Time for exporters to carpe diem
More flexible logistics options, smarter risk management and insurance solutions, and even social media platforms are combining to open up easier export channels for Kiwi firms. This month's Export Focus provides plenty of useful food for thought for businesses looking to expand into offshore markets. Our case study looks at Rodd & Gunn – the menswear brand that's making inroads into the US market.
More flexible logistics options, smarter risk management and insurance solutions, and even social media platforms are combining to open up easier export channels for Kiwi firms.
If you’re the owner of a business that has successfully navigated the first few tricky years and you want to grow, there’s good news. Mature businesses which have yet to export should listen up too. If you’re into fashion goods, niche food, high-tech units and software products, health products, wine, or medical equipment, there is particularly good news for you.
In short, the export market is experiencing its own ‘Big Bang’.
New players, new systems, new modes all mean out-with-the-old-and-in-with-the-new.
This is the export market of today and tomorrow, and it’s like nothing that came before.
So what if ports around the world are struggling to cope, either dealing with bigger ships or waiting for them to arrive on new schedules? New integrators will offer you alternate means of getting your products to your chosen global market. Chances are you want to get them there quicker anyway.
What the economists term “disruptors and game-changers” are everywhere to be found, and they are more interested in your needs than their schedules,
Now is the time for fledgling exporters to carpe diem.
The inimitable Michael Barnett, long-serving CEO of the Auckland Chamber of Commerce says “not only will export activity expand your business, but it will expose you and your staff to new ideas and demands from competitive markets; which is likely to make you more competitive at home too.”
But first a word of caution from NZTE: “Breaking into an export market will generally take three times the expected timeframe, and cost twice as much as expected.”
So what is driving this enthusiasm for exporting products and services which are not limited to local market opportunities?
DHL Express recently revealed in a survey that social media is rapidly becoming a prime tool to driving sales orders for New Zealand exporters; especially SMEs.
A significant 43 percent of New Zealand exporters surveyed stated they had generated orders through social media. Of those, a third are generating orders via Facebook (see sidebox for more information).
“Social media is becoming an increasingly crucial communications tool for New Zealand exporters, and these findings indicate that exporters are using this channel in creative and innovative ways,” says DHL Express NZ’s country manager, Tim Baxter.
“The online channel continues to be a good vehicle for increasing presence in international markets and this is supported by burgeoning social media activity. Kiwis are well-known for being early adopters, and these findings only reinforce that exporters are highly adaptable.
“We are seeing this, particularly in younger start-up companies with SMEs using social media most effectively. However, many exporters still do not provide pricing and shipping information, or online booking and payment functionality. We think exporters have a great opportunity to enhance the user experience in this area, potentially growing enquiries, and ultimately sales, even further,” says Baxter.
DHL puts its money where its mouth is with its annual DHL Express Fashion Export Scholarship, now in its eighth year. Designed to identify the country’s hottest up-and-coming fashion exporters and assist them in achieving international growth, the scholarship is open to New Zealand designers who have been exporting for less than five years.
Managing risk, enabling trade
Back to another note of caution. As Barry Squires, Westpac’s Head of International Business would add, as a caveat on this explosion of change: “The well-worn exporting maxim, “the sale isn’t completed until the payment is in the bank”, is as valid today as it ever was.”
Wellington-based Martin Jones, country manager for Atradius Credit Insurance N.V. would agree.
“Exporting requires a leap of faith,” says Jones. “And you need to have the tools to identify reliable overseas buyers; obtain the finance to expand the sales to them; and set up adequate protection for mitigating the risks of exporting.
“New Zealand exporters are largely prudent and manage risk well, with the exception of some ‘old-school exporters’ who’ve been in the game for 30-odd-years – because they believed they had a great relationship with a buyer, and so he could be trusted.
“No need for insurance then. But when the GFC struck, we saw dozens of these customers default, because their buyers defaulted.
“Almost every overseas market has its business peculiarities brought about by local legislation, trade practices and customs. Negotiating techniques and business culture also come into the mix. Payment terms will vary from country to country, and are often very different to the terms for local sales.”
So ‘getting paid’ takes centre stage and for that Jones says the exporter can:
- Ask for cash in advance of shipment – ideal but not always practical or competitive.
- Ask for an irrevocable letter of credit – costly and time consuming.
- Sell competitively on open account and credit-insure the receivables – more secure and compensatory.
He believes credit insurance is often found in this mix because it offers a three-part protection package to help businesses safeguard what is valuable to them. In particular, it helps to:
- Prevent bad debt by assisting exporters to avoid selling to weak buyers.
- Compensate the seller when any bad debt does occur, and
- Undertake credit supervision on the book of insurable debtors.
“By insuring receivables against unexpected customer insolvencies, protracted default and even political risk, the business ‘gets relief’ from the risk of non-payment. At the same time, most banks tend to become more favourably disposed to granting higher working capital loans, and even more favourable interest rates.
“The payment of a claim is the most important reason to credit insure and the prime reason to insure with a particular insurer. A quick claims settlement replaces lost working capital and avoids the cashflow ‘domino’ effect.”
So how does an SME ensure an insurer provides prompt assessment?
“The exporter should provide certain documentation and trading data such as a ledger sheet showing terms of payment used, invoice dates, due dates, total amount overdue and invoices yet to fall due.
“It would also need to provide information on the nature of the goods exported, the reason for the ‘overdue’ and steps taken to obtain payment.
“Claims may be declined where there is non-compliance with policy terms and conditions, having no credit limit in place, and trading upon terms greater than those allowed under the policy or specified in the credit limit,” he says.
But, as they say; there is more. While Atradius and insurance companies like QBE are obvious ports of call, our own Treasury, through the New Zealand Export Credit Office (NZECO) is a must to have on your priority list when making the decision to export.
NZECO manager Chris Chapman says NZECO will only engage in top-up insurance if full insurance is not available from private insurers.
“Top-up insurance is a service we developed after the GFC, in conjunction with trade credit insurer Euler Hermes, and we have extended this offering to Atradius’ exporter customers too. It makes a big difference for an exporter and adds to our portfolio of services.
“Private insurers are sometimes not able to fully insure a payment risk, as they may have reached their limit for a buyer, or their limit for a particular country.”
NZECO can provide up to 95 percent commercial and political cover of your contract amount. However, they note that if you’ve been declined cover by a commercial insurer, this might be a good indicator you should negotiate other payment terms with your buyer (for example, instead of trading on open account, ask for an upfront deposit, payment upfront, Bills of Lading or a Letter of Credit). And, exporters may be able to use their trade credit insurance policy to access additional funding from their bank, to help with your working capital cycle.
Supply chain shake-up
Right now, as an SME, you are aware of the risks and informed on where to go for cover and what to insure for. Now you’ve got to get your physical products to their destination.
Here the news is good too. Change is everywhere, and it is no longer a case of ‘our way or the highway’.
A major joint venture is shaking up the New Zealand supply chain network, which has long been plagued by a lack of sustainability and efficiency.
Nexus Logistics (the product of Ports of Auckland Ltd (POAL) and Netlogix Ltd) says it is challenging the industry status quo by taking the unprecedented approach of giving its customers the choice.
The company is working with all New Zealand ports and has developed a flexible and comprehensive combination of road, rail and coastal transport capabilities and services, including key supplier relationships with shipping lines and Kiwi Rail.
“Unlike some of the dominant, existing players in the game, whose approach is ‘our way or the highway’ this JV has the key ‘differentiator’ of being entirely’ port-neutral’, despite the obvious Auckland connection, and open to working with all transport companies to reduce cost (and other wastage) to its customers,” says Nexus Logistics CEO Stephen Owles.
“We are geared up for the rapidly transforming SME export market which is all about high-tech, software, health products, specialist food supplies and fashion.”
Nexus Logistics is already one of the largest providers in its sector – customers include Fisher & Paykel and Nestlé.
“To optimise the flow of goods into, out of and around the country, Nexus Logistics has, in a short time, established access to the intermodal freight hubs, which handle air, sea, rail and truck transported goods, at Wiri and Palmerston North, and will complement these with hubs in other centres to create a network serving the metro, regional and interisland markets.
“It is also establishing itself as a business that manages information and people in logistics and transport across New Zealand’s 6,000-odd registered transport owners.
“Nevertheless there is a lot of work to do yet to balance the movement of goods to reduce wastage across the sector, with obvious benefits for New Zealand manufacturers and distributors in a better two-way import-export flow. Success in this endeavour will create a huge and measurable economic benefit,” he says.
DHL Express has been busy too. “Before the end of 2015 we will have doubled the size of our processing capabilities at our Auckland gateway facility at the airport, linking all of New Zealand to a network of 220 countries and territories globally, and allowing local importers and exporters to trade in the global marketplace more efficiently than ever before,” says country manager, Tim Baxter.
The upgraded facility includes a range of features aimed at ensuring DHL is well-equipped to accommodate expected increases into the future, including:
- The new facility will enable DHL Express to process inbound and outbound freight almost twice as fast, moving from approximately 2,400 shipments per hour to 4,000, aided by automated state-of-the-art parcel handling equipment.
- The new process aims to reduce double handling, both maintaining the integrity of the shipment and increasing efficiency and throughput. Each parcel will only be touched twice during processing – once for unload and once for reload.
Baxter says the facility is part of DHL’s long-term strategy to concentrate on the customer. “Back in 2009 we developed a five-year plan which focused on investing in our network capabilities to offer our customers the best access to the global economy.
“As we are now experiencing unprecedented customer demand, this gateway facility is the logical next step in that investment,” he says.
In a further example of Kiwi exporters getting their own way, local market demand has caused international shipping company, Maersk Line, to invest heavily in a large number of 20-foot refrigerated container units.
Some 8,500 units have been added to the shipping line’s global 20-foot refrigerated container stock. When you consider that 20-foot reefer containers make up just ten percent of its global container traffic it is a significant concession by the company to recognise the unique circumstances in the New Zealand market, and a commitment to helping Kiwi exporters be more efficient.
“The smaller containers are also more suited towards higher cost products such as chilled meat and seafood. And despite the global trend towards 40-foot containers, New Zealand shippers still see value in the use of 20-foot equipment,” says Maersk’s local CEO, Gerard Morrison.
A big plus for the 20-foot containers is the use of patented insulation, which maintains a consistent temperature throughout, while being enhanced with the addition of a remote monitoring capability. This allows shore-based technicians to monitor and control temperatures while landside, on board, and when a vessel is within two to three days off the coast, anywhere in the world.
The last word on logistics comes from Ron Koehler, CEO AU/NZ of Schenker Australia and keynote speaker at the forthcoming, inaugural CeMAT Australia conference.
“Gone are the days when logistics companies could treat the supply chain as they always have; solely focusing on moving product from point A to point B.
“With the ever-increasing rate of online sales and the various ways in which companies now deliver goods to consumers – either via bricks and mortar, B2B distribution or direct to homes – the ongoing evolution of e- and m-commerce can only succeed if the supply chain and logistics behind it, evolve as well,” Koehler says.
“Time of delivery, mode and cost of delivery, security and integrity are all factors consumers take into account when dealing with an online business.
“For instance, the incorporation of automation could have the biggest impact on delivery times. I believe this reflects the future of Australasia’s materials-handling landscape, primarily due to the high cost of labour.
“The implementation of conveyors or goods-to-man systems; picking systems like Auto Store; and systems which automate the slotting of items so they are in the most economic location within each warehouse, cuts down delivery times considerably,” he says.
Exporting has never been easier. And all indications are, that’s a trend.
Kevin Kevany is an Auckland-based freelance business writer. Email [email protected]