The call Marc received was from the sales representative for the Asia and Pacific region at Atlas Mining, a Quebec SME based in Trois-Rivires and specializing in mining equipment. The client had explained to Marc that he was involved in negotiations with a new customer abroad, the large Amiko nickel mine in New Caledonia. The merchandise being shipped was mining equipment with a high ex-factory value (approximately $300,000), as it consisted of parts used to sort nickel from waste rock. The sales terms were as follows: 100% payment before shipping. The Atlas Mining representative outlined this to Marc and asked him to recommend an Incoterm and provide a quote to forward the shipment under the recommended Incoterm. Somewhat in a panic, Marc jotted down all of the information provided by the representative and said he would call him back with the Incoterm recommendation and estimate.

Atlas Mining had never done business with the Amiko Mine before, which is why the terms of the sale required that the mine pay 100% of the value of the merchandise before shipping. Sales terms depend on a variety of factors, such as the level of trust between the two parties, the status of the relationship, the products involved, and even the buyer's financial capacity. A large seller doing business with a small but regular buyer will be more inclined to offer better payment terms. And while the sales terms and Incoterms are decided independently of one another, in this transaction the mine would be responsible for the merchandise as soon as it was ready for shipping. This was a calculated decision by Atlas Mining, as it preferred to handle the shipping for merchandise sold to its regular customers and leave its occasional customers with sole responsibility for transporting their orders. This allowed the company to lower the transportation risks involved in shipping to a customer whose working methods it was still unfamiliar. This strategy was introduced following a problem recently encountered by Atlas Mining. A newly hired sales representative had mistakenly applied the DDP Incoterm to the sale of tools that measure precious metal percentages. However, the country of destination had restrictions on the importing of this type of equipment. Upon the arrival of the vessel at its destination, local customs authorities refused to clear the container, placing it instead in a bonded warehouse. To resolve the problem, Atlas Mining had had no choice but to hire a local customs broker. Once the applicable documentation had been submitted to customs and the container released, Atlas Mining had to pay a surcharge to the shipping line (due to the container being used longer than the timeframe covered by the maritime cargo price) and to the bonded warehouse. The company was also obliged to compensate the receiver of the goods because delivery was delayed by more than two weeks. For this reason, Atlas Mining now handled shipping only for those customers and destinations with which it had experience.

Furthermore, the Amiko Mine is located in New Caledonia, more than 14,000 kilometers from Trois-Rivires. In addition to the distance, the time zone difference is considerable; when it is noon in Montreal, it is 4:00 a.m. the following day in New Caledonia. As a result, it would be difficult for the buyer, from his office in New Caledonia, to coordinate the shipment while it was still in Canada. The main problem for the Amiko Mine was therefore starting the export process, i.e., positioning the container. This crucial step can become complicated. Generally speaking, once merchandise is ready to be shipped, the company responsible for it (according to the Incoterm used) must hire a road transport operator to drive to the port, pick up an empty container from the shipping

line used, bring it to the merchandise loading location, such as the seller's plant, then transport the full container back to the port. The potential problems associated with this step revolve around the need to coordinate the many stakeholders. For example, certain ports and plants require that transport companies make an appointment to relieve congestion at their facilities. Missing a scheduled pick-up or drop-off time can mean missing the vessel's departure. This triggers additional costs, as the container must then be stored in a warehouse to await the next departure. The transit time may also be greatly affected because if the container misses a transshipment arrangement at a port of call, the delivery timeline is extended even further. So if the mine itself were to coordinate the transport of the merchandise, which road transport operator would it select to drive the container from the Atlas Mining plant to the port of Montreal? How would it ensure from so far away that the container had been properly delivered for shipment on the planned vessel? The solution might be to hire a freight forwarder in Canada to delegate this task to a local firm. But the problem would then involve choosing the right forwarder. How could Amiko be sure that the amount charged by the forwarder was reasonable? How should responsibility for any missed appointments be shared between the Amiko Mine and the local freight forwarder?

Marc quickly understood that the Incoterm selected had to reflect the operational reality of both Atlas Mining and the Amiko Mine. It appeared that the buyer in New Caledonia would be unable to coordinate the positioning of the container in Trois-Rivires, given the time zone difference between the two countries. And finally, Marc would have to provide his client with an estimate that took into account the Incoterm he felt was most appropriate.

1. Do you think the loading of the container in Canada could be coordinated from New Caledonia? What would that mean in terms of Incoterms options?

2. Which Incoterm (or Incoterms if you believe several fit) do you recommend and why?