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Freight Forwarding Logistics
Freight Forwarding Logistics
Freight forwarding services are typically used by companies that deal with international
import and export activities. The freight forwarding company is a third party it doesnt ship
the cargo itself. However, the freight forwarder acts as a professional intermediary between
the client and the transportation services. Shipping various products between countries and
territories usually involves a multitude of carriers, requirements and legal documentation.
The freight forwarding services is specialized in handling the great amount of logistics this
intricate process requires, helping the client ship goods securely and quickly. At kedan.co.uk
you can read more about our extensive freight forwarding services.
Major companies and corporations greatly depend on professional freight forwarders in their
import and export activities. The freight forwarding company guarantees that a certain cargo
reaches the proper destination upon an agreed date. Furthermore, turning to the services of a
freight forwarder is practically the only way you can be certain that your products arrive at
the specified destination in good condition. These days, its virtually impossible for a
company to ship goods at an adequate price without a forwarder. Freight forwarding
companies have an established long-term relationship with carriers of all kinds and will
obtain the best deals in the least amount of time. The freight forwarder of your choice will
practically negotiate the most advantageous price possible with a reliable carrier, helping you
make hassle-free transactions worldwide.
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Conclusion :
The freight forwarder plays an integral part in the transportation process. Freight forwarders
act on behalf of the exporter in arranging ocean or air transport services. They are familiar
with the import rules and regulations of foreign countries, methods of shipping, and
documents connected with foreign trade.
Freight forwarders can provide a number of services. During the initial planning phases, they
can help choose the carrier and the most economical shipment size. At the beginning of the
sale, the freight forwarder can provide an exporter with quotations on a number of costs. This
information can be used in preparing an accurate price quotation to foreign customers.
Choosing the right freight forwarding company is very important if you want maximum
efficiency and reasonable costs.
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THEORETICAL BACKGROUND
Logistics is the management of the flow of goods and services between the point of origin
and the point of use in order to meet the requirements of customers or corporations. Logistics
involves the integration of information, transportation, inventory, warehousing, material handling,
and packaging, and often security. Logistics is a channel of the supply chain which adds the
value of time and place utility. Today the complexity of production logistics can be modeled,
analyzed, visualized and optimized by plant simulation software, but is constantly changing.
This can involve anything from consumer goods such as food, to IT materials, to aerospace
and defense equipment.
Logistics management
Logistics is that part of the supply chain which plans, implements and controls the efficient, effective
forward and reverse flow and storage of goods, services and related information between the point of
origin and the point of consumption in order to meet customer and legal requirements. A professional
working in the field of logistics management is called a logistician.
Logistics management is known by many names, the most common are as follows:
Materials Management
Channel Management
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working in real time to get the job done by the most effective means. For
instance, a WMS can tell the system it is going to need five of stock-keeping
unit (SKU) A and five of SKU B hours in advance, but by the time it acts, other
considerations may have come into play or there could be a logjam on a
conveyor. A WCS can prevent that problem by working in real time and adapting
to the situation by making a last-minute decision based on current activity and
operational status. Working synergistically, WMS and WCS can resolve these issues
and maximize efficiency for companies that rely on the effective operation of their
warehouse or distribution center.
LOGISTICS OUTSOURCING
Third-party logistics
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MODE OF TRANSPORTATION
AIR TRANSPORT
OCEAN TRANSPORT
RAIL TRANSPORT
ROAD TRANSPORT
OCEAN TRANSPORT
More than 95 per cent of international trade is conduced by sea routes since ancient times, sea
routes are being used for transportation of cargo from one continent or country to Coastal
shipping is also used for transporting the cargo from one port within the country to another.
For example in India the cargo can be transported from Chennai port to Visakhapatnam port
using the costal shipping route.
Sea routes are used for carrying bulk commodities like such as coaling and thermal coal
mires, fertilizers rock phosphate etc, and liquid go like crude oil ammonium acids etc Ideally
the goods with high volume and kiw vakye are suited die ocean transport in the era of
containerization even the high value cargo can be safely enabled the cargo carrying capacities
of the ship to increase many fold. In 1956, the first containerized ship belonging to sea land
corp. carried 58 twenty feet containers. The modern ships have the capacity to carry 7000
containers.
One of the biggest ships owned by Maersk-sea land is 1,138 feet long from end to end and
140 feet wide at mid ship. Such ships are called Post-Panamax ship. Cargo ship categorized
into followings
Liners ships : Liners ship represent the organized sector of theshipping industries due
to their fixed schedules of arrival anddeparture, Pre-determined voyages and trade
routes and publishedocean freight rates. Liner shipping is governed by shipping
conferenceand offers the following advantage to shippers:-
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Stable freight rates for a long period of time which helps the shipper to quote C & F
prices with confidence.
Tramp ships :- Tramp ships on the other hand have the following characteristics
They are free to move anywhere on the high seas at their will.
They travel from the port to another port o various trade routes looking for the cargo
and carrying the same to various routes looking for the cargo and carrying the same to
various destinations around the world.
They fix their voyages according to availability of cargo and as per the requirement
of the shippers of these cargoes.
The freight rates of tram ships depend upon the demand and supply conditions in the
shipping industry. If there is a glut of shipping space the tramp freight rates plummet.
Whereas in case of shortage of shipping space, the tramp freight rates shoot up.
The cargo space on the tramps is booked by the brokers located in major port cities
like New York, London, Rotterdam Hamburg, and Hong- Kong etc. They work as a
link between tramp operators and shippers.
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TYPES OF CONTAINER :
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EXIM FLOW CHART
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Freight Forwarder
A freight forwarder (often just forwarder) is a third party logistics provider. As a third party a
forwarder dispatches shipments via asset-based carriers and books or otherwise arranges
space for those shipments. Carrier types include waterborne vessels, airplanes, trucks or
railroads.
The FIATA short-hand description of the freight forwarder as the 'Architect of Transport'
illustrates clearly the commercial position of the forwarder relative to his client. In Europe
there are forwarders that specialize in 'niche' areas such as Rail freight and collection and
deliveries around a large port. The latter are called Hafen (port) Spediteure (Port Forwarders).
A forwarder in some countries may sometimes deal only with domestic traffic and never
handle international traffic.
The original function of the forwarder, or was to arrange for the carriage of his customers'
good by contracting with various carriers. His responsibilities included advice on all
documentation and customs requirements in the country of destination. His correspondent
agent in far-away lands looked after his customers' interests and kept him informed about
matters that would affect movement of goods. In modern times the forwarder still carries out
those same responsibilities for his client. He still operates either with a corresponding agent
overseas or with his own company branch-office. In many instances, the freight forwarder
also acts as a carrier for part of a movement it can happen that in a single transaction the
forwarder may be acting either as a carrier (principal) or as an agent for his customer.
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HISTORY OF FREIGHT FORWARDERS
The original function of the forwarder, or was to arrange for the carriage of his customers'
good by contracting with various carriers. His responsibilities included advice on all
documentation and customs requirements in the country of destination. His correspondent
agent in far-away lands looked after his customers' interests and kept him informed about
matters that would affect movement of goods.
In modern times the forwarder still carries out those same responsibilities for his client. He
still operates either with a corresponding agent overseas or with his own company branch-
office. In many instances, the freight forwarder also acts as a carrier for part of a movement it
can happen that in a single transaction the forwarder may be acting either as a carrier
(principal) or as an agent for his customer.
Freight forwarders process orders for the import and export of freight, compile
documentation for clearance by customers, produce invoices, process stock transfers, check
the contents, compile and check documents of freight goods. They also tally and record
consignments and destination details of articles, containers and passengers, and make freight
and transport bookings and related arrangements.
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weigh items.
contact senders to fix shortages and arrange replacement of damaged goods.
maintain records of receipts and despatches.
Undertake clerical work such as filing, accounting, updating customs records,
preparing correspondence, and inputting and retrieving information from computers.
Although freight forwarders have acted as respected professionals since the last century, the
legal nature of their activities has only recently attracted real attention. This is because freight
forwarders have become prominent links in modern transportation systems, due to the
importance of containers, and multimodal transport.
In times of excess vessel capacity, too, freight forwarders have increased authority because it
is they who are able to provide cargoes, thereby becoming influential participants in a buyer's
market. It is for this reason that on occasion freight forwarders have voyage chartered and
even time chartered ships.
The legal responsibility of freight forwarders often seems mysterious because freight
forwarders have assumed two different legal roles - agents and principal contractors. Nor are
the activities of freight forwarders directly regulated by any international convention,
although their acts naturally bridge national borders. The result is that various national laws
control their actions, giving rise to conflicts of law.
In the light of the foregoing - the emerging importance of freight forwarders, the often
puzzling national laws, and the lack of international uniformity - it is apparent that an
international convention is necessary. The Multimodal Transport Convention 19801 is just
such a convention. Its adoption would give certainty to the law and protection to both the
public and to freight forwarders themselves.
The Multimodal Transport Convention 1980 has the advantage of clarity and simplicity and is
not encumbered with other maritime, albeit important, matters such as freight, liens and
electronic commerce, which make the Convention less likely to be enacted.
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FREIGHT FORWARDER FUNDAMENTAL ROLES
1. The freight forwarder ensures that your goods receive the priority it requires; your
documentation is appropriately filled and your goods reach its destination in the
specified time.
4. The "freight forwarder" role is often underestimated as one of the most important
elements in shipping.
5. The "freight forwarder" is there to ensure that your goods receive the priority it
requires; that your documentation is appropriately filled and most importantly, your
goods reach its destination in order and in the specified time.
6. The next most important and effective function of the "forwarder" is to be an adviser
and agent for the shipper, and that, is the "forwarder's" prime consideration.
7. The transportation of goods from one place to another over short or long distances, is
a fundamental activity in materials handling with many complexities in international
cross border transportation i.e. large number of documents are required to document
the movement goods.
8. The basic activities of a "freight forwarder" include booking cargo space on ship,
airplane, train, or any other form of goods/cargo transportation, route planning,
various documentation, export packing, insurance, warehouse, collection and delivery
consignment.
9. And to provide service which involves establishing various inland depots and clearing
offices so that customs clearance at the port of entry is done by the "forwarder" as
well as delivery to consignee's doorstep, without actually involving the consignee.
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Freight Forwarder - Dual Role
The freight forwarder traditionally acts as an agent who arranges for the shipment of goods
belonging to his client/the shipper. The freight forwarder as agent typically arranges for
transportation, pays freight charges, insurance, packing, customs duties, etc., and then
charges a fee, usually a percentage of the total expenses. All the costs are (or should be)
disclosed to the client. The specific scope of the forwarding agents duties, however, is
determined primarily by its contract with the customer (ordinarily the shipper) who retains its
services. At times, the freight forwarder has acted as principal contractor arranging the
carriage in his own name. His fee, payable by the shipper, is a straight freight charge. He then
arranges to pay lower freight rates to the carrier and obtains his profit from the difference
between the two. Very often, the freight forwarder consolidates the cargoes of a number of
clients into a single container, resulting in savings which benefit the freight forwarder and the
clients. The forwarding carrier may also provide other services, such as packing,
warehousing, cartage, lighter age and/or insurance. On these occasions the freight forwarders
responsibility to the shipper is often that of a carrier.
Whether acting as agent or principal, the freight forwarder (as is normal in commerce)
usually attempts to contract out of as much responsibility as possible. This has often resulted
in very confusing standard trading conditions, where the two contradictory roles and kinds of
responsibility - of the agent and of the principal - are set out.
The responsibility of the freight forwarder, as agent and as principal contractor, will be
described in the light of the civil law, the common law and certain national laws.
Freight forwarders can provide a number of services. During the initial planning phases, they
can help choose the carrier and the most economical shipment size. At the beginning of the
sale, the freight forwarder can provide an exporter with quotations on a number of costs. This
information can be used in preparing an accurate price quotation to foreign customers.
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At the shipper's request, the freight forwarder can make the actual arrangements and provide
the necessary services for expediting the shipment to its overseas destination. This can
include:
Freight forwarders operate on a fee basis paid by the exporter. The fees consist of an agreed-
upon amount, plus documentation charges. The cost for the services should be figured into
the price charged to the customer. Freight forwarders also collect a percentage of the freight
costs from the carrier.
Ocean freight forwarders must be licensed by the Federal Maritime Commission to handle
ocean cargo. Although not legally required, the International Air Transport Association
(IATA) registers freight forwarders to deal with international air cargo shipments.
2) Is the freight forwarders company big enough to handle your business when the forwarder
is away from the office?
Just because the forwarder is on a vacation, your export efforts shouldn't come to a halt
because there is no one to answer questions or handle shipping instructions for your product.
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Has the company "been around" very long? Does it have financial stability? Commercial
banks and trade references can help with checking these criteria.
4) Can the freight forwarder handle whatever product you want to ship, whichever way you
want to ship it (air or sea)?
The freight forwarder should be an import broker to handle the customs angle for you in case
you need to import something or have goods returned from overseas.
5) Does the freight forwarder have a good network of agents overseas, particularly in your
target market? What do these agents handle?
A good network of overseas agents ensures a smooth path for your product with a minimum
of delay. This is important for perishable products or ones that need special handling. A
container of wine on a dock in warm weather can pose a real hazard to your product's
reputation.
Is the freight forwarder willing to take the time to explain the terms and procedures in a way
you can understand?
Is the freight forwarder located near the airport, steamship offices and banks? A strategic
location cuts document turnaround time and ensures you get paid quickly via the banks.
If possible, choose a freight forwarder who has some knowledge of the special needs of your
product. If the freight forwarder usually handles only furniture, will the company be attuned
to the needs for shipping wine or fresh produce?
It is crucial to check references for any company that will be handling your business. Also
check customer satisfaction.
10) Does the freight forwarder have errors and omissions insurance?
Even the most conscientious freight forwarder can make a mistake. A minor error on
documents can delay your product, hurt sales and stall your receiving payment for the goods.
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Make sure your freight forwarder has "errors and omissions insurance" to provide for just this
eventuality.
"Once upon a time, people thought of customs brokers and freight forwarders as simply
agents somehow linked to the shipping industry. Now, at last, these go-betweens are being
given their due as crucial middlemen in making life easier for importers and exporters. ....
Simply put, the freight forwarder is the cargo expediter. As intermodal transportation
becomes more complex, the job of freight forwarder becomes more essential and difficult.
He must coordinate the complexity of financial, transport and other service activities. For
example, he will:
- Arrange to receive export shipment for a client at any point of origin in the United
States.
- Arrange consolidations of less-than-container load lots.
- Arrange forwarding to seaboard of the cargo loaded aboard ship.
- Arrange for insurance coverage.
- If necessary, arrange free domicile delivery abroad.
Here are five ways international freight forwarders can really bring out the best in your
company:
1. Clearance through customs: Customs paperwork is a tricky and sordid maze, especially if
all you know about are the business-to-business commerce aspects of trade. Customs
authorization is a complex area that will only further tax your understanding and clog your
ability to take care of customers, vendors, and marketing. International freight forwarders, in
addition to knowing all the ins and outs of proper shipping procedures, offer customs
clearance services to aid you in simplifying your business.
2. Any and all issues arising with documentation: In order to receive your payment from a
bank, there are many documents that may be required to satisfy the involved bank or financial
institution. One such document is the bill of lading. A proper bill of lading will facilitate fast
payment, so you can keep your business moving along with your freight.
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3. Insurance: Not only do many freight forwarders provide insurance options for your
shipments, they know what is best for the needs of your business, and can quickly determine
the most protective and cost efficient way that you can complete each transaction.
4. Inventory management: Who better to help you with inventory management than the
service that handles your freight? Freight forwarders and international freight forwarders can
help ensure your product, which means you will always have a clear handle on your
company's assets.
5. Logistics and supply-chain management: Logistics is, of course, the management of the
flow of goods and resources between the point of origin and the point of consumption.
Careful planning is a necessity of successful freight flow, and freight forwarders are
professionals at accomplishing this task.
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nonpayment and/or confiscation of freight in foreign port, consequences resulting
from late delivery of freight and/or late documents.
Estimate complete Export transportation and related costs for quotes (on Performa
invoice) and L/C.
Advise of drawback opportunities for previously imported cargo being exported.
Can put exporter in touch with experts in the fields of trade financing, international
marketing, government export requirements, international banking, and marine
insurance.
Most forwarders have a "library" of information on U.S/overseas ports, which
exporters can use as guidance.
Provide NVOCC consolidation services to exporters for LCL and FCL modes.
Normally prepare dock receipt, bill of lading; warehouse receipt, insurance certificate,
AID documents, certificate of origin, special customs invoices, inspection certificate.
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May prepare or assist in preparing with exporter: commercial invoice, packing list,
draft, transmittal letters, consular invoices, export license, drawback forms, and
shippers export declaration.
Notification made for insurance, L/C, contract, payment, and advice purposes.
They can provide advice on the permits, licenses, inspections, and other documents and
proceedings that are required according to the import laws in the country of destination. And
they help with customs clearance in the country of destination, working with a customs
broker.
Product Preparation
Freight forwarders understand the different types of packaging and containers best suited for
your shipment. They know the markings and labels the products need in order to get through
customs and be able to enter the country of destination, and to meet the requirements of the
different free trade agreements, in order to take advantage of duty-free treatment as
applicable.
When the shipment is relatively large, it will most likely be transported in a container by ship,
where it is possible to share space with other exporters. The freight forwarder knows how to
secure the cargo against changes in temperature, vibrations, and impacts that result when the
cargo is loaded and unloaded. In the majority of cases, insurance does not cover damages that
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are due to inadequate packing, and it is therefore important to count on the experience of
packing professionals.
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Documentation
When goods are transported internationally, packaging and documentation are critical to the
export process. One of the main differences between selling inside the country and exporting
is the documentation required.
Export documentation requirements are very specific. A missing document or one that is not
correctly filled out can delay the shipment in customs or in some other point along the way.
Freight forwarders are familiar with the documentation requirements and can advise the
exporter, and even prepare the documents that are required, in order to ensure an expeditious
shipment.
When the order is ready to be shipped, the freight forwarder can review the letter of credit,
the commercial invoice, and the packing list to ensure that everything is in order, and can
prepare the bill of lading and any other special documentation that may be required,
depending on the product being shipped. And after the shipment, the freight forwarder can
send all the documentation directly to the customer, or the customer's bank that is going to
pay for the import on the customer's account.
COST ESTIMATES
A freight forwarder can provide the exporter with an estimate of the costs involved in the
exporting process. This estimate is very important when the exporter quotes a price to a
customer abroad, because the price must be sufficient to cover all the costs related to the
delivery of the product to its destination. Therefore, it may be advantageous to consult a
freight forwarder before negotiating the price, in order to get a quote for the freight costs, port
costs, insurance costs, customs fees, charges for special documentation, and the freight
forwarder's
Freight forwarders work on the basis of a fee they charge the exporter, which normally
consists of an agreed-upon amount plus charges for documentation. Freight forwarders also
collect a percentage of the freight they contract with transportation companies.
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Once you have an estimate of all the costs involved in delivering your product to the
customer abroad, you are in a position to quote a final price to the customer, and if your quote
is accepted and the customer sends you an order, you can prepare the pro forma invoice, with
a complete breakdown of all the components of the amount billed.
There are numerous freight forwarders in the principal export and transportation
services markets. A good way to look for a forwarder would be to ask other
exporters, especially companies similar to yours in terms of size of the company,
point of origin, target market, and your line of business or the product you are
exporting. By consulting directly with another exporting company, you can obtain
their personal perspective regarding the freight forwarder, and their overall
experience, such as the services provided, the results achieved, and any
particular advantage or problem they encountered.
MODES OF TRANSPORTATION
The freight forwarder should be able to evaluate the relative advantages of transportation by
air, ocean freight, truck, or rail, and make recommendations regarding the best mode of
transportation based on your product and the timeframe for delivery. You should find out how
the freight forwarder determines how long a shipment will take to reach its destination, what
stops the shipment makes along the way, and what changes have to be made from one mode
of transportation to another. Freight forwarders should explain the factors they take into
accountinordertoavoidproblemswiththeshipment.
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INSURANCE
The freight forwarder should be able to explain the different types of insurance available,
what events are covered by insurance, the cost of insurance, the process for presenting a
claim for lost or damaged cargo, who is responsible for preparing the loss report and
presenting the claim, how the claim is processed, and the timeframe in which a
reimbursementcanbeexpected.
CUSTOMS
You should be able to understand from the freight forwarder how your products will clear
customs in the destination country, whether the freight forwarder works with a customs
broker, how much the customs broker charges and who pays that cost, who pays the duties
and customs fees, and who processes duty drawbacks when applicable.
DOCUMENTATION
You should determine whether the freight forwarder is familiar with the export
documentation required, which documents are prepared by the freight forwarder and which
you must prepare as the exporter, how much the forwarder charges for preparing the
documentation, the process for reviewing export documentation, and whether documents can
be transmitted electronically. If you are exporting using a letter of credit, you should
determine how the freight forwarder ensures that all documents are in accordance with the
terms of the letter of credit, and the responsibilities and the relationship between the exporter,
the freight forwarder, and the bank regarding the presentation of the documentation required
according to the letter of credit.
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International Freight Forwarders India
Air Freight
Consolidation Service
Door-to-Door
Express Service
Ocean Freight
Cross Trades
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Trans-border Truck Freight
Through our partnerships with established international and Indian freight forwarders &
forwarding agents, we are able to negotiate competitive import and export pricing for ocean
(FCL and LCL), truck (FTL and LTL) and air shipments while consistently providing reliable
and efficient service.
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EXPORT DOCUMENTATION
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EX
Very often exporters do not enter into any formal contract and finalize the trade deal through
the exchange of letters, cable, telex etc. It is, however, expedient that the parties (exporters &
importers) incorporate all important terms & conditions of their trade deal in a separate
document or contract that will avoid disputes arising out of uncertainty or ambiguity. Export
contract may be sent in duplicate along with the Proforma Invoice to the overseas buyer.
There are certain, peculiar characteristics of international trade contract which are not present
in those for sales of goods in the domestic market
Whereas the parties to a domestic trace contract normally needs only agree on the elements
which are necessary for their particular trade transactions like price, description, quality and
quantity of goods, delivery terms etc the situation will be quite different when the buyer and
the seller to sale/purchase contract belong to different countries. The parties to all
international trade contracts provide all their relative rights and obligations in several ways
For example, they may agree to adopt either the Law of the country of the buyer or that of the
seller. The traders are normally reluctant to leave the determination of the rights and
obligations by implications under the legal system of eithers country. They prefer to make
explicit provisions regarding the rights and obligations by including a set of detailed and
precise terms and conditions in their contract.
EXPORT OF SAMPLES\GIFTS.
Exports of bonafide trade and technical samples of freely exportable items shall be allowed
without any limit. Goods including edible items of value not exceeding Rs. 100000/- in a
licensing year, may be exported as a gift. However items mentioned as restricted for exports
in ITC(HS) shall not be exported as a gift without a licence/certificate/permission, except in
the case of edible items.
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Notwithstanding the efforts made by various national/international organizations like the
United Nations Commission on the International Trade Law, there is still no perfection or a
device which would give the parties an accurate and complete idea of each others
understanding of various trade terms, the commercial practices and the rights and the
obligations vis--vis each other so that the misunderstandings are practically eliminated.
In order to avoid disputes, it is necessary to enter into an export contract with the overseas buyer. For
this purpose, export contract should be carefully drafted incorporating comprehensive but in precise
terms, all relevant and important conditions of the trade deal.
There should not be any ambiguity regarding the exact specifications of goods and terms of sale
including export price, mode of payment, storage and distribution methods, type of packaging, port of
shipment, delivery schedule etc. The different aspects of an export contract are enumerated as under:
Quantity
Inspection
Terms of Delivery
Period of Delivery/Shipment
Insurance
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Documentary Requirements
Guarantee
Remedies
It will not be out of place to mention here the importance of arbitration clause in an export
contract Court proceedings do not offer a satisfactory method for settlement of commercial
disputes, as they involve inevitable delays, costs and technicalities. On the other hand,
arbitration provides an economic, expeditious and informal remedy for settlement of
commercial disputes. Arbitration proceedings are conducted in privacy and the awards are
kept confidential. The Arbitrator is usually an expert in the subject matter of the dispute. The
dates for arbitration meetings are fixed with the convenience of all concerned. Thus,
arbitration is the most suitable way for settlements of commercial disputes and it may
invariably be used by businessmen in their commercial dealings.
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EXPORT DOCUMENTS
Any export shipment involved various documents required by various authorities such as
customs, excise, RBI, Inspection and according depending upon the requirements, there are
categorized into 2 categories, namely commercial documents and regulatory documents.
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Name of the port of discharge and final destination.
Description of goods giving details of quantity, rate and total amount in terms of
internationally accepted price quotation.
2. Inspection Certificate: The certificate is issued by the inspection authority such as the
export inspection agency. This certificate states that the goods have been inspected
before shipment, and that they confirm to accepted quality standards.
3. Marine insurance policy: Goods in transit are subject to risk of loss of goods arising due
to fire on ship, perils of sea, theft etc. marine insurance protects losses incidental to
voyages and in land transportation. Marine insurance policy is one of the most
important document used as collateral security because it protects the interest of all
those who have insurable interest at the time of loss. The exporter is bound to insure the
goods in case of CIF quotation, but he can also insure the goods in case of FOB
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contract, at the request of the importer, but the premium payment will be made by the
exporter. There are different types of policies such as
SPECIFIC POLICY: This policy is taken to cover different risks for a single
shipment. For a regular exporter, this policy is not advisable as he will have to
take a separate policy every time a shipment is made, so this policy is taken when
exports are in frequent.
Floating Policy: This is taken to cover all shipments for some months. There is no
time limit, but there is a limit on the value of goods and once this value is crossed
by several shipments, then it has to be renewed.
Open Policy: This policy remains in force until cancelled by either party i.e.
insurance company or the exporter.
Open Cover Policy: This policy is generally issued for 12 months period, for all
shipments to one or more destinations. The open cover may specify the maximum
value of consignment that may be sent per ship and if the value exceeded, the
insurance company must be informed by the exporter.
Insurance Premium: Differs upon product to product and a number of such other
factors, such as, distance of voyage, type and condition of packing, etc. Premium
for air consignments are lowered as compared to consignments by sea.
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Significance of Consular Invoice for the Exporter
Certification' of goods by the Consulate of the importing country indicarer that the
importer has fulfilled all procedural and licensing formalities for import of goods.
It also assures the exporter of the payment from the importing country.
It facilitates quick clearance of goods from the customs at the port destination and
therefore, the importer gets quick delivery of goods.
The importer is assured that the goods imported are not banned for imported in his
country.
The goods produced in a particular country are subject to preferential tariff rates in
the foreign market at the time importation.
The goods produced in a particular country are banned for import in the foreign
market.
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Trade Association. Of the exporting country.
(b) Certificate of Origin for availing Concessions under GSP :- Certificate of origin required
for availing of concessions under Generalised System of Preferences (GSP) extended by
certain, countries such as France, Germany, Italy, BENELUX countries, UK, Australia;
Japan, USA, etc. This certificate can be obtained from specialised agencies, namely;
(d) Certificate for availing Concessions under other Systems of Preference:- Certificate of
origin is also required for tariff concessions. under the Global System of Trade
Preferences (GSTP), Bangkok Agreement(BA) and SAARC Preferential Trading
Arrangement (SAPTA) under which India grants and receives tariff concessions On
imports and exports. Export Inspection Council (EIC) is the sole authority to print blank
Certificates of Origin under BA, SAARC and SAPTA which can be issued by such
agencies as EPCs, DCs of EPZs, EIC, APEDA, MPEDA, FIEO, etc...
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Name and the number of Vessel of Flight
It is to be submitted to the customs for the assessment of duty clearance of goods with
concessional duty.
It is required when the goods produced in a particular country are banned for import
in the foreign market.
Sometimes, in order to ensures that goods bought from some other country have not
been reshipped by a seller, a certificate of origin IS required.
6. Bill of Lading: The bill of lading is a document issued by the shipping company or its
agent acknowledging the receipt of goods on board the vessel, and undertaking to
deliver the goods in the like order and condition as received, to the consignee or his
order, provided the freight and other charges as specified in the bill have been duly paid.
It is also a document of title to the goods and as such, is freely transferable by
endorsement and delivery.
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As a receipt from the shipping company; and
Clean Bill of Lading: - A bill of lading acknowledging receipt of the goods apparently
in good order and condition and without any qualification is termed as a clean bill of
lading.
Claused Bill of Lading: - A bill of lading qualified with certain adversere marks such
as, "goods insufficiently packed in accordance with the Carriage of Goods by Sea
Act," is termed as a claused bill of lading.
Transhipment or Through Bill of Lading: - When the carrier uses other transport
facilities, such as rail, road, or another steamship company in addition to his own, the
carrier issues a through or transhipment bill of lading.
Stale Bill of Lading: - A bill of lading that has been held too long before it is passed
on to a bank for negotiation or to the consignee is called a stale bill of lading.
Freight Paid Bill of Lading: - When freight is paid at the time of shipment or in
advance, the bill of landing is marked, freight paid. Such bill of lading is known as
freight bill of lading.
Freight Collect Bill of lading :- When the freight is not paid and is to be collected
from the consignee on the arrival of the goods, the bill of lading is marked, freight
collect and is known as freight collect bill of lading
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Total number of containers and packages,
It is a contract between the shipper and the shipping company for carriage of the
goods to the port of destination.
A clean bill of lading certifies that the goods received on board the ship are in order
and good condition.
The exporter can claim damages from the shipping company if the goods are lost or
damaged after the issue of a clean bill of lading.
The exporter sends the bill of lading to the bank of the importer so as to enable him to
take the delivery of goods.
The exporter can give an advance intimation to the foreign buyer about the shipment
of goods by sending him a non-negotiable copy of bill of lading
It is useful to the shipping company for collection of transport charges from the
importer, if not collected from the exporter.
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7. Packing List: The exporter prepares the packing list to facilitate the buyer to check the
shipment. It contains the detailed description of the goods packed in each case, their
gross and net weight, etc. The difference between a packing note and a packing list is
that the packing note contains the particulars of the contents of an individual pack,
while the packing list is a consolidated statement of the contents of a number of cases or
packs.
8. Bill of Exchange: The instrument is used in receiving payment from the importer. The
importer may prefer Bill of Exchange to LC as it does not involve blocking of funds. A
bill of exchange is drawn by the exporter on the importer, to make payment on demand
at sight or after a certain period of time.
2 sets. Each one bearing the exclusion clause making the other part of the draft
invalid.
Sight B/E.
Usance B/E.
It is known as draft.
There are two copies of draft. Each one bears reference to the other part A&B.
when any one of the draft is paid, the second draft becomes null and void.
2. The drawee: The importer / person on whom the bill is drawn for payment.
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3. The payee: The person to whom payment is made, generally, the exporter /
supplier of the goods.
B. Auxiliary Documents: These documents generally form the basic documents based on
which the commercial and or regulatory documents are prepared. These documents also do
not have any fixed formats and the number of such documents will wary according to
individual requirements.
1. Proforma Invoice: The starting point of the export contract is in the form of offer
made by the exporter to the foreign customer. The offer made by the exporter is in the
form of a proforma invoice. It is a quotation given as a reply to an inquiry. It normally
forms the basis of all trade transactions.
Description of goods giving details of quantity, rate and total amount in terms of
internationally accepted price quotation.
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It forms the basis of all trade transactions.
It may be useful for the importer in obtaining import licence or foreign exchange.
3. Declaration of Insurance: Where the contract terms require that the insurance to be
covered by the exporter, the shipper has to give details of the shipment to the
insurance company for necessary insurance cover. The detailed declaration will cover:
4. Application of the Certificate Origin: In case the exporter has to obtain Certificate of
Origin from the concerned authorities, an application has to be made to the concerned
authority with required documents. While the simple invoice copy will do for getting
C\O from the chamber of commerce, in respect of obtained the same from the office
of the Textile Committee or Export Promotion Council, the documents requirement
are different.
5. Mate's Receipt: Mate's receipt is a receipt issued by the Commanding Officer of the
ship when the cargo is loaded on the ship. The mate's receipt is a prima facie evidence
that goods are loaded in the vessel. The mate's receipt is first handed over to the Port
Trust Authorities. After making payment of all port dues, the exporter or his agent
collects the mate's receipt from the Port Trust Authorities. The mate's receipt is freely
transferable. It must be handed over to the shipping company in order to get the bill of
lading. Bill of lading is prepared on the basis of the mate's receipt.
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Clean Mate's Receipt: - The Commanding Officer of the ship issues a clean
mate's receipt, if he is satisfied that the goods are packed properly and there is no
defect in the packing of the cargo or package.
Bill of lading, which is the title of goods, is prepared on the basis of the mate's
receipt.
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It enables the exporter to clear port trust dues to the Port Trust Authorities.
The goods are then loaded on board the ship for which the Mate or the Captain of
the ship issues Mate's Receipt to the Port Superintendent.
7. Shipping Instructions: at the pre-shipment stage, when the documents are to sent to
the CHA for customs clearance, necessary instructions are to be give with relevance to
8. Bank letter for negotiation of documents: at the post shipment stage, the exporter has to
submit the documents to a bank for negotiation or discounting or collection for forwarding
the same to the customer and also for realization of export proceeds. The bank letter is the set
of instruction for the bank as to how to handle the documents by them and by the bank at the
buyers country which may include
Details of various documents being sent and the number of the copies
thereof.
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If the documents are sent L/C or on open terms.
In case of credit bill who has to bear the interest, either exporter or if
the same is to be collected from the buyer.
1. Shipping Bill: Shipping bill is the main customs document, required by the customs
authorities for granting permission for the shipment of goods. The cargo is moved
inside the dock area only after the shipping bill is duly stamped, i.e. certified by the
customs. Shipping bill is normally prepared in five copies :-
Customs copy.
Drawback copy.
Based on the incentives offered by the government, customs authorities have introduced three
types of shipping bills:-
Drawback Shipping Bill: - Drawback shipping bill is useful for claiming the customs
drawback against goods exported.
Dutiable Shipping Bill: - Dutiable shipping bill is required for goods which are
subject to export duty.
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Duty-free Shipping Bill: - Duty-free shipping bill is useful for exporting goods on
which there is no export duty.
In order to facilitate easy recognition and quick processing, following colours have been
provided to different kinds of shipping bills :
Types of goods
By Sea
By Air
Green
Green
Yellow
Pink
White
Pink
Details about packages, description of goods, marks and numbers, quantity and details
of each case.
FOB price and real value of goods as defined in the Sea Customs Act.
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Significance of Shipping Bill
a) Shipping bill is the main customs document, required by the customs authorities
for granting permission for the shipment of goods.
b) The cargo is moved inside the dock area only after the shipping bill is duly
stamped, i.e. certified by the customs.
c) Duly endorsed shipping bill is also necessary for the collection of export
incentives offered by the government.
d) It is useful to the Customs Appraiser while determining the actual value of goods
exported.
2. A.R.E. 1 form (Central excise): this form ARE-1 is prescribed under Central Excise
rules for export of goods. In case goods meant for export are cleared directly from the
premises of a manufacturer, the exporter can avail the facility of exemption from
payment of terminal excise duty. The goods may be cleared for export either under
claim for rebate of duty paid or under bond without payment of duty. In both the
events the goods are to be cleared under form A.R.E-1 which will show the details of
the goods being exported, the relevant duty involved and if the duty is paid or goods
being cleared under bond, details of goods being sealed either by the exporter or
Central Excise officials etc.
4. Export Application: this is the application to be made to the customs officials before
shipment of goods. The prescribed form of the application is the Shipping Bill/Bill of
Export. Different types are required for shipment like ex-bond, duty free goods, and
dutiable goods and for export under different export promotion schemes such as
claims for duty drawback etc.
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5. Vehicle Ticket/Cart Ticket/Gate Pass etc.: before the goods are being taken inside the
port for loading, necessary permission has to be obtained for moving the vehicle into
the customs area. This permission is granted by the Port Trust Authority. This
document will contain the detail of the export cargo, name and address of the
shippers, lorry number, marks and number of the packages, drivers licence details
etc.
6. Bank Certificate of Realisation: this is the form prescribed under the Foreign Trade
Policy, wherein the negotiating bank declares the fob value of exports and for the date
of realisation of the export proceeds. This certificate is required fore obtaining the
benefit under various schemes and this value of fob is reckoned as fob value of
exports.
D. Other Document:
Black List Certificate: it certifies that the ship/aircraft carrying the cargo has not
touched the particular country on its journey or that the goods are not from the
particular country. This is required by certain nations who have strained political and
economical relations with the so called Black Listed Countries.
Freight Payment Certificate: in most of the cases, the B/L or AWB will mention the
transportation and other related charges. However if the exporter does not want these
details to be disclosed to the buyer, the shipping company may issue a separate
certificate for payment of the freight charges instead of declaring on the main
transport documents. This document showing the freight payment is called the freight
certificate.
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Combined Certificate of Origin and Value: this certificate is required by the
Commonwealth Countries. This certificate is printed in a special way by the
Commonwealth Countries. This certificate should contain special details as to the
origin and value of goods, which are useful for determining import duty. All other
details are generally the same as that of Commercial Invoice, such as name of the
exporter and the importer, quality and quantity of the goods etc.
Customs Invoice: this is required by the countries like Canada, USA for imposing
preferential tariff rates.
Legalized Invoice: this is required by the certain Latin American Countries like
Mexico. It is just like consular invoice, which requires certification from Consulate or
authorised mission, stationed in the exporters country.
Pre-Shipment Documents:
Shipping bill.
Letter of Credit
Commercial invoice.
Packing list.
Certificate of origin.
Certificate of Inspection.
Exchange Control Declaration Form: all exports to which the requirement of declaration
apply must be declared on appropriate forms as indicated below unless the consignment is of
samples and of No Commercial Value
SDF FORM: to be completed in duplicate and appended to the Shipping Bill for
export declare to the customs offices notified by the Central Government which have
introduced EDI system for processing Shipping Bill.
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PP FORM: to be completed in duplicate for export by post.
Export declaration forms have utmost importance and are binding on the exporters. It is,
therefore, necessary that enough care is taken while declaring exports on these forms, with
special reference on the following points.
Name and address of the authorised dealer through whom proceeds of exports have
been or will be realized should be specified in the relevant column of the form.
Details of commission and discount due to foreign agent or buyer should be correctly
declared otherwise difficulties may arise at the time of remittance of such
commission.
It should be clearly indicated in the form whether the export is on outright sale basis
or on consignment basis and irrelevant clauses must be stuck out
Under the term analysis of full export value a break up of full export value of goods
under F.O.B value, freight and insurance should be furnished in all cases, irrespective
of the terms of contract.
All documents relating to the export of goods from India must pass through the
medium of an authorised dealer in foreign exchange in India within 21 days of
shipment.
The amount representing the full export value of goods must be realized within six
months from date of shipment.
Before we proceed to understand the concept of Letter of Credit, let us understand the various
types of payment methods available against export.
METHODS OF PAYMENT
There are three methods of payment depending upon the terms of payment, and each method
of payment involves varying degrees of risks for the exporter. The methods are:
Payment in advance
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Documentary Bills
Letter of Credit
Open Account
Counter Trade
A. PAYMENT IN ADVANCE
This method does not involve any risk of bad debts, provided entire amount has been
received in advance. At times, a certain per cent is paid in advance, say 50% and the rest on
delivery. This method of payment is desirable when:
The financial position of the buyer is weak or credit worthiness of the buyer is not
known.
The seller is not willing to assume credit risk, as un the case of open account method.
However, this is the most unpopular methods as a foreign buyer would not be willing to pay
advance of shipment unless:
B. DOCUMENTARY BILLS:
Under this method, the exporter agrees to submit the documents to his bank along with the
bill of exchange. The minimum documents required are
commercial Invoice
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Documents against payment (D/P): The documents are released to the importer against
payment. This method indicates that the payment is made against Sight Draft. Necessary
arrangements will have to be made to store the goods, if a delay in payment occurs.
The risk involved that the importer may refuse to accept the documents and to pay against
them. The reason for non-acceptance may be political or commercial ones. In India, ECGC
covers losses arising out of such risks. Under this system, as compared to D/A, the exporter
has certain advantages:
The document remain in the hands of the bank and the exporter does not lose
possession or the ownership of goods till payment is made,
Other reason may include that the exporter may not be able to allow credit and wait
for payment.
Documents Against acceptance (D/A): The document are released against acceptance of the
Time Draft i.e. credit allowed for a certain period, say 90 days. However, the exporter need
not wait for payment till bill is met on due date, as he can discount the bill with the
negotiating bank and can avail of funds immediately after shipment of goods.
In case of D/A as compared to D/P bills, the risk involved is much grater, as the importer
has already taken possession of goods which may or may not be in his custody on the
maturity date of the bill. If the importer fails to pay on due date, the exporter, will have to
start civil proceedings to receive his payment, if all other alternatives fails. The risk involved
can be insured with ECGC.
This method of payment has become the most popular form in recent times, it is more
secured as company to other methods of payment (other than advance payment).
A letter of credit can be defined as an undertaking by importers bank stating that payment
will be made to the exporter if the required documents are presented to the bank within the
variety of the L/C.
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