recent trends in negotiating purchasing and sales contracts

Recent Trends in Negotiating Purchasing and Sales Contracts

Recent Trends in Negotiating Purchasing and Sales Contracts | 4/8/09 11

Odd Financing

¡ Trade Letters of Credit for domestic products

¡ “Reverse Factoring”


Odd Financing


Indemnity Issues

¡ Trend to indemnities beyond third party claims (for product liability, etc.)

¡ Acceptance of terms to get deal done … indemnities in the future


International Sales and Purchasing

¡ UN Treaty – requirement to opt out

¡ Incoterms

¡ Export Control Issues

¡ Enforcement of Judgments/Arbitration


INCOTERMS 2000

International Chamber of Commerce Official Rules for the Interpretation of Trade Terms

Ex Works (…named place) – seller delivers when he places the goods at the disposal of the buyer at the seller’s premises or another named place, not cleared for export and not loaded on any collecting vehicle.

FCA (“Free Carrier”)(…named place) – seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place.

FAS (“Free Alongside Ship”)(…named port of shipment) – seller delivers when the goods are placed alongside the vessel at the named port of shipment. Seller must clear the goods for export.

FOB (“Free on Board”)(…named port of shipment) – seller delivers when the goods pass the ship’s rail at the named port of shipment. Seller must clear the goods for export. Used only for sea or inland waterway transport. If not applicable, use FCA.

CFR (“Cost and Freight”)(…named port of destination) – seller delivers when the goods pass the ship’s rail in the port of shipment. Seller must clear the goods for export and pay the costs and freight necessary to bring the goods to the port of destination.

CIF (“Cost Insurance and Freight”)(…named port of destination) – seller delivers when the goods pass the ship’s rail in the port of shipment. Seller must clear the goods for export and pay the costs, freight, and marine insurance (against buyer’s risk of loss) necessary to bring the goods to the port of destination.

CPT (“Carriage Paid To”)(…named place of destination) – seller delivers when the goods are given to the carrier nominated by him, but the seller pays the cost of carriage to the place of destination. Seller must clear the goods for export.


INCOTERMS 2000

CIP (“Carriage and Insurance Paid To”)(…named place of destination) – seller delivers when the goods are given to the carrier nominated by him, but the seller pays the cost of carriage and insurance (against buyer’s risk of loss) to the place of destination. Seller must clear the goods for export.

DAF (“Deliver at Frontier”)(…named place) – seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport not unloaded, cleared for export, but not cleared for import at the named place, but before the customs border of the adjoining country.

DES (“Delivered Ex Ship”)(…named port of destination) – seller delivers when the goods are placed as the disposal of the buyer on board the ship not cleared for import at the named port of destination.

DEQ (“Delivered Ex Quay”)(…named port of destination) – seller delivers when the goods are placed at the disposal of the buyer not cleared for import on the quay (wharf) at the named port of destination.

DDU (“Delivered Duty Unpaid”)(…named place of destination) – seller delivers the goods to the buyer, not cleared for import and without “duty”(customs formalities, duties, taxes and other charges), and not unloaded from any arriving means of transport, at the named place of destination.

DDP (“Delivered Duty Paid”)(…named place of destination) – seller delivers the goods to the buyer, cleared for import, not unloaded from any arriving means of transport, but “duty” paid.


Force Majeure

¡ Scarcity of raw materials

¡ Homeland Security


Price Escalation

¡ Volatile Commodity Markets

¡ Verify Indices and pricing metrics


Price Escalation

PRICE NEGOTIATIONS – DRAFT EXAMPLE FROM CHINESE SUPPLIER4. PriceTo allow for an updated pricing mechanism, along with the superseding provisions for productivity improvements that are set forth in the MOU and the deletion of Exhibit A to the CMA (above), Section 7 of the CMA is hereby deleted in its entirety, and replaced with the following.

4.1 Exhibit X to this Amendment sets forth the “Base Price” as agreed to by the Parties for all Products included therein. These Product prices are based upon the following calculation:

4.1.1 For the term July 1, 2008 through December 31, 2008, the Base Price of all Products is based upon a raw material price of copper at $6800 per metric tonne (MT) and zinc at $3000/MT, reduced, however, by Supplier’s agreement to cover the difference between $5000/MT and $4250/MT for copper, and $1900/MT and $1700/MT for zinc, which each represent 50% of the difference between $5000/MT and $3500/MT for copper, and $1900/MT and $1500/MT for zinc. All Products for which a Purchase Order was issued by Buyer and accepted by Supplier prior to July 1, 2008, but which have not yet been delivered by Supplier, shall be included in this calculation and shall have the same Base Prices.


Price Escalation

4.1.2 Therefore, for the term July 1, 2008 to December 31, 2008, the Base Price for the Products (including those ordered but not yet delivered) is based upon and equivalent to $6050/MT for copper and $2800/MT for zinc. To encourage long-term financial planning and in recognition of the mutually beneficial relationship between the parties, all Products’ Base Prices will remain unchanged through December 31, 2008.

4.1.3 From January 1, 2009, in lieu of payment for a 2008 material inflation impact, and subject to the provision of Section 5.1, no raw material price included in the Product Base Price shall be subject to discount as detailed in Sections 4.1.1 and 4.1.2.

4.1.4 Beginning on January 1, 2009, all Products’ Base Prices will be fixed for intervals of three months duration subject to modification at the beginning of each interval based on a specific month’s average London Metal Exchange (LME) 3-month buyer price for copper and zinc.

4.1.5 The intervals and their determinative months are as follows:

Interval Determinative Month

Jan. 1 to Mar. 31, 2009 November 2008

Apr. 1 to Jun. 30, 2009 February 2009

Jul. 1 to Sept. 30, 2009 May 2009

Oct. 1 to Dec. 31, 2009 August 2009


Price Escalation

4.1.6 As an example, for June 2008, the monthly average LME 3-month buyer price was $7,093.48/MT for copper and $3,179.57/MT for zinc (refer to http://www.lme.co.uk/dataprices_monthlyaverages.asp).

4.1.7 To effect a change in Product Base Price for a successive interval, the determinative month’s average LME 3-month buyer price for either copper or zinc shall be 15% above or below the LME prices used to calculate the Product Base Prices for the previous interval or period. The earliest effective date for Product Base Price changes is therefore January 1, 2009, based upon a review in early December 2008 of the November 2008 average LME 3-month buyer price.

4.1.8 To promote a measure of stability in Product pricing, should a change in pricing occur, the new raw material basis for copper and/or zinc in $/MT of the revised pricing will now enjoy a 15% band.

www.lme.co.uk/dataprices_monthlyaverages.asp

http://www.lme.co.uk/dataprices_monthlyaverages.asp

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