Introduction
Exporting goods is a way to develop international trade, contributing to the globalization and prosperity of the country. Catdom has all the necessary conditions for an international trade organization: a seaport and an international airport, and the country is a party to the Visby Rules and the Montreal Convention. The selected importer, Eagleton, is also a party to international relations and has high aviation capabilities. To organize a successful export, it is necessary to establish contractual relations between the organizations in the two countries. A contract must support the export operation, use the Delivered at Place (DAP) or Delivered Duty Paid (DDP) options, be insured, and comply with The Convention on the International Sale of Goods (CISG).
The Steps to Negotiate a Contract with the Buyer in Eagleton
Exporting a food product is a complex process that requires a detailed plan to minimize all the risks. The first step is to explore pricing options and choose a payment and financing method (ITA, n.d.). The initiation of research on this topic starts with negotiations with partners in the export sale, the buyer in Eagleton. To correctly evaluate a product and provide an accurate quote, it is necessary to determine the costs using a choice of conditions, payment method, and tax calculation (ITA, n.d.).
Preliminary negotiations with the buyer of the export product must be completed with an approximate invoice. It will indicate the total export price subject to tariffs and taxes. The platform account should become a roadmap for minimizing obstacles to an export transaction. The following step will be to recognize the Incoterms of the company, which will fix the terms of the sale between Catdom and Eagleton (ICC, 2020). The Incoterms will include key elements to minimize the risk of an export transaction.
One of the most critical steps in an export deal should be determining the delivery cost, considering foreign taxes. To maintain favorable terms and competitive advantage, offering attractive terms of sale is necessary. The payment method is the key to fixing an international transaction (ITA, n.d.). The final step of the contractual stage will be a contract for the sale of goods, which involves the transfer or consent to the transfer of goods to the buyer for a certain amount of money (ITA, n.d.).
The moment of execution of the transaction under the contract will begin with the actual transfer of the goods. The risk of transfer of ownership affects the parties’ rights in the event of total or partial loss, damage, or destruction of goods, which is why additional insurance is essential (Nabijanovich, 2019). It is necessary to deliver the goods to the buyer; the actual place of delivery is Catdom (ITA, n.d.). The contract must specify where the delivery will take place.
Terms in the Contract of Sale
Since the export procedure is a complex act of international trade, a detailed study of the contract is necessary. An export sales contract is implemented as a contract whereby the exporter transfers ownership of the goods to the importer for a specified price (ITA, n.d.). Generally, an export sales contract does not differ from a regular sales contract but requires the inclusion of the necessary factors of international trade.
Firstly, it is essential to mention the two parties to the contract. The contract will specify the exporter – Catdom and the importer – Eagleton. Exports must be lateral, as ownership of the goods must pass from one person to another (Martínez-Zarzoso & Chelala, 2021). The subject of the export contract of sale must be goods that move property (Martínez-Zarzoso & Chelala, 2021).
In this case, this commodity is seafood products, which must be mentioned in the contract. An important part that must be included in the contract is the consent to transfer the goods. The critical aspect without which the transaction cannot be completed is the price. Seafood is an export commodity that will be transferred to Eagleton for a fee, which must be fixed in the contract.
The export contract must have all other necessary terms by the general contract law. These foundations include the ability of the parties to enter into a contract and the legal object of free consent (DiMatteo, 2021). Generally, an export contract should be a written agreement containing standard terms (DiMatteo, 2021). Sometimes, the contract may be in the form of letters, telex or facsimile messages, purchase orders, or letters of credit.
However, writing, especially in international relations, will become a more reliable format. The export contract should be standardized to minimize the possibility of disputes. The export sales contract must be comprehensive in structure and content to avoid and reduce the possibility of disagreements between the contracting parties (DiMatteo, 2021). The contract should consist of several parts: a substantive and a regulatory part.
The export agreement’s content defines the parties’ contractual rights and obligations. The export contract’s content must include the parties’ names and addresses (Office of Legal Affairs, 2021). A specification and description of the item being sold is also required. The quality and standards of products, especially for food products, should become an obligatory aspect of the contract (Office of Legal Affairs, 2021). Quantity, unit price, and total cost must be clearly stated and communicated to the partner. An important point should be escalating prices and the exchange currency (Office of Legal Affairs, 2021).
Packaging and labeling are a necessary part of the description. The mode of transport, including the place of shipment and the method by which the goods will be delivered, is necessary for detailed indication (Office of Legal Affairs, 2021). The place and schedule of delivery are necessary for the legal purity of the transaction. Insurance and inspection will become a reliable guarantor of risk protection. Documentation, mode of payment, property transfer, licenses, conditions, and warranties must also be specified.
The regulatory part of the export agreement contains provisions governing commercial relations. The regulatory part includes force majeure, dispute resolution, own contract law, jurisdiction, and a termination clause (Office of Legal Affairs, 2021). An indication of the contract’s regulatory part is a necessary legal moment. This paragraph also includes assessed damages and penalties (Office of Legal Affairs, 2021). Such detailed prescription protects both parties of the contract and makes the transaction safe and in line with international standards. A detailed prescription of both parts of the contract guarantees maintaining a reputation, a successful transaction, and guaranteed profit for Catdom.
Incoterms
Incoterms are terms of sale, a set of internationally recognized rules designed to define the obligations of sellers and buyers. With the help of these rules, it is necessary to regulate payment, shipment, insurance, documentation, customs regulation, and other points necessary for organizing logistics (Railas, 2023). The most favorable conditions for Catdom are DAP and DDP. The choice of Incoterms directly depends on the chosen method of logistics.
In Catdom’s case, shipping by sea would be the most cost-effective option, but Eagleton is landlocked, complicating delivery. However, Eagleton has an established air transportation network, and Catdom has an airport integrated with the Catdom Customs Department. Incoterms Delivered at Place and Delivered Duty Paid are applicable for air travel. Using one of these methods can prevent unexpected costs and unnecessary risks.
Incoterms are designed to bring the exporter and importer together and ensure timely payment for goods and delivery, protecting both parties. Under DAP, the buyer and seller are responsible for shipping goods (Railas, 2023). Under this type of agreement, the seller loads and ships the goods bears the costs of transportation, and assumes the risk of costs for losses that may occur during transit (Railas, 2023). However, as soon as the cargo arrives at the destination airport, the buyer takes responsibility for unloading, taxes, and duties (Railas, 2023). DDP works differently: under this contract, the seller assumes all listed costs, as well as any other financial costs agreed with the buyer (Railas, 2023). However, insurance costs are not included in the DDP contract.
The peculiarities of the deal between Catdom and Eagleton determine the choice of DDP or DAP. First of all, these types of Incoterms are used for air transportation s(Railas, 2023). Since the transaction between the parties is primary, the seller will be protected from risks when paying for delivery. Catdom will be confident in the safety of the goods on the road and will prove its worth, maintaining a successful business reputation. It must be remembered that the Incoterms do not apply to force majeure and violations on the buyer’s part, so these details must be additionally fixed in the contract.
CISG
The Convention on the International Sale of Goods (CISG) is part of the globalization of trade. CISG aims to ensure that international sales contracts are treated fairly, so they should be integrated into the deal between Catdom and Eagleton. CISG applies whenever contracts are concluded between organizations located in contracting states (UN, n.d.). To integrate CISG into the agreement between Catdom and Eagleton, it is necessary to have a fair, transparent, and open agreement that will protect the parties’ rights and identify obligations (UN, n.d.).
For example, it is necessary to indicate that the seller’s obligations include the shipment of goods, and the buyer’s obligations include paying the price and receiving the goods. In addition, there are general rules on remedies for breach of contract. Additional rules govern the transfer of risk, indemnification, and release from the performance of the contract (UN, n.d.). Accession to CISG has no financial implications for contracting states and does not impose reporting obligations.
As part of global international trade, several fixed procedures must be followed. One of the customs documents is the Single Goods Declaration (SDG), which contains complete information about the exported goods (Wang, 2021). However, the number of countries for the use of SDGs is limited. The most common worldwide procedure is Carnet, which is used for registration in most countries but cannot be applied to food products (Seyoum, 2021).
One potential regulatory document is the Single Administrative Document (SAD) (Wang, 2021). This document acts as a customs regulator, which allows Catdom and Eagleton to comply with legal and tax obligations, containing complete information about goods, modes of transportation, and taxes. SAD can be used to trade with countries outside the European Union (Wang, 2021). Due to its simplicity, efficiency, and versatility, SAD can be used to negotiate a deal between Catdom and Eagleton that is eligible for CISG regulatory rules.
Considerations for Advising and Agreeing on Transport Options
An efficient and competent choice of the mode of transport and the cost of delivery is a method that allows Catdom to reduce the cost of delivery and logistics. The decision must consider the supply chain’s cost, delivery time, and security considerations (Yakavenka et al., 2020). One of the most significant factors for Catdom is transit time, as it is necessary to keep the product fresh and presentable to the customer. The absence of a seaport in Eagleton is an obstacle to implementing sea shipping. However, both countries have airports and an established air network. For speed, efficiency, price, and availability, it is proposed to opt for air transportation of goods.
Payment and Insurance Options
To establish trade export contacts, it is necessary to offer an attractive and favorable price and suitable and convenient payment methods. The purpose of choosing an appropriate payment method is to receive timely and prompt payment for each sale and to reduce the risk of non-payment for goods (Kim, 2020).
One of the most beneficial options for the seller will be prepayment. By choosing this payment method, the exporter will avoid risks since payment will be made before the transfer of ownership (Kim, 2020). Electronic transfers are most often used for this type of payment. However, prepayment is the least preferred option by import buyers (Kim, 2020). If Eagleton refuses to pay in advance, arranging for payment using letters of credit will be necessary.
Using letters of credit is one of the safest methods of organizing international trade by the importer and exporter. A letter of credit is an act that guarantees that payment will arrive on time and within the agreed amount (Kim, 2020). A letter of credit is applicable when information about the buyer’s solvency is not reliably confirmed.
In addition, such a system also protects the buyer since there is no need to make payment before the goods are sent (Kim, 2020). When using a letter of credit, the bank acts as a guarantor of the transaction by international trade rules. To minimize risks and establish trust, it is recommended that payment be made by letters of credit for the first transaction between Catdom and Eagleton.
An important point to note is export insurance since the global transportation of goods is always associated with risk, even though the delivery method by air is one of the safest. Insurance reduces the risks of not having detailed control over transportation (Seyoum, 2021). Since Catdom is protected from the risk of non-payment by the choice of payment method, providing insurance for transport risks is necessary.
Cargo insurance will allow Catdom to receive the total value of the goods if they are lost or damaged during transportation (Seyoum, 2021). Choosing comprehensive insurance against all risks is necessary to ensure reliable protection (Seyoum, 2021). The specificity of the seafood product allows insurance companies not to cover damage in case of natural damage to the product, so it is necessary to organize reliable packaging. Full cargo insurance with this approach will provide Catdom with insurance payments.
Conclusion
The export deal between Catdom and Eagleton has had a high chance of success. To organize a sale and purchase act, it is necessary to comply with the international conditions of CISG and use Incoterms DAP or DDP. The contract between companies should be detailed and based on the principles of honesty and openness.
The most suitable transport option would be air cargo due to the lack of a seaport at Eagleton and the availability of air travel capacity. To protect the risks, it is recommended that the letter of credit policy be used to pay for the goods. A complete insurance procedure is necessary to protect the risks during transportation. Under all conditions, Eagleton can become Catdom’s reliable and long-term partner.
References
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