INCOTERMS and Export Procedure

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INTRODUCTION In their sales contract buyer and seller

agree on the conditions of sale : payment onthe one hand and delivery on the other.

These terms determine at what preciselocation the ownership of the goods istransferred from seller to buyer and

when/how payment will be done. Ininternational trade a universal set of rules ondelivery has been developed over the years.It is called INCOTEMRS.


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EXW = EX WORKS named place)Cost of Goods plus cost of Export packing and markingIn this term the seller delivers the goods by keeping it ready indeliverable state at the seller's place or another named place.This named place can be factory/godown or manufacturing unit.In this term seller does not clear the goods for exports nor

goods are loaded on vehicle.

FCA = FREE CARRIER named place)Cost of Goods plus cost of Getting goods to railway station ortruck for transportation to portThis term refers to seller's responsibility to deliver the goods,cleared for export, to the carrier appointed by the buyer at thenamed place. In this term the place of delivery is very important.If the delivery is at sellers place's then he is responsible forloading. If the delivery occurred at any other place, the seller isnot responsible for unloading. This term can be used for all

modes of transport as well as multimodal.


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FAS = FREE ALONGSIDE SHIP named port ofshipment Cost of Goods plus cost of Transport toport and getting goods alongside ship

In this term when the goods are placedalongside the vessel at the named port ofshipment it will be considered that the sellerhas completed the delivery.

The buyer has to bear all risks of loss or

damage to the goods and all costs from thispoint of time. However the seller must clearthe goods for the purpose of export. Thisterm can be used only for inland waterwaytransport or shipment by sea. It is not used

when it is air shipment.


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FOB = FREE ON BOARD named port ofshipmentCost of Goods plus cost of Getting goods onboard and preparing shipping documents

This is the most popular term and iswidely in use. FOB means that the sellerdelivers when the goods pass the ship's railat the named port of shipment.

Under this term the buyer has to bear all

costs and risk of loss of damage to thegoods from that point. This term requiresthe seller to clear the goods for exports. Thisterm is used only for sea or inland waterwaytransport. It is not suitable for shipment by

air.


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CFR = COST AND FREIGHT named port ofdestinationCost of Goods plus cost of Freight cost portto port)

Earlier this term was popularly known as C&F orCNF. CFR means the seller must pay the cost andthe freight necessary for the goods to reach at thenamed destination. However, the risks of loss or

damage to the goods after the time of the deliveryis on buyers account.

The seller is required to clear the goods forexports. This term can be used only for sea and

inland waterway transport.


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CIF = COST INSURANCE AND FREIGHT named port ofdestinationCost of Goods plus cost of Marine Insurance

Cost, Insurance and Freight means that theseller, delivers when the goods pass the ships rail in

the port of shipment. The CIF price refers that itcovers the cost of the goods, freight necessary tobring the goods to the named port of destination andalso marine insurance.

Compared to the previous term, CFR the sellercontracts for the insurance and pay the insurancepremium. It will be essential for the buyer to knowthat under the CIF term the seller is required toobtain the insurance only on minimum cover.


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If the buyer wishes to have moreprotection then he should make his owninsurance arrangement extra or shouldspecify to the seller at the time of contract.

In this term the seller must clear thegoods for exports and the buyer mustarrange necessary clearance for import.

This term can be used only for sea andinland water transport.

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EXW Ex Works Buyer takes title when taking delivery ofthe goods at suppliers facility. Buyer isresponsible for the shipment and duties.

FCA Free CarrierBuyer takes possession and title at theairport or truck terminal at the port ofexport in the sellers country after thegoods clear customs.

FAS Free AlongsideShipBuyer takes possession at the dock at theport of export after the goods clearcustoms.

FOB Free of Board Buyer takes responsibility and title for thegoods as they pass over the ships railduring loading.Purchasing & Supply ChainManagement, 4e

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CFR Cost and Freight Supplier arranges freight and pays as far asthe buyers port of entry. Title and risk ofloss remain with the buyer.

CIFCost, Insurance,

and FreightSupplier arranges freight and buysinsurance for the goods as part of the salesprice. Title and risk transfer to the buyeronce the goods clear a ships rail whilebeing loaded.

CPT Carriage Paid Title transfers to buyer when goods areloaded into a container. Seller selects andpays the carrier. Similar to CFR.

CIP Carriage andFreight Paid to Similar to CIF but applies to air or trucktransport only.Purchasing & Supply ChainManagement, 4e

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What is Export Sales Contract? Agreement between buyer and seller, stipulating

each and every details of the transaction.

Legally binding document.

It reduces the probabilities of disputes &differences as it fixes the role and responsibilities

of each party.


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Terms and Conditions: While drafting the sales contract one must ensure

the following:-

1. Coverage is complete.

2. Maximum clarity.3. Future probability to be provided.

4. Trade practices.

5. Law of both countries

6. Need of both parties.

There should not be any ambiguity regarding theexact specifications of goods and terms of saleincluding export price, mode of payment, storage

and distribution methods, type of packaging, port


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Following standard terms and conditions arecovered in an Export Sales contract: - Name & address of both the parties.

Contract Number & Date, place

Description of goods, quantity and quantity Product Standards and Technical Specifications of

goods.

Inspection/certification

Total Value of Contract

Terms of delivery (F.O.B./C.F.R./C.I.F. etc.),

Period of Delivery/Shipment, part shipment, Trans-shipment.

Terms of payment:- L/C, D/A, D/P, advance payment,

Amount/Mode & CurrencyContd..


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An Export order is an offer to sell made by theexporter and its acceptance by foreign buyer.

It is a documents communicating decision of theforeign buyer to purchase certain item (s) from theexporter. It specifies:

Description of Items

Their Quantity and quality Specifications

Unit Prices

Delivery terms

Shipping Marks Insurance requirement


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Labeling Packaging and packing

Payment terms

Pre-Shipment Inspection requirements


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1. Exporter locates trade enquiry2. The exporter then sends his profile to

know the interests of buyer3. Buyer likes to have details of certain

products4. Exporter then sends the quotation5. Buyer specifies his requirements regarding

shape and size and other terms6. Exporter send the Performa Invoice7. Buyer confirms the Performa Invoice


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The Performa invoice should indicate the unit &total prices of the production internationallyaccepted or mutually agreed currency.

It should indicate total quantity of productsoffered.

There should be clearly indicate the discount fora specific volume.


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The Performa invoice submitted entails legalobligations on the part of the exporter to supplythe product to the buyer, in the event of the

invoice being accepted by him.

Hence it is necessary that the conditions of sale& other factors qualifying it should be clearly

spent out.


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Processing of an export order is to makearrangements for the items to be produced at thefactory of exporter or to be obtained from

supplier.

All the operations from the time for production isplaced, till it reaches to export warehouse, are

normally covered by this phase.


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It is levy imposed by government of India onall excisable item as specified by it and isusually collected at source, i.e. manufacturingstage.

The manufactured products, as soon as theyare ready for dispatch from the factory attract

the levy.

Only after the excise is paid can the productsbe removed from the factory premises.


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The govt. allows exemption from paying sales taxfor export products.

For this, Exporter should register with the salestax authorities.

Sales tax exemption is for the last two stages of

transaction in a product before export.


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The GOI has introduced a compulsory preshipment inspection for selected items ofexport to ensure that the products to be

exported conform to high quality std.

Pre shipment inspection scheme isadministered by the Export Inspection council.

Under this scheme, the emphasis is on qualitycontrol rather than on inspection for export.


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In case the export of the product is subject toexport inspection by the agency, the exportermakes an application in the prescribed form tothe export inspection Agency, enclosing the

following documents.

Copy of commercial Invoice

A cheque or Demand Draft

A copy of export contract


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More popular method of Dispatching goods toan export buyer than dispatch by air.

Freight charges are less compare to air freight.

Physical size of product constraints theexporter to dispatch the goods by air.


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This are specialized personnel who arrangefor the completion of all formalitiesconnected with the shipment of goods.

As soon as the export goods reaches to thewarehouse, the exporter arranges for acomplete set of shipping documents, to be

passed on the forwarding agent.


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These comprise: GR-1 form Performa Invoice Certificate of inspection where necessary.

Form of declaration Shipping bill Export License Mate Receipt Port trust dues


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It is an exchange control document requiredby RBI.

As per exchange control regulations, anexporter has to realize the proceeds Within180 days from the date of shipment fromIndia.

In order to ensure this, the RBI has introducedthe GR Form.


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Its a main document required by the customauthorities for the purpose of Grantingpermission for shipment.

It is prepared in 5 copies.

It contains the name of exporter, his address,code no, the description and Quantity of goods

to be shipped, the value of goods, number ofpackages etc.


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The GOI regulations require that an exportlicense be obtained for certain categories ofexport products before shipment is made.

Obtained from DGFT

DGFT scrutinizes the application with

reference to quantity, value and descriptionof goods in all the documents.


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According to prevailing customs regulations, nocargo meant for export can be loaded on a shipunless the custom authorities at the port accordtheir formal approval.

After obtaining the shipping documents,including 5 copies of shipping bills is submitted

by the exporter to the customs house concern.


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A complete set of negotiating documents ispresented to the negotiating bank throughwhom the L/C has been advised.

Where the exporter has compiled with all theT&C of the L/C while submitting hisdocuments to the negotiating bank, the

documents are deemed to be clean.


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Let Export Order by Customs Authorities

Customs Officer will verify the contents and after he is satisfied

that goods are not prohibited for exports and that export duty,

if applicable is paid, will permit clearance by giving let shipor

let exportorder.

GR-1, ARE-1, octroi papers, quota certification for export etc.

are also signed. Exporters copy of shipping Bill, GR-1, ARE-1etc. duly certified are handed over to exporter or CHA


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Processing under EDI system

Under EDI system, declarations in prescribed form are to be filed

through ServiceCentreof customs.

After verification, shipping bill number is generated by the

system, which is endorsed on printed checklist generated for

verification of data. Goods are inspected at docks on the basis of printed check list.

All documents are submitted to Customs Officer along with

checklist.

If goods and documents are found in order, letexportorder is

issued. Then two copies of Shipping Bill are generated: Customs Exporterscopy

Exporterscopy


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Import General Manifest-Important Document To get an entry inward the Master of the Vessel or

his agent is required to submit to the proper officerin the Custom House a document called Import

General Manifest or Import Manifest in aprescribed form.


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The manifest is nothing more than a list of allgoods carried on board including those meant forother ports in India or abroad with all details likenumber of packages, marks and numbers,description of the goods and the importers name.Except with the permission of the proper officer.

No import goods can be unloaded at any CustomsStation unless they are mentioned in the aforesaidimport manifest for being unloaded at that Customs

Station.

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Examination of Goods: In case the importer does not have complete

information with him at the time of import, he may

request for examination of the goods beforeassessing the duty liability. This is called FirstAppraisement.

The goods are examined subsequent to assessmentand payment of duty. This is called SecondAppraisement.

Examination is normally done on random basis.


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Examination of Goods Under the EDI system, the bill of entry, after assessment

by the group or first appraisement, as the case may be,

need to be presented at the counter for registration forexamination in the import shed.

A declaration for correctness of entries and genuinenessof the original documents needs to be made at this

stage.

After registration, the B/E is passed on to the shedAppraiser for examination of the goods.


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Examination of Goods: Along-with the B/E, the CHA is to present all the necessary

documents. After completing examination of the goods, the ShedAppraiser enters the report in System and transfers firstappraisement B/E to the group and gives 'out of charge' in case

of already assessed B/E.

Thereupon, the system prints Bill of Entry and order of clearance(in triplicate).


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All these copies carry the examination report,order of clearance number and name of ShedAppraiser. The two copies each of B/E and theorder are to be returned to the CHA/Importer,

after the Appraiser signs them. One copy ofthe order is attached to the Customs copy ofB/E and retained by the Shed Appraiser.

INCOTERMS and Export Procedure

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