Here are Some Musts You Need to Cover in Your Supplier-Importer Agreements

09/01/2019 If you need to export wines to key foreign markets, you must add the following points to your agreement

For wine brands looking to export their wines abroad to key markets in Europe, North America and Asia, it is important at the outset to understand some of the key features that will need to be covered in any supplier-importer agreement. Here’s a closer look at some of the important terms that you should add in your Supplier - Importer Agreement

Product specifications

It is important to spell out the exact specifications of the products that will be covered by the supplier-importer agreement. These specifications include the exact wine varietals (or grape varieties, in the case of bulk wine), the vintages, and the appellations. If wines are being sold as single-vineyard wines, for example, then the agreement needs to pay attention to the exact provenance of the wine by clearly delineating the geographical location of that vineyard.

Size of each sale

Many supplier-importer agreements will also cover the sales targets, including the frequency of shipments, the projected order size, and any changes to the sale schedule over time. For example, a supplier-importer agreement can be written as a one-time spot sale, in which the obligations of the supplier and importer are quite clear. However, more likely than not, the supplier-importer agreement will contain provisions for a regular schedule of shipments. And the size of each shipment might escalate over time.

Territory

The wine importer is essentially getting the permission of a wine brand to distribute and sell its wine within a different country. As such, the wine brand can stipulate the exact territory on which a distributor may sell. The reason for spelling this out in the contract is to ensure exclusivity. It could be the case that the wine brand has several different agreements in place related to the distribution of its wine, and has offered exclusivity to one distributor for a premium, high-value sales region. For example, an importer in the UK might ask for exclusivity for the London market, thereby making that company the only one that can import a certain wine and then sell to London’s best wine merchants.

Pricing

There are two elements to pricing that are usually addressed in a supplier-importer agreement. The first element is the price actually being paid by the importer for the wine. The second element, though, is the allowable markup of that wine once it has been imported into a different country. The logic behind this is that a wine brand can still exercise a modicum of control over how its product is priced, even though it is no longer in control of distribution to the retail market.

Payment terms

There are a variety of ways that an importer can choose to payment of the wine. Three of the most common payment terms include Letter of Credit (LOC), 30 days, and consignment. The 30 days payment terms are probably most familiar to wine suppliers, and would be quite similar to similar transactions in the domestic market. Essentially, the buyer has 30 days to pay for a purchase. In the case of a wine brand looking to present more favorable trade terms, that 30-day payment window might be elongated to 45 or even 60 days.

Shipping terms

Since wines are going to be delivered cross-border, and perhaps over a distance of thousands of miles, it is important to consider all of the different shipping options that are available, including shipping by vessel and shipping by air. One common term often found on supplier-importer agreements is Cost & Freight (C&F), which is a way of describing how delivery happens. With C&F terms, a seller delivers when the goods are loaded aboard a vessel as the named port of shipment. Once the goods have been loaded aboard the vessel, the buyer then bears responsibility for anything that happens to the wine during shipment. Given that wine is a perishable commodity, one way to insure a product during a shipment is known as Cost, Insurance & Freight (CIF).

And, finally, one shipment term that is entirely unique to the wine industry is Ex Works (also called Ex Cellar). This term means that a seller delivers when wine is placed at the disposal of the buyer, either at the winery itself or at a warehouse or other storage facility. This Ex Cellar agreement places all of the responsibility on the importer to pick up the wine at the winery, and then clear these goods for export before loading them aboard a vessel. Small boutique wineries or fine wine producers might find these types of shipping terms favorable, primarily because it requires buyers to take on much more risk than traditional shipping terms.

Importer obligations

It is possible to specify within a supplier-importer agreement the various obligations and responsibilities of the importer. In other words, what must an importer do once it has obtained possession of a wine shipment? For example, the agreement might specify how hard the importer has to work to sell this wine in a foreign market. This helps to protect a winery, since it ensures that a minimum level of product will be moved once it has been exported abroad.

The obligations might also cover sales, advertising and promotional costs. For example, if foreign wines from Australia are going to be sold in the UK market, how will these wines be promoted and marketed to wine drinkers in London, Manchester and Birmingham? Do importers bear all the responsibility, or do wine suppliers have to provide sales and marketing collateral to help support product sales?

Intellectual property

Since wine suppliers are simultaneously wine brands in and of themselves, it also makes sense to consider elements of intellectual property (IP) in any supplier-importer agreement. These IP elements might include trademarks or patents, and might also include details on how a foreign wine brand must be presented within a new market. If a similarly named product already exists within that market, then additional steps might need to be taken to protect this IP from being misused by rivals or competitors. The agreement will specify which party has the responsibility of taking steps such as registering trademarks or filing patents.

Provision for defective and unsold products

What happens if some of the wine that has been exported abroad ends up being unsellable, either due to defect or lack of consumer demand? Theoretically, a wine importer might have an entire warehouse filling up with bottles and cases of wine that cannot be sold. This might be the fault of the importer (for not having proper storage facilities for the wine), of the shipping and logistics company used by the importer (imagine glass bottles breaking in transit during a particularly violent tempest!), or of the original supplier (if the wine was corked even before being loaded aboard a vessel). Thus, the supplier-importer agreement really needs to take into account each of these possible scenarios.

Provision for settlement of disputes

In the case of defective and unsold products outlined above, how will the inevitable dispute be settled? There needs to be a fair and equitable process that protects both suppliers and importers.

Provision for termination

It can be a difficult topic to broach during a discussion on importing wine, but there needs to be a provision for termination. Are there any situations or circumstances where the entire agreement can be formally and officially terminated? Even terms like “non-performance” must be defined very precisely, so that it is very clear to both sides when the contract agreement has been breached.

It can be very exciting signing that first supplier-importer agreement, thereby giving your wine brand access to a new and exciting foreign market. To protect yourself from any misunderstandings that might happen later, it’s important to keep in mind the key elements of what makes a solid supplier-importer agreement. Doing so could vastly increase the future market potential of your wines in some of the world’s most desirable wine markets.

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