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How to Deal with Sinosure as an Importer

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Global Logistics, Global Trade Daily, Imports/Exports, International Trade, Ocean Ports, Uncategorized

How to Deal with Sinosure as an Importer

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Explore our in-depth guide on handling the Sinosure export credit insurance services and getting deferred payments for your imports from Chinese suppliers. 

Foreign companies looking to import goods from China often face a hurdle to executing these international transactions. This is the need to pay for a large part of their order up front. Payment terms in contracts with Chinese suppliers can require as much as 30% of the total up front as a hedge against the importer’s nonpayment, also known as its credit risk. The remainder of the payment is usually due before the Chinese exporter ships the goods. 

Funding this can tie up the importer’s working capital, which can make some otherwise attractive deals uneconomical, even if the importing company has a demonstrably established market for the goods. If the importer must wait for one purchase be sold to raise the working capital to fund the next order with a Chinese exporter, it can slow down the entire process, depressing demand for the Chinese goods and reducing profits for the foreign buyer. 

The reason for Chinese companies’ reticence to give generous payment terms to their customers is they are unable to do deep-dive credit analyses of all their overseas buyers. This is particularly the case for importers that have not done business with an exporter in the past since there is no track record of successful transactions to establish trust. 

Sinosure, the China Export & Credit Insurance Corporation, is an official financial institution designed to help in cases like that. It provides export credit insurance to companies in China seeking to do business with foreign buyers without having to bear the risk of nonpayment. While Sinosure’s clients are the exporting Chinese companies, its business benefits importers outside of China by eliminating cash flow issues and extended delivery times.

What Is Sinosure

Sinosure is an export credit agency, or ECA. It is owned by the Chinese government, which set it up in 2001 to support China’s foreign economic and trade development and cooperation. It operates as an independent legal entity.

It is similar to those maintained by other large exporting nations. For example, its counterparts in the U.S. and U.K., respectively, are the US Export Import Bank (US Exim) and UK Export Finance (UKEF). 

In China Sinosure’s mission is to “work to actively expand the coverage of export credit insurance and provide comprehensive risk protection for exports of Chinese goods, technologies, and services, as well as overseas contracting and investment projects.”

Sinosure’s primary role is to provide export credit insurance and guarantee services to Chinese exporters and their overseas buyers. For these Chinese companies, the insurance company acts as a crucial risk mitigation factor, offering protection against potential trade uncertainties.

 Sinosure extends its services to a diverse range of small and medium-sized enterprises (SMEs) and large corporations. Typically, when Chinese sellers engage in international trade, they seek payment in advance. As noted above, the conventional contract’s payment terms often include an initial down payment of around 30% before commencing production, with the remaining 70% due once production concludes, but before the order is shipped.

The basis of such payment structure lies in the fact that many exporters may lack the capability or resources to evaluate the creditworthiness of foreign buyers accurately. Consequently, they might be hesitant to extend deferred payments altogether, opting for upfront payments as a safeguard against the considerable risk of non-payment.

However, this approach poses challenges for importers. Their capital may be tied up in existing orders, making it difficult to prepay for new orders. This financial constraint can limit an importer’s ability to meet market demand and expand their businesses.

Sinosure is a company that works with issues like that. The agency offers trade credit insurance coverage to protect exporters against the risk of non-payment by buyers. With this insurance safeguard, suppliers are more willing to extend deferred payment terms and trade turnover with their foreign partners, to the mutual benefit of both parties.

Typically, Sinosure’s short-term credit insurance plans allow for a deferred payment period of around 90-120 days. However, the exact terms can be adjusted, depending on the specific relationship between the buyer and the seller.

In the year 2022, Sinosure ensured export credit worth more than $700 billion for approximately 240,000 Chinese exporters. This compares with only $2.61 billion insured that year by US Exim. Sinosure insures so much more because it is a key part of the country’s export drive, and it maintains a large sales and customer service network throughout China, whereas US Exim generally focuses on a few large-scale industries like airplanes, power generation, and infrastructure. 

Sinosure’s credit analysis acumen is notable. It paid out claims to companies and banks totalling only $1.4 billion in 2022, or one-tenth of one percent of the amount it insured. This proves that the agency has facilitated China’s international trade ventures without putting much of the government’s capital at risk.

Sinosure has five main products.

Short-term export credit insurance.

This protects enterprises from the loss of A/R resulting from commercial risks or political risks when they export goods and services from China. The covered credit period is generally within one year, and not more than two years.

Medium and long-term export credit insurance.

This covers risks in relation to the collection of the accounts receivable (A/R) for financial institutions, exporters or financial leasing companies under the export-related loan agreement, commercial contracts or leasing contracts respectively. The tenor is generally 2-15 years.

Overseas Investment Insurance.

This protects investors and financial institutions from economic losses resulting from political risks such as expropriation, exchange and transfer restrictions, war and political violence, and breach of contract in the host country. The tenor is not more than 20 years.

Short-term project insurance.

This protects exporters from the loss of costs incurred or A/R due to the buyer’s failure or inability to fulfill its payment obligations under the export contracts or engineering contracts. The covered credit period is generally within two years (included).

Domestic trade credit insurance.

This protects enterprises from the loss of A/R or advance payment resulting from commercial risks in domestic trade. The covered credit period is generally within one year.

 How Sinosure Works

The process to obtain a Sinosure guarantee is fairly rapid – fast enough so that it does not typically delay transactions back. Here are the usual steps.

1. An importer goes through Sinosure’s investigation process to determine its creditworthiness. This takes about three weeks. (See below.)

2.  A Chinese supplier applies for an insurance policy with Sinosure, if it does not have one already.

3. The supplier registers the sales contract with Sinosure.

4. The buyer fulfills the initial payment requirement, usually from 10% to 30% of the total invoice price, and the exporter starts the production of the ordered goods, and proceeds to ship them.

5. Once the shipment arrives at its destination, the importer takes receipt of the order. The deferral period typically extends up to 90 days, although it may vary.

6. At the end of this deferred period, the importer pays off the debt owed to the supplier.

How Importers Can Get Sinosure Credit Limit

A Sinosure credit limit is the maximum amount of insurance that ECA is willing to offer an exporter for contracts with a particular importer. If you, as an importer, have a Sinosure credit limit of $1 million, this means you can get $1 million in trade loans from your Chinese partners, secured by Sinosure.

 When seeking a Sinosure credit limit, global buyers face a challenge: Sinosure does not engage in direct communication with foreign companies. It is barred from doing so by China law. Even if a buyer finds Sinosure contact details online, they won’t respond. Therefore, enlisting the services of a specialized consultancy, like Axton Global, is vital for importers who want to prepare to do business with a Chinese exporter under a Sinosure guarantee. 

 How Much does Sinosure Insurance Cost?

The cost of Sinosure insurance depends on the credit limit amount, the importer’s risk, as determined by the underwriters, and the terms of the policy. The fee typically ranges from 1% to 3% of the credit limit amount.

How Axton Global Facilitates Sinosure Transactions

Axton Global operates as the essential intermediary between your import business and Sinosure. The company has expertise to streamline the entire process of applying for a credit limit. The journey starts with the provision of your company’s financial documentation, a first step in Sinosure’s investigation process. It leads to the successful assignment of a credit limit.

 In addition to this, Axton Global helps clients:

1. to increase their Sinosure credit limits

2. to find reliable Chinese suppliers for their business needs 

3. to negotiate deferred payment terms with suppliers and arrange the necessary paperwork

4. to transfer a client’s credit limit from one supplier to another.

Founded in 2008, Axton Global is the market leader in trade finance services for companies that import goods from China. The primary goal is to boost its customers’ business growth by enabling them to get the best possible terms from their Chinese suppliers, improving their cash flow and helping them to run their businesses more efficiently.

Axton Global has unparalleled experience working with – and access to – Sinosure, meaning its clients can benefit from years of experience bridging the cultural and financial gap between Chinese exporters and buyers around the world.

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Global Logistics, Global Trade Daily, Ocean Ports, Uncategorized

Pivoting from China? Consider These Points

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For years, offshoring to China, for operations, supply chain, or otherwise, was routine, seen by businesses as a means to cut costs and increase profits. 

However, foreign businesses operating in China, or whose supply chains involve China, are experiencing increased costs, whether in the form of regulatory compliance costs, increased dues and tariffs on imports from China, or increased costs of goods in China itself, all of which have eroded profit margins for some businesses. Recent supply chain shortages and delays, even after the COVID-19 pandemic, have undermined normally efficient and timely processes, and further cut into profits. The changing state of diplomatic affairs between the United States and China alone gives rise to uncertainty for businesses. 

Imports from China have been declining steadily since last year and, in 2023, the U.S., once China’s largest export market, became only its third largest, behind the Association of Southeast Asian Nations and the E.U. China’s share of U.S. imports in the furniture, textile, and machine industries is at its lowest level since 2015. This decline in imports is partly attributable to the recent acceleration of supply chain reshoring, or domestication, among U.S. businesses, and rising imports from other countries, including Malaysia, Vietnam, India and Mexico. 

Indeed, businesses big and small, from Adidas, Apple, Nike, and Samsung on down, have been reevaluating their operations and supply chains involving China, and are either pivoting from China completely, via a clean break, or partially, adopting what is called the “China plus” strategy. They have found that adopting a “China plus” strategy, for example by engaging additional manufacturers or suppliers in other countries, prevents reliance on any one source, providing a buffer against supply chain shortages and delays, or unexpected changes in cost or regulation. In any case, businesses that are considering shifting their operations and supply chains, or at least parts of them, elsewhere should do so responsibly. 

As with any relationship, the parties and countries with which businesses are newly associating ought to be appropriately vetted, to ensure that what they have to offer works practically and in accordance with law. Businesses should consider:

  1. Industry

For some industries, if sufficient alternatives in other countries are available, it may make sense to clean break from China; for others, where alternatives are sparser, it may make sense to adopt a “China plus” strategy. For example, some businesses in the electric vehicle, lithium battery, semiconductor, and rare earth industries have found success completely reshoring their operations, manufacturing, and production, because of increased domestic investment in those areas. Businesses in the solar panel industry have found success completely outsourcing to countries like Bangladesh, Cambodia, Malaysia, the Philippines, and Thailand. The furniture and textile industries have found success paring back in China while expanding parallel operations and supply chains in different locales familiar with the processing components from China, such as Mexico and Vietnam.  

2. Resources

The capital at a business’ disposal is always a consideration; a “China plus” strategy, in integrating more players, is likely to add costs in some aspects, but may save costs that would be associated with a clean break. Additionally, a business will need to have adequate human resources at its disposal, not the least of which is personnel competent and experienced in managing complexities across different jurisdictions and involving various parties, and in handling increased responsibilities in inventory and transit.

3. Logistics

Logistics will need to be considered as well. With the “China plus” strategy, adding more sources, as opposed to replacing sources in China in their entirety, may involve more handlers and transit throughout a business’ process. This requires that businesses consider their internal procedures and their obligations to their customers, and whether the time required by adding more sources aligns with the same. Will cultural issues and holidays (formal and informal) present any issue regarding timely manufacture and delivery? 

4. Payment

Additionally, when engaging any foreign parties, businesses should consider the applicable foreign currency controls, and payment logistics. Establishing foreign bank accounts and know-your-customer requirements can be burdensome and time-consuming.  A business should check to see if its bank is able to timely issue payment to, and receive payment from, the foreign party or foreign jurisdiction, and also whether the foreign party is affiliated with a domestic affiliate or subsidiary for payment purposes. 

5. Due Diligence

Whether breaking cleanly from China, or bringing other players into the mix, a business ought to properly vet the parties and the jurisdictions with which it is dealing. Physically visiting and inspecting the parties and their operations, if reasonable, is preferred. One cause for concern, for instance, may be where a party has a physical office location, but no manufacturing presence, creating risks of product origin misclassification for U.S. tariff purposes, which can lead to fines and penalties. A business at the very least should have been referred to the parties by a trusted and reputable source, or know that the parties are dealt with and respected by others in the industry. 

A business should audit the parties and their processes, and ensure alignment with its own and with the processes of any other parties involved. Such should include a review of contractual arrangements between a party and its subcontractors or suppliers, to ensure that any one party is not overly reliant on another’s performance. 

For compliance with U.S. Customs regulations, parties exporting goods to the U.S. should be able to provide businesses with bills of lading demonstrating the movement of the goods for each shipment, invoices and proofs of payment (where appropriate) for any components of such goods, and exporter certifications describing the origin of the goods and any components thereof. 

Depending on the countries and goods involved, it may be helpful to engage a qualified attorney for a review of U.S. Customs regulations and other applicable domestic laws (such as export controls on certain goods, including sensitive industries [advanced computing and semi-conductor, AI, encryption, geo-location, etc.]  and military goods), and the applicable laws of the foreign jurisdiction, to ensure businesses are (or would be) compliant and that they understand any resulting changes in duties or tariffs, processes, responsibilities, and risks involved. Customs, for example, determines the “country of origin” of a particular good based upon the extent to which it is manufactured or transformed in any particular country, and the “country of origin” determination affects the applicable duties (including anti-dumping and countervailing duties) and tariffs. 

The Bureau of Industry and Security of the U.S. Department of Commerce maintains lists of countries, goods, entities, and individuals subject to controls, bans and other sanctions. The lists, including a Consolidated List, can be located under the “Policy Guidance” tab at bis.doc.gov/index.php.  Banks, too, will often flag certain entities and individuals. Before considering engaging additional or new parties, especially in other jurisdictions, a business ought to check against the Bureau’s lists and consult their bank. 

A business that is pivoting from China—or anyone considering business abroad—would do well to assess carefully the alternatives and associate with proven parties, with strong track records, and in reliable locations.  One should do so only after assessing and accommodating for the landed costs of goods (including duties and tariffs), risks and responsibilities involved, with the consultation of the appropriate professionals. 

Author Bio

Charles Baldwin is a partner and Mousa Alshanteer is an associate with the North Carolina law firm Brooks, Pierce, McLendon, Humphrey & Leonard, LLP (“Brooks Pierce”). Both have significant experience in helping companies pursue business overseas. This article expresses the views of the authors, is for educational purposes only, does not constitute legal, tax, or other professional advice or express the views of Brooks Pierce. You are advised to seek independent legal advice regarding any international transaction. 

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Archives, Global Logistics, Global Trade Daily, News

WebCargo, China Southern Air Logistics becomes First Chinese Carrier to Offer China Import eBookings

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China Southern Air Logistics unlocks instant Chinese import bookings for freight forwarders worldwide. Carriers on WebCargo now account for over 50% of air cargo capacity, with connections to over 10,000 forwarding offices on platform. 

China Southern Air Logistics, the cargo arm of China Southern Airlines, is partnering with WebCargo, the leading digital booking and payments platform, to offer forwarders real-time rates, capacity, and eBookings. Shipments originating in China represent one of the largest segments of global air cargo trade, accounting for 7.3 million metric tons of a global 65.7 million metric tons1. Forwarders around the world, including the 3,500 freight forwarders in over 10,000 offices that already use WebCargo, will gain direct access to China Southern’s leading coverage into this key region. 

These forwarders will also benefit from WebCargo’s combination of real-time booking with digital payments, helping forwarders quickly begin booking and reconciling payments with China Southern Air Logistics, as well as other carriers.  

About China Southern Air Logistics 

Being the cargo arm of China Southern Airlines, China Southern Air Logistics undertakes all cargo business from the parent company. 

Currently, China Southern Air Logistics operates 14 B777 freighters with more than 60 flights per week, flying from Guangzhou, Shanghai, Shenzhen, and Chongqing to Amsterdam, London, Frankfurt, Los Angeles, and Chicago. Expanding its freighter fleet in the near future, the company plans to launch more international freighter routes from China to major cities in the world. 

Ranking among top 5 in terms of aircraft fleet in the world, China Southern’s well-developed belly network has enabled China Southern Air Logistics to provide extensive belly capacity covering China, radiating throughout Asia, linking Europe, America, Oceania, and Africa. With more than 880 aircraft and 1000 plus flight routes, the Air Logistics company can carry cargo and mail to over 170 destinations around the globe. 

China Southern Air Logistics’ product portfolio includes CZ-Speed for express cargo, CZ-Special for specialized service, CZ-Exclusive for customized solutions, CZ-Transfer for diversified transfer options, and CZ-standard for general cargo. Its dedicated cargo team is always ready to offer quality service to meet customer needs. 

About WebCargo, a Freightos Group Company 

WebCargo is the most advanced digitization platform for logistics service providers. 

WebCargo Air is the leading platform for live air cargo rate distribution and bookings between hundreds of airlines and 3,500+ forwarders across over 10,000 forwarding offices. Partners using fully digital eBooking and rate distribution on WebCargo include over 30 airlines, including American Airlines, Turkish Airlines, Lufthansa, Etihad Cargo, Air France KLM, IAG Cargo, SAS, Qatar Airways, El Al, and Emirates SkyCargo. Freight forwarders can access dynamic capacity, pricing, and eBooking by signing up for free at webcargo.co.

WebCargo joined the Freightos Group in 2016. The Freightos Group also operates freightos.com, the world’s largest digital freight platform for the trillion-dollar international shipping industry, and the Freightos Baltic Index, the only daily container index, in collaboration with the Baltic Exchange. 

Founded by serial entrepreneur Zvi Schreiber, Freightos is a logistics technology pioneer with a worldwide presence, and has raised over $120 million from leading venture funds, including GE Ventures, Aleph and the Singapore Exchange. In June 2022, Freightos announced that it would merge with GESHER I (Nasdaq: GIAC) with the intent of going public on the Nasdaq (FROS).

Lödige Industries, the world's leading provider of air cargo terminal solutions, has completed an automated Cold Chain Pallet-Cargo
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Lödige Industries Finalizes Automated Cold-Chain Pallet-Cargo System for AAT COOLPORT at Hong Kong International Airport

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Lödige Industries, the world’s leading provider of air cargo terminal solutions, has completed an automated Cold Chain Pallet-Cargo System at Hong Kong International Airport.  Via its Hong Kong office, the German company, planned, manufactured and implemented the advanced system for AAT COOLPORT, which is the first on-airport cold chain facility in Hong Kong providing a complete temperature-controlled environment, operated by Asia Airfreight Terminal (AAT). Supported by the tailor-made pallet moving solution, the operator can maintain strictly regulated cold chains seamlessly and respond to the increasing global demand for temperature-sensitive air transports.

The customized and automated material handling system is designed for fast and safe transport of temperature-sensitive goods inside the cold chain facility. Modern and climate-resistant sensors in combination with an enhanced maintenance and control system ensure an efficient and safe flow of fragile goods.

Lödige Industries was awarded the contract for the project because it met both the high-quality requirements for stringent cold chain regulations and was able to achieve short turnaround timelines. The market for temperature-sensitive goods, like pharmaceuticals, and perishables, is currently the strongest growing market in air freight worldwide. Given the rapid planning and implementation of the automated ULD handling system, AAT is able to meet the rapidly growing demand of its customers for temperature-sensitive air cargo as well as strict cold chain regulations.

The contract was awarded in June 2021 and AAT COOLPORT has been serving the industry since July 2022. Lödige Industries has a proven track record given its numerous material handling system projects in Asia (e.g., at the airports of Singapore or Chengdu). The company, with regional offices in Hong Kong, Beijing, Shanghai, Singapore and Kuala Lumpur, has a solid understanding of customer needs in the Asian region, and an established network of local partners. In 2006, Lödige Industries handed over a sizeable multi-level material handling system for AAT, with four 43-meter-high elevating transfer vehicles. The new palletized cargo handling system marks another milestone in the long partnership with AAT and further consolidates Lödige Industries’ strong presence and experience in Asia.

About Lödige Industries

Lödige Industries is a leading global supplier of logistics systems with headquarters in Germany. With offices around the world Lödige Industries provides material handling solutions for a wide range of customers. Founded in 1948, the family-owned business specializes in the supply of complex material handling systems from planning, design, programming and commissioning to service.

www.lodige.com

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Archives, Global Logistics, Global Trade Daily

China logistics still Struggling with COVID

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So far, the implications for ports and airports appear not to be too serious, although why this is the case in not clear, as many major cities and regions are in some form of emergency measures. Ominously, the city of Shenzhen has issued a “work from home” order despite the wider region appearing to relax measures in the face of public disturbances.

Chinese state media reports that the neighboring port of Guangzhou, “has seen a limited impact on logistics and trade so far thanks to the local government’s launch of dynamic epidemic control measures to bring down the possible impact of the outbreak and quick reining of the virus.”

Ports further up the coast also seem to be unaffected. For example, the city of Dalian relaxed measures at the end of last week.

However, the city of Shanghai, which is the location for China’s largest container port, has just embarked on a further round of restrictions, with mass testing, business closures and movement restrictions. In the past such measures have led to serious disruption at both ports and airports, with truck-traffic in particular unable to drive through the city.

Similar measures are reported to be being applied in Chengdu and Wuhan, with both production and logistics activities being disrupted. Wuhan is a significant river port on the Yangtse and a key feeder location for Shanghai. Last week saw unrest in Zhengzhou in response to the imposition of new measures, with the most high-profile disturbances at the large Foxconn production and logistics hub in the city.

The situation is all the more febrile due to the political implications. The central Chinese government has attempted to articulate a change in policy over COVID measures, emphasizing a shift away from sweeping quarantine policies. However, it does not seem that these new policies are being applied on the ground. There has been extensive public unrest in reaction to these measures.

Judging by the little emerging from China, it seems that much of the regional and national government is keen to keep production and logistics operations continuing. However, it is unclear how successful they will be in the face of other parts of the state that seem wedded to a more extreme response.

The immediate implications for air and sea freight do not yet seem to be at the level of seriousness seen in 2021, when a number of major ports in regions such as the Pearl River Delta and Shanghai reduced operations to a minimum. What the present situation implies is that sea and air freight will recover at a slower rate than had been assumed. In particular it would appear that markets such as aircraft belly freight will remain short of volume.