Delay in cotton shipments outside contracted period is a breach of contract: ICA

The International Cotton Association (ICA) has said any delay in the arrival of cotton imports outside the contracted period is a breach of contract and buyers could reverse the deal. 

In a letter to Tamilnadu Spinning Mills Association (TASMA), the Chief Advisor K Venkatachalam, ICA Managing Director Bill Kingdon, said “invoice back” or reversing the deal is one of the remedies available to mills that have bought cotton from global sellers. 

However, the ICA official acknowledged that this may not often provide a suitable remedy to the buyer. He expressed surprise over allegations by TASMA that there was no protection in the trading rules for quality-related complaints, including weight differences. 

Time lapse

“The rules for weighing are covered in Rules 214-218 of our ICA bylaws and rules (BL&R)  – the terms for weight settlement are usually contained within the cotton contract,” Kingdon said.

Kingdon was responding to Venkatachalam’s letter to ICA saying some of the mills which had entered into import contracts have not received shipments to be delivered in March and April. 

“Some of our members had signed contracts with suppliers and shippers for delivery of cotton in March and April this year and they have reported that the deals have not been honoured. Though four months have lapsed in some cases, suppliers and shippers are not providing any satisfactory reply,”  Venkatachalam told ICA.

The ICA managing director said, if buyers cannot reach an agreement with the seller, they could apply for quality arbitration. “We believe that there is good protection for cotton buyers and sellers alike on all quality matters,” he said.

Logistics firm to blame

Kingdon blamed global logistics companies for the poor performance behind the delay and default of cotton shipments to spinning mills in South India. The logistics firms were showing “no immediate sign of improving”. 

Sharing TASMA’s concerns over delays and uncertainty in getting the consignments, the ICA official said changes to consignments and shipping dates were hampering all as “we try to track cotton and communicate updates”. 

Recently, ICA asked its members to proactively communicate with the buyers about the delays and revised timings of shipments.  Stating that carrying charges and delayed shipment were not part of the ICA BL&R, he said the association consistently encouraged its members to make provisions for these within their contracts. 

“The ICA encourages buyers to include remedies for late deliveryinto their contracts, if any delay to the shipment period is likely to significantly impede operations. We have been advising this approach to our members.” Kingdon said. 

The ICA has asked its members to communicate “openly and effectively throughout the contract execution period”. 

‘One-sided contracts’

Referring to allegations of buyers being forced to sign “one-sided contracts”, the cotton association official said he encouraged TASMA and its members to join ICA and it would “help by shaping and improving the ICA’s international cotton trading rules”. 

“We welcome members from all sectors of the cotton supply chain and regions. As an ICA member, you are able to participate in ICA work and the committees and working groups that shape the cotton trading rules. By not doing so, you are missing the opportunity to influence the rules that affect us all,” he said. 

Spinning mills in Tamil Nadu have entered into deals worth ₹400 crore and TASMA members have paid ₹60 crore as a 15 per cent advance out of the contracted cost, Venkatachalam told BusinessLine. 

Rushing in panic

Trade sources say some mills had rushed to sign import deals in panic as cotton prices headed towards  ₹1,00,000 a candy (356 kg). Prices have dropped since June on fears over economic slowdown and recession. Currently, the rates have dropped to ₹85,000-86,000. 

In agricultural terminal markets across the country, the net weighted average modal price of raw cotton (kapas) has dropped to ₹8,616 a quintal from over ₹12,000 in May. 

In the global market, the benchmark Cotlook A index is currently at 126.55, but Cotlook A forward index is 105.50. On the Inter Continental Exchange, New York, benchmark cotton futures are currently ruling at 97.38 US cents a pound (₹61,550 a candy).