Submitted to:-

Mr. Amit Kumar

Submitted by:-

Ravi Kumar Tiwary

PGDM (IB)

FT (IB)-11-335

ITPD

Project ReportOn

SHIPPING PROCEDURE

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.

What is Export Documentation

Accordingly Export documents are required to be prepared keeping in view of the

requirement of the foreign buyers and our regulatory authorities.

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

Export documentation provides evidence that the negotiated terms between

the buyer and the seller have been complied with

Purpose of Export Documentation

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

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

Export Shipment Procedure

Function

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

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

Services Offered

Represent shipping companies to offer one window services

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:

Steps in the Documentation process

Maersk India Ltd

American President Line

Evergreen Shipping

P&O Nedloyd

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

Commercial Documents

Note: Responsibility for different steps in the documentation &

shipping process depends on the terms of sale & the method of

payment and collection

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 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

EXPORT DOCUMENTS

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’ preferential tariff

rates in the foreign market at the time importation.

The goods produced in a particular country are banned for import in the

foreign market.

Types of the Certificate of Origin

(a) Non-preferential Certificate, of Origin: - Non-preferential certificate

of origin is required in general by all countries for clearance of goods by the

importer, on which no preferential tariff is given. It is issued by: ¬

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

2. The drawee: The importer / person on whom the bill is drawn for

payment.

Auxiliary Documents

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

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

buyer’s country which may include

Name and address of the buyer.

Details of various documents being sent and the number of the copies

thereof.

Name and address of the buyer’s bank if available.

If the documents are sent L/C or on open terms.

If the proceeds are too adjusted against any pre-shipment packing credit

loan.

If the bill amount is to be adjusted against any forward exchange cover.

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

Regulatory Document

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 By Sea By Air

Drawback shipping bill Green GreenDutiable shipping bill Yellow PinkDuty-Free shipping bill White Pink

Contents of Shipping Bill

Name and address of the exporter.

Name and address of the importer.

Name of the vessel, master or agents and flag.

Name of the port at which goods are to be discharged.

Country of final destination.

Details about packages, description of goods, marks and numbers, quantity

and details of each case.

FOB price and real value of goods as defined in the Sea Customs Act.

Whether Indian or foreign merchandise to be re-exported

Total number of packages with total weight and value.

Significance of Shipping Bill

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, driver’s 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.

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

Other Document

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 exporter’s 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 form”C” & 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.

Company’s 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 self-

certification 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: The exporter or his agent submits the

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

documents include:

ARE-1 (Original and duplicate)

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 exporter’s agent has to obtain the carting order from the

Port Trust Authorities. Carting Order is the permission to bring the goods inside

the docks. The carting order is issued by the superintendent of Port Trust. Carting

Order is issued only after verifying the endorsement on the duplicate copy of

shipping bill. The Carting Order enables the exporter’s agent to cart goods inside

the docks and store them in proper sheds.

Storing the Goods in the Sheds: After securing the carting order, the

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

docks.

Examination of Goods: The exporter’s agent then approaches the customs

examiner to examine the goods. The customs examiner examines the cargo and

records his report on the duplicate copy of the shipping bill. The customs examiner

then sings the “Let Export Order”

Let Export Order: The Let Export Order is then shown to the Customs

Preventive Officer, along with other documents. The CPO is in charge of

supervision of loading operations on the vessel. If CPO finds everything in order,

he endorses the duplicate copy of shipping bill with the “Let Ship Order” This

order helps the exporter/shipper to load the goods on the ship.

Loading Goods: The goods are then loaded on the ship. The CPO supervises

the loading operations. After loading is completed, the Chief Mate (Cargo Officer)

of the ship issues the “Mate’s Receipt”. The Mate’s Receipt is sent to the Port

Trust Office. The C&F agent pays the port trust dues and collects the mate’s

receipt. The C&F agent then approaches the CPO and gets the certification of

shipment of goods on AR Forms and other documents

Obtaining Bill of Lading: The Mate’s Receipt is then handed over to the

shipping company (on whose vessel the goods are loaded). The shipping company

issues bill of lading. The Bill of Lading is issued in:

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 the goods

are intended to be cleared for export

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

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

Processing of ARE-1 Form: The Excise Officer/Inspector will make

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

follows:

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 5 th 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 buyer’s 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 seller’s 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 importer’s bank stating that

payment will be made to the exporter if the required documents are presented to

the bank within the variety of the L/C”.

PREPARATION AND SUBMISSION OF

DOCUMENTS FOR BANK NEGOTTIATION

/PURCHASE

Document against exports should normally be realized through an authorized

dealer foreign exchange. However payment of export can be received directly from

the overseas buyer in the form of bank draft, pay order, banker’s cheque, personal

cheque foreign currency notes, foreign currency traveler’s cheque, etc. Without

any monetary limit provided the exporter’s track record is good, he is a customer

of the authorized dealers through whom documents are to be negotiated and prima

facie the instrument of payment represents export proceeds realization. Take care

to submit various documents in a proper manner and within the prescribed time

schedule. Apply to the Reserve Bank for extension of time in case you feel there is

likely to be a delay in realizing export proceeds.

The following are the steps in realizing export proceeds:

Approaching a Bank: After dispatch of the goods, either by sea, or by air,

the exporter should approach his bank (authorized dealer) with a formal request to

realize sale proceeds from the foreign buyer. It is obligatory to submit the shipping

documents to an authorized dealer within 21 days of the date of shipment (subject

to certain exceptions). In India, the exporters have to realize the full value of

exports within 180 days from the date of shipment, (unless the payment terms

offered are “deferred payment terms”). Where it is not possible to realize the sale

proceeds within the prescribed period, the exporter should apply for extension in

prescribed form ETX (in duplicate) to RBI.

Submission of Documents to the Bank: The exporter should submit

the following documents

Bill of Exchange

Full set of Bill of Lading

Commercial Invoice Copies

Certificate of Origin

Insurance Policy

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 buyer’s order. Letter of credit and the laws relating to

foreign exchange control. If any scrutiny, the documents are in order, the bank

dispatches them to its overseas branch/correspondent branch as early as possible.

The overseas branch of the bank then submits the document to the importer’s bank,

and the importer’s bank hands it over to the importer.

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 exporter’s associates if happens to be in the area of the

customer etc., But, in a business things may change. The financial status of a

customer may take drastic turn and an established customer may go bankrupt

within a short period of time.

Moreover, the buyer may be willing to make the payment, but there is other

environment which prevents him from 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.

Buyer’s failure to accept the goods subject to certain conditions.

Political Risks

Imposition of restrictions by the Govt. of the buyer’s 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 buyer’s 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 customer’s 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: 24 Months

Exclusions permitted: Export to Associates

Letters of Credit

Consignment Exports

Risk Covered: Commercial Risks

Political Risks

LC Opening Bank Risks

Percentage of Cover: 90%

Minimum Premium: 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

Percentage of Cover: 80%

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: 12 Months

Risk Covered: 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 : 12 Months

Risk covered: 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: 12 Months

Risk Covered: 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