30'^9 [Business B96 ^. pnir^^r^-^ Southern Branch of the University of California Los Angeles Form L-1 This book is DUE on the last date stamped below - 4 1924 -3 3 1928 -JUKI 4 1949 JAN 1 3 195S Form L-9-5)»-7,'22 Hm: II EXPORT HOUSES PARTI THE EXPORT MERCHANT By JOHN F. FOWLER Vice-President, W . R. Grace and Company PART n THE EXPORT COMMISSION HOUSE By C. A. RICHARDS Manager, Export Department, Bowring and Company PART III •• . - THE EXPORT FORWARDER By HENRY A. TALBOT Secretary, R. F. Downing and Company, Incorporated Being the Fourth Unit of a Course in Foreign Trade BUSINESS TRAINING CORPORATION NEW YORK CITY ^SSCbO Copyrijht, 1916, by Business Training Corporation [iVintid in tht United Statts of jimtrica] jt!l Riehti JUitrutd Course in rorci^ii i f aue V\ r Edward Ewing Pratt Director ' I ^j '\ Edward Leonard Bacher - Secretary '.> ^^ The text of the course is issued in TITLE I. Economics of World Trade II. The World's Markets III. Export Policies . . IV. Export Houses . V. Direct Exporting VI. The Export Salesman VII. Shipping . . . VIII. Financing . . . IX. Export Technique X. Foreign and Home Law XI. Importing XII. Factors in Trade-Building twelve units as follows: AUTHOR O. p. Austin Edward Neville Vo«e ( P. B. Kennedy ( E. C. Porter ijohn F. Fowler C. A. Richards Henry A. Talbot Walter F. Wyman Paul R. Mahony j Emory R. Johnson ( Grover G. Huebner ( E. A. de Lima ( J. Santilhano Edward L. Bacher PhanorJ. Eder Carl W. Stem Chauncey D. Snow BUSINESS TRAINING CORPORATION NEW YORK CITY CONTENTS Part I The Export Merchant I. Operations of the Export Merchant. ... i The Export Merchant Antedated the Ex- port Commission Merchant — How the Merchant's Business Is Organized — ^The Theater of the Merchant's Operations — The Merchant's Business on C. I. F. Terms — Characteristics the Export Merchant Must Possess — The Export Merchant Needs Capital — How Export Merchants Pay Manufacturers — How Customers Pay Merchants. II. Export Merchant's Relations at Home AND Abroad 13 Branches at Home — Branches Abroad — For- eign Agencies — ^The Export Merchant Practises Barter — Relations with Manu- facturers Not Always the Best — The Pio- neers in Foreign Markets — Cooperation with Manufacturers. Part II The Export Commission House I. What Is an Export Commission House?. . 27 The Primary Function of the Commission House — The Two Methods by Which the Importer Buys — ^The F. O. B. Basis — Advantages of Buying on F. O. B. Prices — The C. I. F. Basis — Relations of Commission House with Manufacturer — Comparison with Export Merchant and Manufacturer's Agent. II. Organization, Field and Methods 38 Home Organization — Branch Offices Abroad — Specializing in Products — Specializing in Markets — Three Methods of Getting Sales — Salesmen the Best Method — How Service Is Sold — Rates of Commission — • Staples Seldom Bought on Commission Basis — How the Commission House BuyS — How the Buyer Compares Prices — How Manufacturers Sell to Commission Houses — How Sales Are Finance d — Terms Usually Granted by Commission Houses. in. The Routine of the Export Commission House 59 Getting Credit Information — ^The Order Turned Over to Buyer — Where the Buyer Must Decide — The Work of the Shipping Clerk — The Work of the Bookkeeping Department — The Invoicing Department — When the Shipment Is on Board — The Invoice — Financing F. O. B. Business — Financing C. I. F. Business. IV. Manufacturers' Agencies 76 Three Types of Manufacturer's Agents — How the Commission House Acts as Agent — Advantages of the Commission House in Agency Work — ^The Future of the Export Commission H o u s e — ^Why Commission Houses Cannot Be Eliminated. Part III The Export Forwarder I. The Forwarder's Services at Seaboard. ... 87 The Manufacturer's Forwarding Problem — How Forwarder Assists Manufacturer — Shipping to Seaboard by Rail — From Rail- road Terminal to Steamer — Receiving at Dock — Export Declaration — Consular In- voices — Other Documents — Bills of Lading and Insurance — Cooperation between For- warder and Manufacturer — How the For- warder Combines Shipments — Forwarder's Bills of Lading. II. Foreign and Special Services by the For- warder 99 How a Foreign Agent Assists in Financing — Should a Forwarder Engage in Other Activities? — Steamship Lines as Forward- ers — Special Services by Forwarders — Assistance on Through Shipments — Mis- cellaneous Activities — Forwarder Essential to Trade Expansion. Pioneers of Export Trade THE pioneers of American industry, as a rule, have not been the pioneers of export trade. Two or three corporations, it is true, have pushed into every corner of the vv^orld; but the great majority of our manufacturers have been content to cut short their selling activities at the nation's edge. To the export house has fallen the task of ex- ploiting the great market that lies beyond our frontiers. In doing this the export house has served the manufacturer in many capacities — as his adviser, his salesman, his shipper and his finan- cier. The export house has been the middleman between American producer and foreign pur- chaser, the link between factory and consumer. In this way it has laid the foundations for many of our export businesses. A building must conform to the strength and shape of its foundations. Many an export trade has conformed to the foundations that the export house has laid for it. That this pioneer work of the export house has been efficient is attested not only by the prosperity of the businesses it has estab- lished for others, but also by the fact that many manufacturers are content to continue the export house in control of their trade overseas. The export house has been successful; i'js methods are deserving of study by all others who would also be successful in foreign fields. Part I THE EXPORT MERCHANT operations of the Export Merchant THE export merchant long antedated the export commission merchant. The ancient Phoenicians, sallying forth from their bustling seaports with bulging cargoes of oil, grain, wines and spices, were export merchants. So also the later traders of Venice and the men who ventured their lives and The Export Merchant , . , . , Antedated the txport their fortunes m the voyages Commission Merchant from Europe to the rich East and later to the shores of the New World were following the export merchant's trade. It was the tradesmen's desire to shorten the route from Europe to the Indies that led to the discovery of America, and it was a firm of export merchants that provided the private capital embarked in that enterprise. From those early days to the present, the export merchant has built his business about the same principle — the purchase of mer- chandise where he can get it cheapest and the resale of it to his foreign customer at his own price. Common-sense dictates that that price be a reasonable one and likely to com- pare with competitive offers. It is in this matter of prices that the merchant has had FOREIGN TRADE to exercise much judgment and to study his customers, individually and carefully. The conclusion he arrived at has usually embodied a very human desire to trade as profitably as possible, tempered always by a due recogni- tion of the particular customer's idiosyn- crasies. The export commission merchant came into existence at a later date. As has been ex- plained in a previous Unit, he differs in method of operation from the export merchant. If he keeps strictly to his function, the export commission merchant executes orders only for a stated commission. He buys or sells nothing for his own account, and closes a transaction only when he has received the necessary authority to do so from both seller and buyer. He assumes wittingly no risk beyond the im- portant one of his customer's credit. To be sure, no business is free from unexpected and unnecessary expenses arising from negligence, bad faith and other unforeseen circum- stances; the export commission merchant has his full share; but with him they are rather to be dreaded than actually expected. In the long run they probably have a more percept- ible effect upon his disposition than upon his profit and loss account. The merchant, in contradistinction to the commission merchant, need not wait for defi- EXPORT HOUSES nite orders before buying such articles as in his judgment offer a good market. He may have very good reason for believing that lumber, provisions, canned goods, or a number of other articles are likely to advance in value in the near future. In these cases he will frequently, though as a rule cautiously, speculate. He may do the same as regards chartering vessels or booking freight space. In fact, his ability to provide freight space for a given shipment is frequently of the greatest assistance in the securing of orders. Today, however, both export merchant and export commission merchant usurp to a large extent the functions of each other. It may be doubted whether there is a firm of ex- port merchants in existence which does not often act on commission, or whether there is an export commission merchant able to resist the temptation to act occasionally as an export merchant. Export merchants In this country, generally speaking, conduct their business much on the same lines as do the merchants of England, Germany and other European countries, though perhaps in the two countries named there is a greater tendency to combine the functions of the export merchant more inti- mately with those of the banker. Such con- cerns extend credits to their foreign customers, FOREIGN TRADE charging a commission and interest, but fre- quently leaving buyers free to purchase direct from manufacturers or specialists in given articles. In such cases, the purveyors collect the invoice values from the export banking house. The organization of the export merchant's business follow^s a logical arrangement. There is the head ofRce at some important ocean port, one of the great How the Merchant's assembling and distributing Business Is Organtzed . ° , , , , j pomts at seaboard where land- and sea-transportation facilities combine to serve the persistent demands of international commerce. In this head office, the general policy of the concern is directed and de- veloped, credits to customers are determined, finances are controlled and a general super- vision of the entire organization is exercised. Here, also, most of the business is directed and the principal buying and shipping are done. Merchants who maintain relations with dif- ferent parts of the world usually divide their forces into geographical departments, each dealing with its own "territory" and acting in- dependently of the others. An export mer- cantile house, for instance, may have a West Indies department, a Brazil department, an Australian or a European department, etc. AN EXPORT MERCHANT'S HEAD OFFICE From their New York office, W. R. Grace & Company direct their business in various parts of the world EXPORT HOUSES Such a division of labor would suggest itself, in any case; in the export trade it is doubly necessary. Most of the clerical work — and it is just here that so many annoying and ex- pensive mistakes arise — is necessarily in- trusted to subordinates, young men in course of training, some of them embryo export merchants themselves, but prone to more than occasional errors. The requirements of for- eign countries in the intricate details of docu- mentation vary in many important respects. Markets taking the same article may each want it packed differently and under different brands; while customs regulations vary so widely that the penalty for an infraction may, for the same offense, range from a nominal fine in one port to a confiscation of the goods and heavy penalty for the ship in another. By encouraging the staff of a particular depart- ment to concentrate energies and intellects on the special features of one market, or one group of markets, the opportunity for mis- takes is minimized and better results are ob- tained in every respect. The workers then become, to a large degree, specialists in the requirements of those markets. Generally the export merchant confines his operations within certain geographical zones, and ventures outside of these only with caution. For instance, one firm will operate FOREIGN TRADE in Australasia, another in South Africa, a third on the east coast of South America, another on the west coast, or in some part of the Orient, and many ex- The Theater of the ^^^.^ g^j ^^ j^ ^ f^^ Merchant s Operations , . ..... their energies within the circumscribed area of the West Indies. The reasons for specializing in certain ter- ritories are various. Experience has shown that, with interests scattered in too many places, far apart and differing widely from each other, there Is a serious loss in efficiency. It is also true that one grand division of the world's commerce generally offers sufficient opportunities to engage the undivided and specialized attention of the most energetic. Furthermore, there is a recognition — not ex- pressed nor even tacit, but rather, subcon- scious — that the practise of leaving to certain groups of merchants particular spheres of in- fluence acts as a check on needless, ignorant and reckless competition. There are, indeed, concerns which profess to operate in every part of the world open to sea-borne traffic; but it would be difficult to point to a single one of such houses which approaches pre- eminence in any one foreign market. We must except, of course, that class of specialists handling staple commodities, such as grain, cotton, metals. While they are both EXPORT HOUSES exporters and merchants, they are not strictly classed as export merchants. A large part of the export merchant's busi- ness is necessarily done on modern C.I.F. (cost, insurance and freight) terms. That is, he agrees to furnish the goods, provide transporta- '^J'' ^'/'^'^f' ^«^'«^^^ ° , - ,. On C. I. F. Terms tion to destmation and m- sure against marine risks. He does not agree, as is frequently and mistakenly supposed, to deliver the goods at the destination. His obli- gation under his contract of sale ends when the goods, properly protected by marine insur- ance, are put on board the vessel at loading port and the rate of freight fixed. If the freight is payable abroad, it is deducted from the C.I.F. value and the customer charged with the balance of the invoice. This method of buying offers many ad- vantages to the foreign purchaser. He knows precisely what the goods will cost and there- fore how much he must ask his own cus- tomers. The risk in providing tonnage or freight room is eliminated for him, and fluctuations in freight rates have no bearing on his price. It is true that the commission merchant can also offer tonnage or freight room when offer- ing goods, but, in the nature of his business, he cannot do more than cable the freight rates 8 FOREIGN TRADE quoted and current at the time. If his offer is accepted and he neglects to close the freight space before rates decline, he would have to give his client the benefit of the reduction; vs^hile, if they advanced, he would assuredly have to assume the loss himself. The export merchant naturally prefers to protect himself by securing the necessary op- tions when he can; but, in normal times, he is ready and willing to take a chance rather than defer action and keep his prospective buyer impatiently waiting for an offer. In many cases the export merchant's offer has been received, considered and accepted before the commission merchant is even ready to cable. In full cargo business the merchant, by reason of his readiness to rely on his own judg- ment, has a further advantage. While the commission merchant must wait to obtain re- fusal of a vessel, or, failing this, content him- self with cabling a mere "indication" of what can probably be done, the export merchant is not hampered by these restrictions. After weighing his prospects pro and con and with a minimum of delay, he will make his decision and cable his offer accordingly. Needless to say, the merchant is not neces- sarily of wider experience or a higher order of business intelligence than the commission EXPORT HOUSES merchant. Numerous foreign concerns leave their interests entirely in the hands of the commission men with satisfactory results. It is obvious that the export merchant must frequently assume very serious responsibilities and risks. The only way to minimize these is to learn from experi- ence and to watch closely all Characteristks the „ . , . 1 . txport Merchant matters affectmg his busmess. Must Possess He must keep intimately in touch with both railway and ocean freights and the tonnage situation generally. He must be ever on the watch for incidents — financial, political, economic — likely to affect his markets or the sale of any of the innumerable articles he exports. In addition he must be gifted with a certain amount of imagination, the same imagination that urged the early Phoenician merchants toward untried risks and across uncharted seas. The merchant who is content to follow the beaten tracks of his predecessors and competitors may meet with a certain measure of success, but he will never rise above mediocrity. The export merchant of to- Ij"' ^^'"''^ Merchant J ^ J • t Needs Capital day must command capital commensurate with his undertaking and be jealously careful of his financial standing. One of small capital will have a hard and long fight ahead of him before he can hope lo FOREIGN TRADE for the desired success, and to attain that suc- cess he must be gifted with energy and busi- ness acumen above the average. A sudden change in prices or in freight rates or in a foreign situation may wipe out his resources within a few hours, leaving him without the means to retrieve his misfortune. Rare indeed is the export merchant who, reviewing his operations even over a preced- ing 12 months, finds therein nothing but an unbroken list of ventures brought to success- ful conclusion. The pitfalls and snares which infest his pathway cannot always be seen or guarded against; sometimes, even when in plain sight, they cannot be avoided. On these occasions he must stoically make the best of it and face his losses with such equanimity as he can command. The basis on which the export merchant finances his operations is credit; this is true whether his capital be in eight figures or in four. He purchases, almost How Export Merchants without exception, for pay- Fay Manufacturers . . ment m three, ten or 30 days, according to the custom of the trade. A few very large manufacturers make it a rule to demand from all buyers payment in exchange for ship's receipts; some manufac- turers and packers at a distance from the sea- board draw for the invoice value of their EXPORT HOUSES ii goods on demand or up to 30 days' sight, as soon as the shipment leaves their hands. But the majority of sellers for export make de- livery of their goods as instructed and render their bills to the merchants in the full assur- ance that payment vi^ill be forthcoming at the proper time. As regards reimbursement, the merchant arranges to receive payment from his foreign buyers in one of the following w^ays: 1. He debits the customer on his books under an engagement on the part of the buyer to remit the value within a stated time; gen- erally the duration of this period is stipulated at the inauguration ^^w Customers , ^t . ^ . ray Merchants of their relations. 2. He draws on buyers direct at so many days' sight or date. In this case, he usually negotiates the draft, selling it at the current rate for such bills to a foreign exchange house or bank. In this way, he receives his money without delay, though remaining liable for the amount until the draft is paid. 3. He draws on the customer and sends the draft, for collection, through a bank or to his own branch house or to the agent at destina- tion. When collected, the money is remitted to him or disposed of as he may instruct. 4. He draws under letter of credit, opened by his buyers, with a bank situated at desti- 12 FOREIGN TRADE nation or in some financial center (notably London). Not infrequently he is asked to draw at 60 to 90 days on a private mercantile house, generally situated in some center such as London, Hamburg or Paris. 5. He may reimburse himself, for the time being, by availing of credits extended to him by banks or banking houses at home or abroad. These are open credits and the bank relies solely on the merchant's promise to cover its acceptance before maturity. This is an ex- pensive way of financing, being practically equal to doing business on borrowed money. 6. He makes the customer deposit cash before shipment, but this is a rare exception. 7. If the foreign buyer be himself an ex- porter of produce, as is sometimes the case, there may be an exchange of commodities, the buyer covering his purchases by shipments of sugar, cofifee, hides or other articles. This is the ideal arrangement for conducting a for- eign business, provided the customer's ship- ments keep pace, in value and in time, with his purchases. II Export Merchant's Relations at Home and Abroad AN important feature of the export mer- chant's business is his organization of branch houses, agents and representa- tives. These are sometimes established not only abroad but in the home country as well, where, at various points, it has been found desirable to be personally rep- „ J T-. • •> ^ Branches at Home resented, ror mstance, many New York houses have branches at important shipping points such as Baltimore, Savannah, New Orleans, San Francisco, as well as agents in certain interior centers of industry. In the United States the great distances from coast to coast would seem to make this a necessity. However, distances and the danger of delays in communications are not the sole reasons for establishing branches. This is shown by the fact that even in a small area like Great Britain, export merchants with head offices in London frequently establish important branches or agencies at such centers as Liver- pool, Manchester, Newcastle and Glasgow. Everywhere, the personal equation counts heavily for failure or success. The "man on the spot" is generally at an advantage. 13 14 FOREIGN TRADE Branch houses abroad differ from the home office only in degree. The efforts and re- sponsibilities of a branch are confined to its r. , A, , own territory, and generally in- Branches Abroad i j i • i r elude the important task of choosing subagents in the outlying districts who, in turn, report and are responsible to the branch. It is not unusual for a branch house to be managed by one of the partners of the firm. Naturally, each entity must "nurse" its own customers, find new ones, watch very carefully and report to the nearest main office the standing of the local business community, advise as to credits, listen to the complaints and assuage the ire of dissatisfied customers and, in general, assume the position of the second-in-command, who, Kipling tells us, is appointed principally to accept the blame for everything that goes wrong. The branch keeps a watchful eye on the house's competitors, complaining indig- nantly if undersold, but willing to accept full credit when satisfactory orders testify other- wise. It is expected to be constantly in- formed as to stocks on the spot and to foresee, ahead of competitors, a demand for certain merchandise. Guided by the information of this nature received from its branches, the head office regulates its long or short interest in a variety EXPORT HOUSES i^ of goods, selling or buying ahead as circum- stances and advices from abroad may war- rant. Export merchants, other than specialists in a very few articles, do not as a rule carry stocks in the United States. The nearest they come to it is in this buying from manufacturers in anticipation of requirements. In such cases, of course, the goods usually remain at the fac- tories or packing-houses and are delivered to the ocean-going vessel when ordered by the merchants. Some branch houses, however, especially in locations far distant from the source of supply, frequently carry consider- able stocks of readily merchantable commod- ities, in the manipulation of which discretion and judgment are required. In addition, the branch house attends to the purely physical matter of taking charge of freshly discharged merchandise, and sees to its delivery to the buyers, particularly to those at a distance. The dunning of recalcitrant or unfortunate debtors is another and an unpleasant task which all branches or agencies have to assume. It must be said, to the credit of most of the responsible export merchants, that they err, if anything, on the side of complaisance, by "carrying" the customer and rarely proceed- ing to extreme measures with honorable debtors, so long as there is any evidence of ability and an honest desire to pay. i6 FOREIGN TRADE Foreign "agencies" are established for very much the same purposes as branch houses. After an apprenticeship they some- . . times attain to the same dignity. Foreign Agenaes rp, , ^, . ° 1 hough these agencies are not so closely identified with the head office, they are expected to neglect no opportunity to ad- vance the interests of the parent concern. There are exclusive agencies and non-exclu- sive agencies. There is nothing to prevent the latter from acting for one or more additional interests provided no two accounts clash. For instance, a concern established in Melbourne, while serving as agent for a New York ex- porter could consistently represent a fire in- surance company, a steamship line or other interest at the same time. It could not serve another American export merchant nor the manufacturer of a competing line of goods. The duty of a foreign "agent" to his "prin- cipal" consorts with his own interests, since his remuneration and tenure are usually de- pendent on the volume and success of his sales. In fact the foreign agent of an export house differs but slightly from any other kind of selling agent. He canvasses his trade for orders, cables or telegraphs to his principals for prices, and books as much business as pos- sible. The best type of agent will go beyond his mere perfunctory duties, and in the inter- EXPORT HOUSES 17 est of all concerned will take upon himself more of those functions which are obligatory upon a branch house, keeping his principals well-informed on all matters of mutual con- cern and doing his utmost to forward and foster the common interest. This is the type of agent for which export merchants are always looking. Some export houses have traveling salesmen, who are sent out from the head office, but the larger concerns usually rely upon their branch houses to attend to this phase of the business. These foreign branches send traveling men to such towns as are not covered by the regular agent or representative. Furthermore, it is not unusual for the head office, working in con- junction with the manufacturer, or sometimes a combination of two or three manufacturers, to use a special traveling salesman to introduce and push the sales of given articles. In general, the assistance on which the ex- porter relies to advance his business is that which comes from the principal branch offices abroad. These, in turn, rely on their own subsidiary agents and representatives. Adver- tising is limited, though some exporters issue at stated intervals a trade journal and list of prices current, which, being distributed in the proper quarters, serve as an advertisement. Trade, in its fullest development, must be 18 FOREIGN TRADE mutual. The essence of international trade is barter, and the United States cannot reason- ably expect the enormous increase in its export trade, for which the press in- The Export Merchant gi^tently clamors, until it is Practises Barter , j i • j also ready to buy an mcreased amount of foreign products. It will be found that the nations which are the leading export- ers of competitive merchandise are usually the most extensive buyers; and that the smaller purchaser must remain content with a propor- tionately smaller share of exports. Especially has there been a tendency to magnify the waiting opportunities in South America. That continent, no doubt much to the surprise of its inhabitants, was recently depicted in the same light as in the early days of its discovery — an "El Dorado" promising a golden return to the hardy explorer of its untrodden wilds! It was assumed that the South American continent had been almost neglected by the exporters of the United States. The facts are altogether to the contrary, and it is doubtful if there is in the southern conti- nent a single town or village dignified by the possession of a general store which is not reached from time to time by the export mer- chant's representative. Unfortunately, the attitude between ex- port merchants and manufacturers has not EXPORT HOUSES 19 invariably been of the best. Each has com- plained at times of unfair treatment by the other. In years past a few exporters of easy principles may have taken ad- vantage of the manufacturers' ^f^^^onsM ^ .,. . . , Manufacturers lyot unfamiharity with export cus- Always the Best toms to the extent of collecting annual salaries, or usurious commissions for services either entirely neglected or but poorly performed, and perhaps in other ways. Such cases, however, were exceptional and the abuse has pretty well run itself out. The principal grievance that a manufac- turer can now hold against the merchant is that the latter charges for a service which the former thinks he can perform equally well. So manufacturers have proposed the cutting out of the merchant, thus saving his commis- sion or margin. Some manufacturers have acted on this inspiration and express satisfac- tion with the result. Whether this is really as roseate as is claimed may be doubted. Fac- tories and mills have a habit of charging cer- tain expenses such as interest, telegraph tolls and similar items — whether applying on for- eign or domestic business — to one general ex- pense account where the amounts expended on foreign trade are entirely lost sight of. The merchant, on the other hand, must watch his interest and expense accounts carefully, 20 FOREIGN TRADE knowing that they represent an appreciable percentage on each sale. Merchants and commission merchants have invariably been the pioneers in foreign markets. In practically every instance man- ufacturers have assured their en- The Pioneers in j^^^ f^^^j markets through Foreign Markets / ^ , . ^ , the agency and enterprise, and frequently on the invitation, of the export houses. From the outset, they have received payment for their goods as soon as loaded on vessel — frequently before, as for instance, v^hen shipment may have been delayed at the seaboard. The exporter secured the foreign buyer, shipped the goods, financed the trans- action and generally waited three to six months for his money! One would think that this method of sell- ing abroad would have proved satisfactory; but some manufacturers, after enjoying for a year or two the benefits and facilities afforded, including the advantage of the exporter's ex- perience, advice and education, have deliber- ately pushed the exporter to one side and ap- proached and sold his customers direct. In occasional cases they have even extended long terms of credit to the foreign buyer after de- clining to allow anything but cash terms to the export merchant himself. Other manu- facturers, and these are far in the majority, EXPORT HOUSES 21 continue to sell through the exporters and usually their relations are mutually satisfac- tory. The merchant generally is willing to act for manufacturers in foreign markets. If the article offered is of sufficient importance, it is customary for the parties to enter into a working contract, (^^^operation with rr., . . . , . Manufacturers Ihis varies with circumstances. Perhaps the contract in most general use is one which provides that the merchant, in con- sideration of an exclusive agency, shall guar- antee to take a stated quantity of the article manufactured. A very large number of nationally known manufacturing concerns handle their foreign sales in this manner, and long years of experience have apparently con- vinced them that a more equitable arrange- ment can scarcely be devised. There are other articles which involve in their exploitation much heavier demands on the merchant's time. Their introduction calls for a large amount of missionary work. In such cases the manufacturers must be pre- pared to stand a fair share of the extra ex- pense as, for example, the salary of a salesman especially assigned to introduce the wares. Manufacturers will frequently offer the ex- clusive agency for their goods in exchange for an agreement on the merchant's part to intro- 22 FOREIGN TRADE duce and push the sale. In such cases the merchant will patiently point out that his force is already fully occupied; but that he might secure a suitable man to visit the for- eign trade in the manufacturers' interest, pro- vided they will pay the traveler's salary. Usually then, the manufacturers will depart in dudgeon, convinced that the merchant has been trying to get the better of them; and this conviction will probably color their attitude toward the export merchant in general until they have tried the experiment themselves and discovered their mistake. It should be borne in mind that a great deal of initial hard work has to be spent in introducing a new article, even though the exporter's foreign representatives have the ear of the buying community. If a certain success results, it is mainly due to the relations already established through years of hard work and a knowledge of local conditions. The advantage to manufacturers of dealing solely through export merchants (whether traders or on commission) ought to be con- vincing. The merchants understand the dif- 'ferent markets thoroughly; they have sources of information as to buyers' financial stand- ing which are unknown to newcomers; they have trained men on the spot who know how to approach and handle the local buyers and EXPORT HOUSES 23 who can generally be depended upon to push the manufacturers' interests as their own. A merchant at the home ports attends to all the details connected with the shipment, as well as to the documentation — which is no trivial matter. A slight error in bill of lading or consular invoice may result in an exorbitant fine imposed by the foreign custom house. The manufacturer may conceivably make occasionally a slightly larger profit on his product by selling direct, provided every- thing goes right. Afifairs not infrequently go wrong, however; and, with his customer thousands of miles away, the adjustment is then a matter of difficulty to the manufac- turer and, in most cases, of heavy pecuniary loss. In many foreign countries, lawsuits drag on interminably and a foreigner, even on the spot, has but a meager chance of recovering. The wise manufacturer will generally prefer to trust himself and his goods in the hands of the reputable export merchant, in the assurance that he will be paid for his goods promptly and avoid the manifold ills which beset the unwary adventurer into unknown markets. There are one or two colossal manufactur- ing concerns that can advantageously handle their own exporting. Their operations are 24 FOREIGN TRADE world-wide and they have their own corps of trained exporters, just as some of them have their own factories for making packages, and others even their own timberlands for sup- plying the wood packing-cases. Their names will occur to any one. They are the giants of industry and trade. They belong to a class by themselves, yet there is cumulative evi- dence that they find that foreign offices are ex- pensive much beyond all expectation, com- pared with their home agencies; and further, that the securing of able and reliable person- nel for these foreign offices is always a difficult problem. Part II The export commission house What Is an Export Commission House? THE export commission house has been in existence in the United States for the past half-century, or ever since the country began to engage in foreign trade of any con- sequence. In Europe this type of middleman has been in business for a much longer period. Broadly defined the export commission house is a concern which acts primarily as the agent of an importer in a foreign country who is desirous of purchasing some article made here. The im- The Primary porter appoints the export com- ^^^*^^J^ f/^Jf . . , I • ^1 • 1 Lommtsston House mission house his theoretical at- torney to do such work as his branch office would be called upon to perform. Misunder- standings between manufacturers and commis- sion houses have been due to the fact that manufacturers often forget that the export commission house is primarily working for and being paid by the foreign importer and that in that capacity it must act primarily for the benefit of its employer, the foreign importer. The relations between the foreign importer and the export commission house are as a rule very close. This is necessarily the case as the foreign importer has to place great faith in the 27 28 FOREIGN TRADE export commission house and must, in order that this confidence be not abused, know the personnel of the export commission house intimately. Generally these relations, once es- tablished, continue for many years, and it is not until some serious mistake is made by the ex- port commission house or some serious ground for complaint given, that the foreign importer leaves the export commission house he has been employing, and goes to some one else. The foreign importer may buy from the ex- port commission house on either one of two bases. First, he may buy on what is com- monly called an F.O.B. basis. The Two Methods ^^- ^^^ ^^ ^^^ commission by Which the i i • i • Importer Buys j^^^^^ ^^ ^'^ ^^^ ^^^""^ ^^^ g^^" ing it discretion to purchase at the lowest price obtainable such goods as he requires, the export commission house charg- ing the foreign importer an agreed-upon com- mission on his various disbursements. Or second, the foreign importer may request a price which includes the commission, or profit of the export commission house, added to the cost of the goods, the insurance and the freight, making a C.I.F. price. In the first method, the export commission house is acting as a buyer or agent for the for- eign importer. In the second, it is acting as a principal. EXPORT HOUSES 29 As regards the first or F.O.B. method, the services performed begin with the request from the foreign importer for information with reference to the details and Tit t? f^ H prices on the particular lines in which n^' ' ' he may be interested. The export commission house is presumed to know who are the best manufacturers of this article and to have in its employ men who have a general knowledge of manufacturing in this country. Their general knowledge is supplemented by all the available trade directories and trade magazines. After the necessary information for the for- eign importer is procured, if he decides to pur- chase a particular machine or other article, he sends the export commission house what is commonly called an indent or order. This order either instructs the export commission house to buy from a particular manufacturer or leaves it to the discretion of the export com- mission house where to place the business. The foreign importer advises the export commis- sion house whether to attend to the insur- ance or whether to declare the shipment under the foreign importer's own policy; whether to ship as soon as possible, or during a specified month, and how to reimburse itself for its out- lay. The export commission house then pur- 30 FOREIGN TRADE chases the goods and attends to the booking of the freight, follows up the manufacturer to see that the goods are shipped in accordance with the contract, ships them when ready, pays the freight, attends to the insurance according to instructions, taking care also of any custom house formalities; and finally, in most cases, draws upon the buyer to reimburse itself for the cost of the goods and the charges, including its buying commission. Where a manufacturer is big enough to solicit his own business direct from the foreign importer, and will handle all the details of his foreign shipments, the services of the export commission house have oftentimes not been re- quired. But it must be apparent that a large and competent staff is required to handle the various classes of work that the export commis- sion house performs, and it is hardly within the bounds of possibility that the export com- mission house will ever be eliminated. The foregoing illustration is based on the assumption that the buyer is purchasing a single machine or one article. Sometimes, however, the foreign importer ticulars of the goods he wants, but makes up his indent perhaps 20 or 30 pages long, calling for an assortment of goods, the manufacturers of some of which he may EXPORT HOUSES 3^ know and of others not know, leaving it gener- ally to the export commission house to pur- chase from reliable concerns and at the best prices. In the case of indents of this character the services of the export commission house are absolutely requisite to the trade. The foreign importer could not afford to have each manu- facturer ship to him direct for the reason that steamship lines have minimum charges, which would burden his small orders with ex- cessive freight expense. The small commis- sion charged by the export commission house is quickly repaid by the savings that the importer is able to effect in his purchasing ability, in economical handling of freights and general savings in charges. The export commission house does not necessarily stop with buying and shipping. It may be that the foreign importer is honest but has limited resources, and cannot trade on his own capital to any great extent. It is quite common, therefore, for the export commission house to allow the foreign importer a certain line of credit, depending on his standing in the community and the amount of his capital, such credit usually taking the form of drafts on the foreign importer at 30, 60 or 90 days' sight, with instructions to the bank to allow the for- eign importer to obtain possession of the docu- ments on his acceptance of the draft. As a rule, 32 FOREIGN TRADE the export commission house gets no additional commission for extending this credit. This credit is one of the greatest abuses to which the export commission house is subjected, as some foreign importers will take advantage of it to overtrade by keeping the export commission house in ignorance of their purchases and playing one export commission house against another. It should be explained that while the export commission house does not as a rule charge the foreign importer for this extension of credit, ' the interest involved is always paid by the for- eign importer, and is either charged on the ex- port commission house invoice or (in some countries) is added to the face of the draft by the banker and collected by the bank when the draft is paid. In the case of goods sold on a C.I.F. basis, in which the export commission house is in reality the principal, the services performed are very much the same as when the transac- TheC. I. F. ^-Qj^ -g ^^ ^^ F.O.B. basis ; but in mak- ing sales on this basis, the export com- mission house is naturally in competition with others, and therefore can secure only the mar- gin of profit which the competition will allow. In many instances no margin of profit whatever is figured in the price, the export commission house relying on its ability to purchase from EXPORT HOUSES 33 the manufacturer at a lower cost than that figured in its quotation or offer, or in normal times it may reckon on the possibility of gain- ing some advantage in freight. The advantage to the foreign importer of buying on the C.I.F. basis is obvious. In buy- ing on an F.O.B. basis, he is unable to sell his goods before they are received and until he knows exactly what the insurance and freight amount to ; whereas in buying on a C.I.F. basis he knows exactly what his goods will cost him, can approximate his duty and landing charges, and can sell the goods either before or as soon as he has advices of their being shipped. In the case of certain lines in which competition is keen, it would be practically impossible for a merchant abroad to buy on any other than a C.I.F. basis. On the other hand, there are cer- tain goods which vary in measurement or weight, so that the labor involved in figuring C.I.F. prices as well as the risk in such quota- tions would make it impossible to quote C.I.F. prices economically or safely. Were it feasible, the importer would buy only on C.I.F. terms. But it is difficult for a commission house to quote C.I.F. terms on specialties as it does on staples, for the commis- sion house would find it almost impossible to know the measurement and weight of some goods before they were packed. It is easy for a 34 FOREIGN TRADE commission house to quote a C.I.F. price on a carload of wire nails because it knows that a keg of nails will weigh so much and measure so much, and it can get a freight rate accord- ingly. When it comes to shipping sundry shelf hardware, for example, the weights and measurements could never be determined until the quantities ordered were packed. The relations of the export commission house with the American manufacturer are generally not so close as its relations with the foreign importer, for the reason Relattonsof ^^^^ ^^^ export commission Commission House , i n j with Manufacturer '^""^^ "^^y be called upon to purchase from a manufacturer one day and possibly not again from the same man for years. On the other hand, it is very likely to be in close touch for years with the buyers abroad. The services which are per- formed, however, are as useful to the manufac- turer as to the buyer abroad. In the first place, the average manufacturer engaging in a gen- eral export business must make use of the export commission house or his selling expense will eat very heavily into his profits. The ex- port commission house makes no charge to the manufacturer except in special cases noted later in this Unit. By using the export commission house the manufacturer is able to ship to a concern in his EXPORT HOUSES 35 own country rather than become involved in the details of ocean bills of lading and custom house formalities ; and, what is most appealing to the average manufacturer, he receives his cash from the export commission house promptly when due instead of being obliged to investigate the credit of possibly thousands of customers, and then have the accounts open on his books for many months or until informed by his bankers that his draft on the customer has been paid. The manufacturer often expects an unrea- sonable amount of service from the export com- mission house. If the export commission house performed no other service than that of receiv- ing the goods from the manufacturer and pay- ing for them, its work would be a distinct com- mercial asset. In addition to this, however, it is called upon for so much additional work, which it performs for the manufacturer freely and gratuitously, that it is difficult for the writer to understand how any manufacturer, except one or two of the largest, can afford to ignore the export commission house. Even the Standard Oil Company and the United States Steel Products Company, two of the largest export manufacturers in America, still sell their products in certain markets through the export commission house; and it was only when their business grew to such a volume as 3b FOREIGN TRADE to make it advisable for them to do so that they opened their own branches. A large percent- age of the business of the United States Steel Products Company is still handled through export commission houses and is paid for by them even though the United States Steel Products Company, like the Standard Oil Company, has agents in most of the places where the export commission houses are represented. The export commission house is distinct from the export merchant in that the commis- sion house usually acts as an agent buying what it is instructed to or else Comparison withExPort ^ ■ ^^^ g^^j gj^^l_ Merchant and ^ , r-. t t-* i_ • Manufacturer's Agent ta-ieously on a C.I.F. basis, whereas the export mer- chant, so-called, generally buys on his own init- iative and responsibility,carries stocks andsells at prices established by himself, not charging any commission but fixing his own margin of profit and including it in the price. As com- pared with England, there are comparatively few export merchants in this country, and the ones who are here generally confine their ef- forts to comparatively few markets, whereas the average export commission house is gener- ally operating throughout the world. The export commission house is distinguished from the ordinary manufacturer's agent in EXPORT HOUSES 37 that the former is presumed to buy from any manufacturer designated by the foreign im- porter, or when selling on a C.I.F. basis to hold itself free to buy from any firm that best suits its convenience, whereas a manufacturer's agent is, as the name implies, the agent of one manufactuer of a certain line and rarely carries a competing line. The orders pro- cured by the manufacturer's agent resident in this country or traveling abroad, as a rule, reach the manufacturer through the export commission house. There is little distinction in this country between a manufacturer's agent and a manufacturer's salesman, except that it is becoming more and more the practise with manufacturers to pay their agents a commis- sion on the results obtained instead of putting them on a straight salary basis. 11 Organization, Field and Methods HEADQUARTERS for the majority of American commission houses are lo- cated in New York. They are for the most part American concerns financed by American capital and employing in their head offices a certain number of foreigners to handle correspondence where some J^^^ . . language other than English is re- Vrgamzatton •!/->. n i quired. Generally, the export com- mission house is made up of units, a minimum unit consisting of a buyer, a correspondent, a shipping clerk a billing or auditing clerk, an invoice clerk and a bookkeeper. These units are of course amplified as the volume of business increases. In the case of an export commission house with operations in several countries, a buyer with his department is assigned to each coun- try. The buyer keeps in touch with the gen- eral market conditions in that country and en- deavors to become personally acquainted with the foreign buyers, keeping up the relationship by occasional trips and constant correspond- ence. If the buyer has to deal with a Spanish- speaking country, he must be able to cor- respond in Spanish as well as in English. In 38 EXPORT HOUSES 39 addition to the general buyers, there are in large organizations experts who handle only certain articles requiring more technical knowledge than the average buyer can be ex- pected to possess. For instance, many large firms have their own dry-goods experts, some have chemists, some engineers, these men act- ing in an advisory capacity to the other buyers. In those centers where its volume of business is largest the American commission house gen- erally maintains branch offices under its own name. In cities where its trade is not sufficiently great to warrant the ^^^^^^^^""^^ maintenance of a complete staff, it works through agents who trade under their own name as agents for the American com- pany. The branch houses are of course under much closer supervision of the home office than are the agents. The latter are generally brokers doing whatever business comes their way, but are not so aggressive as the branch houses. As a rule, the branch houses are in charge of men who have been trained in the home office, and who make frequent trips to the home office in order to keep in touch with headquarters and with business in this coun- try. These men are assisted by natives of the country in which the branch is located and in some cases the native may be the head of the 40 FOREIGN TRADE branch office. Branch houses are an essential feature of a large export business. There are numerous commodities on which prices are constantly fluctuating. By the use of complicated codes the home office is able to keep the branch office advised of such changes in prices. The branch office in turn distributes this information either by tele- graph or by mail to its customers and prospective customers throughout the country. The average commission house handles all classes of merchandise and in addition it fre- quently specializes in certain goods. Some commission houses have for years Sfiectahzmg specialized in patent medicines and in Products J ^u u • i • j • drugs; others have specialized in heavy drugs and chemicals, or in dry-goods, or in clothing, or in foodstuffs, or in machin- ery and heavy hardv^are. Sometimes a com- mission house will specialize in some one class of merchandise in one territory due possibly to the fact that its salesmen in that territory are particularly capable of selling that line, whereas in other markets the salesmen may be more interested in other articles. There is therefore no general rule. There is the distinct advantage in specializ- ing that a buyer will always prefer to do busi- ness with a man who thoroughly knows his product. By specializing also the commission EXPORT HOUSES 41 house is able to keep in much closer touch with the world markets for the commodity handled, and this knowledge is one of the greatest assets an export commission house can have. It may be the case, however, that the volume of trade in a particular specialty in certain countries may not warrant its being handled by a specialist. Generally a commission house is forced to specialize in markets and concentrate its activ- ities in a limited number of countries. This is brought about by the differing re- quirements and customs of different ^J^^ctahztng importing nations, and the necessity for having sufficient business in a country to enable the buyers, shipping clerks and invoice clerks to keep in touch with the freight situa- tion and the customs of the country. Business terms and expressions do not neces- sarily mean the same in all countries. For ex- ample, a merchant who has traded for years with Australia will understand the expression C.I.F. (cost, insurance and freight) to have a certain fixed meaning. Should he not have an Argentine department but decide to accept a C.I.F. order from Argentina, it would be quite natural for him to figure his price on the basis used in Australian trade. Later he would find that in Argentina a C.I.F. price is understood to include bank commission and 42 FOREIGN TRADE interest — items not included in a C.I.F. price quoted to Australia. If a merchant in Aus- tralia wishes to buy at a price which includes bank commission and interest, he will ask for a price "C.I.F. and exchange." This is only one small illustration of the variations that exist in different markets. In addition, there are different consular regulations and differ-, ent requirements of the customs. All of these variations must be thoroughly understood if business is to be satisfactorily conducted. It is obvious, therefore, that no one firm can accept business at random from all over the world. It must seriously cultivate and study particular markets. Most of the largest American export com- mission houses have business of consequence in only a very limited number of markets, although practically all of the large ones have perhaps four or five auxiliary markets in addi- tion to their main field of operation. The bulk of the businss is in the remote countries. Nearby markets such as Cuba, Canada and Newfoundland are usually treated by Ameri- can manufacturers as domestic. They are ex- ploited through salesmen by the same methods that are employed in the United States. Farther afield, however — in Argentina, for example, or Australia — more time must be consumed by an individual salesman in mak- AMERICAN GOODS IN RHODESIA An employee of the South African agent of Bowring & Company demonstrating American products at a local open-air fair EXPORT HOUSES 43 ing the trip back and forth, and considerably more expense must be incurred. The volume of business resulting from such a trip must be correspondingly greater in order to show a profit. Hence it is often cheaper for manu- facturers to employ export commission houses or manufacturers' agents to develop their export trade in such distant markets. Three selling methods are made use of by the commission house. They are : First, the em- ployment of salesmen sent out either from the home office or from the branch houses; second, the employment Three Methods of ' J J. J . Getting Sales of correspondence directed from the home office; and third, the use of adver- tising. Strangely enough, although this country probably leads the world in volume and efficiency of advertising, this last method has been employed comparatively little by the ex- port commission house. It is, however, being used more as time goes on. The commission house has in the past relied upon its branch houses and salesmen to keep its name before the buyer. Some commission houses have published house organs or market reviews of their own to assist their branch houses, but the circulation of these papers is limited and ad- vertising on any comprehensive scale has not been done. 44 FOREIGN TRADE The second method, that of securing busi- ness by correspondence, is a slow method. It is likely to be a discouraging one, as much of the effort expended falls on barren ground. But through the assistance of the various American organizations for the promotion of export trade, considerable business is secured by correspondence in answer to inquiries of importers abroad who often write to some association for information which can be sup- plied by a commission house better than by any one else. The method which employs salesmen, how- ever, is that most universally used, and is the method from which the best results are secured. The salesman^ is Salesmen the ^j^der the immediate supervision of Best Method , , - , , ^, the branch house and as the customs of the various countries differ widely, it becomes necessary for a salesman to make his headquarters in one country and stay there. There are exceptions to this rule; some salesman are sufficiently experienced in foreign requirements to be able to travel from one country to another and accom- plish good results. The salesman of an export commission house does not carry with him very large lines of samples. The cost of doing this is considerable and he therefore endeavors to show samples at the main branch EXPORT HOUSES 45 office. In addition, the commission house strives to sell at its head office in the United States by keeping in touch with foreign buyers as they arrive from abroad and acquainting them with the proper manufacturers. The commission house generally has two things to sell — goods and services. An article may be sold by sample or by catalog, or in the case of such staple lines as wire and rails, merely by description. In addition to this, however, the commission house sells services, and the salesmen abroad and the branch office and the home office all cooperate to secure as much of the F.O.B. or indent business as they can. In other words, they endeavor to secure what they call "an account." Most commission houses have compara- tively little more to offer a large buyer abroad than have their competitors. That is to say, no one commission house can do very much better than any other in the How Service way of freight rates, insurance rates, exchange rates, etc. If, therefore, a commis- sion house is soliciting an account and en- deavoring to secure this from a competitor, it becomes necessary for the solicitor to con- vince the buyer that the service to be rendered by his firm will be more satisfactory than that of his competitor. For example, he may be able to show that his shipping clerk is able 46 FOREIGN TRADE to get goods delivered where another ship- ping clerk cannot; he may show that his firm keeps the customer better informed as regards the condition of his orders; he may show how, in a thousand and one ways, his house keeps the customer satisfied where some other firm with possibly not the same experience would not be able to give as good services — although in such items as rates of commission, insurance, freight rates, they may all be on a par. The rate of commission charged by the ex- port commission house is from 2^ per cent, to 5 per cent. There are exceptional cases in which this rule does not hold, but in a es of preneral the commission varies be- Commtsswn in rr.i 11 tween these ngures. 1 he rate charged will depend on the size of the customer's orders and the amount of detail work they re- quire. It is curiously true that it is easier for a commission house to do business with large firms than with small ones, even though the larger business is at a lower rate of commis- sion. The work done by the commission house is practically as great on an order for a small package as it would be on an order for a car- load of material. It requires just as long to fill it, just as long to ship it and just as long to invoice it, although the remuneration is less. As in most other businesses, it is the largest buyers who are generally the cheapest buyers. EXPORT HOUSES 47 The question has often been asked whether commission houses charge varying rates of commission to one customer on different classes of merchandise. That is . . J- *• 4.- ^ Staples Seldom to say , is there any distmction ^ ^.^ , ' . , • J Bought on made between specialties and Commission Basis staples as regards the commis- sion charged? The answer to this question is that the staples are very rarely bought on an F.O.B. commission basis. They are usually bought on a C.I.F. basis, in which case, of course, no commission is charged. The profit of the commission house is included in the price. The reason for this is very simple. A staple line is sold on a close margin of profit. All the importers abroad handling the same line of staples have competition to meet just as is the case with merchants in this country; sell- ing prices must therefore be closely figured. If the importers bought on F.O.B. and com- mission terms, they would not know what their goods were to cost until the invoices and the freights bills arrived. By buying on C.I.F. terms they can estimate very closely what the merchandise will cost landed in the ware- houses. If the importers abroad did not buy on C.I.F. terms, they would never be able to sell ahead but only from actual stocks in hand. Yet the foreign importer, through the sales- 48 FOREIGN TRADE man traveling for him, must be able to quote advance prices on staples. These are very often handled on a very narrow margin of profit so as to induce business in other lines which are more profitable. As a practical matter, the average profit figured on staples is a lower percentage than the commission would be if the staples were sold on an F.O.B. commission basis. It does not necessarily follow, however, that the ex- porter makes less on staples than on specialties, for in the export business as in all business there are firms that choose to take a chance on the market. They will often sell goods, rely- ing upon the cost going down before they have to purchase from the manufacturer; and in normal times these traders occasionally go short on the freight as well. This form of trans- action is dangerous. Firms have been ruined by speculation of this character, just as they have by speculation in stocks or other properties. It is an attractive form of business to some people, however, as it enables them to match their knowledge of the markets of the world against their competitors' knowledge. There is still another form of speculation. This consists in the exporter's booking large quantities of some product, for which he knows he has a market, at a time when he con- siders the ruling price of the product favor- EXPORT HOUSES 49 able. There are certain lines produced at only one season of the year. Exporters will fre- quently lay in stocks of these and rely upon a subsequent rise in market prices to net them a profit on resale. To what extent a commission house buys in this manner or sells short, cannot be learned by an outsider. That it is done, is easily proven. The fact that it is possible at times to buy goods from exporters below the actual market price of the day, plus the ruling freight rate, shows very clearly that the exporter, in order to do this, has protected himself by earlier purchases and freight contracts. The commission house buyer is generally expected to know the best sources of supply for practically everything made in America. He is the most successful in buying who has the broadest ^^^ ^^' Commission /: 1 J r 1 1 J '-ru House Buys field of knowledge. 1 here are many ways by which the buyer keeps in touch with the best markets. Manufacturers' salesmen are constantly calling at his office; he has access to numerous trade publications; frequent catalogs and letters from manufac- turers supply information; he has trade direc- tories and he has the service of the various trade associations. In the case of certain lines, such as some foodstuffs, dry-goods, paper, the buyer may 50 FOREIGN TRADE ask for samples to be submitted with market quotations of any particular lines. Very often a certain amount of discretion is given him by the buyer abroad and he has to use his judg- ment as to where to purchase. The average order received by a commis- sion house is for a particular article, with the manufacturer's name and address specified. But sometimes a foreign customer will hear of or see an article and being unable to identify its manufacturer will leave that task to the commission house buyer. Frequently the buyer then has a considerable problem in locating the source of the article. The method of buying varies with the character of the articles to be purchased. If the indent from abroad specifies the name of the manufacturer and does not leave to the judgment of the buyer the question of where the goods are to be purchased, the buyer either sends out an inquiry to the manufacturer in the form of a letter asking for quotations on the articles- in question, or if the firm is one from which he has purchased regularly, and he knows that its prices are correct, he will send the order direct to the manufacturer without specially asking for quotations. If the importer has asked the buyer to use his judgment, and the order is for some article which is being manufactured equally EXPORT HOUSES 51 well by several firms, the buyer will send in- quiries to the leading manufacturers of that article, and hold up the order pending their quotations. On receipt of these quotations, he must then decide t^^w the Buyer 7 , , , . , . Compares rrtces from whom to purchase, basmg his judgment on the price, on the time of prom- ised delivery, and on his general knowledge as to which of the firms is the most reliable. Again, the order may be for a certain food- stuff, such as Alaska salmon, and it may be necessary that the buyer see actual samples of the goods before deciding where to place the order. In this case the firms to which he writes are asked to submit samples with their quotations. The advantage, to a foreign importer, of doing business through a commission house can readily be seen here. Any specific branded article, to be sure, might well be purchased by an importer abroad direct from the American manufacturer. However, if the character of the article requires the exercise of judgment by some one in this country to insure that the purchase is made at the best terms and from the best firms, the commission house is absolutely es- sential to the foreign importer unless the im- porter maintains his own American office. That the export commission house not only 52 FOREIGN TRADE gives good service, but is moderate in its charge, is evidenced by the fact that compara- tively few foreign importers maintain their own buying offices in New York. In England it is a common occurrence for the heads of Australian and South African im- porters to be domiciled permanently in Lon- don where they maintain a buying office. Frequently the money financing the business of those importers is English and the buying is controlled in London. The actual buyers in South Africa or Australia may indicate to the London office what they require, but the final word on the placing of the orders is done in London. This state of affairs is very common in South African business. Although the same practise exists even more frequently in Aus- tralia, the firms there have some authority at the local office and do not send for their requirements through London. It is appropriate to remark here that the average buyer for an American commission house is a straight, clean-cut, honest buyer, and has the reputation for straight buying to such an extent that it is almost unheard of for a manufacturer's salesman to offer a bribe to a buyer. A salesman may endeavor to keep in the good graces of a buyer by showing him ordinary courtesies in the form of entertain- ment, but it is a tribute to the integrity of the EXPORT HOUSES 53 average commission house buyer that the writer in his experience has never heard of an instance in which a bribe has been offered to or accepted by a commission house buyer. The manufacturers in America have no cus- tomary method of selling their goods to com- mission houses. The nearest approach to a cus- tom is the policy of allowing a cash discount of 2 per cent, ^ow Manufacturers , , , .,, .J ... Sell to Lommtsston when the bills are paid within ffQj..ge ten days from the date of the invoice. In general, the manufacturer from whom the purchase is made consigns his goods direct to the commission house, send- ing the railroad bill of lading and invoice to the house by mail. The commission house sees that the bill agrees with the order, that the terms and prices are correct, and then forwards a check to the manufac- turer. It is comparatively rare for man- ufacturers to draw on commission houses. The majority of the export commission houses have ample capital for their business and take advantage of a cash discount when manufac- turers allow it. In fact, it is necessary that a commission house have sufficient capital to be able to benefit by this discount, as otherwise it would not be able to meet competition. Gen- erally, therefore, manufacturers will receive their money before the commission house has 54 FOREIGN TRADE had an opportunity to ship the goods abroad and secure its money. The customary method employed by the commission house in financing sales is by draft on the customer. This draft may take one of several forms. It may be drawn on How Sales ^^^^ ^^^^ under a letter of credit, Are tinancea i • i i i i i • j i! ^i. which the bank has issued for the account of the buyer; it may be a sight draft with the documents attached; it may be a draft at 30, 60 or 90 days with instructions to the bank to deliver the bills of lading, etc., to the buyer on his acceptance of the draft, or it may be a draft at 30, 60 or 90 days with in- structions to the bank to deliver the bills of lading and other negotiable documents to the buyer only on payment of the draft. All of these methods are daily in use by commission houses. In some countries it is necessary under the laws to give up the documents to the buyer when the draft is accepted ; in other countries the documents frequently arrive long before the goods, and the documents-on-payment method is employed. This is a common prac- tise, for instance, in Australia. The mails will arrive in three to four weeks, the goods possibly not for two or three months; the buyer does not wish to pay for the goods far in advance of their arrival, EXPORT HOUSES 55 so he has his commission house in New York draw at 90 days' sight, which is roughly equivalent to 1 20 days' date. He then accepts the draft on presentation by the bank and the bank retains the documents. Should the vessel arrive before the draft becomes due for payment, the merchant then goes to the bank and pays the draft, receiving a slight rebate for interest for the unexpired time. In Argentina, the documents arrive on the boat carrying the goods, and as it is necessary for the importer to lodge the bills of lading with the custom house within eight days of the arrival of the steamer, the method of financing outlined for Australian business is imprac- ticable. Drafts must be drawn at sight or the commission house will lose possession of the documents until the draft is paid. Otherwise, the commission house must grant the buyer credit and allow him to secure the documents from the bank on his acceptance of the draft. It has been stated for many years that one of the factors which helped Germany build up her enormous export trade was her extension of long credits to foreign customers. That she has allowed these credits is unquestionably true. That it has been exceedingly bad prac- tise is equally true. The net result, especially in South American countries, is that the im- porter overtrades and carries entirely too 56 FOREIGN TRADE heavy stocks for the capital he employs. When bad times come, the importer is working en- tirely on borrowed capital and, as he is unable to clear his stocks and pay his drafts, a failure results. The New York commission house, as a rule, charges interest on its drafts at the rate of 6 per cent, per annum. It can borrow from its bank at less than this. In a Terms Usually Granted ^ ^^^^' ^^^^_ by Commtsston Houses . , ^i u i tries, however, the banks charge 12 per cent, per annum, and even more. It is easy to see why the foreign importer prefers to have the American commission house allow him the longest possible credit. The maximum time which has ever been allowed by the export commission house in this country is 90 days. This means that a merchant, if a draft is drawn "documents on acceptance," can have his goods two or three months before he is obliged to pay for them. When a merchant is selling mostly imported goods rather than locally made merchandise, he has to anticipate his requirements months ahead, and there is a very large element of risk in estimating his requirements. Take a merchant in Australia for example — he will have to draw up indents for goods that he will not be able to sell to the consumer until six or eight months after he mails his order. A great EXPORT HOUSES 57 many changes in local conditions can happen in the meantime, and when the goods arrive he may find that he has heavily overbought. Were he buying locally, he would buy merely such quantities as he needed from time to time and would not have to commit himself months ahead. In importing in Australia there is also the uncertainty as to when the goods will arrive. Even in normal times unless goods are carried in stock by a manufacturer — and this is comparatively rare except on staple lines — an importer can never figure within two to three months when his goods will be received. In the trade between the United States and Australia it has unfortunately been the prac- tise of the steamship companies, with some few marked exceptions, to operate on no fixed schedule. A boat will go on the berth and stay on until she is full. Her voyages are so long that it does not pay to advertise a definite sailing date until trade has been built up to a point where steamship companies know that the boat can be filled by the date specified. Some years ago one steamship line did issue a time-table for sailings between New York, Australia and New Zealand, and it kept to its schedule, arriving at destination generally within a day or so of the advertised time. This was a tremendous help to the export trade as long as it lasted, but unfortunately the 58 FOREIGN TRADE schedule was abandoned after a while and boats have never been operated there on schedule since. The situation in Australian trade has been explained as an example of the opportunity offered the commission houses to assist the for- eign importer. By extending credit to the foreign merchant, by choosing the best routes by which to forward the goods, and in general attending to the importer's interests during the long period that must elapse between the mailing of the indent and the receipt of the merchandise, the commission house performs an indispensable service to the general mer- chant in the remote markets. Ill Routine of the Export Commission House LET us take up step by step the handling of an order from the time it is received from abroad until the goods have been shipped and paid for. We shall assume that the order comes from a wholesale hardware merchant in Australia and is an indent consist- ing of several pages of assorted hardware lines. In some instances the merchant has speci- fied the maker who is to supply the goods. On other items he simply specifies the goods with- out naming any maker, leaving the purchase entirely to the judgment of the buyer in New York. In some instances prices may be speci- fied either as a limit or as a guide to the buyer. The first question to be considered on receipt of the order is : How does the importer propose to pay for the goods and for the freight which must generally be prepaid by the commission house? It is therefore neces- sary before putting the order into effect to have an approximate idea of its value and of the credit demanded. In a well-established export commission house this question of credit, on the most of the 59 6o FOREIGN TRADE orders received through the mails from its regular customers, is a simple matter to decide. This is the case because the commis- sion house often deals with the same firm year in and year out, and it does not need to give much consideration to the question of credit once an importer's standing is established. If, hov\^ever, the order comes from a firm that is not well-knov^n to the exporter, and that nevertheless expects credit, then the exporter must inform himself as to the char- InhrmltioT ^^*^^ ^^^ financial responsibility of the importer. Such information is obtainable from the commercial agencies, and may be supplemented by information from banks and perhaps from some commercial as- sociation or trade paper. All of these agencies nov^adays maintain elaborate files of informa- tion on foreign firms. There are few worthwhile concerns in any portion of the globe today regarding which it is impossible to obtain in New York fairly accurate information. So the risk in giving credit may be judged with fair precision. In deciding whether a firm is justified in receiv- ing credit the buyer does not look merely at the capital and business volume of the im- porter. Bulk does not mean character. Often- times it is much safer to deal with a man of comparatively small capital who is thoroughly EXPORT HOUSES 6i in touch with his market, knows what goods he can absorb and does not buy beyond his capacity for selling, than it is to do business with large firms that at first glance may seem very strong, but as a matter of fact are more speculative than the small man, and that, when they do fail, fail disastrously. It is also a curious but true observation in some markets that the larger an importer's business grows, the more likely he is to take advantage of technicalities and endeavor to profit by sharp practises. The question, there- fore, in deciding about credit is not only "Is this man a merchant whose position entitles him to credit if he desires it?" but also ''Is he a man who realizes that there are two parties to every transaction, who will pay his drafts when they fall due and not take unfair advan- tage of technicalities?" An importer not only can, but very fre- quently does, go to one commission house to purchase goods and when his limit of credit has been reached there, go to the exporter's competitor and purchase from him. The writer has known of many cases in which an importer would be buying from five or six ex- porters all competing with one another for his business, and all of them being used by the importer abroad to increase the amounts of his imports, with consequent overtrading. 62 FOREIGN TRADE There has never been any system of ex- changing credit information among the export commission houses, such as exists in so many trades in this country. Owing to the con- stantly increasing export trade, organized credit information of this sort will probably before long be available. If the character and standing of the im- porter is such that his credit request is satisfac- tory to the exporter, the order is then turned over to the buyer who must The Order Turned acknowledge its receipt, and see Uver to Buyer . . . . . what mstructions are given on the order with regard to shipping, insuring, financing and other details. These instructions are transferred from the original order to a card-index from which the shipping and finance department may obtain information when the goods are being shipped and invoices are being made out. The next step is to select the manufacturers from whom the goods are to be bought. In many cases the orders specify manufac- turers with whom the exporter has been doing business regularly and from whom he knows he can always get the lowest prices. There will be other items on the order, however, which can be supplied equally well by several factories. In this event the buyer will solicit quotations so that he may take advantage of EXPORT HOUSES 63 the market fluctuations for his client's benefit. The next step in the buyer's work is to have orders to the manufacturers written on the ex- porter's order blanks. These direct order blanks specify instructions, terms and condi- tions. For the items on which he requires prices before actually placing the order, the buyer has an extra carbon copy of the order written on a special blank. This is used as an inquiry for prices. Another carbon copy of the exporter's order is made on heavy paper; this goes to the shipping clerk to enable him to follow up the order with the manufacturer and attend to its shipment. Blank ^her^ the Buyer spaces are provided on the back of the shipping ticket in which the shipping clerk may keep his records. The buyer is now practically through with the order, provided the foreign importer has correctly specified everything and the buyer has not made any mistakes in prices and other details. Often, however, importers abroad are careless in the make-up of their orders, and will give a wrong description of an article or perhaps omit specification of the size or the quality desired. Such mistakes necessitate a letter from the manufacturer to the commission house. It is here that the buyer must use his judgment as to what to do. Shall he refer the 64 FOREIGN TRADE order back to the importer abroad for fuller information or shall he decide himself? Obviously the buyer's first move when con- fronted by such a problem is to search the rec- ords and find out whether the importer has ever ordered any of these particular goods before ; if he has, the buyer feels safe in follow- ing this earlier order as a precedent. If there is no record of a similar shipment in the past, then he must either decide the question him- self or refer the order back. Here is where good judgment is invaluable, because if the order is referred back it means a delay of sev- eral months in the shipment. Should he venture a guess as to what to send, there is the possibility of the wrong goods being shipped; and then the exporter is in difficulty with his client. The ability to decide correctly may mean keeping or losing a customer. As soon as the order is sent to the manufac- turer, the carbon copy of it, which is now the shipping ticket, goes to the shipping clerk. He must ascertain from the original l?.l^^''^f^f ^ order what the shipping instruc- Shtpptng Clerk . a .u j ^ t tions are. Are the goods to go for- ward in the usual way, which is generally by the cheapest method, or are they to be sent by express, by parcel post or otherwise? The shipping clerk must keep his records in careful order and his shipping tickets separated EXPORT HOUSES 65 according to the country of destination and according to the method of shipment to be used. Cabled orders, which are nearly always for goods that are urgently required, must be kept separate from regular orders. In course of time a steamer will begin to load, and the ship- ping clerk must then see that the out-of-town manufacturers are instructed to ship their goods to New York at once, and that the in- town manufacturers are instructed to deliver to the vessel. Prior to this, he has had to make an engagement with the steamship company for the estimated amount of freight room required. This estimate is largely a matter of guesswork, but experience enables the ship- ping clerk to judge fairly accurately how much room he needs. This freight is engaged either with the steamship company direct or, as in many cases, through the freight broker — a factor whose business it is to keep in touch with the changes in freight rates and the opportunities for shipping to various points. After the ship- ping instructions have been out a few days, the clerk must begin to look up such orders as are not already on the way to the steamer, find out the reason for the delay, and see if he cannot hurry them forward. He must then see that the various items — possibly from one to 50 — 66 FOREIGN TRADE going to the same importer are all assembled at the dock, receipts for them issued and bills of lading subsequently made out by the steam- ship company. Simultaneously with the shipping clerk's work, the bookkeeping department is receiv- ing bills from the manufacturers for the goods shipped. Arrangements must be The Work of the j^iade to pay these bills at such a Bookkeeping ■ .,, . ^ ^u n J. ^ ^ time as will insure to the exporter JtJePcivttnetit the benefit of any cash discounts allowed by the manufacturer. The method of handling these payments differs with the concern. One of the most cer- tain methods is to write the checks as soon as the bills come in and then put them in a port- folio under the date when the check should be sent. Obviously the check is not signed until the time of remittance. The bookkeeping department must see that the quantity and description of the goods on the bill agree with the items in the importer's order and that the prices charged are in accordance with the arrangements made with the manufacturer. It is its province to detect any errors in the quantities, price, etc., and call such blunders immediately to the manu- facturer's attention so that the matter may be corrected if possible before the goods have actually left the port. EXPORT HOUSES 67 When the steamer is eventually loaded and ready to sail, the invoicing department must begin making up the invoices. As the ship- ping clerk is the one who knows what is being sent on the steamer, J^/;,;'^^^ he generally gives written instruc- tions to the invoice department with a rough copy of the bill of lading. At the same time a copy of these instructions goes to the book- keeping department, which picks out from its files the manufacturers' bills relating to this order. These bills are then turned over to the invoicing department, which begins to make up the various necessary documents, referring to the card-index for the client's instructions as to how the draft is to be drawn and the details of insurance and other matters. There is no set rule for drawing and there is no set rule for insurance. Some importers abroad have their own open policies, and the exporter in New York merely notifies the in- surance company or its agent that he is mak- ing the shipment for the account of the im- porter abroad ; and that is all he has to do in the matter. In other cases, the importer abroad wishes the exporter in New York to attend to the insurance for him, and it is then the ex- porter's duty to see that the proper form of insurance is taken out. The insurance varies with the commodity shipped. Certain goods 68 FOREIGN TRADE must be insured against pilferage; others must be insured against breakage; others must be insured with average, etc. I have necessarily had to jump from one heading to another because I am endeavoring to follow the course that one shipment pursues in an office. The minute the steamer has ceased taking cargo and the exporter is ready to make up his final papers, there are three or four operations going on at at same time. We shall assume that the shipping clerk is ready to make up his bills of lading and is about to give the necessary instructions regard- ing the invoices to the invoicing department. His first step is to see that he has received all of the dock receipts. This is sometimes difficult to ascertain without consulting the records of the steamship com- Whenthe Shipment ^^ ^^^^^ ^^^^^ ^^^y. Is on Board . ^ , ^ • i • j u receipts are lost or mislaid be- tween the dock and the exporter's office. When the shipping clerk is sure that he has all the necessary receipts, the bills of lading are made out, generally with several extra copies besides those to be signed. As a rule, the bills of lading specify the exporter's name as ship- per, consigned to order, and bear on their face the shipping mark with a rough description of the various items. There are, as a rule, only two or three copies of the bills of lading signed and EXPORT HOUSES 69 negotiable; any one in the absence of the others indicates ownership of the goods cov- ered. Besides these negotiable bills of lading, copies must be made for the files of the steam- ship company, for the captain of the steamer to include with his papers, for the consignee to be sent by first mail to give him advance notice of the shipment, with possibly one copy for the consul and another to be retained in the office of the exporter. While making out the bills of lading, the shipping clerk must also draw up a shipper's export declaration which he takes to the cus- tom house before the sailing of the steamer — unless the exporter has provided a bond for the producing of the declaration within a stipu- lated time after the sailing of the steamer. When the declaration has been sworn to at the custom house, it is delivered by the exporter to the steamship company, which collects the declarations of all the exporters and turns them in to the custom house with its own manifest. The shipping clerk, having made the proper number of bills of lading, sends them to the steamship company's office, together with the various dock receipts. In the course of time the negotiable bills of lading are re- turned to him, signed by the steamship com- pany or by the captain of the steamer, together With a bill for freight. He then has to see that TO FOREIGN TRADE the freight rates charged are correct, also that the figuring is accurate, and that payment is promptly made to the steamship company. This ends his work in connection with that particular shipment. While this work has been in progress, the bookkeeping department has been collecting the manufacturer's bills and the invoice de- partment has started on its preliminary , . work of making up the invoices. An in- ItlVOiCB c3 1 voice is very similar to an ordinary do- mestic bill. It is made out in various ways, but for purpose of illustration we shall only instance one or two. When goods are bought on commission — and this is the form of ex- port in which we are more particularly deal- ing — it is customary for the exporter to send with his own invoice a copy of the manufac- turer's bill to him ; if this is done the exporter's invoice consists of very little more than a tabu- lated statement showing the shipping marks, packages, name of manufacturer and other details. These are totaled, the various charges for cartage, freight, insurance, etc., are added, and the exporter's commission charged on the total. In some countries where it is not the practise of the exporter to send out the manufacturer's original bills, the entire bill of the manufac- turer is copied off by the exporter on his EXPORT HOUSES 71 own headings and the charges added at the end. When the invoice is fully made up, the in- voice department then has to attend to the in- surance as mentioned before; and the next work in connection with the shipment is that of the finance department. The question of financing is a large one and will be treated more fully in a later unit. In order, how- ever, to make the story consecutive, we shall take simply one method of financing such as is commonly used by export commission houses in New York City, particularly those shipping goods to Australia, New Zealand, South Africa and South America. You must keep in mind the fact that we are dealing now with a class of business which has already been referred to as the F.O.B. busi- ness, in which the exporter is acting as the agent for the im- ^^«««"«^^- 0. B, ^ , J J , • Business porter abroad, and huymg on commission. We are assuming that each im- porter has from one to 30 or 40 items on his in- voice. The exporter has been paying for the goods as they were shipped but he is unable to get reimbursement until the shipment is completed, the bills of lading made up and signed, and the other documents properly drawn. The invoice clerk now refers to his card 72 FOREIGN TRADE index again, to ascertain the terms which have been agreed upon for reimbursement. Then he prepares the draft. Usually the ex- porter makes out a draft on the importer in duplicate. This draft is attached to the bills of lading, invoices and insurance certificate, and is sold like any other merchandise to some bank. As a rule, the best prices for foreign exchange can be obtained on mail days — that is, on the days when there is an English mail — because in spite of the fact that we are a large manufacturing and exporting nation, the pound sterling is still the basis of foreign ex- change, and drafts, as a rule, particularly on English colonies and on a great many other places as well, are drawn in sterling. Depending on the necessities of the banks, some will bid higher for this exchange than others. This method of financing is of course an expensive one. Profits have to be made by the bank in New York, the bank in London and the bank at destination. Some day we may be able to draw our drafts on Australia and South Africa in dollars and save at least one out of these three items of expense. Already a beginning is being made in this direction in South America and in some of the American colonies. The draft itself generally bears on the back the indorsement of the shipper or drawer of EXPORT HOUSES 73 the draft. Then, in case it is not paid at desti- nation, the bank will come back to the exporter for the money which the bank advanced against the draft when it was discounted. In some markets it is customary for the importer to arrange with his own bank to request a bank in New York to accept the shipper's drafts on him; but as a rule a house of good standing with sufficient capital can sell its exchange, its own credit being more important than the standing and credit of the drawee. After the draft has been sold to the bank, the exporter still has considerable bookkeeping work to do in seeing that he is not paying for goods which have not been invoiced, etc. When finally the shipment has been made and the steamer has sailed, the buyer renders a report to the importer as to the standing of the orders on the exporter's books. There will be numerous advices to send regarding the goods shipped, and explaining why other goods have not gone forward. As a rule, the exporter at the same time sends a copy of the invoice to the importer together with a copy of the bill of lading; this insures that in case the other documents which have been sent through the bank are held up or delayed, the importer will be advised of what is coming. Th foregoing deals mainly with the ordi- nary F.O.B. or commission transactions. A 74 FOREIGN TRADE C.I.F. business is handled in much the same way, except that the exporter does not send out the manufacturer's bills. He merely in- voices the goods to the customer Financing C. I. F. ^^ ^^^ . ^^ himself were the tSustncss manufacturer. When a sale is made C.I.F. to a firm in Australia, the buyer has to pay the bank's exchange or commission as in an ordinary F.O.B. transaction, but very often the price quoted includes this exchange. In that event it is designated as a C.I.F. & E. or C.I.F. & exchange transaction. In certain countries it is not customary for a bank to demand of the drawee a higher amount than the face value of the draft. In other words, the bank does not add the ex- change and stamps to the draft, and the con- signee is obliged to pay only the amount speci- fied in the draft. In such a market, a C.I.F. price automatically becomes a C.I.F. & E. price because the bank in discounting or buy- ing the draft from the exporter will not pay the exporter the face value but will deduct its own commission or exchange as well as that of the bank at destination. These and various other details are learned only from experience, and generally this ex- perience is costly. There is probably no busi- ness which has more pitfalls and in which more errors can be made than in the business EX PORT HOUSES 75 of the export commission house. The exporter is dealing in foreign languages, and mistakes maybe made in translations; and he is dealing with representatives of various nationalities, each of whose pecularities have to be consid- ered and understood in order that inquiries and orders may be handled intelligently and tactfully. IV Manufacturers' Agencies THE manufacturer's export agent, strictly speaking, confines his efforts to the ex- ploitation — either here or abroad, or perhaps both at home and abroad — of goods made by the manufacturer or manufacturers for whom he is acting as exclusive representa- tive in a specified territory. Three Types of ^j^^ manufacturer's export Manufacturer s Agents , . , . , . agent may be either an mdi- vidual or a firm. Years ago there were in New York hundreds of agents, each repre- senting a different group of manufacturers, who procured business for their clients by calling on the various commission houses and other exporters, leaving catalogs and in some cases inducing the exporters to mail these catalogs to their customers overseas. In ad- dition the agent himself sent catalogs and let- ters abroad and endeavored, so far as he could, to exploit the manufacturer's product direct. Later there developed a second type of agent — the representative who permanently resided in a foreign country and sought busi- ness direct from the foreign customers. This type of agent devoted his time principally to 76 EXPORT HOUSES 77 selling, giving no attention to the many details of financing and shipping which had to be taken care of at seaboard in the United States. The third type of agent combines the func- tions of the other two. This combination type frequently assumes such size that the busi- ness is organized as a firm or company. Such an agency includes representatives in this country who attend to the sale of the goods to the export houses, or, in case of direct ship- ment, to the many details at seaboard such as shipping and financing, and representatives abroad who see to the selling in foreign markets, and, at times, to the receipt and delivery of goods. These three forms of manufacturer's agents exist in large numbers and are constantly increasing. Generally the manufacturer's agent of the first two types is interested solely in selling the manufacturer's goods without regard to the method by which the buyer pro- cures the goods. For instance, the manufac- turer's agent calling on an importer in Australia and selling padlocks is interested in seeing that his manufacturer's brand of pad- lock is carried in stock. The particular commission merchant or importer through whom the buyer sends the order does not in- terest him. This type of agent generally works on a salary and commission, and very 78 FOREIGN TRADE frequently on a straight commission on the business coming from his market. The third type of manufacturer's agent will often attend to both the taking and the ship- ping of the order. Through its representative abroad it is constantly reaching the foreign customers, and securing their orders, which are then forwarded to the home office in this coun- try. The home office sends the order to the manufacturer by whom it is filled and for- warded to seaboard. The manufacturer's agent of large capital and big-scale operations will attend to the foreign shipping and the financing, remitting the manufacturer pay- ment for the order in accordance with domes- tic terms. The line of demarcation between the manufacturer's agent of this type and the commission house which has taken on the agencies of many manufacturers is difficult to draw. The extent to which the export commission house acts as a manufacturer's agent is in- creasing year by year. In cases where the com- mission house acts in this capac- How the j^ j^ jg Q^ course not good ethics Acts as Agent ^^^ ^^e house to charge the for- eign purchaser a buying com- mission — unless with the express understand- ing and agreement on the part of the buyer that the commission house be privileged to EXPORT HOUSES 70 charge such a buying commission in addition to the remuneration received from the manu- facturer for selling his goods. The true status of the commission house in such a case must be thoroughly appreciated in order to avoid misunderstanding. There is a distinction between ( i ) a commission house that acts as the recognized agent for certain manufacturers' goods and receives a commis- sion for exploiting them, and (2) one that demands a buying commission from a man- ufacturer in instances where the house has con- tributed nothing to the selling of the product but is acting merely as the agent of the pur- chaser abroad who is paying it a commission for the service. In the first case the commis- sion house is performing a distinct service for the manufacturer, and is entitled to be paid on the same basis as any firm intrusted with the exploitation of the goods. Its remuneration from the manufacturer in this case is perfectly legitimate; its service is quite distinct from commission selling. In the second case, where the commission house has no agreement with the manufacturer for the exploitation of his goods, it obviously has no right to demand from him any remuneration for the sale of his goods. In that case, it is entitled to receive its commission solely from the purchaser abroad, who has engaged it to make the purchase. 8o FOREIGN TRADE In those markets where the commission 'house wields a very strong influence it is nat- urally in a good position to represent manu- facturers. In such localities it Advantages of the ^^^ ^^^^ ^^^ manufacturers the Lommtsston House . , . ^ . , in Agency Work ^'^'""^^ services of its salesmen who are thoroughly acquainted with the markets and the buyers. When the manufacturer sends his own salesmen into a new territory, they are obliged to devote a great deal of time to learning which markets are best and who the principal dealers are. Even after they have gained this knowledge, the traveling salesmen will not enjoy the trade's confidence to the same degree as the export commission house agent, who is permanently located in the market. Neither can they keep continually in touch with local conditions and changes, which often open to the commission house representative excellent opportunities for closing large orders. The manufacturer's salesman has usually but one opportunity a year to exploit personally the sale of his product; the commission house salesman can find such opportunities every day in the year. It is a question whether a commission house deriving the larger part of its business from the manufacturers' agencies which it controls should be considered a manufacturers' agent. EXPORT HOUSES Because of of the rapid development of this form of export activity some commission houses now devote the greater part of their time to pushing the products of manufac- turers, and not in purchasing products for foreign importers. It is this development that makes difficult the clear differentiation be- tween the manufacturer's agent and the type of commission house representing the manu- facturer. In New York City the term manu- facturer's agent still applies to the representa- tive who does no commission business, who, as a rule, rarely attempts to ship or finance the orders he receives from the manufacturers. His distinctive function is confined prin- cipally to calling on commission houses and other exporters and keeping the names of his principals before the buyers for overseas markets. Frequently much more ex- tensive exploiting than this is carried on by organizations which still are known as "com- mission houses." The employment of the commission house as an exclusive representa- tive for the purpose of getting momentum be- hind the selling of a manufacturer's products abroad is a practise that is gaining favor as the results of such tactics demonstrate their efficiency. In the writer's opinion the prospects for the future of the export commission house, both 82 FOREIGN TRADE in its commission business and its agency busi- ness, have never been so promising as they are today. American manufacturers are realizing what world-wide trade would The Future ^^^^ ^^ \htm, and the future is 'commiTon House "^^ ^'^^^^ ^^ ^^ characterized by such spasmodic eflforts at gain- ing foreign trade as have marked the activity of manufacturers in the past. In the develop- ment and maintenance of this business, the export commission house will find a wider field of service in cooperating with those man- ufacturers who are seeking a permanent trade overseas. Furthermore, importers abroad who have never before bought American lines have been forced here by the war and are becoming acquainted with the superiority of American goods. It is safe to assume that many of them will continue to trade in this market. The commission house has always handled the bulk of this trade, and it is certain that the larger part of the new business will go through the hands of the commission house. As has been pointed out in the foregoing chapters, the advantages of dealing through the commission house are many, especially for the smaller manufacturers. In the very nature of things the business is bound to continue and will never be eliminated. Many instances EXPORT HOUSES 83 might be cited to prove this. The writer knows of many cases in which a commission house that is handling a manufacturer's busi- ness will receive from him 25 to SO invoices a month for goods Z^^ Commission . , 1 r Houses Cannot ne going to an equal number of cus- Eliminated tomers in one country. But each customer will probably be purchasing many other articles from other firms. All of these purchases the commission house will attend to, combining the shipments and looking after all of the details. All trade cannot be big trade, and the individual manufacturer cannot possibly attend to all of these shipments to the separate customers abroad without incurring enormous incidental expenses — expenses which will add to the cost of the article and permit his competitors to capture the trade by dealing through the commission house. The question of building up a trade and that of handling the trade after it has been established are two entirely separate prob- lems. The writer has always encouraged manufacturers to solicit trade from the cus- tomer in every way possible, such as by export salesmen, advertising, correspondence and other methods. When, however, it is a ques- tion of handling the trade thus created, the writer believes that the commission house is 84 FOREIGN TRADE in a strong position to conduct the business for the manufacturer to the manufacturer's benefit. The advantages of dealing through a com- mission house apply with equal force to the importer abroad and the manufacturer in the United States. To be sure there are some ex- ceptions, but so long as there are general mer- chants abroad importing general merchandise from the United States, so long must the com- mission house remain in business. In course of time, as America's export trade increases, an increasingly greater number of large for- eign importers will doubtless maintain their own establishments in New York, to do for them the work that the commission house is now doing. However, this can come only when the importer's business is of such volume that it is cheaper for him to maintain his own office than to' pay the commission house. There will always be small merchants abroad, the more so as world trade expands, and there Will always be a field for the export commis- sion house. Part III The export forwarder The Forwarder's Services at Seaboard OF the many problems confronting the manufacturer embarking on export trade, none assumes more formidable proportions than that of sending his goods cor- rectly and safely to his customer overseas — a customer usually thousands of miles away w^hose practises and business methods the man- ufacturer does not know. In the early days, when practically all export traders were located at the seaports, the manufacturer and the master of the vessel often arranged per- sonally for the transportation of cargoes. The details of ocean shipping and government re- quirements were few and simple. The manu- facturer mastered his forwarding problem then with comparatively little difficulty. With the growth and expansion of trade, however, and with the multiplication of trans- portation facilities and the increase in customs requirements, the problem soon became a serious burden to the exporter. This was es- pecially true of the manufacturer located in some inland town far from the sea. At this point in our commercial development the for- eign forwarder arose and constituted himself, as it were, the manufacturer's foreign ship- 87 FOREIGN TRADE ping department. To be sure, in the great seaboard cities, where shipping, custom and consular offices are within immediate reach, all large exporters as a rule attend to their own shipping, employing men well-versed in traffic conditions. Firms located some dis- tance from the seaport, however, are still dependent in a large measure on agents or other representatives to protect their interests, and to act for them in clearing and forward- ing their commodities. A good export representative, knowing his work thoroughly and dealing honestly with his customers, is as valuable in guiding and protecting the distribution of a manufac- turer's products as a salesman is in marketing them. In order to point out more clearly the dif- ficulties a merchant or manufacturer may en- counter in the handling of his first export orders, and to demonstrate The Manufacturer's ^^^^ f ^jj ^^^^ assistance the torwardtng Froblem , , , , . forwarder renders to his client, let us consider a concrete example. An automobile house in Cuba, let us say, learns that rubber tires can be purchased in Cleveland at first cost, and, expecting consid- erable business to result if the tires are satis- factory, writes the Cleveland merchant for his prices C.I.F. Havana. Immediately diffi- EXPORT HOUSES 89 culties arise. What is the best way of ship- ping? What rates of freight should be paid? What consular requirements are necessary? How can the merchandise best be shipped so that it reaches the Cuban merchant in a satis- factory condition? If the merchant applies to the railroad agent in his city, information would no doubt cover the railage to seaboard but not beyond. If he writes to a steamship company, he may ascertain that it will be glad to accept his shipment provided he delivers the freight at the pier on a certain day, ac- companied by necessary bills of lading and a check for the charges incurred. The diffi- culties of doing business with the railroad or steamship lines are often further increased be- cause each individual line is interested only in its own outlet or route ; while the steamship company may be willing and anxious for Havana business, it would not care to accept merchandise for Porto Rico or Brazil. At this step the forwarder appears, and says to the merchant and his client: "Send your freight to me, tell me your wishes and I will see that your interests are pro- tected here and abroad by How Forwarder . , - Assists Manufacturer routmg the goods as they should be sent, by taking out proper docu- ments, by conforming to the laws and condi- tions of the importing countries and by obtain- 90 FOREIGN TRADE ing for you every advantage which you yourself would enjoy if you were at the point of shipment." The work which the forwarder thus under- takes to perform covers a vast and diversified field of operations. It embraces not only all of the steps through which an order must pass from factory to shipboard, but also many of the operations in foreign lands. Let us follow the shipment from the ship- ping platform at the factory until it reaches the hold of the ocean-going vessel. A clear presentation of the problem Shimngto confronting the forwarder will Seaboard by Rati , , , ^ reveal to the manufacturer many ways in which he can cooperate to ob- viate delay. The order, we shall assume, has been completed and properly packed. The shipper then proceeds to forward his goods by rail to the seaboard. The railroad "local bill of lading" which is issued to him by the rail- road freight agent at his station is made out to the forwarder to whom the goods are to be intrusted. The manufacturer should see that his bills of lading are marked "for export" and, if in carload lots to New York, "for ex- port, lighterage free." As soon as these docu- ments are received, at least one copy, officially signed by the railroad representative, should be sent at once to the forwarder to assist him EXPORT HOUSES 91 in taking delivery of the goods. In fact, "order" bills must be surrendered to the rail- road when total delivery is made. But the mailing of the bill of lading is not all. The forwarder must have full instruc- tions. Usually forwarders provide shipping instruction letters on which the manufacturer can fill in all required data. This, together with bills of lading, invoices, packing-lists, and other documents pertaining to the ship- ment, should be sent without delay to the for- warder. From these he can arrange space in advance, not only so as to obtain the most fav- orable rates, but also to assure adequate cargo space when the shipment arrives at the seaboard terminal. When the shipment reaches the seaboard, the railroads send out notices of its arrival to the consignee, in this case to the forwarder. The shipment itself, if it is less than a carload, is sent to the piers in New ^^^^^ Railroad York city, whence delivery to g^^'"""^ ^"^ steamer is made by trucks. When shipments are in carload lots the freight is held at a lighterage point, taken from the cars as a rule, and delivered by lighters or barges to the outgoing steamer in accordance with the instructions of the forwarder. The time that a shipment can remain at lighterage point or piers is limited. Under normal conditions, 92 FOREIGN TRADE if a carload and for export, freight can remain 15 days at the lighterage point; if less than a carload, ten days at the railroad piers. After that time carloads are subject to track storage, demurrage and similar charges; and smaller shipments to public warehouse storage. From this it is evident why the manufacturer should be prompt in sending forward the railroad docu- ments to the forwarder. The work of the forwarder in looking after the transfer of the cargo from the railroad terminal to the outgoing steamer is very im- portant. On carload lots the railroads run- ning into New York will provide free light- erage alongside the vessel within certain limits in the harbor, but they must have definite in- structions, which the forwarder is in a position to give. In all cases personal oversight of freight reaching a bustling seaport will insure promptness in delivery. Frequently as soon as the forwarder learns that the goods have been shipped by rail, he commences to contract for cargo space. He inquires from various shipping com- Receivtng ponies their rates on the specific ship- at Dock , ... , . ment, the quotations bemg subject to prompt acceptance or with options of a few days. When these quotations are accepted by the forwarder the steamship company issues EXPORT HOUSES 93 a "shipping permit," which is a statement to the receiving clerk at the company's docks in- structing him to receive the cargo within cer- tain specified dates. This must be presented when the goods are sent by truck to the pier and is given to the truck driver. If the ship- ment is to comprise several truck loads, the shipping clerk keeps the permit on file and checks ofif the loads against the original per- mit. Eventually the steamship company's of- ficial receipt for the entire shipment is given. This receipt is important, as it must be ex- changed later at the steamship company's office for the bill of lading covering the shipment. The United States Government demands that an "export declaration" be made out previous to the issuance of the official bill of lading. This statement is the source of the statistics of our export trade. It ^^^^^ . calls for a careful description of the articles exported and must be sworn to by the shipper or by some one who has been author- ized by him to do so. Shipments to nearly all of the Latin-Ameri- can countries must also be accompanied by a "consular invoice." This is required by the customs authorities at the country of destina- tion before the shipment is permitted to enter. It deserves the closest attention as errors in 94 FOREIGN TRADE declarations often lead to very serious fines for the customer; errors seldom go unnoticed inasmuch as a large part of the fine, often all of it, goes to the man who discovers the onsuar discrepancy. The invoice usually is invoices printed in the language of the coun- try of destination and it must be sworn to at the consulate of that country by the shipper or his authorized representative. Various other documents are necessary to the proper despatch of the manufacturer's goods. Among these is the certificate of origin. In many countries the United Other States enjoys "most favored nation" Documents ... • , - rr i ■ i privileges in the tarifi regulations, and a certificate of origin establishing the fact that the goods come from the United States is re- quired before the foreign customer can avail himself of these advantages. Another is the "non-dumping" certificate, which is required by several British colonies, in their endeavor to combat the evils of indiscriminate selling of surplus products. The certificate must state that the prices and the discounts men- tioned in the invoice are the same as rule in the domestic market at the date the invoice is made out. Such other special statements as are required by special trades are also looked after by the forwarder. With the dock receipt, showing that the EXPORT HOUSES 95 goods have been accepted by the steamship company's clerk, and the export declaration, together with whatever extra papers are required by the country ^^^If of fading J- J . . ,r J .. ana insurance or destmation, the forwarder is m a position to obtain his bills of lading from the steamship company. These are usually made out in the forwarder's office and taken to the shipping office for signature. In a subsequent Unit of the Course will be included a more detailed discussion of bills of lading, which often differ according to the lines that issue them. Finally, the forwarder will negotiate the marine or war insurance on the manufacturer's shipment, and will see to it that, when the order is at last on the liner and has started on its ocean voyage, everything has been done to protect the interests of both the manufacturer and his foreign customer. From the above outline it is evident that the forwarder must give attention to a mass of de- tails; and, to accomplish the necessary work without delay, he has need of the closest cooperation on the Cooperation between part of the manufacturer. Forwarder and ^ . „ . - f Manufacturer Especially in the matter of instructions, the inland shipper should exercise the most careful supervision over his shipping department. Writing for 96 FOREIGN TRADE missing information may entail such loss of time that the cargo must be held over until a following steamer, with the resultant dis- satisfaction on the part of the customer over- seas and possibly an increase in the freight rate. Cooperation between manufacturer and for- w^arder is essential. Readiness to work to- gether in solving the innumerable problems that arise should characterize the relations be- tween the factory owner and his forwarding representative. The manufacturer should con- sider the forwarder as one of his own office stafif, interested in seeing the business grow and always at his disposal in answering per- plexing questions or suggesting new methods of assisting in the distribution of his products. The forwarder himself when requested will issue his own bills of lading. These apply to the "combined shipment" business which he is in a position to conduct. Owing How the Forwarder ^^ ^^^ f^^^ ^^^^ practically Lombtnes Shtpments ,, , . ,. all steamship Imes quote a minimum amount for which a bill of lading will be issued, a profitable business has sprung up in the combining of several small shipments which are less than the mini- mum and destined for the same port, and forwarding them under the same bill of lad- ing. To places in Europe, for instance, the cost EXPORT HOUSES 97 of a minimum bill of lading is usually 21 shillings. If three manufacturers had small packages for the same European port, it is possible that the cargo could be combined and not exceed the charge of 21 shillings. If they were not combined, each manufacturer would have to pay 21 shillings for his separate lot; but by making a joint shipment the forwarder can proportionately reduce the rate. To cover this combined shipment, the for- warder makes out a regular steamship bill of lading in his own name. This covers the whole shipment: but for each individual lot the forwarder issues to his clients J.^^^^r f^ j. r 1 J- w Bills of Lading his own bills or lading or his own receipts. The forwarding concerns of the world are all more or less in touch with one another; and the forwarder in New York sends this combined shipment to one of his correspondents in the foreign port, consigning it direct to this agent, together with a way bill showing how and when the merchandise was sent and containing complete information as its delivery. The representative at the foreign port clears the goods through the custom house and pays all the other incidental charges. It is obvi- ously impossible for the forwarder in this country to know all these expenses, and con- sequently, in contrast to our domestic express 98 FOREIGN TRADE charges where the rate includes delivery at the door, the charge made by the forwarder covers only transportation, and not such other costs as dock and town dues, import and other duties, stamp taxes, internal revenue charges, delivery costs, etc. Bills of lading issued by forwarders and by express companies doing a forwarding business clearly state these condi- tions. With thousands of articles for the various countries of the world and with con- stant changes in freight, duty and the like, it would be impossible for a forwarder to pro- vide a tariff covering all costs, so that a pack- age on which the expressage had been paid might be delivered without further charges. Banks and bankers generally object to for- warders' bills of lading on the ground that jurisdiction of the merchandise lies with the forwarders rather than with the holders of the forwarders' bills of lading, and that control of the freight is not transferred to the banks un- conditionally enough by the surrender of forwarders' documents. The reputation of a forwarding house should be its greatest business asset, and the bills of lading that it issues over the firm's signature depend for their validity on the strength of the house's business standing. The same rule applies to forwarders as to steam- ship lines. II Foreign and Special Services by the Forwarder A GOOD forwarding house has, or should have, efficient connections abroad. The better agents the forwarder has abroad, the better service he can offer his client here. Some suggestion of the assistance the agent abroad renders was given in the preceding chapter, in the matter of entering goods at the custom house and paying town and dock dues. He also chooses the best route available for getting the goods to the foreign customer located inland. Reciprocally the foreign agent will attend to return freight, and will thus be at the disposal, not only of the American exporter, but of the importer as well. Without going into the details of export financing, which will be discussed in a later Unit of the Course, it is possible to show how the forwarder can assist the ex- porter in attending to payment for How a Foreign the goods at the time of their deliv- ^^ent Assists u J TT J 1 u f • tn Ftnanctng ery abroad. Under usual bankmg conditions, when the manufacturer has ar- ranged to get his remittances through drafts, drawn upon his customer, the draft with ocean 99 loo FOREIGN TRADE bills of lading attached is presented by the American bank's foreign connection to the consignee. The consignee must pay the draft before he can take up the documents and ac- quire immediate ownership of the goods. If the customer is in some inland town, he must send these papers to an agent for clearance at the custom house and for forwarding to the inland point. In case he refuses to take up the documents, the foreign bank's only interest is to notify the American bank that payment has not been made and to ask for instructions. Let us consider what the procedure is in the event of the goods being consigned to the forwarder's agent and not to the customer direct. We shall find that there is usually a saving in time and incidental charges for both customer and client. Immediately on arrival of the steamer the foreign agent enters and clears the consignment, thus avoiding delays and extra charges at the custom house. He then holds the freight at the disposal of the customer, subject to the presentation of the for- warder's bills of lading, properly endorsed, which the consignee has obtained through his bank. In the event that the draft is delayed in reaching its destination or if, for any reason, the draft and documents are not promptly ac- cepted by the customer, the forwarder's agent takes charge of the property and protects the EXPORT HOUSES loi interest of the manufacturer, frequently stor- ing the goods in his own warehouses until all difficulties have been settled. The foreign forwarder, in fact, includes in his legitimate functions many services which his American cousin as yet performs only in- cidentally. In addition to at- tending to all the matters con- i^'"''' ". Forwarder , . , , . , Engage in Other nected with the transportmg of j^ctivities? the goods, he frequently adds to this work the purchase and sale of goods, the cashing of drafts, the selling of railroad and steamship tickets, the owning and operat- ing of warehouse plants, and, in some cases, the representation, as agent, of steamship lines. It has frequently been asked whether the American forwarder should engage in similar activities, especially in the purchase and sale of goods, the discounting of drafts, the main- tenance of foreign banking connections, and the negotiating of marine and other insur- ance. It is evident that the larger the volume of goods the forwarder's client sells or purchases, the greater is the volume of the forwarding business. However, it is generally the case that the forwarder who branches out into different lines is very likely to neglect his principal business. Again, if he adds insurance or purchasing to his busi- I02 FOREIGN TRADE ness he will find a disposition among firms engaged in these occupations to treat him as a competitor and to criticise him for not keeping within the bounds of his own class of trade. The same remarks may be applied to trans- portation and shipping companies that, in seeking to attract traffic to their lines, offer their services as forwarders. By Steamship Lines ^^^- ^ ^^^^ pittance o.r no re- as forwarders . , , /• , i muneration at all for the work performed they have become severe competi- tors of the forwarders, who have built up their organizations through years of labor and experience. It is generally a fair conclusion that one must pay for value received. If a steamship company employs competent men as forward- ers to handle its shipments and makes no charge for the extra service, freight rates must be increased to cover the cost of this traffic de- partment, or the revenue must be obtained ir^ some other way either from the shipper or the consignee. Therefore, it would seem best that the forwarder control his legitimate field, and that he in turn employ the services of outside bankers, insurance concerns, storage houses and the like. Reciprocation between banks, shipping lines and forwarders means an active and healthy business cooperation, and the ac- EXPORT HOUSES 103 tive competition ruling in the separate profes- sions themselves will assure the manufacturer that he will not be charged exorbitant rates be- cause of the absence of this extraneous rivalry. In the nature of the forwarder's activities there are many special services that he can render to the manufacturer. He can often be of direct assistance in building up the manufacturer's export busi- f^'J'^^ ^"^"i'''' ^ . . . . , by forwarders ness. Primarily, of course, hon- esty and progressiveness in performing the tasks for which the manufacturer employs him are the most valuable contributions he can make to the success of the exporter's campaign. Among the special services is the providing of information of all sorts to the factory owner unacquainted with the ways of the export busi- ness. The forwarder can advise regarding routes and distances ; he can indicate how cer- tain places can best be reached, what regula- tions and restrictions exist, what sort of han- dling the goods must stand before reaching the customer. He can supply sailing dates of steamers, give notice of their arrival here or abroad, investigate delays, advise as to changes in rates — in short, supply all the information that the shipper himself would be able to ob- tain if he were at seaboard and in touch with traffic conditions. To the shipper who has chosen to forward I04 FOREIGN TRADE his goods on a railroad "through bill of lad- ing" the forwarder can still be of assistance. Railroads accepting freight in the Assistance Central Western States will issue, on Through ^^der certain conditions, through Shipments .... , , ,. r u- • bills of lading from shipping point to destination. This means that a manufac- turer sending a carload of machinery to Buenos Aires, and wishing to obtain his money against a letter of credit which his South American customer has opened in an Ameri- can bank (so that the manufacturer may receive remittance upon shipment, with- out waiting a considerable time for the freight to leave the seaboard) can obtain his through bills from the railroad and present the bills at the bank at once as negotiable documents. Freight on through bills of lading, however, is not always promptly moved at seaboard, due to various reasons, and the merchant, when asked by his customer for information as to the shipment, can give no particulars without ascertaining first through his railroad agent where and how the delay has occurred. Steamship lines may be in a position to prefer a certain class of cargo and to put aside for the moment freight arriving on through documents. It is here that the for- warder, having his client's interests before him, can trace the cargo from the moment of EXPORT HOUSES 105 its arrival by rail until it reaches the foreign customer, assuring the manufacturer that his goods are not neglected. It frequently happens that a steamship line will require prepayment of freight, and the manufacturer may not be in a position to at- tend to these details. In such cases the forwarder will advance the cost ^'^'^^^'''"^ of the freight, and will send the bill along to his foreign agent for collection from the consignee. Likewise some forwarding concerns will undertake to send forward ship- ments on C.O.D. (cash on delivery) terms, making collections through their foreign rep- resentative from the foreign customer of the cost and all accrued charges. The forwarder also can make collections which are too small to pass through a bank. In the delivery of samples free of all charges to the foreign customer the forwarder can per- form a specific service. A manufacturer often wishes to deliver catalogs to a customer in a country where a duty is levied on such matter. In these cases the forwarder's agent clears the shipment through the custom house, pays all charges, and sends his bill to the American forwarder who collects it from the manufac- turer. The foreign agent is also able to provide the forwarder with such credit information as the io6 FOREIGN TRADE manufacturer may desire. Being in the cus- tomer's own town and acquainted with local bankers and merchants, the forwarder's rep- resentative is often the best means of obtaining accurate information regarding a prospective customer's financial standing. For his services the forwarder expects a fair proportion of profit. His organization is world-wide, it is built on progressive lines, and the very character of the Forwarder Essential ^^^^-^^ ^^ performs, with its to I rade Expansion .-.,:, . - mnnite details, requires a large clerical staff. Knowledge of the world routes, the world markets and the multitude of other facts which the forwarder must always have at his command is obtained only by years of actual experience, by constant hard labor and much expense. In recent years the competi- tion on the part of the railroads and shipping lines, each anxious to divert traffic to its chan- nels, has tended to pare down the forwarder's profits to a very small margin. Nearly all of the large trunk lines running into New York have certain custom house and shipping concerns acting as their import . agents. Although the export business of the lines is now handled by the railroads them- selves, it is becoming more and more burden- some, and with the growth of our export trade, it is to be expected that this function of the EXPORT HOUSES 107 railroads will also demand a special organiza- tion, and that much of the work will be dele- gated to the forwarding houses. Many roads already entrust the forwarding of small pack- ages to their respective express companies, which carry on an extensive foreign forward- ing trade, in addition to their domestic express business. The future of the forwarding busi- ness is inseparably bound up with the future of the nation's foreign trade, and the com- mercial expansion which the United States is now experiencing and which seems certain to continue will make the forwarder more and more essential to the nation's prosperity. io8 FOREIGN TRADE SUGGESTIONS AS TO FURTHER READING There are practically no other books in English devoted solely to the subject of the activities of the export merchant, the export commission house, the manufacturer's agent or the export forwarder. The subject is treated at some length by B. Olney Hough in his two books on foreign trade, Ocean Traffic and Trade and Practical Exporting. An interest- ing article by W. C. Downs, entitled "The Commission House in Latin-American Trade," was published in The Quarterly Journal of Economics in the issue for Novem- ber, 191 1. Pages 93 to 120 of the official report of the Third National Foreign Trade Conven- tion, which was held at New Orleans, contain a discussion of the subject, "How to Utilize the Export Merchant and the Export Com- mission House." Shortly after the outbreak of the European War there appeared in Germany the first volume of a two-volume work by Dr. Walter Schmidt-Rimpler on the Geschichte des l^ommissionsgeschafts in Deutschland which treated comprehensively the commission house in both domestic and foreign trade in Germany. The second volume of this work has not yet been published. EXPORT HOUSES logi QUIZ QUESTIONS The Export Merchant I 1. What principle underlies the business of the export merchant ? 2. How does the business of the export commission merchant differ from that of the export merchant? 3. To what extent do these types usurp each other's functions ? 4. Mention the advantages of dividing a merchant's home-office force into geographical departments. 5. What is meant when it Is said that a large part of the merchant's business is on modern C.I.F. terms? What are the advantages of these terms ? 6. Name the various bases on which export merchants make payment to manufacturers. 7. State briefly the seven methods by which the foreign customer makes payment to the export merchant. II 8. Why does the export merchant have branches in the United States? 9. Mention six lines of activity in which the foreign branch houses '^age. 10. How does c "foreign agent" differ from a "foreign branch house"? 11. How thoroughly has the export merchant exploited the markets of South America? 12. What have been some of the causes of dissatisfac- tion between manufacturers and export merchants ? 13. What is the most general basis on which merchants undertake to represent manufacturers abroad ? 14. Mention four advantages of handling foreign trade through the export merchant and his foreign repre- sentatives. no FOREIGN TRADE The Export Commission House I 1. What is the primary function of the export com- mission house? 2. What is meant by "buying on an F.O.B. basis"? What is an "indent" and what does it contain other than the list of goods to be purchased ? 3. What is the advantage to the foreign importer of placing an indent containing a great many items through a commission house ? 4. Does the commission house charge commission for the credit that it extends to the foreign importer? Who pays the interest involved and how? 5. What is meant by "buying on a C.I.F. basis"? What is the main advantage of this method of buying? 6. Why is it not easy to quote C.I.F. terms on specialties ? 7. What is the main advantage to a manufacturer of dealing through an export commission house? 8. What is the distinction between an export mer- chant, an export commission house and a manufacturer's export agent? II 9. Name the six individuals that compose a unit section of an export commission house's home organization. 10. Why does a commission house usually specialize in certain products? 11. What conditions force a commission house to spe- cialize in certain markets and countries? Give an example from Australia and Argentina. 12. Name the three methods employed by commiission houses in getting sales. Which has proved the most successful ? 13. Give an example of how a commission house "sells service." 14. What are the usual rates of commission? Com- pare the relative amounts of work performed by a com- EXPORT HOUSES iii mission house in filling a small and a large order. On which is the rate of commission usually smaller? 15. Why must the importer abroad buy staples on a C.I.F. basis in order to protect himself against competition ? 16. Outline how the commission house buyer proceeds to purchase the order of a foreign customer. 17. What terms do the manufacturers grant the com- mission houses? What terms does the commission house grant the customer overseas ? 18. Explain why the method employed by commission houses in financing Australian trade is impracticable in the trade with Argentina. Ill 19. What is the first question asked by the commission house when an order is received? 20. How have importers abroad frequently abused the credit privileges extended to them ? 21. Under what circumstances must the commission house buyer use his own judgment? 22. Outline the various steps in the work of the ship- ping clerk. 23. By which department are the manufacturer's in- voices checked and paid? 24. What are the duties of the invoicing department? 25. What is "C.I.F. &E."? IV 26. Define the three types of manufacturer's agents. 27. Under what conditions is it proper for a commis- sion house to accept remuneration from the manufacturer and charge commission to the buyer on the same order? 28. Explain what is meant by "manufacturer's agent" in the ordinary usage of the word in New York City. 29. Why is the term "commission house" often mis- applied to certain export concerns? 30. How does "small trade" assure the continuance of the export commission house ? 112 FOREIGN TRADE The Export Forwarder I 1. How should the manufacturer's local railroad bills of lading be marked, and why should they be sent without delay to the forwarder? 2. To what extent will the railroads running into New York City grant free lighterage on export shipments? 3. What is a "shipping permit," a "dock receipt," an "export declaration," a "consular invoice," a "certificate of origin"? 4. How does the forwarder make a profit by "com- bining shipments" ? 5. What is a "forwarder's bill of lading" ? On what does it depend for its validity? 6. Do the forwarder's quoted charges cover all expenses from factory to consignee? II 7. Explain how the forw^arder's foreign representa- tive can be of assistance in connection with the financing of orders. 8. What two objections might be raised against a for- warder's engaging in other activities? 9. How can a forwarder be of assistance on through shipments ? 10. Explain how the forwarder handles C.O.D. ship- ments and consignments of samples. 11. Outline the present situation between the for- warders and the shipping and railroad lines as regards the forwarding business. 12. Is the forwarder increasing or decreasing in importance as a factor in our export trade? (P. 1700-Rev.) '«' t ■ UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. m 9 1985 COURSE IN FOREIGN TRADE Unit IV This envelope contains the following material: I -A letter from the Director of the Course. II -A Reading Report and Question Card. IIl-A Problem and an envelope addressed to the Secretary of tjie Course, in which the solution to the problem should be mailed. First: Read the letter from the Director of the Course Second: Read the text book through once. Try to ccrrplete this reading at one time, reading continucusly from beginning to end. Third: Fill in the Reading Report Card, showing the date when the Unit was received and the date upon which the first reading was completed. If you have any questions on the subject matter of the text bock, you may note them on the card and they will be answered either on your next problem solution or by special letter, if necessary. Fourth: Study the text book carefully, chapter by chapter, testing your knowledge by means of the Quiz Questions which you will find in the back of the text book. The Quiz Questions are arranged in sections which correspond to the chapters of the text book. It is not necessary to write out the answers to the Quiz Questions. Fifth? Write your solution to the problem, using the solution sheets with which you have been supplied. Study the problem carefully before you begin to write and be sure that you under- stand exactly what is required. Sixth: Mail the solution to the Secretary of the Couree in the envelope provided. The materia! in Ihis envelope was formerly cairied in pockets in the front arsd7back covers of the text books. It is hoped that the new arrangement will avoid the inconvenience ^','hich was soiiii_limcs caused by the loss of material whi»h dropped from the pockets when the books were unpacked. Business Training Corporation - New York City