Prices and Payment Terms
There are two ways to price products and both methods have their positive and negative aspects:
- Fixed price offeringsin US$/MT or US$/bbl which is usually offered for the first 12 months contract period and subject to review on yearly basis.
- Formula based pricinglinked to Platt’s prices around loading dates LESS an agreed upon discount.
Offers usually indicate a gross discount and a net discount to Buyer from Seller. The difference between the two is commission to be shared 50/50 between the brokers (Buyer’s side and Seller’s side).
Note: the most important element in the transaction is the procedures and this is where 99.9% of all deals fail to materialize. A careful review of procedures will reveal areas that are usually not workable for either side. If this cannot be overcome then all negotiations fail.
The following links for pricing information are considered by most of our sellers to be the closest estimate of their invoice prices. The invoiced prices are typically based on the three-day average (the day upon loading, preceding day and the following). Seller uses the actual price on the basis of NWE Platts.
All prices for the Buyer are according to Platt’s European Marketscan MINUS discount. The amount of the discount is not fixed, but varies according to:
- Type of the product (e.g., JP-54, Mazut, D2, etc.)
- Delivery terms
- Realization of the payment terms that can be reflected in additional discount
Standby Letter of Credit (SBLC)
SBLC is a bank guarantee in the form of a documentary credit, which is used to: (1) guarantee any failure to pay on the part of the purchaser / importer and (2) to guarantee any failure to perform the agreement on the part of the supplier / exporter. The SBLC is only used if what is agreed between the two parties is not performed or is performed incorrectly. Only the documents requested by the terms of the SBLC are taken into consideration. SBLCs are subject to the Uniform Customs and Practice for documentary credits (UCP). This means that where commercial documents have to be presented, the UCP sets out how they may be verified. An SBLC may also be confirmed, whereas a guarantee issued by the beneficiary’s bank requires a double commitment, since the issuing bank has to counter-guarantee the guarantor bank. It is also known as a “non-performing letter of credit”.
Bank Guarantee (BG)
A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. A Bank Guarantee enables the customer (debtor) to acquire goods, buy equipment, or draw down loans, and thereby expand business activity. A Bank Guarantee and a Letter of Credit are similar in many ways, but they are two different things. The main difference between the two Credit security instruments is the position of the bank relative to the Buyer and Seller of a good, service or basket of goods or services in the event of the Buyer’s default of payment. A Bank Guarantee is a guarantee made by a bank on behalf of a customer (usually an established corporate customer) should it fail to deliver the payment, essentially making the bank a co-signer for one of its customer’s purchases. Should the bank accept that its customer has sufficient funds or Credit to authorize the guarantee, it will approve it. A guarantee is a written contract stating that in the event of the borrower being unable or unwilling to pay the debt with a merchant, the bank will act as a guarantor and pay its client’s debt to the merchant. The initial claim is still settled primarily against the bank’s client, and not the bank itself. Should the client default, then the bank agrees in the Bank Guarantee to pay for its client’s debts.
Irrevocable Transferrable Documentary Letter of Credit (ITDLC)
Transferable letter of credit is a sort of a documentary credit which can be used in situations where middlemen are playing a certain role. Usually middlemen (first beneficiary) do not have enough capital establishment to buy the goods from their sources (second beneficiary) before they re-sell them to their final customers (applicant). If the final buyer finds it valuable working with a middleman for a definite foreign trade transaction, he can let the middleman benefit from his credibility by supplying him a transferable letter of credit. The middleman then has part or all of the transferable letter of credit transferred to his supplier who has gained considerable payment assurance to ship the goods. The supplier can acquire its payment portion in exchange for the complying documents stated in the letter of credit. The middleman is entitled to substitute its own invoice for the one of the supplier and acquire the difference as his profit in transferable letter of credit mechanism.
Important Points of Consideration:
- Transferable letters of credit should be issued in an irrevocable form
- A letter of credit can be transferred to the second beneficiary at the request of the first beneficiary only if it expressly states that the letter of credit is “transferable”
- A bank is not obligated to transfer a credit
- A transferable letter of credit can be transferred to more than one second beneficiary as long as credit allows partial shipments
- The terms and conditions of the original credit must be indicated exactly in the transferred credit. However, in order to keep the workability of the transferable letter of credit below figures can be reduced or curtailed
- Letter of credit amount
- The expiry date
- The presentation period
- The latest shipment date or given period for shipment
- The first beneficiary may demand from the transferring bank to substitute his name for that of the applicant. However, if a document other than invoice required in the transferable credit must be issued in a way to show the applicant’s name, in such a case that requirement must be indicated in the transferred credit.
- Transferred credit cannot be transferred once again to any third beneficiary according to the request of the second beneficiary
Irrevocable Revolving Documentary Letter of Credit (IRDLC)
Single L/C that covers multiple-shipments over a long period. Instead of arranging a new L/C for each separate shipment, the buyer establishes a L/C that revolves either in value (a fixed amount is available which is replenished when exhausted) or in time (an amount is available in fixed installments over a period such as week, month, or year). L/Cs revolving in time are of two types: in the cumulative type, the sum unutilized in a period is carried over to be utilized in the next period; whereas in the non-cumulative type, it is not carried over.