The Well Groomed Trader

Good day,

This is an important topic one that I’ll flesh out increasingly more later. I deal with similar confusions, important vital confusions that can cost you your deal and even cost you a good deal of money, in my eBook - Trade Fraud, Financial Fraud, and the Joker Broker - available at http://www.importexportscam.com.

One of my agents has been negotiating some matters with an intermediary firm that is sourcing sugar for their end buyer. While normally I would not disclose details about the Sugar our principal, FTN, markets in this case my due diligence indicated the company in question may be a good prospect. The individuals were interested in the product and our prices but kept asking for a soft offer and objected to several of our procedures.

The issue of “soft offers” is something that has popped up increasingly, so I will use this group’s objections and my response as an informational aside.

Initial background:
1. FTN refuses to directly issue offers to the attention of
intermediaries. All offers are issued to the end buyer only, on the
Intermediary giving assurances he will “step back” and disclose his
buyer in return for our protection of his interests and a
commission.

2. FTN refuses to issue any offers period, except at its discretion,
to end buyers or anyone without first receiving a properly advised
RFQ clearly detailing the buyers needs wants and contact
information.

This policy is a recent one and is mainly because out of several thousand attempted transactions with intermediaries working outside our group, in particular those who have not read ITSI or FYBR, the vast majority of cases have been utter time wasters. Brokers incompetently shopping around FTN offers, and in many cases altering our offers to reflect their own desired terms and then presenting these altered offers, not realizing their alterations seriously damages the offering and its terms.

I was given some limited scope to draft my own quotes and negotiate prices on these quotes within a range, a the range differs from deal to deal and product to product. I pass these quotes to mentored coached agents working with us, or to a small circle of trusted personally trained individuals gathered over several years. These quotes are given to buyers or others outside our circle to determine interest and present the goods, an RFQ (not LOI, not ICPO or other nonsense) is expected in return, after which an offer may be drafted at FTN’s sole discretion.

This buyer’s agent repeatedly requests a soft offer. My response is you have our quote, you also have given a partial RFQ, but for a firm offer we need you to agree to step back to your buyer, after which FTN will draft an offer, we will present it to you and you must present it to your buyer directly without alteration for buyer’s acceptance.

My stating there was no such thing as a soft offer brought the major objection from buyer’s agent:

Buyer’s agent objects:

“I am more confused about that it is so difficult to obtain any kind
of offer from you. You have not showed any sign that you actual
can supply.

I have 23 years experience in international trade, out of a family
having 50 years experience on top of that and believe me- a quote
and a offer is the same ! Only to advise an offer after a quote has
been mutually agreed – sorry but makes no meaning !

A offer ( soft or subject to final confirmation ) is only to be
finalized when deal is done. ”

My reply touched on these points as follows.

- There is no such thing as a soft offer, soft offers do not exist.

- All offers are subject to final approval, offers are not subject
to final confirmation however quotations are.

Davide Papa’s International Trade and the Successful Intermediary (Ashgate Press/Gowar) makes clear the differences between an offer and quote. For further reference Clive M. Schmitthoff ’s The Export Trade, 9th edition, explains these matters as they legally pertain to International trade in an unambigious manner. If you object, then realize Schmitthoff was the 20th century’s foremost trade lawyer.

However any competent practicing trade attorney can verify the substance of my stance, even if she quibbles in a detail or two.

- This is a legal matter - in Contract law Offer and acceptance are well defined, offers indicate willingness to contract on certain terms, the intention being that it shall become binding as soon as it is accepted by the person addressed, the offeree.

Offers must be accepted exactly as presented, without modification.

Any modification is technically a counter-offer and destroys the original offer. This must be understood. However requests for additional information and clarification do not constitute a counter offer.

- Now, it is true that under USA UCC there are some differences in how offer acceptance binds. The UCC allows definite expression of offer acceptance, or written confirmation of informal agreements, to constitute valid acceptance even if additional terms are stated, or different terms from the initial offer or agreement are stated.

Such additional terms are then treated as proposals for addition into the actual ruling contract and in effect become part of the contract unless the initial offer specifically limits acceptance to the offer’s terms (and I will cover this on later with Purchase Orders), or notification of objection to the such terms is presented in a reasonable time frame, and under certain other conditions.

- The conditions defining an offer of sale include price, delivery date, payment terms, and detailed fair description of the product or service, including condition and quantities. Offers can be revoked prior to acceptance, as long as it’s not encapsulated in an option, by sufficient communication to the offeree.

- You can literally write a valid offer with a bic pen on a roll of toilet tissue if you wanted to, and it would still be binding. This however would be more than a bit silly.

- Under USA UCC codes, British Common law, and well as trade law as recognized by the EU and United Nations, quotes and offers are two separate undertakings and offers are binding under acceptance.

Legally just about everywhere a quote is regarded as non binding (with a few minor exceptions under certain conditions, in certain domestic environments such as the USA, in which explicit indication is given).

For this reason there is no such thing as a soft offer, in spite of the occasional usage of this term by some traders, by law all offers are legally binding per and subject to the terms and conditions advised.

Purchase orders (subject of a later newsletter) are similar to offers in this regards. Offers universally are binding at time of acceptance. Under British law such acceptance doesn’t even need to be advised at the time of acceptance, legally it is still binding - under US law such acceptance does need to be advised, once done it is mutually binding. Either way a formally accepted offer is binding on all parties, in the same way that a contract is.

This MUST be understood, offers create contractually binding conditions. Ergo soft offers do not exist, the word offer has specific legal definitions. Again, any trade attorney can clear this up or consult Schmitthoff .

This is why there is no such thing as a “soft offer” - the phrase soft offer may be used informally in certain areas but this is a non standard usage and therefore avoided to prevent ambiguity due to non standard/non defined terms.

Again, to reiterate by law all offers are legally binding therefore in reality a “soft” offer does not exist, while soft non binding quotations can and do exist.

These details are important to understand, do not underestimate their importance.

If you want to learn more about safe trading and how NOT to get scammed or defrauded.

If you want to learn the art of due diligence in trade or private investment opportunities, check out my unique guide - “Trade Fraud, financial fraud, and the Joker Broker”

Only available at http://www.importexportscam.com

It could be the difference between making thousands of dollars in commissions, or losing thousands of dollars and winding up in a jail cell

Until next time,

K. J. Southall

The Rotterdam Rules.

If you’ve been keeping up with the world of shipping you have no doubt heard the buzz about the Rotterdam rules. But what are they, and what are their implications for intermediaries?

The Rotterdam Rules is informal nomenclature for “United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea” - more than a mouth full, no doubt. It is a Resolution adopted by the UN General Assembly embodying new rules revising the overall framework underlying maritime carriage.

The aim of the convention is “harmonization and unification.” As such creating, essentially, a uniform regime of governance, in laws of International Trade pertaining, primarily, to the rights and responsibilities of consignees, carriers, shippers, and other parties engaged in the transport of goods by sea.

Intermediaries are primarily consignees in string contract style deals (as Davide Papa points out Buyer/Seller’s), therefore the rights of such Intermediaries are affected by this new convention and it is important to eventually familiarize oneself.

Readers who are lawyers or freight forwarders have an even more present need to understand them.

Important points the rules cover:

* The rules eliminate the previous “nautical fault defense” which prevented carriers and crewmen from holding liability in matters of negligent ship management and navigation.

* The period of time carriers are responsible for goods will be extended, covering the period between the goods’ reception to the point where the goods are delivered. [remember the correct definition of delivery]

* The rules increase carriers’ per shipping unit or per kilogram limit liability.

* The rules approve many more forms of electronic documentation, and better allow for increased e-commerce.
* The rules require carriers to retain seaworthy and properly crewed ships throughout the voyage.[thankfully]
* The rules extend by 2 years the time during which legal claims can be filed.

The focus on Electronic Documents is important, and the Rotterdam rules pay special attention to promoting Electronic Bills of Lading. It is important to realize that the rules contain actual new definitions that must be understood.

These definitions have direct contractual implications. Intermediaries in the bulk trade should pay close attention to the matter of nonlinear transportation.

Essentially the Rotterdam Rules are designed to harmonize and bring conformity to Wet Multimodal contracts of carriage. In today’s mostly containerized world a significant percentage of carriage is effectively intermodal, involving containers carried by sea (wet) and then along various legs by land through train or truck.

The intermodal trade being organized by a large number of overlapping and at times conflicting unimodal as well as maritime conventions, many costs and confusions about liability occur. The Rotterdam rules are designed to streamline these matters.

By contrast, critic points of contention in the International community, the Rules are often consider to have been hastily drafted and implemented without proper consideration, over arching in their ambition, and ignore existing Hague Visby Rules and CMR, which could easily be updated.

Moreover they hold many unforeseen, it is argued, points of impact on the day to day business of Ship-owners and Shippers.

Contractual duties and rights explained in the convention are replacing or modifying prior edicts and doctrines, such as the Hague Rules, Hague-Visby Rules, Hamburg Rules. In all they aim at making uniform provisions of admiralty law apply to maritime carriage. As I previously noted these rules were designed with Intermodal shipping in mind, so naturally it clarifies and includes greater protection in matters of “door to door” deliveries.

The UN’s hope was that these rules will give world trade a boost, since 80% of trade is at least partially maritime, harmonizing the regimes of sea regulations, it was hoped, would make it easier to conduct. It still waits to be seen if this will be the case.

Most countries have signed it though local ratification in parts of North America and a few other jurisdictions have not yet occurred.

It is important though not essential for an intermediary to gradually Familiarize oneself with the Rotterdam Rules. SMICE/FTN doctrine following traders, of course, will already be implementing a flexible and rigorous doctrine of trade that allows the disciplined contractual inclusion of such conventions if necessary.

Kind regards,
K.J. Southall

Author of  “Trade Fraud, Investment Fraud, and the Joker Broker” available at
http://www.importexportscam.com

Good day, this is an answer to a question posed by a newsletter reader, hopefully you find it beneficial.

Question:
“The first commodity that we have targeting is Copper Cathode Sheets, most suppliers of whom seem to
be selling per MT at between 5 - 25% less market price on London Metal Exchange, does that sound right?
I have been in correspondence with a Mandate for 2 different mines that produce Copper Cathodes, and they
are asking per MT 25% less LME, FOB Dar es Salaam Port. End Buyers also seem to be asking for CIF prices
of between 5 - 25%, does that sound right? A couple of Buyers that I have corresponded with have a target
purchase price of 15% less LME.”

Reply:
{For further background, see my course-book on Fraud “Trade Fraud, Financial Fraud, and the Joker Broker” at www.importexportscam.com - Copper Cathode fraud is covered in it. Also see Intermediary expert, Davide Papa, at his allexperts forum.}

Where are the mines located? Konkola production is shipped to Dar es Salaam, so I suspect the mine in question is Konkola. All of its smelters are in Zambia, to move product from Zambia to Tanzania involves fees for trucking, inspections, fuel surcharges, etc., 25% below LME is not realistic for reasons I’ll go into.

- LME prices are speculative futures: they may be close to, but not identical by any means, with actual world physical delivery prices.

- If anything, the actual physical prices should be MORE than LME: not in every case, but in most cases. The LME copper specification is in lot sizes of 25 tons (roughly equivalent to 1 FCL) typically futures contracts if physical delivery is available as an option accept FOB delivery upon a truck or rail card, per the lot size, and include these basic expenses.

In a true physical export deal you have additional expenses calculated into the end price, from truck loading of the cathodes at the foundry docks, trucking and/or railway to port, unloading from rail car or truck, loading onto ship, documentary fees and inspections, and so on.

-Also added to this, is the fact that physical copper is an increasingly scarce commodity and a good deal of the world’s physical copper is consumed by China under extensive long term supply contracts, which creates additional scarcity.

So if anything under normal circumstances the prices of copper cathodes should normally be somewhat higher than LME. This is not an iron clad rule, but exceptions would not be common, and would relate to very rare circumstances. This should be considered.

25% under LME stretches credulity severely. This also should be considered.

As for the mandates, have they documented their mandateship? In FTN’s doctrine, under which all FTN’s SMICE agents operate, we do not proceed further with a claimed mandate until such a mandate has verified his mandateship (see the appropriate section in URPIB) - a true mandate has nothing to fear from actual circumvention, if he fears circumvention he’s not truly a mandate though he may still be in front of the supplier, or casually representing the supplier. Mandateship is a restricted term that designates an advanced level of trusted agency, a mandate can be
dealt with as the end supplier, essentially fully representing that supplier but the supplier should be able to openly verify and vouch for the mandate fully.

Conclusion:
25% off LME is an unrealistic price and highly likely to be incorrect, verify the mandate status of the mandates with whom you are dealing and ascertain whether or not they truly do represent the mines with whom you wish to del.

Being aware of the immense demand for this commodity, the probability is that this is a “deal too good to be true.”

If you are interested in being able to more easily detect any kind of trade scam, and better find real product and real buyers, I invite you to look at my “Trade Fraud, Financial Fraud, and the Joker Broker - available at http://www.importexportscam.com

Take care, and until next time,
K.J. Southall

This is an important topic - so we will keep it short and sweet. For more insights on this, see Davide Papa’s International Trade and the Successful Intermediary.
ITSI is available at Amazon.com.

My small e-course - “Trade Fraud, Financial Fraud, and the Joker Broker” may also be of assistance, I invite you to check it out at http://www.importexportscam.com

In my newsletters I’ve mentioned before that when it comes to letter of credit transactions, and indeed as a general rule, Banks only deal in financial documents and instruments - not in principal contracts or their underlying obligations.

In essence, Banks deal in finance not contracts. This is a critical point to remember.
This can be refined as “banks deal in documents not goods”.
Banks do not deal in proof of product, banks do not deal in verifying a trade partner, or ensuring their compliance to contract provisions.
Banks deal in matters of finance and supporting financial documents.

This is the principle of independence dealt with in the UCP as drafted by the ICC

If you do not believe me See UCP 600 Article 4 EXPLICITLY states that:

“A credit by its nature is a separate transaction from the sale
or any other contract on which it may be based.”

Therefore, and please focus carefully on this statement, the bank in issuing an L/C has no concern whatsoever remotely with any of the obligations of the seller (as beneficiary) or the buyer (as the credit applicant) in the underlying contract.

Whatever underlying contract between beneficiary and applicant, the bank should not and does not care, and will not care.

The application of this to fraud should be obvious. But let’s look at it:

As long as no explicit, on the face, signs of fraudulent intent are evident for a seller, then she will get paid by the bank, no matter what, if she presents the proper documents in the proper time frame.

This has been pointed out and bankers all over the planet will affirm this, but in spite of this I do still get questions now and then on this matter, so I it explicit.

The bank does not concern if your seller actually performs.

You can choose not to believe this if you like, the fact is that this is the case.

FOR THIS REASON BANKS WILL NEVER TRANSMIT PROOF OF PRODUCT.
Therefore the procedure in which a bank transmits POP via swift is pure nonsense. It is just pure joker broker nonsense, period. Just take the time to talk to a bank manager and he will echo this.

Is it remotely possible that in some irregular cases in a few parts of the world a particular a bank, with particularly good relations with a
client, might do something like this from time to time for that client?

Sure. It’s possible. It is not the norm, anyone who says it is, is ignoring facts.

Breach of contract is not the bank’s concern, unless such breech seems fraudulent - in which case fraud has to be all but established, and not just suspected.

Again, fraud cannot be suspected, itmust be evident on the face.

In cases of Performance Bonds, for example, such Bonds are payable ON FIRST WRITTEN DEMAND, in stating that the seller is in breech.

This is sort of an honor system thing. Research it closely. PB are trivial to trigger a payment on, and this happens all of the time in the trade. International law cases are full of such events.

This must be considered very closely and understood on a deep level.

Take care, and until next time,
K.J. Southall, author of “Trade Fraud, Financial Fraud, and
the Joker Broker’ at http://www.importexportscam.com

This will affect your trading in the near future.

We are all familiar with Incoterms - International Commercial Terms - the uniform set of customary delivery contract terms such as FOB, CIF, C&F CFR and so on.

Few realize that these delivery terms are actually hundreds of years old, evolving out of the practice of the “Law Merchant ” - the private trading law that merchants developed and used in the middle ages that eventually evolved into the various trading law bodies of modern nations and the doctrines of the ICC.

Incoterms were formally codified in 1936, in order to smooth out growing usage differences and standardize shipping terms variants
worldwide, with the rise of new shipping technologies (the US was infamous for the creative ways in which one term alone - FOB - was used)

Incoterms 2000 is the most recent revision, each revision being named after the year of its release.

Constant revision occurs in light of new trading realities.

Examples of such new realities include containerization, charter parties, development of inter-modal transport utilizing ships, railways, motor-truck transport of single cargos, changes in the nature of piracy, terrorism, and increasingly in the 21 century, international governance.

(Of course this last factor can be viewed, from some perspectives, as unfortunate, due to fears of loss of sovereignty, and fears that centralized global governance is less amendable to local variation based on local needs and established practice)

In any case, an upcoming revision of Incoterms 2000 is on the horizon. This revision is often referred to as “Incoterms 3000″.

The new name scheme being adopted to forestall expectations of a revision every decade

(note, though, that Incoterms 3000 actually is being drafted 10 years after the release of Incoterms 2000 - but who wants to be stuck in the proverbial pigeon hole of expectations?)

The most recent word is that the name Incoterms 2010 may end up being official. Either way, as Incoterms 3000 or Incoterms 2010, monitoring these developments is important for traders, lawyers, agents, and anyone in the industry.

The ICC’s drafting committee indicates that the revision should be released fall of 2010 and take effect January 2011.

Davide A. G. Papa, noted commodity trader trade educator, and author of “International Trade and the Successful Intermediary” (publsihed by gowar / Ashgate and available from Amazon.com) has commented on the first set of draft changes, and will likely issue public comments as the drafts reach maturity.

The current batch of drafts and comments should be submitted for a primary round of approvals May 2010. Changes in the current
drafts could widely affect an intermediary mode of business.

Some likely changes include a new delivered “D” term being introduced, to reduce the ambiguity now existing with DES, DDU, DEQ and so on, changes to required percentage insured value of goods in CIF and CIP, the maritime only terms, FAS, FOB, CFR, CIF are properly being singled out for emphasis as maritime only.

Some of these structural changes reflect a desire for greater harmonization with the UN’s newly adopted - but un-ratified - “Rotterdam Rules”.

ICC doctrine revisions are critical to keep track of. If you are involved in the world of trade you must keep your eyes open here.

As Davide Papa has noted in his works ICC edicts are often NOT friendly to intermediaries and knowing the many nuances gives you fodder to contend
with attorneys and bankers in protecting your interests as a trader of intermediary.

Also on the horizon are updates to L/C banking practices relating to proceeds assignment, transferable credits, revolving credits, and installment drawings, installment shipments, and updates to the IBSP.

IT IS CRITICAL to grasp and understand the new Incoterms as fully possible once released.

These are binding contracting terms - each term is a contract - explicit inclusion in an offer or contract binds all parties to the entirety of contractual obligations defined in, for example, “FOB” as far as risk passing, title passing, who pays for what documents and so on.

Understanding fully all matters of risk and title in the goods you are dealing with, all obligations as far as which party does what, is critical to avoid frustration in a deal and creeping confusion in multiple documents leading to “the battle of the forms” - misunderstanding these matters can lead to very expensive mistakes.

Regards,
K. J. Southall, FTNX/Verde Distributing Ltd.
Author of the essential guide to avoiding to fraud and scams -

“Trade Fraud, Financial Fraud, and the Joker Broker”
at http://www.importexportscam.com

One question that many prospective traders and brokers ask is “when does a MT 103 get used?”

The answer may surprise you..

It doesn’t matter. Honestly, go talk to any banker. SWIFT MT103 is the format of the internal SWIFT Message Type code designating a wire transfer, also commonly known as a TT transfer (tested telex, tested teletype - KTT is not a term widely used in the banking world), or a Swift transfer, or a Bank Wire.

A Conditional MT103 - does not exist. There exist plenty of bankers who will readily attest to this.

I will not lie to you, I have spoken to career international bankers in the business for decades, there is no such thing as a conditional wire transfer based on some documentary conditions. Conditional payment modes are Documentary Letter of Credit, and Documents against Payment. Period.

Now, a wire transfer may be used in remittance in one of these two other modes, of course. After all, somehow one institution needs to transfer funds for collection by a beneficiary at another institution.

But conditional MT103 do not exist, anyone arguing otherwise is misinformed.

So, an MT103 is a wire transfer and essentially automatically gets used, without your specification, any time the banks involved are communicating over SWIFT. Period. That’s all that it means.

If you do not believe me and choose to believe some Joker Broker mumbo-jumbo, then look up the SWIFT definitions yourself, they are not difficult to find. The MT103 initiates an unconditional and authenticated transfer of funds from one account to another.

An intermediary, trader, exporter, or importer, does not care one whit exactly which SWIFT message type designates a wire transfer, all that she cares about is that the wire transfer is made.

Though I’ve covered this issue in my newsletter a few times, I hope this is clear enough and helpful to you, dear reader.

Until next time,

K. J. Southall, FTNX/Verde Distributing Limited.

If you are interested in these sort of opics, but want more reliable information, then “Trade Fraud, Financial Fraud, and the Joker Broker” is for you.
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