Unit 4

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UNIT 4 Shipping Documentation

Unit 4 Shipping Documentation

133 Notes __________________ __________________ __________________ __________________

Objectives

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After reading this unit you will be able to understand:

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The significance of export documentation and its proper uses.

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Commercial documents needed in export transactions

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Shipping Documentation and operation of L/C

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Importance and proper uses of shipping documents

Proper export procedure and documentation is most important element for international marketing management. It may be worthwhile to note that the complexities of documentation arises since both seller and buyer are located in different nations and therefore are governed mainly by different set of legal and legislative systems. The export transaction chain is facilitated by an efficient system of internationally recognized documentation framework. In addition a number of government and private entities which make it smooth for both seller and buyer to transact across the border. A number of regulatory agencies in India, which are government controlled, such as the Directorate General of Foreign Trade (DGFT), inspection agencies (can be from abroad also), insurance companies, banking institutions, customs and central excise authorities, clearing and forwarding agents, carriers for inland transportation, shipping companies or airlines, etc. have a major role to play in the smooth trade transaction between the buyer and the seller located in different countries. The exporters have to comply with the rules, regulations, and trade customs of all these organizations in his own country and may come across

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the legal framework of the host country depending upon the delivery terms used in the contract of sale and distribution of responsibilities among the trading partners. Consequently, the seller has to also make sure of receiving timely and due payment while the buyer has to make sure that the imported cargo is in good order and condition and is delivered on time. Besides he has to ensure the legality of the transaction in line with the legal framework to maintain the bonafide of the goods to be sold later to the consumers. Further if the cargo is perishable or with lower shelf life, for example food products or pharmaceuticals, public safety has to be ensured before the goods can be resold in the consumer market, normally the home country of the buyer. Besides, the cargo is exposed to a number of risk factors during transit from the warehouse of the seller to the warehouse of the buyer. These risk factors can be damage, fire, loss, environment caused decay and maritime/air damages. In order to understand and efficiently manage the customary and regulatory framework evolved over a time, an export manager has to make himself fully aware of the various legislations governing international trade in the home as well as the host country. In certain cases he may have to understand these framework in a third country specially where a transshipment or consolidation of cargo may take place. In case of India, the relevant laws/acts in the legal framework include the Foreign Trade (Development and Regulation) Act, 1992; Customs Act, 1962; Foreign Exchange Management Act, 2000; Export (Quality Control and Inspection) Act, 1963; Marine Insurance Act, 1963; Central Excise Act, 1944; Insurance Act, 1938; etc. Additionally an exporter from India also have to deal with certain international legislative system, which includes international commercial practices and laws, such as the Uniform Customs and Practices for Documentary Credit (UCPDC), 1993; the Carriage of Goods by Sea Act, 1924; the International Commercial Terms (Incoterms), 2000 (explained in detail elsewhere in this text), etc.

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In a simplified form, the export transaction framework can be depicted as in the Exhibit 4.1 below. Exhibit 4.1. Export Transaction framework

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In an export transaction, the documents are generally routed through the banking channels in the exporter’s and the importer’s country to minimize the risk of non-payment by the importer and the risk of non-receipt of goods from the exporter. As soon as the export contract is finalized and the payment terms are decided, the exporter initiates action for the procurement or manufacturing of goods. As a part of the international commercial practices, the bill of lading is handed over to the buyer by the buyer’s bank only after the payment has been made or the importer commits to make the payment at a future date if it is usance document. This ensures the receipt of payment to the exporter on one end while receipt of cargo to the importer on the other end. Therefore, an international marketing manager has to have a thorough understanding of the export procedures and documentation practices in international trade. Therefore, the goods can be claimed at the destination only by the bonafide holder of the B/L. The present notes describes in detail the important auxiliary and regulatory documents, such as commercial invoice, packing list, carriage documents (discussed in more details

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elsewhere in the notes) such as bill of lading (B/L), airways bill (AWB), combined transport documents (CTD), certificate of origin, inspection certificate, insurance certificate, bill of exchange B/E, shipping bill, bill of entry, mate’s receipt, exchange control declaration forms, etc. A thorough understanding of the procedures and documents involved in international transactions is must for an international marketing manager in order to manage international trade transactions effectively and efficiently.

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Shipping Documentation Shipping documents are generally classified as pre-shipment and post shipment documents. Main documents are commercial documents. There are certain other documents that are essential in export trade. Some documents are required to fulfill the statutory requirements of the home and the host countries, such as the foreign exchange regulations, export-import trade control, pre-shipment inspections, central excise and customs requirements etc. Export documentation is the prime element of the complex international transaction framework. The successful execution of an export shipment across border is as important as readying the goods for exports. Therefore an export manager should manage the documentation work most meticulously to avoid problems related to the smooth flow of goods and getting remittances from the overseas importers. In an export transaction, a number of trade intermediaries and government authorities are inevitably involved, such as the Directorate General of Foreign Trade (DGFT), export promotion councils (EPCs), export inspection agencies (EIA), shipping companies, insurance companies, banks, freight forwarders, port trusts, central excise and customs authorities etc. They have their own documentary requirements for their own reasons. In order to strictly comply with procedural formalities and documentary requirements as is required by law, meticulous planning and desired skills are required for the successful completion of an export transaction.

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Before 1990, all the export documents including shipping documents were prepared separately and were all very different from one another. These were, therefore, highly prone to discrepancies and errors. As a result, export documentation in India was extremely inconvenient, ambiguous and time consuming. After 1990, India adopted the ADS system for both export and import framework. The aligned documentation system (ADS) is a method of creating information on a set of semiidentical forms printed on a paper of same size in such a way that the items of identical specification occupy the same position on each form, when put one on another. The basic objectives of ADS have been simplification / prioritization, economy of time and efforts. By preparing only one ‘master document’ containing the information common to all documents it is possible to create the complete set of export documentation. The system consists of a Master Document I for preparing ‘commercial documents’ and Master Document II for preparing ‘regulatory documents’. For a long time, documents under ADS were prepared using masks, which blanked out the information not required in a particular document while photocopying. Thus, all the aligned documents could be prepared by this method with just two master documents. Any additional information specific to a document could be inserted or pre-printed on case to case basis. However, today this process has been further refined using several computer software available in the market. The programming of this software is based on the same principle and format. The print out of the software is exactly the same set generated by old ADS method but is less cumbersome. Approximately, about 25 documents are prepared for an export shipment. An overview of pre-shipment export documents is summarized in Figure below. For the purpose of understanding of an export manager, these documents can be divided into the following categories.

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Exhibit-4.2: Pre-shipment documents

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Pre-Shipment Export Documentation Pre-shipment documents are those, which are used by ‘custom of trade’ in international trading/commerce by exporters and importers in discharge of their respective legal and other incidental responsibilities under sales contracts and for complying with govt. laws. These are primarily of two types – commercial documents and regulatory documents. Commercial documents are further of two types – Principal and auxiliary.

Commercial Documents: A. Principal Required for: 1.

Effecting physical transfer of goods and their title from exporter to importer and

2.

Realization of export sales proceeds.

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B. Auxiliary Required for preparation/procurement of ‘Principal’ shipping documents.

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Regulatory Documents: There are prescribed by different Government Departments/ Bodies for compliance of formalities under relevant laws.

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Commercial Documents Commercial documents are required to be prepared and used by the exporters and importers in discharge of their respective legal and other incidental responsibilities under the sales contract. These are required for physical transfer of goods. These are also required for the transfer of the title of goods from the exporter to the importer as well as for realizing the proceeds of the sales. The documents have to be prepared according to the provisions and stipulations of the letter of credit, which has been discussed separately in detail elsewhere in these notes. The documents have to be prepared meticulously and with due diligence. The principal commercial documents are as follows:

Commercial Invoice Commercial invoice is the main document for an export transaction and must be prepared by the exporter or his authorized person. Since it is the most basic export document, it should provide information as comprehensively as possible. Additionally, the information provided should be mentioned clearly and accurately. A commercial invoice contains information on the exporter, the consignee’s details, country of final destination, country of origin of goods, terms of delivery and payment, vessel/ flight no., port of loading, port of discharge, final destination, marks and numbers, number and kind of packaging, detailed description of goods, quantity, rate, and total amount payable. As a customary trade practice, soon after striking an export deal, the exporter prepares a pro forma invoice and sends it to the importer. As soon as the importer accepts

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and countersigns the pro forma invoice, it becomes a part of an export contract. A pro forma invoice also helps the importer in arranging finances and opening of the letter of credit. Commercial invoice serves the following three main functions. (a) As a document of content: A commercial invoice provides

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1. Identification of the shipment by matching the identification marks and numbers given on the package being shipped with those given in the invoice. Every shipment must provide marks in the form of words. Besides, every shipment must have numbers to indicate the total number of packs or any other unit of account.

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2. Detailed description of goods, which should match with the description given in the letter of credit or contract as the case may be. 3. The quantity distribution among product mix in a particular shipment which must match with those mentioned in the letter of credit / contract. The exporter should ship and mention only the contracted quantity, unless specifically permitted. However when part shipment is allowed the invoice should indicate actual quantity being shipped if different from the contracted quantity. (b) As a seller’s bill: An invoice should indicate the net price (net of commission or discount), unless otherwise required differently under the contract. Generally, the detailed break-up of price is also given in the invoice as per the contractual stipulations. (c)

As a packing list: Since the description of goods and quantity thereof is given in detail, the commercial invoice can also serve as a packing list, especially when the packaging is simple or standard.

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Some importing countries may need specific commercial invoices, as follows. 1.

2.

3.

Legalized Invoice: Some of the importing countries, fore example Mexico, require legalized invoice. In those cases the commercial invoice is certified by the local chamber of commerce of the exporting country. The purpose is to verify that the invoice and declaration in the invoice are authentic. Consular Invoice: It is a specific invoice verified by the counsel of the importing country. Some of the countries in the Middle East require the invoice to be verified by the commercial section of their embassy in the exporting country. This is to ensure that the facts mentioned in the invoice are authenticated. This certification or legalization is done by way of stamp or seal on payment of specified processing fee. The process may take about a week’s time. However, the consular invoice is looked upon as a form of non-tariff barrier in the international business circle. Customs Invoice: Some countries, such as the USA and Canada, require customs invoice to be prepared in the prescribed format primarily for issues related to antidumping. The customs invoice varies in format, but contains similar information. The customs invoice is selfcertified by the exporter. However, certain countries need completed customs invoice from the importers rather than exporters for the purpose of customs clearance.

An international management professional should know how to prepare a commercial invoice. The details of the various columns containing the information required are as follows: 1.

Exporter: This box should indicate the exporter’s name and address along with the details of the city, state, country, and exporter’s phone and fax numbers. This box is titled as ‘shipper’ in the mate’s receipt as well as in the bill of lading to indicate the identity of the shipper. The same box is titled as ‘drawer’ in the letter to the bank for negotiation and collection of documents to indicate the identity of the person / firm who draws the bill of exchange on importer.

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3.

Buyer: Generally, buyer is the person to whom goods are consigned. In case the buyer is different from the consignee, the name and address of the buyer should be indicated in this box.

4.

References: Suitable references, such as invoice number, buyer’s order number and date, and exporter’s reference have to be correctly filled up in these boxes.

5.

Country of Origin of Goods: This box should indicate the identity of the country where goods have been produced as per the certificate of origin issued by the competent authority.

6.

Country of Final Destination: This box should contain the name of the destination country where the goods are to be finally delivered.

7.

Terms of Delivery and Payment: This box should indicate the details of delivery terms, such as FOB, CFR, CIF etc. and the payment terms, such as the documentary credit (D/C), delivery against acceptance (D/A), delivery against payment (D/P), etc.

8.

Pre-Carriage By: This box should indicate the name of the carrier/mode of transport used for transporting the goods from the point of origin where they were accepted for carriage by the pre-carrier.

9.

Place of Receipt by Pre-Carrier: It should indicate the name of the place where goods were received for carriage by the pre-carrier.

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Consignee: This box should contain the name and address of the party to whom goods are to be delivered.

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10. Vessel/Flight No: It indicates the details of the vessel or flight no. by which the goods are exported including the name of vessel / air carrier, using internationally accepted codes or abbreviation. 11. Port of Loading: This box should indicate the name of the seaport / airport at which the goods were loaded.

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12. Port of Discharge: This box indicates the name of the seaport/airport at which the exported goods are to be unloaded. 13. Final Destination: It indicates the name of the place where the goods are to be finally delivered, in case the final destination is different from the place of discharge. 14. Mark Nos. / Container Numbers: It indicates marks and numbers appearing on the packages comprising the consignment as agreed between the exporter and the importer. In case of containerized cargo, it should indicate container number. 15. Number and Kind of Packages: This box indicates the total number and nature of packaging in which goods are shipped, such as bags, bales, crates, drum, bundles, etc. 16. Description of Goods: It gives the description of goods as per the contract. Separate description of different types of goods for the same consignment should be given against related number and kind of packages. 17 & 18. Quantity, Rate, and Amount: These boxes should indicate in respect of each type of goods comprising the consignment, the respective quantity and rate as per the contract and the amount payable. 19. Signature and Date: Each copy of the commercial invoice should contain in ink the dates and signature of the authorized person to make it legally acceptable.

Packing List Packing list provides details of kind and number of packing of the goods, the contents of different packages, and details of the weights and measurement of each package in the consignment. Packing list is used by the carrier while taking decisions on the loading of the consignment. Besides, this is an essential document for the customs to check the cargo for complying with the local laws. It also helps the importer to check and manage the inventory of the merchandise received.

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While for standard or small packing, packing list may not be required, as a general trade rule, it is better to provide financial and packing information separately in the form of invoice and packing list. The packing list is an extension of the commercial invoice, and actually it looks like a commercial invoice. One of the important uses of packing list is that the exporter or his/her agent reserves the shipping space based on the gross weight or the measurement shown in the packing list.

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Customs uses the packing list as a checklist and reference to verify the outgoing cargo (while exporting) and the incoming cargo (while importing). The importer uses the packing list to manage inventory of the incoming consignment. Most fields in a packing list are similar to Commercial Invoice but the main description marks and nos. measurements etc have to be more detailed as explained below. For the purpose of explaining some of the important fields in the packing list, it is assumed that the Digital Cameras in the sample L/C (as given in annexure 4.1) contain the following data: The catalogue or item number of the Digital Camera is DC007 Each pc is in an inner retail box and there are 12 boxes in an export master carton, or a total of 167 cartons for the 2004 pcs 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')

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Marks & Numbers / Container No. It indicates marks and numbers appearing on the packages comprising the consignment as agreed between the exporter and the importer. In case of containerized cargo, it should indicate container number.

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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. 1-167’ or the like in the field (Package No.), provided it is not inconsistent with the marks and numbers on the master cartons. 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 digital cameras above, entering ‘DC007’ and ‘’AB’ Brand Digital Cameras’ in the fields will satisfy the requirements. Number and Kind of Packages This box indicates the total number and nature of packaging in which goods are shipped, such as bags, bales, crates, drum, bundles, etc. 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. 1-167, enter: 2004 pcs 12 pcs/Ctn. or 2004 pcs 12 pcs @ Ctn. or the like in the field. The / and @ used here stands for per or each.

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Remarks ‘Weight’

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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. 1-167, enter:

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3,841 Kgs.

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23 Kgs./Ctn.

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or

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3,841 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. 3,500 Kgs. G.W. 3,841 Kgs. ‘Measurement’ Ocean shipments are most often charged by the cubic meter (CBM or cbm). Enter: 18.87 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: 18.87 CBM 0.113 CBM/Ctn. @ 61 x 61 x 30.5 Cms.

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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.

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‘Signature and/or stamp’

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Each copy of the commercial invoice should contain in ink the dates and signature of the authorized person to make it legally acceptable.

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Total Number of Packages (this information may be put in the blank space at the bottom of packing list.)

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For example a consignment where the range of the carton number is as follows: C/No. 1-50

- Product A

C/No. 51-100

- Product B

C/No. 101-150

- Product C

C/No. 151-167

- Product D

put a summary ‘Total 167 Cartons’ in a succeeding row after the ‘C/No. 151-167’. 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: 100 dozen

- Product A

200 dozen

- Product B

300 boxes

- Product C

400 boxes

- Product D

as such the total shows ‘300 Dozen and 700 Boxes’.

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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 circumstances, 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.

Carriage Documents The set of documents that evidence shipment of goods, such as the bill of lading (in ocean transport), combined transport document (in multi-modal transport), Air Way Bill (for air shipments), or consignment note (for rail, road, air, or sea transport), and receipt (in postal or courier delivery) are collectively known as transport documents. Transport documents are described in detail elsewhere in these notes.

Certificate of Origin This document is used as an evidence of the origin of goods in the importing country. It includes the details of the goods covered and the name of the country where the goods are produced, grown or manufactured. The manufactured goods must have substantial value addition in the exporting country to be eligible to be called of origin of the said country. Value additions of the form of packaging, assembling, splitting or sorting may not be sufficient for qualifying to be treated as the goods of said country of origin. Certificate of origin is also needed by buyers for deciding whether the import from the country of origin is partially or completely prohibited. It is also used for granting preferential duty treatment to goods originating from the

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preferred country, e.g., in case of the Generalized System of Preference (GSP) certificate. Besides, the certificate of origin is also required for deciding the liability and the rate of import duty in the importing country. The certificate of origin is of two types.

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1. Preferential Certificate of Origin The preferential certificates of origin are required by the countries offering tariff concessions on imports from certain preferred countries. For exports from India preferential certificate of origin includes: (a) Generalized system of preferences (GSP): It is a noncontractual instrument by which developed countries unilaterally and non-reciprocally extend tariff concessions to developing countries. The countries extending preferences under their GSP scheme include the United States, Japan, Hungary, Belarus, European Union, Norway, Switzerland, Bulgaria, Slovakia, Canada, Russia, Poland, Czech Republic, and New Zealand. (b) The agreement establishing SAPTA: It was signed by the seven SAARC countries, namely India, Pakistan, Nepal, Bhutan, Bangladesh, Sri Lanka, and Maldives. (c)

Global system of trade preference (GSTP): In the GSTP, trade concessions are exchanged among a group of intending developing countries which are signatory to the agreement. The trade concessions could be for entire imports or for selected commodities as per the agreement. Presently, there are 46 member countries of GSTP and India has exchanged tariff concessions with 12 member countries on a limited number of products. Export Inspection Council (EIC) is the sole agency authorized to issue the certificate of origin under GSTP.

(d) A free trade agreement (FTA) between India and Sri Lanka: It was signed on 20 December 1998. The agreement was operational zed in March 2000 following notification of the required customs tariff concessions by the governments of Sri Lanka and India in February

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and March 2000, respectively. Export Inspection Council is the sale agency to issue the certificate of origin under India-Sri Lanka Free Trade Area (ISLFTA). Recently a more comprehensive FTA has been signed between India and Thailand. (e) The Bangkok agreement: It is a preferential trading arrangement designed to progressively liberalize and expand trade-in-goods in the Economic and Social Commission for Asia and Pacific (ESCAP) region through such measures as the relaxation of tariff and non-tariff barriers and use of other negotiating tools. 2. Non-preferential Certificate of Origin It merely evidences the origin of goods from a particular country and does not bestow any tariff benefits on exports to the importing nations. Generally, such a certificate of origin is issued by the local chamber of commerce. A shipper has to make an application to a local chamber of commerce in the prescribed format for getting the certificate of origin. It is a significant document, which helps in deciding upon the importability and about tariff calculations in a number of importing countries. Therefore, an exporter should furnish the certificate of origin carefully and accurately as per the stipulations of the importing country.

Inspection Certificate Under the Export (Quality Control and Inspection) Act, 1963, it is mandatory to obtain an export inspection certificate for a number of listed products as stipulated by the notified agency. The agencies entrusted with compulsory preshipment quality inspection include Export Inspection Agency (EIA), Bureau of Indian Standard, Agricultural Marketing Advisor (Agmark), Drugs Controller, Tea Board, Coffee Board, etc.

International Recognitions Under the provisions of WTO agreements, especially the SPS agreement, several of India’s trading partners have imposed import control systems based on international standards,

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particularly in areas like food sector. These agreements also provide for recognition of the export certification system of member trading partners provided it meets the requirements of their import control stipulations. EIC, as the official export certification body of India, has started dialogue with several of India’s trading partners seeking recognition of its certification. Generally, an importer wants the inspection to be carried out by a private agency (viz. SGS, Geochem, etc.) nominated by him to ensure the quality of merchandise as per the export contract. The exporter has to submit the intimation for inspection in a prescribed format and the inspection certificate is issued by the inspecting agency against payment of a fee.

Cargo Insurance Policy Certificate In order to provide protection to the cargo-owner, an insurance cover is necessary while the cargo is in transit from the consignor’s warehouse to the consignee’s warehouse. The carrier and other intermediaries, such as the port authorities, warehousing operators, c&f agents, etc have only limited liability during the movement of cargo, and therefore, they cannot be held responsible in the event of loss due to a situation which is not in their control, such as man-made accidents, natural calamities (Act of God), etc. The detailed discussion on the cargo insurance cover is given elsewhere in these notes.

Mate’s Receipt On receipt of cargo on board, the master of the vessel issues ‘mate’s receipt’ for every shipment taken on board. The port authorities collect the mate’s receipt from the master or chief officer of the vessel. They do not accept any ‘claused’ mate’s receipt unless authorized by the shipper. The shipper or his agent has to collect the mate’s receipt from the port authorities after the payment of all port dues. After receiving the mate’s receipt, the shipper or his agent prepares a bill of lading, as per the mate’s receipt, on blank forms supplied by the shipping company and presents 2-3 originals and some

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non-negotiable copies along with the original mate’s receipt to the shipping company for signature of the authorized officer of the shipping company. Mate’s receipt is merely a receipt of goods shipped. It is not a document of ‘title.’ The mate’s receipt is an important document because the shipping company issues the bill of lading in exchange of mate’s receipt. Therefore, the exporter must collect the mate’s receipt soon after its receipt from the shed superintendent to avoid any problems and delays in getting the bill of lading.

Bill of Exchange (Draft) It is an unconditional order in writing prepared and signed by the seller and addressed to the buyer, requiring him to pay on demand (sight bill of exchange) or at a future date (usance bill of exchange) a certain sum of money (contract value) to the seller or his or her nominee (or endorsee). The maker of the bill (i.e., the exporter) is known as the ‘drawer’ while the person receiving the bill (i.e., the importer) is called the ‘drawee’. ‘Sight drafts’ (or bills of exchange) are used when payment is received by D/P (document against payment), while the usance drafts are used in D/A (document against acceptance). In case of usance bills of exchange, the drafts are drawn for 30-180 days and are negotiable instruments, which can be bought and sold. A bill of exchange is invariably prepared in two original copies. Both the copies refer each other and are equally valid. The two original copies are sent by different airmails and the one that reaches earlier is used for exchanging the title documents and the sale amount. Once an original bill of exchange has been honored, the other copy, which comes later, becomes redundant. The exporter should ensure before sending the bill of exchange that the details mentioned therein tallies with the other documents. The amount should be mentioned in words, and it is signed out in the same way as a cheque is signed by an authorized signatory of the exporting firm. Since a bill of exchange does not provide security to the exporter on its own strength, therefore, as a matter of

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practice, it is used in international trade, along with a letter of credit. A letter of credit guarantees that a bill of exchange would be honored.

153 Notes __________________ __________________

Shipment Advice

__________________

Soon after the shipment has taken place, the shipment advice is sent to the importer informing him of the details of the shipment. The shipment advice indicates details of the vessel or flight number, port of discharge and destination, export order or contract number, description of cargo, quantity, etc. This gives advance information to the importer about the details of the shipment to enable him to make arrangements to take delivery of the goods at destination. Generally, the importers insist upon sending the copy of shipping advice by fax followed by another by express airmail/courier. A nonnegotiable copy of the bill of lading, commercial invoice, customs invoice, if any, and packing list should also be attached to the shipping advice.

__________________

Regulatory Documents Regulatory documents fulfill the statutory requirements of both the importing and the exporting countries. These documents are related to various government authorities, such as the Directorate General of Foreign Trade (DGFT), the Reserve Bank of India (RBI), Export Promotion Councils (EPCs), Export Inspection Agencies, banks, customs and central excise authorities, etc.

Exchange Control Declaration Forms Under the Foreign Exchange Management (Export of Goods and Services) Act, 2000, for every export activity taking place out of India, the exporter has to submit an exchange control declaration form in the format prescribed by RBI. Exports to Nepal and Bhutan are exempt from this formality. The basic objective of a declaration form is to make sure of the full and timely realization of export proceeds by the exporter as per the provisions of the Foreign Exchange Management Act, 1999.

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The various types of forms used for foreign exchange declaration are as follows: GR Form: Guaranteed remittance (GR) forms are for all types of physical exports, including software exports (done in physical form by using magnetic tapes or paper form) (to be filled in duplicate). SDF Form: For all such exports where the customs authority has the facility for EDI (electronic data interchange) processing of a shipping bill. It is attached in duplicate with the shipping bill. PP Forms: Postal parcel (PP) forms are for all exports (given in the accompanying CD) by post (in duplicate). SOFTEX Form: Software export declaration (SOFTEX) forms for software exports in non-physical form, such as data transmission through satellite link. The declaration forms should explicitly contain the following details. n

Analysis of the full export value of goods shipped, including the FOB value, freight, insurance, etc.

n

Clear indication whether the export is on ‘outright sales basis’ or ‘consignment basis.’

n

Name and address of the dealer through which export proceeds have been realized or would be realized.

n

Details of commission or discount due to the foreign agent or buyer.

As per FEMA act 1999, all the documents relating to export of goods from India should be submitted to the authorized dealer in foreign currency within 21 days and the amount representing the full export value must be realized within six months from the date of shipment. GR forms have to be submitted to the customs in duplicate at the port of shipment. The customs authorities verify the declared value and record the assessed value. The original copy of a GR form is directly sent by the customs to the

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Reserve Bank of India. At the time of actual shipment, the customs certifies the quantity passed for shipment and returns it back to the exporter. The exporter is required to submit the customs-certified copy of the GR form to the authorized dealer. Once the export proceeds are received, the authorized dealer makes his endorsement and sends it to the Reserve Bank of India.

Shipping Bill/Bill of Export Shipping bill is the main document required by the customs authorities. The export cargo is allowed to be carted on port sheds and docks only after the shipping bill has been stamped by the customs authorities. The shipping bill mentions the description of goods, marks, numbers, quantity, FOB value, name of the vessel or flight number, port of loading, port of discharge, country of destination, etc. In case of shipment by sea/air/lCD, the document is known as the shipping bill, while in case of shipment by land, the document is known as the bill of exports. Under section 50 of Customs Act, 1962, the shipping bill has to be submitted to the customs for seeking their permission. The main types of shipping bills are as follows. 1.

Shipping bill for dutiable goods.

2.

Shipping bill for duty-free goods

Shipping bill for goods claiming duty drawback. An exporter is required to submit the appropriate shipping bills for customs clearance depending upon the nature of goods.

Documents for Central Excise Clearance Invoice: The goods are delivered against invoice under Rule 11 of Central Excise (No.2) Rules, 2001. It is issued by the manufacturer in a set of three copies. The original copy is for the buyer, the duplicate for the transporter, and the triplicate for the assessee. Transportation of goods without invoice is considered to be a violation of rules.

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Personal Ledger Account (PLA): When the goods are removed after the payment of duty, a personal ledger account is required to be maintained by the exporter. The estimated amount of excise duty to be paid by the exporter is deposited to the nationalized bank or treasury. The amount deposited in the bank is shown as credit in the PLA on the basis of the proof of deposit. At the time of the removal of consignment, the amount of duty actually levied is shown as debit entry. An equivalent amount is again re-credited after the proof of export is received. Thus, debit and credit entries are continuously maintained in the personal ledger account. However, in case of exports against bond or LUT (legal undertaking), where the duty is not actually paid, the exporters are not required to maintain a personal ledger account. ARE-1 (Application for Removal of Excisable Goods-1): This is the application to the jurisdictional central excise superintendent made by the exporter while removal of the goods. It mentions separately all the details of the consignment, such as the value of the consignment and the amount of duty involved. An exporter has to submit the AREl form 24 hours in advance from the time of removal of the goods, in four copies. Once the cargo is handed over to the carrier, the ARE-1 form is endorsed by the customs and it becomes the proof of exports. ARE-2 (Application for Removal of Excisable Goods-2): This application is used for the refund of excise duty paid on the finished goods as well as the production inputs used in the manufacture of final products. Since the refund of central excise duty on the finished products is obtained against the ARE-l formalities, the ARE-2 is a consolidated document for removal of cargo for exports under claim for rebate of duty paid on excisable material used in the manufacture and packaging of such goods and removal of excise dutiable cargo for export under rebate claim at the finished stage or under bond without payment of excise duty. However, due to the cumbersome procedure involved, ARE-2 formalities have not gained any popularity among the exporters.

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CT-1: This application is used for the procurement of excisable goods without the payment of excise duty for exports. It gives details like the description of goods, quantity, value, and the excise duty payable on cargo to be removed duty free on the basis of information furnished by the exporter. CT-l form is issued by the designated central excise authority with which the manufacturer exporter or merchant exporter executes the legal undertaking (LU) or bond, respectively.

Blacklist Certificate Countries, which have strained political relations or are at war with another country, require the blacklist certificate as an evidence of the following. 1.

The point of origin of goods is not of a particular country with adverse noting.

2.

The ship or aircraft would not call at ports of such a country unless forced to do so.

3.

The parties involved, such as the manufacturer, bank, insurance company, shipping line etc., are not blacklisted or having adverse noting.

It is required to be furnished by the exporter only when specifically asked for by the importer for exports to certain countries.

Health/Veterinary/Sanitary Certificate The importer or the importing country’s customs department requires a certificate for exports of certain items like foodstuff, livestock, marine products, hides and skins, etc. from health, vet, or sanitary authorities. This is done to ensure that the imported cargo is not contaminated by any health hazard or any disease.

Shipping Guarantee Shipping Guarantee is issued by certain big banks to help importers take control of the goods as soon as they arrive without the need of carriage documents, which may take time to come for various reasons. This is to help importers avoid costs and lost opportunities.

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Shipping guarantees are usually applicable under import documentary credit transactions, allowing immediate clearance of goods ahead of documents arrival. However by taking control of the goods through shipping guarantee, protection against discrepant documents will be lost. Under normal circumstances, 100% cash margin against the value of the goods will be kept by the guarantee issuing bank if the client does not have trust receipt facility (issued to certain regular customer of the particular bank). Shipping guarantees carries value only if they are issued immediately. At most banks, the shipping guarantees can be issued as soon as the client (importer) makes the application. These shipping guarantees are normally universally accepted by all shipping companies, depending upon the status of the issuing bank. Importer can be assured that he/she will get their imported goods on time. The functions of the shipping guarantee, thus, are: 1.

Enables immediate control of the goods before payment, by the importer.

2.

Receive shipments immediately upon arrival (depending upon clearance time taken by the customs of a particular country)

3.

Reduce unnecessary delays in the day-to-day running of business of the buyer

4.

Defers liability of the payment until the supplier’s documents have been presented which may take time.

5.

Eliminates expensive demurrage/storage charges at the customs or at the shipping company warehouse.

6.

With advancing logistics technology and faster means of transport, the goods may arrive at port of destination before the shipping documents have been processed through the banking channels. This could result in unnecessary storage and warehousing fees (demurrage charges) to be charged on daily basis until the day of collection. Further it may mean damage or loss to cargo due to unwarranted or natural reasons, especially in case of perishable cargo. The shipping guarantee in such cases may be necessary.

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In order to apply for shipping guarantee the importer must approach to its bank if it issues the shipping guarantee. Alternatively the foreign trade section of the importer’s bank can arrange for the same from other participating banks. The application process is simple and banks in question can answer all difficulties in the application process.

Summary

159 Notes __________________ __________________ __________________ __________________ __________________ __________________ __________________

Meticulous and proper use of shipping documentation is the key of documentation process which requires professional handling and an in depth knowledge of international trade documentation and procedures. A number of documentation and procedural tools are available to the exporter as well as importer to carry out their trade activities smoothly and to get the commercial benefits of a hassle free and efficient system of goods movement across border. Once understood and practiced religiously, export and import shipping documentation process can be a very pleasant experience done is a most routine manner.

Review Questions 1.

Explain the various steps involved in an export transaction execution. Pinpoint the direction of flow of documents, goods and payment.

2.

What kind of problem may arise due to improper use of shipping documents?

3.

List out various pre and post shipment documents and explain their functions.

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Annexure - 4.1 Sample Document Example of Letter of Credit

__________________ __________________

THE SUNSHINE BANK

__________________

INTERNATIONAL CHANNELS 5 SUNSHINE BLVD., EXIM -CITY AND POSTAL CODE EXPORT-COUNTRY

__________________ __________________ __________________ OUR ADVICE NO. LB-5482

ISSUING BANK REF. NO. & DATE DBPE-787 AUGEST 15, 2007

WORLD Exports 99, Richman Street West Wing, Suite 809 Trade-City and Postal Code

TO

Dear Sirs: W e have been requested by Country

The Moonlight Bank, Moonlight City, Import-

to advise that they have opened with us their credit num ber PB-57859 for account of

irrevocable

docum entary

All Imports, 7 Mars Street, Moonlight City, Import-Country

in your favor for the am ount of Dollars (US$29,000.00)

not exceeding Twenty Nine Thousand U.S.

available by your draft(s) drawn on us at sight for full invoice value accom panied by the following docum ents: 1.

Signed commercial invoice in five (5) copies indicating the buyer's Purchase Order No. AEH-202 dated August 10, 2007.

2.

Packing list in five (5) copies.

3.

Full set 3/3 clean on board ocean bill of lading, plus two (2) nonnegotiable copies, issued to order of The Moonlight Bank, Moonlight City, Import-Country, notify the above accountee, marked ‘freight Prepaid’, dated latest October 29, 2007, 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.

2004 pcs 'AB' Brand Digital Cameras , 512 MB inbuilt memory, complete with leather finish cover and NI-MH chargeable batteries, CIF Jupiter Port Covering:

Shipm ent from Mercury Port, Export-Country Country Partial shipm ent

to

Jupiter Port, Import-

Prohibited

Transshipm ent Permitted

contd...

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Special conditions:

161 Notes

1.

All documents indicating the Import License No. IPR/54321 dated August 08, 2007.

__________________

2.

All charges outside the Import-Country are on beneficiary's account.

__________________

Docum ents m ust be presented for paym ent within 15 days after the date of shipm ent.

Draft(s) drawn under this credit must be marked Drawn under documentary credit No. PB-57859 of The Moonlight Bank, Moonlight City, Import-Country, dated August 15, 2007 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 November 06, 2007

__________________ __________________ __________________ __________________ __________________ __________________ __________________

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.