TPCC Inter-Agency Trade Officer Training
Financing and Risk Management
for International Trade
Presented by Steven W. Howlett
Managing Director
Government Agency Funding and Advocacy
GE Capital Markets - Corporate
September 26, 2012
Training Overview:
- Introduction to GE Capital Markets
Corporate Function
- Spectrum of Risks Associated with
International Trade
- Private Sector Tools for Mitigating Risks
GE Expertise in Multiple Product Areas
Export/
Structured
Finance
Trade
Finance
•
•
•
•
•
•
Private
Bank guarantees
Letters of credit
Deferred payments
Forfaiting
Short-term
• Public Sector Buyers (Sovereign, Non-
Leasing/
Lending
• Financing typically
•
•
Project
Finance
equipment specific
Applicable for more
developed markets
Financing frequently
requires int’l bank
support
•
•
•
•
•
Sovereign, etc.)
Private Sector Buyers
ECA loans/ guarantees
ECA Co-financing
Political Risk
MT/LT
Insurance (PRI)
&
Sourcing issues
Credit
Insurance
• Insure against
•
•
expropriation,
political violence,
currency
inconvertibility. etc.
Insure against
corporate risk
credit default swaps
• SPC (special purpose
•
•
•
company)
No guarantees, limited
guarantees
Financing dependent
on cash flows/off-take
agreements
Frequently requires
ECA/MDB support
Spectrum of Certain Risks Associated
with International Trade
Spectrum of Risks: The Balance
Between U.S. Exporter and Foreign Buyer
Exporter
High Risk
Buyer
Consignment
Low Risk
Open Account
Cash Against Documents
Letters of Credit
Low Risk
Cash-in-Advance
High Risk
Exporter Wants Payment as Soon as Possible at time of Contract Signing or at Time
Of Shipment. Buyer Wants to Delay Payment as Long as possible until Sale of Goods,
Receipt & Processing of Goods, Collection of Receivables.
Background: Incoterms
•
The International Chamber of Commerce ("ICC") created “INCOTERMS” in 1936 to uniform
global trade. The ICC periodically revises publications of INCOTERMS. The latest version
was released in January 2011.
•
Set of uniform terms applicable to all the various types of purchase agreements and
shipping agreements, which also serve as a “global language”.
•
Defines the responsibility of the Buyer and the Seller - conveys “risk” and “responsibility”;
which party is to pay which charges, and where delivery takes place.
Movement of Goods: Scope of Seller and Buyer
Responsibilities
(Ex Works)
(Free Alongside Ship)
(Free Carrier)
(Free On Board)
(Cost & Freight)
(Cost, Ins, Freight)
(Carriage Paid To)
(Carriage & Ins. Paid)
(Delivered at Frontier)
(Delivered Ex Ship)
(Delivered Duty Unpaid)
(Delivered Ex Quay
(Delivered Duty Paid)
Tools to Mitigate Risks
Document Collection
(5)
Mail
(3) Documents
Presenting Bank
(4) Exchange
Remitting Bank
(2) Documents
Buyer
(6)
Seller
(1) Shipment of Goods
Open Account vs. Letter of Credit Terms
Open Account
Exporter
Sales
Contract
Buyer
Letter of
Credit
Exporter
+
Opening
Bank
Buyer
Letter of Credit
Sales
Contract
Payment risk reduced with a Letter of Credit
Buyer
Credit Insurance
• Protects U.S. exporters against
loss should a foreign buyer
default due to commercial or
political risks.
• Private Sector vs. Public Sector
policies (e.g. Ex-Im Bank, OPIC
etc.)
• Types: Single Buyer, Multi-Buyer,
Lease cover, PRI, etc.
• Use Brokers
Summary
•
There are many risks associated with cross-border transactions (e.g. payment, shipping,
foreign exchange, etc.)
•
Particularly problematic for low-resource exporters or inexperienced exporters
•
Key government and private sector institutions and programs are available to deal with
these risk issues
Take Advantage of What’s Out There!