International Purchasing or How To import.
Though every country would decide to produce most of the products endogenously to conserve its foreign exchange, it is not wise as well as practical. Sometimes it may be advisable how to import the goods at laser cost than the indigenous cost of production. Importing has become very simple since Government of India economy. How to import duty have come down substantially up to 40% the products secondly from 1st April 2001 government has lifted restriction on imports. However it would be worthwhile for importer, to note changes is announced in import policy and procedure from time to time as these are subjected to change.
Generally the procedure for importing can be divided into following steps…
1. Locating Foreign Source of Supply.
This can be done now a days by using internet as a tool along with secondary source of information like trade/ manufacturers directories of various countries. Other important contacts can be foreign Chamber of Commerce, Foreign Consulates and agencies, Indian consulates in foreign countries Etc.
This can be done directly by company, through merchant importers and by availing the services of organizations like state Trading Corporation, Minerals and metals Trading Corporation etc.
Various documents used for importing are bill of lading, invoice, certificate of origin, other certificates, insurance policies etc.
However, before discussing the documentations we will look at the import cycle / steps involved in importing.
A. How to Import Cycle.
1. Study of Policy.
Once the exact import need is identified one has to find out whether the item to be imported did needs import license. If yes, necessary steps should be initiated to obtain the same. If item is ‘canalized’ item, canalizing agency should be contacted.
2. Supplier Selection.
As explained earlier, overseas source of item to be imported should be located and their quotations should be invited. The quotations should be evaluated properly. Perhaps, negotiation with short supplier may be required to be done for various aspects like price, delivery schedule, payment currency, terms of payment etc.
3. Import License / IEC Number.
Importer has to obtain importer/exporter code number granted by director general of foreign trade (DGFT) office. He should also obtain import license on the basis of final offer from the overseas supplier.
4. Award of Contract.
An agreement of contract covering all terms and conditions should be finalized between importer and overseas supplier.
5. Opening Letter of Credit (L/C).
Importer should open letter of credit in favors of overseas supplier. Importer should approach his bank for opening L/C and inform accordingly to supplier.
6. Shipments and Insurance.
Importers should follow up the shipments and be in touch with supplier. If contract is F.O.B. (Free On Board) the importer has to arrange for freight and insurance as well.
7. Forward of Documents.
After shipment supplier prepares documents according to L/C and forwards them to his bankers for negotiation purpose. Foreign bank of supplier forward these to importer’s bank in India from passing on to the importers
8. Payment against Documents.
Once Importer receives documents through his banker, he verifies them for discrepancies, if any .if the documents are OK in all respects as per L/C, importer has to make a payment depending upon the tenure of the L/C.
9. Clearance Formalities.
On arrival of materials importer has to obtain commercial invoice, bill of lading, packing list, certificate of origin and other necessary documents in original. He has to get “shipping guarantee” from his banker, in favors of the shipping company or agent, which will entitle him to obtain possession of the material, if original documents are not available. These documents are to be forwarded to custom authorities for approval and assessment of duty and payments thereof.
10. Port Clearance.
Physical possession of the goods can be taken after clearance is obtained from custom authorities. Importer has to make arrangements for transporting the materials to The Final Destination after this.
11. Received in Stores.
On arrival, legal formalities, if required, should be completed and then material can be taken on stores record.
B. How to Import Documents.
Some of the important documents used international trade are as follows.
1. Bill of Lading.
A bill of lading is a document signed by or on behalf of exporter acknowledging the receipt of certain specified goods for transportation and it is an undertaking that the goods will be delivered to the consignee or his representative. The bill of lading should be “clear” and not “Claused”.
Bill of lading is prepared by the shipper as per form of shipping company in 4 copies. 3 copies are signed and unsigned copy is retained by the ship’s master for his records.
Bill of lading contains information like the date and place of shipment, the name of the carrying vessel, the name of the consignor and consignee, the place of destination, the number, contents, identification mark of the goods shipped and the amount of the freight.
2. Commercial Invoice.
This is the supplier’s bill and it should have details like the quantity, price and terms, total value, markings, weights, method of shipment, details of insurance, packing and handling charges, etc. it is important that the description of goods should be same as that of the import license. This is not a document of title and it is also not negotiable. Generally, the amount of invoice must be within the limit set by the letter of credit.
3. Insurance Policy.
This is issued by insurance company for the goods insured.
4. Certificate of Origin.
Certificate of origin is to be certify the origin of goods. This is generally required when the goods from the certain countries receive preferential treatment (in form of custom duties) or the Import of goods from some countries is prohibited.
5. Surveyor’s Report.
A surveyor who inspects the goods issues this report.
6. Packing List.
This indicates the exact nature, quantity and the quality of the contents of each packing in a shipment. This is useful for importer to check goods against order.
7. Letter of Credit (L/C).
The importer approaches the bank in his country to issue a letter of credit in favors of the overseas supplier/exporter. The bank informs the other bank in exporter’s country about the opening of the credit in favors of the exporter. The bank in exporters country intimates exporter’ about the same. The liability for the payment is of the bank who issues L/C and the bank that Honors the drafts drawn by the exporter, is reimbursed by the Bank issuing L/C.
Three type of letter teeth are as under.
I) Revocable L/C
This L/C can be cancelled by the buyer before affecting payment.
II) Irrevocable L/C
This L/C cannot be altered in any manner and payment must be made by the bank on presenting the documents
III) Revolving L/C
This L/C is used when a specific quantity of goods is required to be shipped at a predetermined intervals. Due to L/C supplier is assure of prompt payment for the goods he exports while the buyer is assured that the goods will be exported within a specified time at a specified price.
C. How to Import by Air and Post.
Goods can be imported by air as well as by post. Though airfreight is more than Ocean freight the importer enjoys the advantage of lesser delivery time. Imports by air are resorted to in case of perishable goods flowers, fruits, vegetables etc. and for other products like lifesaving drugs which need quick transportation. High value products like gems and jewelry are also transported by air.
Airway bill is non-negotiable receipt for the goods. It is prepared in triplicate, one copy each for consignor, consignee and airline. Consignee’s copy is carried by airline along with goods and they advise consignee about arrival of goods. Airline hands over the consignee’s copy duly signed on receipt of goods to cosigner.
Other procedures like licensing, duties etc. are same for how to import by air and post as applicable in case of how to import by sea.