EXPORT PROCEDURE & DOCUMENTATION

INDEX
SERIAL
NUMBER

CONTENT

1
2
3
4

INTRODUCTION
HOW TO SET UP AN EXPORT ORGANISATION
HOW ONE BEGINS TO DO EXPORT
EXPORT SALES & CONTRACT TERMS &

PAGE
NUMBE
R
6
8
14
17

5
6
7

CONGITIONS
TERMS OF SHIPMENT INCOTERMS.
PROCESSING AN EXPORT ORDER
FINANCIAL RISK INVOLVED IN FOREIGN

20
27
28

TRADE
EXPORT DOCUMENTS

29

INTRODUCTION
1

India has a mission to capture 2% of the global share of trade by 20010, up

from the present level of less than 1%. Export is one of the lucrative business activities in
India. The government also provides various promotional schemes to the exporters for
earning valuable foreign exchange for the country and for meeting their requirements for
importing modern technology and essential inputs. Besides, the income from export
business is also exempted to the specified extent under the Income Tax Act, 1961, Refund
of Central Excise and Custom Duty on export is also made under the Duty Drawback
Scheme of the Government. There is no Sales Tax on products meant for exports.
Exports can be of goods which can be moved physically from one country
to another or can be of service rendered. Detailed list of services are given in the Foreign
Trade Policy covering more than 160 items e.g. Insurance, Hospital, Postal and
Telecommunication etc.
TWO CLASSES OF EXPORTS:
Physical Exports: If the goods physically go out of the country or services
are rendered outside the country then it is called as physical export. Deemed Exports:
Where the goods do not go out of the country physically they can be termed as deemed
exports. This will be subject to certain conditions as prescribed by the DGFT. Under
Deemed Exports, the goods may be supplied to the manufacturer exporter who ultimately
export a finished product of which this supply forms a part and ultimately go out of the
country. E.g. Supply of fabrics to the garment exporter who exports the garments made
out of the said fabric.
The government may announce from time to time the types of supplies
that may be considered as deemed export. The Foreign Trade Policy gives the list of
supplies considered under the Deemed Export Category. The policies and procedures are
different for Physical Exports and Deemed Exports as also the benefits available. In a
nutshell, Deemed Exports do not enjoy all the benefits that are available under Physical
Export. The Foreign Trade defines exports as taking out of India any goods by land, sea,
air. Although the act does not term them as Physical Exports, we have to put phrase to

distinguish it from Deemed Exports which is sales in India but considered as exports
for limited purpose.
TYPES OF EXPORTERS:
Exporters can be basically classified into two groups

Manufacturer Exporter: As the exporter has the facility to manufacturer the

product he intends to export and hence he exports the products manufactured by
him.

Merchant Exporter: An exporter who does not have the facility to manufacture
an item. But, he procures the same from other manufacturers or from the market
and exports the same.
An exporter can be both a manufacturer exporter as well as a merchant

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

HOW TO SET UP AN EXPORT ORGANISATION

The proper selection of organization depends upon

Ability to raise finance.

Capacity to bear the risk.

Desire to exercise control over the business.

Nature of regulatory framework applicable to anyone

If the size of the business is small, it would be advantageous to form a sole

proprietary business organization. It can be set up easily without much expenses and legal
formalities. It is subjected to only few governmental regulations. However, the biggest
disadvantage of sole proprietorship business is limited ability to raise funds which
restricts the growth. Besides the owner has unlimited personal liabilities. In order to
avoid this disadvantage, it is advisable to form a partnership firm.
The partnership firm can also be set up with ease and economy. Business
can take benefit of the varied experiences and expertise of the partners. The liability of
the partners though joint and several, is practically distributed amongst the various
partners, despite the fact that the personal liability of the partner is unlimited. The major
disadvantage of partnership firm of business organization is that conflict amongst the
partners is a potential threat to the business. It will not be out of place to mention here
that partnership firms are governed by the Indian Partnership Act, 1932 and, therefore
they should be formed within the parameters laid down by the Act. Company is another
form of business organization, which has the advantage of distinct legal identity and
limited liability to the share holders.
It can be a private limited company or a public limited company. A private
limited can be formed by just two persons subscribing to its share capital. However, the
number of its shareholders cannot exceed 50, public cannot be invited to subscribe to its
capital and the members right to transfer their share is restricted. On the other hand, a
pubic limited company has a minimum of seven members. There is no limit on the
maximum number of its members. It can invite the public to subscribe to its capital and
permit the transfer of share. A public limited company offers enormous potential for
growth because of access to substantial funds. The liquidity of investment is high because
of easiness of transfer of shares. However its formation can be recommended only when
4

the size of the business is large. For small business, a sole proprietary concern or a
partnership firm will be the most suitable form of business organization. In case it is
decided to incorporate a private limited company, the same is to be registered with the
Registrar of Companies.
CHOOSING APPROPRIATE MODE OF OPERATIONS:
You can choose any of the following modes of operations

Merchant Exporter i.e. buying the goods from the market or from the
manufacturer and then selling it to foreign buyers.

Manufacturer Exporter i.e. manufacturing the goods yourself for export.

Sales Agent / Commission Agent / Indenting Agent i.e. acting on behalf of the
seller and charging the Commission.

Buying Agent i.e. acting on behalf of the buyer and charging Commission.

Service provider i.e. providing service from India to another country.

NAMING THE BUSINESS

Whatever form of business organization has been finally decided, naming
the business is an essential task for every exporter. The name and style should be soft,
attractive, short and meaningful. Open a current account in the name of the organisation
in whose name you intend to export. It is advisable to open the account with a bank
which is authorised to deal in Foreign Exchange.

STRUCTURE OF AN EXPORT ORGANISATION

marketing manager for generating sales

Commercial manager for looking activities of the execution of the orders.

staff personnel for carrying out the day-to-day activities namely

o Preparation of pre - shipment documents.
o Co-ordinating with clearing agents on the progress of the shipment to be
made.
o Co-ordinating with the ware house\C. excise department regarding
packing and clearance of the goods for export.
o Preparation of post shipment documents foe banks.
o Follow-up with the bank on dispatch of documents, receipt of payment,
availment of bank loans etc.

To look into the requirement of licenses, claiming of export benefits fiiling of

documents with the Government Authorities in Discharge of Export Obligations,
if any, filing of returns to the various Government Agencies which are mandatory,
prepare and keep an information bank of various transaction of the company, their
domestic as well as international competitors.

An office boy for doing leg work.

A clearing and forwarding agent to handle the documents and the goods in the
customs premises\ in the ports of lading.
Depending upon the size of the business the numbers of personnel under

each category may increase. For example if a company is transacting substantial volume
of business in more than one product. Then it is necessary to have marketing manager for
each product so that the person can concentrate on a particular trade to enhance the
business.

REGISTRATION WITH REGIONAL LICENCING AUTHORITIES OBTAINING

IMPORTER EXPORTER CODE (IEC) NUMBER.

The Customs Authorities will now allow the exporter to export or import goods into or
from India unless he holds a valid IEC number. Before applying for IEC number it is
necessary to open a bank account in the name of the company with any commercial bank
authorized to deal in foreign exchange. The duly signed application form should be
supported by the following documents.

Bank receipt ( in duplicate ) / Demand Draft for payment of the fees of Rs. 1000/-

Certificate from the banker of the applicant firm as per Annexure 1 to the form
given.

One copy of PAN number issued by Income Tax Authorities duty attested by the
applicant.

One copy of Passport Size photographs of the applicant duly attested by the
banker to the applicant.

Declaration by the applicant that the proprietor/partners/directors as the case may

be of the applicant company, are not associated as proprietor/partners/directors in
any other firm, which has been caution, listed by the RBI. Where the applicant
declares that they are associated as proprietor/partners/directors in any other firm,
which has been caution, listed by the RBI, they will be allotted IEC No. but with
an additional condition that they can export only with RBIs prior approval and
they should approach RBI for the purpose.

Each importer/exporter shall be required to file importer/exporter profile once

with the licensing authority shall enter the information furnished in Appendix 2 in
their database so as to dispense with changes in the information given in
Appendix-2, importer/exporter shall intimate the same to the licensing authority.

IEC EXEMPT CATEGORIES.

The following importer exporter is exempted from the requirement of IEC code number.

Ministries \ Department of Central or State Government.

Person importing or exporting goods for their personal use not connected with
trade or manufacture or agriculture.

Persons importing\exporting goods from\to Nepal & Myanmar provided the CIF
value of single consignment does exceed Indian Rs. 25000\-.

APPLICATION FOR OBTAINING AN IEC NUMBER

For obtaining IEC number apply in the prescribe form along with the documents listed
above to Regional Licensing Authority (Office of the Regional DGFT). The registered
office or the head office may apply for allotment of IEC No.
Whenever, there is a change in the name, address or constitution of the holder of IEC
No., such change should be intimated within 30 days to the concern authorities.
IEC certificate will be issued in the form (copy enclosed). A copy of IEC No. is also
endorsed to the concerned banker.
VALIDITY :
The IEC No allotted to a firm/company will be valid for all its branches/divisions
units/factories as indicated in the IEC No. Import/Export of any commodity by that
firm/company. There being no date of expiry, the IEC once allotted is valid till it is
revoked. But, if no import or export is effected in the previous financial year, the same
will be made inoperative. However, this can be made operative by a formal request to the
DGFT.

IDENTITY CARD (For conducting transactions with the office of DGFT):

As it is not always possible for the top man or directors, promoters of the company to
visit DGFT frequently. There is a provision of issuance of identity cards to the
proprietors/partners/directors and their authorized representatives. An application of
Issuance of an identity card may be made in the form (Appendix-5) The document/
License/Certificate/Permissions may be delivered to the identity card holder and officials
of the Licensing Authority(DGFT)shall not be responsible for any loss etc. In case of loss
of an identity card a duplicate card may be issued on the basis of an FIR & affidavit. In
addition to obtaining the IEC No. the exporter is also required to obtain Business
Identification No(BIN). For this exporter is required to contact DGFT online on web site.
The licensing authority issues BIN in coordination with customs authorities. This BIN is
required to be mentioned on the shipping bills at the time of customs clearance of the
export cargo.
RCMC (Registration-Cum-Membership Certificate) REGISTRATION WITH
EXPORT PROMOTION COUNCILS
In order to enable the exporter to obtain benefits/concessions under the Foreign Trade
Policy, the exporter is required to register himself with an appropriate export promotion
agency by obtaining registration-cum-membership certificate. (RCMC). If the export
product is that it is not covered by any EPC, RCMC in respect thereof may be issued by
FIEO. An application for registration should be accompanied by a self certified copy of
the Importer-Exporter Code number issued by the regional licensing authority concerned
and bank certificate in support of the applicants financial soundness. The RCMC shall be
valid for 5 years ending 31st March of the licensing year.
REGISTRATION WITH SALES TAX AUTHORITIES:
Goods that are to be shipped out of the country for export are eligible for exemptions
from both Sales Tax and Central Sales Tax. For this purpose, exporter should get himself
registered with the Sale Tax Authority of is state after following the procedures
prescribed under the Sales Tax Act applicable to his state.

HOW ONE BEGINS TO DO EXPORT

Before entering into the venture of exports, one must look for the product to be exported
and the market where he intends to export.
In case of a manufacturer, obviously he would like to export the product he manufactures
as is or with possible modification as may be required by the market. However, in case of
a merchant exporter or a trader, one has to identity the product to export. If the exporter is
already in the trade in the domestic market and is familiar with the product it would be an
advantage to export the said product of which he has reasonable knowledge.
Before selecting a product, one must simultaneously made a study and find out the
prospective market. For finding out the market for the selected product, the following
methods will help.

Get statistical information as to imports of the product by various countries

and their growth prospects in the respective countries

Approach the chamber of commerce for their guidance to find out the market.

Approach the Export Promotion Council dealing in the product of selection to

get more information.

The Preliminary
Once you are ready with the product you wish to export and have found the market for
the same, you are ready to proceed further. Following sequences can be followed:

Any one, who wishes to export, must first of all get an Importer Exporter
Code Number (IE Code).This can be obtained by making a formal
application to the office of the Regional Directorate General of Foreign
Trade (DGFT).

Get yourself registered with the related Export Promotion Council and
become a member. Also arrange to obtain Registration-Cum-Membership
Certificate (RCMC) from the council. This has twin objectives:
o Under the Foreign Trade Policy, it is mandatory that an exporter gets him
registered with the Export Promotion Council to avail of various export
facilities.

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o Being a member, you will have access to all the information relating to the
product that could be made available by the council
o Many foreign buyers send their enquiries for the imports to the Export
Promotion Council. Hence you will have few customers interested in your
product.

If you are a manufacturer, find out the provisions under the EXIM Policy of
getting the raw materials duty free.

Get familiar with the excise formalities as goods meant for export can be cleared
without payment of C. Excise duty on the finished product subject to compliance
of certain formalities.

Understand the local government regulations in relations to the export of the

product.

Get information of the governments regulations of the importing country as to

restrictions on the quantity, product specification, packing regulations, customs
regulations, requirement of specific documents/information etc.

Availability of Vessels/Airlines, the transport charges, frequency of operation etc.,

To look for a Custom House Agent (CHA) (also know as freight forwarders or
clearing agents) for handling the documents/cargo in the customs.

If the product is covered under any quota regulation, find out the agency/council
who are handling the quota distribution for the product and the availability of
quota for exports.

FINDING A CUSTOMS
Once you have selected the market, the next step is to find a prospective customer.
This you can get

From the directory of importers of the country

By writing to the Embassy of India in that country for assistance

By writing to the chamber of commerce of that country

By means of participation in a Fair/Exhibition abroad either directly or through

the Export Promotion Council

11

By participating in international fair if organized locally

Through the personal contacts in that country. By these processes one can only
have the list of customers. One has to dialogue or correspond with these
customers by sending samples, getting feedback from the customers etc. to
ultimately select the customer with whom to deal with. It is necessary to know the
financial standing of the company which can be obtained through the bank
channel or through the office of ECGC.

NEGOTIATING CONTRACT.
Once the prospective customer is found, the business deal has to be concluded. The
following aspects may be considered before entering into a final contract with the
buyer.

Credit Worthiness of the Customer.

Availability of the Steamer/Airlines and the frequency

The freight charges

The full product specification

The quantity, Price

Terms of Payment

Type of packing and markings on the packages

Mode of shipment & Shipment schedule

Tolerance of quantity to be shipped

Documentation requirement for the customer

Documentation requirement of the government of importing country

Compliance of the local governmental rules and regulations

Before entering into contract one should take note of the above factors. While these are
indicative, the requirements will vary from country to country, product to product and
buyer to buyer.

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EXPORT SALES & CONTRACT TERMS & CONDITIONS

Very often exporters do not enter into any formal contract and finalize the trade deal
through the exchange of letters, cable, telex etc. It is, however, expedient that the parties
(exporters & importers) incorporate all important terms & conditions of their trade deal in
a separate document or contract that will avoid disputes arising out of uncertainty or
ambiguity. Export contract may be sent in duplicate along with the Proforma Invoice to
the overseas buyer.
NATURE OF INTERNATIONAL TRADE COUNTRACTS.
There are certain, peculiar characteristics of international trade contract which are not
present in those for sales of goods in the domestic market
Whereas the parties to a domestic trace contract normally needs only agree on the
elements which are necessary for their particular trade transactions like price, description,
quality and quantity of goods, delivery terms etc the situation will be quite different when
the buyer and the seller to sale/purchase contract belong to different countries. The
parties to all international trade contracts provide all their relative rights and obligations
in several ways
For example, they may agree to adopt either the Law of the country of the buyer or that
of the seller. The traders are normally reluctant to leave the determination of the rights
and obligations by implications under the legal system of eithers country. They prefer to
make explicit provisions regarding the rights and obligations by including a set of
detailed and precise terms and conditions in their contract.
EXPORT OF SAMPLES\GIFTS.
Exports of bonafide trade and technical samples of freely exportable items shall be
allowed without any limit. Goods including edible items of value not exceeding Rs.

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100000/- in a licensing year, may be exported as a gift. However items mentioned as

restricted for exports in ITC(HS) shall not be exported as a gift without a
licence/certificate/permission, except in the case of edible items.
STANDARD CONTRACT FOMS:
Notwithstanding the efforts made by various national/international organizations like the
United Nations Commission on the International Trade Law, there is still no perfection or
a device which would give the parties an accurate and complete idea of each others
understanding of various trade terms, the commercial practices and the rights and the
obligations vis--vis each other so that the misunderstandings are practically eliminated.
Nevertheless, the Indian Council of Arbitration published in 1966 a booklet on Standard
Contract Forms and Model Arbitration Clause for use in Foreign Trade Contracts. It was
revised and reprinted in 1969 and 1977. It can be referred to by exporter for various
clause to be incorporated in the Export Contract.
ENTERING INTO AN EXPORT CONTRACT
In order to avoid disputes, it is necessary to enter into an export contract with the
overseas buyer. For this purpose, export contract should be carefully drafted
incorporating comprehensive but in precise terms, all relevant and important conditions
of the trade deal.
There should not be any ambiguity regarding the exact specifications of goods and terms
of sale including export price, mode of payment, storage and distribution methods, type
of packaging, port of shipment, delivery schedule etc. The different aspects of an export
contract are enumerated as under:

Product, Standards and Specifications

Quantity

Inspection

Total Value of Contract

14

Terms of Delivery

Taxes, Duties and Charges

Period of Delivery/Shipment

Packing, Labeling and Marking

Terms of Payment-- Amount/Mode & Currency

Discounts and Commissions

Licenses and Permits

Insurance

Documentary Requirements

Guarantee

Force Majeure of Excuse for Non-performance of contract

Remedies

Arbitration clause

It will not be out of place to mention here the importance of arbitration clause in an
export contract Court proceedings do not offer a satisfactory method for settlement of
commercial disputes, as they involve inevitable delays, costs and technicalities. On the
other hand, arbitration provides an economic, expeditious and informal remedy for
settlement of commercial disputes. Arbitration proceedings are conducted in privacy and
the awards are kept confidential. The Arbitrator is usually an expert in the subject matter
of the dispute. The dates for arbitration meetings are fixed with the convenience of all
concerned. Thus, arbitration is the most suitable way for settlements of commercial
disputes and it may invariably be used by businessmen in their commercial dealings.
ARBITRATION:
Arbitration clause recommended by the Indian Council of Arbitration:All disputes
or differences whatsoever arising between the parties out of / relating to the meaning,
construction and operation or effect of this contract or the breach thereof shall be settled
by arbitration in accordance with the rules of Arbitration of the Indian Council of
Arbitration and the award made in pursuance thereof shall be binding on the parties (or
any other arbitration clause that may be agreed upon between the parties).
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TERMS OF SHIPMENTS INCOTERMS

The INCOTERMS (International Commercial Terms) is a universally recognized set of
definition of international trade terms, such as FOB, CFR & CIF, developed by the
International Chamber of Commerce(ICC) in Paris, France. It defines the trade contract
responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving
tool. The exporter and the importer need not undergo a lengthy negotiation about the
conditions of each transaction. Once they have agreed on a commercial terms like FOB,
they can sell and buy at FOB without discussing who will be responsible for the freight,
cargo insurance and other costs and risks.
The INCOTERMS was first published in 1936 --- INCOTERMS 1936 --- and it is revised
periodically to keep with changes in the international trade needs. The complete
definition of each term is available from the current publication --- INCOTERMS 2000.
Under INCOTERMS 2000, the international commercial terms are grouped into E, F, C
and D, designated by the first letter of the term, relating to the final letter of the term. E.g.
EXWexworks comes under grouped E.
The purpose of Incoterms is to provide a set of international rules for the interpretation of
the most commonly used trade terms in foreign trade. Thus, the uncertainties of different
interpretations of such terms in different countries can be avoided or at least reduced to a
considerable degree. The scope of Incoterms is limited to matters relating to the rights
and obligations of the parties to the contract of sale with respect to the delivery of goods.
Incoterms deal with the number of identified obligations imposed on the parties and the
distribution of risk between the parties.
In international trade, it would be best for exporters to refrain, wherever possible, from
dealing in trade terms that would hold the seller responsible for the import customs
clearance and/or payment of import customs duties and taxes and/or other costs and risks
at the buyers end, for example the trade terms DEO (Delivery Ex Quay) and DDP
(Delivered Duty Paid)

16

Quite often, the charges and expenses at the buyers end may cost more to the seller than
anticipated. To overcome losses, hire a reliable customs broker or freight forwarder in the
importing country to handle the import routines.
Similarly, it would be best for importers not to deal in EXW (Ex Works) which would
hold the buyer responsible for the export customs clearance, payment of export customs
charges and taxes, and other costs and risks at the sellers end
MORE CLARIFICATION ON INCOTERMS
EXW {+the named place}
Ex Works: Ex means from. Works means factory, mill or warehouse, which are the
sellers premises. EXW applies to goods available only at the sellers premises. Buyer is
responsible for loading the goods on truck or container at the sellers premises and for the
subsequent costs and risks. In practice, it is not uncommon that the seller loads sthe
goods on truck or container at the sellers pre4mises without charging loading fee. N the
quotation, indicate the named place (sellers premises) after the acronym EXW for
example EXW Kobe and EXW San Antonio.
The term EXW is commonly used between the manufacturer (seller) and exporttrader(buyer), and the export-trader resells on other trade terms to the foreign buyers.
Some manufacturers may use the term Ex Factory, which means the same as Ex Works.
FCA {+the named point of departure}
Free Carrier: The delivery of goods on truck, rail car or container at the specified
point(depot) of departure, which is usually the sellers premises, or a named railroad
station or a named cargo terminal or into the custody of the carrier, at sellers expense.
The point(depot) at origin may or may not be a customs clearance centre. Buyer is
responsible for the main carriage/freight, cargo insurance and other costs and risks.
In the air shipment, technically speaking, goods placed in the custody of an air carrier are
considered as delivery on board the plane. In practice, many importers and exporters still
17

use the term FOB in the air shipment. The term FCA is also used in the RO/RO (roll
on/roll off) services
In the export quotation, indicate the point of departure (loading) after the acronym FCA,
for example FCA Hong Kong and FCA Seattle. Some manufacturers may use the former
terms FOT (Free on Trucks) and FOR (Free on Rail) in selling to export-traders.
FAS {+the named port of origin}
Free Alongside Ship: Goods are placed in the dock shed or at the side of the ship, on the
dock or lighter, within reach of its loading equipment so that they can be loaded aboard
the ship, at sellers expense. Buyer is responsible for the loading fee, main
carriage/freight, cargo insurance, and other costs and risks In the export quotation,
indicate the port of origin(loading)after the acronym FAS, for example FAS New York
and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the
importing countries using their own vessels.
FOB {+the named port of origin)
Free on Board: The delivery of goods on the board the vessel at the named port of origin
(Loading) at sellers expense. Buyer is responsible for the main carriage/freight, cargo
insurance and other costs and risks. In the export quotation, indicate the port of origin
(loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai.
Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only.
However, in practice, many importers and exporters still use the term FOB in the air
freight. In North America, the term FOB has other applications. Many buyers and sellers
in Canada and the USA dealing on the open account and consignment basis are
accustomed to using the shipping terms FOB Origin and FOB destination.
FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB
Destination means the seller is responsible for the freight and other costs and risks until
the goods are delivered to the buyers premises which may include the import custom

18

clearance and payment of import customs duties and taxes at the buyers country,
depending on the agreement between the buyer and seller. In international trade, avoid
using the shipping terms FOB Origin and FOB Destination, which are not part of the
INCOTERMS (International Commercial Terms).
CFR {+the named port of destination}
Cost and Freight: The delivery of goods to the named port of destination (discharge) at
the sellers expenses. Buyer is responsible for the cargo insurance and other costs and
risks. The term CFR was formerly written as C&F. Many importers and exporters
worldwide still use the term C&F.
In the export quotation, indicate the port of destination (discharge) after the acronym
CFR, for example CFR Karachi and CFR Alexandria. Under the rules of the
INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However,
in practice, the term Cost and Freight (C&F) is still commonly used in the air freight.
CIF {+named port of destination}
Cost, Insurance and Freight: The cargo insurance and delivery of goods to the named
port of destination (discharge) at the sellers expense. Buyer is responsible for the import
customs clearance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym CIF,
for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990,
the term CIFI is used for ocean freight only. However, in practice, many importers and
exporters still use the term CIF in the air freight.

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CPT {+the named place of destination}

Carriage Paid To: The delivery of goods to the named port of destination (discharge) at
the sellers expenses. Buyer assumes the cargo insurance, import custom clearance,
payment of custom duties and taxes, and other costs and risks. In the export quotation,
indicate the port of destination (discharge) after the acronym CPT, for example CPT Los
Angeles and CPT Osaka.
CIP {+ the named place of destination)
Carriage and Insurance Paid To: The delivery of goods and the cargo insurance to the
named place of destination (discharge) at sellers expense. Buyer assumes the importer
customs clearance, payment of customs duties and texes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym
CIP, for example CIP Paris and CIP Athens.
DAF {+ the names point at frontier}
Delivered At Frontier: The delivery of goods to the specified point at the frontier at
sellers expense. Buyer is responsible for the import custom clearance, payment of custom
duties and taxes, and other costs and risks.
In the export quotation, indicate the point at frontier (discharge) after the acronym DAF,
for example DAF Buffalo and DAF Welland.
DES {+named port of destination}
Delivered Ex Ship: The delivery of goods on board the vessel at the named port of
destination (discharge) at sellers expense. Buyer assumes the unloading free, import
customs clearance, payment of customs duties and taxes, cargo insurance, and other costs
and risks.

20

In the export quotation, indicate the Port of destination (discharge) after the acronym
DES, for example DES Helsinki and DES Stockholm.
DEQ {+ the named port of destination
Delivered Ex Quay: The delivery of goods to the Quay (the port) at the destination at
buyers expense. Seller is responsible for the importer customs clearance, payment of
customs duties and taxes, at the buyers end. Buyer assumes the cargo insurance and other
costs and risks. In the export quotation, indicate the Port of destination (discharge) after
the acronym DEQ, for example DEQ Libreville and DEQ Maputo.
DDU {+ the named point of destination}
Delivered Duty Unpaid: The delivery of goods and the cargo insurance to the final point
at destination, which is often the project site or buyers premises at sellers expense. Buyer
assumes the import customs clearance, payment of customs duties and taxes. The seller
may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym
DDU for example DDU La Paz and DDU Ndjamena.
DDP {+ the named point of destination)
Delivered Duty Paid: The seller is responsible for most of the expenses which include
the cargo insurance, import custom clearance, and payment of custom duties, and taxes at
the buyers end, and the delivery of goods to the final point of destination, which is often
the project site or buyers premise. The seller may opt not to insure the goods at his/her
own risk. In the export quotation, indicate the point of destination (discharge) after the
acronym DDP, for example DDP Bujumbura and DDP Mbabane.

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E-term,F-term, C-term &D-term: Incoterms 2000, like its immediate

predecessor, groups the term in four categories denoted by the first letter in the threeletter abbreviation.

Under the E-TERM (EXW), the seller only makes the goods available to the
buyer at the sellers own premises. It is the only one of that category.

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

Under the C-TERM (CFR, CIF, CPT, & CIP), the seller has to contract for
carriage, but without assuming the risk of loss or damage to the goods or
additional cost due to events occurring after shipment or discharge.

Under the D-TERM (DAF, DEQ, DES, DDU & DDP), the seller has to bear all
costs and risks needed to bring the goods to the place of destination.

All terms list the sellers and buyers obligations. The respective obligations of both
parties have been grouped under up to 10 headings where each heading on the sellers
side mirrors the equivalent position of the buyer. Examples are Delivery, Transfer of
risks, and Division of costs. This layout helps the user to compare the parties respective
obligations under each Incoterms.

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PROCESSING AN EXPORT ORDER

You should not be happy merely on receiving an export order. You should first
acknowledge the export order, and then proceed to examine carefully in respect of

Items

Specification

Pre-shipment inspection

Payment conditions

Special packaging

Labeling and marketing requirements

Shipment and delivery date

Marine insurance

Documentation requirement etc.

If you are satisfied on these aspects, a formal confirmation should be sent to the buyer,
otherwise clarification should be sought from the buyer before confirming the order.
After confirmation of the export order immediate steps should be taken for
procurement/manufacture of the export goods. In the meanwhile, you should proceed to
enter into a formal export contract with the overseas buyer.
Before accepting any order necessary homework should have been done as to availability
of the production capacity, raw material e.t.c. It would be in the interest of the exporter to
look into entering into forward contract to safeguard against exchange rate fluctuations.
Ensure that the mode of payment is also agreed upon. In case of shipment against letter of

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credit, the buyer should be advised to open the credit well in advance before effecting the
shipment.

FINANCIAL RISKS INVOLVED IN FOREIGN TRADE

As an exporter while selling goods abroad, you encounter various types of risks. The
major risks which you have to undergo are as follows:

Credit Risk

Currency Risk

Carriage Risk

Country Risk

You can protect yourself against the above risks by initiating appropriate steps.
Credit Risks :
You can cover your credit risk against the foreign buyer by insisting upon opening a letter
of credit in your favour. Alternatively one can avail of the facility offered by various
credit risk agencies. A specific insurance cover can also be obtained from ECGC (Exports
Credit & Guarantee Corporation) to cover your country risk besides covering credit risk.
Currency Risks:
As regards covering the currency risk, due to the exchange rate fluctuations, you can
request your banker to book a forward contract.
Carriage Risk:

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The carriage risk can be covered by taking an appropriate general insurance policy.
Country Risk:
ECGC provides cover to protect the exporter from country risks. A detailed procedure
how an exporter can get himself protected against the above risks are given in separate
chapters later.

EXPORT DOCUMENTS
Any export shipment involved various documents required by various authorities such as
customs, excise, RBI, Inspection and according depending upon the requirements, there
are categorized into 2 categories, namely commercial documents and regulatory
documents.
A. Commercial Documents. : - Commercial documents are required for effecting
physical transfer of goods and their title from the exporter to the importer and the
realisation of export sale proceeds. Out of the 16 commercial documents in the
export documentation framework as many as 14 have been standardised and
aligned to one another. These are proforma invoice, commercial invoice, packing
list, shipping instructions, intimation for inspection, certificate, of inspection of
quality control, insurance declaration, certificate' of insurance, mate's receipt, bill
of lading or combined transport document, application for certificate origin,
certificate of origin, shipment advice and letter to the bank for collection or
negotiation of documents. However, shipping order and bill of exchange could not
be brought within the fold of the Aligned Documentation System,
1.

Commercial Invoice:

Commercial invoice is an important and basic export

document. It is also known as a 'Document of Contents' as it contains all the

information required for the preparation of other documents. It is actually a seller's
bill of merchandise. It is prepared by the exporter after the execution of export
order giving details about the goods shipped. It is essential that the invoice is

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prepared in the name of the buyer or the consignee mentioned in the letter of credit.
It is a prima facie evidence of the contract of sale or purchase and therefore, must
be prepared strictly in accordance with the contract of sale.
Contents of Commercial Invoice

Name and address of the exporter.

Name and address of the consignee.

Name and the number of Vessel or Flight.

Name of the port of loading.

Name of the port of discharge and final destination.

Invoice number and date.

Exporter's reference number.

Buyer's reference number and date.

Name of the country of origin of goods.

Name of the country of final destination.

Terms of delivery and payment.

Marks and container number.

Number and packing description.

Description of goods giving details of quantity, rate and total amount in terms of
internationally accepted price quotation.

Signature of the exporter with date.

Significance of Commercial Invoice

It is the basic document useful in preparation of various other shipping

documents.

It is used in various export formalities such as quality and pre-Shipment

inspection excise and customs procedures etc.

It is also useful in negotiation of documents for collection and claim of incentives.

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It is useful for accounting purposes to both exporters as well as importers.

Inspection Certificate: The certificate is issued by the inspection authority such as
the export inspection agency. This certificate states that the goods have been
inspected before shipment, and that they confirm to accepted quality standards.

Marine insurance policy: Goods in transit are subject to risk of loss of goods
arising due to fire on ship, perils of sea, theft etc. marine insurance protects losses
incidental to voyages and in land transportation. Marine insurance policy is one of
the most important document used as collateral security because it protects the
interest of all those who have insurable interest at the time of loss. The exporter is
bound to insure the goods in case of CIF quotation, but he can also insure the goods
in case of FOB contract, at the request of the importer, but the premium payment
will be made by the exporter. There are different types of policies such as

SPECIFIC POLICY: This policy is taken to cover different risks for a

single shipment. For a regular exporter, this policy is not advisable as he
will have to take a separate policy every time a shipment is made, so this
policy is taken when exports are in frequent.

Floating Policy: This is taken to cover all shipments for some months.
There is no time limit, but there is a limit on the value of goods and once
this value is crossed by several shipments, then it has to be renewed.

Open Policy: This policy remains in force until cancelled by either party
i.e. insurance company or the exporter.

Open Cover Policy: This policy is generally issued for 12 months period,
for all shipments to one or more destinations. The open cover may specify
the maximum value of consignment that may be sent per ship and if the
value exceeded, the insurance company must be informed by the exporter.

Insurance Premium: Differs upon product to product and a number of

such other factors, such as, distance of voyage, type and condition of
packing, etc. Premium for air consignments are lowered as compared to
consignments by sea.

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4.

Consular Invoice:

Consular invoice is a document required mainly by the

Latin American countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand,
Myanmar, Iraq, Australia, Fiji, Cyprus, Nigeria, Ghana, Guinea, Zanzibar, etc. This
invoice is the most important document, which needs to be submitted for
certification to the Embassy of the importing country concerned. The main purpose
of the consular invoice is to enable the authorities of the importing country to
collect accurate information about the volume, value, quality, grade, source, etc., of
the goods imported for the purpose of assessing import duties and also for statistical
purposes. In order to obtain consular invoice, the exporter is required to submit
three copies of invoice to the Consulate of the importing country concerned. The
Consulate of the importing country certifies them in return for fees. One copy of the
invoice is given to the exporter while the other two are dispatched to the customs
office of the importer's country for the calculation of the import duty. The exporter
negotiates a copy of the consular invoice to the importer along with other shipping
documents.
Significance of Consular Invoice for the Exporter

It facilitates quick clearance of goods from the customs in exporter's as well

as importer's country.

Certification' of goods by the Consulate of the importing country indicarer

that the importer has fulfilled all procedural and licensing formalities for
import of goods.

It also assures the exporter of the payment from the importing country.

Significance of Consular Invoice for the Importer

It facilitates quick clearance of goods from the customs at the port

destination and therefore, the importer gets quick delivery of goods.

The importer is assured that the goods imported are not banned for imported
in his country.

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Significance of Consular Invoice for the Customs Office

It makes the task of the customs authorities easy.

It facilitates quick calculation of duties as the value of goods as determine

by the Consulate is considered for the purpose.

Certificate of Origin: The importers in several countries require a certificate of

5.

origin without which clearance to import is refused. The certificate of origin states
that the goods exported are originally manufactured in the country whose name is
mentioned in the certificate. Certificate of origin is required when:

The goods produced in a particular country are subject to preferential tariff rates
in the foreign market at the time importation.

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

Types of the Certificate of Origin

(a) Non-preferential Certificate, of Origin: - Non-preferential certificate of origin is
required in general by all countries for clearance of goods by the importer, on which
no preferential tariff is given. It is issued by:

The authorised Chamber of Commerce of the exporting country.

Trade Association. Of the exporting country.

(b) Certificate of Origin for availing Concessions under GSP :- Certificate of origin
required for availing of concessions under Generalised System of Preferences
(GSP) extended by certain, countries such as France, Germany, Italy, BENELUX
countries, UK, Australia; Japan, USA, etc. This certificate can be obtained from
specialised agencies, namely;

Export Inspection Agencies.

Jt. Director General of Foreign Trade..

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(c)

Commodity Boards and their regional offices.

Development Commissioner, Handicrafts.

Textile Committees for textile products.

Marine Products Export Development Authority for marine products.

Development Commissioners of EPZs

Certificate for availing Concessions under Commonwealth Preferences (CWP):
Certificate of origin for the purpose of Commonwealth Preference is also known as
'Combined Certificate of Origin and Value'. It is required by two member countries,
i.e. Canada and New Zealand of the Commonwealth. For concession under
Commonwealth preferences, the certificates or origin have to be submitted in
special forms obtainable, from the High Commission of the country concerned.

(d)

Certificate for availing Concessions under other Systems of Preference:Certificate of origin is also required for tariff concessions. under the Global System
of Trade Preferences (GSTP), Bangkok Agreement(BA) and SAARC Preferential
Trading Arrangement (SAPTA) under which India grants and receives tariff
concessions On imports and exports. Export Inspection Council (EIC) is the sole
authority to print blank Certificates of Origin under BA, SAARC and SAPTA which
can be issued by such agencies as EPCs, DCs of EPZs, EIC, APEDA, MPEDA,
FIEO, etc...

Contents of Certificate of Origin

Name and logo of chamber of commerce.

Name and address of the exporter.

Name and address of the consignee.

Name and the number of Vessel of Flight

Name of the port of loading.

Name of the port of discharge and place of delivery.

Marks and container number.

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Packing and container description.

Total number of containers and packages.

Description of goods in terms of quantity.

Signature and initials of the concerned officer of the issuing authority.

Seal of the issuing authority.

Significance of the Certificate of Origin

Certificate of origin is required for availing of concessions under Generalised

System of Preferences (GSP) as well as under Commonwealth Preferences
(CWP).

It is to be submitted to the customs for the assessment of duty clearance of goods

with concessional duty.

It is required when the goods produced in a particular country are banned for
import in the foreign market.

It helps the buyer in adhering to the import regulations of the country.

Sometimes, in order to ensures that goods bought from some other country have
not been reshipped by a seller, a certificate of origin IS required.

Bill of Lading:

6.

The bill of lading is a document issued by the shipping

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

As a document of title to the goods;

As a receipt from the shipping company; and

As a contract for the transportation of goods.

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Types of Bill of Lading

Clean Bill of Lading: - A bill of lading acknowledging receipt of the goods

apparently in good order and condition and without any qualification is termed as
a clean bill of lading.

Claused Bill of Lading: - A bill of lading qualified with certain adversere marks
such as, "goods insufficiently packed in accordance with the Carriage of Goods
by Sea Act," is termed as a claused bill of lading.

Transhipment or Through Bill of Lading: - When the carrier uses other

transport facilities, such as rail, road, or another steamship company in addition to
his own, the carrier issues a through or transhipment bill of lading.

Stale Bill of Lading: - A bill of lading that has been held too long before it is
passed on to a bank for negotiation or to the consignee is called a stale bill of
lading.

Freight Paid Bill of Lading: - When freight is paid at the time of shipment or in
advance, the bill of landing is marked, freight paid. Such bill of lading is known
as freight bill of lading.

Freight Collect Bill of lading :- When the freight is not paid and is to be
collected from the consignee on the arrival of the goods, the bill of lading is
marked, freight collect and is known as freight collect bill of lading

Contents of Bill of Lading

Name and logo of the shipping line.

Name and address of the shipper.

Name and the number of vessel.

Name of the port of loading.

Name of the port of discharge and place of delivery.

Marks and container number.

Packing and container description.

Total number of containers and packages,

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Description of goods in terms of quantity.

Container status and seal number.

Gross weight in kg. and volume in terms of cubic meters.

Amount of freight paid or payable.

Shipping bill number and date.

Signature and initials of the Chief Officer. .

Conclusion

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Bibliography
Books

Website

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