How can the exporter avoid the “price trap” occured in many negotiations when the buyer demands concessions about delivery time, method of payment,etc?
Chapter 1: Negotiating Delivery 1. The five steps in Negotiating Delivery. To deal with problems arising if there is a delay or if delivery is not as planned the Buyer and the Seller should negotiate delivery systematically. That means making sure all foreseeable problems are discussed and approaches to solving such problems are agreed. An overview of the five negotiating steps is suggested to simplify discussion of the ideas and to avoid problems: Timing, Location, Transport, Risk Title and Insurance, Terms of Trade. 2. Timing: When must Delivery take place? - Good negotiators should mention a delivery date in negotiating the timing of an export deal and then other issues relating to coming into force, delay and compensation for delay. Delay might be classified into two categories, excusable and non-excusable. Excusable one involves a ‘grace period’ and is mostly subject to a force majeure provision. Any losses to the buyer caused by non-excusable delay must be compensated. The amount of compensation is usually set in advance and called ‘liquidated damages’ - Use a straightforward calendar date to name the delivery date: 15 th September 2010, for example. The parties often plan for the contract to come into existence in two steps: the signature date and the date of coming into force. The date of coming into force is not usually a calendar date, but the date on which the last precondition is met. Common preconditions are: + Receipt of import and/ or export approval + Receipt of foreign exchange approval from a central bank + Issuance of a letter of credit or bank guarantee. + Making of a down-payment by the buyer + Issuance of an insurance policy + Issuance of a certificate of origin + Delivery by the buyer of plans, drawings or other documentation. - Negotiators may agree on a cut-off date: if the contract has not come into force within a certain time, then it becomes null and void. Coming Into Force This agreement shall come into force after execution by both parties on the date of the last necessary approval by the competent authorities in the country of the Seller and the Buyer. If the contract has not come into force within ninety days of execution, it shall become null and void. Điều khoản hiệu lực Thỏa thuận này sẽ có hiệu lực sau khi được thực hiện bởi cả hai bên vào ngày phê duyệt cần thiết cuối cùng của cơ quan có thẩm quyền tại nước người bán và người mua. 1 Nếu hợp đồng không có hiệu lực trong vòng chín mươi ngày kể từ ngày thực hiện, nó sẽ trở nên vô hiệu. - The delivery date is normally fixed for a certain number of days after the contract has come into force. The date of delivery shall be twenty-eight days after the date of coming to force of the contract. Ngày giao hàng sẽ là 28 ngày sau ngày hợp đồng có hiệu lực - Time is of the essence of the contract. If the time is not kept, the buyer has the right to return the goods and refuse payment. Time is and shall be of the essence of the contract Thời gian là và sẽ là vấn đề cốt lõi của hợp đồng. - Excused Delay and Grace Period: For each week of late delivery the Seller shall pay the Buyer 0.1 % of the contract price. Đối với mỗi tuần giao hàng chậm chễ người bán sẽ phải trả người mua 0.1 % trị giá hợp đồng. A grace period is the time exceeding the deadline for an obligation during which a late penalty that would have been imposed is waived. If delivery is not effected within one month of the agreed delivery date, then the Seller shall pay the Buyer 0.1 % of the contract price. Nếu giao hàng không được thực hiện trong vòng 1 tháng kể từ ngày giao hàng đã được thỏa thuận thì người bán sẽ phải trả cho người mua 0.1% trị giá hợp đồng. Sometimes the exporter can’t deliver the goods on time because of natural disasters called ‘acts of God’, which is unavoidable. It is the force majeure, which is negotiable. The parties can decide what excuses and what does not excuse the performance in the contract. 2 If either party is prevented from, or delayed in, performing any duty under this Contract by an event beyond his reasonable control, then this event shall be deemed force majeure, and this party shall not be considered in default and no remedy, be it under this Contract or otherwise, shall be available to the other party. Force majeure events includes, but are not limited to: war (whether war is declared or not), riots, insurrections, acts of sabotage, or similar occurrences, or Government regulations, delay due to Government action or inaction, fire, explosion, or other unavoidable accident, flood, storm, earthquake, or other abnormal natural event. Nếu một trong hai bên bị ngăn cản, hoặc chậm trễ trong thực hiện bất kỳ nghĩa vụ theo Hợp đồng này vì một sự kiện ngoài tầm kiểm soát hợp lý của mình, thì sự kiện này được coi là bất khả kháng, và mặc định là bên này sẽ không được xem xét và không có biện pháp khắc phục, có thể là theo Hợp đồng này hoặc cách khác, sẽ có sẵn cho các bên khác. Sự kiện bất khả kháng bao gồm, nhưng không giới hạn: chiến tranh (cho dù là tuyên bố chiến tranh hay không), bạo loạn, nổi dậy, hành vi phá hoại, hoặc các sự cố tương tự, hoặc quy định của Chính phủ, chậm trễ do hành động hay không hành động của Chính phủ, cháy, nổ, hoặc khác không thể tránh khỏi: tai nạn, lũ lụt, bão, động đất, hoặc sự kiện tự nhiên bất thường khác Force majeure events do not include monsoon rains. Sự kiện bất khả kháng không bao gồm mưa gió mùa. If a force majeure condition continues for long time, contracts may regulate the force majeure period, in particular the right of one or both parties to terminate the contract. If either party is prevented from or delayed in, performing any duty under this Contract, then this party shall immediately notify the other party of the event, of the duty affected, and of the expected duration of the event. If any force majeure event prevents or delays performance of any duty under this Contract for more than sixty days, then either party may on due notification to the other party terminate this Contract. Nếu một trong hai bên bị ngăn cản hay chậm trễ trong thực hiện bất kỳ nghĩa vụ theo Hợp đồng này, thì bên này sẽ ngay lập tức thông báo cho bên kia về sự kiện, các nghĩa vụ bị ảnh hưởng, và thời gian kéo dài dự kiến của sự kiện Nếu bất kỳ sự kiện bất khả kháng nào ngăn cản hoặc trì hoãn việc thực hiện các nghĩa vụ nào theo Hợp đồng này trong hơn sáu mươi ngày, thì một trong hai bên sau khi thông báo cho bên khác có thể chấm dứt Hợp đồng này. 3 Three outcomes of force majeure: resumption of delivery, termination of the Contract, unclear and dangerous situation. - Unexcused delay and Buyer’s Remedies: when delivery cannot take place as planned, this causes some loss or damage to the Buyer. There are two remedies: a decree of specific performance orders the exporter to deliver or an award of damages makes the exporter pay compensation to the Buyer. In addition, the court may allow the Buyer to cancel the Contract. - Liquidated Damages: is a lump sum to be paid per day, week or month of late delivery for compensation. Payment of liquidated damages avoids expensive discussion. Even if the Buyer’s losses are lower or higher than anticipated, nothing changes. The exporter pays the agreed sum, and the matter is settled. Liquidated damages are enforceable everywhere but subject to increase or decrease in some legal systems. - Penalties: is the amount to be paid for late delivery. It is used as a threat of punishment to achieve acceptable performance and is not enforceable in English law or other common law systems. - Quasi-indemnity: is to relieve the exporter of liability for delay in delivery. It is enforceable everywhere but open to challenge as ‘unconsionable’. Liquidated Damages If the Seller fails to supply any of the Goods within the time period specified in the Contract, the Buyer shall notify the Seller that a breach of contract has occurred and shall deduct from the Contract price per week of delay, as liquidated damages, a sum equivalent to one half percent of the delivered price of the delayed Goods until actual delivery up to a maximum deduction of 10% of the delivered price of the delayed Goods Thanh khoản thiệt hại Nếu người bán không cung cấp bất kỳ hàng hóa trong khoảng thời gian quy định trong hợp đồng, người mua phải thông báo cho người bán là một sự vi phạm hợp đồng đã xảy ra và sẽ khấu trừ giá hợp đồng trên mỗi tuần trì hoãn, làm thiệt hại thanh khoản, một khoản tiền tương đương với một nửa một phần trăm giá được giao của hàng hóa bị chậm chễ cho đến khi hàng thực tế lên đến một mức khấu trừ tối đa là 10% giá được giao của hàng hóa bị chậm chễ. 3. Place of delivery: is the point at which the exporter passes responsibility for the Goods to the Buyer. Delivery can take place at a number of places between manufacturer’s factory and the Buyer’s warehouse. A contract for the sale of Goods abroad (transportation by ship) is normally considered as an FOB (Free on board) contract: delivery takes place when the Goods cross the rail of the ship nominated by the Buyer. Another is CIF, the exporter pays the full costs plus the freight charges plus insurance up to the named place of destination, usually a port. 4 Delivery of the Goods shall be made FOB (Mombasa) Giao hàng sẽ được thực hiện theo giá FOB Mombasa. Delivery of the Goods shall be made CIF Durban. Giao hàng sẽ được thực hiện theo giá CIF Durban Delivery of the Goods shall be made (Incoterm). The schedule date of Delivery shall be (date of delivery). Risk and title to the Goods shall pass from the Seller to the Buyer on Delivery. The place of Delivery under this Contract is (port of shipment) Giao hàng được thực hiện (Incoterm). Ngày giao hàng theo lịch trình sẽ là (ngày giao hàng). Rủi ro và quyền sở hữu các hàng hóa được chuyển từ người bán đến người mua khi giao hàng. Địa điểm giao hàng theo Hợp đồng này được (cảng giao hàng) If the vessel named by the Buyer fails to arrive on or before the agreed delivery date, then the seller may at his discretion deliver the Goods to a bonded warehouse in the port of Mombasa, and shall be deemed to have fulfilled his delivery obligations under this Contract. Nếu tàu được chỉ định bởi người mua không đến vào hoặc trước ngày giao hàng được thỏa thuận, thì bên bán theo sự suy xét của mình có thể giao hàng hàng hóa đến kho ngoại quan tại cảng Mombasa, và được coi là đã hoàn thành nghĩa vụ giao hàng của mình theo hợp đồng. này 4. Transport. - Negotiators should mention the type of packaging and the shipping marks in the Contract. Goods are to be packed in new, strong, wooden cases suitable for long-distance ocean transport and are to be well protected against dampness, shock, rust or rough handling. The Seller shall be liable for any damage to or loss of the Goods attributable to improper or defective packaging. Hàng hóa sẽ được đóng gói trong thùng gỗ chắc và mới thích hợp cho vận tải biển đường dài và phải được bảo vệ chống lại độ ẩm, va đập, gỉ hoặc xử lý thô. Người bán phải chịu trách nhiệm cho bất kỳ hư hỏng, mất mát của các hàng hóa do bao bì không đúng hoặc bị lỗi. 5 On the surface of each package delivered under this Contract shall be marked: the package number, the measurements of the package, gross weight, net weight, the lifting position, the letter of credit number, the words RIGHT SIDE UP, HANDLE WITH CARE, KEEP DRY, and the mark: DNP/36/Q Trên bề mặt của mỗi kiện hang được giao theo Hợp đồng này sẽ được đánh dấu: số gói, các kích thước của gói, trọng lượng, trọng lượng tịnh, vị trí móc cẩu, số thư tín dụng, các từ xếp theo chiều này, xếp dỡ nhẹ tay, giữ hang khô, và đánh dấu: DNP/36/Q - On delivery, the exporter receives from the carrier the most important of all the shipping documents, the bill of lading (consignment note). Each mode of transport has a characteristic shipping of document: the marine bill of lading, the airway bill, the rail consignment note, the road consignment note. Combined transport uses a combined transport bill of lading - The Marine bill of lading is the special document used for shipment by sea. It can be made negotiable, which means it can be bought or sold. The word ‘Order’ makes the bill of lading negotiable. That means the shipper must endorse the bill by signing it on the back. To be acceptable as a shipping document under a letter of credit, it must bear the notation that the goods have been shipped on board a named vessel. - Payment under a letter of credit depends largely on the correctness of the shipping documents. To be acceptable under a letter of credit, all shipping documents must be ‘clean’, free notes about defects. It is the carrier who notes any defects in packaging, weight, or general appearance of the goods on accepting them from the Exporter. 5. Risk, Title and Insurance Risk passes on delivery. Two risks are involved in the sale of goods: the risk of the goods injuring a third party and the risk of loss or damage. These risks are covered by insurance. In international trade, ownership (title) is of doubtful value and passes from exporter to buyer. Title to the goods passes with risk. Quyền sở hữu hàng hóa gắn liền với rủi ro. - Since merchandise is at risk at all times during its journey, it is advisable to insure the goods. It is easier for the exporter to arrange insurance. Minimum coverage is Cargo clause C. In CIF and CIP contracts, the exporter normally assigns the insurance agreement to the buyer. Exporters have an agreement with an insurance company covering the shipments over a period of time. Each is covered by a certificate of insurance, which states in outline the cover offered and gives the details 6 of the individual shipment. There is a so-called letter of insurance. This is a letter from the exporter to the buyer stating that the goods are insured and it has no legal force but as evidence in a law suit against the exporter. - In some situation the exporter negotiates special insurance policies: floating policy and open policy. Both offer the exporter insurance cover on all shipment over a period of time. Open cover is not a policy, the insurer will write a policy if required. The normal insurance document under an open cover is the Certificate of Insurance, which is, in principle, the equivalent of a policy. - If the exporter insures the Goods and states on the insurance document (valued policy), he has some decisive advantages: the pre—stated figure can include not only the cost of the goods but also the profit the exporter hoped to make on them. If the value is not stated (unvalued policy), then the value can be established after a loss, the exporter must prove his figures precisely. - A marine insurance policy has three variant clauses: Cargo Clause A, B and C. Clause A covers anything not excluded, Clause B and C exclude anything not expressly covered. Even an ‘all risks’ policy (Clause A) excludes many risks. - Goods must be correctly and fully describe on the insurance document or cover may be withdrawn and a ‘held cover’ clause offers some protection against innocent misdescription: under given conditions the goods are held to be covered. The main principle of insurance is ‘utmost good faith’ 6. Terms of Trade - The ICC publication, Incoterms 1990, gives full and clear information about the rights and duties of buyer and exporter in Incoterm contract. The 13 terms are classified in 4 groups: E- terms, F-terms, C-terms, and D-terms. The E-terms deals with deliveries at the exporter’s factory. The F-terms all concern delivery within the exporter’s country. The C-terms involve delivery in the exporter’s country, with extra costs for exporter after delivery. D-terms take care of delivery outside the exporter’s country. The equipment listed in Annex 1 shall be delivered FOB (Beira) (Incoterms 1990) Các thiết bị liệt kê trong Phụ lục 1 được giao theo điều kiện FOB (Beira) (Incoterms 1990) For the equipment listed in Annex 1 the price is for delivery free on board carrying vessel designated by the Buyer at the port of Beira including the cost of packing, as well as expenses incurred before loading the equipment on board the carrying vessel. Đối với các thiết bị được liệt kê trong Phụ lục 1 giá là giá giao hàng miễn phí trên boong tàu chở theo chỉ định của người mua tại cảng Beira bao gồm chi phí đóng gói, cũng như các chi phí phát 7 sinh trước khi tải các trang thiết bị lên boong tàu chở. The contract should always specify that terms such as FOB, CIF and so on are Incoterms under the rules set out in Incoterms 1990. The contract should regulate what happens if Incoterms 1990 and the terms of the contract conflict. Normally, the contract prevails. Incoterms apply only to international trade, for trade within a country, Incoterms are not appropriate. Incoterms 1990 as used in this contract means the publication Incoterms 1990, being the international rules for the interpretation of their terms published by the International Chamber of Commerce. When a term from ‘Incoterms 1990’ is used in this Contract, the rules and definitions applicable to that term in Incoterms 1990 shall be deemed to have been incorporated in the Contract except insofar as they may conflict with any other provision of the Contract, in which case the Contract provisions shall prevail. Incoterms 1990 như được sử dụng trong hợp đồng này là ấn bản Incoterms năm 1990, là các quy tắc quốc tế cho việc diễn giải các điều khoản của chúng do Phòng Thương mại quốc tế xuất bản. Khi một điều khoản từ "Incoterms 1990" được sử dụng trong Hợp đồng này, các quy tắc và định nghĩa áp dụng cho thuật ngữ đó trong Incoterms 1990 sẽ được coi là đã được kết hợp trong hợp đồng ngoại trừ trường hợp chúng có thể xung đột với bất kỳ điều khoản khác của Hợp đồng, trong trường hợp đó quy định của hợp đồng sẽ được áp dụng. 8 CHAPTER 2: NEGOTIATING PRICE AND PAYMENT 1. EXPORT PRICING STRATEGIES • THE PROBLEM How can the exporter avoid the “price trap” occured in many negotiations when the buyer demands concessions about delivery time, method of payment,etc? • THE PRINCIPLE The exporter should guarantee that the contract price reflects any change in a set of assumptions about delivery, payment and warranty terms. • IN MORE DEPTH Any terms of a contract relate to each other. Therefore, as items in the contract are negotiated, the exporter should assess the influence of each factor on price, and adjust the price accordingly. For example, a longer warranty period creates higher costs, it should be reflected in the contract price. In fact, the most common term negotiated with the two sides is on price. Scenario: Verbena Electric hopes to export its best-selling product, small domestic electric fans, from Verbena to Esperanza. Royalstone, the manager of Verbena Electric, begins discussions with the purchasing manager of Esperanza Electrical Importing, Alice Smart. Negotiations begins. Royalstone offers a unit price of $22 based on some main following assumptions: - The size of the order is 3000 items. - Delivery is FOB. - The warranty period on the fans is three months from the date of delivery. 9 Order Size: 3000 units is one container load, the unit price will increase on a smaller order. An order of 1000 fans, for example, would cost $25 each – not $22. Incoterm: the cost of insurance and freight between Port Verbena and Esperanza City is $520 on an order of 3000 items. Warranty Period: Royalstone knows that a three-month warranty on an FOB delivery produces very few claims for defects. If Smart asks for a six-month warranty, it will add 30 cents per fan to Royalstone’s costs. This example shows that the negotiating decisions bear directly on the price of the product. And a good manager knows that almost every decision made during a negotiation incluences price. 2. THE FIVE STPES IN NEGOTIATING PAYMENT In negotiating payment, the exporter should follow these five steps: Step 1: Mode of Payment This determines how payment will be made. There are four common mode of payment: • payment on open account with no security: this type is seriously risky to the exporter • payment on open account secured by export credit insurance: the exporter pays money to an insurance company to buy an export credit insurance • payment on open account secured by a paymenr guarantee: the buyer pays money to a bank to receive a bank guarantee. • payment by letter of credit.: the buyer must position the money with a bank in the coutry of the exporter and the exporter can collect that money when the goods are delivered. 10 . period specified in the Contract, the Buyer shall notify the Seller that a breach of contract has occurred and shall deduct from the Contract price per week. the contract. If the time is not kept, the buyer has the right to return the goods and refuse payment. Time is and shall be of the essence of the contract