How to Control the Deal

International Commodity TradingHow to Control the Deal International Global Trading Procedures for The Controlling Intermediary

IntroductionA trader needs to enter into the international trading world withknowledge, skills and absolute assurance. Entering in any othermanner can and will be steps of continuous regrets.Regardless of the commodity, (Oil, Corn, Sugar or Wheat) theprocedures are the same for the controlling intermediary. If you asthe controlling intermediary step outside of the only proceduresand applications an intermediary can use, it is guaranteed you willbe circumvented or the deal will collapse.Years ago intermediaries had no effective uniform policies or anyset of guiding rules available to rely on for internationalcommodity trading.For years intermediaries were doing the best they could with littleor no rules at all. While other institutions have rules of some sortwhich an intermediary was relying on, but its basis are informallyapplied and not fully constructed as uniform applications.Although these informal applications are somewhat appropriate forthe End Buyer and the Supplier dealing directly with each otherthey are not applications that can work for the intermediary.An enterprise known as Foreign Trade Negotiator Exporting haddeveloped an effective doctrine and a guiding set of rules whichwas tested in 1998 and over many years it was refined andperfected so it could be applied in 2005.For the first time in years the intermediary could apply a safelegally defined set of standards and be able to act in the positionof a professional international trade intermediary with secure,safe, procedures and applications. These rules are founded onthe doctrines of English Law, International trade rules and UCP600.The CommissionUnfortunately Intermediaries tend to think that the End Buyer orthe Supplier is going to pay the intermediary their commission.This is incorrect. The End Buyer is there to buy only and thesupplier is there to supply only. And nothing more!

It is not the obligation of the End Buyer or the Supplier to take onthe responsibility of commission for all the intermediaries. Andfor good reason!It's of no advantage to them. The End Buyer is there to purchasethe goods and nothing else. This also applies to the Supplier; heis there strictly to supply. W hy would the End Buyer or Supplierwant to take on the responsibility, book work and papertransaction that needs to be done for commission to possibly 10intermediaries (which is not unusual in the chain of a deal).And that's not even mentioning the cost of the SBLC (StandbyLetter of Credit) to each of the intermediaries for their commissionpayment. Neither buyer nor seller will save money or time.We are talking about Millions of dollars, do you really think theywill pay the intermediaries commission and not circumvent themif they have the chance.Often intermediaries agree to step back once the “MPA” (aflawed worthless document) are signed, leaving the End Buyerto close the deal directly with the Supplier. What is to stop thetwo principals letting this deal collapse on the understandingthat they will enter into a new agreement under an affiliatecompany name or a different transaction code. This can happenbecause there is no one controlling the deal.Example:Delta Airlines (the End Buyer) circumvented an intermediary ofhis commission of 5 million USD by requesting information of theSupplier and when Delta received that information, they got ridof the intermediary and dealt direct with the Supplier throughanother company that was an affiliated with Delta Airlines. Itwent to court and Delta Airline won the case as the man hadno proof that the deal closed and with whom. The Intermediarywas just hoping that Delta would play fair and give him hiscommission for disclosing the supplier before it was safe to doso, but Delta did not play fair.The intermediary had no protection and no proof that Delta owedhim anything as Delta did not close the deal, it was their affiliatecompany that did and they owed him nothing.

This is why an intermediary holding the position of the “PI”controlling intermediary would never allow any part of anintermediary chain on one side of the deal to contact the otherside. This ensures at the very least that should a deal fails theSupplier is unable to connect with the End Buyer.Controlling IntermediaryA Buyer/Seller Intermediary must protect themselves from beingcircumvented. The best way to do this is to take the position of thePrimary Intermediary (PI) agent also known as the ControllingIntermediary.The Buyer/Seller Intermediary taking the roll of the ControllingIntermediary AKA the “PI” Primary Intermediary must beknowledgeable, experienced and skilled as he has a lot ofresponsibility to the End Buyer, Supplier and the SourcingIntermediaries who assisted him in the deal, but it is totallyimpossible to be circumvented holding the position of theControlling Intermediary.You “The Controlling Intermediary” will be defined as the PI (PrimaryIntermediary)Buyer will be defined as the intermediary who sourced the End Buyer.Seller will be defined as the intermediary who sourced the Supplier.Supplier will be defined as the person who is in possession of the goods.End Buyer is the person who will take possession of goods.……….Secure Your Supplier First(This is where it all starts)The most important player is the Supplier because you cannotmake an offer to an End Buyer without having a secured Supplier.The “PI” Primary Intermediary must obtain a “Quote/Offer” fromthe Supplier first. Without genuine Suppliers Quote/Offer you havenothing to offer an End Buyer and cannot start a deal. Theinexperienced intermediary thinks the money is more importantand they should have this first. This is wrong. No SecuredSupplier. No Deal.If you issue a “Quote/Offer” to an End Buyer and it is accepted

and once applied on contract, this is strong, effective legallybinding doctrines of application. If you have nothing to sell, youcan end up with fraud charges against you.When a buyer issues a \"DLC\" (Documentary Letter of Credit) toyour (the controlling intermediary) bank account and you havenot secured a Supplier you have put yourself in a position ofbeing charged on fraud. It is fraud to offer to sell something youdo not have. If you secure a quote from a Supplier, you nowhave something to sell.Secure your Supplier first and chase the money second.Note: The “Quote/Offer” from the Supplier to the ControllingIntermediary means that the supplier is offering to sell hisproduct at his quoted price. This written offer from the suppliergives the controlling Intermediary the legal authority to sell thesupplier’s product to an End Buyer. This is called securing thesupplier.A quote from a seller intermediary is of no value unless the selleris willing to step back and let you the Controlling IntermediaryDeal directly with the Supplier (the person in possession of thegoods).OK Here’s the deal.In order to take control of the deal and take the position of the “PI”Primary Intermediary, AKA the Controlling Intermediary must offerto protect the sourcing Buyer Intermediary and the sourcing SellerIntermediary, with an IPG (Intermediary Pay Guarantee) and askthe sourcing intermediaries to step back.The IPG is a separate document agreement between thecontrolling intermediary and the sourcing intermediary thatprotects the commission and will stand up in a court of law. Theflawed documents “NCND/IMPA” will not. The Book (FlawedTerms) has a copy of the IPG included.We are going to assume all intermediaries have stepped back andyou are dealing directly with the End Buyer and a genuine supplier.This means “YOU” the (PI) has to work with 2 Quotes, 2 Offersand 2 Contracts at the same time from both sides of the fence,while ensuring information from one side of the fence never

crosses over to the other side until it is safe. You buy the “Title” ofgoods from a \"SUPPLIER\" and sell the “Title” of goods to an \"ENDBUYER”. Using the End Buyer’s money!You have to buy the product “Title” then resell it at a higher price,the difference of which stays in your account, and you have to dothis without using one dime of your own money.Note: The “PI” never takes possession of the goods. The “PI”deals in documents only. If you can master the documents, youhave an excellent chance of controlling and closing a deal.Step by StepRemember the Supplier and the End Buyer must not cometogether until the End Buyer has issued a Pre Advised ITDLC(Irrevocable transferable Documentary Letter of Credit) to the“PI’s” account. If the Supplier and End Buyer do come togetherprior to the issuance of the DLC, you will be 100% guaranteedcircumvented.(1) Securing your Supplier is your first step. You (RFQ) Requestfor Quote from a genuine Supplier “FOB”. If the Supplier has aninterest in you selling his product he will send an Offer/Quotegiving you the price of the product “FOB”, specifications,procedures, preferred financial payment and a validity date. Thiswritten offer from the Supplier gives you the authority to sell hisproduct. Your Supplier is now secured and you have legallysomething to offer an End Buyer.This is not a mandate-ship.Note: The validity date you ask for in your RFQ to the Supplier willbe 21 days. You will probably only get 7 to 14 days. You will offeryour End Buyer only ½ of the validity days offered to you.(2) Before you can make any offers to an End Buyer you mustnegotiate the Supplier’s procedures and financial instrument ifthey are not within the procedures you can deal with.(3) If all is agreed with the “PI” and the Supplier, the PI will rewritethe Offer/Quote, add the commission in the cost of the product,use the same specification, procedures, payment preferred (DLC)and conditions as the Supplier on the PI’s letterhead and send his“Offer/Quote” to the End Buyer.

Note: The “Offer/Quote” you issue to your End Buyer mean youare offering to sell the product at a quoted price on behalf of yourundisclosed Supplier.Note: Remember 2 “Quotes”, The Supplier’s “Quote” to you andyour “Quote” to the End Buyer. This is 2 separate deals.(4) If End Buyer accepts the price “Offer” from (YOU) the “PI”Primary Intermediary, the End Buyer will send a “Purchase Offer”to (YOU) the “PI” Primary Intermediary.(5)After (YOU) the “PI” receives the \"Purchase Offer\" from the EndBuyer, (YOU) the “PI” writes an \"Offer” (on “PI’s” letterhead) onbehalf of the “PI’s” undisclosed End Buyer to the Supplier.Note: In the “Offer” to the Supplier you (the “PI”) must state“Subject to Contract”. Without out this statement, the “PI’s” “Offer”can be used as a binding contract.(6) If the Supplier accepts the \"Offer\" from the “PI”, the Supplierwould send a signed “Contract Agreement” with all condition andrequest in the “Offer” to him plus other pertinent informationneeded to start the delivery of product.Note: You do not accept or reject the Contract Agreement untilafter your Contract Agreement from the End Buyer is accepted.(7) After receiving the “Contract Agreement” from the Supplier,and no negotiations is needed, the “PI” would on his letterhead,rewrite, sign, and send the “Contract Agreement” to End Buyer forhis acceptance and signature. (The only payment method the “PI”Primary Intermediary can deal with is a UCP600 bank issue PreAdvise Transferable Irrevocable Documentary Letter of Credit.)Note: If the End Buyer chooses to give you a non-transferableDLC then you must insist on a Confirmed IDLC as you then canissue an “In House DLC” to the Supplier. If the End Buyer refusesa transferable or a confirmed DLC then there is NO DEAL. He isnot interested in buying the product he is only interested inobtaining your suppliers information to circumvent you.Note: With the ITDLC (Irrevocable Transferable Document Letterof Credit) payment of goods method, the End Buyer is protected,

the Supplier is protected and the (PI) Primary Intermediary isassured his commission payment and commission payment to theintermediaries that assisted with the deal.If the Supplier does not fulfill the conditions of the Pre AdviseITDLC, the DLC is cancelled. If the Supplier does fulfill theconditions of the Pre Advise ITDLC the End Buyer cannot changehis mind and cancel the DLC unless fraud is proven. The deal isfinancial secured.(8) The End Buyer signs the “Contract Agreement” and sends itback to the “PI”. The End Buyer has 7 days to apply and place theDLC into the “PI’s” bank account. The DLC of credit must beissued to the “PI’s” account before the “PI” signs and sends the“Contract Agreement” to the Supplier.Note: It cost very little to apply and place a DLC in the “PI”account. The large cost of the DLC is when it is being transferredfrom the “PI’s” account to the Suppliers account.It is important that the “PI” ask for a UCP600 instrument to beapplied on contract and that all bank charges and transfer/handlingfees are for the account of the End Buyer. Otherwise the transferfee will automatically be the responsibility of the beneficiary. (The“PI”)Note: ICC Uniform Custom and Practice for Documentary Credit(UCP600) Article 38 (c) state: “Unless otherwise agreed at the timeof transfer, all charges (such as commission, fees, cost ofexpenses) incurred in respect of a transfer must be paid by the firstbeneficiary. (The “PI” Primary Intermediary)(9) After the UCP600 DLC is placed in the bank account of the “PI”,you the “PI” sign and send back the earlier negotiated “ContractAgreement” you received from the Supplier. You now have a legalbinding “Contract Agreement” with the End Buyer and a legalbinding “Contract Agreement” with the Supplier.Note: The DLC that is placed in (YOUR) the “PI’s” account doesnot become active and cannot be transferred to the buyersaccount until the Pre Advise conditions of the End Buyer's DLC aremet by (YOU) the “PI”. Then the DLC for the (price quoted by theSupplier) can be transferred from the “PI’s” account to theSuppliers account for payment of goods.

The conditions of the Pre Advise the “PI” must be met to active theDLC is (evidence of Supplier in possession of goods). Once the“PI” provides all information of Supplier in possession of the goodsto the bank the DLC is activated. The end buyer can now verify theagreement you have with the supplier and the existence of thegoods.This is as close as the end buyer is going to get to proof of product.There is no proof of product until the delivery documents arepresented. The SGS certificate is 1st class proof of product as itcannot be forged. One phone call to SGS and it is verified of itsauthenticity.Inexperienced intermediaries think that if the buyer sees theproduct then this is (POP) proof of product. This is only proof thatthe goods are here today and then when the buyer leaves the siteof the goods the same goods can be sold to someone elsetomorrow.It does not matter whether the end buyer does his due diligence onthe supplier or not the DLC still become activated as the “PI” meetsthe conditions of the Pre Advise DLC.The DLC does not become cash until other conditions of the PreAdvised DLC are met by the Supplier. The presentation of deliverydocuments by the Supplier to bank for collection is fulfilling theconditions of the Pre Advised.Note: (Only the cost of the goods and any agreed expense istransferred to the suppliers account. The balance of the DLC is leftin the “PI’s” account for commission for the “PI” and the otherintermediaries who assisted the “PI” Primary Intermediary with thedeal.)(10) Within 5 days of the transfer of DLC to the supplier, theSupplier will issue a “PG” (Performance Guarantee) is advised asper contract or a “LDD” (Late Delivery Discount). A “LDD” is alwaysa higher % than a Performance Guarantee.Note: The End Buyer may ask in his “Offer to Purchase” for a 2%Performance Guarantee from the “PI”, for failure of delivery. The“PI” negotiates and offers the End Buyer a 1.50% to a 1.75 % PG

but ask the Supplier for a 2% Performance Guarantee in the formof a SBLC (Stand by Letter of Credit). The Suppliers PG is onlygoing to cover the % of the price the supplier quoted on theproduct. This extra 25% will cover your mark up on the product iffailure of delivery does occur.Note: If failure of delivery does occur this does not mean that thedeal has collapsed. The performance Guarantee is to help pay forthe demurrage and other expenses from the failure of delivery. Theperformance Guarantee is not a profit.(11) Arrival times are advised, goods are delivered on board.(l2) Presentation of documents to bank and collection of paymentis applied for. DLC becomes cash on presentation of deliverydocuments. The Pre Advise conditions could be the entire list ofdocuments below and then some.Pre-carriage Bill of LadingMain Carriage Bill of LadingSGS CertificateInsurance CertificateCommercial InvoicePacking SlipExport DeclarationExport LicenseCertificate of OriginDock ReceiptOther Governmental (EPA/FDA)There are certain applications the “PI” and intermediaries must useand follow to make any deal come together. If the intermediarysteps outside of these applications you will lose control and bepushed right out of the deal. When you are dealing with Millions ofdollars belonging to the End Buyer there cannot be even oneerror. Everything must be clearly stated and understood.Ambiguous contracts and statements have made good dealscollapse.Note: (This is a basic structure of the procedures for a “PI” PrimaryIntermediary to take control of the deal.) There is no other way adeal can close unless the End Buyer is dealing directly with theSupplier and then anything can apply.

In Conclusions:Being the Controlling Intermediary is not an easy job.It takes a great deal of effort to hold the position of the ControllingIntermediary and you need to be well trained and educated in thecorrect applied trading procedures, rules regulations and policiesin International Trading, plus have the skills to close the deal.Needed DownloadsIncoterms 2000 (International Commercial Terms 2000)Incoterms are a set of trade terms compiled and adopted by theInternational Chamber of Commerce (ICC) in Paris for the contractof sale regarding the delivery of goods. The responsibilities of thebuyers and sellers are clearly defined in Incoterms 2000. Theseterms (Incoterms 2000) are internationally accepted and shouldalways be used in order to avoid misunderstandings betweentrading partners. The thirteen Incoterms are the ICC PublicationNo. 560; Official Rules for the Interpretation of Trade Termspublished in September 1999 became effective, January 1, 2000.Download: http://www.tradercommodityb2b.com/incoterms2000.htmlThe revision of Incoterms 2000 was released in the fall of 2010and took effect January 2011. The official name is “Incoterms2010”. The new revision has very little change for theIntermediary.Download: http://tradercommodityb2b.com/incoterms2010.htmlURC 522 (Uniform Rules for Collection No 522)The Uniform Rules for Collections, ICC Publication No 522, shallapply to all collections and was first published by the ICC in 1956.Revised versions were issued in 1967 and 1978. This presentrevision was adopted by the Council of the ICC in June 1995. It isissued with the title “ICC Uniform Rules for Collections” as ICCPublication No 522. This English language gives the official text of the 1995Revision.Download: http://www.tradercommodityb2b.com/files/URC522.docUCP 600 (Uniform Customs Practice 600)The 39 articles of UCP 600 are a comprehensive and practical working aid tobankers, lawyers, importers, and exporters, transport executives, educators,and everyone involved in letter of credit transactions worldwide.Download: http://www.tradercommodityb2b.com/files/UCP_600.pdfNote: A well informed Intermediary knows everything about a banks business,but a bank knows very little of the overall Intermediary process. Most Lawyers

know very little about banking and the Intermediary process but they are goodat producing contracts..etc..etc and Intermediary has to know a wide range ofthings about the whole process.With a few months of serious study and training one can be readyto tackle the world of International Commodity Trading and have agood chance at closing that million dollar commission deal.Keep studying and practicing and great thing will come.http://www.tradercommodityb2b.comOther Recommended DOWNLOADS:http://tradercommodityb2b.com/FlawedTerms.htmlhttp://tradercommodityb2b.com/youneedtoknow.html All matters of International Trading procedures is the personal opinion of the author j. hollister based onher experience, training and education in the International Trading Market. No liability will be directed for the opinion