Unit 2: Shipment procedures



Shipment Procedures

Export shipment involves several steps from order receipt to delivery of goods to the foreign buyer.

Steps in Export Shipment

Step Details
1. Receive Export Order Confirm buyer’s order, terms (price, quantity, INCOTERMS), and payment method.
2. Procure/Manufacture Goods Arrange or produce goods as per buyer’s specifications.
3. Quality Check & Packing Ensure product quality, proper export packaging, and labeling.
4. Pre-shipment Inspection If required by law or buyer (e.g., for food, machinery, etc.).
5. Book Cargo Space Book shipment with airline or shipping line (through freight forwarder).
6. Customs Clearance File shipping bill, submit documents (invoice, packing list, IEC, etc.).
7. Freight Forwarding Transport goods to port/airport, load into ship or plane.
8. Post-shipment Documents Send documents (bill of lading, invoice, certificate of origin) to buyer/bank.
9. Payment Realization Receive payment through bank (based on payment terms like LC or advance).

Role of Clearing and Forwarding Agent (C&F Agent)

C&F Agents are professionals who handle logistics, documentation, and customs formalities for exporters.

Key Functions

Function Details
Customs Clearance Prepares and files shipping bill, helps in inspection, pays duties (if any).
Cargo Booking Arranges transport, books space in ship/aircraft, and coordinates loading.
Documentation Support Handles export documents (invoice, packing list, insurance, etc.).
Freight Handling Coordinates with freight forwarders and shipping lines for timely dispatch.
Warehousing & Storage Arranges short-term storage of cargo if needed.
Port Formalities Manages loading/unloading at ports and completes port-related paperwork.

Benefits

  • Saves time and ensures compliance with export regulations.
  • Reduces risk of delays, penalties, or cargo damage.
  • Provides expertise in international logistics.

Cargo Management

Cargo management involves the planning, handling, storage, and movement of export goods efficiently and safely.

Key Elements

Activity Description
Packaging Goods must be securely packed for long transport and handling.
Labeling Includes product details, weight, handling instructions, country of origin.
Storage & Warehousing Temporary storage before shipping (dry or cold storage depending on cargo).
Cargo Insurance Protection against damage/loss during transit (marine insurance common).
Tracking and Monitoring Real-time tracking of cargo during shipment (GPS, RFID, etc.).

Containerization

Containerization means using standardized containers to transport cargo, especially in sea and intermodal transport.

Types of Containers

Type Usage
20-ft & 40-ft Containers Most commonly used; suitable for general cargo.
Reefer Containers Temperature-controlled for perishable goods (fruits, medicine).
Open Top/Flat Rack For oversized cargo like machinery, vehicles.

Advantages of Containerization

  • Efficient Handling – Easy loading/unloading with cranes.
  • Safety – Goods are protected from damage, theft, and weather.
  • Cost-effective – Reduces labor and storage costs.
  • Intermodal Transport – Can be used across ship, rail, and truck without unpacking.

Shipping Documents in Export

Proper documentation is essential for smooth export operations, customs clearance, and payment realization.

Key Shipping Documents


Document Purpose
Commercial Invoice Bill issued by exporter to importer with details of goods, value, terms.
Packing List Item-wise details of packing – quantity, weight, size, marks.
Bill of Lading (B/L) Issued by shipping line; proof of shipment and title of goods.
Airway Bill (AWB) Used in air shipment; non-negotiable proof of cargo receipt by airline.
Shipping Bill Key document filed with customs for export clearance.
Certificate of Origin (COO) Certifies goods are made in India; needed for customs in importing country.
Insurance Certificate Proof that goods are insured during transit (e.g., marine insurance).
Export License (if required) For restricted goods; issued by DGFT.
Inspection Certificate For quality/standard checks; may be buyer or regulation-mandated.
GR Form/SDF Form Used for foreign exchange control; now replaced by Electronic SDF via ICEGATE.

Shipping Terms (INCOTERMS)

These are standard international trade terms defining responsibilities of buyer and seller.

Common INCOTERMS (2020)

Export Procedures

Step-by-Step Export Procedure

Step Details
1. Registration IEC, RCMC, GST registration
2. Receive Order Confirm export order and payment terms (e.g., LC, advance)
3. Production/Procurement Arrange goods, ensure quality and export-standard packaging
4. Pre-shipment Inspection If required by law (e.g., food, pharma) or buyer’s request
5. Booking Cargo Book space with shipping line or airline via freight forwarder
6. Customs Clearance File shipping bill, provide export documents to customs
7. Excise/GST Clearance Avail GST refund; earlier excise duty clearance needed (see below)
8. Shipment Goods loaded and shipped; obtain Bill of Lading or AWB
9. Post-shipment Documents Send documents to bank/importer for payment realization
10. Foreign Exchange Realization Payment received in exporter’s bank through authorized dealer (bank)

Excise Clearance for Exports (Now under GST regime)

Earlier, exporters had to obtain Central Excise Clearance from the Excise Department. Post-GST (from July 1, 2017), Central Excise clearance is not applicable, except for a few products like tobacco, petroleum.

Under GST

Key Points on Excise/GST Clearance:

  • Excise Clearance (PRE-GST): Done using ARE-1 form.
  • Post-GST: LUT/Bond needed for GST-free export.
  • Central Excise remains only for specific sectors (e.g., alcohol, petroleum).

Marine Insurance of Export Cargo

Marine insurance provides financial protection against loss or damage to goods during transit by sea, air, or land. It helps exporters manage risks like accidents, theft, fire, or natural disasters.

Types of Marine Insurance Policies

TypeDescription
Specific PolicyFor a single shipment only.
Open PolicyCovers multiple shipments over a period (e.g., 1 year).
Voyage PolicyCovers goods for a specific voyage from one place to another.
Time PolicyCovers shipments for a fixed duration (e.g., 3 months).

Who Takes Insurance?

Depends on INCOTERMS. Under CIF, exporter must insure. Under FOB, buyer usually insures.

Key Documents:

  • Insurance Certificate/Policy
  • Claim Form (in case of damage/loss)
  • Survey Report (by insurer's agent)

Quality and Pre-Shipment Inspection

Purpose: To ensure that exported goods meet quality standards of the buyer or importing country regulations.

Types of Inspection

Inspection TypeDetails
Buyer’s InspectionBuyer appoints agent to inspect goods before shipment.
Third-Party InspectionDone by approved agencies (e.g., SGS, Bureau Veritas, Intertek).
Government-Mandated InspectionRequired for certain goods by Indian Govt (e.g., food, pharma, electronics).

When is Pre-shipment Inspection Required?

  1. Buyer’s Requirement – Buyer demands third-party inspection.
  2. Government Regulation – For certain sensitive or high-value items (e.g., food, pharma).

Agencies for Pre-shipment Inspection

  • Export Inspection Council (EIC) – India’s official inspection body.
  • Third-Party Agencies – SGS, Bureau Veritas, TUV, Intertek.

Inspection Certificate: Issued after goods pass inspection; may be needed for customs clearance and buyer’s satisfaction.

ECGC Services (Export Credit Guarantee Corporation of India)

ECGC is a government-owned corporation that provides insurance and credit risk cover to exporters.

Main Services of ECGC

ServiceDescription
Export Credit InsuranceProtects exporters against payment default by foreign buyers.
Buyer-wise PolicyInsurance for specific buyers/countries.
Whole Turnover PolicyInsurance for all export transactions of the company.
Export FactoringHelps exporters get early payment for bills by discounting invoices.
Credit Rating ReportsProvides creditworthiness reports of foreign buyers.
Guarantees to BanksECGC supports banks to provide export credit to exporters.

Benefits of ECGC

  • Encourages exporters to explore new markets confidently.
  • Minimizes financial risk from buyer insolvency, political instability, war, etc.
  • Helps in bank loan approvals for exporters.

GSP Rules of Origin

GSP (Generalized System of Preferences) allows developing countries to export goods to developed countries at reduced or zero tariffs.

Rules of Origin

To avail GSP benefits, goods must be originating from the exporting country.

Key Criteria to Determine Origin

RuleExplanation
Wholly Obtained GoodsGoods produced entirely in exporting country (e.g., agricultural products).
Substantial Transformation RuleIf raw materials are imported, goods must undergo significant processing.
Value Addition RuleMinimum % of value must be added in the exporting country (varies by product).

Certificate of Origin (GSP Form A)

  • Required to claim GSP benefits.
  • Issued by Export Inspection Council (EIC) or Chamber of Commerce in India.

Countries Offering GSP to India (as of recent data)

  • EU, UK, Japan, Australia, New Zealand, Canada (Note: USA withdrew GSP for India in 2019)