Documentation by an Exporter and Contract of Carriage

Shipping is an international business. An export involves handling of expensive goods and exchange of hands of large sums of money. Documentation therefore must be done very carefully.  Thus, to cause an export from India an exporter has to interact with various agencies governing international trade, under the ministry of commerce and trade. In India DGFT, Customs and Central Excise Authorities, Reserve Bank of India, Banks involved, Port Trust Authorities, Insurance Company, Shipping Company, Freight Forwarders, Chambers of Commerce, and Inspection Agencies. Export Promotion Unit, etc are the various offices to deal with. It is mandatory for every exporter to hold a valid Import-Export Code (IEC) under the Foreign Trade (Development and Regulation) Act, 1992 or the Customs Act, 1962. The IEC number can be obtained from the Regional Authority (RA) under DGFT.

Goods which are shipped out of the country are generally eligible for exemption from the states’ sales tax, central sales tax, and central excise duties. For obtaining benefits under the foreign trade policy, an exporter is required to get registered with an appropriate Export Promotion Organization.

A legally valid contract is a must to start with. While concluding an export deal an exporter should negotiate the terms of the deal in detail, considering the following aspects:
i. Details of contracting party.
ii. Description of products, including quality specifications, quantity required.
iii. Unit price.
iv. Marking, Labeling & Packaging
v. Inspection in respect of quality, packaging, etc.
vi. Shipment details (place, date, port, etc), choice of carrier.
vii. Payment terms, (currency, credit period, mode such as Letter of Credit (type).
viii. Insurance requirement and risk / liabilities
ix. Documentary requirement
x. Requirements with bank
xi. Force Majeure, in case of non-performance of contract.
xii. Arbitration / Jurisdiction
Once an exporter receives an export order he should also scrutinize it carefully to see if it meets commercial and legal provisions of both the countries of export and import. In case an exporter finds it difficult to fulfill the contractual obligations, amendment of the deal can be considered.

In India, under the Export Quality Control and Inspection Act, 1963, about 1000 commodities are subject to compulsory pre-shipment inspection. Similar rules are likely to be in place in other countries. The exporter has to apply to the nominated export inspection agency for conducting the pre-shipment and quality control inspection for the export consignment and obtain an inspection or quality certificate. The insurance companies also insist upon adequate packaging for settling the claims. After packaging, marking of the packages is done so as to facilitate identification of goods during handling, transportation, and delivery. Labeling contains detailed instructions and is carried out by affixing labels on the packs or by stencils.

Clearing and Forwarding Agents play a crucial role in expediting the process. Clearing and forwarding (C&F) agents or freight forwarders are essential links in international trade operations.

C & F Agents generally carry out the following duties:
i. Advising exporters on Inland transportation at port, arranging overseas transport, etc.
ii. Reservation of shipping space.
iii. Assist in necessary documentation.
iv. Maintain awareness about L/C or contract.
v. Carrying out insurance, shipping, and customs formalities.
vi. Assistance in filing claims.

A C&F agent would need: registration & IEC number; inspection/quality control certificate; original export order/export contract, commercial invoice & LOC; certificate of origin; consular/customs invoice; ARE-l/ARE-2 forms; and exporter’s declaration form.

The insurance cover including the liability specification are important issued in an export. The liability to take the insurance cover is determined by the conditions of the export contract. There are standard international business terms in this respect. In case of FOB and CFR contracts, the importer has to obtain the insurance cover once the cargo is loaded ‘on board’ the vessel. In case of CIF contacts, the insurance is to be arranged by the exporter but the policy is to be endorsed in favour of the importer. The nature of risk coverage and insurable value is also specified in the export contract.

The shipping space is reserved in the vessel by sending shipping instructions either through the C&F agent or through freight broker who works on behalf of the shipping company. Once the space is reserved, the ship­ping company issues shipping order as a proof of space reservation.
The C&F agent takes delivery of the consignment from the road transportation company or the railway station. The cargo is in C&F agent’s custody prior shipment.

Shipping bill along with the following documents is submitted to the customs house for their clearance:
i. Shipping bill (4-5 copies)
ii. Export order/contract, Commercial Invoice, LOC.
iii. GR (Guaranteed Remittance) form.
iv. Inspection certificate.
v. ARE-l/ARE-2 (Appl. for Removal of Exisable goods) form.
vi. Packing list.
vii. Any other document needed by the customs.

After conducting the physical examination, the dock appraiser endorses ‘Let Export’ and then ‘Let Ship’ on the duplicate copy of shipping bill. Here after the shipping company accepts the cargo in the vessel for shipment. On completion of loading ‘on board’, the master of the vessel issues ‘Mate’s Receipt’ to the shed superintendent of the port. The C&F agent takes delivery of the mate’s receipt after payment of port charges to the port authorities.
The remarks on Mate’s Receipt are endorsed on B/L.  The ship owner or Master receive the B/Ls. Master, then issues bills of lading (three negotiable in original).

Documentation after loading is crucial for shipper for smoothness in overall business. Soon after obtaining the bills of lading from the shipping company, the C&F agent sends the following documents to the exporter:
i. Full set of ‘clean on board’ bills of lading.
ii. Copies of commercial invoice attested by customs.
iii. Duty drawback copy of shipping bill.
iv. Original export order/export contract, original letter of credit.
v. Copies of consular invoice/customs invoice, if any.
vi. ARE-l/ARE-2 forms.

After the shipment, the exporter must send a shipment advice to the importer informing the importer about the date of shipment, name of the vessel, and it’s expected time of arrival (ETA) at the port of discharge and other details which may be required. The shipment advice is accompanied by commercial invoice, packing list (if any), and a non-negotiable copy of bills of lading.

In ensuring a safe procedure, the role of banks in each country (exporting / importing) is very important. Soon after the shipment, the exporter presents the documents to the negotiating bank as under:

i. Bill of exchange.
ii. Commercial invoice copies.
iii. Full set of ‘clean on board’ bills of lading.
iv. GR form.
v. Export order/contract, Packing list, etc.
vi. Letter of credit.
vii. Marine insurance policy.
ix. Consular and/or customs invoice, if required.

The negotiating banks, after thoroughly scrutinizing all the documents, as per the terms of the letter of credit, sends a set of documents to the issuing (importer’s) bank. This would help in  fulfillment of importer’s payment obligations as already agreed upon, the importer’s bank hands over these documents to the importer so that delivery of the cargo may be taken.
The payment is made by the negotiating bank on receipt of these documents. Once the payment is received from the importer’s bank, the legal / national formalities are done. Thus, in India, requirements of RBI and DGFT are complied with.
Failure to properly document shipment can cause financial losses. Any loss that deals with a maritime negligence is always large.

An agreement is any understanding or arrangement reached between two or more parties. A contract is a specific type of agreement that, by its terms and elements, is legally binding and enforceable in a court of law. There may be an extensive negotiation between the parties leading to a conclusion of a contract. This may be in a form of an oral or written communications. Rescinding of contract is defined as the unmaking of a contract between parties. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract.

Contract of carriage of goods
A carriage of goods contract is a legal document entered between a carrier and a consignor, where the carrier undertakes to carry goods to consignee, in return of appropriate consideration freight). The terms of the contract of carriage are generally evidenced by a document called a bill of lading. This is a receipt issued by the ship owner acknowledging that goods have been delivered to him for the purpose of carriage. The terms of the contract are incorporated in the bill of lading.

In normal trade, practically, the rates and other terms are negotiated between the shipper/cargo owner and the carrier, and once they reach an agreement or contract (maybe verbal or written), the shipment is “booked” with the carrier and this may be considered as the commencement of the contract of carriage. The carrier usually sends a booking confirmation as acceptance of the booking. Clauses in the booking confirmation sent by the carrier will indicate the terms and conditions that will govern the booking and contract of carriage.

Following are a few of the popular clauses shown on the booking confirmations of some of the lines. All of them say that the booking is “subject to the terms and conditions of the line’s bill of lading“, which comes at a much later stage once the shipment has been effected..

To the terms and conditions of this booking confirmation is subject our bill of lading obtainable from the carrier or the carriers website at: www………………
The conditions of our bills of lading and sea waybills shipment shall be subject to CMA CGM bill of lading terms and conditions available in any CMA CGM agencies or on CMA CGM web site:  www………..…”

“Hapag Lloyd:
Hapag-Lloyd AG is operating under the terms and conditions of its bill of lading or sea waybill depending on which document will be issued for the shipment. Our terms and conditions will be provided to you upon request or may be viewed at any office of Hapag-lloyd AG or its agents or under www…………” 

This contract is subject to the terms, conditions and exceptions, including the law & jurisdiction clause and limitation of liability & declared value clauses, of the current Safmarine Line Bill of Lading (available from the Carrier, its agents and at terms………….., which are applicable with logical amendments (mutatis mutandis).”

The merchant has the option to go through the terms and conditions on the bill of lading and advise the carrier if he finds any terms that may not be suitable for his business and/or carriage. From the above it is clear that although the bill of lading follows the contract of carriage physically, the terms of the contract of carriage are governed by the bill of lading. The bill of lading also being a receipt for the goods, states the terms on which they were delivered to and received by the ship, and maybe considered as an excellent evidence of these terms, but it is not a contract. Therefore, since the contract has already come into existence before the bill of lading is prepared and issued, a bill of lading cannot become a contract of carriage but only be considered as evidence of the contract of carriage.

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