EXPORT PROCEDURE & DOCUMENTATION: A CASE OF AHUJA OVERSEAS

A report submitted towards the partial fulfilment of the requirements of the two years full-time Post Graduate Program in Fashion Management

Submitted by: Vishal Asauliya Master of Fashion Management (FMS Dept.) Roll No.: 30 2011-2013

National Institute of Fashion Technology Opp: High-tech City , Madhapur, Hyderabad

Preface

The purpose of industrial training is to acclimatize the students with the organization & the industry in which this organization exists. Summer training is a part of management study & is very important for each & every student. Management trainees are trained in such a way that after they come out, the can manage the matters of organization in a planned and systematic manner, My project is aimed at understanding the basis of export procedure & documentation. It includes how an export order is processed & what all documents are required to complete the legalities of the export order. This training was a valuable experience in terms of understanding & learning & I believe that in future I will get fruitful results.

VISHAL ASAULIYA MFM - II 30 2011-13

Acknowledgement

A project report seems to be an individual effort is in fact teamwork. Summer training at AHUJA OVERSEAS. was just like an opportunity to shake hand with the practical world of business. I am indebted to all those individuals who helped me in gaining knowledge & insight into various aspects of export procedure & documentation. The source of learning have been one too many & a complete list of individual references would become encyclopedic. I want to express my deepest gratitude to Mr. Vijay Ahuja ,CEO of AHUJA OVERSEAS, without whose help this summer internship in AHUJA OVERSEAS would not be possible. I am grateful to Mr. Ashish Ahuja, Director , AHUJA OVERSEAS, for sharing his experience & knowledge & without whose help the project would not have got any shape. My deepest appreciation also extends to Sri Nivasa Rao, Project guide, Faculty NIFT, who critically reviewed my project report & provided suggestions. I would like to thank Dr. D. K. Banerjee, Director AIM, for his constant support & encouragement. Finally, I would express my gratitude towards Mr. Annaji Shama CC FMS NIFT for facilitating my Summer Internship.

VISHAL ASAULIYA MFM-II 30 2011-2013

Table of Contents
Executive Summary ......................................................................6 Chapter 1 Introduction ...................................................................................7 Background of the problem task undertaken ..................................7 Project Objectives ...........................................................................7 Rationale of the study .....................................................................8 Scope of the study ...........................................................................8 Introduction of the company ...........................................................9 Chapter 2 Methodology .................................................................................12 Chapter 3 Objective of the project ...............................................................14 To understand the apparel business process ..................................14 To understand the working of various departments .......................21 To understand the role of merchandisers .......................................28 To understand the export procedure ...............................................31 Bibliography .................................................................................47 Annexure .......................................................................................48
List of Illustrations

Figure 1: The T angle of the Apparel Supply Chain.................16 Figure 2: Fabric Process Flow Chart ............................................21 Figure 3:Garment Process Flow Chart .........................................22 Figure 4: The PPC link with other departments............................27

EXECUTIVE SUMMARY
This project is aimed at understanding export procedure & documentation. It begins withthe introduction of the company i.e. company profile. This part includes introduction of the company, its plant location, capacity, the client base & some export figures giving idea of Exports at AHUJA OVERSEAS. Chapter 2 discusses the Methodology used for the data collection. Exploratory research is used for data collection as is best suited for this fulfilling the project objective. Next chapter provides the detail on the objective: Apparel business process. It is explained through the T angle apparel supply chain. T he three sides of the supply chaini.e. The Buyer, the Supplier & the Manufacturer, are discussed. Next objective discusses a view of different departments working in synchronization inorder to process an export order. The role of each department is discussed in context of export procedure & documentation & what contribution they make towards it. Next objective gives a brief idea on the merchandisers & what role they play. They are the one who interacts with the clients & update the company with clients requirement. They act as a liaison between the company & the client. In the final objective a brief summary of all the export documents used at the AHUJA OVERSEAS for legalizing an export order is given. Further the documents regarding pre & post shipment procedure are discussed.

In the end Annexure are attached as supporting documents.

CHAPTER-1 Introduction
1.1) Background of the problem task undertaken It is an opportunity to do the summer internship in AHUJA OVERSEAS which is a manufacturer & exporter of Knitted fabric and Knitted garments. Project on Export house is uncommon & that on an Apparel Export House is rare. As we know, exporting is complex and challenging activity in todays dynamic world environment as it involves the performance of operations that determine existing and potential demand in a market. Learning the step-by-step processes & procedures to be followed in an export contract is a crucial activity in export procedure. So, selecting a project on export procedure & documentation is an obvious & important decision.

1.2) Project Objectives a) To understand the Apparel Business Processes. b)To understand the working of various departments of AHUJA OVERSEAS. contributing towards processing of an export order. c)To understand the role of Merchandisers in AHUJA OVERSEAS. d)To study the Export Documentation in AHUJA OVERSEAS.

I. Pre Shipment procedure II. Post Shipment procedure

1.3) Rationale of the Study Export in simple words means selling goods abroad Or Export refers to outflow of goods and services and inflow of foreign exchange. Each country has its own rules and regulations regarding the foreign trade. For the fulfillment of all the rules and regulations of different countries an exporting company has to maintain and full fill different documentation requirements. The documentation procedure depends on the type of goods, process of manufacturing, type of industry and the country to which goods is to be exported. In order to complete an order for Knitted garment, many activities like communication between different departments, the process of outsourcing raw material, payment process, quality control, packing and shipment of goods etc. are undertaken. Different departments work in synchronicity & various documents are prepared in the process. Hence, a single mistake or lack of proper planning can lead to the rejection of the whole order or increase the cost. Todays world is the global village in which each country is trading with other countries in the form of export or import. This field has a great scope because today each company whether it is small or big wants to engage in foreign trade. So, it is very important to study the export procedure and documents involved in it. Hence, selecting this project is a judicious decision.

1.4) Scope of the Study The aim of this project report is to unfold stepwise all complexities involved in the export business right from receiving an export order to final realization of export proceeds. It gives a detail idea of how different departments in an Apparel export house work in synchronization so that an export order is processed. This project would be helpful to full fill many loopholes of manufacturing, processing and analyzing the export order as well as documentation.

1.5) Introduction of the Company

1.5.1) About AHUJA OVERSEAS

AHUJA OVERSEAS was established in 1986 in Jaipur, India. It is run by Mrs Archana Ahuja, Mr Vijay Ahuja and Mr Ashish Ahuja. We are primarily manufacturers and exporters of women's, kids garments and home furnishing. We are an ISO 9001:2000 certified ( Quality Management System) and WRAP certified (Certification of lawful, humane and ethical manufacturing) company.We are located in Malviya Nagar Industrial Area, Jaipur and have a manufacturing capacity of 1,00,000 units per month.

Infrastructure : 500 Sewing machines on site. 25 Ari Embroidery Machines 25 Chicken Embroidery Machines 650 conveyer belt needle detector Machine We have our own washing, dry cleaning and finishing units

Our total workforce includes 230 people and an additional 200 people working on contractual basis.

Major Countries of export : Europe Japan USA Switzerland Australia Argentina

The vision of the Company is to become a leading manufacturer and exporter of Women apparel by continuously excelling in quality, service, and customer satisfaction using the best technology, processes and people.

Deals in various Departments :

Knit Collection Women Collection Home Furnishing Accessories Events

1.5.2) DETAILS OF AHUJA OVERSEAS INDUSTRIES LIMITED IEC Code number: 0593027771 (See Annexure 1) AEPC Registration number: 101304 (See Annexure 2)

1.5.4) AHUJA OVERSEAS Capacities SECTION Knitted Dyed Fabric Mercerizing Garment Washing Knitted Garments Blouses CAPACITY 20 Tons per day 05 Tons per day 40,000 Pcs per day 750,000 Pcs month 100,000 Pcs per month

1.5.5) AHUJA OVERSEAS Customers: AHUJA OVERSEAS high profile customers are not only happy but also satisfied which has earned them recognition and unflattering loyalty from prominent buyers worldwide. Customers
Rapsodia 95 Alex Benditopie Eachet Natura Lelisblanc Funky People Tamachi Adventure group: - Capri - Gloria - Wagan

Countries
Argentina Argentina Argentina Argentina Switzerland Spain Brazil US Japan Japan

1.5.6) Export Countries : Countries

Japan USA Europe UK , South Africa and Others

Percentages
55 TO 60 % 10 % 25 % 5%

Chapter-2 Methodology
Our primary objective of doing this project is to get the first hand knowledge of functioning of an export house. Since we are not comparing two different entities on the basis of their financial results, rather we are learning the export procedure. Hence Exploratory research design is the need of the hour. Further there are few reasons which made me to use Exploratory Qualitative research: It is not always desirable or possible to use fully structured or formal methods to obtain information from respondents. People may be unable & unwilling to answer certain questions or unable to give truthful answers. People may be unable to provide accurate answer to question that tap their sub consciousness. Thus, project research methodology is as follows: In Primary data, Qualitative research through In-Depth Interviews has been adopted. For interviews non structured open-ended questions were used. In Secondary data, both internal & external research was done. For internal research Ready to use documents available with the organization were used. For external research Internet website & published books were consulted.

Limitations of the Methodology

1.Concern about the validity: The issue arises from the fact that qualitative research does not rely on tests for reliability & credibility that are external to data collection & analysis.

2. Labour intensive data collection: It can be extremely time consuming. Data collection is the labour intensive process the researcher immerses himself or herself to build an understanding of the organization, through contact with the employees, exposure to the norms & familiarity with their practices.

3.Conclusion & interpretation of qualitative research: They are primarily communicated in the form of case studies. The case study is written after an extensive process of data collection through interviewing & participant observation.

4.Need for training in qualitative research: There is a need of training in qualitative research methodology. Persons having low knowledge in this field dont go for such methodology.

CHAPTER-3

Objective of the project

2.1) To understand the Apparel Business Process. 2.2) To understand the working of various departments of SPL Industries Ltd. contributing towards processing of an export order. 2.3) To understand the role of Merchandisers in SPL Industries Ltd. 2.4) To study the Export Documentation in SPL Industries Ltd.

a) Pre Shipment procedure b) Post Shipment procedure

2.1) To understand the Apparel Business Process: The textile and apparel supply chain accounts for a good share in terms of number of companies and people employed. The apparel industry is divided into four main segments. At the top of the supply chain, there are fibre (raw material) producers using either natural or synthetic materials. Raw fibre is spun, woven or knitted into fabric by second segment. The third segment of the supply chain is the apparel manufacturer which converts fabric into garment with many processes involved. The final segment is the retailers who are responsible for making apparels available to consumers. The T angle of the apparel supply chain shows how buyer, suppliers and garment manufacturer are linked to each other. There are two sides of the T i.e. left and right. The left side is called the buyer to the manufacturer and the right side is called the suppliers to manufacturer. The two horizontal sides are linked to each other through the vertical side i.e. the buyer and suppliers are linked through apparel manufacturer.

The T angle illustrates how information flows from the buyer to the apparel manufacturer. The information normally, sketches of the garment given by the buyer, are studied by the manufacturer and accordingly list of raw materials required is made. The different swatch (standard for type of yarn, colour of the yarn and piece of accessories) are sent to different suppliers for development. The supplier develops and sends it to manufacturer and which is forwarded to buyer. Once approved by buyer, the orders are placed with the suppliers with approved samples. When the raw materials are received as per the specifications given to the supplier, in-house manufacturing starts with the production. The different process of manufacturing results in the final garment product which is finally dispatched to the Buyer. The Buyer then retails the same through stores to the ultimate consumers. Figure 1: The T angle of the Apparel Supply Chain

2.1.1) Description of the Buyer Side of the Apparel Supply Chain The buyer side is normally involved with designing of the garment, production of samples, order collection, apparel retail. Apparel Design Designing of Apparel is either done in-house or contracted to design companies. The first step in designing is the analysis of the consumer which the Company is targeting. The apparel design is influenced by various parameters like other designer collection presented in the fashion cities of the world, fashion reviews from earlier seasons, fashion magazine also plays an important input for the design efforts and most important is the feedback gained from the

sales of the similar products that were developed earlier. Prototype garments are made for design approval which consumes considerable amount of time. Production of samples and order collection The next step after the design in apparel supply chain is the production of the samples. Once the designs are developed, decisions regarding the fabric like cotton or polyester and quantity etc are made. Based on fabric and quantity decided, decisions related to country and manufacturers are made. Once decision is made, developed designs are sent to different manufacturers and are asked to develop proto samples (the stage brings design from paper to cloth for design appearance). Normally, during proto stage manufacturer figure stands between 5 and 8. Once proto are developed, number of manufacturers is reduced to 2 to 3 depending on the total quantity of the article and also on selected manufacturer production capacity or volumes. The order quantities are placed to different manufacturers and manufacturer is asked to develop sizesets(alternate sizes of the garment are developed example S: Small, L: Large, XXL: Extra Extra Large). Once size-set is approved, sale samples (samples developed for advertising and see the market response towards the article) are made. Finally, with everything in place two identical pieces are developed one for the buyer and other for the manufacturer called as sealer (sealer sample is identification or standard for production). This sample is stamped by the buyers and the manufacturer can proceed with the production.

Apparel Retail Apparel products are made available to consumers in a variety of retail outlets. Specialty stores offer a limited range of apparel products and accessories specialising in a specific market segment. Apparel sales also take place through wholesalers or mass merchandisers such as Wal-Mart, Kmart and Target. These retailers offer a variety of hard and soft goods in addition to apparel. Departmental stores like Macys, Nordstrom offer a large number of national brands in both hard and soft goods categories. Off- price stores, such as Marshalls and T.J.Maxx buy excess stock of designer- label and branded apparel from retailers and are able to offer lower prices but with incomplete assortments. The apparel sale is also shared by mail order companies, e-tailers through internet, and factory outlets etc.

2.1.2) Description of the Supplier Side of the Apparel Supply Chain

The suppliers in the apparel manufacturing are quite diversified. It involves suppliers of different raw materials such as fibre and yarn producers, fabric manufacturers and other raw-materials. Fibre and Yarn Production Fibres are categorised into two groups: natural and man-made. Natural fibre includes plant fibres such as cotton, linen, jute etc and animal fibre such as wool. Synthetic fibres include nylon, polyester, acrylic etc. Synthetic fibre production usually requires significant capital and knowledge. Natural and synthetic fibres of short lengths are converted into yarn by spinners, throwsters and texturizers . Different types of fibres can also be blended together to produce yarn such as grindle etc.

2.1.3) Description of the Manufacturer Side of the Apparel Supply Chain

Fabric production This segment of supply chain transforms the yarn into fabric by different processes such as weaving, knitting a non-woven process. In a weaving process,

yarns are looped together lengthwise and width wise at right angles. Grey Yarn may be woven by a simple procedure to produce grey fabric and which are then dyed for a specific colour. Instead, dyed yarns may also be woven but not dyed. In knitting, yarn is interloped by latched and spring needles i.e. two different loops are mingled together with needle adjustment. Once the approvals regarding the raw-material are made by the buyer, the manufacturer can proceed with the production. Apparel Production The process proceeds once the fabric is produced; it is either dyed or washed. The dyed (coloured) yarn fabric is washed and grey fabric is dyed into a specific colour. After dyeing or washing, fabric is finished by removing water in the tumbler and later pressed in stenter which also maintains width of the fabric. Now the fabric is ready for garmentising i.e. it is ready to be cut and stitched into the garment. Garmentising starts with the design of the garment to be made (usually on the paper called specs).Patterns (usually made up of thicker and stronger paper) are made from the design which is then used to cut the fabric (cutting usually happens in the form of layers). An efficient layout of the patterns on the layers of fabric is crucial for reducing the wasted material.CAD systems are used for pattern layout and are integrated together with cutting systems. In apparel manufacturing, all the stages are labour intensive as they are not suitable for any kind of automation. In the stitching section, garment is usually assembled using the progressive bundle system (PBS). In PBS, the work is deliveredto individual work stations from the cutting department in bundles. Sewing machine operators then process or sew them in batches i.e. first few are operation are joining the different parts together and then further amendments related to design are carried out. The supervisors direct and balance the line activities and check the quality. This involves large work in progress (WIP) inventories and minimal flexibility. For faster apparel production, use of unit production system which reduces the buffer sizes between the operations or modular assembly systems and allows a small group of sewing operators to assemble the entire garment. Finishing, Packaging and Dispatch of Apparel Garments produced are labelled, packaged and usually shipped to a warehouse. The garments are then shipped to the retailers warehouse. In an effort to reduce time from placement of the product order to the consumers purchase of the

apparel, several practices are gaining popularity. There is increased automation and use of electronic processing in the warehouses of both manufacturers and retailers.

2.2) To understand the working of various departments of SPL Industries Ltd contributing towards processing of an export order.

2.2.1) Manufacturing Process and Production Figure 2: Fabric Process Flow Chart

Figure 3: Garment Process Flow Chart

The above two diagrams show detailed picture of SPLILs Apparel Manufacturing and Supply Chain. The manufacturer supply chain starts when yarn is in-house and ends when garment is produced and is ready for dispatch. The entire process is

divided into two segments i.e. the process and the production. The process involves yarn inspection, knitting, dyeing or washing and finishing. In the process, the yarn is converted to fabric then it is either dyed or washed and finally finished. The production involves fabric cutting, stitching, and garment being finished and finally dispatched.

2.2.2) SPL: Departments Functions and Operations

Company mainly deals in two segments of the apparel supply chain i.e. one manufacturing of fabric and other manufacturing of garment. These two segments are two different processes but are very much linked in the supply chain. The Company has different departments each having specified functions and responsibilities. Description of each department will follow in respect to how they occur in supply chain: Yarn Department Yarn (thread) is one of the most important raw-materials for the garment manufacturing. Company purchases yarn from other spinning mills across the country and also sometimes from other countries such as China and Italy. Yarn department is responsible for placing order of yarn to the mills. Their responsibility is to make sure yarn is ordered from right supplier, delivered in right time with desired quality and maintain stock listing of yarn. Yarn department is also responsible for checking the quality i.e. strength, colour and quantity of the yarn delivered. The decision regarding the yarn quantity, quality and strength is decided by PPC i.e. production, planning and control department. PPC places the order one month in advance. Knitting Department Knitting department is responsible for producing knitted fabric i.e. fabric from yarn. For fabric production, two types of machines are normally used i.e. circular knitting machine and flat knitting machine. Knitting department receives orders from PPC stating article or style number and quantity of fabric required. The knitting department makes the production planning for all knitting machines based on request from PPC and also calculates and orders required yarn from the yarn department. Planning is usually done for every week.

Washing and Dyeing Department The department is responsible for two different stages in garment manufacturing. For grey (not coloured) fabric, department is responsible for colouration of fabric and for dyed (coloured) fabric, department is responsible for washing. The process of dyeing is time consuming and as different colour checks are required. The department receives order from the PPC stating article and quantity required. The department makes the production plan for the dyeing and the washing machine based on order from the PPC and also sends request to knitting department for the dispatch of the fabric. Planning is done on weekly basis. Finishing Department The department is responsible for finishing of the fabric with a proper procedure so that it is ready for garment production. Whether the fabric is dyed or washed, it follows the same process in the finishing department. Once the fabric is washed or dyed, it needs to be tumbled in tumbler (sort of big washing machine) responsible for removing water and maintain the fabric width and shrinkage. After which fabric is dried in a Stenter (dryer) and packed in layer and is ready for garment production. The finishing departments receive orders from PPC again stating the article or style number and the quantity. The department sends the fabric to the mentioned cutting section. Cutting Department The department is responsible for cutting of the fabric into different parts of the garment. This department is mainly responsible for cutting and avoiding wastage. To ensure minimum wastage, proper set of tools such as CAD and others are used in the process. The PPC by using CAD and other tools issues article average with a draft or diagram of how different patterns should be placed on to the layer. The cutting department based on their experience and expertise either accepts the proposed average or sometimes gives a better average by few percent. The department makes production plan for all cutting stations based on article or style requested. This also works on weekly basis. Once fabric is cut different parts of the same garment are bundled together.

Stitching Department The department is responsible for stitching different parts of garment together. The process takes place in the assembly line system. The assembly line system is the set of many different stitching machines each for a specific purpose. These machines are arranged in an orderly fashion depending on how different parts of garment should beat ached. Assembly line method is used for large production. PPC decides on the article or style to be produced with quantity. The stitching department makes necessary production planning i.e. time line in accordance with each article. The stitching process is the most time consuming and labour intensive process in the entire garment production. The planning is done weekly. Finishing and Packaging Department This is final stage before the garment is ready to be shipped. As the garment is already finished, it requires a series of quality checks. The garment goes through the quality checks like colour test, washing test, stitching test etc. After which it is steam pressed, labelled, packed into garment bags and finally, put into the cartons. Once all cartons are packed and labelled, external quality check takes place and goods are shipped. The PPC department gives the details of the PO to be finished, packed and dispatched.

Production Planning and Control (PPC) Department The department is responsible for making plans for the entire organization i.e. all the departments. PPC being in the centre of all departments also controls their functionality. The PPC sends production plan to different departments on weekly basis and daily for any amendments. The PPC keeps check on different departments by requesting planning and production reports for each day. PPC only receives orders from the Management. With order quantity and dispatch date, it does the planning for product cycle. The top management is in continuous contact with PPC.

Figure 4: The PPC link with other departments

2.3) To understand the role of Merchandisers in SPL industries ltd. 2.3.1) Merchandising Department The department acts as a liaison between the buyer and manufacturing division. On one hand, the department is responsible for notifying changes in the product to the PPC and also to make sure that article is produced as per planning by the PPC and within dispatch time limits. On the other hand, it has to continually update buyer with planning and production status. The department takes care of all correspondence with buyer and is responsible for communicating it to PPC. The department also takes care of necessary sampling such as proto, size set and final which is necessary prior to production.

(Plan Outline for Order Completion See Annexure 3) 2.3.2) Marketing Design Designing is an integral part of the marketing process. The Companys ability to keep abreast of the dynamic fashion trends enables it to showcase its capabilities and understanding the buyers requirements. Being an export oriented apparel manufacturer, tracking the changing fashion trends across different geographies for various end customers is critical for success. The Company has a well equipped design studio. SPLIL employs a team of designers who design and develop the products as per the requirements of the customers. They regularly visit International fairs like PITTI FILATI, EXPOFIL and PREMIERE VISION. These fairs determine the latest trends in yarn / fabric and colours for the following season. The design team regularly interacts with the customers which helps it to keep pace with their expectations. Besides, the Company has opened a Product Development and Sales office at US. The Apparel trade has four basic seasons; Spring Summer Fall/Autumn Holiday/Winter 2.3.3) Merchandising The Companys marketing team endeavours to enhance its share of the business with existing customers as well as expand the customer base. The Company receives orders from customers by:

Growth in business from existing customers New customers developed through cold calls, trade fair meetings Walk-in customers. The Companys experienced marketing team has been able to devise different strategies to suit the needs of both existing & new buyers. For the existing buyers, the Companys prime focus is to expand the product base and enhance volumes. By leveraging the long standing relationships with the buyers, the Company strives to be a preferred partner to the buyers. For the new buyers, based on the understanding of their product range and brand identity / customer identity, the Company presents to them the entire product range. This gives them a good idea of areas of the Companys expertise and capabilities. Sometimes the buyers come to SPLIL with their thoughts on designs, where they offer their suggestion on modifications. In case where they come to SPLIL with a predetermined design requirement, they also try to add value by suggesting modifications to enhance functionalities or appeal, or to reduce costs while retaining the existing design. SPLILs designers along with the sampling department provide the client with prototypes, which undergo various alterations till the client, finalizes the design. Once the buyer finalizes a particular style it is translated into samples as quickly as possible because the entire seasons business depends on timely delivery of samples. The costing exercise is done concurrently at this stage. SPLILs manufacturing scale and efficiency and global sourcing ability enables SPLIL to compete with international vendors effectively. This is proven by the growth of the Company in nonquota categories, where competition has already been open without any quota related barriers. Quality and ability to deliver the required products on time and competitive pricing enables to enhance share

with customers. The merchandising teams are to service the requirements of different customers. On receipt of the enquiry, the merchandiser coordinates with PPC to get an estimate of the raw material consumption, likely suppliers and costs, accessories as well as the conversion efforts. Based on this, the costing sheet is prepared. Modifications are also suggested on apparel design or engineering, or fabric to try and bring the cost to the buyer within their required range. The price setting process thus becomes a collaborative effort with Companys customers instead of just a negotiation process, with both the Company and buyer working together to meet a common objective. Therefore, whenever a prospective buyer places his requirement with the company, company can work out an optimal price-quality combination for him through permutation and combination of quality & source of raw materials, along with design.

2.4) To understand the Export Procedure in SPL Industries

Ltd. It is essential that a person engaged in international trade be aware of the various procedures involved. The business of exports is heavily document-oriented & one must get acquainted with the entire procedure. Failure to comply with documentary requirement may lead to financial loss. 2.4.1) Pre-Shipment Procedure

On receiving the requisition & purchase order from merchant, documentation department issues an invoice. Two invoices are prepared i.e. commercial invoice& custom invoice. Commercial invoice is prepared for the buyer & Custom invoice is prepared for the Custom authorities of both the countries.

countries mentioned in the GSP list.

IEC certificate

Custom annexure

On receipt of above documents, customs will issue clearance certificate. After custom clearance a set of documents with custom clearance receipt are sent along with the consignment to the forwarder. Forwarder books the shipment & as per the size of the cartons calculates CBM & decides which container to be used. Following documents are sent to buying house for their reference, as per buyers requirement: Invoice Packing List GSP (if exports to Europe) Certificate of Origin (if required)

Wearing Apparel sheet A copy of FCR/ Airway Bill/ Bill of Lading Buying house then intimates the buyer about the shipment & gives the details regarding it. Buying house will send a set of these documents to the buyer. Buyer collects the consignment from the destination port by showing the following documents: Invoice Packing List Bill of lading/ FCR/ Airway Bill On shipment of goods, exporter will send the documents to the importers bank. 2.4.2) Post-Shipment Procedure A foreign buyer will make the payment in two ways: TT ( telegraphic transfer) i.e. Wire Transfer (Advance payment, as per the clause 50% advance & remaining 50% on shipment) Letter of Credit If the payment terms are a confirmed L/C then the payment will be made by the foreign bank on receiving the following documents: Invoice Packing list B/L Any other required by the buyer or the country of import. The payment terms can be: At Sight

Within 15 days from Bill of Lading or Airway Bill date. Within 30 days from Bill of Lading or Airway Bill date. Within 60 days from Bill of Lading or Airway Bill date. Within 90 days from Bill of Lading or Airway Bill date. After shipment, exporter sends the documents to the buyers bank for payment. As the buyers bank receive the documents it will confirm with the buyer for release of payment. On confirmation, it will make the payment in the foreign currency. The transaction will be Bank to Bank. The domestic branch will credit the exporters account, as against the respective purchase order or invoice, in Indian rupees by converting the foreign currency as per the current bank rate. If the payment is through wire transfer, the payment will be made as per the terms agreed by the exporter (Advance payment, as per the clause 50% advance &remaining 50% on shipment). 2.4.3) Export Documents: An export trade transaction distinguishes itself from a domestic trade transaction in more than one way. One of the most significant variations between the two arises on account of the much more intensive documentation work. The documents mentioned in the pre & post shipment procedure are discussed below: 1. Invoice: It is prepared by an exporter & sent to the importer for necessary acceptance. When the buyer is ready to purchase the goods, he will request for an invoice. Invoice are of 3 types:

a. Commercial invoice : It is a document issued by the seller of goods to the buyer raising his claim for the value of goods described therein,

it indicates description of goods, quantity, value agreed per unit & total value to be paid. Normally, the invoice is prepared first, & several other documents are then prepared by deriving information from the invoice. (See Annexure 4)

b. Consular invoice: It is certification by a consul or Government official covering an international shipment of goods. It ensures that exporters trade papers are in order & the goods being shipped do not violate any law or trade restrictions. c. Customs invoice: It is an invoice made on specified format for the Custom officials to determine the value etc. as prescribed by the authorities of the importing country. (See Annexure 5) 2. Packing list: It shows the details of goods contained in each parcel / shipment. Considerably more detailed and informative than a standard domestic packing list, it itemizes the material in each individual package and indicates the type of package, such as a box, crate, drum or carton. Both commercial stationers and freight forwarders carry packing list forms. (See Annexure 6) 3. Certificate of Inspection: It is a type of document describing the condition of goods and confirming that they have been inspected. It is required by some purchasers and countries in order to attest to the specifications of the goods shipped. This is usually performed by a third party and often obtained from independent testing organizations. (See Annexure 7)

4. Certificate of Origin: Importers in several countries require a certificate of origin without which clearance to import is refused. The certificate of origin states that the goods exported are originally manufactured in the country whose name is mentioned in the certificate. Certificate of origin is required when: (See Annexure 8)

The goods produced in a particular country are subject to prefer ential tariff rates in the foreign market at the time importation. The goods produced in a particular country are banned for import in theforeign market. 5. GSP: It is Generalized System of Preference. It certifies that the goods being exported have originated/ been manufactured in a particular country. It is mainly useful for taking advantage of preferential duty concession, if available. It is applicable in countries forming European Union. (See Annexure 9)

6.IEC Certificate: It is an Import-Export Code Certificate issued by DGFT, Ministry of Commerce, Government of India. It is a10 digit code number. No exports or imports will be effected without the IEC code. It is mandatory for every exporter. (See Annexure 1) 7. Wearing Apparel Sheet: It is like a check list which gives the detail regarding the content & design of the garment packed.

(See Annexure 10) 8. 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. 9. Airway Bill: An airway bill, also called an air consignment note, is a receipt issued by an airline for the carriage of goods. As each shipping company has its own bill of lading, so each airline has its own airway bill. Airway Bill or Air Consignment Note is not treated as a document of title and is not issued in negotiable form. 10. 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. (See Annexure 11) 11. 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: (See Annexure 12)

Customs copy. Drawback copy. Export promotion copy. Port trust copy. Exporter's copy. 12. Letter of Credit: This method of payment has become the most popular form in recent times; it is more secured as company to other methods of payment (other than advance payment). (See Annexure 13) A letter of credit can be defined asan undertaking by importers bank stating that payment will be made to the exporter if the required documents are presented to the bank within the variety of the L/C. Contents of a Letter Of Credit, A letter of credit is an important instrument in realizing the payment against exports. So, needless to mention that the letter of credit when established by the importer must contain all necessary details which should take care of the interest of Importer as well as Exporter. Let us see shat a letter of credit should contain in the interest of the exporter. This is only an illustrative list. Name and address of the bank establishing the letter of credit letter of credit number and date The letter of credit is irrevocable Date of expiry and place of expiry Value of the credit

Product details to be shipped Port of loading and discharge Mode of transport Final date of shipment Details of goods to be exported like description of the product, quantity, unit rate, terms of shipment like CIF, FOB etc. Type of packing Documents to be submitted to the bank upon shipment Tolerance level for both quantity and value If L/C is restricted for negotiation Reimbursement clause

Steps in an Import Transaction with Letter of Credit The importer includes a purchase contract for the buying of certain goods The importer requests this bank to open a LC in favour of his supplier. The importers bank opens the LC as per the application. The opening bank will forward the original LC to the advising bank. The advising bank, after satisfying itself about the authenticity of the credit, forwards the same to the exporter. The exporter scrutinizes the LC to ensure that it confirms to the terms of contract. In case any terms are not as agreed, the importer will be asked to make the required amendments to the LC. In case the LC is as required, the exporter proceeds to make arrangements for the goods. The exporter will effect the shipment of goods. After the shipment is effected, the exporter will prepare export documents, including Bills of Exchange. The exporters bank (negotiation bank) verifies all the documents with the LC. If the documents are in the conformity with the terms of LC and all other conditions are satisfied, the bank will negotiates the bill. The exporter receives the payment in his bank account. The LC Opening bank (Importers Bank) receives the bill and

documents from the exporters bank. The importers bank checks the documents and informs the importer. The importer then accepts/pays the bill (This would depend on the terms, Delivery against Acceptance or Delivery against Payment). On acceptance/ payment, the importer gets the shipping documents covering the goods purchased by him. The LC issuing bank reimburses the negotiating bank, the amount, if the documents are found in order.

2.4.4) Terms of Shipments Inco terms The INCOTERMS (International Commercial Terms) is a universally recognized set of definition of international trade terms, such as FOB, CFR & CIF, developed by the International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a costsaving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they have agreed on a commercial terms like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance and other costs and risks. The purpose of Inco terms is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree. The scope of Inco terms is limited to matters relating to the right sand obligations of the parties to the contract of sale with respect to the delivery of goods. Inco terms deal with the number of identified obligations imposed on the parties and the distribution of risk between the parties.

More Clarification on Inco terms EXW (At the named place)Ex Works: Ex means from. Works means factory, mill or warehouse, which are the sellers premises. EXW applies to goods available only at the sellers premises. Buyer is responsible for loading the goods on truck or container at the sellers premises and for the subsequent costs and risks. In practice, it is not uncommon that the seller loads the good son truck or container at the sellers premises without charging loading fee. The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex Works. FCA (At the named point of departure)Free Carrier: The delivery of goods on truck, rail car or container at the specified point(depot) of departure, which is usually the sellers premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at sellers expense. The point(depot) at origin may or may not be a customs clearance centre. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the air shipment, technically speaking, goods placed in the custody of an air carrier a reconsidered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment. FAS (At the named port of origin)Free Alongside Ship: Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at sellers expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks In the export quotation, indicate the port of origin (loading) after the acronym FAS, for example FAS New York and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels.

FOB (At the named port of origin)Free on Board: The delivery of goods on the board the vessel at the named port of origin(Loading) at sellers expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the export quotation, indicate the port of origin(loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai. Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the airfreight. In North America, the term FOB has other applications. Many buyers and sellers in Canada and the USA dealing on the open account and consignment basis are accustomed to using the shipping terms FOB Origin and FOB destination.FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB Destination means the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyers premises which may include the import custom clearance and payment of import customs duties and taxes at the buyers country, depending on the agreement between the buyer and seller. In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (International Commercial Terms). CFR (At the named port of destination)Cost and Freight: The delivery of goods to the named port of destination (discharge) at the sellers expenses. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F. CIF (At named port of destination)Cost, Insurance and Freight: The cargo insurance and delivery of goods to the named port of destination (discharge) at the sellers expense. Buyer is responsible for the import customs clearance and other costs and risks. In the

export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990,the term CIFI is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight. CPT (At the named place of destination)Carriage Paid To: The delivery of goods to the named port of destination (discharge) at the sellers expenses. Buyer assumes the cargo insurance, import custom clearance, payment of custom duties and taxes, and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CPT, for example CPT Los Angeles and CPT Osaka. CIP (At the named place of destination)Carriage and Insurance Paid To: The delivery of goods and the cargo insurance to the named place of destination (discharge) at sellers expense. Buyer assumes the importer customs clearance, payment of customs duties and taxes, and other costs and risks. DAF (At the names point at frontier)Delivered at Frontier: The delivery of goods at the specified point at the frontier on sellers expense. Buyer is responsible for the import custom clearance, payment of custom duties and taxes, and other costs and risks. DES (At named port of destination)Delivered Ex Ship: The delivery of goods on board the vessel at the named port of destination (discharge) at sellers expense. Buyer assumes the unloading free, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks. DEQ (At the named port of destination Delivered Ex Quay:

The delivery of goods to the Quay (the port) at the destination on the buyers expense. Seller is responsible for the importer customs clearance, payment of customs duties and taxes, at the buyers end. Buyer assumes the cargo insurance and other costs and risks. DDU (At the named point of destination)Delivered Duty Unpaid: The delivery of goods and the cargo insurance to the final point of destination, which are often the project site or buyers premises at sellers expense. Buyer assumes the import customs clearance, payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks. DDP (At the named point of destination)Delivered Duty Paid: The seller is responsible for most of the expenses which include the cargo insurance, import custom clearance, and payment of custom duties, and taxes at the buyers end, and the delivery of goods to the final point of destination, which is often the project site or buyers premise. The seller may opt not to insure the goods at his/her own risk. E-term, F-term, C-term& D-term: Inco terms 2000, like its immediate predecessor, groups the term in four categories denoted by the first letter in the three-letter abbreviation. Under theE -TERM (EXW), the seller only makes the goods available to the buyer at the sellers own premises. It is the only one of that category.

Under theF -TERM (FCA, FAS, &FOB), the seller is called upon to deliver the goods to a carrier appointed by the buyer.

Under theC-TERM (CFR, CIF, CPT, & CIP), the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional cost due to events occurring after shipment or discharge. Under theD-TERM (DAF, DEQ, DES, DDU & DDP), the seller has to bear all costs and risks needed to bring the goods to the place of destination. All terms list the sellers and buyers obligations. The respective obligations of both parties have been grouped under up to 10 headings where each heading on the sellers side mirrors the equivalent position of the buyer. Examples are Delivery, Transfer of risks, and Division of costs. This layout helps the user to compare the partys Respective obligations under each Inco terms.

Bibliography :