“A Study on Exporting Procedures and Documentation”

Is a bonafide record of work done by,

TOM JOSEPH

Submitted by

(Reg No.15P25L0111)

In partial fulfilment of the requirement for the award of the degree of Bachelor of Business
Administration in Logistics and Shipping

Under the Guidance of

Ms. Saranya A.R., M.B.A., M.phil.

Indian Institute of Logistics

Bachelor of Business Administration in Logistics and Shipping

DECLARATION

I hereby declare that the project work entitled “A Study on exporting procedures and
documentations” at Seaways Maritime & Transport Agencies Pvt Ltd in partial
fulfilment of the requirement for the award of the degree of Bachelor of Business
Administration (BBA) is a record of original research work done by me under the guidance
of Ms. Saranya A.R, M.B.A., and M.Phil.

Place: Kochi

Date:

NAME: TOM JOSEPH

(Reg No.15P25L0111)

ACKNOELEDGEMENT

The success of this project lies in the hands of many great persons. I take this opportunity to
tanks them all.

I thank the Lord almighty for giving me the courage and wisdom to take up this project and
complete it successfully.

I express my gratitude to Capt.V.T. Pushpa kumar, M.Sc, LLB, FICS,

Director, IIL for granting me necessary permission to take up this study.

I wish to express my sincere gratitude and thanks to Co-ordinates for his advice and timely
encouragement to complete my project.

I express my deep sense of gratitude and indebtedness to my guide, Ms. Saranya.A.R.

M.B.A., M.phil for his careful guidance and help at each and every step throughout the
preparation of this project work.

I also owe my heart felt tanks to Mr.Nirav Doolani, Seaways Maritime & Transport
Agencies Pvt Ltd for synthesizing the concepts and also providing me the details that form a
part of Annexure / Statistics.

I would be failing in my duty if I forget to tanks well-wishers who have helped me to make
this study a successful one.

TOM JOSEPH

CERTIFICATE

This is to certify that project entitled “A Study on exporting procedures and

documentations” at Seaways Maritime & Transport Agencies Pvt Ltd, Mumbai is a bonafide
record of work done by, TOM JOSEPH (Reg No.15P25L0111) in partial fulfilment of the
requirements for the award of the degree of Bachelor of Business Administration in Logistics
and Shipping

Project Guide Director

Ms. Saranya A.R, M.B.A., M.phil

Viva – Voce examination held on

Internal Examiner External Examiner

INTRODUCTION

In India, the freight forwarding Industry is more than 100 years old. Originally, the forwarder
performed every routine and rudimentary functions like processing of documents in customs
clearance of cargo from the docks. Those who attended the processing of documents were
known as ‘Dalal’ while those who attended the clearance of cargo were known as
‘Muccadams’. The clearing agent who came on the scene later were allowed to handle both
operations and also sign customs documents, a right which had been denied to the Dalals and
Muccadams. In 1962, under the Customs House Agents Licensing Rules, all three categories
were merged into one, known as the Custom House Agents.

The years that followed saw the formation of Customs House Agents Association at the ports
and their federation into an apex body at the national level - the Federation of Freight
Forwarders Associations in India. These bodies have received recognition from the Govt. and
are given representation on several official bodies connected with trade and transport such as
the Standing Committees for the promotion of exports, the Customs and Central Advisory
Council, etc. They are also duly recognized by commercial bodies and given representation in
various Chambers of Commerce and shippers organizations.

The Federation of Freight Forwarders Associations in India have laid down a set of standard
trading conditions. This is based on the model evolved by the International Federation of
Freight Forwarders Associations (FIATA) for the guidance of the freight forwarding Industry
worldwide. Under these trading conditions, a forwarder is expected to take reasonable care of
the goods entrusted to his care and comply with the instructions of his customer in matters
relating to their transportation. He is liable only for his own faults, attributable to himself or
his employees and not for the acts or omissions of carriers and other third parties. Even when
he is liable, his maximum liability for loss of or damage to goods shall be limited to their market
value.

These trading conditions are apparently applicable to a forwarder acting as an agent and would
need updating to take care of situations when he assumes the role of a principal.

Over the years, the freight forwarding industry in India has shown substantial progress. At
present, there are over 700 organizations in the country engaged in the business of freight
forwarding. They consist of a wide range of organizations - probably from a one man
organization engaged in local booking of shipping space or in customs clearance to big
organizations doing forwarding business on an international scale. However, by and large, the
services rendered by them are still of a conventional nature, reflecting the general conditions
prevailing in the developing countries of the Asia Pacific region. In particular, there are two
important areas - consolidation in sea freight (referred to earlier) and multimodal transport
where Indian freight forwarders have not yet been able to enter, mainly owing to lack of support
from customer authorities. It is, however, expected that Govt will enact necessary legislations.

To move large quantities of goods across the country and around theworld, Nations depend on
their freight transportation system—a vastnetwork of roads, bridges, rail tracks, airports,
seaports, navigable waterways, pipelines, and equipment.
A freight forwarder is an individual or company that dispatches shipments via asset based
carriers and books or otherwise arranges space for those shipments. Common carrier types
could include water bornevessels, airplanes,trucksor railroads.The movement of international
freight among nations relies on a complex array of long-distance transportation services. The
process involves many participants, including shippers, commercial for-hire carriers, third-
party logistics providers, and consignees. Moreover, global trade depends on seaport and
airport services to move large volumes of merchandise over long distances via a variety of
transportation modes. The interaction of these services and participants is vital to successful
global trade. Freight forwarders typically arrange cargo movement to an international
destination. Also referred to as international freight forwarders, they have the expertise that
allows them to prepare and process the documentation and also perform related activities
pertaining to international shipments. Some of the typical information reviewed by a freight
forwarder is the commercial invoice, shipper's export declaration, bill of lading and other
documents required by the carrier or country of export, import, or transhipment. Much of this
information is now processed in a paperless environment.13

"Customs House Agent"9 means a person licensed under the Customs House Agents Licensing
rules 1960 as amended from time to time, to act as agents for the transaction of any business
relating to the entrance or clearance of any vessel or the import or export of goods or baggage
in any Custom House"

Section 146 of the Customs Act 1962 provides that Customs House Agents should take a
licence for working as a CHA in any part of India. The Customs House Agents Licensing Rules
1960 also regulate the working of the CHAs in India.

Section 146 of the Custom Act is the enabling provision, which allows agents of importers and
exporters to act on behalf of importers and exporters. This is necessitated by the highly involved
and technical nature of the work to be done in connection with clearance of imports into and
exports out of country. The importers and exporters themselves may have neither time nor the
requisite knowledge on their own. Therefore, agents are allowed to act on their behalf.

The work of the agents is governed by the Custom House Agent licensing Regulation, 1984
framed under this section read with section 157.
There are certain liabilities fastened on the agent of the importer or exporter under section 147.
Some of these liabilities are in the nature of extension of and exceptions to the liability of an
agent under the Indian Contract Act 1872. Sub-section (1) empowers the agent to do everything
that an importer or an exporter can do. Filing a bill of entry, shipping bill, submitting supporting
documents therewith, helping in examination of goods, payment of duty on behalf of the
principal, warehousing of goods, and removal from warehouse. The common law principle that
an agent’s actions bind the principal is given the status of a legal presumption. The
consequences of all actions of a CHA will bind the importers and exporters on whose behalf
they act. An agent who is authorized to act on behalf of the importer or exporter is treated as
the owner of imported or exports goods. In respect of that particular transaction, a notice could
be given to that agent. This does not normally extend to recovery of duty not paid or short paid
by the owner, importer or exporter of goods. As an exception, this is permissible when the
Deputy/Assistant Commissioner is of the opinion that such recovery from the owner, importer
or exporter of goods is not possible.

NEED FOR STUDY

Increasing sales

Exporting is one way of increasing your sales potential; it expands the "pie" that you earn
money from, otherwise you are stuck trying to make money only out of the local market. In the
case of South Africa, our market is relatively small in comparison to the markets of North
America, Europe and Asia. While the local market may represent enough sales potential for
smaller firms, for medium and larger companies the local market is just too small and the only
way to expand sales is to export.

It should be said, however, if you are not yet selling regionally and nationally, then you should
first aiming at expanding your market share within the local market. Once you have saturated
the national market, only then should you look beyond the borders of South Africa. It has been
said that there are no sales barrier that automatically begins where your border ends. Increased
sales also impact upon your profitability (although not always positively), your productivity by
lowering unit costs, and may increase your firm's perceived size and stature, thereby affecting
its competitive position compared with other similar-sized organisations. What is more,
research and development (R&D) and other costs can also be offset against a larger sales base,
or the move into exports may contribute to the company's general expansion. For others,
exports may be a way of testing the opportunities for overseas licensing, franchising or
production.

Increasing profits

Clearly, you are not likely to enter the export market in order to make a loss. Companies
generally strive to make profits and the bigger the profits the better. In many instances, exports
can contribute to increased profits because the average orders from international customers are
often larger than they are from domestic buyers, as importers generally order by the container
instead of by the pallet (thereby affecting both total sales and total profits). Some products -
especially those that are unique or very innovative in nature may also command greater profit
margins abroad than in the local market. Having said this, it is also not uncommon - indeed, it
is highly likely - that you may receive smaller profit margins from your export sales compared
with the local market. The reason for this is the highly competitive nature of global markets
that forces exporters to lower prices, squeeze profits and reduce costs. You may also find that
in some markets you generate higher profit margins, while in other markets your profit margins
are considerably lower.

Reducing risk and balancing growth

It is risky being bound to the domestic market alone. Export sales to a variety of diverse foreign
markets can help reduce the risk that the company may be exposed to because of fluctuations
in local (and foreign) business cycles. At any one time, the UK, Australia and Germany will be
enjoying different growth rates. By selling in all of these countries, the risk of low growth in
one or more of these countries will be offset by increased growth in the others, thus resulting
in a balanced portfolio of growth overall. In addition, with the challenging labour conditions
that many firms in South Africa face today, exports may help to create and/or maintain jobs
thus reducing the risk of a labour dispute that could otherwise cripple the company.

Lower unit costs

Exports help to put idle production capacity to work. This is generally achieved the more
efficient utilisation of the existing factory, machines and staff. What is more, because you are
now selling more products without increasing total costs to the same extent, this has the effect
of lowering your unit costs which represents a more productive overall operation. Lower unit
costs make a product more competitive in the local marketplace as well as in foreign markets,
and/or can contribute to the firm's overall profitability.
Economies of scale

Exporting is an excellent way to enjoy pure economies of scale with products that are more
"global" in scope and have a wider range of acceptance around the world (in other words,
they can be used in other parts of the world without much adaptation). This is in contrast to
products that must be adapted for each market, which is expensive and time consuming and
requires more of an investment. The newer the product, the wider range of acceptance in
the world, especially to younger "customers," often referred to as the "global consumer".

With increased export production and sales, you can achieve economies of scale and spread
costs over a larger volume of revenue. You reduce average unit costs and increase overall
profitability and competitiveness. Long-term exports may enable a company to expand its
production facilities in order to achieve an economic level of production. (This should not be
confused with increased throughput on existing capacity, as discussed above.)

Minimising the effect of seasonal fluctuations in sales

Being in the Southern Hemisphere, South Africa has seasons that are opposite to those in the
Northern Hemisphere. For companies that sell seasonal goods such as fruit growers, and
swimwear or suntan lotion manufacturers, being able to sell these goods in the Northern
Hemisphere when our season ends, helps achieve a longer and more stable sales pattern. This
increases the sales potential for these goods and also helps reduce risk.

Small and/or saturated domestic markets

One good reason to begin exporting is when the local market is too small to support a firm's
output or when the market becomes saturated. For companies that produce heavy industrial
machinery or that have invested in large factories, they need to be able to sell enough of their
manufactured goods to justify the investment and to insure that the unit price of goods are kept
acceptably low. With relatively small markets such as South Africa, it is usually not long before
the local market becomes saturated and offers limited additional opportunities for sales. Many
of South Africa's larger manufacturers have had to turn to foreign markets to justify their
existence. Examples include most of the motor vehicle manufacturers such as Opel, VW and
BMW; the paper producers such as Mondi and Sappi; and mining houses such as Anglo-
American and De Beers. The same is true of international firms such as Volvo, Philips and
Roche. They only way firms such as these can justify their investment is to sell abroad because
their respective local markets are just too small.
 Overcoming low growth in the home market

It is not uncommon for a recession in the local market to act as a spur for companies to enter
export markets that may offer greater opportunities for sales. While this may have the benefit
of offering ongoing sales potential for the firm in question, the danger with this approach is
that when the local market improves, these companies abandon their export markets to focus
on the now buoyant local market. Overseas importers become disillusioned with this type of
exporter and often see all firms from South African being the same and will want nothing more
to do with South African exporters, even if they are serious.

OBJECTIVE

 To know the export procedure

 To know the Functions of Export Freight Forwarders
 To know the documentation process done by the CHA.
 To know the Documentation part.
 To know the Methods of Payments against Export

SCOPE

DELIVARABLES

Exports are the goods and services produced in one country and purchased by citizens of
another country. It doesn't matter what the good or service is. It doesn't matter how it is sent. It
can be shipped, sent by email, or carried in personal luggage on a plane. If it is produced
domestically and sold to someone from a foreign country.

Most countries want to increase their exports. Their companies want to sell more. If they've
sold all they can to their own country's population, then they want to sell overseas as well. The
more they export, the greater their competitive advantage. That's because they gain expertise
in producing the goods and services. They also gain knowledge about how to sell to foreign
markets.

Governments encourage exports. That's because it increases jobs, brings in higher wages and
raises the standard of living for residents. They become happier and more likely to support their
national leaders.
Exports also increase the foreign exchange reserves held in the nation's central bank.

That's because foreigners pay for exports either in their own currency or the U.S. dollar. A
country with large reserves can use it to manage their own currency's value. They have enough
foreign currency to flood the market with their own currency. That lowers the cost of their
exports in other countries.

Countries also use currency reserves to manage liquidity. That means they can better control
inflation, which is too much money chasing too few goods. To control inflation, they use the
foreign currency to purchase their own currency. That decreases the money supply, making the
local currency worth more.

Functions of Export Freight Forwarder

1. Examination of options available to the Shipper to distribute the goods:

Freight Forwarder should be an expert in analysing the options available for transportation of
the cargo from the point of origin to the place of final delivery. Forwarders work closely with
Seaports / Airports /Railways / Canals and facilitate trade development .Examples: A shipment
of Garments from Chennai to New York can be sent in any of the following options: a Direct
Sea freight Service from Chennai to
Newyorkb.TranshipmentSeafreight Service from Chennai to Newyorkwith Transhipment at
Dubaic.TranshipmentSeafreight Service from Chennai to Newyorkwith Transhipment at Sing
apore and sea/rail land bridge. (The concept of land bridge, Sea-Air and other multimodal
transportations are explained in Chapter 5)d.Sea - Air service through Dubaie.Sea - Air service
through Hamburg Each of the above options will be having a different cost structure and
different transit times. The cost will be proportional to the transit time. If the transit time is
more, cost will be less. The forwarder will help the shipper to make the decision depending on
the urgency of the shipment.2.

Making Transportation arrangements:

This is a major function involving the booking and despatch of the goods between the
consignor ‘sand consignee’s premises or other specified points. The freight forwarder has to
make the booking with the Carrier by giving the carrier information about the shipment. The
procedure followed in sea freight is to enter into contract with the Carrier (Shipping Line) by
signing a BOOKING NOTE which contains the following information. The procedure for
airfreight isgiven in Chapter 4.a.Name of Merchant effecting the booking (The Freight
forwarder isreferred as “Merchant” by the Shipping Line)

b.Name of the Shipper

c.Name of the Consignee

d.Place of receipt by pre-carrier

e.Port of loading

f.Vessel Name

g.Port of discharge

h.Place of delivery by on-carrier

i.Description of goods

j.Marks and Nos.

k.Gross weight

l.Net weight

m.Measurement

n.No. of Containers (20’ / 40’)

o.Freight details, other charges viz. (Terminal Handling Charges), etc.

p.Special terms, if agreed

q.Daily demurrage rate (applicable for cargo booked on chartering terms)

r.Deadfreight payable (applicable for cargo booked on chartering terms)

s.Freight payment status (prepaid at loadport / payable at destination)

t.Number of original Bs/L required

The booking note will have the following clause:

It is hereby agreed that this Contract shall be performed subject to the terms contained in this
Booking Note and in the Carrier's Standard Conditions of Carriage, which shall prevail
over any previous arrangements and which shall in turn be superseded (except as to deadfrelght
and demurrage) by the terms of the Bill of Lading. Copies of Carrier's Standard Conditions of
Carriage, if any can be obtained upon request from the Carrier or his agents. From the above,
it can be seen that Booking Note is a contract entered
intobetween the Freight Forwarder and the Carrier. The Freight Forwarder isentering into the
contract on behalf of the shipper (or) in other words, “as agents of the shipper”.

3.Documentation:

The freight forwarder has to make a provision of all the prescribed documentation for the
goods having regard to all the statutory requirements and terms of the export sales contract
(INCOTERMS).

4.Customs Formalities:

The freight forwarder has to do all the customsclearance arrangements pertaining to the expo
rtation of cargo of thecargo viz. filing the shipping bill / export declaration.

5.Payment of freight and other charges:

The freight forwarder has toarrange for payment of freight to the prescribed carrier including
anyhandling charges raised by the airport, seaport, container freight station, bonded warehouse
or elsewhere during the transit.

6.Packing and warehousing:

If the cargo requires any special packing of goods or warehousing while the cargo is in transit,
the freight forwarder has to make suitable arrangements for them. Some of the cargoes may

need temperature controlled warehousing and special types of packing /carriage. A Freight
forwarder entrusted with the job of transportation of Race horses has prepared a special box
with ventilation and booked the horse in a freighter aircraft with special cooling arrangements
enroute. Carriage of luxury boats by sea transport will require the forwarder to make a cradle
(V shaped wooden structure) for keeping the boat on the deck of the ship.
7.Cargo insurance:

The INCOTERM governing the export sale contract between the seller and the buyer may
require Seller’s (Exporter’s)
freightforwarder to arrange for the insurance till the point where buyer’sinsurance coverage
will commence. The freight forwarder has to arrange for the insurance accordingly.

8.Consolidation, groupage and special services:

Many forwardersspecialize in providing sophisticated services viz. Buyer’s consolidation(Co

nsolidating Less Container Load cargoes from many small exporters into Full Container Loads
for a Buyer) and Groupage Services (aggregating cargoes from various shippers to one
consignee). Some forwarders also offer co-packing service depending on the needs of their
customers.

9.Other services for Exporters:

Freight forwarders will be required by some of the exporters to do specific services viz.
Fumigation of containers and/or cargo, arranging for survey of cargo while stuffing the
container /loading the cargo on board, analytical testing of samples, etc.

Chapter 2

review of literature

LOGISTICS

Chang-Ing and I-Jin (1999) show the relation between average logistics cost per item,
consumer demand and the interrelationship between them are analyzed. Commodities are
distributed through a depot directly or through single intermediate terminal to many retail
establishments. Minimizing average logistics cost, or maximizing total supply subject to the
demand-supply equality determines the optimal density of retail establishments and local
terminals. The envelope curves for the optimal configuration strategies corresponding to
different values of total market area and terminal cost are Derived.

Aronssonet al (2000) have developed a template for a logistics education course. The template
addresses functional, process and supply chain needs. The template is currently being
prototyped with the principle of ‘gestalt’- the whole is greater than the sum of the individual
parts.129Outi (2000) studied logistics costs of industrial enterprises in a supply chain. The
following aspects of logistics costs are included:

a) Activity Based Costing (ABC)

b) Average logistics Costs of industrial product manufacturers and suppliers

c) The factors which influence a company’s cost efficiency in logistics

d) An ABC simulation model for the logistics costs in a company

A study on “Logistics of small-size deliveries” has been carried at the Technical Research
Centre of Finland. Seventeen enterprises participated in this study. In this study a calculation
model was developed and tested with the logistics costs of the participating companies. After
calculating the costs, order structure as well as the working methods of the companies’ was
examined. With this information the ABC simulation model was developed to explain and
simulate the change in the logistics costs of a company.

Neil and Jim (2001) look at the emerging issues in reverse logistics system. There is a
fundamental shift in waste management responsibility from the private waste management
industry and local governments towards manufacturers, distributors and retailers. In the recent
years the responsibility of manufacturers has been extended to cover the entire life of certain

products. The enforcement of environmental legislation becomes more stringent and an

increasing number of customers are demanding to take-back of their old products. Companies
are beginning to focus on possible distribution channels for the return of their products i.e.
Reverse logistics.

This paper examine the emerging issues in reverse logistics, in particular the information
requirements for reverse logistics within the extended enterprises. A study of end-of-life
vehicles (ELVs) illustrates the specific information flow between the key players within the
automotive industry. This study addresses the initial development of possible distribution
channels, their key operational decisions and supporting information systems for the recycling
of end of life products.

Wang and Tyan (2003) refer the involvement of Global third-party logistics in e-commerce
and globalization. An effective global supply chain (GSC) management seeking to secure
market share. Global third-party logistics (3PL) has developed into an alternative for the needs
of global collaboration. In this, the authors present a new application of collaboration in Global
Supply Chain execution, namely collaborative transportation management (CTM) that can
reduce delivery time and to improve delivery reliability. A case study is illustrated the
application of CTM by a 3PL provider in a notebook computer GSC. The implementation
results show that the delivery cycle time and the total cost are simultaneously reduced. Alan
and Van Remko (2003) brought a conceptual developments in logistics and supply chain
management in “lean thinking” and “agility. Cranfield School of Management has been at the
forefront of these developments and has benefited enormously from the groundbreaking work

in this field. Kee-Hung and Cheng (2003) describe the supply chain performance (SCP) in
transport logistics by service providers in the transport logistics industry in Hong Kong. The
industry in this study encompassing firms involved in the business of serving the physical flows
of goods from a point of origin, i.e. shippers, to a point of destination, i.e. consignees, in a
supply chain. These firms include those in sea transport, freight forwarding, and air transport
and third-party logistics services. The authors mention that they have conducted a cross
sectional survey with firms in the industry to evaluate their perceived Supply Chain
Performance in transport logistics and the attached importance from both cost and service
perspectives. This study envisages managerial insights for firms in the industry to understand
their SCP in transport logistics and benchmark areas for performance improvement. Makukha
and Gray (2004) communicate that Logistic Service Providers claims that they are the strategic
partners but they are unable to provide the service required. The most existing logistics
partnerships are still operational rather than strategic in nature. Many logistics partnerships
being perational in nature, are known as “Strategic” without not understanding of the term, and
the influence of a logistics partnership on a shipper’s strategic moves and competitive
positioning has not been researched thoroughly (Bhatnagar &Distribution Viswanathan.G,
2000, International journal of Physical & Logistics Management,30,(1),pp.13-34).A Delphi
investigation reveals that although large companies from logistics partnerships, the perceptions
of partnership formation motives, inhibitors and orientation by shippers and Logistics Service
Providers (LSPs) are likely to differ. The failure to integrate on a strategic level suggests a lack
of strategic management knowledge by relevant managers.

Larson and Halldorsson (2004) introduce by describing four unique perspectives on the
relationship between logistics and Supply Chain Management. Results of an International
survey of logistics/SCM experts are reported. 200 questionnaires were sent to leading logistics
educators. Based on experts opinion, cluster analysis conducted and confirms that the existence

of the four perspectives on logistics versus SCM re-labeling, traditionalist, unionist and
intersectionist.

Lai et al. (2004) examine the factors that encourage firms in Hong Kong’s logistics industry to
implement quality management system to ensure quality in their work processes . A generic
ten-step approach for Quality Management system (QMS) has been introduced and discussed
the cost and service advantages achieved in the case firm. The approach offers Procedural

guidelines for firms in the industry contemplating the implementation of Quality

Managements.

Miguel (2004) indicates performance measurement systems truly applicable in Logistics

Management and control. The impact of using performance measurers on management style
has been largely neglected. The author sets out to explore this gap using an approach based on
Simons’diagnostic versus interactive modes of control. The author aimed at describes

the changes in logistics management and control compared with the situation in the rest of the
firm. A case study method was undertaken involving a medium sized ceramic tile
manufacturer. The results show that a clear interactive use in the logistics area, while in non-
logistics department’s performance measures is used diagnostically.

Sajed and Gunilla (2004) describe the ‘impact of logistics on environment’. Environmental
implications of logistics systems is one of the future challenges to logisticians. This paper
explores the logistics and supply chain management (SCM) discipline to see how the scientific
community handles this challenge. The preliminary literature has revealed that there are
weak ties between the logistics/SCM discipline and the environmental discipline. The analysis
indicates that the literature seems to be unbalanced: knowledge about assessing ‘impact of
logistics on environment’ is missing, and most emphasis is on ‘impact of environment on
logistics’. From the reverse logistics literature knowledge about implementation has been
drawn,the same has been described by scholars as explanatory and anecdotal. When comparing
the subject logistics/supply chain management and environment with other subjects in the
logistics literature, less attention has been paid to “Logistics/Supply Chain and environ”

Khalid and Richard (2004) reveal that Ports are recognized as a potential for logistics centers.
Conceptualizing ports from a logistics and supply chain management approach, it is possible
to suggest a relevant framework of port performance. The integrated approach of Logistic

Management (LM) and Supply Chain Management (SCM) are for cost reduction and customer
satisfaction. The logistics approach often adopts a costs trade-off analysis between functions,
processes and even supplies chains. The approach also could be beneficial to port efficiency
by directing port strategy towards relevant value-added logistics activities. A proposed
framework is tested in a survey of port managers and other international Experts.

Gepfert H Alan (2004) opines that Lack of management foresight when making major
decisions on distribution facilities and operations can deprive a company of needed flexibility
for future changes and thus lock it into a deteriorating profit trend. The author adds, “Such a
lack of foresight almost always goes hand in hand with a failure to recognize logistics as
adistinct function of the business and to integrate the planning and operating activities of the
company’s functional divisions in the light of a logistics analysis”. This study shows that the
system approach recommends in this 135article describes how top managers can utilize the
OR-computer capabilities to detect significant profit improvement opportunities in the logistics
function.

Markus and Jean-Paul (2004) show that Institutional dimension of logistic largely at the global
scale. The enduring growth of movements of goods and the freight distribution networks
supporting them are widely underrepresented in regional science geographical research.
Globalization has been a dominant paradigm of contemporary geographical research. The
transport industry itself has become more closely integrated. Recent developments in
international transportation, logistics, international trade andthe emergence of e-commerce
have transformed the freight transportation sector.
Angappa and Bulent (2006) highlight that Effective Performance measurers and metrics are
essential for effectively managing logistics operations in a global economy. For improved
organizational competitiveness the managers have to develop suitable performance measurers
and metrics to make the right decisions. A question has raised that whether traditional
performance measurers can be used and out of them which ones should be given priority for
measuring the performance in a new enterprises environment. Some of the traditional
measurers and metrics may not be suitable for the new environment wherein many activities
are not easily identifiable. Measuring intangibles and no financial performance measurer’s pose
the greater challenge in the so-called knowledge economy. Measuring Themis so critical for
the successful operations of companies in this environment. Considering the importance of
non- financial measurers and intangibles, the authors have made an attempt through a literature
survey and some of the reported case experience to determine the key performance measurers
and metrics in supply chain and logistics operations.

Mckinnon and Alan (2006) highlight the implications and suggestions in Lorry Road User
Charging (LRCU). Truck trolling schemes are already implemented in Switzerland, Austria
and Germany. Britain is planning to launch a Lorry Road User Charging (LRUC) during 2008.
This study reveals the various implications and suggestions in LRUC. The study clearly reveals
wide differences in their objectives, overage, technology, procedures and toll levels. The
proposed British system would have been the most complex, allowing tolls to be varied by
vehicle type, class of road, geographical area and time of day. The study also assesses the
possible effects of lorry road-user charging on a range of logistical variables, including system
design, freight modal choice, truck utilization, vehicle routing and the scheduling of deliveries.
It shows how its logistical effects will depend on the nature of the tolling scheme and level of
charges.

John and Bowen (2008) examine the changing geography of warehouses in the US between
1998 and 2005. The distribution of the warehousing industry is examined to discern the degree
to which the expansion of warehousing has gravitated towards places with superior
accessibility in the nation’s air, maritime, rail, and highway transportation networks. The
analyses indicate that the number of warehousing establishments in 2005 and the 1998–2005
growth in the number of warehousing establishments across a sample of 143 metropolitan
counties were strongly correlated with county-level measures of accessibility in air and
highway and to a lesser extent rail networks. These results could be useful to communities
interested in harnessing this dynamic part of the economy for economic development.
VonderGracht and LenaDarkow (2010) propose a scenario planning and present the findings
of an extensive Delphi-based scenario study on the future of the logistics services industry in
the year 2025. The major contribution of this study is the development of probable and
unforeseen scenarios of the future which may provide a valuable basis for strategy development
in the logistics services industry. The logistics services industry will be significantly affected
by future developments throughout the world. Therefore, developing future scenarios is an
important basis for long-term strategy development.

FREIGHT FORWARDING

George N. Kenyon et al., (2002) 1 in their article state that Logistics outsourcing has a
significant effect on how manufacturing firms produce and deliver products to their customers.
Indeed, many manufacturing firms do not own or manage the transportation and warehousing
resources used for inbound and outbound shipments from their facilities. Earlier research,
however, has cast doubt on the efficacy of outsourcing, as some companies experience
favourable performance outcomes while others do not. Their research investigates the effects
of logistics outsourcing on cost by analyzing empirical data across a wide variety of industries,
using data from a survey of manufacturing plant managers. Our analysis indicates that
outsourcing logistics activities slightly increased COGS, but the existence of moderating
factors suggests interesting new strategies for outsourcing the logistics functions.

EXPORT

One of the first studies on exports determinants of India in the post independence period is by
Murti and V. Kasi Sastri (1951). They examined the determinants of Indian exports to eight
major countries (UK, USA, Germany, France, Japan, Netherland, Australia, Canada, since
these countries accounted for 68% of India’s exports during the quinquennial ending 1938-
39) for the period 1928-29 to 1938-39. Income index and relative price index of Indian exports
to these countries were constructed using the weighted average method. The price
elasticity is estimated at -0.78 and income elasticity at 1.19 for the short term and long term.
So the Indian exports during the study period was inelastic to price and elastic to income.

Contrary to this, Nurkse (1961) noted that the slowly growing world demand was the main
reason for the stagnation of Indian exports in the 1950s.

Da Costa (1965) estimated the demand function of Indian exports for the period 1953 to 1962
using annual data. The variables included in the study were exports price and real world
income. An Ordinary Least square method is used to estimate the price and income
elasticities of Indian exports. The estimated price elasticity was -0.48 and the income
elasticity of Indian exports was 0.20. Peera (1979) provides a review of the literature on
exports determinants of India.

Banerji (1972) analysed firstly, the relationship between the level of economic development
and share of manufactures in total exports and secondly, whether there is any systematic
change in the structure of the manufactured exports with economic development. For the first
objective the share of manufactured exports to 72 countries (including India) were regressed
upon the level of industrialization, per capita income, population and density of population. It
is found that the share of manufacturing in total manufactures is positively related with per
capita income, level of industrialization, population and density of population. Father the
analysis was conducted in a reduced sample of 64 developing countries, including India, but
the authors provide mixed results for these estimations since the coefficient of per capita
income is not significant. Regarding the pattern of manufactured exports change, the study
found that capital and skill intensive goods exports increases with the level of economic
development, while the labour intensive goods’ share decreases.

Nguyen and Bhuyan (1977) have estimated elasticities of demand for Indian exports and
imports while estimating the same for four South Asian countries such as Pakistan, Sri Lanka
and Bangladesh other than India. The analysis was done in the period 1957 to 1969. . For
total exports income elasticity was 1.47 and price elasticity was -0.47, both are significant.

Bahmani-Oskooee (1986) used Distributed Lag approach to estimate the export demand
function for India and to examine the effect of relative price and real exchange rate on export
flows. The price and income elasticity of Indian exports were found to be low and price
elasticity is significant at the 10 % level. The Distributed Lag estimation of the effect of
exchange rate and relative price on Indian exports indicates that an even fourth and fifth lags
of relative price have a negative effect on Indian exports.

Nayyar (1987) identified the internal and external factors responsible for the export
performance of India during 1970 to 1985. He noted that the slow growth of agricultural
production reduced exports of agricultural items, while the internal demand was a
discouragement for exporters of manufactured goods. But favourable external factors such as
foreign demand helped India to sustain export growth during this period.

Bond (1985) analysed trends and determinants of developing country exports for the period
1965 to 1980. Instead of doing the analysis on commodity or country level Bond did his
study of various country groups and commodity groups. For examining the determinants of
exports, the author used log linear demand and supply functions of exports. In the demand
function the quantity of exports of commodity group ‘k’ of country group ‘r’ is regressed on
export price of ‘k’ from country group ‘r’, world import price of ‘k’ and the income of
importing countries. In supply function, export, supply of ‘kt'h’ commodity from country group
‘r’ is a log linear function of log-linear function of current and lagged ratios of the
export price of commodity ‘k’ to domestic price levels in producing countries in the region
‘are’, an index of productive capacity in regional ‘r’, and supply shocks. The price elasticity
of demand for the Asian country group, which includes India, is estimated at -0.33 (total
exports), for agricultural raw materials, in -0.34, minerals at -0.40 and energy at -0.36 and for
food items at -0.33 and the income elasticity of demand is estimated at 1.14 for food items,
0.46 for agricultural raw materials, minerals 1.19 and energy 3.56, all are significant. The
price elasticity of supply was also found significant in the study.

Ifzal (1987) has analysed the supply factors of Indian manufacturing exports for the period
1967-68 to 1980-81 and observed that export supply is positively affected by relative price
and negatively affected by the domestic demand, as an indication of the growth bias against
exports. Further, this study separated the relative price effect into effect of the subsidy and
the effect of exchange rate. It is found that both are positively affecting exports, while the
effect of exchange rate is more than that of subsidy.

Arize (1990) used quarterly data for the period 1973 through 1985 to examine demand and
supply factors of Indian exports. The price and income elasticities of demand for Indian
exports are found to be significant and coefficients are -0.87 and 0.63 respectively. On the
supply side, this study found a positive effect of relative price and a negative effect of
domestic income on exports.

Virmani (1991) estimated supply and demand functions of India’s manufactured exports and
primary exports by using annual data for the period 1970-71 to 1985-86. The exogenous
variables used in demand function were price of the Indian export / price of imports of the
rest of the world, the price of the all other goods consumed by the rest of the world. In supply
function the independent variables used were rate of export subsidy, the price of nonexported
commodities (proxy by the wholesale price index), domestic income, and rainfall
and capacity utilisation. He found that for manufacturing exports, price factors such as the
real exchange rate and relative price are the important determinants.

Athukorala (1991) examined the determinants of agricultural exports of a sample of seven

developing countries from Asia such as Malaysia, Thailand, the Philippines, Indonesia, India,
Pakistan, and Sri Lanka for the period 1960 to 1986. Three factors, namely, the relative
importance of external demand conditions, competitiveness and commodity diversification
were considered in the analysis using time series regression approach. The variables used
were world demand, index of competitiveness in traditional export and exports diversification
index. The results indicated that export diversification and competitiveness can contribute
substantially to the export growth of agricultural goods of developing countries. This shows
that even if demand side factors are unfavourable supply side factors such as diversification
and competitiveness can stimulate the agricultural exports of developing countries.

Another important study was by Aksoy and Tang (1992). They analysed India’s trade and
industrial performance for the period 1970-88. They constructed an export function, which
includes supply and demand factors to analyse the determinants of India’s total and
manufactured exports. For total exports, the results indicate a supply constrained nature of
Indian exports, where the domestic demand is negatively affecting the exports. For
manufactured exports also it is found that the domestic demand and real exchange rate
negatively affecting the exports.

Koshal et al (1992) suggested a multiplicative simultaneous equation system to estimate the

determinants of Indian exports for the period 1960 to 1986. This study estimated a short run
price elasticity of demand as -0.95 and long run price elasticity as -2.90. The respective
income elasticities are 1.31 and 4.01. The estimated long run supply price elasticity was
25.50 against short run value of 1.91. The high price elasticity of supply indicates that the
exports surge during this period is attributed by the devaluation.

Vinod and McCullough (1994) criticised the results of KSK on the grounds of sample size
and the reliability of the estimates since KSK estimated a price elasticity of supply of 25.
Vinod and McCullough used 2stage LS and bootstrapping methods to re-estimate the model
used by KSK with same dataset. Since the bootstrapped distribution is different from
asymptotic distributions, the authors observed that the small sample problem is severe in
KSK’s results and the results are not reliable.

Gupta and Keshava (1994) estimated price and income elasticity of demand for Indian
exports for the period 1960-61 to 1990-91, using annual data. The analysis has been done for
the trade between India and the rest of the world and India with its 11 export partners
separately. In exports demand functions independent variables used were Income of the
export market, Price of Indian exports, Price of exports of India’s competitors in the
respective markets and two dummy variables. The dummy variables were used to take into
account the effect of devaluation in 1966 and economic stabilisation policies in 1980’s. The
model was estimated using the usual Ordinary Least Squire method (OLS). The estimated
price elasticity of -0.68 and income elasticity of 0.50 for Indian exports for the period 1960-
61 to 1990-91 using annual data. The income elasticity estimated in this paper is less than
that in the previous papers.

Banik (2001) did his study in the context of the turnaround in India’s export growth during
1996-97 (export growth was 5.3% and in 1997-98 it was 1.5%). This was preceded by high
growth rates during 1993-94 to 1995-96 after the implementation of economic reforms in
1991. Banik examined demand and supply side factors responsible for exports turnaround
and possible impediments for a sustained export growth. The study depicts role of the decline
in price competitiveness due to nominal exchange rate depreciation (mainly to South East
Asian countries) and the imposition of trade barriers by the developed countries as the main
demand side factors responsible for the low growth rate in exports. On the supply side
procedural delays and poor infrastructure are the main constraints to the poor export growth.

Sharma (2003) used a simultaneous equation model using two stages least square (TSLS)
method to examine the determinants of India’s exports especially the role of FDI in export
performance. The demand side results indicate that real effective exchange rate and lagged
exports are the main demand side determinants of Indian exports and world income is not
significantly affecting the export performance. On the supply side, the relative price of
exports has a positive impact on exports and the domestic demand pressure has a negative
impact. The other significant variable is the lagged exports and time trend. But infrastructure
facilities have no significant impact on exports.

Majeed and Eatzaz (2006) examined the determinants of the exports of developing countries.
For this, they have selected a sample of 75 developing countries, including India. The period
of study was 1970 to 2004 and panel data estimation technique is used. The exports as
percentage of GDP were regressed on FDI, National saving, Development assistance, Indirect
taxes, industry value added (all the above mentioned variables were taken as a percentage of
GDP), GDP, GDP growth, real exchange rate, no of telephone per thousand population, and
number of television for 1000 populations and total labour force. The study found that GDP
growth, communication facilities, real exchange rate etc are important determinants of
developing country exports.

Recently Razmi and Blecker (2008) examined the fallacy of composition hypothesis in the
context of 18 developing countries including India. It is found that the expenditure elasticity
(the authors used the total expenditure for imports as a proxy for foreign demand) is 1.18 and
it is found that the relative price of India with industrial countries are significantly affecting
the exports.

Banga (2006) analysed the exports diversifying behaviour of FDI and the importance of
source of FDI in India. For this, industry level and firm level analysis have been carried out
using panel analysis and Tobit model. The study found that FDI has a positive impact of
export diversification of firms in non-traditional sector3in India and source of FDI is also
matters in export promotion. US (United States) FDI has exports diversifying impact on the
manufacturing firms in India, while the Japanese FDI has no significant impact. This is
because US FDI has vertical integration where as Japanese FDI follows horizontal
integration.
Another study on FDI is by Prasanna (2010), which have two objectives, firstly to analyse the
effect of FDI on the export performance of India and secondly to analyse the effect of FDI on
the exports of high technology exports of India. The period of study was 1991-92 to 2006-07.
The variables used for the study were a ratio of manufactured exports to real GDP, the ratio
of high technology exports to real GDP, FDI as percentage of GDP and manufactured value
added. This study found that the FDI has a positive effect on manufacturing and high
technology, manufacturing exports of India for the period 1991-92 to 2006-07.
Another set of studies is related to the effect of devaluation or exchange rate or exchange rate
volatility on exports to India.

Bahmani-Oskooee (1985) examined the existence of the J curve in Indian current account to
examine the effect of devaluation of trade balance. He used a multiplier based analysis for
this using quarterly data for the period 1973 to 1980. In his model trade balance is regressed
on real output, the real income of the rest of the world, real exchange rate, high powered
money at home and high powered money for the rest of the world. His analysis showed the
existence of the J curve in Indian context.

Ghosh (1990) examined the effect of exchange rate movements and trade balance of India
during 1973-74 to 1986-87. She observed that the devaluation of rupee won’t improve the
trade balance of India since nominal exchange rate changes have little effect on real exchange
rate change. Another important observation was regarding the insignificant relation between
exchange rate and export growth.

Arize (1994) addressed the same issue of exchange rate and trade balance of India, while
studying the same for Asian countries for the period 1973Q1 through 1991Q1. The
significant cointegrating relationship between the real exchange rate and trade balance was
found in this study.
Buluswar and Upadhaya (1996) examined the presence of the J curve in the current account
balance of India for the period 1985 to 1992. Unlike Bahmani-Oskooee (1985), this study
didn’t find any J curve in Indian current account. Further, they found that India’s trade
balance is not cointegrated with real exchange rate and other macroeconomic variables used
in the study.
Mookerjee (1997) analysed the nexus between the exchange rate, world economic growth
and the export volume of India for the period 1970–1992, using cointegration and causality
test. It is found that the exchange rate and world economic growth were cointegrated with an
export volume of India. The exchange rate coefficient is estimated at 1 (lagged values are not
significant) and for world economic growth the four year coefficient is 3.4 (lagged values are
also significant).
Sarkar (1992) analysed the effect of exchange rate on exports and imports of India for the
period 1971-1990. The regression results indicated that the exchange rate has no significant
effect on the dollar value and volume of exports during the study period. The same is the case
for imports also and a devaluation of the rupee won’t have a favourable effect on trade
balance of India. Sarkar (1994) re-examined the results of Sarkar (1992) by checking the
stationary properties of the study variables and then done an Engle-Granger two step
procedure for checking cointegration between the variables. But the results indicated that real
exchange rate and export earnings of India are not cointegrated during the study period.
Sarkar (1995) focused on the effect of exchange rate on exports value and volume of India for
the post 1991 period (1991-1994). The regression results using real and nominal exchange
rates found no significant relationship between exports and exchange rate of rupee. Sarkar
(1997) analysed the same issue for the period January 1980 to May 1996 using monthly data
of real and nominal exchange rate series and dollar value of India’s exports. The analysis
didn’t find any statistically significant relationship between exports and exchange rate series.
Dholakia and Saradhi (2000) estimated the exchange rate pass-through on imports and export
prices of India during the pre and post reform period and the effect of exchange rate risk of
India’s foreign trade. Exports demand and supply equations were used to examine the effect
of exchange rate and exchange rate volatility on exports of India. It is found that the
exchange depreciation is affecting the exports during both the pre and post reform period; the
effect is more for the post reform period.

Arora et al (2003) pointed out the aggregation problem as a reason for not finding ‘J’ curve
in India’s trade balance in previous studies and done his analysis for India’s seven trading
partners for the period 1977-1998 using quarterly data. The study failed to find any ‘J’ curve
in the trade balance of India with its seven largest trading partners; it found a long term
relationship between the real exchange rate and trade balance of India in Australia, Germany,
Italy and Japan.

Singh (2004) examined the presence of J curve and the effect of exchange rate volatility in
the trade performance of India, by using quarterly data for the period 1975:02 to 1996:03.
Two types of exchange rates, namely trade and export weighted real exchange rates were
used for the study. The study didn’t find any J curve or the effect of exchange rate volatility
on trade of India.

Veeramani (2008) used an eclectic model to analyse the relation between exchange rate
appreciation and exports of India during 1960 to 2007. He has regressed exports of India on
real exchange rate, India’s GDP and world exports in his eclectic model. They found a
structural break in 2001 and the exchange rate (1st lag) coefficient is significant in the period

1960 to 2001 and 2001 to 2007 period. First lag of Indian GDP (as a representative of supply
capacity) and the world exports were found significant in determining India’s exports.
Prusty (2008) examines the relationship between the exchange rate and exports of India for
the period 1992 to 2007 using monthly data. The Granger causality analysis indicated a
bidirectional causal relationship between the variables. Further the Johanson-Juselius
cointegration analysis also indicated a long run relationship between the exchange rate and
exports of India.
The effect of exchange rate volatility on trade is also widely examined in the Indian context.
The volatility in the exchange rate means is risk in the foreign exchange market for exporting
firms and this is expected to be negatively related to the exports of the country. But the
theoretical literature also depicts the positive relation between exports and exchange rate
volatility. Dholakia and Saradhi (2000) found that export quantity is sensitive to exchange
rate but found that exchange rate volatility is not affecting exports of India. Singh (2002) also
found that the exchange rate volatility is not affecting the trade balance of India for the period
1975 to 1996. Dash and Narasimham (2004) found the presence of a negative relationship
between exchange rate volatility and exports in Indian context. Dash and Narasimham (2005)
observed that India’s import volume is also sensitive to exchange rate risk.

Santos-Paulino and Thirlwall (2004) analysed the effect of tariff reduction in the export
growth, imports growth, balance of trade and balance of payments of a sample of 22
developing countries including India. For this purpose panel data technique was employed by
using annual data for the period 1972 to 1997. The study found that for a 1% reduction in
tariff will increase exports by 0.02, while import increases by 0.02 to 0.04%. Further
liberalisation increased the income elasticities of demand for exports and imports.

Batra (2006) is one of the first studies in India using a gravity model (estimated with
Ordinary least squire (OLS) method) and she analysed the trade determinants as well as
estimated trade potential of India with its trade partners. The significant factors affecting
India’s trade are GDP, Distance with trade partner common border, common language and
membership in regional trade agreements. The GDP coefficient is 0.86 but the distance
coefficient is estimated at -1.04. But the inclusion of dummy for common boarder reduces the
distance coefficient.

Tharakan et al (2005) has used the threshold Tobit model to estimate the gravity model to
examine the determinants of India’s goods exports and services exports. The independent
variables used in the model were GDP of importing country, Population size, distance
variable, measure of remoteness, language dummy etc. Regarding the goods exports, the
study found that GDP of the export market, population and people of Indian origin are
positively affecting the exports while distance variable has a negative effect as expected.
Further, it is found that determinants of service exports are significantly different from that of
goods exports from India.

Another study using Gravity model is of by Kaliranjan and Kanhaiya (2008) by comparing
exports determinants of India and China. For this the estimation method was Maximum
likelihood against the previous gravity model studies. They used two types of models; model
assuming no behind the boarder constraints and model assuming behind the boarder
constraints. It is found that distance variable is significantly affecting the exports of India
negatively and this indicates the cost disadvantage of India compared to China, as for China
distance measure is insignificant when tariff variable is introduced. It is observed that low
values of the GDP coefficient for India indicates that the domestically produced goods are not
matched to the global demand.

Franco and Sasidharan (2010) analysed the effect of Multinational Enterprises (MNEs)
through FDI on the export intensity (and exports decision) of Indian firms for the period 1994
to 2006 using firm level data. It is found that the exports externalities of MNEs are not
affecting the export intensity (FOB value of exports divided by sales turnover of the firm) of
firms significantly, whereas the R&D activities of MNEs have a positive effect on the export
intensity of Indian firms.

Another firm level study by Dholakia and Kapoor (2004) examined the influence of firm
level characteristics in determining export performance by using data for 557 firms for the
period 1980-81 to 1995-96. They found that firm size as indicated by Krugman (1980) has a
positive effect of the export performance. Other important variables affecting the export
intensity of Indian firms are product development expenditure, import of technology,
advertisement, capital intensity and growth. Separate analysis for the post and pre reform
period indicates that the economic reforms in 1991 have significant impact on firm level
exports intensity.
IV: 2 Determinants of Indian exports: Commodity level analysis

Chatterjee and A. R. Sinha (1941) is one of the first studies estimating demand function of
raw jute. The authors estimated the demand function of raw jute for the period 1920- 1938 by
using annual data. This study used US industrial production data as an indicator of world
income, gold price of raw jute as the price of Indian jute exports and the price of Burlap in
London market as the world price of jute. They found that a one percent increase in world
income will increase the demand for raw jute by 0.45 percent and one percent increase in the
price of raw jute will decrease the demand for raw jute by 0.35%. But this study has not
considered the supply factors of raw jute from India.

Murti and V. Kasi Sastri (1951) estimated the demand elasticities of various export
commodities of India such as, groundnut, skins (raw), hides (raw), skins and hides (dressed),
tea, jute manufactures, linseed and pepper. Among these Groundnut, Skins (raw), skins and
Hides (dressed) and Jute manufactures are inelastic with respect to price. But for raw hides,
dressed hides and shins, and pepper have elastic demand with respect to price. The interesting
finding is the inelastic nature of demand for jute with respect to world income.

Frankena (1975) analysed the role of industrial recession, devaluation in the exports of new
manufactured goods (iron and steel, engineering goods, and tires) from India during the
1960’s. It is found that exports boom of these goods in the 1960’s, was attributed by the
relaxation of material-supply constraints on production, the industrial recession, and
expansion of export subsidy schemes and devaluation.

Cohen (1964) found significant inverse relationships between exports and relative prices of
Indian export of tea, cotton, manganese, goat skins and cattle hides to the UK. Cohen
explains that the export promotion policies were conflicting with other economic goals of the
government like to get foreign aid4, regulate the domestic price, protection of
domesticemployment5 of export commodities etc at that time. These conflicts resulted in an
increase in the relative price of India’s traditional goods because of the increase in production
cost.
Dutta (1965) used annual data on Indian tea exports from 1951 to 1960 to examine the role of
price in exports. The tea export earnings of India at 1953 prices were regressed on world
income (proxy by the per capita income of the UK, for UK was the largest importer of India
tea), and a set of relative prices such tea price in India divided by the tea price in the United
Kingdom, the tea price in India divided by the tea price in Ceylon and the price of tea in
London divided by the price of coffee in New York. They found price competition between
Indian and Ceylon tea, since the price of Indian tea relative to that of Ceylon tea is
significant. Another important variable found significant was the coefficient of Indian tea
price relative to that in the UK, which was estimated at -1.22.

Rosario, J A (1967) analysed whether the devaluation of the Indian rupee in 1966 had any
effect on India’s exports. The author used monthly data for the period June –December 1966.
The analysis was done for 26 commodities using quantity and unit value of these exports,
which constitutes more than 75% of total exports. The study found that devaluation exercise
had not increased the exports from India, but for some commodities the exports increased
because of the increase in prices.

Trehan (1970) found that a devaluation in June 1966 and the closure of the Suez Canal had a
positive effect on India’s on the engineering exports. Nayyar (1973) analysed the stagnation
of Indian textile exports during the sixties. He observed that despite the stagnation of world
demand for cotton6 , the share of cotton exports of other Asian countries such as Hong Kong,
Pakistan, Taiwan and South Korea have increased, while the share of India declined
drastically during the sixties. This necessitates the comparison of Indian cotton textile
industry with other industries in terms of competitiveness. The problem of Indian textile
industry was mainly on the cost of production, the lack of modernisation of the Indian textile
industry, the domestic demand pressure, and the lack of significant positive effect of
devaluation on the exports.

Nguyen and Bhuyan (1977) have estimated the trade elasticities of India (for the period
1957 to 1969) for food (SITC0), tea, mineral fuel, Chemicals, manufactures, Jute goods, and
machinery and transport equipment and total exports. It is found that, except in the case of
raw jute, all other goods’ export demand is price elastic. For food items the income elasticity
also found to be very low and for tea the income elasticity is negative

Riedel, Hall, and Roger (1984) have examined the factors affecting Indian exports for the
period 1968 to 1978 for 30 commodities. They have used three variables such as relative
price, domestic profitability9 and relative domestic demand for the study. It is found that
domestic market conditions such as domestic profitability and domestic demand are
significant in 23 out of 30 cases. Relative price is significantly affecting the exports of only
10 commodities.

Golder and Bharadwaj (1984) analysed the exports determinants of iron and steel from India,
as part of the 13 developing countries analysed. The study found that the income elasticity of
demand for India’s iron and steel exports was 1.89, while the price elasticity was -0.91. As
per the conventional view, it is found that the exports from developing countries including
India are price elastic. Another disaggregate level study was Lucas (1988), who analysed the
world demand for 23 exports items of India for the period 1965-66 to 1979-80. These 23
items constitute more than 95% of India’s manufactured exports during the study period.

Agarwal (1988) analysed the export performance of India during 1965-80 and compared the
Indian export performance with other major exporters such as Argentina, Brazil, Chile,
Colombia and Mexico (Latin America) and Hong Kong, Korea, Malaysia, Pakistan,
Philippines, Singapore, Taiwan and Thailand (Asian countries). The author used Constant
market share analysis to decompose the export performance in to competitive and market
growth effects. The authors observed a decline in India’s share of world exports in all
agricultural goods, raw materials and manufactured goods for the study period. The decline in
the share is visible for various regions also such as Africa, Asia, Latin America, and Middle
East (developing countries), USA, EEC, Japan and others (developed countries). This can be
attributed to a decline in market penetration effect in different markets against a small effect
of market growth effect.

Rath and Amarendra (1990)’s study was on the capital goods exports from India and its
determinants. The authors have relaxed the small country assumption made by Goldar (1989),
and Lucas (1986) in their studies and considered both demand and supply factors in a
simultaneous equation framework to analyse the determinants of Indian capital goods exports
for the period 1971 to 1987. It is found that demand for exports with respect to export price is
inelastic while with respect to supply it is elastic, supporting the elasticity pessimism
argument. But the experts are elastic to world exports (the value is 1.68). The elastic nature of
exports supply to prices supports the argument that relative profitability is a factor affecting
the exports. The authors are suggesting a devaluation of the rupee simultaneously with export
subsidies to increase the exports of capital goods.

Rajaraman (1990) analysed the effect of real exchange rate (as a measure of relative
competitiveness of Indian exports) on Indian’s textile, garment export share to two non MFA
(multi fibre agreement) countries namely Japan and Australia compared to other countries for
the period 1974 to 1987. From SITC three digit classification, cotton textiles (SITC code
652), textile made ups (658) and women's garments (843) were used for the study. It is found
that India is losing its share of imports of Japan and Australia to China except for textile
made-ups of Japan. Other than China, Hong Kong and South Korea were identified as major
competitors of India in Japanese and Australian markets.

Mukerjee (1992) occupies a prominent place in the literature, since she analysed the exports
behaviour of 38 disaggregated sectors of the economy by estimating equations for foreign
demand, while considering production, domestic demand and labour and capital demand
of these sectors using Two stage least squares method. It is found that the disaggregate level
price elasticity is significantly different from the aggregate one estimated in previous studies.
Price elasticity of demand is found to be not different from zero for the commodities such as
tea, tobacco products, silk and synthetics, textile products, soaps and perfumes and other
foods, while for six commodities the price elasticities are elastic and for other commodities
have significant inelastic price elasticities.

Pant (1993) set up a model to explain the factors determining the external orientation
(measured by the export intensity) of firms in the Indian manufacturing industry. The analysis
has been done for Chemicals and Engineering industries with data set of 218 firms in
Chemical industry and 202 firms in nonelectrical machinery industry for the period 1985 to
1990 (average values of the data are used for the regression analysis. The analysis supports the
imperfect market hypothesis, since it indicates a negative relationship between firm size
and exports. Secondly, imports intensity is higher in exporting firms, and thirdly the India’s
comparative advantage lies in labour intensive industries since they found a negative
relationship between exports intensity and capital intensity of production. The industry
specific factors are significant in case of non-electrical machinery industry.

Ghemawat and Patibandla (1998) analysed the effect of economic reforms in 1991 on three
industries, namely Diamond Cutting and Polishing, Garments and Software. This study noted
that reforms such as devaluation of rupee enhanced the competitive advantage of India in
labour and skill intensive industries. Secondly, allowing free imports reduced cost of
production and increased the competitiveness of Indian exports by reducing the price.

Athukorala and Sen (1998) examined factors determining the processed goods exports from
developing countries. For this 36 developing countries were selected, including India, based
on the availability of data for the period 1970 to 1994. But average values over the period
were taken for the analysis. The independent variables used were outward-orientation
(openness) of the policy regime (OPEN), agricultural resource endowment (RE), the level of
per capita income (Y) and the growth rate of per capita income (GY). The openness of the
economy and economic growth rate were the significant variables found in the estimation,
while resource endowment was found insignificant.

Recently Sinha Roy (2007) used a simultaneous Error correction model to examine the
determinants of India’s disaggregate exports for the period 1960-99. He found that demand
side factors are important in explaining disaggregate level exports of India. In exports
demand function, the independent variables used were exports price, price of world imports
and world income. While in the export supply function, export price, domestic price and
domestic supply capacity were used as independent variables. Dummy variables were added
in the model to take into account the structural breaks if any. The analysis has been done for
commodities such as Chemicals, Machinery and Transport, Leather manufactures and Iron
and Steel. In the demand equation, the price variables, world income and the error term were
found significant for all the commodities except for iron and steel. In the supply equation also
the price elasticity is significant for all the commodities except iron and steel. This indicates
that the price is a major factor in determining the exports of Indian during the study period
and increasing the profitability of exports by giving incentives could boost the exports during
this period.

Khondoker and Kaliappa (2012) examined the determinants of labour intensive products
(garments products) by the developing countries. For this they have used a sample of 65
developing countries (as given in the World Bank list of developing countries). They have
used a gravity model, where exports from a country i is considered as a function of ratio of
capital available to labour availability, ratio of arable land to labour availability, labour
availability, distance between trading partners, infrastructure variables, and a set of dummy
variables for landlocked countries, low income countries, year dummy etc. The model was
estimated using the Random Effect Generalized Least Square estimation process. It is found
that availability of cheap labour, the accumulation of capital, basic infrastructure, and
business friendly environment and quality of public services are important to facilitate the
development and the exports of labour-intensive garment industries by the developing
Countries

Saini (2011) examines the implications of non-tariff barriers on the international operations
of Indian textile and Garment exporting firms. The study was based on primary survey and it
identified technical barriers, product and production process standards, and conformity
assessment requirement for technical barriers as the major non-tariff barriers facing the
Indian firms in European Union and US markets. These barriers are the major determinants
of the compliance cost in EU and US markets.

Mayer and Wood (2001) analysed the determinants of exports structure of India, while
analysing the same for the world and for different regions.

IV: 3 Determinants of Indian exports: Direction wise analysis

Dutta (1964) analysed the export demand of India in markets such as dollar area, sterling
area, Continental Europe in OECD and the rest of the world. For dollar area and sterling area,
the study found that Indian exports are not price sensitive, while it is positively related with
the industrial production of dollar area. For the insignificant price variable, Dutta noted that
“no substantial sources of home supply within the (dollar or sterling or Continental Europe)
area for the major export items that India sells to this area”. This is because during the study
period India’s prime exports commodities to these areas were mica, burlap etc. But for “rest
of the world (ROW)” relative price and income of ROW are found to be significant.
Gupta and Keshava (1994) has estimated the price and income elasticities of Indian exports to
Australia, Belgium, Canada, France, Germany, Italy, Japan, Netherland, Switzerland, United
Kingdom and USA. Income elasticity of India's exports is high with France, Belgium,
Switzerland, and Germany, and low with regard to those to Canada, Japan, Australia, and the
UK. Price elasticity of India's exports is high in Italy, and low in Japan, the UK, and
Germany.
Eckaus (2008) analysed supply and demand determinants of India and China in a
comparative perspective. For this he has used a sample of 13 countries, which includes
industrialised countries and developing Asian countries. The authors estimate imports
demand estimation of the 13 countries and the results indicated that relative wages, GDP per
capita of the importing country and import price index are found significant in explaining the
imports from India to the 13 countries. Later the demand equations were estimated for 10
Asian countries and the results was same. But for the three developed countries relative wage
rate coefficient is found insignificant.

Bahmani-Oskooee and Mitra (2008) has analysed the effect of exchange rate risk on
disaggregate level commodity import of US from India. The authors have used bounds testing
approach to cointegration and error-correction modelling to analyse the short run and the long
run effect of exchange rate risk on U.S. imports from India. Forty commodities were analysed
and they observed that at disaggregate level, 40% of the commodities traded between India
and USA has been affected by the exchange rate risk. One of the interesting findings is the
presence of positive relation also between trade and exchange rate risk at disaggregate
commodity levels.

Pradhan (2009) analysed the export potential of India with Gulf Cooperation Council (GCC)
countries and estimated the export potential of India with these countries. The period of study
was 1996 to 2006. An augmented Gravity model, with variables such as GDP, Distance,
common language dummy, RTA dummy, trade affinity etc, was estimated using Ordinary
least squire methods. All the variables were found significant with a GDP coefficient of 0.38
and a distance coefficient of -0.65. Oman has highest exports potential with Oman followed
by Qatar, Bahrain and Kuwait. For United Arab Emirates (UAE) and Saudi Arabia, India
don’t have any further exports potential, showing that India is trading more with these
countries.
Beena and Hrushikesh (2010) analysed the role of exchange rate and other factors in
determining India’s Textiles and Clothing exports to eight largest exports destinations of
India. The panel data analysis indicated that the exchange rate has a significant effect on
India’s Textile and clothing exports in the short run, but in the long run exchange rate
depreciation would not boost India’s textile and clothing exports.

Sahoo and Bimal (2010), used, an error correction model to assess the exports of India to
Canada for the period 1980 to 2004. The independent variables used in the model were GDP
of India, and Real exchange rate between Indian and Canadian currency. The elasticity of
exchange rate for the pre-reform period (1980 to 1991) was estimated at 0.36 against 0.46
during the post reform. For the overall period, it is estimated at 0.82. The elasticity of GDP of
India is estimated at 0.31, while in the post reform period the sign is negative. The negative
sign of GDP coefficient indicates that the economic growth in India is not boosting the
exports to Canada.

Tiwari (2012) aimed at estimating the price and income elasticity of demand for India’s
exports to the USA and the causality between exports and other independent variables in
static and dynamic framework. The independent variables used for the study were GDP per
capita of the USA, WPI of India, Exchange rate between US dollar and Indian rupee and WPI
of USA. The period of study was 1960 to 2007. It is found that GDP per capita of the US,
WPI of the India and the US, and exchange rate are affecting the exports of India to USA.

PROCEDURE

%. Export is one of the lucrative business activities in India. The government also provides
various promotional schemes to the exporters for earning valuable foreign exchange for the
 country and for meeting their requirements for importing modern technology and essential
inputs. Besides, the income from export business is also exempted to the specified extent under
the Income Tax Act, 1961, Refund of Central Excise and Custom Duty on export is also made
under the Duty Drawback Scheme of the Government. There is no Sales Tax on products meant
for exports.

Exports can be of goods which can be moved physically from one country to another or can be
of service rendered. Detailed list of services are given in the Foreign Trade Policy covering
more than 160 items e.g. Insurance, Hospital, Postal and Telecommunication etc.

TWO CLASSES OF EXPORTS:

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 groups

 Manufacturer 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.

HOW TO SET UP AN EXPORT ORGANISATION

The proper selection of organization depends upon

 Ability to raise finance.

 Capacity to bear the risk.

 Desire to exercise control over the business.

 Nature of regulatory framework applicable to anyone

If the size of the business is small, it would be advantageous to form a sole proprietary business
organization. It can be set up easily without much expenses and legal formalities. It is subjected
to only few governmental regulations. However, the biggest disadvantage of sole
proprietorship business is limited ability to raise funds which restricts the growth. Besides the
owner has unlimited personal liabilities. In order to avoid this disadvantage, it is advisable to
form a partnership firm.

The partnership firm can also be set up with ease and economy. Business can take benefit of
the varied experiences and expertise of the partners. The liability of the partners though joint
and several, is practically distributed amongst the various partners, despite the fact that the
personal liability of the partner is unlimited. The major disadvantage of partnership firm of
business organization is that conflict amongst the partners is a potential threat to the business.
It will not be out of place to mention here that partnership firms are governed by the Indian
Partnership Act, 1932 and, therefore they should be formed within the parameters laid down
by the Act. Company is another form of business organization, which has the advantage of
distinct legal identity and limited liability to the shareholders.
 It can be a private limited company or a public limited company. A private limited can be
formed by just two persons subscribing to its share capital. However, the number of its
shareholders cannot exceed 50, public cannot be invited to subscribe to its capital and the
members right to transfer their share is restricted. On the other hand, a pubic limited company
has a minimum of seven members. There is no limit on the maximum number of its members.
It can invite the public to subscribe to its capital and permit the transfer of share. A public
limited company offers enormous potential for growth because of access to substantial funds.
The liquidity of investment is high because of easiness of transfer of shares. However its
formation can be recommended only when the size of the business is large. For small business,
a sole proprietary concern or a partnership firm will be the most suitable form of business
organization. In case it is decided to incorporate a private limited company, the same is to be
registered with the Registrar of Companies.

CHOOSING APPROPRIATE MODE OF OPERATIONS:

You can choose any of the following modes of operations

 Merchant Exporter i.e. buying the goods from the market or from the manufacturer and then
selling it to foreign buyers.

 Manufacturer Exporter i.e. manufacturing the goods yourself for export.

 Sales Agent / Commission Agent / Indenting Agent i.e. acting on behalf of the seller and
charging the Commission.

 Buying Agent i.e. acting on behalf of the buyer and charging Commission.

 Service provider i.e. providing service from India to another country.

NAMING THE BUSINESS

Whatever form of business organization has been finally decided, naming the business is an
essential task for every exporter. The name and style should be soft, attractive, short and
meaningful. Open a current account in the name of the organisation in whose name you intend
to export. It is advisable to open the account with a bank which is authorised to deal in Foreign
Exchange.
 STRUCTURE OF AN EXPORT ORGANISATION

 marketing manager for generating sales

 Commercial manager for looking activities of the execution of the orders.

 staff personnel for carrying out the day-to-day activities namely

o Preparation of pre - shipment documents.

o Co-ordinating with clearing agents on the progress of the shipment to be made.

o Co-ordinating with the ware house\C. excise department regarding packing and clearance of
the goods for export.

o Preparation of post shipment documents foe banks.

o Follow-up with the bank on dispatch of documents, receipt of payment, availment of bank
loans etc.

 To look into the requirement of licenses, claiming of export benefits fiiling of documents with
the Government Authorities in Discharge of Export Obligations, if any, filing of returns to the
various Government Agencies which are mandatory, prepare and keep an information bank of
various transaction of the company, their domestic as well as international competitors.

 An office boy for doing leg work.

 A clearing and forwarding agent to handle the documents and the goods in the customs
premises\ in the ports of lading.

Depending upon the size of the business the numbers of personnel under each category may
increase. For example if a company is transacting substantial volume of business in more than
one product. Then it is necessary to have marketing manager for each product so that the person
can concentrate on a particular trade to enhance the business.
 REGISTRATION WITH REGIONAL LICENCING AUTHORITIES OBTAINING
IMPORTER EXPORTER CODE (IEC) NUMBER.

The Customs Authorities will now allow the exporter to export or import goods into or from
India unless he holds a valid IEC number. Before applying for IEC number it is necessary to
open a bank account in the name of the company with any commercial bank authorized to deal
in foreign exchange. The duly signed application form should be supported by the following
documents.

 Bank receipt ( in duplicate ) / Demand Draft for payment of the fees of Rs. 1000/-

 Certificate from the banker of the applicant firm as per Annexure 1 to the form given.

 One copy of PAN number issued by Income Tax Authorities duty attested by the applicant.

 One copy of Passport Size photographs of the applicant duly attested by the banker to the
applicant.

 Declaration by the applicant that the proprietor/partners/directors as the case may be of the
applicant company, are not associated as proprietor/partners/directors in any other firm, which
has been caution, listed by the RBI. Where the applicant declares that they are associated as
proprietor/partners/directors in any other firm, which has been caution, listed by the RBI, they
will be allotted IEC No. but with an additional condition that they can export only with RBI’s
prior approval and they should approach RBI for the purpose.

 Each importer/exporter shall be required to file importer/exporter profile once with the
licensing authority shall enter the information furnished in Appendix 2 in their database so as
to dispense with changes in the information given in Appendix-2, importer/exporter shall
intimate the same to the licensing authority.

IEC EXEMPT CATEGORIES.

The following importer exporter is exempted from the requirement of IEC code number.

 Ministries \ Department of Central or State Government.

 Person importing or exporting goods for their personal use not connected with trade or
manufacture or agriculture.

 Persons importing\exporting goods from\to Nepal & Myanmar provided the CIF value of single
consignment does exceed Indian Rs. 25000\-.

APPLICATION FOR OBTAINING AN IEC NUMBER

For obtaining IEC number apply in the prescribe form along with the documents listed above
to Regional Licensing Authority (Office of the Regional DGFT). The registered office or the
head office may apply for allotment of IEC No.

Whenever, there is a change in the name, address or constitution of the holder of IEC No., such
change should be intimated within 30 days to the concern authorities.

IEC certificate will be issued in the form (copy enclosed). A copy of IEC No. is also endorsed
to the concerned banker.

VALIDITY :

The IEC No allotted to a firm/company will be valid for all its branches/divisions
units/factories as indicated in the IEC No. Import/Export of any commodity by that
firm/company. There being no date of expiry, the IEC once allotted is valid till it is revoked.
But, if no import or export is effected in the previous financial year, the same will be made
inoperative. However, this can be made operative by a formal request to the DGFT.

IDENTITY CARD (For conducting transactions with the office of DGFT):

As it is not always possible for the top man or directors, promoters of the company to visit
DGFT frequently. There is a provision of issuance of identity cards to the
proprietors/partners/directors and their authorized representatives. An application of Issuance
of an identity card may be made in the form (Appendix-5) The document/
License/Certificate/Permissions may be delivered to the identity card holder and officials of
the Licensing Authority(DGFT)shall not be responsible for any loss etc. In case of loss of an
identity card a duplicate card may be issued on the basis of an FIR & affidavit. In addition to
obtaining the IEC No. the exporter is also required to obtain Business Identification No(BIN).
For this exporter is required to contact DGFT online on web site. The licensing authority issues
BIN in coordination with customs authorities. This BIN is required to be mentioned on the
shipping bills at the time of customs clearance of the export cargo.

RCMC (Registration-Cum-Membership Certificate) – REGISTRATION WITH EXPORT

PROMOTION COUNCILS –

In order to enable the exporter to obtain benefits/concessions under the Foreign Trade Policy,
the exporter is required to register himself with an appropriate export promotion agency by
obtaining registration-cum-membership certificate. (RCMC). If the export product is that it is
not covered by any EPC, RCMC in respect thereof may be issued by FIEO. An application for
registration should be accompanied by a self certified copy of the Importer-Exporter Code
number issued by the regional licensing authority concerned and bank certificate in support of
the applicants financial soundness. The RCMC shall be valid for 5 years ending 31st March of
the licensing year.

REGISTRATION WITH SALES TAX AUTHORITIES:

Goods that are to be shipped out of the country for export are eligible for exemptions from both
Sales Tax and Central Sales Tax. For this purpose, exporter should get himself registered with
the Sale Tax Authority of is state after following the procedures prescribed under the Sales Tax
Act applicable to his state.

HOW ONE BEGINS TO DO EXPORT

Before entering into the venture of exports, one must look for the product to be exported and
the market where he intends to export.

In case of a manufacturer, obviously he would like to export the product he manufactures as is

or with possible modification as may be required by the market. However, in case of a merchant
exporter or a trader, one has to identity the product to export. If the exporter is already in the
trade in the domestic market and is familiar with the product it would be an advantage to export
the said product of which he has reasonable knowledge.
 Before selecting a product, one must simultaneously made a study and find out the prospective
market. For finding out the market for the selected product, the following methods will help.

 Get statistical information as to imports of the product by various countries and their growth
prospects in the respective countries

 Approach the chamber of commerce for their guidance to find out the market.

 Approach the Export Promotion Council dealing in the product of selection to get more
information.

The Preliminary

Once you are ready with the product you wish to export and have found the market for the
same, you are ready to proceed further. Following sequences can be followed:

 Any one, who wishes to export, must first of all get an Importer Exporter Code Number (IE
Code).This can be obtained by making a formal application to the office of the Regional
Directorate General of Foreign Trade (DGFT).

 Get yourself registered with the related Export Promotion Council and become a member.
Also arrange to obtain Registration-Cum-Membership Certificate (RCMC) from the
council. This has twin objectives:

o Under the Foreign Trade Policy, it is mandatory that an exporter gets him registered with the
Export Promotion Council to avail of various export facilities.

o Being a member, you will have access to all the information relating to the product that could
be made available by the council

o Many foreign buyers send their enquiries for the imports to the Export Promotion Council.
Hence you will have few customers interested in your product.

 If you are a manufacturer, find out the provisions under the EXIM Policy of getting the raw
materials duty free.

 Get familiar with the excise formalities as goods meant for export can be cleared without
payment of C. Excise duty on the finished product subject to compliance of certain formalities.

 Understand the local government regulations in relations to the export of the product.
 Get information of the government’s regulations of the importing country as to restrictions on
the quantity, product specification, packing regulations, customs regulations, requirement of
specific documents/information etc.

 Availability of Vessels/Airlines, the transport charges, frequency of operation etc.,

 To look for a Custom House Agent (CHA) (also know as freight forwarders or clearing agents)
for handling the documents/cargo in the customs.

 If the product is covered under any quota regulation, find out the agency/council who are
handling the quota distribution for the product and the availability of quota for exports.

FINDING A CUSTOMS

Once you have selected the market, the next step is to find a prospective customer. This you
can get

 From the directory of importers of the country

 By writing to the Embassy of India in that country for assistance

 By writing to the chamber of commerce of that country

 By means of participation in a Fair/Exhibition abroad either directly or through the Export

Promotion Council

 By participating in international fair if organized locally

 Through the personal contacts in that country. By these processes one can only have the list of
customers. One has to dialogue or correspond with these customers by sending samples, getting
feedback from the customers etc. to ultimately select the customer with whom to deal with. It
is necessary to know the financial standing of the company which can be obtained through the
bank channel or through the office of ECGC.

NEGOTIATING CONTRACT.

Once the prospective customer is found, the business deal has to be concluded. The following
aspects may be considered before entering into a final contract with the buyer.
 Credit Worthiness of the Customer.

 Availability of the Steamer/Airlines and the frequency

 The freight charges

 The full product specification

 The quantity, Price

 Terms of Payment

 Type of packing and markings on the packages

 Mode of shipment & Shipment schedule

 Tolerance of quantity to be shipped

 Documentation requirement for the customer

 Documentation requirement of the government of importing country

 Compliance of the local governmental rules and regulations

Before entering into contract one should take note of the above factors. While these are
indicative, the requirements will vary from country to country, product to product and buyer to
buyer.

EXPORT SALES & CONTRACT TERMS & CONDITIONS

Very often exporters do not enter into any formal contract and finalize the trade deal through
the exchange of letters, cable, telex etc. It is, however, expedient that the parties (exporters &
importers) incorporate all important terms & conditions of their trade deal in a separate
document or contract that will avoid disputes arising out of uncertainty or ambiguity. Export
contract may be sent in duplicate along with the Proforma Invoice to the overseas buyer.

NATURE OF INTERNATIONAL TRADE COUNTRACTS.

There are certain, peculiar characteristics of international trade contract which are not present
in those for sales of goods in the domestic market
Whereas the parties to a domestic trace contract normally needs only agree on the elements
which are necessary for their particular trade transactions like price, description, quality and
quantity of goods, delivery terms etc the situation will be quite different when the buyer and
the seller to sale/purchase contract belong to different countries. The parties to all international
trade contracts provide all their relative rights and obligations in several ways

For example, they may agree to adopt either the Law of the country of the buyer or that of the
seller. The traders are normally reluctant to leave the determination of the rights and obligations
by implications under the legal system of either’s country. They prefer to make explicit
provisions regarding the rights and obligations by including a set of detailed and precise terms
and conditions in their contract.

EXPORT OF SAMPLES\GIFTS.

Exports of bonafide trade and technical samples of freely exportable items shall be allowed
without any limit. Goods including edible items of value not exceeding Rs. 100000/- in a
licensing year, may be exported as a gift. However items mentioned as restricted for exports in
ITC(HS) shall not be exported as a gift without a licence/certificate/permission, except in the
case of edible items.

STANDARD CONTRACT FOMS:

Notwithstanding the efforts made by various national/international organizations like the

United Nations Commission on the International Trade Law, there is still no perfection or a
device which would give the parties an accurate and complete idea of each others
understanding of various trade terms, the commercial practices and the rights and the
obligations vis-à-vis each other so that the misunderstandings are practically eliminated.

Nevertheless, the Indian Council of Arbitration published in 1966 a booklet on “Standard

Contract Forms and Model Arbitration Clause for use in Foreign Trade Contracts”. It was
revised and reprinted in 1969 and 1977. It can be referred to by exporter for various clause to
be incorporated in the Export Contract.

ENTERING INTO AN EXPORT CONTRACT

In order to avoid disputes, it is necessary to enter into an export contract with the overseas
buyer. For this purpose, export contract should be carefully drafted incorporating
comprehensive but in precise terms, all relevant and important conditions of the trade deal.
 There should not be any ambiguity regarding the exact specifications of goods and terms of
sale including export price, mode of payment, storage and distribution methods, type of
packaging, port of shipment, delivery schedule etc. The different aspects of an export contract
are enumerated as under:

 Product, Standards and Specifications

 Quantity

 Inspection

 Total Value of Contract

 Terms of Delivery

 Taxes, Duties and Charges

 Period of Delivery/Shipment

 Packing, Labeling and Marking

 Terms of Payment-- Amount/Mode & Currency

 Discounts and Commissions

 Licenses and Permits

 Insurance

 Documentary Requirements

 Guarantee

 Force Majeure of Excuse for Non-performance of contract

 Remedies

 Arbitration clause

It will not be out of place to mention here the importance of arbitration clause in an export
contract Court proceedings do not offer a satisfactory method for settlement of commercial
disputes, as they involve inevitable delays, costs and technicalities. On the other hand,
arbitration provides an economic, expeditious and informal remedy for settlement of
commercial disputes. Arbitration proceedings are conducted in privacy and the awards are kept
confidential. The Arbitrator is usually an expert in the subject matter of the dispute. The dates
for arbitration meetings are fixed with the convenience of all concerned. Thus, arbitration is
the most suitable way for settlements of commercial disputes and it may invariably be used by
businessmen in their commercial dealings.

ARBITRATION:

Arbitration clause recommended by the Indian Council of Arbitration:”All disputes or

differences whatsoever arising between the parties out of / relating to the meaning, construction
and operation or effect of this contract or the breach thereof shall be settled by arbitration in
accordance with the rules of Arbitration of the Indian Council of Arbitration and the award
made in pursuance thereof shall be binding on the parties” (or any other arbitration clause that
may be agreed upon between the parties).

TERMS OF SHIPMENTS – INCOTERMS

The INCOTERMS (International Commercial Terms) is a universally recognized set of

definition of international trade terms, such as FOB, CFR & CIF, developed by the
International Chamber of Commerce(ICC) in Paris, France. It defines the trade contract
responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool.
The exporter and the importer need not undergo a lengthy negotiation about the conditions of
each transaction. Once they have agreed on a commercial terms like FOB, they can sell and
buy at FOB without discussing who will be responsible for the freight, cargo insurance and
other costs and risks.

The INCOTERMS was first published in 1936 --- INCOTERMS 1936 --- and it is revised
periodically to keep with changes in the international trade needs. The complete definition of
each term is available from the current publication --- INCOTERMS 2000. Under
INCOTERMS 2000, the international commercial terms are grouped into E, F, C and D,
designated by the first letter of the term, relating to the final letter of the term. E.g. EXW—
exworks comes under grouped ‘E’.

The purpose of Incoterms is to provide a set of international rules for the interpretation of the
most commonly used trade terms in foreign trade. Thus, the uncertainties of different
interpretations of such terms in different countries can be avoided or at least reduced to a
considerable degree. The scope of Incoterms is limited to matters relating to the rights and
obligations of the parties to the contract of sale with respect to the delivery of goods. Incoterms
 deal with the number of identified obligations imposed on the parties and the distribution of
risk between the parties.

In international trade, it would be best for exporters to refrain, wherever possible, from dealing
in trade terms that would hold the seller responsible for the import customs clearance and/or
payment of import customs duties and taxes and/or other costs and risks at the buyer’s end, for
example the trade terms DEO (Delivery Ex Quay) and DDP (Delivered Duty Paid)

Quite often, the charges and expenses at the buyer’s end may cost more to the seller than
anticipated. To overcome losses, hire a reliable customs broker or freight forwarder in the
importing country to handle the import routines.

Similarly, it would be best for importers not to deal in EXW (Ex Works) which would hold the
buyer responsible for the export customs clearance, payment of export customs charges and
taxes, and other costs and risks at the seller’s end

PROCESSING AN EXPORT ORDER

You should not be happy merely on receiving an export order. You should first acknowledge
the export order, and then proceed to examine carefully in respect of

 Items

 Specification

 Pre-shipment inspection

 Payment conditions

 Special packaging

 Labeling and marketing requirements

 Shipment and delivery date

 Marine insurance

 Documentation requirement etc.

If you are satisfied on these aspects, a formal confirmation should be sent to the buyer,
otherwise clarification should be sought from the buyer before confirming the order. After
confirmation of the export order immediate steps should be taken for procurement/manufacture
 of the export goods. In the meanwhile, you should proceed to enter into a formal export contract
with the overseas buyer.

Before accepting any order necessary homework should have been done as to availability of
the production capacity, raw material e.t.c. It would be in the interest of the exporter to look
into entering into forward contract to safeguard against exchange rate fluctuations. Ensure that
the mode of payment is also agreed upon. In case of shipment against letter of credit, the buyer
should be advised to open the credit well in advance before effecting the shipment.

FINANCIAL RISKS INVOLVED IN FOREIGN TRADE

As an exporter while selling goods abroad, you encounter various types of risks. The major
risks which you have to undergo are as follows:

 Credit Risk

 Currency Risk

 Carriage Risk

 Country Risk

You can protect yourself against the above risks by initiating appropriate steps.

Credit Risks :

You can cover your credit risk against the foreign buyer by insisting upon opening a letter of
credit in your favour. Alternatively one can avail of the facility offered by various credit risk
agencies. A specific insurance cover can also be obtained from ECGC (Exports Credit &
Guarantee Corporation) to cover your country risk besides covering credit risk.

Currency Risks:

As regards covering the currency risk, due to the exchange rate fluctuations, you can request
your banker to book a forward contract.
 Carriage Risk:

The carriage risk can be covered by taking an appropriate general insurance policy.

Country Risk:

ECGC provides cover to protect the exporter from country risks. A detailed procedure how an
exporter can get himself protected against the above risks are given in separate chapters later.

EXPORT DOCUMENTS

Any export shipment involved various documents required by various authorities such as
customs, excise, RBI, Inspection and according depending upon the requirements, there are
categorized into 2 categories, namely commercial documents and regulatory documents.

A. Commercial Documents. : - Commercial documents are required for effecting physical

transfer of goods and their title from the exporter to the importer and the realisation of export
sale proceeds. Out of the 16 commercial documents in the export documentation framework as
many as 14 have been standardised and aligned to one another. These are proforma invoice,
commercial invoice, packing list, shipping instructions, intimation for inspection, certificate,
of inspection of quality control, insurance declaration, certificate' of insurance, mate's receipt,
bill of lading or combined transport document, application for certificate origin, certificate of
origin, shipment advice and letter to the bank for collection or negotiation of documents.
However, shipping order and bill of exchange could not be brought within the fold of the
Aligned Documentation System,

1. Commercial Invoice: Commercial invoice is an important and basic export document. It is also
known as a 'Document of Contents' as it contains all the information required for the
preparation of other documents. It is actually a seller's bill of merchandise. It is prepared by the
exporter after the execution of export order giving details about the goods shipped. It is
essential that the invoice is prepared in the name of the buyer or the consignee mentioned in
the letter of credit. It is a prima facie evidence of the contract of sale or purchase and therefore,
must be prepared strictly in accordance with the contract of sale.
 Contents of Commercial Invoice

 Name and address of the exporter.

 Name and address of the consignee.

 Name and the number of Vessel or Flight.

 Name of the port of loading.

 Name of the port of discharge and final destination.

 Invoice number and date.

 Exporter's reference number.

 Buyer's reference number and date.

 Name of the country of origin of goods.

 Name of the country of final destination.

 Terms of delivery and payment.

 Marks and container number.

 Number and packing description.

 Description of goods giving details of quantity, rate and total amount in terms of internationally
accepted price quotation.

 Signature of the exporter with date.

Significance of Commercial Invoice

 It is the basic document useful in preparation of various other shipping documents.

 It is used in various export formalities such as quality and pre-Shipment inspection excise and
customs procedures etc.

 It is also useful in negotiation of documents for collection and claim of incentives.

 It is useful for accounting purposes to both exporters as well as importers.

2 Inspection Certificate: The certificate is issued by the inspection authority such as the export
inspection agency. This certificate states that the goods have been inspected before shipment,
and that they confirm to accepted quality standards.

3 Marine insurance policy: Goods in transit are subject to risk of loss of goods arising due to
fire on ship, perils of sea, theft etc. marine insurance protects losses incidental to voyages and
in land transportation. Marine insurance policy is one of the most important document used as
collateral security because it protects the interest of all those who have insurable interest at the
time of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can also
insure the goods in case of FOB contract, at the request of the importer, but the premium
payment will be made by the exporter. There are different types of policies such as

 SPECIFIC POLICY: This policy is taken to cover different risks for a single shipment. For a
regular exporter, this policy is not advisable as he will have to take a separate policy every time
a shipment is made, so this policy is taken when exports are in frequent.

 Floating Policy: This is taken to cover all shipments for some months. There is no time limit,
but there is a limit on the value of goods and once this value is crossed by several shipments,
then it has to be renewed.

 Open Policy: This policy remains in force until cancelled by either party i.e. insurance
company or the exporter.

 Open Cover Policy: This policy is generally issued for 12 months period, for all shipments to
one or more destinations. The open cover may specify the maximum value of consignment that
may be sent per ship and if the value exceeded, the insurance company must be informed by
the exporter.

 Insurance Premium: Differs upon product to product and a number of such other factors, such
as, distance of voyage, type and condition of packing, etc. Premium for air consignments are
lowered as compared to consignments by sea.

4. Consular Invoice: Consular invoice is a document required mainly by the Latin American
countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand, Myanmar, Iraq, Australia,
Fiji, Cyprus, Nigeria, Ghana, Guinea, Zanzibar, etc. This invoice is the most important
document, which needs to be submitted for certification to the Embassy of the importing
country concerned. The main purpose of the consular invoice is to enable the authorities of the
importing country to collect accurate information about the volume, value, quality, grade,
 source, etc., of the goods imported for the purpose of assessing import duties and also for
statistical purposes. In order to obtain consular invoice, the exporter is required to submit three
copies of invoice to the Consulate of the importing country concerned. The Consulate of the
importing country certifies them in return for fees. One copy of the invoice is given to the
exporter while the other two are dispatched to the customs office of the importer's country for
the calculation of the import duty. The exporter negotiates a copy of the consular invoice to the
importer along with other shipping documents.

Significance of Consular Invoice for the Exporter

 It facilitates quick clearance of goods from the customs in exporter's as well as importer's
country.

 Certification' of goods by the Consulate of the importing country indicarer that the importer
has fulfilled all procedural and licensing formalities for import of goods.

 It also assures the exporter of the payment from the importing country.

Significance of Consular Invoice for the Importer

 It facilitates quick clearance of goods from the customs at the port destination and therefore,
the importer gets quick delivery of goods.

 The importer is assured that the goods imported are not banned for imported in his country.

Significance of Consular Invoice for the Customs Office

 It makes the task of the customs authorities easy.

 It facilitates quick calculation of duties as the value of goods as determine by the Consulate is
considered for the purpose.

5. Certificate of Origin: The importers in several countries require a certificate of origin without
which clearance to import is refused. The certificate of origin states that the goods exported are
originally manufactured in the country whose name is mentioned in the certificate. Certificate
of origin is required when:-

 The goods produced in a particular country are subject to’ preferential tariff rates in the foreign
market at the time importation.

 The goods produced in a particular country are banned for import in the foreign market.
 Types of the Certificate of Origin

(a) Non-preferential Certificate, of Origin: - Non-preferential certificate of origin is required

in general by all countries for clearance of goods by the importer, on which no preferential
tariff is given. It is issued by: ¬

 The authorised Chamber of Commerce of the exporting country.

 Trade Association. Of the exporting country.

(b) Certificate of Origin for availing Concessions under GSP :- Certificate of origin required
for availing of concessions under Generalised System of Preferences (GSP) extended by
certain, countries such as France, Germany, Italy, BENELUX countries, UK, Australia; Japan,
USA, etc. This certificate can be obtained from specialised agencies, namely;

 Export Inspection Agencies.

 Jt. Director General of Foreign Trade..

 Commodity Boards and their regional offices.

 Development Commissioner, Handicrafts.

 Textile Committees for textile products.

 Marine Products Export Development Authority for marine products.

 Development Commissioners of EPZs

(c) Certificate for availing Concessions under Commonwealth Preferences (CWP):

Certificate of origin for the purpose of Commonwealth Preference is also known as 'Combined
Certificate of Origin and Value'. It is required by two member countries, i.e. Canada and New
Zealand of the Commonwealth. For concession under Commonwealth preferences, the
certificates or origin have to be submitted in special forms obtainable, from the High
Commission of the country concerned.

(d) Certificate for availing Concessions under other Systems of Preference:- Certificate
of origin is also required for tariff concessions. under the Global System of Trade Preferences
(GSTP), Bangkok Agreement(BA) and SAARC Preferential Trading Arrangement (SAPTA)
under which India grants and receives tariff concessions On imports and exports. Export
Inspection Council (EIC) is the sole authority to print blank Certificates of Origin under BA,
 SAARC and SAPTA which can be issued by such agencies as EPCs, DCs of EPZs, EIC,
APEDA, MPEDA, FIEO, etc...

Contents of Certificate of Origin

 Name and logo of chamber of commerce.

 Name and address of the exporter.

 Name and address of the consignee.

 Name and the number of Vessel of Flight

 Name of the port of loading.

 Name of the port of discharge and place of delivery.

 Marks and container number.

 Packing and container description.

 Total number of containers and packages.

 Description of goods in terms of quantity.

 Signature and initials of the concerned officer of the issuing authority.

 Seal of the issuing authority.

Significance of the Certificate of Origin

 Certificate of origin is required for availing of concessions under Generalised System of

Preferences (GSP) as well as under Commonwealth Preferences (CWP).

 It is to be submitted to the customs for the assessment of duty clearance of goods with
concessional duty.

 It is required when the goods produced in a particular country are banned for import in the
foreign market.

 It helps the buyer in adhering to the import regulations of the country.

 Sometimes, in order to ensures that goods bought from some other country have not been
reshipped by a seller, a certificate of origin IS required.
 6. Bill of Lading: The bill of lading is a document issued by the shipping company or its
agent acknowledging the receipt of goods on board the vessel, and undertaking to deliver the
goods in the like order and condition as received, to the consignee or his order, provided the
freight and other charges as specified in the bill have been duly paid. It is also a document of
title to the goods and as such, is freely transferable by endorsement and delivery.

Bill of Lading serves three main purposes:

 As a document of title to the goods;

 As a receipt from the shipping company; and

 As a contract for the transportation of goods.

Types of Bill of Lading

 Clean Bill of Lading: - A bill of lading acknowledging receipt of the goods apparently in good
order and condition and without any qualification is termed as a clean bill of lading.

 Claused Bill of Lading: - A bill of lading qualified with certain adversere marks such as,
"goods insufficiently packed in accordance with the Carriage of Goods by Sea Act," is termed
as a claused bill of lading.

 Transhipment or Through Bill of Lading: - When the carrier uses other transport facilities,
such as rail, road, or another steamship company in addition to his own, the carrier issues a
through or transhipment bill of lading.

 Stale Bill of Lading: - A bill of lading that has been held too long before it is passed on to a
bank for negotiation or to the consignee is called a stale bill of lading.

 Freight Paid Bill of Lading: - When freight is paid at the time of shipment or in advance, the
bill of landing is marked, freight paid. Such bill of lading is known as freight bill of lading.

 Freight Collect Bill of lading :- When the freight is not paid and is to be collected from the
consignee on the arrival of the goods, the bill of lading is marked, freight collect and is known
as freight collect bill of lading

Contents of Bill of Lading

 Name and logo of the shipping line.

 Name and address of the shipper.

 Name and the number of vessel.

 Name of the port of loading.

 Name of the port of discharge and place of delivery.

 Marks and container number.

 Packing and container description.

 Total number of containers and packages,

 Description of goods in terms of quantity.

 Container status and seal number.

 Gross weight in kg. and volume in terms of cubic meters.

 Amount of freight paid or payable.

 Shipping bill number and date.

 Signature and initials of the Chief Officer. .

Significance of Bill of Lading for Exporters

 It is a contract between the shipper and the shipping company for carriage of the goods to the
port of destination.

 It is an acknowledgement indicating that the goods mentioned in the document have been
received on board for the Purpose of shipment.

 A clean bill of lading certifies that the goods received on board the ship are in order and good
condition.

 It is useful for claiming incentives offered by the government to exporters

 The exporter can claim damages from the shipping company if the goods are lost or damaged
after the issue of a clean bill of lading.

Significance of Bill of Lading for Importers

 It acts as a document of title to goods, which is transferable endorsement and delivery.

 The exporter sends the bill of lading to the bank of the importer so as to enable him to take the
delivery of goods.

 The exporter can give an advance intimation to the foreign buyer about the shipment of goods
by sending him a non-negotiable copy of bill of lading

Significance of Bill of Lading for Shipping Company

 It is useful to the shipping company for collection of transport charges from the importer, if not
collected from the exporter.

7. Airway Bill: An airway bill, also called an air consignment note, is a receipt issued by an
airline for the carriage of goods. As each shipping company has its own bill of lading, so each
airline has its own airway bill. Airway Bill or Air Consignment Note is not treated as a
document of title and is not issued in negotiable form.

Contents of Airway Bill

 Name of the airport of departure and destination.

 The names and addresses of the consignor, consignee and the first carrier.

 Marks and container number.

 Packing and container description.

 Total number of containers and packages.

 Description of goods in terms of quantity.

 Container status and seal number.

 Amount of freight paid or payable.

 Signature and initials of the issuing carrier or his agent.

Importance of Airway Bill: It is a contract between the airlines or his agent to carry
goods to the destination. It is the document of instructions for the airline handling staff. It acts
as a customs declaration form. Since, it contains details about freight it also represents freight
bill.

7. Shipment Advice to Importer:- After the shipment of goods, the exporter intimates the
importer about the shipment of goods giving him details about the date of shipment, the name
 of the vessel, the destination, etc. He should also send one copy of non-negotiable bill of lading
to the importer.

8. Packing List: The exporter prepares the packing list to facilitate the buyer to check the
shipment. It contains the detailed description of the goods packed in each case, their gross and
net weight, etc. The difference between a packing note and a packing list is that the packing
note contains the particulars of the contents of an individual pack, while the packing list is a
consolidated statement of the contents of a number of cases or packs.

9. Bill of Exchange: The instrument is used in receiving payment from the importer. The importer
may prefer Bill of Exchange to LC as it does not involve blocking of funds. A bill of exchange
is drawn by the exporter on the importer, to make payment on demand at sight or after a certain
period of time.

 B/E is a means to collect payment.

 B/E is a means to demand payment.

 B/E is a means to extent the credit.

 B/E is a means to promise the payment.

 B/E is an official acknowledgement of receipt of payment.

 Financial documents perform the function of obtaining the finance collection of payment etc.

 2 sets. Each one bearing the exclusion clause making the other part of the draft invalid.

 Sight B/E.

 Usance B/E.

 It is known as draft.

 Immediate payment – Sight draft.

 There are two copies of draft. Each one bears reference to the other part A&B. when any one
of the draft is paid, the second draft becomes null and void.
 Parties to bill of exchange.

1. The drawer: The exporter / person who draws the bill.

2. The drawee: The importer / person on whom the bill is drawn for payment.

3. The payee: The person to whom payment is made, generally, the exporter / supplier of the
goods.

B Auxiliary Documents: These documents generally form the basic documents based on which
the commercial and or regulatory documents are prepared. These documents also do not have
any fixed formats and the number of such documents will wary according to individual
requirements.

1. Proforma Invoice: The starting point of the export contract is in the form of offer made by the
exporter to the foreign customer. The offer made by the exporter is in the form of a proforma
invoice. It is a quotation given as a reply to an inquiry. It normally forms the basis of all trade
transactions.

Contents of Proforma Invoice

 Name and address of the exporter.

 Name and address of the importer.

 Mode of transportation, such as Sea or Air or Multimodal transport.

 Name of the port of loading.

 Name of the port of discharge and final destination.

 Provisional invoice number and date.

 Exporter's reference number.

 Buyer's reference number and date.

 Name of the country of origin of goods.

 Name of the country of final destination.

 Marks and container number. .

 Number and packing description.

 Description of goods giving details of quantity, rate and total amount in terms of internationally
accepted price quotation.

 Signature of the exporter with date.

Importance of Proforma Invoice

 It forms the basis of all trade transactions.

 It may be useful for the importer in obtaining import licence or foreign exchange.

2. Intimation for Inspection: Whenever the consignment requires the pre-shipment inspection,
necessary application is to be made to the concerned inspection agency for conducting the
inspection and issue of certificate thereof.

3. Declaration of Insurance: Where the contract terms require that the insurance to be covered
by the exporter, the shipper has to give details of the shipment to the insurance company for
necessary insurance cover. The detailed declaration will cover:

 Name of the shipper \ exporter.

 Name & address of buyer.

 Details of goods such as packages, quantity, value in foreign currency as well as in Indian Rs.
Etc.

 Name of the Vessel \ Aircraft.

 Value for which insurance to be covered.

4. Application of the Certificate Origin: In case the exporter has to obtain Certificate of Origin
from the concerned authorities, an application has to be made to the concerned authority with
required documents. While the simple invoice copy will do for getting C\O from the chamber
of commerce, in respect of obtained the same from the office of the Textile Committee or
Export Promotion Council, the documents requirement are different.

5. Mate's Receipt: Mate's receipt is a receipt issued by the Commanding Officer of the ship when
the cargo is loaded on the ship. The mate's receipt is a prima facie evidence that goods are
loaded in the vessel. The mate's receipt is first handed over to the Port Trust Authorities. After
making payment of all port dues, the exporter or his agent collects the mate's receipt from the
Port Trust Authorities. The mate's receipt is freely transferable. It must be handed over to the
 shipping company in order to get the bill of lading. Bill of lading is prepared on the basis of
the mate's receipt.

Types of Mate's Receipts

 Clean Mate's Receipt: - The Commanding Officer of the ship issues a clean mate's receipt, if
he is satisfied that the goods are packed properly and there is no defect in the packing of the
cargo or package.

 Qualified Mate's Receipt: - The Commanding Officer of the ship issues qualified mate's
receipt, when the goods are not packed properly and the shipping company does not take any
responsibility of damage. to the goods during transit.

Contents of Mate's Receipt

 Name and logo of the shipping line.

 Name and address of the shipper.

 Name and the number of vessel.

 Name of the port of loading.

 Name of the port of discharge and place of delivery.

 Marks and container number.

 Packing and container description.

 Total number of containers and packages.

 Description of goods in terms of quantity.

 Container status and seal number.

 Gross weight in kg. and volume in terms of cubic meters.

 Shipping bill number and date.

 Signature and initials of the Chief Officer.

 Significance of Mate's Receipt

 It is an acknowledgement of goods received for export on board the ship.

 It is a transferable document. It must be handed over to the shipping company in order to get
the bill of lading.

 Bill of lading, which is the title of goods, is prepared on the basis of the mate's receipt.

 It enables the exporter to clear port trust dues to the Port Trust Authorities.

Obtaining Mate's Receipt

The goods are then loaded on board the ship for which the Mate or the Captain of the ship
issues Mate's Receipt to the Port Superintendent.

6. Shipping order: it is issued by the Shipping/Conference Line intimating the exporter about the
reservation of space for shipment of cargo which the exporter intends to ship. Details of the
vessel, poet of the shipment, and the date on which the goods are to be shipped are mentioned.
This order enables the exporter to make necessary arrangements for customs clearance and
loading of the goods.

7. Shipping Instructions: at the pre-shipment stage, when the documents are to sent to the CHA
for customs clearance, necessary instructions are to be give with relevance to

 The export promotion scheme under which goods are to be exported.

 Name of the specific vessel on which the goods are to be loaded.

 If goods are to be FCL or LCL.

 If freight amount are to be paid / collected.

 If shipment are covered under A.R.E.-1 procedure.

 Instructions for obtaining Bill of Lading etc.

8. Bank letter for negotiation of documents: at the post shipment stage, the exporter has to
submit the documents to a bank for negotiation or discounting or collection for forwarding the
same to the customer and also for realization of export proceeds. The bank letter is the set of
instruction for the bank as to how to handle the documents by them and by the bank at the
buyer’s country which may include
 Name and address of the buyer.

 Details of various documents being sent and the number of the copies thereof.

 Name and address of the buyer’s bank if available.

 If the documents are sent L/C or on open terms.

 If the proceeds are to adjusted against any pre-shipment packing credit loan.

 If the bill amount is to be adjusted against any forward exchange cover.

 In case of credit bill who has to bear the interest, either exporter or if the same is to be collected
from the buyer.

 Instructions in case non-acceptance/non-payment by the buyer.

C. Regulatory Document: Regulatory pre-shipment export documents are prescribed by the

different government departments and bodies in order to comply with various rules and
regulations under the relevant laws governing export trade such as export inspection, foreign
exchange regulation, ex port trade control, customs, etc. Out of 9 regulatory documents four
have been standardised and aligned. These are shipping bill or bill of export, exchange control
declaration (GR from), export application dock challan or port trust copy of shipping bill and
receipt for payment of port charges.

1. Shipping Bill: Shipping bill is the main customs document, required by the customs authorities
for granting permission for the shipment of goods. The cargo is moved inside the dock area
only after the shipping bill is duly stamped, i.e. certified by the customs. Shipping bill is
normally prepared in five copies :-

 Customs copy.

 Drawback copy.

 Export promotion copy.

 Port trust copy.

 Exporter's copy.
 Types of Shipping Bill

Based on the incentives offered by the government, customs authorities have introduced three
types of shipping bills:-

 Drawback Shipping Bill: - Drawback shipping bill is useful for claiming the customs
drawback against goods exported.

 Dutiable Shipping Bill: - Dutiable shipping bill is required for goods which are subject to
export duty.

 Duty-free Shipping Bill: - Duty-free shipping bill is useful for exporting goods on which there
is no export duty.

In order to facilitate easy recognition and quick processing, following colours have been
provided to different kinds of shipping bills :

Contents of Shipping Bill

 Name and address of the exporter.

 Name and address of the importer.

 Name of the vessel, master or agents and flag.

 Name of the port at which goods are to be discharged.

 Country of final destination.

 Details about packages, description of goods, marks and numbers, quantity and details of each
case.

 FOB price and real value of goods as defined in the Sea Customs Act.

 Whether Indian or foreign merchandise to be re-exported

 Total number of packages with total weight and value.

Significance of Shipping Bill

a) Shipping bill is the main customs document, required by the customs authorities for granting
permission for the shipment of goods.
b) The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e.
certified by the customs.

c) Duly endorsed shipping bill is also necessary for the collection of export incentives offered by
the government.

d) It is useful to the Customs Appraiser while determining the actual value of goods exported.

2. A.R.E. 1 form (Central excise): this form ARE-1 is prescribed under Central Excise rules for
export of goods. In case goods meant for export are cleared directly from the premises of a
manufacturer, the exporter can avail the facility of exemption from payment of terminal excise
duty. The goods may be cleared for export either under claim for rebate of duty paid or under
bond without payment of duty. In both the events the goods are to be cleared under form A.R.E-
1 which will show the details of the goods being exported, the relevant duty involved and if the
duty is paid or goods being cleared under bond, details of goods being sealed either by the
exporter or Central Excise officials etc.

3. Exchange Control declaration Form (GR/PP/SOFTEX): under the exchange control

regulations all exporters must declare the details of shipment for monitoring by the Reserve
Bank of India. For this purpose, RBI has prescribed different forms for different types of
shipments like GRI, PP forms etc. These declaration forms must be presented to the customs
officials at the time of passing of export documentation. Under the EDI processing of shipping
bill in the customs, these forms have been dispensed with and a new form SDF has to be
submitted to the customs in the place of above forms.

4. Export Application: this is the application to be made to the customs officials before shipment
of goods. The prescribed form of the application is the Shipping Bill/Bill of Export. Different
types are required for shipment like ex-bond, duty free goods, and dutiable goods and for export
under different export promotion schemes such as claims for duty drawback etc.

5. Vehicle Ticket/Cart Ticket/Gate Pass etc.: before the goods are being taken inside the port for
loading, necessary permission has to be obtained for moving the vehicle into the customs area.
This permission is granted by the Port Trust Authority. This document will contain the detail
of the export cargo, name and address of the shippers, lorry number, marks and number of the
packages, driver’s licence details etc.

6. Bank Certificate of Realisation: this is the form prescribed under the Foreign Trade Policy,
wherein the negotiating bank declares the fob value of exports and for the date of realisation
 of the export proceeds. This certificate is required fore obtaining the benefit under various
schemes and this value of fob is reckoned as fob value of exports.

D. Other Document:

 Black List Certificate: it certifies that the ship/aircraft carrying the cargo has not touched the
particular country on its journey or that the goods are not from the particular country. This is
required by certain nations who have strained political and economical relations with the so
called “Black Listed Countries”.

 Language Certificate: Importers in the European Community require a language certificate

along with the GSP certificate in respect of handloom cotton fabrics classifiable under NAMEX
code 55.09. Generally four copies of language certificate are prepared by the concerned
authority who issues GSP certificate. Three copies are handed over to the exporter. A copy is
sent along with the other documents for realisation of export proceeds.

 Freight Payment Certificate: in most of the cases, the B/L or AWB will mention the
transportation and other related charges. However if the exporter does not want these details to
be disclosed to the buyer, the shipping company may issue a separate certificate for payment
of the freight charges instead of declaring on the main transport documents. This document
showing the freight payment is called the freight certificate.

 Insurance Premium Certificate: this is the certificate issued by the Insurance Company as
acknowledgement of the amount of premium paid for the insurance cover. This certificate is
required by the bank for arriving at the fob value of the goods to be declared in the bank
certificate of realisation.

 Combined Certificate of Origin and Value: this certificate is required by the Commonwealth
Countries. This certificate is printed in a special way by the Commonwealth Countries. This
certificate should contain special details as to the origin and value of goods, which are useful
for determining import duty. All other details are generally the same as that of Commercial
Invoice, such as name of the exporter and the importer, quality and quantity of the goods etc.

 Customs Invoice: this is required by the countries like Canada, USA for imposing preferential
tariff rates.
 Legalized Invoice: this is required by the certain Latin American Countries like Mexico. It is
just like consular invoice, which requires certification from Consulate or authorised mission,
stationed in the exporter’s country.

Special Provision under Uniform Customs and practice for Documentary Credit UCP-500,
for Commercial Invoice.

 Article-37: Commercial Invoice

o Must appear on their face to be issued by the beneficiary named in the credit.

o Must be made out in the name of the applicant.

o Need not be signed

 Banks may refuse Commercial Invoice issued for amounts in excess of the amount permitted
by the credit except otherwise stated.

 The description of the goods in the commercial invoice must correspond with the description
of the credit. In all other documents the goods may be described in the General in general terms
not inconsistent with description in the credit. In all documents goods may be described in
general terms not inconsistent with the Description of the goods in the credit.

Pre-Shipment Documents:

 Shipping bill.

 Export order/Sales contract/Purchase order.

 Letter of Credit

 Commercial invoice.

 Packing list.

 Certificate of origin.

 Guaranteed Remittance (G.R/SDF/PP/SOFTEX),or SDF.

 Certificate of Inspection.

 Various declarations required as per custom procedure.

 Exchange Control Declaration Form: all exports to which the requirement of declaration
apply must be declared on appropriate forms as indicated below unless the consignment is of
samples and of ‘No Commercial Value’

 GR FORM: to be completed in duplicate for exports otherwise than by post including export
of software in physical form i.e. magnetic tape/discs and paper media.

 SDF FORM: to be completed in duplicate and appended to the Shipping Bill for export declare
to the customs offices notified by the Central Government which have introduced EDI system
for processing Shipping Bill.

 PP FORM: to be completed in duplicate for export by post.

 SOFTX: to be completed in triplicate for export of software otherwise than in the physical
form i.e. magnetic tapes/discs and paper media.

These forms are available for sale in Reserve Bank of India

Export declaration forms have utmost importance and are binding on the exporters. It is,
therefore, necessary that enough care is taken while declaring exports on these forms, with
special reference on the following points.

 Name and address of the authorised dealer through whom proceeds of exports have been or
will be realized should be specified in the relevant column of the form.

 Details of commission and discount due to foreign agent or buyer should be correctly declared
otherwise difficulties may arise at the time of remittance of such commission.

 It should be clearly indicated in the form whether the export is on ‘outright sale basis’ or ‘on
consignment basis’ and irrelevant clauses must be stuck out

 Under the term ‘analysis of full export value’ a break up of full export value of goods under
F.O.B value, freight and insurance should be furnished in all cases, irrespective of the terms of
contract.

 All documents relating to the export of goods from India must pass through the medium of an
authorised dealer in foreign exchange in India within 21 days of shipment.

 The amount representing the full export value of goods must be realized within six months
from date of shipment.
 Disposal of Copies of Export Documentation Form

 GR forms covering export of goods other than jewellery should be completed by the exporter
in duplicate and both the copies should be submitted to customs at the port of Shipment.
Customs will give their running serial number on both the copies of the GR forms after
verifying the particulars and admitting the corresponding shipping bill. The value declared by
the exporter will also be verified by the customs and they will also record the assessed value.
Duplicate copy will be returned to the exporter and the original will be remained by the customs
for onward submission to the Reserve Bank. Duplicate form of the GR form will again be
presented to the customs at the time of actual shipment. After examination of goods and
certifying the quantity passed for shipment the duplicate copy will again be returned to exporter
for submission to an authorised dealer. However, an exception to submission of GR forms to
the Customs authorities have been made in case of deep sea fishing.

 (a) PP forms are to be first presented to an authorised dealer for countersignature. The form
will be countersigned by the authorised dealer only if the post parcel is addressed to his branch
or correspondent bank in the country or import. The concerned overseas branch or
correspondent is to be instructed to deliver the post parcel against payment or acceptance of
relevant bill, as the case may be.

(b) For post parcel addressed directly to the consignee, the authorised dealer will countersign the
form, provided —

(i) an irrevocable letter of credit for the full value of export has been opened in favour of exporter
and has been advised through authorised dealer concerned; or

(ii) the full value of shipment has been received in advance by the exporter through an authorised
dealer; or

(iii) On receipt of full value of shipment declared on this form the authorised dealer will forward to
RBI the duplicate copy along with the certified copy of shipper’s invoice.

(iv) The authorised is satisfied on the basis of standing and track record of the exporter and
arrangements made for realisation of the export proceed that he cold do so. If the authorised
dealer is not satisfied about standing etc. of the exporter, the application is rejected. No
reference is entertained by the Reserve Bank in such cases.
(c) The original PP form countersignature will be returned to the exporter by the authorised dealer
and the duplicate will be retained by him. Original PP form should then be submitted to the
post office along with the parcel. The post office through the goods have been dispatched will
forward the original to RBI.

The export of computer software may be undertaken in physical form i.e. software prepared
on magnetic tape and paper media as well as in non-physical form by direct data transmission
through dedicated earth stations/satellite links. The export of computer software in physical
form is subject to normal declaration on GR/PP form and regulations applicable there to will
also be applicable to such exports. However, export of non-physical form should be declared
on SOFTEX Form. Besides computer software, export of video / T.V. Software and all other
types of software products / packages should also be declared on the SOFTEX forms. Since
export of software is fraught with many risks and special guidelines have been framed for
handling such exports.

METHODS OF RECEIVING PAYMENT AGAINST EXPORTS

Before we proceed to understand the concept of Letter of Credit, let us understand the various
types of payment methods available against export.

METHODS OF PAYMENT

There are three methods of payment depending upon the terms of payment, and each method
of payment involves varying degrees of risks for the exporter. The methods are:

 Payment in advance
 Documentary Bills
 Letter of Credit
 Open Account
 Counter Trade
 A. PAYMENT IN ADVANCE

This method does not involve any risk of bad debts, provided entire amount has been received
in advance. At times, a certain per cent is paid in advance, say 50% and the rest on delivery.
This method of payment is desirable when:

 The financial position of the buyer is weak or credit worthiness of the buyer is not known.
 The economic/ political conditions in the buyer’s country are unstable.
 The seller is not willing to assume credit risk, as un the case of open account method.

However, this is the most unpopular methods as a foreign buyer would not be willing to pay
advance of shipment unless:

 The goods are specifically designed for the customer, and

 There is heavy demand for the goods (a seller’s market situation).

B. DOCUMENTARY BILLS:

Under this method, the exporter agrees to submit the documents to his bank along with the bill
of exchange. The minimum documents required are

 full set of bill of lading

 commercial Invoice
 Marine Insurance policy and other document, if required.

There are two main types of documentary bills:

 Documents against Payment,

 Documents against Acceptance.

Documents against payment (D/P): The documents are released to the importer against
payment. This method indicates that the payment is made against Sight Draft. Necessary
arrangements will have to be made to store the goods, if a delay in payment occurs.

The risk involved that the importer may refuse to accept the documents and to pay against
them. The reason for non-acceptance may be political or commercial ones. In India, ECGC
 covers losses arising out of such risks. Under this system, as compared to D/A, the exporter
has certain advantages:

 The document remain in the hands of the bank and the exporter does not lose possession or the
ownership of goods till payment is made,
 Other reason may include that the exporter may not be able to allow credit and wait for
payment.

Documents Against acceptance (D/A): The document are released against acceptance of the
Time Draft i.e. credit allowed for a certain period, say 90 days. However, the exporter need not
wait for payment till bill is met on due date, as he can discount the bill with the negotiating
bank and can avail of funds immediately after shipment of goods.

In case of D/A as compared to D/P bills, the risk involved is much grater, as the importer has
already taken possession of goods which may or may not be in his custody on the maturity date
of the bill. If the importer fails to pay on due date, the exporter, will have to start civil
proceedings to receive his payment, if all other alternatives fails. The risk involved can be
insured with ECGC.

C. LETTER OF CREDIT (L/C):

This method of payment has become the most popular form in recent times, it is more secured
as company to other methods of payment (other than advance payment).

A letter of credit can be defined as “ an undertaking by importer’s bank stating that payment
will be made to the exporter if the required documents are presented to the bank within the
variety of the L/C”.
 THE LETTER OF CREIDT

Introduction

The cycle of a business transaction can be said to be complete prima facie when the buyer has
received the product he desires to buy and the seller gets his payment in due consideration of
the product supplied.

While the seller is keen to receive the payment for his supplies, the buyer is equally keen that
he gets what he wants by the paying for the same.

Tough there are many merit and demerits in each of the different mode of payments we have
discussed earlier, in relation either to the buyer or to the seller, we shall now deal in detail about
the mode of payment under the Documentary Credit.

Generally, though exporters are complacent once they get the letter of Credit on hand feeling
that their payment is secured, let me say it is as much a dubious instrument as is a safe
instrument.

If one does not understand the implications of the terms and condition of a letter of credit, the
provisions under UCP 500, how co-operative are the exporter’s bank and how good are the L/C
opening bank and the reimbursement bank, he is sure to land in trouble at once stage or another.

There are ample cases of frauds under the Letter of Credit. More and more ingenious methods
are adopted to circumvent the provisions of UPC 500 by fair or foul means. Hence, even the
safety and security under the Letters of Credit may prove to be no better than a mirage for a
man in the desert.

Hence, sufficient care is to be taken by the exporter to ensure that instrument is received in
order and the conditions of the L/C can be well complied with, and there are no clauses of
ambiguity.
 What is a Documentary Credit?

To say in simple language, this is an Undertaking by a Bank associated with the buyer to make
the payment for the supply of goods by a seller subject to compliance of various requirements
that may be specified in the document of undertaking by the Bank. This document is known as
Documentary Credit. A Documentary Credit is also called a Letter of Credit (L/C).

CONTENTS OF A LETTER OF CREDIT

A letter of credit is an important instrument in realizing the payment against exports. So,
needless to mention that the letter of credit when established by the importer must contain all
necessary details which should take care of the interest of Importer as well as Exporter. Let us
see shat a letter of credit should contain in the interest of the exporter. This is only an illustrative
list.

 name and address of the bank establishing the letter of credit

 letter of credit number and date
 The letter of credit is irrevocable
 Date of expiry and place of expiry
 Value of the credit
 Product details to be shipped
 Port of loading and discharge
 Mode of transport
 Final date of shipment
 Details of goods to be exported like description of the product, quantity, unit rate, terms of
shipment like CIF, FOB etc.
 Type of packing
 Documents to be submitted to the bank upon shipment
 Tolerance level for both quantity and value
 If L/C is restricted for negotiation
 Reimbursement clause
 PROCEDURE INVOLVED IN THE LETTER OF CREDIT

The following are the step in the process of opening a letter of credit:

 Exporter’s Request: The exporter requests the importer to issue LC in his favor. LC is the most
secured form of payment in foreign trade.
 Importer’s Request to his Bank: The importer requests his bank to open a L/C. He May either
pay the amount of credit in his current account with the bank.
 Issue of LC: The issuing bank issues the L/C and forwards it to its correspondent bank with
also request to inform the beneficiary that the L/C has been opened. The issuing bank may also
request the advising bank to add its confirmation to the L/C, if so required by the beneficiary.
 Receipt of LC: the exporter takes in his possession the L/C. He should see it that the L/C is
confirmed.
 Shipment of Goods: Then exporter supplies the goods and presents the full set of documents
along with the draft to the negotiating bank.
 Scrutiny of Documents: The negotiating bank then scrutinizes the documents and if they are in
order makes the payment to the exporter.
 Negotiation: The exporter’s bank negotiates the document against the letter of credit and
forwards the export documents to the L/C opening bank or as per their instructions.
 Realization of payment: The issuing bank will reimburse the amount (which is paid to the
exporter) to the negotiating bank.
 Document to Importer: the issuing in turn presents the documents to the importer and debits
his account for the corresponding amount.

In order to have uniformity and to avoid disputes, the ICC Paris has evolved uniform customs
and practices of documentary credit (UCPDC), in short known as UCP 500 effective from 1-
1-96. These are rules have been adopted by more than 150 countries. They provide the
comprehensive and practical working aid to banker, lawyer, importers, exporters, Exporters,
transporters, executives involved in international trade.

Note: as soon as an L/C is received ensure that the same is authenticated. Meaning that the
genuineness of the L/C is certified by the Advising Bank by an endorsement with the marking
‘AUTHENTICATED’ OR ELSE THE L/C IS OF NO USE.
 Different Type of Documentary Credits.

There are various types of Documentary Credit opened by a bank in favour of it’s customer
depending upon the requirement. Let us talk about few types of Documentary Credit which are
in common use.

 Revocable / Irrevocable Documentary Credit :A Revocable Documentary Credit can be

revoked (cancelled) by the buyer at his own discretion and this does not require the consent of
the seller. The risk factor here is that the L/C may be cancelled even after the shipment is done
and before the beneficiary present the documents to the bank for claiming the reimbursement.
Hence, a revocable L/C is as goods as no L/C. obviously, no seller will entertain a revocable
L/C. Contrary to this, an Irrevocable Documentary Credit once established and advised to the
beneficiary, cannot be revoked or cancelled unilaterally by the buyer without the consent of
the beneficiary (Seller).A Seller must always ask for an Irrevocable Letter of Credit.
 Restricted/ Unrestricted Documentary Credit: A Documentary Credit stipulates the name of the
bank who is authorized to negotiate the document for claming the reimbursement. In this case
the beneficiary is obliged to negotiate the documents only through the specified bank i.e.
Negotiation of document is restricted to that particular bank. On the contrary if no specific
bank is nominated for negotiation, it may say ‘Negotiation by any bank’ which means the
beneficiary is free no negotiate the document through the bank of his choice. This is beneficial
because he can negotiate the documents through his own bank where he is having an account.
Since the bank is not alien to him, he will not face any practical/procedural difficulty in
negotiating the document. It is suggested to have an unrestricted L/C or L/C which may be
restricted to the bank of the beneficiary’s choice.

 Confirmed/Unconfirmed Documentary Credit: Confirmed Documentary Credit is one in which

the beneficiary has the option to have the L/C confirmed by a bank in the beneficiary country
i.e. the bank who confirms the L/C takes the responsibility of making the final payment to the
beneficiary upon negotiation of the document in strict compliance with the terms and
conditions of the Letter of Credit. By this process the final payment will be made in the
beneficiary’s country by the bank which confirms the L/C immediately upon negotiation of the
documents. The beneficiary do not stand the risk of waiting for the document to reach the
opening bank who will have the final say so to the compliance under the L/C before making
 the payment. Further, the payment is also made immediately after negotiation and without
recourse to the beneficiary i.e. the payment once made by the confirmed bank cannot be
revoked. Moreover, if the importing country’s regulation changes and the money is not allowed
to be repatriated, this will eliminate the risk. On the contrary, in an unconfirmed L/C, the
negotiating bank only accepts the documents and pays for the same with recourse i.e. if as and
when the documents reach the opening bank, and the opening find some discrepancy in the
documents it may refuse to make the payment or seek clarification for the applicant before
reimbursement. The beneficiary is fully at the mercy of the opening bank for payment. It is
suggested to ask for a Confirmed L/C.
 With Resource and Without (Sans) Resource Letter of Credit: The revocable or irrevocable LC
can further be classified as with resource and without resource LC.
o With resource LC: In this type the exporter is held liable to the paying/ negotiating bank, if the
draft drawn against LC is not honored by the importer/issuing bank. The negotiating bank can
make the exporter to pay the amount along with the interest, which it has already paid to the
beneficiary.
o Without (Sans) Resource LC: In the case of sans (without) resource letter of credit, the
negotiating bank has no recourse to the exporter, but only to the issuing bank or to the
confirming bank.

Normally, the negotiating bank makes advance payment to the exporter in resource of letter of
credit either by discounting bills against letter of credit or by purchasing the bills of exchange.
In such an instance, if the issuing bank fails to make payment or dishonor the letter of credit,
then the negotiating bank cannot get the money back from the exporter or hold him liable to
pay the amount. However, in the case of with resource letter of credit, the negotiating bank can
ask the exporter to pay back the money along with certain other expenses. For the exporter,
sans Resource letter of credit is more safe as compared to With Resource letter of credit.

 Transferable/Non-transferable Documentary Credit: In a transferable L/C, the beneficiary can

transfer the L/C opened in his name in favor of a third party who may effect the shipment and
negotiate the documents and claim payment under the said L/C.
 Revolving Documentary Credit: Where an exporter is having a regular shipment for a particular
customer and the value of each shipment may also be of more or less equal value, and then one
can call for a Revolving Documentary Credit. The salient
 feature of this L/C is that the buyer opens an L/C which can take care of shipments, say, may
be for a period of one year on a monthly basis.

For e.g. an exporter enters into a contract for supply of 5000 pairs of Trousers valued
approx.US.$.75,000/- to be shipped every month. The buyer can open an L/C for a value of
US.$.75000/- with validity for 12 months stipulating shipment every month for a value of US$.
75000/-and by adding a clause to make 12 shipment of like value the L/C stands replenished
for the full value of the L/C after each shipment is made the documents are negotiated for which
payment are also made immediately for the value of the shipment. The main benefit in this L/C
is that the buyer, the bank and the exporter are saved from the routine of opening one L/C every
month, the anxiety of non-receipt of the L/C on time, the amendments that may be warranted
every time, the bank charges for opening number of L/Cs etc.,. A revolving Documentary
Credit may have cumulative effect i.e. if a particular shipment is not made, then the value is
added to the value for future utilization. In an automatic Revolving Credit, the bank is liable
for the total amount covering the entire shipment and where it is non-automatic its
responsibility is restricted to the value of one shipment. In automatic Revolving Credit the
value of the credit is automatically replenished by an amendment.

Where there are continuous shipments like the one stated above one can call for a Revolving
Letter of Credit.

 Assignable Documentary Credit: In this type of L/C the benefit is shared between the first
beneficiary and the parties whose names are assigned on the L/C. The assignee is not a party
to the letter of credit but he only derives the benefit as per the L/C. this is more beneficial to
the assignee because he receives his part of the money once the documents are negotiated by
the first beneficiary in whose name the L/C is opened. Calls for an L/C as necessary.
 Stand by Letter of Credit: This is aimed at providing a security to a seller in case the buyer fails
to perform his part. Thus this L/C is used in case of non-performance while the other types of
L/Cs are generally for some performance. Such credits are paying on first presentation and the
only document required therein is a simple declaration of non-performance along with the
statement of claim. This type of L/C is mainly common in U.S.A.

A standby Documentary Credit is generally common on open account trading where the seller
may expect some security for getting his payment. This is not permitted in India.
 Red Clause LC: The red clause LC is the usual irrevocable LC with further authorities the
negotiating bank to make advance to the beneficiary for the purpose of processing the export
goods. Thus, the red LC enables the exporter to obtain packing credit facility for the purpose
of processing the goods. It is called a red-cause LC because it is generally printed/ typed in red
ink.
 Green Clause LC: The Green LC in addition to permitting packing credit advance also provides
for the storing facilities at the port of shipment. Green LCs is extensively used in Australian
wool creditors.

 Back-to-Back LC: Back-to Back LC is a domestic letter of credit. It is a ancillary credit created
by a bank based on a confirmed export LC received by the direct exporters. The direct exporter
keep the original LC (received from issuing bank) with the negotiating or some other bank in
India, as a security, and obtains another LC in favour of domestic supplier. Through this route
the domestic supplier gains direct access to a pre-shipment loan based on the receipt of
domestic or back-to-back LC.

 Documentary LC: Most of the L\C is documentary L\C. Payment is being made by the bank
against delivery of the full set of documents as laid down by the terms of credit. The important
documents required to be submitted by the exporter under documentary LC includes the
following:

o Bill of Lading /Airway Bill or any other transport document

o Commercial Invoice
o Insurance Policy
o Shipping Bill
o Certificate of Origin
o Combined Invoice and Certificate of Value and Origin
o GSP/CWP certificate
o Packing List
o Certificate of Quality Inspection
o Bill of Exchange
o Any other document if required.

A letter of credit may call for some or most of the above documents and may also call for some
other documents specific to the shipment.
 Traveler’s LC: Traveler’s LC is issued to the person who intends to make a journey abroad.
The correspondent/ agent of the bank honors all the cheques drawn on this credit by its holder
up to the amount mentioned in LC. Traveler’s LC has more advantages as compared to
traveler’s cheques. In case of cheque, the holder can withdraw up to the amount of the cheque.
Again, he has to carry a number of cheque. In case of traveler’s LC, the holder can draw any
amount up to the limit mentioned in the LC, and he need to carry only one paper of LC.

Types of Payments under a Documentary Credit.

Payment under a documentary credit can be of the following types:

 payment at Sight: In this mode, the payment is made by the L/C opening bank or its nominated
bank or by a confirming bank on presentation of the documents in full conformity with the L/C.
The L/C may or may not call for draft at sight for the full value of the documents.
 Deferred Payment Scheme: In this case the payment is to be made at a future date as stipulated
in the L/C. Here, generally NO draft is required as the due date of payment is defined in the
L/C. In case of a confirmed L/C, the final payment is made by the confirmed bank on due date
and by the issuing bank or its nominated bank if the L/C is not confirmed.
 Acceptance Credit : This type of credit requires a usance draft to be drawn on a nominated or
accepting bank. The payment is made by the nominated/accepting bank on the due date as per
instructions of the negotiating bank. In case of a confirmed L/C the payment on due date is
made by the negotiating bank (confirming bank).
 Negotiation Credit: Here the payment is made by the negotiating bank upon negotiation of the
documents if it prepares to take the risk and will recourse to the beneficiary. If the credit is
confirmed, then the negotiation bank is obliged to make the payment upon submission of a
clean document by the beneficiary.

Expect in the case of confirmed L/C there is always a time lag between the date of negotiation
of the document and the date of receipt of the payment. This is a grey area. If the bank acts
swiftly and without prejudice, one gets payment within a week’s time. If the payment is delayed
beyond this time, though an exporter has every right to ask for compensation, in actual practice,
no justice is done to the exporter for the delayed payment. Very rarely, on persistent approach
by the exporter/their banker, does a defaulting bank comes forward to compensate for the
delayed payment. Generally the exporter has to forego lot of money in correspondence through
 the negotiating bank because every communication of the bank is charged to the exporter. It is
no surprise many exporter suffer this loss silently.

Feature of a Documentary Credit

A documentary credit is a document in writing issue by the bank on behalf of its customer (The
Buyer). Documentary Credit must stipulate the Type of Credit as detailed above and inter alia
will also stipulate the

Following details :

 the name of the Bank issuing the Documentary Credit.(The L/C Opening Bank)
 the name and address of the buyer on whose behalf the credit is Issued.(The Applicant)
 the name and address of a bank in the country of the seller the credit through Whom the L/C is
to be advised to the seller.
 The name and address of the Seller (Beneficiary)
 The Maximum Value the opening bank undertakes to pay to the Beneficiary.
 The date of issue of the credit.
 The Expiry Date of the L/C
 The Validity Date for shipment.
 The Details of the product to be shipped.(Description)
 Details of document required for claiming the payment from the Opening bank.
 The name and address of the bank authorized to negotiate the documents.
 The Reimbursement Clause.

As soon as an L/C is received ensure that the L/C is authenticated. If the L/C received in mail
the signatures are got to be verified by the advising bank. In case of telex/swift the bank should
endorse on the document authenticated and then only the L/C is a valid document.

While the above details are the minimum that a Documentary Credit may have in actual
practice there can be other stipulations mutually agreeable to the buyer, seller and the opening
bank as also the negotiating bank.

The guidelines for the interpretation and usage of Letter of Credit are governed by the UCP
500 (Uniform Customs Practice for Documentary Credit) published by the International
 Chamber of Commerce (ICC). The UPC 500 covers all the procedural aspects relating to the
transactions under a Letter of Credit. Hence one is suggested to be familiar with all the 49
Articles as detailed in the UCP 500 of 1994.

While all the elements and events that one may encounter in each and every organization can
not be explained, the UCP 500 has attempted to take care most of the queries that one may
encounter normally.

The ICC Uniform Customs and Practice was first published in 1993. Taking into the
consideration of the various developments in the transactions under the Documentary Credit
the ICC has been reviewing these rules and updating the same. As time changes and the
international transactions faces new aspects, attempts will be made to get the UCP 500 revised.

Scrutiny of letter of credit

Mere receipt of letter of credit is no guarantee of payment. There are many ifs and buts before
the documents are submitted to the bank against the letter of credit for realization of proceeds
from the opening bank. As soon as the letter of credit is received a through scrutiny is to be
undertaken to ensure that

 First and foremost that the credit is properly authenticated by the advising bank.
 The letter of credit has been opened in accordance with the terms of the contract.
 The name and address of the beneficiary has been spelt properly.
 The details of product description, quality, and value are in order.
 The validity of shipment and expiry are correct.
 The documents that are required can be submitted.
 There is sufficient % of tolerance of quantity and value.
 The unit price and the terms of contract are correct.
 The terms and conditions stipulated can be complied with.
 That the credit is available for negotiation without restriction.
 In case of exports requires the credit to be confirmed by the local, then necessary clause is
incorporated by the opening bank on the credit.
 Last but not the least; the credit has a reimbursing clause enabling the negotiation bank to get
reimbursement of the money paid to the exporter against the documents.

There are only few suggestions. The requirement may differ for different exporter and the
scrutiny has be done relative to the requirement.

AMENDMENTS TO THE CREDIT

On scrutiny of the letter of credit, if the exporter finds that some change are required to be
made in the credit, he should immediately request the buyer to make necessary change in the
letter of credit and the opening bank issued necessary amendment in this respect. Any oral and
written agreement by the importer about change in the credit directly to the exporter should not
be accepted as it is not valid under the credit. Any change must be advised by the importer
through the opening bank only as a sort of amendment to the original credit.

DOCUMENTARY CREDIT IN GENERAL

Of all the various type of payments, the most safest as far as the exporter is concerned is to get
an advance payment in full for the value of shipment to be effected. Obviously, this puts the
buyer totally at the mercy of the seller and unless the buyer feels unavoidable he will not be
prepared to make advance payment. Hence, of the rest of the modes of payment, the best is
calling for a Documentary Credit for any shipment. Now let us see how we can take care of the
interest of the exporter while an L/C is established.

It is suggested that the exporter gives the full details as to the various requirements to the buyer
for incorporation in the L/C. this will avoid the necessary of asking for amendments and will
save both time and money. Bear in mind every amendment costs you badly. Care are
should be taken to ensure that there are NO spelling mistakes, omission and commission of “,
or”, or such small things. A discrepancy is a discrepancy and there is nothing like minor
discrepancy or major discrepancy as far as the bank is concerned. A bank strictly deals in
documents and the documents are expected to be cent percent in line with details give in the
Documentary Credit. Ensure that the Validity for shipment and for negotiation of documents
can be complied with. If not possible, call for amendment extending the validity as required.

Unless the L/C specifies the tolerance for the quantity and value, the exporter should follow
the quantity and value as stipulated in the L/C. There is provision for a tolerance of the quantity
 up to 5 percent more or less than stipulated in the L/C even if the L/C does not specify tolerance
exclusively and unless tolerance is prohibited 0 specifically. However, the value of documents,
on no account, could exceed the limits of the L/C.

Check the description of the product properly, the rates if specified, and quantity of each of the
items. Ask for amendment where you cannot copy with the terms. Make sure that all the
documents as called for by the Credit can be submitted without any exception.

The last but not the least is the Reimbursement clause (Getting the funds for the shipment
made). An L/C without this clause is no L/C. if there is no provision as to from where the
exporter is going to get paid for, the whole exercise of the L/C is futile. The opening bank may
specify the reimbursement clauses as follows:

 The negotiating bank to send the documents to the opening bank who will, upon receipt of the
documents, arrange for reimbursement as claimed by the negotiation bank.
 The negotiating bank can claim reimbursement directly from a nominated bank (say ABC
Bank, New York) either upon negotiation of documents or after a period of ¾ days of
negotiation subject to the documents being submitted by the beneficiary is strictly in
conformity with terms and condition of the letter of credit.

I for one prefer the reimbursement clause as in b) so that on one hand my bank sends the
documents to the opening bank and at the same times claims the reimbursement from
nominated bank.

These are some of the aspects one should take care to ensure that the L/C established in his
favor is in order and that he can comply with all the provision thereof. However, one is advised
to make a checklist and take a note of each and every condition of the L/C for compliance at
the right time.

PARTIES TO LETTER OF CREDIT

 Applicant: the buyer or importer of goods.

 Issuing Bank: importer’s bank who issues the L/C.
 Beneficiary: the party to whom the L/C is addressed. The seller or supplier of goods.
 Advising Bank: issuing bank’s branch or correspondent bank in the exporter’s country to which
the L/C is sent for onward transmission to the beneficiary.
 Confirming Bank: the bank in beneficiary’s country which guarantees the credit on the request
of the issuing bank. (Many a times the advising bank and confirming bank are one and the
same).
 Negotiation Bank: the bank to whom the beneficiary present his documents for Payment u
Under L/C.
 Reimbursing Bank: the bank which will reimburse the negotiating bank for the value of the
credit.

Where an L/C stipulates that the Negotiation is restricted to a specific bank which is not the
Advising Bank or Where the L/C is not restricted, and the seller desires to negotiate the
document which is not the advising bank, then we have a separate Negotiating Bank.

Where the opening bank prefers to advise the L/C through its own branch in the beneficiary
country or through another bank of its choice, then the L/C may be advised to the beneficiary
directly by this bank or if it instructed to advise the L/C through the buyer’s nominated bank
then it does so. Here, we have two advising bank.

As far as possible, one should restrict the involvement of the number of the banks to the
minimum. More the number of the banks, more the time in the transmission of the L/C, in
addition to multiplicity of bank charges.

SPECIAL NOTE

Though one may strongly feel that a Letter of Credit is the safest mode of payment, one will
face innumerous practical difficulties in so far as compliance with the terms and conditions of
the L/C. since several documents are involved, there are every possible of discrepancy in the
documents either between different documents or between the document or between the
document and the L/C. the Negotiating bank soft pedal some of the discrepancies which they
feel may not be pointed out by the opening bank as discrepancy to favour its customer. In the
like manner the opening bank, to safeguard the interest of the buyer, would like to ensure that
the document submitted against a Letter of Credit are strictly in full conformity of the L/C.
 For mastery of the operation under the Letter of Credit one is advised to completely study the
various articles of the UCP 500 so that one can be clear in his mind as to the various provisions
available under the Documentary Credit which will stand good while negotiating the
documents with the bank. While the articles of UCP 500 come safeguard the interest of both
the buyer and the seller, there are certain elements which may be outside the definition of the
UPC 500. Also there is certain flexibility provisions in the UPC 500 which one might like to
exploit to his favour.

So, in spite of the L/C being the safest method to ensure the payment, unless both the buyer
and the seller follow the business ethics there is every chance that one gets cheated by the other.
As a prudent exporter one should be very careful in selecting his customer apart from taking
other safety measures.

If the customer is too good, and you have been dealing with them for a long time, one may
relax and term the L/C as the best method to receive payment. If the customer turns out to be
unscrupulous then he can play havoc. This is applicable to both the seller and the buyer. There
are books on fraudulent us of the Documentary Credits. Sometimes it may be the buyer who is
at the receiving end and some time it may be the other way.

A study of such book as above may help one to take adequate care. But, the brain is always
working in multi directions. It will be no surprise if one comes across newer and newer dubious
methods being adopted by the contracting parties.

TOTAL OPERATION UNDER THE LETTER OF CREDIT.

The Unconfirmed L/C.

 The Buyer makes an application to his bank to open an L/C.

 Opening bank establishes the L/C.
 Opening bank advises the L/C through his associate or through the bank. Nominated by the
beneficiary.
 The Bank in the beneficiary country which receives the L/C sends the Original L/C to the
customer either directly or through the bank Specified in the L/C.
 The buyer complies with the L/C requirements and submits the relevant documents. To the
bank for claiming reimbursement.
 The negotiating bank negotiates and sends the documents to the opening bank or as Directed.
Meantime pays the beneficiary.
 Advises the opening bank or the reimbursement bank the details of his Accounts and the
nominated bank where the proceeds are to be credited.
 Once the credit is received, the nominated bank advises the negotiating bank of the credit. Thus
the negotiating bank gets the credit for the L/C documents.

The Confirmed L/C.

All the steps from 1to6 as far as the beneficiary are concerned since the payment is made to the
beneficiary without recourse. However, the negotiating bank may have to follow the
subsequent steps since he has to receive his money from the opening bank.
 CHAPTER 3

REASERCH METHODOLOGY

The process used to collect information and data for the purpose of making business decisions.
The methodology may include publication research, interviews, surveys and other research
techniques, and could include both present and historical information.

1. TYPES OF PROJECT

There are three types of projects. Such us (a) Exploratory, (b) Descriptive, (c) Experimental

This type of project is based on exploratory type. Exploratory research (or ER) is an
examination into a subject in an attempt to gain further insight. With ER, a researcher starts
with a general idea and uses research as a tool to identify issues that could be the focus of future
research.

2. LIMITATIONS OF THE PROJECT

 It takes into account only the practical implications of documentation.
 Disclosure of certain sensitive information.
 Formalities at both the stage of shipment are subject to change by the home or foreign country’s
norms.
 Limitations of time.
 Erroneous findings.
 Not an exact tool for forecasting.

3. PROPOSED SAMPLING METHOD

Sampling is the selection of a subset (a statistical sample) of individuals from within

a statistical population to estimate characteristics of the whole population. Two advantages of
 sampling are that the cost is lower and data collection is faster than measuring the entire
population. Two types of sampling are probability sampling and non-probability sampling.

A probability sample is a sample in which every unit in the population has a chance (greater
than zero) of being selected in the sample, and this probability can be accurately determined.
The combination of these traits makes it possible to produce unbiased estimates of population
totals, by weighting sampled units according to their probability of selection.

Nonprobability sampling is any sampling method where some elements of the population
have no chance of selection (these are sometimes referred to as 'out of
coverage'/'undercovered'), or where the probability of selection can't be accurately determined.
It involves the selection of elements based on assumptions regarding the population of interest,
which forms the criteria for selection. Hence, because the selection of elements is nonrandom,
nonprobability sampling does not allow the estimation of sampling errors.

In this project probability sampling is used. Simple random method is used to collect data from
respondent for primary data of this research report.

4. DATA PROCESSING

PRIMARY DATA

Primary data, someone collects personally, usually from a group of people gathered specifically
for the study. Primary data is collected through the use of interviews, focus groups,
questionnaire customer surveys, or any way that organizations are able to obtain feedback. For
instance, social media and blogs are a great way for business owners to obtain customer
feedback.

SECONDARY DATA

Secondary research is the analysis and synthesis of primary research that was compiled at a
previous date. Secondary research can be gathered from marketing research data, magazines,
old reports, or any other source where relevant information has been stored.
 5. TOOLS FOR ANALYSIS

 Percentage Analysis
Percentage Analysis is applied to create a contingency table from the frequency distribution
and represent the collected data for better understanding.

 Bar Diagram
A bar diagram or bar graph is a chart or graph that presents categorical
data with rectangular bars with heights or lengths proportional to the values that they
represent. The bars can be plotted vertically or horizontally. A vertical bar chart is sometimes
called a line graph. A bar graph shows comparisons among discrete categories. One axis of the
chart shows the specific categories being compared, and the other axis represents a measured
value.

 Pie Chart
A pie chart is a circular statistical graphic, which is divided into slices to illustrate numerical
proportion. In a pie chart, the arc length of each slice (and consequently its central
angle and area), is proportional to the quantity it represents.
Comparison of Export Shipment in a year

RATING YEARLY
EXPORT

SEAWAYS MARITIME 16

INDUSTRY 17
STANDARDS

RATING OF YEARLY EXPORT

RATING OF YEARLY EXPORT

17

16.5

16

15.5
RATING OF YEARLY EXPORT
SEAWAYS

INDUSTRY STANDARDS

When compared to the other Industry Standard on the Export Shipment in a year the
SEAWAYS MARITIME has 16 rating where as other industry standard has 17 rating.
Comparison of Network of Global agents

RATING OF GLOBAL
NETWORK

SEAWAYS MARITIME 10

INDUSTRY 18
STANDARDS

RATING OF GLOBAL NETWORK

RATING OF GLOBAL NETWORK

20

15

10
5
0
RATING OF GLOBAL NETWORK
SAEWAYS

INDUSTRY STANDARDS

When compared to the other Industry Standard on the Network of Global agents the
SEAWAYS MARITIME has 10 rating where as other industry standard has 18 rating.
Comparison of Document Turnaround Time

RATING OF
DOCUMENT
TURNAROUND TIME

SEAWAYS MARITIME 17

18
INDUSTRY
STANDARDS

RATING DOCUMENT TURNAROUND TIME

RATING DOCUMENT TURNAROUND TIME

18

17.5

17

16.5
RATING DOCUMENT TURNAROUND TIME
SEAWAYS
INDUSTRY
STANDARDS

When compared to the other Industry Standard on the Document Turnaround Time the
SEAWAYS MARITIME has 17 rating where as other industry standard has 18 rating.
Comparison of Customer Service

RATING OF SAFTEY
TRANSPORT

SEAWAYS MARITIME 16

14
INDUSTRY
STANDARDS

RATING OF CUSTOMER SERVICE

RATING OF CUSTOMER SERVICE

16

15.5

15

14.5
RATING OF CUSTOMER SERVICE
SEAWAYS
INDUSTRY
STANDARDS

When compared to the other Industry Standard on the Customer Service the SEAWAYS
MARITIME has 16 rating where as other industry standard has 14 rating.
Comparison of CHA Services

RATING OF CHA
SERVICES

SEAWAYS MARITIME 16

14
INDUSTRY
STANDARDS

RATING OF CHA SERVICES

RATING OF CHA SERVICES

16

15

14

13
RATING OF CHA SERVICES
SEAWAYS

INDUSTRY STANDARDS

When compared to the other Industry Standard on the CHA Services the SEAWAYS
MARITIME has 16 rating where as other industry standard has 14 rating.
Comparison of Employees Efficiency

RATING OF EMPLOYEE
EFFICIENCY

SEAWAYS MARITIME 17

18
INDUSTRY
STANDARDS

RATING OF EMPLOYEE EFFICIENCY

RATING OF EMPLOYEE EFFICIENCY

18

17.5

17

16.5
RATING OF EMPLOYEE EFFICIENCY
SEAWAYS
INDUSTRY
STANDARDS

When compared to the other Industry Standard on the Employees Efficiency the SEAWAYS
MARITIME has 17 rating where as other industry standard has 18 rating.