Australia as the Exporter of Copper and Aluminium to Japan - Case Study Example

Running Header: Managing global trade operations Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Managing global trade operations Introduction The two main countries involved in the transaction are Australia and Japan. Japan has been importing copper and Aluminium from Australia. Exportation and importation of commodities between different countries involves various steps to ensure that the transaction is secure and successful. Exporting merely involves selling; in order to ensure that trade is well facilitated, there are set rules that must be met. Many of these rules have been put in place by the World Trade Organization. The procedure used in exportation includes: The product selection: entering a trade requires an understanding of the product to be traded. In this case the main product is copper and aluminium exported from Australia to Japan. The exportation involves registration of the exporting firm. Exportation of copper and aluminium .The first main step is to get make an application for an exportation license, this mainly occurs where the destination country imposes an importation license. As indicated by Greg (2005), before making exportation, the seller must be able to get an analysis of the economic position of the destined country. In this case Australia is the exporter of copper and Aluminium to Japan, therefore, Australia must understand well the stability of Japan economically. The size of the market is also a crucial aspect to put into consideration, the growth of the market, the price of the product as well as the location of the target market. After the selection of the product to export, the seller must determine or quote a particular price, this involves various considerations among them; the price to be charged so as the seller (Firm from Australia) is seen to be competitive abroad, while determine the cost of the product, the firm has to make an inclusion of, packing fee, credit, insurance, commissions for the agents, fee for the documentation, export duties and transportation charges. Comparison cost for similar products have to be made to ensure that there exists a very good mark up and the price quoted will yield profit. When the price that is quoted is accepted by the country or the destination firm of copper and aluminium to be exported, then the firm supplying these commodities a contract is then signed, making this deal legal or binding .This contract includes: The exporters name, the importers name, the commodity transacted, cost per unit, the quantity exported. The contract also has to state the terms of delivery. This is the point where incoterms is involved; dealing with the aspect of delivering copper to Japan. It involves the how this copper will be carried, responsibility clearance of the export, it as well include who has to pay for the copper and Aluminium delivered, the risk bearer during the entire process of transportation. Also when the copper and Aluminum price are quoted payment terms must be put into consideration, either by a direct fund transfer with exclusion of a credit facility. In some instances the payment may be done before the shipment of the merchandise, this is what is referred to as cash against documents (William 1999). The other payment term that can be used in this particular transaction is via a letter of credit, this is a condition where the bank of the customer (Japan) will provide a letter of credit promising to make payment to Australia exporting firm provided that all the terms in the contact are met. This payment option involves immediate payment or at later fixed date. Price quotation for these commodities must include, the shipment mode, for this case the mode of transport will be through the sea. The currency of transaction, period valid for this contact as well as the clause for arbitration have to be included in the contract that have to be signed between the seller (Australia) and buyer (Japan). Export financing is another step that must be involved in this particular transaction; the exporter must accept the order, the Australia as the exporter is aware of the copper and aluminium market and that it is easy to accomplish this order. All the finances required for shipment must be accessible; this will also ensure that this firm will also have an assurance that it is able to hold until the transaction is complete. Packing for the copper and aluminium will be by sea, and the container that will be used to carry this commodity must be able to carry all the commodities safely to the destination; it must also be packed inn a more economical way to reduce costs. Since copper and Aluminium is heavy, they will be shipped by see, this is an economical means of transport from Australia to Japan and it is also able to carry heavy commodities. Shipping is more efficient in transportation of non- perishable commodities such as copper and Aluminium. Though it is not too fast, it is very efficient and safe. These commodities are valuable; therefore, it is important to have them insured against any loss, especially during the process of transportation. This must be done as the buyer also insists on having them insured. Minimization of loss is very essential in exportation, on all types of merchandise. Any loss that may occur is covered well by the insurance policy which the seller takes. Insurance must be taken by the seller basically to guarantee the buyer that the copper and aluminium consignment being shipped is fully secured against losses. During the 60 days duration period that the seller must give the buyer to allow the payment to be made, the seller has to prepare a credit letter from a bank within the importing country. According to Warren (2010, p.8), this is the document t which will ensure that there are proper set terms and condition, regarding payment of all the delivered goods. The buyer has to agree with the terms so that the bank will have to make payment n his behalf after the agrred duration in the contact is over. The guarantee of payment is the most important thing in the whole transaction, this is so because firms, companies, individuals as well as countries, engage in business to get profit and earn money. Therefore the buyer and the seller must have an agreement on the means and terms of payment after the deal or the transaction have been successfully completed without any bleach of contract from both parties. This is the essence of making a binding contract, so that no party will act contrarily to the contact. Legal business in most cases has a higher probability of success. The irrevocable credit letter will ensure that the seller gets payment immediately after the agreed time is over. This happens through the bank that the buyer has agreed to transact through. The letter of credit can also be referred to as the documentary credit; this is what is usually used in all international trade to make sure that payment is made. The uses of letter of credits have increased mainly due to the differences in distance, conflicting laws and lack of all information regarding the parties conducting a transaction. In this case the bank has to act on behalf of the buyer (Japan), indicating that once the copper and the Aluminium consignment is received, the bank will arrange for the payment. The letter of credit uses standard language to ensure uniformity. Loarde, Gomez and Julia (2006, p.6), asserts that the most important thing in using Letter of Credit is that it is a bank to bank dedication, where the bank makes payment for the buyer or the seller, this is a strong guarantee that if for instance the goods are safely delivered to Japan the bank must make payment after the agreed 60 days are over. The letter of credit is protected by conditions set by the International chamber of Commerce to guarantee compliance by all parties. The seller in this case has to comply with all set rules and regulations affecting international trade. Exportation of copper and aluminium all through from Australia to Japan involves documentations, most of which help in securing international trade. The first and most important documentation includes filling the pro-forma invoice; this basically originates from the seller, its main role is to give a quotation of the consignment that has to be transacted. Australia as the seller in this case must give a direct quotation on the copper and aluminium to be shipped to the buyer (Japan). This happens through a pro-forma invoice. If the invoice is well prepared by putting all aspects of international trade into consideration, it will automatically lead into an order. These is a document that initiates a business deal, therefore, it must be prepared keenly to ensure that Australia remains very competitive in the transaction as it is not the only one willing to transact with Japan. When this results into an order the seller (Australia) prepares the commodities to be shipped. All the details after the completion of the invoice will have to be entered in the firm’s records showing a debit on the buyer. The other most important document as proposed by Richard, Filiberto and Berverly (2008) the packing list, which is prepared by the seller; this is a document showing all the contents of the package. In this case it will list copper and aluminium as the main items in the transaction. This is made compulsory by the buyer simply because the buyer has to know the contents to be delivered. The packing list will also be of great assistance to the people involved in packing the commodities in the shipment container. This also gives the seller opportunity not park goods that had not been ordered. The process of exportation also involves the completion of Transit Insurance Certificate; this is to give evidence that insurance cover has already been taken to guarantee safety of the consignment. The seller (Australia), will issue an Export Cargo Shipping Instruction, this gives all the details concerning the order and all the instruction to the carrier, the forwarder acting on behalf of Australia. The information given through the ECSI is enough to guarantee, delivery of the goods its destination. This document is not forwarded together with the consignment. The seller also has to have a certificate of origin; to ensure that there is documentary evidence to the authorities, especially to the customs in the buyers and also in the sellers place that the residence of the copper and the aluminium is well known (Australia). Without this document, there is a likely hood of questioning the source of the consignment, triggering legal actions especially on the side of the buyer. A standard shipping note is also essential, in that it provides all the details regarding the cargo; this document also describes physically to help in the calculation of the charges involved in the handling as well as freight charges. The above mentioned documents are very essential inn ensuring that international trade is made is fair. This documents mainly issued by the seller, legally create a trading environment essential for all importers as well as the exporters. The other crucial document is the Single Administrative Document (SAD); this document is used for various purposes; in both importation, exportation and for goods that are in transit. In some countries this form is currently being wiped out and its place taken by an electronic one which is more efficient. This form has the main role of clearing goods via the customs; the document is used together with other forms mentioned earlier. They include: Pro-forma invoice, commercial license and export license. On the other hand, the buyer has to make an application for an importation licenses, this in most cases happens in occasions whereby the destination exporting country has a provision of exportation license. An irrevocable credit letter must be obtained from the bank within the buyers country, the buyer is the one who has to commence the negotiations as per the terms offered by the bank. The letter of Credit must be accompanied by the invoice as well as the packing slips showing all the items to be shipped, prices plus the quantity of the goods. On the other hand the certificate of inspection is also needed by the bank offering a letter of Credit; this is made available from a third party who has been identified by the buyer and the seller so as to ensure that the commodity supplied agrees or is inline with the contract that have been signed. It is important for both parties to comply with the set trade rules through out the whole chain. There have been a successful mutual trade between Japan and Australia; this has been for a long time been strengthened by existence of strong trade ties. This must be maintained all through as both countries benefit through mutual trade. Conclusion There is growth in international trade, where different countries engage in importation and exportation of valuable products. The most important thing to be put in consideration in global trade is the manner in which transactions are made; legal processes must be made compulsory in every transaction regardless of the benefits, mainly because global trade in most cases involves different parties with little knowledge of each other, therefore the role played by legal documentation is very crucial in ensuring the success of global trade. Standardization of trade laws is also very important to reduce occurrence of conflicts that may arise due to different interpretation of terminologies used in cross border trade. In conclusion global trade must be regulated and well managed throughout the entire process of transactions. References Branch, A 2008, Global supply chain management and international logistics, Taylor & Francis, United Kingdom. Greg, B 2005, Global trade: past mistakes, future choices, Zed Books Publishing, United Kingdom. Loarde, V., Gomez & Julia, M 2006, ‘Global trade management: New approach for pricing commodities’, international Journal of Economics and Business Research, vol. 12, pp. 3-6. Richard, S., Filiberto, A & Berley, E 2008, International Business Law and its environment, Cengage Publishers, United Kingdom. Seyoum, B 2008, Export-Import theory, practices and procedures, Taylor & Francis, New York. Warren, H 2010, ‘A process of Global trade Management: An Inductive Approach’, Journal of Supply Chain Management, Vol. 2, no. 1, pp. 9-17. William, R F 1999, Managing a global enterprise: a concise guide to international operations, Greenwood Publishing, United States of America. Read More