Presentation on Export-

Import Documentation
and Risk Management in
Export-Import Business
 Role of Export Documentation
 Export documentation plays a vital role in
international marketing as it facilitates the smooth
flow of goods and payments thereof across national
frontiers.
 Exporters are required to follow certain formalities
and procedures, using a number of documents.
 Each of these documents serves a specific purpose
and hence carries its own significance.
 A clear understanding of all documents and their
purpose, how to prepare these, number of copies
required, when and where to file, is a must for all
export professionals.
 Export Documentation in India
 Export Documentation in India has evolved a great
deal of interest since 1990.
 Efforts are on, at a faster footing to streamline and
modernize the system further.
 Prior to 1990, documentation was manual and it
lacked proper co-ordination.
 The result was lot of delays and mistakes, rendering
the task very clumsy, tiresome, repetitive, and truly
frustrating.
 India adopted the ADS (Aligned Documentation
System) in 1991 which is the Internationally
accepted documentation system
 Export Documentation in India
 Export documentation is complex in nature as the
number of documents to be filled-in is very large,
so also is the number of the concerned authorities
to whom the relevant documents to be submitted.
It is, therefore, advisable to take the help of
shipping and forwarding agents who will obtain and
fill out the documents correctly as well as arrange
for transportation.
 There are buyers and exporters, buying agents,
RBI, authorized dealers (where the exporter has his
bank Account), buyer’s bank (foreign bank), DGFT,
Customs and Port Authorities, VAT and Excise
Authorities, EPC’s, Insurance Companies,
Inspection Agencies, Clearing and Forwarding
Agents, Shipping Companies/Airlines and Inland
Carriers etc
 Export Documentation in India
 Proper Documentation will ensure smooth sailing with
the requirements of the above agencies and the
resulting transaction will be a successful one.
 Inaccurate or incomplete documentation will result in
serious financial and goodwill losses.
 Such losses can be completely avoided by
understanding clearly the documentation requirements
of all concerned parties and then meticulously planning
to get the right documents in the right numbers, at the
right places and at the right time.
 Classification of Export Documents
 Export Documents can be classified into following
four categories:
(1) Commercial Documents
(2) Regulatory Documents
(3) Export Assistance Documents
(4) Documents Required by Importing Countries

(1) Commercial Documents: These documents are

used by exporters/importers to discharge their
respective legal and other incidental responsibilities
under sales contract.
Classification of Export Documents
Commercial documents can be further sub-divided
into:
(i) Principal Commercial Documents
(ii) Auxiliary Commercial Documents
(i) Principal Commercial Documents: These
documents serves the following purposes:
(a) To effect physical transfer of goods and title of
the goods from exporter to the buyer.
(b) To realize export sales proceeds.
 Classification of Export Documents
Principal Documents include:
 Commercial Invoice (and the invoice prescribed by the

importer)
 Packing list

 Certificate of Inspection

 Certificate of Insurance/Insurance Policy

 Bill of Lading/Airway bill/Combined Transport

Documents
 Certificate of Origin

 Bill of Exchange

 Shipment Advice
 Classification of Export Documents
(ii) Auxiliary Commercial Documents: These
Documents are required to prepare /procure the
principal commercial documents and include:
 Proforma Invoice

 Shipping Instructions

 Insurance Declaration

 Intimation for Inspection

 Shipping Order

 Mates Receipt

 Application for Certificate of Origin

 Letter to bank for negotiation /collection of documents

 Classification of Export Documents
(2) Regulatory Documents: These are prescribed
by various Government Departments/Bodies for
compliance of formalities under relevant laws
governing export transactions. These include:
(i) Exchange Control Declaration Form-GR Form
(ii) Freight Payment Certificate
(iii) Insurance Premium Payment Certificate
(iv) ARE I/ARE II Forms
(v) Shipping Bill/Bill of Export
(vi) Port Trust Copy of Shipping Bill/Export
Application/Dock Challan
(vii) Receipt of Payment of Port Charges
(viii) Vehicle Ticket.
 Classification of Export Documents
(3) Export Assistance Documents: These are the
documents which are required for claiming
assistance under the various export assistance
measures as may be in operation from to time.
Currently, these refer to drawbacks of central
excise and customs duties, packing credit facilities
etc
(4) Documentation required by Importing
Countries: These are the documents which are
required by the importer in order to satisfy the
requirements of his Government. These include
certificates of origin, consular invoice, quality
control certificate etc.
 Commercial Documents
(1) Commercial Invoice:
 It is the basic and most important document in an
export transaction and extreme care has to be
taken by the exporter to prepare this document.
 This document requires the exporter to submit
details such as his own details, Invoice number
with date, details of the consignee and buyer (if the
buyer is other than consignee), buyer’s order
number with date, country of origin of the goods,
country of final destination, terms of payment and
delivery, pre-carriage details (Road/Rail),
vessel/flight number, port of loading, port of
discharge, final destination, container number,
number and kind of packaging, detailed description
of goods, quantity, rate and total amount
chargeable etc
 Commercial Documents
 Therefore, a Commercial Invoice contains the
complete details of the export order.
 Normally, the trade practice is to raise and send
a Proforma Invoice to the buyer for his approval,
once the order has been finalized.
 On receipt of the approved Proforma Invoice,
the exporter can use it as a part of the export
contract.
 The Commercial Invoice then becomes easier to
prepare on the basis of the approved Proforma
Invoice.
 Commercial Documents
(2) Packing List:
 This document provides the details of number of

packages; quantity packed in each of them; the

weight and measurement of each of the package
and the net and gross weight of the total
consignment.
 Net weight refers to the actual weight of the items

and the gross weight means the weight of the items

plus the weight of the packing material.
 The packing list serves a useful purpose of the

exporter while dispatching the consignment as a

cross check of goods sent.
 Commercial Documents
 For the port personnel, it comes handy while
planning the loading and offloading of cargo.
 It is also an essential document for the customs

authorities as they as they can carry out the

physical examination of the cargo and conduct
checks on the weight and measurements of the
goods smoothly against the declarations made by
the exporter in the packing list.
(3) Certificate of Inspection: This is the
Certificate issued by the Export Inspection Agency
after it has conducted the pre-shipment inspection
of goods for export provided the goods fall under
the notified category of goods requiring compulsory
shipment of inspection.
 Commercial Documents
(4) Certificate of Insurance/Insurance Policy:
 Insurance is an important area in the export
business as the stakes are usually very high.
 Protection needs to be taken in the form of
insurance cover for the duration of transit of goods
from the exporter to the importer.
(5) Bill of Lading:
 This is issued when the goods are shipped using

ocean (marine) transport.

 When the exporter finally hand over the goods to

the shipping company for loading on board the ship

for transport to their final destination, the shipping
company issues a set of Bills of Lading to the
exporter.
 Commercial Documents
(6) Airway Bill:
 Airway Bill is a bill of lading when the goods are

shipped using air transport.

 It is also known as air consignment note or airway

bill of lading.
(7) Combined Transport Document:
 This is also known as Multi-modal Transport
Document.
 Ever since containers have become popular, the

concept of Combined Transport Document has

gained solid ground.
 Commercial Documents
(8) Certificate Of Origin:
 This document serves as a proof of the country of
origin of goods for the importer in his country.
 Imported countries usually require this to be
produced at the time customs clearance of import
cargo.
 It also plays an important part in computing the
liability and the rate of import duty in the country
of import.
 This certificate declares the details of goods to be
shipped and the country where these goods are
grown, manufactured or produced.
 Such goods needs to have substantial value
addition so as to become eligible to certification of
this nature.
 Commercial Documents
(9) Bill of Exchange:
 Also known as Draft, this is an instruments for

payment realization.
 It is a written unconditional order for payment from

a drawer to a drawee, directing the drawee to pay a

specified amount of money in a given currency to
the drawer or a named payee at a fixed or
determinable future date.
 The exporter is the drawer and he draws (prepares

and signs) this unconditional order in writing upon

the importer (drawee) asking him to pay a certain
sum of money either to himself or his nominee
(endorsee).
 Commercial Documents
 This order could be made for payment on demand,
called a bill of exchange at sight or payment at a
future date, called a usance bill of exchange.
(10) Shipping Advice:
 The exporter sends this document , called shipping

advice, to the buyer soon after the shipment is

made to provide him all the shipment details.
 This serves as an advance intimation of the

shipment and allows the importer to arrange for

delivery of the same.
 Risk Management in Export-import
Business
 Risk is a fact of business life, more so of
international business.
 The Management of International business is the
management of risk.
 No manager can make a strategic business decision
or enter into important business transaction without
a full evaluation of the risks involved.
 Many of the best business plans have been ruined
by a miscalculation or a mistake, or an error in
judgment that could have been avoided with proper
planning.
 Risk Management in Export-import
Business
 If the risk cannot be reduced through advance
planning and careful execution, perhaps it can
be shifted to some other party to the
transaction.
 If the risk cannot be shifted to another party to
the transaction, it might be shifted to an
insurance company.
 Many types of risks can be insured against,
including the risk of damage to the goods at sea,
the risk of loosing an investment in a developing
country and many others.
Risk Management in Export-import
Business
(1) Risk Assessment and the Firm’s Foreign
Market Entry Strategy:
 When a firm is considering its entry or expansion

in a foreign market, it must consider all options

and decide on a course of action commensurate
with its objectives, capabilities and its willingness
to assume risk.
 Selling to a customer in another country results

in less risk to the firm than licensing trademarks,

patents and copyrights there.
Risk Management in Export-import
Business
(2) Managing Distance and Communications:
 The risks of doing business in a foreign country

are different from those encountered at home.

 A firm doing business in a foreign country would

encounter greater distances; problems in

communications; language and cultural barriers;
differences in ethical, moral and religious codes;
exposure to strange foreign laws and
government regulations; and different
currencies. All these factors affect the risks of
doing business abroad.
 Risk Management in Export-import
Business
(3) Managing Currency and Exchange Rate
Risks:
 Currency risk is risk a firm is exposed to as a result

of buying, selling, or holding a foreign currency.

Currency risk includes:
(i) Exchange Rate Risk
(ii) Currency Control Risk
(i) Exchange Rate Risk: Exchange rate risk results
from the fluctuations in the relative values of the
foreign currencies against each other when they are
bought and sold on international financial markets.
 Risk Management in Export-import
Business
(ii) Currency Control Risk:
 Some countries, particularly developing countries
where access to ready foreign reserve is limited,
put restrictions on currency transactions.
 In order to preserve the little foreign exchange
that is available for international transactions, such
as importing merchandise, these countries restrict
the amount of foreign currency that they will sell to
private companies.
 This limitation can cause problems for a U.S or any
other country exporter waiting for payment from its
foreign customer who cannot obtain the dollars
needed to pay for the goods.
 Risk Management in Export-import
Business
(4) Special Transactions Risks in Contracts for
the Sale of Goods:
 Special risks are inherent in international
transactions for the purchase and sale of goods.
 These transactions present special risks to both the

parties because the process of shipping goods and

receiving payment between distant countries is
riskier than within a country. Such risks are:
(i) Payment or Credit Risk
(ii) Property or Marine Risk
(iii) Delivery Risk
(iv) Pilferage and Theft Risk
 Risk Management in Export-import
Business
(5) Managing Political Risk:

 Political Risk is generally defined as the risk to a

firm’s business interests arising form political
instability or political change in a country in which
the firm is doing business.
 Political Risk includes risk derived from potentially
adverse actions of Governments of the foreign
countries in which one is doing business or whose
laws and regulations one is subject to.
 It also includes laws and Government
policies instituted by the firm’s home
country which adversely affect the firms
that do business in a foreign country.
 Risk Management in Export-import
Business
(6) Risks of Foreign Laws and Courts:
 Many Acts that are perfectly legal in one country

can be illegal in another. Indeed, most travelers to

a foreign country could conceivably break a host of
laws and not even be aware of it.
 The same is true for the law of contracts,

employment, competition, torts and other business

laws.
 It is virtually impossible to catalog all of the

differences between these laws from country to

country
 Risk Management in Export-
import Business
(7) Commercial Risks: The risks arising from
suitability of the product for the market or
otherwise change in supply and demand
conditions and changes in price. Commercial
risks arise due to:
 (i) Lack of Knowledge

 (ii) Inability to adapt to the environment

 (iii) Different kinds of situations to be dealt with

 (iv) Greater transit time involved

 Risk Management in Export-import
Business
(8) Cargo Risk:
 Transit disasters are an ever present hazard for

those engaged in Export-Import business.

 Every shipment runs the risk of a long list of

hazards such as storm, collision, theft, leakage,

explosion, spoilage etc. It is possible to transfer the
financial losses resulting from perils of and in transit
to professional risk bearers known as underwriters.
 As most goods are transported by marine transport,

every exporter should have an elementary

knowledge of marine insurance to get the
protection at the minimum cost.
 Suggested Readings
(1) International Marketing Management-an Indian perspective
by R.L Varshney and B.Bhattacharya, Sixth Edition, 2006
published by Sultan Chand and Sons, New Delhi.
(2) International Business Law and its Environment by Richard
Schaffer, Beverley and Filiberto Augsti, Sixth Edition, 2005
published by Thomson South-Western United States.
(3) Manual on Export Documentation published by Commercial
Law Publishers (India) Private Limited, NREW Delhi, 2006.
(4) International Business Law, Text, Cases and Readings,
Fourth Edition, 2004. Published by Prentice Hall, U.S.A
(5) International Marketing by Philips R.Cateora and John L.
Graham published by Tata McGraw Hill
(6) International Business by Charles W.L Hill and Arun K.Jain
published by Tata McGraw-Hill Publishing Company Limited,
New Delhi.
(7) Export and import Management by Aseem Kumar
published by Excel Books, 2007