Trading Trucks Overseas
Exporting old iron can be a profitable alternative to trading or selling here. But there are risks to consider.
Lee Wittmann,
President TQM Company
Fleet operators are always looking for new ways to cut costs and increase profits. And with globalization, the notion of selling a fleet's used trucks to overseas buyers can be well worth the distance disadvantages, some have found.
Alternatives for fleets in past years have included trading used trucks to dealers or manufacturers, or soliciting independent wholesalers. Some fleets have even set up their own sales departments that function as a used truck dealership. Others have taken the truck auction route.
But the latest wrinkle to getting rid of old rigs is exporting those trucks overseas. The practice has proved profitable for a few fleets. For others, it's a sure-fire way to prevent surplus equipment from getting into the hands of their competitors.
Exporting already plays a limited but important role in the disposal of used trucks that are traded back to the new equipment dealers or manufacturers. Leasing companies also report having some success in direct sales to export markets.
While exporting sounds good on paper, it is by no means a simple or easy undertaking. It takes total commitment and dedication along with knowledgeable and experienced personnel.
Among the hurdles that need to be addressed along the way: differences in language, currency, banking practices, transportation, credit issues, insurance and governmental requirements (both in the U.S. and those of the receiving country).
Even sensitivity to what might be perceived as cultural quirks will play a very important role in the venture's success or failure.
For example, one U.S. truck exporter tells the tale of being arrested for conducting business during prayer time in a Middle East country. In some Third World countries, bribery is considered a cost of doing business. In one African country, a government official will insist that you surrender your passport. If you do, a second official will arrest you and take you to jail for not having your passport. After the appropriate fine – read bribe – is paid, you are then escorted to the departing airline and released.
Obviously, there are risks in exporting. Following are things to consider before doing business internationally:
• Legal Recourse– Legal resources are limited, and recourse is not easily obtained when a transaction goes bad.
• Coups – In the last year there have been a number of coups, with governments being thrown into havoc. This can certainly be a deal breaker.
• Bribery – In a number of countries, bribery is a way of life, in both the government and business sectors. This is a situation certainly worth avoiding.
• Inadequate documentation – With the many complexities of exporting, documents are often inaccurate and allow for the cancellation of a transaction that could leave you with a bunch of trucks sitting in a foreign port with a two-way freight bill.
• Questionable bank practices – Sometimes a foreign bank will hold funds for no good reason and it can be difficult to get them released. In a number of smaller Third World countries there have been instances when the bank just ran out of money.
"If the deal is in a country that is too risky, the customer can never be good," advises Dan Holt of the Small Business Administration. The money of a specific country may be of little value, or the value in relation to the U.S. dollar may suddenly and drastically be devalued. Quoting and transacting business in U.S. dollars can help control this situation.
• Political Landscape – Political risks include the lack of sufficient currency, arbitrary import license cancellation, an external debt moratorium, the legal discharge of debt, and war. In the past several years, U.S.-owned oil companies have been arbitrarily nationalized in South American countries. This is when a government decides, with little or no justification, that they should own the company. The original investors lose control of the company and have little or no recourse.
• Customer risk – Reliable and accurate credit and business practice information on individual foreign organizations and companies can be difficult to obtain.
There are documented cases of goods being sold to foreign companies based on the acceptance of an American Express credit card. The receiving U.S. bank confirms the sale, only to find out days later that the purchase was made with a recently stolen credit card. This is a regular occurrence in some Third World countries.
Worth The Trouble?
If exporting is in your company's future, you will need to determine what markets have a need for your specific type and make of truck.
Once you determine that your equipment is compatible with a foreign market, you must decide on the degree of involvement that you are prepared to make.
There are three levels of commitment:
Level One: The first level of commitment is to develop contacts that will purchase your surplus inventory and handle the entire transaction, incurring all the risk and handling the details.
This is very much like selling to domestic retailers. Your responsibility ends at the curb. The challenge here is to find organizations that directly handle exporting, while avoiding the many layers of consultants that do little but add on exorbitant referral fees.
This effort may be as simple as strategic advertising that encourages domestic exporters to seek you out. The alternative is to aggressively search for trade companies, distributors and foreign government agencies. These organizations usually deal in all types of commodities and are not used-truck specific.
Regardless of how you make contact with the exporter, the intent is to deliver your equipment at your location, thereby minimizing risk and exposure. The obvious trade-off is less profit for you.
Level Two: The next level of exporting is to commission an intermediary that has the knowledge and resources to successfully solicit foreign buyers.
This partnership should be with an experienced and proven trade consultant that has an established list of appropriate foreign contacts.
This will require more involvement at your end, but you will retain a larger degree of control.
Level Three: The ultimate involvement is to export directly. It is the most difficult. But it also has the greatest potential for maximum profit and long-term success.
To succeed in exporting, you'll need to understand and be tolerant of business practices that are unfamiliar.
The difference in language is one of the most obvious hurdles to overcome. Years ago, a non-English-speaking buyer visited my truck dealership looking for a large number of tractors. Our used inventory was 50 miles away, but I enthusiastically shuttled him to our satellite location.
As we approached the lot, his quizzical expression was cause for concern. It quickly became apparent that he was in need of farm tractors – not road tractors. We both wasted that day.
Currency presents additional challenges. Foreign banking practices are often inconsistent and arbitrary. Use a U.S. bank that specializes in foreign transactions and that has established banking partners in the country where you plan to transact business.
Accurate documentation is essential – a small error can delay or negate a deal.
The services of a freight forwarder is an investment that is well spent. They will provide the correct documentation, assist in getting your equipment successfully through customs and coordinate with the shipping lines.
Their involvement can be limited, or they can be assigned control of your entire transaction from the point of origin to the buyer's location. It is important to find a reputable freight forwarder that is specifically experienced with trucks and that has a business location or close contacts within the receiving country.
Extending Credit
Standard wisdom is to get the cash before the truck leaves the selling location. While this is excellent advice, there is also an opportunity to increase sales and profit by extending credit terms.
There are government programs that will loan exporters up to $2 million, with the U.S. Small Business Association and the Export-Import Bank of the United States guaranteeing payment. The export transaction can also be protected through a number of insurance programs.
Extending credit does increase the complexity of your transaction. But considering the very high costs of credit in many foreign countries, you can often present a very favorable financial package to the buyer while adding more profit to your bottom line.
Exporting trucks is not a new venture, but with the changing world and many Third World countries struggling to improve their financial status, there are numerous new opportunities for entrepreneurs willing to make the commitment of time, talent and resources.
Lee T. Wittmann's 44 years of experience in the transportation industry includes the development of remarketing programs for international truck manufacturers and the general management of full line truck dealerships.
His background includes the truck auction business, portfolio liquidation and sales training. He is president and owner of TQM Co. (Division Zia Projects Inc.). TQM Co. specializes in transportation marketing services and truck, trailer & equipment sales. Wittmann can be reached at lwittmann@skybest.com or (828) 387 3505.
Going Global continued...
