How Does a ‘TTO’ Procedure of Trading Crude Oil Works?

Millions of barrels of crude oil are traded every day around the world which is worth billions of dollars. To manage and standardize such kind of volume of business we need very precise and definite procedures and processes that leave very little scope for ambiguity. These procedures play a very crucial role in facilitating the deal and also at times help to weed out nonserious players in the deal.

Different suppliers may lay down a different set of terms and conditions which need to be studied carefully before moving ahead with their compliance. Any deals without a 2% performance guarantee should be avoided to be on the safer side. Usually, these procedures are developed with the aim to

a) eliminate non-serious or fraudulent players,

b) lay down precise conditions of trade defining stages of change in ownership and responsibilities of each party involved,

c) help each party to secure their interest in the deal and

d) Minimise and handling of non-compliance.

Further in this article, we will discuss in brief the “TTO’ procedure and how it works.

Through Transport Operator (TTO)

• A Sale-Purchase Contract (SPC) is signed between the two involved parties with the coordination of Banks.
• Buyers bank sends a Pre-Advice LC to the seller’s Bank.
• On receipt of a Pre-Advice LC, the seller’s bank activates the performance guarantee or performance bond as per the agreed SPC.
• Once the performance bond is active the buyer can go ahead with establishing the operative Letter of Credit. Any costs on account of commission to agents or facilitators are to be included in this operative letter of credit.
• Within 72 hours of receipt of such operative LC the seller issue ATB to buyer-appointed independent inspectors.
• With the ATB the inspectors can go on board and carry out their inspection and present a report regarding the same to the buyer.
• After receipt of a positive quality and quantity (Q & Q) report from the inspector re-assignment of the cargo is done in the buyer’s name and all original documents are given to the buyer through the banks involved within the next 4 days. From this point onwards the ownership of the cargo is transferred to the buyer.
• The buyer’s supercargo goes on board within the next three days of the change of title.
• Last but not least the payments are transferred to all involved parties within the next 72 hours.

Hope you would have found the above informative and useful.

Source by Amol Gupta