BF3212: Draw a comprehensive flow chart indicating a corresponding timeline detailing every stage of the transaction: Trade, Structured & Supply Chain Finance Case Study, NTU, Singapore

Questions

You are an independent observer

1. Draw a comprehensive flow chart indicating a corresponding timeline detailing every stage of the transaction – physical, documentary, and financial events – as mentioned in the Case Study, showing the linkage between EM, all service providers, IDs, and ultimate buyers in the Country A. Your flow chart should reflect the profiles of EM and IDs as described

2. Given the contractual arrangements and market description, what are the contractual and risk implications to EM and IDs if the Incoterms agreed between EM and all IDs were uniformly changed to CIF Port of Discharge in Country A? You are appointed Business Advisor to EM (Questions 3, 4 and 5)

3. Given all the arrangements as laid out in the Case Study (as illustrated by the flow chart prepared in response to Question 1), till which point of time/event occurrence should EM retain the title (as in ownership) of the goods transacted? Explain your choice of recommendation

4. As is evident from the description above, the bills of lading will be issued in Liner format showing the transit only between the ports of loading and discharge. To best protect EM’s interest in the event of any mishap, how should the bills of lading be made out in regard to ‘Consignee’? Choose one of the three options listed below.

a) ‘To Shipper’s Order’ and blank endorsed by EM on the reverse side of every original BL

b) ‘To order of ID’

c) ‘ID’ with their address as stated in the contract between EM and ID. Explain your choice

5. Assuming EM values and wishes to retain the collective business offered by IDs in Country A at current levels of profitability and given the competitive situation in both countries, what steps should EM undertake to protect the trade flow from competitive approaches from other EMs in Country B or elsewhere? Frame your response in terms of a trading strategy. Please outline any contractual changes you may wish to suggest, stating the assumptions you choose to make.

Case Study

An importer-distributor named ID1 in Country A enters into a contract with an exporter manufacturer named EM in Country B.

Incoterms are FOB named port of loading (in accordance with INCOTERMS 2020). Goods packed in containers are to be shipped from the sole port in Country B to the sole port in Country A. It is ID1’s responsibility to ensure empty containers are readily at the disposal of EM in time for the contracted shipment to occur. Once the ship departs the port of loading in Country B, it arrives at the port of discharge in Country A generally in 17 days.

As proof of performance and while the goods are in transit, EM immediately sends shipment documents through their bank to ID1’s bank in Country A. Shipment documents include:

• EM’s commercial invoice
• Certificate of Origin issued by a Chamber of Commerce in Country B
• Full set original BLs
• Packing List detailing contents of each container
• Quality Certificate issued by a third-party inspector certifying all goods are in accordance with contract
• Copy of email shipment advice sent by EM to ID1 within 24 hours of vessel sailing from the port of loading

ID1 arranges marine cargo insurance with a local insurer to adequately cover the value of goods shipped (usually 110% of FOB value + freight + insurance premium)

EM has agreed to grant ID1, a credit period of 60 days counted from the date of shipment at port of loading. Consequently, the shipment documents are accompanied by an instruction from EM’s bank to ID1’s bank to obtain from ID1 a legally enforceable, written and signed Payment Undertaking attesting to the following:

a) ID1 has taken custody of all shipment documents as received from EM through ID1’s bank

b) ID1 has examined the shipment documents and find them to be complete and in accordance with contractual arrangements with EM

c) ID1 accepts the legal and contractual responsibility to pay the full value of goods as invoiced on or before the designated due date

d) Any delay in settlement of full payment by ID1 will incur penalty interest @10% pa for the outstanding amount and afford EM the right of legal recourse against ID1 should EM choose to do so

e) All payments made by ID1 to EM to be routed through the same banking channels used for the presentation of shipment documents. All banking charges of ID1’s bank shall be paid by ID1

Case Study (continued)

After receiving access to the original bills of lading, ID1 takes delivery of the goods from the shipping company at the port of discharge. Such delivery at port of discharge is to occur not later than 3 days after the date of vessel arrival. ID1 pays in full the container freight amount to the shipping company before the containers filled by EM are released.

ID1 transports and unpacks containers for the storage of goods in a dedicated warehouse. ID1 proceeds to distribute the goods domestically on cash-against-ex-warehouse delivery, collects payments from ultimate buyers, consolidates amounts, and ensures EM is paid by electronic transfer on the agreed due date. EM chooses to be fully reliant on ID1 for settlement of payment at the end of the agreed credit period.

EM has identical arrangements with ID2, ID3, and ID4 – all located in Country A. Together with ID1, the four importer-distributors always receive their shipments at the same time, on the same ship, same goods. Quantities ordered in terms of the number of containers by each ID differs in accordance with the size of demand in the market each of them serves.

ID1, ID2, ID3, and ID4 jealously guard their market share because all four distribute and sell within Country A but different regions with no overlap. EM does not favor one importer-distributor over any other. Other exporter-manufacturers in Country B and elsewhere are constantly attempting to induce the four IDs to shift their purchases to them but have been unsuccessful so far. Assume the quality of goods manufactured and exported by all EMs is uniform.

Although EM has chosen to restrict exports to Country A to the extent of the demand from ID1, ID2, ID3 and ID4, there is potential to expand volumes by recruiting more IDs as buyers