September/October 1989
From enduring worldwide political crises to ensuring specifications are understood, the waste paper exporter is in for a roller coaster ride full of unexpected twists and turns. Here are factors to consider before entering this export arena.
By Nini Krever
Nini Krever is principal of Traders International Corp., North Palm Beach, Florida, and is convention chairwoman of the Institute of Scrap Recycling Industries’ Paper Stock Institute.
The export business has always fascinated waste paper dealers. There was a time when export was considered a nice piece of business to add to bread-and-butter domestic sales. But export has become an integral part of the American waste paper industry and is as relevant today as pulp pricing. Not only does export appear to be a glamorous business, it also might provide additional markets for the increased volumes that municipal collections have created. New companies are jumping into the waste paper export business in ever increasing numbers. But it wasn't always like this.
Waste paper has been exported from North America for several decades, but it was in the 1960s, when containerization revolutionized the transportation industry, that export became efficient and thus more common. European markets had historically existed for waste paper. By the early 1980s, Asian markets developed and surpassed European demand. Including shipments to Canada and Mexico, the United States now exports more than 5 million tons of waste paper annually. This figure has grown consistently, with 1981 and 1982 the only years in which quantitative growth in export did not occur.
Shipping Mishaps Possible
Waste paper is shipped most often in containers. The paper is loaded at the plant and trucked or shipped by railroad to the nearest port, stowed on a vessel, and shipped to the port of delivery. Sailings take from as few as eight days for some close ports to well over two months for ports not called on directly by the steamship lines. Bales, rolls, gaylords, and skids may be loaded, with bales the most common method of packaging. Prior to widespread use of containers, conventional "break-bulk" shipments involved extra handling: in and out of the truck from the plant to the pier warehouse, out of the warehouse onto the steamer, and out again at the port of destination.
Containers have made shipping much tidier, but shipping is never without its pitfalls. In addition to the mishaps of broken bales and pallets that cannot be unloaded by foreign forklifts, and paper that has not been securely strapped onto pallets, bales can swell in transit. Fortunately, customers have devised inventive ways to empty expanded containers. In one case, when a container of old corrugated containers would not empty at the mill, a rope was strapped around the bale. The other end of the rope was fastened to an old oak tree. The driver backed up the trailer, expecting the bales to pull out. They didn't. Workers then began to hack away at chunks of the bales with axes to loosen the paper. The paper remained solidly in place. Finally, the workers resorted to popping back the roof of the container like a tin can and the container was eventually emptied. (This mill no longer accepts containers.) Another tricky delivery problem involves the "tipping chassis." The container is placed on a flatbed chassis with hydraulic lifts. When one end is raised, the bales are supposed to slide out--but this doesn't always happen.
Many companies outside the U.S. are unaccustomed to unloading containers and trucks solely from the rear, so they build platforms to drive a forklift into the container. European trucks often load from both sides and the tarps that cover the bales en route are raised to allow easy loading from all sides. Many Third World ports are less sophisticated, and not only have inadequate crane capacity but are overcrowded and poorly managed, forcing vessels to sit weeks in the harbor vying for berths.
Specs and Payment Terms Must Be Understood
Waste paper exporters use current Institute of Scrap Recycling Industries (ISRI) Paper Stock Institute standards and practices as a benchmark for descriptions of American grades. Often foreign customers familiar with ReMA paper stock specifications circular PS-88 will quote a grade by number. The general rule, however, is to thoroughly describe the specific paper being offered and accompany the offering with a sample large enough to be laboratory tested. Once accepted, the grade can be classified using PS-88 nomenclature or whatever system is most descriptive for both parties. Since the information in PS-88 is provided only as guidelines, both customer and seller must outline in advance the terms of sale, banking method, and procedures to be followed in matters of dispute.
Payment terms may vary from country to country and from customer to customer. Certain countries have strictly controlled banking and import regulations, requiring not only an individual insurance certificate to accompany each invoice, but even a certificate of disinfection attesting that the container was cleaned according to specific guidelines prior to loading. In some countries some customers will buy only on open account.
Payment terms can include: upon arrival of documents, at sight, 30 days from bill of lading date (sailing date), 30 days from arrival of vessel, and longer terms, as well as a variety of letters of credit. Indian mills usually pay against an irrevocable letter of credit. Koreans pay against a "stale bill of lading," where the goods arrive and are placed in a bonded warehouse or holding area until the mill needs the paper or can arrange for pickup. Only on arrival at the mill are the documents negotiated and the invoice paid. Many Taiwanese mills require a performance bond for a percentage of the value of the goods to be put up before shipping.
When foreign or U.S. currency values are fluctuating wildly, customers may request pricing in their own or a more stable country's currency. This requires the exporter to fix the U.S. dollar on a forward currency contract, buying dollars to come due on the maturity date of the invoice.
Freight Rate Ups and Downs
Included in the sales price may be cost of goods, and, where applicable, ocean and inland freight, insurance freight forwarding fees, and agents' commissions. Ocean freight rates, usually good for 30 days, are an often fluctuating source of surprise. Each trade lane offers different rates and many steamship lines are highly competitive, usually to induce cargo or reposition equipment. The Federal Maritime Commission generally prohibits changes to a tariff unless they are published 30 days in advance. Waste paper exports are not covered by this rule. These published rates may be quoted orally or on paper by a representative of the steamship line, but it is good practice for the shipper to verify rate information. An incorrect telephone quote or interpretation of a rate by a sales representative of the steamship line may be judged against the shipper.
Despite the 30-day rule, the lines have worked collectively to levy surcharges on shippers. In early 1989, the Italian port workers' union disrupted European shipments by rotating strikes and slowdowns, so vessels could not call ports and unload cargo in the time required to maintain schedules. In many cases, ship captains refused to call the congested ports; they unloaded containers at nearby Italian ports and, in many cases, at ports of other countries. Containers had to be relocated from Marseilles, for example, by truck. French ports backed up, as did border crossings into Italy. Without warning, these steamship lines collectively charged a "work stoppage surcharge" on all containers destined for Italy, irrespective of congestion at the time of arrival or of the ships' interim location. Eventually the surcharge was charged to the consignee, who refused to pay it. In whatever manner the shipper settled the surcharge with the consignee and the steamship line, an unforeseen, uncalculated, hidden cost eroded a once profitable sale. Similar situations occurred in Spain and Greece.
Enter the Export Broker
It is for reasons such as this that export brokers exist. Packers often are not equipped to handle the documentation, language barriers, follow-up, travel, and communication efforts required for export shipments; they want to bale paper. Most foreign mills prefer to have a local agent in their country representing an American exporter, rather than having an American office. However, the Japanese often buy directly from the American subsidiaries they established to supervise their interests.
Exporting is a constant challenge, presenting dilemmas that often can be beyond control. The experienced exporter has some historical trends to rely on and has developed efficient management systems and contacts to help defer unexpected crises. Still, certain disasters occur without warning in foreign countries, such as port strikes, mail strikes, and bank strikes. Documents and payments get caught in the mail. Banks strike and the transfer of funds is frozen. Financial institutions in some countries, such as India, are slow and the delay between accepting the price and terms for an order and opening and receiving the letter of credit can force order cancellation by either party due to a price change.
Of course, a war, revolution, or political action immediately affects shipping and creates nightmares for the shipper with goods in transit. For example, the recent situation in China sparked a setback to a potentially enormous market. Unavoidable calamities such as this one can spell irretrievable losses.
Other difficulties plague exporting. Containers traveling from inland U.S. ports to the port of loading may be incorrectly routed by rail. It is not unheard of to come across a Seattle-bound, Cincinnati-loaded container in Baltimore. Monsoon season creates dangers in shipping to India. Mills in countries with long, dry summers prefer to reduce inventories for fear of fire. Rough winter seas can dislodge containers and bounce them overboard. Vessels occasionally have accidents and are forced into dry dock laden with containers bound for other ports.
One major U.S. steamship line filed for bankruptcy while all its vessels were loaded and on their way. The containers were off-loaded at whatever port the vessels were nearest, which was not necessarily the containers' original destination. The shippers had to move the containers to the correct ports at their own expense. There are endless unexpected delays that keep the resourceful export company on its toes solving problems.
Claims are the albatross of the export shipper. When goods do arrive in a timely manner and banking documents are processed quickly, the paper must then be accepted by the mill as the grade ordered. Deductions are made when bales arrive broken or excessively humid. Weight differences may occur, especially if the goods are unloaded at the port of discharge, trucked to the mill, and weighed at the mill or in transit to it. When the claim is a question of quality, pictures and samples must be exchanged. Although situations may result in total rejection of a shipment, the shipment is never returned to the U.S. Resolving a claim through compromise or arbitration can be painful and may leave both parties unsatisfied.
Managing these constant challenges may be one attraction for those interested in riding the waste paper export roller coaster. But an important thing to remember during those steep uphill climbs and catch-your-breath descents: Offshore mills are run with savvy and allocate their loyalty to those exporters who provide better service, higher quality, and consistently competitive pricing.
Exports Over U.S. Borders: How Brokers Can Help
By Philip A. Alpert
While the overwhelming majority of waste paper shipped overseas travels by container, this method is not necessary for exports to Canada or Mexico. Exports to Canada move mainly by truck, with a significant proportion traveling by railcar. Almost all shipments to Mexico are via rail.
Although exports to these two countries require substantially less paperwork than overseas shipments, there are still special forms that require some expertise to complete. Moreover, arrangements must be made with border brokers to expedite the crossing. An experienced broker can be invaluable in avoiding crossing delays and the ensuing demurrage, as well as unnecessary tariff charges.
The major advantage of using a broker for exports to Canada and Mexico is financial. Generally all billing is done on open account. As a consequence, the broker serves a twofold purpose: knowing which mills are financially stable and solvent, and being able to pay in normal industry terms of “net 30 days.”
The delays in remittance from Canadian and Mexican mills can be substantial due to a variety of bureaucratic slowdowns at the mills, government offices, and post offices.
Most of the caveats that apply to overseas shipments of waste paper extend to these markets as well. Quality of product is just as important as when shipping overseas. The longer travel times for shipments can also delay remittances. Finally, there may be unexpected holdups on shipments due to governmental interference.
Exporting waste paper to Canada and Mexico can be quite satisfactory from the point of view of both the movement and pricing, but any exporter needs a full understanding of the market and should be ready for the variety of factors that might affect it.•
Philip A. Alpert is a partner at National Fiber Supply Co., Chicago. He is a director of the Institute of Scrap Recycling Industries and is immediate past president of its Paper Stock Institute.
From enduring worldwide political crises to ensuring specifications are understood, the waste paper exporter is in for a roller coaster ride full of unexpected twists and turns. Here are factors to consider before entering this export arena.