A project team consisting of five MBA students from the McDonough School of Business completed a project in correlation with Securitas, which examined the feasibility of developing an aquaculture feed production plant in South Africa.
The project team had a period of twelve weeks, culminating with a week in Johannesburg, South Africa, to deliver its presentation.
The objective was to determine whether investment in a fish feed plant could deliver a nominal rate of return of 18% or higher and, if so, which partners Securitas should work with to pursue the venture. Oceanwise Ltd. (Oceanwise), a South African aquaculture producer of Dusky Kob fish, was identified as one potential partner, and an American animal feed manufacturer, was another.
Two different investment options were identified: A smaller bolt-on retrofit production line and a new greenfield plant, were analyzed to gauge their potential profitability.
To evaluate this business opportunity, market forecasts for the aquaculture industries in numerous Sub-Saharan African countries were developed to gauge the size of the region’s potential customer demand. Nigeria and Ghana were revealed to be much larger markets than South Africa, though the prospect of serving these markets via export poses considerable challenges.
Being claim ready starts with three things: Coverage, Compliance, and a Complete Claims Package. Let’s delve into each one.
One of the most critical aspects of trade credit insurance deals with having coverage on the legal entity with whom you are trading. As you know, legal entities are only responsible for their debt obligations and have their own distinct credit profile or credit worthiness. Underwriters of trade credit insurance approve coverage on a legal entity. If you, as the insured, sell to a different legal entity than the one you have coverage on, the underwriter has grounds to deny your claim. We recommend that before you begin any trading relationship, you request information that clarifies the legal entities to which you are selling. In some cases, there may be a holding company, parent company, or subsidiaries and it is critical you understand the legal relationships with each other. Legal entities may also us various fictitious names such as trade styles or Doing Business As (DBAs). Requesting a W9 on your trading partner often helps this process.
Trade credit insurance policies are “contracts of adhesion” which means that the insured has to adhere to the conditions of the policy. In other words, a valid claim must be in compliance with the wording of the policy. For a claim to be paid, It is imperative to be in compliance in these key areas: paying premiums, reporting requirements, filing claims by the relevant deadlines, and providing appropriate supporting documentation. This is covered in a Complete Claims Package.
Complete Claims Package
We recommend starting a file for each of your trading partners and keeping the file current with each shipment. What sorts of information you keep will depend on the details of your coverage, but in general, the following represent some of the items an insurance carrier will request with any notification of claim form: purchase orders, proof of delivery, invoices, and statements of account. These seemingly commonplace documents can often be challenging to gather once a buyer goes into default. One insurance carrier, The Export-Import Bank of the United States of America (Ex-Im), places great importance on having the exporter prove, through documentation, that the buyer received the goods. Ex-Im’s position protects them and ultimately the U.S. taxpayer against seller fraud. It also helps with the collection process since documentation is evidence that the buyer received the goods. Those currently insured with Ex-Im are strongly encouraged to review their policies. Many sellers are selling on Incoterms of Ex-Works (EXW) and bills of lading show goods being delivered to a U.S. location before being exported. In this scenario, Ex-Im will require further proof that goods were received by the buyer. Trying to ascertain this information when the buyer is financially distressed can be difficult.