Tuesday, July 30, 2013

Websites with Guidance for Exporting Chemical Products

Companies who are interested in exporting chemical products, and who have no experience in doing so, can find useful guidance on the Internet.  This blog identifies some websites with such guidance.  And, the blog makes some general comments about exporting.

A good website to begin to with is a British government site on international trade regulations for chemicals.  (Click here to go to this site.)  Although presented for British companies, guidance provided should be useful to any company developing procedures for exporting chemical products.   An important first point is that chemicals have to be registered according to a classification system acceptable to the importing country.  In exporting, much must be considered, understood, and implemented, and this British guidance covers a lot of those needs.

If a European Union (EU) country is the export destination, a good place to start for guidance is a 2-page EU pamphlet (available in a PDF file – click here).  This pamphlet identifies what a company should do to successfully export chemical products to an EU country.  As indicated above, chemical registration is necessary.  In 2007, the EU established a new regulation that governs exporting chemicals into the EU.  This regulation goes by the acronym REACH (R – registration; E – evaluation; A – authorization; CH – chemicals).  From this site (click here), the necessary details can be found on what is needed for exporting chemicals to an EU country.

REACH is a regulation that likely will serve as a model for other countries when establishing and/or updating their requirements for chemical product imports.  For example, news articles suggest that China is evaluating REACH as a model for its regulations.  REACH seems to be considered a high standard (high bar) with respect to regulatory requirements for exporters to meet.  So, meeting REACH standards will likely put a company into a status of being able to meet other country standards.  This may be a wise objective – reaching the REACH standards – as the apparent global evolution of countries reviewing and raising importing requirements likely will make importing standards increasingly comprehensively.

As mentioned above, a first step in exporting a chemical to a country is to classify the chemical according to the classification system used by the country.  Such a classification system has been established by the United Nations and some countries may be planning or already are using the UN system.   Malaysia, Indonesia, and Vietnam may now be using the UN system.   Click here to go to an Untied States government website that provides a guide to the United Nations chemical classification system.

Although as stated above, being able to meet the EU’s REACH regulatory standards will likely place a company in a good place to meet other country standards, the company should also seek out (e.g. on the Internet) and understand the standards for the country that is being exported into.  Chemical importing guidance and requirements for the United States can be reviewed by clicking here.

Along with knowing the requirements of exporting chemicals into a country, a company also needs to know the other requirements of exporting any product into a country.  Information on these other requirements also often can be found on the Internet.

Countries can, and have, imposed large fines on companies who have exported chemicals into their territories that violate their import requirements.  Companies should know and meet these requirements.  This blog is not met to provide an exhaustive identification of how to export chemical products, but to provide some links to information that can help in starting the process of identifying, understanding, and implementing export requirements.

Thursday, July 11, 2013

Using Cost Data for Decisions

In this blog, I will show how a decision can be made between the purchase of two pieces of chemical production equipment, when based on the initial and maintenance costs.  Assumptions are that the two equipment pieces provide basically the same result, but initial costs, maintenance costs per year, and length of maintenance costs are different.

Determining which equipment choice based only on the net present value (NPV) of the two choices leads to an incorrect decision.  The decision should be based not on the net present value, but based on the annuity payment (discounted payment) per year that the initial and maintenance costs represent.

For example, suppose the following (amounts in millions):

                        Initial cost         maintenance      maintenance      maintenance
                                                year 1               year 2               year 3
Equipment A      20 M                 2M                   2M                    0
Equipment B      25M                  1M                   1M                    1M

The NPV of Equipment A, with the above amounts, is 23.72M and the NPV of equipment B is 27.72M.  On the basis of NPV, Equipment A would be chosen, with the assumptions above.

This would be the wrong decision because the lengths of maintenance costs for the two pieces of equipment are different.  The NPV comparisons should not be used for projects of different lengths.  What can be used, and will show the less costly decision correctly, is determining the per year annuity (discounted) payment for each purchase.   Equipment A has an annual payment annuity of 12.76M and Equipment B 10.18M.  Equipment B is less costly on a per year basis.

I would be glad to work with you on determining your annuity costs for your situations similar to what is described above.