MBA Export Import Policies

CONTENTS
Unit Contents Page No.
International Trade
1.1 Objectives
1.2 Concept of International Business and its importance
1.3 Challenges of International Trade
1.4 Domestic v/s International Trade
1 1-14
1.5 Nature and Scope of International Business
1.6 Framework of International Business
1.7 Deemed Export/Import
1.8 Summary
1.9 Exercise
Cross Border Trade Flows

2.1 Objectives
2.2 Cross border trade flows
2.2.1 Registration Stages (e-IEC)
2.2.2 Formation of Contract
2 2.3 Statutes in Trade 15-29
2.4 INCO Terms
2.5 Export Procedure
2.6 Logistics Flow
2.7 Summary
2.8 Exercise
International Trade Logistics

3.1 Objectives
3.2 Concept of Logistics
3.3 Evolution of Logistics
3.4 Objectives and importance of Logistics
3.5 Concept of Supply chain Management
3 30-41
3.6 3 Rs in Logistics
3.7 Functions of Logistics
3.8 Challenges of Logistics
3.9 Physical distribution Management
3.10 Summary
3.11 Exercise
Transportation and Warehousing
4.1 Objectives
4.2 Concept of EOQ
4.3 Warehousing
4.4 Functions of Warehousing
4.5 Types of Warehousing
4.6 Transportation -Choice
4 42-59
4.7 Multimodal transport Operator
4.8 Containerization and types
4.9 Freight Forwarders (CHA)
4.10 Ports in India
4.11 Liner Shipping Services
4.12 Summary
4.13 Exercise
International Trade Settlement
5.1. Objectives
5.2. Introduction to Methods of payments
5.3. Advance Payments
5.4. Open Account Method
5.5. Documentary Collection -D/A and D/P Method
5 5.6. Consignment Trading 60-69
5.7. Letter of Credit (Documentary Credit)
5.8. Mechanism of Letter of Credit
5.9. Types of Letter of Credit
5.10. Advantages of Letter of Credit
5.11. Summary
5.12. Exercise
Export Documentation
6.1. Objectives
6.2. Introduction to Export Documentation
6.3. Types of Documents (Classification)
6.4. Regulatory Documents
6.5. Non-Regulatory documents
6.6. Financial Document (Bill of Exchange)
6 70-86
6.7. Transport Document
6.8. Types of Bill of Lading
6.9. Difference between Airway Bill and Bill of Lading
6.10. Custom Clearance Procedure
6.11. Foreign Trade Policy
6.12. Summary
6.13. Exercise
Export Import Policies,
Procedures &
UNIT – 1
Documentation
NOTES
INTERNATIONAL TRADE
1.0 INTRODUCTION
1. Objectives
2. Concept of International Business and its importance
3. Challenges of International Trade
4. Domestic v/s International Trade
5. Nature and Scope of International Business
6. Framework of International Business
7. Deemed Export/Import
8. Summary
9. Exercise
1.1 OBJECTIVES
After studying this chapter, students shall be able to:

• Understand the concept of export, import and its relevance in trade.
• Understand the Nature and scope of International trade.
• Analyse the current foreign trade policy and its important features.
1.2 CONCEPT OF INTERNATIONAL BUSINESS AND ITS

IMPORTANCE
Concept of International Business

International business involves activities that are carried out by crossing the
national border. International business involves the export and import of goods
and services, but different strategies are available for entering international
business. These modes of entry into international business include Exporting,
Importing, Joint Venture, Merger & Acquisition, FDI, Licensing, strategic International Trade 1
Export Import Policies, alliance and Franchising. As an example, Tata acquired Corus in order to enter
Procedures & into European markets. Thus the following key activities are considered as part
Documentation of International business.
NOTES • International trade: exporting and importing
• Exports and imports of merchandise
• Exports and imports of commodities
• Exports and imports of services
Why Companies Go Global

The key reason for companies to go global is to increase the profit and sales.
Also, it facilitates protection from competition. Some other important reasons
include:
• Creation of new markets due to economic integration.
• Fast-growing foreign markets as compared to domestic markets.
• Reduced cost of R&D per unit of product in foreign markets.
• Ease of relocation to the markets with lower manufacturing costs.
• Constraints or low acceptance in the domestic market.
• Increase of profit and sales by entering new markets.
• Opportunity to diversify by entering emerging new markets.
• Continuous and uninterrupted supply of raw materials with high
reliability.
• Acquisition of technical and managerial know-how for in-house
development.
• Strategic vision to enter foreign markets for expansion.
IMPORTANCE OF INTERNATIONAL BUSINESS

Given the widespread distribution of resources around the globe, any
country that has to meet all of its economy's production requirements must seek
resources outside its own national borders. Trade developments particularly
increase in exports lead to stimulate other sectors such as transport, insurance
and shipping, which further helps in creating jobs. Further, external trade is
determinant for the sustainability and the growth of an economy. Shortfall of
goods is fulfilled through import of goods from international market, thus the
role of international trade is to bridge the gap of demand and supply of goods. In
some cases, there is noteworthy dependence on the international trade. The firms
having their dependence on exports are producing in bulk quantities by using
economies of scale to compete in international market. The role of globalisation
of production could be applied as to where to produce in order to take the benefit
2 International Trade of low labour cost. Countries such as India and china, which are known as the
emerging economies are primarily considered for investment and production Export Import Policies,
centres due to low cost labour cost and factors of production. Procedures &
Documentation
Division of Labour and Specialisation: - Moreover, the principle of
comparative cost advantage is applied by countries in order to take the benefit NOTES
of factors of production in relative terms.
Increases National Income and Per-capita Income: - With the increase
in international trade, the national income also increases. As a result the per capita
income of the residents of the country is also rising.
Facilitates Transfer of Technology: - Advanced nations are also
contributing to the transfer of technology through the technology being developed
through research. Thus, the flow of technology across the nations is taking due
to increased external trade.
Resolves Balance of Payments Crisis: -There is different mechanism to
correct the balance of payments. Various techniques studies under international
business helps in correcting the balance of payment crisis. Some of the common
techniques are devaluation, depreciation and export promotion.
Optimum Utilizations of Resources: - Through international trade, the
countries can achieve optimum utilisation of resources.
Employment Opportunities: -Overseas trade, though highly competitive
also helps in increase in employment opportunities. Moreover, the global markets
aids in creating employment opportunities in the external trade as well as in
sectors such as banking, insurance, and logistics.
Research and Development: - Importing technology or joint ventures
could further take advantage of technological developments, thus enhancing a
nation's research and development.
1.3 CHALLENGES OF INTERNATIONAL TRADE
International business is not only complex but is also time-consuming

process since it is subject to global rules and regulations of trading countries.
Some of the common issues in trade are mentioned as follows:
Long Distance:- International trade across the countries means trade across
the borders which means the goods transported over a considerable distance. At
the same time, a lot of time is taken for custom formalities and at the port.
High Risks and Uncertainties:-International trade is further having
multiple risks such as payment risk, war issues, insolvency, fluctuations and
quality issues. Thus, one has to take precautions to cover risk and required to
undertake insurance policies. At the same time the risk could be mitigated with
the help of agencies like ECGC (Export credit Guarantee Corporation).
International Trade 3
Export Import Policies, Customs Formalities: - Customs formalities vary across the nations. At
Procedures & the same time these formalities are not only time consuming but complex due to
Documentation more number of procedures.
NOTES Trade Barriers: - Trade barriers also act as one of the key challenge of
external trade. Though, considerable efforts through WTO have been made but
still there are barriers to trade. These barriers include both tariffs as well as non-
tariff barriers which are acting as an obstacle to trade.
Payment Difficulties: -One of the visible challenges in the external trade
is the issue of international payments. There are multiple issues related to
international payments. Risk is associate with the payment from buyer, banking
regulations and the country risk in particular.
Documentation Formalities:-The procedure of documentation is not only
complex but at the same time involves lot of documents to be processed.
Exchange instability. Fluctuations in the currency also are one of the key
obstacle and challenge towards the external trade.
Corruption. Corruption is a major challenge which also increases the cost
of production.
Commitment and cultural issues –One of the important challenge of
external trade is the lack of commitment. Commitment is a function of
performance, thus if level of commitment is low than export performance will
be low and therefore shall affect the trade. Cultural differences across the
countries like taste and preference, language, beliefs, customs also play key role
and are inhibitors to trade in case not handled properly.
1.4 DOMESTIC V/S INTERNATIONAL TRADE
4 International Trade
Procedures &
Documentation
NOTES
1.5 NATURE AND SCOPE OF INTERNATIONAL BUSINESS
Scope of International Business

International business scope includes international marketing, international
management of human resources, and international finance. International
business scope includes the study of balance of payments that helps to understand
trade components and helps to maintain balance through various techniques such
as devaluation, promotion of trade, etc. Trade scope helps to set up joint ventures
in global markets. International business scope also covers overseas consultancy
services & enterprise turnkey projects. International business scope is broad and
encompasses international marketing, which is how to deal with global markets.
Furthermore, international marketing helps to understand the EPRG Framework
(ethnocentric, polycentric, geocentric and regiocentric). Trade scope also helps
to understand the fluctuating foreign exchange transactions that should be
handled properly. International business scope includes the international
recruitment and training human resource.
Export Import Policies, Nature of International Business
Procedures &
Documentation
NOTES
1.6. FRAMEWORK OF INTERNATIONAL BUSINESS
Framework helps in explaining the complexity of different levels in

international business management. There are 8 levels and each level has diverse
objectives and directions.
Level 1 Comprises of International Financial Institutions –The

institutions such as World Bank, IMF, Central Bank and European central banks
plays an important role in trade. Additionally, the organisational institutions such
as WTO, EU, NAFTA and ASEAN also plays an important role in trade Export Import Policies,
integration. Procedures &
Documentation
Level 2 Globalisation – Globalisation is one of the important framework
of international business. Globalisation has been said to be the tool used for the NOTES
growth of the economy, adapting knowledge through different economies,
transfer of technology, contributes to the competition and thus innovation,
recognition and brand positioning but for all these ultimately government of an
economy is said to be accountable. Government of an economy can decide
various factors say tariffs, taxes, subsidies, trade regulations, foreign trade policy
and the agreements between the countries and so the degree of globalisation
largely depends on the Government policies. Also, we find that there is difference
in the level of integration of one economy with the rest of the world which has
been addressed through the research carried out by AT Kearney and has been
termed as the globalisation index.
Level -3 National Objectives plays an important role for the country.As
shown in the pyramid the order is as follows: Initially, the social stability is
important followed by the economic stability and the Political stability.
In other ways, political stability depends on the economic stability which

in turn is dependent on the social stability. Social stability can be understood
through the unemployment rate and the purchasing power of the per capita
income.
Infrastructure – Based on the criticism by the various countries, it is felt
that infrastructure need to be built and improved in the country (e.g., roads,
harbours, railways, airports, bridges, etc.). Improvement in the infrastructure
will reduce the transaction cost and as a result the competitiveness will improve.
Moreover, the need is to improve the institutional infrastructure as well which
includes the banks and financial institutions.
Level -4 Location plays an important role. Companies are located where
the availability of resources is there in addition to the facilities such as Port, Bank
etc. India’s exports is largely from the states which are located near the port and
includes Maharashtra and Gujarat each comprises of 20 to 22% of trade of
Export Import Policies, country. Moreover, we find that carpet export Industry is located near Bhadohi
Procedures & and Mirzapur where the labour to weave the carpet is available. Additionally, we
Documentation apply Porters Diamond Model to assess the competitiveness of country to decide
NOTES the location of Business.
Level -5 The soul of the international trade is company which is ultimately
responsible for acting and it is said that no companies, no business and no trade.
Success of company in turn depends on the market’s competitiveness and
resources. Thus, the need of the hour is to focus on the strength of resources
which includes talented manpower, experienced of domestic as well as
international operations, managerial competency to take decisions and deal with
different cultures. Companies keep an eye on the dynamics of global environment
and respond to take advantage of opportunity and take precautionary measures
during adverse scenario. Thus, risk management is essential to stay in global
markets.
Level -6 Foreign Trade Activities -International business involves exporting
and importing of goods and services, however there are different strategies to get
into international business. These modes of entry into international business
include Exporting, Importing, Joint Venture, Merger & Acquisition, FDI,
Licensing, strategic alliance and Franchising.
Foreign market entry modes present different types of risk, the resource
control and commitment they require, and the return on investment they promise.
Exporting
Exporting is the process of selling of domestic goods and services to other
countries. There are two types of exporting: direct and indirect.
Direct exports
Direct exports highlight the most basic mode of exporting made by a
(holding) company, capitalizing on economies of scale in home country
production and enabling better distribution control. The core features of the
model if direct exports entry is that intermediaries do not exist.
Advantages
• It can be argued that global market is better controlled by direct exports.
• Direct exports help to maintain better relationships and provide rapid
feedback from global markets to improve them.
• Direct exports help in safeguarding the trademarks and patents.
• Direct exports generate higher sales which in turn lead to higher profits.
Disadvantages
Higher start-up costs and higher risks as opposed to indirect exporting
• Direct exports need higher investments of time, resources and personnel.
• There is need to collect more information for effective decision. Export Import Policies,
Procedures &
Indirect exports Documentation
Indirect exports are the export process through local export intermediaries NOTES
such export through intermediaries. On the overseas market, the exporter loses
control over its products.
Advantages
• Indirect exports provide fast market access to the global markets.
• Indirect exports are having more concentration of resources towards
production.
• Little or no financial commitment as customers exports generally cover
most international sales expenses.
• Low risk exists for companies that consider their domestic market more
important and for companies that continue to develop their strategies for
R&D, marketing, and sales.
• Export management is outsourced, reducing the management team’s
pressure.
• Export processes are not handled directly by indirect exporters.
Disadvantages
• Higher risk for indirect exporters compared to direct exports.
• There is no control over the distribution, sales, and marketing of indirect
exporters.
• Indirect exporters can not to acquire knowledge and therefore cannot
learn about global operations.
• The chances of failure are high in indirect exporting due to selection of
market and distributor leading to inadequate market feedback.
Licensing
Licensing is a specific strategy wherein the licensor permits the licensee to
use its brand names, copyrights, patents against certain fee. Moreover, in
international market, a licensor can form the limited rules to the licensee in host
country.
It includes-
• Patents
• Copyrights
• Trademarks
• Technology
Export Import Policies, • Technical know-how
Procedures &
Documentation • Specific business skills
The licensor took only one time payment. That can be the royalty payments,
NOTES
one time payments or technical fees and these are usually calculated as a
percentage of sales.
Licensor leases the right to use IPRs, brand names etc. Licensee uses it to
form a product. Thus, licensee makes a royalty payment to Licensor and receives
revenues with low investment.
There are various advantages of the licensing for the licensee.
• Licensing strategy is basically important for small firms which lacks
resources to conduct research in order to provide better and acceptable
products.
• Licensing strategy also helps to reach new market.
• Licensing strategy is low risk and low investment process to expand
internationally.
Some of the disadvantages are-

• Licensing comprisesof higher risk in comparison to exporting.
• Risk of incompetent foreign partner firm.
• Lower income compared to other modes of international expansion.
Franchising
Another important strategy to enter into global markets and expansion is
franchising. Franchisor is the one who offers the franchisee and the person who
received is franchisee. Franchisee has to pay the requisite fees to the Franchisor.
Franchisee is required to pay the fixed prices as well as the royalty on the sales.
The Franchisor permits the franchisee relative flexibility. Franchisor helps in
establishing the manufacturing facilities and Franchisee agree to adhere to follow
the Franchisor’s requirements.
Advantages
• The financial risk for franchising is low.
• In principle, franchising is basically a low-cost way of assessing market
potential.
• In comparison with licensing, the franchisor maintains relatively higher
control.
• Prevents tariffs, NTBs and foreign investment restrictions.
Disadvantages
• Franchising business offers limited market opportunities.
• Franchising leads to the dependence on the franchisee. Export Import Policies,
Procedures &
• Franchising business has the possibility of likely conflicts with the Documentation
franchisee.
NOTES
Turnkey projects
A turnkey project is a project for which the company approves to complete
design, construction and installation of a manufacturing facility and transfers the
project over to the project holder when it is ready for installation. The key benefit
of turnkey project is that they avoid operational risk and have considerable focus
on firm’s resources towards the expertise area. However, the turnkey projects
also have disadvantages which are of two types that is financial risk and
construction risk.
Level 7 Foreign Trade Financing –Export financing is one of major export
business verticals. Export finance refers to the credit facilities that banks and
financial institutions have extended to exporters. In order to procure raw materials
and process goods for export purpose, pre-shipment financing is made available
to exporters. The other methods include factoring and forfaiting. Moreover, the
option to finance from overseas markets i.e. ECB (External commercial
borrowings) is available for manufacturer and infrastructure companies.
Level 8 –International Business –Over a period of time liberalisation and
Globalisation has given boost to the international trade. India economy has been
moving on to the continuous path of liberalisation and Globalisation from 1990
onwards. Moreover, the policies of the government are formulated with an
intention to reduce unemployment along with increment in the per capita income.
1.7 DEEMED EXPORTS
Deemed Exports
Specifically referred to in the foreign trade policy (2015-20), transactions
in which the goods delivered do not move outside the country’s borders, whereas
payment for such supplies is honored either in free foreign exchange or Indian
rupee is considered to be deemed exports.
The following categories of supply of goods by the main/ sub-contractors
shall be regarded as "Deemed Exports" under trade Policy, provided the goods
are manufactured in India:
Procedures &
Documentation
NOTES
Deemed exports are eligible for the following benefits :
1.8. SUMMARY
The same basic functional, operational and routine activities as domestic

business are required for international business. However, International trade is
a complex activity since it involves different economies, culture, language, legal
systems and documentation. There can be various modes of entry into
international trade –Exporting, Importing, Joint venture, Merger and acquisition,
strategic alliance, Licensing and franchising. There could be different motives
for the company to enter into International trade from increasing profit share to
economies of scale, technology development or competition. There are problems
of international trade as well in terms of complexity of trade, processing of
documents, cultural issues, long distance, risk in due course of business i.e.
economic, political and exchange rate risk.
Procedures &
1.9. EXERCISE Documentation
NOTES
1. What is International Business? Discuss the importance of
International Business.
2. Briefly explain the framework of International Business?
3. Distinguish between domestic and international business.
4. Briefly explain the concept of deemed export?
*****
Procedures &
Documentation
NOTES
UNIT – 2
CROSS BORDER
TRADE FLOWS
2.0 INTRODUCTION
2.1 Objectives
2.2 Cross border trade flows
2.2.1 Registration Stages (e-IEC)
2.2.2 Formation of Contract
2.3 Statutes in Trade
2.4 INCO Terms
2.5 Export Procedure
2.6 Logistics Flow
2.7 Summary
2.8 Exercise
2.1. OBJECTIVES

• Understand the cross border trade flows in external trade.
• Understand the legal and statutory provisions of International trade.
• To deal with the applications of INCO terms in trade.
2.2. CROSS BORDER TRADE FLOWS
We shall discuss the Cross border trade flows in two stages:

Stage 1- Preliminary Stages to Set Up Business (Registration Stage)
Cross Border
14 Trade Flows
We shall cover the e-(IEC) procedure in registration stages in addition to Export Import Policies,
other necessary registrations required to set up an export business. Procedures &
Documentation
Stage 2 –Formation of Contract (Export Contract)
NOTES
2.2.1. Registration Stage
• Registration with Reserve Bank of India (RBI)

RBI has been the authority for issuing of import export code till 1997 and
later on the authority to issues has been taken up by DGFT.
• Registration with Director General of Foreign Trade (DGFT)

DGFT is the authority to issue and modify the importer exporter code
number to the new as well as existing exporters/importers. It has become easier
and convenient to get the IEC due to availability of online submission. Further,
the IEC is a ten digit number and as per the current developments, the PAN card
is the IEC number. Application form which is known as "AayaatNiryaat Form -
ANF2A" can also be submitted online at the DGFT web-site: http://dgft.gov.in.
As a general rule, one IEC is issued against a single PAN number. Apart
from PAN number, an applicant is also required to submit his (copy of cheque)
Bank Account number. Fee for issue of IEC is Rs 500/- which can be paid online.
• IEC Procedure
Importer-Exporter Code Number (lEC No.): IEC Code is a unique 10-digit
code issued to Indian Companies by DGFT – Directorate General of Foreign
Trade, Ministry of Commerce and Government of India. IEC Code is “Importer
Exporter Code”. IEC Code is mandatory for importing and exporting from India. Cross Border
No person or entity shall make any Import or Export without IEC Code Number. Trade Flows 15
Export Import Policies, Mandatory Requirements to apply for IEC Code Number :
Procedures &
• Copy of Cheque (Bank account)
Documentation
• Address Proof of the entity
NOTES
• Fee of 500/ Rs through online.
• E-mail is not mandatory. If it is provided it will facilitate faster
communication.
Exceptions to IEC
There are certain exempt categories according to foreign trade policy and
they can use a specific IEC number for export and import. These categories
include consular officer (embassy), state and central government ministers,
specified blood bank, specific amount (up to 25,000) trade with Nepal per
consignment, etc.
Registration with Export Promotion Council

There are various export promotion councils which helps an exporter in
multiple ways. Export promotion councils (EPC) are non-profit organisations
and provide RCMC (registration cum membership certificate) after registration.
EPCs help in export marketing, providing directories of trade, arranging buyer
seller meet and assist in participation in trade fairs. Moreover, the benefits
available under trade policy can be availed only if an exporter is member of
specific promotion council.
The RCMC certificate shall be valid from 1st April of the licensing year in
which it was issued and shall unless otherwise specified, be valid for five years
ending 31st March of the licensing year,
Registration with Commodity Boards

Commodity Board is registered agency appointed for export-promotion
purposes by the Ministry of Commerce, Government of India and has offices in
India and abroad. These Boards are responsible for tea, coffee, rubber, spices and
tobacco production, development and export.
Registration with Income Tax Authorities

Goods exported from the country are eligible for both Value Added Tax and
Central Sales Tax exemption. It is therefore important to be registered with the
Tax Authorities to order to benefit from the tax exemption
2.2.2. Formation of Export Contract

A Sales contract is what is known as Export contract, while mentioning
about sales of goods meant for export purpose. It is basically an agreement that
an Exporter enters into with an importer that both of them are engaged in to do
their business, i.e., foreign trade in this context. Export contract has a very
Cross Border
16 Trade Flows significant role to in the International/Foreign trade. This contract mentions all
the terms and conditions viz. price of goods, terms of payment, credit limit, Export Import Policies,
packaging norms, terms of delivery (terms of INCO) that both the exporter and Procedures &
importer are going to act upon in order to carry their International trade Documentation
successfully. The buyers of these goods involved in International trade also NOTES
become a party to this contract so that their interests are also protected for the
larger benefit and healthy growth of trade. Arbitration clause is also mentioned
in this contract that functions as a framework of disputes’ redressal if they arise
while conducting any process .This document is required to be sent in duplicate
along with the Proforma Invoice to the buyers who are located overseas.
FORMS OF EXPORT CONTRACT

PROFORMA INVOICE
1. Quite a common and prevalent format of contract is Proforma Invoice
that is sent by e-mail, facsimile (fax), courier or post to the importer
of goods and services, (generally when requested), and confirmed by
the importer.
2. There is one legitimate contract, which is a kind of offer through
telephonic communication to sell, that covers important points, like,
cost price per unit, delivery norms, quantity being sold, A telephonic
offer to sell, covering essential issues such as the product details,
quantities offered, price per unit, extended by the exporter to the
foreign buyer (or an extension of offer to buy from the importer to the
exporter) and as a result confirmed by the second party.
3. Then another contract is that of a Quotation that is either written
standardised format sent by post, (preferable registered) or couriered
to the importer, or sent through e-mail, fax, cable or telex.
Contract formation
Following are some common components/parts/specifics of Export trade:
a. Standards and specifications of products/services, like, quality,
quantity, and unit based price, total contract price;
b. Currency, with specifications of any fluctuations/their average, Taxes,
Charges and Surcharges;
c. Stand specifications related to Packing labeling and Marking.
d. Mode of transport to be used with mention of Date, Time and place of
delivery;
e. International marine insurance
f. Inspection , process (es) and Technical Documentation
g. Mode of payment, Terms of delivery and Credit period, if any
h. Warranties and specifications related to Aftersales service.
Cross Border
Trade Flows 17
Export Import Policies, i. Laws and jurisprudence related to governing contract, Procedure and
Procedures & processes that cover settlement of disputes.
Documentation
Following are the important STEPS IN FORMATION OF EXPORT
NOTES CONTRACT
1. The first offer may be counter-offered
2. Exporter need to be clear and precise
3. The contract’s provision
• Name of the party to the contract
• Contracts’ validity
• Detailed account of goods being sold.
• Details of purchase price of goods currency of exchange.
• Payment terms
• Inspection of the goods if there is a requirement.
• Place of delivery of the goods.
• Mention of pointof transfer of title to the goods.
• Mention of warranty and/or maintenance conditions if any
associated with the sale
• Responsibility of person(s) for obtaining import or export
licenses, if licences are required
• Mention of Supporting/additional/related documentation and/or
certificates required
• Who is responsible for paying import duties and other taxes
• Details entailing security requirements related to contract
performance, i.e., as bank letters of guarantee and others.
4. Signatures and stamps/seal by all contracting parties
• Steps involved in Processing an Export order–Firstly, an exporter
acknowledges the export order, followed by its careful
examination related to its items, standard specification,
preshipment inspection and documentation , conditions related
to payment , special packaging norms and conditions , labelling
and marketing related prerequisites, shipment and delivery date
details, marine insurance, documentation and related
processes. etc.
NATURE OF INTERNATIONAL TRADE COUNTRACTS

International trade contract has some peculiar and special characteristics
that are not there in goods and services’ related contracts in domestic market. In
Cross Border
18 Trade Flows domestic trade, the parties involved need to agree on price, quantity, quality,
transaction and delivery terms by and large, the challenges and scenario is Export Import Policies,
different when there is International level trade in question, when the buyer and Procedures &
seller involved in purchase and selling of goods and services across national Documentation
boundaries. The parties involved in l international trade contracts extend their NOTES
respective rights and obligations in several manners.
FOB is the acronym for Free On Board which is very common term used
in International trade transactions. The shipping agreement that mentions FOB;
means that the seller or shipper is responsible to arrange for goods to be moved
to a designated point of origin. This is generally a port, as, FOB and other
INCOTERM contracts are mainly meant for maritime shipping. These FOB
contracts are also used for inland and air shipments. Delivery is implemented
and taken completed on records, when the seller releases the goods to the buyer.
FOB contracts further stipulate that this occurs when the goods have crossed the
rail of the ship.
CIF stands for Cost, Insurance and Freight — CIF is a shipping agreement
that is a tools to contracting parties specifying that the seller has responsibility
for the cost of the goods in transit, with a provision of minimum insurance and
paying freight charges to move the goods to a destination as specified by the
buyer. From the point of delivery to the destination, the buyer assumes
responsibility for unloading charges if any and any further shipping costs to a
final destination.
ENTERING INTO AN EXPORT CONTRACT

Export contract is an important document that each party enters into, in
order to avoid any disputes especially when an international buyer is involved in
the trade. Hence the drafting of this document is to be done meticulously that
include comprehensive as well as precise/key terms that are most relevant and
widely used and are relevant and conducive to the trade deal(s).
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 e and others are to be clearly specified. The different
aspects of an export contract are mentioned here under:
Cross Border
Trade Flows 19
Export Import Policies, • Product, Standards and Specifications
Procedures &
Documentation • Quantity
• Inspection
NOTES
• Total Contract Value
• Delivery Terms
• Duties, Taxes and Charges
• Period of Delivery/Shipment
• Labelling, Packing, 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
In an export contract court proceedings, the arbitration clause is not that
satisfactory a method to settling disputes at the commercial level. The main
reason for this is the inevitable delays, technicalities and costs. The arbitration
process, still provides an economic, expeditious and informal solution to any
trade dispute. Arbitration proceedings shall be conducted in confidentiality and
the awards shall remain confidential. Usually the arbitrator is an expert in the
trade related area. Taking into account the availability and convenience of all
concerned, the dates for arbitration proceedings are decided. Arbitration is the
best way to resolve commercial disputes, and it can be used by businesses in
their trade transactions.
2.3. STATUTORY BASIS OF INTERNATIONAL BUSINESS

(FRAMEWORK OF INTERNATIONAL BUSINESS)
In order to carry out export business, the statutory requirements of the trade
has to be complied which are as follows:
a) FTDR Act 1992 Amended as Development and regulation Act 1992
b) FEMA Act 1999
Cross Border
20 Trade Flows
c) Customs Act 1962 Export Import Policies,
Procedures &
d) GST Act 2017 Documentation
Development and Regulation Act initiates the following rules to be
NOTES
complied while doing external trade.
The act empowers the government to make provisions for the import and
export of Indian goods. In accordance with section 5 of the Dev and Regulation
Act, the central government is empowered to formulate and modify foreign trade
policy. The act also empowers the central government to appoint the General
Director and his duties. The act also states that no person shall import or export
except in accordance with an IEC code not granted by DGFT. The act further
states that infringement of custom / foreign exchange law will result in IEC no
being suspended and cancelled.
The act provides powers to the central Govt to authorize any person for
entering the premises, searching, inspecting and seizing of such goods. Finally,
the act covers the rules of penalty for contravention and provisions of appeal to
deal with severe cases.
FEMA (Foreign Exchange and Management Act, 1999) — The Foreign
Exchange Management Act (FEMA) is a law to replace the traditional and severe
act that is the Foreign Exchange Regulation Act, 1973. Any offense under FERA
was a criminal offense that was liable to imprisonment, whereas FEMA attempts
to commit civil offenses related to foreign exchange. The tenor and tone of the
Act were therefore very drastic. FERA provided for a very minor offense to be
imprisoned. A person was presumed to be guilty under FERA unless he proved
to be innocent, whereas under other laws, a person is presumed to be innocent
unless proven guilty.
FEMA states that the foreign exchange should be dealt through AD/AP
(Authorised person). “Authorized person” means an authorized dealer,
moneychanger, off-shore banking unit or any other person for the time being
authorized to deal in foreign exchange or foreign securities.
The act provides the provisions for appeal and penalty uptoRs 2,00,000 for
contravention of provision laid under the act.
2.4. INCO TERMS
The International Commercial Conditions are published by the International

Chamber of Commerce (ICC), which is widely accepted throughout the world
by legal authorities, government, traders and practitioners. Inco terms describes
purchaser and seller's role and responsibilities precisely to avoid any ambiguity
in the sales contract. Inco terms ' objective is to make available a set of
international rules to interpret the most commonly used foreign trade terms. This Cross Border
Trade Flows 21
Export Import Policies, uniform policy will help to reduce uncertainty. INCO terms also helps to explain
Procedures & seller and buyer's precise role and responsibilities in international trade.
Documentation
There have been revisions in the INCO terms by ICC, which are tabulated
NOTES as follows:
The latest revision is INCOTERMS (2010), which shall be dealt in detail.

INCOTERMS 2010 comprises of 11 terms which are further subdivided
into two categories.
1. Ex-Works –Seller is required to deliver the goods at the named factory

in the country of export (source country). This term has minimum
obligation on the seller and maximum obligation onto the buyer. EXW
applies to goods available only at the seller’s premises. Buyer is
responsible for loading the goods on truck or container at the seller’s
premises and for the subsequent costs and risks.
Cross Border
22 Trade Flows
Procedures &
Documentation
NOTES
2. FCA – Free Carrier –The delivery of goods on truck, rail car or

container at the specified point(depot) of departure, which is usually
the sellers premises, or a named railroad station or a named cargo
terminal or into the custody of the carrier, at sellers expense. The
point(depot) at origin may or may not be a customs clearance centre.
Buyer is responsible for the main carriage/freight, cargo insurance and
other costs and risks.The seller delivers goods, cleared for export, to
the buyer-designated carrier at a named location. The seller must load
goods onto the buyer's carrier. The key document signifying transfer
of responsibility is receipt by carrier to exporter.
Cross Border
Trade Flows 23
Procedures &
Documentation
NOTES
3. CPT –Carriage Paid to - The carriage is paid by the seller. Transfers

of risk to the buyer upon delivery of goods to the first carrier at the
place of delivery in the export country. This term is used for shipments
of all kinds
4. CIP - The containerized transport/ multimodal equivalent of CIF.
Seller pays to the named destination point for carriage and insurance,
but risk passes when the goods are delivered to the first carrier.
5. DAT - Seller pays for carriage to the terminal, except for costs related
to import clearance, and assumes all risks up to the point that the goods
are unloaded at the terminal.
6. DAP - Seller pays for carriage to the named place, except for costs
related to import clearance, and assumes all risks prior to the point that
the goods are ready for unloading by the buyer.
7. DDP - Seller is responsible for delivering the goods to the named place
in the buyer's country and is responsible for paying all costs of bringing
the goods to destination including import duties and taxes. The seller
is responsible for most expenses including cargo insurance, import
custom clearance, and custom duties payment.
Terms used using SEA as a mode of transportation

(Inland Water Ways)
1. FAS- The seller must place the goods alongside the ship at the named
port. The seller must clear the goods for export. Alongside Ship: Goods
are placed in the dock shed or at the side of the ship, on the dock or
lighter, within reach of its loading equipment so that they can be loaded
aboard the ship, at seller’s expense. Buyer is responsible for the
loading fee, main carriage/freight, cargo insurance, and other costs and
risks Suitable only for maritime transport but NOT for multimodal sea
transport in containers.
Cross Border
24 Trade Flows
2. FOB - The seller shall load the goods on board the purchaser Export Import Policies,
nominated vessel. Cost and risk are split when the goods are actually Procedures &
on board the vessel. Delivery of goods on board the vessel at the so- Documentation
called port of origin (Loading) at the expense of the seller. The NOTES
principal carriage / freight, cargo insurance and other costs and risks
are the responsibility of the buyer.
3. CFR –Delivery of goods at the seller's expense to the named port of
destination (discharge). The cargo insurance and other costs and risks
are the responsibility of the buyer. The term CFR was written as C&F
in the past. The term C&F is still used by many importers and exporters
worldwide. To bring the goods to the port of destination, the seller
must pay the costs and freight.
4. CIF - Exactly the same as CFR except that the seller must in addition
procure and pay for the insurance. Maritime transport only.
Cross Border
Trade Flows 25
Procedures &
Documentation
NOTES
2.5. EXPORT PROCESSING
PROCESSING AN EXPORT ORDER

The exporter should first acknowledge the export order, and then proceed
to examine carefully in respect of specification of product, type of packaging,
documentation, shipment and other commercial as well as legal requirements.
Figure 1Flow-chart of Export Processing
Cross Border
26 Trade Flows
Procedures &
2.6. LOGISTICS ASPECTS Documentation
NOTES
Logistics aspects in maintaining flows

Key elements of logistics comprises of inventory management,
warehousing, transportation, material handling, packing and packaging. More
focus is stressed upon the logistics sector keeping in view the major role of
logistics in domestic along with International trade. Indian firms have been
pushing themselves for efficient movement of goods and services in order to
address the infrastructural bottlenecks.
Inbound logistics, process logistics, outbound logistics and reverse logistics
are integrated logistics. Inbound logistics refers to the procurement for processing
purposes of inputs and raw materials from outside the company. When the
manufacturing unit uses utilities (manpower, infrastructure) to further process
these raw materials, it is called process logistics. On the other hand, it is called
outbound logistics to physically distribute final goods and services to the
consumer.
Figure 2 Process of Trade Logistics
Cross Border
Figure 3 Components of logistics Trade Flows 27
Export Import Policies, Following are the objectives to be considered for logistics aspects in
Procedures & maintaining flows:
Documentation
The primary and foremost objective of logistics management is to move the
NOTES supply chain effectively and efficiently so as to expand and extend the desired
level of customer service minimizing the cost simultaneously. Therefore, logistics
management initiates with ascertaining customers ‘needs and demands till their
absolute accomplishment through supplies of the product. Nevertheless, there
exists some specific and definite objectives to be attained through an appropriate
logistics system. These are illustrated as follows:
1. Improving customer service
A pertinent objective of all marketing efforts, including the physical
distribution activities, is to contribute to make the customer service
experience more qualitative. An efficient management of physical
distribution can aid in enhancing the customer service level by
devising an effective system of warehousing, quick and economic
transportation, and maintaining the requisite level of inventory.
2. Rapid Response
A firm's ability to satisfy customer service requirements in a timely
manner is associated with rapid response. The capability to delegate
logistical operations to the latest possible time has been enhanced by
the information technology and therefore rapid delivery of required
inventory is accomplished.
3. Reduce total distribution costs

The physical distribution cost comprises of numerous elements such
as warehousing, transportation and inventory maintenance. Therefore,
the main aim of the firm should be to mitigate the total cost of
distribution.
4. Generating additional sales

By offering qualitative services at lower prices, a firm can attract
various additional customers. For instance, a firm can attain larger
market share by decentralizing its warehousing operations.
5. Creating time and place utilities

The physical movement of products from the place of their origin to
the place where they are needed for consumption does not serve any
purpose to the users.Similarly,the products have to be made available
at the right time when they are needed for the actual consumption.
Cross Border
28 Trade Flows
Procedures &
2.7. SUMMARY Documentation
NOTES
Export contract helps in deciding and planning the trade activities. In
general, FOB contract and CIF contract are used traditionally. INCO terms 2010
have been developed by ICC which comprises of 11 terms. There are four terms
which can only be sued through SEA as a mode of transportation which includes
the FAS, FOB, CFR and CIF. Moreover, the role of trade logistics decide the
flow /movement of goods. Firm has to take due care for inbound logistics, process
and the outbound logistics.
2.8. EXERCISE
1. Discuss the preliminary stages to set up export business.

2. Briefly explain the formation of export contract in international
market?
3. Briefly explain the logistics operations for international trade?
4. Discuss the INCO terms 2010 with practical examples?
5. Discuss the current foreign trade policy of India in force?
*****
Cross Border
Trade Flows 29
Procedures &
UNIT - 3
Documentation
INTERNATIONAL TRADE LOGISTICS

NOTES
3. INTERNATIONAL TRADE LOGISTICS
3.1 Objectives
3.2 Concept of Logistics
3.3 Evolution of Logistics
3.4 Objectives and importance of Logistics
3.5 Concept of Supply chain Management
3.6 3 Rs in Logistics
3.7 Functions of Logistics
3.8 Challenges of Logistics
3.9 Physical distribution Management
3.10 Summary
3.11 Exercise
3.1. OBJECTIVES

• Understand the concept of logistics and its importance in trade.
• To discuss the 7 Rs of logistics.
• To explain the functions and challenges of logistics.
3.2. DEFINITION OF LOGISTICS AND INTERNATIONAL

LOGISTICS
Definition of Logistics
Logistics is related to a consolidative approach from inward movement of
International goods (raw-material), its processing and outward movement of finished goods
30 Trade Logistics to consumers.
Logistics can be defined as planning, execution and control of process of Export Import Policies,
flow of physical goods of material and final goods from point of origin to the Procedures &
point of sale. Documentation
Logistics is the phenomena in which flow of raw-material and finished NOTES

goods from supply to the place of consumption is managed effectively.
Definition of International Logistics

International logistics comprises of the management of these resources in a
company's supply chain across at least one international border.
International Logistics involves formulating and managing a system that
controls the flow of materials into, through and out of the international
corporation.
3.3. EVOLUTION OF LOGISTICS
Evolution of Logistics
At its peak, trade logistics emerges and secures its place as a particular
discipline and branch of study. The interplay of technology, infrastructure, and
new types of service providers will define whether India's emerging logistics
industry can help its customers reduce their logistics costs and deliver efficient
(and growing) services. Service provider regulation and changes in government
tax policies will play a key role in this process. Cooperation between different
government agencies requires the consent of numerous ministries and thus
emerges as a road block in India for multi-modal transport.
At the firm level, the focus of logistics is moving towards reducing cycle
times for adding value to their customers. As a result, useful strategies and better
tools are being utilized by firms in order to intensify their decision making
process. It should be noted that, as elsewhere, the Indian logistics sector consists
of all the outbound and inbound fragments of the supply chains of manufacturing
and service. Lately, a lot of attention has been paid to the logistics infrastructure
from both business, industry and policymakers. However, the role of managing
this infrastructure so that it can effectively compete in the arena has been slightly
less focused upon. Inappropriate logistics infrastructure leads to the creation of
obstacles in the development of an economy. With the development in
technology, the logistics industry has revolutionized and has emerged as a
composite approach to deal with.
International
Trade Logistics 31
Procedures &
Documentation 3.4. OBJECTIVES AND IMPORTANCE OF LOGISTICS
NOTES
Objective of logistic management

The final motive of the logistics management is providing efficient and
effective service to the customer with least cost. We are mentioning some of the
objectives of logistics as follows:
Importance of logistics
Business logistics is a phenomenon outlined as well as the effective and
effective depository of raw materials, inventory, finished goods and services
being implemented. It also refers to product flow and shipping from the
warehouse to the consumer. Service organizations also value business logistics.
Logisticians ensure that at the time of service delivery, materials and information
are dispensed. In an economy, logistics and transport play a relevant role.
Maintaining Competitive Edge

Successful business logistics are giving other organizations tough
competition. It provides a suitable system or smooth process through which
customer needs can be more effectively fulfilled. A company should always be
ready to deliver merchandise shipments with greater accuracy and speed than
competitors do. The Internet has made this easier for many businesses to do.
Building Good Consumer Relations

Providing a product in a time-efficient and cost-effective manner that is
helped by business logistics also addresses the need to build good customer
relationships. This is vital not only for instant monetary gain, but also because
International more business can mean good customer relationships. One of the great ways to
32 Trade Logistics
advertise and grow business in today's era is to deliver good, high-quality service Export Import Policies,
that customers will deliver to other customers through word of mouth and, more Procedures &
specifically, the electronic word of mouth. Documentation
NOTES
Creating Finished Product
A company must ensure that sufficient raw materials are available to
produce finished products. A business cannot produce a quality product without
qualitative goods. It is also a necessity for supply and demand purposes to have
sufficient products stored and to enhance customer satisfaction.
Providing Organization
Business logistics can be of great help every time a product is created to
ensure that the process is completed without obstruction. It is very important to
ensure that inventory is tracked, transported, stored and produced in a manner
that is suitable for all departments of an organization. Controlling this flow so
that each department knows what to do and what to expect will help ensure that
the plans and objectives of the company are in harmony with each other.
A systematic transport and trade logistical system is mandatory for sustained
economic development for any nation of the world. It is specifically more
important for an emerging economy like India which has one of the highest
transactional costs of doing business in the world.
The paramount reasons for high transactional cost in India’s foreign trade
are poor logistical infrastructure in India, poor logistics management practices,
and lower use of technology in logistical operations.
Logistical merits and well-planned transport system also play an essential
role in advancing the development of the backward regions including country
hinterland and help in effective economic integration of such areas into
mainstream economy by opening them to trade and investments.
In a liberalized set-up, a coherent transport network, including
developments in virtual as well as physical infrastructure and overall efficiency
in logistical system of the nation, become all the more vital factors in order to
enlarge productivity and increase the competitiveness of the economy in the
world market.
Importance of Logistics
• Generation of Demand
• Reduced Cost of Doing Business
• Tapping International Clientele
• Ensuring Rapid Economic Growth
• Facilitates Bridging Gap between Demand and Supplies
• Strategic Infrastructure for Global Integration International
Trade Logistics 33
Export Import Policies, • Global Outlook Of Indian Industry
Procedures &
Documentation • Access To Sophisticated Trade Logistics Processes and Capabilities
• Ensuring Critical Supplies on Time
NOTES
3.4.1 LOGISTICS IN INTERNATIONAL MARKETING

Marketing experts have recognized that higher logistics performance is a
major source for developing a position of sustainable competitive advantage. .
Therefore, the approach in logistics is an integrated one which considers the
marketing, distribution as well as the manufacturing activity in unified manner.
More in detail, the integration of planning with the strategic approach is said to
be marketing logistics. Firms are surviving by way of cutting cost as well as
providing better services so as to offer value for money to the customer.
Moreover, practically marketing managers are in search of ways and mean
of theorising and implementing logistics advantages to market effective globally.
3.5. CONCEPT OF SUPPLY CHAIN MANAGEMENT
Supply Chain Management

Management of the supply chain involves the operational management of
the flow of goods and services and includes all processes that transform raw
materials into conclusive items. The motive is to increase the value of the
customer and thereafter gain a competitive edge over other marketplace
companies. Supply chain management clarifies suppliers ' efforts to develop and
implement supply chains that are as good as they are efficient and economical
as possible. Supply chains cover everything from production to product
development to the information systems needed to direct these undertakings.
A supply chain is a broad network of people, organizations, resources,
activities, and technologies involved in producing and selling a product or
service. A supply chain starts with the delivery to a manufacturer of raw materials
from a supplier and settles with the delivery to the end customer of the finished
product or service.
Successful supply chain management coordinates and encapsulates all these
activities as well as the department within the organization into a perfectly
consistent process. Forecasting, scheduling production planning, order processing
and customer services are all part of the process and also demonstrate the
information system required to monitor all day-to-day activities.
Supply chain management consolidates planning and implements the most
appropriate flow of materials. Whereas information and financial capital are also
the areas that widely comprises of demand of planning, sourcing, production,
International inventory management and storage, transportation or logistics.
34 Trade Logistics
Supply alternation administration (SCM) is the advanced ambit of activities Export Import Policies,
absolute of planning, authoritative and implementing the product flow, from Procedures &
accepting raw material and assembly through administration to the final customer Documentation
in utmost cost-effective way. NOTES
Management of the supply chain combines planning and implementation
in the most appropriate material flow. While information and financial capital
also cover a wide range of planning, sourcing, production, inventory management
and storage, transport or logistics demands.
Supply chain management helps to develop alignment and effective
communication among all the entities, which cover environmental, social and
legal issues. Supply chain management generate efficiencies, enhance profits,
low down the productivity costs, boosts collaboration and more. Supply chain
management also help companies to manage demand, carry required amount of
inventory, deal with diversity, keep costs to a minimum and cater to customer
demands in the most effective manner. Therefore supply chain management
comprises of business processed from manufacturing operations, purchasing
transportation and physical distribution of products to end user.
3.6. 3 RS IN LOGISTICS
3 Rs in logistics comprise of right product, right place and right time. We

shall explain three Rs in detail in addition there is new concept of 7 Rs which is
explained below.
7 Rs of Logistics
Figure 4Seven Rs of trade logistics International

Trade Logistics 35
Export Import Policies, Right Product – Product plays an essential role in the domestic as well as
Procedures & international trade. Right product has an implication that the product fulfils the
Documentation needs, demand and desires of the end user. Customers always have varying
NOTES demands and right product refers to the one which meets the objectives of
customers who are willing to buy. Right product must be the hallmark in context
to the quality, which further consist of the customer service, the cost, delivery
and process.
Right Place –Overseas trade logistics help the firms to place their product
where it is required by the customer or can be of substantial use by him as and
when required. Trade logistics system is a very important aspect which helps in
creating the time and place utilities for any globally engaged firm and help in
maintaining the demand and supply of goods and services, minimising the other
costs and the working capital.
Right time – The applicability of a product is time specific based on the
demand and requirement of the customer. Need of the product is demand based
and goods are delivered based on the customer’s requirements. We often see the
companies using buzz words like on-time delivery, 30 minutes pizza which
subsequently emphasize the value of time. International buyers do trade with
specific deadlines mentioned in the export contract and accordingly the planning
of operations and logistics is of utmost importance. For e.g. Japanese has ordered
Christmas gift items (X’mas tress) from India and they expect that the goods
need to be delivered in Japan by 10th Dec plays an extremely important role in
logistics. In case the goods are delivered late due to malfeasance at any level,
then the Japanese will never be willing to deal again with that specific Indian
exporter. Therefore, timely delivery of goods is pertinent in order to survive and
attract customers. This concept is basically a supplement of commitment which
implies that on- time delivery is the key to success in international trade.
Right cost – The cost of goods is directly proportional to the logistics cost
and hence it increases with the increase in logistics cost. Consequently, the
objective of an entrepreneur is to reduce the logistics cost with the help of
experienced team of logistics firm. There has to be a system approach to reduce
the cost of logistics in all possible ways such as taking decision related to type
of transportation, inventory, warehousing, packaging etc. Although, the water
transpiration is a cheaper mode of transporting bulk goods but it also increases
the lead time and inventory cost simultaneously. With the help of clearing and
forwarding agent, efforts are made to find out the lowest cost of logistics and
increasing the efficiency at all possible levels.
Right quantity –The objective of following the appropriate quantity is to
trade off the costs related with stock out and cost of carrying the inventory.
Therefore, if requisite quantity is not available, there is a possibility to lose a
customer which will further lead to the loss of sales. On the other hand if there
is excess of quantity in hand, then the cost of inventory rises. Numerous
International techniques are available to maintain the required quantity within an organisation.
36 Trade Logistics Economic order quantity has been used from traditional times to decide upon the
quantity required for a specific time. Moreover, the automobile units and the e- Export Import Policies,
commerce companies have adopted the JIT (Just in time) concept to further Procedures &
reduce the cost of inventory and storage. Documentation
Right condition –Trade logistics facilitates transportation of goods from NOTES

one place to another and make sure that the goods are delivered safely (without
any variation) to the specified place. Thus, the role of logistics manager is to pay
more heed to the safety of goods and therefore proper packing, packaging,
unitisation and palletization plays an equally important role.
3.7. FUNCTIONS OF LOGISTICS
LOGISTIC MANAGEMENT FUNCTION

Logistics is a process of movement of goods and the major functions
comprise of processing of order, warehousing of goods, transportation and
inventory management.
1. Order processing
Once the order is received, then executive will check that the order is
complete in all respects or not. If the details and terms and conditions
are met then the marketing executive shall process the order timely.
Thus, timely processing of an order so that material could be taken
into production in time is the essence of order processing. In case of
incomplete details in order, the buyer is intimated and the order is
treated as pending order. Following things are checked in detail that is
the price, packaging, and payment as per terms, delivery terms and the
availability of material.
2. Warehousing
Warehousing facility is required for storing the goods, sorting of goods
and consolidation of goods. Therefore, the location of warehouse,
design of warehouse and size of warehouse plays an important role to
decide the warehouse. Location of warehouse depends on business
network and in general lot of warehouses are available near port areas
for various reasons.
3. Inventory Management
Firms are using multiple techniques to manage the inventory and the
most common techniques are EOQ (Economic order quantity), JIT
(Just in time) and ABC. In order to maintain the desired level of
quantity, the inventory management is used. Inventory management
plays a role to trade off between the costs of maintain inventory and
International
customer service (demand of goods).
Trade Logistics 37
Export Import Policies, 4. Transportation
Procedures &
Documentation Transportation aims to move goods from production and sales points
to consumption points in the quantities required at times and at
NOTES reasonable costs. The need for the hour is effective and efficient use
of transport. Transportation decision-making plays an important role
in logistics. Transportation function is vital as it affects the
performance of delivery, product pricing, and condition of the goods
arrived, etc. Ultimately, this would have a major impact on customer
satisfaction level.
3.8. CHALLENGES OF LOGISTICS
CHALLENGES IN LOGISTICS INDUSTRY

o Infrastructure is one of the biggest challenges facing the Indian logistics
industry and has been a major disincentive to its growth. Constant sources
of infrastructural problems such as poor road conditions, poor
connectivity, inadequate air and sea port capacities and lack of
development of transport modes such as railways and alternatives such
as inland water transport and domestic aviation.
o Because of infrastructural bottlenecks, the costs per transaction in the
Indian logistics sector are extremely high compared to those in the
developed markets. Due to the high fragmentation of industry, there is
less economies of scale.
o Lack of skilled labor and manpower are also considered to be the greatest
challenges for the logistic sector.
o In a vast and developing country like India, customer base is diverse and
widely distributed. They are required to have appropriate end-to-end
supply chain strategies in place, covering network strategy, proper human
resources, and infrastructure.
TRENDS IN LOGISTICS INDUSTRY

o Globalization and outsourcing are relevant trends in the logistics and
shipping industries. Both these approaches help to reduce the operating
costs of logistics and shipping players. The rapid growth of international
trade is driving globalization and outsourcing.
o Outsourcing enables companies to involve more supply chain players,
resulting in third-party logistics players (3PL) and fourth-party logistics
players (4PL).It also allows logistics and shipping companies to
collaborate with other manufacturing companies from distinct industries
International in order to make logistics available to the manufacturing companies. 3PL
38 Trade Logistics
and 4PL players are specifically specialized in incorporated transportation Export Import Policies,
and warehousing services. Procedures &
Documentation
o These integrated services can be customized to meet the needs of
companies from various distinct industries. The requirement to control NOTES
logistics costs and the increasing need to focus on core competencies are
propelling the companies to search for such 3PL and 4PL players and
providers, which is another trend witnessed in this industry.
o Another trend witnessed in the industry is that non-identical
manufacturing companies are increasingly opening their manufacturing
units where they have different modes of transport for smooth shipping
and logistics activities at domestic and global level.
o Mergers and acquisitions (M&A) between manufacturing companies and
3PL & 4PL service providers are also witnessed in this industry. M&A
provides the manufacturing companies with a qualitative warehousing
and transportation facilities and consequently amplify the logistics and
shipping activities of manufacturing companies.
3.9. PHYSICAL DISTRIBUTION SYSTEM
Physical distribution systems consist of all the activities and operations that
help to ensure that the right amount of product is delivered to the right place at
the right time.
In fact, physical distribution is the series of interlinked activities or the
supply of finished product to customers from the production line. Physical
distribution consists of multiple channels of distribution, such as wholesale and
retail, and covers critical decision-making areas such as customer service,
inventory, materials, packaging, order processing and logistics.
Importance of Physical Distribution

Physical distribution and its importance may vary from company to
company due to the variation in the type of products and the satisfaction level of
the customer. There is systems approach to manage the physical distribution by
considering the interrelated functions for effective and efficient movement of
goods. Since, the decision of one activity has influence on other functions and
hence it can be said that the activities are interrelated. Managing physical
distribution from a systems approach can provide convenience in regulating costs
and meeting customer service demands.
The function of customer service is a strategically designed standard for
consumer satisfaction that a business seeks to provide to its customers. As an
example, for the handbag business mentioned above, a customer satisfaction
approach may be that 75% of all custom handbags are delivered to the customer International
Trade Logistics 39
Export Import Policies, within 72 hours of ordering. A supplementary approach might include that 95%
Procedures & of custom handbags be delivered to the customer within 96 hours of purchase.
Documentation Once these customer service standards are lay down, the physical distribution
NOTES system is then delineated to attain these objectives.
3.9.1. Physical distribution system

System elements common to Physical Distribution system and supply chain
management System elements within the physical distribution management and
physical supply management are as follows:
Integration - Integrated approach is important to ensure that the product

gets to the distribution phase. This improved communication not only reduces
errors but also time.
Operations –It is important to have track of the operations and thus
monitoring is required. Manufacturers spend considerable time to evaluate the
processes in order to improve the system.
Purchasing –This is one of the key element of the system since the business
cannot operate in silo and hence there is need to procure material through the
right personnel. Purchasing shall help in managing the business operations and
also efforts are done not to delay the production so as to deliver the goods on
time to customer.
Distribution – Proper handling of the goods is need of the hour. Use of
software and IT services has further expedited the process. In nut shell, well-
planned shipping process is required for effective distribution.
3.10. SUMMARY
Trade logistics can be defined as set of management tools and techniques

that are required to improve the effectiveness and efficiency of firm’s trade and
International logistics operations. Supply chain management involves the effective
40 Trade Logistics management of the flow of goods and services and includes all processes that
convert raw materials into final products. Key functions of logistics comprise of Export Import Policies,
order processing, warehousing, inventory management and transportation. On Procedures &
the other hand, there are various challenges of logistics particularly the Documentation
infrastructure. NOTES
3.11. EXERCISE
1. Explain the objectives and importance of logistics?

2. Discuss the 7 Rs in logistics and its implications?
3. Write short note on physical distribution management?
4. Briefly explain the challenges of logistics in International trade?
*****
International
Trade Logistics 41
Procedures &
UNIT - 4
Documentation
TRANSPORTATION AND
NOTES
WAREHOUSING
4 TRANSPORTATION AND WAREHOUSING
4.1 Objectives
4.2 Concept of EOQ
4.3 Warehousing
4.4 Functions of Warehousing
4.5 Types of Warehousing
4.6 Transportation -Choice
4.7 Multimodal transport Operator
4.8 Containerization and types
4.9 Freight Forwarders (CHA)
4.10 Ports in India
4.11 Liner Shipping Services
4.12 Summary
4.13 Exercise
4.1. OBJECTIVES

• Understand the role of warehousing in trade logistics.
• To discuss the role of multimodal transportation.
• To discuss the advantages of containers and its types in trade.
• To explain the role of freight forwarders.
Transportation
42 and Warehousing
Procedures &
4.2. CONCEPT OF EOQ (ECONOMIC ORDER QUANTITY) Documentation
NOTES
Inventory management is one of the key function of logistics for the firms
operating in business. Assuming that high level of inventory is available with the
firm will signify that lot of capital is blocked in managing the inventory.
Moreover, if the level of inventory is not up to the demand of the customer then
the firm will lose customer as a result the revenue. Thus, there is need to have
optimum level of inventory and so the concept of EOQ has been introduced.
Economic order quantity is required to be maintained in order to sustain the
business.
R = Annual consumption
O = Ordering Cost
C = Carrying Cost of Business
This technique is preferably used by international managers to optimize the
order size that will not only reduce the order cost and carrying cost based on the
given expected usage.
4.3. WAREHOUSING
Warehousing refers in an orderly manner to the activities involving large-

scale storage of goods and making them conveniently available when required.
In other words, warehousing means holding or preserving large quantities of
goods from the time they were purchased or produced until they were used or
sold authentically.
Manufacturers are in need of raw-material from time to time. At times, they
procure the material in advance due to various reasons that could be low cost,
non-availability of goods in future, global supply chain or economies of scale.
As a result the need for storage of goods arises. Thus, in order to store the goods
the warehouses are required. We can take an example for e.g. the chocolate
manufacturing company is dependent on sugar for which sugar cane is required.
In order to manufacture the chocolates, required quantity of sugar is needed.
Hence, the manufacturer need to procure and store the necessary raw-material
in warehouse to produce the chocolates.
Transportation
and Warehousing 43
Export Import Policies, Therefore, both the raw material and the finished products need to be stored.
Procedures & Storage involves proper arrangements to preserve goods from the time they are
Documentation manufactured or purchased to the time they are actually used. When this storage
NOTES is implemented on a large scale and in a specified manner, it is called
‘warehousing’. The place where goods are kept is called ‘warehouse’. The person
in-charge of warehouse is called ‘warehouse-keeper’.
Warehousing can be defined as the storage of goods: raw materials, semi-
finished goods, or finished goods. This involves a wide spectrum of facilities and
locations that provide warehousing. Since, this is a point in the logistics system
where goods are held for varying amounts of time, the flow is interrupted or
stopped, thereby giving rise to additional costs to the product.
In a macroeconomic sense, warehousing creates time utility for raw
materials, industrial goods and finished products. It also increases the utility of
goods by widening their time availability to probable customers.
4.4. FUNCTIONS OF WAREHOUSING
Functions of warehouse
The functions of the warehouse are (i) Receiving (ii) Inspection (iii)
Repacking (iv) Put away (v) Storage (vi) Order Picking/Selection (vii) Sortation
(viii) Packing and shipping (ix) Cross-docking (x) Replenishing
i. Receiving: One of the important role and function of warehouse is to
receive the goods which include the checking of goods and unpacking
and repacking wherever required. At times there is need to ensure the
quality is intact with the ordered quality.
ii. Inspection: There is need to have proper inspection of goods at the
time of receiving the goods in warehouse.
iii. Storage: Proper storage of goods including the layout and arrangement
plays an important role in warehousing.
v. Sortation: Role of warehouse is to sort the goods as per the
requirement of customer orders. vii. Packing and shipping: Warehouse
also helps in integrating and packing the goods as per customer order
requirement. It is shipped according to customer orders and respective
destinations.
viii. Cross-docking: Cross docking refers to moving products directly
from receiving to the shipping dock.
ix. Replenishing: When the movement of goods take place in bulk
quantities, say for example: a whole pallet at a time.
Transportation
44 and Warehousing
Procedures &
4.5. TYPES OF WAREHOUSES Documentation
NOTES
Types of warehouse
After getting an insight about the requirement for warehousing, let us
determine the distinct types of warehouses. In order to meet their requirement,
several types of warehouses came into existence and may be classified as follows:
i. Private Warehouses
ii. Public Warehouses
iii. Government Warehouses
iv. Bonded Warehouses
v. Co-operative Warehouses
i. Private Warehouses
The warehouses that manufacturers or traders own and manage to store
only their own stock of goods are called private warehouses. Typically,
farmers in the area near their fields, wholesalers and retailers near their
business centers and manufacturers near their factories are building
these warehouses. The design and the facilities provided therein are in
accordance with the nature of products to be stored.
ii. Public Warehouses

Warehouses running to store public goods are known as public
warehouses. Anyone can store their goods on rent payment in these
warehouses. These warehouses may be owned by an individual, a
partnership company or a company. A government license is required
to start such warehouses. The government also regulates these
warehouses ' functions and operations. Mostly, manufacturers,
wholesalers, exporters, importers, government agencies, etc. use these
warehouses.
iii. Government Warehouses

These warehouses are owned, managed and regulated by central or
state governments or public corporations or local authorities. Both
government and private enterprises may use these warehouses to
preserve their goods. The Central Warehousing Corporation of India,
State Warehousing Corporation and Food Corporation of India are
examples of agencies maintaining government warehouses.
Transportation
and Warehousing 45
Export Import Policies, iv. Bonded Warehouses
Procedures &
Documentation These warehouses are owned, managed and regulated by government
as well as private agencies. Private bonded warehouses have to procure
NOTES license from the government. Bonded warehouses are utilized for
storing imported goods for which import duty is to be paid. The
importers do not have permission to remove the goods from the ports
until such duty is paid in the case of imported goods. These warehouses
are typically owned and found near the ports by dock authorities.
v. Co-operative Warehouses
Co-operative societies own, manage and regulate these warehouses.
They provide the members of their society with warehousing
provisions at the most economic rates.
4.6. TRANSPORTATION
Transportation takes place through various modes viz. Road (Truck), Rail,
Air and Water. We shall discuss the various modes in detail as under:
1. Rail -
Transportation through rail network is the preferred mode in some of
the specific sectors and the goods which are commonly transported
using rail includes Sand, Coal, and minerals. Though, the cost is less
and the speed is more, railways serve to be an important mode of
transportation and contributes to 26% of total cargo ton miles. With
the modern facilities and particular amendments, it has become
practice to carry truck trailers by rails.
2. Trucks
In recent years, the transportation mode of trucks has played an
essential role in transportation of goods from one place to another with
a share of 24% of total cargo ton miles. Within cities transportation,
trucks are considered as the largest transportation mode. The routing
and timing schedules of trucks are extremely flexible and their service
is much faster than railways. Qualitative goods of short hauls are
transported through trucks in a well-planned manner.
3. Pipelines
For the shipment of petroleum, chemicals and natural gas from source
markets, esoteric means of transportation is used which is called
pipelines. Pipelines are mostly used by the owners for the delivery of
Transportation their own products.
46 and Warehousing
4. Air Export Import Policies,
Procedures &
The air mode of transportation is the least popular among the business Documentation
organizations and only about 1% of the total cargo is transported
through the means of air. But still, this mode of transportation is NOTES
becoming very popular. The cost of air transportation is much higher
due to high freight rates, but it is the quickest mode of transporting
products, especially perishable goods and smaller quantity of highly
worthy products.
5. Shipping (Water)
Shipping is the oldest mode of transporting goods from one region to
another, but it is time consuming transportation than other modes.
Shipping is used along with the other mode of transportation.
Following are some of the combinations of intermodal transportation.
4.7. MULTIMODAL TRANSPORT SYSTEM
Multimodal transport system is an international through-transport

combination with numerous combinations of modes. The modes may be
associated with transport vehicles or service operators. The modes of
transportation may include ship, rail, truck, aero plane, car, tram etc. The service
modes may be such as public/private operating agencies. Therefore, multimodal
transport system relates to a single trip comprising combination of modes
between which the consignment has to make a transfer. The transportation of
consignment from the origin i.e., shipper’s door to the destination i.e., consignee’s
door will be taken up by a single contract. The Contractor manages and
synchronizes the total task and ensures responsibility for the safe custody of
consignment. The system also ensures continuous movement of the goods along
the best route by the most time-efficient and cost-effective means. The system
also involves simplified documentation. Further, the term ‘Intermodal transport’
is also used synonymously with ‘multimodal transport’ and thus, used in the
context of movement of goods from origin to destination. These two terms have
very similar meanings, i.e. the transportation of goods by more than one mode
of transport and a through freight rate.
Therefore, a consignment stocked at warehouse say H carried manually by
walk to truck located at A. The same is loaded on a truck and reaches airport say
B. The consignment will be shifted in to flight at B and reaches airport C. On
arrival at C, it will be transferred in to truck and reaches railway station D.
Thereafter, the consignment will be moved to E by train. Having unloaded at E,
it reaches the destination F through manual carrying.
The following Figure display multimodal transport with different agencies.
Transportation
Accordingly, the consignment is booked through private truck from A to B,
and Warehousing 47
Export Import Policies, thereafter moved through flight from B to C. At C, the consignment is moved on
Procedures & private truck to D and finally, it travelled through D to E on train.
Documentation
Advantages of Multimodal Transport System: The following are advantages
NOTES of multimodal transport system.
1. Minimizes Time Loss
As a single operation, multimodal transportation system is planned
and coordinated, it mitigates the loss of time and the risk of loss and
damage to consignment or goods at trans-shipment points.
2. Ensures Smooth and Safe Transport

Multimodal transport operator not only maintains its own
communication links, but also coordinates carriage interchange and
forward evenly at separate transhipment points.
3. Provides Faster Transport Service

Multimodal transport system allows goods to be transported quickly.
It mitigates the drawbacks of distance from markets and capital
tying up.
4. Saves Transport Costs

Multimodal transport system helps to reduce transportation costs as a
single operator completes the entire transhipment job. The system also
helps to reduce the cost of cargo insurance.
5. Improves International Price Competitiveness

As the multimodal transport system helps to reduce transportation
costs, it will result in lower export costs and thus enhance the
competitiveness of international prices.
6. Reduces Burden of Documentation and Formalities

In case of traditional transport system i.e., segmented transport system,
there arises various documentation and other formalities at distinct
stages. However, multimodal transport system lessens the burden of
multiple documentation and other formalities as single operator
completes the entire job of transhipment of goods.
7. Establishes Unique Agency to deal with

Unlike segmented transportation system, multimodal transport system
establishes distinctive agency to deal with the entire job of
transportation. Therefore, the consigner deals with only one operator
relating to transport, insurance, loss and damage of goods.
Transportation
48 and Warehousing
Procedures &
4.8. CONTAINERS AND ITS TYPES Documentation
NOTES
CONTAINERISATION
Containers - The container, as the meaning implies, is an equipment used
to store and carry goods. The International Organisation for Standardisation (ISO)
defined a freight container as:
An article of transport equipment,
• Of a permanent character and consequently robust to be suitable for
repetitive use;
• Specifically designed to facilitate the carriage of products by one or
many modes of transport, without intermediate reloading;
• Designed in such the simplest way in order that it's simple to fill and
empty:
A freight instrument technical known as container is rectangular in form,
weatherproof, used for transporting and storing variety of unit masses, packages
or bulk material.
The process of distribution of goods using containers is termed as
containerisation. Containers are primarily used for distribution of goods both
within the country as well across the borders. Containers have actually
revolutionized the international trade. It was only in 1970s that the containers
were more often used due to the terms and conditions set by the buyer. Containers
are also known as VAN or box in different parts of the countries. Over a period
of time, exporters have extensively used the containers for different products in
international market. The enactment of Multi Modal Transportation of Goods
Act, 1993 has enabled exporters from India to use containers for transportation
of export cargo. It is easier to carry the container through train or road to the
seaports, where they are loaded on the ships for onward transportation to their
destination.
The usage of containers has not only facilitated but has also revolutionized
the carriage of goods among the developed countries. The exporters in developing
countries are also making extensive use of containers for the purpose of
transportation of goods. There lies no requirement for exporters to carry the cargo
to the seaports any longer because they can proceed towards the inland container
depot (ICD) or container freight station in order to book the cargo there for
transportation to the final destination. The exporters are able to retain a lot of
time in this process as the custom clearance of the cargo is provided at ICDs.
The packaging process of cargo in a container can be done either in the factory
of the exporter or in the container depot.
Transportation
and Warehousing 49
Export Import Policies, Also, when cranes were available, container shifting became easier for
Procedures & efficient container loading and unloading. Shipping costs were reduced because
Documentation few workers could load ships instead of hundreds and pilferage was greatly
NOTES reduced. The holds of container vessels are fitted with a series of angle guides,
adequately cross-braced, to accept the container. Such holds are solely dedicated
to either the 20 or 40 ft. containers. The containers are stacked, such that the one
above rests with utmost safety on the weight bearing comer castings of the one
below. The angle guides also facilitate discharging and loading by guiding
spreader frames of container cranes onto the comer castings of centaurs without
any need for the crane driver to make any fine adjustments to line up the lifting
frame.
Computerization plays a significant role in the operation, regulating the
delivery and pick up of containers from the truckers as well as the movement
and positioning of all containers in the terminal.
Time consumed in loading and unloading containers varies according to
port and circumstances. In broader terms, one can achieve 25/30 containers per
hour for discharging cargo while a single container capacity crane is 20/25 per
hour for exports.
ADVANTAGES OF CONTAINER
Usage of containers offer many advantages to the exporters. These are stated
as follows:
• The risk of damage (due to pilferage and mishandling) to the goods
during transport is mitigated substantially.
• The cargo arrives in better condition and this creates a decent impression
about the exporter in the mind of the importer. This perception of delivery
of goods in good condition facilitates for an exporter to gain an edge over
other competitors.
• There are no damages due to mishandling of the cargo at terminal ports
in the case of transhipment.
CLASSIFICATION OF CONTAINERS
1. By raw material
One of the method to classify the container is based on wat is is made
of. In general, the containers are made up of aluminium, steel and at
times GRP which stands for glass fiber reinforced plywood
2. By size
Export contract used in international trade specifically mention the
size of containers which can be either 10ft, 20ft or 40 ft. Common
terminologies used in the documents are TEU which stand for twenty
Transportation foot equivalent units or FEU which means forty foot equivalent unit.
50 and Warehousing
The 20 feet (20') and 40 feet (40') containers are very popular in ocean Export Import Policies,
freight. The 8.5 feet (8.5') high container---8 feet 6 inches (8' 6") high Procedures &
container---is often referred to as standard container. Documentation
The demand for the high cube container---hicube---is increasing. The NOTES
popular high cube container has a normal height of 9.5 feet (9.5' or
9' 6").
There are half height containers (4.25' or 4' 3" high) structured for
heavy loads such as steel rods and ingots, which can absorb the weight
limit in half the normal space.
The frequently used container type is the general purpose (dry cargo)
container of 20'x 8.5', 40 'x 8.5', and 40 'x 9.5' nominal length and
height. Referring to the General Purpose Container Dimension below,
the dimensions shown are not fixed, i.e. the external and internal
dimensions may differ between similar length and height containers.
The capacity of the container is the total cube that can accommodate
a container. The term cube frequently refers to the cubic cargo
measurement. The capacity (i.e. the internal volume) is determined by
multiplying the internal dimensions, i.e. the internal length, width and
height product. Capacity may vary between the same length and height
of containers.
3. By use
Containers can also be categorizedon the basis of usage.
(a) The General Cargo Container
The General Cargo Container is the customarily used
representative type for general cargo that does not need
temperature control. This type occupies a huge share of the total
number of containers. The type is called Dry Cargo Container in
ordinary phrasing. It is generally of the closed van type with a
door at one end. These containers are closed and are appropriate
for the carriage of all types of general cargo both solid and liquid.
Figure 1 General Cargo Container Transportation

and Warehousing 51
Export Import Policies, The Thermal Container is structured for cargo requiring insulated or
Procedures & refrigerated storage.It is shielded with polystyrene foam (material of low heat
Documentation transfer ).
NOTES Thermal containers can be broadly categorized into three types
(i) Refrigerated (or Reefer) Container -It has insulated doors, roof,
floor and walls, which help to limit the range of temperature loss or
gain. It is utilized for perishable goods like fruits, vegetables and meat.
(ii) Insulated containers for fruit, vegetables etc.
The cooling medium used here is dry ice. It does not use any device
for heating or cooling.
(iii) The ventilated container facilitates for the passage of air by means of
apertures on sides or ends. This type is used for cargo such as vegetable
or fruit which require respiration. They are specifically needed for
carriage of special cargo like tea, coffee, etc. which may lose moisture,
i.e, they may "sweat" if carried in containers of closed box type.
Figure 3 Ventilated Container

Significant advancement has been made with regards to reefer containers.
Controlled Atmosphere and Modified Atmosphere systems have been
introduced.
In the Controlled Atmosphere

In the Controlled Atmosphere, there is automated (computerized) controller.
The controller maintains the ideal atmosphere and the refrigeration unit maintains
the set temperature by sensing the product's consumption of oxygen and
production of carbon dioxide. By consolidating this data and information, the
controller constantly adjusts air exchange valves and subsequently activates the
requisite scrubbing systems to regulate and maintain the atmosphere of the pre-
set level.
Transportation
52 and Warehousing
In the Modified Atmosphere system Export Import Policies,
Procedures &
In the Modified Atmosphere system, the desired atmosphere is generated
Documentation
in the container when it is stuffed appropriately. In order to avert variations in
the original atmosphere due to ventilation, the container is then sealed. The NOTES
modified atmosphere system is restricted and limited to fewer commodities and
shorter voyages than the controlled atmosphere system.
(c) Special Containers
Under the broad head of "Special Containers", the third category of
container consists of the balance types. Important type in this head are:
Side Open containers, Flats, Car containers, Bulk containers, Tank
containers, Open top Containers etc.
1. Bulk Containers: These containers are structured for the carriage
of dry powders and gram substances in bulk.
2. Ventilated Containers: These containers have full length
ventilation galleries.
3. Half-height version of the open top container is structured for the
carriage of heavy dense cargoes such as steel, pipes and tubes
etc.
4. Tank Containers i.e., these containers are typically constructed
for the carriage of a specific product or a wide range of products
in mind.
5. Open Sided Containers: These containers are designed to
accommodate specific commodities such as plywood, perishable
commodities and livestock.
Figure 3 Open top Containers

4. Dry cargo containers
Dry cargo containers are used at maximum in today’s era. They are of
various types. A standard dry cargo container is of box type and
possess a door at one end. Sometimes containers are provided with
Transportation
side doors,ie., the whole side of the container can be opened for easier
and Warehousing 53
Export Import Policies, stuffing and destuffing. These types of containers find maximum use
Procedures & when stuffing operations are carried out while the container is mounted
Documentation on a wagon or trailer. There are several "dry specials" such as, bulk
NOTES containers, garment container, ventilated containers, open top
containers, flat racks, etc.
The open top container has no roof and is usually provided with a
polythene lined tarpaulin so that the container can be covered. One of
the major advantage of this type of container is that heavy machineries,
structurals etc. can be smoothly hoisted by a crane and put inside the
container via its open roof.
Flat container
Flat rack or Flat container is a container which only possess a ‘base’.
Ordinarily a cargo of odd weight and size is put on to this container and then
lashed to it.
Bulk container
Bulk container is a container that is structured to facilitate the loading of
bulk cargo by gravity in such a way that it is equipped with manholes.
Garment container
Garment containers are structured in such a way that they are equipped with
hangers to help load into the containers a colossal number of garments.
Liquid containers
Liquid containers are typically composed of stainless steel and also possess
manholes for unloading and loading liquid cargo.
Gas containers
Gas containers are special containers with fittings and fixtures for
appropriate filling and emptying liquid gas. They also possess specific features
such as thick walls of special metal in order to ensure safety during transit.
Precautions for Packing the Containers

The exporter should take the following precautions while sending the goods
through container.
The container should be thoroughly got checked to ensure that:
a. There are no holes or cracks in the walls and roofs
b. Its doors can be easily operated
c. Locking doors and handles function properly
d. There are no placards/lables pasted of the previous cargo.
Transportation
54 and Warehousing e. Container is waterproof.
f. Container is dry from inside Export Import Policies,
Procedures &
g. Container is clean, free of dust and cargo residue. Documentation
h. Container should be odourless in the case of odour sensitive goods.
NOTES
4.9 FREIGHT FORWARDERS (CHA)
C&F agents are known by various names, such as custom house agents or
forwarders or shipping agents. Further, the services of clearing and forwarding
agents could be understood in two categories namely essential services and the
optional services.
Essential services
Optional Services
Transportation
and Warehousing 55
Procedures &
Documentation 4.10. PORTS IN INDIA
NOTES
According to the Ministry of Shipping, around ninety five per cent of India's
commerce by volume and seventy per cent by worth is completed through
maritime transport.
India has twelve major and 205 notified minor and intermediate ports. The
Indian ports and shipping business plays an important role in sustaining growth
within the country’s trade and commerce. The Indian Government plays a vital
role in supporting the ports sector. It’s allowed Foreign Direct Investment (FDI)
of up to a hundred per cent underneath the automated route for port and harbour
construction and maintenance comes. It’s conjointly expedited a 10-year tax
holiday to enterprises that develop, maintain and operate ports, inland waterways
and inland ports.
India’s trade is taken care by 13 SEA ports of which 12 are operated through
the government whereas the one that is Ennore port is managed by corporation.
The ports play a major role in managing the external trade as well as contributes
to the development of country. We shall discuss about the major ports and the
goods handled by them.
In terms of the volume of cargo handled, Kandla port is the largest and deals
in textiles, steel and iron, grains and petroleum. Around 56% of the trade volume
is managed by the Jawaharlal Nehru Port also known as the NhavaSheva in
Transportation
56 and Warehousing
Maharashtra. The Port deals in the exports of carpets, pharmaceuticals, textiles Export Import Policies,
and the sporting goods whereas in terms of imports vegetable oil, chemicals, Procedures &
plastics and aluminium are handled. Mumbai harbour also said to be the ‘Front Documentation
Bay’ is handling around 20% of the trade volume and deals with tobacco, leather, NOTES
chemical and petroleum goods. Visakhapatnam port handles around 1.2 lakh
tonnes of cargo every year and deals with the trade of iron ore, pellets, coal,
Alumina and oil.
4.11. LINER AND TRAMP SERVICES
Liner Service –Liner shipping operates on the fixed routes and operates on
schedule as per published dates. Every trip a liner takes is termed voyage. A liner
service generally fulfils the schedule unless in cases where a call at one of the
ports has been unduly delayed due to natural or man-made causes.
Liner principally carry a general loading whereas some liner loading
conjointly carry passengers. A liner that carriers twelve or a lot of passengers is
termed a mixture or passenger-cum-cargo liner.
Tramp Service - Tramp service is a ship that has no fixed routing or
itinerary or schedule and is available at short notice to load any cargo from any
port to any port. Normally tramps convey the item in regular interest and
furthermore mass freight. For instance grain, coal, sugar. Tramps can give their
administration to client whenever that client need. Tramp carrier is primarily
designed to hold a lot of easy and consistent lading in large amount. It is,
therefore, designed to fully utilize its carrying capability for carriage of 1 sort of
cargo. Tramp ships don't have fastened schedules. Freight rates vary in line with
the demand & provide. Tramp services are generally, operated by little shipping
corporations & personal people. Tramps additionally handle the earnest item to
convey or crisis item. Along these lines, for this situation, tramps can exploit
from the shipper.
4.11.1. Port efficiency and Productivity

During FY18, consignment traffic at major ports within the country was
reportable at 679.36 million tonnes (MT). In FY19P (up to Feb 2019) traffic
raised by 2.79 per cent year-on-year to succeed to 633.87 million tonnes.
Consignment traffic at non-major ports was calculable at 491.95 million tonnes
FY18 and grew at 9.2 per cent CAGR between FY07-18. The major ports had a
capability of 1,452 million tonnes by the end of FY 2018. The Maritime Agenda
2010-20 incorporates a 2020 target of 3,130 MT of port capability. The
government has taken many measures to boost operational potency through
mechanisation, deepening the draft and speedy evacuations.
Transportation
and Warehousing 57
Export Import Policies, Following are the achievements of the govt. within the past four years:
Procedures &
Documentation • Five times of growth in major ports’ traffic between 2014-18, compared
to 2010-14.
NOTES
• Turnaround time at major ports reduced to sixty four hours in FY18 from
ninety four hours in FY14.
• Project UNNATI has been started by Government of Republic of India
to spot the chance areas for improvement within the operations of major
ports.
• Underneath the project, 116 initiatives were known out of that ninety one
initiatives are enforced as of Nov 2018.
• The capability addition at ports is anticipated to grow at a CAGR of 5-6
per cent until 2022, thereby adding 275-325 MT of capability.
• Under the Sagarmala Programme, the govt. has visualised a complete of
189 projects for improvement of ports involving associate investment
of Rs 1.42 trillion (US$ twenty two billion) by the year 2035.
• Ministry of Shipping has set a target capability of over three,130 MMT
by 2020, which might be driven by participation from the non-public
sector.
• Non-major ports are expected to come up with over fifty per cent of this
capability.
India’s cargo traffic handled by ports is anticipated to succeed in 1,695
million metric tonnes by 2021-22, per a report of the National Transport
Development Policy Committee.
4.12. SUMMARY
The importance of transportation and warehousing has increased in the

global scenario due to cost factors and integration of markets. Traders are
developing a mechanism to offset the inefficiencies by managing the
transportation system in an efficient and effective way. On the other hand, there
are various techniques for managing the inventory in order to optimize the trade
operations. However, the EOQ is the best one used in the global operations. Role
of Clearing and forwarding is to manage the entire transportation across the
nations, to assist in documentation, to assist in various services like custom
clearance, warehousing etc. Though, the charges at India ports are relatively high
in comparison to global scenario. Still, the ports are handling the trade volumes
in effective manner and the major ports comprises of Kandla Port, JNPT port,
Mumbai harbour and the Vishakhapatnam Port in addition to few others.
Transportation
58 and Warehousing
Procedures &
4.13. EXERCISE Documentation
NOTES
1. Briefly explain the functions of clearing and forwarding agent?
2. Discuss the types of warehouses used in trade?
3. Discuss the different types of containers and its advantages?
4. Briefly explain the functions of warehouse?
5. Write short note on
A) Multimodal transportation
B) Liner and Tramp Shipping
C) Modes of Transportation
*****
Transportation
and Warehousing 59
Procedures &
UNIT - 5
Documentation
NOTES
INTERNATIONAL
TRADE SETTLEMENT
5. INTERNATIONAL TRADE SETTLEMENT
5.1. Objectives
5.2. Introduction to Methods of payments
5.3. Advance Payments
5.4. Open Account Method
5.5. Documentary Collection -D/A and D/P Method
5.6. Consignment Trading
5.7. Letter of Credit (Documentary Credit)
5.8. Mechanism of Letter of Credit
5.9. Types of Letter of Credit
5.10.Advantages of Letter of Credit
5.11.Summary
5.12.Exercise
5.1. OBJECTIVES

• To analyze the various methods of payments under international trade.
• To discuss the mechanism of letter of credit.
• To explain the different types of Letter of Credit.
5.2. INTRODUCTION TO METHODS OF PAYMENT
International Exporters are offering different methods of International Payments due to

60 Trade Settlement various reasons like risk, business relations etc. Moreover, the exporter also
considers the financial standing of buyer along with the trust and willingness to Export Import Policies,
pay. Exporter needs money either hundred percent advance, partially in advance Procedures &
or it may be post-shipment depending upon the agreement between exporter and Documentation
importer. However, both exporter and importer are looking towards secured ways NOTES
of dealings.
Following are the methods of Payments used in overseas trade:
5.3. ADVANCE PAYMENT
Advance Payment - The safest export trading method and thus the least
attractive for buyers. The exporter expects payment in full before the goods are
shipped. Exporter requests advance payment even without goods being shipped,
whereas importers are at high risk of making the advance payment without
receiving the goods or documents.
This method does not involve any risk of bad debts, as long as full amount
has been received in advance. Sometimes, before delivery, a certain percent is
paid in advance, say 50 percent 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.
However, this is the most unpopular methods as a foreign buyer would not
be willing to pay advance of shipment unless: International
Trade Settlement 61
Export Import Policies, • The goods are specifically designed for the customer, and
Procedures &
Documentation • There is heavy demand for the goods (a seller’s market situation).
NOTES
5.4. OPEN ACCOUNT METHOD
For the exporter, the least secure trading method, but the most attractive for
buyers. Goods are shipped and documents are sent directly to the purchaser with
payment request at the appropriate time (immediately, or at an agreed future date).
Use –When exporter is sure.
5.5. DOCUMENTARY COLLECTION -D/A AND D/P

METHOD
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.
International
62 Trade Settlement
Procedures &
Documentation
NOTES
5.6. CONSIGNMENT TRADING
Consignment Trading
Consignment in international trade is an open account variation where
payment is only sent to the exporter after the goods have been sold to the end
customer by the foreign distributor. An international consignment transaction is
based on a contractual arrangement in which the foreign distributor accepts and
sells the goods until they are sold to the exporter who retains the title to the goods.
Clearly, exporting on consignment is unsafe no payment is made to the exporter
and his goods are in the hands of an independent distributor or agent.
5.7. DOCUMENTARY CREDIT (LETTER OF CREDIT)
A Letter of Credit is a bank-to-bank payment undertaking in favour of an

exporter (the Beneficiary), undertaking that payment will be made against certain
documents found to comply, with terms set by the purchase on presentation.
All letters of credit contain these elements:
• The most secure instrument that is Letter of Credit L/c also known as
Documentary Credit is a widely used term to make payment secure in
domestic and international trade.
International
Trade Settlement 63
Export Import Policies, Letter of Credit – Exporter /Importer and Banks
Procedures &
Documentation
NOTES
Parties involved in Letter of Credit
Contract in Letter of Credit: There are three contract in the process of

issue of L/C.
1. Contract between exporter and importer also known as export contract.
2. Contract between the applicant (importer) and issuing bank for
opening L/C.
3. Contract between issuing bank and exporter (beneficiary).
Advising bank has to act on the instructions of Letter of credit and does not
have any export obligations.
5.8. MECHANISM OF LETTER OF CREDIT
• CONTRACTS IN LC
International • The sale contract between exporter & importer.

64 Trade Settlement
• The contract between importer & the issuing bank. Export Import Policies,
Procedures &
• The contract between issuing bank & the beneficiary. Documentation
• Buyer and seller agree on a commercial transaction.
NOTES
• Buyer applies for opening letter of credit.
• Issuing bank issues the letter of credit (LC) in favour of beneficiary.
• Advising bank advises seller than an LC has been opened in his
(exporter)favour.
• Seller sends merchandise and documents to the freight forwarder.
• Freight forwarder sends merchandise to the buyer's agent (customs
broker).
• Seller or Freight forwarder submits documents to the advising bank.
• Advising bank examines the documents and submits to issuing bank.
• Issuing bank arranges for advising bank to make payment.
• Advising bank makes payment available to the seller.
• Buyer pays or takes loan from the issuing bank.
• Issuing bank sends bill of lading and other documents to the customs
broker.
• Customs broker forwards merchandise to the buyer.
Contents of Letter of Credit
International
Trade Settlement 65
Export Import Policies, Precautions to be taken by Beneficiary on the receipt of LC
Procedures &
Documentation 1. The LC appears to be a valid LC. He can consult his banker for this
purpose.
NOTES
2. The type of LC and the terms are as per the agreed terms.
3. All the terms & conditions are acceptable & can be complied with.
4. The documents required under LC can be obtained & presented.
5. Description, qty & prices of goods are as per contract.
6. Last date of shipment & time allowed for presenting documents are
acceptable.
7. Port of loading & discharge as per contract.
8. Responsibility of insurance clearly stated.
Doctrine of Strict Compliance

1. The doctrine implies that the issuing bank would make the payment if
the documents as specified under LC appear on their face to be in
compliance with the terms & conditions of LC.
2. The bank follows UCPDC (Uniform customs practices for
documentary credit) published by International Chamber of commerce.
Currently UCP 600 is being used.
3. The doctrine states that there should not be any discrepancy in the
documents which is the only risk in trade.
4. Discrepancies in the documents comprises of spelling errors, missing
documents and inconsistency in the documents. Additionally, delay in
goods is one of the common discrepancies.
5. Issuing bank has 5 days to examine document to make the payment.
5.8. TYPES OF LETTER OF CREDIT
Forms of Letter of Credit

1. Revocable Letter of Credit L/c
A revocable letter of credit may be revoked or modified for any reason,
at any time by the issuing bank without notification.
2. Irrevocable Letter of Credit L/c

In this case it is not possible to amend a credit without the consent of
the issuing bank, the confirming bank, and the beneficiary.
International
66 Trade Settlementx
As per the UCP 600- Irrevocable L/C is used, even if nothing is Export Import Policies,
mentioned than by default irrevocable letter of credit is considered. Procedures &
Thus, in short revocable L/C is not issued by banks. Documentation
NOTES
Types of LC
1. Sight or usance LC
2. Confirmed or Unconfirmed LC
3. Negotiable LC
4. Revolving LC
5. Red Clause LC
6. Green Clause LC
7. Transferable LC
8. Back to back LC
9. Standby LC
Sight or usance LC
1. Sight LC – Sight letter of credit involves payment to the exporter
against sight draft.
2. In usance draft is accepted jointly by issuing bank & the importer
which can be discounted through commercial bank before due date.
Confirmed/Unconfirmed LC
1. When another bank adds its confirmation to LC (Confirming bank) an
irrevocable LC is confirmed.
2. Confirming bank assumes the primary responsibility for making
payment as issuing bank to the beneficiary.
3. Exporter benefit in protecting against political risk & gets insured.
4. In LC it is necessary to negotiate this clause of conformed LC with
importer & mention it.
5. Confirmed bank in turn receives payment from issuing bank but cannot
receive from importer in case of non-payment.
6. If there is no confirmation from irrevocable LC means the LC is
Unconfirmed LC.
Negotiable L/C
1. A LC is referred to as negotiable if the issuing bank authorises the
negotiating bank to honour the draft under credit terms.
2. The negotiating bank i.e. the bank through which documents are
International
presented for export proceeds negotiations, would examine the
Trade Settlement 67
Export Import Policies, document & if the same is found to be non-discrepant then it would
Procedures & release the payment under credit terms to the exporter subject to an
Documentation undertaking from the exporter that in case the issuing bank does not
NOTES release the payment then he would refund the amount to the
negotiating bank.
Revolving L/C
1. Revolving Letter of credit is used when the exporter and importer
transacts on a regular basis and is interested in using common L/C that
can be renewed (used) over time.
2. Revolving L/C has an advantage over other L/C in both cost and time
saving.
3. Generally speaking, as stated the L/C must be irrevocable and thus
revolving L/C is also irrevocable.
Red clause and Green Clause L/C

1. Red clause LC allows the confirming bank or nominated bank to make
advances to the recipient even before the document is presented.
2. Previously, mentioning red clause L/C in red ink was the practice.
3. Clause states the amount that can be advanced to recipient if there is
discrepancy in documents than confirming bank can get payment from
issuing bank which in turn may require the importer to do so.
4. LC is known as Green clause LC if it provides for the credit given to
the exporter to cover the storage period of the goods at the sea port.
Transferable L/C
1. Transferable LC is a credit that allows the advising bank to transfer
some or all of the credit to any other party at the beneficiary’s request.
2. Importer runs the risk of accepting the shipment from a party other
than the one that placed the order with.
3. Useful in those cases where the importer is making imports through
an agent in the exporting country.
Back to Back L/C

Back to back LC involves two LC
• One opened for the primary beneficiary or the original exporter.
• The credit opened in favour of second beneficiary who supplied the first
beneficiary with goods. First beneficiary becomes a second LC opening
beneficiary.
• To ensure that second LC specifies all the documents required by the first
International
68 Trade Settlement credit & time limits set for document presentation in such a way that the
primary beneficiary i.e. original exporter can submit the documents Export Import Policies,
within the time limits set by the primary LC. Procedures &
Documentation
NOTES
5.9. ADVANTAGES OF LETTER OF CREDIT
Advantages of Letter of Credit
5.10. SUMMARY
There are different modes to settle payment in international trade and

includes the advance payment, D/A, D/P and Letter of credit. Letter of credit is
most secure mode in comparison to other methods of trade settlement. The rules
framed by ICC, that is UCP 600 are used to deal with L/C. There should be any
discrepancy in the documents in order to get the L/C honoured. There are
different types of letter of credit such as confirmed L/C, transferable, revolving
and back to back L/c depending upon the contractual settings of the parties.
5.11. EXERCISE
1. Differentiate between transferable Letter of Credit and Back to back

letter of credit?
2. Discuss the mechanism of Letter of credit with the help of suitable
diagram?
3. Briefly explain the advantages of Letter of Credit?
4. Discuss the types of Letter of Credit in detail?
***** International
Trade Settlement 69
Procedures &
UNIT - 6
Documentation
NOTES
EXPORT DOCUMENTATION
6. EXPORT DOCUMENTATION
6.1. Objectives
6.2. Introduction to Export Documentation
6.3. Types of Documents (Classification)
6.4. Regulatory Documents
6.5. Non-Regulatory documents
6.6. Financial Document (Bill of Exchange)
6.7. Transport Document
6.8. Types of Bill of Lading
6.9. Difference between Airway Bill and Bill of Lading
6.10.Custom Clearance Procedure
6.11.Foreign Trade Policy
6.12.Summary
6.13.Exercise
6.1. OBJECTIVES
After studying this chapter, students shall be able to

• To understand the need of export documentation in trade.
• To discuss the various export documents used in foreign trade.
• To discuss the custom clearance procedure for SEA and AIR.
Export
70 Documentation
Procedures &
6.2. NEED FOR EXPORT DOCUMENTATION Documentation
NOTES
Trade documentation is considered as an essential and integral part of
international trade since export transactions contain much complex
documentation work. Trade documentation not only facilitates international
transactions, but also safeguard the interest of exporters and importers located
in different countries.
Export documentation has an important role to play for both exporter and
importer. Basically, the documents are required by the importer (buyer) to claim
the ownership of goods. Whereas, the exporter has to submit various documents
to buyer (importer) in order to get the proceeds of exports. We shall further
elaborate the need for documentation point to point from exporters and importers
point of view.
Export documentation is used by exporter
Need for export documentation by importer
Export
Documentation 71
Procedures &
Documentation 6.3. TYPES OF EXPORT DOCUMENTATION
NOTES
Types of Documents – One of the common methods to classify the
documents is on the basis of pre-shipment export documentation and the post-
shipment export documentation.
• Pre-shipment export Documentation
Are required upto the stage of custom clearance
• Post -shipment export Documentation

Are required for realization of export proceeds
Other ways to classify the documentation is as follows:
Figure 5 -Types of Export Documents

• Commercial documents – In order to fulfil the responsibilities of export
contract, the need for commercial documents arises. Additionally, the use
of documents helps in transfer of title from exporter to importer and in
collecting export proceeds in the source country.
• Regulatory documents – There are certain regulatory agencies which
require specific documents for compliance. The statutory acts which
require the compliance of documents are FEMA Act, Customs act, Excise
act etc.
Export
72 Documentation
Procedures &
Documentation
NOTES
Figure 6 Types of Commercial Documents
Understanding Documents
All documents whether it is for export or import transaction generally
contain following information which includes the name and address of the
exporter and importer, country of origin, description of goods, port of discharge,
port of destination, value of goods, terms of shipment and terms of payment.
6.4. REGULATORY DOCUMENTS
Regulatory documents
Those documents which are required to fulfill the statutory requirements of
both importing and exporting countries. These documents are related to various
government authorities, such as the relevant department or its principal agency
controlling foreign trade.
Exchange Control declaration form

Under the Foreign Exchange Management (Export of Goods and Services)
Regulations, 1999, for every export taking place out of India, the exporter has to
submit an exchange control declaration form in the prescribed format such as:
• GR form
• SDF form
• PP form
• SOFTEX
Shipping Bill/Bill of Export

It is the main document required by the customs authorities which mentions
the description of goods, marks, numbers, quantity, FOB value, name of the Export
Documentation 73
Export Import Policies, vessel or flight number, port of loading, port of discharge, country of
Procedures & destination, etc.
Documentation
NOTES Bill of Entry

It is required to get customs clearance on imported cargo
Types of Bill of Entry
• Bill of Entry for home consumption (white)
• Bill of Entry for warehousing (yellow)
• Ex-bond Bill of Entry (green)
6.5. NON –REGULATORY DOCUMENTS
Non-regulatory documents are those which are not governed by any statute
and form the part of commercial transaction.
6.5.1. Commercial invoice

Invoices are often called bills.
• Various types of invoices used in International Trade are
• **Proforma Invoice (Auxilliary Document)
• Commercial Invoice
• Consular Invoice
• Legalized Invoice
• Customs Invoice
Commercial Invoice
Once the pro-forma invoice is accepted, the exporter must prepare a
commercial invoice. Commercial invoice is required by both the parties that are
exporter and importer for different purposes. Exporter requires the copy of
commercial invoice to fulfill the requirement of contract as well as to get the
proceeds of exports by declaring the value of goods. Additionally, the exporter
require commercial invoice to declare the value of goods, for insurance purpose
for custom clearance purpose and finally to get incentives if any. On the other
hand, the importer claims the ownership of goods through commercial invoice
along with some other documents, also gets custom clearance done through the
copy of commercial invoice.
In exporting, the commercial invoice is considered a very important
document as it serves as the starting document that underpins an export
Export transaction.
74 Documentation
It may take the form of :- Export Import Policies,
Procedures &
• Customs invoice Documentation
• Consular invoice
NOTES
The importer needs the commercial invoice since it is often used by
Customs authorities to assess duties. For this reason, it is common practice to
prepare a commercial invoice in English and in the language of the destination
country. The freight forwarder can advise you when a translated copy is
necessary.
Commercial invoices are the basis for assessing duties

and statistics
Commercial invoices are often used by governments to determine the true
value of goods when assessing customs duties and recording trade statistics.
Governments that use the commercial invoice to control imports, will often
specify its form, content, number of copies, language to be used, and other
characteristics.
Consular Invoice – Consular invoice is basically required by some
countries such as Latin American countries to gather the information and forward
it to the destination country. In fact, an exporter is required to furnish the details
in a specific format to the embassy of that country (stationed in exporter country).
Since the copy is to be submitted to consular officer (embassy), it is known as
consular invoice.
6.5.2. Certificate of Origin and its types (COO)

COO is a certificate indicating the fact that the goods which have been
exported have originated or manufactured in a particular country. So it is a sort
of declaration testifying the source of export.
• It is normally required by an importer to clear goods from the customs.
For political and social reasons, it is insisted by Customs Authority of
importing country before goods are allowed to enter in the country.
• It helps the importer to take an advantage in duty concession, if any. For
e.g. goods imported under Free Trade Agreement.
• On the basis of COO, Customs can ensure that certain prohibited goods
of particular countries are not imported.
• It also ensures that goods have not been reshipped by a seller who has
brought them into his own country from some other place of origin.
• It is sent to the importer by the exporter.
• It is issued or signed by an independent official organization, such as a
Chamber of Commerce, on prescribed form.
• These are often required: Export
Documentation 75
Export Import Policies, • to meet Customs requirements in the importing state
Procedures &
Documentation • to comply with Banking requirements
• for other official and commercial reasons.
NOTES
There are two categories of Certificate of Origin :
1. Preferential Certificate of Origin and
2. Non-preferential Certificate of Origin
Preferential COO
• It entitles preferential treatment in duty in the importing country.
• These certificates are governed by rules of origin which are always part
of Preferential Trading Agreements entered into between two or more
countries.
• As far as India is concerned the following agreements are noteworthy:
• Generalised System of Preferences (GSP)
• SAARC Preferential Trading Agreement (SAPTA)
• Asia- Pacific Trade Agreement (APTA)
• India-Sri Lanka Free Trade Agreement (ISLFTA)
• Some of the agencies which are authorised to issue PCOO are:
• Export Inspection Agencies – All products.
• Directorate General of Foreign Trade & its regional offices - All products.
• Spices Board, Ministry of Commerce & Industry - Spices and
Cashewnuts
• Central Silk Board through 8 regional offices all over India - Silk
Products.
• Coir Board – Coir and Coir Products.
• Textile Committee - Textiles and made-up
Non-Preferential COO
• It evidences the origin of goods and do not bestow any right to
preferential tariffs.
• The Government has also nominated certain authorized agencies to issue
Non Preferential Certificate of Origin in accordance with Article II of
International Convention Relating to Simplification of Customs
formalities.
Export
76 Documentation
6.5.3. Packing List (Weight list) Export Import Policies,
Procedures &
Packing List Documentation
• It is a vital document as it informs importer regarding the contents of
various boxes. NOTES
• Exporter prepares the packing list to facilitate the importer to check

shipment.
• It is a consolidated statement of the contents of number of boxes.
• Details of quantity should match to the quantity as stated in bill of
lading/airway bill.
• It should state contents of each case/package/bag.
Format of Packing List
6.6. FINANCIAL DOCUMENT
Financial document used for the international trade is known as bill of

exchange. Bill of exchange is used in the international trade for payments. It is
also known as draft and is like post-dated cheque. There can be two or three
parties in the bill of exchange and the bill of exchange must clearly mention the
amount, the date and the parties involved. In general there are two parties that is
drawer and drawee. Bill of exchange is negotiable and can be transferred through
endorsement.
Types of Bill of exchange

• Sight bill of exchange (immediate payment)
• Usance bill of exchange –Credit period of 30/60/90 days is available.
Export
Documentation 77
Procedures &
Documentation
6.7. TRANSPORT DOCUMENTS (BILL OF LADING
NOTES AND AIRWAY BILL)
Transport documents basically serve the purpose as proof of shipment from

source country to destination country. Transportation of bulk goods is primarily
done through sea as a mode of transportation for which bill of lading is used. For
perishable or valuable goods, the preferable mode of transport is air and thus air
war bill (AWB) is used. On the other hand, some of the countries do not have
sea/water borders and mainly transport goods through road and rail for which
way bill is used.
• Bill of Lading (Sea as mode of transportation)
• Way Bill or Consignment Note (for rail, or road)
• Combine or multimodal transport document (in multimodal transport),
• Air way Bill (By air)
Bill of Lading
A Bill of Lading, in its simplest form, is a receipt. The document states that
the carrier has received the shipment and contains information about the shipper
and the receiver. There are several alternate names and abbreviations for the term
"Bill of Lading:"
• Bill of Lading
• BOL
• B/L
• Waybill (Common alternate name in the US and Canada)
6.8. TYPES OF BILL OF LADING
Types of Bill of Lading Forms

1. Straight Bill of Lading
Straight bill of lading is basically the transport document which is used
for shipping and for which the payment has been done.
2. To Order Bill of Lading

To order bill of lading is basically the transport document which is
used for shipping and for which the payment has not been done. Thus,
Export the payment is to be done at the time of receiving the goods by buyer.
78 Documentation
3. Clean Bill of Lading Export Import Policies,
Procedures &
In general as per uniform custom procedures 600, clean bill of lading Documentation
is required. Clean bill of lading states that the goods are in good
conditions and are properly packed. However, if the goods are not NOTES
properly packed then claused bill of lading (Soiled B/L) is issued.
4. Inland Bill of Lading

Inland bill of lading is used when the goods are transported using road
and rail within the domestic country and not overseas.
5. Ocean Bill of Lading

This type of bill of lading is used both in domestic and international
market.
6. Through Bill of Lading

This type of bill of lading includes inland and/or ocean bill of lading
and thus is complex in nature. Moreover, this type of bill of lading
allows shipping carrier to move the cargo through different modes of
transportation.
7. Multimodal/Combined Transport Bill of Lading

Multimodal transportation involves the use of minimum two different
modes of transportation for e.g. the container could be initially moved
through road and thereafter by ship.
8. Direct Bill of Lading

This type of bill of lading is used when the same vessel is delivering
the goods till the destination point.
9. Stale Bill of Lading

Occasionally in cases of short-over-seas cargo transportation, the cargo
arrives to port before the Bill of Lading. When that happens, the Bill
of Lading is then "stale."
10. Shipped On Board Bill of Lading

A Shipped On board Bill of Lading is issued when the cargo arrives at
the port in good, expected condition from the shipping carrier and is
then loaded onto the cargo ship for transport overseas.
11. Received Bill of Lading

It is simply a Bill of Lading stating that the cargo has arrived at the
port and is cleared to be loaded on the ship, but does not necessary
mean it has been loaded. Used as a temporary BOL when a ship is late Export
Documentation 79
Export Import Policies, and will be replaced by a Shipped On board Bill of Lading when the
Procedures & ship arrives and the cargo is loaded.
Documentation
12. Clause Bill of Lading
NOTES
If the cargo is damaged or there are missing quantities, a Claused Bill
of Lading is issued.
6.9. DIFFERENCE BETWEEN BILL OF LADING AND

AIR WAY BILL
6.10. CUSTOM PROCEDURE
Provisions of customs are in line with the customs act in force. The custom
procedure is to be followed both at the time of export as well as import of goods
into India for proper examination, appraisal, and assessment. Role of customs is
not only to collect the duties but also to ensure that illegal trade and smuggling
does not takes place.
In general, the custom officer shall ensure that
The goods are of the same type, sort and value as declared by the exporter.
The duty or leviable there on has been properly determined and paid.
Export
80 Documentation
Provisions of export (control). Order, Export, (Quality\Control and Export Import Policies,
Inspection) Act and Foreign Exchange (Regulation) Act are complied with. Procedures &
Documentation
Documents to be submitted to Custom Appraiser NOTES
• Letter of Credit along with export contract or export order
• Commercial invoice ( 2 copies)
• Packing list or packing note
• Certificate of origin
• GR Form(original & duplicate)
• ARE-I Form
• Original copy of Certificate of Inspection , where necessary
• Marine Insurance Policy
Custom Procedure for Export of goods through SEA

The Customs Officer examines the shipment along with the Dock Appraiser.
The Customs Officer enters the examination report in the system & then marks
the Electronic Bill along with all original documents and check list to the Dock
Appraiser. If the Dock Appraiser is satisfied that the particulars entered in the
system conform to the description given in the original documents and as seen
in the physical examination, he may proceed to allow "let export" for the
shipment and inform the exporter or his agent.
Steps for Custom Clearance
Export
Documentation 81
Procedures &
Documentation 6.11. FOREIGN TRADE POLICY 2015-20
NOTES
FTP 2015-2020
Foreign trade policy is formulated and implemented by director general of
foreign trade (DGFT) under the act of FTDR (Foreign trade development
regulation) act. The current foreign trade policy is valid till March 2020 which
has been effective from 1st April 2015. Moreover, the policy has been reviewed
after 2 years 6 months. The policy in force can be amended as per section 5 of
foreign trade development and regulation act 1992. This act has been revised in
2010 and thereafter in 2013.
Objective of FTP
Key objective of the current foreign trade policy is to double the external
trade and increase the market share in the world to 3.5%. In quantitative terms
the goal is to increase country’s exports to USD 900 billion by 2019-20, from
USD 466 billion in 2013-14.
Highlights of FTP 2015-20
Figure 7 Highlights of FTP
Explanation
1. Digital India -e-IEC, e-BRC – Trade policy has been instrumental in
formulating a paperless working in 24 x 7 environments. The facility
Export to file online application for import export code is available to get
82 Documentation e-IEC.
e-IEC - For issuance of e-IEC an application can be made online on DGFT Export Import Policies,
website (http//:dgft.gov.in). Applicants can upload the documents and pay the Procedures &
required fee (Rs 500/-)through Net banking. Documentation
NOTES
Details of the entity seeking the IEC:
1. Address proof of the entity
2. Online fee of 500 Rs
3. Proof of bank account (copy of cancelled cheque)
As per the latest circular (Trade Notice No 23/2018-19 New Delhi, Dated
the 8 th August,2018 ) the following documents are not required for e-IEC
(1) PAN
(2) Digital photograph
(3) Digital Signature
IEC is mandatory in order to deal in exports and/or imports.
Exceptions to IEC are as follows

• IEC is not required by political leaders in state and in central government.
• IEC is not required if an individual is importing or exporting goods for
personal use not connected with trade or manufacture or agriculture
• Importing / exporting goods from/ to Nepal, Myanmar through Indo-
Myanmar border areas and china.
2. Custom - 24X7, Self Assessment
24 X 7 Customs clearance
(a) The facility of 24 X 7 Customs clearance for specified import has
been made available, at the 18 sea ports in order to avoid the
delay of goods.
(b) In order to avoid the delay of goods the facility of 24 X 7
Customs clearance has also been made available at the 17 air
cargo complexes.
Self-Assessment of Customs Duty

The policy has further provided self-assessment of custom duty by exporters
and importers which is basically a trust based system. The aim of this policy is
to expedite the trade process and is based on risk management system (RMS).
Single Window in Customs

To smooth the progress of trade, the importer and exporter would submit
their clearance documents at a single point only. Required permission if any, from
other regulatory agencies would be obtained online without the trader having to Export
Documentation 83
Export Import Policies, approach these agencies. This would reduce interface with Governmental
Procedures & agencies, dwell time and cost of doing business.
Documentation
3. Status Holders –Trade policy has given special attention to those
NOTES exporters who have substantial contribution to generate foreign
exchange and have been recognised as status holder. These status
holders have been given special benefits based on the amount of
foreign exchange generated as mentioned below.
• Moreover, the policy has provided an additional facility for the

manufacturers who are status holders in terms of self-certifying
of their manufactured goods. The facility is basically for origin
of good in India, which is primarily used to avail benefit when
the country is having bilateral agreements with other nations to
claim preferential treatments. This ‘Approved Exporter System’
will help manufacturer exporters considerably in getting fast
access to international markets.
4. MEIS - Merchandise Exports from India Scheme has replaced 5
different schemes of earlier FTP (Focus Product Scheme, Market
Linked Focus Product Scheme, Focus Market Scheme, Agri.
Infrastructure Incentive Scrip, VKGUY) for rewarding merchandise
exports which had varying conditions (sector specific or actual user
only) attached to their use.
Country Groups
Category A: Traditional Markets (30) - European Union (28), USA, Canada.
Category B: Emerging & Focus Markets (139), Africa (55), Latin America
and Mexico (45), CIS countries (12), Turkey and West Asian countries (13),
ASEAN countries (10), Japan, South Korea, China, Taiwan,
Category C: Other Markets (70).
The Duty Credit Scripts and goods imported / domestically procured against
them shall be freely transferable. The Duty Credit Scripts can be used for:
Payment of Customs duties for import of inputs or goods or any other tax
payable for import.
5. SEIS -SEIS provides for rewards to all Service providers of notified
services, who are providing services from India, regardless of the
Export
84 Documentation constitution or profile of the service provider. The scheme states that
an Individual service provider is expected to have minimum foreign Export Import Policies,
exchange earnings of 10000 USD per year whereas the other category Procedures &
of service provider that is organisation must have foreign exchange Documentation
earnings of 15000 USD. The service organisations are earning required NOTES
foreign exchange shall be eligible for duty scripts. Duty scripts can be
used to pay the taxes and in general the custom/import duties.
6. Ease of Doing Business in India
7. Make in India
8. EPCG
9. Mandatory Documents –Reduced to 3 for Exports
Mandatory documents required for export ofgoods
from India:
1. Bill of Lading/Airway Bill
2. Commercial Invoice cum Packing List*
3. Shipping Bill/Bill of Export
10. Mandatory Documents –Reduced to 3 for Imports
Mandatory documents required for import of goods into India
1. Bill of Lading/Airway Bill
2. Commercial Invoice cum Packing List*
3. Bill of Entry
11. Non-Realisation of Export Proceeds
Trade policy states that an exporter must recover the amount of
exported goods in due course of time otherwise the exporter shall not
be given the benefit of incentives or any other benefits received from
the government. The policy further states that if an exporter has availed
any benefits and the export proceeds are not received that the exporter
shall be required to return all benefits to the government.
AN exporter is expected to realize the proceeds of exports in due
course of time failing which the exporter is required to return all
benefits like incentives etc. received from the government. Exporter
can get the help of RBI in case the payment from buyer is not received
which are beyond his control.
12. Interpretation of Policy
There might be differences in understanding the trade policy and hence
the policy empowers the DGFT to interpret and explain in case of
issues related to difference of opinion. In terms of interpretation, the
final version shall be of DGFT and binding to all.
Export
Documentation 85
Procedures &
Documentation 6.11. SUMMARY
NOTES
Export documentation plays an important role in trade operations. Exporter
needs document in order to get the export proceeds in time whereas the buyer
needs documents to claim the ownership of goods. Documents are classified into
commercial and regulatory. Commercial refers to the terms and condition of
buyer and seller and the documents which are required to fulfil the trade
operations and includes documents such as commercial invoice, Bill of lading
etc. On the other hand there are certain regulatory frameworks which are to be
fulfilled by both the parties. Therefore, the need of regulatory documents is to
get clearance from various agencies. Custom clearance plays an important role
in processing of documents and goods for export and import. Custom appraisal
officer and custom preventive officer are responsible for smooth flow of goods
from the customs.
6.11. EXERCISE
1. Discuss the different types of invoices used in external trade?

2. Differentiate between Air way bill and Bill of lading?
3. Discuss the different types of bill of lading?
4. Discuss the significance and types of certificate of origin?
5. Briefly explain the need for export documentation?
6. Discuss the current foreign trade policy in detail?
*****
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CONTENTS

Unit Contents Page No.

Cross Border Trade Flows

International Trade Logistics

After studying this chapter, students shall be able to:

1.2 CONCEPT OF INTERNATIONAL BUSINESS AND ITS

Concept of International Business

Why Companies Go Global

IMPORTANCE OF INTERNATIONAL BUSINESS

1.3 CHALLENGES OF INTERNATIONAL TRADE

International business is not only complex but is also time-consuming

1.4 DOMESTIC V/S INTERNATIONAL TRADE

1.5 NATURE AND SCOPE OF INTERNATIONAL BUSINESS

Scope of International Business

1.6. FRAMEWORK OF INTERNATIONAL BUSINESS

Framework helps in explaining the complexity of different levels in

Level 1 Comprises of International Financial Institutions –The

In other ways, political stability depends on the economic stability which

Some of the disadvantages are-

1.7 DEEMED EXPORTS

Deemed exports are eligible for the following benefits :

The same basic functional, operational and routine activities as domestic

After studying this chapter, students shall be able to:

2.2. CROSS BORDER TRADE FLOWS

We shall discuss the Cross border trade flows in two stages:

• Registration with Reserve Bank of India (RBI)

• Registration with Director General of Foreign Trade (DGFT)

Registration with Export Promotion Council

Registration with Commodity Boards

Registration with Income Tax Authorities

2.2.2. Formation of Export Contract

FORMS OF EXPORT CONTRACT

NATURE OF INTERNATIONAL TRADE COUNTRACTS

ENTERING INTO AN EXPORT CONTRACT

2.3. STATUTORY BASIS OF INTERNATIONAL BUSINESS

2.4. INCO TERMS

The International Commercial Conditions are published by the International

The latest revision is INCOTERMS (2010), which shall be dealt in detail.

1. Ex-Works –Seller is required to deliver the goods at the named factory

2. FCA – Free Carrier –The delivery of goods on truck, rail car or

3. CPT –Carriage Paid to - The carriage is paid by the seller. Transfers

Terms used using SEA as a mode of transportation

2.5. EXPORT PROCESSING

PROCESSING AN EXPORT ORDER

Figure 1Flow-chart of Export Processing

Logistics aspects in maintaining flows

Figure 2 Process of Trade Logistics

3. Reduce total distribution costs

4. Generating additional sales

5. Creating time and place utilities

1. Discuss the preliminary stages to set up export business.

INTERNATIONAL TRADE LOGISTICS

3. INTERNATIONAL TRADE LOGISTICS

After studying this chapter, students shall be able to:

3.2. DEFINITION OF LOGISTICS AND INTERNATIONAL

Logistics is the phenomena in which flow of raw-material and finished NOTES

Definition of International Logistics

3.3. EVOLUTION OF LOGISTICS

Objective of logistic management

Maintaining Competitive Edge