Individual Case

Analysis
Expository Essay & Export Sales
Contract
 EXPOSITORY ESSAY

Covid crippled the growth of cotton exports in Australia in 2020 by a staggering figure of 87%. It slowly
improved to AUD 2.17 billion in 2021, when Namoi Cotton (NC) profoundly supported 2021's export growth
by segmenting its entire industry into four segments. Many investigators revealed that segmentation within
an enterprise brings diverse selling means that involve strategic stockouts (Liu & Van Ryzin, 2008);;
cancellable reservations (Xie & Gerstner, 2007) reservations (Alexandrov & Lariviere, 2012); partial-
inventory information (Yin et al., 2009) and probabilistic selling (Jerath et al., 2010; Fay & Xie, 2010). NC has
nine gins in six valleys and has a capacity of 1.5 million bales while simultaneously marketing domestically
and exporting cottonseed and lint to more than eight countries in its supply chain (NC Annual Report,
2021). This essay intends to discuss the colour reflectance issue raised by Beijing China Cotton Trading
Limited, recommendations to avoid new tariffs imposed by Chinese authorities, and policy changes to
accommodate quality changes.

The main factors affecting the cotton crops' colouration are field conditions after boll opening and before
harvests, such as rainfall and moisture, microbial action, and insect honeydew (Australia Cotton, 2022).
NC's thorough investigation revealed two issues resulting in the high moisture content in bales, creating
discolouration of cotton bales. To prevent these issues, NC is implementing a three-stage correction
procedure. Stage one is that the cotton planting is done strictly based on the weather forecast. So, picking
will most likely be in a drier season. It is done with the framework internally created based on historical
meteorological and continual satellite data (Esteso et al., 2022). This project is extensive, but NC believes it
will yield higher molecular concentration, reduce the harvest intervals, and predict a safer harvesting
period. The second stage is to pre-gin small hand samples of cotton to verify the quality of the cotton after
weathering (Wang et al., 2022). A decision was made based on the weather, and a detailed report will be
generated and submitted to suppliers to facilitate future sales. NC believes this will bring absolute
transparency and strengthen our relationship.
Moreover, it would help in staging modules and loads according to moisture content and separate any
problematic modules or high-moisture content modules. So, the required coloured bales are produced for
export (Wang et al., 2022). The last stage is installing a new moisture controller in storage areas with
meters indicating live data to the supply chain and logistics ERP system. So, the pre-emptive measures will
eradicate the discolouration issue in the export.

The present political crisis has increased uncertainty about future development, as such, the new tariffs
installed by Chinese officials impact trade arrangements. Additional taxes always decrease trade by
increasing the cost at the buyer's end while increasing product surplus at the seller's end (Tavasszy et al.,
2011). Long-term transportation expenses are likely to rise owing to increased congestion in and around
ports, rising oil prices, commercial centres, and state initiatives gunning for internalising external
transportation expenses (Tavasszy et al., 2011). These cost increases are expected to impair trade flows and
induce flow concentration on high-density container routes (Tavasszy et al., 2011). To settle the issue, NC
uses transhipment by exporting products under different country banners. NC employs a floating harbour
transhipped (FHT), a large floating warehouse with an aft well dock to enable material transfer operations
from the feeder's vessel, to simplify transhipment (Macfarlane et al., 2015). The bulk cargo handling
machinery at the FHT distributes material from the feeder's container to the stockpile, straight to an export
vessel docked alongside, or from the store to the export vessel (Macfarlane et al., 2015). Reduced
transhipment delays due to severe weather are a key benefit, as are considerable reductions in relative
movements between the FHT and feeder vessel due to sheltering effects, when compared to the more
exposed condition during standard side-by-side mooring arrangements. Now, Vietnam has become the
transhipment centre for the cotton supply from Australia to China (Australia Cotton, 2022). So, new
collections from NC are now exported to Beijing China Cotton Trading Limited from Vietnam to avoid tariffs
and continue smooth operations between the two industries.
On another front, NC officials are also working with communal representation with Australian foreign trade
officials to bring back the 2015 China-Australia free trade agreement to curb the negative political impact
on the trade (Australia Cotton, 2022), as China did move forward in its efforts to establish bilateral free
trade agreements (FTAs) and free trade zones in 2015 (Yuhong, Yifei & Yang, 2016). These FTAs indicate
that despite recent COVID and political tension, there is faith in building stronger trade partnerships
between Australia and China, which would benefit our trade arrangements.

In conclusion, Beijing China Cotton Trading Limited should not be worried about the discolouration issues it
has resolved. Moreover, NC has mentioned the rate of bales in the policy with a specific colouration range.
And the transhipment via Vietnam will continue the trade relationship between the companies. Though it
would increase the cost per bale, 45% of the additional cost would be borne by the Vietnam counterpart,
which is indicated in an enclosed policy document. Furthermore, in the long run, Vietnam would become
the central hub for exporting cotton to China for NC, while direct export would become another alternative
source if the FTA comes through.

Note: The new policy containing the recent mentioned issues is attached to this essay.
 Annexure 1: EXPORT CONTRACT

Namoi Cotton Limited

(A Government of Australia Undertaking)

Phone.: 07 XXXX 6100

Website: https://www.namoicotton.com.au/
Mail Address: PO Box 1333, Toowoomba Qld 4350
Australia
No. CCI/ /EXP/ /2020-21/ Date:

Namoi Cotton Limited, a company registered under the Companies Act, has its registered
office at 1b Kitchener Street, Toowoomba Qld 4350 Australia, from now on referred to as the
‘SELLERS’ and Beijing China Cotton Trading Limited from now on referred to as the
‘BUYERS’, enter this contract, for sale/purchase of Australian Cotton, for Export, on the terms
and conditions mentioned hereunder:

1. QUALITY, QUANTITY, SALE RATE & FREE SHIPMENT PERIOD:

The Sellers have agreed to sell, and the buyers have decided to buy from the Sellers the
following quantities of Australian Cotton of the 2021 Crop batch as under:

Note: Pricing discount based on colour reflectance is added in annexure 2.

2. TERMS OF PAYMENT

(a) Deposit: The purchasers shall be prerequisite to pay the least sum of 25% of the cotton
price as guaranteed money within three days from the contract agreement date.
(b) The additional transhipment cost will be split between Vietnam's counterpart owning up
to 45% of it, while the remaining falls on the Buyer’s Account.
(c) The remaining 75% including the additional transhipment cost must be paid within 7
days of the lading and shall be through the first-class bank with a subsidiary in Sydney
through a letter of credit. And actual payment must be made within 45 days of lading.

3. TERMS OF SALES:

(a) The supplier shall arrange for the completion of the proposal of actual lot samples for
approval within ten days, and the buyer or his accredited representative shall confirm a least
90 per cent approval from the samples given, after 5 days of submission. Within 15 days of
the contract date, the buyer or his authorized representative must execute the stipulated
amount of cotton purchase. The cotton lots are final once accepted by the customers or their
agents, and the sellers will not consider any quality complaints about such authorized lots for
sale.

(b) The estimated load of each bale will be about 200 kgs. The difference in agreed amount
to + 5 % of several bales/ Metric Tones ought to be adequate for the purchasers.

4. TERMS OF SHIPMENT:
In the occurrence of non-shipment within the prescribed free shipment period for any
customer insolvency, the corporation could believe in allowing the shipment within the
subsequent 30 days, for which the purchaser will have to settle holding expenses @ 1.10%
p.m. with effect from the 46th day from the date of the agreement till the date of bill of
 lading.
However, following the free time, the extended shipment term should not exceed 60
days. If any sums remain unshipped after this period, the contract is subject to
termination at the seller's discretion, and the seller is free to resell the same at the
buyer's risk and expense. The buyer's business dealings with such purchasers are barred
until the buyer makes good on the losses on unlifted sales under this contract.

5. CARGO INSURANCE

NC insurance covers up to the Sum of Insured loss or damage to the Insured Goods while in transit
during which any damage caused by either accidental way or specific hazards selected by the
customer, according to the terms, restrictions, and limitations of the insurance policy will be
assessed and reimbursed.

BUYERS SELLERS
Beijing China Cotton Trading The Cotton Corporation of Australia Limited
Limited

(AUTHORISED SIGNATORY) (AUTHORISED SIGNATORY)

AGENT:
Annexure 2: Pricing Based on Bales Colouration
REFERENCES

Jerath, K., Netessine, S., & Veeraraghavan, S. K. (2010). Revenue management with strategic customers:
Last-minute selling and opaque selling. Management Science, 56(3), 430-448.

Fay, S., & Xie, J. (2010). The economics of buyer uncertainty: Advance selling vs. probabilistic
selling. Marketing Science, 29(6), 1040-1057.

Liu, Q., & Van Ryzin, G. J. (2008). Strategic capacity rationing to induce early purchases. Management
Science, 54(6), 1115-1131.

Yin, R., Aviv, Y., Pazgal, A., & Tang, C. S. (2009). Optimal markdown pricing: Implications of inventory display
formats in the presence of strategic customers. Management Science, 55(8), 1391-1408.

Alexandrov, A., & Lariviere, M. A. (2012). Are reservations recommended? Manufacturing & Service
Operations Management, 14(2), 218-230.

Xie, J., & Gerstner, E. (2007). Service escape: Profiting from customer cancellations. Marketing
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NC Annual Report (2022)

https://www.011.clevvi.com.au/fileadmin/html_templates/namoi/images/
Namoi_Cotton_Annual_Report_2022_WEB.pdf

Australia Cotton, 2022. Educational Kit. [online] Cottonaustralia.com.au. Available at:

<https://cottonaustralia.com.au/assets/general/Education-resources/CA-resources/Education-Kit/2021-
Education-Kit/Educational_Kit_Cotton_Australia_Chapter04.pdf> [Accessed 7 August 2022].

Esteso, A., Alemany, M. M. E., Ortiz, Á., & Iannacone, R. (2022). Crop Planting and Harvesting Planning:
Conceptual Framework and Sustainable Multi-Objective Optimization for Plants with Variable Molecule
Concentrations and Minimum Time between Harvests. Applied Mathematical Modelling.

Wang, T., Hardin IV, R., Ward, J., Wanjura, J., & Barnes, E. (2022). A smart cotton module tracking and
monitoring system for handling logistics and covering damage. Computers and Electronics in Agriculture,
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Tavasszy, L., Minderhoud, M., Perrin, J. F., & Notteboom, T. (2011). A strategic network choice model for
global container flows specification, estimation and application. Journal of Transport Geography, 19(6),
1163-1172.

Macfarlane, G. J., Matsubara, S., Clarke, L. J., Johnson, N. T., & Ballantyne, R. J. (2015, September).
Transhipment of bulk ore products using a floating harbour transhipper. In Proc. of the Australasian Coasts
& Ports Conference, Auckland, New Zealand (pp. 15-18).

Yuhong, S., Yifei, M., & Yang, J. (2016). An Analysis of Interaction Effects of China–South Korea and China–
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