what is Export Documentation, Cargo insurance,

 EXPORT DOCUMENTATION & THEIR CHARACTERISTICS & RELEVANCE:-

There are a number of documents, which have to be prepared by the exporter in order to arrange the export of his consignments.

These documents can be mainly classified into two i.e. 

(a) Commercial Documents and 

(b) Regulatory Documents

EXPORT DOCUMENTATION

Export Documents

1. Commercial Documents                              2. Regulatory Documents

EXPORT DOCUMENTATION

Out of the 15 commercial documents, eight are principal and the rest are auxiliary. The eight principal documents are

1. The Commercial Invoice,

2. Packing List

3. Bill of Lading/Air Waybill 

4. Certificate of Inspection/Quality control

5. Certificate of origin

6. Bill of Exchange and

7. Shipment Advice

8. Insurance Certificate

EXPORT DOCUMENTATION

The seven auxiliary documents are

1. Proforma Invoice

2. Intimation for inspection

3. Shipping instructions

4. Insurance Declaration

5. Application for certificate of origin.

6. Mate's Receipt

7. Letter to the bank of collection/negotiation of documents

Export contract

• The Export Contract is used in international sales of certain products (raw materials, industrial supplies, manufactured goods) which are intended for resale, where the buyer is an importer, trader, distributor, or wholesaler that will sell the products to another company or retailer. In the case of international sales of products for the end client or complex products (machinery, capital goods, etc.) with guarantees and after-sales service, it is advisable to use the International Sale Contract. Exporters use this type of contract mainly for one-off sales rather than repetitive sales to the same client for a certain period of time. For that kind of sales, the International Supply Contract should be used

Export contract

• Some of the most important clauses in the 

Export Contract is as follows:

• Contract price

• Payment conditions

• Time of delivery

• Retention of title

• Non-conformity of the goods

INCO TERMS

• The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. They are widely used in international commercial transactions or procurement processes and their use is encouraged by trade councils, courts, and international lawyers.

• A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the global or international transportation and delivery of goods.

• Incoterms inform sales contracts defining respective obligations, costs, and risks involved in the delivery of goods from the seller to the buyer, but they do not themselves conclude a contract, determine the price payable, currency or credit terms, govern contract law, or define where title to goods transfers.

Methods/Terms of Payments for Exports

• With cash-in-advance payment terms, an exporter can avoid credit risk because payment is received before the ownership of the goods is transferred. For international sales, wire transfers and credit cards are the most commonly used cash-in-advance options available to exporters.

Methods/Terms of Payments for Exports

• Credit Cards. As a global payment solution, credit cards are the most common way for customers to pay online. ...

• Mobile Payments. ...

• Bank Transfers. ...

• E-wallets. ...

• Prepaid Cards. ...

• Direct Deposit. ...

• Cash.

Documentary Collection

• Documentary collection is a form of trade finance in which an exporter is paid for its goods by an importer after the two parties' banks exchange the required documents. The exporter's bank collects funds from the importer's bank in exchange for documents releasing title to the shipped merchandise, usually, after the goods arrive at the importer's location.

Documentary Credit

• Under documentary credit arrangement (also called a letter of credit arrangement) a bank (usually in the importer's country) undertakes to pay for a shipment, provided the exporter submits the required documents (such as a clean bill of lading, certificate of insurance, certificate of origin) within a specified period.

• A Letter of Credit (LC)is also called a Documentary Credit or a banker's Commercial Credit or a Letter of Undertaking (Lou). It is a formal document issued by one bank to another. It is widely used in international trade and provides a guarantee to a seller that he will get money for his goods.

• There are various types of letter of credit (LC) that prevails in trade transactions. They are Commercial, Export / Import, Transferable and Non-Transferable, Revocable and Irrevocable, Stand-by, Confirmed, and Unconfirmed, Revolving, Back to Back, Red Clause, Green Clause, Sight, Deferred Payment, and Direct Pay LC.

Pre and Post Shipment Credit

• PRE-SHIPMENT FINANCE POST-SHIPMENT FINANCE: Meaning: Pre-shipment finance is a facility of extending working capital finance, to the exporter of the goods, in order to export them to another country. Post shipment finance is a form of loan extended by the bank to the exporter against the shipment of goods that is already done.

• Objective To help the exporters to procure raw material, labor, supplies, so as to produce, package, store, and transport the goods. To finance export receivables right from the date documents are submitted to the exporter's bank till the date of realization of proceeds from exported goods.

• Eligibility Export company or company exporting goods through export houses. Exporter himself or the person in whose name export documents are transferred.

• Source of Repayment Proceeds from the contract Proceeds from exports Risk involved Payment and performance risk Payment risk only

Export Incentives

• Export incentives are a form of economic assistance that governments provide to firms or industries within the national economy, in order to help them secure foreign markets. A government providing export incentives often does so in order to keep domestic products competitive in the global market.

• Types of export incentives include export subsidies,

direct payments, low-cost loans, tax exemption on profits made from export, and government-financed international advertising. While less concerning than import protections such as tariffs, export incentives are still discouraged by economists who claim that they artificially create barriers to free trade and thus can lead to market instability

 CARGO INSURANCE Cargo insurance is the method used in protecting shipments from physical damage or theft. In fact, insuring cargo ensures that the value of goods is protected against potential losses which may occur during air, sea, or land transportation.

 The movement of goods across the world comes with certain risks. These risks are mitigated through insurance coverage since there is no guarantee that damage or loss will not occur. Cargo Insurance provides coverage against all risks of physical loss or damage to freight during the shipment from any external cause during shipping, whether by land, sea, or air. Also, known as Freight Insurance, it covers transits carried out in the water, air, road, rail, registered post parcel, and courier. 

Cargo insurance is important in international trade. Different types of cargo insurance policies are available for transporting goods by land, sea, or air. Businesses need cargo insurance to reduce the risk of importing and exporting.

 Importance of Cargo Insurance: The risk then continues during the ordinary course of transit to terminate on delivery. Cargo insurance has coverage of loss or damage caused by war, civil war, revolution, rebellion, insurrection or civil strife or any hostile act, capture, seizure, arrest, restraint detainment, general average and salvage charges, strikes, riots, etc. Trade coverage covers the insurance needs of the various type of cargoes of general nature. Several commodities and foodstuffs provide for particular hazards. Institute of London Underwriters (ILU) have adopted uniform trade practices. Which are followed by other insurers for insurance of cocoa, coffee, cotton, fats oil knots, hides, skins, leather, metal, oilseeds, sugar, tea and so is assured under a standard policy. There is separate insurance for coal, Jute, Rubber, tanker, bulk oil, frozen products. 

Advantages of Cargo Insurance – Why You Need Cargo Insurance? Cargo Insurance or Freight Insurance benefits local and international trade. 90% of international cargo transportation is carried out by the sea. Again the overwhelming amount of sea transportation is handled via containers utilizing state of art container vessels. If you own an import-export business then you must know how important cargo insurance is for you to deliver the products in their proper condition. In the export-import business every time, you need to invest a big chunk of money to ship the product but it is quite often seen that business owner ignores the importance of cargo insurance due to which sometimes they have to suffer from the loss.

 The following aspects are covered under the benefits of this insurance:- 

• Damages due to inappropriate packing. 

• Infestation(damage due to insects)

 • Cargo abandonment.

 • Customs rejection.

• Employee’s dishonesty. 

• Damages due to Collision.

 • Damages due to Heavy weather, Sinking, Derailment. 

• Non-delivery. • Theft. • Fire. 

Types of Cargo Insurance Coverage Different cargo insurance policies are available for transporting cargo by land, sea, or air. Common types of cargo insurance are;

 • All Risk. 

• Free of Particular Average (FPA). 

• Shipment-by-Shipment:

 They are explained below;

 All Risk 

 All Risk policy typically covers any physical loss or damage from external causes, with some exclusions listed. This policy should cover include collision with an external object, jettison, train derailment, truck overturning, deliberate destruction, improper stowage by ship owners, theft, and acts of God (e.g. earthquake, lightning strike).

 CARGO INSURANCE CONTRACT: 

Contract of Indemnity Cargo insurance is a contract of indemnity whereby the insurance company (Insurer) undertakes to indemnify the owner (Insured) of a ship or goods, against risks that are incidental to Marine insurance (Section 3 of the Marine Insurance Act, 1963). The underwriter insures the goods against loss and damages caused by perils specified in the contract for a stipulated consideration, known as 'Premium'. Cargo Insurance Loss Claims Procedure Cargo Claims Procedures may assist in overcoming difficulties that may be encountered in issuing claims for loss or damage. In dealing with cargo claims it is important to remember that international rules (liability regimes) apply to the carriage of goods by sea such as the Hague-Visby Rules. 

1. Immediate notification: • Notify your cargo insurer

 • Notify and hold Cargo responsible for the loss and invite for inspection/survey.

 • If the damage was not apparent at the time of delivery of the cargo, notice should in any event be given within 3 days of delivery. 

• It should be noted that your claims are being reviewed under limited liability per Bill of Lading terms and conditions and International Conventions. This means that when your cargo is not insured by you, your claim will solely be dealt with on the basis of Cargow’s liability as a carrier.

 2. Survey: •Appoint a surveyor to act on your behalf 

•It is important that your surveyor liaises intensively with our surveyor in order to prevent discussions afterward when the claim is finally presented. 

•Surveys should be carried out jointly with our surveyor; if possible the survey should take place while the cargo is still untouched

 3. Mitigation: •You have a legal obligation to minimize your loss and this obligation lies entirely on your side.

 •Your surveyor will be able to assist you herewith and should communicate this with our surveyor. •The costs hereof are, insofar that they are reasonable, part of your total claim towards Cargo 

4. Collect documents: • Proof of title to claim (e.g. bills of lading etc.)Evidence of ownership of the cargo to prove that the party presenting the claim is indeed the rightful claimant and the one that suffered the damages.

 • Proof of claim(e.g. survey reports, commercial invoices, documentation showing quantity a/o value, photographs, invoices of additional mitigation costs.) Any evidence or documentation, that provides evidence of the claim and that reasonably supports the extent and the amount of the claimed loss. 

5. Substantiated and quantified claim: A formal claim must be submitted before any settlement can be considered and should include:- Claim a statement and calculation of the specific value of the cargo damage or loss-Details of causation and this is all supported by the collected documents as described. 

6. Time limit: •In most cases, your claim will be subject to a one-year time bar(Hague Visby Rules). 

•If the claim is not resolved within 1 year after the date of unloading you are to start legal proceedings or- request Cargo in writing to extend the time limit. Cargo will normally, in consultation with their insurers, grant an extension 

7. Lessons Learnt: Any incident that leads to damage must be treated as an indication that something is wrong with the system. Cargo will use the lessons learned to reduce the probability of a similar incident happening again. ECGC(Export Credit Guarantee Corporation) ECGC Limited (Formerly Export Credit Guarantee Corporation of India Ltd) is a company wholly owned by the Government of India based in Mumbai, Maharashtra. 

[1] It provides export credit insurance support to Indian exporters and is controlled by the Ministry of Commerce. The government of India had initially set up Export Risks Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation of India in 1983. ECGC Ltd. was established in July 1957 to strengthen the export promotion by covering the risk of exporting on credit.

[2] It functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is managed by an Asset Management Company comprising representatives of the Government, Reserve Bank of India, banking, insurance, and exporting community.

[3] The name of the company has been changed from Export Credit Guarantee Corporation of India Limited to ECGC Limited with effect from 8 August 2014 as per certificate issued by Deputy Registrar of Companies, Registrar of Companies, Mumbai. ECGC Ltd. is the seventh-largest credit insurer in the world in terms of coverage of national exports. The present paid-up capital of the company is Rs. 2500 crores and authorized capital Rs.5000 crores.

Functions 

• Provides a range of credit risk insurance covers to exporters against loss in export of goods and services as well. 

• Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them. 

• Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan and advances. 

Facilities by ECGC 

• Offers insurance protection to exporters against payment risks 

• Provides guidance in export-related activities 

• Makes available information on different countries with its own credit ratings

 • Makes it easy to obtain export finance from banks/financial institutions

 • Assists exporters in recovering bad debt

 • Provides information on credit-worthiness of overseas buyers

 Need for export credit insurance Payments for exports is open to risks even at the best of times. The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. An outbreak of war or civil war may block or delay payment for goods exported. A coup or an insurrection may also bring about the same result. Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on the transfer of payments for goods imported. In addition, the exporters have to face commercial risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss.

  Cooperation agreement with MIGA (Multilateral Investment Guarantee Agency) an arm of the World Bank. MIGA provides: 

1. Political insurance for foreign investment in developing countries. 

2. Technical assistance to improve the investment climate. 

3. Dispute mediation service.

 4. It helps the exporter Under this agreement protection is available against political and economic risks such as transfer restriction, expropriation, war, terrorism, and civil disturbances, etc...

 ECGC Notable Records

 • Largest Policy – short term Rs.450 crores

 • Largest database on buyers 8 lakhs 

• Largest credit limit Rs.80 Crores

 • Largest claim paid Rs.540 crores

 • Quickest claim paid 2 days

 • Highest compensation-Iraq Rs 788 Crores. ECGC Ltd. now offers various products for exporters and bankers. If readymade products are NOT suited to an exporter/banker then ECGC designs tailor-made products.

  Quality Control and Pre-Shipment Inspection for Exports Goods are not to be shipped unless they are of quality. If quality standards are not maintained, the exporter's image gets ruined and further chances of export orders come to a virtual close. Normally, quality brings repeat orders to the exporters and so exporters should not take the slightest chance in respect of goods exported outside the country. Even the image of the country would be at stake and so the Government has taken several measures to maintain a high standard of quality in respect of exports. One of the important measures taken by the Government to maintain stringent quality, the Export (Quality Control and Inspection) Act, 1963 has been passed. The Act empowers to bring any commodity within its purview. Once notification is made in respect of any commodity under this Act, that commodity can not be exported unless a certificate of export-worthiness is obtained from the Export. Inspection Council (EIC) or any other approved authority, authorized in this matter. The Indian Customs authorities require the inspection certificate issued by the designated agency before permitting the goods for shipment. Inspection of goods may be conducted under

 (j) Consignment-wise inspection

(ii) In-process Quality Control and

 (iii) Self-Certification

 In respect of consignment-wise inspection, before the excise authorities seal the packs, the process of pre-shipment inspection must be completed. Once production is completed, the production department should submit an application to the prescribed agency on the prescribed form known as 'Notice of Inspection' with the following documents

(i) A copy of the Commercial Invoice

 (ii) A copy of the Export contract

 (iii) Importer's technical specifications and/or approved sample

 (iv) Demand draft covering the prescribed fee. 

Customs Clearance Process 

1. A customs officer verifies that the paperwork completed for shipments is correct. International shipments must-have commercial invoices. Once the paperwork is verified, the document will list a shipper and contact info of the receiver. The shipment will also include the export date and airway bill number. 

2. A customs officer will see what fees may be applied to a shipment. Depending on the type of goods, their value, and laws that the importing country enforces. If the value of goods surpasses a tax bracket, the officer will check to see if taxes and duties have been paid.

 3. If there are outstanding taxes and duties, customs will ask that they be paid. There are two options for payment, with one being DDU (Delivery Duty Unpaid) and the other being DDP (Delivery Duty Paid). As a result, if a shipment is marked as DDP, then a payment of taxes and duties was paid for. These services may be offered at a fixed price when you pay for a label. This process can be expensive as brokers are independent with differing fee charges. Brokerage, storage, late payment, and various fees may apply which will affect the total shipping fee.

 4. Once taxes and duties are paid, shipments are released. From this point, if paperwork, duties, and taxes are handled properly then the goods should be shipped to their destination. 

 Duty Drawback Scheme: 

Under Duty Drawback Scheme relief of Customs and Central Excise duties suffered on the inputs used in the manufacture of export product is allowed to Exporters. The admissible duty drawback amount is paid to exporters by depositing it into their nominated bank account.

 1. Under Duty Drawback Scheme, an exporter can opt for either All Industry Rate (AIR) of Duty Drawback Scheme or brand rate of Duty Drawback Scheme.

 2. Under this Scheme part of the customs duty paid at the time of import is remitted on re-export of the goods subject to identification and prescribed procedure being followed. 

3. AIR of Duty Drawback for a large number of export products are notified every year by the Government after an assessment of the average incidence of Customs and Central Excise duties suffered on Inputs utilized in the manufacture of export products. This facility is generally availed by the exporters as no proof of actual duties suffered on inputs used is required to be produced.

 4. The AIRs are generally fixed as a percentage of the FOB price of the export product. 

5. The duty drawback claim scrutiny, sanction, and payment in 23 Custom Houses are now done through the Electronic Data Interchange (EDI) System. The exporter has to make an application to the Directorate of Drawback in prescribed format along with enclosures (in the form of 3 drawback statements called DBKI, II & III), within 60 days from the date of export of goods. 

 Duty Exemption Scheme: 

Duty Exemption Scheme is an export promotion scheme and it enables import of inputs required for export production free of Customs duty. 

Advance Licences are issued under the Duty Exemption Scheme to allow the import of inputs, which are physically incorporated in the export product (after making a normal allowance for wastage). In addition, fuel, oil, energy catalysts, etc., which are consumed in the course of their use to obtain the export product can also be allowed under the scheme. The value and quantity of each item permitted duty-free import are specified in the Advance Licence. Standard input-output norms (SIONs) are notified by the DGFT. 

 Advance Licences are issued for Physical exports, Intermediate supplies, and Deemed exports. Advance Licenses are also issued on the basis of annual requirements for exports/supplies. This enables the exporter to plan out his manufacturing/export program on a long-term basis. 

 Advance Licences for deemed exports are issued to (i) manufacturer exporter or the main contractor in case of deemed exports, 

(ii) Merchant exporter having supporting manufacturer. 

 Advance Licences and/or materials, imported thereunder are not transferable even after completion of export obligation. Advance Licenses are issued with a positive value addition stipulation. However, for exports for which payments are not received in freely convertible currency, the same is subject to higher value addition. 

EXPORT HOUSES

Export House is defined as a registered exporter holding a valid Export House Certificate issued by the Director-General of Foreign Trade in India.

  OBJECTIVES OF EXPORT HOUSE: 

 To make available supplies of essential commodities to consumers at reasonable prices on a regular basis. 

 To ensure a fair price of the product to the farmers so that there may be an adequate incentive to increase production. 

 To minimize Price fluctuations. 

 To arrange for the supply of fertilizers and insecticides. 

 To undertake the procurement and maintenance of buffer stock and their distribution whenever and wherever necessary. 

 To arrange for storage, transportation, packaging, and processing. 

Trading Houses

 A trading house serves as an intermediary. It might purchase t-shirts wholesale from China, then sell them to a retailer in the United States. The U.S. retailer would still receive wholesale pricing, but the price would be slightly higher than if the retailer purchased directly from the Chinese company. The trading house must mark up the price of the goods it sells to cover its costs and earn a profit; however, the t-shirt retailer avoids the hassles of importing. The retailer also may be able to simplify its operations by dealing with one or two trading houses to get its inventory instead of dealing directly with numerous wholesalers. Small businesses that use a trading house can benefit from its expertise and insight into international markets they operate in, as well as get access to vendor financing through direct loans and trade credits. 

Advantages of Trading Houses 

1. Economies of Scale A trading house typically has a large portfolio of clients that provide economies of scale benefits. For example, a large trading house can use its significant buying power to receive discounts from manufacturers and suppliers. A trading house can also reduce transportation costs if it ships to customers in large quantities. 

2. International Foothold Trading houses have an extensive network of contacts in international markets that help them secure favorable deals and find new customers. They may also have staff working in foreign offices to work with customs officials and manage legal issues to ensure the smooth operation of the business.

  3. Currency Management Because a trading house is continually importing and exporting products, they have expertise in managing currency risk. Trading houses use risk management techniques, such as hedging, to avoid getting exposed to adverse currency fluctuations. For example, a trading house that has a future payment in euros may use a currency forward contract to lock in the current EUR/USD exchange rate. Export/Trading/Star Trading/Super Star Trading Houses have been accorded special status. When exporters achieve the specified level of exports over a period, they may be recognized as EH/TH/STH/SSTH. Exports made both in free foreign exchange and in Indian rupees shall be taken into account for recognition. 

  Benefits of Export Oriented Units 

They can procure raw materials and capital goods through domestic sources or import without paying any duty on the purchase 

They can claim reimbursement on GST amounts they pay 

In case they have paid duty on the purchase of fuel from domestic oil companies, they can claim a refund on the same 

 EOUs are allowed to claim an input tax credit on goods and services  EOUs enjoy priority-basis clearance facilities 

 EOUs are not required to obtain the industrial licensing which is required for manufacturing items that are reserved for the SSI sector Important facts to remember while setting up an EOU 

 Difference between EOU and SEZ

Although both EOUs and SEZs were initiated to boost exports, there are differences between the two. 

An EOU can be set up anywhere in the country, provided it meets the scheme’s criteria. On the other hand, an SEZ is a specially demarcated enclave that is deemed to be outside the Customs jurisdiction and therefore, a foreign territory. 

Thus, any sale made from within an SEZ to DTA is considered an export while any sale made by an EOU to DTA is regarded as deemed export.

 Sales from SEZs to DTAs are more common, compared to sales from EOUs to DTAs. Being a clearly demarcated area, there is substantial control over the physical movement of goods to and from SEZs, but the same cannot be said about us.

 In terms of taxability, an SEZ-based establishment is not required to pay tax, while an EOU has to pay tax which it can claim as a refund later. 

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