So before we go forward, let’s try to understand the common terms which are used in export operations.
So I’ll be taking up these terms one by one.
I’ll give you some explanation, a brief explanation, just for your remembrance.
So I will start with something called Customs Bonded area. So, Friends, this is an area that may be in a dry port or a wet port, or it can be near the customs office or some kind of warehouse that is in control of the Customs department. And it may be true for any country so that local customs which control that area, what are the goods which are already landed in that area, comes under the control of that local customs. So without the examination, without the permission of customs, goods cannot go out. So there are different reasons, which I’ll explain to you in this course why customs border areas are required.
Friends, another term that is very commonly used in export operations, is export general manifest (EGM). So Friends Export General Manifest is a document that is published by the shipping company after the ship has left the port after the goods have been loaded, export ports have been loaded, the ship has already finalized and finished the loading of whatever the goods were to be loaded and it has already sailed from the particular port.
So for that particular port, it issues something called an Export General manifest, which lists out all the shipments which are already loaded. So I will explain to you later what is the significance of this document, this particular announcement, or the document.
Then Friends There is something called dry port. Now, friends, dry ports are nothing but international ports where goods can be cleared from customs, which are away from the seaports.
So Friends seaports are called wet ports and anything which is away from the seaport and where all such things can be done, which can be done on the seaport, is called a dry port. Customs are there. Goods can be cleared, their goods can be loaded on the train or any other means which is under the control of the customs with customs seal and customs clearance, which is already done in the particular inland port. It is also called an inland port. So dry ports are those ports where all those facilities are available because everything cannot be done on the seashore. It will become too crowded and difficult to manage. So that’s why the concept of the dry port is there.
And then, of course, the wet port. The wet port is the seaport. So that is where the actual ship comes and it takes berth. So those are the wet ports.
Then, friends, Inland Container Depot (ICD) is nothing but the dry port only. The word used for the dry port is the inland container depot because inland container depot actually means the goods which are actually being moved using containers. And in the world today, almost 90% of the cargo moves by containers. So what has happened is that the dry ports are typically handling only containers. These do not generally deal with the loose goods that are called break bulk. So these are called Inland container Depot (ICD). And when we say dry port, so dry port is nothing but an inland container depot.
Then, friends, there is something called container freight stations (CFS). So friends, the concept of a container freight station (CFS) is that an inland container depot (ICD), which is there, becomes too crowded because of so much of goods. Being exported and imported. So what happens is that there are certain types of goods that will take some more time to get cleared from customs or become full container load. These are less than the container load, which means these need consolidation, these need more goods to be clubbed with them. So there are certain areas that are very similar to inland container depot but without the facilities of customs. So these are a little away from the inland container depot (ICD) where the land cost is cheaper, and the space is more. Warehousing can be done much more easily and affordably. So these are called container freight stations (CFS). Their purpose is to hold the goods before they are actually moved to either inland container depot that is the dry port or the wet port. So container freight stations help in the consolidation and the finalization of the goods which are loaded fully in the container. So that is the purpose of the container freight stations.
Then, friends, there is another item which is called compliant documents. So Friends, what are compliant documents? So Friends what happens? The documents are presented to the bank against the letter of credit. So a letter of credit is nothing but an instrument for getting international payments. And for that, the documentary conditions are there in the letter of credit. Based on those documentary conditions, the particular exporter has to arrange the documents which are required in the letter of credit.
These documents, when the goods have been shipped already from the port of loading, these goods along with the transport documents and whatever documents, documentary conditions are there in the letter of credit. These documents are arranged by the exporter and presented to the bank. So, Friends, the bank looks for the compliance of the documents with the letter of credit. So if the documents are compliant with the letter of credit, payment will be made. So this is called nothing but the compliant documents. So compliant documents are very significant because they get you payment from the bank.
So just remember I’m talking about the compliant documents and I’ve already discussed the documents presentation. So a documentary presentation to the bank is very, very important.
And then there is something called an AD number. AD number is nothing but an authorized dealer number. So AD number are generally given to the bank. So whichever bank you have the account where you will receive your international payment, is the authorized dealer. So AD number is required to be registered with the port from where you want to ship your goods from. In different countries. This AD number may have a different terminology which is used, some other nomenclature which is used. In India, for example, it is called AD number. In different countries, the names may be different.
Then, Friends, there is something called an IEC number. So Friend IEC number is nothing but an importer-exporter code number. So this is issued by the requisite authority which is a kind of export license. Now, in different countries, the names may be different. In India, it is called IEC, which is the importer-exporter code number which is issued in India by the requisite authority. In the case of India, it is DGFT – the Directorate General of Foreign Trade. So this IEC number generally is used by the central banks. For example, in India it is RBI. So the idea is that the central banks can monitor the inflow and outflow of goods and foreign exchange through this IEC number. So it is just like the identification number of the exporter. Or you can say it as an export license, export, and import license. So in different countries, it has some different term that is used for this kind of code number.
Then, Friends, there is something called ICC clauses which signify and are related to insurance, cargo insurance. So ICC means Institute cargo clause. You will understand what is the concept of insurance and ICC clauses.
Then there is another ICC, which is called ICC, Paris, France. Now, Friends, this ICC is the International Chamber of Commerce. It is very, very important for international trade. It issues several kinds of documents and guidelines which are used by the banks, which are used by The commercial terms users for an international contract like FOB, CIF, and the explanation of these commercial terms. So ICC plays a very, very important role in international trade, So why? Because international trade is conducted in an environment that is not governed by a single law. So every country has its own law of the land and the different laws of the land can create a lot of problems with international trade. So to align international trade, to make it smoother, and to move goods from one country to another country, ICC plays a very, very important role.
So, friends, there is another term that is called EDI. Now EDI is an electronic data interface. So what is this electronic data interface? Friends, Internationally, all countries are not the same. Some countries are very rich, some countries are not that developed. Some countries are very poorly developed. So not every country has digital methods of filing documents or handling documents. So friends international trade has still not adopted the documentary system, which is digital in nature. So there is no electronic data interface kind of thing in the international trade documentation and procedures, especially the documents which move with the goods, the so-called commercial principle documents. So because of the differences in the development of the different countries, individual countries also require, the local governments also require a lot of regulatory documents and auxiliary documents to be filed for the local governments, which have nothing to do with the buyer. So these documents do not move with the goods. So, friends, these documents are normally filed digitally in order to facilitate the trade, in order to make the trade smoother and faster. So goods clearance, whether it is for export or for import, becomes smoother in those countries because of the efforts by the local governments. And these efforts include the biggest effort of digitalization of local documents and which is called the electronic data interface. And for example, in other countries, the name may be different. In the US it is called an automated export system. AES.
Then, friends, there is something called pre-shipment credit. So what is pre-shipment? Pre-shipment means anything which is done before the goods are loaded on the ship and the goods have been shipped from the port of loading. So that point of loading the goods is called shipment. Anything which is done before that is called pre-shipment. And when we say pre-shipment credit it means anything, any financing required for the export transaction by the exporter from the bank, Commercial bank. It is called pre-shipment credit.
And similarly, anything, any financial help, or support is required after the goods have been shipped. That is the post shipment, which is called the post-shipment credit. So just remember we’ll talk about it later.
Then friends then something called MR. That is the Mate’s Receipt. Now friends Mate’s Receipt is nothing but a document that is issued by the captain of the ship when goods are loaded on the ship. So it is proof that the goods have been loaded onto the ship. And there are remarks by the captain about the status of the goods, whether they are damaged, whether they are absolutely fine, whether there is some problem with the goods which are loaded or there is some theft of the goods. So there is short delivery of whatever may be the problem. It is remarked by the captain of the ship. Now, this mate’s receipt actually is used for obtaining the transport document by the exporters, so we’ll talk about it later. So this is called MR, Mate’s receipt.
And then friends, another concept is of INCOTERMS. That is the international commercial terms. Now, I was talking about this ICC, Paris, France. So ICC, Paris, France issues this guideline, this charter wherein they explain the latest international commercial terms that are uniformly used by exporters and importers in different countries. So they understand in common the meaning of different terms like FOB, CIF, DAP, and DDP. So whatever the terms are there. Presently These terms are 11 terms. So friend latest version of Incoterms which is the international commercial term is 2020. For the next ten years, the same version will be used. So the latest version is normally used for international contracts. So international commercial terms make things aligned and uniform for understanding the terms of the contract that is the commercial terms. So we’ll talk about it later. Just remember this term.
Then friends, you probably already know what is WTO. That is the World Trade Organization, which is the apex body, and it has got more than 180 countries as members WTO monitors international trade to make ensure that it is free and fair. So by different means, World Trade Organization keeps a check on the foreign trade policies of the member states. And these policies, foreign trade policies of the Member states have to be compliant with the WTO rules and regulations, which are in the form of agreements among the Member States.
Then friends there is something called UCP – Uniform Customs and Practices. The 500/600 are basically the different versions. So 400, 500, and 600 different versions are there. The latest version is 600. UCP is nothing but uniform customs and practices for documentary credit. So international trade financing, which is done by the banks for receiving the international payment by the exporter from the importer, is governed by the so-called uniform Customs and practices. In short, it is called UCP, and this UCP documents and rules and regulations, and clauses are announced by ICC, Paris, France. So here also you will find the role of ICC, France. Then friends
There is something called the USANCE period. Now, this usance period for international payments. again, is part of the international trade financing by the banks and the usance word also comes from the UCP, so uniform customs and practices. Usance means the gap between the acceptance of the document by the bank or by the buyer and the actual payment, there may be a gap. So during that gap, the money which is due to the exporter is being used either by the bank or the buyer. So that’s why it is called the usance period. So somebody is using it for that period. So there is a cost involved, obviously. So if it is through a letter of credit and the letter of credit is not payable at SIGHT, which means it is a usance LC. It means there is a gap between the acceptance of the document as the compliant document and the actual payment. So that is the Usance Period.
If you learn all these concepts, then only you can become confident as an international trader. So to become a successful exporter, your knowledge of these terms and these concepts will be very, very important.
And that is the main objective and secret of the full course – How to Become a Successful Exporter – Any Origin available on Udmey. To enroll follow this link
So we’ll be talking about so many things in a very organized and systematic manner, step-by-step manner, to make things easy for you, and also how to set up your business or how to find buyers. All those things will be covered in this course. So all these terms will be coming here and there in this course. That’s why we are focusing on these terms so that you at least retain some part of it in your mind and you become familiar with these terms.
Then friends, there is something called BL. That is the bill of lading. Now bill of lading is nothing but the transport document which is issued by the shipping company. When goods have been loaded on the ship and the ship has sailed, EGM has been issued. That is the export general manifest has been already issued by the shipping company and the mate’s receipt has been given by the captain of the ship. Using the mate’s receipt and some other documents which I’ll be sharing with you later in this course. The bill of lading is obtained using these documents by the exporter from the shipping company because it is required by the buyer and it will be one of the major documentary conditions in the letter of credit.
So LC is called the letter of credit. So this is one of the most common international trade financing instruments that is used by international banks.
Then there is another term which is called LCL. So LCL means less than a container load which means that the goods which are being exported are very small in nature. The quantity is small and it is less than one container load. This container can be 20 feet container or it can be 40 feet container. Presently, the most common containers are 40 feet containers, 40 feet in length eight feet in width, and eight feet in height. So these containers can contain something like around 26 to 27 tons of material, depending on the volume and density of the goods. So if the goods are not good enough to completely occupy the full container, it is called the less than container load that is the LCL.
And if it does occupy the complete container and if it does, the container can be examined by the. Customs and the customs seal can be put on that for export purposes. So it is called FCL – Full container load.
Then friends, another term that you should remember is FOB, free onboard. Very common. The most common actual term is part of the international commercial terms 11 terms of Incoterms. If we talk of 2020, which is the latest version, then FOB is free on board, a very common term. We’ll be talking about it in the full course. Just remember it.
CIF, another term in the Incoterms out of the 11 terms- cost, insurance, and freight. That means the FOB plus insurance plus freight. So cost here means whatever is the cost till goods are loaded on the ship that is free on board, that is the FOB.
And another term that is used is Ex works- EXW the meaning of which is that the moment goods are Out of the factory, the goods are delivered to the buyer. So the responsibility of shipping the goods, the cost of shipping the goods, everything is of the buyer. So it is called Ex Works.
Then there is another term which is called B/E, which is a bill of exchange. Now Bill of exchange is the bank document. It is also called the bank draft. So just remember it when we discuss all the pre-shipment and post-shipment documents and the bank documents, LC documents, we will be talking about bill of exchange.
Then friends one more term which is commonly used is called pallets. Now pallets are the unitization of the goods before these are stuffed into the container. So the boxes are not just put in the container in a very loose form. Generally, they have to be palletized, which means standard sizes are there of pallets, and wooden pallets are there. The base which is called the pallet and the goods are put there and shrink-wrapped to make the goods seaworthy. So sea-worthy export packing is done in the form of pallets which are unitization, and standardization of the logistics management of the goods through containers. So something like, for example, depending on what is the size of the pallets, common sizes are there of the pallets, the number of pallets in, for example, a 40-foot container can be something like 20-something pallets. So basically the pallet means that a pallet is a unitization of goods that can be put easily and stuffed into the container easily using the forklifts, not manually. So these pallets, wooden pallets, the base is there. It can be easily lifted by the forklift and the lift can go inside the container and put it at the right place. So it makes the stuffing of the container easy. And the overall movement of the goods and logistics management becomes much smoother.
Then friends, the word which I’ve already used, I discuss it the Break Bulk which is the moving of the goods in loose form, so many of the goods. Friends cannot be put in containers. These cannot be put in pallets. These cannot be put in containers, for example, commodities, as example, iron ore, coal or wooden logs. So these are the items that actually cannot be containerized, they cannot be palletized, and they cannot be standardized. So these goods are exported in bulk. So that is what is called the break bulk.
So, friends, I have tried in this lecture to give you a gist of some of the terms, which would be very commonly used in this course, to make it easier for you to understand the concepts of this course. My idea was not to explain each and every term to your entire satisfaction. That is not my idea. My idea was just to make you familiar with these terms so things become easier for you.
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