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Coal Trading

The law of the sea.

Coal Trading

Postby Kobbi » Fri Oct 21, 2016 2:23 am

Hi David,

I just finished reading you book ITSI, which was a great help to me thank you!

My core business is in mining investments, so I get access to coal from time to time but I haven’t traded it before. I have an offer from an Indonesian supplier and have sourced a potential buyer in China, however after reading ITSI I have realised I do not have the experience to be the PIA yet. As such I am looking for a PIA to help me but I am very cautious of disclosing my source and potential buyer to a new third party until I have some basics information to help negotiate my position. I also do not want to show my lack of experience to the supplier, buyer or the potential trader I want to work with. Could you please help with the following questions:

1. What would be a realistic expectation for the total commissions on a 50,000mt month 63-61KCAL ADB indo coal to a Chinese SOE? How much would a trader expect/should I offer to manage the trade?

2. The Buyer is pushing for CNF rather than FOB. You only had a short chapter on CIF in ITSI, which mentioned the documentation is more complex however it didn’t really explain why it is much more dangerous. What are the major pit falls?

3. Regarding transferring a TI-DLC, I spoke to one trader who told me that the cost of the transfer is the responsibility of the PIA and is very expensive?(For a USD 3m dollar per shipment, he suggested it would cost around USD 80,000 just to do the transfer?). In your book it seem to imply that this cost was low and the responsibility of the buyer, not the PIA. Have I got this wrong?

Thank you in advance for your assistance. ITSI was invaluable and has no doubt saved me from getting in way over my head before I am ready!

Jamie
Kobbi
 
Posts: 46
Joined: Fri Feb 14, 2014 4:24 am

Coal Trading

Postby Ferrand » Thu Oct 27, 2016 11:20 am



Dear Jamie Thanks for the compliments.

A Good Logical and Appropriate  set of s! See what I can do to enlighten you even more-

(1) Non disclosure? Fair enough! - Then you need to practice and slowly one step at a time with ill informed intermediaries , by continuing to reject their offers-  become proficient and confident  to trade as a Buyer/Seller on your won. Other wise you need to disclose supplier to any Smice agent  because they too needs to adhere to the golden rules of supply  in assisting you in a associated deal. Indonesian coal is fairly easy to source anyway. I will not accept any offer unless its disclosed because ITSI was not made for interaction with FTN exporting, it was made to instruct and advise intermediaries on how they must trade.Accordingly sometime I offer mentor ship using my FYBR manual in where the purchaser becomes my agent and practices with me using www.smice.net as a tool of trade. The basic are learned with in months . Don't trade as PIA until you have good practice - at least  14-24 months  year.

(2)In the matter of coal 3-4%  margin is you playing field- is about maximum commission rate applied on buy price before  competing price makes you coal too expensive, for higher grades. 5100-5600 grade you can go up to 5-6% % as these are not highly sought as are the 6100-6000 GCV grades,  in where a good negotiable buy price would be available for a revolving contract.  Don't go below 1.75% if you secure a confirmed transferable credit all expense for the end buyer at FOB.

(3) The Buyer is pushing for CFR rather than FOB. You only had a short chapter on CIF in ITSI-etc.. You are not reading the subject matter  intently-

The next  step to FOB is CFR- from CFR  Insurance added- hence there is nothing much to explain- if you can't do a FOB deal and understand it interaction - there is no point is going to more complex CFR or CIF. There is not a big step from FOB to CFR and CIF - You literally pick it up on your own if you learn FOB procedures really well . Hence only relevant points we explained.

I have explained(CFR.CIF)  it on www.itsi.itgo.com FAQ and in past answers on this site. Especially on matters of Insurance Gap and Performance guarantee Gap for  those who want to go beyond FOB

(4) In short- CFR So you needs a supplier to give you a CFR price - but many suppliers will not do that in coal and crude oil business. Hence If the SUPPLIER does not give you CFR/CIF ,you can't offer it anyway-If they do then the mirror application  applies. The main difference is that YOU are now securing title- whereas in FOB you only need to assist to secure title- Under FOB only if the buyer ask you to accept title(BOL)  then you would do so on his behalf-(not usual) In CFR You have to secure title form the supplier as apart of your contract and documentation presentation to your end buyer. The sellers invoice in relation to Debits and Credits  MUST be correct   defined. The P.G must allow for a Gap- Ie. if the goods are offered for  $100 dollars per MT  and P.G is offered by the supplier at 1,75% -($1.75 Per MT)  then You musts offer a Lower P.G value to the end buyer of lets say 1.50% because if you sell the goods at lets say 104/5/6 dollars per MT , the end buyer will expect a P.G of 1.83 per MT plus- If you offer 1.50% P.G then at $1.57 Dollar value  Such a PG value will be covered under the supplier P.G  should a default occur- More importantly - it will not cause the deal to collapse once a DLC is advised- and you are required to offer a covering P.G value as offered by you under contract.

So You need to play around with formulation-

Insurance applies the very same GAP principle. Institute cargo Class "C"  at 110% is the absolute minimum insurance cover is what  may give under a proper CIF deal to the end buyer- hence you have to obtain cover from the supplier at 115% or more  and offer 110% cover from your side to your end buyer - this means again if you buy at 100$ per MT and sell at 105 $ per MT CIF or CIP you need to ensure the offer of insurance to your end buyer cover YOUR sell price or some of your commission could be in part of fully "chopped off" hence the "gap."

So there is much more to do and be AWARE of in a CIF deal .

Sure you could ask for the credit to amended within the 5 % tolerance factor but this is risky as to matters of P.G collection  as it could take weeks to amend such a credit -and in where the supplier gives you a Total invoice value to incorporate loading expense as well in where YOU have to ensure on your sellers Invoice only  defines ACTUAL goods value are stipulated on such(i.e Actual goods $97.00 dollars per MT) Hence selling the goods at 104 dollars per MT in where the invoice has applied $3.00 custom clearance and loading and $4 dollars consultancy fee  would still enable you to get your commission because the 100% insurance value  as offered by the supplier for total goods value , would cover YOUR ACTAL goods value as recorded on the YOUR invoice to your end buyer - the -/+5% DLC tolerance factor would kick in to ensure as much.

Or in where 50,000 MT is offer -/+10% in where 46,000 MT is the final on board tally count you actually ordered  which would actually apply the DLC value is another may to ensure you remain safe on matter of commission..etc.. But all these thing would become  apparent if over the long terms YOU practice FOB dealing for the first  few years or at least stay with CFR limits of trade if you supplier can offer such. Now take note of this line intently: In 99% of all deal when a Buyer state they want CIF from FTN exporting - We say Sorry ! CRF only insurance for the Buyer -Take it or leave it .  That why I did not go beyond the basics on this matter-Page 209 is specific to the main trap of invoicing when adding CFR/CIF matter to the basic  FOB contract application-along with a few minor changes also specified. It would have been far too confusing to offer 3 contract models in where small changes need to apply to each- hence everyone MUST learn FOb trading application intently.

If after a few year , you've made a few dollars a hot CIF deal land on you lap- Your bank will be more than please to give you some added advise as their customer- after all they've made some money off you form past FOB(even One) deals , and perhaps you have a n account with them with a few dollars invested with them- They will help. if you know FOB intently such help would take a few minutes to advise and for you to understands. Banks will not help otherwise is also stated.

Meaning?  that YOU are in control of the deal and that  you will not get caught  with matters of undervaluing a CIF deal because you lack experience. As you progress on CFR deals then- perhaps on rare occasion you could attempt a CIF deal.

CIF deals  it the top of the mountain- You must start at the bottom of the mountain first-

(5) Transfer Fee:  Yeap! Everyone can give advice- Expect I am the one who created the first effective legally defined intermediary doctrine.   UCP 600 Article International Banking rules  states in a line- " Unless otherwise agree upon-"Transfer fees shall be paid by the beneficiary.

The cost of the goods is the offer price,as per delivery mode - not inclusive of the non apparent  expense associated with such - If "other wise agreed upon" in the contract with the end buyer - then as per Article 3 UCP 600 "Bank shall not become involved in matters of the contract-"

Small CIP container deal - value 2000 dollars ? No problem . Multi million dollars deals you are looking at  half a percent transfer fee-

UCP is specifying specific matters of a deal between end buyer and supplier when an mandated agent is involved.(Disclosed principal) It could also apply to maters of indirect agents - i.e; Undisclosed  principal dealings, Del Credere Agents, and Commissionaires-all define a position applicable  to the activities of an  intermediary -

DLC arrives - It's accepted - You provide PPI to the end buyer as per your contract- release of valuable " PPI"  is worth a premium hence there is the incentive to the end buyer  (Quid pro Quo)

End buyers pay transfer fee's to your advising bank it initiates transfer portion of DLC. That's a contract application- The bank only needs to know that  you the beneficiary  will pay for such- It has no concern on how such is paid. My first sugar contract 1995- End Buyer paid for credit transfer. I.e:  Asian Agent working for a  disclosed principal in USA- will not have i.e.: $200,000 dollars spare to pay transfer fee, as such the Principal pays such. Same principle of payment.etc..

You need to study , study , study intently  and practice as stipulated- 25 years of experience went into that book.   Buying a book on surgical procedure does not make you a brain surgeon. To become a genuine Professional intermediary takes time-Listening  to other traders? 99% of trader on the net do just that and have no idea what they are doing.Your road in narrow and circumvention is your worst enemy. 1000's are studying ITSI and b my doctrine so many have far superior minds than mine-including many Barristers, Bankers  and Lawyers for all over the world-The doctrine is a study application and practice application-its a unique manual of information not available anywhere else.Take advantage of what it states, knowingly it been tested over a very long time- forget about what "other traders" tell you.  

Hope the above is is of help.Read past answer going back to 2001 to add to your study.

Regards

Davide Papa  
Ferrand
 
Posts: 39
Joined: Fri Mar 28, 2014 3:46 pm

Coal Trading

Postby bofind » Fri Nov 04, 2016 5:04 am

Hi David,

I just finished reading you book ITSI, which was a great help to me thank you!

My core business is in mining investments, so I get access to coal from time to time but I haven’t traded it before. I have an offer from an Indonesian supplier and have sourced a potential buyer in China, however after reading ITSI I have realised I do not have the experience to be the PIA yet. As such I am looking for a PIA to help me but I am very cautious of disclosing my source and potential buyer to a new third party until I have some basics information to help negotiate my position. I also do not want to show my lack of experience to the supplier, buyer or the potential trader I want to work with. Could you please help with the following questions:

1. What would be a realistic expectation for the total commissions on a 50,000mt month 63-61KCAL ADB indo coal to a Chinese SOE? How much would a trader expect/should I offer to manage the trade?

2. The Buyer is pushing for CNF rather than FOB. You only had a short chapter on CIF in ITSI, which mentioned the documentation is more complex however it didn’t really explain why it is much more dangerous. What are the major pit falls?

3. Regarding transferring a TI-DLC, I spoke to one trader who told me that the cost of the transfer is the responsibility of the PIA and is very expensive?(For a USD 3m dollar per shipment, he suggested it would cost around USD 80,000 just to do the transfer?). In your book it seem to imply that this cost was low and the responsibility of the buyer, not the PIA. Have I got this wrong?

Thank you in advance for your assistance. ITSI was invaluable and has no doubt saved me from getting in way over my head before I am ready!

Jamie
bofind
 
Posts: 60
Joined: Mon Mar 11, 2013 1:45 pm


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