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Catch of the day
Kalastaa Inc. have been in the local Finnish aquaculture industry for nearly fourteen years. They raise salmon and trout for local markets, and have recently negotiated a deal with a small fish processing plant that distributes under a major product label in Finland. Although they run a rather small operation, employing 16 people year-round, Kalastaa believes they are in a position to export some surplus and perhaps broker further deals with fish processing plants around the European Union. They do want to maintain ties with the local fresh fish markets, but sales have been steadily decreasing since the sudden influx of cheaper Scottish salmon on the market. They know their 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 them the opportunity to network and make contact with DanskFisk, a Dutch importer.
Plenty more fish in the sea?
DanskFisk was eager to negotiate a contract for 2 tonnes of Finnish salmon to distribute to a number of clientele throughout the country. Payment of credit was arranged by a Dutch bank. 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 their fish inspected by a nationally accredited standards organization. Both parties agree in their contract that Kalastaa will pay freight to Rotterdam and will also insure the shipment. Once the salmon has been delivered, DanskFisk will assume all responsibility.
The Finish Food Inspection Agency 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 also states a color code that is standard to the Salmofan scale. 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 Roche scale. Another salmon colour reference is the colour number on the Salmofan scale. Kalastaa’s bank, acting as their export advisor, contacts the company to tell them that the letter of credit has fallen though because the certificate of quality is vague and it cannot be ascertained if the shipment has passed its quality certification. Something is fishy…
The documents were delivered directly to the buyer for payment. DanskFisk insists on inspecting the shipment upon arrival. DanskFisk is not an experienced salmon importer, and usually deals with Spanish Blue Fish and Irish Char. They are not in disagreement that the salmon shipment has passed quality inspection. Upon DanskFisk’s inspection, they claim that the fat content of the stock is much higher than is claimed in the quality inspection. They reject the sale and will accept substitute goods, but are claiming damages for loss of profit. Kalastaa management wonder if they need to rethink their exporting strategy.
Case Study Discussion Questions
1. Which shipping vessels would be most appropriate for Kalastaa to ship their product to Rotterdam?
2. Describe the purposes for each of the export documents that Kalastaa need to provide to secure documentary credit.
3. Which Incoterm would best represent the terms of sale between Kalastaa and DanskFisk?
4. Would Kalastaa have benefited from employing a freight forwarder? Explain.