Reference no: EM132986013
Aquaculture Opportunity Certification Troubles
Kalastaa Inc. has been in the local Finnish aquaculture industry for nearly fourteen years. It raises salmon and trout for local markets, and has recently negotiated a deal with a small fish processing plant that distributes under a major product label in Finland. Although it runs a rather small operation, employing 16 people year-round, Kalastaa believes it could export some surplus and perhaps broker further deals with fish processing plants around the European Union. It does want to maintain ties with the local fresh fish markets, but sales have been steadily decreasing since the sudden market influx of cheaper Scottish salmon. It knows its stock is of higher quality and could be exported abroad quite profitably. Kalastaa has contacted the government and enrolled in small business export initiatives. This has enabled the company to attend aquaculture conferences abroad and offered the opportunity to network, ultimately leading to contact with DanskFisk, a Danish importer.
DanskFisk was eager to negotiate a contract for two tonnes of Finnish salmon to distribute to clientele throughout the country. Payment was arranged by a Danish bank, which issued a Letter of Credit. The documents required were a commercial invoice, the insurance policy, a marine bill of lading and a certificate of quality. Kalastaa has arranged to have its fish inspected by a nationally accredited standards organization. Both parties agreed in their contract that Kalastaa will pay freight to Copenhagen and will also insure the shipment.
The Finnish Food Safety Authority reports to Kalastaa that the fish to be exported is of superior quality, with a fat content of 11 percent. The certificate of quality includes a code for superior quality and states a colour code that is standard to the DSM SalmoFan. Colour coding is a common practice in the fish industry and provides a method of standardization for something as subjective as colour. Both in production and sales, colour is the most important quality parameter for salmon. Salmon buyers can request information on the colour of a delivered lot in the form of a number corresponding to a colour number on the SalmoFan.
Kalastaa submitted all of the requested documentation to its local bank, which was acting as the advising bank for the Letter of Credit. The documents were forwarded to the issuing bank in Denmark but rejected because the certificate of quality was vague and it could not ascertain whether the shipment had passed its quality certification.
Quality Questions
Although Kalastaa attempted to get the certificate of quality amended, it was unable to get the document changed. So, the Letter of Credit expired and payment was not released. At Kalastaa's request, the documents were then sent directly to the buyer for payment. DanskFisk then insists on inspecting the shipment upon arrival. DanskFisk is not an experienced salmon importer, and usually deals with Spanish bluefish and Irish Arctic char. The importer is not in disagreement that the salmon shipment has passed quality inspection. Upon DanskFisk's inspection, it claims that the fat content of the stock is much higher than claimed in the quality inspection. It rejects the sale and will indicate that it accepts substitute goods, but is claiming damages for loss of profit. Kalastaa management wonders if it needs to rethink its exporting strategy.
1. Which Incoterm® would best represent the terms of sale (as described above) between Kalastaa and DanskFisk? For what do Kalastaa and DanskFisk each bear responsibility and charges?
2. Explain the best shipping method(s) for this cargo. What modes of transport are appropriate of necessary? How should the goods be packaged?
3. Describe the purposes for each of the export documents that Kalastaa needs to provide to secure documentary credit.
4. Would Kalastaa have benefited from employing a freight forwarder? Explain.