Revealing the Great Risks of Consignment Export: Have You Stepped into These Pits?

On the stage of international trade, the consignment export business has opened the door to the global market for many enterprises. It may seem like a convenient way to go overseas, but in fact, it hides many risks. Today, let's explore the unknown risks behind consignment export together.

In the consignment export model, disputes are likely to arise regarding the ownership of goods rights. Although the principal entrusts the goods to the agent for export, in the links of transportation, storage, etc., if there is a lack of clear definition and supervision mechanism for goods rights, the situation of wrong disposal of goods may occur. For example, Mr. Zhang entrusted Zhongshitong to consign the export of a batch of electronic products. During the period when the goods were transported to the port and waiting to be loaded onto the ship, due to the dispute between the freight forwarder and Zhongshitong over the fee issue, the freight forwarder unilaterally detained the goods. At this time, Mr. Zhang, due to the unclear definition of goods rights, was in trouble in communicating with the freight forwarder about the release of the goods, which eventually led to the delay of the goods' export and brought economic losses to Mr. Zhang.

Credit risk mainly comes from two aspects, namely the credit of the principal and the foreign merchant. If the principal provides false goods information, conceals quality problems of the goods, etc., the agent may be involved in trade disputes without knowing it. On the other hand, if the foreign merchant has poor credit and fails to pay the payment for goods or even refuses to pay, the agent may suffer consequential losses. For example, Ms. Li consigned the export of clothing to a foreign company through Zhongshitong. After receiving the goods, the foreign company refused to pay the remaining payment for goods on the grounds that the clothing had minor quality defects. As the agent, Zhongshitong faced the pressure of the principal asking it to bear the loss as it did not conduct sufficient credit investigation on this foreign merchant in advance.

International trade involves the laws and regulations of different countries. A slight mistake in the consignment export process may touch the red line of the law. For example, there are large differences in the regulations of various countries regarding the quality standards of goods, intellectual property protection, etc. When Zhongshitong consigned the export of toys, the goods were detained at the customs of the importing country because the principal did not obtain the relevant patent authorization, not only were the goods confiscated, but Zhongshitong may also face the sanctions of the local law. In addition, if the terms of the trade contract do not conform to the relevant laws and regulations, it may lead to the invalidation of the contract and the rights and interests of the agent and the principal cannot be protected.

The fluctuation of exchange rates is like the wind and waves on the sea, constantly affecting the income of the consignment export business. In the consignment export process, from signing the contract to receiving foreign exchange, it often takes a period of time. If the exchange rate changes unfavorably during this period, both the agent and the principal may suffer losses. For example, Zhongshitong consigned the export of a batch of goods. When the contract was signed, the exchange rate of the US dollar to the RMB was 6.5. However, when the goods were exported and the foreign exchange was received, the exchange rate dropped to 6.3, which means that the actual amount of RMB received by the principal decreased, and if Zhongshitong agreed with the principal to collect the agency fee according to a certain proportion of the amount of foreign exchange received, its income also decreased accordingly.

Although the consignment export business provides convenience for enterprises to expand overseas markets, risks are everywhere. Whether it is the principal or the agent, they should fully recognize these risks and take preventive measures in advance. For example, strengthen goods rights management, conduct good credit investigations, deeply study relevant laws and regulations, and reasonably avoid foreign exchange risks. Only in this way can we move steadily in the wave of consignment export and sail to the other side of success. I hope that when enterprises engage in the consignment export business, they can move forward cautiously, jointly explore good strategies to deal with risks, and make the road of international trade smoother.