MAN OF STEEL: Letters of credit - the perils and the rising costs

When entering into such business, traders have a format for calculating all aspects of the transaction, including the financial and logistical costs, marine insurance, and covering themselves for risks, both political and economic.

Suppose, for example, costs per tonne are:

Fob St cost price  $700

Fios freight           $48

Bank charges       $10      (1.25% flat)

Insurance             $5        (0.50% all risks)   

Total cost ciffo     $763

Margin of 3%        $23

Sale ciffo              $786              

Recently we have seen a major restructuring of the financial markets and establishments, with ever more attention paid to the details of the exposure and the covering of costs.

Traders are well aware of the fears about the world economy and that is why the more prudent of them will be revising all their current letters of credit for pending shipments and payments.

The basic structure of back-to-back letters of credit is by and large the acknowledged means of...