EXECUTIVE SUMMARY
A freight forwarder – often referred to as a forwarder – is a professional logistics provider. Freight forwarders are third parties and their objective is to dispatch shipments via asset based carriers such as ships, airplanes or trucks. The main purpose of turning to the services of freight forwarders is arranging cargo movement to an international destination quickly and easily. Freight forwarding companies have the expertise required to arrange all the activities related to the international shipping process.
Freight forwarding services are typically used by companies that deal with international import and export activities. The freight forwarding company is a third party – it doesn’t ship the cargo itself. However, the freight forwarder acts as a professional intermediary between the client and the transportation services. Shipping various products between countries and territories usually involves a multitude of carriers, requirements and legal documentation. The freight forwarding services is specialized in handling the great amount of logistics this intricate process requires, requires, helping helping the client ship ship goods goods securely securely and and quickly quickly.. At kedan.co.uk kedan.co.uk you can can read more about our extensive freight forwarding services.
Major companies and corporations greatly depend on professional freight forwarders in their import and export activities. The freight forwarding company guarantees that a certain cargo reaches the proper destination upon an agreed date. Furthermore, turning to the services of a freight forwarder is practically the only way you can be certain that your products arrive at the specified destination in good condition. These days, it’s virtually impossible for a company to ship goods at an adequate price without a forwarder. Freight forwarding companies have an established long-term relationship with carriers of all kinds and will obtain the best deals in the least amount of time. The freight forwarder of your choice will practically negotiate the most advantageous price possible with a reliable carrier, helping you make hassle-free transactions worldwide.
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Conclusi Conc lusion on :
The freight forwarder plays an integral part in the transportation process. Freight forwarders act on behalf of the exporter in arranging ocean or air transport services. They are familiar with the import import rules rules and regulat regulations ions of foreign foreign countri countries, es, method methodss of shippi shipping, ng, and docume documents nts connected with foreign trade. Freight forwarders can provide a number of services. During the initial planning phases, they can help choose the carrier and the most economical shipment size. At the beginning of the sale, the freight forwarder can provide an exporter with quotations on a number of costs. This informat information ion can be used used in prepari preparing ng an accurate accurate price price quotatio quotation n to foreign foreign custom customers. ers. Choosi Choosing ng the right right freight freight forward forwarding ing company company is very very import important ant if you want maximu maximum m efficiency and reasonable costs.
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THEORETICAL BACKGROUND
Logistics Logistics is the management management of the flow of goods and services between the point of origin and the point of use in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling , and packaging, and often security. Logistics is a channel of the supply chain which adds the value of time and place utility utility.. Today oday the complex complexity ity of produc production tion logistics logistics can be modele modeled, d, analyzed, visualized and optimized by plant simulation software, but is constantly changing. This can involve anything from consumer goods such as food, to IT materials, to aerospace and defense equipment. According to the Council of Logistics Management, logistics contains the integrated planning, control, realization and monitoring of all internal and network-wide material-,part- and product flow including the necessary information flow in industrial and trading companies along the complete value-added chain (and product life cycle) for the purpose of confirming to customer requirements Logistics management Logistics is that part of the supply chain which plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customer and legal requirements. A professional professional working in the field of logistics management is called a logistician. logistician . Logistics management is known by many names, the most common are as follows:
Materials Management
Channel Management
Distribution (or Physical Distribution)
Business or Logistics Management or
Supply Chain Management
Warehouse management systems and warehouse control systems Although there is some functionality overlap, the differences between warehouse management systems (WMS) and warehouse control systems (WCS) can be significant. Simply put, a WMS plans a weekly activity forecast based on such factors as statistics and trends, whereas a WCS acts like a floor supervisor, working
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in real time to get the job done by the most effective means. For instance, a WMS can tell the system it is going to need five of stock-keeping unit (SKU) A and five of SKU B hours in advance, but by the time it acts, other considerations may have come into play or there could be a logjam on a conveyor. A WCS can prevent that problem by working in real time and adapting to the situation by making a lastminute decision based on current activity and operational status. Working synergistically, WMS and WCS can resolve these issues and maximize efficiency for companies that rely on the effective operation of their warehouse or
distribution center. center.
LOGISTICS OUTSOURCING
Logistics outsourcing involves a relationship between a company and an LSP which, compared with basic logistics services, has more customized offerings, encompasses a broad number of service activities, is characterized by a long-term orientation, and, thus, has a rather strategic nature Third-party logistics
Third-party Third-party logistics (3PL) involves involves using external organizations organizations to execute logistics activities that have traditionally been performed within an organization itself. According to this definition, third-party logistics includes any form of outsourcing of logistics activities previously previously performed performed in-house. in-house. If, for example, example, a company company with its own warehousing warehousing facilities decides to employ external transportation, this would be an example of third party logistics logistics.. Logistics Logistics is an emerging emerging business business area in many countries. countries.
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MODE OF TRANSPORTATION
AIR TRANSPORT
OCEAN TRANSPORT
RAIL TRANSPORT
ROAD TRANSPORT
OCEAN TRANSPORT
More than 95 per cent of international trade is conduced by sea routes since ancient times, sea routes are being used for transportation of cargo from one continent or country to Coastal shipping is also used for transporting the cargo from one port within the country to another. For example in India the cargo can be transported from Chennai port to Visakhapatnam port using the costal shipping route. Sea routes are used for carrying bulk commodities like such as coaling and thermal coal mires, fertilizers rock phosphate etc, and liquid go like crude oil ammonium acids etc Ideally the good goodss with with high high volu volume me and and kiw kiw vaky vakyee are are suit suited ed die die ocea ocean n tran transp spor ortt in the the era era of containerization even the high value cargo can be safely enabled the cargo carrying capacities of the ship to increase many fold. In 1956, the first containerized ship belonging to sea land corp. carried 58 twenty feet containers. The modern ships have the capacity to carry 7000 containers. One of the biggest ships owned by Maersk-sea land is 1,138 feet long from end to end and 140 feet wide at mid ship. Such ships are called Post-Panamax ship. Cargo ship categorized into followings Cargo ship categorised into followings:
Liners ships ships : Liners ship ship represent the organized organized sector of theshipping theshipping industries industries due to their their fixed fixed schedule scheduless of arrival arrival anddep anddepartu arture, re, Pre-dete Pre-determin rmined ed voyage voyagess and trade trade routes routes and publis published hedocea ocean n freight freight rates. rates. Liner Liner shippi shipping ng is governe governed d by shippi shipping ng conferenceand offers the following advantage to shippers:-
Regular sailings to scheduled ports of call.
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Stable freight rates for a long period of time which helps the shipper to quote C & F prices with confidence.
Uniform rates for all shippers.
Coverage of wide range of ports.
Rebates of freight rates based on loyalty agreements
Tramp ships :- Tramp ships on the other hand have the following characteristics –
They are free to move anywhere on the high seas at their will.
Their voyage routes and schedules are flexible.
They travel from the port to another port o various trade routes looking for the cargo and carrying the same to various routes looking for the cargo and carrying the same to various destinations around the world.
They arrive or depart without a fixed route or schedule.
They fix their voyages according to availability of cargo and as per the requirement of the shippers of these cargoes.
The freight rates of tram ships depend upon the demand and supply conditions in the shipping industry. If there is a glut of shipping space the tramp freight rates plummet. Whereas in case of shortage of shipping space, the tramp freight rates shoot up.
The cargo space on the tramps is booked by the brokers located in major port cities like New York, London, Rotterdam Hamburg, and Hong- Kong etc. They work as a link between tramp operators and shippers.
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TYPES OF CONTAINER :
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EXIM FLOW CHART
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Freight Forwarder A freight forwarder (often just forwarder) is a third party logistics provider. As a third party a forwarder dispatches shipments via asset-based carriers and books or otherwise arranges space for those shipments. Carrier types include waterborne vessels, airplanes, trucks or railroads. Freight forwarders typically arrange cargo movement to an international destination. Also referred to as international freight forwarders, they have the expertise that allows them to prepare and process the documentation and performance related activities pertaining to international shipments. Some of the typical information reviewed by a freight forwarder is the commercial invoice, shipper's export declaration , bill of lading and other documents required by
the carrier or country of export-import, or transhipment. Much of this information is now processed in a paperless environment. The FIATA short-hand description of the freight forwarder as the 'Architect of Transport' illustrates clearly the commercial position of the forwarder relative to his client. In Europe there are forwarders that specialize in 'niche' areas such as Rail freight and collection and deliveries around a large port. The latter are called Hafen (port) Spediteure (Port Forwarders). A forwarder in some countries may sometimes deal only with domestic traffic and never handle international traffic. The original function of the forwarder, or was to arrange for the carriage of his customers' good by contracting with various carriers. His responsibilities included advice on all documentation and customs requirements in the country of destination. His correspondent agent in far-away lands looked after his customers' interests and kept him informed about matters that would affect movement of goods. In modern times the forwarder still carries out those same responsibilities for his client. He still operates either with a corresponding agent overseas or with his own company branch-office. In many instances, the freight forwarder also acts as a carrier for part of a movement it can happen that in a single transaction the forwarder may be acting either as a carrier (principal) or as an agent for his customer.
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HISTORY OF FREIGHT FORWARDERS
The original function of the forwarder, or was to arrange for the carriage of his customers' good by contracting with various carriers. His responsibilities included advice on all documentation and customs requirements in the country of destination. His correspondent agent in far-away lands looked after his customers' interests and kept him informed about matters that would affect movement of goods. In modern times the forwarder still carries out those same responsibilities for his client. He still operates either with a corresponding agent overseas or with his own company branch-office. In many instances, the freight forwarder also acts as a carrier for part of a movement it can happen that in a single transaction the forwarder may be acting either as a carrier (principal) or as an agent for his customer.
TYPICAL JOB ROLE OF FREIGHT FORWARDER
Freight forwarders process orders for the import and export of freight, compile documentation for clearance by customers, produce invoices, process stock transfers, check the contents, compile and check documents of freight goods. They also tally and record consignments and destination details of articles, containers and passengers, and make freight and transport bookings and related arrangements.
A freight forwarder may perform the following tasks:
check the number of articles or containers in consignments of goods received or despatched.
make sure articles are in good condition and correspond to invoices, manifests or other records.
arrange internal distribution of goods received. prepare and attach documentation to articles to be despatched. make sure clearance procedures (eg. payment of any customs entry fees or duties) are carried out, despatch goods and arrange delivery promptly on arrival.
spend time in warehouses packing and unpacking goods.
Drive between wharves, container terminals, airports and government departments.
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weigh items.
contact senders to fix shortages and arrange replacement of damaged goods.
maintain records of receipts and despatches.
Undertake clerical work such as filing, accounting, updating customs records, preparing correspondence, and inputting and retrieving information from computers.
RESPONSIBILITY OF FREIGHT FORWARDERS
Although freight forwarders have acted as respected professionals since the last century, the legal nature of their activities has only recently attracted real attention. This is because freight forwarders have become prominent links in modern transportation systems, due to the importance of containers, and multimodal transport.
In times of excess vessel capacity, too, freight forwarders have increased authority because it is they who are able to provide cargoes, thereby becoming influential participants in a buyer's market. It is for this reason that on occasion freight forwarders have voyage chartered and even time chartered ships. The legal responsibility of freight forwarders often seems mysterious because freight forwarders have assumed two different legal roles - agents and principal contractors. Nor are the activities of freight forwarders directly regulated by any international convention, although their acts naturally bridge national borders. The result is that various national laws control their actions, giving rise to conflicts of law.
In the light of the foregoing - the emerging importance of freight forwarders, the often puzzling national laws, and the lack of international uniformity - it is apparent that an international convention is necessary. The Multimodal Transport Convention 19801 is just such a convention. Its adoption would give certainty to the law and protection to both the public and to freight forwarders themselves.
The Multimodal Transport Convention 1980 has the advantage of clarity and simplicity and is not encumbered with other maritime, albeit important, matters such as freight, liens and electronic commerce, which make the Convention less likely to be enacted.
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FREIGHT FORWARDER FUNDAMENTAL ROLES 1.
The freight forwarder ensures that your goods receive the priority it requires; your documentation is appropriately filled and your goods reach its destination in the specified time.
2.
The increasing specialization on transportation of goods and decimations operations means that the exporter of products would prefer to leave these formalities to "freight forwarder" in order to concentrate on his own business.
3.
An efficient "freight forwarder" can offer advice, on the special requirements of different countries as well as to offer a number (sea, air, rail etc.) of quotations for a particular consignment being sent from point A to B.
4.
The "freight forwarder" role is often underestimated as one of the most important elements in shipping.
5.
The "freight forwarder" is there to ensure that your goods receive the priority it requires; that your documentation is appropriately filled and most importantly, your goods reach its destination in order and in the specified time.
6.
The next most important and effective function of the "forwarder" is to be an adviser and agent for the shipper, and that, is the "forwarder's" prime consideration.
7.
The transportation of goods from one place to another over short or long distances, is a fundamental activity in materials handling with many complexities in international cross border transportation i.e. large number of documents are required to document the movement goods.
8.
The basic activities of a "freight forwarder" include booking cargo space on ship, airplane, train, or any other form of goods/cargo transportation, route planning, various documentation, export packing, insurance, warehouse, collection and delivery consignment.
9.
And to provide service which involves establishing various inland depots and clearing offices so that customs clearance at the port of entry is done by the "forwarder" as well as delivery to consignee's doorstep, without actually involving the consignee.
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Freight Forwarder - Dual Role
The freight forwarder traditionally acts as an agent who arranges for the shipment of goods belonging to his client/the shipper. The freight forwarder as agent typically arranges for transportation, pays freight charges, insurance, packing, customs duties, etc., and then charges a fee, usually a percentage of the total expenses. All the costs are (or should be) disclosed to the client. The specific scope of the forwarding agent’s duties, however, is determined primarily by its contract with the customer (ordinarily the shipper) who retains its services. At times, the freight forwarder has acted as principal contractor arranging the carriage in his own name. His fee, payable by the shipper, is a straight freight charge. He then arranges to pay lower freight rates to the carrier and obtains his profit from the difference between the two. Very often, the freight forwarder consolidates the cargoes of a number of clients into a single container, resulting in savings which benefit the freight forwarder and the clients. The forwarding carrier may also provide other services, such as packing, warehousing, cartage, lighter age and/or insurance. On these occasions the freight forwarders responsibility to the shipper is often that of a carrier. Whether acting as agent or principal, the freight forwarder (as is normal in commerce) usually attempts to contract out of as much responsibility as possible. This has often resulted in very confusing standard trading conditions, where the two contradictory roles and kinds of responsibility - of the agent and of the principal - are set out. The responsibility of the freight forwarder, as agent and as principal contractor, will be described in the light of the civil law, the common law and certain national laws.
Freight forwarder plays integral part of transportation process. The freight forwarder plays an integral part in the transportation process. Freight forwarders act on behalf of the exporter in arranging ocean or air transport services. They are familiar with the import rules and regulations of foreign countries, methods of shipping, and documents connected with foreign trade. Freight forwarders can provide a number of services. During the initial planning phases, they can help choose the carrier and the most economical shipment size. At the beginning of the sale, the freight forwarder can provide an exporter with quotations on a number of costs. This information can be used in preparing an accurate price quotation to foreign customers.
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At the shipper's request, the freight forwarder can make the actual arrangements and provide the necessary services for expediting the shipment to its overseas destination. This can include: 1. Providing advice on foreign import regulations, 2. Arranging for inland transportation, 3. Booking space with the ocean or air carrier, 4. Completing export documentation, 5. Arranging for cargo insurance, 6. Providing guidance on packaging, marking and labelling, 7. Arranging for products to be packed and containerized, 8. Freight consolidation, but this is not a standard service.
Freight forwarders operate on a fee basis paid by the exporter. The fees consist of an agreedupon amount, plus documentation charges. The cost for the services should be figured into the price charged to the customer. Freight forwarders also collect a percentage of the freight costs from the carrier. There are several criteria to consider when selecting a freight forwarder: 1) Is the freight forwarder licensed or approved by the appropriate entities? Ocean freight forwarders must be licensed by the Federal Maritime Commission to handle ocean cargo. Although not legally required, the International Air Transport Association (IATA) registers freight forwarders to deal with international air cargo shipments. 2) Is the freight forwarders company big enough to handle your business when the forwarder is away from the office? Just because the forwarder is on a vacation, your export efforts shouldn't come to a halt because there is no one to answer questions or handle shipping instructions for your product. 3) Is the freight forwarding firm stable? Has the company "been around" very long? Does it have financial stability? Commercial banks and trade references can help with checking these criteria.
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4) Can the freight forwarder handle whatever product you want to ship, whichever way you want to ship it (air or sea)? The freight forwarder should be an import broker to handle the customs angle for you in case you need to import something or have goods returned from overseas. 5) Does the freight forwarder have a good network of agents overseas, particularly in your target market? What do these agents handle? A good network of overseas agents ensures a smooth path for your product with a minimum of delay. This is important for perishable products or ones that need special handling. A container of wine on a dock in warm weather can pose a real hazard to your product's reputation. 6) Can the freight forwarder communicate with you as a novice? Is the freight forwarder willing to take the time to explain the terms and procedures in a way you can understand? 7) What is the freight forwarders document turnaround time? Is the freight forwarder located near the airport, steamship offices and banks? A strategic location cuts document turnaround time and ensures you get paid quickly via the banks. 8) Does the freight forwarder have some knowledge of your product? If possible, choose a freight forwarder who has some knowledge of the special needs of your product. If the freight forwarder usually handles only furniture, will the company be attuned to the needs for shipping wine or fresh produce? 9) Have you checked the freight forwarder's references? It is crucial to check references for any company that will be handling your business. Also check customer satisfaction. 10) Does the freight forwarder have errors and omissions insurance? Even the most conscientious freight forwarder can make a mistake. A minor error on documents can delay your product, hurt sales and stall your receiving payment for the goods. Make sure your freight forwarder has "errors and omissions insurance" to provide for just this eventuality. What is an International Freight Forwarder?
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"Once upon a time, people thought of customs brokers and freight forwarders as simply agents somehow linked to the shipping industry. Now, at last, these go-betweens are being given their due as crucial middlemen in making life easier for importers and exporters. .... Simply put, the freight forwarder is the cargo expediter. As intermodal transportation becomes more complex, the job of freight forwarder becomes more essential and difficult. He must coordinate the complexity of financial, transport and other service activities. For example, he will:
- Arrange to receive export shipment for a client at any point of origin in the United States. - Arrange consolidations of less-than-container load lots. - Arrange forwarding to seaboard of the cargo loaded aboard ship. - Arrange for insurance coverage. - If necessary, arrange free domicile delivery abroad.
Here are five ways international freight forwarders can really bring out the best in your company: 1. Clearance through customs: Customs paperwork is a tricky and sordid maze, especially if all you know about are the business-to-business commerce aspects of trade. Customs authorization is a complex area that will only further tax your understanding and clog your ability to take care of customers, vendors, and marketing. International freight forwarders, in addition to knowing all the ins and outs of proper shipping procedures, offer customs clearance services to aid you in simplifying your business. 2. Any and all issues arising with documentation: In order to receive your payment from a bank, there are many documents that may be required to satisfy the involved bank or financial institution. One such document is the bill of lading. A proper bill of lading will facilitate fast payment, so you can keep your business moving along with your freight. 3. Insurance: Not only do many freight forwarders provide insurance options for your shipments, they know what is best for the needs of your business, and can quickly determine the most protective and cost efficient way that you can complete each transaction. 4. Inventory management: Who better to help you with inventory management than the service that handles your freight? Freight forwarders and international freight forwarders can help
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ensure your product, which means you will always have a clear handle on your company's assets. 5. Logistics and supply-chain management: Logistics is, of course, the management of the flow of goods and resources between the point of origin and the point of consumption. Careful planning is a necessity of successful freight flow, and freight forwarders are professionals at accomplishing this task. What specific functions does a freight forwarder normally perform?
1. Preliminary advice to the exporter:
Explaining exporter's responsibilities / obligations under Terms of Sale (Inco terms) requested.
Assist in negotiating inland and ocean rates; provide ideas on optimal and most cost effective shipping alternatives.
Assist in determining the best way to ship i.e. - container vs. break bulk, consolidation vs. exclusive use, conference vs. non-conference, air vs. ocean.
Packing / Marking recommendations.
Explain port functions in connection with export
Advice as to what the exporter should accomplish and what the forwarder will accomplish for him.
Review import licenses, where applicable.
Recommendations regarding receiving payments for exports -- explanation of methods of payment.
Interpret and control Letters of Credit.
Advice as to possible problems may encounter: Improper packing, cheapest method of shipping not always the best, document discrepancies that can cause slow or nonpayment and/or confiscation of freight in foreign port, consequences resulting from late delivery of freight and/or late documents.
Estimate complete Export transportation and related costs for quotes (on Performa invoice) and L/C.
Advise of drawback opportunities for previously imported cargo being exported.
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Can put exporter in touch with experts in the fields of trade financing, international marketing, government export requirements, international banking, and marine insurance.
Most forwarders have a "library" of information on U.S/overseas ports, which exporters can use as guidance.
2. Booking the freight / Shipping Operations:
Provide custody and control of material in transit.
Expedite production and delivery.
Coordination of positioning empty container to be delivered / returned (inland carrier), where stuffing takes place.
Choosing the steamship line as required.
Mechanics of booking and shipping: special handling considerations, ETA destination required port of export, port of destination, direct vs. transshipment, number/kind of packages, commodity precise description, size and type of container.
Handling freight or other moneys advanced by shippers, or remitting or advancing freight or other moneys or credit in connection with the dispatching of shipments.
Provide NVOCC consolidation services to exporters for LCL and FCL modes.
3. Documentation for shipping:
Certify and notarize invoices. Normally prepare dock receipt, bill of lading; warehouse receipt, insurance certificate, AID documents, certificate of origin, special customs invoices, inspection certificate.
May prepare or assist in preparing with exporter: commercial invoice, packing list, draft, transmittal letters, consular invoices, export license, drawback forms, and shipper’s export declaration.
4. Notifications made in connection with the shipment:
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Notification normally made to exporter/shipper, consignee, and consignee’s broker.
Notification made for insurance, L/C, contract, payment, and advice purposes.
While shipment is underway, forwarder may trace as necessary, assist in filing claim when necessary and correct errors learned after the fact.
5. Distribution of negotiable documents for collections:
Forward documents to Bank, exporter's foreign sales representative, consignee or consignee's broker.
How freight forwarder helps you to export? They can provide advice on the permits, licenses, inspections, and other documents and proceedings that are required according to the import laws in the country of destination. And they help with customs clearance in the country of destination, working with a customs broker. Product Preparation
Freight forwarders understand the different types of packaging and containers best suited for your shipment. They know the markings and labels the products need in order to get through customs and be able to enter the country of destination, and to meet the requirements of the different free trade agreements, in order to take advantage of duty-free treatment as applicable.
When the shipment is relatively large, it will most likely be transported in a container by ship, where it is possible to share space with other exporters. The freight forwarder knows how to secure the cargo against changes in temperature, vibrations, and impacts that result when the cargo is loaded and unloaded. In the majority of cases, insurance does not cover damages that are due to inadequate packing, and it is therefore important to count on the experience of packing professionals.
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Documentation
When goods are transported internationally, packaging and documentation are critical to the export process. One of the main differences between selling inside the country and exporting is the documentation required. Export documentation requirements are very specific. A missing document or one that is not correctly filled out can delay the shipment in customs or in some other point along the way. Freight forwarders are familiar with the documentation requirements and can advise the exporter, and even prepare the documents that are required, in order to ensure an expeditious shipment.
When the order is ready to be shipped, the freight forwarder can review the letter of credit, the commercial invoice, and the packing list to ensure that everything is in order, and can prepare the bill of lading and any other special documentation that may be required, depending on the product being shipped. And after the shipment, the freight forwarder can send all the documentation directly to the customer, or the customer's bank that is going to pay for the import on the customer's account.
COST ESTIMATES
A freight forwarder can provide the exporter with an estimate of the costs involved in the exporting process. This estimate is very important when the exporter quotes a price to a customer abroad, because the price must be sufficient to cover all the costs related to the delivery of the product to its destination. Therefore, it may be advantageous to consult a freight forwarder before negotiating the price, in order to get a quote for the freight costs, port costs, insurance costs, customs fees, charges for special documentation, and the freight forwarder's
Freight forwarders work on the basis of a fee they charge the exporter, which normally consists of an agreed-upon amount plus charges for documentation. Freight forwarders also collect a percentage of the freight they contract with transportation companies. Once you have an estimate of all the costs involved in delivering your product to the customer abroad, you are in a position to quote a final price to the customer, and if your quote is accepted
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and the customer sends you an order, you can prepare the pro forma invoice, with a complete breakdown of all the components of the amount billed.
How to find a freight forwarder?
There are numerous freight forwarders in the principal export and transportation services markets. A good way to look for a forwarder would be to ask other exporters, especially companies similar to yours in terms of size of the company, point of origin, target market, and your line of business or the product you are exporting. By consulting directly with another exporting company, you can obtain their personal perspective regarding the freight forwarder, and their overall experience, such as the services provided, the results achieved, and any particular advantage or problem they encountered.
MODES OF TRANSPORTATION
The freight forwarder should be able to evaluate the relative advantages of transportation by air, ocean freight, truck, or rail, and make recommendations regarding the best mode of transportation based on your product and the timeframe for delivery. You should find out how the freight forwarder determines how long a shipment will take to reach its destination, what stops the shipment makes along the way, and what changes have to be made from one mode of transportation to another. Freight forwarders should explain the factors they take into accountinordertoavoidproblemswiththeshipment.
FREIGHT COST QUOTATION
The cost of freight can be a significant component of the overall cost of exporting, so the freight forwarder should be able to explain how they get freight quotes from shipping companies; whether freight rates are quoted based on volume, weight, type of product, or some other criteria; the formulas used to calculate the cost of freight, the factors that affect the cost of freight; how long a freight quote is valid; and the trends the freight forwarder sees in the cost of freight,
and
its
projection
for
changes
in
freight
costs
in
the
future.
INSURANCE
The freight forwarder should be able to explain the different types of insurance available, what
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events are covered by insurance, the cost of insurance, the process for presenting a claim for lost or damaged cargo, who is responsible for preparing the loss report and presenting the claim, how the claim is processed, and the timeframe in which a reimbursementcanbeexpected.
CUSTOMS
You should be able to understand from the freight forwarder how your products will clear customs in the destination country, whether the freight forwarder works with a customs broker, how much the customs broker charges and who pays that cost, who pays the duties and customs fees, and who processes duty drawbacks when applicable.
DOCUMENTATION
You should determine whether the freight forwarder is familiar with the export documentation required, which documents are prepared by the freight forwarder and which you must prepare as the exporter, how much the forwarder charges for preparing the documentation, the process for reviewing export documentation, and whether documents can be transmitted electronically. If you are exporting using a letter of credit, you should determine how the freight forwarder ensures that all documents are in accordance with the terms of the letter of credit, and the responsibilities and the relationship between the exporter, the freight forwarder, and the bank regarding the presentation of the documentation required according to the letter of credit.
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International Freight Forwarders India Air Freight
Consolidation Service
Import and Export
Door-to-Door
Express Service
Ocean Freight
Full Container Load (FCL)
Less than Container Load (LCL)
Cargo Consolidation Service
Oversized and Project Cargo
Import & Export
Cross Trades
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Trans-border Truck Freight
Import export business
Full Truck Load (FTL)
Less Than Truck Load (LTL)
Customized Global transportation solutions
Dangerous goods handling
Inter modal Truck/Rail/Ocean
Through our partnerships with established international and Indian freight forwarders & forwarding agents, we are able to negotiate competitive import and export pricing for ocean (FCL and LCL), truck (FTL and LTL) and air shipments while consistently providing reliable and efficient service.
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EXPORT DOCUMENTATION
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EX PORT 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 Proforma Invoice to the overseas buyer.
NATURE OF INTERNATIONAL TRADE COUNTRACTS. 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 to sale/purchase contract belong to different countries. The parties to all 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 SAMPLES\GIFTS.
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 licence/certificate/permission, except in the case of edible items. STANDARD CONTRACT FOMS:
27
Notwithstanding the efforts made by various national/international organizations like the United Nations Commission on the International Trade Law, there is still no perfection or a device which would give the parties an accurate and complete idea of each others understanding of various trade terms, the commercial practices and the rights and the obligations vis-à-vis each other so that the misunderstandings are practically eliminated. Nevertheless, the Indian Council of Arbitration published in 1966 a booklet on “Standard Contract Forms and Model Arbitration Clause for use in Foreign Trade Contracts”. It was revised and reprinted in 1969 and 1977. It can be referred to by exporter for various clause to be incorporated in the Export Contract.
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
28
•
Documentary Requirements
•
Guarantee
•
Force Majeure of Excuse for Non-performance of contract
•
Remedies
It will not be out of place to mention here the importance of arbitration clause in an export contract Court proceedings do not offer a satisfactory method for settlement of commercial disputes, as they involve inevitable delays, costs and technicalities. On the other hand, arbitration provides an economic, expeditious and informal remedy for settlement of commercial disputes. Arbitration proceedings are conducted in privacy and the awards are kept confidential. The Arbitrator is usually an expert in the subject matter of the dispute. The dates for arbitration meetings are fixed with the convenience of all concerned. Thus, arbitration is the most suitable way for settlements of commercial disputes and it may invariably be used by businessmen in their commercial dealings.
29
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 standardised 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, Commercial Invoice: Commercial invoice is an important and basic export
1.
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. Contents of Commercial Invoice •
Name and address of the exporter.
•
Name and address of the consignee.
•
Name and the number of Vessel or Flight.
•
Name of the port of loading.
•
Name of the port of discharge and final destination.
30
•
Invoice number and date.
•
Exporter's reference number.
•
Buyer's reference number and date.
•
Name of the country of origin of goods.
•
Name of the country of final destination.
•
Terms of delivery and payment.
•
Marks and container number.
•
•
Number and packing description. Description of goods giving details of quantity, rate and total amount in terms of internationally accepted price quotation.
•
Signature of the exporter with date. Significance of Commercial Invoice
•
It is the basic document useful in preparation of various other shipping documents.
•
It is used in various export formalities such as quality and pre-Shipment inspection excise and customs procedures etc.
2.
•
It is also useful in negotiation of documents for collection and claim of incentives.
•
It is useful for accounting purposes to both exporters as well as importers. 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 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
31
SPECIFIC POLICY: This policy is taken to cover different risks for a single shipment. For a regular exporter, this policy is not advisable as he will have to take a separate policy every time a shipment is made, so this policy is taken when exports are in frequent. Floating Policy: This is taken to cover all shipments for some months. There is no time limit, but there is a limit on the value of goods and once this value is crossed by several shipments, then it has to be renewed. Open Policy: This policy remains in force until cancelled by either party i.e. insurance company or the exporter. Open Cover Policy: This policy is generally issued for 12 months period, for all shipments to one or more destinations. The open cover may specify the maximum value of consignment that may be sent per ship and if the value exceeded, the insurance company must be informed by the exporter. Insurance Premium: Differs upon product to product and a number of such other factors, such as, distance of voyage, type and condition of packing, etc. Premium for air consignments are lowered as compared to consignments by sea. 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.
32
Significance of Consular Invoice for the Exporter
It facilitates quick clearance of goods from the customs in exporter's as well as
•
importer's country. Certification' of goods by the Consulate of the importing country indicarer that the
•
importer has fulfilled all procedural and licensing formalities for import of goods. It also assures the exporter of the payment from the importing country.
•
Significance of Consular Invoice for the Importer It facilitates quick clearance of goods from the customs at the port destination and
•
therefore, the importer gets quick delivery of goods. The importer is assured that the goods imported are not banned for imported in his
•
country. Significance of Consular Invoice for the Customs Office •
It makes the task of the customs authorities easy.
•
It facilitates quick calculation of duties as the value of goods as determine by the Consulate is considered for the purpose. Certificate of Origin: The importers in several countries require a certificate of origin
5.
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.
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 authorised Chamber of Commerce of the exporting country.
•
Trade Association. Of the exporting country.
33
(b) Certificate of Origin for availing Concessions under GSP :- Certificate of origin required for availing of concessions under Generalised 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. 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... Contents of Certificate of Origin •
Name and logo of chamber of commerce.
•
Name and address of the exporter.
•
Name and address of the consignee.
•
Name and the number of Vessel of Flight
34
•
Name of the port of loading.
•
Name of the port of discharge and place of delivery.
•
Marks and container number.
•
Packing and container description.
•
Total number of containers and packages.
•
Description of goods in terms of quantity.
•
Signature and initials of the concerned officer of the issuing authority.
•
Seal of the issuing authority.
Significance of the Certificate of Origin •
Certificate of origin is required for availing of concessions under Generalised System of Preferences (GSP) as well as under Commonwealth Preferences (CWP).
•
It is to be submitted to the customs for the assessment of duty clearance of goods with concessional duty.
•
It is required when the goods produced in a particular country are banned for import in the foreign market.
•
•
It helps the buyer in adhering to the import regulations of the country. Sometimes, in order to ensures that goods bought from some other country have not been reshipped by a seller, a certificate of origin IS required.
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.
35
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 adversere marks such as, "goods insufficiently packed in accordance with the Carriage of Goods by Sea Act," is termed as a claused bill of lading.
•
Transhipment 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 transhipment 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.
•
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
Contents of Bill of Lading •
Name and logo of the shipping line.
•
Name and address of the shipper.
•
Name and the number of vessel.
•
Name of the port of loading.
•
Name of the port of discharge and place of delivery.
•
Marks and container number.
•
Packing and container description.
•
Total number of containers and packages,
•
Description of goods in terms of quantity.
36
•
Container status and seal number.
•
Gross weight in kg. and volume in terms of cubic meters.
•
Amount of freight paid or payable.
•
Shipping bill number and date.
•
Signature and initials of the Chief Officer. .
Significance of Bill of Lading for Exporters •
It is a contract between the shipper and the shipping company for carriage of the goods to the port of destination.
•
It is an acknowledgement indicating that the goods mentioned in the document have been received on board for the Purpose of shipment.
•
A clean bill of lading certifies that the goods received on board the ship are in order and good condition.
•
It is useful for claiming incentives offered by the government to exporters
•
The exporter can claim damages from the shipping company if the goods are lost or damaged after the issue of a clean bill of lading.
Significance of Bill of Lading for Importers •
It acts as a document of title to goods, which is transferable endorsement and delivery.
•
The exporter sends the bill of lading to the bank of the importer so as to enable him to take the delivery of goods.
•
The exporter can give an advance intimation to the foreign buyer about the shipment of goods by sending him a non-negotiable copy of bill of lading
Significance of Bill of Lading for Shipping Company •
It is useful to the shipping company for collection of transport charges from the importer, if not collected from the exporter.
7.
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
37
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. 8.
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. B/E is a means to collect payment. B/E is a means to demand payment. B/E is a means to extent the credit. B/E is a means to promise the payment. B/E is an official acknowledgement of receipt of payment. Financial documents perform the function of obtaining the finance collection of payment etc. 2 sets. Each one bearing the exclusion clause making the other part of the draft invalid. Sight B/E. Usance B/E. It is known as draft. Immediate payment – Sight draft. There are two copies of draft. Each one bears reference to the other part A&B. when any one of the draft is paid, the second draft becomes null and void.
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. B. Auxiliary Documents: These documents generally form the basic documents
based on which the commercial and or regulatory documents are prepared.
38
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 an inquiry. It normally forms the basis of all trade transactions. Contents of Proforma Invoice •
Name and address of the exporter.
•
Name and address of the importer.
•
Mode of transportation, such as Sea or Air or Multimodal transport.
•
Name of the port of loading.
•
Name of the port of discharge and final destination.
•
Provisional invoice number and date.
•
Exporter's reference number.
•
Buyer's reference number and date.
•
Name of the country of origin of goods.
•
Name of the country of final destination.
•
•
•
Marks and container number.
.
Number and packing description. Description of goods giving details of quantity, rate and total amount in terms of internationally accepted price quotation.
•
Signature of the exporter with date.
Importance of Proforma Invoice •
It forms the basis of all trade transactions.
•
It may be useful for the importer in obtaining import licence or foreign exchange.
39
Intimation for Inspection: Whenever the consignment requires the pre-shipment
2.
inspection, necessary application is to be made to the concerned inspection agency for conducting the inspection and issue of certificate thereof. Declaration of Insurance: Where the contract terms require that the insurance to be
3.
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.
•
•
4.
Name of the Vessel \ Aircraft. Value for which insurance to be covered.
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 C\O 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 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.
40
•
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.
Contents of Mate's Receipt •
Name and logo of the shipping line.
•
Name and address of the shipper.
•
Name and the number of vessel.
•
Name of the port of loading.
•
Name of the port of discharge and place of delivery.
•
Marks and container number.
•
Packing and container description.
•
Total number of containers and packages.
•
Description of goods in terms of quantity.
•
Container status and seal number.
•
Gross weight in kg. and volume in terms of cubic meters.
•
Shipping bill number and date.
•
Signature and initials of the Chief Officer.
Significance of Mate's Receipt •
It is an acknowledgement of goods received for export on board the ship.
•
It is a transferable document. It must be handed over to the shipping company in
order to get the bill of lading. •
Bill of lading, which is the title of goods, is prepared on the basis of the mate's
receipt. •
It enables the exporter to clear port trust dues to the Port Trust Authorities.
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.
41
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. •
8.
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.
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.
42
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, ex port trade control, customs, etc. Out of 9 regulatory documents four have been standardised 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.
•
Port trust copy.
Types of Shipping Bill
Based on the incentives offered by the government, customs authorities have introduced three types of shipping bills:•
Drawback Shipping Bill: - Drawback shipping bill is useful for claiming the customs drawback against goods exported.
•
Dutiable Shipping Bill: - Dutiable shipping bill is required for goods which are subject to export duty.
•
Duty-free Shipping Bill: - Duty-free shipping bill is useful for exporting goods on which there is no export duty.
In order to facilitate easy recognition and quick processing, following colours have been provided to different kinds of shipping bills : Types of goods By Sea
43
By Air Drawback shipping bill Green Green Dutiable shipping bill Yellow Pink Duty-Free shipping bill White Pink Contents of Shipping Bill •
Name and address of the exporter.
•
Name and address of the importer.
•
Name of the vessel, master or agents and flag.
•
Name of the port at which goods are to be discharged.
•
Country of final destination.
•
Details about packages, description of goods, marks and numbers, quantity and details of each case.
•
FOB price and real value of goods as defined in the Sea Customs Act.
•
Whether Indian or foreign merchandise to be re-exported
•
Total number of packages with total weight and value.
Significance of Shipping Bill a) Shipping bill is the main customs document, required by the customs authorities for
granting permission for the shipment of goods. b) The cargo is moved inside the dock area only after the shipping bill is duly stamped,
i.e. certified by the customs.
44
c) Duly endorsed shipping bill is also necessary for the collection of export incentives
offered by the government. d) It is useful to the Customs Appraiser while determining the actual value of goods
exported. 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.
45
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 realisation of the export proceeds. This certificate is required fore obtaining the benefit under various schemes and this value of fob is reckoned as fob value of exports.
D. Other Document: Black List Certificate: it certifies that the ship/aircraft carrying the cargo has not touched the particular country on its journey or that the goods are not from the particular country. This is required by certain nations who have strained political and economical relations with the so called “Black Listed Countries”. Language Certificate: Importers in the European Community require a language certificate along with the GSP certificate in respect of handloom cotton fabrics classifiable under NAMEX code 55.09. Generally four copies of language certificate are prepared by the concerned authority who issues GSP certificate. Three copies are handed over to the exporter. A copy is sent along with the other documents for realisation of export proceeds. Freight Payment Certificate: in most of the cases, the B/L or AWB will mention the transportation and other related charges. However if the exporter does not want these details to be disclosed to the buyer, the shipping company may issue a separate certificate for payment of the freight charges instead of declaring on the main transport documents. This document showing the freight payment is called the freight certificate. Insurance Premium Certificate: this is the certificate issued by the Insurance Company as acknowledgement of the amount of premium paid for the insurance cover. This certificate is required by the bank for arriving at the fob value of the goods to be declared in the bank certificate of realisation. Combined Certificate of Origin and Value: this certificate is required by the Commonwealth Countries. This certificate is printed in a special way by the Commonwealth Countries. This certificate should contain special details as to the origin and value of goods, which are useful for determining import duty. All other details are generally the same as that of Commercial Invoice, such as name of the exporter and the importer, quality and quantity of the goods etc. Customs Invoice: this is required by the countries like Canada, USA for imposing preferential tariff rates. 46
Legalized Invoice: this is required by the certain Latin American Countries like Mexico. It is just like consular invoice, which requires certification from Consulate or authorised mission, stationed in the exporter’s country. Pre-Shipment Documents: •
Shipping bill.
•
Export order/Sales contract/Purchase order.
•
Letter of Credit
•
Commercial invoice.
•
Packing list.
•
Certificate of origin.
•
Guaranteed Remittance (G.R/SDF/PP/SOFTEX),or SDF.
•
Certificate of Inspection.
•
Various declarations required as per custom procedure.
Exchange Control Declaration Form: all exports to which the requirement of declaration apply must be declared on appropriate forms as indicated below unless the consignment is of samples and of ‘No Commercial Value’ •
GR FORM: to be completed in duplicate for exports otherwise than by post including export of software in physical form i.e. magnetic tape/discs and paper media.
•
SDF FORM: to be completed in duplicate and appended to the Shipping Bill for export declare to the customs offices notified by the Central Government which have introduced EDI system for processing Shipping Bill.
•
•
PP FORM: to be completed in duplicate for export by post. SOFTX: to be completed in triplicate for export of software otherwise than in the physical form i.e. magnetic tapes/discs and paper media.
These forms are available for sale in Reserve Bank of India Export declaration forms have utmost importance and are binding on the exporters. It is, therefore, necessary that enough care is taken while declaring exports on these forms, with special reference on the following points.
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Name and address of the authorised dealer through whom proceeds of exports have been or will be realized should be specified in the relevant column of the form.
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Details of commission and discount due to foreign agent or buyer should be correctly declared otherwise difficulties may arise at the time of remittance of such commission.
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It should be clearly indicated in the form whether the export is on ‘outright sale basis’ or ‘on consignment basis’ and irrelevant clauses must be stuck out
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Under the term ‘analysis of full export value’ a break up of full export value of goods under F.O.B value, freight and insurance should be furnished in all cases, irrespective of the terms of contract.
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All documents relating to the export of goods from India must pass through the medium of an authorised dealer in foreign exchange in India within 21 days of shipment.
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The amount representing the full export value of goods must be realized within six months from date of shipment. 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 three 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
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Documentary Bills
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Letter of Credit
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Open Account
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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:
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The financial position of the buyer is weak or credit worthiness of the buyer is not known.
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The economic/ political conditions in the buyer’s country are unstable.
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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
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Marine Insurance policy and other document, if required.
There are two main types of documentary bills: •
Documents against Payment,
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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,
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Other reason may include that the exporter may not be able to allow credit and wait for payment.
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