Export mediation contract

Find out how the Export Contract works, in addition to understanding Brazil’s role in the foreign market.

Considering the significant growth of the export market involving Brazil, which reached a level of over 330 billion USD in 2022 and is expected to be even larger this year, several traders and producers are seeking entry into this market due to the various benefits granted to those who venture into exports. In order to do so, it is common to outsource the responsibility of the actual sales process. Let’s see how it is usually achieved.

The international trade scenario involves extensive market movement, with a significant monetary value of goods transiting between ports worldwide. At the same time, it is a considerably more formal commercial environment than the domestic one, with various national and international regulations, as well as customs procedures adopted by importers and exporters.

In light of this, professionals focused on intermediating between the seller and the buyer emerge. These professionals act directly on behalf of the product supplier through a mediation contract. The idea is to outsource the sale process to those who already have the right contacts and a pre-established operational setup to reach potential buyers for the product provided by the exporting entrepreneur.

Author: Leonardo Almeida Lacerda de Melo

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The Responsibility of the Parties in the Mediation

Since it is a specific type of service provision, Intermediation is concretized through a contractual agreement where all terms of the agreement, such as deadlines, financial aspects, and, most importantly, the responsibility of both parties, should be specified. Let’s take a closer look at how this actually happens.

Responsibilities of the Intermediator

To understand the specific responsibilities of the Intermediator, it is interesting to grasp the general idea of their role. First and foremost, it is inefficient for a producing company to invest time and money in acquiring in-depth knowledge of international trade to the extent of being able to handle all negotiations with importers on their own. Therefore, it is common to outsource this need to intermediates.

The Intermediator will not only identify the exact customer for the product they are offering but also handle all negotiations and procedures for a successful sale. They will relay pertinent information between the parties about the product, prices, deadlines, and logistics, negotiate export terms, and often act as a commercial representative for an exporter in a specific country or region if they have the knowledge and structure to do so.

Hence, the Intermediator is responsible for the sales process from start to finish (depending on what is stipulated in the contract) with the respective Buyer in the most efficient manner for the Exporter. In practice, the Intermediator will act as a representative of their Client throughout the entire sales process, with the Client being the supplier of the goods intended for export.

Responsibilities of the Client

To ensure the smooth progress of customer acquisition and negotiation, it is the responsibility of the Intermediator’s Client to maintain stock (or production turnover in future contracts) of the offered product. This product maintenance will likely be outlined in the contract with the Intermediator.

The purpose of directly stipulating the Client’s responsibility for the product, as well as its proper compliance with international trade regulations (more information in our article), is to preserve the Intermediator’s reputation in the market and avoid any disputes arising from a fruitless export procedure, which, in itself, generates certain expenses for both parties.

Therefore, the Exporter must ensure from the outset that their company, production, and product inventory are properly regulated for the intended export, in order to fulfill the agreement with the Intermediator and ensure the successful execution of the export itself.

How Exportation Works with Export Contract

The export procedure, as well as the export contract, tends to vary depending on the goods, destination, and formalities sought by the parties involved. As an example, trade between Brazil and China is considerably vibrant, attracting various agreements aimed at facilitating exports and imports between the two nations, as stated in our aforementioned article.

For instance, in the software industry, which is relatively more complex due to the fluidity between product and service depending on what is offered, taxation tends to vary considerably. Furthermore, as digital products, there is no need for export logistics.

In another scenario, such as commodities, we see a more competitive and rigid market, with product values determined in stock exchanges that even state future prices for the purpose of stabilizing the market concerning future contracts for continuous supply. In simpler terms, there is hardly any negotiation regarding the base price of the product, with the value varying more due to logistics negotiation based on the incoterm defined between the parties (more information in the section related to the export contract).

In other words, the more responsibility the Exporter takes on in terms of logistics, the higher the final product price tends to be. The price may also vary depending on the time of year (due to the harvest of certain products), the fee for the Intermediator’s services, and taxation.

The Export Contract

The export contract itself is one of the most detailed contracts in private international relations (which do not involve public entities). It will specify the product, including all its specifications such as quality, volume, weight, etc. It is also common for the importer to request samples before settling the agreement to verify the quality of the merchandise.

The export contract will also include information regarding payment, which is usually made through credit instruments such as SBLC or Letter of Credit, involving the financial institutions of the parties. The idea behind using a Letter of Credit as a payment method is that the financial institution receiving the credit requires the Exporter to fulfill the proper exportation of the products before releasing the payment.

By opting for a Letter of Credit, which is a common payment method in this type of relation, the export value has already been secured by the bank, but the Exporter can only access the funds after exporting the product, providing security for both parties.

There is also the choice of the incoterm defined between the parties. Incoterms are standardized logistics clauses developed by the ICC and updated every 10 years. Incoterms have been widely adopted in the international market and are used almost universally in international contracts.

It’s important to consider the variation in responsibility between the exporter and importer depending on the selected incoterm. This clause will define who will handle the transportation, responsibility for the goods, and insurance against any accidents throughout the transportation process. Naturally, as previously mentioned, the final price of the product in the export contract will also vary depending on the incoterm.

Also, depending on the negotiation, product, etc., various clauses may occur in the export contract, such as confidentiality of the entire negotiation, future supply maintenance resulting in multiple rounds of exportation and payments, and exclusivity, among others.

Taking the First Step on Export Contract

To enter the international market, the producer must identify the appropriate market for their production. This can be done through market research, which will indicate the demand in the foreign market, where to focus the exports, which intermediaries to hire, the suitability of their product, and whether exportation is indeed viable.

The research can begin with the producer acquiring market information by attending trade fairs, conducting studies and independent research, acquiring data, or seeking assistance from a trading company or specialized intermediary. With professional assistance, a few weeks are sufficient to get an idea of the market and even secure a final buyer, depending on the product to be exported and the complexity of the market for that product.

Once the target buyer is identified, the producer can then begin the adaptation process, which can be done with their own resources or with various financing programs available in Brazil.

The Importance of Hiring a Specialized Firm for the Export Contract

As demonstrated, the export contract has intricate nuances that need to be observed. It is in the exporter’s interest to ensure that there are no doubts regarding deadlines, logistics, payments, and overall costs of the entire export process. Moreover, the entire procedure requires caution due to the significant monetary value involved in the operation.

Various issues may arise, such as disagreements over the final value including taxes, responsibility for accidents that occur during logistics, responsibility for damaged or substandard goods, and failure to meet deadlines, among many others.

Due to the unique knowledge required, with very few specialists operating in the market, hiring specialized lawyers, such as those from Koetz Advocacia, makes the process safer, faster, and more efficient for the exporter.