AboutDavide Andrew Papa Expertise All matters pertaining to assisting Private import export INTERMEDIARIES, AGENTS and BROKERS Regarding International trade Laws and procedures,Letters of credits, as per UCP 600,Presentation, Commissions,International Rules of agency, and Incoterms 2000. All matters pertaining to shipping documents relating to the Import and export of products from one country to another.All matter for buyers and sellers of commodity products relating to the import and export industry.FTN with the introduction of UCP 600 will release the publication "The world is yours"(2004) made specifically for Intermediaries.Current inhouse tra ining manual is "Follow the Yellow Brick Road"(2008) Our advice website is www.ftnexporting.com
Experience FTN exporting founder Davide Papa has been trading for over 20 years- and has dealt with a huge variety of corporate entities including Gold and crude oil suppliers. FTN appeared in a major controversial Newspaper editorial in 1994. FTN Exporting official publication "International Trade and the Successful Intermediary"(ITSI) is about to be released world wide (December 2009) by the prestigious U.K publishing firm Gower's (U.K) and is listed on Amazon.com (Keyword: International Trade Intermediary) ITSI is ostensibly the first uniform intermediary trading doctrine of its kind, and will become the standard intermediary practice world wide in years to come. FTN exporting has created the said doctrine and supporting rules of trade defined as "URPIB" (Uniform Rules and Practice for Intermediaries and Brokers), which will (has?) become the most successful set of private intermediary rules ever created.
Publications The World is Yours and "Follow the Yellow Brick Road" www.ftnexporting.com . Author of "International Trade and the Successful Intermediary " (ITSI) 2009 excepts on http://www.gowerpub.com/default.aspx?page=637&calcTitle=1&title_id=11177&edition_id=12138
Education/Credentials Let school early. Became a master chef . Took up business management and later studied "international Trade at Stott's college Melbourne, Australia.
Not a question, but maybe information of interest to you?
I've read with great interest your answers, and studied each of your websites. They are full of very useful information, thank you very much. I'll be buying FYBR for sure.
I'm an Aussie living in Kiev, Ukraine. I'm associated with a company which is dealing mainly in shipping, and has recently expanded into bunkering operations which means purchasing oil.
Recently we received an official invitation from Gazprom to submit a LOI, providing BCL and ICPO. We know this invitation is genuine, as it came through the owner of Lukoil, a friend of one of the directors.
Sorry for keeping this question private, but I am the only Russell, and one of only fifteen or so Aussies in Kiev.
All the best, and thank you again,
Russell
ANSWER:
Dear Russell-
Hello mate?
Let me give you a more meaningful advice-
Sure that may be the case(LOI/BCL..etc.) - if an end buyer is buying - Not the case when an intermediary is applied to the deal- Internal ways of doing business is just that- and often such procedures are simply not effective even when no intermediary is involved in deal- ( my law books surely indicate as much) Crossing international waters? Don't forget Russia is Huge and covers many cross border deals as well-(DAF)in where LOI/BCL deals might be acceptable in some cases-
BUT NOT WHEN AN INTERMEDIARY IS INVOLVED-
You interest is only in "international deals"
Applying "Extraterritorial " laws and rules to a deal has always beeN a problem and has resulted in big court cases-
GaZProm deals in Gas- One of it's many agencies deal and handles crude oil- Sibneft is the biggest- They handle crude oil and fuels - Sibneft has sold shares to Gasprom- but Sibneft is an independent operation- as is "Transneft"
You want to Buy and sell such products - "Simply ask for a quote" - If you can get a quote from a direct supplier that alone is worth so much- it give you the require "Ostensible authority"to sell- without worrying about fraud charges-
GOLDEN RULE NUMBER ON: SECURE SUPPLY FIRST THEN CHASE THE MONEY-
RUSSIAN FULE /CRUDE SUPPLY IS BASED ON A QUOTA SYSTEM- IN THAT IT CANNOT SELL IN ANY ONE YEAR MORE THAN 30% OF IT CRUDE OIL ASSETS- THINKING THAT IF YOU HAD MONEY FIRST , AND GO KNOCKING ON GASPROM DOORS(VIA AGANECIS) FOR CRUDE OIL WILL WORK- IT WON'T- AND IS THE BIGGEST MISTAKE IN THE THINKING OF THE WAY MOST INTERMEDIARIES ON THE NET DO BUSINESS-
DO YOU KNOW HOW MANY STUPID INTERMEDIARIES HAVE BEGGED FOR MY HELP AFTER MAKING FALSE OFFERS OF GOODS THEY NEVER HAD, IN WHERE SOME HAVE GOTTEN A DLC WORTH MILLIONS-ONLY TO FIND OUT THAT THE GOODS OFFERED WERE FALSE , AND THAT EVEN WITH MONEY , SUCH GOODS AT THE ORIGTINAL OFFERED PRICE COULD NOT BE SECURED-?
I AM ONE OF THOSE STUPID INTERMEDIARIES - 20 YEARS AGO THE SAME THING HAPPENED TO ME- BUT IT NEVER HAPPENED A SECOND TIME- BECAUSE I LEARNED AND GOT MY SELF EDUCATED ON SUCH MATTERS- I HAD TO GO BANKRUPT TO DEFEAT THE CHARGES LAID AGAINST ME FOR OFFERING FALSE GOODS WHICH I THOUGHT WERE "REAL"
MANY HAVE ASKED FOR SUCH HELP- IN WHERE ITS SIMPLY TOO LATE TO DOING AYTHING ABOUT.
GOLDEN RULE- GOODS ARE SECURED FIRST ALWAYS-IS A LESSON ON ITS OWN- YOU'LL SOON LEARN THAT GETTING REAL SUPPLY IS EVEN MORE HARDER THAN GETTING THE END BUYERS-
With such an offer or quote in your hand you can now make your own offer to "SELL" as seller- you protect commission for intermediaries who assist you- to find end buyer- you control the whole deal-
You are not an end buyer of supplier - you are a "Seller/buyer" that position of agency stipulates specifically that you can only sell the "Title" to the goods -You don't have possession of goods nor will ever get possession of such - thus a 'letter of intent" to buy cannot be effectively applied by an intermediary- because youR intent to buy is false-
You can't give a BCL - because you don't have 100 million dollars- nor can you provide or ask for a ICPO - because you cannot hold such a irrevocable position- because you are only selling " title" of goods and b not actual physical goods-
Who ever ends up with title to the goods can take possession of the goods- thus when you get an offer from another "seller" you ask them "Do own the goods" if he says yes then he is a liar- if he says no- then YOU SAY STEP BACK PLEASE= "You will only deal the with the owner of goods"- IF you step back to disclose your supplier I will secure your commission-(or/and end buyer)
LOI/BCL/ICPO/ASWP..etc.. simply cannot be effectively used when an intermediary is concerned-
Thus when you are dealing with company like Gaspromn or others- it is imperative - that you state from the start-
I.e:
Dear Sir
We require for our consideration a quote for the following product at FOB Incoterms, as "Buyer acting on behalf of an undisclosed Principal"...etc..
If you get on the company letter head a quote or positive answer and You have a PRICE basis to work with- You have authority to sell-
The authority to "sell" does not come from Gasprom-it comes from its action of PROVIDING YOU WITH THE QUOTE-(OR OFFER)
Action in giving you a positive reply-A positive reply says that YOU are indeed allowed to sell, the "interests" in the goods you have diligently secured without taking possession of such-In other words; you may indeed "flip your buy contract over" to become a sell contract-while finalizing the purchase of one, you are also closing o upon the deal on the other end as well-
I hope the above is very clear-
You want to play with the "big boys" then you must know your own limitations on what you can do and what you cannot do - as an intermediary-
intermediaries deal in documents- thus poor documents are trashed - because you need to work with very clearly defined documents-
THUS INTERMEDIARIES MUST DEAL IN EXCEPTIONAL UNAMBIGUOUS 'AT SIGHT" DOCUMENTS- AND TO GET SUCH PRESENTED IN A CLEAN MANNER SO THAT COLLECTION CAN BE EFFECTIVELY APPLIED-
A quote is not legally binding - thus its a "Consideration to buy" that is being applied-
The very first document to start a deal Must com form a supplier in the form of a quote- You cannot consider buying "Fresh air"
So the supplier say " Sure WE CAN SUPPLY- WE need an LOI first"
Your reply is " No problem - but I need to know what is being offered FIRST "
Then if you secure end buyer - the deal you apply with the end buyer has nothing to do with the supplier- 2 independent deal applies meaning one side will not cross over to the other side- thus No circumvention possible-
If the quote is accepted- You then confirm the quote with the supplier with the issuance of an "OFFER to procure"- the Supplier may comeback to you and say- "We first now need an BCL"
You come back with "Sure not problem, when the offer is accepted and a legally binding supply is assured "then confidential matters of banking will be applied on the sales contract"
But the supplier says I need a ICPO- then simply change the title to the offer document to ICPO-
Who cares - it's still an "Offer" and the offer has an irrevocable application that happens once the offer is accepted and signed-until that happens its not legally binding-
an ICPO in real life becomes legally binding once issued- Big difference? and Intermediary cannot Irrevocably apply to buy something- it can't take possession of , nro has a end buyer to take the goods"
Once the contract issued from the supplier such requires up to 30 days to formally sign-
here is you one single opportunity to get an end buyer signed up to your own contract , get the funds of the end buyer into your account- in where once you return the signed contract to the supplier - he can check all he likes to find that you are indeed 'RWA"
As per contract DLC portion is transferred, Title delivery documents are presented- if all is in order - the supplier gets his money, the end buyer gets thew title documents - and waits to take possession of the goods by showing his title documents at port of unloading-
I hope the above is of help- "FYBR" is over 100,000 words long - it explains the above fully- thuds just assume a basic insight is given - there is a lot more to the big picture that one needs to know and learn-
regards
Davide Papa
www.ftnexporting.com
www.ftnx.9f.com
www.itsi.itgo.com
---------- FOLLOW-UP ----------
QUESTION: Dear Davide,
Thanks again for your most comprehensive answer. Just in case there's anything I can ever do to help you, I'll give you a rundown on my experience and current situation.
I worked for a shipping agency a few years ago, as a logistics manager. I handled container control, receiving and releasing freight, Export Clearance Numbers for exports and arranged Customs Clearances on incoming FCLs, and did all the ships husbandry such as organising tugs, linesmen, liaising with the Harbour Master, arranging a berth, visiting the ships to take mail, collect documents, etc. I also did the Bills of Lading for two of our shipping lines, and have a good knowledge (although far from complete!!) of shipping procedures and documents, although never anything involving Letters of Credit.
I came to Ukraine to teach English. One of my first clients owns a shipping company. I spend most of my time now as the shipping company Director's 'right hand man'. Two shipowner clients are interested in dealing in crude oil. One of them owns bunkering tankers, and the other is a friend with a Director of Lukoil. The refinery can handle more oil than it receives from Russia, and we are looking to source oil from other places e.g. Nigeria, although we would only deal with NNPC directly. NNPC will only sell directly to a refinery, which was why I asked my original question to you about the ethics and legality of buying from such a seller, and reselling.
I hope to find the time soon to buy and read your FYBR manual. I've seen from your answers and websites that you really know your stuff.
All the best,
Russell Cunning
Answer Dear Russell
Thanks for the compliments , help? Perhaps you can give me up to date shipping quotes from time to time-
The question and answer does not change- the selection of supplier is also an important factor-
Read on-I'll give you this one other deep insight-to reinforce the first answer.
You have Great experience in a small but important part of the overall "big picture" and yes an professional intermediary needs to know to a basic level about such matters-You need to also know matters about Incoterms, UCP600 DLC and matters of contract- the rest all comes together , based on trading experience-
But to get experience one has to start to trade- Thus by default the intermediary has to trade in a guarded sort of way so that they do not get into any legal hot water-
As the experience grows guarding protocol are relaxed but only slightly-
A shipping company ( Iknow a few who are trading as well) are indeed "intermediaires" if they apply to trade on the very goodes they carry-
A trader like FTN exporting would be in a far better position if it were associated with a a tight shipping group- as head of the "trading" section it could depend on freight quotes from the carrier who assists FTN to get the goods to the Buyer- In return the carrier earns freight ,learns real full on intermediary trading procedures but also gets a big slice of the commission made on the goods- This is something i am looking to apply in the future and will included such matters in Next year 's Publication-"If" shipowner want to participate in such an "experiment" is yet to be tested-
In my publication I state that I prefer intermediaries to Keep away from FCL FCA/CIP Multi CT deals or if they are going to deal in FCL they need an order of at least 10 or more FCL to make a small commission-
As you know "On board FCL" involves often the use of MANY received BOL's-
Intermediaries chasing the big deals and serious money must trade in 'One Marine BOL, One deal" application of single shipment load or monthly revolving loads - of at least 5000 MT or more -(I.e. Sugar 12000 MT or more - Sulphur 5000 MT, 100,000 MT Diesel or more...etc... ) For Crude oil - you are dealing more often that not on 80,000 -up to 140,000 MT monthly shipments- Forget about ULCC deals-Not many ports can handle such ships-
Specifically to Russian crude (Urals), as stated; The Russian yearly quota of 30 % per year of GDP is used as a supply basis-even though they have much more capability than such - It can't sell more-
Russia needs to make money from end user products not from resources-(So people are kept in employed) it cannot be held to ransom on crude oils sale to keep its economy afloat- Any trouble of embargo applied by a country like USA on Russia crude sales would affect allies to the USA as well-
As such Russia must only produce enough crude oil that it could use in any one year period itself- should such an embargo ever be applied- Hence such crude oil always seems to be in short supply- In effect the only way you are going to get such oil is when someone in the quota line bombs out and fails to pay for goods allocated - A outside buyer could move in and take up such a (SPOT) allocation- but that's near impossible to do(unless y one has "special" contacts) as many buyer exists who have upfront cash funds -to which an intermediary needs time to raise such funds-
An intermediary cannot deal in "spot" cargo it can only deal in future contract of supply-90 days or more-
There is also the issues as it relates to" Oligarchs" (mafia) but that's another matter which hopefully President Putin is getting a grip on-
Anyway the above is just a basic thread to get your thoughts rolling assume its a lot more than implied-
All of the above now leads into you question once more-
There is what is known as "Primary contract" (I.e; PDVSA, NNPC, OPEC..etc..) and then there is the "Secondary market" contract application -(I.e: A Saudi Prince does not get paid in cash - he is paid with oil and may need to sell such oil privately- not aligned to Aramco terms and conditions which apply a "Primary market" application) Thus ? If you are not an end buyer meaning "end user" I.E Refinery? you are defined a a "Secondary market" buyer- and seller-
(NOTE: NNPC only own around Half of its oil production- You need to go to shell who own the rights to oil concession at the "Shell Bonny terminal" - )
An intermediary can only deal in "secondary market" applications- It can't touch Primary contract - not because of any great difficulty , but mainly because the Supplier wants to only deal with the end buyer taking possession of goods- I.E: Refinery - and that the intermediary cannot give the name of the end buyer as required upfront , because the intermediary WILL be circumvented is nearly 99.9% assured-
Thus as explained before is still100% applicable- except you cannot deal in Primary Market type of goods- including implied primary products likes, Gold, Diamonds, PBG's, Uranium, Nuclear weapons... and the likes-
Also Note when Buying from Russia crude oil- Carrier have to be specially licensed to travel inside the Black Sea a region- due to the fact to many submerged shipwrecks are apparent-
Thus Russian ships pick up the crude oil navigates the dangerous Black sea waters and delivers such crude to Augusta or Laverna Italy- with CIF draw back applied-That means the buyer buys FOB from Italy and pays for the CIF component of the Black sea part of the Voyage- -
I laugh when i see all those intermediaries trading in Russian crude oil- they are really useless-and have no idea what they are doing-
Crude oil apply secondary and Primary contracts- Kerosine, Diesel , Naptha and other fuels on the other hand have a far better and are offered as mostly secondary trading application and is often the far better choice of product to obtain especially from a 'CIS" country-
There are very few private based independent suppliers(some) who will insist on dealing with a end buyer - that's not a primary contract - and you could work around such a deal-
Primary Versus secondary contract still applies the previous answer fully-
Procedure and experience over the long terms needs to apply as well as research makes for a very good professional intermediary-there is a lot to know-
Regards
Davide Papa
davide_ftnexporting@yahoo.com.au
