export procedures and documentation 1,2

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Export Procedures and

DocumentationInternational Marketing

Credits – 2

Faculty- Sasmita K Maurya

McGraw-Hill/Irwin

International Marketing, 13/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.



Lesson 1: EXIM Documents

Overview

• Need and importance of documents

• Nature and characteristic features of export

import documents

17-02-2012 2Sasmita K Maurya



Sasmita K Maurya 3

Learning Objectives

• How the Indian government helps exporters

• The steps necessary to move good across country borders

• How various import restrictions are used politically

•

Means of reducing import taxes to remain competitive• The mechanics of export documents and their importance

17-02-2012



India reels under huge trade deficit

Mail Today Bureau New Delhi February 10, 2012

export import

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h e E c o n o m i c T i m e s , 1 0 F e b r u a r y 2 0 1 2




Sasmita K Maurya 7

Global Perspective

An Export Sale: From Trade Show to Installation

• Specific export mechanics occur when goods are shipped

from one country to another.

• The Internet has helped speed up this process

• Most countries control the movement of goods crossing their

borders – imports and exports

• The international marketer must meet the legal requirements

involved in moving goods from one country to another

– Export regulations

– Import regulations

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Sasmita K Maurya 8

Export Restrictions

• Controlled by the Department of Commerce

• Export Administration Regulations

– Serve the national security, foreign policy, and

nonproliferation interests

– Includes some export controls to protect country

from the adverse impact of the unrestricted

export of commodities in short supply

• NLR (no license required)

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Sasmita K Maurya 9

Determining Export Requirements

• The exporter must determine the appropriate

license for the product (general or validated):

1. Select the proper classification number

2. Decide if the items have end-use restrictions

3. Determine the ultimate end customer and

ultimate end uses of the product

• The details of exporting must be followed tothe letter

17-02-2012



News flash

• 'India's gem & jewellery exports to increase

5% this year'

Budget 2012: Jewellery exporters seek simplified tax regime




Sasmita K Maurya 11

Import Restrictions

• Tariffs

• Exchange permits

• Quotas

• Import licenses

• Standards

• Boycotts

• Voluntary agreements

• Other restrictions

17-02-2012



Why export documentation?

Chandigarh New York

unfamiliarity

Goods being shipped across international boundaries

Possibility of disputes

Protect the interests of buyer and seller

Compliance with export import law of individual countries17-02-2012 12Sasmita K Maurya



Export documentation

Rationale

• Commercial perspective

• Legal perspective

•

Incentive perspective•It is the duty of the exporter

to ship the goods in the agreed form,

agreed transport, and agreed time .

•It is the duty of the importer to remit

Sale value at agreed terms.

•Insurance policies

•Documents are linked to payments17-02-2012 13Sasmita K Maurya



Rationale of export documentation

legal perspective

• Goods and payment should comply with the exportimport laws of particular countries. E.g in India theexporter has to follow the specifications of FTL, FEMA.

• Every country keeps a record of all transactions takingplace across its international borders.

• Individual countries regulate, restrict, banexport/import of some specific goods.

• Political relationship between countries.

• Inspection of goods for quality requirements.

• Customs, excise, licenses from Govt authorities etc.




Rationale of export documentation

Incentive Perspective

• Govts provide incentives to encourage

exports.




Importance of documents

• Integral part of International marketing

operations

• Inadequate understanding results in

protracted correspondence, adversely

affecting the business and cash flow.

• Ensures compliance of contract obligations of

the concerned parties.




Commercial documents

These documents enable the exporter and

importer to discharge their commercial

obligations under an export contract.

• Commercial Invoice

• Bill of Lading/Airway Bill

• Insurance policy/certificate

• Bill of exchange




Commercial Invoice

• Document of contents

• Identification marks

•

Description of goods• Description of quantity

• Seller’s bill

• Name and address• Terms of sale




Bill of Lading

• Contract of affreightment (terms of agreement

between the carrier and the party/shipper- what are the

conditions under which the carrier will be held responsible for

damage or losses and to what extent …)• Receipt given by shipping company

• Document of title (bonafide holder of original bill of

lading will receive the shipment)




Types of Bill of Lading

• Received for shipment B/L

• On board shipped B/L

• Clean B/L

• Claused or dirty B/L

• Combined B/L

• Through B/L

• Trans-shipment B/L

• Charter party B/L




Transferability of B/L

• Consigner- ABC Chandigarh

• Consignee- or order of Bank of XYZ

(negotiating party)

• Notifying party- airlines (KLM)




Airway Bill

• Evidence of contract

• Receipt for cargo

•

Not a document of title




• Post parcel receipt

• Insurance policy or certificate




Bill of Exchange

• An instrument

• Unconditional order

•

Signed by the maker• Directing a certain person to pay a certain

amount

•

To or to the order of a certain person• To the bearer of the instrument




Legal documents for export from India

• GR form

• PP form

•

VP/COD form• SOFTEX form




Shipping Billsfor customs clearance

• Free shipping bill (white in colour)

• Dutiable shipping bill (yellow in colour)

•

Drawback shipping bill (green in colour)• Shipping bill for shipment ex-bond (yellow in

colour)




Sasmita K Maurya 27

Export Documents

• Export documents

• Consular invoice of certificate of origin

•

Bill of lading• Commercial invoice

• Insurance policy or certificate

•Licenses

• Other documents

17-02-2012



Principal documents

• Commercial invoice

• Packing list

• Marine insurancepolicy/certificate

• Bill of exchange• Letter of credit

• Bill of lading

• Airway bill

• Combined transportdocument

• GR/PPNPP/SOFTEX forms

• Export inspection

certificate

• AR4/AR5 forms

• Shipping Bill

• Certificate of origin

• Shipment advice

• Consular invoice




Auxiliary Documents

• Shipping instructions

forms

• Application for Export

Inspection agency• Shipping order

• Mate receipt

•

Dock challan




Sasmita K Maurya 30

Terms of Sale

• CIF (cost, insurance, freight)

• C&F (cost and freight)

•

FAS (free alongside)• FOB (free on board)

• EX (named port of origin)

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Letter of Credit


http://c/Users/sasmita/Documents/sas/amplify2/International%20Marketing%20PGDMM%204/Letter%20of%20Credit%20&%20Financing%20of%20foreign%20trade.pptx



Sasmita K Maurya 32

Packing and Marking

• Export packaging must consider:

– Protection against rough handling, climate,pilferage

–

Effect of gross weight on import fees

• All countries regulate the marking of importedgoods and containers

– All markings must conform exactly to the data onthe export documents

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Documents in Import trade

• Importer Exporter code

• Bill of Entry – for home consumption (white in

colour), for warehousing (yellow in colour), Ex-

bond bill of entry (green in colour)




Export documentation and procedures

• Exporter examines exportorder/letter

• Places order with thefactory or supplier in case of

merchant exporters• Factory/supplier makes

arrangements for preshipinspection and centralexcise clearance

• Factory arranges despatchof railway receipt/lorrychallan, AR4/AR5,inspection certificate,packing list etc to exportdepatment

• Insurance cover is arranged

• Documents (commercialinvoice in particular) are

prepared in Export depttand despatched to C&Fagent along with shippinginstructions




• C&F agent takes delivery of goods for storage in awarehouse

• C&F agent brings the

documents for clearance bythe Export department of the customs

• After the documents arecleared goods are broughtfor physical examination.The Dock Appraiser recordsexamination report, makes‘let export’ endorsement on

the duplicate copy of theshipping bill and hands overthe same to the C&F agent

to be presented topreventive officersupervising the loading of the cargo.




• Preventive officer makesthe endorsement ‘let ship’.Thereafter shipping bill ishanded over to the Agent of the shipping company

• Goods are loaded andcaptain of the ship issuesmates receipt to the shedsuperintendent. C&F agent

pays the port changes andtakes delivery of the Mate’s

Receipt, which is exchangedwith the bill of lading

• C&F agent forwards all thedocuments to the exporter.

• The exporter takesnecessary steps for

obtaining certificate of origin

• Shipment advice is sent toto exporter

• Export documents are

presented to bank fornegotiation




• Export documents are

scrutinized and if found

in order are negotiated

or sent for collection.Exporter receives

payment, if documents

are negotiated and

bank certificates issuedto him

• Exporter claims rebate

of central excise and

duty drawback

•Export initiates actionfor claiming export

benefits




How can I clearly assign shipping

responsibilities?

(to avoid misunderstandings)




Use INCOTERMS!

• They assign shipping responsibilities between

you and your overseas customer.

• They are generally recognized acronyms (FOB<

CIF etc) with standardized worldwide legal

meaning.

• They are inserted in price quotations and

invoices to avoid misunderstandings with yourforeign customers.




International Commercial Terms

(INCOTERMS)

• The INCOTERMS (International CommercialTerms) is a universally recognized set of definitions of international trade terms,developed by the International Chamber of Commerce (ICC) in Paris, France.

• E.g FOB, CIF etc.

• The INCOTERMS was first published in 1936---

INCOTERMS 1936---and it is revised periodicallyto keep up with changes in the internationaltrade needs.




What INCOTERMS do

• ASSIGN RESPONSIBILITIES TO YOU AND YOUR

CUSTOMER FOR – shipping phases, export and

import customs, insurance

• ALLOCATE TRANSPORTATION COSTS

• DIVIDE-UP SHIPPING RISKS.




What INCOTERMS do not do

• Define the ownership transfer points for the

goods

• Grant relief from obligations or liabilities if

something goes wrong

• Protect you from breach of contract except

when related to the passing of risks and costs.




Incoterms categories

• Minimum obligation- the buyer picks up the

product from your place of business (EXW)

• Extended obligation – hand over the goods at

some specific point during shipping (FOB, CIF)

• Maximum obligation – you must arrange for

delivery to the final destination (DAP, DDP )




Outbound shipping steps

(reverse these steps on the receiving side)




The Basic Payment terms

• Cash in advance

• Open accounts

• Documentary collections –

i) Cash against documents,

ii) Documents against acceptance

• Documentary credits –

i) at sight letters of credit,

ii) acceptance letters of credit




Cash in advance

• Seller has payment before shipment

• Seller has control over the product for which

the buyer paid

• Buyer is left wondering if shipment will occur


C h i d



Cash in advance

(when does it make sense?)

• For export of Used equipment/goods

• For unique or high demand items

• When export is for small orders

• For first orders- for a first time importer.




Sasmita K Maurya 49

Getting Paid: Foreign Commercial Payments

• Letter of credit

– Afford the greatest degree of protection for the seller

– Can be revocable or irrevocable

– Not a guarantee of payment to the seller

• Bills of exchange

– Also known as dollar drafts

– The seller assumes all risk until the actual dollars arereceived

– Sight draft – Arrival draft

– Date draft

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Sasmita K Maurya 50

Getting Paid: Foreign Commercial Payments

(continued)

• Cash in advance/advance payment – Places unpopular burdens on the customer

Documentary credit- any arrangement whereby a bank acting at therequest and in accordance with the instructions of a customerundertakes to make the payment to or to the order of a third party

aginst stipulated documents and compliance with stipulated termsand consitions.

• Open accounts – Not generally made in foreign trade – Leaves sellers at a disadvantage

• Forfaiting – The seller makes a one-time arrangement with a financial institution

to take over responsibility for collecting the account receivable

17-02-2012



L/C

• Documentary credit- any arrangement whereby a bank acting

at the request and in accordance with the instructions of a

customer undertakes to make the payment to or to the order

of a third party aginst stipulated documents and compliance

with stipulated terms and consitions.

• Parties in documentary credits: importer,

opening or issuing bank, advising bank,

confirming banker, paying bank, negotiatingbank, exporter.




Documents required in L/C

• Details of the goods

• Documents required

• Part of shipment, destination of shipment

• Price and terms of shipment

• Whether part shipment

•

Any other conditions• Issuing bank’s responsibility in the credit




Kinds of L/C

• Revocable and irrevocable L/C

• Revolving credits

• Red clause L/C

• Transferable L/C

• Back to back L/C etc.




Documentary collections

• Documents against payment (DP)

• Documents against acceptance (DA)




Terms of payment

• How to realise payment

• How attractive is it for different buyers

• For foreign exchange regulation




Clearing and Forwarding (C&F) agent

• "clearing and forwarding agent means any

person who is engaged in providing any

service, either directly or indirectly, connected

with the clearing and forwarding operations inany manner to any other person and includes

a consignment agent".




Therefore, a service will fall under the clearing

and forwarding agent service, if it includes

• a person;

• engaged in providing any service connected

with the clearing and forwarding operations;

and

• includes a consignment agent.




• The clearing and forwarding agents are engaged/appointed by manufacturer of goods (bothexcisable and non-excisable goods), producer anddistributors of goods.

• Generally, a C & F Agent receives goods from thefactories or premises of the Principal or hisagents and stores these goods, despatches these

goods as per orders received from the Principalor owner, arranges transport, etc. for the purposeand prepares invoices on behalf of the Principal.




Clearing and Forwarding Operations

(a) Receiving the goods from the factories orpremises of the principal or his agents;

(b) Warehousing these goods;

(c) Receiving despatch orders from the principal;(d) Arranging despatch of goods as per the directions

of the principal by engaging transport on his own orthrough the authorised transporters of the principal;

(e) Maintaining records of the receipt and despatch of goods and the stock available at the warehouse;

(f) Preparing invoices on behalf of the principal.




Sasmita K Maurya 60

Foreign Freight Forwarder

• Licensed by the Federal Maritime Commission

• Arranges for the shipment of goods as the agent for an

exporter

– Arranges for complete shipping documentation

– Provides information and advice on routing and

scheduling, rates and related charges, consular and

licensing requirements, labeling requirements, and export

restrictions

– Offers shipping insurance, warehouse storage, packing and

containerization, and ocean cargo or airfreight space

17-02-2012



Sasmita K Maurya 61

Export Shipping and Warehousing• Common shipping modes: ocean shipping, airfreight, air

express, and parcel post

• Containerization

• Intermodal services

• Intermodal marketing companies (IMCs)

• Rail transportation

• Complete logistics management services

– UPS

–FedEx

• Merge-in-transit

17-02-2012



Sasmita K Maurya 62

Summary

•

The mechanics of exporting require little room for interpretation orimprovisation.

• The very nature of the regulations and restrictions surrounding importingand exporting can lead to frequent and rapid change. – The manufacturer must keep abreast of all foreign and domestic changes in

requirements and regulations.

• Foreign-freight-forwarders can handle many details for a nominal fee.• Transportation mode affects total product cost.

• A physical distribution system determines everything from plant locationto final customer delivery in terms of the most efficient use of capitalinvestment, resources, production, inventory, packaging and

transportation.• The continuous innovations in information technology, the Internet, and

software programs can minimize much of the burden associated withglobal marketing.

17-02-2012



Assignments

• What is the underlying rationale for

documentation? Discuss from the exporter’s

point of view.

• What is the difference between principaldocuments and auxiliary documents?

• Visit any organisation involved in exports and

discuss the importance of principal andauxiliary documents.




• Visit an exporter and find out the time taken byan exporter to move a single consignment.What is the implication of this variable onworking capital management?

• What are the different parties in a letter of credit? Explain the step-by-step procedure of realising export proceeds.

• Discuss the role of banks in export transactions.

Name the documents needed by them forrealising export proceeds from the foreignbuyers.