EXPORT RISK MANAGEMENT

• Like any business, risk is associated with Export.

• Risk in international trade is quite different from risks in

domestic trade. Important to analyze risks related to
international trade with extra measure and with proper
risk management system.

• Various types of export risks:

1. Credit Risk
2. Poor Quality Risk
3. Transportation Risk
4. Logistic Risk
5. Legal Risks
6. Political Risk
7. Unforeseen Risks
8. Exchange Rate Risks
 EXPORT RISK MANAGEMENT
1. Credit Risk:

It is difficult for exporter to verify creditworthiness and

reputation of buyer.

Any false buyer can increase risk of non-payment, late

payment or even straightforward fraud.

Necessary for exporter to determine creditworthiness of

foreign buyer.

Exporter can seek help of ECGC to provide assistance in

credit-checking of foreign companies.
2. Poor Quality Risk:
Exported goods can be rejected by importer on basis of
poor quality.

Always properly check goods to be exported.

Sometimes buyer or importer raises quality issue just to put

pressure on exporter in order to try and negotiate lower
price.

Better to allow inspection procedure by independent

inspection company before shipment.

Such inspection protects both importer and exporter.

Inspection is normally done at request of importer and
costs for inspection are borne by exporter or importer or it
may be negotiated to be included in contract price.
3. Transportation Risks: With movement of goods from one
continent to another, or even within same continent,
goods face many hazards.
Risk of theft, damage and possibly goods not even
arriving at all.

4. Logistic Risk: Exporter must understand all aspects of

international logistics, in particular contract of carriage.
This contract is drawn up between shipper and carrier
(transport operator).

5. Legal Risks: International laws and regulations change

frequently.
Important for exporter to draft contract in conjunction
with legal firm, thereby ensuring that exporter's interests
are taken care of.
6. Political Risk: Arises due to changes in government
policies or instability in government sector.
Important for exporter to be aware of policies of foreign
governments - change their marketing tactics and take
necessary steps to prevent loss of business and
investment.

7. Unforeseen Risks: Unforeseen risk such as terrorist

attack or natural disaster
Important that exporter ensure force majeure clause in
export contract.

8. Exchange Rate Risks: Occurs due to uncertainty in

future value of currency.
Exchange risk can be avoided by adopting Hedging
scheme.
 Export Risk Management Plan
Risk management is process of thinking analytically
about all potential undesirable outcomes before they
happen and setting up measures that will avoid them.

There are six basic elements of risk management process:

1. Establishing context
2. Identifying risks
3. Assessing probability and possible consequences of
risks
4. Developing strategies to mitigate these risks
5. Monitoring and reviewing outcomes.
6. Communicating and consulting with parties involved
 Export Risk Mitigation
Export risk mitigations are various strategies that can be
adopted by exporter to avoid risks associated with export of
goods.

• Direct Credit: Export Credit Agencies support exports

through provision of direct credits to either importer or
exporter.
• Importer: buyer credit is provided to the importer to
purchase goods.
• Exporter: makes deferred payment sale; insurance is
used to protect seller or bank.
• Guarantees
• Bid bond (tender guarantee): protects against exporter’s
unrealistic bid or failure to execute contract after winning
bid.
 Export Risk Mitigation
• Performance Bond: guarantees exporter’s
performance after contract is signed.
• Advance Payment Guarantee (letter of
indemnity): in case importer advances funds,
guarantees refund if exporter does not perform.
• Standby Letter of Credit: issuing bank promises
to pay exporter on behalf of importer.
• Insurance
• Transportation Insurance: Covers goods during
transport; degree of coverage varies.
 Export Risk Mitigation

• Credit Insurance: Protects against buyer insolvency or

protracted defaults and/or political risks.

• Seller Non-Compliance (credit insurance): Covers

advance payment risk.

• Foreign Exchange Risk Insurance: Provides a hedge

against foreign exchange risk.

• Hedging
 Export Risk Mitigation
Instruments used to Hedge Price Risk

• Stabilization programs and funds.

• Timing of purchase / sale.

• Fixed price long-term contracts.

• Forward contracts.

• Swaps
 PACKING & LABELING
Important stage after manufacturing of goods or their
procurement is their preparation for shipment which
involves packaging and labeling of goods to be exported.

Proper packaging and labeling not only makes final product

look attractive but also saves huge amount of money by
saving product from wrong handling in export process.

Packaging
Primary role of packaging is to contain, protect and
preserve product as well as aid in its handling and final
presentation.

Packaging also refers to process of design, evaluation, and

production of packages.
 PACKING
Packaging can be done within export company or job can
be assigned to outside packaging company.

Packaging provides following benefits to goods exported:

• Physical Protection – Provides protection against shock,

vibration, temperature, moisture and dust.

• Containment or Agglomeration – Provides agglomeration

of small objects into one package for reason of efficiency
and cost factor.
For example it is better to put 1000 pencils in one box
rather than putting each pencil in separate 1000 boxes.

• Marketing: Proper, attractive, innovative packaging play

important role in encouraging potential buyer.
 PACKING
• Convenience - can have features which add
convenience in distribution, handling, display, sale,
opening, use, and reuse.

• Security - Play important role in reducing security risks of

shipment.

Provides authentication seal to indicate that package

and contents are not counterfeit.

Include anti-theft devices, such as dye-packs, RFID tags,

or electronic article surveillance tags, that can be
activated or detected by devices at exit points and
require specialized tools to deactivate.
 Marking
Like packaging, marking should also be done with extra care.
Important for exporter to be familiar with all kinds of sign
and symbols and should also maintain all national and
international standards while using these symbols.

Should be in English, and words indicating country of origin

Should be as large and as prominent
Marking provides following important information:
• Shipper's mark
• Country of origin
• Weight marking (in pounds and in kilograms)
• Number of packages and size of cases (in inches and
centimeters)
• Handling marks (international pictorial symbols)
• Cautionary markings, such as "This Side Up."
• Port of Entry
• Labels for hazardous materials
• Marking also provides information like how to use,
transport, recycle, or dispose of package or product.
With pharmaceuticals, food, medical, and chemical
products, some types of information are required by
governments.

• Only fast dyes should be used

• Essential data should be in black and subsidiary data in

less conspicuous colour; red and orange and so on.

• For food packed in sacks, only harmless dyes should be

employed, and the dye should not come through
packing in such a way as to affect goods.
 INSPECTION CERTIFICATES &
QUALITY CONTROL
• Important aspect about goods to be exported is
compulsory quality control and pre-shipment inspection.

• For this purpose, Export Inspection Council (EIC) was

set up by Government of India under Section 3 of Export
(Quality Control and Inspection) Act, 1963.

• It includes more than 1000 commodities which are

organized into various groups for a compulsory
pre-shipment inspection.
 INSPECTION CERTIFICATES &
QUALITY CONTROL
• BIS (ISI) Certification: Indian Standards Institute now
known as Bureau of Indian Standard (BIS) is registered
society under Government of India.
BIS main functions include development of technical
standards, product quality and management system
certifications and consumer affairs.
Founded by Professor P.C. Mahalanobis in Kolkata in
1931, institute gained status of Institution of National
Importance by act of Indian Parliament in 1959.

• AgMark Certification: AgMark is acronym for

Agricultural Marketing and is used to certify food
products for quality control.
 INSPECTION CERTIFICATES &
QUALITY CONTROL

• In-Process Quality Control (IPQC): In-Process

Quality Control (IPQC) inspection is mainly done
for engineering products and is applied at
various stages of production.
Factories approved under IPQC system of in-
process quality control may themselves issue
certificate of inspection, but only for products for
which they have been granted IPQC facilities.
Final certificate of inspection on end-products is
then given without in-depth study at shipment
stage.
• Self Certification Scheme: Under self certification
scheme, large exporters and manufacturers are allowed
to inspect their product without involving any other party.

Facility is available to manufacturers of textiles, clothing,

engineering products, chemical and allied products and
marine products.

Self-Certification is given on basis exporter himself is

best judge of quality of his products and will not allow his
reputation to be spoiled in international market by
compromising on quality.

Self-Certification Scheme is granted to exporter for

period of one year.
Exporters with proven reputation can obtain permission
for self certification by submitting application to Director
(Inspection and Quality Control), Export Inspection
Council of India, 11th Floor, Pragati Tower, 26 Rajendra
Place, New Delhi.
 INSPECTION CERTIFICATES &
QUALITY CONTROL

ISO 9000: Established in 1987, ISO 9000 is a series of

international standards that has been accepted worldwide
as norm assuring high quality of goods.
The current version of ISO 9000 is ISO 9000:2000.

Textiles Committee: Inspection, certification

Private Testing & Inspection Agencies: SGS, Intertek

 EXPORT DOCUMENTS
Export from India required special document depending
upon type of product and destination to be exported.

Export Documents not only gives detail about product and

its destination port but are also used for purpose of taxation
and quality control inspection certification.

• Shipping Bill / Bill of Export

• Customs Declaration Form

• Despatch Note

• Commercial Invoice
 EXPORT DOCUMENTS

• Consular Invoice

• Customs Invoice

• Legalised / Visaed Invoice

• Certified Invoice

• Packing List

• Certificate of Inspection
 EXPORT DOCUMENTS
• Black List Certificate

• Manufacturer's Certificate of Chemical Analysis

• Certificate of Shipment

• Certificate of Conditioning

• Antiquity Measurement

• Shipping Order

• Cart/ Lorry Ticket

• Short Shipment Form