PROJECT REPORT

ON

“EXPORT PROCEDURE & DOCUMENTATION”

AT

(SUBMITTED IN THE PARTIAL FULFILLMENT FOR THE AWARD OF

MASTER’S DEGREE IN BUSINESS ADMINISTRATION)

UNDER THE GUIDANCE OF: SUBMITTED BY:

Mr. ANIL WATS (GM-EXPORTS) CHAYAN MEHTA
Mr. NANDA KUMAR (AGM- EXPORTS) BHAGWANT DEEP SINGH
Mr. MUKESH ARORA (DGM- LOGISTICS)

MANAV-RACHNA INTERNATIONAL UNIVERSITY

FACULTY OF MANAGEMENT STUDIES

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 ACKNOWLEDGEMENT

I am very thankful to all those involved who have enabled me to successfully complete

my project on ‘Export Procedure & Documentation’.

I would like to express my sincere gratitude to Mr. NANDA KUMAR and Mr.

MUKESH ARORA without whose support and encouragement I would not have achieved what

I have today.

I am heartily thankful to the whole unit of LUCKY EXPORT for the warm response

they had given me to complete my summer training. I am also thankful to Mr. ANIL WATS

(GENERAL MANAGER – EXPORTS ) for giving me opportunity to undertake this project in

his reputed organization.

I would also like to express my humble thanks to my guides Mrs. ANINDITA

CHATERJEE and Mr. MANISH SHARMA ( PROJECT MENTOR) for the invaluable time

they devoted to me helping me to better understand the depth of the requirement of the project

and elucidating my uncountable doubts.

TABLE OF CONTENTS

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S.No. Particulars Page No.

01. Acknowledgement 2

02. Executive Summary 4

03. Statement Of Obejective 5

04. Focus Of The Study 6

05. Company Profile 7

06. Research Methodology 13

07. Procedure Of Exports and Its Documentation 17

1. Pre-Export Activities 24
2. Processing Of Export Order 28
i. Stage 1st -- Confirmation of Export Contract 28
ii. Stage 2nd – Sourcing of Export Order 30
iii. Stage 3rd – Dispatching 31
iv. Stage 4th – Pre Shipment Operations 34
v. Stage 5th – Custom Clearance 61
vi. Stage 6th – Post Shipment Operations 66
3. Work Flow Chart of Company 69

08. Modes Of Payment 70

09. Government Incentives For Exports 72

10. Summary 76

11. Conclusion 88

12. Limitations of the Study 89

13. Bibliography 90

EXECUTIVE SUMMARY

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The present study is a comprehensive study of EXPORT DOCUMENTATION AND

PROCEDURE . The research work is done in collaboration with LUCKY EXPORT to assess the

overall export procedure & documentation. On concentrating the objective of project, the

maximum information is summed up sequentially. The executive summary of the study

describes...

Objective

The main objective of the study is to formulate the overall procedure of export orders say ‘how

to export’, documentation, modes of payment & incentives from Govt. of LUCKY EXPORT.

Research Methodology

Research comprises defining and redefining problems. Research purpose is to discover answer to

question through the procedure of scientific procedure. Interviews and discussion with the

supervisors and officials to get the root of the pre-determined objective and in order to outline

the ‘a to z’ steps of processing export order.

Findings & Recommendations

On the execution of the objective of study, it might be conclude that processing of export order

can be a tedious and costly activity. A careful planning and implementation of appropriate

procedure can reduce time and cost drastically. A fair documentation not only reduces the threats

of frauds, bottlenecks and risks but also enhances the business relationship between Exporters,

Importers & Governments in the whole world.

STATEMENT OF OBJECTIVES

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 The complexity of business operations greatly accentuate as businessmen cross the

national boundaries. A lot of formalities and modalities of several organizations have to be

compiled to and as error can create bottle necks in the free flow of goods, documents,

information and payments.

Documentation is definitely one of the prime specialized functions of international

business. The documents safeguard the interests of Exporter, Importer, Banks, Governments,

Transport Agencies, Insurance Agencies and Inspection Agencies.

Main Objective of the Study

The main objective of the training was to study the systematic export procedure &

documentation of a reputed export house say LUCKY EXPORT to overcome any kind of error,

bottleneck, frauds and mistake for the awareness and implementation of standardized rule-

regulations & documentation to contribute the integration of International Business up to any

extent.

Sub Objectives of the Study

The sub objectives of the study were:

• To study the department wise functions & sequential documentation for various

operations in export orders adopted by LUCKY EXPORTS.

• To study the standard modes of payment in export-import.

• To identify the incentives, discounts & duty drawbacks to exporters by the

Government.

FOCUS OF THE STUDY

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 The focus of the study was the formulation the multifunction procedure of an export unit

named LUCKY EXPORT. The focus of the study was on identifying the activities of different

divisions and departments of LUCKY EXPORT having an impact on the export procedure of

this unit. Focus was to outline the standard modes of payment for export houses. Researcher

analyzed the pre-export formalities and necessities for exportation. The project is an attempt to

formulate the ‘how to export’ concept finally to contribute to national and international economy

& business relationship.

COMPANY PROFILE

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Lucky Group is Government Recognized Trading House with diverse interest in trading. Their
group turn over from export is approximately USD. 50 Million. Their offices are in Moscow,
Sharjah & Khartoum besides corporate office at Noida (India) and representative offices in
various African countries like Ivory Coast, Senegal, Ethiopia.

Lucky Group of Companies, an India based Engineering, Procurement & Construction (EPC)
company was established in the year 1990. It is affiliated with:

1. Delhi Chamber of Commerce

2. Federation of Indian Export Organization
3. Confederation on Indian Industry
4. Federation of Indian Chamber of Commerce and Industry

It is ISO 9001:2008 certified and Star Export House status holder from Government of India
consecutively for the last 15 years.

The Lucky Group Companies are:

LUCKY EXPORTS

EXPOTEC INTERNATIONAL COPPICE TECHNOLOGIES

LIMITED PVT. LIMITED

LUCKY EXPORTS

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About the Company

Business Type: Manufacturer

Eng. Goods, Plants, Medical, Pharmaceutical.

Exporter
Eng. Goods, Plants, Medical, Pharmaceutical.

BOARD OF DIRECTORS

Lucky Group comprises of a Board of Directors perceptive to the dynamics of international

business. This body controls and provides strategic direction to all Group companies.

Dilawar Shaban Iqbal Shaban

Chairman of the Board President

Rafique Shaban Raza Shaban

Executive Director Executive Director

Saleem Shaban
Executive Director

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 VISION

AND

MISSION

VISION:

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To become respected global trading company that provides best of business solution delivered by
best-in-class people.

MISSION:
Our mission is to cater to the specific scrap metal needs of our customers and, at the same time,
to expand our sourcing points by creating strategic alliances with our key suppliers to best create
value for our clients.

Engineering Projects Division

Complete solutions to the Industrial sector through
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 • Consultancy Service
• Supply of Plants and Machinery
• Project Management

• Erection and Commissioning

• Training
• After Sale Services

Small and Medium (SME) Industry

• Food Processing Plants

o Tomato Processing Plants
o Potato Wafers Manufacturing Plants
o Squash Manufacturing Plants
o Pasta Making Plants
o Bread Making Plants
o Biscuit Making Plants
o Fruit Processing Plants
o Corn Flakes Making Plants
o Milk Processing Plants (Yoghurt, Cheese)
o Ice cream Plant
o Honey Processing Plant
o Rice Mill
o Wheat Flour Mill

• Printing and Stationery Industries

o Paper Carry Bag Making Plant
o Plastic Carry Bag Making Plant
o Envelopes Making Plant

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 o Exercise Book Making Plant
o Chalk Manufacturing Plant
o Gem Clip Manufacturing Plant
o Staple Pin Manufacturing Plant

Large Scale Industries

• Refrigeration and Cold Storage Plants

• Packaging Plants
• Pharmaceuticals Plants
• Textile Mills
• Cement Plants
• Leather Processing Plants
• Steel Rolling Mills
• Effluent Treatment Plants
• Printing Presses

Including Rehabilitation of old plants & Machinery in above sectors

RESEARCH METHODOLOGY

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 Research in a common parlance refers to a search for knowledge. Research can also be

defined as scientific and systematic search for pertinent information on the specific topic. So

research means careful investigation on inquiry especially through search for new fact in branch

of knowledge. Research is an academic activity and as such as term should be used in a technical

sense. “Research comprises defining and redefining problem, formulation hypothesis or

suggested solution, collection, organizing and evaluating data, make deduction and research

conclusion and careful testing the conclusion to determine whether they fit or not ”. Research

purpose is to discover answer to question through the procedure of scientific procedure.

As in live studies on LUCKY EXPORT. The LUCKY EXPORT did the research work

manually and intents to assess the overall potential and performance of this unit and desire.

Research has helped to portray accurately the characteristic of a particular unit. Research helped

to find out the problem faced by the unit, unit strength where they have competitive edge over

the other competitors, unit weakness where the unit has to improve how they need to turn them

into the opportunities.

Objective of the Research Methodology

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The main objective of the research methodology of this in-house training project is to evaluate

the Export Procedure and Documentation Operations of an Export Oriented Company. The

assessment of potential, procedures, documentation and the analysis of LUCKY EXPORT

demands a lot of time to be spent on observation of various activities and the process, the unit

engage into, interviews and discussion with the supervisors and officials to get to the root of

problem and in order to suggest corrective measure to LUCKY EXPORT . The research design

utilized for this specific study has been explained as follows….

RESEARCH DESIGN
The study is descriptive and empirical in nature with applied bias.

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Descriptive Study:

Descriptive studies are utilized when the researcher attempts to describe the state of affairs

without controlling the variables causing change. This study includes the survey and fact finding

inquires of different kind. The major purpose of descriptive research was description of the state

of affairs that exists in LUCKY EXPORT, the functional activities and procedure adopted and

the working of LUCKY EXPORT. Interviews were taken of the executive and various kinds of

facts were sought by this.

Empirical Studies:

An empirical research relies on experience or observation alone often without due regard for

system and theory. It is the data research coming up with the conclusion which is capable being

verified by observation and experiment. As in case of, the observation was done to find the

export procedure & documentation problem and the weakness. In this, help of various

departments was taken to observe the working and to deduce conclusion to suggest course of

action to . In this the fact were taken into hand from LUCKY EXPORT at their source and is

then utilized to infer desired information.

Collection of Data

The study has utilized both primary as well as secondary data for analyzing export performance,

procedure & documentation of LUCKY EXPORT.

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Primary Data: The primary data was collected through the interview techniques & personnel

meeting where the Heads of different functional departments, various executive are interviewed

and pretended information were collected pertaining to various aspects of export activities.

Secondary Data: It was collected through scanning, searching and disseminating information

through company research profile and company maintained data also in search information for

export procedure and export market related data was collected through the data compiled by

Government Manual, Export Import policy of DGFT, customs and excise manuals, RBI

exchange control Manual and other organization that compile data for various export oriented

activities and documentation.

Analysis Pattern

The nature of the project is of the subjective nature so for the analysis of the available data, the

use various statistical and mathematical and graphical techniques was not required. There were

no additional statistical and technical tool were considered for suitability of the procedure &

problem in order to achieve the desire objective. The study was of the qualitative aspect not the

quantitative. All the data was collected through interviews a secondary data so not tool were used

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 Export Procedure

&

Its Documentation

GATEWAYS TO GLOBAL MARKETS

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Exports are key to the economic survival of a nation. Exports not only help a country earn

foreign exchange, they help create jobs, peace, prosperity, and the power to influence.

To be successful in exporting and importing, it helps to know why so many export and import
businesses do not succeed. Success cannot be rushed by high hopes. Rather, it comes
incrementally.

The success of an export business is often attributed to luck. Work harder and there will be more
luck. The export success of Taiwan, China, Japan, South Korea, Germany and other countries
(areas) is not a miracle, it is the result of hard work. The business miracle will not happen
without working hard. However, success cannot be rushed by hard work.

The events in a large number of export offices worldwide are comparable to the events in a
football game. It is not unusual to see colleagues kicking responsibilities back and forth, just like
football players do the ball. It is important that employees' responsibilities are clearly spelled out
and that systems of operation are flexible in order to accommodate the rapidly changing needs of
world markets.

Dangers of Imbalance in International Trade

Trade surplus---favorable balance of trade---is an excess of exports over imports. Trade

deficit---unfavorable balance of trade---is an excess of imports over exports. In layperson's
parlance, the trade surplus means earn more and spend less, while the trade deficit means spend
more and less.

The trade surplus and deficit is analogous to one person's fortune is another person's misfortune.
The danger is imminent in either situation. A country with a record trade surplus is often
threatened with sanctions and trade barriers from a deficit-ridden importing country. A country
with a record trade deficit is usually faced with the internal social upheaval.

The imposition of trade barriers, such as import quotas and higher duties, is not a solution to
meeting the international challenge. The trade barrier will be confronted with a trade retaliation.
A trade retaliation will be faced with a counter-retaliation. The conflict will not end if an
agreement is not reached. The remedy to beat the trade imbalance is to understand foreign
cultures and business practices, and to provide competitive products and services.

It is a good practice to diversify export markets. Concentrating exports to only a few markets
poses imminent danger to an exporting country. Too much export concentration in a market
usually invites protectionist trade laws from the importing country. In case the importing country
imposes sanctions, the effect to the economy of the exporting country and the livelihood of its
people can be devastating.

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Changing Global Marketplace and Meeting Challenges

The world markets have changed enormously in the past decade. New markets have been opened
with the end of cold war. New economic blocks have been formed. New trading alliances are
shaping. Inevitably, a new way of thinking and approach to doing business is necessary in order
to survive in the fast changing economy.

Exports are key to the economic survival of a nation. A nation that exports more will grow
stronger. The stronger a nation is, the more recognition and respect it will earn.

 Increased Worldwide Competition

There can be no growth without competition. As the world population grows, which is
estimated at a rate of 1.7% annually, more products and services are needed. Business
people worldwide are keenly competing to fill these needs. World trade grew in volume at
an average of 5% annually over the past 25 years. With the end of cold war, more
resources worldwide are geared towards exporting. The export business has become more
competitive. Exporting becomes more challenging with continued population growth and
the addition of new exporters.

 Effects of Social Upheaval and Recession

Any form of instability in a country can ruin its economy and may place its international
trade in disarray. With the end of cold war, the earth has become a more peaceful place to
live. However, an alarming occurrence is the growing number of permanent lower class in
numerous countries, including in developed nations. The adverse effect of social upheaval
is paramount. It can undermine the economic progress of a nation. There is an urgent need
to stop the growing number of the lower class. The task requires a concerted effort from
the government and people. The task is not easily done.

The effect of recession is immense, businesses sink, dreams of a lifetime shatter, and the
lower class increases. Vigorous export promotions, increase in exports, and diversification
of export markets can help reduce the number of the lower class.

 Use of Terminology in Different Countries

The use of terminology differs from country to country. The term salesperson is easy to
decipher as the salesman or saleswoman, but it is a term that is unheard of in some
countries. The account manager is the sales representative, the buyer is the purchaser,
the accounting assistant is the bookkeeper, the human resources department is the
personnel department, the flat is the apartment, the chop is the stamp, the motor carrier
is the trucking company, and the letter carrier is the postman.

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  The Role of Export-Traders and Buying Trend

Export-traders play a crucial role in international trade. Prior to the 1970's when export
product quality was a common problem in many less developed countries, foreign buyers
relied on export-traders for product sourcing and pre-shipment inspections. The nature of
the order then normally was fewer items and more volume, that is, the number of items
was few and the quantity of each item was large. At that time, many manufacturers did
not know how to export, thus they relied upon export-traders for exporting, known as
indirect exporting.

There were far fewer exporters worldwide before the 1970's. The foreign buyers then did
not have many export sources from which to compare an offer. The export business was
lucrative due to much less competition. As time progressed, competition built. The
manufacturers competed on providing better quality products and lowering prices. The
price war made the traditional practice of single source of supply difficult for export-
traders to maintain. The export-traders changing the source of supply of similar products
from one manufacturer to the other became inevitable. The manufacturers needed to
survive and direct exporting was the solution. Many manufacturers started exporting
directly in the mid-1970's.

Export product quality in general improved markedly in the late 1970's. However, the
problem of quality remains a nightmare to some importers. During the oil crisis of the
late 1970's, there was a significant increase in the number of manufacturers who export
directly. Many foreign buyers deal directly with the manufacturers to save commission or
fees and/or markups of export-traders.

 Tools of Export-Import Communication

The telecommunication technology 'explosion' in the past decade has changed the way
people interact around the world. With new technology on hand, some of our prime tools
of export communication, for example telex (teletype exchange or teleprinter and
exchange), have become obsolete.

The telex, like a fax (facsimile) or an e-mail (electronic mail), uses a telephone line in
transmitting the messages. Telex was the 'e-mail of yesteryear'. But instead of a computer
screen, you have a roll of paper, which may come in duplicate, triplicate or quadruplicate,
either carbonless or the much older type having a carbon paper in between the sheets,
where the outgoing and incoming messages appeared, that is, where the messages are
typed. And instead of saving the typed message in a computer disk or hard drive, each
alphanumeric character that was keyed (typed) in a telex, aside from appearing on the
paper roll, is simultaneously translated and stored in a paper tape in coded form in a
series of punched holes. Keying a wrong character may mean retyping the message from
the beginning. The 'final' tape is rerun to send the message out or make additional copies
of the message. The advantage of having a 'final' tape is to save the transmission time and
cost. Or, you can send the message directly. Each character that was keyed (typed) will
instantly appear at the receiver's end. Therefore, as long as the line is 'on', the sender and

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 the receiver can 'talk' over the telex, that is, exchange messages over the telex while the
line is 'on'.Although the e-mail is popular nowadays, the fax remains as an important tool
of export communication in many countries.

STARTING AN EXPORT BUSINESS

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In exporting, it is not a prerequisite for a business to sell to its domestic market before selling
abroad. There are many successful export-traders and export-manufacturers, notably in Asia,
who have been selling their products entirely to the foreign markets.

Exporting is not for large companies only. Contrary to a belief that only large companies can
export, in fact there are more small and medium-sized companies than large companies in the
world that are engaged in exporting. The size of a company is not static. Most large companies at
one time were small companies. Not to mention, small and medium-sized companies are the
leading source of job creation in many countries.

 Export Phobia

Fear comes naturally to anyone new to exporting. Fear of the unknown, or lack of
information, is one of the reasons that many businesses that are doing well nationally are
reluctant to engage in exporting.

 Export Mindset

The business ground is a battleground. Exporting, like any other business, involves risks.
It is necessary to prepare for the challenges and the consequences. Engaging in exporting
is akin to engaging in a war. It is a war of price, quality, delivery and service. It is a battle
for the business orders. It is a fight for the company's survival---profits and growth. In
practice, rough strategies are often used by some exporters in order to win contracts.

TYPES OF EXPORT BUSINESSES

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Export businesses are mainly classified into export-traders, export-manufacturers and service-
exporters.

 Merchant Exporters (Traders)

The export-traders include the export companies known as trading houses, trading
companies, buying offices, buying agents, purchasing agents, resident buyers, sourcing
agents, export representatives, export distributors, export agents, export management
companies (EMCs), and manufacturers' representatives.

The export-trader operates on a buy-and-sell basis or a commission/fee basis, or a

combination of these two. In the buy-and-sell basis, the export-trader buys from export-
manufacturers and adds a markup to the export price. In the commission/fee basis, the
export-trader collects a commission or fee from the export-manufacturer or the foreign
importer, or from both of them without adding a markup to the price.

 Export-Manufacturers

Export-manufacturers include the manufacturers, producers, assemblers and processors

of export goods. Export-manufacturers either directly export the goods or indirectly
export the goods through the export-traders.

 Service-Exporters

Service-exporters include the banks, ocean shipping (steamship) companies, air cargo
companies or airlines, trucking companies, rail carriers, insurance companies, freight
forwarders or consolidators, consulting firms, and miscellaneous service companies.
Service-exporters provide services to export-traders and export-manufacturers.

PRE-EXPORT ACTIVITIES

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The planned group work for export order processing can greatly facilitate subsequent operations

and avoid the hassles associated with the process. The pre-export activities can be divided into

the following sets of activities:

A. Study Of Government Rules And Regulations

B. Identifying Various Parties And Liasion

C. Registration

D. Obtaining I/E Code Number.

A) Study Of Govt. Rules And Regulations

International trade is governed by a plethora of rules and regulations of various government

bodies of exporter and importer. A careful study of these as a pre-requisite of exports while the

rules governing exports will vary with commodity and importer country’s regulation, as a broad

frame work the most important Acts/Publications which must be consulted by an exporter in

connection with processing of an export order are :

a) Foreign trade(development and regulation) act, 1992

b) Customs act,1962

c) Carriage of goods by sea act, 1924

d) Foreign exchange regulations act, 1973 (now being replaced by FEMA and Money

Laundering Bills)

e) Schedule of charges of goods in respect of the port of shipment

B) Identifying Parties And Liasioning With Them

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Exports involve coordinated effects of a large numbers of interdependent organizations. The

main parties which are involved in export process are :

 The Exporter

 The Foreign Buyer

 The Negotiation Bank

 The Reserve Bank of India

 Director General of Foreign Trade

 The Collector of Customs

 The Port Commissioner

 Clearing & Forwarding Agents.

Besides these, other parties may also be associated depending on the nature of commodity

and rules guiding the export of the same. Examples of these bodies can be Inspection Agencies,

Export Promotion Council, Concor, Ministry of Agriculture etc.

C) Registration
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For stepping in the field of an export business, it is compulsory for a company to get registered

with Export Promotion Council related to the main product line with which they are dealing.

FUNCTION OF EXPORT PROMOTION COUNCIL:

The main function of EPC is to promote and develop the export of the related product

line for enhancing the export. They organize Trade Fairs with in India and Abroad. They

encourage the members registered with them to participate in Trade Fairs and advertise their

products in whole world. The main role of the EPC is to Project India’s image abroad as a

reliable supplier of high quality goods. The EPC keeps abreast of the trends and opportunities in

the foreign markets and circulate important information among its members.

APPLICATION & DOCUMENTS REQUIRED FOR REGISTRATION:

 Application form cum Membership form worth Rs.10

 A copy of PAN No. issued by income tax authorities duly

 Import Export Code Number

 Sales Tax Copy

 Bank draft of Rs.6000.

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D) Importer/Exporter Code Number

Every person / firm / company engaged in export business in India is required to obtain Import-

Export Code(IEC) No. from the Regional Licensing Authority concerned (Director General of

Foreign Trade). Custom authorities shall not allow clearance of goods to an importer or exporter

who does not posses IEC No. It is compulsory quote this Code Number in the relevant Bill of

Entry / Shipping Bill.

Applications and supporting Documents Required to Get IEC Number:

 Application form

 Commercial Bank Account Number(Current or Cash-Credit Account)

 Demand draft for payment of Rs.1000

 Certificate from the banker of the applicant in the format given in the application form.

 Two copies of passport size photograph of applicant duly attested by the banker of

applicant.

 Permanent Account No (PAN).

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 PROCESSING OF EXPORT ORDER

Stage-1st Confirmation of Export Contract

The exporter scrutinizes the export order with reference to the term & conditions

of the contract. According to section 4(1) of the Sale of Goods Act, 1930,” A contract of sale of

goods is a contract whereby the seller transfer or agree to transfer the property in goods to the

buyer for a price,” therefore, this Act includes both a ‘Sale’ and an ‘Agreement to sell’.

This is the most crucial stage. All subsequent actions and reactions will depend on
the terms and conditions of the export contract. It should be ensured that the contract has been
entered into in accordance with the prevalent export promotion policies of the country and the
foreign exchange regulations. The export order must specify the mode of the payment in
unmistakable terms such as letter of Credit, Documents of Payment, Documents against
Acceptance, etc. The specifications stipulated by the importer in the export order and the L/C
such as delivery schedule, packing, inspection, marking, etc., must be strictly adhered to. The
documents required by the foreign buyer must be prepared and submitted to the negotiating bank
in the exact specified form and manner.

ELEMENTS OF EXPORT CONTRACT

An export contract, as described above, should be as clear as possible. The various elements of it

should clearly define the duties and responsibilities of the parties; determine the exact point at

which the title and/or risk change from seller to buyer. The various elements of an export

contract are as follow:

1. Product, Standards and Specifications

2. Quantity

3. Inspection

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 4. Total Value of the Contract

5. Terms of Delivery/Commercial Terms

6. Taxes, Duties and Charges

7. Period of Delivery Shipment/Part Shipment etc

8. Packing Labeling and Marking

9. Terms of Payment-Amount, Mode & Currency

10. Discounts and Commissions

11. Licenses and Permits

12. Insurance

13. Documentary Requirement

14. Guarantee

15. Force Majeure or Excuse for Non-Performance of Contract

16. Remedies.

17. Arbitration.

Besides these main elements, an export contract may contain other elements

desired by the parties to the contract. Export order should be confirmed by the exporter only after

the terms and conditions of the L/C have been found to be in order.

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Stage-2nd Sourcing of Export Order

Upon confirmations of the export order preparations for the dispatch of goods are started. A

‘Delivery Note’ (in duplicate) or ‘Production Order’ is sent to the Work Manager or the Factory

manager. This note should contain the description of the goods as has been given in the export

order, along with a copy of the instructions given by the importer. The date by which the goods

must be manufactured, the date by which the necessary formalities must be completed, the

requisite time margins to be given and the shipment must be clearly intimated to Works manager.

This is what the manufacturers. The specifications and instructions to be intimated to the supplier

of export goods shall, however, remain the same. While sourcing the goods from suppliers,

merchant exporter has to lay down clear cut specifications of quality norms because the ultimate

accountability to the buyer is of the exporter only. In case of poor quality, the exporter may not

be in position to get repeat order from the foreign customers who have wide choice of the

exporters in the world market.

Sourcing of export order in LUCKY EXPORTS is based upon quality production

system. Merchandiser finals the export contract with his correspondent buyer and receives an

export order via fax, e-mail or courier. After receiving the export order, merchandiser orders a

production order to Production Manager in written form. This production order contains the

following entities:

 P.O. Number

 Invoice Number

 Product Name

 Product Specifications ( colour , size, weight etc)

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  Quantity

 Instructions(stitching, labeling etc)

 Dispatch Date

Required quantity is produced in fully by production unit after the

recommendation of production samples in accordance with order sample. Produced quantity is

delivered to Packing Department for dispatching operations.

Stage-3rd Dispatching
As the Production unit delivers the goods to Packing Department, the following

procedures are to be followed in order to dispatch the goods:-

1) Packing

The Packing Incharge receives the importer’s instructions for packing from the Merchandiser

and covers the following operations:

i) Final finishing of the goods(final passing, clipping etc)

ii) Tagging & Folding(according to importer’s instructions)

iii) Packing(Cartoon, bale or pair-packing)

2) Labeling

Specific marketing and labeling is used on report shipping cartons & containers to:

i) Meet shipping regulations

ii) Ensure proper handling

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 iii) Conceal the identity of contents

iv) Help receivers identify shipments

In overseas buyer usually specifies export marks that should appear on the cargo

for easy identification by receivers. Many markings may be needed for shipment. Exporters

need to put the following markings on cartons to be shipped:

 Shipper’s mark

 Country of origin

 Weight marking(in Lbs or Kgs)

 No. of packages & size of cases

 Cautionary markings such as ‘this side up ’ or ‘use no hooks’

(In English and in language of country of destination)

 Port of entry

3) Inspection

After packing and labeling, goods are inspected by the inspection agent or buying agent on

behalf of importer. That means importer sends his own agency to inspect the goods. The

inspector has right to open any of the carton or bale to verify the goods in accordance with

invoice, packing list and desired quality scale.

If he finds any defect he can send these goods for processing again, otherwise, he issues

Inspection Certificate. If buyer demands handloom certificate then exporter ask textile

committee to inspect the consignment and provide them handloom inspection certificate.

This certificate can be helpful to suit against importer in case of disputers or undue rejection

of goods by importer.

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4) Containerization

A container is an article of transport equipment, strong enough for the repeated use, to

facilitate handling and carriage of goods by one or other modes of transport.

Normally containers having following dimensions are used in handloom field:-

i) 20 ft. 26 cbm

ii) 40 ft. 54 cbm

iii) 30 ft. 60 cbm (high cube)

LUCKY EXPORTS makes use of container of 20 & 40 ft. il.(according to the goods to be

dispatched).

5) Locking of Containers

Before locking the container, excise authorities select 10% of rolls as samples and inspect

them. The samples are sent for further sub-mission to customs. After examination of cargo,

the excise seal along with the seal of shipping line on the container and endorse the excise

invoice, AR-2 form, gate-pass etc. The main check point in the excise documents are:-

 Name & Address of Consignee

 Destination

 Description of goods & Specifications

 FOB value of goods

 Quantity

 Movements of goods(from -- to --)

 Container no. & Truck no.

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  Identification marks & Excise no.

For additional security of goods, in transit, the doors of container are locked with the iron

rods with seals. In case of any shortage reported by the buyer and when a claim is required to

be filled, excise endorsed documents play extremely crucial role.

Stage-4th Pre-Shipment Operations

Documents used for Pre-Shipment

The singed with the buyer defines the specification of the goods to the supplied. On the basis of
this contract, invoice instructions are given the packing department packs the rolls depending on
these instructions, the validation of above instructions are done by pre-shipment department. On
linking the bales by packing department, the pre-shipment documents are generated, which
primarily includes shipment advice from, invoice, packing includes shipment advice from,
invoice, packing list etc.

1) Shipment Advice Form: It is a sort of covering letter, showing the list of

documents enclosed with it. It also contains some other details like Lorry Receipt No., RBI

Code No. B/L particulars etc. The shipping advice is particularly important in short-sea

trades, for example within the Asian countries where the goods may arrive at the port of

destination before the shipping documents, and in the ports of destination where theft and

pilferage of the imported goods is rampant.

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2) Letter of credit: A standard, commercial letter of credit is a document issued mostly

by a financial institution, used primarily in trade finance, which usually provides an

irrevocable payment undertaking. The letter of credit can also be source of payment for a

transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit

are used primarily in international trade transactions of significant value, for deals between a

35 | P a g e
 supplier in one country and a customer in another. They are also used in the land

development process to ensure that approved public facilities (streets, sidewalks, storm water

ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to

receive the money, the issuing bank of whom the applicant is a client, and the advising

bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e.,

cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank

and the confirming bank, if any.

Sample document LC:

THE MOON BANK

INTERNATIONAL OPERATIONS
5 MOONLIGHT BLVD.,
EXPORT-CITY AND POSTAL CODE
EXPORT-COUNTRY

OUR ADVICE NO. ISSUING BANK REF. NO. & DATE

MB-5432 SBRE-777 January 26, 2001

TO UVW Exports
88 Prosperity Street East, Suite 707
Export-City and Postal Code

Dear Sirs:
We have been requested by The Sun Bank, Sunlight City, Import-Country
to advise that they have opened with us their irrevocable documentary credit

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 number SB-87654
for account of DEF Imports, 7 Sunshine Street, Sunlight City, Import-Country
in your favor for the amount of not exceeding Twenty Five Thousand U.S. Dollars
(US$25,000.00)

available by your draft(s) drawn on us

at sight for full
invoice value

accompanied by the following documents:

1. Signed commercial invoice in five (5) copies indicating the buyer's

Purchase Order No. DEF-101 dated January 10, 2001.

2. Packing list in five (5) copies.

3. Full set 3/3 clean on board ocean bill of lading, plus two (2) non-negotiable
copies, issued to order of The Sun Bank, Sunlight City, Import-Country, notify
the above accountee, marked "freight Prepaid", dated latest March 19, 2001,
and showing documentary credit number.

4. Insurance policy in duplicate for 110% CIF value covering Institute Cargo
Clauses (A), Institute War and Strike Clauses, evidencing that claims are
payable in Import-Country.

Covering: 100 Sets 'ABC' Brand Pneumatic Tools, 1/2" drive,

complete with hose and quick couplings, CIF Sunny Port

Moonbeam Port, Export-Country to Sunny Port, Import-

Shipment from
Country
Partial shipment Prohibited
Transshipment Permitted

Special conditions:

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 1. All documents indicating the Import License No. IP/123456 dated January 18,
2001.
2. All charges outside the Import-Country are on beneficiary's account.

Documents must be presented for payment within 15 days after the date of
shipment.
Draft(s) drawn under this credit must be marked

Drawn under documentary credit No. SB-87654 of The Sun Bank,

Sunlight City, Import-Country, dated January 26, 2001

We confirm this credit and hereby undertake that all drafts drawn under and in
conformity with the
terms of this credit will be duly honored upon delivery of documents as specified, if
presented at
this office on or before March 26, 2001

Very truly yours,

Authorized Signature

Unless otherwise expressly stated, this Credit is subject to the Uniform Customs and
Practice for Documentary Credits, 1993 Revision, International Chamber of
Commerce Publication No. 500.

Letter of Credit Particulars:

a) Latest Negotiation Date

The latest negotiation date is the last day of the period of time allowed by the letter of
credit (L/C) for the presentation of documents and/or draft(s) to the bank. The latest
negotiation date is not necessarily the L/C expiry date. In the sample letter of credit the
latest negotiation date can be March 26, 2001 or 15 days after the date of shipment,
whichever comes first.

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 In case the L/C does not stipulate the latest negotiation, it is within 21 days after the date
of issuance of the transport documents, but on or before the L/C expiry date.

b) Expiry Date and Place

The expiry date and place is the last day of validity of the credit and the place allowed
by the letter of credit (L/C) for the presentation of documents and/or draft(s) for payment,
acceptance or negotiation. In the sample letter of credit the expiry date is March 26,
2001 and the place for presentation of document is Export-City, which is the
beneficiary's city.

In case the validity of an L/C is stated in a period of time, for example "this credit is valid
for three months" or "this credit is available for two months" or "this credit is good for
one month", but does not specify the date from which the time is to run, its validity starts
from the issuance date of L/C by the issuing bank. The bank normally discourages stating
the L/C validity in a period of time.

In case the expiry date and/or the latest negotiation date falls on a day on which the bank
is closed for reasons not including the acts of God, strikes, riots, civil commotions,
lockouts, insurrections, wars or any other causes beyond the bank's control, the expiry
date and/or the latest negotiation date is extended to the succeeding first day on which the
bank is opened. Such extension, however, does not extend the latest date of shipment.

c) Draft(s) Drawn On

The draft(s) drawn on answers the question "Which bank or who is the drawee (the
payer) of the draft?" The draft is most often drawn on the confirming bank or the issuing
bank. In some cases, the draft is drawn on the applicant. In the sample letter of credit the
draft is drawn on the confirming bank, which is The Moon Bank.

d) Draft(s) Drawn At

The draft(s) drawn at answers the question "The draft is drawn at what terms?" It can be
a sight draft (i.e., payment on demand or on presentation) or a term draft (i.e., payment at
a fixed or determinable future time). In the sample letter of credit the draft is drawn at
sight.

e) Draft(s) Drawn Under

The draft(s) drawn under answers the question "The draft is drawn under which credit
and the credit is of which bank?" In the sample letter of credit, the L/C requires that the
draft(s) be marked "Drawn under documentary credit No. SB-87654 of The Sun Bank,
Sunlight City, Import-Country, dated January 26, 2001" (please see the completed sample
draft).

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f) Latest Shipment

The latest shipment---latest date of shipment or last date for shipment---is the last
day of the period of time allowed by the letter of credit (L/C) for shipment, dispatch or
taking in charge. In the sample letter of credit the latest shipment date is March 19, 2001.

g) Port or Point of Origin and Port or Point of Destination

The port or point of origin is the port or place of loading, dispatch or taking in charge.
The port or point of destination is the port or place of discharge or delivery. Some of
the expressions that may appear in the letter of credit (L/C) indicating the origin and the
destination are:

 "shipment from ... to ..."

 "dispatch from ... to ..."
 "carriage from ... to ..."
 "delivery from ... to ..."
 "forward from ... to ..."
 "taken in charge at ... for transportation to ..."

In the sample letter of credit the origin is Moonbeam Port, Export-Country and the
destination is Sunny Port, Import-Country.

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3) Commercial Invoice: The commercial invoice is a record or evidence of transaction
between the exporter and the importer. Invoice is a bill for itemized goods or services. The

pre-shipment invoice is a shipment detailing the transaction.

It is one of the most important documents prepared and signed by exporter with

whose help other documents are prepared. The description of merchandise as given in the

commercial invoice must correspond to the description in the L/C and other documents must

contain the similar description are:

Specific Language Requirements in the Commercial Invoice

Certain importing countries may require that the commercial invoice and the packing list
be made out in, or translated to, the language of the importing country, for example, in
French for shipment to France, in Italian to Italy, and in Spanish to Mexico and
Venezuela.

Declaration on Commercial Invoice

The declaration on the commercial invoice for some countries must be in a specified
wording. The exporter may check the wording with the customs broker, the government
external trade department, or the foreign government trade office concerned in the
exporting country.

The content of a typical declaration includes a sworn statement from the exporter
indicating that the goods in question are manufactured in the exporting country, and that
the amount shown in the invoice is the true and correct value.

Certification and/or Legalization of Commercial Invoice

The letter of credit (L/C) from certain importing countries, in particular from the Middle
East, requires the certification and/or legalization of the commercial invoice.

The certification, which usually is performed by the local Chamber of Commerce of the
exporting country, is to confirm that the invoice and declaration (in the invoice) are
correct. The legalization, which is done by The Consulate or The Commercial Section of
the Embassy of the importing country, is to verify that the invoice is correct.

The certification and legalization are most often satisfied with a stamp or a seal on the
invoice and payment of a fee. The processing time may take one week

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Signature and/or stamp

The commercial invoice and packing list need not be signed, unless otherwise stipulated
in the letter of credit (L/C). In practice, the original and the copy of the commercial
invoice and packing list are often signed.

Description of Goods

The description of the goods in the commercial invoice must correspond with the
description in the letter of credit (L/C). In all other documents, the description can be in
general terms provided it is not inconsistent with the description in the L/C.

Shipping Marks & Numbers

• Quantity

If the letter of credit (L/C) does not stipulate the quantity in a stated number of units (i.e.,
it does not state in units such as piece, set, box, dozen, or gross), or unless the L/C
stipulates that the quantity of the goods specified must not be exceeded or reduced, a
tolerance of 5% more or 5% less quantity is permitted, provided the total amount does not
exceed the amount of the L/C.

In the sample L/C the stated quantity is 100 Sets, thus the quantity in the invoice must be
100 Sets. If such sample L/C does not state the quantity, the UVW Exports can ship
between 95 sets and 100 sets of pneumatic tools, but not over 100 sets as the total amount
will exceed the L/C amount of US$25,000. If such L/C does not state the quantity and the
L/C amount is US$26,250 or more, the exporter may ship between 95 and 105 sets.

If the L/C quantity is indicated using the words "about", "approximately", "circa" or
similar expressions, the quantity in the invoice cannot exceed 10% more or 10% less than
the quantity indicated in the L/C. For example, if the L/C quantity is "about 100 sets", the
quantity in the invoice can be any quantity between 90 sets and 110 sets, provided the
total amount does not exceed the amount of the L/C.

• Unit Price

If the letter of credit (L/C) unit price is indicated using the words "about",
"approximately", "circa" or similar expressions, the unit price in the invoice cannot
exceed 10% more or 10% less than the unit price indicated in the L/C. For example, if the
L/C unit price is "about US$250", the unit price in the invoice can be any unit price
between US$225 and US$275, provided the total amount does not exceed the amount of
the L/C.

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 • Amount

Unless otherwise stipulated in the letter of credit (L/C), the amount must not exceed the
amount permitted by the L/C. If the L/C amount is indicated using the words "about",
"approximately", "circa" or similar expressions, the amount of the invoice cannot exceed
10% more or 10% less than the amount indicated in the L/C. For example, if the L/C
amount is "approximately US$10,000", the amount of invoice can be any amount
between US$9,000 and US$11,000.

Explanations:
Fields in the Preamble of the Commercial Invoice

" For account and risk of Messrs. "

Enter the complete name and address of the importer (the consignee) in the field (For
account and risk of Messrs.). The title Messrs. stands for Messieurs in French meaning
gentlemen. It is used to address a business firm in a formal manner, the same way the title
Mr., Mrs. or Miss is used to address a person.

" Letter of Credit No. " , " Date " and " Issuing Bank "

Referring to the sample L/C, enter "SB-87654", "January 26, 2001" and "The Sun
Bank" in the respective fields in the documents. The sample L/C does not stipulate
indicating this information in the documents except the draft(s), thus UVW Exports may
choose not to enter it in the documents, but there is no harm if it is entered in the
documents.

" Import Permit/License No. " and " Date "

Referring to the sample L/C, enter "IP/123456" and "January 18, 2001" in the
commercial invoice and all other documents, including bill of lading and insurance
policy.

" Buyer's P.O. or Contract No. " and " Date "

The letter of credit may require the documents to show the purchase order (P.O.) or
contract number. Referring to the sample L/C, enter "DEF-101" and "January 10, 2001"
in the respective fields in the documents.

" Buyer's Department / Store No. "

The department or store number is often required when dealing with the chain stores. It is
the identification number of the store or branch of a chain store. The store number is used
in the routing of goods by the chain store. It identifies the store that places the order or to
which branch (of the chain store) the goods will be delivered.

43 | P a g e
" Shipment on or about "

Shipment on or about is the ETD (estimated time of departure) or the ETS (estimated
time of sailing). In practice, the date of loading on board, dispatch or taking in charge is
often regarded as the ETD.

" From (Port of Loading) " and " To (Port of Discharge) "

The port of loading is the port or point of origin and the port of discharge is the port or
point of destination. Referring to the sample L/C, enter "Moonbeam Port, Export-
Country" as the origin and "Sunny Port, Import-Country" as the destination in the
fields.

" Via (Tranship At) "

The via (tranship at) refers to the transhipping port or point in a transhipment. For
example, if a consignment destined for landlocked Afghanistan has to tranship at
Karachi, Pakistan, enter "Karachi, Pakistan" in the field.

" For Transhipment To "

For transhipment to is the final destination in the onward routing or carriage, which is
often the consignee's place (city).

44 | P a g e
4) Packing List: It is a document showing the details of goods contained in individual

packages, which helps customs authorities and receives in identifying the contents of specific

package.

It contains almost all the information provided in invoice along with details of

packing like:

 No. of bales or cartons

 Gross weight

 Net weight

 Dimensions etc.

For the purpose of explaining other fields in the packing list, it is assumed that the pneumatic
tools in the sample L/C contain the following data:

The catalogue or item number of the pneumatic tools is A380

Each set is in an inner box and there are two boxes in an export
master carton, or a total of 50 cartons for the 100 sets

Each master carton:

Net Weight (N.W.) ..... 20 kgs. (44.1 lbs.)

Gross Weight (G.W.) ..... 23 kgs. (50.7 lbs.)
Measurement (Meas.) ..... 0.113 CBM (4 cft.)
61 cms. x 61 cms. x 30.5 cms.
(2' x 2' x 1')
" Package No. "

The entries preferably arranged in sequence from the lowest number to the highest, that
is, from package No. 1 and up. From the sample L/C, enter "C/No. 1-50" or the like in
the field (Package No.), provided it is not inconsistent with the marks and numbers on the
master cartons.

45 | P a g e
" Item No. " and " Description of Goods "

The description of the goods in the packing list can be in general terms, provided it is not
inconsistent with the description in the L/C. From the sample L/C and data of the
pneumatic tools above, entering "A380" and "'ABC' Brand Pneumatic Tools" in the
fields will satisfy the requirements.

" Quantity "

It shows the total quantity within a stated range of the package number and the
breakdown in each package. The stated range is C/No. 1-50, enter:

100 Sets
2 Sets/Ctn.
or
100 Sets
2 Sets @ Ctn.

or the like in the field. The / and @ used here stands for per or each.

" Weight "

It shows the total weight within a stated range of the package number and the weight of
each package. The stated range is C/No. 1-50, enter:

1,150 Kgs.
23 Kgs./Ctn.
or
1,150 Kgs.
23 Kgs. @ Ctn.

or the like in the field and put a notation "Gross Weight".

As far as the carrier is concerned, the gross weight or measurement of a consignment is

needed to calculate the freight. In case the goods are assessed in the importing country or
exported on the net weight basis, it is necessary to show the net weight and gross weight
in the packing list. The entry may appear as:

N.W. 1,000 Kgs.

G.W. 1,150 Kgs.

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" Measurement "

Ocean shipments are most often charged by the cubic meter (CBM or cbm). Enter:

5.65 CBM
0.113 CBM/Ctn.

in the field (Measurement). Sometimes, it is necessary to include the size or dimensions

(length-width-height) of the master package. The entry may appear as:

5.65 CBM
0.113 CBM/Ctn.
@ 61 x 61 x 30.5 Cms.
The @ stands for at or each.

Some carriers may calculate the freight on a cubic feet (cft. or cu. ft.) basis. In the case of
an irregular shaped cargo, take the three widest dimensions that describe the smallest
cubic space enclosing the cargo to determine the measurement.

" Signature and/or Stamp "

The packing list and commercial invoice need not be signed, unless otherwise stipulated
in the letter of credit (L/C). In practice, the original and the copy of the packing list and
commercial invoice are often signed.

Summary of Totals in a Consignment

Total Number of Packages

For example a consignment where the range of the carton number is as follows:

- Product
C/No. 1-8
A
C/No. 9-17
- Product B
C/No. 18-23
- Product C
C/No. 24-30
- Product
C/No. 31-42
D
C/No. 43-
- Product E
50
- Product F
put a summary "Total 50 Cartons" in a succeeding row after the "C/No. 43-50".

47 | P a g e
Total Quantity

If a consignment consists of different units, preferably show all the units used in the
summary of totals. For example, a shipment includes:

- Product
100 dozen
A
200 dozen
- Product B
300 boxes
- Product C
400 boxes
- Product
D
as such the total shows "300 Dozen and 700 Boxes".

Total Weight and Total Measurement

If the net weight and gross weight are used in the breakdown, the summary must show
the total net weight and the total gross weight. If kgs., lbs., CBM and cft. are used in the
breakdown, the summary must show the total of kgs., lbs., CBM and cft..

Under certain circumtances, such as in a consignment consisting of a few master cartons

where each carton contains several small items of different sizes, it is necessary to show
the breakdown of the quantity of each item. There is no need to show the breakdown of
the weight and measurement of each carton. Simply entering the total weight and the total
measurement of the consignment in the summary row would satisfy the export
requirements.

48 | P a g e
5) ARE-1 Form: This document is prepared by exporter & it acts as a excise document.

This document contains details like:

 Description of package

 Marks and number on packages

 Gross weight

 Net weight

 Description of finished goods

 Value

 Invoice number and date

 Amount of rebate claimed under rule 18.

6 copies of this document are prepared which are as follows:

(1) Original (White) - is sent with container

(2) Duplicate (Buff) - is sent with container

(3) Triplicate (Pink) - to excise authority after proof

(4) Quadruplicate (Green) - shipment is obtained

(5) Quintuplicate (Blue) - kept for office record

(6) Sixtuplicate (Yellow) - to control excise authority

49 | P a g e
6) Bill of Exchange: A bill of exchange is also known as draft, which contains an order

from the exporter LUCKY EXPORTS to the importer to pay a specified amount to a person.

To whom it is directed to pay is called maker of a bill means exporter (LUCKY EXPORTS).

When the goods are shipped by Sea, the bills are drawn in sets and two mailed to

the foreign correspondent through an authorized dealer for presentation to the importer. A

bill of exchange is to two types:-

a) Sight Bill: When the importer makes the payment immediately after the draft

presented to him. It is called a sight bill.

b) Usance Bill: When the exporter (LUCKY EXPORTS) has agreed to give credit to the

foreign buyer, he draws a bill, which is called usance bill. A usance bill is drawn for

payment at a date later than the date of presentation. There is no aligned document for

draft; the same can be prepared by the exporter in the usual format.

Drafts Drawn On the Bank

In the sample L/C the draft is drawn on the confirming bank, which is The Moon Bank.
The UVW Exports may issue a draft drawn on The Moon Bank as follows:

Sample Instrument: Draft

50 | P a g e
 The "No." (number) in the above sample draft may be used for the exporter's reference
number. Blank drafts are available at the paying bank.

First of Exchange (Second Unpaid) and Second of Exchange (First Unpaid)

In practice, it is not uncommon that two drafts are drawn on the drawee bank in a letter of
credit (L/C) to ensure that at least one draft reaches the drawee when they are dispatched
separately. The issuance of more than one draft in a letter of credit follows the same logic
as in the issuance of bill of lading in more than one original. At times even three drafts
may be drawn on the drawee bank, this practice was not uncommon before in certain
countries.

In contrast, normally one draft (sola bill) is issued in a documentary collection where the
draft is drawn on the importer.

The sample draft shown above is the first draft, marked "First of Exchange (Second
Unpaid)" and the number "1". In the second draft, if any is issued, is marked "Second of
Exchange (First Unpaid)" and the number "2". Some drafts may not be numbered "1" or
"2".

The Letters of Undertaking Instead of the Drafts

In certain exporting countries, the government levy a heavy tax on drafts. In such a
circumstance, the exporter may request the importer to specify in his/her letter of credit
(L/C) application that "No drafts be issued". When the documents are presented to the
negotiating bank, the bank issues a letter of undertaking indicating when and where the
money will be paid, instead of accepting a draft drawn by the exporter.

'Availed' Term Drafts

The word "aval" in French means endorsement. A term draft accepted by the importer
does not guarantee payment on maturity, hence it is not readily accepted for discounting
or as collateral in a loan. The exporter may arrange to have the accepted draft to be
'availed' by the importer's bank---the bank adds its endorsement as guarantee of payment.
The 'availed' term draft can be readily discounted, thus providing the exporter with
immediate funds.

The Parties in the Collection of Drafts

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 • Drawer

The drawer is the party who issues the draft and to whom the payment is made. The
drawer is the seller (the exporter) and the payee of the draft. The payee could be another
party rather than the exporter, or could be the bona fide holder (the bearer) of the draft.

• Drawee

The drawee is the party who owes the money or agrees to make the payment and to
whom the draft is addressed (made out). The drawee is the buyer (the importer), the
acceptor and the payer of the draft in a documentary collection. In a letter of credit the
drawee most often is the confirming bank or the issuing bank, which is the acceptor and
the payer of the draft.

• Remitting Bank

The exporter's bank to whom the exporter sends the draft, shipping documents and
documentary collection instructions, and who subsequently relays them to the collecting
bank in a documentary collection is called the remitting bank.

The term remitting bank as used under a letter of credit may refer to a nominated bank
from whom the issuing bank or the confirming bank, if any, receives the shipping
documents.

Collecting Bank (Presenting Bank)

The bank in the importer's country (the importer's bank usually) involved in processing
the collection---presents the draft to the importer for payment or acceptance, and
thereafter releases the shipping documents to the importer in accordance with the
instructions of the exporter---is called the collecting bank or the presenting bank.

7) Certificates of Origin

The certificate of origin is a document certifying the country in which the product was

52 | P a g e
manufactured, and in certain cases may include such information as the local material and labor
contents of the product.

Some importing countries require a certificate of origin to establish whether or not a preferential
duty rate is applicable. A popular example of the certificate of origin is the Form A, which is
often called the GSP Form A.

The certificate of origin (C/O)is an alternative to the declaration or the certification and/or
legalization of the commercial invoice. The C/O is based on the rules of the country of origin.

The country of origin is the country where the goods are grown, produced or manufactured. The
manufactured goods must have been substantially transformed in the exporting country as the
country of origin, to their present form ready for export. Certain operations such as packaging,
splitting and sorting may not be considered as sufficient operations to confer origin.

The certificate of origin includes the Form A, Chamber of Commerce Certificate of Origin,
Exporter's Certificate of Origin, and Free Trade Market Certificate of Origin. The trade
agreement, import practice, and letter of credit (L/C) stipulation determine the type of C/O
needed.

Sample Form: Form A

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54 | P a g e
Free Trade Market Certificates of Origin

NAFTA Certificate of Origin

The North American Free Tree Agreement (NAFTA) Certificate of Origin is used within
the NAFTA countries (i.e., Canada, USA and Mexico). The form is available at the
customs office. It is self-certified by the exporter.

EC Certificate of Origin

The European Community (EC) Certificate of Origin, as its name implies, is used in the
European Community. It is issued by the Chamber of Commerce of the exporting
country, usually with payment of a fee.

EC countries consist of Belgium, Denmark, France, Germany, Greece, Ireland, Italy,

Luxembourg, Netherlands, Portugal, Spain, and United Kingdom.

Movement Certificates

Different Movement Certificates are being used in the European Union (EU)---EC
(European Community) and EFTA (European Free Trade Association) countries. The
certificates require endorsement by the customs of the exporting country.

EFTA countries consist of Austria, Finland, Iceland, Norway, Sweden, Switzerland, and
Liechtenstein.

55 | P a g e
DOCUMENT CONNECTED WITH TRANSPORTATION OF GOODS

• Air Way Bill (AWB) Air consignment Note.

The receipt issued by an airline or its agent for the carriage of goods is called airway bill or air
consignment note. It is issued in terms and conditions of the contract of carriage of goods. It
is not a document of title and it is not issued in a negotiable form.

Generally AWB is issued in three copies, viz; for the carrier, for the consignee and for the
consignor.

• Postal Parcel Receipt (PPR).

Like the AWB, the PPR evidence merely the receipt of the goods to be exported to the buyer
and is not a document of title.

• Bill of Lading (B/L).

A Bill of Lading is the most important document in Foreign Trade. It is generally issued by a
shipping company. It services as a receipt from the shipping company who undertakes to
deliver the goods at agreed destination on payment of freight in a prearranged manner and
also a document of title to the goods. B/L is generally made out in the sets of two or three
originals. All the originals are duly signed by the master of ship or the agent of the steamship
company and all the originals are equally valid for taking the delivery of goods and once one
original copy is utilized the other originals become full and void.

B/L is nor a negotiable instrument in terms of Negotiable instrument Act, However, it is a

practice to call the original copies as negotiable copies.

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Ocean (Marine) Bills of Lading
The bill of lading (in ocean transport), waybill or consignment note (in air, road, rail or sea
transport), and receipt (in postal or courier delivery) are collectively known as the transport
documents.

Please see the sample Ocean Bill of Lading below. The bill of lading (B/L) serves as a receipt
for goods, an evidence of the contract of carriage, and a document of title to the goods. The
carrier issues the B/L according to the information in a dock receipt, or in some cases according
to a completed working copy of the B/L supplied by the customs broker.

The B/L must indicate that the goods have been loaded on board or shipped on a named vessel,
and it must be signed or authenticated by the carrier or the master, or the agent on behalf of the
carrier or the master. The signature or authentication must be identified as carrier or master, and
in the case of agent signing or authenticating, the name and capacity of the carrier or the master
on whose behalf such agent signs or authenticates must be indicated.

Unless otherwise stipulated in the letter of credit (L/C), a bill of lading containing an indication
that it is subject to a charter party and/or that the vessel is propelled by sail only is not
acceptable.

57 | P a g e
Sample Document:
Ocean Bill of Lading

58 | P a g e
 INSURANCE DOCUMENTS

• Letter of insurance.

This is analogous to cover note issued by the broker. It is stated that particular subject are
placed under insurance and certificate/policy of insurance will be issued later on.

• Broker’s Certificate

This is also not acceptable as broker issues the same, as broker acts for the insured and cannot
compel insurer to accept the proposal of insurance.

• Insurance Certificate

The insurance on “open cover” or “floating” policy covering all shipment on certain terms
and subjects to conditions laid down. Unless the insurance certificate gives details of the
conditions of cover it is not so much value to third party who negotiate the shipping
documents.

• Insurance Policy

This is a basic legal document-evidencing contract of insurance between the insurer and
insured. It gives full details of all the risks covered. Marine or transit insurance policies can
be assigned by the insured merely by endorsement and delivery. Insurance policies are
issued in different forms like floating policy, open policy or cover, specific policy etc…

A floating policy is a contract of insurance for covering a number of shipments, the details of
which are not finalized when the contract of insurance is conclude. The relevant details like
name of the vessel, destination, description of cargo etc. is therefore required to be declared
subsequently and endorse in the policy.

An open cover /policy is valid for a given period of time or permanently open. As per this
policy the insurer undertakes to insure all the shipments for which the details are already
intimated to the insurer.

A specific policy covers specific shipments and such policy is readily available for submitting
with the export documents.

The coverage of risks is classified into categories like A, B, C etc. and the insurance policies
are issued accordingly.

59 | P a g e
  Parties involved in Pre-Shipment:

1) Marketing Department

2) Pre-shipment

3) Warehouse

4) Excise department

5) Clearing and forwarding agent

6) Inland Container Depot (Parparganj, Babarpur etc.)

7) P & O, APL, Contship (Vessel Owners)

The above documents along with cargo are sent to ICD by road. The ICD used by may be

Parparganj, tuglakabad or any other, depending on the contract with the importer.

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Stage-5th Customs Clearance
Custom House Agent (CHA) and freight forwarders, who are known as clearing

and forwarding agents, generally act on behalf of importance and exporters for handling their

export shipments or clearing their import consignments.

They handle all documentation work through the customs & port authorities and other

regulatory agencies

Documents required for customs clearance:

1) Shipping Bill: Shipping bill is the main document required by customs authority for

allowing shipment. The exporter (LUCKY EXPORT) has to submit some documents for

shipping bill which are as follows:

 SDF (GR Form) in duplicate for shipment.

 Four copies of packing list giving contents, quantity gross and net weight of

each package

 Four copies of invoice indicating all relevant particulars such as number of packages,

quantity, unit rate, total FOB/CIF value, correct and full description of goods etc

 Purchase Order, Letter of Credit

 Inspection certificate

61 | P a g e
Each shipping bill set consist of following copies”-

i) Original - Retained by customs

ii) Duplicate - Exporter’s certificate

iii) Triplicate - Drawback copy/DEEC copy

iv) Quadruplicate - to excise department

v) Quintuplicate - Export Promotion Copy

vi) Sixtuplicate - Exchange Control Copy

* Exchange control copy is also called GR Form/SDF Form.

Types of Shipping Bills:

i) Free (White in colour): Used in cases where exported goods do not get any export

benefits.

ii) Drawback (Green in colour): Used in cases where the exported goods attract the

benefit under drawback rules.

iii) Dutiable (Yellow in colour): Used where the exported goods are manufactured in

bond (EOU Goods). Such type of shipping bill is not used in LUCKY EXPORTS,

because the company has no dealing with EOUs.

iv) Bond (Pink in colour): Used where the exported goods are manufactured in bond

(EOU goods). Such type of shipping bill is not used in LUCKY EXPORTS, because

the company has no dealing with EOUs.

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2) GR/SDF Form: GR/SDF form is filled and submitted by the exporter. The exporter

give this form to his shipping agent to get it stamped from the customs office after clearance

of goods from custom. GR/SDF form is prepared in duplicate. The original copy remains

with authorities and they submit it to the Reserve Bank of India. Duplicate copy is submitted

to Negotiating Bank, after mentioning the date of receipt of payment on GR/SDF form they

also send it to RBI.

Contents of GR Form:

i) Name of advising bank (if exports is under L/C arrangement)

ii) Name of bank through which payment is to be realized.

iii) Customs assessable value.

iv) Quantity of goods.

v)

3) Bill of Lading: The bill of lading is a document issued by the shipping company

or its agent acknowledging the receipts of the goods mentioned in the bill for shipment on board

and undertaking to deliver the goods in who like order and condition as received to the consignee

or his order provided the freight and other charges specified in the bill of lading require will

depend upon the terms of better of credit.

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 CONTAINERISATION

Modern ship building technology has brought forth dry cargo bulk carriers and tankers to
reduce per unit cost of transportation in tramp shipping. Likewise the container technology
has brought in the cellular ships to carry general cargo in containers to reduce cargo-handling
cost and promote faster movements.

The container system of transportation involves bulking of the break-bulk cargoes by putting
them in containers of standard sizes shown below: -

Length Streadth Height

10’ X 8’ X 8’
20’ X 8’ X 8’-81/2’-9’-91/2’
30’ X 8’ X 8’
40’ X 8’ X 8’

The movement of containers would progress in the following phases: -

• From port to port (Pier to Pier)- the carriage of containers is confined to the scalage of
journey.
• From Inland Container Depot (ICD) in one country to ICD in another country- the
movement of containers is extended to the interior parts of the country and
• Door to Door-the movement of containers is further extended right to the factory gates
of the manufacturer/exporter to the door of the importer’s warehouse in a foreign country.

Thus the container transportation system through effective co-ordination of international

movements operates on a much wider scale and endeavors to provide maximum convenience
to cargo owners. The system aims at: -

• Faster and reliable delivery of goods.

• Better protection of fragile & containable cargoes.
• Ensuring original quality of goods.
• Reduction in pilferage.
• Physical separation of dirty cargoes.
• Simplification of documents & procedures.
• Reduction in the Packing cost of the cargo.
• Reduction in cargo handling cost & ship’s time at ports.

64 | P a g e
Volumetric Calculation of Weight for charging: -

When shipping lightweight and bulky packages, use the following formula to help you
determine their volumetric weight:

Multiply the width by the length by depth of your shipment and divide the total by 6000.

For example

If the width is 50cm, length 40cm and the depth 30cm.

Vol. Wt. = 50cm x 40cm x 30cm = 10 Kgs

6000

Stage-6th Post-Shipment Operations

65 | P a g e
 This document, also called as commercial invoice, is widely used in commercial

transaction. The seller generates this after the shipment is done. It is the statement of account of

sale rendered by the seller to the buyer and is prepared in a specific format. The invoice is

usually made out for the full realization amount of goods. It is one of the documents required for

negotiation.

The post-shipment department is done for preparing this invoice, the bill of

lading-number and date, shipping bill number and date, GR number and date, freight details,

quota details and letter of credit or contract copy is required.

This invoice is actually a commercial invoice. The major difference between pre

and post invoices are as follow:-

 The pre-shipment invoice is used for customs clearance while the other one is sent

to the L/C opener/buyer for getting the realization through the bank.

 The post shipment invoice may contain the discount or partial advance payment, if

any, thereby reducing the bill amount compared to the pre-shipment.

Negotiation / Collection through Bank

Once the goods have been shipped and the necessary documents are dispatched to the importer,

the next step is to collect the payment from the importer. It is obligatory for the exporter to

submit the shipping documents to your bank with in 21 days of the shipment of goods for

onwards dispatch to the overseas correspondent bank. Who will arrange the payment of the same

to your bank describing the documents enclosed with it.

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1) Documents sent to the Bank:

The exporter presents the following documents to the bank for negotiation:-

 Commercial Invoice No. 5 copies

 Packing list 7 copies

 Bill of Lading 2 orig. + 3 copies

 Customs Invoice No. 10 orig. + 4 copies

 Single Entry Declaration 1 copy

 Weight List 10 orig.+ 1 copy

 Original copy of Letter of Credit

Additional Documents:

 Certificate of Origin:

There are certain countries that require their importers to obtain certificate of

origin from the exporter, without which clearance of goods is not allowed.

 Generalized System of Performance (GSP Certificate):

It is a document which is a special requirement of EEC member countries and a

few other European countries. Under the GSP manufacturers and semi-

manufacturers from developing countries including India are entitled to a

cocsessional rate of import duty.

When the documents are submitted to the bank, it is a request to the bank to negotiate the

documents if the same are drawn under the letter of credit.

67 | P a g e
The bank examines all the documents in a process which is as follows:

a) The bank examined all the terms and conditions are according to the original order and

also that of letter of credit.

b) The set of all these documents is sent to the importer bank by the first airmail. After that

the second set is also sent by the second airmail for the confirmation of first set.

c) A duplicate copy of GR form is transmitted to the exchange control department of

Reserve bank of India on receipt of payment from abroad.

d) The original copy of the bank certificate as applied for by exporter along with attested

copies of commercial invoice is returned to the exporter.

2) Documents sent to the Party:-

 Bill of Lading 3 Copies

 Commercial Invoice 5 Copies

 Packing list 5 Copies

 Special Customs Invoice 5 Copies

 Single Entry Declaration 2 Copies

 Weight List 2 Copies

68 | P a g e
 FLOW CHART OF EXPORT PROCEDURE

69 | P a g e
 RECEIPT OF INQUIRY
FROM BUYER

UNDERSTANDING THE
REQUIREMENT & ACCESSING THE
CAPABILITIES
& CAPACITIES
NO

ACCEPTENCE
FOR SAMPLING

SAMPLING
PREPARATION
REVIEW
BUYER’S
SAMPLE COMMENT
APPROVED BY
BUYER NO

ORDER RECIVING &

EXPORT CONTRACT
FINALALIZING

P.O. TO PRODUCTION
INCHARGE
SOURCING
(DYING, CUTTING, STITCHING,
LABELING FINISHING OF PRODUCTS)

DISPATCHING
(TAGGING, FOLDING, PACKING,
INSPECTION & TRANSPORTATION)

PREPARATION OF PRE-SHIPMENT
DOCUMENTS
(PACKING LIST, COMMERCIAL INVOICE, AR-2
FORM, BILL OF EXCHANGE ETC)

CUSTOM CLEARANCE & SHIPPING

(SHIPPING BILL, BILL OF LADING ETC)

POST SHIPMENT OPERATIONS

(NEGOTIATING DOCUMENTS, COLLECTION OF
PAYMENTS THROUGH BANKS)

FEEDBACK

MODES OF PAYMENT

70 | P a g e
 Managerial functions tend to become more and more complicated as the operations of a

company cross the boundaries of the nation in which it is operating. Exports finance is no

exception to this generalization. The risk dimension accentuates significantly as soon as the

goods are sold to a buyer outside the country. Some of the risk factors are inadequate personal

knowledge about the foreign buyers, possible restrictions on transfer of funds from importer’s

country, fluctuations in rates of exchange, obstacles to payments for reasons such as wars,

political disturbances payment delays and a lot of other socio political factors. It may be

appreciated that these risk factors originate out of one common reason i.e. the business

operations are done in different of business environment.

The final indicator of success any business is its financial viability and in exports

the inflow of funds is from across the borders. So, an export transaction is deemed to be

complete only after the final payment has been received. The payment is influenced by several

factors such as government rules and practices, bankers, Om Policies, importer’s financial

position and the prevailing trade practices in the industry. The payment can influence other

factors of marketing mix, price being the most significantly affected. The exports managers must

take the following factors into account while evolving their payment policies.

a) The institutional aspect – the operations of the mechanism and credit facibilities.

b) Foreign exchange and its relation to export terms and receipt of the export proceeds.

c) The methods of receiving payments.

d) Other factors.

i) Exporter’s knowledge of the buyer.

ii) Buyer’s financial position.

iii) Security of payment and risk factors.

71 | P a g e
 iv) Time taken for payment

Methods of Payment in Exports

Due to the significance of risks in exports payments, the methods of payment can be classified

into following categories depending upon the risks associated:

 Payment in Advance.

 Open Account.

 Documentary Bills.

 Shipment on Consignment Basis.

 Documentary Credit under Letter of Credit.

72 | P a g e
 GOVERNMENT INCENTIVES FOR EXPORTS

Benefits for Export House/Trading House/Star Trading House/Super Star Trading House:

a) Off shore trading /merchanting with advance payment to suppliers.

b) Membership of Policymaking open bodies and business delegations.

c) Self declared pass scheme.

d) Duty exemption scheme with legal undertaking instead of B/C.

e) E.P.C.G. scheme with legal undertaking instead of B/G (Bank Guarantee).

f) Import of cars as one time facility once in five years against their valid status.

g) No prior approval required for opening offices abroad.

h) Foreign equity can be raised up to 51%.

i) Marketing development assistance through FIEO.

j) Higher Entitlements for foreign exchange for foreign travel.

k) EEFC funds utilization for setting up offices abroad.

Duty Drawback

The duties suffered on the raw material used in the final export product, whether imported or

procured indigenously, are refunded to the exporter through duty drawback scheme.

The cost/duty figures supplied by all industries are used arrive at duty drawback rates,

which are published as all industry rates. In case exporter is not satisfied with this rate, he has an

option of getting a special band rate. The current scheme does not allow drawback, if the

exporter has already audited MODVAT credit.

73 | P a g e
 Duly Exemption Scheme

I. DEEC.

II. DEPB

I. Duty Exemption Entitlement Certificate (DEEC): Under this scheme,

exporter is given license to import raw material without payment of duty. This license is called

an Advance License. The transaction under the license as to be logged by customs in a book

called DEEC book. This book has two separate parts for exports and imports. The exporter has to

undertake an export obligation in terms of value and quantity. The licensing authority, Director

General of Foreign Trade, monitors the export obligation.

The license could be two types:

 Quantity based Advance License

 Value based Advance License

The exporter has twelve months time to fulfill export obligation. Non-fulfillment of

the obligation attracts the duty waired easier on the imports of raw material plus interest plus

penalties.

II. Duty Entitlement Pass Book Scheme (DEPB):

A manufacturer- exporter or an exporter granted an EH/TH/STH/SSTH certificate shall

be eligible to avail the benefits of this scheme.

This scheme shall apply only for the export of the product where standard input-output

norms have been published in hand book of procedures.

74 | P a g e
  Pass book shall be issued quantity based only.

 The export goods shall not be eligible for drawbacks on the inputs for

which credit is taken in pass book.

 Pass book will be valid for a period of two years from the date of issue.

 In pass book scheme exporter have to first export the goods and get the

credit in pass book then one can import utilizing the credit.

Exports Promotion Capital Goods Scheme (EPCG Scheme)

The scheme allows import of new capital goods as well as computer software systems at 5%

customs duty subject to export obligation equivalent to 5 times CIF value of capital goods to be

fulfilled over a periods of 8 years reckoned from the date of issuance of license over a period of

8 years. However, in export of EPCG license for Rs.100 crore or over, the same export

obligation shall be required to be fulfilled over a period of 12 years. The capital goods shall

include jigs, fixtures, dies and molded spares may also be imported under the scheme up to 20%

of CIF value of capital goods.

A person holding an EPCG license may source the capital goods from domestic

manufacturers supplying capital goods to EPCG license holders shall be eligible for deemed

export benefit.

75 | P a g e
Period from the date of Proportion of total export

Issuance of license obligation

1) Block of 1st & 2nd year Nil

2) Block of 3rd & 4th year 15%

3) Block of 5th & 6th year 35%

4) Block of 7th & 8th year 50%.

However, the export obligation of particular block of year may be set off by the excess

exports made in the proceeding block of the year.

In respect of license of Rs.100 crore or more, the export obligation shall be fulfilled over

a period of 12 years in the following proportions:-

Period from the date of issue Proportion of total export

Of license obligation

1) Block of 1st & 5th year Nil

2) Block of 6th & 8th year 15%

3) Block of 9th & 10th year 35%

4) Block of 11th & 12th year 50%.

An application for grant of an EPCG license shall be made in APPENDIX 9 of the

Handbook of procedure along with documents prescribed there in.

The licensee holder shall submit a yearly report on progress made in fulfillment of export

obligation in Appendix 9A & 9B of Handbook of procedures, duly certified by Chartered

Accountant to the concerned licensing authority.

76 | P a g e
 SUMMARY OF EXPORT PROCEDURE

77 | P a g e
PROCEDURE:

1. Seller and Buyer conclude a sales contract, with method of payment usually by letter of
credit (documentary credit).

2. Buyer applies to his issuing bank, usually in Buyer's country, for letter of credit in favor
of Seller (beneficiary).

3. Issuing bank requests another bank, usually a correspondent bank in Seller's country, to
advise, and usually to confirm, the credit.

4. Advising bank, usually in Seller's country, forwards letter of credit to Seller informing
about the terms and conditions of credit.

5. If credit terms and conditions conform to sales contract, Seller prepares goods and
documentation, and arranges delivery of goods to carrier.

6. Seller presents documents evidencing the shipment and draft (bill of exchange) to paying,
accepting or negotiating bank named in the credit (the advising bank usually), or any bank
willing to negotiate under the terms of credit.

7. Bank examines the documents and draft for compliance with credit terms. If complied
with, bank will pay, accept or negotiate.

8. Bank, if other than the issuing bank, sends the documents and draft to the issuing bank.

9. Bank examines the documents and draft for compliance with credit terms. If complied
with, Seller's draft is honored.

78 | P a g e
 10. Documents release to Buyer after payment, or on other terms agreed between the
bank and Buyer.

11. Buyer surrenders bill of lading to carrier (in case of ocean freight) in exchange for
the goods or the delivery order.

COST FACTOR OF EXPORT-IMPORT GOODS

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COST FACTORS OF EXPORT-IMPORT GOODS

80 | P a g e
 1

• Materials, labor and overhead

• Custom packagings
• Inspection fees
• Licensing fees
• Royalties

• Buying agent's commissions

• Trader's markups

• Bank charges and commissions

• Overseas agent's commissions
• Freight forwarder's charges
• Documentation charges
• Insurance premiums
• Export license fees
• Certification fees
• Consular fees
• Advertising

• Road freight (cartage, drayage) and/or rail freight

• Routing costs (canal and inland waterway links)
• Uninsured damages
• Theft and pilferages
• Handling charges
• Demurrage

• Brokerage fees
• Export levies

81 | P a g e
6

• Insurance premiums
• Air freight

• Theft and pilferages

• Overtime charges
• Handling charges
• Warehousing
• Loading fees
• Demurrage
• Wharfage

• Insurance premiums
• Ocean freight
• Lighterage

• Uninsured damages (e.g. war and acts of God)

• Pilferages

10

• Lighter age

11

• Theft and pilferages

• Quarantine charges
• Overtime charges
• Handling charges
• Unloading fees
• Warehousing
• Demurrage

82 | P a g e
 • Wharf age

12

• Import duties and taxes

• Bank charges and commissions
• Import license fees
• Brokerage fees

13

• Road freight (cartage, drayage) and/or rail freight

• Routing costs (canal and inland waterway links)
• Theft and pilferages
• Uninsured damages
• Handling charges
• Demurrage

14

• Warehousing
• Interest charges
• Advertising

83 | P a g e
 INTERNATIONAL COMMERCIAL TERMS (INCOTERMS)

84 | P a g e
 INTERNATIONAL COMMERCIAL TERMS

EXW Ex Works

FAS Free Alongside Ship

FCA Free Carrier

FOB Free On Board

CFR Cost and Freight

(The former acronym of Cost and Freight was C&F)

CIF Cost, Insurance and Freight

CIP Carriage and Insurance Paid To

CPT Carriage Paid To

DAF Delivered At Frontier

DDP Delivered Duty Paid

DDU Delivered Duty Unpaid

DEQ Delivered Ex Quay

DES Delivered Ex Ship

Incoterms or international commercial terms are a series of international sales terms,
published by International Chamber of Commerce (ICC) and widely used in international
commercial transactions. They are used to divide transaction costs and responsibilities between
buyer and seller and reflect state-of-the-art transportation practices

85 | P a g e
Group F – Main carriage unpaid
FCA – Free Carrier (named place)
The seller hands over the goods, cleared for export, into the custody of the first carrier
(named by the buyer) at the named place. This term is suitable for all modes of transport,
including carriage by air, rail, road, and containerized / multi-modal transport.
FAS – free alongside Ship (named loading port)
The seller must place the goods alongside the ship at the named port. The seller must
clear the goods for export; this changed in the 2000 version of the Incoterms. Suitable for
maritime transport only.
FOB – Free on board (named loading port)
The seller must load the goods on board the ship nominated by the buyer, cost and risk
being divided at ship's rail. The seller must clear the goods for export. Maritime transport
only. It also includes Air transport when the seller is not able to export the goods on the
schedule time mentioned in the letter of credit. In this case the seller allows a deduction
of sum equivalent to the carriage by ship from the air carriage.

Group C – Main carriage paid

CFR or CNF – Cost and Freight (named destination port)
Seller must pay the costs and freight to bring the goods to the port of destination.
However, risk is transferred to the buyer once the goods have crossed the ship's rail.
Maritime transport only.
CIF – Cost, Insurance and Freight (named destination port)
Exactly the same as CFR except that the seller must in addition procure and pay for
insurance for the buyer. Maritime transport only.
CPT – Carriage Paid To (named place of destination)
The general/containerized/multimodal equivalent of CFR. The seller pays for carriage to
the named point of destination, but risk passes when the goods are handed over to the
first carrier.

CIP – Carriage and Insurance Paid (To) (named place of destination)

The containerised transport/multimodal equivalent of CIF. Seller pays for carriage and
insurance to the named destination point, but risk passes when the goods are handed over
to the first carrier.
Group D – Arrival
DAF – Delivered At Frontier (named place)
This term can be used when the goods are transported by rail and road. The seller pays
for transportation to the named place of delivery at the frontier. The buyer arranges for
customs clearance and pays for transportation from the frontier to his factory. The
passing of risk occurs at the frontier.
DES – Delivered Ex Ship (named port)

86 | P a g e
 Where goods are delivered ex ship, the passing of risk does not occur until the ship has
arrived at the named port of destination and the goods made available for unloading to
the buyer. The seller pays the same freight and insurance costs as he would under a CIF
arrangement. Unlike CFR and CIF terms, the seller has agreed to bear not just cost, but
also Risk and Title up to the arrival of the vessel at the named port. Costs for unloading
the goods and any duties, taxes, etc are for the Buyer. A commonly used term in shipping
bulk commodities, such as coal, grain, dry chemicals - - and where the seller either owns
or has chartered, their own vessel.
DEQ – Delivered Ex Quay (named port)
This is similar to DES, but the passing of risk does not occur until the goods have been
unloaded at the port of destination.
DDU – Delivered Duty Unpaid (named destination place)
This term means that the seller delivers the goods to the buyer to the named place of
destination in the contract of sale. The goods are not cleared for import or unloaded from
any form of transport at the place of destination. The buyer is responsible for the costs
and risks for the unloading, duty and any subsequent delivery beyond the place of
destination. However, if the buyer wishes the seller to bear cost and risks associated with
the import clearance, duty, unloading and subsequent delivery beyond the place of
destination, then this all needs to be explicitly agreed upon in the contract of sale.
DDP – Delivered Duty Paid (named destination place)
This term means that the seller pays for all transportation costs and bears all risk until the
goods have been delivered and pays the duty. Also used interchangeably with the term
"Free Domicile".The most comprehensive term for the buyer. In most of the importing
countries, taxes such as (but not limited to) VAT and excises should not be considered
prepaid being handled as a "refundable" tax. Therefore VAT and excises usually are not
representing a direct cost for the importer since they will be recovered against the sales
on the local (domestic) market.

87 | P a g e
 SUMMARY OF INCOTERMS

For a given term, "Yes" indicates that the seller has the responsibility to provide the service
included in the price. "No" indicates it is the buyer's responsibility. If insurance is not included
in the term (for example, CFR) then insurance for transport is the responsibility of the buyer or
the seller depending on who owns the cargo at time of transport. In the case of CFR terms, it
would be the buyer while in the case of DDU or DDP terms, it would be the seller.

Unlo
Unload Entr
ad Landi Landin
onto Entry - y -
Loa Export Transp from ng Transp g Transpo
trucks Custo Duti
Incoter d to - duty ort to truck charge ort to charges rt to Insuran
from ms es
ms truc payme exporte at the s at importe at destinati ce
the clearan and
k nt r's port origin origin' r's port importe on
importe ce Taxe
's s port r's port
rs' port s
port
EXW No No No No No No No No No No No No
FCA Yes Yes Yes No No No No No No No No No
FAS Yes Yes Yes Yes No No No No No No No No
FOB Yes Yes Yes Yes Yes No No No No No No No
CFR Yes Yes Yes Yes Yes Yes Yes No No No No No
CIF Yes Yes Yes Yes Yes Yes No No No Yes No No
CPT Yes Yes Yes Yes Yes Yes No No No No No No
CIP Yes Yes Yes Yes Yes Yes No No No Yes No No
DAF Yes Yes Yes Yes Yes Yes No No No No No No
DES Yes Yes Yes Yes Yes Yes No No No No No No
DEQ Yes Yes Yes Yes Yes Yes Yes No No No No No
DDU Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No
DDP Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes

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89 | P a g e
 CONCLUSION

It is clear from the above study that the complexity of international import-export business can

be overcome easily by a systematic export procedure & fair documentation. This is only the

documentation which safeguards the interests of Exporter, Importer, Banks, Governments,

Transport Agencies, Insurance Agencies and Inspection Agencies. Thus the whole study

concludes in brief …

• To survive & grow in today’s international market for any export house, the systematic

export procedure is compulsory.

• To overcome any kind of error, bottleneck, fraud and mistake; the awareness and

implementation of standardized rule-regulations & documentation is necessary.

• The final indicator of success any business is its financial viability and in exports the

inflow of funds is from across the borders. Thus mode of payment must be decided on

the basis of best business suitability according to the Govt. & RBI policies.

• Also the Government of India has instituted many support programmes with a view to

give thrust to our sectors. These programmes have been made to facilitate the exporters

in their exports efforts at various stages of export process.

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 LIMITATIONS OF THE STUDY

 Partial information of negotiable documents because of securities reasons.

 No direct knowledge of the operations of Forwarding Agents.

 All the findings are based on the information from Seller/Exporter side only.

 Export Rules, Regulations & Compliances are too wide to cover thoroughly in short term

project.

 Primary data is analyzed though interview of executives and they may not be available

and may not be part of research.

 Less sufficient response of executives & supervisors in respect to information related to

securities & weakness matter of unit.

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 BIBLIOGRAPHY

• WEBPAGES export911.com

indiandata.com

Superindian.com

• HOW TO EXPORT A NABHI PUBLICATION

• NEW IMPORT-EXPORT POLICY A NABHI PUBLICATION

• EXPORT-IMPORT by: AJAY SRIVASTAVA

ANSWER BOOK -2010

• LUCKY EXPORT NEWSLETTER

• COMPANY WEB SITE www.luckygroupcompanies.net

• COMPANY BROCHURE

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