ITPD

Project Report On SHIPPING PROCEDURE

Submitted to:Mr. Amit Kumar

Submitted by:Ravi Kumar Tiwary PGDM (IB) FT (IB)-11-335

INTRODUCTION
India has a mission to capture 2% of the global share of trade by 2010, up from the present level of less than 1%. Export is one of the lucrative business activities in India. The government also provides various promotional schemes to the exporters for earning valuable foreign exchange for the country and for meeting their requirements for importing modern technology and essential inputs. Besides, the income from export business is also exempted to the specified extent under the Income Tax Act, 1961, Refund of Central Excise and Custom Duty on export is also made under the Duty Drawback Scheme of the Government. There is no Sales Tax on products meant for exports. International market involves various types of trade documents that need to be produced while making transactions. Each trade document is differ from other and present the various aspects of the trade like description, quality, number, transportation medium, indemnity, inspection and so on. So, it becomes important for the importers and exporters to make sure that their documents support the guidelines as per international trade transactions. A small mistake could prove costly for any of the parties. For example A trade document about the bill of lading is a proof that goods have been shipped on board, while Inspection Certificate, certifies that the goods have been inspected and meet quality standards So, depending on these necessary documents, a seller can assure a buyer that he has fulfilled his responsibility whilst the buyer is assured of his request being carried out by the seller.

TWO CLASSES OF EXPORTS

Physical Exports:
If the goods physically go out of the country or services are rendered outside the country then it is called as physical export.

Deemed Exports:
Where the goods do not go out of the country physically they can be termed as deemed exports. This will be subject to certain conditions as prescribed by the DGFT. Under Deemed Exports, the goods may be supplied to the manufacturer exporter who ultimately export a finished product of which this supply forms a part and ultimately go out of the country. E.g. Supply of fabrics to the garment exporter who exports the garments made out of the said fabric. The government may announce from time to time the types of supplies that may be considered as deemed export. The Foreign Trade Policy gives the list of supplies considered under the Deemed Export Category. The policies and procedures are different for Physical Exports and Deemed Exports as also the benefits available. In a nutshell, Deemed Exports do not enjoy all the benefits that are available under Physical Export. The Foreign Trade defines exports as taking out of India any goods by land, sea, air. Although the act does not term them as Physical Exports, we have to put phrase to distinguish it from Deemed Exports which is sales in India but considered as exports for limited purpose.

TYPES OF EXPORTERS
Exporters can be basically classified into two groups Manufacturer Exporter: As the exporter has the facility to manufacturer the product he intends to export and hence he exports the products manufactured by him. Merchant Exporter: An exporter who does not have the facility to manufacture an item. But, he procures the same from other manufacturers or from the market and exports the same.

An exporter can be both a manufacturer exporter as well as a merchant exporter, he can export product manufactured by him or he can export items bought from the market. Once it is decided to export, it is mandatory on your part to follow certain procedures, rules and regulations as prescribed by various regulatory authorities such as DGFT, RBI, and Customs. These procedures, rules and regulations are laid down in the Exim Policy 2004-09, Exchange Control Manual, and Customs Act etc. Accordingly Export documents are required to be prepared keeping in view of the requirement of the foreign buyers and our regulatory authorities.

What is Export Documentation

The paperwork that is required for an export sales transaction The means by which the shipping process is facilitated and recorded. Documentation is essential for moving goods through the channels of distribution, transferring responsibility or possession, clearing goods through customs, and facilitating payment according to the agreed upon terms

Purpose of Export Documentation

Export documentation provides evidence that the negotiated terms between the buyer and the seller have been complied with

This is essential if the seller wishes to get paid

 Export documentation provides important information that is used by the seller, the freight companies, governments, and the buyer

Export Shipment Procedure

The point of emphasis here is that an exporter has to follow certain procedural
routines while executing an export shipment and therefore and he must be fully aware of the drill.

1. Enquiry 2. Quotation 3. Order Receipt and Acceptance 4. Finance, Production and Packing 5. Excise Clearance 6. Export Documents 7. Cargo Insurance and Shipping Space Reservation 8. Customs Clearance 9. Receipt of Shipment Documents from C&F Agent 10.Shipment Advice to Buyer 11.Presentation of Shipment Documents to the Negotiating Bank

12.Presentation of Documents for Payment to Foreign Bank by the Negotiating Bank 13.Export Incentives

Function

Customs clearance of export/import cargo Consolidation of cargo Advice on shipping/air routes Booking of ship/air space Inland haulage in both countries Loading/offloading activities Cargo Insurance Warehousing facilities both local and foreign Packing/Repacking Activities Documentation Services Attending to Port Formalities Helping exporter with filing claims for export incentives Assist in pre-shipment inspection by buyer nominated agency Represent shipping companies to offer one window services

Services Offered
Air Freight Forwarding Custom Clearance Packing Shipping Multi Modal Transport Facilities Warehousing

We have good relationship with the following consolidators:

Expeditors International American Consolidators Service Maersk Logistics India Ltd Fritz Panel Pina Orient Consolidation Service

We have good relationship with the following Liners:

Maersk India Ltd

 American President Line Evergreen Shipping P&O Nedloyd

Steps in the Documentation process

Receive the order under accepted terms & consult with a banker or a freight forwarder. Begin organizing information for required export documents and export license applications. Evaluate modes of transportation, requirements for perishable products, and cost of various alternative modes. Prepare goods for shipping (marking / labeling, packing, consolidating / containerizing, insuring) Complete and forward required export documents

Transport goods to port of export Complete Customs documentation Transfer goods to carrier Ship goods and forward appropriate export documents Unload goods at foreign port. Clear customs. Transport goods from foreign port to intermediate and/or ultimate consignee

Note: Responsibility for different steps in the documentation &

shipping process depends on the terms of sale & the method of payment and collection 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.

Commercial Documents
Commercial documents are required for effecting physical transfer of goods and their title from the exporter to the importer and the realization of export sale proceeds. Out of the 16 commercial documents in the export documentation framework as many as 14 have been standardized and aligned to one another. These are proforma invoice, commercial invoice, packing list, shipping instructions, intimation for inspection, certificate, of inspection of quality control, insurance declaration, certificate' of insurance, mate's receipt, bill of lading or combined transport document, application for certificate origin, certificate of origin, shipment advice and letter to the bank for collection or negotiation of

documents. However, shipping order and bill of exchange could not be brought within the fold of the Aligned Documentation System.

Commercial Invoice
Commercial invoice is an important and basic export document. It is also known as a 'Document of Contents' as it contains all the information required for the preparation of other documents. It is actually a seller's bill of merchandise. It is prepared by the exporter after the execution of export order giving details about the goods shipped. It is essential that the invoice is prepared in the name of the buyer or the consignee mentioned in the letter of credit. It is a prima facie evidence of the contract of sale or purchase and therefore, must be prepared strictly in accordance with the contract of sale.

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. 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. 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. Certificate of Inspection is a document prepared on the request of seller when he wants the consignment to be checked by a third party at the port of shipment before the goods are sealed for final transportation.

In this process seller submit a valid Inspection Certificate along with the other trade documents like invoice, packing list, shipping bill, bill of lading etc. to the bank for negotiation On demand, inspection can be done by various world renowned inspection agencies on nominal charges

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

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.

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.

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 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 prefer ential 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 authorized Chamber of Commerce of the exporting country. Trade Association. Of the exporting country.

(b) Certificate of Origin for availing Concessions under GSP :Certificate of origin required for availing of concessions under Generalized System of Preferences (GSP) extended by certain, countries such as France, Germany, Italy, BENELUX countries, UK, Australia; Japan, USA, etc. This certificate can be obtained from specialized 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 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 Generalized 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 ensure that goods bought from some other country have not been reshipped by a seller, a certificate of origin IS required.

Bill of Lading
The bill of lading is a document issued by the shipping company or its agent acknowledging the receipt of goods on board the vessel, and undertaking to deliver the goods in the like order and condition as received, to the consignee or his order, provided the freight and other charges as specified in the bill have been duly paid. It is also a document of title to the goods and as such, is freely transferable by endorsement and delivery.

Bill of Lading serves three main purposes:

As a document of title to the goods; As a receipt from the shipping company; and
As a contract for the transportation of goods.

Types of Bill of Lading

Clean Bill of Lading: - A bill of lading acknowledging receipt of the goods apparently in good order and condition and without any qualification is termed as a clean bill of lading.

Claused Bill of Lading: - A bill of lading qualified with certain

adversary marks such as, "goods insufficiently packed in accordance with the Carriage of Goods by Sea Act," is termed as a claused bill of lading. Transshipment or Through Bill of Lading: - When the carrier uses other transport facilities, such as rail, road, or another steamship company in addition to his own, the carrier issues a through or transshipment bill of lading. Stale Bill of Lading: - A bill of lading that has been held too long before it is passed on to a bank for negotiation or to the consignee is called a stale bill of lading. Freight Paid Bill of Lading: - When freight is paid at the time of shipment or in advance, the bill of landing is marked, freight paid. Such bill of lading is known as freight bill of lading.

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. 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.

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.

Contents of Airway Bill

Name of the airport of departure and destination. The names and addresses of the consignor, consignee and the first carrier. 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. Amount of freight paid or payable.
Signature and initials of the issuing carrier or his agent.

Importance of Airway Bill

It is a contract between the airlines or his agent to carry goods to the destination. It is the document of instructions for the airline handling staff. It acts as a customs declaration form. Since, it contains details about freight it also represents freight bill.

Shipment Advice to Importer

After the shipment of goods, the exporter intimates the importer about the shipment of goods giving him details about the date of shipment, the name of the vessel, the destination, etc. He should also send one copy of non-negotiable bill of lading to the importer.

Packing List
The exporter prepares the packing list to facilitate the buyer to check the shipment. It contains the detailed description of the goods packed in each case, their gross and net weight, etc. The difference between a packing note and a packing list is that the packing note contains the particulars of the contents of an individual pack, while the packing list is a consolidated statement of the contents of a number of cases or packs.

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. 2.

The drawer: The exporter / person who draws the bill. 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.

4.

Holder of the Bill: The person who is in possession of the bill

Types of bill of exchange

On the basis of the due date there are two types of bill of exchange:

Bill of exchange after Date: In this case the due date is counted from the date
of drawing and is also called bill after date Bill of Exchange after Sight: In this case the due date is counted from the date of acceptance of the bill and is also called bill of exchange after sight

Auxiliary Documents

These documents generally form the basic documents based on which the commercial and or regulatory documents are prepared. These documents also do not have any fixed formats and the number of such documents will wary according to individual requirements.

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 license or foreign exchange.

1.

Intimation for Inspection: Whenever the consignment requires the

pre-shipment inspection, necessary application is to be made to the concerned inspection agency for conducting the inspection and issue of certificate thereof.

2.

Declaration of Insurance: Where the contract terms require that the

insurance to be covered by the exporter, the shipper has to give details of the shipment to the insurance company for necessary insurance cover. The detailed declaration will cover:

Name of the shipper \ exporter. Name & address of buyer. Details of goods such as packages, quantity, value in foreign currency as well as in Indian Rs. Etc. Name of the Vessel \ Aircraft.
Value for which insurance to be covered.

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.

Principal requirement for a Certificate of Origin

The certificate must provide that the information required by the credit and be consistent with all other document, it would normally include: The name of the company and address as exporter The name of the importer Package numbers, shipping marks and description of goods to agree with that on other documents Any weight or measurements must agree with those shown on other documents It should be signed and stamped by the Chamber of Commerce

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.

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.

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.

Shipping Instructions
At the pre-shipment stage, when the documents are to sent to the CHA for customs clearance, necessary instructions are to be give with relevance to The export promotion scheme under which goods are to be exported. Name of the specific vessel on which the goods are to be loaded. If goods are to be FCL or LCL. If freight amount are to be paid / collected. If shipment are covered under A.R.E.-1 procedure. Instructions for obtaining Bill of Lading etc.

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 buyers 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 buyers bank if available. If the documents are sent L/C or on open terms. If the proceeds are too adjusted against any pre-shipment packing credit loan. If the bill amount is to be adjusted against any forward exchange cover.

Regulatory Document

Regulatory pre-shipment export documents are prescribed by the different government departments and bodies in order to comply with various rules and regulations under the relevant laws governing export trade such as export inspection, foreign exchange regulation, export trade control, customs, etc. Out of 9 regulatory documents four have been standardized and aligned. These are shipping bill or bill of export, exchange control declaration (GR from), export

application dock challan or port trust copy of shipping bill and receipt for payment of port charges.

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. Exporter's 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 colors have been provided to different kinds of shipping bills:

Types of goods
Drawback shipping bill Dutiable shipping bill Duty-Free shipping bill

By Sea

By Air

Green Yellow White

Green Pink 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

1) Shipping bill is the main customs document, required by the customs authorities for granting permission for the shipment of goods. 2) The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e. certified by the customs.
3) Duly endorsed shipping bill is also necessary for the collection of export

incentives offered by the government.

4) It is useful to the Customs Appraiser while determining the actual value of

goods exported.

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.

Exchange Control declaration For (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.

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.

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, drivers license details etc.

Bank Certificate of Realization

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 realization of the export proceeds. This certificate is required for obtaining the benefit under various schemes and this value of fob is reckoned as fob value of exports.

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 realization 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 realization.

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.

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 authorized mission, stationed in the exporters country.

Special Provision under Uniform Customs and practice for Documentary Credit UCP-500, for Commercial Invoice. Article-37: Commercial Invoice o Must appear on their face to be issued by the beneficiary named in the credit. o Must be made out in the name of the applicant.
o Need not be signed

Banks may refuse Commercial Invoice issued for amounts in excess of the amount permitted by the credit except otherwise stated. The description of the goods in the commercial invoice must correspond with the description of the credit. In all other documents the goods may be described in the General in general terms not inconsistent with description in the credit. In all documents goods may be described in general terms not inconsistent with the Description of the goods in the credit.

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. Name and address of the authorized dealer through whom proceeds of exports have been or will be realized should be specified in the relevant column of the form.

 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. 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 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. All documents relating to the export of goods from India must pass through the medium of an authorized dealer in foreign exchange in India within 21 days of shipment. The amount representing the full export value of goods must be realized within six months from date of shipment.

OCTROI
Octroi is the local tax levied by the civic body on goods entering into the city. There are three procedures for clearing goods which are meant for export.

Procedure 1, Export on payment of octroi duty and refund thereof after export.

 Pay the Octroi Duty and apply for refund of payment made. At Octroi Naka form B is issued with cash receipt for the payment of Octroi Duty. Cargo is moved to the docks. At Docks Octroi officer prepares formC & endorses Shipping Bill Number & Steamers Name. After shipment exporter prepares claim for refund by submitting following documents: Covering Letter for refund of Octroi Duty. Original receipt of Octroi paid. Original Form B. Original Form C. Invoice under which material was bought to the city. Export invoice issued by the Exporter to the importer. Export Promotion Copy of Shipping Bill Photo Copy. Bill of Lading or Airway Bill Copy.

Procedure 2, Export without payment of Octroi Duty.

N Form Procedure
Prepares form N in 3 copies. Checking of documents Shipping Bill, Carting order, Export Invoice by Octroi officer. Under taking that the goods will be cleared for export within 7 days of clearance through the octroi post.

 Octroi officer at Docks will endorse the Shipping Bill number & shipment details on N form. Proof of export... N form with above endorsement to be submitted to the Head Office along with copies of Shipping Bill, Bill of Lading, Export Invoice etc.

Procedure 3
E.P (Export Promotion) Form.
Registration form + IEC / RCMC + CA Certificate. Number will be allotted.
Fees Rs. 500/-

Documents Checked
Factory Challan cum Invoice. ARE 1. EP forms 3 copies. Export order. Shipping Bill.

Consignment Removed to Docks and Proof of Export to be given to Octroi authorities.

Companys Letter. EP form. EPC. Bill of Lading.
Shipping Bill 6.25% Service charge.

Bar Coding
It is the endeavor of the Central Government to enhance export competitiveness of the Indian products and to promote substantially. Compliance with prevalent international best practices. National task force has recommended adoption of Bar-coding for all Indian products within five years. Bar coding, using International Symbologies / Numbering, systems would enable timely and accurate capture of product information and its communication across the supply chain ahead of physical product flow.
With the ultimate objective of facilitating adoption of Bar-coding for all

products using international Symbologies numbering systems all exports of finished and packaged items meant for retail sale shall incorporate barcodes from a date to be notified by DGFT.

QUALITY CONTROL AND PRE-SHIPMENT INSPECTION

Realizing the importance of the need for supplying quality goods as per international standards, the Government of India has introduced Compulsory Quality Control and Pre-Shipment Inspection of over 1050 items of export under Export (Quality Control and Pre-Shipment Inspection) Act 1963.

At present, the export items that are subjected to compulsory inspection includes food and agricultural products, chemicals, engineering, coir, jute and footwear.

Compulsory Pre-shipment Inspection:

Foods and Agriculture & Fishery Mineral & Ore Organic & Inorganic Chemicals Refectories & Rubber Products Foot wear & Foot wear components Ceramic Products & Pesticides Light Eng. Products Steel ;Products Jute Products Coir & Coir Products

Exemption from compulsory Pre-shipment Inspection:

Status Houses Certification by Units IPQC approved by EIA EUO/EPZ/SEZ Firm Letter from the overseas buyer Specified products such as Eng/Fishery average level of Rs.1.5 Cr. for the last three years no compliant.

For monitoring pre-shipment inspection, Govt. of India has set up Export Inspection Council (EIO) The EIC has set up 5 Export Inspection Agencies (EIA). The EIAs are located one each at Mumbai, Calcutta, Cochin, Delhi and Chennai. The EIAs has a network of nearly 60 offices throughout India. Each EIA is given certain jurisdiction for inspection purpose. For instance, EIA of Mumbai has jurisdiction over Maharashtra, Gujarat and Goa.

Systems of Quality Control:

For the purpose of pre-shipment inspection, EIC has recognized three systems of inspection namely: Self-Certification In-Process Quality Control Consignment Wise Inspection

Self-Certification:
Under this system, complete authority is given to the manufacturing units to certify their own products and issue certificates for export. The manufacturing units which have been recognized under this scheme have to pay a nominal yearly fee at the rate of 0.1% of FOB price subject to minimum of Rs.2,500/- and maximum of Rs.1 lakh in a year to the concerned EIA

In-Process Quality Control (IPQC):

In this system, companies/units adjusted as having adequate level of quality control right from raw material stage to the finished product stage including packaging are eligible to get the inspection certificate on a formal request by the exporter. Over 800 units all over India are operating under this system. Constant vigil and surveillance are kept on units approved under IPQC and selfcertification system. Units approved under the above two systems are often known as Export worth Units, because of their consistent standards of quality.

Consignment wise Inspection:

Under this system, each and every consignment is subject to compulsory inspection. The exporter has to follow a certain procedure such as: He has to make an application to Export Inspection Agency with certain documents. The EIA deputes inspector to inspect the goods After the inspection, the goods are repacked with EIA seal The inspector then makes a report to Deputy Director of EIA The Dy. Director of EIA then issues Inspection Certificate in triplicate if the inspection report is favorable If the inspection report is not favorable, a rejection note is issued.

SHIPPING AND CUSTOMS FORMALITIES

(As per the Prevailing Law i.e., ICA 62)
The shipment of export cargo has to be made with prior permission of, and under the close supervision of the custom authorities. The goods cannot be loaded on board the ship unless a formal permission is obtained from the custom authorities. The custom authorities grant this permission only when it is being satisfied that the goods being exported are of the same type and value as have been declared by the

exporter or his C&F agent, and that the duty has been properly determined and paid, if any.

The custom procedure can be briefly explained as follows:

Submission of Documents:
documents include: ARE-1 (Original and duplicate)

The exporter or his agent submits the

necessary documents along with the shipping bill to the Custom House. The

Excise gate pass (Original and duplicate transporters copy Proforma Invoice Packing List GRI form (Original and duplicate) Customs Invoice (where required in the importing country) Original letter of credit/contract Declaration form in triplicate Quality Certificate Purchase memo Labels License (if any required) including advance license copy Railway receipt/lorry way bill Inspection Certificate by Export Inspection Agency

Verification of Documents:

The Customs Appraiser verifies the

documents and appraises the value of goods. He then makes an endorsement of

Examination Order on the duplicate copy of shipping bill regarding the extent of physical examination of the goods at the docks. All documents are returned back to the agent or exporter, except Original Copy of GR to be forwarded to RBI Original copy of shipping bill One copy of commercial invoice

Carting Order: The exporters agent has to obtain the carting order from the
Port Trust Authorities. Carting Order is the permission to bring the goods inside the docks. The carting order is issued by the superintendent of Port Trust. Carting Order is issued only after verifying the endorsement on the duplicate copy of shipping bill. The Carting Order enables the exporters agent to cart goods inside the docks and store them in proper sheds.

Storing the Goods in the Sheds:

docks.

After securing the carting order, the

goods are moved inside the docks. The goods are then stored in the sheds at the

Examination of Goods: The exporters agent then approaches the customs

examiner to examine the goods. The customs examiner examines the cargo and records his report on the duplicate copy of the shipping bill. The customs examiner then sings the Let Export Order

Let Export Order:

The Let Export Order is then shown to the Customs

Preventive Officer, along with other documents. The CPO is in charge of supervision of loading operations on the vessel. If CPO finds everything in order,

he endorses the duplicate copy of shipping bill with the Let Ship Order This order helps the exporter/shipper to load the goods on the ship.

Loading Goods: The goods are then loaded on the ship. The CPO supervises
the loading operations. After loading is completed, the Chief Mate (Cargo Officer) of the ship issues the Mates Receipt. The Mates Receipt is sent to the Port Trust Office. The C&F agent pays the port trust dues and collects the mates receipt. The C&F agent then approaches the CPO and gets the certification of shipment of goods on AR Forms and other documents

Obtaining Bill of Lading:

The Mates Receipt is then handed over to the

shipping company (on whose vessel the goods are loaded). The shipping company issues bill of lading. The Bill of Lading is issued in: 3 negotiable copies of Bill of Lading 10 to 12 Non-negotiable copies of Bill of Lading. The negotiable copies have title to goods; whereas non-negotiable copies do not have title to goods but are used for record purpose.

PROCEDURE OF EXCISE CLEARANCE:

The common procedure of excise clearance under bond and under rebate is discussed as follows:

Preparing of Invoice: The export goods have to be cleared from the factory
under invoice. The invoice contains details like name of the exporter, value of goods, excise duty chargeable, etc. The invoice is to be prepared in triplicate. In

case of export under Bond, the invoice should be marked as For Export without payment of duty. In addition to the invoice, a prescribed for ARE 1 has to be filed in by exporter.

Filling up of ARE-1 form (Annexure-20): The ARE-1 form needs to

be filled in four copies. A fifth (Optional) may be filled in by the exporter, which can be used at the time of claiming other export incentives. The ARE-1 copies have distinct color for the purpose of verification and processing.

Application to Assistant Commissioner of Central Excise (ACCE):

The exporter has to make an application to ACCE regarding the removal of goods from the factory/warehouse for export purpose.

Information to Range Superintendent of Central Excise (RSCE): The ACCE will inform the RSCE under whose jurisdiction
are intended to be cleared for export the goods

Deputation of Inspector: The RSCE will then depute an inspector to clear

the goods, either at the factory or warehouse, or in certain cases at the port.

Processing of ARE-1 Form:

follows:

The Excise Officer/Inspector will make

endorsement on all copies of ARE-1. The handling of ARE-1 Form is done as

The inspector returns the original and duplicate copies to the exporter The triplicate copy is sent to officer (ACCE or Maritime Commissioner (MCCE) to whom bond was executed or letter of undertaking (LUT) was given. This copy

can also be handed over to the exporter in a tamper proof sealed cover to be submitted to ACCE/MCCE. The 4th copy will be retained by the excise inspector. The 5th copy is also handed over to the exporter. At the time of export, original, duplicate and the 5th copy (optional) will be submitted to customs officer. The customs officer will examine these copies and then export will be allowed. The customs officer will then make endorsement of export on all copies of ARE-1. He will cite shipping bill number and date and other particulars of export on ARE1 The original copy and quintuplicate (optional) will be returned to the exporter. The duplicate copy will be sent directly to the ACCE\MCCE i.e. excise officer with whom bond was executed will get 2 copies, one from RSCE (or excise inspector) when goods are cleared from factory and other Custom Officer after export. This will enable him to keep track to ensure that all goods cleared from factory or warehouse without payment of duty are actually exported. In case of export after payment of duty, under claim of rebate, the basic procedure is same as above, except that the triplicate copy (by excise inspector) and duplicate copy (by customs officer) will be sent to the officer to whom rebate claim is filed. If claim of rebate is by electronic submission, these copies well are sent to excise rebate audit section at the place of export.

Refund or Release of Bond: The exporter should make an application to

the excise officer for refund or release of bond. The application must be supported by original copy of ARE-1 form. The excise officer crosschecks the original copy

of ARE-1 form and the duplicate and triplicate copies of ARE-1 form, which he had received earlier. If the copies match, then refund is given or the bond is released.

FACTORY STUFFING OF CARGO

Clearance of goods to docks: If the goods meant for export is of a small
quantity which may not be sufficient to make one full container, the cargo is said to be less than container load (LCL) cargo. Such cargo has to be taken to the docks where the goods will be consolidated (combining the cargo of other exporters to make up quantity for a full container) by the agent and loaded into a container. Here the examination of the cargo is done at the docks. (There are also inland container depots approved by the customs where the goods can be consolidated and stuffed into the container by the agent under the supervision of the customs officer) If the goods meant for export is of sufficient quantity to make up a full container, the exporter has the option to take the goods to the docks and get them examined

And stuffed into a separate container. An exporter gets the benefit on the freight amount for a full container. (Generally called box rate) Alternatively, he can have a container allotted to him and get the same to his Mills Premises. The goods meant for exports can be stuffed into the container under the supervision of the regional Central Excise Authority. Here the exporter has to

 Obtain permission from the Customs for getting the container to his mills premises for stuffing (House Stuffing) Inform the C.Excise Authorities at least 24 hours before bringing the container for loading.

The C.Excise Authority will supervise the loading, seal the container and certify the invoice as directed in the permission given by the custom authorities. A special Lock is used to lock the doors of the container. Samples from the goods will be drawn, if necessary, as required under the customs permission. Such samples will be sealed and forwarded along with the container. The examiner in the docks may arrange to send the sample for testing. Then the container is moved to the dock for loading. Generally, such containerized goods are not subject to further examination in the customs. They will be directly taken for loading.

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 Documentary Bills Letter of Credit Open Account Counter Trade

PAYMENT IN ADVANCE
This method does not involve any risk of bad debts, provided entire amount has been received in advance. At times, a certain per cent is paid in advance, say 50% and the rest on delivery. This method of payment is desirable when: The financial position of the buyer is weak or credit worthiness of the buyer is not known. The economic/ political conditions in the buyers country are unstable. The seller is not willing to assume credit risk, as in 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 sellers market situation).

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 Marine Insurance policy and other document, if required. There are two main types of documentary bills: 1) Documents against Payment,
2) Documents against Acceptance.

Documents against payment (D/P): The documents are released to the

importer against payment. This method indicates that the payment is made against Sight Draft. Necessary arrangements will have to be made to store the goods, if a delay in payment occurs. The risk involved that the importer may refuse to accept the documents and to pay against them. The reason for non-acceptance may be political or commercial ones. In India, ECGC covers losses arising out of such risks. Under this system, as compared to D/A, the exporter has certain advantages: The document remain in the hands of the bank and the exporter does not lose possession or the ownership of goods till payment is made, Other reason may include that the exporter may not be able to allow credit and wait for payment.

Documents Against acceptance (D/a): The document is released against

acceptance of the Time Draft i.e. credit allowed for a certain period, say 90 days.

However, the exporter need not wait for payment till bill is met on due date, as he can discount the bill with the negotiating bank and can avail of funds immediately after shipment of goods. In case of D/A as compared to D/P bills, the risk involved is much greater, as the importer has already taken possession of goods which may or may not be in his custody on the maturity date of the bill. If the importer fails to pay on due date, the exporter, will have to start civil proceedings to receive his payment, if all other alternatives fails. The risk involved can be insured with ECGC.

LETTER OF CREDIT (L/C):

This method of payment has become the most popular form in recent times; it is more secured as company to other methods of payment (other than advance payment). A letter of credit can be defined as an undertaking by 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.

PREPARATION AND SUBMISSION OF DOCUMENTS FOR BANK NEGOTTIATION /PURCHASE

Document against exports should normally be realized through an authorized dealer foreign exchange. However payment of export can be received directly from the overseas buyer in the form of bank draft, pay order, bankers cheque, personal cheque foreign currency notes, foreign currency travelers cheque, etc. Without

any monetary limit provided the exporters track record is good, he is a customer of the authorized dealers through whom documents are to be negotiated and prima facie the instrument of payment represents export proceeds realization. Take care to submit various documents in a proper manner and within the prescribed time schedule. Apply to the Reserve Bank for extension of time in case you feel there is likely to be a delay in realizing export proceeds.

The following are the steps in realizing export proceeds: Approaching a Bank:
After dispatch of the goods, either by sea, or by air,

the exporter should approach his bank (authorized dealer) with a formal request to realize sale proceeds from the foreign buyer. It is obligatory to submit the shipping documents to an authorized dealer within 21 days of the date of shipment (subject to certain exceptions). In India, the exporters have to realize the full value of exports within 180 days from the date of shipment, (unless the payment terms offered are deferred payment terms). Where it is not possible to realize the sale proceeds within the prescribed period, the exporter should apply for extension in prescribed form ETX (in duplicate) to RBI.

Submission of Documents to the Bank:

the following documents Bill of Exchange Full set of Bill of Lading Commercial Invoice Copies Certificate of Origin Insurance Policy

The exporter should submit

 Inspection Certificate Packing List GR (duplicate copy to forward it to RBI) Bank Certificate
Other relevant documents.

The above documents need to be submitted in two complete sets, because it is customary to dispatch two sets of documents, one after the other. This is because, if one set is misplaced or delayed in transit, the importer can get at least the other set and clear the goods.

Verification of Documents:

The bank will verify the documents to find

Whether the required documents are in order. Whether the required documents are attested by customs and other authorities.

Letter of Indemnity:

If the exporter wants immediate payment from his

bankers, then his bankers may provide advance payment only when the exporter signs an indemnity letter. The implications of an indemnity letter is that in the event of refusal of payment by the issuing bank in respect of LC, then the negotiating bank can ask the exporter to pay back the money advanced along with necessary charges.

Common Document Discrepancies

Credit Expired Late shipment

 Presented after permitted time from date of issue of shipping documents Short Shipment Credit Amount Exceeded Underinsured Description of goods on invoice differ from that of credit Mark and numbers differ between documents Bill of lading, Insurance documents, Bill of Exchange not endorsed correctly Absence of Documents called for under credit. Insurance certificate submitted instead of policy. Weight in different document differs. Class of Bill of lading no acceptable-charter party or House B/L. Insurance cover expressed in currency other than that of credit. Absence of signature, where required on documents. Bill of exchange not drawn as per tenor stated in credit. Bill of exchange drawn on wrong party. Insurance risks covered not being those specified in credit. Absence of freight paid statement on B/L in CFR of CIF shipment. Bill of lading doses not carry shipped on broad stamp. Amount shown on invoice and bill of exchange differ. Shipment not make to port specified. Transshipment/part shipment undertaken where expressly forbidden.

Discounting of bills:

the bank may discount or negotiate the bills drawn

against LC, and make immediate payment to the exporter, if so required.

Dispatch of documents:

before the submission of documents for

negotiation/collection, the bank examines them thoroughly with reference to the terms and conditions of the buyers order. Letter of credit and the laws relating to foreign exchange control. If any scrutiny, the documents are in order, the bank dispatches them to its overseas branch/correspondent branch as early as possible. The overseas branch of the bank then submits the document to the importers bank, and the importers bank hands it over to the importer.

SHIPMENT THROUGH COURIERS

In addition to the exporter by sea, air, rail or road, exports are also allowed by courier under the courier imports or exporters (clearance) Regulation Act, 1998.

These regulations shall apply for clearance of goods carried by authorized courier on outgoing flights on behalf of exports. Consigner for a commercial consideration. Export Terms & conditions:

Export of any item can be affected by courier, except the following.

Goods which are subject to cess. Goods proposed to be exported with claim of duly drawback. Goods proposed to be exported under DEPB, EPCG, AL (Advance License) Where the value of goods is more than Rs. 25,0000/ Goods where weight of individual packet is more than 32 kg.

THE ECGC COVER

The abbreviated form for Export Credit and Guarantee Corporation is ECGC. As the name indicates this is a sort of guarantee or a sort of cover for the exporter. Let us now see what this is all about. Needless to say that an exporter before entering into a contract with the overseas buyer for making any supply, takes care to ensure that the customer with whom he

is dealing have some credit worthiness. This he may be able to do either through the local agent who is in a better position to know about the customer or through a bank or through any of the exporters associates if happens to be in the area of the customer etc., But, in a business things may change. The financial status of a customer may take drastic turn and an established customer may go bankrupt within a short period of time. Moreover, the buyer may be willing to make the payment, but there is other environment which prevents him from effecting the transfer of funds through the bank. For e.g., there could be break out of war, the balance of payment position of the country may become unfavorable, there may be some coup of the government etc., and all transactions could be sealed. These are the risk factors for the exporters. What is the guarantee that he will get paid for the supplies he has made? With a view to provide support to Indian exporters, the Govt. of India set up the Export Risk Insurance Corporation (ERIC) in 1957. This was transformed into Export Credit & Guarantee Corporation Ltd. in 1964. In order to give the Indian identity a sharper focus the name was again changed to Export Credit & Guarantee Corporation of India Ltd., in 1983. This is a company wholly owned by the Govt. of India and functions under the administrative control of the Ministry of Commerce and managed by the Board of Directors representing Government, Banking, Insurance, Trade, Industry etc. Though one may insist for a Letter of Credit, still there could be some elements of risk which we will study later here. Except getting an advance payment for the full value of the supplies, any other mode of payment will have some risk.

Take the case of an exporter who has made supplies and before the payment is received the buyer goes bankrupt or there comes some new provision or policy of Government of the importing country preventing repatriation of the funds to other countries what recourse the exporter has to recover his dues. The litigation procedure might be time consuming and the exporter can never be sure of getting his full payment. An ECGC cover a safeguard his interest to a great extent. An exporter can either agree for sight payment or can made shipment on credit terms for say 60 days, 90 days etc., in project exports the period of payment may extend to some years. Longer the period of cre3dit given to the customer, more will be the risk factor for the exporter. In respect of sight bill, there is almost no risk because the customer has to make payment first before he retires the documents. Therefore, before the title of the goods is passed on to the customer, the importer makes the3 payment. However, in respect of usance bill (credit bills) the buyer retires the documents by accepting the usance draft and takes delivery of the goods. In case the customer goes bankrupt or become insolvent, before the due date of payment, the exporter is totally at a loss. While big units may be able to absorb the onetime loss, small exporters will get broke even with one such transaction. Here the ECGC comes into picture. It takes up the responsibility of paying the funds to the exporter and makes all efforts including legal proceedings to recover the dues from the customer, provided the exporter has taken an ECGC cover.

SHIPMENTS (COMPREHENSIVE RISKS) POLICY also called STANDARD POLICY

For exporters with an annual export turnover in excess of Rs.50 lakhs, the Shipments (Comprehensive Risks) Policy is the one intended for covering shipments on cash basis or on short-term credit basis. (Credits not exceeding 180 days) The risks covered this Policy is as follows effective from the date of shipment:

Commercial Risks
Insolvency of the buyer
Failure of the buyer to make payment within a specified period. Buyers failure to accept the goods subject to certain conditions.

Political Risks
Imposition of restrictions by the Govt. of the buyers country or any government action which may block or delay the transfer of payment made by the buyer. War, civil war, revolution or civil disturbances in the buyers country New import restrictions or cancellation of a valid import license

HOW TO GET ECGC COVER

Step 1. Open Policy:
An exporter desiring to get the ECGC cover has to approach the office of the ECGC making a Proposal. He must make his home work and be clear as to what will be his total turnover during a year and what will be the maximum amount he expects to be outstanding from various buyers at a given point of time. Once this is

clear he can apply for an Open Policy for the maximum amount that he expects to be outstanding at a given point of time. Suppose, he expects that at any given time his outstanding will be say Rs.50/- lakhs then he can apply for a policy for this amount. After verification of the details of the exporter, the ECGC may issue a open policy for Rs.50 lakhs with a validity of say 2 years. This is the first step.

Step 2. Credit Limit on Individual Buyer

Once the open policy is taken, as a next step the exporter must make out the list of the customers to whom he expects to make shipment. For each and every customer he has to apply to the ECGC to have a limit of liability fixed. That is to say, he has to declare the maximum amount of bills he expects to be outstanding from each customer at a given point of time. Based on the value of business dealing, suppose the exporter expects that from customer A the outstanding may be Rs.10 lakhs. Then the exporter has to apply to ECGC in the prescribed form for getting limit fixed for the customer. On receipt of the application, ECGC will check for the credit worthiness of the customer either through their own net work of offices globally, or through the customers bank or through some reputed independent agency. Based on the credit report, ECGC will determine the limit that can be fixed for the customer. If it feels that a limit of Rs.10 lakhs is in order, it will advise the exporter of the same. Similarly, the exporter can have the limit fixed to all his customers. Once the limit is taken from ECGC, the exporter is free to make his shipments to the various customers. If shipment for any customer is made before getting the limit fixed by ECGC, no risk will be covered for that shipment.

Step 3 Payment of Premium and filing of monthly returns

For the risk the ECGC takes, it charges a premium on the value of the shipments actually made. This is calculated as per the table to be supplied by ECGC which shows the premium per Rs.100 of exports. This table which gives the premium amount payable is framed based on the following. The various countries around the globe are divided into different groups and are classified as A1, A2, B1, B2, C1, and C2 & D. The countries are grouped according to their economic standard. For e.g. USA. Canada, UK are grouped in category A. The premium amount will be less for group a countries and will be increased gradually to group B, C & D countries. The premium for group D countries will be more because they are all economically weaker countries and payment risks are high Again the premium table is based on the period of credit. The slab is for credits up to 90 days, 120 days, 180 days etc. Longer the credit period greater is the premium. Thus, the premium will be least for group countries and for the shorter credit period and will be maximum for group D countries and for maximum credit period

VARIOUS POLICIES OFFERED BY ECGC

STANDARD POLICY

An exporter whose annual export turnover is more than Rs.50 lakhs is eligible for this policy Period of the Policy: Exclusions permitted: 24 Months Export to Associates Letters of Credit Consignment Exports Risk Covered: Commercial Risks Political Risks LC Opening Bank Risks Percentage of Cover: Minimum Premium: 90% Rs.10, 000/- adjustable

Important Obligations of the Exporter

Obtaining valid credit limit on buyers and banks Monthly Declaration of shipments and payment of premium Declaration of payment overdue by more than 30 days Filing of claim within 24 months Sharing of recovery

Highlights

 Lowest Premium Rate NCB OF 5% every year Discrepancy cover of LC Automatic Approval for resale/shipment up to 25% of GIV Increased discretionary limit

SMALL EXPORTERS POLICY

Period of the Policy: 12 Months

Exclusions Permitted: Exports to Associates Letters of Credit Consignment Exports Risk Covered: Commercial Risks Political Risks LC Opening Bank Risks Percentage of Cover: 95% for commercial risks 100% for political risks Minimum Premium : Rs.2, 000 adjustable

Important Obligations of the Exporter:

Obtaining valid credit limit on buyers and banks Quarterly Declaration of shipment and payment of premium. Declaration of payment overdue by more than 30 days

 Filing of claim within 24 months Sharing of recovery.

Highlights
Highest coverage/compensation Lowest premium rate NCB of 5% every year Discrepancy cover for LC Automatic approval for resale/shipment up to 25% of GIV Increased discretionary limit

SPECIFIC SHIPMENT POLICIES SHORT TERM (SSP-ST)

These policies can be availed of by exporters who do not hold our Standard Policy or by exporters having standard policy, in respect of shipment permitted to be excluded from the purview of the standard policy. Exporters can pick and choose the contract/shipment to be covered and indicate the type of cover required. Period of Policy : The policy would be valid for shipment(s) made from the date of the policy up to last date allowed under the relevant contract for shipment. Risk Covered: Commercial Risks Political risks

LC Opening Bank Risk Insolvency risk on agent on conditions 80%

Percentage of Cover:

Important Obligations of the exporters:

Upfront premium payment Statement of shipment made Payment Advice slip Statement Of Overdue Filing of Claim within 12 months from due date Sharing of recovery

Highlights:
Selection for Insurance cover Other exports not to be declared Add on Marine Insurance Cover Premium rate reduced proportionately on higher share of loss to exporter.
4.

EXPORTS (SPECIFIC BUYERS) POLICY

The specific buyer policy provides cover for shipments made to a particular buyer or set of buyers. An exporter not holding the standard policy can avail of this to cover their shipments to one or more buyers. Exporters holding Standard Policy can also avail this Policy for covering shipments to individuals Buyers, if all shipments to such buyers have been permitted to be excluded from the purview of the Standard Policy.

Period of the Policy: Risk Covered:

12 Months Commercial Risks Political Risks Insolvency or default of LC Opening Bank

Percentage of Cover:

80%

Important Obligation of the Exporters:

1. Deposit Premium on Quarterly in advance 2. Submission of shipment declaration quarterly 3. Declaration of payment overdue for more than 30 days 4. Filing of the within 12 months from due date 5. Sharing of recovery

Highlights:
1 Selective buyer can be insured 2 Option to exclude LC exports 3 Premium rate can be reduced proportionately 5.

EXPORTS TURNOVER POLICY

Turnover Policy is for the benefit of large exporters who contribute not less than Rs.10 lakhs per annum towards premium. The policy envisages projection of the export turnover of the policyholder for a year and the initial determination on the

premium payable on that basis, subject to adjustment at the end of the year based on actual. Period of the Policy Risk covered: : 12 Months Commercial Risks Political Risks LC Opening Bank Risks Percentage of Cover: 90%

Important Obligation of the Exporter

1. Premium will be payable in four equal quarterly installments in advance 2. Submission of quarterly statement of shipments 3. Declaration of overdue payments 4. Filling of claim within 24 months from due date 5. Sharing of recovery

Highlights:
1. Simplified procedure for payment of premium 2. 10% of projected premium is waived when exports increase beyond projection 3. Increased discretionary limit

MULTI-BUYER EXPOSURE POLICY

Some exporters export to large number of buyers. The number of shipments made by them is also quite high. In order to meet the needs of such exporters, Multi buyer exposure policy is introduced. Cover would be available for exports to the buyers in countries listed under open cover category as long as the buyer is not in default buyers list maintained by the Corporation and available on its website www.ecgcindia.com. If the transaction is on LC terms, failure of the LC opening bank in respect of exports against LC will also covered, For banks with World Rank up to 25000 as per Latest Bankers Almanac Cover in respect of exports to restricted over countries would not be available under this policy Period of Policy: Risk Covered: 12 Months Buyer Risks Political Risks LC Opening Bank Risks Percentage of Cover: 80%

Important Obligations of the Exporters:

1. Premium payable in advance 2. Option to pay the premium quarterly in advance is available 3. Premium non refundable 4. Obtaining approval for extension is due date beyond 180 days 5. Declaration of overdue payments 6. Filing of claim within 12 months from due date 7. Sharing of recovery

Highlights:
1. Policy is best suited for exporters who make frequent shipments 2. Reduced premium rates available on conditions 3. 5% reduction on total premium on lump sum payment 4. No declaration required 5. All buyers in open countries covered on conditions 6. Protection up to Aggregate Loss Limit and Individual buyer up to 10% of all.

MATURITY FACTORING
The Maturity Factoring scheme, as designed by ECGC has unique features and does not exactly fit into the conventional mould of maturity factoring. The changes devised are intended to give the clients the benefits of full factoring services through the maturity factoring scheme, thus effectively addressing the needs of exporters to avail of pre- finance (advance) on the receivable, for their working capital requirements. One important feature is the very role and special benefits envisaged for banks under the scheme. Benefits: 100% credit guarantee protection against had debts Sales register maintenance in respects of factored transaction Regular monitoring of outstanding credits, facilitating collection of receivable on due date, recovery, at its own cost, of all recoverable had debt