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THE INVITATION FOR BID (IFB).
An IFB is a formal request for offers by an importer extended to a
number of potential suppliers. This request is usually made via fax
machine or email, and details the importer's requirements for quality
and quantity, as well as the terms and conditions submitted offers
must meet. The offers (or bids to sell) may be opened in public or
privately, in a formal or informal manner.
Formal bids are often submitted in sealed envelopes and opened
publicly in either the importer's country or in the United States.
Under a U.S. government financed export program, Public Law 480
(PL480), the IFB must be approved by the USDA, and offers are
required to be opened in public, usually in Washington, D.C. The
following is a list of the essential components of an IFB, components
that will form the basis of the subsequent contract for U.S. feed
grains:
BUYER
The importer should clearly state the full, legal name of the entity
making the purchase, contact information (address, telephone, fax)
and the date the IFB is issued.
For example:
"The Embassy of Pakistan, on behalf of the Ministry of Food and
Agriculture, Government of Pakistan (the purchaser), solicits bids
..." (dated on official embassy stationary).
TIME
The importer should state the time by which offers must be received
by the importer (or his agent) and the time by which the importer's
acceptance of the offer must reach the supplier. The longer the
amount of time the offers must remain valid, the greater the risk
premium (cost) the supplier will build into the price. Normally, an
offer is made in the afternoon, following the close of the U.S.
commodity futures exchanges, with a reply expected that same night
or prior to the opening of the future's exchanges on the next day.
For example:
"Bids must be received by 23 August 2003 at 3:30 pm Eastern
Standard Time (EST), and must be valid until 10:00 am EST 24
August 2003.
QUALITY
Grain quality is determined by the official U.S. Standards for Grain,
which governs the classification and grading of grain based on
several qualitative factors.
The importer should specify maximum and minimum grade
determining factors required and confirmed by an official export
grain inspection certificate, issued by the Federal Grain Inspection
Service (FGIS) or an FGIS-authorized state agency. The importer
may also specify non-grade determining factors desired and identify
the testing agency authorized to perform these tests.
For example: "U.S. No. 2 or better yellow corn, maximum 15.0
percent moisture. Aflatoxin maximum 20 parts per billion as
determined by independent lab."
The more precise the quality description, the better the chance the
importer will be pleased with the quality obtained. However, an
overly restrictive quality requirement can lead to a much higher
purchase price.
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QUALITY AND SHIPPING PERIOD:
The importer must specify the quantity desired and the exact unit of
measure. For example: metric ton, long ton, short ton or
hundredweight. This amount should usually include a tolerance of 5
or 10 percent of the desired amount. This tolerance allows the
provider of the freight for the shipment the flexibility necessary to
charter a vessel for the grain cargo. The importer should also specify
the method that will be used to establish the price of the quantity
above or below the mean contract amount. In most cases this
tolerance is priced at the original contract price.
Another quantity issue is the weight of the grain and the certification
of that weight. The shipped weight at the load port is usually the weight that governs. Weights are determined by (or under the
supervision of) the FGIS. The weight certificate is final at load and
issued by FGIS or an FGIS-supervised state agency.
Occasionally, the weight determined at discharge will govern. In
these rare cases, initial payment is still made for the shipped weight
at load port, and an adjustment is made once the discharge weight is
known. The discharge weight must be determined under procedures
acceptable to the seller such as an independent surveyor. When an
importer purchases using discharge weights as final, the exporter
will usually add a premium to the price that reflects the normal
estimated loss of grain in a discharge operation.
The shipping period (or in some cases, the arrival period) should be
clearly stated in the IFB. Delays, extensions or charges for late
shipment/delivery are covered under the provisions of the NAEGA
and GAFTA contracts, discussed later in this chapter.
For example:
"50,000 metric tons (5 percent more/less at contract
price) for shipment September 1 through September 20, 2003."
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SHIPPING TERMS AND VESSEL TYPE:
Tied closely with the shipment period and quantity are the shipping
terms and the type of vessel that will carry the cargo. If the importer
will provide the freight, a free on board (FOB) contract, then the
importer should specify:- The U.S. port or range of ports where the grain will be
delivered, as well as the number of berths within the port the
seller may deliver the cargo from.
- The type of vessel should be stated (a self-trimming bulk
carrier, tween decker or tanker, for example) and a rate of
loading (load rate guarantee) for each vessel type, including a
determination of when lay time will commence and how lay
time will be counted to determine total loading time.
- A statement declaring which party will assume the cost of
spout stowing and trimming the cargo.
- A demurrage/despatch rate.
- A statement expressing the pre-advice (the minimum number
of days the buyer will advise the seller of the vessel's
expected arrival).
- The rate of carrying charges the buyer will pay the seller in
the event the buyer's vessel fails to file in the agreed upon
period, as well as the interest rate charged if not included in
the carrying charge amount.
Many of these details are covered in the standard NAEGA #2 Export
Contract discussed later. The charter party, the contract for
freightage between the importer and the vessel owner will also cover
some of these items.
If the importer is requiring the seller to provide the freight as a cost
included in the purchase - cost and freight (CNF) - the importer must
provide the exporter with a daily discharge rate at the destination
port in place of the load rate guarantee, and specify a minimum salt
water arrival draft at the discharge Port and Berth, maximum vessel
age allowed and any specific restrictions at the discharge port. The
importer may also ask the seller to provide insurance on the cargo -
cost, insurance and freight (CIF). The general terms governing these
types of shipments are covered in detail in the GAFTA contracts
discussed later in this chapter.
For example:
"FOB unstowed/untrimmed basis one (1) selftrimming
bulk carrier, one (1) safe port/one (1) safe berth U.S. Gulf
of Mexico. Load guarantee 5,000 metric tons wwd shex eiu with
demurrage/despatch 8,000/4,000. Buyer to give 10 days pre-advice
of vessels probable readiness. Carrying charges shall accrue at the
rate of 0.20 USD/metric ton per day, inclusive of interest."
Sample Contract NAEGA FOB #2
PRICE AND PAYMENT TERMS:
The importer will state in the IFB whether the importer wishes to
purchase with reference to a "flat price" or "on a basis," or whether
the importer wishes to receive offers for both methods. A flat price
offer is an agreed-upon amount to be paid per unit, usually stated in
U.S. dollars per unit. Purchasing on a basis refers to the premium
above or discount below a stated commodity futures exchange
contract. For a detailed description of how a basis contract works,
contact Mr. Vincent Scott Director Vincent Scott Enterprises. Most buyers use the metric ton as their unit for
pricing.
Another issue related to price is the pricing of the tolerance. The
contract must provide a method to handle pricing of the amount
above or below the mean contract quantity.
The terms of payment required by the importer must be clearly
stated. While the most common form of payment is the confirmed,
irrevocable, documentary letter of credit payable at sight, other
forms of payment exist and are discussed at length in Chapter 6. The
importer should specify the documents necessary for payment.
For Example:
"Prices to be quoted in U.S. dollars per metric ton."
"Payment by irrevocable letter of credit payable at sight
to be confirmed in the seller's favor by a first class New York bank
in time to be in the seller's possession, in good order, 15 days prior
to beginning of shipment period or within 10 days of contracting and
payable against the following documents:
- Commercial invoice
- Full set of clean, on board ocean bills of lading issued
to order of shipper
- Official weight and grain inspection certificates
- Certificate of origin
- Phytosanitary certificate
GO TO VSE SELLING PROCEDURES PAGE 2
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