Managing Global Trade Operations - Jai Bharat Rice Mills and McSollan International, Inc - Case Study Example

Running head: MANAGING GLOBAL TRADE OPERATIONS Managing Global Trade Operations [Writer’s name] [Institution’s name] Managing Global Trade Operations Introduction India and the United States of America are the two designated countries for this report. Both the countries belong to two different regional trading blocs, i.e. India from the ASEAN–India Free Trade Area (AIFTA) and America from the North American Free Trade Agreement (NAFTA). The commodity chosen for the report is Basmati Sella 1121 White Rice which is grown in Northern Punjab, India. This is a well known rice type in America. Most of the American rice trading companies import this commodity in bulk quantities, and is widely consumed due to its high quality throughout the United States of America. Companies The two companies selected are as under: Jai Bharat Rice Mills from India. As an Exporter or Supplier Jai Bharat Rice Mills which is located in Kapurthala, Punjab in northern India. They are a rice processing and marketing company. Agriculture industry recognized them as a well known exporter of premium quality of Basmati Rice & Non Basmati Rice from India. Jai Bharat Rice Mills exports Basmati Sella 1121 White Rice to American and European countries in bulk volumes, approximately 35,000 metric tons in a year. This is the long grain rice having (6.61 - 7.5 mm) or very long (more than 7.50 mm and 2 mm breadth) in size. This type of rice originated from northern India at the foothills of the Himalayas. It is creamy white and golden in color. McSollan International, Inc. from United States as an Importer or Buyer McSollan International, Inc. is a USA based company, which is located in Washington State. They primarily deal in import and export of agricultural commodities, especially rice from India, Vietnam and Thailand to United Sates of America. Their yearly import volume is more then 10,000 metric tons. Their major imports are from India due to its good quality, competitive price, constant supply and on very attractive credit terms. Language of Trade Deals: Inco terms Incoterms abbreviated as “International Commercial Terms”. It is a set of rules designed and published by International Chamber Of Commerce, commonly used in international sales contract. It is an obligation of the buyer and the seller under the price quotation and sales agreement. Currently Incoterms 2010 are applicable to all modes of transport and were published on January 1, 2011 (Ramberg 2011). The number of Incoterms 2010 has been reduced from 13 to 11. Different Incoterms are Ex-Works, FCA, FAS, FOB, CFR, DAT, DAP etc.We have discussed EX-Works Incoterm in our report. Ex-Works (Named Place of Delivery) “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 terms 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 maybe at work, factory or warehouse ect) 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 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 documentations 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 are 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 custom clearing company on their own behalf. Mars Shipping Agency from India, a well known company in freight forwarding and custom 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 ware housing 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 sea port available in Kapurthala, Punjab.However; there is a sea port in Mumbai which is 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 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 infavour 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 arrival of the goods at destination It means that the advising bank demand for the payment from issuing bank upon the 60 days maturity. In this transaction, condition of letter of credit is “irrevocable” which is unable to be changed nor can any amendment be made unless both the parties agree. Payment Guarantee 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 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 infavour of the beneficiary by issuing bank upon the presentation of the necessary documents at maturity. The cost applied on the confirmation of 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 foreign bank. Financing Facility For the import and export business, different modes of financing will be made available by central banks and other private financing institutions at very competitive interest rates of every country. In India, many financing Institutions offer pre-shipment or post shipment financing facilities for export consignment to facilitate exporting companies, inorder to boost the trade of the country at a very reasonable markup. Jai Bharat Rice Mills has a very strong collaboration with Standard Chartered Bank India to avail pre-shipment export financing facility by mortgaging their Documentary Letter Of Credit. The bank grants them the funds at a very nominal interest rate i.e. not exceeding 0.75% over LIBOR for the period of 60 days. Like India, large number of public and private financing institutions including central banks offering different type of import financing facilities to trading companies in United States of America. McSollan International avail import financing facilities through Bank of America Merril Lynch. They open the documentary letter of Credit in the favour of Jai Bharat Rice Mills by mortgaging their business assets or providing financial guarantee for a period of 60-90 days for the net amount of L/C including bank service charges and interest rate for the quarter. Documents required for the Successful Transaction: The entire paper is based on Ex-works Incoterms.According to this Jai Bharat Rice Mills, as a supplier has to furnish the following documents in order to attain the payment successfully from the bank at the maturity date i.e. 60 days which is also mentioned in the sales contact. Commercial Invoice Packaging List Certificate Of Origin Price List. References 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 Read More