International Commodity Trade Process

I. International commodity trade terminology

1、LOI：Letter of Intention (issued by the buyer's letter of intent to purchase goods)

2、ICPO：Irrevocable Corporate Purchase Order (irrevocable purchase order)

3、BCL: Bank Capacity Letter (issued by the buyer to prove the bank funds) or written as "Bank Conform Letter", the same meaning.

4、FCO：Full Corporate Offer (seller issued by the responsible intentional contract), informal contract, generally to be indicated in the contract: " This is not to be circulated and is only for the purpose of this transaction only"

5、POF: Proof of Funds (issued by the buyer), which indicates that the letter of credit issued by him has a guarantee of funds. The BCL can only state the creditworthiness of the company.

6、POP: Proof of Product (proof of product), issued by a lawyer and kept by a third party with a conditional commission stamped on the deed and delivered to the buyer's bank.

7、PB: Performance Bond, the key term of LOI, only when the PB is paid, the letter of credit issued by the buyer is valid. Letters of credit are generally irrevocable confirming spot letters of credit.

II. The basic process of international commodity trading.

1. The buyer submits a Letter of Intent (LOI) and a Bank Certificate of Funds (BCL) to the supplier.

LOI is relatively easy, many times you can add the Soft Probe of the buyer's bank inside, many sellers require the buyer to provide.

2. The supplier confirms and provides the buyer with a formal offer (FCO).

FCO is not issued arbitrarily, this has legal effect. So the formal seller will not immediately issue the FCO, because he has to carefully prepare the goods contact transport. If you receive an FCO immediately after sending an enquiry, then the seller's overall supply capacity needs to be reviewed and re-evaluated.

3. The buyer signs and stamps the FCO and sends it to the supplier.

The buyer should not sign the FCO lightly, because after signing the FCO, both parties have reached a consensus on the terms and conditions of the transaction, and it is difficult to amend it after it is established. Therefore, the FCO must be carefully reviewed and a Reply to FCO must be sent to the other party for confirmation and stamping. The date must be specified.

4. The supplier provides the buyer with a draft contract, which the buyer modifies according to the terms of the contract and sends back to the seller for confirmation.

The draft contract is in fact the contract without the signature and seal of both parties, which provides detailed provisions for breach of contract, inspection terms and force majeure provisions, the two sides can be modified, the basic terms can not be moved, including the number, amount, payment terms, unit price, etc..

5. After confirmation of the contract, the seller draws up the original contract according to the revised draft contract, and sends it to the buyer by air courier mode after the seal has been signed and confirmed, and after the buyer has received the original contract text and signed and sealed the contract, (scanned and completed) it is sent to the seller by e-mail, the contract is confirmed to be in force and enters into the respective performance state, and the original contract text after the seal has been signed (part of the original is kept by the buyer) is sent to the seller by air courier. The original signed and stamped contract (some originals are retained by the buyer) is delivered to the seller by airmail.

6. Each page of the contract must be stamped by both parties after confirmation of its content, and the final page must be signed and stamped by both parties.

7. After the contract has been signed, the buyer issues a non-operative letter of credit in favour of the supplier.

8. The supplier receives the non-operative LC and issues a PB performance bond of 2% of the LC amount and a proof of delivery (POP) through the bank.

After the contract is signed, the seller must provide proof of right of goods (POP), the buyer can visit the goods yard at his own expense to inspect the goods according to the proof of goods (POP), within a few days after inspection the buyer issues a non-operative letter of credit, the supplier issues a 2% performance bond to activate the buyer's non-operative letter of credit, and then both parties prepare and pay for the goods as agreed in the contract.

9. After the buyer receives the performance bond (PB) and the proof of goods (POP), the buyer's letter of credit is activated but no payment is made.

A 2% PB is an international trade practice and if the seller cannot even issue a PB, honestly do you think they will be able to perform?

POP can include more than just proof of title, ask the seller for an inland transportation contract, port agreement and shipping company agreement, notarised by a larger law firm, POP is not just a photo of the goods.

10. The supplier starts to prepare the goods for loading on board the ship, before loading the goods for inspection and payment of inspection fees, can be inspected by CCIC / SGS at the port of loading under the supervision of the buyer's representative. The Buyer has the right to appoint a representative to attend the entire loading process. The seller will pay the cost of the inspection by SGS/CCIC at the port of loading. At this point the letter of credit is in force but no payment is made.

Generally the seller accepts SGS and the Chinese buyer will of course wish to approach CCIC but the seller will often refuse unless the buyer is very powerful.

11. Under the CFR price terms, after the goods are loaded onto the freighter paid by the seller, the seller gets the bill of lading and notifies the buyer in time for the insurance of the goods.

12. Within a reasonable time after the goods have left the port of shipment, the seller provides the bank with the bill of lading, the pro forma invoice, the inspection certificate issued by SGS/CCIC and the certificate of origin of the goods and other negotiating documents to apply for bank negotiation.

13. The insurance company will bear the risk of accidental incidents during the sea transportation of the goods and will compensate the buyer for the loss at 110% of the L/C amount in case of loss of the goods.

14. After the goods arrive at the port, the goods will be subject to a legal inspection and the CIQ will issue a certificate of inspection of the goods at the port of discharge, which will serve as the final basis for payment of this transaction, and the seller will supplement this document to the bank, which will examine the goods and allocate the L/C payment to fulfil the payment under the L/C negotiation document.

Inspection of the goods at the port of discharge: the quality of the goods is qualified, short overflow loading within the normal wear and tear, according to the actual data issued by the inspection report for final settlement, that is to say, the actual weight and quantity of goods issued by the CIQ inspection report will be the final basis for settlement within the contract content, the letter of credit implementation of dynamic settlement of payments rather than static mode of settlement.