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UNIT 4 Shipping Documentation 133

Unit 4 Notes
__________________
__________________
Shipping Documentation __________________
__________________
__________________
Objectives
__________________
After reading this unit you will be able to understand: __________________
O The significance of export documentation and its proper uses. __________________

O Commercial documents needed in export transactions __________________

__________________
O Shipping Documentation and operation of L/C

O Importance and proper uses of shipping documents

Proper export procedure and documentation is most

important element for international marketing management.
It may be worthwhile to note that the complexities of
documentation arises since both seller and buyer are located
in different nations and therefore are governed mainly by
different set of legal and legislative systems. The export
transaction chain is facilitated by an efficient system of
internationally recognized documentation framework. In
addition a number of government and private entities which
make it smooth for both seller and buyer to transact across
the border.

A number of regulatory agencies in India, which are

government controlled, such as the Directorate General of
Foreign Trade (DGFT), inspection agencies (can be from
abroad also), insurance companies, banking institutions,
customs and central excise authorities, clearing and
forwarding agents, carriers for inland transportation,
shipping companies or airlines, etc. have a major role to play
in the smooth trade transaction between the buyer and the
seller located in different countries. The exporters have to
comply with the rules, regulations, and trade customs of all
these organizations in his own country and may come across
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Notes the legal framework of the host country depending upon the
__________________ delivery terms used in the contract of sale and distribution
__________________ of responsibilities among the trading partners.
__________________
Consequently, the seller has to also make sure of receiving
__________________ timely and due payment while the buyer has to make sure
__________________ that the imported cargo is in good order and condition and
__________________ is delivered on time. Besides he has to ensure the legality of
__________________ the transaction in line with the legal framework to maintain
__________________ the bonafide of the goods to be sold later to the consumers.
__________________
Further if the cargo is perishable or with lower shelf life, for
example food products or pharmaceuticals, public safety has
__________________
to be ensured before the goods can be resold in the consumer
market, normally the home country of the buyer. Besides,
the cargo is exposed to a number of risk factors during transit
from the warehouse of the seller to the warehouse of the
buyer. These risk factors can be damage, fire, loss,
environment caused decay and maritime/air damages.

In order to understand and efficiently manage the customary

and regulatory framework evolved over a time, an export
manager has to make himself fully aware of the various
legislations governing international trade in the home as
well as the host country. In certain cases he may have to
understand these framework in a third country specially
where a transshipment or consolidation of cargo may take
place. In case of India, the relevant laws/acts in the legal
framework include the Foreign Trade (Development and
Regulation) Act, 1992; Customs Act, 1962; Foreign Exchange
Management Act, 2000; Export (Quality Control and
Inspection) Act, 1963; Marine Insurance Act, 1963; Central
Excise Act, 1944; Insurance Act, 1938; etc.

Additionally an exporter from India also have to deal with

certain international legislative system, which includes
international commercial practices and laws, such as the
Uniform Customs and Practices for Documentary Credit
(UCPDC), 1993; the Carriage of Goods by Sea Act, 1924; the
International Commercial Terms (Incoterms), 2000 (explained
in detail elsewhere in this text), etc.
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UNIT 4 Shipping Documentation 135
In a simplified form, the export transaction framework can Notes
be depicted as in the Exhibit 4.1 below. __________________
__________________
Exhibit 4.1. Export Transaction framework
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________

In an export transaction, the documents are generally routed

through the banking channels in the exporter’s and the
importer’s country to minimize the risk of non-payment by
the importer and the risk of non-receipt of goods from the
exporter. As soon as the export contract is finalized and the
payment terms are decided, the exporter initiates action for
the procurement or manufacturing of goods.

As a part of the international commercial practices, the bill

of lading is handed over to the buyer by the buyer’s bank
only after the payment has been made or the importer
commits to make the payment at a future date if it is usance
document. This ensures the receipt of payment to the
exporter on one end while receipt of cargo to the importer
on the other end. Therefore, an international marketing
manager has to have a thorough understanding of the export
procedures and documentation practices in international
trade. Therefore, the goods can be claimed at the destination
only by the bonafide holder of the B/L.

The present notes describes in detail the important auxiliary

and regulatory documents, such as commercial invoice,
packing list, carriage documents (discussed in more details
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Notes elsewhere in the notes) such as bill of lading (B/L), airways

__________________ bill (AWB), combined transport documents (CTD), certificate
__________________ of origin, inspection certificate, insurance certificate, bill of
__________________ exchange B/E, shipping bill, bill of entry, mate’s receipt,
__________________ exchange control declaration forms, etc. A thorough
understanding of the procedures and documents involved in
__________________
international transactions is must for an international
__________________
marketing manager in order to manage international trade
__________________
transactions effectively and efficiently.
__________________
__________________ Shipping Documentation
__________________
Shipping documents are generally classified as pre-shipment
and post shipment documents. Main documents are
commercial documents. There are certain other documents
that are essential in export trade. Some documents are
required to fulfill the statutory requirements of the home
and the host countries, such as the foreign exchange
regulations, export-import trade control, pre-shipment
inspections, central excise and customs requirements etc.

Export documentation is the prime element of the complex

international transaction framework. The successful
execution of an export shipment across border is as important
as readying the goods for exports. Therefore an export
manager should manage the documentation work most
meticulously to avoid problems related to the smooth flow
of goods and getting remittances from the overseas
importers.

In an export transaction, a number of trade intermediaries

and government authorities are inevitably involved, such as
the Directorate General of Foreign Trade (DGFT), export
promotion councils (EPCs), export inspection agencies (EIA),
shipping companies, insurance companies, banks, freight
forwarders, port trusts, central excise and customs
authorities etc. They have their own documentary
requirements for their own reasons. In order to strictly
comply with procedural formalities and documentary
requirements as is required by law, meticulous planning and
desired skills are required for the successful completion of
an export transaction.
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UNIT 4 Shipping Documentation 137
Before 1990, all the export documents including shipping Notes
documents were prepared separately and were all very __________________
different from one another. These were, therefore, highly __________________
prone to discrepancies and errors. As a result, export __________________
documentation in India was extremely inconvenient, __________________
ambiguous and time consuming.
__________________
After 1990, India adopted the ADS system for both export __________________
and import framework. The aligned documentation system __________________
(ADS) is a method of creating information on a set of semi- __________________
identical forms printed on a paper of same size in such a way __________________
that the items of identical specification occupy the same
__________________
position on each form, when put one on another. The basic
objectives of ADS have been simplification / prioritization,
economy of time and efforts.

By preparing only one ‘master document’ containing the

information common to all documents it is possible to create
the complete set of export documentation. The system
consists of a Master Document I for preparing ‘commercial
documents’ and Master Document II for preparing
‘regulatory documents’. For a long time, documents under
ADS were prepared using masks, which blanked out the
information not required in a particular document while
photocopying. Thus, all the aligned documents could be
prepared by this method with just two master documents.
Any additional information specific to a document could be
inserted or pre-printed on case to case basis. However, today
this process has been further refined using several computer
software available in the market. The programming of this
software is based on the same principle and format. The print
out of the software is exactly the same set generated by old
ADS method but is less cumbersome.

Approximately, about 25 documents are prepared for an

export shipment. An overview of pre-shipment export
documents is summarized in Figure below. For the purpose
of understanding of an export manager, these documents can
be divided into the following categories.
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138 Trade Procedure and Documentation fo
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Notes Exhibit-4.2: Pre-shipment documents

__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________

Pre-Shipment Export Documentation

Pre-shipment documents are those, which are used by ‘custom
of trade’ in international trading/commerce by exporters and
importers in discharge of their respective legal and other
incidental responsibilities under sales contracts and for
complying with govt. laws. These are primarily of two types
– commercial documents and regulatory documents.
Commercial documents are further of two types – Principal
and auxiliary.

Commercial Documents:
A. Principal

Required for:

1. Effecting physical transfer of goods and their title from

exporter to importer and

2. Realization of export sales proceeds.

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UNIT 4 Shipping Documentation 139
B. Auxiliary Notes
__________________
Required for preparation/procurement of ‘Principal’ shipping
__________________
documents.
__________________
Regulatory Documents: __________________
__________________
There are prescribed by different Government Departments/
__________________
Bodies for compliance of formalities under relevant laws.
__________________
Commercial Documents __________________
__________________
Commercial documents are required to be prepared and used
__________________
by the exporters and importers in discharge of their
respective legal and other incidental responsibilities under
the sales contract. These are required for physical transfer
of goods. These are also required for the transfer of the title
of goods from the exporter to the importer as well as for
realizing the proceeds of the sales. The documents have to
be prepared according to the provisions and stipulations of
the letter of credit, which has been discussed separately in
detail elsewhere in these notes. The documents have to be
prepared meticulously and with due diligence. The principal
commercial documents are as follows:

Commercial Invoice
Commercial invoice is the main document for an export
transaction and must be prepared by the exporter or his
authorized person. Since it is the most basic export
document, it should provide information as comprehensively
as possible. Additionally, the information provided should
be mentioned clearly and accurately.

A commercial invoice contains information on the exporter,

the consignee’s details, country of final destination, country
of origin of goods, terms of delivery and payment, vessel/
flight no., port of loading, port of discharge, final destination,
marks and numbers, number and kind of packaging, detailed
description of goods, quantity, rate, and total amount
payable. As a customary trade practice, soon after striking
an export deal, the exporter prepares a pro forma invoice
and sends it to the importer. As soon as the importer accepts
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Notes and countersigns the pro forma invoice, it becomes a part of

__________________ an export contract. A pro forma invoice also helps the
__________________ importer in arranging finances and opening of the letter of
__________________ credit.
__________________ Commercial invoice serves the following three main
__________________ functions.
__________________
(a) As a document of content: A commercial invoice
__________________
provides
__________________
__________________ 1. Identification of the shipment by matching the
__________________
identification marks and numbers given on the
package being shipped with those given in the
invoice. Every shipment must provide marks in the
form of words. Besides, every shipment must have
numbers to indicate the total number of packs or any
other unit of account.

2. Detailed description of goods, which should match

with the description given in the letter of credit or
contract as the case may be.

3. The quantity distribution among product mix in a

particular shipment which must match with those
mentioned in the letter of credit / contract. The
exporter should ship and mention only the
contracted quantity, unless specifically permitted.
However when part shipment is allowed the invoice
should indicate actual quantity being shipped if
different from the contracted quantity.

(b) As a seller’s bill: An invoice should indicate the net

price (net of commission or discount), unless otherwise
required differently under the contract. Generally, the
detailed break-up of price is also given in the invoice as
per the contractual stipulations.

(c) As a packing list: Since the description of goods and

quantity thereof is given in detail, the commercial invoice
can also serve as a packing list, especially when the
packaging is simple or standard.
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UNIT 4 Shipping Documentation 141
Some importing countries may need specific commercial Notes
invoices, as follows. __________________
__________________
1. Legalized Invoice: Some of the importing countries,
fore example Mexico, require legalized invoice. In those __________________

cases the commercial invoice is certified by the local __________________

chamber of commerce of the exporting country. The __________________
purpose is to verify that the invoice and declaration in __________________
the invoice are authentic.
__________________
2. Consular Invoice: It is a specific invoice verified by __________________
the counsel of the importing country. Some of the __________________
countries in the Middle East require the invoice to be
__________________
verified by the commercial section of their embassy in
the exporting country. This is to ensure that the facts
mentioned in the invoice are authenticated. This
certification or legalization is done by way of stamp or
seal on payment of specified processing fee. The process
may take about a week’s time. However, the consular
invoice is looked upon as a form of non-tariff barrier in
the international business circle.

3. Customs Invoice: Some countries, such as the USA and

Canada, require customs invoice to be prepared in the
prescribed format primarily for issues related to anti-
dumping. The customs invoice varies in format, but
contains similar information. The customs invoice is self-
certified by the exporter. However, certain countries
need completed customs invoice from the importers
rather than exporters for the purpose of customs
clearance.

An international management professional should know how

to prepare a commercial invoice. The details of the various
columns containing the information required are as follows:

1. Exporter: This box should indicate the exporter’s name

and address along with the details of the city, state,
country, and exporter’s phone and fax numbers. This box
is titled as ‘shipper’ in the mate’s receipt as well as in
the bill of lading to indicate the identity of the shipper.
The same box is titled as ‘drawer’ in the letter to the
bank for negotiation and collection of documents to
indicate the identity of the person / firm who draws the
bill of exchange on importer.
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Notes 2. Consignee: This box should contain the name and

__________________ address of the party to whom goods are to be delivered.
__________________
3. Buyer: Generally, buyer is the person to whom goods
__________________
are consigned. In case the buyer is different from the
__________________ consignee, the name and address of the buyer should be
__________________ indicated in this box.
__________________
4. References: Suitable references, such as invoice number,
__________________
buyer’s order number and date, and exporter’s reference
__________________
have to be correctly filled up in these boxes.
__________________
__________________
5. Country of Origin of Goods: This box should indicate
the identity of the country where goods have been
produced as per the certificate of origin issued by the
competent authority.

6. Country of Final Destination: This box should contain

the name of the destination country where the goods
are to be finally delivered.

7. Terms of Delivery and Payment: This box should

indicate the details of delivery terms, such as FOB, CFR,
CIF etc. and the payment terms, such as the documentary
credit (D/C), delivery against acceptance (D/A), delivery
against payment (D/P), etc.

8. Pre-Carriage By: This box should indicate the name of

the carrier/mode of transport used for transporting the
goods from the point of origin where they were accepted
for carriage by the pre-carrier.

9. Place of Receipt by Pre-Carrier: It should indicate

the name of the place where goods were received for
carriage by the pre-carrier.

10. Vessel/Flight No: It indicates the details of the vessel

or flight no. by which the goods are exported including
the name of vessel / air carrier, using internationally
accepted codes or abbreviation.

11. Port of Loading: This box should indicate the name of

the seaport / airport at which the goods were loaded.
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UNIT 4 Shipping Documentation 143
12. Port of Discharge: This box indicates the name of the Notes
seaport/airport at which the exported goods are to be __________________
unloaded. __________________
__________________
13. Final Destination: It indicates the name of the place
where the goods are to be finally delivered, in case the __________________

final destination is different from the place of discharge. __________________

__________________
14. Mark Nos. / Container Numbers: It indicates marks
__________________
and numbers appearing on the packages comprising the
__________________
consignment as agreed between the exporter and the
importer. In case of containerized cargo, it should __________________

indicate container number. __________________

15. Number and Kind of Packages: This box indicates the

total number and nature of packaging in which goods
are shipped, such as bags, bales, crates, drum, bundles,
etc.

16. Description of Goods: It gives the description of goods

as per the contract. Separate description of different
types of goods for the same consignment should be given
against related number and kind of packages.

17 & 18. Quantity, Rate, and Amount: These boxes should

indicate in respect of each type of goods comprising the
consignment, the respective quantity and rate as per
the contract and the amount payable.

19. Signature and Date: Each copy of the commercial

invoice should contain in ink the dates and signature of
the authorized person to make it legally acceptable.

Packing List
Packing list provides details of kind and number of packing
of the goods, the contents of different packages, and details
of the weights and measurement of each package in the
consignment. Packing list is used by the carrier while taking
decisions on the loading of the consignment. Besides, this is
an essential document for the customs to check the cargo for
complying with the local laws. It also helps the importer to
check and manage the inventory of the merchandise received.
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Notes While for standard or small packing, packing list may not be
__________________ required, as a general trade rule, it is better to provide
__________________ financial and packing information separately in the form of
__________________ invoice and packing list.
__________________ The packing list is an extension of the commercial invoice,
__________________ and actually it looks like a commercial invoice.
__________________
One of the important uses of packing list is that the exporter
__________________
or his/her agent reserves the shipping space based on the
__________________
gross weight or the measurement shown in the packing list.
__________________
__________________
Customs uses the packing list as a checklist and reference
to verify the outgoing cargo (while exporting) and the
incoming cargo (while importing). The importer uses the
packing list to manage inventory of the incoming
consignment.

Most fields in a packing list are similar to Commercial Invoice

but the main description marks and nos. measurements etc
have to be more detailed as explained below.

For the purpose of explaining some of the important fields

in the packing list, it is assumed that the Digital Cameras in
the sample L/C (as given in annexure 4.1) contain the
following data:

The catalogue or item number of the Digital Camera is DC007

Each pc is in an inner retail box and there are 12 boxes in an

export master carton, or a total of 167 cartons for the 2004
pcs

Each master carton:

Net Weight (N.W.) 20 kgs. (44.1 lbs.)

Gross Weight (G.W.) 23 kgs. (50.7 lbs.)

Measurement (Meas.) 0.113 CBM (4 cft.) 61 cms.

x 61 cms. x 30.5 cms.

(2' x 2' x 1')

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UNIT 4 Shipping Documentation 145
Marks & Numbers / Container No. Notes
__________________
It indicates marks and numbers appearing on the packages
__________________
comprising the consignment as agreed between the exporter
__________________
and the importer. In case of containerized cargo, it should
indicate container number. __________________
__________________
Package No.
__________________
The entries preferably arranged in sequence from the lowest __________________
number to the highest that is, from package No. 1 and up. __________________
From the sample L/C, enter ‘C/No. 1-167’ or the like in the __________________
field (Package No.), provided it is not inconsistent with the __________________
marks and numbers on the master cartons.

Description of Goods

The description of the goods in the packing list can be in

general terms, provided it is not inconsistent with the
description in the L/C. From the sample L/C and data of the
digital cameras above, entering ‘DC007’ and ‘’AB’ Brand
Digital Cameras’ in the fields will satisfy the requirements.

Number and Kind of Packages

This box indicates the total number and nature of packaging

in which goods are shipped, such as bags, bales, crates, drum,
bundles, etc.

Quantity

It shows the total quantity within a stated range of the

package number and the breakdown in each package. The
stated range is C/No. 1-167, enter:

2004 pcs

12 pcs/Ctn.

or

2004 pcs

12 pcs @ Ctn.

or the like in the field. The / and @ used here stands for per
or each.
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Notes Remarks
__________________
‘Weight’
__________________
__________________ It shows the total weight within a stated range of the package
__________________ number and the weight of each package. The stated range is
__________________ C/No. 1-167, enter:
__________________ 3,841 Kgs.
__________________
23 Kgs./Ctn.
__________________
__________________ or
__________________
3,841 Kgs.

23 Kgs. @ Ctn.

or the like in the field and put a notation ‘Gross Weight’.

As far as the carrier is concerned, the gross weight or

measurement of a consignment is needed to calculate the
freight. In case the goods are assessed in the importing
country or exported on the net weight basis, it is necessary
to show the net weight and gross weight in the packing list.
The entry may appear as:

N.W. 3,500 Kgs.

G.W. 3,841 Kgs.

‘Measurement’

Ocean shipments are most often charged by the cubic meter

(CBM or cbm). Enter:

18.87 CBM

0.113 CBM/Ctn.

in the field (Measurement). Sometimes, it is necessary to

include the size or dimensions (length-width-height) of the
master package. The entry may appear as:

18.87 CBM

0.113 CBM/Ctn.

@ 61 x 61 x 30.5 Cms.
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UNIT 4 Shipping Documentation 147
The @ stands for at or each. Notes
__________________
Some carriers may calculate the freight on a cubic feet (cft.
__________________
or cu. ft.) basis. In the case of an irregular shaped cargo, take
__________________
the three widest dimensions that describe the smallest cubic
space enclosing the cargo to determine the measurement. __________________
__________________
‘Signature and/or stamp’
__________________
Each copy of the commercial invoice should contain in ink __________________
the dates and signature of the authorized person to make it __________________
legally acceptable. __________________

Total Number of Packages (this information may be put in __________________

the blank space at the bottom of packing list.)

For example a consignment where the range of the carton

number is as follows:

C/No. 1-50 - Product A

C/No. 51-100 - Product B

C/No. 101-150 - Product C

C/No. 151-167 - Product D

put a summary ‘Total 167 Cartons’ in a succeeding row after

the ‘C/No. 151-167’.

Total Quantity

If a consignment consists of different units, preferably show

all the units used in the summary of totals. For example, a
shipment includes:

100 dozen - Product A

200 dozen - Product B

300 boxes - Product C

400 boxes - Product D

as such the total shows ‘300 Dozen and 700 Boxes’.

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Notes Total Weight and Total Measurement

__________________
If the net weight and gross weight are used in the breakdown,
__________________
the summary must show the total net weight and the total
__________________
gross weight. If kgs., lbs., CBM and cft. are used in the
__________________ breakdown, the summary must show the total of kgs., lbs.,
__________________ CBM and cft..
__________________
Under certain circumstances, such as in a consignment
__________________
consisting of a few master cartons where each carton contains
__________________
several small items of different sizes, it is necessary to show
__________________ the breakdown of the quantity of each item. There is no need
__________________ to show the breakdown of the weight and measurement of
each carton. Simply entering the total weight and the total
measurement of the consignment in the summary row would
satisfy the export requirements.

Carriage Documents
The set of documents that evidence shipment of goods, such
as the bill of lading (in ocean transport), combined transport
document (in multi-modal transport), Air Way Bill (for air
shipments), or consignment note (for rail, road, air, or sea
transport), and receipt (in postal or courier delivery) are
collectively known as transport documents. Transport
documents are described in detail elsewhere in these notes.

Certificate of Origin
This document is used as an evidence of the origin of goods
in the importing country. It includes the details of the goods
covered and the name of the country where the goods are
produced, grown or manufactured. The manufactured goods
must have substantial value addition in the exporting country
to be eligible to be called of origin of the said country. Value
additions of the form of packaging, assembling, splitting or
sorting may not be sufficient for qualifying to be treated as
the goods of said country of origin.

Certificate of origin is also needed by buyers for deciding

whether the import from the country of origin is partially or
completely prohibited. It is also used for granting
preferential duty treatment to goods originating from the
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UNIT 4 Shipping Documentation 149
preferred country, e.g., in case of the Generalized System of Notes
Preference (GSP) certificate. Besides, the certificate of origin __________________
is also required for deciding the liability and the rate of __________________
import duty in the importing country. __________________

The certificate of origin is of two types. __________________

__________________
1. Preferential Certificate of Origin
__________________
The preferential certificates of origin are required by the __________________
countries offering tariff concessions on imports from certain __________________
preferred countries. For exports from India preferential __________________
certificate of origin includes: __________________

(a) Generalized system of preferences (GSP): It is a non-

contractual instrument by which developed countries
unilaterally and non-reciprocally extend tariff
concessions to developing countries. The countries
extending preferences under their GSP scheme include
the United States, Japan, Hungary, Belarus, European
Union, Norway, Switzerland, Bulgaria, Slovakia,
Canada, Russia, Poland, Czech Republic, and New
Zealand.

(b) The agreement establishing SAPTA: It was signed by

the seven SAARC countries, namely India, Pakistan,
Nepal, Bhutan, Bangladesh, Sri Lanka, and Maldives.

(c) Global system of trade preference (GSTP): In the

GSTP, trade concessions are exchanged among a group
of intending developing countries which are signatory
to the agreement. The trade concessions could be for
entire imports or for selected commodities as per the
agreement. Presently, there are 46 member countries
of GSTP and India has exchanged tariff concessions with
12 member countries on a limited number of products.
Export Inspection Council (EIC) is the sole agency
authorized to issue the certificate of origin under GSTP.

(d) A free trade agreement (FTA) between India and

Sri Lanka: It was signed on 20 December 1998. The
agreement was operational zed in March 2000 following
notification of the required customs tariff concessions
by the governments of Sri Lanka and India in February
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Notes and March 2000, respectively. Export Inspection Council

__________________ is the sale agency to issue the certificate of origin under
__________________ India-Sri Lanka Free Trade Area (ISLFTA). Recently a
__________________ more comprehensive FTA has been signed between India
__________________ and Thailand.
__________________ (e) The Bangkok agreement: It is a preferential trading
__________________ arrangement designed to progressively liberalize and
__________________ expand trade-in-goods in the Economic and Social
__________________ Commission for Asia and Pacific (ESCAP) region through
__________________
such measures as the relaxation of tariff and non-tariff
barriers and use of other negotiating tools.
__________________
2. Non-preferential Certificate of Origin

It merely evidences the origin of goods from a particular

country and does not bestow any tariff benefits on exports to
the importing nations. Generally, such a certificate of origin
is issued by the local chamber of commerce. A shipper has to
make an application to a local chamber of commerce in the
prescribed format for getting the certificate of origin. It is a
significant document, which helps in deciding upon the
importability and about tariff calculations in a number of
importing countries. Therefore, an exporter should furnish
the certificate of origin carefully and accurately as per the
stipulations of the importing country.

Inspection Certificate
Under the Export (Quality Control and Inspection) Act, 1963,
it is mandatory to obtain an export inspection certificate for
a number of listed products as stipulated by the notified
agency. The agencies entrusted with compulsory pre-
shipment quality inspection include Export Inspection
Agency (EIA), Bureau of Indian Standard, Agricultural
Marketing Advisor (Agmark), Drugs Controller, Tea Board,
Coffee Board, etc.

International Recognitions
Under the provisions of WTO agreements, especially the SPS
agreement, several of India’s trading partners have imposed
import control systems based on international standards,
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UNIT 4 Shipping Documentation 151
particularly in areas like food sector. These agreements also Notes
provide for recognition of the export certification system of __________________
member trading partners provided it meets the requirements __________________
of their import control stipulations. EIC, as the official export __________________
certification body of India, has started dialogue with several __________________
of India’s trading partners seeking recognition of its
__________________
certification.
__________________
Generally, an importer wants the inspection to be carried __________________
out by a private agency (viz. SGS, Geochem, etc.) nominated __________________
by him to ensure the quality of merchandise as per the export __________________
contract. The exporter has to submit the intimation for
__________________
inspection in a prescribed format and the inspection
certificate is issued by the inspecting agency against payment
of a fee.

Cargo Insurance Policy Certificate

In order to provide protection to the cargo-owner, an
insurance cover is necessary while the cargo is in transit
from the consignor’s warehouse to the consignee’s warehouse.
The carrier and other intermediaries, such as the port
authorities, warehousing operators, c&f agents, etc have only
limited liability during the movement of cargo, and therefore,
they cannot be held responsible in the event of loss due to a
situation which is not in their control, such as man-made
accidents, natural calamities (Act of God), etc. The detailed
discussion on the cargo insurance cover is given elsewhere
in these notes.

Mate’s Receipt
On receipt of cargo on board, the master of the vessel issues
‘mate’s receipt’ for every shipment taken on board. The port
authorities collect the mate’s receipt from the master or chief
officer of the vessel. They do not accept any ‘claused’ mate’s
receipt unless authorized by the shipper. The shipper or his
agent has to collect the mate’s receipt from the port
authorities after the payment of all port dues. After receiving
the mate’s receipt, the shipper or his agent prepares a bill of
lading, as per the mate’s receipt, on blank forms supplied by
the shipping company and presents 2-3 originals and some
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Notes non-negotiable copies along with the original mate’s receipt

__________________ to the shipping company for signature of the authorized
__________________ officer of the shipping company. Mate’s receipt is merely a
__________________ receipt of goods shipped. It is not a document of ‘title.’ The
__________________ mate’s receipt is an important document because the
shipping company issues the bill of lading in exchange of
__________________
mate’s receipt. Therefore, the exporter must collect the
__________________
mate’s receipt soon after its receipt from the shed
__________________
superintendent to avoid any problems and delays in getting
__________________ the bill of lading.
__________________
__________________ Bill of Exchange (Draft)
It is an unconditional order in writing prepared and signed
by the seller and addressed to the buyer, requiring him to
pay on demand (sight bill of exchange) or at a future date
(usance bill of exchange) a certain sum of money (contract
value) to the seller or his or her nominee (or endorsee). The
maker of the bill (i.e., the exporter) is known as the ‘drawer’
while the person receiving the bill (i.e., the importer) is called
the ‘drawee’. ‘Sight drafts’ (or bills of exchange) are used when
payment is received by D/P (document against payment),
while the usance drafts are used in D/A (document against
acceptance). In case of usance bills of exchange, the drafts
are drawn for 30-180 days and are negotiable instruments,
which can be bought and sold.

A bill of exchange is invariably prepared in two original

copies. Both the copies refer each other and are equally valid.
The two original copies are sent by different airmails and
the one that reaches earlier is used for exchanging the title
documents and the sale amount. Once an original bill of
exchange has been honored, the other copy, which comes
later, becomes redundant. The exporter should ensure before
sending the bill of exchange that the details mentioned
therein tallies with the other documents. The amount should
be mentioned in words, and it is signed out in the same way
as a cheque is signed by an authorized signatory of the
exporting firm.

Since a bill of exchange does not provide security to the

exporter on its own strength, therefore, as a matter of
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UNIT 4 Shipping Documentation 153
practice, it is used in international trade, along with a letter Notes
of credit. A letter of credit guarantees that a bill of exchange __________________
would be honored. __________________
__________________
Shipment Advice
__________________
Soon after the shipment has taken place, the shipment advice __________________
is sent to the importer informing him of the details of the __________________
shipment. The shipment advice indicates details of the vessel __________________
or flight number, port of discharge and destination, export
__________________
order or contract number, description of cargo, quantity, etc.
__________________
This gives advance information to the importer about the
__________________
details of the shipment to enable him to make arrangements
to take delivery of the goods at destination. Generally, the
importers insist upon sending the copy of shipping advice
by fax followed by another by express airmail/courier. A non-
negotiable copy of the bill of lading, commercial invoice,
customs invoice, if any, and packing list should also be
attached to the shipping advice.

Regulatory Documents
Regulatory documents fulfill the statutory requirements of
both the importing and the exporting countries. These
documents are related to various government authorities,
such as the Directorate General of Foreign Trade (DGFT),
the Reserve Bank of India (RBI), Export Promotion Councils
(EPCs), Export Inspection Agencies, banks, customs and
central excise authorities, etc.

Exchange Control Declaration Forms

Under the Foreign Exchange Management (Export of Goods
and Services) Act, 2000, for every export activity taking place
out of India, the exporter has to submit an exchange control
declaration form in the format prescribed by RBI. Exports
to Nepal and Bhutan are exempt from this formality. The
basic objective of a declaration form is to make sure of the
full and timely realization of export proceeds by the exporter
as per the provisions of the Foreign Exchange Management
Act, 1999.
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Notes The various types of forms used for foreign exchange

__________________ declaration are as follows:
__________________
GR Form: Guaranteed remittance (GR) forms are for all
__________________
types of physical exports, including software exports (done
__________________ in physical form by using magnetic tapes or paper form) (to
__________________ be filled in duplicate).
__________________
SDF Form: For all such exports where the customs authority
__________________
has the facility for EDI (electronic data interchange)
__________________
processing of a shipping bill. It is attached in duplicate with
__________________ the shipping bill.
__________________
PP Forms: Postal parcel (PP) forms are for all exports (given
in the accompanying CD) by post (in duplicate).

SOFTEX Form: Software export declaration (SOFTEX)

forms for software exports in non-physical form, such as data
transmission through satellite link.

The declaration forms should explicitly contain the following

details.

n Analysis of the full export value of goods shipped,

including the FOB value, freight, insurance, etc.

n Clear indication whether the export is on ‘outright sales

basis’ or ‘consignment basis.’

n Name and address of the dealer through which export

proceeds have been realized or would be realized.

n Details of commission or discount due to the foreign

agent or buyer.

As per FEMA act 1999, all the documents relating to export

of goods from India should be submitted to the authorized
dealer in foreign currency within 21 days and the amount
representing the full export value must be realized within
six months from the date of shipment.

GR forms have to be submitted to the customs in duplicate

at the port of shipment. The customs authorities verify the
declared value and record the assessed value. The original
copy of a GR form is directly sent by the customs to the
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UNIT 4 Shipping Documentation 155
Reserve Bank of India. At the time of actual shipment, the Notes
customs certifies the quantity passed for shipment and __________________
returns it back to the exporter. The exporter is required to __________________
submit the customs-certified copy of the GR form to the __________________
authorized dealer. Once the export proceeds are received, __________________
the authorized dealer makes his endorsement and sends it
__________________
to the Reserve Bank of India.
__________________

Shipping Bill/Bill of Export __________________

__________________
Shipping bill is the main document required by the customs
__________________
authorities. The export cargo is allowed to be carted on port
__________________
sheds and docks only after the shipping bill has been stamped
by the customs authorities. The shipping bill mentions the
description of goods, marks, numbers, quantity, FOB value,
name of the vessel or flight number, port of loading, port of
discharge, country of destination, etc. In case of shipment by
sea/air/lCD, the document is known as the shipping bill, while
in case of shipment by land, the document is known as the
bill of exports. Under section 50 of Customs Act, 1962, the
shipping bill has to be submitted to the customs for seeking
their permission. The main types of shipping bills are as
follows.

1. Shipping bill for dutiable goods.

2. Shipping bill for duty-free goods

Shipping bill for goods claiming duty drawback.

An exporter is required to submit the appropriate shipping

bills for customs clearance depending upon the nature of
goods.

Documents for Central Excise Clearance

Invoice: The goods are delivered against invoice under Rule
11 of Central Excise (No.2) Rules, 2001. It is issued by the
manufacturer in a set of three copies. The original copy is
for the buyer, the duplicate for the transporter, and the
triplicate for the assessee. Transportation of goods without
invoice is considered to be a violation of rules.
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Notes Personal Ledger Account (PLA): When the goods are

__________________ removed after the payment of duty, a personal ledger account
__________________ is required to be maintained by the exporter. The estimated
__________________ amount of excise duty to be paid by the exporter is deposited
__________________ to the nationalized bank or treasury. The amount deposited
in the bank is shown as credit in the PLA on the basis of the
__________________
proof of deposit. At the time of the removal of consignment,
__________________
the amount of duty actually levied is shown as debit entry.
__________________
An equivalent amount is again re-credited after the proof of
__________________ export is received. Thus, debit and credit entries are
__________________ continuously maintained in the personal ledger account.
__________________ However, in case of exports against bond or LUT (legal
undertaking), where the duty is not actually paid, the
exporters are not required to maintain a personal ledger
account.

ARE-1 (Application for Removal of Excisable Goods-1):

This is the application to the jurisdictional central excise
superintendent made by the exporter while removal of the
goods. It mentions separately all the details of the
consignment, such as the value of the consignment and the
amount of duty involved. An exporter has to submit the ARE-
l form 24 hours in advance from the time of removal of the
goods, in four copies. Once the cargo is handed over to the
carrier, the ARE-1 form is endorsed by the customs and it
becomes the proof of exports.

ARE-2 (Application for Removal of Excisable Goods-2):

This application is used for the refund of excise duty paid on
the finished goods as well as the production inputs used in
the manufacture of final products. Since the refund of central
excise duty on the finished products is obtained against the
ARE-l formalities, the ARE-2 is a consolidated document for
removal of cargo for exports under claim for rebate of duty
paid on excisable material used in the manufacture and
packaging of such goods and removal of excise dutiable cargo
for export under rebate claim at the finished stage or under
bond without payment of excise duty. However, due to the
cumbersome procedure involved, ARE-2 formalities have not
gained any popularity among the exporters.
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UNIT 4 Shipping Documentation 157
CT-1: This application is used for the procurement of Notes
excisable goods without the payment of excise duty for __________________
exports. It gives details like the description of goods, __________________
quantity, value, and the excise duty payable on cargo to be __________________
removed duty free on the basis of information furnished by __________________
the exporter. CT-l form is issued by the designated central
__________________
excise authority with which the manufacturer exporter or
merchant exporter executes the legal undertaking (LU) or __________________
bond, respectively. __________________
__________________
Blacklist Certificate
__________________
Countries, which have strained political relations or are at __________________
war with another country, require the blacklist certificate
as an evidence of the following.

1. The point of origin of goods is not of a particular country

with adverse noting.

2. The ship or aircraft would not call at ports of such a

country unless forced to do so.

3. The parties involved, such as the manufacturer, bank,

insurance company, shipping line etc., are not
blacklisted or having adverse noting.

It is required to be furnished by the exporter only when

specifically asked for by the importer for exports to certain
countries.

Health/Veterinary/Sanitary Certificate
The importer or the importing country’s customs department
requires a certificate for exports of certain items like
foodstuff, livestock, marine products, hides and skins, etc.
from health, vet, or sanitary authorities. This is done to
ensure that the imported cargo is not contaminated by any
health hazard or any disease.

Shipping Guarantee
Shipping Guarantee is issued by certain big banks to help
importers take control of the goods as soon as they arrive
without the need of carriage documents, which may take time
to come for various reasons. This is to help importers avoid
costs and lost opportunities.
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Notes Shipping guarantees are usually applicable under import

__________________ documentary credit transactions, allowing immediate
__________________ clearance of goods ahead of documents arrival. However by
__________________ taking control of the goods through shipping guarantee,
__________________
protection against discrepant documents will be lost. Under
normal circumstances, 100% cash margin against the value
__________________
of the goods will be kept by the guarantee issuing bank if the
__________________ client does not have trust receipt facility (issued to certain
__________________ regular customer of the particular bank).
__________________
Shipping guarantees carries value only if they are issued
__________________ immediately. At most banks, the shipping guarantees can be
__________________ issued as soon as the client (importer) makes the application.
These shipping guarantees are normally universally accepted
by all shipping companies, depending upon the status of the
issuing bank. Importer can be assured that he/she will get
their imported goods on time.

The functions of the shipping guarantee, thus, are:

1. Enables immediate control of the goods before payment,

by the importer.

2. Receive shipments immediately upon arrival

(depending upon clearance time taken by the customs
of a particular country)

3. Reduce unnecessary delays in the day-to-day running

of business of the buyer

4. Defers liability of the payment until the supplier’s

documents have been presented which may take time.

5. Eliminates expensive demurrage/storage charges at the

customs or at the shipping company warehouse.

6. With advancing logistics technology and faster means

of transport, the goods may arrive at port of destination
before the shipping documents have been processed
through the banking channels. This could result in
unnecessary storage and warehousing fees (demurrage
charges) to be charged on daily basis until the day of
collection. Further it may mean damage or loss to cargo
due to unwarranted or natural reasons, especially in case
of perishable cargo. The shipping guarantee in such cases
may be necessary.
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UNIT 4 Shipping Documentation 159
In order to apply for shipping guarantee the importer must Notes
approach to its bank if it issues the shipping guarantee. __________________
Alternatively the foreign trade section of the importer’s bank __________________
can arrange for the same from other participating banks. The __________________
application process is simple and banks in question can __________________
answer all difficulties in the application process.
__________________

Summary __________________
__________________
Meticulous and proper use of shipping documentation is the __________________
key of documentation process which requires professional
__________________
handling and an in depth knowledge of international trade
__________________
documentation and procedures.

A number of documentation and procedural tools are

available to the exporter as well as importer to carry out
their trade activities smoothly and to get the commercial
benefits of a hassle free and efficient system of goods
movement across border.

Once understood and practiced religiously, export and

import shipping documentation process can be a very
pleasant experience done is a most routine manner.

Review Questions
1. Explain the various steps involved in an export transaction execution.
Pinpoint the direction of flow of documents, goods and payment.

2. What kind of problem may arise due to improper use of shipping

documents?

3. List out various pre and post shipment documents and explain their
functions.
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Annexure - 4.1
Notes
__________________
__________________
__________________
Sample Document
__________________ Example of Letter of Credit
__________________
__________________
__________________ THE SUNSHINE BANK
INTERNATIONAL CHANNELS
__________________ 5 SUNSHINE BLVD.,
EXIM -CITY AND POSTAL CODE
__________________ EXPORT-COUNTRY

__________________

OUR ADVICE NO. ISSUING BANK REF. NO. & DATE

LB-5482 DBPE-787 AUGEST 15, 2007

TO WORLD Exports
99, Richman Street West Wing, Suite 809
Trade-City and Postal Code
Dear Sirs:
W e have been requested by The Moonlight Bank, Moonlight City, Import-
Country
to advise that they have opened with us their irrevocable docum entary
credit num ber PB-57859
for account of All Imports, 7 Mars Street, Moonlight City, Import-Country
in your favor for the am ount of not exceeding Twenty Nine Thousand U.S.
Dollars (US$29,000.00)
available by your draft(s) drawn on us at sight for full invoice value accom panied by
the following docum ents:
1. Signed commercial invoice in five (5) copies indicating the buyer's
Purchase Order No. AEH-202 dated August 10, 2007.
2. Packing list in five (5) copies.
3. Full set 3/3 clean on board ocean bill of lading, plus two (2) non-
negotiable copies, issued to order of The Moonlight Bank, Moonlight
City, Import-Country, notify the above accountee, marked ‘freight
Prepaid’, dated latest October 29, 2007, and showing documentary
credit number.
4. Insurance policy in duplicate for 110% CIF value covering Institute
Cargo Clauses (A), Institute War and Strike Clauses, evidencing
that claims are payable in Import-Country.
Covering: 2004 pcs 'AB' Brand Digital Cameras , 512 MB inbuilt memory,
complete with leather finish cover and NI-MH chargeable
batteries, CIF Jupiter Port

Shipm ent from Mercury Port, Export-Country to Jupiter Port, Import-

Country
Partial
shipm ent Prohibited

Transshipm ent Permitted

contd...
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UNIT 4 Shipping Documentation 161
Special conditions: Notes
1. All documents indicating the Import License No. IPR/54321 dated
August 08, 2007. __________________
2. All charges outside the Import-Country are on beneficiary's account. __________________
Docum ents m ust be presented for paym ent within 15 days after the date of shipm ent.
__________________
Draft(s) drawn under this credit must be marked
__________________
Drawn under documentary credit No. PB-57859 of The Moonlight Bank,
Moonlight City, Import-Country, dated August 15, 2007 __________________
We confirm this credit and hereby undertake that all drafts drawn under and in __________________
conformity with the
terms of this credit will be duly honored upon delivery of documents as specified, if __________________
presented at
this office on or before November 06, 2007 __________________
__________________
Very truly yours,
__________________

Authorized Signature

Unless otherwise expressly stated, this Credit is subject to the Uniform Customs and
Practice for Documentary Credits, 1993 Revision, International Chamber of
Commerce Publication No. 500.