Back in the day, at the bottom of all contracts and title instruments on international trade paperwork was E&OE, Errors and Omissions Excepted. Meaning, regarding this document, "you can rely on it, unless you can't." The reason is that in international trade there is no recourse to the law. The "law" of international trade, lex mercatoria, was private law, which meant that if sued, a defendant could show up or not. Didn't matter. This system worked extremely well. Another example of anarchy not only in action, but clearly superior in practice.
The lesson is, never take your USA understanding of contracts, and its premise that any disputes can be taken to court, with you into international trade.
On Nov 13, 2013, at 5:01 PM, Anthony wrote:
The lesson is, never take your USA understanding of contracts, and its premise that any disputes can be taken to court, with you into international trade.
On Nov 13, 2013, at 5:01 PM, Anthony wrote:
I saw this posted in a forum on a familiar pay site. So basically, I’m reporting to you what I read on another site with a few changes to protect the inoccent and avoid any copyright issues.
The Importer is in the US. The Supplier is a factory in India. The Customer is a catalog mail order clothing company.
Customer places three purchase orders with the Importer.
Shipment 1 arrived with several problems; labeling issues, fabric issues, and the amount came up short which was not reflected on the invoice or the packing list.
The customer has already paid the importer not only for goods it did not receive but they also paid extra duties because the shipping documents show more goods than what was actually delivered.
***Prepaid the USA importer?! No sympathy for the USA customer there. When the shipment was actually received, was the shortage noted at that time? If not, no sympathy for the customer. If so, the customer has a legal claim, take it to small claims. If so, there is duty drawback, if not the customer is SOL.***
Shipment 2 is sitting in Oakland, CA accumulating storage fees. The goods cannot clear through customs until the Indian supplier sends the original Bill of Lading. The Indian supplier refuses to do this until they get paid in full for Shipment 2.
***Demurrage fees are astronomical. This cannot end well.***
The customer wants a refund of $10,000 for the problems with the first shipment. The Importer went after the Indian supplier for the refund but they refuse to refund anything and now don’t trust the importer.
*** The customer screwed up, should have gotten what they paid for, paid for what they got. No more, no less. Relationship is everything in business. It seems they structured the deal which allowed for some risk, and then did not have a relationship that covered that. Entrepreneurs***
The Indian supplier insists on getting paid in full. The importer asked the customer to pay for Shipment 2 so the importer can pay the Indian supplier and get shipment 2 out of customs. However, the customer insists on reducing the Shipment 2 payment by the $10,000 refund amount.
***See how these things get screwed up? Why did the Indian supplier not get paid in full before the goods left India? That is normal.
Here is where these things go wrong. Since no one trusts each other in this deal (never did) the players ironically allowed gaps in the agreements. By the Indian saying "I'll take payment upon delivery" he can ship crap and get paid before anyone figures it out.
At the same time the exporter is saying "I can ship crap" the importer is saying "he cannot ship crap, because he will not get paid." Both sides are perfectly happy while maintaining mutually exclusive expectations.
Now the exporter will lose his money on shipment #2. Or not. He made so much on #1 he figured he could lose on #2, or bonus, hit the lottery if the obtuse players in USA actually paid for the 2nd shipment. Or, in the alternative, after USCustoms seizes the goods and auctions them off to cover costs, the supplier overseas has a USA buddy buy the goods for pennies on the dollars at the auction. I know a guy who did that.
There never was a shipment three contemplated. Three card monte: by getting the marks to consider three deals, they never expected to get nailed on deal one.
And of course, it is possible there is wailing and gnashing of teeth in India over the mess on the docks in USA and this exporter did his best work and was not up to snuff, and is in no position to make good for losses. (And the example here is India, but trade with every single country on earth is exposed to these scenarios.)
In any scenario, the fundamental problem is the same: people opened gaps in the agreement in the measure necessary to fool themselves into believing this would work out. There is a movie, either Grifters or House of Games, both about con artists, in which one of the con artists explains that it is not the mark's confidence in the con artist, but the mark's confidence in himself that makes the scam work.
In int'l trade I see people weaken the deal in order to build enough confidence to proceed. They scam themselves!
By weakening the deal, they fool themselves into believing there are enough checks to sort any problem out. By weakening the deal, they can substitute due diligence with grey area, betting on grey area to save them.
Lesson # Three in international trade: There is a first rate trader, that first rate trader can be known, there is no point in working with less than the first rate.
Now, for whatever reason, people decide not to step up to what it takes to be first rate. To get the first rate to work with you, you must be first rate yourself. But say your hope is to get rich quick in int'l trade, then you simply cannot do what is necessary within your definition of quick to get an agreement from a first rate supplier to work with you. Therefore, you cut corners and go to second rate.
Anybody can do the first rate work necessary to work with the first rate suppliers. But for most to work with the first rate the trade off is to do smaller deals necessarily since one's capacity to do first rate work is limited, and ability to do first rate may yield only say a $10,000 transaction, not a $100,000 transaction.
The funny thing is, a first rate $10,000 transaction gets repeated, so by the end of the year, Mr. $10,000 has done a million in sales, where Mr. $100,000 is hiding from creditors.
There are probably more deals like this than first rate trades. Suppliers overseas are desperate to find people in USA who do first rate work. Probably why first rate pays so much better. As to this deal salvage what you can on order #1, lick your wounds, do it right next time.***
Shipment 3 is on the way and will also need the Bill of Lading in order to move through customs.
***If I was the customer this would be of zero concern to me. Deal was off when shipment #1 was not in compliance. If I was the importer, I would wonder if there was in fact a shipment 3. Drucker said it first, and I believe he is absolutely right: Entrepreneurs do not take risks.***
How would a student of John Spiers have avoided this situation?
***Find the best supplier in the world AND get references. This was not done. The best supplier in the world would at once require first rate work, meaning the retailer and importer would have to step up their game, and then there would be no problem as to payment and QC.***
How would John Spiers consult with the importer to resolve the current situation?
***Don't throw good money after bad. No doubt the goods are needed for 4th quarter sales, but you screwed up. Buy them at customs auction in a month or so after Customs seizes them in Oakland.***
My knee jerk reaction is to protect the customer and refund him in full. Then cut off the supplier unless he can fix the issues immediately. And why didn’t the importer check references on their supplier first?
*** Why didn't the customer check the references of the importer? Why was anything paid for when it was not to spec? The customer is the author of all these problems... too little too late. Start over.
John
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