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25 April 2018

The Devil in the Detail



This article was written by David Gaddes. All views and opinions are strictly his own.


In January and February I spent some time in India. Many things have changed and remained the same in equal measure. Some of the cities and airports have changed beyond recognition from what they were but the poverty and lack of development in most areas remains constant. I have many friends who have spent time in India and many friends born in India and it’s a place that they either love or hate. There is a perfect example of this difference of opinion in the film 'The Best Exotic Marigold Hotel'.  For those of you who have never seen it you have missed a treat. The film is a about a group of elderly British retirees and their adventures migrating to India. There is a character played by Penelope Wilton who hates the place with a vengeance and Tom Wilkinson who plays a retired barrister who loves it. You will have to see the film to understand the passion of each character.

I have always loved India. Not because I have been fortunate enough to have stayed in the best hotels and been waited on hand and foot, but because outside the sheltered environment of a Taj hotel or the Rambaugh Palace I find a pacifying dignity amongst ordinary people that I don’t encounter in Europe. As Tom Wilkinson said in the film “all life is here”.  It most certainly is. By the way, Mr Modi, I was not impressed upon my recent arrival to discover that the 8000 rupees in 500 rupee notes that I had left over from a previous visit were worthless and I had no way of recovering their value ! 

Now to my story. I recently met with one of India’s largest public trading bodies and it reminded me of my days as assistant to a physical trader of lead and zinc which we were selling at that time in India. This would have been in the early seventies. We had substantial business with India in most metals. My story relates to a tender for us to supply 5000 tons of lead involving a letter of credit issued by the State Bank of India. At that time my job did not involve shipping or the negotiating of letters of credit. That came at a later stage when the company made the entire shipping department redundant (not a smart move) and decided to have the trading department made responsible for its own shipping. Now one thing I have learnt over the years is that one should pay attention to the details of a physical contract especially one involving a letter of credit. By and large the quality of base metals contracts is not too bad but if the payment clause involves a letter of credit and you are the seller be very specific about what you expect from the buyer.  A colleague told me once that in refined metals you negotiate a deal then book a contract and in scrap you book a contract then negotiate a deal.  My point is the more you clarify when booking a contract the less you have to argue about during contract execution, especially once pricing, volatility and exposure kick in.

The morning the LC for the shipment of 5000 tons arrived I was alone in the department. My boss was travelling. The shipping manager presented himself to me or should I say he launched himself at me. I was young and quick in those days and he was on 60 cigarettes a day so I avoided physical damage. In any event I was saved by the MD who intervened once he heard the commotion in the trading room from his office. Once the shipping manager had calmed down he proposed that the trading department should raise the shipping documents on this particular contract, or words to that effect. I can’t possibly type what he actually said for fear of offending someone. Suffice to say it was short and sweet and liberally sprinkled with the F word.

His anger was caused by the wording of the Letter of Credit. It demanded that the 5000 tons be shipped in 145 lots of varying quantities ranging from 5 tons to 100 tons. So our shipping department had to issue and check 145 3/3 bills of lading, 145 certificates of origin, 145 certificates of analysis, 145 packing lists and so on because the parcel had been sold to 145 different consignees.  Oh what a joy it was to witness the return of the trader the following day and his meeting with the head of shipping. 

The moral of this story? Who knows? I have heard very sound arguments both sides. There are those who say one should sell “loose” and those who say one should sell “tight” when it comes to contract wording. In my opinion it really depends on the parties involved and their knowledge of who they are dealing with. One thing is certain. If you don’t put the detail into the contract do not assume the devil will not turn up during the execution of it.  My mentor always said to me: “…..assumption is coloured red on your P & L. Never assume anything.” Eventually we had to comply with the LC and the shipping department were not happy bunnies for a few days. The contract pricing and LME price movement decided that. Nothing really changes. 


  

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