Global Trade Operations - Essay Example

? Global Trade Operations Task: Global Trade Operations Introduction International trade is one of the greatest contributors in the development of any country. However, due to the differences in rules and regulations, it becomes fundamentally vital to develop a framework of guidelines that are generally acceptable by the international trading community. The International Commercial Terms (Incoterm) are rules and regulations that govern international trade because when two parties are involved in international trade disputes or misunderstanding may arise hence making Incoterm a central component in the development of international trade across the globe (Branch 2009, p.4). The International Chambers of Commerce (ICC) established these guidelines in the year 1936. However, they have greatly evolved since that time. The main aim of these international trade guidelines is to spell out the legal obligation of the two parties involved in the trade. Additionally, this minimizes misunderstandings and conflict between the two parties. International trade can prove difficult when the two parties face obstacles such as language barrier and other limitations. This makes the International Commercial Terms (Incoterm) a very important aspect of the trade. The International Commercial Terms (Incoterm) apply globally hence making them generally acceptable by all countries. The contract of the sale of goods is the area of focus in the International Commercial Terms (Incoterm). Additionally, the International Commercial Terms (Incoterm) covers all the aspects of transportation of goods, obligation of both parties and other requirements such as insurance. The International Commercial Terms (Incoterm) entails eleven terms that are fundamental in international trade. Furthermore, these terms fall under four major divisions these include “C” terms “D” terms “E” terms and “F” terms. The seller or exporter has to follow the International Commercial Terms (Incoterm) in order to complete a successful business transaction. Additionally, the procedures under International Commercial Terms (Incoterm) follow each other sequentially and in order of the degree of responsibility. However, one can better understand the terms used in the International Commercial Terms (Incoterm) when using a typical example of a business transaction between an importer and an exporter hence making the application of these terms relevant. An international business transaction has to involve two different countries and in order to use all the applicable procedures in the International Commercial Terms (Incoterm) it is important to use two different countries that are not on the same bloc due some waivers, trade agreements and other issues like memorandum of understanding Description of the business Transaction The main business transaction that is most appropriate and fits the criteria of the International Commercial Terms (Incoterm) is importation and exportation of Japanese cars. This has been a very successful trade between Japan and other countries of the world. Additionally, most of the cars manufactured in the world come form Japan hence making a study on how the business transactions take place very informative. However, one main reason as to why this particular trade meets the criteria is that very many legal formalities are involved in the importation and exportation of vehicles from one country to another. Additionally, this kind of trade deals with incredibly many different nationalities hence providing readily available information that is useful. However, several countries have different rules and regulations that govern the importation of cars. For instance, in other countries one cannot import a car that is more than eight years old or the vehicle must be in a certain condition. All these rules and regulations involved when importing or exporting a vehicle make the trade more sophisticated. Countries involved in the business transaction The two main countries that we are going to focus on are the United States as the importing country and Japan as the exporting country. However, the reason as to why these two countries are most suitable is because Japan one of the chief vehicle manufacturing countries in the world and the US is among the largest importers of vehicles from Japan hence making the volume of business transaction enormous. Japan has managed to get the largest share of the American market by providing strong, stylish, durable and cost effective vehicles. Additionally, the prices of their commodities are comparatively cheaper, as compared to other exporting countries hence making Japan be the fastest growing nation in exportation of vehicles. However, in as much as we have identified the countries that are involved in the trade, examining the trade will holistically pose a great challenge. Therefore, it is vital to identify a prominent company in Japan that deals with the exportation of vehicles and critically examine how it handles the whole process hence proving to the insight of the whole process. Auto Craft Japan (the exporting company) Auto Craft Japan is one of the leading companies in exportation of vehicles. The company has its main offices in Tokyo Japan (Auto Craft Japan, 2011). Additionally, it has a network of representatives all over the world to help provide information to customers. Furthermore, the company has been in business for a long time. Similarly, it exports more than ten thousand vehicles annually hence making it a suitable company to use in examining how exportation of vehicles from Japan to United States takes place. The company has a long-standing reputation in vehicle exportation and a global network in terms of export destinations. These attributes make Auto Craft Japan the most appropriate example to use in following the exportation process of vehicles. The exportation process The exportation process clearly explains the all the steps that are involved in moving the goods form the seller in one country to a buyer in another different country. Additionally, it includes the payment processes and all the legal requirements of both the countries concerning the movement of goods. In this case, the goods in question are vehicles that move from the country of origin, which is Japan to the destination country, which is the United States of America. We will further break down the transaction into just one customer in the United States importing a vehicle from the exporting company Auto Craft Japan. The importance of this is to show how the whole process takes place. Additionally, the process will show the movement of the vehicle from the exporter’s premises to the customer in the United States. Customer places an inquiry Various sources for the customer to get information about the product are available in Auto Craft Japan. These sources include the company website that has the full range of products and a fully functional ecommerce system, online modes of payment and a powerful search engine allowing the customer to place his or her specification of the vehicle he or she requires. The search engine provides the customer with various criteria that he or she can use to customize his or her search. Additionally, another source the customer could get information from is company representatives in his or her country. The representatives will provide him or her similar information on the range of products the company stocks. However, whichever way the customer gets the information he or she requires the process remains the same. The first step is placing an inquiry, and then the company will prepare a quotation for the customer. However, the company will only prepare a quotation only after receiving an inquiry from the customer. The main aim of the company preparing a quotation is to acknowledge that the product the customer need is in store and providing him or the price. However, in some cases a customer can need a more specific vehicle that has extra features hence making to customize one for that customer according to the specification he or she provides. The range of vehicles the company deals with is mainly standardized and similar. Due to this, there are no customized vehicles for customers with different taste and preference. However, in the exportation process the customer and the exporter have to follow the International Commercial Terms (Incoterm) in order to ensure the success of the business transaction. However, in this case the seller is the exporter hence we will use the “D” terms, which include Delivered to place, Delivered at terminus, Delivered duty paid. The payment process After the company has processed the customer’s order it will sent a copy of the complete order to the customer including all the requirements and processes involved. At this stage, the customer will make payment in accordance with the company requirements. For instance, the Auto Craft Japan Company accepts payment in two modes, which are Telegraphic Transfer (T/T), and payments via PayPal. However, the most recommended is the Telegraphic Transfer (T/T) mode. The company provides all the detail about the payment to the customer in the order form including the bank details. However, in this case the seller, which is the Auto Craft Japan, will provide the “D” terms to the customer. This includes all process until the delivery of the product to the customer. The documentary collection mode of payment Sometimes a customer can decide to use the documentary collection mode of payment. In this case, the company can arrange all the processes that are involved in the shipping and delivery of the vehicle to the customer without receiving the payment up front but on an agreement that the company will receive payment after the customer receives the vehicle ordered. In this case, a considerable amount of risk exits that the exporting company has to bare but there are measures it can use to ensure that the customer makes the payment after receiving the vehicle. If the customer will only make payment after receiving the vehicle then a documentary collection is the most appropriate mode to use because it allow the seller to send all the necessary details including shipment and a draft of the payment to the customer’s bank. Additionally, the bank acts as the intermediary in this particular transaction. The title of the goods passes from the seller to the buyer after the buyer clears the payment draft. Additionally, it is not the physical delivery of goods that is of the essence but the ownership of the goods that is of great importance. Short-term finance arrangement The main aim of short-term financing is to carter for the costs that are involved in the whole process of transporting the goods from the premises of the exporting company to the customer’s disposal including the value of the consignment. The most commonly used form of short term finance is a bill of exchange where by the company bank buys the bill of exchange at a hundred percent and later collects all the proceeds form the trade in its name. This mode of financing is very secure and enables the exporting company to run all its operations an avail the goods to the client in good time. As for Auto Craft Japan, it uses this option when exporting to clients who opt to use the documentary collection mode of payment. When using a bill of exchange there are two banks involved, the lending bank and the collecting bank. Additionally, the two banks act intermediaries of exporter and customer bank respectively. Transportation In this particular business transaction, the mode of transport that is most suitable is shipment due to the distance involved and the size of cargo. Additionally, transportation of the vehicle will involve containerization so that it is customer gets it in proper condition. Furthermore, containerization is the most secure mode of packaging when using ship as a mode of transportation. However, some of the main advantages include reduced amount of handling hence saving on time. Moreover, during preparation for shipment there are several steps that the company needs to take to ensure successful transportation these includes proper documentation of country of origin, insurance of goods and payment. After packaging the vehicle and labeling the container then the company goes ahead and arranges transportation with a shipping company. However, it is important to note that the company handles transportation logistics up to the destination port after which the state of the vehicle becomes Ex-works (EXW) meaning that the responsibility of the vehicle passes from the seller to the buyer to handle the necessary port clearance. Additionally, some of the details that are involved in the transportation include booking the cargo with the respective carrier company and filling out the paperwork on behalf of the customer. However, the additional services that the company will do for the customer include the “F” terms that is Free alongside Ship (FAS), free carrier (FCA), free on board (FOB). The company will move the goods from its premises to the port of origin where the goods are then loaded to the ship for transportation to the destination port. However, at this point the company must ensure that the goods in this case the vehicle is secure and safely loaded to the cargo ship. Additionally, the vehicle must ne adequately insured for any losses that may happen during the transportation process. It is important for the company to take all these measures seriously because if the condition of the vehicle is paramount to the customer. If the vehicle gets damages in any way then the customer will not pay sighting defects. Additionally, when the exporting company is wring the contents of the container it further records the state of the vehicle after inspection tests but before packaging and forwards the details of the vehicle to the insurance company which will then insure the vehicle during the time of transit. After the vehicle is loaded to the ship for transportation then the company sends a notification to the customer to notify him or her that the vehicle has on board will all the details of the container and the shipping company. It is the sole responsibility of the company to make sure that the vehicle is on board and the ship has departed and notify the customer of the same. Additionally, the company then checks for correctness and send a copy of all the documents pertaining to the consignment to the customer. However, in this case the company will send all the details to customer’s bank because the bank acts as the intermediary between the customer and the exporting company. This is due to the method of payment that is used. When the consignment has arrived in the destination country or the destination port then the customer has to acknowledge the receipt of the goods to the company. Delivery When the company sends all the documents to the customer’s bank and the customer in conjunction with the bank acknowledges receipt of the same. Then the customer waits for the specified period for the vehicle to arrive at the destination port where he or she can start the process of clearing the vehicle. However, the clearing process will now be entirely the customer’s business. After the customer acknowledges receiving, the consignment then he makes the payment in full to the exporting company about the agreement as stipulated in the payment mode. Additionally, the bank has to acknowledge that both parties have met the stipulated obligation as agreed before authorizing any payment to the exporting company on behalf of the customer. The 60-day window period After the customer has received the vehicle then the exporting company, in this case Auto Crafts Japan can provide a 60-days window to enable the customer to clear with the customs department in his or her country. However, the company faces a degree of risk when giving a sixty-day window for the customer to make payment hence, it is important to highlight how the company can protect itself against losses. The best method of protecting the seller in cases where the buyer has a 60-day period to pay is by the use of a bill of exchange. The bill of exchange enables the company to get payment from the customer. In conclusion, the exportation process has several rules and regulation governing it. However, the main aim of these rules and regulation is to protect both the exporter and the importer from any arising conflict or misunderstanding during the business transaction. Additionally, the International Commercial Terms (Incoterm) which are universally acceptable apply in all forms of importation or exportation. However, it is the obligation of the exporter to ensure that the business transaction goes ahead successfully to its completion because it is not on his reputation that is on the line but also the reputation of the country. References Branch, A 2009, Global supply chain management and international logistics, Routledge, New York. Greenaway, D 2011, the world economy global trade policy 2010.Chichester, West Sussex, Wiley-Blackwell. Auto craft Japan 2007, How to buy from auto craft Japan, Viewed 28 September 2011, . Read More