Standardized pre-shipment

export documents
Proforma invoice: the contents are similar
to a commercial invoice and is sent as
soon as the order is finalised. Gives
details of merchandise, price, last date of
shipment, and other clauses to be
included in the L/C.
Commercial Invoice: Made for shipment
detailing the qty. / value of goods and
other details.

 Packing List/ weight list: Details the contents in

terms of assortment and weight.
Bill of Exchange: also known as a draft contains
an order from the creditor (exporter) to the debtor
(importer) to pay a specified amount to a person
mentioned therein.
Drawer, Drawee, Payee
It is a negotiable instrument in writing containing an
instruction to a third party to pay a stated amount at
a designated future date or on demand.
Drawn in sets of two, each one bears a reference to
the other. When any of the drafts is paid the second
becomes null and void.

 Bill of Lading/ Airway bill : Is a document

issued by the shipping co. for the cargo
received. It is the most important
document of
1. Title of the goods shipped
2. A receipt of the goods shipped and to
their apparent condition and quantity
3. An evidence of contract for freight.
Clean B/L
Straight and To order B/L- The consignee
can transfer the B/L by endorsement.

 Mates receipt: It is a receipt issued by the

commanding officer of the ship when the
cargo is loaded and contains info. About
the name of vessel, date of shipment,
description of package etc. It is handed
over to Port trust. B/L is paid after mates
receipt is obtained.
GR form: This form has been prescribed
by RBI, to ensure that the foreign
exchange receipts in respect of exports
are repatriated to India. Made in duplicate.

 Shipping Bill: is the main document

required for exports by the customs
authority. It contains description of export
goods. Only after the shipping bill is
stamped by the Customs, cargo is allowed
into the docks.
Certificate of Origin: evidences the origin
of the goods. Issued by Export inspection
agency or a chamber of commerce. Also
called form A .

Terms of Pricing/ Delivery

These are defined in a document by the
ICC, called Incoterms- First issued in
1936 and revised in 1953, 1967, 1976,
1980, 1983, 1990 and 2000.
The most common terms:
Ex- works- or ex- factory. Price includes
packing cost.
Free Carrier: The exporter fulfills his
obligation to deliver when he has handed
over the cleared for export, into the charge

 Of the carrier named by the buyer at the

named place.
Free Alongside Ship: Widely used in other
countries, but in India. The exporter has to
place the cargo alongside the vessel on the
quay and pay all charges up to that point.
Free on Board- FOB- (Name the port of
shipment): price includes all expenses (Exfactory + transportation + up to the cargo
crosses the railing of the ship. Transit
insurance to be covered by buyer/ importer.
CFR or C&F- Cost and Freight- includes FoB

 Price + freight charges + clearing the

goods for shipment. Transit insurance
cover to be taken by the buyer/ importer
Cost Insurance and Freight- CIF: Price
includes all costs up to the buyers/
importers destination abroad.
FoB costs: are costs related to clear the
shipment for exports are normally borne
by the exporter (except for ex-works)- port
charges, customs charges etc.

TERMS OF PAYMENT
Advance payment
Documentary credit: Banks act as a bridge and
in providing assurance in transmitting the
documents and collecting the proceeds (money).
Two types:
D/P : Documents against Payment. Also called
CAD (cash against document): Exporters bank
sends a full set of documents to its
correspondent bank in the buyers country which
will present the documents to the buyer. On
payment of the bill of exchange, the bank
delivers the document for clearing the goods.
These bills are on sight- no credit period.

 D/A : Document against acceptance: The

correspondent bank will submit the bill of
exchange to be signed by the buyer to
indicate his acceptance of his payment
obligation on the due date. On signing on
the face of the bill of exchange the bank
hands over the documents- invoice B/L etc
to the buyer to clear the cargo. D/A bills
are with a credit period called usance
bills.
What are the risks in D/P and D/A: ??
How to cover ?

Documentary Credit under L/C

A letter of credit is a signed instrument
embodying an undertaking by the banker of a
buyer guaranteeing to pay the seller a certain
sum of money on presentation of documents
evidencing shipment of specified goods and
subject to compliance with the stipulated terms
and conditions.
In order to bring uniformity, the ICC has
published a set of rules called: UNIFORM
CUSTOMS AND PRACTICES FOR
DOCUMENTARY CREDIT.

Types of Letter of Credit

At sight and Usance:
Revocable and Irrevocable: The L/C should
state Revocable or Irrevocable.
In the absence of any indication, the
credit will be treated as irrevocable
according to the latest revision of UCPDC
document UCP 500 version amended w.e.f
January 1, 1994.
Confirmed L/ C: To hedge against the
soundness of the buyers bank, the buyer
gets the L/C confirmed for payment.

 The importers bank asks its

correspondent bank to confirm the L/C .
The correspondent bank while advising
the L/c to the buyer, adds a clause:
The above credit is confirmed by us and
we hereby undertake to honour the drafts
drawn under this credit on presentation
provided that all the terms and conditions
of the credit are duly satisfied.
Advantages & disadvantages : ??

If the L/c is not confirmed, the correspondent

bank will add a clause:
This credit is irrevocable on the part of the
issuing bank but is not confirmed by us and
therefore it does not involve any undertaking
on our part.
Revolving L/ C:
Such credit stipulates automatic restoration
of the amount already drawn as soon as the
bills are paid, thus obviating the necessity of
opening a fresh credit for each dispatch.

 Back to Back L/C: (or countervailing credit)

Usually opened to finance an intermediary who
is short of capital but is not willing to divulge to
his overseas buyer the identity of the actual
supplier. A banker issues such a credit in favour
of the actual supplier on the strength of a credit
established by the overseas buyer in favour of
the intermediary (exporter). There will be an
earlier validity date and a smaller amount to
enable the exporter to replace the actual
suppliers invoice by his own and earn a margin
of profit.

Important points to be watched

in a L/C

1. Address of the exporter

2. Expiry date
3. Value Currency and amount.
4. Shipment particulars- partial,
transshipment.
5.Credit period.
6.Indian Govt. regulations: Sending
original B/L directly to the buyer or
handing it over to the master of the vessel.

RISKS IN INTERNATIONAL
TRADE

An exporter may face the following risks in

doing business with an overseas buyer:
Commercial Risks
Political Risks
Credit Risk
Cargo Risk
Risks arising out of foreign law
Exchange fluctuation Risk.

Commercial Risks
Product suitability for the market.
Change in supply & demand.
Change in price.
Happens due to,
Lack of knowledge, greater transit time involved,
situational.
Market may be affected by new competitors.
Prices may change due to import duty, exchange
rate, market situation
Not possible to shift the risk to professional risk
bearers.

 Legal Risks only stipulating in the

contract which law will apply and who will
be the arbitrator.
Cargo Risks- Transit disasters due to
damage, theft, pilferage, storm, collision,
fire etc. Financial losses resulting from
perils of and in transit can be transferred
to professional risk bearers known as
underwriters.- when to insure ?

How to insure
Specific policy- then goods are insured only for a
specific transaction or need.
Open policy- These are insurance contracts
which remain in force until cancelled and under
which individual successive shipments are
declared.
Advantages ?
Risks covered:
Perils of the sea: out of the ordinary wind and
wave action, stranding, lightning, collision, and
damage by sea water when caused by perils.

 Fire: includes both direct fire damage and

also consequential damage.
Assailing thieves.
Jettison- throwing of articles overboard,
usually to lighten the load of the ship
during emergency.
Barratry: willful misconduct of the master
or crew.
Extent of coverage is 110 %

Export Credit Guarantee

Corporation
To help exporters to cover his credit risks
and find finance the Govt. of India has
established ECGC. Export credit
insurance protects exporters from
consequences of payment risks both
political and commercial.
1. Standard policies to protect exporters
against the risk of not receiving payments.

 2. Specific policies designed to protect Indian firms

against payment risks involved in (a) exports, (b).
Service rendered to foreign parties. (c).
Construction works and turnkey projects
undertaken abroad.
3. Financial guarantees issued to banks against
risk involved in providing credit to exporters ate preshipment and post shipment stages.
4. Special schemes: transfer guarantees issued to
protect banks which add confirmation to L/c s, etc.

ECGC STANDARD POLICIES:

Shipment comprehensive risks policySCR policy. -- Ideally suited to cover

both commercial and political risk .
RISKS COVERED ARE:
Commercial Risks:
1. Buyers Insolvency.
2. Buyers failure to pay within a specified
period.
3. Buyers failure to accept the goods
subject to certain conditions.

Political Risks:
1. Imposition of restriction on remittance of
the buyers country or any Govt. action
which may block or delay the transfer of
payment made by the buyer.
2. War, civil war, revolution or civil
disturbance in the buyers country.
3. New import restrictions or canalisation.
4. Interruption or voyage outside India
resulting in additional freight + insurance.

 5. Any other cause of loss occurring outside

India, not normally issued by general insurers
and beyond the control of both the buyer and
exporter.
RISKS NOT COVERED:
(A). Commercial disputes including quality
disputes.
(B). Quality inherent in the nature of the goods.
(C). Insolvency or default of any agent of the
exporter or of the collecting bank.
(D). Loss or damage to goods which can be
covered by general insurance.

(E). Exchange rate fluctuation.

(F). Failure of the exporter to fulfill the terms
of export contract or negligence on his
part.
Shipments Covered:
(Shipment Comprehensive Risk) SCR policy
is meant to cover all the shipments that
may be made by an exporter on credit
terms during a period of 24 months.

Classification of Export
documents:

1.
2.
3.
4.
5.
6.
7.
8.

Principle export documents

Commercial invoice
Packing/ weight list
B/L , AWB etc
Insurance certificate policy
Certificate of inspection
Bill of Exchange.
GSP certificate of origin
Shipping advice

Other documents:

1.
2.
3.

1.
2.
3.
4.

Regulatory documents:
Central Excise: AR 4
Customs: Shipping bill
RBI: GR / PP form
Auxiliary documents:
Proforma invoice.
Letter to bank for negotiation
Application for certificate of origin
Intimation for inspection. , Etc.

Stages in clearing exports:

First stage:
Inform the C & F agent to book space for
shipment.
Clearance by excise authority is to be obtained.
Either pay the excise duty and claim refund after
submitting proof of exports or export under bond
where no duty is to be paid .ARE-1 form.
Cargo transit insurance, ECGC cover ,should be
taken and consignment to be sent to the C & F
agent along with copies of Commercial invoice,
packing / weight list, GR form, Excise ARE1
form,.

2nd Stage:
The C & F agent files the shipping bill with the
customs with details of consignee name
address, vessel name etc.

3rd Stage:
After the shipping bill is passed the C&F agent
presents the port trust copy of shipping bill to the
shed supdt. For getting a carting order. The
cargo is examined by the customs to allow for
exports.

4th Stage: The cargo is then handed over to the

shipping line or airline to obtain the B/L.

 5th Stage:
The C & F agent forwards the following
documents to the exporter for bank
negotiation.
1. Full set of B/L
2. Export promotion copy of shipping bill
3. Custom attested of commercial invoice,
packing list etc.

6th Stage:
The exporter then prepares a set of
documents for negotiation with the bank.