These are the sales arrangements under which a very large proportion of our export trade is carried on. They differ sharply in that on a draft basis the exporter draws on the importer either a sight or a time draft at the time of shipment, while on open account or consignment the exporter will draw no draft at the time of shipment and will do so subsequently only if some necessity arises. Draft, open-account, and consignment exports are alike in that the exporter and importer depend principally on their own credit standing to finance the transaction.
It should not be thought that banking services are not used when exporters sell on draft, open account, or consignment. On the contrary, the bank correspondent system is the most usual agency which the exporter utilizes in collecting drafts and to which the importer turns in buying cover for remittance.
Import Terms. --The American importer probably operates more largely on a letter-of-credit basis than does the American exporter, but, like the exporter, as a rule he does not use one sales arrangement to the exclusion of all others.
Crude materals and foodstuffs--silk, rubber, coffee, tin, oils, gums, fruit, and so on--are generally handled by three types of importers: (1) commission houses; (2) wholesale merchant importers operating on their own account; (3) manufacturers buying crude materials for further processing.
Some of the annual imports of crude foods and materials into the United States--just what proportion of the total is not known --are consigned by the foreigner to a commission house to be sold for the foreigner's risk and account. The commission house at once sells the commodity for the best available price. Sometimes the foreigner will set a minimum price to guide the commission house; usually he will not. After the goods are sold, in order to repatriate the proceeds of the sale the foreign shipper may draw a sight draft on the commission house or on its bank, or the commission house may remit directly to the foreign shipper.
Sometimes the commission house steps out of character and imports on its own account as merchant. In so doing it is kin to the merchant importer of crude materials and foods. Such a merchant importer may deal in only a few commodities or in a dozen or more. In many cases, dealing in commodities which are traded in organized exchanges, the merchant importer buys from the foreigner--by cable--and sells almost simultaneously in the domestic market. If so, he will not import the goods in his own name at all. The operating margin--the spread between import buying price and resale price--may be as low as 1 per cent, which puts such an import house almost in the position of commission man, but for the important difference that it is operating for its own account and risk.
The terms which both the merchant importer and the manufacturing importer of raw materials buy from abroad vary considerably from time to time and from market to market. However, most importations of raw materials are financed with bankers' letters of credit except where a parent company-subsidiary relationship exists between the American importer and the foreign shipper.
So far as procedure is concerned, import terms of sale are simply the converse of the export terms we have been describing. Exchange restrictions, as we have seen, have become a matter of major concern to American exporters, materially modifying the terms under which they sell to buyers in such markets. Since the United States Government has imposed no important restraints on the use of foreign exchange for legitimate commercial purposes, the foreigner selling to an American importer avoids these worries, but the existence of exchange restrictions in the foreign exporter's own country sometimes requires the American importer to submit to sales arrangements, which he otherwise would not use. For example, a common requirement of exchange control authorities in foreign countries is that all exporters shall draw their drafts in the drawee's currency.
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