GLOBAL MARKETING ASSIGNMENT

INCOTERMS, EXPORT DOCUMENTATION & PRE SHIPMENT INSPECTION

Submitted to :Prof.Harsh Purohit Wisdom Banasthali University

Submitted By:Ashwini Joshi M.B.A IV Sem Roll no:- 7936

ACKNOWLEDGEMENT

Firstly, I would like to thank Prof. Harsh Purohit, WISDOM Banasthali Vidhyapith, for giving me an opportunity to carry out my project and enlightening my knowledge. He also gave me moral support and has been very kind and patient while suggesting me the outlines of this project and correcting my doubts. I am also very grateful to my friends who guided me throughout my project and by their support I was able to complete my project effectively and moreover on time. Last but not the least, I would like to thank my parents who helped us a lot in gathering information, collecting data and guiding me from time to time in making this project despite of their busy schedules.

INCOTERMS

For business terminology to be effective, phrases must mean the same thing throughout the industry. That is why the International Chamber of Commerce created "INCOTERMS" in 1936. INCOTERMS are designed to create a bridge between different members of the industry by acting as a uniform language they can use. INCOTERMS also deal with the documentation required for global trade, specifying which parties are responsible for which documents. Determining the paperwork required to move a shipment is an important job, since requirements vary so much between countries. Two items, however, are standard: the commercial invoice and the packing list. INCOTERMS were created primarily for people inside the world of global trade. Outsiders frequently find them difficult to understand. Seemingly common words such as "responsibility" and "delivery" have different meanings in global trade than they do in other situations. INCOTERMS can thus have a direct financial impact on a company's business. What is important is not the acronyms, but the business results. Often companies like to be in control of their freight. That being the case, sellers of goods might choose to sell CIF, which gives them a good grasp of shipments moving out of their country, and buyers may prefer to purchase FOB, which gives them a tighter hold on goods moving into their country.

EXW (EX-Works) One of the simplest and most basic shipment arrangements places the minimum responsibility on the seller with greater responsibility on the buyer. In an EX-Works transaction, goods are basically made available for pickup at the shipper/seller's factory or warehouse and "delivery" is accomplished when the merchandise is released to the consignee's freight forwarder. The buyer is responsible for making arrangements with their forwarder for insurance, export clearance and handling all other paperwork. FOB (Free On Board) One of the most commonly used-and misused-terms, FOB means that the shipper/seller uses his freight forwarder to move the merchandise to the port or designated point of origin. Though frequently used to describe inland movement of cargo, FOB specifically refers to ocean or inland waterway transportation of goods. "Delivery" is accomplished when the shipper/seller releases the goods to the buyer's forwarder. The buyer's responsibility for insurance and transportation begins at the same moment.

FCA (Free Carrier) In this type of transaction, the seller is responsible for arranging transportation, but he is acting at the risk and the expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller chooses and works with the freight forwarder or the carrier. "Delivery" is accomplished at a predetermined port or destination point and the buyer is responsible for Insurance. FAS (Free Alongside Ship) In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS require the shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for export. "Delivery" is accomplished when the goods are turned over to the Buyers Forwarder for insurance and transportation. CFR (Cost and Freight) This term formerly known as CNF (C&F) defines two distinct and separate responsibilities-one is dealing with the actual cost of merchandise "C" and the other "F" refers to the freight charges to a predetermined destination point. It is the shipper/seller's responsibility to get goods from their door to the port of destination. "Delivery" is accomplished at this time. It is the buyer's responsibility to cover insurance from the port of origin or port of shipment to buyer's door. Given that the shipper is responsible for transportation, the shipper also chooses the forwarder. CIF (Cost, Insurance and Freight) This arrangement similar to CFR, but instead of the buyer insuring the goods for the maritime phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder. "Delivery" as above, is accomplished at the port of destination. CIP (Carriage and Insurance Paid To) This term is primarily used for multimodal transport. Because it relies on the carrier's insurance, the shipper/seller is only required to purchase minimum coverage. When this particular agreement is in force, Freight Forwarders often act in effect, as carriers. The buyer's insurance is effective when the goods are turned over to the Forwarder. DDP (Delivered Duty Paid) DDP term tend to be used in intermodal or courier-type shipments. Whereby, the shipper/seller is responsible for dealing with all the tasks involved in moving goods from the manufacturing plant to the buyer/consignee's door. It is the shipper/seller's responsibility to insure the goods and absorb all costs and risks including the payment of duty and fees.

PRE SHIPMENT INSPECTION

It is an important and reliable quality control method for checking goods' quality while clients buy from the suppliers. After ordering a number of articles, the buyer lets a third party control the ordered goods before they are dispatched to him. Normally an independent inspection company is assigned with the task of the PSI, as it is in the interest of the buyer that somebody not connected with the deal in any way verifies the amount and quality. This way the buyer makes sure, he gets the goods he paid for. Although increasing numbers of clients would like to collect suppliers' information from the Internet, this contains high risks because it is not a face-to-face transaction, and Internet phishing and fraud can corrupt it. Pre-shipment inspection can greatly avoid this risk and ensure clients get quality products from suppliers.

PROCESS
The pre-shipment inspection is normally agreed between a buyer, a supplier, and a bank, and it can be used to initiate payment for a letter of credit. A PSI can be performed at different stages:

Checking the total amount of goods and packing Controlling the quality and/or consistency of goods Verifying compliance with the standards of the destination country (e.g. ASME or CE mark)

The first stage is often performed by the transport company, but for the latter two stages a proper inspection company is needed. Similarly, if between the buyer and seller money transfer via a letter of credit is agreed upon, it is necessary to assign a reputable inspection company. In case of the letter of credit, after inspection of the goods, an inspection certificate is sent to the bank issuing the letter of credit and the buyer, initiating the money transfer. Inspection companies are classified in two classes: - Free-market companies: These are privately owned companies, which sell their services to the market. Danger with these might be, especially if it is a smaller company,that they might be paid as well by the manufacturer, thus working in his interest.

- State owned inspection companies: Only very few companies operating on the market are stateowned or partly state-owned. The shareholding of governmental institutions guarantees the independence and objectivity. A higher form of the PSI is called expediting, in this the dates of delivery and the production are controlled as well. Some countries, like Botswana, require PSIs for all goods entering the country in order to fight corruption. In these cases the PSI must be performed by the company designated by the country.

These are preliminary two types of Pre-shipment inspection viz.: a) Voluntary Inspection b) Compulsory Inspection By the exporters himself: Exports should inspect the goods during the process of manufacturing at the stage of finished product and also in packaging material. The merchant exporter should enter into an arrangement with supplier of goods to provide for inspection during process of manufacture as well as for finished products. By the buyers representative: In such a case, foreign buyers may arrange for inspection of goods through own representative into exporter country. The exporter can send the shipment only when buyer's representative issues a satisfaction report to the exporter. By the buying agent in importer country: Where the Export order is placed with the Exporter through a buying agent in his country, the goods can be dispatched only after buying agent has issued satisfaction report to the exporter. Before give satisfactions report, buying agent conducts inspections of the quality at time of purchase of the raw materials, during the manufacture process, at the finished product stage and before packaging of goods.

EXPORT DOCUMENTS
SHIPPING BILL
This is a statutory document prescribed for processing in customs for shipment of goods. Generally four copied of shipping bills are submitted in difference colors each having specific significance and use. Such documents for import are called Bill of Entry. While filing the Shipping Bill, additional documents required depending upon the case are: Invoice, packing list, copy of L/C, export license, quality control certificate, GR form, drawback claim application form, AR 4 form, etc.

GR FORM (EXCHANGE CONTROL DOCUMENT)

This is a declaration by the exporter in the format prescribed by RBI to be submitted along with the shipping bill to customs. The declaration must contain the information about sender, consignee, description of goods, full export value of goods in foreign currency, etc. The exporter submits a duplicate of GR form with its bank along with shipping documents. The bank endorses the copy after realization of sales proceeds and sends it to RBI. The original copy submitted at customs is also directed to RBI by the customs. The RBI confirms the realization of the proceeds as per full export value after comparing the two copies.

AR 4-FORM
Every manufacturer for clearance of excisable goods files an application AR-4 from his factory for export. The clearances can be under claim for rebate of duty or under bond. The goods can be examined and sealed at the factory by a central excise officer having jurisdiction over the factory. After shipment of goods, the customs officer endorses AR-4 form, which is taken as evidence by excise authorities for considering rebate in duty or cancellation of bond.

BILL OF LADING
This is the principal shipping document between the shipper and the ocean career, shipper and consignee and carrier and consignee. It functions as receipt for shipment of gods, defines the term of contract between the shipper and the carrier and helps pass the title of ownership of goods to consignee. It is a negotiable instrument and a document of ownership of goods.

EGM
Export General Manifest is a document to be filed by steamer agents on behalf of the master of vessel within seven days of the sailing of vessel. This contains complete detail of the cargo loaded. The EGM is filed with the Export Documentation Center along with the copies of shipping bill.

PROFORMA INVOICE
This is a provisional document drawn by the exporter giving details of description, quantity, price and terms of supply of goods, which enables him to go through exchange control formalities for opening an L/C. The Performa invoice duly accepted by the buyer is to be submitted to customs authorities along with shipping bill.

AIRWAY/SEAWAY BILL
For the carriage of the goods the shipper and the carrier (airline/shipping line) enters into contract of carriage. It provides a proof to the shipper about the carriage of his consignment and it includes customs declaration.

BANK GUARANTEE / LEGAL UNDERTAKING

Wherever any duty free import is allowed, the importer has to execute a Legal Undertaking (LUT)/Bank Guarantee (BG)/ Bond with the Customs Authority before clearance of goods through the Customs. However, exporters with export turnover of Rupees 5 crore or more in the current or preceding licensing year are exempted from furnishing a BG for any of the Foreign Trade Policy schemes and may furnish a LUT in lieu of BG.

CERTIFICATE OF ORIGIN
The Certificate of Origin is an instrument to establish evidence of the origin of goods imported into any country. The certificates are issued under the ambit of the rules of origin of any importing country that grants such concessions to tariffs or merely stipulates a non-preferential certificate without granting any tariff concession. Various countries have formulated their Rules of Origin, which grant greater access to goods from the developing and the least developed countries under the preferential mode. There are two categories of Certificate of Origin viz. (1) Preferential and (2) Non preferential. Exporters looking for preferential treatment from the importing country need to produce certificate of origin.

LETTER OF CREDIT
A binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the shipment of goods within a given time frame. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability. A letter of credit is a document that a financial institution or similar party issues to a seller of goods or services which provides that the issuer will pay the seller for goods or services the seller delivers to a third-party buyer. The issuer then seeks reimbursement from the buyer or from the buyer's bank. The document serves essentially as a guarantee to the seller that it will be paid by the issuer of the letter of credit regardless of whether the buyer ultimately fails to pay. In this way, the risk that the buyer will fail to pay is transferred from the seller to the letter of credit's issuer.