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9 tips for organising your exports of natural cosmetic ingredients to Europe

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Organising your exports is essential for exporters of natural ingredients to Europe. As an exporter, you need to have a good understanding of practical matters concerning exporting, such as customs, tariffs, transportation and documentation. It can make the difference between success and failure in terms of exporting your natural ingredients to Europe. Due to its impact on global trade, and the fact that it will continue to have a significant impact for the foreseeable future, the COVID-19 pandemic is something you must consider when arranging your exports to Europe.

1. Reaching and making contractual agreements

Contracts with well-defined agreements will protect your business. Contracts serve as a reminder and a record of what needs to be done by both parties. Contracts form the basis of legal procedures in the event that either the supplier or buyer is in breach of the agreements. Although contracts can be enforced in Europe, due to complexity, high costs and long waiting times associated with doing so, this is not a straightforward and easy process.

Reviewing your contract

According to industry sources, European buyers of natural cosmetic ingredients usually write their own contracts. When negotiating contract terms with prospective buyers, you must read their purchase conditions (if provided) carefully. Failure to do so puts you at risk of not properly understanding the contract and the key terms and conditions contained therein. As a result, you might end up suffering the consequences of failing to meet agreed terms and the early termination of the contract, for instance.

It is important that you have confidence in the company you are dealing with and understand that you are entering into a legally binding commitment which can be enforced by them. You must not verbally agree, confirm or sign an incomplete contract, or one which you do not fully understand.

You should ensure you are satisfied with and clearly understand the general terms and conditions of your contract which will typically include the following:

  • product specifications – information about your product, for example refined or unrefined and/or conventional or organic;
  • quantity – units of measure in both figures and in words, number of containers, bags and so on;
  • value – the currency must be specified;
  • price agreements – the price agreed with buyer;
  • terms of payment – based on international payment terms, such as Cash in Advance and Letters of Credit;
  • date of delivery or period over which delivery is to be made;
  • terms of delivery – delivery terms must be stated based on Incoterms, such as Delivered Duty Unpaid (DDU) and Delivered Duty Paid (DDP);
  • charges and/or fees, if applicable – taxes and duties, for example;
  • insurance – information about insurance protecting your goods against loss, damage, or destruction while en route to the buyer;
  • default proceedings – information about procedures in the event that parties default on their contractual obligations;
  • dispute resolution proceedings – information about procedures in the event of a dispute such as arbitration, place of jurisdiction and governing law.

Implications of COVID-19

Interviews with European buyers of natural ingredients have provided insight into how the global COVID-19 pandemic is causing significant disruption to global supply chains. Delivery times are becoming longer due to flight cancellations and port lockdowns whilst consignments are subjected to quarantine and lockdown measures. In some instances, the cost of delivery has also increased. The production of natural ingredients in developing countries has also been restricted and in some cases completely stopped because of emergency measures introduced by the government.

It is unknown how long the COVID-19 pandemic will last and what long-term effects it may have. You must therefore discuss the implications of COVID-19 with prospective buyers and ensure that your contract includes terms and conditions which pertain specifically to the effects of the pandemic. Points of discussion and specific terms and conditions include who will be held liable for and consequences of:

  • delivery times which unexpectedly become longer;
  • higher delivery costs;
  • the inability to deliver the agreed quantities due to restrictions limiting and/or stopping production.

Tips:

  • Seek legal assistance from an experienced lawyer in international trade if you need advice.
  • Always ensure you meet all of the requirements outlined in your contract. Failing to do so may lead to you incurring penalties and your trading relationship with European buyers terminating early.
  • Be opened minded when working with buyers. Work towards reducing your risks whilst ensuring buyer needs are fulfilled.
  • Quickly and clearly communicate any changes. Work constructively with buyers to find solutions to any unexpected issues.
  • Ensure your product specifications are formulated precisely because buyers often have specific requirements concerning the active properties of natural ingredients. For example, the  fatty acid composition of baobab oils, such as the ratios of oleic acid, palmitic acid and linoleic acid, which are an important indicator of the oil’s quality.
  • See the International Trade Centre’s guidance on export contracts which can serve as a basic template of what should be included in a contract.

2. Choose suitable international payment terms

Payment is a central part of any trade transaction for all sides involved. International trade carries a range of risks, which creates uncertainty between importers and suppliers. Thus, you must perform due diligence on potential buyers when assessing payment methods. As an exporter of natural ingredients in a developing country, you should try and minimise your risks while also accommodating buyer’s needs. Failing to do so is likely to result in you sustaining a financial loss in the event you encounter issues concerning payment.

Cash in Advance

Cash in advance is relatively risk-free for exporters. However, it can disadvantage the importer, as they run the risk of potential non-delivery of raw materials. Cash in advance is usually done via wire transfer or a cheque. Escrow services on the internet are becoming increasingly commonplace because they reduce the risk of fraud along with ensuring both the exporter and buyer meet the terms of their agreement.

Choose this payment method when dealing with new buyers with weak credit ratings or in the case of high-value materials. This payment method presents a high risk for importers. Exporters offering cash in advance as the only accepted payment term may lose business relationships with buyers to competitors.

Letters of Credit

Letters of Credit (LC) are one of the most secure payment methods for both the exporter and importer.  LC allows both parties to contact a financial institution that acts as an impartial intermediary. The chosen bank will guarantee a full payment to the seller, provided the goods have been shipped and the terms agreed upon in an LC have been met.

LCs have several disadvantages including that they are restrictive and confusing. Exporters can fail to comply with the agreed terms because of poor understanding. Buyers have the right to reject the delivery if terms are not met,  thus exporters may have to look for alternative buyers or pay for the shipment to be returned.

There are various types of LC payments, depending on the specific needs of the parties involved. These include standby, revocable, irrevocable, revolving, transferable, untransferable, back-to-back, red clause, green clause and export/import. For exporters, a standby LC is the most commonly used secure LC transaction. This method  of payment is very common in international trade. It is used when contracting parties are unfamiliar with each other. It also provides a certain level of security to both parties.

Documentary Collection

Documentary collections are a type of international payment where the exporter uses a bank to collect the payment. To release payment, the exporter’s bank sends the documents that the importer needs to the importer’s bank. The transaction goes through the banks involved in exchange for those documents.

There is a risk that the buyer will not pay for the goods upon receiving documents and offer no verification process. However, this type of payment is less expensive and less rigid than LCs.

Open Account

Open account refers to a payment type where raw materials are delivered before payment is made. This type of payment term disadvantages the exporter because there is no guarantee that the buyer will pay for the goods. Open-account payments are recommended when the relationship and trust between the buyer and the exporter has already been established. Suppliers of natural ingredients are advised to seek insurance to protect themselves from non-payment.

Consignment is a variation of open account where payment is sent to the exporter after the goods are sold by a third-party distributor to the customer. This type of transaction is used in the case of finished goods and not raw materials.

Choosing the right payment method depends on several factors, such as buyer expectations, financial resources and the available time, competition, your risk appetite, and prior experience. A number of financial institutions provide assistance to exporters that export to large European markets. HSBC, Deutsche Bank and BNP Paribas are some leading financial institutions which provide assistance. You should consider seeking the advice of these financial institutions if you need assistance.

Tips:

  • Jointly consider several factors before deciding on payment methods. Factors that should be carefully considered include your expectations and those of the buyer, the available resources and time, the willingness to take risks and previous experience.
  • Be flexible when negotiating payment methods with buyers. Importers will always push for the most secure payment terms for themselves, which is likely to be the open-account type of payment. Show a willingness to negotiate, but be honest about what you can commit yourself to. You can also use a combination of payment methods. You can suggest using cash in advance for 50 percent of the fee and secure the other 50 percent by an LC or documentary collection. A combination of various payment methods gives more security to both parties and shows your flexibility and willingness to cooperate.Use banks or agents to gauge whether suggested terms of payment and additional requirements can be reasonably met.
  • After agreeing payment terms, request a written contract outlining the payment terms agreed or ensure it is included in your final contract. Then carefully read and ensure you understand the terms agreed. You should only sign the contract if you accept the terms.
  • Customise the payment methods depending on the size of the delivery and the type of the contract. In case of high-value raw materials, use more secure payment methods such as cash in advance or LCs.

3. Purchase export insurance

Consider purchasing export insurance to cover yourself against a wide range of risk factors associated with exporting to Europe. There are various types of risks that you should take into account. Examples include non-payment for your goods or services, the costs of returning goods that your buyer refused to accept, or loss of or damage to goods in transit. You should speak to an insurance broker or underwriter if you require insurance to cover a risk that is specific to your natural ingredient.

Having export insurance provides exporters of cosmetics ingredients with protection if they encounter difficulties in the import-export transaction period. Not following this recommendation to purchase export insurance may significantly affect your resources and business relationships when difficulties occur.

Export credit insurance

Export credit insurance is designed to reduce financial risks to exporters. For example, exporters who have export credit insurance are protected if an importer becomes insolvent, is slow in making payment or defaults on payment terms.  

Marine and cargo insurance

Marine cargo insurance covers losses arising from physical damage to goods whilst they are en route to their destination, whether by road, rail, sea or air. As a small- to medium-sized exporter in a developing country, purchasing this insurance is recommended particularly if the potential loss of cargo would have a significant impact on your business.  

Exporters can find the best places to take out export insurance by contacting their country’s government trade ministries. For example, exporters from Ghana can visit Ghana’s Trade Facilitation Enquiry Point. Additionally, click here to find information on well-known export insurance companies for exporters in developing countries. The African Trade Insurance Agency also provides export insurance to exporters from African countries.

Tips:

  • Make sure you have export insurance. Export credit insurance is the most common, because it offers exporters the greatest protection against several risk factors.
  • Determine whether there is a business case for purchasing other types of insurance used in the export of raw materials/commodities. Marine and cargo insurance is another type of insurance that is frequently taken out.
  • Make sure you have you the right documentation ready when you approach insurance companies for quotes. You can do this by asking your insurance broker what documentation is needed to take out a policy. Usually, basic information about your company, a copy of an invoice and the name of your buyer are enough when applying for an insurance policy.
  • Have detailed knowledge about your business available, such as your businesses turnover and its risks and liabilities. This is because information such as this is required to tailor an export insurance policy based upon your needs and its respective cost.
  • Make sure you comply with all the requirements under your insurance policy. Failing to do so puts you at risk of not being compensated if you were to make a claim. 

4. Comply with customs policy

It is essential for exporters of cosmetic ingredients to be compliant with European customs policy. Non-compliance with European customs policy will result in your access to the European market being denied. Exporters can also face financial penalties, as well as a possible end to their trading relationship with European importers. You must therefore follow this recommendation.

Import duties such as tariffs are determined according to the origin of products. Goods are identified by a code number in the Combined Nomenclature. The EU Common Customs Tariff applies to the import of goods from outside the external borders of the EU. To find out the requirements for your natural ingredients, visit the European Commission Trade Market Access Database. Table 1 gives an example of tariffs for natural ingredients for cosmetics.

Table 1: EU Tariffs for natural ingredients used in the cosmetics sector

HS code

Ingredient

Tariff

1513211000

Palm kernel and babassu oil for technical or industrial uses other than the manufacture of foodstuffs for human consumption

3.20%

1513111020

Coconut oil for technical or industrial uses other than the manufacture of foodstuffs for human consumption

2.30%

130212

Liquorice extract

3.20%

15159060

Other fixed vegetable oils for technical or industrial uses other than the manufacture of foodstuffs for human consumption

5.10%

33012971

Other essential oils of geranium; of jasmin; of vetiver

2.30%

Source: TARIC

Some EU member states may also have specific customs requirements for the import of goods to their country. There may be differences with regard to custom procedures, documents, laws and regulations and proof of origin. Customs brokers and freight forwarders can complete the customs process for you; consider seeking their services.

Sanctions imposed for non-compliance with EU customs policy differ across EU member states. However, all EU member states impose sanctions for non-compliance with EU customs policy.

The European Union has a number of trade agreements. They are designed to create better trading opportunities and overcome barriers. There are three different types of trade agreements that differ according to their content. You can search the European Commission website for more information on EU trade agreements with specific countries.

There are a number of trade agreements between the EU and APC (Africa, Pacific and Caribbean) countries in place, and several are in the process of negotiation.

Table 2 gives an outline of the state of implementation of Economic Partnership Agreements between the EU and individual APC countries.

Table 2: EU Economic Partnership Agreements (EPA) with APC countries, 2018

EPA implemented

Africa

West Africa

Côte d'Ivoire

Ghana

Central Africa

Cameroon

Eastern and Southern Africa (ESA)

Mauritius

Madagascar

Seychelles

Zimbabwe

Southern Africa Development Community (SADC) EPA group

Botswana

Lesotho

Namibia

South Africa

Swaziland

Caribbean

Antigua and Barbuda

Jamaica

Bahamas

St Lucia

Barbados

St Vincent

Belize

St Kitts and Nevis

Dominica

Suriname

Dominican Republic

Trinidad and Tobago

Grenada

Guyana 

Pacific

 

Fiji

Papua New Guinea

EPA concluded, adoption ongoing

Africa

West Africa

16 countries

East African Community (EAC)

5 countries

Southern Africa Development Community (SADC) EPA group

Mozambique

Caribbean

 

Haiti

Source: trade.ec.europa.eu

The EU is also in the process of concluding negotiations with the MERCOSUR trade bloc and Vietnam. Negotiations with countries such as Mexico and Chile have not been finalised.

Tips:

  • Find out which EU Common Customs Tariffs apply to your natural ingredients and comply with them. You can find this information by using the TARIC database.
  • Find out if the country that you are exporting to has any specific customs requirements. You can find this type of information by visiting customs offices in individual European countries.
  • Seek the services of the EU Trade Helpdesk, as they provide a considerable amount of information on customs procedures exporters must comply with.
  • Consider seeking the services of customs brokers and freight forwarders. The International Federation of Customs Brokers Associations provides assistance on finding custom brokers. However, keep in mind that this service is usually not free.
  • Refer to the Economic Partnership Agreement rules of origin for your natural ingredients in order to benefit from preferential tariffs. Carefully study the handbook on the rules of origin of the EU and what documents you need to comply with regulations.

5. Follow guidance on international transport

You can export your natural ingredients to Europe by several modes of transport: sea and air are the two that are most frequently used. Following this recommendation can lead to long-lasting trading relationships with European buyers. Meanwhile, failing to do so can lead to reputational damage. Logistical and distribution support for your natural ingredients can be found between your country and the destination country. As a natural ingredient exporter, you must get your mode of transport right.

When choosing your mode of transport for exporting your goods to the European market, you must carefully consider the following three factors:

  1. Delivery time – European buyers prefer shorter delivery times. Air freight is more reliable in terms of delivery time and it is generally also faster than sea freight. It is important to note that delivery times may be longer due to the global COVID-19 pandemic. The reasons for this include forced quarantine measures and restrictions on the movement of goods.
  2. Delivery volume/quantity of order – Larger volumes are often cheaper to transport via sea. Meanwhile, as margins narrow, it can be less expensive to transport goods by air freight.
  3. Cost of delivery method – For larger volumes, shipping by air freight is an estimate four to six times more expensive than by sea freight. Shipping a higher volume  is unlikely to result in a significant price increase. Note that due to the global COVID-19 crisis the cost of air freight has been increasing; this is likely to change when passenger flights eventually become fully operational again.

Natural ingredients often need to be transported under specific conditions, such as under a specific temperature or in special containers. You should inform your logistics provider of the special conditions that your natural ingredients need to be transported under throughout the import-export process. Failure to do this can lead to the quality of your natural ingredients deteriorating when they reach the European importer. This can have a negative impact on your business relationships with your clients.

Tips:

  • Take the three important factors of delivery time, volume and cost into account when determining which delivery terms are the most suitable for your business needs. Keep in mind that tensions will arise and you will have to make trade-offs, especially when you are doing business for the first time with a European buyer.
  • Speak to your logistics provider about how the global COVID-19 pandemic might affect which mode of transport you choose and before you agree delivery terms with European buyers.
  • Visit the Freightos website to use the Freightos freight calculator to get instantaneous international freight rate price information for shipping freight by sea and air. Doing so will enable you to make a more informed decision.
  • Determine whether your natural ingredients need to be transported under specific conditions. If so, you should inform your logistics provider accordingly.
  • Familiarise yourself with the INCO terms, which are frequently used in the transport sector. Terms include Delivered Duty Unpaid (DDU) and Delivered Duty Paid (DDP). Other terms that frequently apply in the transport sector can be found here.

6. Get your packaging right

It is essential that you package your natural ingredients correctly. If natural ingredients are packaged incorrectly, they are at risk of damage. Common causes of damage include incorrect transport, storage and handling, alongside theft and damage of natural ingredients. European buyers are very likely to refuse to accept damaged natural ingredients. If you do deliver a damaged product you will likely have to pay for the return of your goods and the buyer may well terminate the business relationship. You are therefore urged to follow this recommendation.

Ensure your natural ingredients are well protected. Key factors to consider include the right type of packaging, handling ingredients with care, and minimising the risk of contamination. For example, essential oils must be packaged in materials that are not reactive to them. It is likely that your natural ingredients will be handled by several people throughout the import-export process, so ensure they are safe and easy to handle.

Your packaging must include information on the units and weight of your natural ingredients, as well as information on correct handling. Relevant labels, symbols and texts concerning your natural ingredients must also be displayed on their packaging. Packaging can also be used to market your business, so consider displaying your business logo and information on packaging.

Companies are putting greater emphasis on reducing waste as a way to reduce their environmental impact. Examples include limiting the use of plastic packaging and other resource-intensive packaging materials. Exporters should therefore strongly consider using alternatives to plastic or other more environmentally friendly materials.

Tips:

  • Determine if your importer of natural ingredients has any specific packaging requirements.
  • Ensure your natural ingredients are stored in the correct conditions, so the quality does not deteriorate. Do this by informing your logistics provider of the conditions natural ingredients must be transported under.
  • Look up your product in the European Union Labelling/Marking Requirements to familiarise yourself with packaging and labelling requirements.

  • Read CBI’s European market entry studies of promising export products that are available for several natural cosmetic ingredients as they set out specific packaging requirements that exporters of natural ingredients should adhere to. 
  • Consider purchasing goods-in-transit insurance, which provides cover against risk factors such as incorrect storage and handling, theft and contamination.
  • If your natural ingredients are hazardous and have a UN number, use UN-approved packaging. See the UN Recommendations on the Transport of Dangerous Goods for further information.
  • Use packaging as a way of marketing your business and your natural ingredients.

7. Seek assistance

Several government and non-government agencies and commercial organisations provide assistance or offer services to help you export your natural ingredients. Seeking their assistance is likely to provide you with vital information about the marketplace. This is a key advantage of following this recommendation. Furthermore, assistance is often cost-free, especially from government and non-government agencies.

The Centre for the Promotion of Imports from developing countries (CBI) is one government agency providing assistance to exporters, specifically expert coaching and training, alongside literature that helps exporters access the European market. Other government agencies providing assistance to exporters include the Import Promotion Desk (IPD), EU Trade Helpdesk and Open Trade Gate Sweden. Consider seeking their respective services.

Non-government agencies such as Africrops provide exporters with consulting services on capacity building and training in several African countries. The UK Institute of Export & International Trade is the professional membership body that represents and supports the interests of everyone involved in import, export and international trade.

Logistics Alliance Germany represents leading logistics service providers with expertise in sector-specific logistics across all transport modes; consider seeking their services. Logistics France provides lists of companies which offer logistical services; consider contacting companies which meet your business needs.

The Netherlands’ evofenedex is a business association that has a network of Dutch trade and production companies with a logistical or international operation. Consider seeking its services. Additionally, check if government ministries in the country you are exporting your natural ingredients from offer assistance. This can include, for example, the Ministry of Trade or Business.

Tips:

  • See the CBI study on tips to find buyers on the European natural ingredients for cosmetics market. You can find more information on how to successfully connect with importers in Europe.
  • See the CBI study on tips for doing business with European buyers of natural ingredients for cosmetics. This study provides valuable information on how to build and maintain relationships with European buyers.
  • See the CBI study on how to prepare a technical dossier for cosmetics ingredients. This study provides information on data sheets and technical documents that are needed when approaching European buyers.
  • Approach export promotion agencies and chambers of commerce in your country of origin. These agencies may be helpful if you are exporting raw materials that are typical to your country of origin.

8. Meet common importer requirements

European importers of natural ingredients for cosmetics are becoming increasingly demanding in terms of the quality of raw materials they import. A key advantage of following this recommendation is that it will increase the likelihood of you will be able to enter the European market.

Suppliers of natural ingredients from developing countries should put a lot of emphasis on keeping the quality consistent between batches and provide a high-quality product at all times. This is something which European buyers and cosmetics manufacturers will always require because it is essential to the manufacturing of cosmetic products.

Increasing quality standards are driven by consumer demand. Importers often require exporters to comply with sustainability principles in terms of sourcing. The most common guidelines include Good Agricultural and Collection Practices and Hazard Analysis & Critical Control Points. If natural ingredients such as essential oils are destined for use in perfumes, you may be required to follow International Fragrance Association (IFRA) standards.

Other additional requirements importers may have include natural ingredients being sustainably produced. Organic and fair-trade certifications are becoming common requirements for buyers. This trend is driven by rising consumer demand for ethical and natural products. This trend is likely to continue in the future.

Tips:

  • Carefully determine what additional requirements European importers have. Be willing to negotiate and adapt to the additional requirements that your buyers have. If buyers’ requirements present an excessive financial strain, be honest and do not commit to standards you cannot meet.
  • Ensure you meet basic quality requirements for your ingredients. For example, if you are an exporter of essential oils, you must meet IFRA standards. This will make your natural ingredients more competitive and add credibility.
  • Consider adopting standards that refer to production facilities and quality management systems. Examples include ISO 22000, FSSC 22000 and ISO 9001:2015.
  • Prepare a dossier with all additional standards and certifications that you meet. Be ready to show these documents when approaching European buyers.
  • See the CBI study What requirements must natural ingredients for cosmetics comply with to be allowed on the European market as it provides further information about requirements European importers often have.

9. Provide documents about the traceability of your natural ingredients

When organising your exports to Europe, ensure traceability of your natural ingredients. According to the EU regulations, all cosmetics ingredients have to meet standard requirements for safety and effectiveness.

It is necessary for suppliers of cosmetics ingredients to have an extensive portfolio of documentation that refers to the physical and chemical, microbiological and toxicological attributes of their ingredients. The most important documents include Technical Data Sheets, Safety Data Sheets, and Certificates of Analysis. For more information on these types of documents, read the CBI study on how to prepare a technical dossier for cosmetics ingredients.

Required information in these documents depends on many variables, including the type of ingredients that you supply and the specific buyers you are dealing with. It is essential that you communicate with buyers what their requirements are and what type of information they need.

Make sure that the traceability documentation of your ingredients is done correctly. This creates trust and shows that you are a reliable client. Traceability of natural ingredients for the cosmetics sector is expected to become more important in the foreseeable future.

Tips:

  • Ensure information guaranteeing traceability is available and accessible. Some buyers may require more data than others, so you have to adapt to each client.
  • Keep in mind that some information is confidential. Sharing of confidential data is done within the scope of confidentiality agreements.
  • Your documentation must be complete before your start approaching buyers. Make sure that you update your dossier on a regular basis.
  • Do your research and have a look at how your competitors organise their documentation. You can do this in person by visiting trade shows and/or you can discuss with buyers. For more tips on visiting trade shows, read the CBI study on tips to find buyers on the European natural ingredients for cosmetics market.

This study has been carried out on behalf of CBI by Ecovia Intelligence.

Please review our market information disclaimer.

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