The paper "Managing Global Trade Operations - Jai Bharat Rice Mills and McSollan International, Inc" is a good example of a business case study. “ Ex-Works” means that the seller delivers when he places the goods at the disposal of the buyers at the seller’ s premises or another named place (i. e. work, factory, warehouse etc) not cleared for export and not loaded on any collecting vehicle. ” (Incoterms 2000) This term places maximum liabilities on the buyer i. e. at McSollan International and minimum obligations on the seller i. e. at Jai Bharat Rice Mills.
However Ex-Works responsibilities between buyer and seller are as under. A Jai Bharat Rice Mills: Exporter B McSollan International: Importer A1 Delivery As per the Exworks term and sales contract, Jai Bharat Rice Mills must deliver the goods at the committed place designated (it may be at work, factory or warehouse etc) by McSollan International. If the buyer does not specify the place of delivery in the contract then the seller may deliver the goods at their desired place after mutual coordination with the buyer. B1 Taking Delivery It is the sole responsibility of McSollan International to make necessary arrangement on their own behalf for taking the delivery of the goods from the supplier which have been delivered at the designated point. A2 Licenses, Authorizations and Formalities Jai Bharat Rice Mills does not have any liability to make arrangements for any licenses, authorizations and formalities related to the export of goods.
However, he may give moral support to the buyer in obtaining, where necessary, any export license or other official formalities for the export of the goods. B2 Licenses, Authorizations and Formalities McSollan International is liable to obtain any export or import license at its own risk and expense carry out, where applicable, all custom and port formalities for the exportation or importation of the goods A3 Proof of Delivery, Transport Document or Equivalent Electronic Message No obligation on the part of the supplier as per Incoterms (Ramberg 2011) B3 Proof of Delivery, Transport Document or Equivalent Electronic Message McSollan International must provide Jai Bharat Rice Mills with proper documentation as evidence of having taken delivery. A4 Transfer of Risks Jai Bharat Rice Mills must bear all risks of loss or damage to the goods, till they are delivered to the buyer. B4 Transfer of Risks After the goods have been delivered by the supplier all the risk of the loss or damage will be transferred to the buyer.
Thus, the buyer is responsible for making necessary arrangements for the protection of the delivered goods. A5 Checking - Packaging – Marking It is the responsibility of Jai Bharat Rice Mills to bear all the charges of those checking operations like weighing, counting, measuring the quality checking which is obligatory for the purpose of delivering the commodity. Regarding the packaging and marking of the goods the seller must fulfill requirements as per sales contract and bear all expenses relating to printing and packing material.
The packaging is to be made according to the buyer’ s requirements. B5 Inspection of Goods The buyer will bear the cost and expenses of any pre-shipment inspection, by availing the services of third party surveying company or any other inspection required by the authorities of the exporting countries. Modes of Transport According to the sales contract in Ex-Works Incoterms, McSollan International has to choose multimodal transport (by rail and road). They avail the services of freight forwarding and customs clearing company on their own behalf. Mars Shipping Agency from India, a well-known company in freight forwarding and customs clearing.
They played an important role as an agent for McSollan International, accepting a greater liability as carriers. The company offers a wide range of services like warehousing facility, multimodal transport, shipping charges and sailing schedule, export and import custom clearing, shipment formalities and communication with concerned port authorities etc. There is no seaport available in Kapurthala, Punjab. However; there is a seaport in Mumbai which is the closest port. The total distance between the two destinations is 891.7 miles.
It is preferable for McSollan to select road transport for container shipment from Kapurthala to Mumbai port. Documentary Letter Of Credit Documentary Letter Of Credit is normally used for the import/export transaction to protect the interest of both the parties. This method requires that the payment be made upon the presentation of the necessary documents mentioned in the sales contract (Doise 2007). Jai Bharat Rice Mills furnished the entire document to his bank called Advising bank. After this process, advising bank coordinate with the Issuing bank i. e. McSollan International’ s bank for releasing the payment in favour of beneficiary at designated maturity date as per sales contract.
This documentary letter of credit can be paid at a later date after the buyers receive the goods, should be clearly specified in the contract in order to avoid delay and confusion. In this transaction, Jai Bharat Rice Mills allow McSollan International 60 days credit terms after the arrival of the goods at the destination. It means that the advising bank demand for the payment from issuing bank upon the 60 days maturity. In this transaction, the condition of letter of credit is “ irrevocable” which is unable to be changed nor can any amendment be made unless both the parties agree. The seller, Jai Bharat Rice Mills secures the payment by including a mandatory requirement for a “ Confirmed” Export Letter Of Credit in the sales contract as payment method.
This term is often called an irrevocable confirmed letter of credit. The document will be confirmed by a third party foreign bank at the seller’ s request in order to guarantee the funds and transfer in favour of the beneficiary by issuing bank upon the presentation of the necessary documents at maturity. The cost applied to the confirmation of a documentary letter of credit will bear by the buyer or seller upon mutual coordination mentioned in the sales contract.
The average cost will be approximately 1000 USD payable to the third party confirming the foreign bank.
Doise, Dominique (2007), “The 2007 Revision of UCP 600”, I.B.L.J. 1, 106-124
Incoterms 2000 (2000), Exworks, retrieved from http://www.iccwbo.org/incoterms/preambles/pdf/EXW.pdf on May 4 2012
Ramberg Jan (2011), ICC Guide to Incoterms® 2010, ICC 2011 Edition