lessons learned? Regardless of the country you trade with, the risks are doubled on condition the company is obliged to ship the products to country-importer’s port. There are some reasons for that, first of all, the freight rates can differ significantly from the ones, calculated before. Secondly, the regulatory issues the Ukrainian part can be unaware of can arise in the destination port. It can lead to load detention in the port that always means exporter’s significant expenses.
How can an exporter forecast all risks? In case of the lack of experience ask experts for help. They can be customs brokers, shipping agents, stevedores and other companies. For instance, we try to provide our clients with complex assistance package, including their counter agents’ examination. We have possibilities to attract our experts oversees and get access to company-buyer registration data. We can analyze the information about the buyer in different registers in the country it was registered. We also can double-check data on stuff signing export contracts, when an employee was assigned to the position and what are their authorities. It is also important to know about company’s possessions structure, its latest year balance and the assets it owns. Until an exporter has adequate information, they should not lade goods without full-size prepayment or financial guarantee utilization.
It is necessary to admit, that even having applied all means for risks minimization, a Ukrainian exporter won’t be in equal conditions with its EU colleagues. European companies have possibility to ensure their export deals. When a German wants to sell to Ukraine, he or she addresses a German export-credit agency which evaluates the transaction, the partners they are going to work with and issues the insurance. If something goes wrong, the state covers the exporter’s losses. It is profitable both for business that enters new markets with higher margin and for state that develops national economy this way. The creation of such agency has been discussed for a long time in our country. There is hope that Ukrainian exporters will soon get support from the state.
Text: Denis Shendrik, head of customs practice in “PwC Ukraine”Підписуйся на наш Telegram. Стеж за новинами у зручному форматі!