fashion merchandizing | Cargo | Letter Of Credit

Fashion Marketing and Merchandising

Knitwear Design Semester-6

Session Plan - 12
Logistics and shipment planning
•Sea and Air freight, •Forwarding agents and 3PL , •Reservation of space (CBM calculations), •ship sailing and planning, •Containerization

Books for ref: A guide to export policy procedure and documentation( M.I.Mahajan) , 16th Edition

Shipments are sent by : • Sea • Post (Courier) • Air • Contract with the buyer decides the mode of the shipment

• Shipping Documents are very important in export trade. • Should be made very carefully • Should be handed over to bank timely

Sea and Air Freight
• Sea: Most common mode of transport • Advantages: High volume, relatively low freight cost

• Air: Recently got popular Adv: -expensive but saves time (saves storage and transit time) -Reduces extra efforts of packaging - If payment on goods receipt…. beneficial for exporter

Shipping and Forwarding Agents
• Work Area: • Collecting goods from factory, warehouse, Packing, Documentation. • Charge percentage on FOB • New exports should use agents • Exporters exporting large volumes can have their own facilities

Freight rationalization
• Increase of oil price has increased freight prices • Buyer overseas are paying the freight. • High freight will effect the selling price. • Will effect the final selling price (to consumer) • Does not work in favor of India • Imp. To keep the sea/air cost lowest..thus sea is favourable

Exports by Courier/Post
• Can be sent through any post office • Authorized international courier companies. • Products grouped under two heads: : Trade samples and gift parcels not involving foreign
exchange :Merchant goods involving foreign exchange

• Samples as gifts for value not exceeding Rs 25000/- can be sent by post without any pre approval • Other samples can go with a certificate from the bank stating “ no involvement of foreign exchange” • Mutilated samples

Exports by Air
• Seasonable or high in cost but low in bulk goods are aired.
– Lesser packaging charges as less handling of goods in transit – Less chances of damage – Ensures faster delivery which leads to quicker returns – Reaches the related country directly – Proof of exportation is known as Airwaybill no.

Exports by Sea: most traditional
• Shipping company of forwarding agent should be informed well in advance about the consignment details. • Exporter should advise type of cargo, gross and net weight of each package, total packages, dimensions of cartons, port of loading and destination, approx. date of shipment

• Agents provide arriving and sailing details of the ships. • “Shipping order” is issued by the shipping company confirming the booking

Freight Rebate / Discount
• If exporter enters a contract with the shipping company for using their ships for all the shipments….they are offered discounts and also preference for selecting their days and vessals

• Transportation Facility given by railway goods • Indian railways give preference to exporters
– “Shipping order” is checked for train booking. For wagon booking following papers are req: – Shipping Order – Forwarding note – Type of wagon req.

• Mid stream Vessels and Shed Vessels • Vessels are accepted thru jetty and sometimes thru Mid stream. In midstream cargo has to be taken by boats for loading. This is called Overside loading. • No extra charges for loading and unloading

Customs checking at factory
• Exporter can get the goods checked at his premises by calling Assistant Collector of customs. • It is a paid service. • Collector seals the goods/shipment. • If req. preventive officer can open the sealed goods.

Mate’s Receipt
• After cargo is loaded chief of vessel issues “mate reciept”. • It contains: name of shipping line, vessel, port of loading, port of dispatch, place of delivery, shipping marks, kind of packages/containers, no. of packages/containers, description of goods, gross weight, condition of cargo at the time of receipt on board. • It is presented to company‟s office or agents office in exchange of Bill of Lading.

• Bill Of Lading
Is a document issued by the shipping company or agent acknowledging the receipt of goods mentioned in the bill for shipment and undertaking to deliver the goods in the like order and condition as received . Goods will be cleared only if the frieght and other charges are paid.

• Containerisation
– Is a method of distributing merchandise in a unitised form

Container Types:
• General purpose container: closed and are suitable to carry all type of general cargo. Made of steel body. • Fruit containers: Insulated container with internal dimensions slightly longer. • Refrigerated containers: fitted with refrigeration unit • Bulk Containers: to carry dry powers • Ventilated Containers: made of steel, have full length top and side ventilators • Flat rack containers • Open Top Containers: top loading where height of cargo is in excess of height of the container. • Half Height Version: to carry heavy dense cargos such as steel, pipes and tubes.

• Tank Containers: custom made containers • Open Sided containers: for plywood etc.. • Hanger Containers: used for dry cargo, equipped with removable beams. Used for shipment of garments on hangers. • Bin Containers: have no doors, ideal for heavy dense cargoes such as steel pipes • Average operational life of a container is 12 yrs

Advantages of containerisation:
• Permits door-to-door service.. (factory to retail area) • No intermediate handling at terminal/port….quick ransits permits less risk of cargo damage. • Low risk of damage attracts buyer for cargo bookings • Elimination of intermidiate handling at terminals enable substantial labor savings • Less packing needed • Cargo arrives in better condition • More reliable transits • Faster transits encourage many importers to hold reduced stocks.

Dis-advantages of containerisation:
• Capital Intensive project • Expense at the chosen terminal include cost of cranes, traders, van carriers etc..and also creating stacking space. • Not all merchandise can be containerized • Container in itself is a high capacity carrying unit..exporters with limited trade have are unable to fill the container to capacity and thereby adjust their stuff to other modes which are going to the same destination • The container owners have to ensure the full utilization • Few countries restricts internal movement.

Export quotations and documentations
a) INCO Terms

…………………………………………………………………. Books for ref: A guide to export policy procedure and documentation( M.I.Mahajan) , 16th Edition

Pricing Policy • The primary motive of any business activity is to make profit. • In any business profit depends on the price policy. • Price policy is influenced by two major Costs and the market situation

Parameters of pricing
• Cost and market situations
– Cost as well as market situation are different for the goods sold in abroad market and domestic market. – The basic raw material cost is same – But features like extra care and supervision given to export goods, packing, marking and labeling result in higher cost of the product. – situation is also diff in abroad. There is a tight competition with the products exported in other countries so the price has to be highly competitive.

• Economy of scale
– Size of international market is unlimited – If a proper survey and understanding of market is done products can be produced in huge bulk which will in result in lowering the final price.

• Technological improvements
• Company‟s involved in marketing are regularly busy in their technology improvement and up-gradation. • Modern manufacturing techniques result in higher production and better quality. • Results in increased sales and better prices

Export Costing Methods

All the parameters should be considered whatever costing method is followed:

1. 2. 3.

The cost-plus approach The contribution pricing or marginal costing The value added costing

• The cost-plus approach:
Average cost is calculated per unit. Average cost is the total of all the costs divided by quantity actually produced . To reach the selling price margin profit is added to such average cost.

Eg: Raw material cost Labor cost Packing cost Transport cost Total

Rs 5000/Rs 3000/Rs 1500/Rs 500/Rs 10,000

Total no. of units produced: 1000 pcs Average cost per unit ie..10000 / 1000 = 10 Profit margin 10% = 10/Selling price = 20/-

• Marginal Costing or contribution
• Better way of pricing as cost plus approach method takes care of costs which are directly relevent to the manufacture of export products • In marginal costing , there are two groups:
– Fixed costs: which remain static, irrespective of the level of production and sales – Variable costs: which vary with the volume of goods manufactured and sold.

Fixed costs:
• • • • • • • Cost of land, building or rent Lighting, heating, cooling etc (of office area) Office expenses Management of the business Staff Research and development Plant and machinery

• Variable costs
• Raw materials, components used in the product • Labor directly employed in the production of export product • Fuel and power used in production • Transportation on carriage of goods to godowns or factory • Packing, labeling and marking of goods • Commission paid to salesmen and agents

Exports Terms of Delivery

• When deciding the principle and approach to export pricing, terms of delivery shld be considered. These also effect the prices Terms of delivery lay down three Conditions: • What charges and expenses will be incurred by exporter and importer? • When and where the delivery of goods takes place? • When and where the title of the goods passes to the importer?

• Inco terms:The Incoterms rules or International
Commercial terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) that are widely used in International commercial transactions

• Standard terms of delivery are existing since long but manier times the meaning varies from country to country. • The ICC (Int‟l chamber of commerce) has codified them under the name INCO TERMS. • These were put into force in 1936 and after many revisions in 1953, 1967, 1976, 1980 and1983, the last revised terms were put into practice in july1990.

• Each term defines the transfer of responsibility from one the other. • The documents made are based on the conditions of the chosen “terms and delivery. • Carriers and forwarders also work based on the chosen term of delivery.

Commonly used INCO TERMS

• Ex Works (or Ex-factory, Ex-mill, ExPlantation, Ex-Warehouse)
• Price of goods plus packaging suitable to transportation and shipping. • The term shld be more specific Ex-Packing included, Ex-packing not included. • The exporter arranges for shipment and other transport but the bills directly goes to the buyer. The exporter is not responsible for loading the goods and getting them cleared for exports. • EX-works: for heavy machinery or govt contracts who have their own transport or shipping arrangement. • Ex-Plantation: for tea and coffee • Ex-Warehouse: for goods stored for long in warehouses • Specific location shld be mentioned. Eg: Ex-works-Delhi

• FOL: Free on loading
It is added to ex-works. This includes loading till the air container

• Free Carrier (FCA)
• Exporter has to get the goods cleared for exports and deliver it to the carrier prescribed by the buyer. • The transport mode can be any; rail, road, sea, etc.. • Buyer can also advise to deliver it to the fright forwarder.

• Delivered Docks:
• Includes basic price plus packing and transport to the port, mentioning clearly the port at which the goods will be delivered. • The exporter should keep in mind the port while doing the product costing. If any exporter from Mumbai presumes that he wil be shipping from Mumbai port and buyer term says Kolkata the the exporter has to bear the cost of sending the goods to Kolkata port.

• FOB (Free on board) or FOB (Airport) or (FOA)
• • • • • • • It constitutes: Ex –works price Packing charges Inland transportation cost Custom dues Export duty ,if any Cost of checking operations like checking of quality, measure, weight or quantity.

• FOB includes FOB port town + charges incidental to actual shipment of goods but – ocean freight and marine ocean charges. • Common in garment exports and in countries where importer has to pay import duty on the FOB price. • FOB is a mixed contract , the exporter would base his quotation on and FOB basis but in addition act on behalf of his customer in arranging shipment procuring the bill of lading and insurance.

• CFR (Cost and freight) (named port of destination) • Also known as CIF
• Exporter must pay the cost and freight till the goods reach the destination. • This covers all the risk , loss , loading goods clearance beared by the exporter.

• CIF Cost , Insurance and Freight
• Frequently used for export transactions • Includes FOB price plus cost of ocean freight and marine insurance, upto the port of destination. • Does not include the charges for unloading the goods or import duties. • This gives a clear guidance to the importer on what will the cost at port. • Easier for Buyer as the exporter is paying for the insurance and less work for buyer.

• FOT or FOR (freight on truck or freight on rail)
• Not relevant for exports. Cost till the goods are loaded on truck or rail.

• LCL shipments: Less container load • FCL: Full Container Load

Terms of payments

Export payment terms or method of payment depends on each buyer , the nature of business, customs of trade and abv. all the foreign exchange regulations of the exporter (v.imp) and importer.
Documentary credit or a letter of credit (L/C) are very popular for international transactions. A confirmed ir-revocable , Documents against payment (D/P) should always be sought for exporting goods.

Payment Terms
• Subject to legal conditions, the method of payment depends on the below commercial factors: • Amount of transaction • Nature of Goods Exported • Credit Standing of the buyer • Economic Situation in the country of the export • Exchange and Import controls in the country of import • Credit terms granted by competitors • Financial Condition of the exporter

Method of Payment

• Cash & Carry or advance payment method
– Goods are exported against payment in cash or bank draft – Payment is made in advance by the buyer or the agent at the time of order confirmation – Safest way for exporters – Least attractive for buyers as he has no guarantee that he will receive the goods. – Should take goods instantly – Not very common way for payment

Letters of credit:
• banker‟s commercial letter of credit is known as „Documentary letter of credit‟ • It is also described as commercial letter of credit as it is used in commercial transaction (ie.. Sale and purchase of goods)

• Documentary credit or Letters of credit:
– Most appropriate and commonly used in international practices. – It is a means to opening a credit in favor of someone under which payment will be made provided certain conditions are fulfilled within given time – The document states that the delivery goods will be effected by means of documents of title. – It is an arrangement whereby bank works on the instruction of buyer (importer), undertakes to make available a pre-determined amount available to the third party (exporter) known as “beneficiary”. – The “opening of L/C” is normally done thru the intermediary of another bank in the country of the exporter. – But sometimes it is also done in importers or openers country. – But foreign exchange regulations of some of the countries do not allow the opener/importer to open L/C in their own country.

• Parties to Documentary Credit • There may be 3-4 parties to the documentary credit:
– – – – The buyer –applicant for the credit ie.. Importer The seller ie.. Exporter (beneficiary) The bank Issuing the L/C (the buyer‟s bank) Advising / confirming bank or paying agent- issuing bank‟s correspondent bank.

Type of Documentary Credits / Letter of Credit
• Revocable and Irrevocable L/C: – Revocable L/C 1. Can be cancelled or modified at any time without any prior notice to the exporter. 2. Not very popular type of L/C – Ir-Revocable L/C 1. Cannot be cancelled or amended in any way without the exporters prior approval. 2. Far more satisfactory and reliable than Revocable L/C. 3. It the credit (document) does not state revocable or ir-rovocable, it is deemed to be ir-revocable.


Confirmed and Unconfirmed L/C
When the banks adds its confirmation on receiving necessary authorization from the issuing bank , it binds itself to negotiate documents. The L/C will be treated as Un confirmed till the Indian corresponding bank does not receive an authorised from the issuing bank. Generally, credits opened by the internationally reputed banks, are accepted by the exporters without asking for confirmation by an intermediary bank in their country.



• Document on payment (D/P) or sight credit
– Export order provides for drafts payable at sight, the goods are shipped and documents sent through the bank to the buyer who obtains the documents only on payment.

– The custody of goods remains with the exporter until the payment is received.
– Exporter can face the Risk of non-acceptance of documents by the importer.

• Documents on Acceptance (D/A) or acceptance credit
– Importer is enabled to take delivery of goods by signing. – Thereby signifying his willingness to pay the given amount on the maturity of bills . – Maturity depends on the period of credit granted to the buyer 30, 60, 90 days. – D/A terms are given to only well-known firms of proven business integrity and financial understanding.

Export Regulations:
– Documentation – Regulatory Requirements

• Importance of Documentation:
– Most important aspect of overseas trade. – Correct documentation is very important. – Right documents help the exporter to get the payments smoothly and on time.

• Documents involved in overseas trade:
– – – – – – – – – – – Export Order Order acceptance Letter of credit Mate‟s receipt Transport document Bill of lading Airway bill Post parcel receipt Bill of exchange Insurance policy/certificate Certificate of origin

Contd…..Documents involved in overseas trade: – Manufactures certificate – GSP certificate (generalized system of preferences): for
developing import duty

– – – – –

Certificate of Inspection: consignment has been inspected Antiquity certificate : issued by archaeological survey of India Packing List / note Export declaration Forms: gives details of the categories Certificate of measurement: size of weight of the cargo for freight

– Trans shipment permit: permit for changing vessal – Shipping Order: for cargo booking – Cart-lorry ticket: to admit lorry inside the port gate

– Shippers declaration Form: value, type, quatitity,

– Commercial invoice – Customs Invoice: US, Canada and Australia requires these – Shipping Advice: information to importer – Shipping bill: to allow shipment – Freight Declaration: whoever pays the freight – Health Certificate; for food products – Certificate of Value: req. for few countries, value – Bank Certificate of Export and Realization:

Packaging, Packing, Marking and labeling
After goods are manufactured, they are placed in a finished goods store for buyers confirmation to ship. In exports it is very important to follow the instructions regarding packing, marking and labeling received from the buyer.

• Packaging and Packing:
• Packaging is the inner wrapping or container which covers one or more units of the product. • Export packing is the outer casing and materials used to transport the product or no. of products in one case by road, sea and air. • Each type of transportation requires different type of packing.
– Sea: Rougher handling and long storage…. Outer case shld be more substantial, may be wood or metal crate. – Air: Lighter handling and shorter storage..lighter type of wood or crates – Road/rail: Lighter or heavy packing depends on the type of product and the time it will take to reach the destination.

• Packing shld be strictly done as per the requirements, if no instructions follow the customary stds of the importing country • Size of packing shld be taken care as sea freight depends on the space it covers and air freight depends on the weight.

• Weight measurement: • Used in export packing:
– Net: weight of product without packing – Net net: weight of product without either internal wrapping, packing materials or packing case – Gross: weight of product plus weight of packing case and packing material – Tar: Weight of packing only

• Labeling:
– On request exporter puts various kinds of labels, price tags etc.. – Trims, packing material imported comes free without import duty as these will be re-exported with the garments.

• Marking:
• Shipping marks as requested by the buyer shld be marked on each and every consignment so the every pack can be identified individually thru out its destination. • One ship carries large amount of shipments of various exporters so correct marking is very imp. • Marking includes: shipping marks of consignee eg: importers name, port of despatch, port of destination, steamer‟s name and bill of lading no. • Also the exporters address and very imp. The packing list.

A Packing List : • is an important shipping document. It is an itemized list of what a particular shipment contains, including the quantity and description of each item. It usually accompanies domestic as well as international shipments. • A packing list is created by the shipper to inform all parties – including the receiver of the goods, the transportation company, and customs agents (if applicable) – about the details of the shipment. • It Is the list of items one particular carton or container is carrying. Its should have complete details of the item: size, color total no. of pcs

An Essential Document for the Receiver of Goods
• Also called a packing slip, a packing list is particularly useful to the receiver of the goods to verify the shipment is accurate. • Upon arrival, the receiver generally compares the packing list to what is actually delivered, as well as to a list of what was expected to be received, such as a purchase order. • However, to protect confidentiality, price information is not usually included on a packing list.

• Invoices

• The commercial invoice is essentially a bill (i.e. invoice) from the seller (the exporter) to the buyer (the importer) describing the parties to the agreement, the goods to be sold, and the terms involved, as agreed between the exporter and importer. • As such, the commercial invoice is the final bill exchanged between the seller and the buyer. • The commercial invoice will normally be presented on the exporter's letterhead and will be addressed to the importer. • It should contain full details of the consignment, including price and other related costs, in order to facilitate customs clearance. It must also be signed and dated. • Freight and insurance, when included in the selling price, should be itemised separately as these charges are not subject to duty in certain countries. • It is important that the commercial invoice clearly differentiates between the dutiable component of the order (the market value of the order), any other typically non-dutiable charges such as freight and insurance, and the total invoice value of the order.

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