Thursday, June 05, 2008

Rosewood Case Study: The import of wood from Brazil.

Rosewood Case Study: The import of wood from Brazil. Terms of purchase: CIF Montreal.

Risks, responsibilities and obligations of the seller.

First of all the monetary risk of loss for the seller may come about through failure to secure contract terms which include a force majeure clause and arbitration rules which provide terms of mediation where an absence of such a clause could make seller liable for damages or losses during transit which neither the insurance company nor the carrier may be responsible for. Also should there be any discrepancies in the financing or purchase terms documentary credit should be irrevocable and shipment should not be made until confirmation of payment has been made finally at the Brazilian company's local bank. However ensuring that the financing of Rosewood's purchase is legal, legitimate and timely should also be reviewed by the exporter's bankers.

The Brazilian seller, principal party or agent of the principal seller, which must be specified in the contract is responsible for processing storage fees and labour charges for any and all warehousing, secure packing in accordance with agreed terms of contract, secured loading at point of origin, port receiving charges, all transport documents usually including but not limited to contract specified numbers of copies of commercial invoices, clean ocean bill of lading and insurance certificates and any or all other export and customs documents required by the Government of Brazil, export clearance usually through official agents and or freight forwarders specified in the contract, fulfilled loading schedule or shipper's declaration, contracting the ocean freight carrier and insurance coverage which generally equals the total commercial invoice value with an additional 10% to provide for claims and or inspection of claims and or deductible in event of loss, damage, pilferage, fire, or other conditions specified in the insurance coverage to the port of destination. In the end the seller must ensure some degree of profit margin for the CIF terms of sale to ensure future company operations. Furthermore, the seller should refrain from contractually guaranteeing any or all exact day delivery dates with possible penalties or claims liable for late delivery charges. It is better to provide a period of delivery in accordance with the credit cycle validities.

Other risks are that the particular port of origin may prove difficult to insure against loss or pilferage as once was the case with JFK.

Risks, responsibilities and obligations of Rosewood as the buyer.

Rosewood must ensure that the CIF terms of contract are fully fortified with an explicit contract arrangement reviewed by a Canadian international trade arbitration lawyer and or legal firm with specific experience in Brazilian international trade law to ensure that the terms of contract reflect a mutually agreeable and profitable or satisfactory review of all prices and risks including the EXWORKS prices and that the export agent or principal seller contracted to provide services at the Brazilian end is truly delivering competitively priced wood products which do not include domestic handling, labour or marketing costs in the delivered product price. In addition the buyer must confirm that the seller selected carrier, delivery terms and charges, as well as insurance coverage represent the best prices and coverage, generally minimally "ALL RISK" coverage is preferred by the buyer for these services.

The CIF terms obligate the buyer to be responsible for any or all changes to shipping destination schedule, payment of all import duties or taxes, delivery charges to final destination and pre-arrangement with seller to ensure that all Canada-bound documents and certificates relevant to the product identification category which may be required be provided to ensure delay-free clearance and clarity in responsible party for costs incurred due to processing of documents delays or errors.

Those terms of CIF which leave risks and responsibilities in handling and port processing fees in limbo must be included under terms of contract and would likely be covered due to availability of import brokers and buyer's agents in Canada which certify and provide inspection and processing fees for clearance of port controlled cargo. These costs must be absorbed by the buyer. Again the overall cost of CIF imported products must ensure a price to the final customer which allows for a margin of profit in eventual finished product sales for Rosewood as the buyer.

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