High Seas Trading – what is it?

In short High Sea sale is when the cargo is already loaded on a ship and sailing on the high seas (international waters, under no jurisdiction) without actually being sold to the final buyer yet. Seller is looking for a buyer, while shipmenet is on the way. Once the cargo is sold, the captain of the vessel is notified to change course and deliver it to the new buyer’s port. Usually the ship is sailing in a certain direction (example: from Brazil to Middle East). Seller is looking for buyers in destination area (which in this example can be any Middle Eastern country, India, Pakistan, etc..)

What is the reason for selling on High Seas?

High Sea sale is done to avoid the burden of Local Sales Tax or VAT which would otherwise have to be paid by the final buyer if the cargo was first bought by the importer and then re-sold to the final buyer. What High Sea Sale does, is put the final buyer in the possition of direct importer thus saving him an aditional tax. For that reason, goods bought on the high seas, while the ship is in international waters are between 25% – 5% cheaper for the final buyer (depends on the Local Sales Tax / VAT rate in buyer’s country).

Is High Sea Trading Legal?

“High seas sale” sounds like something done hush-hush in the middle of the ocean like we see in the movies. Which is why you have instinctively raised doubts about its authenticity and legality. Let me assure you, “high seas sale” is a perfectly legal transaction though the term might have a mysterious ring to it. High sea sale is simply turning the final buyer into direct importer, and thus saving on the Sales Tax / VAT which would have to be paid on the re-sale if the importer was involved as a middle man.

Example of sale on the High Seas

Suppose a Candy producer in India needs raw sugar which, if imported, would be more economical for him. But he cannot directly import, as the volumes simply do not justify such direct effort. He, therefore, decides to buy it from a sugar trading company in this country whose main business is import/export of raw sugar.

Suppose further that the trading company is in Mumbai where it normally unloads the imported sugar. The candy producer will now have to pay Sales Tax, as the transaction is between two companies (Sugar trading company and Candy producer). You may note that the Sugar trading company has already paid the import duty on the sugar from Brazil. “High seas sale” enables one to avoid the second dose of taxes. In this example, the Candy producer could have approached the Sugar trading company much before the goods reached the Mumbai port. In other words, the Sugar trading company could have sold the sugar to the Candy producer while the goods were still at “high seas”. This is possible by suitable endorsement to the document of title to the goods.

Because the sugar was sold in high seas, the Candy producer becomes the importer. He now has to pay the Customs duty (which he would have to pay in any case even if he bought the sugar from the Sugar trading company after the cargo has landed in Mumbai) because the Sugar trading company would have passed on the duty liability to him. But now the Candy producer does not have to pay the Local Sales tax / VAT because the movement of sugar from Mumbai to Delhi is not seen as a sale but rather as simple transport from one location to another by the same owner (the Candy producer) without involving any sale. The purpose of the whole procedure, therefore, is to get rid of the final sales tax / VAT liability. It does not matter if the trading company and final buyer are in the same country, what matters is that the final buyer also becomes the importer and does not have to buy the imported sugar locally.

We trade Sugar on the High Seas

Please contact us for information about currently available shipments of Sugar on the High Seas. We will get back to you within a few hours.

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ASWP – An acronym standing for the term ‘Any Safe World Port’, which is used to indicate that delivery can be made to any safe port that the buyer designates. These are the biggest and popular ports.

BCL – Bank Capability Letter, or alternately Bank Comfort Letter. This is a letter issued to the seller by the buyer originating from the buyer’s bank which indicates that the seller is able to cover the total cost of purchasing the sugar.

CIF – Cost Insured Freight. Sugar sold with a CIF agreement is insured by the seller on behalf of the buyer, and the freight of the sugar is included in the total cost. This coverage is in place from the time of leaving the buyer’s hands, during the entire length of transport until such time as the sugar arrives in port.

Ocean Bill Of Lading – This is the contract that sets out the terms of transport between an international carrier and an exporter. The contract is generally set out by the international carrier and issued when the shipment has been received and is on board a vessel. The bill of lading stipulates which vessel the shipment is aboard, and the destination of said vessel. It also states any additional terms and conditions under which the international carrier has accepted the shipment for transport.

The ocean bill of lading comes in two forms and can be either negotiable or non negotiable.

Non negotiable bills of lading are the simplest form, and are comprised of an agreement for the carrier to deliver the named shipment to a specific consignee at a specific destination, both of which are named in the bill of lading, pending payment of transport fees.

Negotiable bills of lading are somewhat more fluid, and the destination and consignee can be changed by the shipper. Negotiable bills of lading are normally required when payment is being made via banking channels using, for example, a letter of credit or documentary collection.

Draft Contract – As the title suggests, a draft contract is a preliminary contract that is sent from the seller to the buyer and is subject to the buyer’s consideration.

Formal Contract – Following on from the draft contract, the formal contract is the final contract where both parties have agreed upon the terms.

(LOI) Letter Of Intent / (ICPO) Irrevocable Corporate Purchase Order -These are documents outlining the intended transaction between the buyer and the seller.

Prime Bank – A now outmoded term which describes an international bank that is well known and has good standing (Barclays, HSBC, etc). Now often called ‘money center’ banks.

Proforma Invoice – A proforma invoice is a quote that can be verified by an existing published price list which facilitates prepayment. This document is of use to corporate buyers who will need to consult with accounting departments in order to obtain prepayment for goods. The invoice contains details of the intended sale including specifics such as the intended date of shipping, quantities, price, and destination port. This invoice is generally effective for a period of sixty (60) days.

SGS Inspection – This is an inspection carried out by SGS, who are widely regarded as being the best inspection company in the world. SGS offers many services, including inspections, testing, and certification. Buyers normally prefer to have sugar inspected, tested and certified by SGS prior to purchase as a means of verifying the quality of the product they will receive.

Letter Of Credit (LC) - A letter of credit is a legal document which is issued by the buyer’s bank which allows payment to be made with the presentation of stipulated documentation. This letter is a guarantee from the buyer’s bank that payment will be made upon receipt of proof that terms and conditions of trade have been met. Making payment by letter of credit affords protection for both seller and buyer, as goods must be shipped before payment is made by the buyer, and as long as the shipment is sent according to the terms of trade, then payment will be made to the seller.
There are many different types of letters of credit, as laid out below.

Irrevocable Confirmed Letter Of Credit – This letter of credit is one in which the issuing bank is also confirmed by another supporting bank. This provides peace of mind for the seller in the case of dealing with buyers from countries with banking systems that are unstable , untrustworthy, or simply not familiar to the seller.

Revolving Letter Of Credit – This type of letter of credit allows for multiple payments to be made over a period of time, and is useful if regular shipments are to be made.

(PB) Performance Bond – A performance bond is a guarantee issued by the seller’s insurance company which states that the seller will meet its commitments and supply sugar according to the trade agreement. This provides protection to buyers relying upon a seller, and reduces the possibility of sugar fraud.

Standby Letter Of Credit – A letter of credit that guarantees payment in the case of the buyer defaulting on the purchase.

Transferable Letter Of Credit – A transferable letter of credit allows the beneficiary of the letter of credit (the seller) to assign some or all of the proceeds to another party. This is often used by sellers to pay their suppliers.

 Back to Back Letter of Credit – This type of Letter of Credit is used when a seller has to purchase a component or outsource part of the manufacture of a product, but may not have the cash flow to do so.

In this case, the seller applies to his bank for a letter of credit, identical to the original Letter of Credit he received from the Buyer, except that it is for a lower value. This second letter of credit, called a “Back to Back LC”, is sent to the subcontractor’s bank and therefore the subcontractor knows that he will be paid and can proceed with his part of the transaction – supplying components or service to the original seller.

Deed of Assignment – A provision in the letter of credit where the seller assigns some of the proceeds of the letter of credit to a third part.

MT799 – (SWIFT MT799) is a simple text message, sent from buyer’s bank to seller’s bank. This is used for a bank to bank POF (Proof of Funds), only. The Swift MT799 is not a form of payment and it is not a bank undertaking or promise to pay. It is simply a bank to bank confirmation of the funds on deposit. Buyer uses it to prove to the seler that he has enough funds for the purchase.

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