EXPORT PROCESS

Processing an Export order

You should not be happy merely on receiving an export order. You should first acknowledge the export order, and then proceed to examine carefully in respect of items, specification, preshipment inspection, payment conditions, special packaging, labeling and marketing requirements, shipment and delivery date, marine insurance, documentation etc. if you are satisfied on these aspects, a formal confirmation should be sent to the buyer, otherwise clarification should be sought from the buyer before confirming the order. After confirmation of the export order immediate steps should be taken for procurement/manufacture of the export goods. In the meanwhile, you should proceed to enter into a formal export contract with the overseas buyer.

Entering into an Export contract

In order to avoid disputes, it is necessary to enter into an export contract with the overseas buyer. For this purpose, export contract should be carefully drafted incorporating comprehensive but in precise terms, all relevant and important conditions of the trade deal.

There should not be any ambiguity regarding the exact specifications of goods and terms of sale including export price, mode of payment, storage and distribution methods, type of packaging, port of shipment, delivery schedule etc. The different aspects of an export contract are enumerated as under :

• Product, Standards and Specifications
• Quantity
• Inspection
• Total Value of Contract
• Terms of Delivery
• Taxes, Duties and Charges
• Period of Delivery/Shipment
• Packing, Labeling and Marking
• Terms of Payment-- Amount/Mode & Currency
• Discounts and Commissions
• Licenses and Permits
• Insurance
• Documentary Requirements
• Guarantee
• Force Majeure of Excuse for Non-performance of contract
• Remedies
• Arbitration It will not be out of place to mention here the importance of arbitration clause in an export contract Court proceedings do not offer a satisfactory method for settlement of commercial disputes, as they involve inevitable delays, costs and technicalities. On the other hand, arbitration provides an economic, expeditious and informal remedy for settlement of commercial disputes. Arbitration proceedings are conducted in privacy and the awards are kept confidential. The Arbitrator is usually an expert in the subject matter of the dispute. The dates for arbitration meetings are fixed with the convenience of all concerned. Thus, arbitration is the most suitable way for settlements of commercial disputes and it may invariably be used by businessmen in their commercial dealings.

The Indian Council of Arbitration Federation House, Tansen Marg, New Delhi. (Ph. 3319251 Fax:3320714) is a specialized arbitration institution providing arbitration facilities for all types of domestic or international commercial disputes. You should use their services as far a possible.

BRIEF SPECIMEN CONTRACT FORM FOR SALE PURCHASE TRANSACTIONS

EXPORTS AND IMPORTS

1. Name and address of the parties.......(state correct appellation and complete address of the parties)
2. We, the above named parties have entered into this contract for the sale/purchase, etc. ....... (state briefly the purpose of the contract) on this ........(date) at ........(place)..... subject to the following terms and conditions:
1. Goods ................
2. Quantity ...............Quality................. (Describe the quantity, quality and the other specifications of the goods precisely as per the agreement. An agency for inspection/certification of quality and/or quantity may also be stipulated).
3. Price................ Mode of payment ...................(Quote the price, terms, i.e. ex-works/FOB(free on board) CIF(Cost, Insurance & Freight) etc. in the currency agreed upon and describe the mode of payment i.e. payment against L/C(letter of credit)/DA (document against acceptance) /D/P(document against payment)etc. It is also desirable to mention the exchange rate.)
4. Shipment...............(Specify date of delivery and the maximum period upto which delivery could be delayed and for which reasons, port of shipment and delivery should be mentioned).
5. Packing and marking...............(Requirements to be specified precisely)
6. Insurance .................(State the type of insurance cover required, i.e. FPA(free from particular average)/WA (with average)/ All Risks, etc. State also the party responsible for insurance)
7. Brokerage/Commission ........(if any payable may be mentioned)
8. Passing of the property and of risk. The property or ownership of the goods and the risk shall finally pass to the buyer at such stage as the parties may agree, i.e. when the goods are delivered at the seller's place of work/pass the ship's rails/are covered by insurance etc. as per agreed terms).

Arbitration

Arbitration clause recommended by the Indian Council of Arbitration: "All disputes or differences whatsoever arising between the parties out of relating to the construction, meaning and operation or effect of this contract or the breach thereof shall be settled by arbitration in accordance with the rules of the arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties."(or any other arbitration clause that may be agreed upon between the parties). 3.Any other special condition, prevalent in or relevant to the particular line of trade or transaction, may also be specified.

Sd/-Seller

Sd/-Buyer

Notes: The above specimen contract form, drawn up in brief essentials, is meant for simple small scale transactions and is intended to draw the attention of the parties to important aspects of the trade deal in drafting the contract. The parties are free to add to or modify the terms as per the peculiar nature of their trade transaction. They may also consult with advantage, experienced commercial or arbitration bodies for the purpose or study published literature on the subject. The use of the arbitration clauses in commercial contracts is becoming increasingly commom, particularly in export-import transactions, with a view to promoting smooth and swift flow of business. The Indian Council of Arbitration (ICA) which is partly founded by the Government of India, provides comprehensive institutional arbitration service to all government departments and public undertakings as well as private traders, exporters and importers in India for amicable and quick settlement of all types of commercial disputes. It has been suggested by the Ministry of Commerce that all commercial organisations should make use of the arbitration clause of the Council in their commercial contracts with Indian and foreign parties.

          Export Pricing and Costing

Export pricing should be differentiated from export costing. Price is what we offer to the customer.Cost is the price that we pay/incur for the product. Price includes our profit margin, cost includes only expenses we have incurred. Export pricing is the most important tool for promoting sales and facing international competition. The price has to be realistically worked out taking into consideration all export benefits and expenses. However, there is no fixed formula for successful export pricing. It will differ from exporter to exporter depending upon whether the exporter is a merchant exporter or a manufacturer exporter or exporting through a canalising agency. You should also assess the strength of your competitor and anticipate the move of the competitor in the market. Pricing strategies will depend on various circumstantial situations. You can still be competitive with higher prices but with better delivery package or other advantages.

Your prices will be determined by the following factors:

• Range of products offered
• Prompt deliveries and continuity in supply
• After-sales service in products like machine tools, consumer durables
• Product differentiation and brand image
• Frequency of purchase
• Presumed relationship between quality and price
• Specialty value goods and gift items
• Credit offered
• Preference or prejudice for products originating from a particular source
• Aggressive marketing and sales promotion
• Prompt acceptance and settlement of claims
• Unique value goods and gift items

Export Costing is basically Cost Accountant's job. It consists of fixed cost and variable cost comprising various elements. It is advisable to prepare an export costing sheet for every export product. For the format of the export costing sheet and other relevant details refer to Nabhi's EXPORTERS MANUAL AND DOCUMENTATION.As regards quoting the prices to the overseas buyer, the same are quoted in the following internationally accepted terms:

Ex-Works: 'Ex-works' means that your responsibility is to make goods available to the buyer at works or factory. The full cost and risk involved in bringing the goods from this place to the desired destination will be borne by the buyer. This term thus represents the minimum obligation for you. It is mostly used for sale of plantation commodities such as tea, coffee and cocoa.

Free on Rail(FOR): Free on Truck(FOT):These terms are used when the goods are to be carried by rail, but they are also used for road transport. Your obligations are fulfilled when the goods are delivered to the carrier.

Free Alongside Ship (FAS): Once the goods have been placed alongside the ship, your obligations are fulfilled and the buyer notified. The buyer has to contract with the sea carrier for the carriage of the goods to the destination and pay the freight. The buyer has to bear all costs and risks of loss or damage to the goods hereafter.

Free on Board (FOB): Your responsibility ends the moment the contracted goods are placed on board the ship, free of cost to the buyer at a port of shipment named in the sales contract. 'On board' means that a 'Received for Shipment' B/L (Bill of Lading) is not sufficient. Such B/L if issued must be converted into 'Shipped on Board B/L' by using the stamp 'Shipped on Board' and must bear signature of the carrier or his authorised representative together with date on which the goods were 'boarded'.

Cost and Freight (C&F): You must on your own risk and not as an agent of the buyer, contract for the carriage of the goods to the port of destination named in the sale contract and pay the freight. This being a shipment contract, the point of delivery is fixed to the ship's rail and the risk of loss or of damage to the goods is transferred from the seller to the buyer at that very point. As will be seen though you bear the cost of carriage to the named destination, the risk is already transferred to the buyer at the port of shipment itself.

Cost Insurance Freight (CIF): The term is basically the same as C&F, but with the addition that you have to obtain insurance at your cost against the risks of loss or damage to the goods during the carriage.

Freight or Carriage Paid (DCP): While C&F is used for goods which are to be carried by sea, the term "DCP" is used for land transport only, including national and international transport by road, rail and inland waterways. You have to contract for the carriage of the goods to the agreed destination named in the contract of the sale and pay freight. Your obligations are fulfilled when the goods are delivered to the first carrier and not beyond. In case the buyer desires you to insure the goods till the destination, he would add 'including insurance' before the word 'Paid in Freight' or 'Carriage Paid to'.

EXS/EX-Ship: This is an arrival contract and means that you make the goods available to the buyer in the ship at the named port of destination as per sales contract. You have to bear the full cost and risk involved in bringing the goods there. Your obligation is fulfilled before the customs border of the foreign country and it is for the buyer to obtain necessary import license at his own risk and expense.

EXQ/Ex-Quay: Ex-Quay means that you make the goods available to the buyer at a named quay. As in the term 'Ex-Ship' the points of division of costs and risks coincide, but they have now been moved one step further -- from the ship into the quay or wharf i.e. after crossing the customs border at destination. Therefore, in addition to arranging for carriage and paying freight and insurance you have to bear the cost of unloading the goods from the ship.

Delivered at Frontier (DAF): The term is primarily intended to be used when the goods are to be carried by rail or road. Your obligations are fulfilled when the goods have arrived at the frontier, but before the 'Customs border' of the country named in the sales contract.

Delivery Duty Paid (DDP): This term may be used irrespective of the type of transport involved and denotes your maximum obligation as opposed to 'Ex-Works'. You have not fulfilled his obligation till such time that the goods are made available at his risk and cost to the buyer at his premises or any other named destination. In the latter case necessary documents (e.g. transport document or Warehouse Warrant) will have to be made available to the buyer to enable him to take delivery of goods. The term 'duty' includes taxes, fees and charges.Therefore, the obligation to pay VAT (Value Added Tax) levied upon importation will fall upon you. It is, therefore, advisable to use 'exclusive of VAT' after the words 'duty paid'.

FAO/FOB Airport: 'FOB Airport' is based on the same main principle as the ordinary FOB term. You fulfill your obligation by delivering the goods to the air carrier at the airport of departure. Without the buyer's approval delivery at a town terminal outside the airport is not sufficient, your obligations with respect to costs and risks do not extend to the arrival of the goods at the destination.

Free Carrier (Named Point) FRC: The term has been designed particularly to meet the requirements of modern transport like 'multi-modal' transport as container or 'roll-on-roll-off' traffic by trailers and ferries. The principles on which the term is based is same as applicable to FOB except that the seller or the exporter fulfills his obligations when he delivers the goods into the custody of the carrier at the named point.

Freight Carriage and Insurance Paid (CIP): The term is similar to 'Freight or Carriage Paid to'. However, in case of CIP you have additionally to procure transport insurance against the risk of loss or damage to the goods during the carriage. You contract with the insurer and pay the insurance premium.

Understanding risks in International trade

While selling abroad, you may undergo the following risks:

13. Credit risk
14. Currency risk
15. Carriage risk
16. Country risk

These risks can be insured to a great extent by taking appropriate steps. Credit risk against the buyer can be covered by insisting upon an irrevocable letter of credit from the overseas buyer. An appropriate policy from Export Credit and Guarantee Corporation of India Ltd. can also be obtained for this purpose. Country risks are also covered by the ECGC. As regards currency risk, i.e. possible loss due to adverse fluctuation in exchange rate, You should obtain forward cover from your bank authorised to deal in foreign exchange. Alternatively, you should obtain export order in Indian rupee. Carriage risk, i.e. possible loss of cargo in transit can be covered by taking a marine insurance policy from the general insurance companies.