by Exporting involves certain risks that may adversely impact an exporter’s profitability, reputation, and long-term sustainability. The following are the major types of export risks along with their explanations and examples:
Commercial Risks:
Commercial risks are those that are associated with the failure of the buyer to make payments or fulfill other obligations as per the contract. Some of the commercial risks include:
- Credit Risk: This is the risk of non-payment by the buyer. It arises when the buyer fails to pay the exporter on time or at all. For example, a buyer may refuse to pay for goods that have been damaged during transit.
- Insolvency Risk: This is the risk of the buyer becoming insolvent or bankrupt. For example, the buyer may become insolvent before the goods have been delivered, leaving the exporter with a loss.
- Market Risk: This is the risk of fluctuations in demand or prices due to changes in market conditions. For example, the exporter may suffer a loss if the demand for their goods declines in the target market.
Political Risks:
Political risks are those that are associated with changes in political conditions in the importing country. Some of the political risks include:
- Currency Risk: This is the risk of fluctuations in the value of currency. For example, if the exporter quotes the price of goods in USD, and the value of the USD decreases against the buyer’s currency, the exporter will receive less money than expected.
- Country Risk: This is the risk of political instability, war, or civil unrest in the target market. For example, the exporter may suffer a loss if a war breaks out in the target market and goods cannot be delivered.
- Regulatory Risk: This is the risk of changes in regulations or policies that affect exports. For example, the government may impose new regulations that increase the cost of exports or prohibit exports altogether.
Physical Risks:
Physical risks are those that are associated with damage or loss of goods during transit. Some of the physical risks include:
- Transportation Risk: This is the risk of damage or loss of goods during transportation. For example, goods may be damaged due to poor packaging or mishandling by the carrier.
- Natural Risk: This is the risk of damage or loss of goods due to natural disasters. For example, goods may be damaged due to flooding or earthquakes.
- Theft Risk: This is the risk of theft of goods during transit. For example, goods may be stolen from the warehouse or during transportation.
Legal Risks:
Legal risks are those that are associated with violations of laws and regulations. Some of the legal risks include:
- Contractual Risk: This is the risk of breaching the terms and conditions of the export contract. For example, the exporter may fail to deliver goods as per the agreed-upon timeline.
- Intellectual Property Risk: This is the risk of infringing on intellectual property rights. For example, the exporter may use a patented technology without obtaining proper authorization.
- Liability Risk: This is the risk of being held liable for damages or injuries caused by the goods. For example, the exporter may be held liable if the goods cause harm to the end-users.
