<blockquote id=""><em id="">If you are an exporter who insists on payment upfront, then your universe of possible customers shrinks, while it will terminate the risk of non-payment.</em></blockquote>
<p id="">Letter of Credit (LC) is usually referred to as "Documentary Credits&rdquo;. LC is an agreement wherein a bank, acting at the application of a customer (the importer or buyer), agrees to pay for goods or services to a third party (the exporter or beneficiary) by a particular date, subject to the presentation of documents as per contract.</p>
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<p id="">There are several ways by which an importer can pay the exporter. What may be a safe mode of payment for the exporter can easily be a risky option for importer, and vice versa. From the perspective of the exporter, receiving an advance is the safest option, while this is not popular with importers. For the sake of expanding trade and commerce, a balance between importer and exporter risk perception must be struck.</p>
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<div id=""><img style="width: auto; height: auto;" src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/636246e1956e1c5306079213_Impex_Compare.jpg" alt="Importer Exporter Payment Risk Scale" width="auto" height="auto" loading="lazy"></div>
</figure>
<h3 id=""><strong id="">Why Use a LC?</strong></h3>
<p id="">Using a LC to settle a cross border trade is beneficial for both the exporter and importer. Once certain conditions of the sale agreement are met, a LC guarantees payment from a buyer to seller. It is important for an exporter to get the whole amount paid on time. &nbsp;</p>
<p id="">Businesses avail credit to expand their operations. Not settling the outstanding amount when it is due can attract penalty and interest. For an importer, getting a LC is the easiest way to prove creditworthiness to an exporter.</p>
<h3 id=""><strong id="">LC &ndash; An Importer's Perspective</strong></h3>
<p id="">As a buyer, it is vital to conserve cash flow and letter of credit helps to achieve this objective. Payment to seller is processed when evidence of shipment is shared with the importer. Simultaneously, a LC from an importer establishes instant credibility with the exporter and its banker.</p>
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<h3 id=""><strong id="">LC &ndash; An Exporter's Perspective</strong></h3>
<p id="">Exporter is the beneficiary of a LC. The LC acts as an insurance for the seller. In case the importer fails to pay for the consignment or does not pay on time, the seller can invoke the LC. Once the delivery conditions are met, the LC protects against legal risks. LCs can also be pledged as security for working capital loan; this helps to complete the order.</p>
<h3 id=""><strong id="">Steps Involved in LC</strong></h3>
<p id="">In general, the following eight steps are involved in a letter of credit:</p>
<p id="">Step 1: The importer contacts their bank (issuing bank) for creation of a LC.</p>
<p id="">Step 2: As banks are now involved in this procedure, the nominated bank will share the letter of credit with the exporter while assuring them that the money would be received.</p>
<p id="">Step 3: The products will now be sent to the freight forwarder and the exporter will receive the Bill of Lading (BL).</p>
<p id="">Step 4: In this step goods are shipped by the freight forwarder and the exporter will share the necessary documents with the nominated bank.</p>
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<div id=""><img style="width: auto; height: auto;" src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/63624771e3962c9c6df04473_LC%20Process.png" alt="Letter of Credit Process" width="auto" height="auto" loading="lazy"></div>
</figure>
<p id="">Step 5: Subsequently, the nominated bank shall forward the sale related documents to the issuing bank.</p>
<p id="">Step 6: The issuing bank will debit the account of the importer.</p>
<p id="">Step 7: Documents related to the sale are released and the importer claims the goods.</p>
<p id="">Step 8: Finally, the nominated bank claims the payment from the issuing bank and releases it to the exporter.</p>
<h3 id=""><strong id="">Documents Necessary for LC</strong></h3>
<ul id="">
<li id="">KYC of the applicant, co-applicants, partners, directors (Passport, Voter ID card, Aadhaar Card, etc.)</li>
<li id="">Sales invoice</li>
<li id="">Certificate of origin</li>
<li id="">Importers financial statements</li>
<li id="">Landing airway bills, cargo receipts, etc.</li>
<li id="">Packing, shipping, and transport documents</li>
<li id="">Any other documents mandated by the countries involved in the transaction.</li>
</ul>
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<p id="">The most important aspect of a sale for the seller is getting paid for the goods sold. When it comes to international trade, the degree of risk increases due to cross border financial risk. Using a financial instrument like the LC is a win-win situation for all the entities involved in cross border commerce.</p>

Letter of Credit: Concept and Steps Involved

<blockquote id=""><em id="">The duty drawback scheme was introduced under sections 74 and 75 of the Customs Act, 1962.</em><br></blockquote><p id="">To promote exports, governments across the world formulate policies that encourage enterprises to sell their products in the international markets. Duty drawback is a scheme where a percentage of free on board (FOB) price is reimbursed to the exporter. </p><p id="">Final goods which are exported from India may have suffered customs duty and internal taxes. Under the duty drawback scheme, the government refunds such taxes to enhance the price competitiveness of exports.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=DBK" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f221ea0a3531379525477_Blog-Creative-1.png" loading="lazy" alt="638f221ea0a3531379525477_Blog-Creative-1.png" style="width: 900px; height: 131px;"></div></a></figure><p id="">For example, refund of custom duties paid on equipment imported that was used to manufacture eligible goods. Broadly, this scheme is applicable on goods that have not been used at all and which were used in manufacture or as input of export goods. When exports are done through electronic shipping bill, the shipping bill is sufficient to avail the duty drawback. </p><h3 id=""><strong id="">Re-export of Duty Paid Goods </strong> </h3><p id="">The duty drawback on export is allowed up to two years from the date of import. Once the following conditions are met, then the export goods are entitled to payment of drawback of an amount equal to a certain percentage of the duty paid on import. </p><p id="">a. Goods should have been imported to India and customs duty should paid on it. </p><p id="">b. The identity of the goods should be clearly identified.</p><p id="">c. The Assistant or Deputy Commissioner of the customs department should give clearance for export after examination of the goods. </p><p id="">If goods have been used in India after import, duty drawback will be available based on the following rate slab:</p><figure id="" class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div id=""><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/6368964ba0291931cd9cf7fc_Duty%20Dawback%20Schedule.png" loading="lazy" width="auto" height="auto" alt="Duty Drawback Schedule" style="width: auto; height: auto;"></div><figcaption id=""><strong id="">Duty Drawback Schedule</strong></figcaption></figure><p id="">If wearing apparel has been used in India after import, no duty drawback will be available on it. Under certain circumstances where the duration is over 24 months, the Commissioner of Customs may extend the period for re-export.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=DBK" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f224556fe413902d3d886_Blog-Creative-2.png" loading="lazy" alt="638f224556fe413902d3d886_Blog-Creative-2.png" style="width: 900px; height: 131px;"></div></a></figure><h3 id=""><strong id="">Filing Drawback Claim</strong></h3><p id="">To claim the drawback, the exporter shall file the claim within three months of let export order. The duty drawback claim should be supplemented with the following:</p><p id="">a. Triplicate copy of the Bill of Export or Shipping Bill in evidence of export.</p><p id="">b. Export invoice and packing specification.</p><p id="">c. Bill of entry or other document in proof of payment of import duty.</p><p id="">d. Import invoice</p><p id="">Once the exporter has filed the claim for refund of duty, the drawback status can checked on the website of Customs National Trade Portal – a portal maintained by the Central Board of Indirect Taxes and Customs (CBIC).</p><h3 id=""><strong id="">Inputs for Export Goods</strong></h3><p id="">The drawback under section 75 of the Customs Act 1962 is different from section 74. The conditions that should be met to claim refund of input duties is as follows:</p><p id="">a. The exported goods are completely different from inputs.</p><p id="">b. Inputs can be either be local goods on which taxes have been paid or imported goods on which customs duty has been paid.</p><p id="">c. The inputs have gone change in physical property, shape, etc.</p><p id="">The Director General of Foreign Trade (DGFT) fixes the rate for drawback under section 75. The amount of drawback is subject to standardization of final product, verification of the method of manufacture, quantity of raw material used, and the average of duty paid articles.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=DBK" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f226681a8e6b413a2e2fa_Blog-Creative-3.png" loading="lazy" alt="638f226681a8e6b413a2e2fa_Blog-Creative-3.png"></div></a></figure><h3 id=""><strong id="">Duty Drawback: Exceptions</strong></h3><p id="">Duty drawback is not available to all kinds of products. The government has kept the following items outside the scope of duty drawback:</p><p id="">a. Goods manufactured from duty free materials.</p><p id="">b. Stuffing materials for export of tea, excluding tea chests. </p><p id="">c. Jute batching oil used in manufacture thread, jute yarn, etc. </p><p id="">d. Packing material used for fabrics, jute yarn, etc.</p><p id="">The government publishes a drawback schedule three months after the union budget. This rate is called is All India Rate (AIR). When no drawback rate is set, the manufacturer shall apply for drawback within 60 days seeking a brand rate. The higher limit of drawback should not be more than one third of the market price of the export product.</p>

Duty Drawback: Procedure and Exceptions

<blockquote id=""><em id="">There is still a lot of work to be done by the policy makers to achieve the inflation target of 2-4 percent.</em></blockquote>
<p id="">The Indian economy is among the few bright spots in the world. The policy makers in the government and decision makers at businesses base their decisions and forward-looking statements after analysing relevant data.</p>
<p id="">Inflation may have peaked after continuous rise over the past few months. As a result, the government has gained some liberty for its budget calculations. Merchandise exports in October 2022 were U.S. dollars 29.78 billion, as compared to U.S. dollars 35.73 billion in October 2021.</p>
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<p id="">Merchandise imports in October 2022 were USD 56.69 Billion, as compared to USD 53.64 Billion in October 2021.</p>
<p id="">In the following paragraphs, let us try to understand the state of Indian economy with help from data released by government agencies, industry associations, and financial analytics firms.</p>
<h3 id=""><strong id="">Goods and Services Tax</strong></h3>
<p id="">October 2022 recorded the second highest goods and services tax (GST) collection ever. If we were to list out the factors that led to the bumper growth in domestic consumption, then festive season optimism will be on top of every other factor. As per a press release by the Ministry of Finance, the GST collection for the month of October was ₹1,51,718 crore and it has crossed the ₹1.4 lakh crore for eight months in a row.</p>
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<h3 id=""><strong id="">State of Manufacturing and Services</strong></h3>
<p id="">The monthly manufacturing and services data for the month of October indicates that the Indian economy is in expansion mode and price pressures have been contained. Employment in the manufacturing sector has shown healthy gains and input material purchases are at multi-month highs. October data indicated an expansion in new work with Indian service providers. Domestic market was the primary source of new business.</p>
<h3 id=""><strong id="">Auto Retail Sales </strong></h3>
<p id="">In aggregate, the auto sector reported a 48% increase in sales in October 2022 when compared to a similar period last year. The Federation of Automobile Dealers&rsquo; Association (FADA) informed sales have touched pre-covid levels. Except for three-wheelers, all other categories ended the month in green. The commercial vehicle (CV) segment has grown 25% year-on-year and 13% compared to 2019. Mining and infrastructure projects in all parts of the country, opening of educational institutions and revival in travel have contributed to higher CV sales.</p>
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<h3 id=""><strong id="">India&rsquo;s Foreign Exchange Reserves</strong></h3>
<p id="">On 4<sup id="">th</sup> November 2022, the Reserve Bank of India (RBI) released foreign exchange reserve data for the half-year ended September 2022. The RBI reported that reserves decreased from U.S. dollars 607.31 billion in March 2022 to U.S. dollars 532.66 billion at the end of September 2022. India maintains foreign currency assets in major currencies, while reserves are reported in U.S. dollar terms.</p>
<h3 id=""><strong id="">Inflation Data</strong></h3>
<p id="">After multiple rate increases by the RBI over the past several months, the consumer price index (CPI) has climbed below 7 percent in the month of October. The CPI for the month of October was 6.77 percent while the food inflation was recorded at 7.01 percent &ndash; both these rates were substantially lower from the corresponding figures in the month of September.</p>
<p id="">Compared to prices last year, egg and oils &amp; fats registered reduction in October, while the prices of footwear, cereals and spices registered double-digit increases in the similar period.</p>
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<div id=""><img style="width: auto; height: auto;" src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/6377331e36ca12205f132f5f_Inflation_Oct%2022.png" alt="India Inflation Chart October 2022" width="auto" height="auto" loading="lazy"></div>
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<h3 id=""><strong id="">Conclusion</strong></h3>
<p id="">The deliberations for union budget 2023 have begun and there are more positives than negatives for the Indian economy. Direct and indirect tax collections in the current fiscal are above budgeted estimates. Imports have been rising at a much faster pace than exports, and this has adversely affected the balance of trade.</p>
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<p id="">The Russia-Ukraine war has taken energy prices beyond tolerable limits and a lot of surprises may still be in store. If you want to win the high stakes economic bonanza, staying ahead of the curve matters more than anything else.</p>

Indian Economy Outlook – October 2022

<blockquote id=""><em id="">Nations have thrived due to the concept of comparative advantage. The resultant efficiency and specialisation have helped them to achieve higher real incomes.</em></blockquote>
<p id="">Foreign Trade Agreement (FTA) is an arrangement between nations or trading blocs that have agreed to eliminate or reduce customs duties in international trade. FTAs cover everything from goods, services, investment, and intellectual property rights.</p>
<h3 id=""><strong id="">Importance of Free Trade Agreements</strong></h3>
<p>&nbsp;</p>
<p id="">Trade agreements play an important role in development of commerce between nations by facilitating cooperation and providing access to each other&rsquo;s industries. Free flow of goods and services enables countries to specialize in products it can produce efficiently and cheaply as compared to other countries.</p>
<p id="">As per the Ministry of Commerce, India has signed 13 FTAs with its trading partners. The economic impact assessment of FTAs has shown that there has been progress in both exports and imports with FTA partners.</p>
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<p id="">The Association of Southeast Asian Nations (ASEAN) charge 20% custom duty on leather shoes but under the FTA with India the duty was reduced to zero. If other costs are equal, the Indian exporter will be more competitive than an exporter from a non-FTA member country.</p>
<h3 id=""><strong id="">Free Trade Agreements: Key Steps</strong></h3>
<p id="">Exporters and importers can the use FTAs to their advantage by following the four steps mentioned below:</p>
<p id="">1. Determination of tariff classification<br>2. Compliance with rules of origin<br>3. Claiming preferential access<br>4. Requesting advance rulings and export</p>
<h3 id=""><strong id="">Advantages of Trade Agreements</strong></h3>
<p id="">Benefits of FTA to exporters and importers are as follow:</p>
<p id=""><strong id="">1. Reduction in tariff:</strong> FTAs allow exporters access to international market at low customs duties and other incidental taxes. For example, India signed an FTA with South American trade bloc MERCOSUR, and it resulted in tariff reduction ranging from 10% to 100% on 450 listed products.</p>
<p id=""><strong id="">2. Diversification of trade risk:</strong> When countries have a diverse trade basket, they are in a better position to face the consequences of an international recession or adverse geopolitical event.</p>
<p id=""><strong id="">3. Competition and innovation:</strong> Integration with international markets leads to adoption of best practices in manufacturing and subsequently improves the competitiveness of products.</p>
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<h3 id=""><strong id="">Implementation of Free Trade Agreements</strong></h3>
<p id="">The tariff concessions in an FTA are implemented through customs notifications. When the concessions are implemented in a phased manner the Central Board of Excise and Customs issues annual notifications on its website.</p>
<p id="">Some of the Indian products for which ASEAN countries have eliminated their tariffs are:</p>
<ul id="">
<li id="">Thailand: Textile and clothing, footwear, organic chemicals, pharmaceuticals, automobiles, etc.</li>
<li id="">Indonesia: Fruits and vegetables, textiles, machinery, processed food, organic chemicals, marine products, etc.</li>
<li id="">Malaysia: Footwear, processed food, vegetables and fruits, clothing and textiles, organic chemicals, etc.</li>
</ul>
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<h3 id=""><strong id="">Government&rsquo;s Trade Promotion Measure</strong></h3>
<p id="">India&rsquo;s Foreign Trade Policy (FTP) 2015-20 contains measures for export promotion for micro, small and medium enterprises (MSMEs). The policy has been extended up to 31<sup id="">st</sup> March 2023. The government encourages MSMEs to participate in training programmes on exports packaging, trade fairs, and international exhibitions.</p>
<p id="">The government promotes small and medium enterprises (SMEs) to get export orders by schemes such as rupee export credit, electronic filing, preferential certificates of origin, etc.</p>

Free Trade Agreements – Importance and Advantages

<blockquote id=""><em id="">Tax benefits and delinking of net positive foreign exchange are two of the most important proposals in the DESH Bill.</em><br></blockquote><p id="">The Development of Enterprise and Service Hubs (DESH) Bill is aimed to revive relevance of existing Special Economic Zone (SEZ) in India. The new law to manage special economic zones is likely to recommend a single-window clearance mechanism. </p><p id="">The dispute settlement panel of the World Trade Organization (WTO) has pointed out that India’s SEZ law and rules are not compliant with WTO rules. The DESH Bill targets to increase the scope of SEZs from export advancement to infrastructure development. India needs to create and operationalise manufacturing hubs that can increase export competitiveness. In a major development, the SEZs will now also be able to supply to domestic tariff area at lower duties.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=desh_bill_sez" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f221ea0a3531379525477_Blog-Creative-1.png" loading="lazy" alt="638f221ea0a3531379525477_Blog-Creative-1.png" style="width: 900px; height: 131px;"></div></a></figure><h3 id=""><strong id="">Necessity of SEZs</strong></h3><p id="">Most countries have passed laws to create industrial clusters that are built to cater exports. In India, the SEZ Act 2005 was passed to achieve the following objectives: </p><p id="">a) Promotion of exports of goods<br>b) Generating additional economic activity<br>c) Promoting investment from foreign and domestic entities<br>d) Development of infrastructure<br>e) Employment creation</p><p id="">To promote the concept of SEZ among investors, the government gave incentives to developers and income tax exemptions to the units when they earned foreign exchange in five years since starting operations.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=desh_bill_sez" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f224556fe413902d3d886_Blog-Creative-2.png" loading="lazy" alt="638f224556fe413902d3d886_Blog-Creative-2.png" style="width: 900px; height: 131px;"></div></a></figure><h3 id=""><strong id="">Current Status of SEZs in India</strong></h3><p id="">As per data available, on June 30, 2022, there were 425 approved SEZs, in which 268 were operational. Exports from these SEZs have fallen to $102.3 billion in FY21, from $112.3 billion in FY20 and account for less than 20% of exports now.</p><p id="">SEZs have lost their shine due to the obligation of minimum alternate tax and sunset clause to remove tax incentives.</p><p id="">The dispute resolution board of WTO in its 2019 report, ruled that India’s export-related schemes (including SEZ Scheme) were forbidden grants under the Agreement on Subsidies and Countervailing Measures and were inconsistent with WTO norms.</p><h3 id=""><strong id="">Proposals in the DESH Bill</strong></h3><p id="">India has set a target of US$ 1 trillion exports each of goods and services by 2030. Among other schemes, the DESH Bill aims to position India among the top five exporting countries.</p><p id="">The improvements expected in the DESH Bill are summarised below: </p><p id="">a) Single-window clearance: Even after multiple policy changes at the central and state levels, the ease of doing business in India is not at expected levels. By ensuring coordination between all the levels of governments to procure necessary approvals, DESH Bill may improve the speed and efficiency of governance. <br></p><p id="">b) Receive money in Indian rupee: Under the current foreign exchange rules, the units in a SEZ are prohibited to make payment in Indian rupee. With the introduction of DESH Bill, units will be allowed to receive payment in Indian rupee and shall serve domestic tariff area after payment of applicable customs duty.<br></p><p id="">c) Removal of NFE criteria: As per the prevailing rules, units in a SEZ shall become net foreign exchange (NFE). The units are required to achieve positive net foreign exchange, to be calculated cumulatively, for a period of five years from the commencement of production.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=desh_bill_sez" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f226681a8e6b413a2e2fa_Blog-Creative-3.png" loading="lazy" alt="638f226681a8e6b413a2e2fa_Blog-Creative-3.png"></div></a></figure><h3 id=""><strong id="">SEZ: The Way Forward</strong></h3><p id="">On one hand the DESH Bill recommends several non-fiscal measures like allowing reverse job work for units in the SEZs, it falls short on giving a clear roadmap on the financial incentives.</p><p id="">Various fiscal incentives such as Remission of Duties and Taxes on Export Products (RoDTEP) and those under the Production Linked Incentives (PLI) Scheme, units may like to have clarity under the DESH Bill. </p><p id="">To avoid any further adverse action from the WTO, India’s export and manufacturing policies need to be compliant with Agreement on Subsidies and Countervailing Measures (ASCM).</p><h3 id=""><strong id="">Development Hubs Under DESH Bill</strong></h3><p id="">The DESH Bill has set two classifications for developmental hubs - enterprise and services. The service hubs shall be allowed only for service activities and have built-up area requirements, while enterprise hubs will have land-based area requirements and be permitted for both service and manufacturing activities.</p>

DESH Bill to Infuse Life in SEZs

<blockquote id=""><em id="">Close monitoring of carriers, warehouses, distribution centres, and all other moving parts in the supply chain can help to identify patterns that are currently affecting, or may affect, the OTIF ratings in the future.</em><br></blockquote><p id="">On-time In-full (OTIF) is the system which measures a supplier’s ability to deliver shipments according to quantity and schedule expectations. It is a key performance indicator (KPI) in trade and is applicable to all industries, especially in manufacturing.</p><p id="">The concept of OTIF was adopted at scale by Walmart. As the concept improved operational and financial efficiency at Walmart, other companies, and logistics industry adopted it in one way or the other. Walmart started penalising suppliers for both late and early delivery.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&utm_medium=blog&utm_campaign=OTIF" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f221ea0a3531379525477_Blog-Creative-1.png" loading="lazy"></div></a></figure><h3 id=""><strong id="">Origins of OTIF</strong> </h3><p id="">The term OTIF has been around for the past 20 years. In 2017, Walmart introduced the concept of OTIF as a KPI for its suppliers, vendors, and logistics service providers. It was done to improve customer satisfaction, track supplier performance, and drive store improvements.</p><p id="">Enterprises that are enforcing the OTIF parameters have good reason to do so; they are under pressure to cut prices and raise wages from consumers and employees, respectively.</p><h3 id=""><strong id="">How is OTIF Calculated?</strong></h3><p id="">Calculation of OTIF is straightforward. It has two components which are On-time and In-full. </p><p id="">On-time In-full = Total deliveries made on time and in full / Total deliveries made X 100</p><p id="">So, let’s say out of 500 orders, 472 were delivered on time and complete. That means your OTIF rate = 472/500 X 100 = 94.40%</p><h3 id=""><strong id="">Importance of OTIF</strong></h3><p id="">A few delayed consignments can send ripple effects through the supply chain. If the disruptions happen often, the result can be destructive for all the stakeholders. Retail stores cannot afford empty shelves and e-commerce companies cannot afford delays or cancelation of orders. </p><p id="">If you are supplier who takes little-to-no action to improve OTIF, it may adversely affect your competitiveness in the market and relationship with customers.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&utm_medium=blog&utm_campaign=OTIF" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f224556fe413902d3d886_Blog-Creative-2.png" loading="lazy"></div></a></figure><h3 id=""><strong id="">What is a Good OTIF Benchmark?</strong></h3><p id="">Ideally companies should strive for 100% OTIF across their operations but in the real world, however, a decent OTF benchmark to aim for is high 80% or even 90% range. </p><p id="">In an ideal world, companies would strive for 100% compliance with on-time in-full across their customer base. Since this is the real world, however, a solid OTIF benchmark to shoot for is the high 80% or even 90% range.</p><h3 id=""><strong id="">Ways to Improve OTIF Rating</strong></h3><p id="">A higher OTIF rating can help suppliers expand the scale and scope of their operations. ways to improve the OTIF ratings are given below:</p><p id="">1. Single point of information: By establishing one point of communication suppliers can notify buyers about any possible or actual delay in shipments. </p><p id="">2. Understand appointment scheduling</p><p id="">3. Increasing familiarity with vendor requirements</p><p id="">4. Aligning production and transport schedules</p><p id="">5. Requesting due dates that are suited to your production schedules</p><p id="">6. Getting access to real-time tracking of shipments</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&utm_medium=blog&utm_campaign=OTIF" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f226681a8e6b413a2e2fa_Blog-Creative-3.png" loading="lazy"></div></a></figure><h3 id=""><strong id="">Conclusion: OTIF Improves Collaboration</strong></h3><p id="">Strong OTIF strategies lay the foundation for better cooperation among all the supply chain participants. If everyone is on the same page with the rules and regulations for delivery of shipments, they can work together in an efficient system avoid late penalty disputes.</p><p id="">Customers are likely to support enterprises that offer clear data about what to expect and apply methods to prevent delays in consignments. Carriers gain access to regular stream of revenue if they earn the trust of their customers.</p>

On-time In-full: An Essential Supply Chain Metric

<blockquote><em>The International Chamber of Commerce has divided Incoterms&reg; under 11 heads. In this blog post you will get to know about the Incoterm&reg; </em><strong><em>Ex Works.</em></strong></blockquote>
<p>International Commercial Terms &ndash; commonly known as Incoterms&reg; - are published by the International Chamber of Commerce (ICC). The latest version was adopted on 1<sup>st</sup> January 2020. The ICC first published the Incoterms&reg; in 1936 and has since updated it at regular intervals to reflect the changes in global trade ecosystem.</p>
<p>International trade involves transactions between territories that have different rules and regulations. Incoterms&reg; are accepted by governments and regulatory authorities around the world. Parties involved in trade use Incoterms&reg; to decide who bears the cost and when the risk gets transferred from seller to buyer.</p>
<p>&nbsp;</p>
<p><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=incoterm&amp;utm_campaign=EXW" target="_blank" rel="noopener noreferrer"><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f221ea0a3531379525477_Blog-Creative-1.png" alt="638f221ea0a3531379525477_Blog-Creative-1.png"></a></p>
<h3><strong>Ex Works (Place): Overview</strong></h3>
<p>The buyer bears all the costs and risks in an Ex Works arrangement. The seller must only make the goods available for the buyer at their warehouse/factory. As soon as the goods are collected, buyer undertakes all other obligations. Ex Works can be used for any means of transportation.</p>
<p>Ex Works is an Incoterm&reg; used for all methods of shipping, irrespective of the mode, or legs of the transport. Under Ex Works, the buyer undertakes all obligations of the shipment once the cargo is packed in export packaging and collected. Here, the buyer must arrange all transport, export documentation, cover all freight charges, and fulfil the importation and delivery process.</p>
<p>&nbsp;</p>
<p><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638db74198d5bbc95b2ed509_Ex%20Works%20V2.jpg" alt="638db74198d5bbc95b2ed509_Ex%20Works%20V2.jpg"></p>
<p>Some exporters insist on Ex Works as they desire to recognize the revenue for the sale instantly. As a matter of fact, the ICC&rsquo;s Incoterms&reg; 2020 manual clearly states that recognition of revenue is independent of any Incoterm&reg; rule. The parties involved in global trade shall make and agree upon specific provisions in the sale contract.</p>
<p>&nbsp;</p>
<h3><strong>Ex Works: Safeguards for Seller</strong></h3>
<p>When using Ex Works, the seller may want to consider slight changes to the terms and conditions. For example: "The supplier has the right to impose duties or move the goods to a public warehouse at the buyer's expense if the buyer does not pick up the shipment within "x" days of being informed of their availability. Without this change to the agreement, the seller is at risk of being exploited as free storage or of the buyer postponing the payment cycle.</p>
<p>The seller is only required to make the items available, appropriately packaged, at the designated location, which is typically the seller's factory or depot. Although the seller may be more qualified to do so, the buyer is responsible for putting the items onto a vehicle, for all export procedures, for onward transportation, and for any expenditures incurred after the products have been collected.</p>
<p>To be more specific, it may still be necessary for the exporter to participate in the export reporting and clearance processes and cannot practically delegate them to the buyer.</p>
<p>&nbsp;</p>
<p><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=incoterm&amp;utm_campaign=EXW" target="_blank" rel="noopener noreferrer"><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f224556fe413902d3d886_Blog-Creative-2.png" alt="638f224556fe413902d3d886_Blog-Creative-2.png"></a></p>
<h3><strong>Ex Works: Advantage to the Buyer</strong></h3>
<p>Certain manufacturers are too focussed on the domestic market or may not have requisite licenses that may be required to export goods to the outside world. Some countries have good quality and inexpensive goods, which make it attractive for buyers to arrange all other things on their own.</p>
<p>If a buyer routinely sources goods from a particular country, it makes sense to consolidate different products and import it on their expense.</p>
<p>&nbsp;</p>
<h3><strong>Ex Works: Disadvantage to the Buyer</strong></h3>
<p>In Ex Works shipment, the buyer gets lower per unit cost than other Incoterms&reg;, while there are some significant disadvantages as well. If, for some reason, the goods cannot be exported from the origin country, the buyer bears the risk, because the transfer of ownership has already taken place.</p>
<p>&nbsp;</p>
<h3><strong>Ex Works: Seller&rsquo;s Responsibilities</strong></h3>
<p>The obligations of the seller are quite minimal under the Ex Works Incoterms&reg;. In essence, their only need is to make sure the cargo is prepared for export and that it can be picked up at their location. This indicates that the goods are already contained in export boxes for most shipments. When the cargo is prepared, it must be in a location where the buyer and seller may pick it up.</p>
<p>&nbsp;</p>
<p><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=incoterm&amp;utm_campaign=EXW" target="_blank" rel="noopener noreferrer"><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f226681a8e6b413a2e2fa_Blog-Creative-3.png" alt="638f226681a8e6b413a2e2fa_Blog-Creative-3.png"></a></p>
<h3><strong>Ex Works: Buyer&rsquo;s Responsibilities</strong></h3>
<p>Once the buyer picks up the products from the seller, they take on all responsibility and risk. These obligations consist of the following:</p>
<p>1) Charges for loading the cargo at the pickup point so that it can be transported to the port for export.</p>
<p>2) Transporting the products to the port of origin to start the export procedure is known as delivery to port or place.</p>
<p>3) Export papers must be completed, and all taxes and duties associated with exporting the goods must be paid. The buyer is forced to rely on independent export strategies.</p>
<p>4) Charges at the origin terminal: All charges at the terminal are the buyer's responsibility.</p>
<p>5) Putting goods on carriage: The duty involved in putting the cargo on the carriage.</p>
<p>6) Carriage fees: All freight expenses related to transporting the cargo from one port to another.</p>
<p>7) Charges related with fees levied by the destination port and terminal are referred to as destination terminal charges. When the cargo reaches the port of destination, the terminal charges a fee to convey the consignment throughout the harbour and unload the shipment from the ship.</p>
<p>8) Delivery to destination: The price of moving the cargo from the port of destination to the ultimate location.</p>
<p>9) When the items have reached their destination, the costs involved with unloading the cargo from the final carrier are incurred.</p>
<p>10) Import duty, taxes, and customs clearance: All fees and charges related to bringing the goods into the country of destination.</p>
<p>&nbsp;</p>
<h3><strong>When to Use Ex Works Incoterm&reg;</strong></h3>
<p>Established importers set up offices in their export country for ease of handling their shipments. The buyer may opt for Ex Works if they are shipping via air express couriers. In most cases, express couriers collect goods from seller&rsquo;s location.</p>

Incoterms®: Ex Works - Cogoport

<blockquote id=""><em id="">The International Chamber of Commerce has divided Incoterms® under 11 heads. In this blog post you will get to know about the Incoterm® </em><strong id=""><em id="">Free Carrier.</em></strong><br></blockquote><p id="">International Commercial Terms – commonly known as Incoterms® - are published by the International Chamber of Commerce (ICC). The latest version was adopted on 1<sup id="">st</sup> January 2020. The ICC first published the Incoterms® in 1936 and has since updated it at regular intervals to reflect the changes in global trade ecosystem.</p><p id="">International trade involves transactions between territories that have different rules and regulations. Incoterms® are accepted by governments and regulatory authorities around the world. Parties involved in trade use Incoterms® to decide who bears the cost and when the risk gets transferred from seller to buyer.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=incoterm&amp;utm_campaign=FCA" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f221ea0a3531379525477_Blog-Creative-1.png" loading="lazy" alt="638f221ea0a3531379525477_Blog-Creative-1.png" style="width: 886px; height: 129px;"></div></a></figure><h3 id=""><strong id="">Free Carrier (Place): Overview</strong></h3><p id="">The seller is responsible for export clearance and delivering the goods to the carrier at the designated point of delivery in accordance with the Free Carrier (FCA) shipping terms. Any individual or business that conducts the carrying is referred to as a carrier, including a shipping line, airline, trucking company, railroad, or freight forwarder.</p><figure id="" class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div id=""><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638dbda5ac558a3fa980505c_FCA_IMAGE.jpg" loading="lazy" alt="Incoterm - Free Free Carrier (FCA)" id="" width="auto" height="auto"></div></figure><h3 id=""><strong id="">FCA in Shipping Terms</strong></h3><p id="">Once the cargo is prepared to be put onto the carrier, the buyer takes responsibility for it. FCA is applicable to all modes of transportation, including road, rail, sea, and air freight. The buyer may arrange carriage at a lower cost than what their seller may offer. FCA enables the buyer to step in and take over after the cargo has been exported, which can be a risky and time-consuming operation for certain products. Once the commodities reach the point of export, however, the buyer takes all risks and liabilities. </p><h3 id=""><strong id="">Free Carrier: Seller’s Responsibilities</strong></h3><p id="">According to FCA Incoterms®, the seller is responsible for managing the entire export procedure for the goods they are selling. The buyer is responsible for the cargo after it is prepared to be loaded into the vessel. The full list of the seller's obligations can be found below.</p><p id="">1) Export Packaging: For export, the cargo needs to be packaged. Some nations have certain rules governing how goods must be exported. This may involve product markings or packaging design. The person in charge of this aspect must make sure the packaging complies with export laws.</p><p id="">2) Loading Fees: These are any expenses related to loading the cargo onto the first carrier to move the products to the export point as it leaves the seller's location. </p><p id="">3) Delivery to Port/Place: These are the costs related to moving the products from the seller's location to the specified port or location where the cargo will be shipped once they are loaded onto the truck. The port or location would typically be a seaport, an airport, or a rail port.</p><p id="">4) Customs Clearance: The expenses and obligations related to formally exporting the goods from the country of origin. This may involve pre-shipment inspections, customs checks, or any other special clearances needed to export the cargo.</p><p id="">The cargo can be given to the buyer once these obligations are fulfilled. The buyer is solely responsible for any risks connected to the subsequent phases of the logistical process.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=incoterm&amp;utm_campaign=FCA" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f224556fe413902d3d886_Blog-Creative-2.png" loading="lazy" alt="638f224556fe413902d3d886_Blog-Creative-2.png" style="width: 886px; height: 129px;"></div></a></figure><h3 id=""><strong id="">Free Carrier: Buyer’s Responsibilities</strong></h3><p id="">The risk passes to the buyer when the goods clear customs and arrives at the Named Place. The buyer then has the obligations listed below to complete the logistical process.</p><p id="">1) Terminal charges at origin: Any fees or requirements related to the shipping facility where the cargo is loaded for the primary transportation phase onto the chosen vessel. </p><p id="">2) Loading on carriage: The shipping company charges a loading fee for the cargo to be loaded onto the carriage.</p><p id="">3) Carriage fees: These are the freight costs associated with transporting cargo from one port to another.</p><p id="">4) Terminal fees at destination port: Once the cargo has reached the port of destination, any terminal fees related to unloading, moving, and keeping the load while it waits for the official import procedure.</p><p id="">5) Delivery to destination: Moving the goods to the address specified by the buyer after it has left the port of origin.</p><p id="">6) Unloading at destination: Costs related to unloading the cargo at the designated delivery location specified by the buyer.</p><p id="">7) Customs clearance: The purchaser is responsible for all expenses and liabilities related to importing the items. Duty, taxes, and any other requirements from customs authorities must be complied with or paid for by the buyer in the event of any inspections.</p><h3 id=""><strong id="">Free Carrier: Advantages to the Buyer</strong></h3><p id="">After the item has been lawfully exported from the nation of origin, FCA enables the buyer to have complete control over the transportation of their goods. Due to their ability to manage all moving parts of the logistics chain, some buyers believe they may profit from this Incoterm.</p><p id="">FCA can be a useful Incoterm® for purchasers who frequently acquire containerized goods and who have a reputable third-party logistics provider or freight forwarder they can trust.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=incoterm&amp;utm_campaign=FCA" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f226681a8e6b413a2e2fa_Blog-Creative-3.png" loading="lazy" alt="638f226681a8e6b413a2e2fa_Blog-Creative-3.png" style="width: 886px; height: 129px;"></div></a></figure><h3 id=""><strong id="">Free Carrier: Disadvantages to the Buyer</strong></h3><p id="">There is a reason why FOB not as popular for maritime shipments than FCA. The buyer must take additional procedures at the port of origin under FCA, and as a result, the buyer is responsible for terminal and loading expenses. The best party to handle a problem that arises during shipping depends on whether the cargo is in the country of the seller or the buyer.</p><p id="">Therefore, even though FCA is not significantly different, employing it may have a disadvantage because sellers may not be as comfortable with the procedure. The ideal Incoterm® for exporting goods from any nation is typically one where both the buyer and seller have the most expertise.</p><h3 id=""><strong id="">When to Use Free Carrier Incoterm® </strong></h3><p id="">A buyer would only wish to take FCA into account if most of the following criteria can be satisfied:</p><p id="">• They are shipping containerized cargo.</p><p id="">• Their seller prefers FCA over FAS or FOB.</p><p id="">• The cargo is being transported straight to the terminal for export and not to the shipping service provider's warehouse</p><p id="">• They are familiar with the logistics procedure and requirements in the seller's nation, or they are employing a shipping service. </p><p id="">If the four criteria mentioned above can be satisfied, FCA is a sensible alternative to take into account as an Incoterm®.</p>

Incoterms®: Free Carrier (Place) - Cogoport

<blockquote id=""><em id="">The International Chamber of Commerce has divided Incoterms® under 11 heads. In this blog post you will get to know about the Incoterm® </em><strong id=""><em id="">Free Alongside Ship.</em></strong><br></blockquote><p id="">International Commercial Terms – commonly known as Incoterms® - are published by the International Chamber of Commerce (ICC). The latest version was adopted on 1<sup id="">st</sup> January 2020. The ICC first published the Incoterms® in 1936 and has since updated it at regular intervals to reflect the changes in global trade ecosystem.</p><p id="">International trade involves transactions between territories that have different rules and regulations. Incoterms® are accepted by governments and regulatory authorities around the world. Parties involved in trade use Incoterms® to decide who bears the cost and when the risk gets transferred from seller to buyer.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=incoterm&amp;utm_campaign=FAS" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f221ea0a3531379525477_Blog-Creative-1.png" loading="lazy" alt="638f221ea0a3531379525477_Blog-Creative-1.png"></div></a></figure><h3 id=""><strong id="">Free Alongside Ship (Port): Overview</strong></h3><p id="">According to the Free Alongside Ship (FAS) Incoterm® guidelines, the seller clears the cargo for export and puts them next to the ship at the designated port of departure. The specified port of departure shall be either a loading dock or a barge, but not a container terminal.</p><p id="">The buyer oversees local transport, discharge, import formalities and duties, and onward carriage to the final destination in addition to handling the loading of the freight aboard the vessel. Nowadays, FAS is mainly reserved for interior canal cargo and sea freight.</p><p id="">Bulk freight, like grain or oil, is a common use for it. The seller is in charge of getting the items to the chosen port, or the spot where the ship is. The buyer is responsible for loading the cargo onto the vessel at the scheduled port.</p><figure id="" class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div id=""><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638dc138ac558a328c809c1d_FAS_IMAGE.jpg" loading="lazy" alt="Incoterm - Free Alongside Ship (FAS)" width="auto" height="auto" style="width: auto; height: auto;"></div></figure><h3 id=""><strong id="">Free Alongside Ship: Seller’s Responsibilities</strong></h3><p id="">When transacting using FAS Incoterms®, the seller is accountable for the following:</p><p id="">1) Export packaging: The goods must be packaged by the vendor for shipping.</p><p id="">2) Charges for loading: The seller is liable for any charges involved in loading the cargo onto the initial carrier. </p><p id="">3) Delivery to place/port: The cost of transportation to the port or place of origin is the buyer's responsibility.</p><p id="">4) Export Duty, Taxes &amp; Customs Clearance: In the event, the cargo is being exported, any costs associated are the responsibility of the seller. </p><p id="">5) Origin Terminal Handling Charges (OTHC) are another expense that falls under the seller's responsibility.</p><p id="">The seller often only oversees operations up until the designated vessel, although he is still responsible for the export customs procedures. The seller will create all necessary customs clearance paperwork, which he will then deliver to the buyer at the designated port.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=incoterm&amp;utm_campaign=FAS" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f224556fe413902d3d886_Blog-Creative-2.png" loading="lazy" alt="638f224556fe413902d3d886_Blog-Creative-2.png"></div></a></figure><h3 id=""><strong id="">Free Alongside Ship: Buyer’s Responsibilities</strong></h3><p id="">In FAS, the buyer is responsible for paying all business expenses as soon as the supplier delivers the items to the designated vessel location. The buyer is accountable for the following:</p><p id="">1) After the shipment reaches the destination port, the buyer is responsible for paying all DTHC.</p><p id="">2) Delivery to destination: After the cargo reaches the port, the buyer's obligations continue; they are now responsible for any expenses related the final delivery.</p><p id="">3) Unloading at destination: The buyer is also responsible for the unloading costs.</p><p id="">4) If the cargo transported under the FAS Incoterm® is imported into the nation, the buyer is responsible for paying all import duty, taxes, and customs clearance fees. It is always advised that buyers choose a customs broker to help them import their freight.</p><h3 id=""><strong id="">Transfer of Risk in Free Alongside Ship</strong></h3><p id="">The buyer will be responsible for the risk factors up until the place of destination since the risk is transferred at the designated vessel. Additionally, he will be held responsible for the entire loss if he doesn't give the seller clear instructions regarding the location and place of the vessel. Since the buyer completes the entire freight and transportation process after the designated port, the risk and damage element of the products persists until they reach their final location.</p><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/?utm_source=web&amp;utm_medium=incoterm&amp;utm_campaign=FAS" target="_blank"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/638f226681a8e6b413a2e2fa_Blog-Creative-3.png" loading="lazy" alt="638f226681a8e6b413a2e2fa_Blog-Creative-3.png"></div></a></figure><h3 id=""><strong id="">Insurance in Free Alongside Ship</strong></h3><p id="">Since the buyer is in charge of the entire freight process, he is also in charge of the insurance. Since he bears the responsibility for the danger and harm to the goods, everything that goes wrong during the procedure will be his fault. Given that the items will be transported by sea and inland waterways, he will need to have maritime insurance and ocean freight insurance. </p><h3 id=""><strong id="">When to Use Free Alongside Ship Incoterm® </strong> </h3><p id="">FAS has its roots in the era of sail-powered shipping. Nowadays, FAS is solely utilised for inland canal shipments and sea freight. &nbsp;</p><p id="">FAS is still frequently used when buying large pieces of machinery that are loaded onto a barge and transported further along a canal before being positioned alongside another vessel, when the buyers take over the shipping procedure.</p>

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