Presentation on ExportImport Documentation

and Risk Management in

Export-Import Business

Role of Export Documentation

Export documentation plays a vital role in

international marketing as it facilitates the
smooth flow of goods and payments thereof
across national frontiers.
Exporters are required to follow certain
formalities and procedures, using a number of
documents.
Each of these documents serves a specific
purpose and hence carries its own significance.
A clear understanding of all documents and
their purpose, how to prepare these, number of
copies required, when and where to file, is a
must for all export professionals.

Export Documentation in India

Export Documentation in India has evolved a

great deal of interest since 1990.
Efforts are on, at a faster footing to
streamline and modernize the system further.
Prior to 1990, documentation was manual and
it lacked proper co-ordination.
The result was lot of delays and mistakes,
rendering the task very clumsy, tiresome,
repetitive, and truly frustrating.
India
adopted
the
ADS
(Aligned
Documentation System) in 1991 which is the
Internationally
accepted
documentation
system

Export Documentation in India

Export documentation is complex in nature as

the number of documents to be filled-in is very
large, so also is the number of the concerned
authorities to whom the relevant documents to
be submitted. It is, therefore, advisable to take
the help of shipping and forwarding agents
who will obtain and fill out the documents
correctly as well as arrange for transportation.
There are buyers and exporters, buying
agents, RBI, authorized dealers (where the
exporter has his bank Account), buyers bank
(foreign bank), DGFT, Customs and Port
Authorities, VAT and Excise Authorities, EPCs,
Insurance Companies, Inspection Agencies,
Clearing and Forwarding Agents, Shipping
Companies/Airlines and Inland Carriers etc

Export Documentation in India

Proper Documentation will ensure smooth sailing

with the requirements of the above agencies and
the resulting transaction will be a successful one.
Inaccurate or incomplete documentation will result
in serious financial and goodwill losses.
Such losses can be completely avoided by
understanding
clearly
the
documentation
requirements of all concerned parties and then
meticulously planning to get the right documents in
the right numbers, at the right places and at the
right time.

Classification of Export Documents

Export Documents can be classified into
following four categories:
(1) Commercial Documents
(2) Regulatory Documents
(3) Export Assistance Documents
(4) Documents Required by Importing Countries

(1)
Commercial
Documents:
These
documents are used by exporters/importers to
discharge their respective legal and other
incidental responsibilities under sales contract.

Classification of Export Documents

Commercial documents can be further subdivided into:
(i) Principal Commercial Documents
(ii) Auxiliary Commercial Documents
(i) Principal Commercial Documents:
These documents serves the following
purposes:
(a) To effect physical transfer of goods and
title of the goods from exporter to the
buyer.
(b) To realize export sales proceeds.

Classification of Export Documents

Principal Documents include:
Commercial Invoice (and the invoice prescribed
by the importer)
Packing list
Certificate of Inspection
Certificate of Insurance/Insurance Policy
Bill of Lading/Airway bill/Combined Transport
Documents
Certificate of Origin
Bill of Exchange
Shipment Advice

Classification of Export Documents

(ii) Auxiliary Commercial Documents: These
Documents are required to prepare /procure the
principal commercial documents and include:
Proforma Invoice
Shipping Instructions
Insurance Declaration
Intimation for Inspection
Shipping Order
Mates Receipt
Application for Certificate of Origin
Letter to bank for negotiation /collection of
documents

Classification of Export Documents

(2) Regulatory Documents: These are
prescribed
by
various
Government
Departments/Bodies
for
compliance
of
formalities under relevant laws governing
export transactions. These include:
(i) Exchange Control Declaration Form-GR Form
(ii) Freight Payment Certificate
(iii) Insurance Premium Payment Certificate
(iv) ARE I/ARE II Forms
(v) Shipping Bill/Bill of Export
(vi) Port Trust Copy of Shipping Bill/Export
Application/Dock Challan
(vii) Receipt of Payment of Port Charges
(viii) Vehicle Ticket.

Classification of Export Documents

(3) Export Assistance Documents: These
are the documents which are required for
claiming assistance under the various export
assistance measures as may be in operation
from to time. Currently, these refer to
drawbacks of central excise and customs
duties, packing credit facilities etc
(4) Documentation required by Importing
Countries: These are the documents which
are required by the importer in order to
satisfy the requirements of his Government.
These include certificates of origin, consular
invoice, quality control certificate etc.

Commercial Documents
(1) Commercial Invoice:
It is the basic and most important document in an
export transaction and extreme care has to be
taken by the exporter to prepare this document.
This document requires the exporter to submit
details such as his own details, Invoice number
with date, details of the consignee and buyer (if
the buyer is other than consignee), buyers order
number with date, country of origin of the goods,
country of final destination, terms of payment
and delivery, pre-carriage details (Road/Rail),
vessel/flight number, port of loading, port of
discharge, final destination, container number,
number and kind of packaging, detailed
description of goods, quantity, rate and total
amount chargeable etc

Commercial Documents

Therefore, a Commercial Invoice contains

the complete details of the export order.
Normally, the trade practice is to raise and
send a Proforma Invoice to the buyer for his
approval, once the order has been finalized.
On receipt of the approved Proforma
Invoice, the exporter can use it as a part of
the export contract.
The Commercial Invoice then becomes
easier to prepare on the basis of the
approved Proforma Invoice.

Commercial Documents
(2) Packing List:
This document provides the details of number
of packages; quantity packed in each of them;
the weight and measurement of each of the
package and the net and gross weight of the
total consignment.
Net weight refers to the actual weight of the
items and the gross weight means the weight
of the items plus the weight of the packing
material.
The packing list serves a useful purpose of the
exporter while dispatching the consignment as
a cross check of goods sent.

Commercial Documents
For the port personnel, it comes handy while
planning the loading and offloading of cargo.
It is also an essential document for the customs
authorities as they as they can carry out the
physical examination of the cargo and conduct
checks on the weight and measurements of the
goods smoothly against the declarations made
by the exporter in the packing list.
(3) Certificate of Inspection: This is the
Certificate issued by the Export Inspection
Agency after it has conducted the pre-shipment
inspection of goods for export provided the
goods fall under the notified category of goods
requiring compulsory shipment of inspection.

Commercial Documents
(4)
Certificate
of
Insurance/Insurance
Policy:

Insurance is an important area in the export

business as the stakes are usually very high.

Protection needs to be taken in the form of

insurance cover for the duration of transit of
goods from the exporter to the importer.
(5) Bill of Lading:
This is issued when the goods are shipped
using ocean (marine) transport.
When the exporter finally hand over the goods
to the shipping company for loading on board
the ship for transport to their final destination,
the shipping company issues a set of Bills of
Lading to the exporter.

Commercial Documents
(6) Airway Bill:
Airway Bill is a bill of lading when the goods
are shipped using air transport.
It is also known as air consignment note or
airway bill of lading.
(7) Combined Transport Document:
This is also known as Multi-modal Transport
Document.
Ever since containers have become popular,
the
concept
of
Combined
Transport
Document has gained solid ground.

Commercial Documents
(8) Certificate Of Origin:
This document serves as a proof of the country
of origin of goods for the importer in his country.
Imported countries usually require this to be
produced at the time customs clearance of
import cargo.
It also plays an important part in computing the
liability and the rate of import duty in the
country of import.
This certificate declares the details of goods to
be shipped and the country where these goods
are grown, manufactured or produced.
Such goods needs to have substantial value
addition so as to become eligible to certification
of this nature.

Commercial Documents
(9) Bill of Exchange:
Also known as Draft, this is an instruments for
payment realization.
It is a written unconditional order for payment
from a drawer to a drawee, directing the
drawee to pay a specified amount of money in
a given currency to the drawer or a named
payee at a fixed or determinable future date.
The exporter is the drawer and he draws
(prepares and signs) this unconditional order
in writing upon the importer (drawee) asking
him to pay a certain sum of money either to
himself or his nominee (endorsee).

Commercial Documents
This order could be made for payment on
demand, called a bill of exchange at sight or
payment at a future date, called a usance bill
of exchange.
(10) Shipping Advice:
The exporter sends this document , called
shipping advice, to the buyer soon after the
shipment is made to provide him all the
shipment details.
This serves as an advance intimation of the
shipment and allows the importer to arrange
for delivery of the same.

Risk Management in Exportimport Business

Risk is a fact of business life, more so of

international business.
The Management of International business is
the management of risk.
No manager can make a strategic business
decision or enter into important business
transaction without a full evaluation of the
risks involved.
Many of the best business plans have been
ruined by a miscalculation or a mistake, or an
error in judgment that could have been
avoided with proper planning.

Risk Management in Exportimport Business

If the risk cannot be reduced through

advance planning and careful execution,
perhaps it can be shifted to some other
party to the transaction.
If the risk cannot be shifted to another
party to the transaction, it might be shifted
to an insurance company.
Many types of risks can be insured against,
including the risk of damage to the goods
at sea, the risk of loosing an investment in
a developing country and many others.

Risk Management in Exportimport Business

(1) Risk Assessment and the Firms
Foreign Market Entry Strategy:
When a firm is considering its entry or
expansion in a foreign market, it must
consider all options and decide on a course
of action commensurate with its objectives,
capabilities and its willingness to assume
risk.

Selling to a customer in another country

results in less risk to the firm than licensing
trademarks, patents and copyrights there.

Risk Management in Exportimport Business

(2)
Managing
Distance
and
Communications:
The risks of doing business in a foreign country
are different from those encountered at home.
A firm doing business in a foreign country
would encounter greater distances; problems
in communications; language and cultural
barriers; differences in ethical, moral and
religious codes; exposure to strange foreign
laws and government regulations; and
different currencies. All these factors affect the
risks of doing business abroad.

Risk Management in Exportimport Business

(3) Managing Currency and Exchange Rate
Risks:
Currency risk is risk a firm is exposed to as a
result of buying, selling, or holding a foreign
currency. Currency risk includes:
(i) Exchange Rate Risk
(ii) Currency Control Risk
(i) Exchange Rate Risk: Exchange rate risk
results from the fluctuations in the relative
values of the foreign currencies against each
other when they are bought and sold on
international financial markets.

Risk Management in Exportimport Business

(ii) Currency Control Risk:
Some countries, particularly developing countries
where access to ready foreign reserve is limited,
put restrictions on currency transactions.

In order to preserve the little foreign exchange

that is available for international transactions,
such as importing merchandise, these countries
restrict the amount of foreign currency that they
will sell to private companies.
This limitation can cause problems for a U.S or
any other country exporter waiting for payment
from its foreign customer who cannot obtain the
dollars needed to pay for the goods.

Risk Management in Exportimport Business

(4) Special Transactions Risks in Contracts
for the Sale of Goods:
Special
risks are inherent in international
transactions for the purchase and sale of goods.
These transactions present special risks to both
the parties because the process of shipping
goods and receiving payment between distant
countries is riskier than within a country. Such
risks are:
(i) Payment or Credit Risk
(ii) Property or Marine Risk
(iii) Delivery Risk
(iv) Pilferage and Theft Risk

Risk Management in Exportimport Business

(5) Managing Political Risk:

Political Risk is generally defined as the risk to

a firms business interests arising form political
instability or political change in a country in
which the firm is doing business.
Political Risk includes risk derived from
potentially adverse actions of Governments of
the foreign countries in which one is doing
business or whose laws and regulations one is
subject to.
It also includes laws and Government policies
instituted by the firms home country which
adversely affect the firms that do business in a
foreign country.

Risk Management in Exportimport Business

(6) Risks of Foreign Laws and Courts:
Many Acts that are perfectly legal in one
country can be illegal in another. Indeed, most
travelers to a foreign country could conceivably
break a host of laws and not even be aware of
it.
The same is true for the law of contracts,
employment, competition, torts and other
business laws.
It is virtually impossible to catalog all of the
differences between these laws from country to
country

Risk Management in Exportimport Business

(7) Commercial Risks: The risks arising
from suitability of the product for the
market or otherwise change in supply and
demand conditions and changes in price.
Commercial risks arise due to:
(i) Lack of Knowledge
(ii) Inability to adapt to the environment
(iii) Different kinds of situations to be dealt
with
(iv) Greater transit time involved

Risk Management in Exportimport Business

(8) Cargo Risk:
Transit disasters are an ever present hazard
for those engaged in Export-Import business.
Every shipment runs the risk of a long list of
hazards such as storm, collision, theft,
leakage, explosion, spoilage etc. It is possible
to transfer the financial losses resulting from
perils of and in transit to professional risk
bearers known as underwriters.
As most goods are transported by marine
transport, every exporter should have an
elementary knowledge of marine insurance to
get the protection at the minimum cost.