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Suppliers going back on their word (Part 1)

December 5th, 2011 Leave a comment Go to comments

Recently I was contacted to assist in a case whereby a Chinese supplier had decided to change their mind about delivery terms on an order. This was post-production and while it was held at a 3rd party shipping agent. Initially, a quote was supplied to a European purchaser that was priced for FOB, Chinese port. These terms were accepted and the ordered processed.

Somewhere between ordering and before loading onto the vessel at the port, the supplier decided to change their mind and claim that this was no longer FOB and were only prepared to pay a small courier fee to the shipping agent. Not only did they do that but they also refused to offer a Commercial Invoice and Certificate of Origin – two documents that are critical when exporting from China and importing into your own country.

The purchaser had found this supplier on Alibaba.com and had been delivered samples before deciding to order with them. They had performed the minimum amount of work required in order to make sure this supplier could at least deliver a product they were willing to pay for. As you can see, in this case it wasn’t enough.

When we got involved the shipping agent had custody of the goods and was awaiting payment for export and freight loading charges in order to release the shipment. This part is normally covered in the FOB terms. The supplier had insisted that they needed 100% of the payment before they would release the goods to send to the shipping agent. The purchaser, not seeing anything untoward, obliged by paying the remaining 70% after the initial deposit amount. The fact that final payment terms were not confirmed beforehand enabled the supplier to be able to take advantage of the situation.

On initial contact with the supplier on behalf of the purchaser, they claimed that the quote did not include the FOB terms. This was very quickly proven wrong through existing emails and the original quote. After this fabrication was unveiled the supplier changed their story to the new fact (and probably closer to the truth) that they quoted too cheaply and were making no profit on the whole order. Of course, this is where a Purchase Order and Purchase Invoice should be enough to show the agreed terms of delivery and that they need to be adhered to. Even after this was shown to the supplier, they still refused to pay. Because of time sensitivity issues and an unwillingness to deal with legal action in China by the purchaser, they found themselves in a situation whereby if they wanted their goods on schedule, then they would have to succumb to paying this part themselves despite the principally agreed terms. It should be noted that the shipping agent was impartial and willing to take payment from anyone to release the goods.

On the whole, it was a relatively small order and the FOB fees due were under 2000RMB (~EUR235) so the purchaser decided to cut their losses and pay this. I am sure the supplier had this in mind all along and had decided to cut his losses with the order and the chance of repeat business a lot earlier. This was not the end of the matter, however. Worse behaviour was to follow!

For Part 2 of this article, click here.

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