Let’s take a snapshot of the 2008 U.S. trade balance. Complete statistics can be found at the U.S. International Trade Commission by running the U.S. Trade Partner Report.

We’ve highlighted the top 10 trading partners exporting goods to the U.S., and have listed their top 5 product categories based on dollar volume. These listings can be helpful in narrowing the search for countries that are supplying a product category in large volume. For example, if you’re looking for a key exporting country for toys, furniture and footwear, look to China.

1. Canada
   a. Petroleum oil
   b. Passenger motor vehicles
   c. Turbojets and propellers parts
   d. Plastics and packaging articles
   e. Cell phones
2. China
   a. Cell phones
   b. Computers and laptops
   c. Toys
   d. Furniture
   e. Footwear
3. Mexico
   a. Televisions
   b. Petroleum oil
   c. Passenger motor vehicles
   d. Computers
   e. Medical and surgical appliances
4. Japan
   a. Passenger motor vehicles
   b. Printing and copying machines
   c. Televisions, video recorders
   d. Medical and surgical appliances
   e. Organic chemicals
5. Germany
   a. Passenger motor vehicles
   b. Turbojets and propellers parts
   c. Medical and surgical appliances
   d. Cell phones
   e. Pharmaceutical products
6. United Kingdom
   a. Petroleum oil
   b. Turbojets and propellers parts
   c. Pharmaceutical products
   d. Passenger motor vehicles
   e. Organic chemicals
7. South Korea
   a. Cell phones
   b. Passenger motor vehicles
   c. Machinery parts
   d. Steel tubes and pipes
   e. Petroleum oil
8. France
   a. Turbojets and propellers parts
   b. Pharmaceuticals products
   c. Helicopters, airplanes and satellites
   d. Petroleum oil
   e. Wine and other alcoholic beverages
9. Saudi Arabia
   a. Petroleum oil
   b. Organic chemicals
   c. Sulfur
   d. Fertilizers
   e. Inorganic chemicals
10. Venezuela
    a. Petroleum oil
    b. Organic chemicals
    c. Iron and steel
    d. Sulfur
    e. Inorganic chemicals 

U.S. Businesses: Be Careful Whom You Trade With

If you operate your global trade business in the United States, you are prohibited from importing or exporting goods from certain countries or trading with certain business entities or individuals. These rules are maintained by the U.S. Customs and Border Protection agency.

As of March 2009, it is unlawful to conduct import or export trade with the following countries:

• Burma
• Cuba
• Iran
• Iraq (certain restrictions apply to trade with this country) 
• North Korea
• Parts of Sudan

Along with these countries, the U.S. Department of the Treasury Office of Foreign Assets Control keeps a comprehensive list of persons or entities from many countries with which import/export trade is prohibited. While not all-inclusive, the Specially Designated Nationals (SDN) list is an extensive .pdf file with over 400 pages as of October 2009. Because the list includes known aliases among the alphabetical listings, use the .pdf search tool for a comprehensive search.

Restrictions and tariff treatments for all countries can be found on the U.S. Customs and Border Protection (CBP) website.

An import quota controls the amount or volume of some items imported into the U.S. for a specific period of time. Quotas are established by the U.S. government to bring balance with our trading partners. Some quotas result in preferential treatment in which you will save duty fees, while other quotas may increase duties. 

Three Types of Quotas

• Absolute quota: strictly limits the quantity of goods imported during a period of time.
• Tariff-rate quota: a specified quantity is permitted at a reduced rate of duty during the quota period. Once the quota limit is reached, goods will be entered at a higher rate of duty.
• Tariff preference level quotas: various types of handling based on legislation and trade agreements between the U.S. and the trading country.

Key Factors

Common products that are impacted by quotas include textile products of any kind, agricultural products, and products from certain countries. Once you know the product you will import, some quick research or a phone call to your customs broker will alert you to any quotas to be aware of.

Textile Quotas

All textile imports are governed by quotas. If you’re importing textile items, it’s wise to have a general understanding of the quotas that may impact you and your shipment. For example, in 2008, hosiery items from China reached 93% of the absolute quota limit. If your item may reach a quota limit, you’ll want to adjust the timing of your shipment to arrive before the limit is reached. As of June 2009, absolute quotas exist for textiles from China, Vietnam, Russia, and Ukraine.

Textiles are organized by a category number; with this number you can make sense of the vast array of reports and articles to see if your shipment may be impacted by quotas. Visit the International Trade Administration Office of Textiles and Apparel website for the category listing of apparel and textiles.
 
Other Quotas

The Customs and Border Protection (CBP) website also has a FAQs page to help determine what other types of goods are subject to quotas. The rules can be exhaustive, so save time by knowing your product HTS classification before digging in to the research. For a lesson on using the HTS classification tool, see The Import Channel’s topic “Find Products With Big Profits”.

Or make it easy on yourself, and call your customs broker.

You’ve decided on a product to import. The next step is to locate suppliers. But where in the world do you start?

With a powerful (and free) online tool provided by the Office of Trade and Industry Information from the U.S. Department of Commerce, you can find trade statistics in a matter of minutes.

The excellent online interactive tool, known as TradeStats Express, provides statistical results based on your input of product, dollar volumes, and date ranges. You can also use this tool to review exports leaving the U.S. headed for other shores. It’s a fascinating and fun tool, and it provides global trade statistics with ease.
 
Let’s take the following example: you want to import cut flowers and want to find out which countries are major import sources based on dollar volume. Quick interaction using TradeStats Express (located at http://tse.export.gov/) gave us our answer.

In the TradeStats Express tool, we set the Product flow to “Imports” and changed the Product item to Harmonized System Code HS0603 for cut flowers. After setting our other display parameters we see the following chart:

It appears that the highest volume of imported cut flowers is arriving from Colombia. In 2008, U.S. businesses imported $501,552,000 from Colombia, while in second place was Ecuador, with $134,051,000. The Netherlands came in third, at $60,216,000. We can also see the five-year trend in Colombia’s import numbers is on the rise, while the Netherlands is seeing a loss of imported volume.
 
With these statistics on the cut-flower trade, we can quickly determine which country to focus our energies in for sourcing suppliers.

Along with dollar-volume trends, it’s also important to understand trade and political relationships between the U.S. and the source country. Temporary embargoes are put in place from time to time by the U.S. government, resulting in additional duties on goods arriving from certain locations. Quotas may also be in place, preventing some product categories from being imported after a certain volume is reached. Textiles and garments are often subject to quotas. A quick conversation with your customs broker will give you some direction on quotas and embargoes for your particular product or country.
 
A wealth of information is available online for U.S. imports at the U.S. Department of Commerce International Trade Administration, most of it at no cost.

An example big-profit category: floral stems

With Free Online Tools, Find the Most Profitable Products to Import

Want to know how much profit there is on those items made overseas? With a little research using free online tools, you can review the average price per unit of goods being imported into the U.S. We’ll show you how to quickly find a product’s classification code so you can review powerful importing statistics.
 
We’ll use the fresh-cut floral industry for our research. Roses are popular, but how are their profits compared to other varieties of flowers, such as chrysanthemums. Let’s look at the two simple steps to quickly compare the two varieties and determine the average import value per stem for each. We can also see trends in pricing and import quantities.

Let’s Get Started

Step 1: Determine the Harmonized Tariff Schedule (HTS) Classification

First we need to determine the classification code for our products. The United States Harmonized Tariff Schedule contains all the classification codes for goods imported into the U.S. This number is also used to assess duties upon importing. (Note: While this tool is useful for research, it’s recommended you work with a customs agent to provide a final determination of your product’s HTS classification. The discipline of assessing a classification code is complex and takes years of experience to master.)

We go to the United States Harmonized Tariff Schedule website. We enter the first search term “roses” to capture the HTS number, then enter the second search term “chrysanthemums” to capture the second HTS number:

0603.11.0010 – Sweetheart roses
0603.14.0010 – Pom pom chrysanthemums

With these two cut-flower variety classifications known, we can now look at the import trade statistics.

Step 2: Find Trade Data for a Specific Product

The U.S. International Trade Commission website has a wealth of statistical data that can help you explore any product you may consider importing. Best of all, it’s free to use once you set up a user account. Then proceed to use the trade data tool.

We enter our classification numbers and request data on value and quantities, giving us the average price per unit (before duties and custom fees are applied). Here are our results:

Roses: U.S. import average price per stem
2008 – US$0.147 per stem
2007 – US$0.136 per stem

Pom pom chrysanthemums:  U.S. import average price per stem
2008 – US$0.135 per stem
2007 – US$0.136 per stem

What We Conclude From These Statistics

Roses: There is substantial gross profit margin between the retail price per stem we see in the U.S. versus the average price per stem paid by flower importers. A bouquet of a dozen roses on 1-800-Flowers.com sells for $59.99 (including the glass vase), while we find the average price per rose stem of just under 15 cents, or $1.76 per dozen before duties. We also see the average per-stem price is on the rise, increasing 8.60% from 2007 to 2008.

Chrysanthemums: A check at our local grocery store floral stand shows pom pom chrysanthemum stems are selling at $2.99 per stem. To order these through a florist will be much higher. We see the average imported price running 13.5 cents per stem. Again, a nice gross profit margin. However the trend on pricing from 2007 to 2008 is on the decline, although not by much, decreasing by 0.60%.

Even with a substantially lower gross margin per stem than roses, the chrysanthemum is often used in all types of floral arrangements throughout the year. While roses see a sharp sales spike for Valentine’s Day and Mother’s Day in the U.S., the chrysanthemum sells in bouquets consistently throughout the year.

Do-it-yourself Research Along With a Professional’s Input

Conduct preliminary research online with these free resources to narrow down the product categories of interest to you. Once you know the product to import, contact a customs broker and ask that your findings be validated. The broker will become your partner in global trade, and will provide ongoing information about trends, regulation changes, and other important issues that will make a difference on your bottom line.

The steps to clearing customs can be mystifying. We suggest focusing on what you’re good at — sourcing and selling your products – and cut through the red tape by handing this step over to the pro: your customs broker.
 
A partnership with a customs broker is nearly a necessity in the importing business and will save you valuable time and trouble. After reviewing The Import Channel topic Customs Brokers — An Importer’s Best Friend and reading the guidelines below, you’ll find that the easiest thing to do is to leave the complexities to the professionals.

Clearing Customs

All goods entering the United States pass through an entry process governed by U.S. Customs and Border Protection (CBP). There are two key steps to entering merchandise:

1. Filing documents so that CBP can determine if goods may be released into the U.S.

2. Filing documents to permit assessment of duties and gathering statistical data.

There are two types of entries: formal and informal. Whether your shipment can be processed as a formal or an informal entry depends on the value of the invoice and the type of product you’re bringing in. The key difference is the type of documentation and amount of paperwork required to clear the shipment with customs.

Informal Entries

In general, an informal entry is a shipment that does not exceed US$2,000 in offshore invoice value. However, all textile products, including made-to-measure suits from Hong Kong, will be entered formally regardless of invoice amount. Also any item in a classification that’s subject to quotas will also be handled as a formal entry.

You can complete an informal entry yourself without the need for a customs broker. Here’s how it works: The carrier bringing your shipment to the U.S. will notify you that the goods have arrived. You go to the port of entry, let the staff know you are picking up an informal entry, and pay the required duties. That’s it!

If you are unable to do this step personally, a customs broker can act on your behalf to clear the goods. The carrier might also provide this service to you. A quick conversation with either will let you know if they’ll handle it.

Formal Entries

Formal entries are more involved, but working through a customs broker will make this an easy process. Here’s how it works: Approximately three weeks before the expected arrival of your shipment, contact your customs broker. The broker will ask about details of the shipment, such as country of origin, product description (including materials used in its manufacture), quantity, and invoice amount. Based on these details, the broker will complete the required documents. Fifteen days before the arrival date, your broker must contact the entry port and provide these details, which are then entered into a tracking system used by the CBP.

When your broker files the entry paperwork, a surety bond must be posted with CBP to cover any duties, taxes, and charges that will be assessed. A customs broker will often have a large surety bond already in place for his clientele to use. For a small fee, the broker will offer to enter your shipment under this bond as an added service and convenience.

Sample Goods and Avoiding Duties
 
If you are importing sample goods to use to pre-approve a design or to use to solicit orders, you may be able to enter the shipment without paying duty. Be aware that goods are not automatically exempt from duty because they have, for customs purposes, commercial value. For example, in order for samples of textiles to enter duty-free, they cannot be valued at over $1.00 each or must be marked “SAMPLE NOT FOR RESALE,” cut or torn, etc. Rules that determine when samples can enter duty-free are complex. Working with a broker to correctly classify samples can save you time and money when appropriate.

Keep It Simple

If the invoice amount is over $2,000 or the shipment contains any textiles (or other products covered by a quota), leave the formal entry details in the hands of a qualified customs broker. If the invoice is under $2,000 and you are a do-it-yourselfer, you can take care of this step fairly easily. For additional information, you can find an excellent FAQ tool on the U.S. Customs and Border Protection website.

Every product you import into the United States needs to be identified with a tariff classification number. The tariff classification indicates the duty rate you will pay. The classification is also used to review the country of origin, along with the product type, to see if the item is impacted by any quotas or embargoes. Determining the proper tariff number is not an easy task and is best left to a professional who is knowledgeable in this discipline — the customs broker.

Once you have done some preliminary research and know the product you are importing based on profitability, and the country with which you intend to import from, you’re ready to find a customs broker.

Refer to the U.S. Customs and Border Protection (CBP) website to locate a broker. This page provides a listing of all U.S. ports sorted by state. Click Trade in the top bar; then click Locate a Port of Entry under Resources. Select a state, and then a city, and the resulting page will include key port information and key contacts. You will see a link “Brokers: View List” which will give you a great starting point.
 
In a quick phone call to a customs broker, you can explain which item you intend to import, give a description of the materials made in manufacturing the item, and name the country you intend to import from. The broker will assist you in narrowing down a tariff number with relative ease, and there is typically no charge for this phone call.

Customs brokers look up tariff classifications all day long. If they have a relationship established with a business, answering a question like this is quick and part of the service they provide their clients. If you are new to importing, most brokers will gladly assist in your early education for no charge; they see it as an investment to gain your future business.

Import duties, quotas, and embargoes can change from time to time and can have a big impact on how you negotiate your offshore buying price, as well as how to set your selling price. This step should not be overlooked and should be completed before you begin contacting manufacturers — or certainly before you begin negotiating your buy price.

No License Required to Be An Importer

Good news! In the United States, you generally don’t need any special license or training certification to become an importer or start an importing business.

As you complete the paperwork to clear products through customs, you will be asked to provide your “importer number” which will be either your business Federal Tax ID number or your Social Security Number if you don’t have a Federal Tax ID. If you don’t have a Social Security Number, you can apply for an importer number through the local port authority where you will be entering your goods. This importer number is used to identify all your trade activities in the U.S.

Special Licenses or Permits Required for Some Products

Some specific items imported do require a special license or permit from various government agencies; these items include food products; alcohol; plant, animal, and dairy products; prescription medications; trademarked items such as name-brand shoes, handbags, luggage, golf clubs, and toys; and copyrighted items such as CDs, DVDs and tapes.

Contact your customs broker to discuss the product you are expecting to import, and he can easily outline any special licenses or permits which will be required. You can also visit the U.S. Customs & Border Protection website for further information on the types of licenses or permits needed for specific product categories.

Starting an Import Business Takes Less Money Than You Think

The biggest misconception about importing is you need lots of money for a large minimum purchase order, or you need to buy enough to fill a 40-foot container. In fact, that initial purchase order you place with a new supplier may take less money than you think.

Minimum Purchase Order Requirements

Every day, businesses large and small are looking for new suppliers with fresh ideas and products. In the early days of the relationship, suppliers and buyers will treat each other with caution. The importer will want to ensure that he can trust the new supplier and the new item will sell quickly. A supplier will want to be sure the importer can come through on a purchase order with a valid letter of credit (L/C) and can move his product in the market as promised. Because of this, nearly all initial transactions are done on a small trial basis, even by big corporations with big budgets.

The small order from your company may actually be the same amount as the initial order from a major department store or mail-order catalog. What will be of more interest to the supplier is your business model: who are your customers and how are you reaching them? If you are selling to the end consumer, are you doing this from a brick-and-mortar storefront with a geographic region that is limited? Or do you have a website with impressive traffic? Are you an eBay Power Seller? Are you well connected with a community of buyers? Do you have established relationships with retailers and a team of sales reps that assist you in moving product on a wholesale basis?

The answer for those questions are more important than the size of your initial purchase order. Offshore suppliers are looking to grow long-term relationships and are willing to work with you to establish trust. Minimum orders are often a guide to what they would like to see on a re-order basis. Remember: everything is negotiable.

From a cash-outlay point of view, the dollars needed depend on the product you will import and the shipping method you use. If you are buying children’s apparel and want an initial selection of products that have an average offshore cost of US$1.00 per unit, a $500 initial purchase order will give you a nice selection of styles, colors, and sizes. If you plan to import teak furniture and need to ship by sea freight, the shipping costs may make sense only if you fill half of a 40-foot container. And if the teak furniture ships as knock-down furniture, it may require $10,000 to buy enough units to fill half of a container.

Shipping Small Sample Orders

The logistics of getting a small order imported may pose a greater challenge than meeting a minimum purchase requirement. Imported goods travel by either sea freight or air cargo. The product you carry will place you into one of these categories. For example, it doesn’t make sense to ship jewelry parts by freight, and furniture is too heavy for air cargo to be practical. But what about a sample order of apparel? Or pet supplies? Automotive parts or toys? These small sample orders can either be shipped via air cargo (at a higher cost, but with maximum speed) or consolidated on a ship with other items from the same country.

Shipping via air cargo is relatively simple for a supplier who may book directly with the air carrier. The order arrives quickly and clears customs quickly, and you are ready to test the market within a matter of days.

If you are shipping less than a container load by sea, you will wait longer to receive your initial order. Your goods will be held in the country of origin until a consolidator can bundle your goods with other products to fill the container.

Your shipping costs on a small initial order may eat up a good deal of your gross profit margin. But the initial order is a trial run at your dream. After you test the supplier, determine the marketability of the goods, and review potential profits, you can reorder on a larger scale. This will result in lower shipping costs per unit.

Other Business Expenses

Along with your initial purchase order, there are other ordinary business startup costs, such as licensing, accounting software, business logo design, marketing collateral, and more. These startup costs are outside the scope of this article and they vary, but are usually relatively small.

Given that a successful importing company can be managed by one person and given the ease with which an online store can be set up with moderate costs, it’s conceivable that an importing company can be started with US$1,000 to US$10,000 or less, depending on the cost of the product to be imported. There are hundreds of success stories of small business owners who buy directly from suppliers overseas and sell the products on eBay as a most basic example. Your business model may be quite different, but recognize that importing does not have a high cash requirement to break in to.

Most importing companies are small operations, especially in the early days. Because so much of the ongoing value in an importing business is the ability to develop relationships, the product or commodity you trade in may differ from one season to the next. You may move product merely for its profitability. Or you may stick with one product industry and become specialized in that item.

Many entrepreneurs find ways to cut corners in the early days to be able to launch their business. Sharpen your pencil and calculate typical startup costs for your business, including cost of space (if leasing), employee salaries, etc. Then add an estimated minimal sample purchase-order budget required of your product. Get clarity around your marketing strategy, and ready yourself for selling your importing business to suppliers overseas.

Locate several suppliers with a solid reputation, introduce your company, and ask for preliminary prices. Explain that you’re in the early days of your business and focus on the energy you will give to moving the supplier’s goods to market. Keep the upper hand by stating what your minimum purchase order amount will be to test the waters, not what the supplier wants of you.

As you can see, how much money it takes to start an importing business depends largely on the product and the required shipping method, not the minimum purchase-order size. Whether you have $500 or $5,000, you can start an importing business.

Realize Between 120% and 340%+ Markup Selling at Wholesale, Retail, or Both!

The amount of money you make importing depends on how big your purchase orders are, whether you are selling wholesale or retail, and how often in the year you can repeat the cycle. Because every small business has a different level of cash in the early stages with which to get started, we can’t predict how much profit in dollar terms you will realize in a year. But we can examine the profit margins of selling at retail vs. wholesale, and how often the cycle can be repeated given these two distribution points.

In this illustration we use an example of widgets with an offshore unit price of US$1.00 directly from the manufacturer. Because we are working through an offshore agent, our actual cost is 10 cents more to cover the agent’s commission. The imported unit price is US$1.10; this is the figure used to calculate duties when they arrive in the U.S. We elect to transport the goods by air cargo for US$1,300. The shipping, duties, customs fees and other costs paid before we can take possession at the airport add an additional 2%, or US$220.00. We now have a “landed unit cost” of US$1.25 coming in our front door.

For our importing company to be rewarded for the risk taken for warehousing, marketing and shipping the goods to the next distribution point, we will need to double our landed cost. This strategy of doubling costs in the front door is known as a ‘keystone markup’ and provides a business with a (50% cost of goods) + (50% operating and profit) ratio. Any business that takes title and possession of goods will mark up at least this much to cover the risk.

If we opt to sell at a wholesale price directly to the retailer, we will set our selling price at US$2.50. If we decide to have independent sales representatives approach their network of retailers and represent our product for us, we will add on a 10% commission for their compensation, bumping our selling price to US$2.75 to cover commissions. For this example, let’s say we will sell our goods with the assistance of sales reps. The wholesale price of our widget is now US$2.75. We paid a landed cost of US$1.25.

Wholesale Profit Margins

Selling at wholesale, we have a gross profit margin of US$1.50 or 55% (US$1.50 divided by US$2.75). Or to put another way, we realize a 120% markup on our landed cost of US$1.25 (US$1.50 gross profit divided by a landed cost of US$1.25).

A 55% profit margin, or 120% return on our offshore purchase investment, is respectable in any business. But what if we could sell to a large community of end consumers with relative ease via a website? At this point we own the goods and can sell in the market to any buyer we wish.

Retail Profit Margins

The retailer can be expected to also keystone, or double, the cost of our widget when they take title and possession until sold. The final price for the end consumer is now set at US$5.50 per unit.

If we sold our item at the full retail value of US$5.50 without the need of a sales rep, this would provide us with a gross profit of US$4.25 (US$5.50 less the landed cost of US$1.25).

Selling at retail gives us a 77% gross profit margin ($4.25 divided by $5.50), and increases our markup to 340% on our landed cost of $1.25 ($4.25 gross profit divided by a landed cost of $1.25).

Repeat the Import-to-Sale Cycle Often

In our example, it may take a year to sell through 10,000 widgets if selling with the staff of a small importing company, but you’ll realize more profit on each transaction. On the other hand, if you sell your items though sales reps on a wholesale basis, your profit for each widget sold will be smaller. However, you’ll have more people selling to retailers who will buy the items in volume, rather than one at a time.

With the ease and minimum investment it takes to set up an eCommerce site today, businesses are enjoying global exposure and sales regardless of their size or location. Traditional lines of the supply chain have become blurred. Retailers are selling direct to consumers on the web and in some segments find this more profitable than maintaining a storefront. Wholesalers sell to retailers in the traditional manner, but may establish a website and sell direct to consumers as well.

An importer having title and possession to goods obtained at offshore prices is in the enviable position of selling to whomever he chooses. If a greater margin is desired, a website will reach the broadest audience with minimal increase in staffing or overhead.

How much money can be made in importing is a matter of how much capital can be invested in the purchase order, and how quickly the cycle of import-to-sale can be repeated. There is generous room in gross margins of up to 77% to find the best sales model that fits with your business size.