North American Grain: key differences between standard forms (2)

This client alert is the second of a two-part series relating to the use of the standard form contract published by the North American Grain Export Association (NAEGA).

In our Client Alert dated 16 April 2013 (click here for a link to this Alert) we provided a comparative analysis between standard FOB forms commonly used for U.S. grain and oilseed exports (we compared the NAEGA II form against the GAFTA 64 and FOSFA 4 forms). It is a common feature of the U.S. export market that merchants buy their grain and oilseed cargoes for export from the U.S. on the NAEGA standard form terms, but will then trade these cargoes with their counterparties on terms requiring shipment of the cargo to the worldwide destinations e.g. on a “CIF” or “CFR” basis. Indeed, it is not an uncommon trading practice for merchants to purchase on NAEGA FOB terms and sell on GAFTA or FOSFA CIF terms. In such circumstances it is necessary for a trader using these standard forms to execute different obligations arising under the respective “buy” and “sell” transactions. An awareness of the differences (particularly with respect to the timing of the performance of obligations) is important.

The following client alert seeks to reconcile and draw attention to the different provisions in the standard forms in circumstances where merchants purchase cargoes on the NAEGA FOB form and sell cargoes on a GAFTA or FOSFA CIF form. We also provide suggested “best practice approaches” to be taken by the party in the middle (i.e. the FOB buyer and CIF seller) when trading on these terms.

A snapshot tabular summary of the alert is attached here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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