Customary Cross-Border Payment Systems No Longer Apply in the Covid-19 Era

Prior to Covid-19, most cross-border trade payment methods relied on one known factor – risk profiles of the importer and exporter. An exporter wants to be paid in a timely manner and the importer wants to receive his/her goods promptly and in good condition. These simple requirements were easy to manage. To be sure, relative bargaining power played a role as well but, putting that aside, every payment method relied on perceived risks of getting the benefit of a bargain.

This is no longer the case; especially in the Covid-19 era and, most specifically, in relation to medical equipment or PPE products. In the past, traders who transacted business with Chinese exporters could hope that they would use Documentary Letter of Credit (LC) as a method of payment. This is no longer true, especially regarding PPE. The accepted payment method for PPE products from China is cash-in-advance. For the importer, this poses unacceptable risk. For the Chinese exporter, this is the safest method of payment. 

Why is this the case and can this divide be bridged? 

From the Chinese exporter’s perspective, it appears not, because they fear that their products can be rejected upon arrival at the destination port for any reason, including non-conformity. This would be the case where the trade term is FOB destination port. For the US importer, the issue is that the product they ordered may be substituted with an inferior version of the same product or may be non-conforming. These are real concerns.

The various concerns (of the importer and exporter) can be addressed. One method of addressing the concerns of both parties (exporters and importers) by 1) using services of agents (in both exporter and importer countries) who are knowledgeable about local export rules and regulations; and 2) employing product delivery terms that mitigate each party’s risk. 

  1. Use of Agents with Knowledge of Local Regulations: Chinese manufacturers of PPE products seem to have addressed this requirement by using licensed exporting agents (“Export Agents”) who are professionals with knowledge of export rules in China. The Chinese Exporting Agent’s role is to ensure that conforming products are shipped. They review the specifications of each item to be shipped to ensure the product specification and certification satisfies existing export regulations. US importers also have “agents” such as import companies and brokers 9US Brokers). However, neither the Chinese Export Agents or US Brokers share knowledge of local rules or have expertise in the other country’s export and import rules. Nor do these agents (Chinese and American) share information related to draft documentary letters of credits to ensure that the terms make the transaction possible (i.e. product delivery and payment). See this article for a good discussion of the various requirements to export from China:  https://www.chinacheckup.com/blogs/articles/china-foreign-trade.
  2. FOB Origin Delivery Terms: There are two forms of delivery methods commonly employed in cross-border trade: FOB Origin or FOB Destination.  Ideally, US importers prefer FOB Destination whereas Chinese exporters prefer FOB Origin. Compromising on delivery terms will mitigate the trade risk between these two countries. Chinese government has implemented very stringent measures aimed at stopping the fraudsters. These efforts are bearing fruit (in form of compliant PPE products) but has stalled trade. This is therefore an ideal time to go back to the use of LCs since FOB Origin delivery removes risk of non-payment for the manufacturer.  However, this means the risk of loss is passed on to the US Buyer/Importer in China. Since manufacturers use licensed Export Agents who are subject to severe government censure for export of non-conforming products, US Buyers/importers can now be certain they will receive conforming goods. Further, US Buyers/importers can be certain they will not lose their money to fraudsters because the goods are insured while in transit.

Cassona facilitates cross border transactions through document review (including draft LC and shipping documents), product inspection at country of origin and regulatory compliance. Further Cassona International has contractual arrangements only with licensed Export Agents who are vetted by our personnel on the ground in China. We have personnel on the ground in the US (San Francisco), China (Guangzhou & Shanghai), and EU (Estonia) to ensure we provide you real time assistance.  Get in touch. www.cassonainternational.com 

Export Import Bank of the US Discontinues Financing of PPE Exports from the US

The Export-Import (Exim) Bank of the United States has temporarily withdrawn all financing support for exports of “critical medical equipment” and supplies needed to fight the coronavirus. This restriction is effective from April 15, 2020 until September 30, 2020.  

The exclusion order applies to all its loans, loan guarantees, and insurance products covering the following items: 

  1. N95 respirators, 
  2. other surgical masks, 
  3. face shields, 
  4. medical examination gloves, 
  5. portable ventilators, 
  6. powered air purifying respirators, 
  7. medical gowns, 
  8. sanitizing and sterilization products, and 
  9. drugs containing hydroxychloroquine as their active ingredient.

The good news is that Exim is open for business and will continue to provide support for export of other medical equipment (including used/refurbished and new medical equipment) that does not qualify as “critical medical equipment” and supplies needed to fight the coronavirus. The Exim Bank reopened for large deal financing on December 20, 2019. In 2019, the total exports financed was a little over $9 Billion. Their current 2020 budget available for financing exports is approximately $175 Billion.

A further good news is that the Non-Woven Fabrics and Melt Blown Fabrics used for manufacturing some of the PPE was not in the list of items prohibited from export or export financing. These products are currently in short supply world-wide. 

Cassona International helps companies that export US goods and services provide credit facilities to their foreign customers. Contact us at through our website www.cassonainternational.com or info@cassonainternational.com or 415-533-7782; 510-295-3436 if you are an exporter and will like to explore an opportunity to provide credit facilities to your foreign customers to enable them purchase more of your goods and services.

FDA publishes a new list of Approved Chinese Manufacturers of Respirators

On April 13, the FDA published a new list of approved manufacturers. Specifically, the list shows “Authorized Imported, Non-NIOSH Approved Respirators Manufacturers in China”. https://www.fda.gov/media/136663/download. This new authorization builds on or expands on  the FDA Emergency Use Authorization letter of April 3. https://www.fda.gov/media/136664/download.
These new approvals is a welcome development because of the price-gauging that has been going on because of the avalanche of demand chasing fewer and fewer supplies of sorely needed Respirator.
Cassona works with manufacturers in China and we are happy to announce that we have a solid supply arrangement with at least 6 of the newly approved Chinese manufacturers in the list who supply KN95 Respirators.
We will continue to provide you updates on PPE news that will affect our collective effort to combat the Covid-19 virus. Please visit the News section of our website for future updates with regard to PPE products and developments: www.cassonainternational.com
We look forward to continued work with you to combat the virus.