French company Essay
In October, a French company (seller) and a Shanghai company (buyer) have set up a contract of selling 200 sets of electronic computers (1000 USD each), and the payment shall be made according to the irrecoverable letter of credit. And the delivery should be made on December at Port de Marseille. On November 15, Bank of China Shanghai Branch (issuing bank) made a $ 200,000 irrevocable letter of credit according to the instruction of the buyer and commissioned a French bank in Marseille to notify and negotiate this letter of credit. On December 20, the seller loaded the 200 computers on board and got the bill of lading, insurance policies, invoices and other documents as required by the letter of credit. And then it went to the Marseille bank for negotiation.
Upon review, the documents are consistent; therefore the bank had paid $ 200,000 immediately to the seller. At the same time, 10 days the cargo ship left the harbor of Marseilles, the cargo, along with all the goods, sank into the sea in a heavy storm. By that time the issuing bank had received the whole set of the documents and the buyer had already known the total loss of the goods. Bank of China Shanghai Branch intends to reimburse the negotiating bank to pay the purchase price of $ 200,000 on the grounds that its customers can not expect the goods. In accordance with international trade practices, the following questions are asked:
When would the risk of the consignment be transferred from the seller to the buyer ? Whether Issuing bank would exempted from the payment obligations due to the total loss of the goods, If so, on what basis? How to compensate the loss of the buyer?
1. The Risk shall be transferred from the seller to the buyer since the goods were loaded on board at the port of shipment. 2. The issuing bank has no right to refuse payment. According to the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits, the letter of credit transactions are independent from the sales contract. And the Bank is only responsible for document examination. As long as the documents are in line with the terms of the credit, the banks are required to assume its payment obligations. 3. The buyer could claim compensation from the Seller’s insurance company with other relevant insurance documents and proof of the sinkage of the cargo ship.
I. Time context:
* In October, a French company (seller) and a Shanghai company (buyer) have set up a contract of selling 200 sets of electronic computers (1000 USD each. And the delivery should be made on December at Port de Marseille. * This transaction is only made for 2 months consisting of its selling contracts and delivery.
* On November 15, Bank of China Shanghai Branch (issuing bank) made a $ 200,000 irrevocable letter of credit according to the instruction of the buyer and commissioned a French bank in Marseille to notify and negotiate this letter of credit. * November 15 is the start of Bank of China Shanghai Branch issuing the Letter of Credit to the French bank.
* On December 20, the seller loaded the 200 computers on board and got the bill of lading, insurance policies, invoices and other documents as required by the letter of credit. And then it went to the Marseille bank for negotiation. * December 20, start of complying all the requirements and documents needed in Letter of Credit.
* At the same time, 10 days the cargo ship left the harbor of Marseilles, the cargo, along with all the goods, sank into the sea in a heavy storm. * This is the last event happened and the cargo didn’t delivered as what the buyer expects.
We should consider this problem from the viewpoint of the French company, they are liable for negligence because from the very start they didn’t ensured the possible factors may arise when delivering. They must always contemplate selecting a good transportation carrier, the weather conditions,
customs clearance, reliability and etc. The French company must fix all this difficulties so that they can still maintain a good and harmonious relationship once the Shanghai Company made a second transaction with them, and must comply with the party’s agreement.
III. Related Facts:
* Irrevocable Letter Of Credit – ILOC
Correspondence issued by a bank guaranteeing payment for goods and services purchased by the one requesting the letter. An irrevocable letter of credit, or ILOC, cannot be canceled or modified in any way without explicit consent by the affected parties involved. For example, the issuing bank has no power to change the terms of an ILOC simply because the letter requester is having second thoughts. It should be noted, however, that ILOCs are in effect only for a specified time period and do, in fact, expire at a pre-determined point.
* Bill of Lading
A legal document between the shipper of a particular good and the carrier detailing the type, quantity and destination of the good being carried. The bill of lading also serves as a receipt of shipment when the good is delivered to the predetermined destination. This document must accompany the shipped goods, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper and receiver.
* Insurance Policies
A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.
It is a detailed bill left by vendors and outside suppliers for goods or services rendered to a company. Typically, it lists the quantity of each item, prices, billable hours, a service description, and a contact address for payment. While some expenses may be paid out of a general fund or petty cash account, an invoice is usually paid through an payable department by the posted due date.
* Letter of credit
A letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
* Issuing Bank
A bank that writes a letter of credit, especially on behalf of an exporter. The issuing bank operates in the country of the importer, and facilitates trade between the importer and exporter by providing credit for the transaction. It is also called an opening bank.
The seller or salesperson – the provider of the goods or services – completes a sale in response to an acquisition or to an appropriation or to a request.
A “buyer” or merchandiser is a person who purchases finished goods, typically for resale, for a firm, government, or organization. (A person who purchases material used to make goods is sometimes called a purchasing agent.)
IV. Statement of the Problem:
* When would the risk of the consignment be transferred from the seller to the buyer ? * Whether Issuing bank would exempted from the payment obligations due to the total loss of the goods, If so, on what basis? * How to compensate the loss of the buyer?
V. General Objectives:
1. For the French company to cope with the problems arise during the delivery of the goods. 2. To identify French company’s acquired big loss and how they can replace the goods.
VI. Specific objectives:
1. Both parties should know the consequences of their agreement once it is not delivered properly. 2. To identify and analyze well the mistake of French company. 3. The Shanghai bank must be capable of reimbursing the negotiating bank.
VII. Alternative Causes of Action:
Action no. 1: The buyer should’ve complied with the insurance company of the seller immediately after the event happened Give 3 advantages for action 1:
1. Risk Cover
2. Protection against rising goods expenses
3. Future helps
Give 3 disadvantages:
1. Pay commission for the agent
2. You can only use insurance if you gain loss.
3. It costs money
Action no. 2: The seller shall have alternative service delivery. Give 3 advantages for action 1:
1. To have a substitute method once the delivery didn’t work as it is.
2. To avoid wasting of time and reach the due time.
3. Greater security
Give 3 disadvantages:
1. It will cost much for one party.
2. It will enable company to have more data to encode.
3. Lower profit.
Action no. 3: Made used of LC instead of Irrevocable LC
Give 3 advantages for action 1:
1. Can be canceled or modified in any way without explicit consent by the affected parties involved. 2. Guaranteed payment upon presentation of the documents specified in the terms of the letter of credit. 3. The buyer cannot refuse to pay due to a complaint about the goods.
Give 3 disadvantages:
1. Subject to the financial strength and stability of the Issuing bank 2. More expensive than other methods of payment 3. Requires a high level of expertise to successfully navigate the process
It is apparent from the case that the seller is the most problematic party of all because they hold the big loss on goods, at the same time they made the wrong choice of method for delivering goods which subjected to higher cost.
The French company must improve their facilities so that when the calamity strikes again there is a high probability that they will carry through. And don’t forget to approach the shanghai company that the cargos will be arrived to them late.
Continue to explore better ways of integrating technology into instruction on a daily basis, including providing training and support for the company.
This paper has given an account of and the reasons for the agreement between French company and Shanghai Company to be deliberate. The seller must be liable for any damages happened within the incident while the buyer is secured by insurance company for what they lost, especially their money. No one was to blame for that scenario, each party just did what is supposed to do and it is only due by nature that’s why it is wrecked.
They must design and implement assessment and differentiated instructional strategies that enable the company to achieve competency and right decision-making.
They must also focus on the second action: Made used of LC instead of Irrevocable LC because it is the most important, it carries the whole transaction and will make the agreement more clarified.
(The company must possess this 5 skills)
S = Specific: an objective should be precise and should focus on a single result. A specific objective answers the questions, “who, what, where, and how?”
M = Measurable: an objective should include specific criteria or measures that indicate whether the objective has been met. A good measure answers the question, “How will we know if we have accomplished the objective?”
A = Achievable: an objective should be attainable and within the center’s or program’s reach.
R = Realistic: an objective should be realizable given the time, resources, and activities proposed and available.
T = Time-bound: an objective should include the date it will be started and the date the center expects to complete it.
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 1 January 2017
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