Charles Avaunzaff

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Global Trade Sales Presented to MBIA

• Presented by
• Charles Avaunzaff
• Vice President
• Global Trade Sales

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Know Your Counterparty
3
Make the Sale (Sales)
Avoid a Loss (Credit)
vs.
s9098-003 9/26/95
4
Major Risks in International Trade

• Country
• Business / Commercial Risk

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Country Risk

• War, Civil Disturbance
• Repatriation Risk
• Exchange Control
• Expropriation

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Commercial / Business Risk

• Disputes
• Control of Title
• Customer Liquidity Insolvency!
• Quality Control

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Who should take the Risk and how are we going to
get Paid?
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METHODS OF EXPORT PAYMENT
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WHAT ARE THE OPTIONS?

• Open Account
• Documentary Collection
• Letters of Credit
• Pre-Payment

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Risks in Methods of Payment
Buyer
Seller
High
Open Account
Low
R
I
Documentary Collection
R
S
I
K
Letter of Credit
S
K
Low
Pre-Payment
High
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STANDARD DOCUMENTS

• BILL OF EXCHANGE OR DRAFT
• TRANSPORT DOCUMENTS (OCEAN B/L,
  AIR WAYBILL, TRUCK B/L)
• COMMERCIAL INVOICES
• PACKING LIST
• MISCELLANEOUS DOCUMENTS

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OCEAN BILL OF LADING

• Receipt for the Merchandise
• Contract of Carriage
• Title to Merchandise

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Letters of Credit
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LETTER OF CREDIT

• OPENING BANKS GUARANTEE THAT THE SELLERS
  DRAFT WILL BE HONORED, IF THE TERMS AND
  CONDITIONS OF CREDIT ARE MET BY THE SELLER .
• MINIMAL RISK TO SELLER

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Letter of Credit Payment Terms

• Sight
• Payment is Due When Conforming Documents Are
  Presented
• Usance - Bankers Acceptance
• Payment is Due at a Later Date up to 180 Days
• Can be Paid at a Discount Before Maturity
• Deferred Payment
• Future Payment Undertaking Without Draft
• Discount Difficult

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Key Issues
!

• Confirmation
• Discrepancies
• Consignment

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Advising vs Confirming Bank

• Advising Bank
• Authenticates Letter of Credit
• Has no Obligation to Pay
• Confirming Bank
• Adds Undertaking to Pay to That of Issuing Bank
• Obligated to Pay for Conforming Documents

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Confirmation

• Local Bank Risk
• No Foreign Country Risk
• Known Bank
• Payment Can be Expedited
• Additional Charges for Confirmation
• Most Letters of Credit Not Confirmed

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Discrepancies

• Nearly 80 of Transactions Have Discrepancies
• Ray-Ban vs Ray Ban
• Loss of Letter of Credit Protection
• Risk of Non-Payment

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USES OF STANDBY LCs

• Bid Bonds
• Performance Bonds
• Advance Payment Bonds
• Credit Enhancements
• Non-Payment of Invoices
• Support Bank Guarantees

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Standby Letters of Credit

• Not Intended as Primary Source of Payment
• Hence they are a Standby Source of Payment

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INTL COMMERCIAL TERMS (INCOTERMS)

• EX-WORKS
• FAS (Free Along Side)
• FOB (Free on Board)
• CFR (Cost Freight)
• CIF (Cost, Insurance Freight)
• Others

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Financing Trade
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Financing Trade

• Import Financing - Usance Letters of
  Credit - Trade vs. Clean Advances -
  B/As
• Export Financing - Usance Letters of
  Credit - Government Programs (Eximbank)

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Ex-Im Bank Supported Programs

• Working Capital Guarantee Program
• Medium Term Guarantee Program
• Letter of Credit Policy Program
• Credit Insurance (Short-Term A/R)

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Other Programs

• Commodity Credit Corporation (CCC)
• Private Credit Insurance
• A Forfait Financing (Forfaiting)

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Some of Union Bank of Californias Ex-Im Closings

• Solar panel exporter Northern California.
• Grocery goods exporters in Northern California
• Software exporter in the Central Valley
• Seafood exporter in the Pacific Northwest
• Cosmetic exporter in Southern California
• Publishing company in Northern California.

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Current Ex-Im Deals Pending

• Environmental company in Pacific Northwest.
• Scrap metal exporter Southern California.
• Gas valve exporters Northern California.
• Environmental company Northern California

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Benefits for Prospects in UBOC Ex-Im Partnership

• Expedited loan approval process due to UBOC being
  a delegated authority lender
• Local Union Bank Trade Specialists navigate the
  program for the exporters.
• Structuring complex transactions with the support
  from Ex-Im Bank.

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Other Ways GTS can Help!

• There are other ways GTS can help import/export
  customers
• Problem Customer wants to increase export sales
  but is uncomfortable with non-payment risk
  (commercial political) and cannot finance
  foreign A/R. Solution Export credit insurance
  and potential UBOC financing of foreign A/R that
  is credit-insured by an acceptable insurer. GTS
  works with several reputable export credit
  insurance brokers insurers.
• Problem Customer wants to increase sales by
  offering invoices payable in local and/or USD.
  Solution Work with F/X to provide dual currency
  invoices or simply invoices in local currency.
• Problem Customer processes import or export
  payments through another bank but is not happy
  with the level of service. Solution GTS performs
  a diagnostic and proposes a Web-based service
  solution at competitive prices.

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Global Trade Sales Division

• Thank You