Bill of Lading and Transaction Security
When FECO EXPORTING handles freight, we do not use a Charter Party Bill of Lading (BOL). At the time of document presentation for payment, we provide the more secure and more expensive Shipowner's Endorsed Bill of Lading.
This practice, which is required under UCP 600 rules, demonstrates our commitment to providing added security to the entire transaction. By using a UCP 600-endorsed Documentary Letter of Credit (DLC), we ensure that our procedures meet the highest standards of safety and reliability, protecting all parties involved.
Our Adherence to International Trading Standards
The obligations of all parties in a transaction with FECO EXPORTING are governed by Incoterms® 2020 rules. These rules clearly define the responsibilities of each party, including the delivery method and the allocation of costs and risks.
International Chamber of Commerce (ICC) Rules
FECO EXPORTING strictly adheres to the long-standing universal rules set by the International Chamber of Commerce (ICC) in Paris, France:
Incoterms® 2020: The current rules for the delivery of goods.
Uniform Customs and Practice for Documentary Credits (UCP 600): The rules that govern the issuance and use of an Irrevocable Documentary Letter of Credit (IDLC). An IDLC is a conditional payment instrument that is only valid if it is endorsed as adhering to UCP rules.
Uniform Rules for Collections (URC 522): These rules govern the collection process between banks. They are applied after a supplier seeks to collect on a UCP-endorsed financial instrument, ensuring a smooth and transparent remittance process from the supplier’s bank to the buyer’s bank.
By applying these ICC rules in all our commodity transactions, FECO EXPORTING ensures that all dealings are safe, transparent, and secure for all parties involved.
Quotation
A quotation can be provided to a potential buyer or requested from a supplier. Confirming a quotation simply means the price and terms are accepted. Once a quote is confirmed, a formal offer can be issued.
An offer can be made by a supplier to an end buyer or an intermediate buyer like FECO EXPORTING. This offer is typically governed by the supplier's own terms and conditions.
More commonly, the term "offer" refers to a formal document issued by FECO EXPORTING to a potential end buyer for the goods they wish to purchase. Unless otherwise stated, this offer becomes a legally binding agreement once the end buyer accepts it.
The buyer must accept the offer in its entirety without making any changes. FECO EXPORTING will only consider selling the secured goods once the offer has been formally accepted. A signed and accepted offer is a mandatory prerequisite before any contract can be finalized.
Contract
A contract is a legally binding written or spoken agreement between two or more parties. By entering into a contract, all parties agree to be bound by its terms and conditions. Our contracts are standardized to adhere to UCP (Uniform Customs and Practice for Documentary Credits) and Incoterms rules. This ensures clarity and consistency, offering no challenges or concerns to FECO EXPORTING or our end buyers.
Understanding Title and Possession
In our transactions, the title to the goods is a transferable document, but it is not a negotiable instrument. FECO EXPORTING, as a commodity trader, does not take physical possession of the goods itself. The title document represents legal ownership, and while holding the title is often associated with having possession of the goods, they are distinct concepts.
The end buyer requires the title document to legally obtain physical possession of the goods. This is why the transfer of title is a critical step, as it formally transfers legal ownership from the seller to the buyer, enabling the buyer to claim the goods.
Payment by Irrevocable Documentary Letter of Credit (IDLC)
All payments for goods ordered from FECO EXPORTING, or for goods we purchase from a supplier, are initiated through the issuance of a UCP 600-endorsed Irrevocable Documentary Letter of Credit (IDLC).
For revolving transactions, the payment is specified as "non-cumulative revolving," covering the entire contract value until its expiration date.
We do not accept any other payment methods due to our commitment to utmost security. A bank-backed, UCP-endorsed IDLC provides a high level of security. While a Documentary Letter of Credit (DLC) offers a strong level of security, it only becomes a truly valuable instrument once all presented documents are found to be "clean" during the "at sight" verification process.
Late Delivery Discount (LDD) and Performance Guarantee (PG)
FECO EXPORTING uses a Late Delivery Discount (LDD) as an alternative to a Performance Guarantee (PG), which is typically issued to the end buyer in the form of a Standby Letter of Credit (SLC).
The use of an LDD is simpler, less complicated, and more attractive for the end buyer. It is often applied to transactions with suppliers and, in most cases, with end buyers.
By using an LDD instead of a PG, the value of the goods can be reduced, often by at least 1% or more, as the supplier is not required to issue a PG.
FECO EXPORTING expresses the LDD in U.S. dollars per metric ton (MT) and includes it in the delivery clause of the contract or offer. If FECO EXPORTING is more than 24 hours late with a delivery, the agreed-upon LDD amount is deducted from the invoice, acting as an additional discount on the value of the goods. Alternatively, the LDD can be paid to the end buyer as a pro-rata rebate without affecting the invoice value.
Our Transaction Period
Completing a transaction, from initiation to the commencement of the ocean voyage, typically requires a minimum of 60 days. FECO EXPORTING operates on a futures basis, not on spot transactions. We proactively anticipate and secure the goods our clients will need three to four months in advance of placing an official order.
ICPO
The term Irrevocable Corporate Purchase Order (ICPO) is not an official international trade term and is not used by Feco Exporting.
ICPOs are often mistakenly used by uninformed traders. They are more commonly and appropriately used as a local or interstate business practice, particularly within the United States. It's also important to note that ICPO is the acronym for the International Criminal Police Organization (Interpol) and is not applicable to international commodity trade.
Proof of Product (POP) is not a term used by Feco Exporting. We neither ask for nor issue it.
When a document claiming to be a POP is presented, it's often an attempt to convince a buyer that the goods are real. However, the only thing such a document truly indicates is that the trader presenting it is likely uninformed or unprofessional. No actual proof can be assumed from such a presentation.
We consider this kind of "proof" to be unreliable and it should never be accepted as evidence. The only true proof of a product is its quality, which is verified once it has been loaded and inspected.
Any verification that a supplier is able to provide regarding the seller's goods will only be considered if it is specifically outlined in a contract.
Feco Exporting never requires an upfront deposit for a legitimate, first-time deal. We will immediately reject any deal that asks for money in the form of a deposit, fees, or charges.
When a trader asks for an upfront deposit, we educate them on acceptable and secure procedures. This often reveals that their request is similar to those made by scammers.
A performance deposit may be requested later in a deal, but only after extensive negotiations. This type of deposit is designed to prevent a buyer from backing out of a deal. If the buyer fails to fulfill their obligations, the deposit is forfeited.
Performance Guarantee (PG)
Feco Exporting uses a Performance Guarantee (PG), not a "Performance Bond," which is often incorrectly requested by uninformed traders.
The fundamental principle of a PG is that the buyer must first issue the financial instrument to pay for the goods. The supplier then responds by issuing a Standby Letter of Credit (SLC) in support of their performance guarantee. This sequence is critical and must never be reversed, as doing so puts the buyer's money and the entire deal at risk.
We strongly advise that a supplier should never offer a PG first, regardless of how lucrative the deal may seem. The PG is only forfeited if the supplier is at fault for failing to have the goods ready for delivery at the port on time.
The term "bond" should be avoided as it is often associated with less professional and reliable transactions.
Understanding SLC and DLC
Standby Letter of Credit (SLC) An SLC is a guarantee of payment from a bank. It is not used to pay for goods directly. An SLC is a secondary payment instrument, meaning it is only activated if the primary payment method fails. It acts as a safety net, ensuring the seller gets paid if the buyer defaults. The rules of an SLC can make it either transferable or non-transferable. It is often used to back a Performance Guarantee (PG) or to secure payment for rebates, fees, and commissions.
Documentary Letter of Credit (DLC) A Documentary Letter of Credit (DLC) is the primary payment instrument used in international trade. It is a conditional instrument, meaning payment is contingent on the seller providing specific documents that prove they have shipped the goods as agreed. These conditions must be met before payment is released. Because of this, a DLC is a form of deferred payment, but it is the standard and secure way to conduct international business transactions.
Ready, Willing, and Able (RWA)
The term Ready, Willing, and Able (RWA) is a crucial aspect of bona fide trading. It means that both the buyer and the seller are financially prepared to complete a transaction.
For the Buyer: A buyer must have secured the necessary funds before placing an order. This means they should have the finances in place and not just be in the process of considering how to pay. If a buyer needs to finance an export deal, the loan application is a separate process from the import contract itself. The buyer is considered RWA when they have opened a bank account and received the required Documentary Letter of Credit (DLC) to pay for the goods.
For the Seller: Similarly, the supplier must have the financial resources to export the goods being sold.
For a Professional Commodity Trader (PCT), a buyer is not considered RWA until the PCT has received the necessary DLC to cover the cost of the goods. Until that point, the buyer is not considered ready to proceed.
Understanding "At Sight" Payment
The term "at sight" refers to the process where the issuing bank of the buyer visually inspects the delivery documents presented by the seller. This check is performed before payment is released to ensure all documents comply with the terms and conditions of the Documentary Letter of Credit (DLC).
The bank only verifies the documents against the DLC terms, not the underlying contract. If any discrepancies or anomalies are found, payment can be stopped until the issue is resolved or a waiver is provided by the buyer. This waiver indemnifies the bank against potential legal action and allows the payment to proceed despite the discrepancies.
Some common discrepancies that a bank might find "at sight" include:
Incorrect Bill of Lading (BOL): If the DLC requires a Shipowner's BOL (which is more secure), but a less-secure Charter Party BOL is presented, the bank will flag this.
Wrong Certificate: If the DLC specifies a Pre-Shipment Inspection (PSI) certificate from a specific company like SGS, but a different certificate (e.g., a BOV) is provided, it is considered a discrepancy.
These checks are a key security feature of using a DLC under UCP (Uniform Customs and Practice for Documentary Credits) rules. A document that does not comply or has been altered is considered "unclean."
Understanding Delivery and Payment
In international trade, the term "delivery" refers to the presentation of original, clean documents, not the physical handover of goods. Payment is activated only when these documents are presented cleanly, meaning they fully comply with the terms of the Documentary Letter of Credit (DLC).
This principle holds true even under Delivered at Place (DAP) Incoterms, where the goods are delivered to a specific location, like the buyer's factory. The supplier still needs to present a complete set of clean documents to the bank to initiate payment.
For Incoterms like Free On Board (FOB), Cost and Freight (CFR), or Cost, Insurance, and Freight (CIF), risk transfers to the buyer once the goods pass the ship's rail at the port of loading. At this point, the buyer legally owns the goods.
Any claim that payment should occur after the goods arrive at the destination port is a serious misunderstanding of international trade practices. No reasonable supplier would agree to such terms. This is because allowing the buyer to receive the goods before payment is collected puts the supplier at extreme risk of not being paid at all. The supplier's only claim to the goods is the set of documents, and once those are handed over without a guarantee of payment, they lose control. If the buyer takes possession of the goods and converts them into another product before paying, the supplier may have no recourse for payment.
Understanding the First Delivery Date
The concept of the first delivery date often confuses many. Both the supplier and the buyer must be clear about whether they can meet this date from the very beginning.
Supplier's Responsibility: A supplier needs to confirm if they can meet the first delivery date when they receive an "Offer to Procure" (OTP) from a Professional Commodity Trader (PCT) or when they submit their own offer. For example, if it takes 5 days to finalize a contract, the buyer has 21 days to return it, and the first delivery is scheduled 30 days after that, the supplier would have over 50 days to prepare for the delivery on a Free On Board (FOB) transaction.
Buyer's Responsibility: Similarly, the end buyer needs to start arranging for a ship as soon as the offer is made. The ship should be ready to berth at the loading port at least a week before the first delivery date. If a buyer knows they can't secure a vessel in time, they must inform the seller before signing the contract to negotiate a new delivery date. This is why long validity periods of 90 days or more are often sought when sourcing goods.
During normal times, a common practice is to set the first delivery date for a buyer at 30 days after the signed contract is returned. During a pandemic or war, this may be extended to 45 days due to potential shipping delays and carrier shortages.
The buyer should check the availability of a vessel at the time the contract is presented. They must then book the ship and have it on standby at the port, ready for its turn, well before the actual delivery date.
