Welcome to WCS Trade Blog. Here we will provide you information about correct trading practices, news from the trading world, books that we're reading and tid-bits that we've have learned about international trade and that we hope will be useful to you.
Happy and Profitable Trading!
written by WCS at 04:37 AM on January 08, 2010
Intermediary Trade Issues
GLOSSARY OF TERMS FOR WCS AGENTS
SUPPLIER
A person who owns or has possession of goods being offered. Intermediaries can verify that the person has possession of goods by simply asking upfront if they “have possession of goods being offered”. In addition, intermediaries need to question the “supplier” if the offer or RFQ implies payment terms other than “NON TRANSFERABLE DLC”. All suppliers need to accept a non-transferable DLC as it relates to the proper payment application for intermediaries.
BUYER
Intermediary - buying goods from a supplier without taking possession of
such. WCS “buys” goods and “sells” them to end-buyers. In a buyer/seller situation, the buyer takes title of the goods by securing a supplier first, then securing an end-buyer to re-sells such goods using the money (DLC) application from the end-buyer. Intermediaries need to understand that the end-buyer takes physical possession of the goods while the buyer takes title only.
END BUYER
A person who is accepting both title and physical possession of the goods. Intermediaries are not end-buyer’s, they are buyers and sellers in their own right. Intermediaries will use the end-buyer’s Transferable DLC to pay for the goods being offered by transferring the credit to the supplier and keeping the difference as commission (minus bank expenses). Once the end-buyer side of the deal has closed successfully, that is, OFFER ACCEPTED/RETURNED, CONTRACT SIGNED AND SEALED and DLC ISSUED into the bank of the buyer, the sell side will close relatively quickly.
SELLER
Intermediary - A person who has no possession of goods being sold or offered. However, the seller is the person offering and selling the goods to the end-client who is opening the transferable DLC. End-buyer’s should always deal directly with the seller (the intermediary buyer/seller group) who is ultimately transferring the title & physical possession of goods being purchased. The supplier should be dealing with the buyer only (the intermediary buyer/seller group) who is ultimately transferring the DLC portion of the transaction into the bank of the supplier.
INTERMEDIARY “SELLER/BUYER”
A person who may not be accepting possession, or obtain possession of goods
being sold or offered, or using their own money to pay for the goods. An intermediary can be simply defined as one who deals in documentary title and not possession of goods. An Intermediary specifically acts in deals, what is often a two party deal, where the intermediary becomes the third party in such a deal to facilitate negotiations and ultimately close the deal in lieu of a commission payment that is defined as the difference between the sell and buy price minus extraordinary bank expenses. In physical commodity trade applications an intermediary is a unified term defining that the person is buying goods from a supplier as a “buyer” while at the same time selling such goods to an end buyer as “seller” is considered an intermediary definition – in practical terms –
ASWP
“Any Safe World Port” is often a term used by misguided intermediaries
when giving cost of goods with freight cost applied. The acronym means that cost of freight is the same regardless of distance. For example, a CIF ASWP deal means that the goods being purchased cost the same if delivered within 50 nautical miles or 8000 nautical miles. Intermediaries need to address this term immediately when presented in an offer or RFQ and ask for an explanation. Most often than not, when ASWP terms are reflected the offers are fake. Please beware of such an ill acronym.
RF:
The deal is not worth the effort to transact upon. Not even worth considering and should be trashed immediately. Such a deal often presented by misguided intermediaries who simply don’t know how to trade at all, and is following the blind edicts of others.
P.O.O.P.:
Perpetual offer orbiting the planet. Intermediaries who hunt down internet offers will find 90% of the time P.O.O.P offers. Legitimate offers are found through DD and proper applications. Internet traders are mainly misinformed intermediaries following a “buzz” or someone who knows someone who might be looking for something.
STEP BACK:
Intermediaries step back to the middle Controlling “Buyer/Seller”. One of the skill sets of successful WCS intermediaries is the persuading factor of making others in the chain “step down” or step back. As a golden rule of commodity physical trade the more intermediaries involved in a deal the less the chances of closing such a deal. Most all of the intermediaries will face a strong “hold” when trying to persuade others to step back to them. This is not new to the industry as everyone is trying to earn a piece of the commission. WCS will issue IPG’s (Irrevocable Payment Guarantee) to anyone involved in the deal once the contract stage has been reached so everyone is protected and comfortable at all times. The goal is to create a uniform group – the buyer/seller group - to act on behalf of everyone protected and to lead the deal into terminal failure or success has been reached. More on stepping back procedures on the manual.
UCP600:
Uniform custom and practice for documentary credits publication 600.
After July 2007 UCP500 will immediately cease being the applicable bank
application for matters pertaining to the rules of issuance involving the use of
UCP600 financial instrument. Financial instruments are “Letters of Credit” that
the Intermediary must secure from an End Buyer of goods being offered. The
UCP600 rules are international applications that govern the way such letters of
credits are secured and transacted upon. This means that once the
Intermediary secures the financial instrument marked accordingly with the term
“UCP600 applied” from an End Buyer then such rules take over in governing
the trading application in matters of payments for such goods being purchased
and sold.
L.O.I:
Letter Of Intent (wrong use of term). Most misguided intermediaries get the LOI application confused and thus misused during the early stages of the trade deal process. LOI is another flawed and unworkable application in the intermediary trading process. Others such as “B.C.L” (Bank Comfort Letter); “P.O.P” (Proof of Product) “N.D.N.C”, (Non Disclosure and Non Circumvention Agreement) and “M.P.A” (Master Pay Order for Commissions) are also not applied to intermediaries trading under proper applications. Most importantly – they are not even enforced by international courts. If you are reading this manual you have already been exposed to all the ill terms just mentioned and have probably dealt with them at a level. Many deals in the industry fail because of such misguided terms being or trying to be applied under trading process. The reality is that those terms are not applicable today and will cause the deal to delay and most likely to get dropped. The truth being told is that “LOI” stands for “LETTER OF INDEMNITY” and has no application for intermediary use.
M.O.U:
Memorandum Of Understanding is not so often used as the LOI application but is similar in practical meaning. It is often seen applied in an investment or
construction contract applied abroad of which Intermediaries shall not trade in
such deals. Such applications are not suitable for Intermediary use at WCS.
PRO FORMA INVOICE:
The Pro Forma Invoice is another ill application that intermediaries get confused. This application is not sutaible for bulk shipment sales in international trade transactions.
PRINCIPAL:
The Principal is the person leading the deal. The principal will control the situation at all times, will direct the situation, will inform others involved, will never count his money first and will always help and assist. In short, the Principal is the one who is protecting everyone’s interests and commissions at all times. Examples of Principal are: Buyer/Sellers, Suppliers and End-Buyers.
DELIVERY:
For intermediary use the term “delivery” pertains to document presentation and may also mean “title” or a “leading” document presentation for goods being transacted upon.
SOURCING INTERMEDIARY (SI):
A sourcing intermediary (SI) is one who only assists within the whole “String Contract” application, in finding a Supplier or an end-buyer. Intermediaries at WCS are most often than not Sourcing Intermediaries who are protected at all times by WCS. A sourcing intermediary finds suppliers and or end-buyers and passes the information to WCS for proper review and confirmation. Once WCS confirms that the sourcing intermediary has successfully sourced either a supplier and or an end-buyer they will receive further steps to follow so a deal can properly become in active. Sourcing intermediaries are skillful and informed agents who understand proper applications and are willing to step back so that WCS can assist them in closing a transaction.
SELLER SIDE & BUYER SIDE:
Intermediaries often use such terms to relate to the trading path. If SI has sourced the supplier then it is said to be on the “seller side” as it relates to the goods being sold. If the SI has sourced the end-buyer it is said to be on the buyer side.
BACK TO BACK:
For intermediary use – back-to-back procedures are advanced applications that only well informed and experienced traders should attempt. All WCS representatives should transact using bank used transferable financial instruments.
SLC:
Intermediaries should use the “Stand-by Letter of Credit” to pay commissions and Performance Guarantees (PG) and not for the purchase of goods. The SLC is allowed to be transferred many times among intermediaries and can be refered to as “ISP98 SLC”. However, a SLC defined as “UCP600 SLC” can only be transferred once from the buyer/seller to the end-buyer as issued from the supplier and must be marked as “Transferable”.
IDLC:
“Irrevocable Documentary Letter of Credit”. Irrevocable means that once accepted by the buyer/seller the DLC can not be cancelled.
PA TIDLC:
“Pre Advised Irrevocable Transferable Documentary Letter of Credit”. Pre advised refers to the credit being operational but not yet active. The credit will become active once a precondition occurs under UCP600 and once the credit becomes active it should be transferred as irrevocable to the supplier as a non-transferable instrument.
CIDLC:
This terms refers to “Confirmed Irrevocable Documentary Letter of Credit” where a credit is issued as “confirmed” is the highest credit the intermediary can have to close on the deal.
TIDLC:
Transferable and Irrevocable Documentary Letter of Credit. For intermediaries there is no other way to trade correctly than to accept a TDLC from end-buyer. Under UCP600 the term “transferable” must be apparent on the credit being accepted. For example, the end-buyer issues the TDLC to the buyer/seller > the buy price is transferred to the supplier as a normal DLC > keeping the difference as commission payment.
L/C:
This terms refers to Letter of Credit. Intermediaries should only use L/C to make commission payments as it can be revoked.
REVOLVING CREDIT:
“Non cumulative TIDLC” is the payment instrument intermediaries need to issue, where the issuing bank needs to (and agrees) to honor revolving status on the credit for multi shipment deliveries.
P.P.I:
“Policy Proof of Interest”. The internet often misuses this term to mean “P.O.P” or “Proof of Product”. The term refers to your “interest” because the whole transaction is in your interest – meaning that the goods are being secured prior to the offer being issued and what’s actually being assured. “Proof of Product” can not be given before the contracts are signed and sealed by the end-buyer because circumvention can occur. For intermediary use, the “P.P.I” certificate is written in the body of the contract as a blank and the buyer/seller will fill it out once the irrevocable financial instrument has been secured and confirmed. Therefore, the buyer/seller will issue the contract stipulating that the P.P.I will be disclosed only after the financial instrument has been advised and accepted by the buyer/seller. Then, the blank document will be filled out by the buyer/seller and will be returned to the end-buyer with the information requested.
ADVISING BANKS:
The buyer/seller bank is the advising bank.
ISSUING BANKS:
The bank of the end-buyer issuing the irrevocable DLC is the issuing bank.
ACCEPTING BANKS:
The bank of the supplier is known as the accepting bank.
DOCTRINE OF STRICT COMPLIANCE:
This term defines the prevailing application with dealing with physical commodity trade – no short cuts allowed as you need to follow procedures to the best of your abilities at all times.
Is an NCNDA worth the paper is written on?
written by WCS at 06:53 PM on January 13, 2010
Intermediary Trade IssuesIf you're involved on international trade, you have come across the ubiquitous NCNDA, very likely from an intermediary that downloaded a free template from an Internet site and wants to send it to you before disclosing the name of his end buyer, that is ready, willing, an able to shed millions of dollars to buy your product. At this point you're wondering, what is an NCNDA and why do I need it?
NCNDA stands for Non-Circumvent Non Disclosure Agreement and it is used for intermediaries to prevent the buyer and seller from dealing directly and thus protecting his commission and contacts. Although there are many samples floating around the net, an official copy can be bought from the International Chamber of Commerce at this site: http://store.iccbooksusa.net/modelinternationalcommercialcontracts.aspx
Here is an example of a typical letter you can find at many international trade forums:
Dear Sirs, I need your help regarding to the following situation: I am international trade broker and I signed with my seller an NCNDA for a transaction that we were to start. The problem is that the seller contacted the buyer directly, and instead of doing the transaction through me they are now dealing directly. The seller informed me that he won't be paying my commission. Please help me fix this problem, what do I need to do to get my commission. Is there a site where can I report frauds of this kind? Thank you very much.
What can you do in a situation like this? Plenty, if you have plenty of money laying around to sue the seller for breach of contract. A visit to the ICC Arbitration Court Calculator (http://www.iccwbo.org/court/arbitration/id4097/index.html
Of course, you can do that if you know that you have been circumvented, it is more likely that you will receive an e-mail telling you that the deal fell through. How are you going to prove otherwise?
What then can you do as an intermediary to protect your commission and contacts?
1. Earn your commissions and contacts! Become an expert on international trade procedures so that you can control the deal and bring value to the buyer and seller.
2. Never put the seller and buyer together. How do you do that? Read No. 1
3. Form long standing relationships with your suppliers and buyers and work with people that value the knowledge and contacts you bring to the table. How do you do that? Read No. 1
A good way to start learning the ins and outs of international trade is to attach yourself to a reputable trading house as a sourcing intermediary until you learn to trade independently, but a reputable trading house will expect you to have some knowledge, so to start you in that road, I recommend you read International Trade and the Successful Intermediary
Once you finish the book, start forming close relationships with suppliers, keep reading and keep practicing.
LCK
written by WCS at 03:23 PM on February 24, 2010
MARCH BLOG WILL BE POSTED ON THE FIRST WEEK IN MARCH
BLOG SUBJECT: INTERMEDIARY PROTECTION
LA
