Opting for direct imports can be exciting if you are just diving into international trade and who wouldn’t want to eliminate middlemen for higher profit margins?
Direct importing means that you control all the processes involved in an import transaction giving you the expertise and knowledge of the risks and how to overcome them.
However, direct import isn’t the only way to move your products from source to destination country. You can engage a third-party importer of record to handle the import transaction on your behalf.
So, you want to understand what is the difference between direct and importer of record shipping? What risks are involved in each of the two options? When do you opt for direct import rather than an importer of record?
This article answers all these questions to help you make an informed decision before initiating an import transaction.
Let’s make a start!
What is the importer of record?
An importer of record (IOR) is the legal entity responsible for transferring ownership of goods from the seller to the buyer. The importer of record can be the owner of the goods, a consignee, a legal customs broker, or a third-party importer of record.
Let’s understand these entities at a glance:
- Owner of the goods: This refers to the seller, who initiates and declares an import transaction.
- Consignee: Can be a third-party importer of record or an individual at the destination country entrusted with assuming ownership of the goods for customs clearance and payment of duties.
- Customs broker: A CPB-licensed entity responsible for ensuring imported goods are cleared of customs and all expenses, including duties and taxes, settled.
- Third-party importer of record: A declarant who takes temporary ownership of imported goods at the destination country, especially when the owner doesn’t want to own the goods.
As a new business starting with international trade, you may want to use a customs broker as your importer of record. While the customs broker can act as the importer of record, there’s a significant difference from what a third-party IOR can achieve.
A third-party IOR is responsible for 90% of the activities involved in an import transaction—from packaging through classification, transportation, customs clearance, and logistics management. The IOR can legally represent you in the destination country.
On the other hand, a customs broker has a limited scope of responsibilities and is essentially reliable when clearing customs for imported goods.
How to import with an importer of record
With an importer of record, you have minor responsibilities to execute throughout the import transaction. The IOR handles the following responsibilities:
- Accurately classifying and valuing the goods
- Settling duties, taxes and fees associated with the goods
- Providing necessary paperwork and documentation
- Ensuring compliance with laws, statutes, and regulations, locally and internationally
- Ensuring the safety of imported goods during packaging, transportation and unloading.
Pros and cons of hiring an importer of record
Partnering with an importer of record for your import transaction offers various benefits and downsides.
Advantages
Here are the benefits of seeking IOR services:
- Saves on the cost and hassle of establishing a legal entity in the import destination
- Maintains your import transaction records for the minimum duration as required by the local law in the import destination
- Takes care of storage and warehousing facilities if required by the customer
- Streamlines the entire import supply chain from compliance to logistics
- Mitigates the risk of delayed delivery and seizure of goods through accurate classification, compliance with regulations, and timely customs clearance.
Disadvantages
Despite the numerous benefits of an IOR, there are also downsides, which include:
- Limited control: The importer of record is in charge of the import transaction and has direct contact with the customers. This deprives the importer of the opportunity to establish loyalty and trust via direct contact.
- Dependency: Your business’s performance and reliability depend on the effectiveness of the IOR services. You risk running out of business or driving insignificant profits if the services are ineffective.
What is a direct import?
Direct import involves a buyer and seller directly engaging in an import transaction without involving an intermediary. It can also involve a business opening a branch of its services overseas and moving some products to the new store. In this case, the importer can directly move the items to the new location without needing a middleman or third-party importer of record.
With direct import, the seller is responsible for all the risks, costs, and hassles of moving the goods from source to destination. Hence, direct import is suited for enterprise businesses that can build specialised teams.
Who is involved in a direct import?
A direct import involves the buyer and the seller. The buyer is usually an enterprise retailer (e.g., Amazon), and the seller is an overseas manufacturer.
Instead of buying the goods via a supplier, the buyer acquires the final products directly from the manufacturer.
How does a direct import occur?
A retailer places an import order with an overseas manufacturer a few months before the expected delivery date. The orders are transported via a container from the manufacturer to the seller’s distribution centre.
The seller is responsible for all the risks and costs of moving the goods from the source to the destination, including logistics management.
Pros and cons of a direct import
Eliminating the middlemen from an import transaction offers various benefits and a fair share of downsides to importers.
Benefits
Here are the top five benefits of direct importing:
- Higher profit margins: With a direct import, you reduce the number of service providers, cutting costs and opening the potential for higher profit margins.
- Greater control over sales: You are responsible for decision-making throughout the supply chain. You can tell when it’s worth importing since you have first-hand experience.
- Direct customer contact: You can establish long-term relationships with the customer, building loyalty and trust.
- Flexibility and customisation: You determine how your goods should be handled before and during transit, from choosing your carriers to choosing favourable terms, including DDP, DAT, and DAP.
- Building import experience: By directly importing, you gain adaptability and the experience to grow your team concerning international trade for future transactions.
Downsides
- Import regulations and compliance challenges: Direct importing demands staff specialised in global import transactions. Ensuring compliance with regulations can be challenging for businesses with limited experience in international trade.
- Intensive resources: You control everything, including ensuring the safety of goods and timely delivery. Hence, you must invest in various resources, including technology (e.g., tracking tools) and time.
- Logistics challenges: When importing directly, you must ensure safe packaging and transportation from source to destination. Coordinating the logistics management processes throughout the import supply chain can be challenging without prior experience.
Importer of record vs direct import [Which is right for your business?]
Since we have discussed the benefits and downsides of the importer of record and direct importing, which is suitable for your business?
Undoubtedly, direct importing and importer of record (IOR) are significant in meeting varied business goals. Also, depending on the available resources, either of the two is applicable in various unique aspects.
Hence, to understand the right option for your business, you want to understand when and why you should choose IOR or direct importing.
Direct importing use cases
You can use direct import if your business meets the following aspects:
- You have a team specialised in international trade and global logistics
- You have the essential tools and technology for ensuring the effectiveness of the import supply chain processes. This includes route optimisation and tracking.
- You have experience successfully importing from varied destinations
- You understand the global supply chain complexities, including regulations compliance and logistics management.
- You want to exercise complete control over your import transactions.
Importer of record use cases
We previously discussed various reasons why your business needs an importer of record. These include:
- You have not established a legal entity in the destination country
- You need help with ensuring compliance for highly restricted items
- You need technical help with IT equipment at the destination country.
Here are the top scenarios that necessitate choosing an importer of record over direct import:
- The end user of the goods doesn’t want to be the importer of record.
- You do not specialise in international trade and global logistics
- You have a challenge navigating import regulations and compliance
- You have limited resources, including time, technology, and budget
- You do not have experience shipping overseas.
Over to you
Whether it concerns direct imports or an importer of record, profit margins heavily rely on the ability to manage import costs. Two critical factors influencing profit margins in the global supply chain are regulations, compliance and logistics management.
Failure to comply with local and international import regulations can lead to the seizure of goods at the border, penalties, or even reputational damage. Similarly, ineffective logistics management can damage goods or lead to delayed deliveries.
Blackthorne has over 25 years of experience offering high-quality freight forwarding services, including forward stocking locations and mini-forward stocking services. We ensure your goods move safely and in the shortest time possible from your door to your customer’s door.
Explore our IOR services if you want to stretch your profit margins with an importer of record and if you need a clarity call to understand your import needs, we are only a message away.
