INTERNATIONAL BUSINESS MBA TRIM 3

Course Code : MBA 365

Course Title : International Trade Procedures & Documentation

MODULE II
Credit units : 03

February 14, 2016

Prepared by Sudhir Pasricha

International Trade Procedures & Documentation - II

Learning Objectives:

Learning the importance and procedural & documentation aspects of export-import of goods and services ;
Knowledge of governments, departments, international institutions involved ;
How an Export Manager to develop a systematic methodology to handle exports ;
Understand the relevance and importance of various government policy measures for export as well as import.

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International Trade Procedures & Documentation - II

Course Contents

Module II: Documents for processing export order and legal implications
Processing of Product enquiry/quotation,
Purchase/Export Order, Letter of intent,
Payment Terms,
International Transport Modes,
INCOTERMS,
Advising & scrutiny of a Letter of Credit (L/C),
Seeking L/C amendments,
International Chamber of Commerces UCPDC articles.
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International Trade Procedures & Documentation - II

Processing of Product enquiry/quotation

Inquiry is the request made by a prospective importer regarding his wish to import
Certain goods
Offer is a proposal submitted by an exporter Expressing His Intentions to export
Specific goods at a specific price with specific terms & conditions.
Exporter usually makes an offer in the form of a proforma invoice which includes :

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International Trade Procedures & Documentation - II

Processing of Product enquiry/quotation

Proforma Invoice includes the following :

1.Name & Address of the Buyer / Importer
2.Description of Goods technical , physical & chemical features with detailed
description
3.Price Unit Wise & total price of goods in internationally accepted currencies or
mutually
Agreed currencies. Quantity discounts, cash discounts - both in unit wise & total.
Price indicated in the invoice should be Ex Works. FOB, CIF etc or in other
internationally

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accepted form

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International Trade Procedures & Documentation - II

Processing of Product enquiry/quotation

Conditions of Sale :

Validity Period for which Invoice is valid. Importer can accept the PI any time
before validity period.
Escalation Clause Price of Products may increase before delivery period due to
increase in cost of inputs & thus cost of production. the exporter may include this
clause
Delivery Schedule Realistic delivery schedule to be indicated based on pricing
mode . In case of CIF Quotation, the goods have to be delivered to the ports of
destination
Inspection
Name of the Authority
who shall inspect the goods is to be
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International Trade Procedures & Documentation - II

Processing of Product enquiry/quotation

Force Majeure exporter may fail to deliver goods due to uncontrollable

situations like war, riots, natural calamities etc. Therefore indicates force
majeure clause to get rescue in such situations

5 Payment Terms Like Letter of Credit, Bill of Exchange etc to be indicated

6 Other Obligations like After Sales Services provided by exporter, providing
spare parts, warranties, guarantees for the equipment, technology etc.
7 Confirmed Order- Buyer sends the confirmed order to the exporter by signing
the duplicate copy of Invoice. The signed invoice by importer becomes the
confirmed order.
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International Trade Procedures & Documentation - II

Processing of Product enquiry/quotation

8 Export License Exporter has to obtain the export license from the authorities
concerned for the items to be exported if required.
9 Procuring Finance If the exporter does not have required finance to
undertake the exports the finance needs to be procured from various sources.

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International Trade Procedures & Documentation - II

Purchase/Export Order, Letter of intent
Completed on buyer's letterhead
Date:................................
We the undersigned (NAME OF BUYER OR COMPANY) hereby state and represent that it is our corporate
intention to purchase the commodity / product ................... in the quantity and for the price as specified in the
terms and conditions as stated below. This representation is made with full corporate authority and also
Responsibility of the above stated buyer.
Commodity / Product:
Origin:
Specifications:
Quantity:
Packaging:
Delivery Size And Schedule:
Mode of payment:
FOB & C&F target price:
Destination Port Discharge Rate Per Day:
Inspection:
Guarantee:
Documents: Buyers Information Company Name Corporate Address:
Buyers Bank Information Bank Name
Swift Code:
Bank Officers Name/ Title/ Direct phone & Fax:
Account Name/Number:
Confirming bank coordinates (if any):
Banks name
address:
We understand that any and all offers and/or contracts are subject to successful seller verification of funds availability. We
hereby give our written permission for the seller to conduct a soft probe of our account.
Buyer's full name & company seal ___________
Position:
___________________________________
Signature and typed full name.
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International Trade Procedures & Documentation - II

International Terms of Payment

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International Trade Procedures & Documentation - II

International Transport Modes

ean Transportation - Ship transport can be over any distance by boat, ship, sailboat or ba

ceans and lakes, through canals or along rivers.

ping may be forcommerce,recreationor themilitarypurpose. Virtually any material that c

can be moved by water; however, water transport becomes impractical when material de

time-critical.

tainerizationrevolutionized ship transport starting in the 1970s. "General cargo" includes

packaged in boxes, cases, pallets, and barrels. When a cargo is carried in more than one

it isintermodalorco-modal.
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International Trade Procedures & Documentation - II

International Transport Modes

Multimodal transport(also known as combined transport) Is the

transportation of goods under a single contract, but performed with at least two
different means oftransport; the carrier is liable (in a legal sense) for the entire
carriage, even though it is performed by several different modes of transport (by
rail, sea and road, for example).
The carrier does not have to possess all the means of transport, and in practice
usually does not; the carriage is often performed by sub-carriers (referred to in
legal language as "actual carriers"). The carrier responsible for the entire carriage
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International Trade Procedures & Documentation - II

International Transport Modes

Air Cargo

Air freight services are characterized by tighter control over its

cargo due to short transportation time.

Short transportation time and tight control reduce the cargo

exposure to theft, pilferage, and damage.

Freight, packaging, and labor costs can be saved dramatically

with air freight services due to faster delivery and better security.

Insurance premium rate generally is lower for air freight than

land or ocean freight.

High performance standards and the flexibility to meet your

changing needs is offered by air freight solutions.

Air transportation is the best medium for perishable goods.

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International Trade Procedures & Documentation - II

International Transport Modes
Air Cargo

http://www.youtube.com/watch?feature=player_embedded&v=1hGUh3AUcFE
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International Trade Procedures & Documentation - II

INCOTERMS
International Commercial Terms (Incoterms) are internationally recognised standard trade terms
used in International sales contracts. Theyre used to make sure buyer and seller know:
who is responsible for the cost of transporting the goods, including insurance, taxes and
duties
where the goods should be picked up from and transported to
who is responsible for the goods at each step during transportation

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International Trade Procedures & Documentation - II

Seeking L/C amendments
Letter of Credit (or Documentary Credit) is an undertaking issued by a bank
for the account of the buyer or for its own account, to pay the seller against the
value of the draft and/or other documents provided that the terms and conditions
of the credit are complied with.
LC is usually subject to the Uniform Customs and Practice for Documentary
Credits, International
Chamber of Commerce Publication No. 600 (UCP 600)

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International Trade Procedures & Documentation - II

Seeking L/C amendments

Amendment to a Letter of Credit

Any change made to a letter of credit after it is
issued is an amendment. All involved parties
must agree to accept the amendment.
The buyer initiates the Letter of Credit by
submitting a written request to the issuing bank.
If approved, theAmendment is sent to the
Negotiating Bank.
Assuming that thebeneficiary of the L/C and all
otherinterested parties approve of the change
including the Confirming Bank, the Amendment
becomes part of the Letter of Credit.
Amendments must be initiated by the buyer.Amendments are required when the
letter of credit does not conform to the sellersrequirements. The seller should
never rely on a commitment from the buyer that a letter of credit can be or will be
amended. The seller should wait for the amendment to arrive before releasing the
order.
The rationale is fairly straightforward: If the goods have been shipped, the buyer
may
refuse
amend the letter Prepared
of creditbyhoping
that the seller will not pay the cost
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2016
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International Trade Procedures & Documentation - II

Advising & scrutiny of a Letter of Credit (L/C)

Correspondent bank(usually in theexporter'scountry) of anissuing

bank(usually

in

theimporter'scountry)

thatreceivesaletter of credit

(L/C)from the issuingbankfor authenticating it and informing ('advising') the

exporter (the L/C'sbeneficiary) that a L/C has been opened by the importer in
the exporter's favor. The advising bank usually also takes on otherrolesin
thetransaction, such as :
1) confirmingthe letter of credit (playing theroleof the 'confirming bank'),
(2) accepting abill of exchangebyendorsingit (becoming the 'accepting
bank') and/or, (3) payingthe exporter onpresentationofdocuments(becoming
the 'paying bank' or 'negotiating bank'). Alsocalledadviser bank ornominated
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International Trade Procedures & Documentation - II

Advising & scrutiny of a Letter of Credit (L/C)

Participants in LC Process
1. Buyer
2. Issuing Bank
3. Advising Bank
4. Seller (Beneficiary)

9 Steps in the Letter of Credit Process

Buyer and seller agree to terms including means of transport, period of credit offered (if
any), and latest date of shipment acceptable.
Buyer applies to bank for issue of letter of credit. Bank will evaluate buyer's credit
standing, and may require cash cover and/or reduction of other lending limits.
Issuing bank issues LC, sending it to the Advising bank by airmail or electronic means
such as telex or SWIFT.
Advising bank establishes authenticity of the letter of credit using signature books or
test codes, then informs seller (beneficiary).
Seller should now check that LC matches commercial agreement and that all its terms
and conditions can be satisfied.
Seller ships the goods, then assembles the documents called for in the LC (invoice,
transport document, etc.).
The Advising bank checks the documents against the LC. If the documents are
compliant, the bank pays the seller and forwards the documents to the Issuing bank.
The Issuing bank now checks the documents itself. If they are in order, it reimburses the
seller's bank immediately.
The Issuing bank debits the buyer and releases the documents (including transport
document),
the buyer can claim
the goods
from
the carrier.
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International Trade Procedures & Documentation - II

International Chamber of Commerces

UCPDC articles.
TheUniform Customs and Practice for Documentary Credits(UCP) is a set of rules
on the issuance and use ofletters of credit. The UCP is utilized bybankersand
commercial parties in more than 175 countries intrade finance. Some 11-15%
ofinternational tradeutilizes letters of credit, totaling over a trillion dollars (US) each
year.

UCP 600
UCP 600 is the latest version of the
rules that govern letters of credit
transactions worldwide.

UCP 600 is prepared by

International
Chamber
of
Commerces (ICC) Commission on
Banking Technique and Practice.
Its full name is 2007 Revision of
Uniform Customs and Practice for
Documentary Credits, UCP 600, and
(ICC Publication No. 600).
The ICC Commission on Banking
Technique and Practice approved
UCP 600 on 25 October 2006. The
rules
have
been effective since
1
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14, 2016
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The ICCs aim is to provide a

codification of international practice
occasionally selecting the best practice
after ample debate and consideration.
The ICC rules of practice are designed
by bankers and merchants and not by
legislatures with political and local
considerations.
The rules accordingly demonstrate the
needs, customs and practices of business.
Because the rules are incorporated
voluntarily into contracts, the rules are
flexible while providing a stable base for
international review, including judicial
scrutiny.
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International Trade Procedures & Documentation - II

END OF MODULE II
THANK YOU !!

February 14, 2016

Prepared by Sudhir Pasricha

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INTERNATIONAL BUSINESS MBA TRIM 3

Course Code : MBA 365

Course Title : International Trade Procedures & Documentation

Credit units : 03

February 14, 2016

Prepared by Sudhir Pasricha

23

International Trade Procedures & Documentation - II

International Chamber of Commerces -Uniform Customs and Practice for Documentary Credits
UCPDC articles.
TheUniform Customs and Practice for
Documentary Credits(UCP) is a set of rules
on the issuance and use ofletters of credit.
The UCP is utilized bybankersand commercial
parties in more than 175 countries intrade
finance. Some 11-15% ofinternational
tradeutilizes letters of credit, totaling over a
trillion dollars (US) each year.
Historically, the commercial parties,
particularly banks, have developed the
techniques and methods for handling letters of
credit in internationaltrade finance. This
practice has been standardized by the ICC by
publishing the UCP in 1933 and subsequently
updating it throughout the years.

UCP 500 was the rules that had

been in implementation before UCP
600. There are several significant
differences exist between UCP 600
and UCP 500. Some of these
differences are as follows;

The number of articles reduced

from 49 to 39 in UCP 600;In order
to reach a standard meaning of
terms used in the rules and
prevent unnecessary repetitions
two new articles have been added
to the UCP 600. These newly added
articles are Article 2 Definitions
and Article 3Interpretations.
These articles bring more clarity
and precision in the rules;

The ICC has developed and moulded the UCP

by regular revisions, the current version being
the UCP600. The result is the most successful
A definitive description of
international attempt at unifying rules ever, as
negotiation as purchase of drafts
the UCP has substantially universal effect. The
of documents;
latest
revision
was approved by the
Banking
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