INTERNATIONAL FREIGHT & INSURANCE 2020-02

CASE: OREGANO AND PISCO EXPORT TO EUROPE

Alexei Petrenko was a teenager when he came to the city of Tacna, Peru, from his homeland, Ukraine,
during the period of perestroika, a reform process imposed by Mikhail Gorbachev in the Soviet Union
in the 1980s, based on the restructuring of the Soviet economy in order to preserve the socialist
system by giving it a sense of enterprise and innovation. The Petrenko company, owned by Alexei's
parents, went bankrupt due to a Company Law that removed control over resources and reduced
investments. With so much change, the family decided to leave Ukraine and chose Peru as the
destination country. For living in Peru, the family chose the “heroic city” of Tacna (located at the south
border between Peru and Chile).

Since he was a child, Alexei loved eating food seasoned with oregano; despite his thinness, he was a
heavy consumer of Italian pasta. When he arrived in Tacna, he was amazed by the oregano grown in
the area, which he even finds better than the one he had tried before: he felt that this oregano made
meals even tastier. His parents enrolled him in a prestigious university in Lima, through which he went
on a student exchange to France for a stay of a few months, a country whose gastronomy he found
ecstatic but lacked the seasoning of his meals: the delicious Peruvian oregano. In the exchange in
France he met and became a great friend of Marjorie Lagarde, daughter of the owner of the Paris Saint
Germain company, an importer of liquor and spirits. Later he also met André Platini, owner of the
Pizzas Platini’s chain of restaurants in France.

André Platini was curious to taste the oregano that his friend Alexei talked about very often, so he
asked him for a sample of the product. André used the product in one of his pizzas, with great success
among friends and customers, many of whom wondered what the secret of the recipe was. Convinced
of the excellence of the product, he decided to do business with Alexei and obtain the magic “poudre
verte”, as he called oregano. André showed Alexei the required size and special cut of oregano for
pizzas and requested new samples with that presentation; when samples arrived, André was satisfied.
At the age of 36, the Ukrainian Alexei founded the Petrenko Ukraine company in Peru, in order to take
advantage of the export of oregano.

With Marjorie Lagarde the situation was not very different. One day, Alexei was invited by Marjorie
to have lunch at her house; Alexei brought as a gift the elixir that he had so often considered one of
the best brandies in the world made in Peru: pisco. With pisco, Alexei prepared a delicious “pisco
sour”, which fascinated Marjorie, her father and the rest of the family.

The company Pizzas Platini SARL, based in Paris, France, requested 8 tons (1 ton = 1,000 kg) of oregano
for pizzas, in pressed form, in kraft paper bags containing 12.5 kilograms per bag at an EXW Tacna,
Incoterms 2020 price of EUR 1.80 per kilogram. Pizzas Platini took advantage of the tariff preferences
between Peru and the European Union, in force since March 2013. Likewise, the owner of the
company Paris Saint Germain SARL, also based in Paris, requested the shipment of 100 boxes of pisco,
with 12 bottles of 500 milliliters in each box, weighing 1 kilogram per bottle, with an EXW Moquegua,
Incoterms 2020 value of EUR 5.00 per bottle.

Internal transportation from the city of Moquegua to the maritime port of Ilo (for overseas travel), for
pisco, is EUR 80, and from Tacna to the port of Ilo, for oregano, EUR 230. The customs agent at the
port of Ilo charges EUR 85 for pisco and EUR 130 for oregano. Loading and stowage is EUR 350 for the
whole shipment. Alexei consolidates both cargos. Maritime freight from the port of Ilo (Peru) to the
por of Le Havre (France) is EUR 1,200 for oregano and EUR 750 for pisco.
Alexei knows that the importing company Paris Saint Germain SARL has paid international insurance
for its shipment at EUR 280; Pizzas Platini SARL does not take international insurance, so customs in
Le Havre allocates an insurance cost for oregano as 1% of the FOB value. The ad-valorem tariff for
pisco is 12%, and for oregano, 4%. The TVA (Taxe sur la Valeur Ajoutée = Value Added Tax = Impuesto
General a las Ventas in Peru), in France, is 16%. The transport of the 20-foot container (carrying both
products) from Le Havre to Paris is EUR 380; unloading cost and port charges in Le Havre amount EUR
280 (for the total cargo), and the customs agent in France charges 3% of the FOB. The internal
insurance from Le Havre to Paris is 2% of the FOB.

Questions:

1. Determine what was the total cost of pisco for Paris Saint Germain SARL, and the total cost of
oregano for Pizzas Platini SARL in Paris, France. Make a separate calculation for pisco and
oregano and remember that pisco is coming from Moquegua and oregano is coming from Tacna,
in Peru. (8 marks)
2. Determine an estimated DAP Paris, Incoterms 2020 value for pisco. You can start with the CIF Le
Havre value. (2 marks)
3. What is the DPU Le Havre, Incoterms 2020 value for each product, oregano and pisco? Make a
separate calculation for oregano and pisco. (4 marks)
4. Using the given values, determine the DPU Arica (Chile) value of each product, considering that
the cost of unloading at the border (Arica) is EUR 75 for each product. Do not consider the internal
transport at origin (Tacna) for oregano, because Tacna is a very few kilometers from the border
(Arica). Make a separate calculation for oregano and pisco. (6 marks)

Hints.-

✓ Use a world map (google maps) to better understand the context of this case.
✓ In case of consolidated costs, use proportional weight for individual allocation of costs to each
product.