Presentation on ExportExportImport Documentation and Risk Management in ExportExport-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. frontiers. Exporters are required to follow certain formalities and procedures, using a number of documents. documents. Each of these documents serves a specific purpose and hence carries its own significance. 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. professionals.

Export Documentation in India 

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

Inspection Agencies. It is. buyer s bank (foreign bank). Insurance Companies. There are buyers and exporters. Clearing and Forwarding Agents. DGFT. transportation. buying agents. filledso also is the number of the concerned authorities to whom the relevant documents to be submitted. 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.Export Documentation in India   Export documentation is complex in nature as the number of documents to be filled-in is very large. RBI. VAT and Excise Authorities. Customs and Port Authorities. therefore. EPC s. submitted. authorized dealers (where the exporter has his bank Account). Shipping Companies/Airlines and Inland Carriers etc .

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. Inaccurate or incomplete documentation will result in serious financial and goodwill losses. at the right places and at the right time. one.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. . time.

Classification of Export Documents Export Documents can be classified into following four categories: categories: (1) Commercial Documents (2) Regulatory Documents (3) Export Assistance Documents (4) Documents Required by Importing Countries  (1) Commercial Documents: These documents are Documents: used by exporters/importers to discharge their respective legal and other incidental responsibilities under sales contract. . contract.

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

Classification of Export Documents Principal Documents include: 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: Documents are required to prepare /procure the principal commercial documents and include: 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 .

. These include: transactions. Ticket.Classification of Export Documents (2) Regulatory Documents: These are prescribed Documents: by various Government Departments/Bodies for compliance of formalities under relevant laws governing export transactions. include: (i) Exchange Control Declaration Form-GR Form 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: documents which are required for claiming assistance under the various export assistance measures as may be in operation from to time. certificates of origin. these refer to drawbacks of central excise and customs duties. . time. consular invoice. Currently. packing credit facilities etc (4) Documentation required by Importing Countries: Countries: These are the documents which are required by the importer in order to satisfy the requirements of his Government. quality control certificate etc. These include Government. etc.

country of origin of the goods. rate and total amount chargeable etc . number and kind of packaging. vessel/flight number. final destination. port of discharge. country of final destination. port of loading. Invoice number with date. buyer s order number with date. details of the consignee and buyer (if the buyer is other than consignee). container number.  This document requires the exporter to submit details such as his own details. pre-carriage predetails (Road/Rail). document.Commercial Documents (1) Commercial Invoice: 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. terms of payment and delivery. detailed description of goods. quantity.

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

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

 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. cargo.  . it comes handy while planning the loading and offloading of cargo. inspection. (3) Certificate of Inspection: This is the Inspection: Certificate issued by the Export Inspection Agency after it has conducted the pre-shipment inspection preof goods for export provided the goods fall under the notified category of goods requiring compulsory shipment of inspection.Commercial Documents For the port personnel. list.

Commercial Documents (4) Certificate of Insurance/Insurance Policy: Policy:  Insurance is an important area in the export business as the stakes are usually very high. (5) Bill of Lading: Lading:  This is issued when the goods are shipped using ocean (marine) transport. importer. the shipping company issues a set of Bills of Lading to the exporter.  When the exporter finally hand over the goods to the shipping company for loading on board the ship for transport to their final destination. . exporter.  Protection needs to be taken in the form of insurance cover for the duration of transit of goods from the exporter to the importer. transport. high.

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

 This certificate declares the details of goods to be shipped and the country where these goods are grown. nature.  It also plays an important part in computing the liability and the rate of import duty in the country of import. cargo. . manufactured or produced. import. produced. country.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.  Such goods needs to have substantial value addition so as to become eligible to certification of this nature.

(endorsee). date. .  It is a written unconditional order for payment from a drawer to a drawee.  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). realization. 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.Commercial Documents (9) Bill of Exchange:  Also known as Draft. this is an instruments for payment realization.

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

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

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

. patents and copyrights there.  Selling to a customer in another country results in less risk to the firm than licensing trademarks. risk. capabilities and its willingness to assume risk. there. it must consider all options and decide on a course of action commensurate with its objectives.Risk Management in Export-import ExportBusiness (1) Risk Assessment and the Firm s Foreign Market Entry Strategy: Strategy:  When a firm is considering its entry or expansion in a foreign market.

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

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

such as importing merchandise. . companies. put restrictions on currency transactions.S or any other country exporter waiting for payment from its foreign customer who cannot obtain the dollars needed to pay for the goods. particularly developing countries where access to ready foreign reserve is limited. these countries restrict the amount of foreign currency that they will sell to private companies.  In order to preserve the little foreign exchange that is available for international transactions. goods.Risk Management in Export-import ExportBusiness (ii) Currency Control Risk: Risk:  Some countries. transactions.  This limitation can cause problems for a U.

 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. goods. are: (i) Payment or Credit Risk (ii) Property or Marine Risk (iii) Delivery Risk (iv) Pilferage and Theft Risk .Risk Management in Export-import ExportBusiness (4) Special Transactions Risks in Contracts for the Sale of Goods: Goods:  Special risks are inherent in international transactions for the purchase and sale of goods. Such risks are: country.

.Risk Management in Export-import ExportBusiness (5) Managing Political Risk: Risk:    Political Risk is generally defined as the risk to a firm s business interests arising form political instability or political change in a country in which the firm is doing business. business. It also includes laws and Government policies instituted by the firm¶s home country which adversely affect the firms that do business in a foreign country. to. 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. country.

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

risks arise due to: 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 ExportExportimport Business (7) Commercial Risks: The risks arising from Risks: suitability of the product for the market or otherwise change in supply and demand conditions and changes in price. Commercial price.

Risk Management in Export-import ExportBusiness (8) Cargo Risk: 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. explosion. collision. It is possible to transfer the etc.  As most goods are transported by marine transport. cost. financial losses resulting from perils of and in transit to professional risk bearers known as underwriters. Exportbusiness. spoilage etc. leakage. theft. every exporter should have an elementary knowledge of marine insurance to get the protection at the minimum cost. underwriters. .

Sixth Edition. 2007 .Cateora and John L. Cases and Readings. New Delhi.A 2004. Sixth Edition. SouthStates.Bhattacharya. Text.S. Delhi. 2006. Published by Prentice Hall. McGrawNew Delhi. (2) International Business Law and its Environment by Richard Schaffer. NREW Delhi. Beverley and Filiberto Augsti. Fourth Edition.Suggested Readings (1) International Marketing Management-an Indian perspective Managementby R. 2004.Jain published by Tata McGraw-Hill Publishing Company Limited. (3) Manual on Export Documentation published by Commercial Law Publishers (India) Private Limited. (7) Export and import Management by Aseem Kumar published by Excel Books. (5) International Marketing by Philips R. 2005 published by Thomson South-Western United States. (4) International Business Law.L Hill and Arun K. Graham published by Tata McGraw Hill (6) International Business by Charles W. 2006 published by Sultan Chand and Sons.L Varshney and B. U. Delhi. 2006.

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