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Export Import And Documentation Project Report


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Export Import And Documentation Project Report

  1. 1. Page 1 Project report On “BUSINESS DEVELOPMENT OF FASTENERS IN NORTH AND SOUTH AMERICA” Prepared By: SUMIT GULERIA UID: - 12MBA1133 Course: - MBA Specialization: - Marketing Submitted to a University school of business in partial fulfillment of the degree of Master of Business Administration. Under the Supervision of: - Under the Guidance of: - Mr. Anil Khosla Ms. Sandeep Bedi Marketing Head Assistance Professor, Eastman Impex University School of Business, Ludhiana (Punjab) Chandigarh University, Punjab
  2. 2. Page 2 PREFACE As it is widely said in industry “An ounce of practical is better than tons of theory.” So I can say that without practical knowledge the theory of anything would be nothing. Industrial training is the bridge for a student that takes from his theoretical knowledge to the practical industrial world. By undergoing the training in the industry a student can narrow down the gap between his institute, workshop and the industry. The main purpose of the industrial training is to expose us to the industrial environment, which is not possible in the class-room. Keeping this view in the mind, the students are sent to different industrial units for getting practical training. The present report is for the period of two months at “EASTMAN IMPEX.” LUDHIANA. (PUNJAB) During this training, I got the exposure to marketing department. The training helped me in the view of implementing theoretical knowledge to the actual industrial environment. The training at “EASTMAN IMPEX” Is definitely going to play an important role in developing an aptitude for hard work and self-confidence necessary for my successes in future. At the end I would like to say that it was an excellent experience to work with such a reputed organization. SUMIT GULERIA CHANDIGARH UNIVERSITY GHARUAN MOHALI
  3. 3. Page 3 Acknowledgement “It is not possible to prepare a project report without the assistance & encouragement of other people. This one is certainly no exception.” On the very outset of this report, I would like to extend my sincere & heartfelt obligation towards all the persons who have helped me in this endeavor. Without their active guidance, help, cooperation & encouragement, I would not have made headway in the project. I am ineffably indebted to Mr. ANIL KHOSLA, Mr. AMAN ARORA and Mr. GULSHAN KUMAR for conscientious guidance and encouragement to accomplish this assignment. I am extremely thankful and pay my gratitude to my faculty Ms. SANDEEP BEDI for her valuable guidance and support on completion of this project. I extend my gratitude to CHANDIGARH UNIVERSITY for giving me this opportunity. I also acknowledge with a deep sense of reverence, my gratitude towards my parents and members of my family, who has always supported me morally as well as economically. At last but not the least, gratitude goes to all of my friends who have directly or indirectly helped me to complete this project report. Any omission in this brief acknowledgement does not mean lack of gratitude. Thanking You SUMIT GULERIA
  6. 6. Page 6 Part (A) Company Profile Name: - Eastman Impex Address: - Industrial Area-C, Dhandari Kalan, Ludhiana-141014 (INDIA) Contact: - +91-161-3044000, 2511602-605
  7. 7. Page 7 1.1) Eastman Impex Company Profile Eastman IMPEX Group is a leading manufacturer and exporter of Auto Parts, Light Engineering Goods, fasteners, bicycle parts and hand tools all around the globe. They are supplier to many OEM’s, Tier 1 and Tier 2 companies in the USA and Europe and their products found end use in makes like Mercedes Benz, Cummins, Caterpillar, John Deere, Fiat, Volkswagen and General Motors. Eastman Impex has created new horizons by providing quality products to the optimum satisfaction of our esteemed global customers. They assure high standards of quality, pricing, delivery and qualitative customer service to our international customers. The simple entrepreneurial skills and integrated corporate philosophy have mobilized the company to become a Star Export House recognized by the Government of India, entirely focusing on international trade. 1.2) VISION & MISSION Vision To be amongst the most admired & most trusted companies in the world, delivering reliable and quality products & services to customers at competitive costs while adhering to international standards, thereby delivering value for money and inspiring the confidence & trust of all those we serve. Mission Our mission is to remain globally competitive by adapting latest technologies, acquiring relevant skills and enhancing productivity. With a consistent focus to quality and customer satisfaction, we strive to achieve a group turnover of US $200 million by the year 2014. This objective will be achieved by increasing the sales volumes of our existing range of products and identifying potential customers all across the globe. For this, the group is all set to collaborate with reputed business enterprises through strategic alliances.
  8. 8. Page 8 1.3) MILESTONES 2007  A new casting unit was established for automobile industry. 2003  A new unit for “SCAFFOLDING SYSTEMS AND FORMWORK ACCESSORIES” was established at Kandla.  The group now occupies a position among the top five exporters from India.  Members of “SCAFFOLDING INDUSTRIES ASSOCIATION (SIA)”  Regularly exhibiting at WORLD OFCONCRETE (LOS VEGAS), CONXPO (LOS VEGAS) , BATIMAT (PARIS), BAUMA (MUNICH), BAUMA (GUANGZHOU). 2001  JVR FORGINGS LIMITED was established with workstation from HAAS, USA.  ISO-9001:2000 CERTIFICATION from UL Incorporation, USA.  ISO/TS -16949-2002 certification from UL Incorporation, USA.  Test Safe & Kieghley certifications from Australia & United Kingdom.  Supplying to leading OEM’S, PSU’S & ARMY  More than 200 products developed under the exclusive buy back arrangements.  Exhibiting regularly at MOSBUILD MOSCOW), AUTOMECHANICA (HANNOVER). 1996  Having started tools business in 1996, the group now occupies a position among top exporters from India. For excellence in turnover, we were honored with a gold trophy (4 occasions) by the Govt. Of India. Brands: EASTMAN, APROTUFF, CASTLE, GLITRA.  Quality Certification: ISO-9001:2000 from DNV, HOLLAND.  Exhibiting products regularly at PRACTICAL WORLD (KOLN FAIR), INTERTOOL (MOSCOW), NATIONAL HARDWARE SHOW (USA)
  9. 9. Page 9 1.4) QUALITY POLICY Eastman Impex considers quality as one of the principal strategic objectives to guarantee its growth and leadership in the markets in which it operates. Quality is our mission. The quality policy is our main tools in achieving it. The policy is clearly defined, comprehensive and highly formalized. Our Quality Policy starts and ends with customer as focal point: Eastman Impex is ISO 9001:2008 certified company. Every stage of the process, from R&D to design and manufacture and people to the machines, is monitored. We shall continuously strive to exceed the expectations of our customers by providing defect- free products, services and solutions, on time and within budget cost. We shall also endeavor to nurture an environment where trust, fairness, and integrity flourish. 1.5) GLOBAL PRESENCE
  10. 10. Page 10 1.6) THE EASTMAN IMPEX GROUP 1. JVR Forgings Limited: - JVR Forgings Ltd. is the leading supplier of precision Forged, Pressed Steel, Machined components, Fabricated & Casted components. Originating as a small manufacturing facility in Ludhiana (India) in 1997, it now comprises of 3 manufacturing facilities that operate in diverse fields like Automotive, Railways, and Bearing, Heavy Fabrication, Scaffolding, formwork and construction industry components. 2. EASTMAN METTCAST LIMITED: - Eastman Mettcast Ltd a manufacturing unit established with a vision to provide simplified solutions blended with the latest technology to Automotive, Engineering and Construction Industry. We have been supplying a wide range of Aluminum High Pressure Die Casted, Gravity Die Casted and high precision machined Sand Casted parts to our customers in domestic market, Europe and other continents. 3. JANPATH ESTATES PVT.LTD: - JEPL is a company promoted by K. LALL GROUP (KLG) and EASTMAN IMPEX GROUP (EIG). The company is in the business of colonizing and land development since 2004. Built on a foundation of strong lineage and an established reputation, Janpath Estates Private Limited have become one of the best and most sought after Real Estate organization in this part of the country.
  11. 11. Page 11 1.7) ACHIEVEMENTS ISO/TS 16949:2002 TUV issued this certificate to the firm JVR forgings Ltd., after assessing the Firm’s system and finding it in compliance with ISO/TS16949:2002 ISO 9001:2008 TUV Issued this certificate to the firm JVR forgings Ltd., after assessing the Firm’s system and finding it in compliance with ISO 9001:2008. TUV Certification TUV Rheinland issued this certificate to the firm Eastman Impex Ludhiana, after assessing the Product Combination Spanners and finding it in compliance with GS (German Safety Standard). 1.8) AWARDS 2000-2001 All INDIA Certificate of export excellence Engineering Export Promotion Council Awarded by Engineering Export Promotion Council for achieving highest exports During 2001- 02 amongst the Non-SSI units in the Hand Tools Panel. 1999-2000 Award for export Excellence Engineering Export Promotion Council Awarded by Engineering Export Promotion Council for top exporter in the category of export house exporting at least 75% of SSI Products.
  12. 12. Page 12 1.9) PRODUCT LINE  Auto Parts  Forgings  Castings  Machining  Bicycle and Parts  Complete bicycle  Tricycle  Bicycle spare parts  Ride on vehicle  Floor and Wall Tiles  Ceramic/ porcelain tiles  Granites  Sand stone  Sanitary ware  Wooden product  Garden Fencing  Hand Tools  Scaffolding  Stainless Steel Fasteners  Anchors  Bolts  Thread rods / studs  Nails  Nuts  Screws  Special; products  Hooks  Stainless Steel Utensils  Stainless Steel Railings
  13. 13. Page 13  Stationery & Office Supply  Hospital Furniture
  14. 14. Page 14 1.10) ORGANISATIONAL CHART BOARD OF DIRECTORS Sh.Dharampal Gupta Chairman Sh.Jagdeep Singal Director Sh. Vinay Singal Director Sh. Rajeev Singal Director Sh.Gaurav Singal Director
  15. 15. Page 15 Part (B) Title: - Business Development of Fasteners in North and South America CHAPTER- 1
  16. 16. Page 16 1.1) INTRODUCTION Fasteners: - A fastener is a hardware device that mechanically joins or affixes two or more objects together. Fasteners can also be used to close a container such as a bag, a box, or an envelope; or they may involve keeping together the sides of an opening of flexible material, attaching a lid to a container, etc. There are also special-purpose closing devices, e.g. a bread clip. Fasteners used in these manners are often temporary, in that they may be fastened and unfastened repeatedly. Some types of woodworking joints make use of separate internal reinforcements, such as dowels or biscuits, which in a sense can be considered fasteners within the scope of the joint system, although on their own they are not general purpose fasteners. Furniture supplied in flat-pack form often uses cam dowels locked by cam locks, also known as conformant fasteners. Industry: - In 2005, it is estimated that the United States fastener industry runs 350 manufacturing plants and employs 40,000. The industry is strongly tied to the production of automobiles, aircraft, appliances, agricultural machinery, commercial construction, and infrastructure. More than 200 billion fasteners are used per year in the U.S., with 26 billion by the automotive industry. Eastman Fasteners:- Eastman Impex has a wide range of fasteners which includes carriage bolts, hex bolts, round head bolts, saddle bolts, flange bolts, step bolts, U-bolts, thread bars, studs, hinges, wooden screws, machine screws, self-drilling screws, all type of steel nails, all type of anchors, all type of hooks, umbrella hook, spring toggle, shear nuts (break away nuts), castle nuts, wing nuts, cap/ dome nuts, spring nuts, nylock nuts, hex nuts, hex lock nuts, wedge nuts, wheel nuts, square weld nuts, hex weld nuts, rod coupling nuts/ long nuts, lynch pins, hair pins, link pins & split pins. Eastman Impex is exporting these products to the end users over 40 countries across the globe from last three decades. Their group turnover is US$ 72 million, which is growing with an annual rate of 30%. Eastman Impex supplies above products in Stainless steel, High Tensile & Mild Steel as per IS/ BS/ DIN/ JIS/ ANSI/ AISI/ ASTM specifications in Zinc & Hot Dip Galvanized coatings. Eastman Impex is quite capable to develop the products as per customer’s requirement & specification, special if any. We can supply any type of Hot or Cold headed fasteners. Today's discerning and fastidious customer refuses to make any compromise on quality and our pleasure rests in their satisfaction, as we believe in the philosophy of customer's delight. Therefore, all our processes converge towards maintaining consistent quality aided by a highly mechanized infrastructure, trained dynamic and resourceful team of skilled engineers with objective to achieve the target of zero-defect. Constant up gradation of technology and infusion of resources enables our company to stay ahead in quality and productivity in meeting the International standards at most competitive prices.
  17. 17. Page 17 1.2) Types of Fasteners ANCHORS BOLTS THREAD RODS NAILS Bolt Anchor Chemical Anchor Hex Head Bolt U-Bolt/ Found Hex Socket Set Thread Rod U-type Nail Galvanized Nail
  18. 18. Page 18 NUTS CLAMPS/HINGES SCREWS SPECIAL PRODUCTS WASHERS Hex Nut Castle Nut Spring Nut Hex Long Nut Pernopala Hinges Bullet Hinges Pipe Clamp Galvanized Wire Wood Screw Hex Head Wod Hex Head Flange Wood Countersunk Runners Hair Pin Linch Pin Top link pin Flat Washer Spring washer Toothed Lock Square Taper
  19. 19. Page 19 1.3) INTRODUCTION TO THE PROJECT The project is based on business development in overseas market, in which I have studied about export business. Export is one of the lucrative business activities in India. The government also provides various promotional schemes to the exporters for earning valuable foreign exchange for the country and for meeting their requirements for importing modern technology and essential inputs. Besides, the income from export business is also exempted to the specified extent under the Income Tax Act, 1961, Refund of Central Excise and Custom Duty on export is also made under the Duty Drawback Scheme of the Government. There is no Sales Tax on products meant for exports. Types of exporters:- Exporters can be basically classified into two groups  Manufacturer Exporter: - As the exporter has the facility to manufacturer the product, he intends to export and hence he exports the products manufactured by him.  Merchant Exporter: - An exporter who does not have the facility to manufacture an item. But he procures the same from other manufacturers or from the market and exports the same. An exporter can be both a manufacturer exporter as well as a merchant exporter, he can export product manufactured by him or he can export items bought from the market. The Eastman Impex Group is a merchant exporter. Once it is decided to export, it is mandatory on one’s part to follow certain procedures, rules and regulations as prescribed by various regulatory authorities such as DGFT (Directorate general of foreign trade), RBI, and Customs. These procedures, rules and regulations are laid down in the Exim Policy 2004-09, Exchange Control Manual, and Customs Act etc. Accordingly Export documents are required to be prepared keeping in view of the requirement of the foreign buyers and the regulatory authorities.
  20. 20. Page 20 1.4) Objectives of the Study  To know how to develop business in North and South America.  To know about the International marketing.  To know about the import export process.  To know what are the pre-shipment and post-shipment documents required.  To know how to find out the needs and wants of the customers. 1.5) Need For the Study The study is conducted to know how to generate the overseas business because fastener industry is growing at very fast pace, as the demand for fasteners is increasing day by day. Also it has become essential to study since presence of many players in the market have caused a lot of competition. 1.6) Research Methodology Data Collection Primary Data Collection  E-mails  Telephones  Invoice  Packing List Secondary Data Collection  Invoice  Packing List  Shipping bill  Internet
  21. 21. Page 21 1.7) HOW TO GENERATE BUSINESS The proper selection of organization depends upon.  Ability to raise finance  Capacity to bear the risk  Desire to exercise control over the business.  Nature of regulatory framework applicable to anyone If the size of the business is small, it would be advantageous to form a sole proprietary business organization. It can be set up easily without much expense and legal formalities. It is subjected to only few governmental regulations. However, the biggest disadvantage of sole proprietorship business is limited ability to raise funds which restricts the growth. Besides the owner has unlimited personal liabilities. In order to avoid this disadvantage, it is advisable to form a partnership firm. CHOOSING APPROPRIATE MODE OF OPERATIONS: You can choose any of the following modes of operation.  Merchant Exporter i.e. buying the goods from the market or from the manufacturer and then selling it to foreign buyers.  Manufacturer Exporter i.e. engaged in manufacturing of goods in house for export.  Sales Agent / Commission Agent / Indenting Agent i.e. acting on behalf of the seller and charging the Commission.  Buying Agent i.e. acting on behalf of the buyer and charging Commission.  Service provider i.e. providing service from India to another country.
  22. 22. Page 22 1.8) HOW ONE BEGINS TO DO EXPORT Before entering into the venture of exports, one must look for the product to be exported and the market where he intends to export. In case of a manufacturer, obviously he would like to export the product he manufactures may be with a little modification as required by the market. However, in case of a merchant exporter or a trader, one has to identity the product to export. If the exporter is already in the trade in the domestic market and is familiar with the product it would be an advantage to export the said product of which he has reasonable knowledge. Before selecting a product, one must simultaneously made a study and find out the prospective market. For finding out the market of the selected product, the following methods will help.  Get statistical information as to Export the products to various countries and their growth prospects in the respective countries  Approach the chamber of commerce for their guidance to find out the market.  Approach the Export Promotion Council dealing in the selected product to get more information. The Preliminary Once you are ready with the product you wish to export and have found the market for the same, you are ready to proceed further. Following sequences can be followed:  First of all get an Importer Exporter Code Number (IE Code).This can be obtained by making a formal application to the office of the Regional Directorate General of Foreign Trade (DGFT).  Get yourself registered with the related Export Promotion Council and become a member. Also arrange to obtain Registration-Cum-Membership Certificate (RCMC) from the council. This has twin objectives:
  23. 23. Page 23 o Under the Foreign Trade Policy, it is mandatory that an exporter gets himself registered with the Export Promotion Council to avail of various export facilities. o Being a member, you will have access to all the information relating to the product that could be made available by the council. o Many foreign buyers send their inquiries for the imports to the Export Promotion Council. Hence you will have few customers interested in your product.  If you are a manufacturer, find out the provisions under the EXIM Policy of getting the raw materials duty free.  Get familiar with the excise formalities as goods meant for export can be cleared without payment of Customs & Excise duty on the finished product subject to compliance of certain formalities.  Understand the local government regulations in relations to the export of the product.  Get information about the government regulations of the importing country as to restrictions on the quantity, product specification, packing regulations, customs regulations, requirement of specific documents/information etc.  Availability of Vessels/Airlines, the transport charges, frequency of operation, etc.,  To look for a Custom House Agent (CHA) (also known as freight forwarders or clearing agents) for handling the documents/cargo in the customs.  If the product is covered under any quota regulation, find out the agency/council who is handling the quota distribution for the product and the availability of quota for exports. Finding Customer Once you have selected the market, the next step is to find a prospective customer. This you can get:  From the directory of the importers of the country.  By writing to the Embassy of India in that country for assistance.  By witting the Chamber of Commerce of that country.  By means of participation in a Fair/Exhibition abroad either directly or through the Export Promotion Council.  By participating in international fair if organized locally.
  24. 24. Page 24  Through the personal contacts in that country. By these processes one can only have the list of customers. One has to dialogue or correspond with these customers by sending samples, getting feedback from the customers etc.  Find out the association of that product and download member list of that association. NEGOTIATING CONTRACT Once the prospective customer is found, the business deal has to be concluded. The following aspects may be considered before entering into a final contract with the buyer.  Credit worthiness of the customer  Availability of the Steamer/Airline and frequency  The freight charges  Full product specification  The quantity price  Terms of payment  Types of packaging and marking on the packages  Mode of shipment & Shipment schedule  Tolerance of quantity to be shipped  Documentation requirement for the customer  Documentation requirement for the government of the importing country  Compliance of the local governmental rules and regulations Before entering into contract one should take note of the above factors. While these are indicative, the requirements will vary from country to country, product to product and buyer to buyer. EXPORT SALES & CONTRACT TERMS & CONDITIONS Very often exporters do not enter into any formal contract and finalize the trade deal through the exchange of letters, cable, telex etc. It is, however, expedient that the parties (exporters & importers) incorporate all important terms & conditions of their trade deal in a separate document or contract that will avoid disputes arising out of uncertainty or ambiguity. Export contract may be sent in duplicate along with the Performa Invoice to the overseas buyer.
  25. 25. Page 25 1.9) NATURE OF INTERNATIONAL TRADE CONTRACTS. There are certain, peculiar characteristics of international trade contract which are not present in those for sales of goods in the domestic market Whereas the parties to a domestic trace contract normally needs only agree on the elements which are necessary for their particular trade transactions like price, description, quality and quantity of goods, delivery terms etc. the situation will be quite different when the buyer and the seller for sale/purchase contract belong to different countries. All parties to the international trade contracts provide all their relative rights and obligations in several ways. For example, they may agree to adopt either the Law of the country of the buyer or that of the seller. The traders are normally reluctant to leave the determination of the rights and obligations by implications under the legal system of either’s country. They prefer to make explicit provisions regarding the rights and obligations by including a set of detailed and precise terms and conditions in their contract. EXPORT OF SAMPLESGIFTS. Exports of bonafide trade and technical samples of freely exportable items shall be allowed without any limit. Goods including edible items of value not exceeding Rs. 100000/- in a licensing year, may be exported as a gift. However, items mentioned as restricted for exports in ITC (HS) shall not be exported as a gift without a license/certificate/permission, except in the case of edible items.
  26. 26. Page 26 1.10) ENTERING INTO AN EXPORT CONTRACT In order to avoid disputes, it is necessary to enter into an export contract with the overseas buyer. For this purpose, export contract should be carefully drafted incorporating comprehensive but in precise terms, all relevant and important conditions of the trade deal. There should not be any ambiguity regarding the exact specifications of goods and terms of sale including export price, mode of payment, storage and distribution methods, type of packaging, port of shipment, delivery schedule etc. The different aspects of an export contract are enumerated as under:  Product, Standards and Specifications  Quantity  Inspection  Total Value of Contract  Terms of Delivery  Taxes, Duties and Charges  Period of Delivery/Shipment  Packing, Labeling and Marking  Terms of Payment-- Amount/Mode & Currency  Discounts and Commissions  Licenses and Permits  Insurance  Documentary Requirements  Guarantee  Force Majeure of Excuse for Non-performance of contract  Remedies  Arbitration clause
  27. 27. Page 27 CHAPTER 2
  28. 28. Page 28 2.1) TERMS OF SHIPMENTS – INCOTERMS The INCOTERMS (International Commercial Terms) is a universally recognized set of definition of international trade terms, such as FOB, CFR & CIF, developed by the International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial terms like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance and other costs and risks.’ The INCOTERMS was first published in 1936 --- INCOTERMS 1936 --- and it is revised periodically to keep with changes in the international trade needs. The complete definition of each term is available from the current publication --- INCOTERMS 2000. Under INCOTERMS 2000, the international commercial terms are grouped into E, F, C and D, designated by the first letter of the term, relating to the final letter of the term. E.g. EXW—Exworks comes under grouped ‘E’. The purpose of Incoterms is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree. The scope of Incoterms is limited to matters relating to the rights and obligations of the parties to the contract of sale with respect to the delivery of goods. Incoterms deal with the number of identified obligations imposed on the parties and the distribution of risk between the parties. In international trade, it would be best for exporters to refrain, wherever possible, from dealing in trade terms that would hold the seller responsible for the import customs clearance and/or payment of import customs duties and taxes and/or other costs and risks at the buyer’s end, for example the trade terms DEO (Delivery Ex Quay) and DDP (Delivered Duty Paid). Quite often, the charges and expenses at the buyer’s end may cost more to the seller than anticipated. To overcome losses, hire a reliable customs broker or freight forwarder in the importing country to handle the import routines.
  29. 29. Page 29 Similarly, it would be best for importers not to deal in EXW (Ex Works) which would hold the buyer responsible for the export customs clearance, payment of export customs charges and taxes, and other costs and risks at the seller’s end. MORE CLARIFICATION ON INCOTERMS EXW {+the named place} Ex Works: Ex means from. Works means factory, mill or warehouse, which are the seller’s premises. EXW applies to goods available only at the seller’s premises. Buyer is responsible for loading the goods on truck or container at the seller’s premises and for the subsequent costs and risks. In practice, it is not uncommon that the seller loads the goods on truck or container at the seller’s premises without charging loading fee The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex Works. FCA {+the named point of departure} Free Carrier: The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the sellers premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at seller’s expense. The point (depot) at origin may or may not be a customs clearance centre. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the air shipment, technically speaking, goods placed in the custody of an air carrier are considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment. The term FCA is also used in the RO/RO (roll on/roll off) services In the export quotation, indicate the point of departure (loading) after the acronym FCA, for example FCA Hong Kong and FCA Seattle. Some manufacturers may use the former terms FOT (Free on Trucks) and FOR (Free on Rail) in selling to export-traders.
  30. 30. Page 30 FAS {+the named port of origin} Free Alongside Ship: Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at seller’s expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks In the export quotation, indicate the port of origin(loading)after the acronym FAS, for example FAS New York and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels. FOB {+the named port of origin) Free on Board: The delivery of goods on the board the vessel at the named port of origin (Loading) at seller’s expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai. Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the air freight. In North America, the term FOB has other applications. Many buyers and sellers in Canada and the USA dealing on the open account and consignment basis are accustomed to using the shipping terms FOB Origin and FOB destination. FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB Destination means the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyer’s premises which may include the import custom clearance and payment of import customs duties and taxes at the buyer’s country, depending on the agreement between the buyer and seller. In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (International Commercial Terms).
  31. 31. Page 31 CFR {+the named port of destination} Cost and Freight: The delivery of goods to the named port of destination (discharge) at the seller’s expenses. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F. In the export quotation, indicate the port of destination (discharge) after the acronym CFR, for example CFR Karachi and CFR Alexandria. Under the rules of the INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However, in practice, the term Cost and Freight (C&F) is still commonly used in the air freight. CIF {+named port of destination} Cost, Insurance and Freight: The cargo insurance and delivery of goods to the named port of destination (discharge) at the seller’s expense. Buyer is responsible for the import customs clearance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990, the term CIFI is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight. CPT {+the named place of destination} Carriage paid To: The delivery of goods to the named port of destination (discharge) at the seller’s expenses. Buyer assumes the cargo insurance, import custom clearance, payment of custom duties and taxes, and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CPT, for example CPT Los Angeles and CPT Osaka.
  32. 32. Page 32 CIP {+ the named place of destination) Carriage and Insurance Paid To: The delivery of goods and the cargo insurance to the named place of destination (discharge) at seller’s expense. Buyer assumes the importer customs clearance, payment of customs duties and taxes, and other costs and risks. In the export quotation, indicate the place of destination (discharge) after the acronym CIP, for example CIP Paris and CIP Athens. DAF {+ the names point at frontier} Delivered At Frontier: The delivery of goods to the specified point at the frontier at seller’s expense. Buyer is responsible for the import custom clearance, payment of custom duties and taxes, and other costs and risks. In the export quotation, indicate the point at frontier (discharge) after the acronym DAF, for example DAF Buffalo and DAF Well and. DES {+named port of destination} Delivered Ex Ship: The delivery of goods on board the vessel at the named port of destination (discharge) at seller’s expense. Buyer assumes the unloading fee, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks. In the export quotation, indicate the Port of destination (discharge) after the acronym DES, for example DES Helsinki and DES Stockholm. DEQ {+ the named port of destination} Delivered Ex Quay: The delivery of goods to the Quay (the port) at the destination at buyers expense. Seller is responsible for the importer customs clearance, payment of customs duties and taxes, at the buyers end. Buyer assumes the cargo insurance and other costs and risks. In the export quotation, indicate the Port of destination (discharge) after the acronym DEQ, for example DEQ Libreville and DEQ Maputo.
  33. 33. Page 33 DDU {+ the named point of destination} Delivered Duty Unpaid: The delivery of goods and the cargo insurance to the final point at destination, which are often the project site or buyers premises at seller’s expense. Buyer assumes the import customs clearance, payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks. In the export quotation, indicate the point of destination (discharge) after the acronym DDU for example DDU La Paz and DDU N’djamena. DDP {+ the named point of destination) Delivered Duty Paid: The seller is responsible for most of the expenses which include the cargo insurance, import custom clearance, and payment of custom duties, and taxes at the buyers end, and the delivery of goods to the final point of destination, which is often the project site or buyers premise. The seller may opt not to insure the goods at his/her own risk. In the export quotation, indicate the point of destination (discharge) after the acronym DDP, for example DDP Bujumbura and DDP Mbabane. “E”-term, “F”-term, “C”-term &”D”-term: Incoterms 2000, like its immediate predecessor, groups the term in four categories denoted by the first letter in the three-letter abbreviation. • Under the “E”-TERM (EXW), the seller only makes the goods available to the buyer at the seller’s own premises. It is the only one of that category. • Under the “F”-TERM (FCA, FAS, &FOB), the seller is called upon to deliver the goods to a carrier appointed by the buyer. • Under the “C”-TERM (CFR, CIF, CPT, & CIP), the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional cost due to events occurring after shipment or discharge. • Under the “D”-TERM (DAF, DEQ, DES, DDU & DDP), the seller has to bear all costs and risks needed to bring the goods to the place of destination.
  34. 34. Page 34 All terms list the seller’s and buyer’s obligations. The respective obligations of both parties have been grouped under up to 10 headings where each heading on the seller’s side “mirrors” the equivalent position of the buyer. Examples are Delivery, Transfer of risks, and Division of costs. This layout helps the user to compare the parties’ respective obligations under each Incoterms. 2.2) PROCESSING AN EXPORT ORDER You should not be happy merely on receiving an export order. You should first acknowledge the export order, and then proceed to examine carefully in respect of  Items  Specification  Pre-shipment inspection  Payment conditions  Special packaging  Labeling and marketing requirements  Shipment and delivery date  Marine insurance  Documentation requirement etc. If you are satisfied with these aspects, a formal confirmation should be sent to the buyer, otherwise clarification should be sought from the buyer before confirming the order. After confirmation of the export order immediate steps should be taken for procurement/manufacture of the export goods. In the meanwhile, you should proceed to enter into a formal export contract with the overseas buyer. Before accepting any order necessary homework should have been done as to availability of the production capacity, raw material etc. It would be in the interest of the exporter to look into entering into forward contract to safeguard against exchange rate fluctuations. Ensure that the mode of payment is also agreed upon. In case of shipment against letter of credit, the buyer should be advised to open the credit well in advance before effecting the shipment.
  35. 35. Page 35 2.3) FINANCIAL RISKS INVOLVED IN FOREIGN TRADE As an exporter while selling goods abroad, you encounter various types of risks. The major risks which you have to undergo are as follows:  Credit Risk  Currency Risk  Carriage Risk  Country Risk You can protect yourself against the above risks by initiating appropriate steps. Credit Risks: You can cover your credit risk against the foreign buyer by insisting upon opening a letter of credit in your favour. Alternatively one can avail of the facility offered by various credit risk agencies. A specific insurance cover can also be obtained from ECGC (Exports Credit & Guarantee Corporation) to cover your country risk besides covering credit risk. Currency Risks: As regards covering the currency risk, due to the exchange rate fluctuations, you can request your banker to book a forward contract. Carriage Risk: The carriage risk can be covered by taking an appropriate general insurance policy. Country Risk: ECGC (Export credit Guarantee Corporation) provides cover to protect the exporter from country risks. Detailed procedures how an exporter can get him protected against the above risks are given in separate chapters later.
  36. 36. Page 36 CHAPTER 3
  37. 37. Page 37 3.1) EXPORT DOCUMENTS Any export shipment involved various documents required by various authorities such as customs, excise, RBI, Inspection and according depending upon the requirements, there are categorized into 2 categories, namely commercial documents and regulatory documents. A. Commercial Documents. : - Commercial documents are required for effecting physical transfer of goods and their title from the exporter to the importer and the realisation of export sale proceeds. Out of the 16 commercial documents in the export documentation framework as many as 14 have been standardized and aligned to one another. These are proforma invoice, commercial invoice, packing list, shipping instructions, intimation for inspection, certificate, of inspection of quality control, insurance declaration, certificate' of insurance, mate's receipt, bill of lading or combined transport document, application for certificate origin, certificate of origin, shipment advice and letter to the bank for collection or negotiation of documents. However, shipping order and bill of exchange could not be brought within the fold of the Aligned Documentation System, 1. Commercial Invoice: Commercial invoice is an important and basic export document. It is also known as a 'Document of Contents' as it contains all the information required for the preparation of other documents. It is actually a seller's bill of merchandise. It is prepared by the exporter after the execution of export order giving details about the goods shipped. It is essential that the invoice is prepared in the name of the buyer or the consignee mentioned in the letter of credit. It is a prima facie evidence of the contract of sale or purchase and therefore, must be prepared strictly in accordance with the contract of sale. 2 Inspection Certificate: The certificate is issued by the inspection authority such as the export inspection agency. This certificate states that the goods have been inspected before shipment, and that they confirm to accepted quality standards. 3 Marine insurance policy: Goods in transit are subject to risk of loss of goods arising due to fire on ship, perils of sea, theft etc. marine insurance protects losses incidental to voyages and in land transportation. Marine insurance policy is one of the most important document used as collateral security because it protects the interest of all those who have insurable interest at the time of loss. The exporter is bound to insure the goods in case of
  38. 38. Page 38 CIF quotation, but he can also insure the goods in case of FOB contract, at the request of the importer, but the premium payment will be made by the exporter. There are different types of policies such as 4. Consular Invoice: Consular invoice is a document required mainly by the Latin American countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand, Myanmar, Iraq, Australia, Fiji, Cyprus, Nigeria, Ghana, Guinea, Zanzibar, etc. This invoice is the most important document, which needs to be submitted for certification to the Embassy of the importing country concerned. The main purpose of the consular invoice is to enable the authorities of the importing country to collect accurate information about the volume, value, quality, grade, source, etc., of the goods imported for the purpose of assessing import duties and also for statistical purposes. In order to obtain consular invoice, the exporter is required to submit three copies of invoice to the Consulate of the importing country concerned. The Consulate of the importing country certifies them in return for fees. One copy of the invoice is given to the exporter while the other two are dispatched to the customs office of the importer's country for the calculation of the import duty. The exporter negotiates a copy of the consular invoice to the importer along with other shipping documents. 5. Certificate of Origin: The importers in several countries require a certificate of origin without which clearance to import is refused. The certificate of origin states that the goods exported are originally manufactured in the country whose name is mentioned in the certificate. Certificate of origin is required when:-  The goods produced in a particular country are subject to’ preferential tariff rates in the foreign market at the time importation.  The goods produced in a particular country are banned for import in the foreign market.
  39. 39. Page 39 Types of the Certificate of Origin (a) Non-preferential Certificate, of Origin: - Non-preferential certificate of origin is required in general by all countries for clearance of goods by the importer, on which no preferential tariff is given. It is issued by: ¬  The authorized Chamber of Commerce of the exporting country.  Trade Association. Of the exporting country. (b) Certificate of Origin for availing Concessions under GSP :- Certificate of origin required for availing of concessions under Generalized System of Preferences (GSP) extended by certain, countries such as France, Germany, Italy, BENELUX countries, UK, Australia; Japan, USA, etc. This certificate can be obtained from specialised agencies, namely;  Export Inspection Agencies.  Jt. Director General of Foreign Trade..  Commodity Boards and their regional offices.  Development Commissioner, Handicrafts.  Textile Committees for textile products.  Marine Products Export Development Authority for marine products.  Development Commissioners of EPZs (c) Certificate for availing Concessions under Commonwealth Preferences (CWP): Certificate of origin for the purpose of Commonwealth Preference is also known as 'Combined Certificate of Origin and Value'. It is required by two member countries, i.e. Canada and New Zealand of the Commonwealth. For concession under Commonwealth preferences, the certificates or origin have to be submitted in special forms obtainable, from the High Commission of the country concerned. (d) Certificate for availing Concessions under other Systems of Preference: - Certificate of origin is also required for tariff concessions. Under the Global System of Trade Preferences (GSTP), Bangkok Agreement (BA) and SAARC Preferential Trading Arrangement (SAPTA) under which India grants and receives tariff concessions on imports and exports.
  40. 40. Page 40 Export Inspection Council (EIC) is the sole authority to print blank Certificates of Origin under BA, SAARC and SAPTA which can be issued by such agencies as EPCs, DCs of EPZs, EIC, APEDA, MPEDA, FIEO, etc... 6. Bill of Lading: The bill of lading is a document issued by the shipping company or its agent acknowledging the receipt of goods on board the vessel, and undertaking to deliver the goods in the like order and condition as received, to the consignee or his order, provided the freight and other charges as specified in the bill have been duly paid. It is also a document of title to the goods and as such, is freely transferable by endorsement and delivery. Bill of Lading serves three main purposes:  As a document of title to the goods;  As a receipt from the shipping company; and  As a contract for the transportation of goods. Types of Bill of Lading  Clean Bill of Lading: - A bill of lading acknowledging receipt of the goods apparently in good order and condition and without any qualification is termed as a clean bill of lading.  Claused Bill of Lading: - A bill of lading qualified with certain adverse marks such as, "goods insufficiently packed in accordance with the Carriage of Goods by Sea Act," is termed as a Claused bill of lading.  Transshipment or Through Bill of Lading: - When the carrier uses other transport facilities, such as rail, road, or another steamship company in addition to his own, the carrier issues a through or transshipment bill of lading.  Stale Bill of Lading: - A bill of lading that has been held too long before it is passed on to a bank for negotiation or to the consignee is called a stale bill of lading.  Freight Paid Bill of Lading: - When freight is paid at the time of shipment or in advance, the bill of landing is marked, freight paid. Such bill of lading is known as freight bill of lading.
  41. 41. Page 41  Freight Collect Bill of lading :- When the freight is not paid and is to be collected from the consignee on the arrival of the goods, the bill of lading is marked, freight collect and is known as freight collect bill of lading 7. Airway Bill: An airway bill, also called an air consignment note, is a receipt issued by an airline for the carriage of goods. As each shipping company has its own bill of lading, so each airline has its own airway bill. Airway Bill or Air Consignment Note is not treated as a document of title and is not issued in negotiable form. 8. Packing List: The exporter prepares the packing list to facilitate the buyer to check the shipment. It contains the detailed description of the goods packed in each case, their gross and net weight, etc. The difference between a packing note and a packing list is that the packing note contains the particulars of the contents of an individual pack, while the packing list is a consolidated statement of the contents of a number of cases or packs. 9. Bill of exchange: The instrument is used in receiving payment from the importer. The importer may prefer bill of exchange to LC as it does not involve blocking of funds. A bill of exchange is drawn by the exporter on the importer, to make payment on demand at sight or after a certain period of time. Parties to bill of exchange. 1. The drawer: The exporter / person who draws the bill. 2. The drawee: The importer / person on whom the bill is drawn for payment. 3. The payee: The person to whom payment is made, generally, the exporter / supplier of the goods.
  42. 42. Page 42 B) Auxiliary Documents: These documents generally form the basic documents based on which the commercial and or regulatory documents are prepared. These documents also do not have any fixed formats and the number of such documents will wary according to individual requirements. 1. Proforma Invoice: The starting point of the export contract is in the form of offer made by the exporter to the foreign customer. The offer made by the exporter is in the form of a proforma invoice. It is a quotation given as a reply to purchase order. It normally forms the basis of all trade transactions. 2. Intimation for Inspection: Whenever the consignment requires the pre-shipment inspection, necessary application is to be made to the concerned inspection agency for conducting the inspection and issue of certificate thereof. 3. Declaration of Insurance: Where the contract terms require that the insurance to be covered by the exporter, the shipper has to give details of the shipment to the insurance company for necessary insurance cover. The detailed declaration will cover:  Name of the shipper exporter.  Name & address of buyer.  Details of goods such as packages, quantity, value in foreign currency as well as in Indian Rs. Etc.  Name of the Vessel Aircraft.  Value for which insurance to be covered. 4. Application of the Certificate Origin: In case the exporter has to obtain Certificate of Origin from the concerned authorities, an application has to be made to the concerned authority with required documents. While the simple invoice copy will do for getting CO from the chamber of commerce, in respect of obtained the same from the office of the Textile Committee or Export Promotion Council, the documents requirement are different. 5. Mate's Receipt: Mate's receipt is a receipt issued by the Commanding Officer of the ship when the cargo is loaded on the ship. The mate's receipt is a prima facie evidence that goods are loaded in the vessel. The mate's receipt is first handed over to the Port Trust
  43. 43. Page 43 Authorities. After making payment of all port dues, the exporter or his agent collects the mate's receipt from the Port Trust Authorities. The mate's receipt is freely transferable. It must be handed over to the shipping company in order to get the bill of lading. Bill of lading is prepared on the basis of the mate's receipt. Types of Mate's Receipts  Clean Mate's Receipt: - The Commanding Officer of the ship issues a clean mate's receipt, if he is satisfied that the goods are packed properly and there is no defect in the packing of the cargo or package.  Qualified Mate's Receipt: - The Commanding Officer of the ship issues qualified mate's receipt, when the goods are not packed properly and the shipping company does not take any responsibility of damage. To the goods during transit. Obtaining Mate's Receipt The goods are then loaded on board the ship for which the Mate or the Captain of the ship issues Mate's Receipt to the Port Superintendent. 6. Shipping order: it is issued by the Shipping/Conference Line intimating the exporter about the reservation of space for shipment of cargo which the exporter intends to ship. Details of the vessel, poet of the shipment, and the date on which the goods are to be shipped are mentioned. This order enables the exporter to make necessary arrangements for customs clearance and loading of the goods. 7. Shipping Instructions: at the pre-shipment stage, when the documents are to sent to the CHA for customs clearance, necessary instructions are to be give with relevance to  The export promotion scheme under which goods are to be exported.  Name of the specific vessel on which the goods are to be loaded.  If goods are to be FCL or LCL.  If freight amount are to be paid / collected.  If shipment are covered under A.R.E.-1 procedure.  Instructions for obtaining Bill of Lading etc.
  44. 44. Page 44 8. Bank letter for negotiation of documents: at the post shipment stage, the exporter has to submit the documents to a bank for negotiation or discounting or collection for forwarding the same to the customer and also for realization of export proceeds. The bank letter is the set of instruction for the bank as to how to handle the documents by them and by the bank at the buyer’s country which may include  Name and address of the buyer.  Details of various documents being sent and the number of the copies thereof.  Name and address of the buyer’s bank if available.  If the documents are sent L/C or on open terms.  If the proceeds are to adjusted against any pre-shipment packing credit loan.  If the bill amount is to be adjusted against any forward exchange cover.  In case of credit bill who has to bear the interest, either exporter or if the same is to be collected from the buyer.  Instructions in case non-acceptance/non-payment by the buyer. C. Regulatory Document: Regulatory pre-shipment export documents are prescribed by the different government departments and bodies in order to comply with various rules and regulations under the relevant laws governing export trade such as export inspection, foreign exchange regulation, export trade control, customs, etc. Out of 9 regulatory documents four have been standardized and aligned. These are shipping bill or bill of export, exchange control declaration (GR from), export application dock challan or port trust copy of shipping bill and receipt for payment of port charges. 1. Shipping Bill: Shipping bill is the main customs document, required by the customs authorities for granting permission for the shipment of goods. The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e. certified by the customs. Shipping bill is normally prepared in five copies :-  Customs copy.  Drawback copy.  Export promotion copy.
  45. 45. Page 45  Port trust copy.  Exporter's copy. 2. A.R.E. 1 form (Central excise): this form ARE-1 is prescribed under Central Excise rules for export of goods. In case goods meant for export are cleared directly from the premises of a manufacturer, the exporter can avail the facility of exemption from payment of terminal excise duty. The goods may be cleared for export either under claim for rebate of duty paid or under bond without payment of duty. In both the events the goods are to be cleared under form A.R.E-1 which will show the details of the goods being exported, the relevant duty involved and if the duty is paid or goods being cleared under bond, details of goods being sealed either by the exporter or Central Excise officials etc. 3. Exchange Control declaration Form (GR/PP/SOFTEX): under the exchange control regulations all exporters must declare the details of shipment for monitoring by the Reserve Bank of India. For this purpose, RBI has prescribed different forms for different types of shipments like GRI, PP forms etc. These declaration forms must be presented to the customs officials at the time of passing of export documentation. Under the EDI processing of shipping bill in the customs, these forms have been dispensed with and a new form SDF has to be submitted to the customs in the place of above forms. 4. Export Application: this is the application to be made to the customs officials before shipment of goods. The prescribed form of the application is the Shipping Bill/Bill of Export. Different types are required for shipment like ex-bond, duty free goods, and dutiable goods and for export under different export promotion schemes such as claims for duty drawback etc. 5. Vehicle Ticket/Cart Ticket/Gate Pass etc.: before the goods are being taken inside the port for loading, necessary permission has to be obtained for moving the vehicle into the customs area. This permission is granted by the Port Trust Authority. This document will contain the detail of the export cargo, name and address of the shippers, lorry number, marks and number of the packages, driver’s licence details etc. 6. Bank Certificate of Realisation: this is the form prescribed under the Foreign Trade Policy, wherein the negotiating bank declares the fob value of exports and for the date of
  46. 46. Page 46 realisation of the export proceeds. This certificate is required for obtaining the benefit under various schemes and this value of fob is reckoned as fob value of exports.
  47. 47. Page 47 CHAPTER 4
  48. 48. Page 48 4.1) SHIPPING AND CUSTOMS FORMALITIES The shipment of export cargo has to be made with prior permission of, and under the close supervision of the custom authorities. The goods cannot be loaded on board the ship unless a formal permission is obtained from the custom authorities. The custom authorities grant this permission only when it is being satisfied that the goods being exported are of the same type and value as have been declared by the exporter or his C&F agent, and that the duty has been properly determined and paid, if any. The custom procedure can be briefly explained as follows:  Submission of Documents: The exporter or his agent submits the necessary documents along with the shipping bill to the Custom House. The documents include: o ARE-1 (Original and duplicate) o Excise gate pass (Original and duplicate transporters’ copy o Proforma Invoice o Packing List o GRI form (Original and duplicate) o Customs Invoice (where required in the importing country) o Original letter of credit/contract o Declaration form in triplicate o Quality Certificate o Purchase memo o Labels o Licenses (if any required) including advance licence copy o Railway receipt/lorry way bill o Inspection Certificate by Export Inspection Agency  Verification of Documents: The Customs Appraiser verifies the documents and appraises the value of goods. He then makes an endorsement of “Examination Order” on the duplicate copy of shipping bill regarding the extent of physical examination of the goods at the docks. All documents are returned back to the agent or exporter, except
  49. 49. Page 49 o Original Copy of GR to be forwarded to RBI o Original copy of shipping bill o One copy of commercial invoice  Carting Order: The exporter’s agent has to obtain the carting order from the Port Trust Authorities. Carting Order is the permission to bring the goods inside the docks. The carting order is issued by the superintendent of Port Trust. Carting Order is issued only after verifying the endorsement on the duplicate copy of shipping bill. The Carting Order enables the exporter’s agent to cart goods inside the docks and store them in proper sheds.  Storing the Goods in the Sheds: After securing the carting order, the goods are moved inside the docks. The goods are then stored in the sheds at the docks.  Examination of Goods: The exporter’s agent then approaches the customs examiner to examine the goods. The customs examiner examines the cargo and records his report on the duplicate copy of the shipping bill. The customs examiner then sings the “Let Export Order”  Let Export Order: The Let Export Order is then shown to the Customs Preventive Officer, along with other documents. The CPO is in charge of supervision of loading operations on the vessel. If CPO finds everything in order, he endorses the duplicate copy of shipping bill with the “Let Ship Order” This order helps the exporter/shipper to load the goods on the ship.  Loading Goods: The goods are then loaded on the ship. The CPO supervises the loading operations. After loading is completed, the Chief Mate (Cargo Officer) of the ship issues the “Mate’s Receipt”. The Mate’s Receipt is sent to the Port Trust Office. The C&F agent pays the port trust dues and collects the mate’s receipt. The C&F agent then approaches the CPO and gets the certification of shipment of goods on AR Forms and other documents
  50. 50. Page 50  Obtaining Bill of Lading: The Mate’s Receipt is then handed over to the shipping company (on whose vessel the goods are loaded). The shipping company issues bill of lading. The Bill of Lading is issued in: o 3 negotiable copies of Bill of Lading o 10 to 12 Non-negotiable copies of Bill of Lading. The negotiable copies have title to goods; whereas non-negotiable copies do not have title to goods but are used for record purpose. 4.2) PROCEDURE OF EXCISE CLEARANCE: The common procedure of excise clearance under “bond” and under “rebate” is discussed as follows:  Preparing of Invoice: The export goods have to be cleared from the factory under invoice. The invoice contains details like name of the exporter, value of goods, excise duty chargeable, etc. The invoice is to be prepared in triplicate. In case of export under Bond, the invoice should be marked as “For Export without payment of duty”. In addition to the invoice, a prescribed for ARE 1 has to be filed in by exporter.  Filling up of ARE-1 form (Annexure-20): The ARE-1 form needs to be filled in four copies. A fifth (Optional) may be filled in by the exporter, which can be used at the time of claiming other export incentives. The ARE-1 copies have distinct color for the purpose of verification and processing.  Application to Assistant Commissioner of Central Excise (ACCE): The exporter has to make an application to ACCE regarding the removal of goods from the factory/warehouse for export purpose.  Information to Range Superintendent of Central Excise (RSCE): The ACCE will inform the RSCE under whose jurisdiction the goods are intended to be cleared for export
  51. 51. Page 51  Deputation of Inspector: The RSCE will then depute an inspector to clear the goods, either at the factory or warehouse, or in certain cases at the port.  Processing of ARE-1 Form: The Excise Officer/Inspector will make endorsement on all copies of ARE-1. The handling of ARE-1 Form is done as follows: o The inspector returns the original and duplicate copies to the exporter o The triplicate copy is sent to officer (ACCE or Maritime Commissioner (MCCE) to whom bond was executed or letter of undertaking (LUT) was given. This copy can also be handed over to the exporter in a tamper proof sealed cover to be submitted to ACCE/MCCE. o The 4th copy will be retained by the excise inspector. o The 5th copy is also handed over to the exporter. o At the time of export, original, duplicate and the 5th copy (optional) will be submitted to customs officer. The customs officer will examine these copies and then export will be allowed. o The customs officer will then make endorsement of export on all copies of ARE- 1. He will cite shipping bill number and date and other particulars of export on ARE-1. o The original copy and quintuplicate (optional) will be returned to the exporter. The duplicate copy will be sent directly to the ACCEMCCE i.e. excise officer with whom bond was executed will get 2 copies, one from RSCE (or excise inspector) when goods are cleared from factory and other Custom Officer after export. This will enable him to keep track to ensure that all goods cleared from factory or warehouse without payment of duty are actually exported. In case of export after payment of duty, under claim of rebate, the basic procedure is same as above, except that the triplicate copy (by excise inspector) and duplicate copy(by customs officer)will be sent to the officer to whom rebate claim is filed. If claim of rebate is by electronic submission, these copies well be sent to excise rebate audit section at the place of export.  Refund or Release of Bond: The exporter should make an application to the excise officer for refund or release of bond. The application must be supported by original copy
  52. 52. Page 52 of ARE-1 form. The excise officer crosschecks the original copy of ARE-1 form and the duplicate and triplicate copies of ARE-1 form, which he had received earlier. If the copies match, then refund is given or the bond is released. 4.3) FACTORY STUFFING OF CARGO Clearance of goods to docks: If the goods meant for export is of a small quantity which may not be sufficient to make one full container, the cargo is said to be less than container load (LCL) cargo. Such cargo has to be taken to the docks where the goods will be consolidated (combining the cargo of other exporters to make up quantity for a full container) by the agent and loaded into a container. Here the examination of the cargo is done at the docks.(There are also inland container depots approved by the customs where the goods can be consolidated and stuffed into the container by the agent under the supervision of the customs officer) If the goods meant for export is of sufficient quantity to make up a full container, the exporter has the option to take the goods to the docks and get them examined and stuffed into a separate container. An exporter gets the benefit on the freight amount for a full container. (Generally called box rate) Alternatively, he can have a container allotted to him and get the same to his Mills Premises. The goods meant for exports can be stuffed into the container under the supervision of the regional Central Excise Authority. Here the exporter has to  Obtain permission from the Customs for getting the container to his mills premises for stuffing (House Stuffing)  Inform the C.Excise Authorities at least 24 hours before bringing the container for loading. The C.Excise Authority will supervise the loading, seal the container and certify the invoice as directed in the permission given by the custom authorities. A special Lock is used to lock the doors of the container. Samples from the goods will be drawn, if necessary, as required under the customs permission. Such samples will be sealed and forwarded along with the container. The examiner in the docks may arrange to send the sample for testing.
  53. 53. Page 53 CHAPTER-5
  54. 54. Page 54 5.1) METHODS OF RECEIVING PAYMENT AGAINST EXPORTS Before we proceed to understand the concept of Letter of Credit, let us understand the various types of payment methods available against export. METHODS OF PAYMENT There are five methods of payment depending upon the terms of payment, and each method of payment involves varying degrees of risks for the exporter. The methods are:  Payment in advance  Documentary Bills  Letter of Credit  Open Account  Counter Trade A. PAYMENT IN ADVANCE This method does not involve any risk of bad debts, provided entire amount has been received in advance. At times, a certain per cent is paid in advance, say 50% and the rest on delivery. This method of payment is desirable when:  The financial position of the buyer is weak or credit worthiness of the buyer is not known.  The economic/ political conditions in the buyer’s country are unstable.  The seller is not willing to assume credit risk, as un the case of open account method. However, this is the most unpopular methods as a foreign buyer would not be willing to pay advance of shipment unless:  The goods are specifically designed for the customer, and  There is heavy demand for the goods (a seller’s market situation). B. DOCUMENTARY BILLS: Under this method, the exporter agrees to submit the documents to his bank along with the bill of exchange. The minimum documents required are  full set of bill of lading  commercial Invoice
  55. 55. Page 55  Marine Insurance policy and other document, if required. There are two main types of documentary bills:  Documents against Payment,  Documents against Acceptance. Documents against payment (D/P): The documents are released to the importer against payment. This method indicates that the payment is made against Sight Draft. Necessary arrangements will have to be made to store the goods, if a delay in payment occurs. The risk involved that the importer may refuse to accept the documents and to pay against them. The reason for non-acceptance may be political or commercial ones. In India, ECGC covers losses arising out of such risks. Under this system, as compared to D/A, the exporter has certain advantages:  The document remain in the hands of the bank and the exporter does not lose possession or the ownership of goods till payment is made,  Other reason may include that the exporter may not be able to allow credit and wait for payment. Documents Against acceptance (D/A): The document are released against acceptance of the Time Draft i.e. credit allowed for a certain period, say 90 days. However, the exporter need not wait for payment till bill is met on due date, as he can discount the bill with the negotiating bank and can avail of funds immediately after shipment of goods. In case of D/A as compared to D/P bills, the risk involved is much grater, as the importer has already taken possession of goods which may or may not be in his custody on the maturity date of the bill. If the importer fails to pay on due date, the exporter, will have to start civil proceedings to receive his payment, if all other alternatives fails. The risk involved can be insured with ECGC. C. LETTER OF CREDIT (L/C): This method of payment has become the most popular form in recent times, it is more secured as company to other methods of payment (other than advance payment). A letter of credit can be defined as “an undertaking by importer’s bank stating that payment will be made to the exporter if the required documents are presented to the bank within the variety of the L/C”.
  56. 56. Page 56 CHAPTER-6
  57. 57. Page 57 6.1) LETTER OF CREDIT Letter of Credit L/c also known as Documentary Credit is a widely used term to make payment secure in domestic and international trade. The document is issued by a financial organization at the buyer request. Buyer also provides the necessary instructions in preparing the document. The International Chamber of Commerce (ICC) in the Uniform Custom and Practice for Documentary Credit (UCPDC) defines L/C as: "An arrangement, however named or described, whereby bank (the Issuing bank) acting at the request and on the instructions of a customer (the Applicant) or on its own behalf: 1. Is to make a payment to or to the order third party (the beneficiary) or is to accept bills of exchange (drafts) drawn by the beneficiary. 2. Authorized another bank to effect such payments or to accept and pay such bills of exchange (draft). 3. Authorized another bank to negotiate against stipulated documents provided that the terms are complied with. A key principle underlying letter of credit (L/C) is that banks deal only in documents and not in goods. The decision to pay under a letter of credit will be based entirely on whether the documents presented to the bank appear on their face to be in accordance with the terms and conditions of the letter of credit. 6.2) PARTIES TO LETTER OF CREDIT  Applicant (Opener): Applicant which is also referred to as account party is normally a buyer or customer of the goods, who has to make payment to beneficiary. LC is initiated and issued at his request and on the basis of his instructions.  Issuing Bank (Opening Bank): The issuing bank is the one which create a letter of credit and takes the responsibility to make the payments on receipt of the documents from the beneficiary or through their banker. The payment has to be made to the beneficiary within seven working days from the date of receipt of documents at their end, provided the documents are in accordance with the terms and conditions of the letter of credit. If the documents are discrepant one, the rejection thereof to be communicated within seven working days from the date of of receipt of documents at their end.
  58. 58. Page 58  Beneficiary: Beneficiary is normally stands for a seller of the goods, who has to receive payment from the applicant. A credit is issued in his favour to enable him or his agent to obtain payment on surrender of stipulated document and comply with the term and conditions of the L/C. If L/C is a transferable one and he transfers the credit to another party, then he is referred to as the first or original beneficiary.  Advising Bank: An Advising Bank provides advice to the beneficiary and takes the responsibility for sending the documents to the issuing bank and is normally located in the country of the beneficiary.  Confirming Bank: Confirming bank adds its guarantee to the credit opened by another bank, thereby undertaking the responsibility of payment/negotiation acceptance under the credit, in additional to that of the issuing bank. Confirming bank play an important role where the exporter is not satisfied with the undertaking of only the issuing bank.  Negotiating Bank: The Negotiating Bank is the bank who negotiates the documents submitted to them by the beneficiary under the credit either advised through them or restricted to them for negotiation. On negotiation of the documents they will claim the reimbursement under the credit and makes the payment to the beneficiary provided the documents submitted are in accordance with the terms and conditions of the letters of credit.  Reimbursing Bank: Reimbursing Bank is the bank authorized to honor the reimbursement claim in settlement of negotiation/acceptance/payment lodged with it by the negotiating bank. It is normally the bank with which issuing bank has an account from which payment has to be made.  Second Beneficiary: Second Beneficiary is the person who represents the first or original Beneficiary of credit in his absence. In this case, the credits belonging to the original beneficiary is transferable. The rights of the transferee are subject to terms of transfer.
  59. 59. Page 59 6.3 TYPES OF LETTER OF CREDIT 1. Revocable Letter of Credit L/C: A revocable letter of credit may be revoked or modified for any reason, at any time by the issuing bank without notification. It is rarely used in international trade and not considered satisfactory for the exporters but has an advantage over that of the importers and the issuing bank. 2. Irrevocable Letter of Credit L/C: In this case it is not possible to revoke or amended a credit without the agreement of the issuing bank, the confirming bank, and the beneficiary. Form an exporter’s point of view it is believed to be more beneficial. An irrevocable letter of credit from the issuing bank insures the beneficiary that if the required documents are presented and the terms and conditions are complied with, payment will be made. 3. Confirmed Letter of Credit L/C: Confirmed Letter of Credit is a special type of L/C in which another bank apart from the issuing bank has added its guarantee. Although, the cost of confirming by two banks makes it costlier, this type of L/c is more beneficial for the beneficiary as it doubles the guarantee. 4. Sight Credit and Usance Credit L/C: Sight credit states that the payments would be made by the issuing bank at sight, on demand or on presentation. In case of usance credit, drafts are drawn on the issuing bank or the correspondent bank at specified usance period. The credit will indicate whether the usance drafts are to be drawn on the issuing bank or in the case of confirmed credit on the confirming bank. 5. Back to Back Letter of Credit L/C: Back to Back Letter of Credit is also termed as Countervailing Credit. A credit is known as back to back credit when a L/c is opened with security of another L/C. A back to back credit which can also be referred as credit and counter credit is actually a method of financing both sides of a transaction in which a middleman buys goods from one customer and sells them to another. 6. Transferable Letter of Credit L/C: A transferable documentary credit is a type of credit under which the first beneficiary which is usually a middleman may request the nominated bank to transfer credit in whole or in part to the second beneficiary.
  60. 60. Page 60 CHAPTER -7
  61. 61. Page 61 7.1) PREPARATION AND SUBMISSION OF DOCUMENTS FOR BANK NEGOTTIATION /PURCHASE Document against exports should normally be realized through an authorized dealer foreign exchange. However payment of export can be received directly from the overseas buyer in the form of bank draft, pay order, banker’s cheque, personal cheque foreign currency notes, foreign currency traveler’s cheque, etc. Without any monetary limit provided the exporter’s track record is good, he is a customer of the authorized dealers through whom documents are to be negotiated and prima facie the instrument of payment represents export proceeds realization. Take care to submit various documents in a proper manner and within the prescribed time schedule. Apply to the Reserve Bank for extension of time in case you feel there is likely to be a delay in realizing export proceeds. The following are the steps in realizing export proceeds:  Approaching a Bank: After dispatch of the goods, either by sea, or by air, the exporter should approach his bank (authorized dealer) with a formal request to realize sale proceeds from the foreign buyer. It is obligatory to submit the shipping documents to an authorized dealer within 21 days of the date of shipment (subject to certain exceptions). In India, the exporters have to realize the full value of exports within 180 days from the date of shipment, (unless the payment terms offered are “deferred payment terms”). Where it is not possible to realize the sale proceeds within the prescribed period, the exporter should apply for extension in prescribed form ETX (in duplicate) to RBI.  Submission of Documents to the Bank: The exporter should submit the following documents o Bill of Exchange o Full set of Bill of Lading o Commercial Invoice Copies o Certificate of Origin o Insurance Policy o Inspection Certificate
  62. 62. Page 62 o Packing List o GR (duplicate copy to forward it to RBI) o Bank Certificate o Other relevant documents. The above documents need to be submitted in two complete sets, because it is customary to dispatch two sets of documents, one after the other. This is because, if one set is misplaced or delayed in transit, the importer can get at least the other set and clear the goods.  Verification of Documents: The bank will verify the documents to find o Whether the required documents are in order. o Whether the required documents are attested by customs and other authorities.  Letter of Indemnity: If the exporter wants immediate payment from his bankers, then his bankers may provide advance payment only when the exporter signs an indemnity letter. The implications of an indemnity letter is that in the event of refusal of payment by the issuing bank in respect of LC, then the negotiating bank can ask the exporter to pay back the money advanced along with necessary charges.  Discounting of bills: the bank may discount or negotiate the bills drawn against LC, and make immediate payment to the exporter, if so required.  Dispatch of documents: before the submission of documents for negotiation/collection, the bank examines them thoroughly with reference to the terms and conditions of the buyer’s order. Letter of credit and the laws relating to foreign exchange control. If any scrutiny, the documents are in order, the bank dispatches them to its overseas branch/correspondent branch as early as possible. The overseas branch of the bank then submits the document to the importer’s bank, and the importer’s bank hands it over to the importer.
  63. 63. Page 63 7.2) SHIPMENT THROUGH COURIERS In addition to the exporter by sea, air, rail or road, exports are also allowed by courier under the courier imports or exporters (clearance) Regulation Act, 1998. These regulations shall apply for clearance of goods carried by authorized courier on outgoing flights on behalf of exports. Consigner for a commercial consideration. Export Terms & conditions: Export of any item can be affected by courier, except the following.  Goods which are subject to cess.  Goods proposed to be exported with claim of duly drawback.  Goods proposed to be exported under DEPB, EPCG, AL (Advance License)  Where the value of goods is more than Rs. 25,0000/-  Goods where weight of individual packet is more than 32 kg.
  64. 64. Page 64 CHAPTER-8
  65. 65. Page 65 8.1) THE ECGC COVER The abbreviated form for Export Credit and Guarantee Corporation is ECGC. As the name indicates this is a sort of guarantee or a sort of cover for the exporter. Let us now see what this is all about. Needless to say that an exporter before entering into a contract with the overseas buyer for making any supply, takes care to ensure that the customer with whom he is dealing have some credit worthiness. This he may be able to do either through the local agent who is in a better position to know about the customer or through a bank or through any of the exporter’s associates if happens to be in the area of the customer etc., But, in a business things may change. The financial status of a customer may take drastic turn and an established customer may go bankrupt within a short period of time. Moreover, the buyer may be willing to make the payment, but there is other environment which prevents him from affecting the transfer of funds through the bank. For e.g., there could be break out of war, the balance of payment position of the country may become unfavorable, there may be some coup of the government etc., and all transactions could be sealed. These are the risk factors for the exporters. What is the guarantee that he will get paid for the supplies he has made? With a view to provide support to Indian exporters, the Govt. of India set up the Export Risk Insurance Corporation (ERIC) in 1957. This was transformed into Export Credit & Guarantee Corporation Ltd. in 1964. In order to give the Indian identity a sharper focus the name was again changed to Export Credit & Guarantee Corporation of India Ltd., in 1983. This is a company wholly owned by the Govt. of India and functions under the administrative control of the Ministry of Commerce and managed by the Board of Directors representing Government, Banking, Insurance, Trade, Industry etc. Though one may insist for a Letter of Credit, still there could be some elements of risk which we will study later here. Except getting an advance payment for the full value of the supplies, any other mode of payment will have some risk.
  66. 66. Page 66 Take the case of an exporter who has made supplies and before the payment is received the buyer goes bankrupt or there comes some new provision or policy of Government of the importing country preventing repatriation of the funds to other countries what recourse the exporter has to recover his dues. The litigation procedure might be time consuming and the exporter can never be sure of getting his full payment. An ECGC cover a safeguard his interest to a great extent. An exporter can either agree for sight payment or can made shipment on credit terms for say 60 days, 90 days etc., in project exports the period of payment may extend to some years. Longer the period of cre3dit given to the customer, more will be the risk factor for the exporter. In respect of sight bill, there is almost no risk because the customer has to make payment first before he retires the documents. Therefore, before the title of the goods is passed on to the customer, the importer makes the3 payment. However, in respect of usance bill (credit bills) the buyer retires the documents by accepting the usance draft and takes delivery of the goods. In case the customer goes bankrupt or become insolvent, before the due date of payment, the exporter is totally at a loss. While big units may be able to absorb the onetime loss, small exporters will get broke even with one such transaction. Here the ECGC comes into picture. It takes up the responsibility of paying the funds to the exporter and makes all efforts including legal proceedings to recover the dues from the customer, provided the exporter has taken an ECGC cover. What does ECGC do?  Provides a range of credit risk insurance covers to exporters against loss in export of goods and services.  Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them  Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan
  67. 67. Page 67 How does ECGC help exporters?  Offers insurance protection to exporters against payment risks  Provides guidance in export-related activities  Makes available information on different countries with its own credit ratings  Makes it easy to obtain export finance from banks/financial institutions  Assists exporters in recovering bad debts  Provides information on credit-worthiness of overseas buyers Need for export credit insurance Payments for exports are open to risks even at the best of times. The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. An outbreak of war or civil war may block or delay payment for goods exported. A coup or an insurrection may also bring about the same result. Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. In addition, the exporters have to face commercial risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss.
  68. 68. Page 68 REFERENCE         