Export Trading Company - Explained
What is an Export Trading Company?
Written by J. Mance Gordon
Updated at April 21st, 2024
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What is an Export Trading Company (ETC)?
An Export Trading Company is a commercial institution (often a bank) that facilitates and financially supports those firms that are engaged in international trade. The Export Trading Company (ETC) may provide billing, warehousing, shipping, and insurance services to exporting firms. An Export Trading Company also provides information related to the market, and helps exporters to find buyers in the international market.
What does an Export Trading Company Do?
The US Government passed the Bank Export Services Act of 1982 which authorizes commercial banks to own Export Trading Companies and engage in export. There are several benefits to using a ETC:
- Local Knowledge - An Export Trading Company (ETC) support exporters in many ways such as providing necessary information about local laws, regulations and tax structure etc. They also maintain relationships with marketers, producers and distributors.
- Cost Efficiency - ETCs have can provide billing, warehouse, and shipping services to exporters. The ETC will charge a service fee, but it is less costly than hiring foreign expertise.
- Currency Exchange - The ETC advises on currency strategies in order to minimize currency exchange risk. For example, the ETC may suggest the company to use put or call option, or it may recommend using future or forward contract in foreign countries.
One downside of employing and ETC is, if the company allows the ETC to handle all important operations such as logistics and billing etc., the company may have no control over the companys activities in foreign country.The scope of Export Trading Companies (ETC) was declined sharply due to Chinese e-Commerce companies such as Alibaba that now perform all those tasks that ETCs were supposed to perform.