Physical Exports: If the goods physically go out of the country or services are rendered outside the country then it is called as physical export.
Deemed Exports: Where the goods do not go out of the country physically they can be termed as deemed exports. This will be subject to certain conditions as prescribed by the DGFT. Under Deemed Exports, the goods may be supplied to the manufacturer exporter who ultimately export a finished product of which this supply forms a part and ultimately go out of the country.
E.g. Supply of fabrics to the garment exporter who exports the garments made out of the said fabric.
The government may announce from time to time the types of supplies that may be considered as deemed export. The Foreign Trade Policy gives the list of supplies considered under the Deemed Export Category. The policies and procedures are different for Physical Exports and Deemed Exports as also the benefits available. In a nutshell, Deemed Exports do not enjoy all the benefits that are available under Physical Export.
The Foreign Trade defines exports as taking out of India any goods by land, sea, air. Although the act does not term them as “Physical Exports”, we have to put phrase to distinguish it from “Deemed Exports” which is sales in India but considered as exports for limited purpose. Types of Exporters:
Exporters can be basically classified into two groupsManufacturer Exporter: As the exporter has the facility to manufacturer the product he intends to export and hence he exports the products manufactured by him.
Merchant Exporter: An exporter who does not have the facility to manufacture an item. But, he procures the same from other manufacturers or from the market and exports the same.
An exporter can be both a manufacturer exporter as well as a merchant exporter, he can export product manufactured by him or he can export items bought from the market. Once it is decided to export, it is mandatory on your part to follow certain procedures, rules and regulations as prescribed by various regulatory authorities such as DGFT, RBI, and Customs. These procedures, rules and regulations are laid down in the Exim Policy 2004-09, Exchange Control Manual, Customs Act etc. Accordingly Export documents are required to be prepared keeping in view of the requirement of the foreign buyers and our regulatory authorities.
What Incoterms Rules Are
11 terms of shipment and delivery provided by the International Chamber of Commerce for use in contracts for the business-to-business sales/purchases of tangible, portable goods, for implementation 1/1/11.
Legacy to a long tradition of international use since 1936.
Written to reflect rather than dictate trade practice.
Always abbreviated by a three character English language acronym.
Always accompanied by a geographic place – the more precise the better.
Updated to reflect current trade practice
Used exclusively in sales/purchase contracts (we’ll call these “sales contracts”).
Increasingly considered as a replacement for the former Uniform Commercial Code shipment and delivery terms (UCC§2-319 through §2-324)
What Incoterms Rules Aren’t
Law. They must be specified in order to apply.
All inclusive cannot address such issues as customary operations of carriers, ports, trades, government regulations, etc.
What Incoterms Rules Do
Divide costs, risks and responsibilities between sellers and buyers.
Guide one or the other party into subsidiary contracts required to fulfill designated tasks such as contracts of carriage and contracts of insurance.
What Incoterms Rules Don’t Do
Address passage of title.
Address recognition of revenue.
Address remedies for breach of contract.
Address more than one contract. (drop shipments)
Refer to “ship’s rail” which changes the delivery point for FOB, CFR, CIF. Incoterms® is a registered trademark of the International Chamber of Commerce, registered in several countries and used with permission.
Delivery: indicates where the risk of loss passes from seller to buyer. Shipment contract – a type of sales/purchase contract under which the seller’s responsibility ends when the contract goods have been handed over to a carrier (i.e., the seller delivers by shipping). EXW, FCA, FAS, FOB, CPT, CIP, CFR and CIF Incoterms rules are used in shipment contracts. Arrival contract: – a type of sales/purchase contract under which the seller’s responsibility ends when the goods have arrived at the agreed place (i.e., the seller delivers when goods arrive). DAT, DAP and DDP Incoterms® rules are used in arrival contracts.
Liner terms: – carrier loads and unloads vessel (used with waterborne transport). Ex Works (EXW) + Named Place (place where the shipment originates – usually the seller’s premises) Breakdown: Seller: have goods available when promised and packaged to the extent known or agreed. Buyer: everything else (pre-carriage, export clearance, main carriage, import clearance, on-carriage) Free Carrier (FCA) + Named Place (either place where shipment originates – usually the seller’s premises or another place on the seller’s side.) Breakdown:
A) When accompanied by the place where the shipment originates Seller: have goods available when promised, packaged to the extent known or agreed, load collecting vehicle, export clearance.
Buyer: everything else (pre-carriage, main carriage, import clearance, on-carriage) B) When accompanied by another place on the seller’s side
Seller: have goods available when promised, packaged to the extent known or agreed, load delivering vehicle, pre-carriage, export clearance.
Buyer: everything else (unload delivering vehicle, main carriage, import clearance, on-carriage) Carriage Paid To (CPT) + Named Place (on the buyer’s side) Breakdown: Seller: deliver the goods appropriately packaged to the carrier for transportation to the named place of destination and pay all transport costs thereto. (The seller delivers at the first carrier unless specified otherwise in the sales contract.), export clearance.
Buyer: unloading, import clearance, on carriage
Carriage And Insurance Paid To (CIP) + Named Place (on the buyer’s side) Breakdown: Seller: as with CPT except seller must also provide at least minimum cover insurance in such a manner that the buyer can claim directly from the insurer
Buyer: unloading, import clearance, on carriage
Delivered At Terminal (DAT) + Named Place (terminal on buyer’s side) Breakdown: Seller: export clearance, deliver the goods appropriately packaged and unloaded at the named destination terminal and pay all transport costs thereto. Buyer: import clearance, on carriage
Delivered At Place (DAP) + Named Place (on the buyer’s side) Breakdown: Seller: export clearance, deliver the goods appropriately packaged at the named destination and pay all transport costs thereto.
Buyer: unloading, import clearance, on carriage
Delivered Duty Paid (DDP) + Named Place (on the buyer’s side) Breakdown: Seller: export clearance, deliver the goods appropriately packaged and cleared for import at the named destination and pay all transport costs thereto.
Buyer: unloading, on carriage
Free Alongside Ship (FAS) + Named Place (alongside a vessel at port on the seller’s side) Breakdown: Seller delivers goods appropriately export packed alongside the buyer-designated vessel at the port on the seller’s side, export clearance.
Buyer: everything else (vessel loading, main carriage, import clearance, on carriage) Free On Board (FOB) + Named Place (loaded on a vessel at a port on the seller’s side) Breakdown: Seller delivers goods appropriately export packed on board the buyer-designated vessel at the port on the seller’s side, export clearance.
Buyer: everything else (main carriage, import clearance, on carriage) Cost And Freight (CFR) + Named Place (a port on the buyer’s side) Breakdown: Seller delivers goods appropriately export packed on board the seller-designated vessel at the port on the seller’s side and pays transportation costs to the agreed port on the buyer’s side, export clearance.
Buyer: everything else (vessel unloading import clearance, on carriage) Cost Insurance And Freight (CIF) + Named Place (a port on the buyer’s side) Breakdown: Seller: as with CFR except seller must also provide at least minimum cover insurance in such a manner that the buyer can claim directly from the insurer
Buyer: everything else (vessel unloading import clearance, on carriage)
You are the exporter. Your factory is situated 100 km from the port. Products can be moved by rail to port for loading, port facilities are good. Insurance is easily arranged. Your country is stable. Ships are available for shipment. What delivery terms would you suggest for sales of your product for the following countries.
Efficient inland transportation
Known for labor dispute
Excellent inland transportation
Port congestion from 10 to 90 days
Good port facilities
Efficient inland transportation
Buyer not reliable
None of the above disadvantages
Country is stable
Buyer is reliable
Invoice: includes value of the cargo, details related to payment, customs duties, insurance claims, declaration of permits and L/C negotiations
Types of invoices:
• Commercial invoice
• Proforma invoice
• Consular invoice
• Customs invoice
• Non-commercial value invoice
Packing list: This statement gives the packing details of the goods in prescribed format. It is very useful document for customs at the time of examination and warehouse keeper of the buyer to maintain a record of inventory and to effect delivery.
Certificate of origin: The certificate issued by local chamber of commerce indicates that the goods which are being exported are actually manufactures in a specific country mentioned therein. It is sent by the exporter to the importer and is useful for clearance of goods from the customs authority of importing country.
Bill of Lading (B/L): The document issued by shipping company acknowledging the receipt of goods mentioned in the bill for shipment on board or vessel.
The B/L is the legal document to be referred in case of any dispute over the shipment. B/L can be a negotiable document. It contains:
• The shipping company’s name and address
• The consignees name and address
• The port of loading and port of discharge
• Shipping marks and particulars
• Number of packages and goods
• Gross weight and net weight
• Freight details and name of the vessel
• Signature of the shipping company’s agent Common types of B/L
• Clean dirty stale
• Combine transport
Airway Bill: The receipt issued by Airlines Company or its agent for carriage of goods is a contract between the owner of the goods and the carrier. It is a proof of receipt/booking, does not specify loading.
Shipping guarantee (if necessary): Shipping Guarantee is given by the buyer in support of clearing cargo with put B/L. It also protects the carrier against any fraud and indemnify against any claims.
Cargo insurance is the document obtained from the freight forwarder used to assure the consignee that insurance will cover the loss of damage to the cargo during transit. Reasons for Insurance:
Protection against risk
Prevent financial loss
Requirement by bank e.g. L/C term
Selling on certain term e.g. CIF
Carrier limited liability
Reduced business anxiety
Documents necessary for claim:
Company’s cover letter
Original B/L or AWB
Landing Account (unloading/discharge report)
1. Document Against Payment (D/P): Supplier ship goods and forward bill of exchange to buyer’s bank through his own bank. No credit involved and buyer obtain title of goods after payment.
2. Document Against Acceptance (D/A): Supplier ship goods and forward bill of exchange to buyer’s bank through his own bank. Credit period involved and buyer obtain title of goods before payment.
Letter of credit (L/C) It is the letter of undertaking by importer’s bank to pay overseas exporter against exporter’s shipping document. Shipping document must strictly adhere to the terms and conditions of the L/C.
Sales contract between seller and buyer
Buyer open L/C with the issuing bank
Issuing bank sends L/C to advising bank
Advising bank sends L/C to seller
Seller ship cargo
Seller presents documents to negotiation bank for payment
Negotiating bank checks documents and forward to issuing bank Issuing bank checks and pay to negotiating bank
Negotiating bank pays to Seller
Buyer pays issuing bank
Issuing bank releases shipping documents to buyer
Buyer uses issuing documents to clear cargo
Types of L/C:
Back to back
Bank control and hold title to goods
Seller receives payment before buyer receives goods
Over reliance on shipping documentation
No physical inspection of goods
Bank not familiar with shipping practices
Subject to fraud
ADVANTAGES OF EXPOT BUSINESS
Creating goodwill between nations with divergent interests.
Exchange of goods unavailable overseas
Enhance domestic competitiveness
Increase sales and profits
Gain global market share
Exploit corporate technology and know-how
Extend sales potential of existing product
Stabilize seasonal market fluctuations
Enhance potential for corporate expansion
Sell excess production capacity
Gain information about foreign competition
CHALLENGES IN EXPOT BUSINESS
Political and commercial risk
Compliance to foreign regulations and standards
cultural and language differences
Non payment by foreign buyer
Currency exchange rates
Damage to goods in transit
intellectual property rights