International Trade Finance

Florida B.P.: Reducing Global Greenhouse Gas Emissions

Renewable Energy Production

Florida B.P. is a medium-sized business located in the U.S. The company produces biodiesel, a
renewable energy source. Biodiesel is a type of biofuel produced as an alternative to fossil fuels
and is viewed by many as the answer to reducing greenhouse gas emissions and the reliance on
oil supply.
The Florida-based producer, owned and operated by its president, Manuel Correo, has
successfully sold biodiesel within the U.S. since it opened its doors in 2007, and began exporting
to Canada in 2012. The export relationship with Canada has gone extremely well and has been
lucrative for Florida B.P. In addition, the transition to becoming an international exporter has been
quite smooth due to the fact that Canada and the U.S. have a friendly trade relationship based on
trade agreements, similar regulations and common business practices.
Biofuels have existed for over a century: they used to run the first automobile engines in the
1800s, long before Henry Ford designed the original Ford Model T to run on ethanol, a popular
biofuel source. Although they have been in use in numerous industries for many years, it is only
recently that government and—as a result—business have begun to push for increased use of
biofuels. The transport industry in particular is seeing major legislative changes calling for the
reduction in greenhouse gas emissions throughout the world.
The United Nations is leading the way, with a panel formed in 2009 to regulate the airline industry
and impose minimum biofuel usage quotas. Forced to consider their future fuel needs, major
airlines and shipping companies have begun arranging the purchase of mass amounts of biofuels
and investing in domestic biofuel production.
In response to this global push for greenhouse gas reduction, the European Union (EU) has
implemented its own regulations. The objective is that 10 percent of transport fuel from each
member country will come from renewable sources by the year 2020. Given the relatively short
timeline, transport-based businesses are looking for ways to obtain a dependable and reasonably
priced source of biofuels.

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Discouraging First Attempt

Recognizing the future rise in demand for biodiesel, and with its Canadian success fresh in its
minds, the Florida B.P. sales team began attending trade shows in Europe in order to build its
reputation in the EU biofuels market. Before long, it had struck a deal with Fraser Transport, a
Scottish transport company that runs a large fleet of buses and operates a number of fuel depots
around the country, to provide fuel for its fleet at less cost to the company. They negotiated a
contract for a shipment of 500,000 gallons of biodiesel to be delivered within six months.
Triumphantly, the team returned home. Florida B.P. produced and shipped the biodiesel to Fraser
Transport, and waited for payment to arrive via wire transfer. The contract stipulated payment
upon receipt of product, known as open account trade. Having traded with Canada many times in
this manner, and knowing it was trading with a reputable company, it had not been concerned
about the payment arrangements. As time went on, however, Manuel and his team became
worried, and then seriously aggrieved. Although the Scottish company had paid 25 percent upon
receipt of the product, it had provided nothing in the three months following that. After several
failed attempts to contact Fraser Transport representatives, Florida B.P.’s chief financial officer
turned the matter over to an international debt collection agency. The agency worked on the case
for a year and recovered an additional 25 percent of the amount due.
Manuel and his team felt they had failed at their first attempt at overseas trade. Many aspects of
the deal had not gone well. The collection company had recovered some money for them, but it
had been expensive to hire and retain. In addition, the price had been negotiated in British pounds,
which had decreased in value over the past year and a half. As a result, the partial payment
received from Fraser Transport was reduced further when converted to U.S. dollars. Lastly, the
initial phase of producing the 500,000 gallons had been successful, but when arranging to
package and ship the biodiesel, the company had run into a number of unanticipated challenges
and costs. This had resulted in a minor delay and also had the company scrambling to pay for the
unexpected expenses up front.
Although it was discouraged, the team decided to make another attempt; this time, it would
operate on advance payment only. Manuel traveled to the EU himself to meet with potential clients
and returned to Florida having made a few sales. The company found advance payment worked
well in that it was paid for its shipments in full and on time; however, the sales team strongly felt
the payment terms it could provide were not competitive and were affecting success in the EU
market.
Another Opportunity for Success
Manuel began investigating other options and found a financial institution to assist the company
with its export financing. Through the options provided by the bank, Florida B.P. was able to offer
a documentary collection option to its clients, allowing them to hold payment until confirmation of
shipment via documents submitted to their bank of choice. The bank also assisted the company
with offering extended payment terms, allowing Florida B.P. to take on larger orders and bigger
clients.

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To assist with the many initial expenses involved in each sale, the company opted to request 10
percent of the total amount due upon signing of the contract. This allowed it to ensure it had the
funds in its accounts to produce and ship the fuel without incurring penalties from the bank or
from late shipments. Finally, the Florida B.P. CFO made the decision to price all sales in U.S.
dollars, thereby hedging its foreign exchange risk and protecting the company from fluctuations
in the euro and the pound.
Over time, Florida B.P. became an experienced exporter of biodiesel fuel to the EU and beyond.
Lack of experience had caused it to make mistakes that cost the company financially, but
benefitted it with newfound knowledge and improved processes that protected the business from
risk while allowing it to remain competitive in the EU market.

Learning Outcomes
This case study relates to the following learning outcomes in the course International Trade
Finance:

• Describe types of commercial, currency and other financial risks involved in international
trade transactions and describe methods available to minimize them.

• Assess the competitiveness and profitability of potential export ventures through

consideration of all associated costs and possible risks of both environmental and market
factors in order to negotiate trade terms and establish final pricing.

• Negotiate payment method as a part of the terms and conditions of a contract for an
international venture, considering payment options, current trade research, benefits and
relative risk for buyer and seller.

• Employ the most prudent course of collection procedures for non-payment by an

international importer.

• Resolve any international business disputes through alternative dispute resolution

techniques where possible before considering litigation.

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Case Study Questions

1. Florida B.P. found it challenging to manage the production and shipping expenses related to
exporting overseas. After meeting with its chosen bank, it decided to include a 10 percent
advance payment in its export contracts to assist with this challenge. What other strategies
could the company implement to assist with managing expenses related to exporting
overseas?

2. Florida B.P. chose to use a debt collection agency to attempt to recover payment from Fraser
Transport in Scotland. What alternative options could it have pursued to resolve the
outstanding amount?

3. When searching for a bank or financial institution to provide assistance in exporting

internationally, what process should Florida B.P. have followed

4. Florida B.P. has become more competitive through offering flexible payment options and
extended financing terms to clients; however, it is continuing to price contracts in U.S. dollars,
which is disadvantageous to buyers. What other strategy could it use to minimize its foreign
exchange risk and become more competitive? Give reasons for your answer.

Although based on research of actual events, organizations and/or individuals, this case study is
fictional and is intended to support learning. Cases are not intended to serve as endorsements,
sources of primary data or illustrations of effective or ineffective management.

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Sources
"Case Study: The Exporter's Story." BMO Capital Markets. Accessed March 29, 2017.
www.bmocm.com/products/international-banking/tradefinance/serviceinaction.
Energy Analysis International Trade of Biofuels. Golden, CO: National Renewable Energy
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"Exporting—Financing and Pricing." Reference for Business. Accessed March 29, 2017.
www.referenceforbusiness.com/small/Eq-Inc/Exporting-Financing-and-Pricing.html.
"Florida Biodiesel, Inc. Is a World Leader in Biodiesel Technology." Florida Biodiesel, Inc.
November 22, 2015, accessed March 29, 2017. www.floridabiodieselinc.com/florida-biodiesel-
inc-has-delivered-a-hypochlorous-acid-manufacturing-plant-to-portuguese-vineyard.
"History of Biofuels." Biofuel.org.uk. Accessed March 29, 2017. biofuel.org.uk/history-of-
biofuels.html.
Martin, Hugo. "FedEx Agrees to Buy 3 Million Gallons of Biofuel a Year." Los Angeles Times.
July 21, 2015, accessed March 29, 2017. www.latimes.com/business/la-fi-fedex-fuel-20150721-
story.html.
Mouawad, Jad, and Coral Davenport. "E.P.A. Takes Step to Cut Emissions From Planes." The
New York Times. June 10, 2015, accessed March 29, 2017.
www.nytimes.com/2015/06/11/business/energy-environment/epa-says-it-will-set-rules-for-
airplane-emissions.html?_r=1.
Risk and Cash Flow Management. Export Development Canada, 2012. Accessed March 29,
2017. www.edc.ca/EN/Promotions/Documents/risk-and-cash-flow-mgmt.pdf.
“Services for U.S. Companies.” U.S. Commercial Service. Accessed March 29, 2017.
www.trade.gov/cs/services.asp.
Tomesco, Frederic. "Aircraft Carbon Emission Rules Proposed by United Nations." Bloomberg.
February 08, 2016, accessed March 29, 2017. www.bloomberg.com/news/articles/2016-02-
09/aircraft-carbon-emissions-rules-proposed-by-united-nations-panel.

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Photo Attributions
Photo #1 (Harvest)
Attribution: No attribution required
Licence: Public domain, free for commercial use, United States Department of Agriculture
www.usda.gov/oc/photo/95cs2504.htm

Photo #2 (Biodiesel)
Attribution: Leandro Maranghetti Lourenço - NDCOM - IQ-UNESP ARARAQUARA-
Licence: Creative Commons Share Alike 3.0 Unported
en.wikipedia.org/wiki/Biodiesel#/media/File:Bequer-B100-SOJA-SOYBEAM.jpg

Photo # 3 (Shipping containers)

Attribution: No attribution required
Licence: Public domain, U.S. National Oceanic and Atmospheric Administration
commons.wikimedia.org/w/index.php?curid=6970

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