presentation on export- import documentation and risk management in export-import business

Presentation on Export-Presentation on Export-Import Documentation Import Documentation

and Risk Management in and Risk Management in Export-Import BusinessExport-Import Business

Role of Export DocumentationRole of Export Documentation Export documentation plays a vital role in Export documentation plays a vital role in

international marketing as it facilitates the international marketing as it facilitates the smooth flow of goods and payments thereof smooth flow of goods and payments thereof across national frontiers.across national frontiers.

Exporters are required to follow certain Exporters are required to follow certain formalities and procedures, using a number of formalities and procedures, using a number of documents.documents.

Each of these documents serves a specific Each of these documents serves a specific purpose and hence carries its own significance.purpose and hence carries its own significance.

A clear understanding of all documents and A clear understanding of all documents and their purpose, how to prepare these, number of their purpose, how to prepare these, number of copies required, when and where to file, is a copies required, when and where to file, is a must for all export professionals. must for all export professionals.

Export Documentation in IndiaExport Documentation in India Export Documentation in India has evolved a Export Documentation in India has evolved a

great deal of interest since 1990.great deal of interest since 1990. Efforts are on, at a faster footing to Efforts are on, at a faster footing to

streamline and modernize the system further. streamline and modernize the system further. Prior to 1990, documentation was manual Prior to 1990, documentation was manual

and it lacked proper co-ordination.and it lacked proper co-ordination. The result was lot of delays and mistakes, The result was lot of delays and mistakes,

rendering the task very clumsy, tiresome, rendering the task very clumsy, tiresome, repetitive, and truly frustrating. repetitive, and truly frustrating.

India adopted the ADS (Aligned India adopted the ADS (Aligned Documentation System) in 1991 which is the Documentation System) in 1991 which is the Internationally accepted documentation Internationally accepted documentation system system

Export Documentation in IndiaExport Documentation in India Export documentation is complex in nature as Export documentation is complex in nature as

the number of documents to be filled-in is the number of documents to be filled-in is very large, so also is the number of the very large, so also is the number of the concerned authorities to whom the relevant concerned authorities to whom the relevant documents to be submitted. It is, therefore, documents to be submitted. It is, therefore, advisable to take the help of shipping and advisable to take the help of shipping and forwarding agents who will obtain and fill out forwarding agents who will obtain and fill out the documents correctly as well as arrange for the documents correctly as well as arrange for transportation.transportation.

There are buyers and exporters, buying There are buyers and exporters, buying agents, RBI, authorized dealers (where the agents, RBI, authorized dealers (where the exporter has his bank Account), buyer’s bank exporter has his bank Account), buyer’s bank (foreign bank), DGFT, Customs and Port (foreign bank), DGFT, Customs and Port Authorities, VAT and Excise Authorities, EPC’s, Authorities, VAT and Excise Authorities, EPC’s, Insurance Companies, Inspection Agencies, Insurance Companies, Inspection Agencies, Clearing and Forwarding Agents, Shipping Clearing and Forwarding Agents, Shipping Companies/Airlines and Inland Carriers etc Companies/Airlines and Inland Carriers etc

Export Documentation in IndiaExport Documentation in India

Proper Documentation will ensure smooth sailing Proper Documentation will ensure smooth sailing with the requirements of the above agencies and with the requirements of the above agencies and the resulting transaction will be a successful one.the resulting transaction will be a successful one.

Inaccurate or incomplete documentation will result Inaccurate or incomplete documentation will result in serious financial and goodwill losses.in serious financial and goodwill losses.

Such losses can be completely avoided by Such losses can be completely avoided by understanding clearly the documentation understanding clearly the documentation requirements of all concerned parties and then requirements of all concerned parties and then meticulously planning to get the right documents meticulously planning to get the right documents in the right numbers, at the right places and at the in the right numbers, at the right places and at the right time. right time.

Classification of Export DocumentsClassification of Export Documents

Export Documents can be classified into Export Documents can be classified into following four categories:following four categories:

(1) Commercial Documents(1) Commercial Documents

(2) Regulatory Documents(2) Regulatory Documents

(3) Export Assistance Documents(3) Export Assistance Documents

(4) Documents Required by Importing Countries(4) Documents Required by Importing Countries

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


Commercial documents can be further sub-Commercial documents can be further sub-divided into:divided into:

(i) Principal Commercial Documents(i) Principal Commercial Documents

(ii) Auxiliary Commercial Documents (ii) Auxiliary Commercial Documents

(i) Principal Commercial Documents: (i) Principal Commercial Documents: These documents serves the following These documents serves the following purposes:purposes:

(a) To effect physical transfer of goods and (a) To effect physical transfer of goods and title of the goods from exporter to the title of the goods from exporter to the buyer.buyer.

(b) To realize export sales proceeds.(b) To realize export sales proceeds.

Classification of Export DocumentsClassification of Export DocumentsPrincipal Documents include:Principal Documents include: Commercial Invoice (and the invoice Commercial Invoice (and the invoice

prescribed by the importer)prescribed by the importer) Packing listPacking list Certificate of InspectionCertificate of Inspection Certificate of Insurance/Insurance PolicyCertificate of Insurance/Insurance Policy Bill of Lading/Airway bill/Combined Transport Bill of Lading/Airway bill/Combined Transport

DocumentsDocuments Certificate of OriginCertificate of Origin Bill of ExchangeBill of Exchange Shipment AdviceShipment Advice

Classification of Export DocumentsClassification of Export Documents(ii) Auxiliary Commercial Documents: (ii) Auxiliary Commercial Documents: These These

Documents are required to prepare /procure the Documents are required to prepare /procure the principal commercial documents and include:principal commercial documents and include:

Proforma InvoiceProforma Invoice Shipping InstructionsShipping Instructions Insurance DeclarationInsurance Declaration Intimation for InspectionIntimation for Inspection Shipping OrderShipping Order Mates ReceiptMates Receipt Application for Certificate of OriginApplication for Certificate of Origin Letter to bank for negotiation /collection of Letter to bank for negotiation /collection of

documentsdocuments

Classification of Export DocumentsClassification of Export Documents(2) Regulatory Documents: (2) Regulatory Documents: These are These are

prescribed by various Government prescribed by various Government Departments/Bodies for compliance of Departments/Bodies for compliance of formalities under relevant laws governing formalities under relevant laws governing export transactions. These include: export transactions. These include:

(i) Exchange Control Declaration Form-GR Form(i) Exchange Control Declaration Form-GR Form(ii) Freight Payment Certificate(ii) Freight Payment Certificate(iii) Insurance Premium Payment Certificate(iii) Insurance Premium Payment Certificate(iv) ARE I/ARE II Forms(iv) ARE I/ARE II Forms(v) Shipping Bill/Bill of Export(v) Shipping Bill/Bill of Export(vi) Port Trust Copy of Shipping Bill/Export (vi) Port Trust Copy of Shipping Bill/Export

Application/Dock ChallanApplication/Dock Challan(vii) Receipt of Payment of Port Charges(vii) Receipt of Payment of Port Charges(viii) Vehicle Ticket. (viii) Vehicle Ticket.


(3)(3) Export Assistance DocumentsExport Assistance Documents: These : These are the documents which are required for are the documents which are required for claiming assistance under the various export claiming assistance under the various export assistance measures as may be in operation assistance measures as may be in operation from to time. Currently, these refer to from to time. Currently, these refer to drawbacks of central excise and customs drawbacks of central excise and customs duties, packing credit facilities etcduties, packing credit facilities etc

(4)(4) Documentation required by Importing Documentation required by Importing Countries:Countries: These are the documents which These are the documents which are required by the importer in order to are required by the importer in order to satisfy the requirements of his Government. satisfy the requirements of his Government. These include certificates of origin, consular These include certificates of origin, consular invoice, quality control certificate etc. invoice, quality control certificate etc.

Commercial DocumentsCommercial Documents(1) Commercial Invoice(1) Commercial Invoice: : It is the basic and most important document in It is the basic and most important document in

an export transaction and extreme care has to an export transaction and extreme care has to be taken by the exporter to prepare this be taken by the exporter to prepare this document. document.

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

Commercial DocumentsCommercial Documents Therefore, a Commercial Invoice contains Therefore, a Commercial Invoice contains

the complete details of the export order.the complete details of the export order. Normally, the trade practice is to raise and Normally, the trade practice is to raise and

send a Proforma Invoice to the buyer for send a Proforma Invoice to the buyer for his approval, once the order has been his approval, once the order has been finalized.finalized.

On receipt of the approved Proforma On receipt of the approved Proforma Invoice, the exporter can use it as a part of Invoice, the exporter can use it as a part of the export contract.the export contract.

The Commercial Invoice then becomes The Commercial Invoice then becomes easier to prepare on the basis of the easier to prepare on the basis of the approved Proforma Invoice. approved Proforma Invoice.

Commercial DocumentsCommercial Documents(2) Packing List: (2) Packing List: This document provides the details of number This document provides the details of number

of packages; quantity packed in each of of packages; quantity packed in each of them; the weight and measurement of each them; the weight and measurement of each of the package and the net and gross weight of the package and the net and gross weight of the total consignment.of the total consignment.

Net weight refers to the actual weight of the Net weight refers to the actual weight of the items and the gross weight means the weight items and the gross weight means the weight of the items plus the weight of the packing of the items plus the weight of the packing material.material.

The packing list serves a useful purpose of The packing list serves a useful purpose of the exporter while dispatching the the exporter while dispatching the consignment as a cross check of goods sent. consignment as a cross check of goods sent.

Commercial DocumentsCommercial Documents For the port personnel, it comes handy while For the port personnel, it comes handy while

planning the loading and offloading of cargo.planning the loading and offloading of cargo. It is also an essential document for the customs It is also an essential document for the customs

authorities as they as they can carry out the authorities as they as they can carry out the physical examination of the cargo and conduct physical examination of the cargo and conduct checks on the weight and measurements of the checks on the weight and measurements of the goods smoothly against the declarations made goods smoothly against the declarations made by the exporter in the packing list.by the exporter in the packing list.

(3) Certificate of Inspection: (3) Certificate of Inspection: This is the This is the Certificate issued by the Export Inspection Certificate issued by the Export Inspection Agency after it has conducted the pre-shipment Agency after it has conducted the pre-shipment inspection of goods for export provided the inspection of goods for export provided the goods fall under the notified category of goods goods fall under the notified category of goods requiring compulsory shipment of inspection. requiring compulsory shipment of inspection.

Commercial DocumentsCommercial Documents(4) Certificate of Insurance/Insurance (4) Certificate of Insurance/Insurance

Policy:Policy: Insurance is an important area in the export Insurance is an important area in the export

business as the stakes are usually very high.business as the stakes are usually very high. Protection needs to be taken in the form of Protection needs to be taken in the form of

insurance cover for the duration of transit of insurance cover for the duration of transit of goods from the exporter to the importer.goods from the exporter to the importer.

(5) Bill of Lading: (5) Bill of Lading: This is issued when the goods are shipped This is issued when the goods are shipped

using ocean (marine) transport. using ocean (marine) transport. When the exporter finally hand over the When the exporter finally hand over the

goods to the shipping company for loading goods to the shipping company for loading on board the ship for transport to their final on board the ship for transport to their final destination, the shipping company issues a destination, the shipping company issues a set of Bills of Lading to the exporter. set of Bills of Lading to the exporter.

Commercial DocumentsCommercial Documents(6) Airway Bill: (6) Airway Bill: Airway Bill is a bill of lading when the goods Airway Bill is a bill of lading when the goods

are shipped using air transport. are shipped using air transport. It is also known as air consignment note or It is also known as air consignment note or

airway bill of lading. airway bill of lading.

(7) Combined Transport Document: (7) Combined Transport Document: This is also known as Multi-modal Transport This is also known as Multi-modal Transport

Document. Document. Ever since containers have become popular, Ever since containers have become popular,

the concept of Combined Transport the concept of Combined Transport Document has gained solid ground. Document has gained solid ground.

Commercial DocumentsCommercial Documents(8) Certificate Of Origin:(8) Certificate Of Origin: This document serves as a proof of the This document serves as a proof of the

country of origin of goods for the importer in country of origin of goods for the importer in his country.his country.

Imported countries usually require this to be Imported countries usually require this to be produced at the time customs clearance of produced at the time customs clearance of import cargo.import cargo.

It also plays an important part in computing It also plays an important part in computing the liability and the rate of import duty in the liability and the rate of import duty in the country of import.the country of import.

This certificate declares the details of goods This certificate declares the details of goods to be shipped and the country where these to be shipped and the country where these goods are grown, manufactured or produced.goods are grown, manufactured or produced.

Such goods needs to have substantial value Such goods needs to have substantial value addition so as to become eligible to addition so as to become eligible to certification of this nature. certification of this nature.

Commercial DocumentsCommercial Documents(9) Bill of Exchange: (9) Bill of Exchange: Also known as Draft, this is an instruments for Also known as Draft, this is an instruments for

payment realization. payment realization. It is a written unconditional order for payment It is a written unconditional order for payment

from a drawer to a drawee, directing the from a drawer to a drawee, directing the drawee to pay a specified amount of money in drawee to pay a specified amount of money in a given currency to the drawer or a named a given currency to the drawer or a named payee at a fixed or determinable future date. payee at a fixed or determinable future date.

The exporter is the drawer and he draws The exporter is the drawer and he draws (prepares and signs) this unconditional order (prepares and signs) this unconditional order in writing upon the importer (drawee) asking in writing upon the importer (drawee) asking him to pay a certain sum of money either to him to pay a certain sum of money either to himself or his nominee (endorsee).himself or his nominee (endorsee).

Commercial DocumentsCommercial Documents This order could be made for payment on This order could be made for payment on

demand, called a bill of exchange at sight or demand, called a bill of exchange at sight or payment at a future date, called a usance bill payment at a future date, called a usance bill of exchange.of exchange.

(10) Shipping Advice: (10) Shipping Advice: The exporter sends this document , called The exporter sends this document , called

shipping advice, to the buyer soon after the shipping advice, to the buyer soon after the shipment is made to provide him all the shipment is made to provide him all the shipment details. shipment details.

This serves as an advance intimation of the This serves as an advance intimation of the shipment and allows the importer to arrange shipment and allows the importer to arrange for delivery of the same. for delivery of the same.

Risk Management in Export-Risk Management in Export-import Businessimport Business

Risk is a fact of business life, more so of Risk is a fact of business life, more so of international business. international business.

The Management of International business is The Management of International business is the management of risk. the management of risk.

No manager can make a strategic business No manager can make a strategic business decision or enter into important business decision or enter into important business transaction without a full evaluation of the transaction without a full evaluation of the risks involved.risks involved.

Many of the best business plans have been Many of the best business plans have been ruined by a miscalculation or a mistake, or ruined by a miscalculation or a mistake, or an error in judgment that could have been an error in judgment that could have been avoided with proper planning.avoided with proper planning.


If the risk cannot be reduced through If the risk cannot be reduced through advance planning and careful execution, advance planning and careful execution, perhaps it can be shifted to some other perhaps it can be shifted to some other party to the transaction.party to the transaction.

If the risk cannot be shifted to another If the risk cannot be shifted to another party to the transaction, it might be shifted party to the transaction, it might be shifted to an insurance company. to an insurance company.

Many types of risks can be insured against, Many types of risks can be insured against, including the risk of damage to the goods including the risk of damage to the goods at sea, the risk of loosing an investment in at sea, the risk of loosing an investment in a developing country and many others.a developing country and many others.


(1) Risk Assessment and the Firm’s (1) Risk Assessment and the Firm’s Foreign Market Entry Strategy:Foreign Market Entry Strategy:

When a firm is considering its entry or When a firm is considering its entry or expansion in a foreign market, it must expansion in a foreign market, it must consider all options and decide on a consider all options and decide on a course of action commensurate with its course of action commensurate with its objectives, capabilities and its willingness objectives, capabilities and its willingness to assume risk.to assume risk.

Selling to a customer in another country Selling to a customer in another country results in less risk to the firm than results in less risk to the firm than licensing trademarks, patents and licensing trademarks, patents and copyrights there.copyrights there.


(2) Managing Distance and (2) Managing Distance and Communications: Communications:

The risks of doing business in a foreign The risks of doing business in a foreign country are different from those encountered country are different from those encountered at home. at home.

A firm doing business in a foreign country A firm doing business in a foreign country would encounter greater distances; problems would encounter greater distances; problems in communications; language and cultural in communications; language and cultural barriers; differences in ethical, moral and barriers; differences in ethical, moral and religious codes; exposure to strange foreign religious codes; exposure to strange foreign laws and government regulations; and laws and government regulations; and different currencies.different currencies. All these factors affect All these factors affect the risks of doing business abroad.the risks of doing business abroad.


(3) Managing Currency and Exchange Rate (3) Managing Currency and Exchange Rate Risks: Risks:

Currency risk is risk a firm is exposed to as a Currency risk is risk a firm is exposed to as a result of buying, selling, or holding a foreign result of buying, selling, or holding a foreign currency. Currency risk includes:currency. Currency risk includes:

(i) Exchange Rate Risk(i) Exchange Rate Risk

(ii) Currency Control Risk(ii) Currency Control Risk

(i) Exchange Rate Risk: (i) Exchange Rate Risk: Exchange rate risk Exchange rate risk results from the fluctuations in the relative results from the fluctuations in the relative values of the foreign currencies against each values of the foreign currencies against each other when they are bought and sold on other when they are bought and sold on international financial markets. international financial markets.


(ii) Currency Control Risk:(ii) Currency Control Risk: Some countries, particularly developing Some countries, particularly developing

countries where access to ready foreign countries where access to ready foreign reserve is limited, put restrictions on currency reserve is limited, put restrictions on currency transactions.transactions.

In order to preserve the little foreign exchange In order to preserve the little foreign exchange that is available for international transactions, that is available for international transactions, such as importing merchandise, these countries such as importing merchandise, these countries restrict the amount of foreign currency that restrict the amount of foreign currency that they will sell to private companies. they will sell to private companies.

This limitation can cause problems for a U.S or This limitation can cause problems for a U.S or any other country exporter waiting for payment any other country exporter waiting for payment from its foreign customer who cannot obtain from its foreign customer who cannot obtain the dollars needed to pay for the goods.the dollars needed to pay for the goods.


(4) Special Transactions Risks in Contracts (4) Special Transactions Risks in Contracts for the Sale of Goods: for the Sale of Goods:

Special risks are inherent in international Special risks are inherent in international transactions for the purchase and sale of goods.transactions for the purchase and sale of goods.

These transactions present special risks to both These transactions present special risks to both the parties because the process of shipping the parties because the process of shipping goods and receiving payment between distant goods and receiving payment between distant countries is riskier than within a country.countries is riskier than within a country. Such Such risks are:risks are:

(i) Payment or Credit Risk(i) Payment or Credit Risk(ii) Property or Marine Risk(ii) Property or Marine Risk(iii) Delivery Risk(iii) Delivery Risk(iv) Pilferage and Theft Risk (iv) Pilferage and Theft Risk


(5) Managing Political Risk:(5) Managing Political Risk: Political Risk is generally defined as the risk Political Risk is generally defined as the risk

to a firm’s business interests arising form to a firm’s business interests arising form political instability or political change in a political instability or political change in a country in which the firm is doing business.country in which the firm is doing business.

Political Risk includes risk derived from Political Risk includes risk derived from potentially adverse actions of Governments potentially adverse actions of Governments of the foreign countries in which one is doing of the foreign countries in which one is doing business or whose laws and regulations one business or whose laws and regulations one is subject to.is subject to.

It also includes laws and Government It also includes laws and Government policies instituted by the firm’s home country policies instituted by the firm’s home country which adversely affect the firms that do which adversely affect the firms that do business in a foreign country. business in a foreign country.


(6)(6) Risks of Foreign Laws and Courts: Risks of Foreign Laws and Courts: Many Acts that are perfectly legal in one Many Acts that are perfectly legal in one

country can be illegal in another.country can be illegal in another. Indeed, Indeed, most travelers to a foreign country could most travelers to a foreign country could conceivably break a host of laws and not conceivably break a host of laws and not even be aware of it. even be aware of it.

The same is true for the law of contracts, The same is true for the law of contracts, employment, competition, torts and other employment, competition, torts and other business laws.business laws.

It is virtually impossible to catalog all of the It is virtually impossible to catalog all of the differences between these laws from country differences between these laws from country to country to country


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

(i) Lack of Knowledge(i) Lack of Knowledge (ii) Inability to adapt to the environment(ii) Inability to adapt to the environment (iii) Different kinds of situations to be dealt (iii) Different kinds of situations to be dealt

withwith (iv) Greater transit time involved(iv) Greater transit time involved


(8) Cargo Risk: (8) Cargo Risk: Transit disasters are an ever present hazard Transit disasters are an ever present hazard

for those engaged in Export-Import business. for those engaged in Export-Import business. Every shipment runs the risk of a long list of Every shipment runs the risk of a long list of

hazards such as storm, collision, theft, hazards such as storm, collision, theft, leakage, explosion, spoilage etc.leakage, explosion, spoilage etc. It is possible It is possible to transfer the financial losses resulting from to transfer the financial losses resulting from perils of and in transit to professional risk perils of and in transit to professional risk bearers known as underwriters. bearers known as underwriters.

As most goods are transported by marine As most goods are transported by marine transport, every exporter should have an transport, every exporter should have an elementary knowledge of marine insurance to elementary knowledge of marine insurance to get the protection at the minimum cost. get the protection at the minimum cost.

Suggested ReadingsSuggested Readings(1) International Marketing Management-an Indian (1) International Marketing Management-an Indian

perspective by R.L Varshney and B.Bhattacharya, Sixth perspective by R.L Varshney and B.Bhattacharya, Sixth Edition, 2006 published by Sultan Chand and Sons, New Edition, 2006 published by Sultan Chand and Sons, New Delhi.Delhi.

(2) International Business Law and its Environment by (2) International Business Law and its Environment by Richard Schaffer, Beverley and Filiberto Augsti, Sixth Richard Schaffer, Beverley and Filiberto Augsti, Sixth Edition, 2005 published by Thomson South-Western United Edition, 2005 published by Thomson South-Western United States.States.

(3) Manual on Export Documentation published by (3) Manual on Export Documentation published by Commercial Law Publishers (India) Private Limited, NREW Commercial Law Publishers (India) Private Limited, NREW Delhi, 2006.Delhi, 2006.

(4) International Business Law, Text, Cases and Readings, (4) International Business Law, Text, Cases and Readings, Fourth Edition, 2004. Published by Prentice Hall, U.S.AFourth Edition, 2004. Published by Prentice Hall, U.S.A

(5) International Marketing by Philips R.Cateora and John L. (5) International Marketing by Philips R.Cateora and John L. Graham published by Tata McGraw Hill Graham published by Tata McGraw Hill

(6) International Business by Charles W.L Hill and Arun K.Jain (6) International Business by Charles W.L Hill and Arun K.Jain published by Tata McGraw-Hill Publishing Company published by Tata McGraw-Hill Publishing Company Limited, New Delhi.Limited, New Delhi.

(7) Export and import Management by Aseem Kumar (7) Export and import Management by Aseem Kumar published by Excel Books, 2007 published by Excel Books, 2007

presentation on export- import documentation and risk management in export-import business

Documents

india export documentation

right documents

number of documents

export assistance documents

export import documentation

documentation requirements

commercial documents

relevant documents