SMICE BULLETIN BOARD
From May 6, 2020
As we return to normal operations while COVID 19 restriction are lifted, worthy questions asked by PCT’s, updates to doctrine news and personal opinions of SMICE will be advised below in short form in a manner only understood by those who have purchased the FTNX doctrine of trade 2015 onwards.
INSPECTION AT PORT OF LOADING
MAY 7, 2020
May be applied by the agent of the supplier or end buyer at port of loading but not the end buyer personally while actual loading takes place and is completed; is a strict rule that must not be broken. PSI (In personam type) is paid for this reason whether its secure at port of loading or from place of production/mine.
FACE MASK DEMANDS
MAY 8, 2020
Many ‘cowboy’ suppliers of ‘face masks’ are asking for upfront deposit as high as 50%. Many are also promising very fast delivery by air cargo. Such request for upfront cash payment MUST not be entertained. Either a supplier is ‘export’ ready with ‘In Rem ISO’ certification in hand or they are not. If they cannot accept a UCP endorsed DLC. No deal!
BUSINESS WITH CHINA
MAY 8, 2020
Despite rumours and inappropriate remark made by some countries, trade with China continues to apply with FTNX and PCT’s ‘without prejudice.’ COVID 19 was an accident; to say anything else ‘just to sell papers’ is both reckless and foolish. China is very capable to address health issues within Wuhan, which I’m sure they will, just like USA did when San Fransisco introduced the much feared HIV to the world, or when Africa did the same when Ebola was discovered etc.etc. It happened–this time in China; let China fix the problem, and lets get on with business. Information must be shared and inquiry should be allowed, to appease the world that China is on top of the situation, such an inquiry will not produce any benefit as it applies to easing the matters of the pandemic. Australia should have ‘asked’ China to participate in such an inquiry; after all this is how real ‘friends’ act. As for China; perhaps China should concentrate on tightening matters of health inspection locally instead of concentrating in destroying the ‘democratic’ part of society still prevailing in Hong Kong. China has poor reputation when it comes to handling heath issues and indirectly caused the release into the world of deadly viruses such as Covid 19, which I am afraid is only the first kind of virus that the human race will need to live with forever, especially when COVID 19 mutates to a much stronger and finally indestructible virus, which it will, as this is the nature of all viruses. Covid 19 came from within a place in China where this virus was probably virulent for years if not decades, effecting a few locals, or nobody at any given time while working at the Wuhan market place; the few who had antibodies already established barely effected the community in which the workers live in. So how did the virus leave the confines of one small place, to infect the whole world?. Tourism! The need for people to discover places ‘off the beaten track’ matched with an ‘ideal few good breeding days’ weather wise, and an increase in tourist number at the market in a particular week, in my opinion is the cesspit which caused the outbreak world wide. In this light, China( Government) alone is not to blame. China has a lot to answer for; being arrogant servers no purpose, being interactive in avoiding other outbreaks in the future does. “If one has the gaul to slap another in the face, one should be expected to be slapped back–harder.” Educating its people about matters of personal hygiene and how to prepare food for human consumption should be a priority.We see Australian airport customs ‘all the time’ stopping Chinese people from bringing in some really disgusting and vile smelling and even decaying products ‘prepared at home’ to pass on to relatives here; such products which luckily are confiscated, otherwise we would have seen outbreak(s) of ‘some thing’ much sooner.Education is key is stopping such ‘accidents.’ Perhaps the Government making efforts to teach Chinese people that we don’t have to kill and eat everything that walks and crawls would be a good start. Barbaric and ignorant customs and practices of one era are not always accepting in another. Being ignorant of the facts, does not make for a good excuse.China needs to appease the world that its doing what it can to clean up its act, the rest of the world need to assist China in doing as much without incriminations. Confucius “Real knowledge is to know the extent of one’s ignorance.” “Don’t complain about the snow on your neighbour’s roof when your own doorstep is unclean.”
DELAY PORT OF LOADING
MAY 8, 2020
Up to 3 months delivery delay at some busy ports may be evident, accordingly offering a LDD rather than a P.G may be a more friendlier and sound approach when sourcing supply.
NO CRUDE OIL DEALS
MAY 8, 2020
Forget about crude oil supply for the moment, unless you have secure storage facilities, as over 12 KSA ships full of crude oil sit idle at USA ports and tanks at Cushing USA are full to the brim. Refined fuels like ULSD is the best product to trade in at this time.
MAY 9, 2020
Iron ore followed by coal will continue to prevail as a top exportable product to source in 2020. As for ‘climate change’ I’m sure the rhetoric will commence once COVID 19 issues subsides.
MAY 9, 2020
If a PCT is located in a country holding sanctions with USA, then western banking access will not be possible - but applying FTNX procedures MUST still apply if the trade is conducted with a country not holding sanctions with i.e: Russia as Russian banks accept UCP endorsed DLC’s.
BREACH OF CONTRACT AGAIN!
MAY 13, 2020
China has suspended beef imports from Australia citing certification issues( excuses). Four abattoirs all geared up for exports will need to soon close if they issue is not resolved quickly. Year of profits and infrastructure development wiped off with one single unwarranted action. Why ? Politics? May-be ! Improper or unacceptable trade procedures? For sure! This is what happens when an exporter pander to the needs of the importer so as to ‘close a deal’ in a manner beyond what is normally deemed as acceptable; with many concessions served. We see it all the time. In essence, no matter the deal or country, no short cuts, no delivery at DAP, application of strict proper procedures, without government involvement in such deals–is always the best basis. The use of safe ICC UCP 600 endorsed DLC to pay for goods must always be apparent; has become an unconditional matter. China’s arrogance will come back to bite them another day, for today however it’s the exporter doing impractical business with China, are then entities who are going to suffer form such ‘excuses.’ Placing all eggs in one basket is always a precarious situation. Serving smaller new markets in other countries has much more value than serving one large market. The chances of a ‘total crash’ are much more remote. China will breach a contract on a whim is another issue; which could take year and billions of diallers to settle.( if ever?)
ALL BELLIGERENT BUYERS MUST PAY BY DLC AND PG
MAY 13, 2020
FTNX will seek from belligerent buyers from any country, a DLC for payment of goods and up to 10.0% P.G deposit for “intentionally breaking a contract without a legitimate reason” is the new norm in 2020. I strongly suggest other countries vary their contract conditions accordingly.
FINAL TRUMPET BLOWING FOR TRUMP
MAY 17, 2020
Trump announces that the USA will have a cure for COVID-19 by years end. If he fails, America will look incompetent to the rest of the world. USA will be deemed to be nothing more than, ‘a circus run by clowns.’ If he succeeds, then the status of USA as the most powerful country in the world would be upheld. Trump is playing the Machiavellian card. An untruth can be readily forgiven by the people; if he wins; and condemned accordingly if he fails to find a cure.
FIRST DELIVERY DELAYS
MAY 17, 2020
It would be prudent that the first delivery shipment of any contracted business have some added tolerance factors to allow the supplier and end buyer to ‘fix the routine’ found in the contract. The first delivery shipment should have a higher discount applied to the goods, that was offered in the rest of the contract, and that the buyer must not collect on the suppliers P.G on first shipment delivery for any delays therein. Currently some port have berthing delays of up to 4 months. First delivery is given a special status pertaining to ‘establishment the first delivery routine’ would save a lot of issues and angst between the transacting parties. Once all the issues of first delivery are ironed out, the expectations thereafter follow contacting terms and conditions.
TRANSFER FEE DLC
MAY 17, 2020
Supplier may be asked by the FTNX (PCT) to pay for the transfer fee, when a PCT is ready to transfer the letter of credit into its accounts. This aspect serves a specific puropose. It allows the supplier to claim the DLC immediately and verifies that the DLC has gone to the named supplier and account applied on contract. These are security feature that a PCT can readily apply at its discretion. The End buyer will be asked to pay for the transfer fee is the normal expectation , when the end buyer has received an excellent below market price basis for goods ordered. When there is very little incentive ( margin) for the end buyer ( price is high), this is when the supplier may be asked to pay for the transfer fee instead, which is an allowable and acceptable aspect. A PCT must stipulate this aspect on its offer to procure, if the intention is for the supplier to pay for the TF. Under UCP banking rules ‘the beneficiary’ to the UCP DLC is the supplier, not the PCT to which the rules states that the ‘beneficiary’ shall pay for the TF ‘unless otherwise agreed upon.’ The differing perspective comes from the correct status of the PCT who is the ‘buyer’ to the supplier and therefore not the ‘producer’ of the goods being sold to its end buyer. Since the PCT must negotiate and secure the offer from the supplier as buyer, it is at this time that the PCT can readily assess who should pay the TF, based on the buy price. In the majority of cases (90%+) a good price for goods is secured, and thus the standard application does not justify the added expenses of suggesting that the supplier also pay for the TF. The PCT must never pay for the TF from its own pocket.
THE END BUYER AND PRE-ADVISED DLC
MAY 17, 2020
FTNX will accept a pre-advised DLC in most cases (Quid Pro Quo) if the bank of the end buyer is prepared issue such a financial instrument. It is the duty for the end buyer to first and out if a PAIDLC can be issued by their bank. To sign a contract only to find that the bank will not issues a PAIDLC is a breach of contract, if a normal IDLC is not advised instead. FTNX has terminated contract is the past due to this aspect, at cost to the end buyer (compensation). The end buyer serves a PAIDLC; FTNX surrenders its PPIC (evidence of supply) in return which removes the PA status and converts the instrument into an active credit. A PA DLC is ‘irrevocable’ just like a normal DLC and cannot be cancelled once the PPIC is served-as some end buyer have tried to do. An end buyer with good credit history with its bank is the type of entity who is able to opens a PAIDLC. Under UCP rules , a UCP adhering bank has the option to issue or not issue a PA-IDLC.
SUPPLIER MUST MAKE AN OFFER
MAY 18, 2020
We have seen some very poor document in our time; especially offers. There is NO contract without an offer, this means even if a contract is signed without an offer the contract is invalid. Six elements are needed to form contract. The 6 elements are as follows; (a) Intention, (b) Offer (c) Valuable consideration (d) Legal capacity (e) Genuine consent and (f) Legality ( objects agree upon). In (f) other tests must also be satisfied as to the ability or capacity to enter into and sign a contract, in where corporation rules via its MOU, international or even domestic laws could play a role in disallowing certain people from entering into contract; i.e: Aliens, infants, corporation, lunatics, a drunken person, married women, bankrupted, Parolee, criminals, and Convicts. A PCT must observe these elements and aspects before considering entering two a commodity transaction as a ‘Buyer/Seller.’
MAY 18, 2020
We have noticed some PCT applying a ‘mail order ‘ business on the side. Mail order business was big business long before the internet, which means anyone can apply such business with no training. A Person makes a claim that they have a product to sell locally, when in fact all they are doing is processing the delivery of ordered goods directly from the manufacturer in another country based on the issuance of a pro forma invoice. Instead of receiving the goods in ‘5 days’ as claimed, the customer receives the goods 4 or 5 weeks later, in where the supplier is simply filling up FCL ( defined as a HCL) with many smaller orders. False description of goods and excessive delivery time way ‘beyond the scope’ are genuine grounds for a refund.
NEW IMPORT RULES CHINA
MAY 22, 2020
“THE BUYER MAY NOW ASK CUSTOMS TO INSPECT GOODS” means, “ The Chinese importers will have no choice ‘but to ask customs’ to intentionally inspect good and look for ‘added issues.’
It’s a new internal Chinese ‘pop up’ rule coming into effect from June 1, 2020 made to ensure that, ‘certain suppliers’ have goods intentionally delayed for weeks or months, before clearing customs in China which has nothing do with PSI inspection of goods, signed contract nor ‘delivery.’ A concerned importer could have asked inspection services in country of loading to do added analysis of goods for certain i.e; toxins or undesirables content; but this is not what is being sought. Customs do not offer analytical services, because they are not ‘experts’ in such matters. The job of Customs is to ‘check’ and clear goods at Port of entry. Hence China is simply being arrogant and belligerent towards some countries by creating such a new rule (the first of many) is obvious. China is a communist country when it suits, and a capitalist country when it suits. It makes rules and changes rules at will. Solution? When selling goods into China ensure only FOB or FCA Incoterms is offered. To offer CIF and especially DAP incoterms to Chinese importers is considered a precarious offer. If they are going to intentionally delay aspects of unloading, then they will be applying such delays for their own ordered ships. China has lost trust of the global economic community.The need to regain such trust quickly. It’s time to move away from selling large revolving shipments of goods to China and commence trading in smaller lots of much wanted products to other countries and continents like Africa and the EC. Changing the sourcing aspect to least 10 FCL’s minimum or 12,500 MT single shipments is now considered a viable option-even for FTNX, in where a PCT should only offer large revolving deal as they becomes evident, on a case per case basis, is the new norm. Commonwealth of Nations is our new sourcing arena. It will make PCT more busier over the longer term, than simply wasting a whole lot energy on revolving deals, on country who has now increasingly turned belligerent. Single FCL should be avoided. A new extended FOB contract model exclusively made for when dealing with Chinese buyers and sellers will soon be available via SMICE. Normal contracting modes applies otherwise for all other countries is now accepted practice for all PCT’s. As stated before, countries have to start making products that would otherwise come from China as a matter of urgency as business with China, just like their intentions are becoming precarious by the day.
THE PCT AND LEASING AGREEMENTS
MAY 24, 2020
PCT Erik B. Johnson from USA has secured fuel /LNG storage facility in the USA and has posed a good question lightly covered under the doctrine under ‘assignment’ which is worth posting. This demonstrates that related business can be applied under the doctrine, even though it did not mention such matters intently. Here is my reply in short form
No matter the form of ‘assignment’ taking place once allowed, it means that the ‘whole business’ and responsibilities therein in is able to be transferred from the PCT to the assignee. Part assignment cannot apply. Renting LNG ‘space’ by a PCT is tricky. Unlike handling tangible products like goods, dealing with matters which lack tangibility can be problematic for an inexperienced PCT as agreement to the leasee issued by the PCT needs to be constructed based on the copy of the lease provided by the leasor and undisclosed principal. Goods are purchased and offloaded by the PCT quickly. Renting LNG storage space on the other hand makes tenuring such a lease an ongoing aspect as it pertains to obligations and responsibilities. If the PCT fully takes up the ‘space’( rents the space) as per the lease, then you could be lumped with ongoing expenses and problems. If the PCT surrenders the space to the client ( end buyer) , such could circumvent efforts as the PCT will need to 'disclose the supplier' at some stage, 'safely.' The term “At some stage safely" is what you need to work out. Use local laws to your advantage by ensuring matter of ‘evidence of your role’ is clearly apparent. Make the deal with the client (end buyer) taking up the space, then seal the agreement (with supplier) after funds from the end buyer is secured. An ‘agreement’ rather than contract will suffice when dealing with the leasee. An agent of the leasor has no authority to allow a PCT to act on behalf of the agents principal (Remember Doctrine: Delegatus Non Potest Delegare). The PCT now secures the lease, for first delivery or for i.e: 60 days ( which ever comes first) then ‘assign’ the whole lease to the end buyer outright after ‘first delivery’; along with the responsibilities therein. All you need from the 'supplier' (The leasor) is the simple assurance in writing that if YOU take up the space via a lease, the said lease can be ‘assigned’ over to another person later; to your 'Undisclosed Principal' who then takes over. In other words the PCT takes the lease to rent space from the ‘supplier’ but the PCT wants the right to ‘assign’ the lease fully to a disclosed principal at a later time, is a stipulated condition. It’s not a mere aspect of subletting that is taking place, its much more than that. PCT get the payment for the first i.e year, or period agreed upon. You keep the difference and pay the 'supplier.’ You sign the suppliers lease, and assigned it to the ‘end buyer’ who has already signed the leasing agreement with you, to you accept the lease but issued an agreement to to he ‘end buyer.’ This means the deal you make with the end buyer (leasee) must fully reflect the deal you made with the supplier. So get the supply agreement/lease, ensure assignment is allowed as indicated on the lease , with your authorised name on it as agent acting on behalf of a disclosed principal, then reflect it to your end buyer. He pays the PCT. You pay the supplier. You then FULLY assign the lease to the supplier . Role of the PCT and responsibly is over. The end buyer is now disclosed to the supplier, who now have to answer to each other. If payment for ‘space’ is ongoing monthly rather than a lump sum being initially served, everything stated will still need to apply. Once the PCT secures the first payment and commission and transfers the payment for rent, you know the deal went through (No excuses later.) Thus if more monthly payment of commission is due after the first payment , the agreement with the supplier must state that the difference in payment is your commission, and that such commission payment is agreed upon ( in part of or in full) is to be paid into you bank account monthly, once the supplier receives each full payment rate that PCT had originally secured from his client. Other aspects are available which will only suit very experienced PCT’s. Not and easy deal. but doable
PCT’S AND CHARTRING SHIPS
MAY 26, 2020
Remember, Incotems and UCP are separate matter of procedures which are intricately tied to each other as far as a PCT is concerned. The PCT under UCP 600 MUST produce the shipowners BOL in a CFR, CIF and CIP deal; the DLC rules dictate policy on this matter, which is another added unseen security feature. If the PCT offers FOB and uses the DLC to also support booking a ship under a charter party agreement, in its own name then the offer is a FOB&F application in where all matters of FOB ICC incoterms applies and that matters of the BOL do NOT form part of the collection process. The contract states what the obligations of the PCT are under ICC FOB Incoterms, the contract also states what the obligations are in matters of pre payment of freight secured by the PCT. Prepayment of freight is not ‘freight earned.’ The normal FOB aspect is what the DLC terms and conditions will follow. No mention of the BOL is applied on the DLC , which is an obligation personally served by the PCT. Having said that, if it’s a CIF deal, again UCP dictates this aspect. Under the rules the confirming or issuing BANK will sight ‘clean’ transport presentation documents including the shipowners endorsed BOL and allows payment to proceed inline with the UCP rules which states that ‘the freight component remains in the account” to favour the position of the end buyers as a credit, so that the end buyer can pay for freight at the ‘rate’ secured by the supplier, when the carriage process is completed and ‘earned.’ The supplier ‘books’ the ship and quotes the final rate accordingly to the end buyer. The DLC rules and not Incoterm rules dictates upon this matter, this is why incoterms can be confusing to many if not interpreted correctly. For the PCT to charter a ship, the DLC to buy goods has to be secured first which will also support the ‘pre-paid’ status of the ‘freight’ component which is ‘collected’ by the Shipowner once it has ‘earned’ such freight (carriage). Free on board means there is no charge for renting space on board a booked ship in ‘lieu of carriage.’ So while a PCT acts on incoterms in matters of documentary ‘delivery’ and the sale of goods, the carrier acts on a different undertaking where ‘physical delivery’ has to take place before freight charged is ‘earned’ and thus collectible. When the goods arrive at destination, the end buyer is notified and carriage rate offered by the supplier is used to pay for carriage which remains uncollected by the supplier as a credit serving the end buyers account.This is what the DLC issuing bank will apply because UCP 600 rules demands as much. This is why while incoterms is universally accepted, payment by DLC are not so accomodating, as they should be, even though such is the superior payment application among all others. Nevertheless PCT has no choice , it MUST for the sake of security use UCP rules in conjunction wth Incoterms to make the deal legally viable and doable.This is the kind of advice you will not readily find online because so many supplier and end buyer simply do not understand this ‘debit and credit’ application. For instance, ‘supplier’ pays for and secures the preferential ’certificate of origin’ but a debit against the end buyers accounts ( DLC) is made on the ‘sellers invoice’ in where the money paid to secure the COO is reimbursed to the supplier . Why? Because the COO is a certificate that is advised by the end buyer as an import requirement. Delivery ‘over the ship rails’ is defined as ‘delivery port of loading.’ Sellers invoice ‘debits and credits’ is a critical aspect of the collection process.Getting this part wrong will cost someone money that they ought have not lost if proper procedure where not followed.
END BUYERS AND THE DLC
MAY 26, 2020
I’ll make this aspect very easy to understand. If an end buyer objects to opening a DLC and offer another kind of lame payment application , then you have secured an ‘end buyer’ who is unable to open a DLC. The kind of and end buyer who perhaps will not be entrained by a Bank as having a credit worthy status in being able to open such a credit to begin within a precarious and risk laden trader. If the end buyer objects about opening a DLC, you have no ‘end buyer’ is best assumed - terminate the deal early and quickly. If the end buyer changes their mind after termination is advised; on the second time around in were a second offer is advised, ask for a small performance deposit as well with the return of the offer as a show of good faith. A real end buyer not concerned about the issuance of a DLC will perform to the end; an end buyer looking to learn procedures or is seeking added advice, will waste your time for many months, before ‘changing their mind.’ We have had especially from Ukraine, Japan and China many such ‘time waster’ lacking real buying intent for the start. Offer must be returned as signed within 5 days which comes back with no valid issues about the DLC which the end buyer does not want to open, terminate the deal ASAP is our best advise based on over 30 years of experience. A pre-advised DLC is an excellent instrument to open by the end buyer if their bank issues such instruments( banks have such a discretion) PPIC is released which converts the PA-CIDLC status to a full active ICDLC, at minimum cost. At first PCT needs practice and gain experience thus may apply this termination process once good trading experience has been obtained first.