Types of Packing Credit (Pre-Shipment Credit)

Packing Credit is a pre-shipment credit extended to the exporters to facilitate him for meeting several financial requirements such as purchase of raw materials and its processing, packing, storing and shipping of goods. It is a short term credit available to all exporters. Hence, this is called pre-shipment credit which is essentially working capital finance made available to the exporters to arrange for goods as per the export. It is generally granted in the form of loans or cash credits. It may also be granted in the form of overdraft facilities. The exporter who wants to avail the pre-shipment credit facility should make a formal application to his bank along with the firm contract with the buyer or a copy of the export order or a copy of the letter of credit.

Major Types of Packing Credit

Pre-shipment finance is available in various forms. Important types of packing credit are explained very briefly.

1. Extended Packing Credit Loan

This type of packing credit is advanced by the bankers to their customers who are considered as first class customers for them. This facility is extended for a short period in order to enable the customers acquire or procure goods. Once goods are acquired in the custody of the exporter, the bank converts this clean advance into hypothecation or pledge loan.

  1. Packing Credit Loan (Hypothecation): This facility may be an extended one over what we had studied above after procuring the raw materially by the customer. Or this credit may be made available for obtaining raw materials, work-in-progress and finished goods.
Read the rest

Export Credit

Credit is an essential requirement for any kind of business. So is the case with exporting also. The various sources available have to be explored by the exporter in order to fulfill the financial requirements of export business.

We can define export credit as “the credits required by the exporters for financing their export transactions from the time of getting an export order to the time of the full realization of the payment from the importers.”

From the time of an export order is received and confirmed, the exporter needs finance (export credit) at pre-shipment stage and also at post-shipment stage.

Finance is required at pre-shipment stage for the following purposes:

  1. To purchase raw materials and other inputs to manufacture goods.
  2. To assemble the goods in the case of merchant exporters.
  3. To store the goods in suitable warehouses till the goods are shipped.
  4. To pay for packing, marking and labeling of goods.
  5. To pay for pre-shipment inspection charges.
  6. To pay for consultancy services.
  7. To import or purchase from the domestic market heavy machinery and other capital goods to produce export goods.
  8. To pay for export documentation expenses.

Finance is needed at the post-shipment stage for the following purposes:

  1. To pay to agents / distributors and others for their services.
  2. To pay for publicity and advertising in the overseas markets.
  3. To pay for port authorities, customs, and shipping agent‘s charges.
  4. To pay towards export duty or tax, if any.
  5. To pay for freight and other shipping expenses.
  6. To pay towards marine insurance premium, especially when it is a CIF contract.
Read the rest

Types of Marine Insurance Policies

Marine insurance is a contract by which the insurer, in consideration of payment by the insured of a specified premium determined under tariff rates or otherwise, agree to indemnify the latter against any loss incurred by him in respect of the merchandise exposed to the perils of the sea or to the particular perils insured against.

In a c.i.f. contract, marine insurance is obligatory, and the policy must be one which is usual in the trade and is in a negotiable form. The policy must be stamped and bear a date not later than that of the bill of lading; and if the export is under a letter of credit, it must conform to the terms and conditions laid down in it.

Types of Marine Insurance Policies 1. Single Cargo Risk / Open or Blanket Policy

A marine insurance policy may be a “single cargo risk” policy, i.e., a policy which covers a single cargo risk or an “open” or “blanket” policy i.e., a policy which automatically covers all the shipments of the exporter up to an estimated amount during a given period. In an open policy, the overall amount and the period of insurance are specified but not the particulars of the insured cargo. The particulars of shipments, as and when made, have to be supplied to the insurance company, which then issues a certificate covering the shipments under the policy. Premium is charged on the value of the cargo actually shipped during the period of insurance. Under a blanket or open policy, a lump sum premium is initially charged on the basis of the estimated value of the cargo to be shipped during the period of insurance and at the end of the period, the amount of premium charged in excess is refunded or the amount undercharged is recovered.… Read the rest

Role of Clearing and Forwarding (C&F) Agents in Exports

Shipping is the most commonly used method of dispatching goods to a foreign country. Under shipment, one shall cover all the procedural aspects from the time the product meant for export leaves the factory site till it is loaded on board the ship and the relevant documents are collected from the shipping company. Since the type of work involved is somewhat specialized  it is usually entrusted to the clearing and forwarding agents. This section focus on role of clearing and  forwarding agents in export assignment.

1. Customs Formalities

Goods can be shipped out of India only after obtaining the customs clearance. To obtain the customs clearance, the clearing and forwarding agent should submit a shipping bill in the prescribed form. The shipping bill is to be prepared in quadruplicate. The shipping bills should be accompanied by the following documents.

  1. Contract with the overseas buyer in original.
  2. Invoice for the goods.
  3. Packing list.
  4. GR-1 form or EP forms prescribed by the Exchange Control under the Foreign Exchange Regulation Rules.
  5. AR 4 or AR 4A forms in original and duplicate.
  6. A proforma showing details of drawback of duty if any claimed.
  7. In case deferred payment, a copy of the approval of the RBI.
  8. Copy of the L/C if any.

The customs authorities scrutinize the shipping bill and other requisite documents and if prima facie satisfied, they put it for export subject to the physical examination of the cargo by the customs staff. The export cargo can enter the port and can be kept in the Harbour Transit Shed even before the shipping bill is passed by the customs.… Read the rest

Pre-Shipment Inspection

Pre-shipment inspections (PSI) is defined as the certification of the value, quality, and/or identity of traded goods done in the exporting country by specialized agencies or firms on behalf of the importing country. Traditionally used as a means to prevent over-or under-invoicing, it is now being used as a security measure.

Pre-shipment inspections are required when mandated by the government of the importing country. Governments assert that pre-shipment inspections ensure that the price charged by the exporter reflects the true value of the goods, prevent substandard goods from entering their country, and mitigate attempts to avoid the payment of customs duties.

Pre-shipment inspections are typically performed by contracted private organizations. In most cases, importers can select from a short list of these organizations when planning inspections. However, sometimes one firm is appointed to carry out inspections for a given country on an exclusive bases. Inspection costs are generally paid either by the importer or by the government of the importing country. However in some cases, the inspection agency may invoice the seller in the event of supplementary inspection visits. The costs associated with presenting the goods for inspection (such as unpacking, handling, testing, sampling, repackaging) are the responsibility of the seller.

Although the importer is responsible for arranging the pre-shipment inspection, the exporter must make the goods available for inspection in the country of origin. Delays in the process can lead to problems with the shipment and /or increased costs for the exporter. Therefore, it is in the best interest of exporters to work with their freight forwarder to ensure that all information is accurate and is provided to the inspection company immediately after notification of the requested inspection.… Read the rest

Issues of International Technology Transfers

International technology transfer is the process by which a technology, expertise, know how or facilities developed by one business organization (MNC in the case of international business) is transferred to another business organization. There are many issues associated with the international technology transfer. The most important international technology transfer issues are; ways of technology acquisition, choice of technology, terms of technology transfer, and creating local capability.

Modes of Foreign Technology Acquisition

One of the major issues in technology transfer relates to the mode of acquisition. Developing new technology may conjure up visions of scientists and product developers working in R&D laboratories. In reality, new technology comes from many different sources, including suppliers, manufactures, users, other industries, universities, government, and MNCs . While every source needs to be explored, each firm has specific sources for most of the new technologies. For example, because of the limited size of most farming operations, innovations in farming mainly come from manufacturers, suppliers, and government agencies. In many industries, however, the primary sources of new technologies are the organizations that use the technology. Broadly the acquisition routes are three:

  1. Internal Technology Acquisition: This is result of technology development efforts that are initiated and controlled by the firm itself. Internal acquisition requires the existence of a technology capability in the company. This capability could vary from one expert who understands the technology application well enough to manage a project conducted by an outside research and development (R&D) group to full blown R&D department. Internal technology acquisition options have the advantages that any innovation becomes the exclusive property of the firm.
Read the rest