Negotiating terms with export partners

Good communication is key to good negotiations

While it may take time to settle on negotiations, it’s important to work closely with your buyer when drafting up a contract.

There are several considerations to factor in during this process, but the ultimate goal should be to have both you (the wine exporter) and the buyer (typically a wine importer) happy about the partnership moving forward.

Importantly, spend time working on the physical requirements of exporting your wine to your chosen market, particularly around:

local laws and regulations; and
local infrastructure and transport.

Local laws and regulations

Your buyer will be bound by the laws and regulations of their market, and they will rely on you to make sure you are compliant and following the correct processes.

You are both responsible for ensuring your wine and processes comply with the laws, regulations and standards of the market. It’s best to have solid communication channels and work together so you can manage these regulations and requirements in tandem.

Local infrastructure and transport

The infrastructure of your buyer’s local area may also affect some of the terms of the contract. This includes:

distance between ports and final destination
quality of the roads
transport availability; and
quality of transport (i.e. does it have adequate protections in place for storing and transporting fragile wine bottles?).

Although you may have a preferred shipping method or requirements, these may not be an option in some markets. Make sure you discuss this with your buyer and know what you have to work with.

Negotiating contract terms

Negotiation around your export wine’s pricing, payment terms, ownership, rights and exclusivity is also necessary. Your buyer wants to be profitable and will request specific terms and conditions, which you should expect to be slanted in the buyer's favour. You and your buyer must come to a clear agreement during these negotiations. Be sure to include the specific details of the negotiated agreements in your written contract.

During these negotiations, be fair and reasonable but also make sure you read the fine print and protect yourself. It’s best to seek professional legal support to help you to navigate contractual risks. Find a legal adviser who practises business law, has experience with the wine industry, and is licensed to practise in the country you are exporting to.

Why are contract terms important?

Contract terms set out the rights and obligations of all involved parties (in most cases for wine exporting, the seller and the buyer) in regards to their transaction. Terms may be referred to as clauses or ‘terms and conditions’. What matters is that these all refer to the agreed legally binding rights and duties between the parties. If there is ever a dispute over a transaction, the written terms will be the primary – and often only – source of truth for what the parties intended.

You may go into a negotiation with your own standard terms of sale, while a buyer may come with their own standard purchase terms. In this instance, you will need to agree on specific terms outside of either party's standard terms.

Watch out for blanket inclusions of buyer terms. Always make sure you have reviewed and understood any documents that are referred to in buyer documents, especially if they are legal in nature.

Standard terms and conditions

Here are some of the most common terms and conditions you may encounter when negotiating a contract with your buyer. For a more extensive list, see Austrade’s export services.

Agreement duration

The 'terms' of a contract refers to its duration of validity. Most exporters apply a one-year term to distribution agreements, subject to annual renewal. Distributors, however, prefer longer term agreements. This is because it can take a few years to establish a new brand in market.

Work with your distributor on the length of the contract. Make sure any long-term agreements have specific performance measures in place. This allows you to terminate the contract early in the event that the distributor does not meet their sales targets.

If you can't agree to targets or performance measures, consider a short-term contract. You can always extend or renew it as you become more comfortable with your buyer and the process.

Dispute resolution

Disputes can arise for many reasons, such as:

defective or damaged goods
receiving incorrect products
incomplete shipments; and
goods late or not sent.

When these issues arise, most agreements provide a dispute-resolution procedure. If a simple yes-or-no answer can resolve the dispute, you may appoint an independent expert to settle it. If it involves complex issues, including those that are subjective in nature, you may need a professional mediator.

In the event that mediation fails to resolve the dispute, the contract may assist in a resolution. To provide a method for resolving a dispute, contracts can provide for arbitrators to be appointed or elect particular courts to adjudicate.

Governing laws and jurisdictions

Parties to a contract are usually free to select the laws they wish to apply to their contract.

Both buyer and the seller will want the laws of their own country to apply to the contract. The parties could even agree to a third country’s laws applying to the contract. Without a selection, the laws of the country to which the contract has the closest connection will apply to the contract.

Laws between countries can differ significantly. What legally stands in one country may not apply in another. Be sure that you understand the implications of a selection of a particular country’s laws.

You may also add a clause to clarify which country's jurisdiction applies if any legal issues arise. The buyer will want its own country’s courts to decide on any disputes. Choosing arbitration as a method of dispute resolution is often a good compromise. Ask your lawyer about arbitration options, especially if your target market is less developed, suffers from high corruption levels or where the court system is less accessible or slow.

Ordering and delivery processes

Product purchasing process

Detail the process your buyer must follow to order wine products from you. If they already have an order form, review it and make sure it contains all the necessary details. If they don't have one, prepare one and attach it to your contract. Make sure the order form used includes:

purchase order number
date
description of wine products
quantity
price
payment details
shipping instructions
date required by
any other instructions; and
signature.

Define the task or action that confirms acceptance of the order. Is it when you receive the order, or do you send an order confirmation?

Product order terms

Clearly state any purchase order terms and conditions, including:

the time limit between the order placement and processing
lead and/or processing times needed between receipt of the order and shipping
minimum order size including volume or quantity; and
order amendment or cancellation policy.

Shipping terms

Make sure you include your agreed Incoterms® in your contract. Check that you have factored these terms into your pricing and payment methods. Add any specific delivery instructions and detail the process for shipping delays or any force majeure. Consider including terms such as fines for late delivery or the process for product damage.

Product rights and exclusivity

Some buyers, usually distributors, want the right to all the wine products under your label. This is called 'exclusivity', and means they are the only seller of your wine in that market. This is not always recommended, particularly if you have different market channel partners. Be aware, however, that In the USA, the distributor might be protected by law to have exclusivity within a state. Also, multi-state distributors will offer preferential treatment to those wineries that employ the same distributor across multiple states.

Consider including a product rights and exclusivity term in your contract. Make sure you give the distributor only what they can sell using their own resources and through their agreed channels. Work with your buyer and ensure you agree on any market or partner specific requirements. This may include:

quantity
specific packaging
branding; and
labelling.

If you are thinking about giving your distributor exclusivity, remember that it goes both ways. You can ask for exclusivity as their supplier of the product. This means your distributor can't import, market, distribute or sell wine products that are similar to yours. The wording of your contractual terms will be crucial in framing your exclusivity arrangement, so be sure to ask your lawyer to comment specifically on such terms.

However, it’s also worth considering not giving total exclusivity for your brand. You can instead offer partial exclusivity, or only for certain segments of your brand. This can provide you with better flexibility in different market channels, and all you to use different distributors that may be more specific channel specialists.

Retention of title

Retention of title (ROT) means you retain legal ownership of the goods until your buyer meets certain obligations in the contract. With exporting, this is usually when the buyer finalises payment for the goods. There are two types of ROT:

Specific goods clause: States that legal ownership of the goods does not pass to the buyer until they have paid for the goods.
All monies clause: States that legal ownership of the goods does not pass until the buyer has paid all outstanding invoices.

This clause is usually included where an open account or open credit payment term is in place with your buyer.