For a growing tea business, there comes a time when the urge to look at the bottom line comes into focus as sales grow. This invariably includes looking at the procurement of raw materials, and there always seems to be margin just waiting to be mined… or is there?
Procuring and importing raw materials – such as tea and herbs – is not as straight forward as it may seem. While there may be growing consumer reasons to buy direct, there’s also a host of importing requirements just waiting to trip you up as you start your journey down this road.
Let’s consider that you’ve already made the decision to import, and let’s and take into consideration the pitfalls that you need to skirt around. Then, we’ll balance this off with a counter argument.
THE ASSAULT COURSE: IMPORTING REQUIREMENT STEPS
1. FDA Registration: Online Registration of Food Facilities | FDA
Are you registered with the U.S. Food and Drug Administration (FDA)? All facilities handling product must be registered. There’s help for your offshore partners through the Tea Association of the USA, who can act as your U.S. agent (see information here). Without this, product cannot enter the United States and any associated charges (storage, demurrage) and a host of other nasties are your responsibility.
2. Foreign Supplier Verification Program (FSVP) (See Final Rule on Foreign Supplier Verification Programs from FDA.gov)
Either an importer/food owner in the states does their own FSVP or you can hire an agent qualified to check compliance docs from offshore manufacturing that “….ensure adequate assurances that their foreign suppliers are producing food in compliance with processes and procedures that provide at least the same level of public health protection as those required under section 418 (Hazard Analysis and Risk-based Preventive Controls) or section 419 (Standards for Produce Safety) of the Food, Drug, and Cosmetic Act….” With every entry filed, a customs broker must fill in FSVP party name, email address and DUNS number (a Data Universal Numbering System number provided by Dun & Bradstreet).
3. Importer Security Filings (ISF) / ISF or 10+2 (See E8-27048 from GovInfo.gov)
Once you have you FDA registration and your FSVP, remember this little beauty: The ISF is for all ocean imports and must be submitted at least 24 hours prior to vessel loading in the origin port. If it is not filed in a timely manner, a U.S. importer may be subject to a penalty of up to US$5,000. The good news is your broker should be able to file this on your behalf.
THE STEPS FOR EXECUTING A SHIPMENT
Tea importers have their FDA registration, as do the tea suppliers. Tea suppliers need to be clear in their presentation of their teas by correctly labeling them and ensuring that all this information is carried over onto the paperwork, including Harmonized Tarif Schedule (HTF) codes, which help authorities determine whether the product is subject to duties or other restrictions apply. You can find them here – see Harmonized Tarrif Schedule Codes (from Trade.gov) – from which the code for black bulk tea imports was gleaned for the image below.
A few important notes about the process for executing a shipment:
1. Documentation
- Commercial Invoice: Make sure this includes package types, number, net weight, description of goods, as well as unit value and total invoice values.
- Packing List: Make sure this includes packaging types, number, net weights and description of contents.
- Include the FDA registration number (11-digit number)
- Denote full manufacturer information, including company name and address.
2. Customs Examinations and Avoidance
However well you register and document, your product may be pulled for examination, which could be anything from an X-ray of the container to a full strip search. All of these events take time, may jeopardize your container free time, and will definitely cost your business.
3. Surviving the Course
Here’s how to potentially minimize expensive occasions:
- Ensure completed paperwork (being overzealous in this never hurt anyone).
- Avoid shipping from areas where international disputes exist.
- Avoid shipping from areas where the U.S. State department has an ongoing beef.
4. An Alternate Strategy: The Logic of Looking Elsewhere for Savings
You may feel put off from direct importation, but let’s try and make this about the correct business decision, rather than one that you feel forced into (courtesy of a lot of scaremongering by yours truly).
Answer these questions:
- Can my business consume a container load of product from one origin in eight weeks, regularly?
- Is my business stable enough to give me an accurate sales forecast that supports the above?
- If the answer to the first bullet point above is “No,” then you will be tying up a lot of cashflow in one origin – for a long time!
- If the answer to the second bullet point above is “No,” then you will be tying up a lot of cash flow in one raw material – for a long time! Consider this: How much stock do you have to hold to ensure no run-outs? Remember, shipping from origin, roughly (and varies), takes four weeks to procure and make ready for shipment, three to six weeks for ocean passage, and then add another two weeks for unforeseen events.
5. Less than Container Loads (LCL)
If still determined to DIY, there’s the opportunity to ship LCL, but this comes with the following compromises/potential concerns:
- Loss of control of the shipping schedule, as the consolidator must marry the same route/like products before sailing.
- Product integrity/security may be an issue, as you have less control over the conditions of stuffing or other products shipped in the same container.
- Trans-shipment possibilities may lead to physical damages or further delays.
6. Ruminating the Prospects of Direct Procurement and Shipment
In an ideal world, we would all do this, but there are additional costs and unknowns that make this less than a clear-cut decision.
- It requires cash and other resources that could be focused elsewhere.
- Cash turns and product freshness need consideration (buying through a consolidator of orders, for an ingredient, positively impacts both these).
THE FINAL WORD
Whatever you decide to do for your business, it must be attractive to the customer in the end.
Consumer interest in direct trade assumes that this route is fairer, but this is not necessarily so. You are more able to affect a required impact at origin by dealing with a large organization than trying to do this yourself. The aggregation of orders can also be an aggregator of program funding and application at origin.
The accelerated effects of climate change demands focus on our activity footprint and, within this, on the most efficient transportation of goods from source to market. Apart from the duty to do so, actions show your brand to be thoughtful, responsible and will save money when carbon taxing becomes the norm.In the end, the choice is yours.
John Snell, NMTeaB Consultancy, has spent 40 years in the tea industry, working with everyone from global brand leaders to traders and private label packers, in management of procurement, development and sustainability. His day job is now consulting for those that “do not want to spend 35 years trying,” in his words, and work ranges from product development and GTM strategies to international development projects. Snell has spent the last 27 years in North America, where he has been an active member of the trade, sitting on the board of the Tea Association of the USA and as a regular speaker at North American Tea Conferences. He sits on the Canadian Tea Association’s grading panel and is a regular contributor to World Tea News. If you ask him what “floats his boat” (a relevant analogy given his earlier days in the Royal Navy), it is always about empowering others to arrive at responsibly derived beverage solutions that deliver outstanding results for the companies he works for. He is clear that sustainably sourced and produced products are more profitable. To learn more, visit nmteab.com.
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World Tea Conference + Expo, March 27-29, 2023
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