3) payment in an open account:
open account terms are usually granted by the Sellers to the regular Buyers or customers in whom the Sellers have complete confidence, but sometimes they are granted if the Sellers want to attract new clients. Actual payment is made monthly, quarterly, annually as agreed upon. This method is disadvantageous to the Exporters, but may be good to gain new markets. Payments in cash and on credit are very often combined in a Contract. The currency for payment is a matter for arrangement between the parties to the Contract.
Each economic agent during the execution of the transaction wants to stand the most attractive method of payment to himself, which is the best in appropriate market conditions. In this way parties must always find a compromise.
TERMS OF DELIVERY
The Contract of sale stipulates the price and the terms of delivery, which constitute the framework of the subsequent agreements on financing, insurance and transportation. In accordance with the responsibilities of the parties in respect of the expenses of delivery and the risks of accidental damage to or loss of the goods there may be various terms of delivery. Most frequently used terms of delivery in international trade are CIF (cost, insurance, freight) and FOB (free on board). A CIF price includes apart from the value of the goods the sums paid for insurance and freight (and all other transportation expenses up to the place of destination). An FOB price only includes the value of the goods, transportation and other expenses until the goods are on board the vessel. On FOB and CIF terms the Sellers bear the risk of accidental loss of or damage to the goods until the goods pass the ship's rail. Other terms of delivery that may be used in foreign trade are:
1. FAS = free alongside ship, which means that the Sellers pay for all the charges up to and including the placing of the goods alongside ship but do not pay for loading.
2. CAF = cost and freight, which means that the Sellers undertake to pay for the cost of transportation of the goods to a specified destination. The risk passes when the goods have crossed the ship's rail at the port of loading. If the goods are carried by liners, the Sellers have to unload them at the port of destination for their account. If not by liners, the counterparts may agree to this effect, then it is indicated "cost and freight landed".
3. Ex ship with port of destination indicated which means that the Sellers pay for all charges up to and including the placing of the goods at the disposal of the Buyers on board the vessel at the port of destination. The risk passes accordingly.
4. Ex quay with port of destination indicated, which means that the Sellers pay for unloading the goods and the risk doesn't pass until the goods are placed on the quay in the port of destination.
The choice of the terms of delivery and the terms of payment as a rule remains with the Buyers, so they can insist, while negotiating a contract, on choosing those which they find most suitable for them.
PACKING AND MARKING
Packing and marking are important clauses of a Contract. Packing is a means, which helps to keep goods safe during transportation and storaging. There are a lot of kinds of packing. For example, some goods have inside and outside packing: perfume has inside packing (a bottle) and outside packing (a box). Packing can also be made of different materials: paper, glass, plastic, cardboard, iron and so on. Goods must be packed in full conformity with the specifications of each particular type. You can't transport glass in paper, it needs a firm kind of packing, or packing of food must keep it dry. And if packing correctly conforms with the featuresof goods, the latter would arrive safe and sound and can even withstand rough handling.
In a Contract all the above characteristics of packing should be stated. Improper or faulty packing may cause damages and breakages of goods.
Marking is usually made on packing. It must include the name and address of the Buyer, the Seller and the manufacturer of the goods, numbers of standards or technical documentation, numbers of roads, kinds of transport and some other details concerning this particular consignment of goods: weight, quantity and others. There are also various kinds of marking for goods that need careful handling, for example, WITH CARE, TOP, DO NOT TURN OVER, USE NO HOOKS and so on. There may be also pictures in marking. Some of them require careful handling too: "fragile", "avoid heat", "open here", etc.
There is also marking that states that the products or their packing are ecologically pure and don't make harm to environment: "green point", "produced of used materials", "this marking says for itself”, etc. Marking should warn of poisoned and harmful materials contained in packing.
If goods are transported by sea, their packing must be seaworthy and marking should be made with indelible paint. It is also very important that marking should be made right. Wrong marking can lead to short-shipment and short-delivery, improper handling, misdirection of the goods and many other unpleasant problems. Usually all these characteristics are stipulated in standards. Contracts only contain numbers of appropriate standards.
GUARANTEE CLAUSE OF A CONTRACT
The Guarantee Clause is one of the most important points of the Contract made on the sale and purchase of different machinery and equipment. Guarantee clauses may differ but they have features. Here is a typical Guarantee Clause. The Sellers guarantee:
1. a) that the equipment supplied corresponds to the highest achievements of the world technics for the given type of equipment;
b) high quality of the materials being used for the manufacture of the equipment (spare parts); first-rate workmanship and high quality of the technical performance and assembly;
c) that the equipment supplied (spare parts) is manufactured in full conformity with the conditions of the present Contract;
d) completeness of the delivered equipment in accordance with the conditions of the Contract.
2. The guarantee period of the normal operation of the equipment is to be 12 months from the date of putting the equipment into operation, but not more than 24 months from the time of its delivery.
3. If during the guarantee period the equipment proves to be defective or not in conformity with the terms and conditions of the Contract, the Sellers undertake immediately, at the Buyer’s request, to eliminate free of charge the detected defects by repairing or replacing the defective parts of the equipment with the new ones.
In this case the Sellers should pay the agreed and liquidated damages in accordance with the Contract terms at the rates stipulated in the contract starting from the date of the claim and up to the date when the defects have been eliminated or the new equipment has been supplied.
However, the amount of the penalty shouldn’t exceed 10% of the contractual price of the equipment.
4. The defective equipment will be sent back to the Sellers at their request and for their account within the dates agreed by the parties.
5. All transport expenses, insurance and other expenses, connected with return or replacement of the defective goods on the territory of the Buyers’ country and of a transit country as well as on the Sellers' territory are to be borne by the Sellers.
6.The above-said guarantee period in regard to the repaired equipment or newly supplied equipment will start again from the moment of putting it into operation.
7. If the Sellers fail to eliminate the claimed defects at the Buyers' request immediately or within 30 days after the date of the claim, the Buyers will have the right to eliminate the defects on their own account, the Sellers being charged with the normal actual expenses.
Small defects, the elimination ofwhich is urgent and does not require the presence of the Sellers, will be repaired by the Buyers charging the Sellers with the normal actual expenses.
8. If, while considering the claim or eliminating the defect, it will be stated that the defect cannot be eliminated or the replacement of the goods cannot be done within the dates acceptable to the Buyers the goods may be used by the Buyers without the elimination of the defect, the claim may be settled at the request of either party by means of downward revision of the price of the equipment within the rates agreed by the parties.
In case of impossibility for the Buyers to use the supplied equipment the Buyers will have the right to cancel the Contract in part of the said equipment or in whole.
INSPECTION AND TESTS
Inspection and tests play a very important role in business relations. They help to avoid many problems, which can arise in respect of the quality of the goods in future. Therefore before shipment the Sellers are to test the goods and the Buyers have the right to inspect and check the goods. They usually test theworkmanship and quality of the contractual equipment and the materials used.
Inspection and tests are carried out at the expense of the Sellers or their subcontractors. It is stipulated in the Contract.
The Buyers have the right to send their inspectors to the Sellers their subcontractors and their subcontractors' premises.
Before the inspection and test the Sellers can provide an opportunity for the Buyers' inspectors to study the similar operating equipment manufactured by the Sellers.
The Seller is to notify the Buyer of the readiness of the goods (equipment, machines) for the inspection and test. The Notification of Readiness is to be sent, for example, to the Trade Mission in the Sellers' country, and the Buyer is to be provided with a copy. The Sellers must notify the Buyers not later than 15 days, for example, before the beginning of the test.
The Contract is to stipulate that if the Buyers or their representatives within 15 days from the date of receipt of the Sellers' notification that the goods are ready for shipment, inform the Sellers that the Buyers' inspector cannot be present at the test, or if the Sellers fail to receive any information within the said period, the Sellers are entitled to perform the test without the Buyers' inspector. Sometimes the Buyers can supply the Sellers with the certificate stating that the goods are released for shipment without inspection.
The Sellers may render any assistance that can be required in obtaining visas by the Buyers' inspector and may at their expense furnish the Buyers' inspector with flats or apartments at the hotels during their stay. The Sellers are to place at their expense at the disposal of the Buyers' inspector all the facilities required for inspection of the equipment and materials as well as an interpreter if necessary.
If the tests have proved that the equipment meets the requirements specified in the Contract, the Sellers shall present to the Buyers the Test Report. One copy of the above Report is to be sent by the Sellers to the Buyers' representatives at the Trade Mission in the Sellers' country to obtain the Release Note for Shipment.
If during the tests and inspection any infringements in the technical conditions of the Contract or poor quality of the goods manufactured are found, the Sellers shall eliminate all the defects detected without delay or replace the defective goods at their expense. When the defects have been eliminated, the equipment shall be tested again if required by the Buyers.
The final tests and acceptance of the goods are to be performed in the Buyers' country after finishing the installation and adjustment of the equipment and achieving quantity and quality requirements stipulated in the Contract.
After the tests have been performed, "Report on the Final Test and Putting the Equipment into Operation" is made and signed by the Sellers and the Buyers' representatives, the detailed results of the tests performed being put in this report.
The date of signing the "Report on the Final Test and Putting the Equipment into Operation" is considered to be the date of putting the equipment into operation.
INSURANCE OF GOODS
The export trade is subject to many risks. Ships may sink or collide; consignments may be lost or damaged. All sensible businessmen now insure goods for the full value. The idea of insurance is to obtain indemnity in case of damage or loss. Insurance is against risks.
While the goods are in a warehouse the insurance covers the risk of fire, burglary, etc.
As soon as the goods are in transit they are insured against damage by water, breakage or leakage. Other risks may also be covered.
The insured is better protected if his goods are insured against all risks. The goods may also be covered asainst general and particular average.
In the insurance business the word "average" means loss.
Particular average refers to risks affecting only one shipper's consignment.
General average refers to a loss incurred by one consignor but shared by all the other consignors who use the same vessel on the same voyage.
To insure the fulfillment of the basic contracts successfully and profitably a number of auxiliary agreements are to be concluded:
1. Marine Insurance Policies and Certificates
2. Charter Parties
3. Agency and Distributorship Agreement.
There is some difference between Marine Insurance Policy and Marine Insurance Certificate. The first is a document, which contains the terms of insurance and can be given for such a durable period of time (as usual for a year) and for a big quantity of the goods. The goods can be delivered in several lots. Marine Insurance Certificate is given for each consignment of goods. Charter Parties is a treaty on chartering the vessel. It can be concluded for one voyage and it's named "Voyage Charter Party". A treaty on a certain period is named "Time Charter Party”.
Goods can be insured with one of the insurance companies.
CLAIMS
Unfortunately as in other walks of life in trade, too, error may occur and the goods may be mishandled. Accidents may usually happen because of hurryand lack of sufficient supervision and mistakes in carrying out orders may creep in.
These may be caused by mistyping of figures, misreading of numbers or for more serious reasons.
One of the parties to the Contract may consider that the other party has infringed the terms of the Contract and may write aletter of complaint containing a claim for damages, for a reduction in the price, etc.
There are various reasons for complaints. The following kinds of claims are often made by Buyers:
1) claims arising from the delivery of wrong goods, damaged or substandard goods;
2) claims connected with delays of one kind or another;
3) claims owing to goods missing from delivery (short-shipment or short-delivery);
4) claims that concern errors in carrying out an order, etc.
If the Buyer has to face a claim, he must write a statement and mail it to the Seller together with the supporting documents. Bill of Lading, Airway and Railway Bill, Survey Report, Quality Certificate may serve as documentary evidence. If necessary, drawings, photos, samples are enclosed as proofs of claims. The date of a complaint is the date on which it is mailed.
Claims can be lodged during a certain period of time, which is usually fixed in a Contract.
During the claim period the Seller is to enquire into the case and communicate his reply. He either meets the claim or declines it. The Seller declines liability if the B/L is “clean”, that is the shipping company hasn't made any remarks about the quantity or condition of the cargo shipped. The Seller has also a full right to decline a claim if the goods are disorderly stored, mishandled or misused by the Buyer.
The parties do their best to settle their differences and claims amicably, but if they fail to agree, in accordance with the corresponding clause of the Contract, the claim is submitted for arbitration in Russia to the Arbitration Commission at the Russian Chamber of Commerce and Industry.
SETTLING COMMERCIAL DISPUTES
A Contract defines rights and obligations of the parties involved. In case of breach of the Contract the sufferer makes a claim on the party, which fails to meet their contractual obligations. It is more often the case that it is the Buyer who makes a claim on the Seller.
Most often the Buyer makes quality and quantity claims on the Seller. The cause for complaints may be poor quality, breakage, damage, short-weight, leakage, etc.
In case of short-weight it is recompensed by a load sent separately or at the time of follow-up shipments. In case of damage or faults, the goods at the Buyer's option can be repaired all at the Seller's expense.
Sometimes if deviation in quality is within certain limits, the goods can be retained but with an allowance proportionate to the discrepancy in quality. This is usually the case with raw materials, foodstuffs or any other goods sent in bulk.
If the goods are missing, the Seller must necessarily locate them. Sometimes it is quite a problem as consignments may be lost when transshipped at some intermediate port or if sent to a wrong address. If the goods are not recovered, compensation must be paid by the party directly responsible for it.