Articles

Q. Which Incoterms are mostly used in Trade?

A. In Export Import business for 90% of the transaction, people opt for FOB, CFR or CIF nature of a contract.

As per ICC (International Chamber of Commerce) Incoterms are to be followed by Exporter i.e Exporter is the follower of these terms

So, FOB = FREE ON BOARD

Board is base of Vessel (Ship), under FOB exporter has to make the goods available On Board of Vessel

CFR = COST (FOB) + FREIGHT = CFR

Exporter has to make the goods available at foreign port as he needs to pay freight

CIF = COST + INSURANCE + FREIGHT

Exporter has to make the goods available at foreign port + exporter needs to bare the insurance cost.

Kindly Note: Responsibility of Exporter will end when he safely loads the goods into vessel under FOB, CFR or CIF, so in case of FOB / CFR deal importer must make sure that he buys marine insurance cover from his end for his safety.

Kindly Note: All government incentives like MEIS & DBK are provided up to FOB value only.

Q. How to Calculate the FOB, CFR, and CIF Costing for FCL Cargo?

To calculate the costing, you must get the latest price of products from supplier &CHA

Costing for FCL Cargo 20FT /40FT Container

Product Procurement Cost …………………. (From Supplier/Manufacturing Unit)

Export Packaging Cost………………………… (From Supplier/Manufacturing Unit)

Profit………………………………………………… (You need to add)

Documentation Cost………………………… (From CHA/ Inspection Agencies/Chamber of Commerce)

Local Transportation to Port……………. (From CHA / Transportation Company)

Port Terminal Handling Charges………… (From CHA)

On Board Bill of Lading………………………. (From CHA/Shipping Company)

Miscellaneous Charges……………………… (Cost of ECGC, Bill Discounting, Bank Cost, etc.) 

FOB = Cost up to loading goods

Freight (Port to Port) ……………………… (From CHA/Shipping Company)

CFR = Cost up to Foreign Port

Marine Insurance…………………………… (From CHA/Marine Insurance Company)

CIF = Cost up to Foreign Port + Insurance

Sample Calculation for Basmati Rice.(Costing for FCL Cargo 20FT Container)

Product Procurement Cost = (33.5 INR Per KG x 25,000 KG) = 8,37,500 INR

Export Packaging Cost = (PP Bags are provided by supplier in our brand name on above price)

Profit = (7%) = 58625 INR

Documentation Cost = 5000 INR (From CHA/ Inspection Agencies/Chamber of Commerce)

Local Transportation to Port = 10,000 INR (From CHA / Transportation Company)

Port Terminal Handling Charges = 10,000 INR (From CHA)

On Board Bill of Lading = 3500 INR (From CHA/Shipping Company)

Miscellaneous Charges = 20,000 INR (Cost of ECGC, Bill Discounting, Bank Cost, etc.)

FOB = 9,44,625 INR, Mundra Port

Freight (Mundra to Port Klang) = 22,500 INR (From CHA/Shipping Company)

CFR = 9,67,125 INR, Port Klang, Malaysia

Marine Insurance = 7971 INR (From CHA/Marine Insurance Company)

CIF = 9,75,096 INR, Port Klang, Malaysia

Q. So if buyer ask for CIF, then do I need to give them 9,75,096 INR on above case?

A. Generally Buyer will ask for rates in USD as their currency to USD conversation cost is low as compared to direct INR deal, so we need to check the latest forex rates of USD, suppose forex rate for export is 1$ = 65 INR then we should take 1 INR less i.e 64 INR so if suddenly rates go down we will not incur loss, however facilities like Forward cover could be obtained from Bank to fix the rates.

So, 9,75,096 / 64 = 15235.88 USD

Q. How to calculate the costing for goods needed to be send via Air, Packed House via IATA Agents.

To calculate the costing, you must get the latest price of products from Supplier, APEDA Packed House near your area of products, IATA Agents.

Sample Calculation for Mangoes.(Costing for 1200 KG / 1 ULD via Air)

Procurement Cost (Incl. Profit) = 100 INR per KG x 1500 KG = 1,50,000 INR

(We need to source more when goods needed to be sent to APEDA Packed House for Exporting because they will reject approx. 20% of stock & provide back to you which you could use for domestic sales or provide that back to the supplier)

Box Packaging Cost (400 Box to equip each of 3KG) = 400 x 25 INR Per box = 10,000 INR

APEDA Hot Water Treatment Cost = 9 INR PER KG INWARD x 1500 KG = 13,500 INR

APEDA Irradiation Treatment Cost = 100 INR Per Box = 100 x 400 = 40,000 INR

(Irradiation Treatment only required for countries like Australia, USA, Iran, etc., else HWT will do, you can approach APEDA authority for latest information on this)

APEDA to Airport transportation = APEDA VAN for 1200 KG = 10,000 INR

IATA Charges for clearing and documentation including. phytosanitary certificate = 5000 INR

Miscellaneous Charges = 20,000 INR (Cost of ECGC, Bill Discounting, Bank Cost, etc.)

Total FOB = 2,48,000 INR

Air freight cost to Australia, Perth = 114 Per Kg x 1200 Kg = 1,36,800 INR

Total CFR = 3,84,800 INR

Kindly note: We generally don’t buy Insurance from insurance company as we get the benefit of SDR: Special Drawing Rights from airline itself which is approx. 20 USD per kg at max. Generally, we export such products which are bellow 20 USD per KG, so no worries if goods reached in damaged conditions then airline will pay.

Q. Can I send the goods of less quantity like 100 KG or 1000 KG? which would be better mode sea or air?

Q. How to calculate the costing for LCL if we don’t have bulk order of FCL 20FT /40 FT Containers?

In LCL shipments we need to check first that one what the freight is charged? Freight is charged on Gross weight or Cubic Meter which ever is higher.

Now let us assume you have got a product of weight 2000 KG & its box size is 2 Meter (Height), 2 Meter (Length) & 1 Meter (Breadth).

So CBM = L x B x H = 4 CBM

Now if you ask CHA they will give rates based on 1000 KG or 1 CBM, rates of 1000 KG & 1 CBM would always be similar.

So, if CHA provides LCL rates for 1000 KG = 25 $ then 1 CBM Rates = 25$

Now we need to calculate and see which one is higher.

Calculation based on Weight

2000 KG = 50$ (Will not be taken into consideration as it is smaller than volume)

Calculation based on Volume

4 CBM Box = 100$

So final bill amount is 100$, so the concept is simple for heavy goods they will charge on weight & for products like teddy bear they will charge based on its size.

On 10 September 2019, the International Chamber of Commerce (ICC) issued a much anticipated set of revisions to the Incoterms – the international commercial terms published to clarify the obligations of buyers and sellers in trade contracts, which will come into force on 1 January 2020. In a further attempt to adapt to current commercial practices and provide innovative solutions, Incoterms 2020 have introduced a number of significant changes.

Always remember the terms are made for Exporters only , i.e whatsoever written in any Incoterms, that has to be followed by the exporter , importer bound to understand that where exporters cost and responsibly stops buyer risk and cost continuous till end. 

The most notable changes include:

-> Incoterm FCA (Free Carrier) and the onboard bill of lading
-> Incoterms 2020 introduce an option for parties to agree to issue an onboard bill of lading to the Seller for FCA shipped goods.
-> Incoterm DPU (Delivered at Place Unloaded) and DAP (Delivered at Place) replaces DAT (Delivered at Terminal)
-> Incoterms 2020 now reflect that the delivery of goods can take place at locations other than terminals.
-> Increased insurance under CIP (Carriage and Insurance Paid to)
-> A higher level of insurance cover for CIP shipped goods is now required to comply with Clause A (Institute Cargo Clauses).
-> Clarification of allocation of costs between the Buyer of goods and Commercial Sellers
-> Incoterms 2020 A9 and B9 generally provide that the Seller is responsible for costs up to delivery and the Buyer will be responsible for costs after delivery.
-> Further information on the use of the Buyer and/or Seller’s own transport
-> The position of the Buyer and Seller using their own modes of transport is made clearer under Incoterms 2020.

-> CI or CNI is = FOB + Insurance , new term adopted and approved 

Improved Structure
Incoterms 2020 is expressed to be the clearest, most straightforward presentation of the commercial terms to date. General improvements include placing terms relevant to delivery to make them more prominent, the inclusion of a tool to compare incoterm elements across other terms, and the continued separation of multi modal from maritime incoterms.

Incoterms 2020 and Trade Finance

Whilst all of the changes are significant, the bill of lading offering for FCA shipped goods is particularly interesting for the trade finance sector.

For trades financed by a letter of credit the presentation of the bill of lading is an essential part of the transaction. If the bill of lading is exchanged earlier under FCA (as delivery is deemed to occur at the point of delivery of the goods to port as opposed to the loading on the ship, as is the case under FOB (Free on Board), it will need to state that the goods have been placed on board and were received for carriage. This could raise two practical issues.

Firstly, the carrier may or may not issue the bill of lading at the point of delivery to port, as the carrier will only be bound to present a bill of lading once the goods are placed on board the ship.

Secondly, the dates of delivery and loading onboard may be different, which could be challenging for the financial institution as the seller would have secured final payment (by presenting the bill of lading to the financial institution) but the shipment may not have necessarily occurred.

In practice it is unlikely that the financial institution will be willing to take on this additional risk, and may introduce additional requirements for the Buyer to satisfy, even if the bill of lading is directed to the Seller. It will be interesting to see if and how this change is implemented.

The global shipping industry emits 18% of all air pollutants. New regulations will lower the allowed sulphur exhaust of ships from the current maximum of 3.5% to 0.5% from 1 January 2020 onwards. This has major consequences for the global shipping industry.

-> Analysts expect that 4,000 ships of the global merchant fleet will try to comply with the new regulations by fitting scrubbers (A scrubber or scrubber system is a system that is used to remove harmful materials from industrial exhaust gases before they are released into the environment) by 1 January 2020 and about 5,500 ships by the end of 2020 (approximately 6% of the world fleet by vessel count) would have to start taking the actions.

->  Majority of ships and in particular smaller ships will switch to low sulphur fuels.

-> The expected rise in prices for containerised shipping is up to 25%, assuming that the rise in fuel costs is fully passed on in higher shipping tariffs.
-> If not fully priced on, competition and overcapacity may incentivise shippers to reduce speed to save on fuel costs. This will cut shipping capacity.

Environmental regulation is closing in on shipping

A few months from now, the new regulations by the International Maritime Organization (IMO) will take effect. Current sulphur exhaust is capped by the IMO at 3.5% of total exhaust by ships in most of the open seas, and 0.1% in the so-called Emission Control Areas (ECA’s) along the EU and US coasts. From 1 January 2020, the maximum share of sulphur exhaust is no longer allowed to be higher than 0.5%.

For shipping companies, the three most viable options to reduce their sulphur exhaust to 0.5% are: switching to ultra-low sulphur fuel oil (ULSFO); fitting an exhaust scrubber (A scrubber or scrubber system is a system that is used to remove harmful materials from industrial exhaust gases before they are released into the environment) or a switch to Liquid Natural Gas (LNG).

How to comply with the new rules?

1. Ultra-low sulphur fuel oils (ULSFO)
   To meet the current restrictions, the majority of the shippers will switch to burning (ultra-) ultra-low sulphur fuel oils (after this ULSFO). Most ships already have a separate fuel tank and already burn (0.1% compliant) ULSFO when entering the European and US coasts. The ports along these coasts facilitate ULSFO bunkering. But it remains a question of how much refiner capacity is available to facilitate the mass transition to ULSFO.
   Also, the different ULSFO types are not necessarily compatible. Even the same type of fuel from the same refiner but bunkered in two different locations may be incompatible. This means that a fuel tank should be more or less empty before a different ULSFO is bunkered. This requires more extensive fuel planning by engine technicians and shippers in comparison to traditional high sulphur fuel oil (HSFO).
   
   If low sulphur fuel is unavailable in a port, vessels can get a waiver and are allowed to bunker high sulphur fuels (HSFO). However, this is also quite costly for shippers as they will need to unbunker the high sulphur fuel and clean fuel tanks at the first next port that offers bunkering of low sulphur fuels.  
    
2. Scrubbers (A scrubber or scrubber system is a system that is used to remove harmful materials from industrial exhaust gases before they are released into the environment)
   The second option for compliance is fitting ships with so-called exhaust scrubbers. An exhaust scrubber is a device that cleans exhaust gasses with water. Ships with scrubber installations are allowed to run on HFSO under the new regulations. This means that they can benefit from the lower price of HSFO.
   
   Most common are open-loop scrubbers that wash the exhaust with seawater and dispose of the wastewater after some cleaning back in the sea. This reduces the amount of chemicals to be disposed of onshore. Alternatively, there are closed-loop scrubbers that store the scrubbing waste on board. In addition, there are also hybrid scrubbers that can do both.
   
   Closed-loop scrubbers require ship owners to dispose of the exhaust waste, which is difficult and costly. However, open-loop scrubbers are a source of environmental concerns. The chemicals and exhaust waste washed into the sea are reasons for large ports to prohibit the use of scrubbers in their waters. In addition, there are concerns about a possible future prohibition of open-loop scrubbers by the IMO. Although industry experts say that any regulation by the IMO will only target new scrubber installations and not existing ones, considerable uncertainty remains as to how long scrubbers will be allowed. This is especially the case given the IMO 2050 cut in carbon exhaust to 50% of 2008 levels.

3. Liquid Natural Gas (LNG)

LNG is a particular type of  ULSFO. Switching to LNG requires a more intensive and costly conversion process compared to the other solutions. It requires a modification of the engine that may not be possible for every ship that is not LNG-ready. In addition, LNG bunkering infrastructure is lacking and unavailable in most ports. Therefore, a backup fuel tank needs to be present. The installation of a separate gas tank means that, often, transport capacity will be lost and that the ship, likely, will need to be rebalanced. This is a costly process to keep a ship idle for a while. On a large scale, LNG only seems a viable consideration for new-build ships. New ships will face the problem that few ports offer LNG bunkering infrastructure. LNG is environmentally the cleanest option, as carbon exhaust is about 20% less than with traditional fuels. Despite being momentarily the cleanest solution, LNG is not compatible with the IMO 2050 carbon cut of 50%.

The costs of ultra-low sulphur fuel oil (ULSFO)

In the months up to the imposition of the new sulphur limit, most ships will switch to burning ULSFO. After this switch, it will still take a couple of months before the sulphur exhaust by ships decreases to 0.5%. This is because it takes a while before the remains of high sulphur fuel oil (HSFO) in the tanks wash away. Switching too late to ULSFO will mean that shippers will need to have the fuel tank cleaned to meet the rules by 1 January, which is a costly process.

The cheapest option for compliant fuel will be 0.5% compliant ULSFO blends. Unfortunately, there are currently no reliable market forward rates for these fuels yet. Therefore, we look at the forward rate of 0.1% compliant Marine Gas Oil (MGO), which is more expensive. Currently, 0.5% compliant ULSFO is trading US$90 per ton cheaper than 0.1% compliant MGO. Therefore, we assume that the spread between the forward rates of 0.5% compliant ULSFO and HSFO would be up to US$100 less than the forward spread between ULSFO and MGO.

We expect that the price difference between MGO and 0.5% compliant ULSFO will initially become smaller as demand for 0.5% fuel oil will be higher since this is the cheapest option. As supply catches up with demand, the price difference will slide back to what we observe currently. Our estimated bandwidth for the 0.5% ULSFO – HSFO price spread is US$165 to US$300.

In anticipation of the regulation, most ships will switch to ULSFO in the last quarter of 2019. This is reflected in the steep widening of the price spread between the prices of low sulphur fuels and high sulphur fuel. On one hand, higher demand for ULSFO oils will push up its price. On the other hand, lower demand for HSFO will lead to lower prices of heavy fuels. In particular, because HSFO is a residual product with limited options for other use.

In the medium term, the price difference is expected to narrow again. As refineries are adjusting their supply to the increased demand, prices of ULSFO are expected to decrease a bit. On the other hand, as more refineries upgrade cracking capabilities (the ability to further refine HSFO), demand and prices of HSFO are expected to rise again.

How will the industry cope with higher fuel prices?

It is expected that most container shippers will try to pass through the higher fuel costs to their clients. Depending on ship type and route, the increase in freight rates is expected to be up to 25%. However, due to overcapacity, the use of scrubbers and competition, the increase may be less. Another way shippers could deal with higher fuel prices is by reducing speed. Since fuel consumption is an exponential function of speed, shippers will be able to cut their fuel bills considerably by reducing speed. Depending on the extent to which this may occur, reducing speed potentially reduces shipping capacity as well as the supply of containers.

Scrubber Economics

Scrubber installations allow the shipowner/operators to surf the spread between low and ULSFOs. The spread between the two types of fuel can be considered as the gross-income of investing in a scrubber. The larger the price difference between ULSFO and HSFO, the more attractive scrubbers are. 

The investment appraisal of a scrubber

The most important costs associated with scrubbers are:

• Investment costs, which are the costs of fitting the scrubber and the opportunity costs of the ship being idle during the installation works.
• Operating costs that are made up of additional fuel use to power the scrubber, maintenance costs, the costs of disposing of waste chemicals, and financing costs.

Which side of a charter contract will reap the scrubbers’ profits?

Where ship owners charter-out ships with scrubbers to other parties, the question arises: who will reap the benefits from the scrubber installation? The answer to this will depend on the specific location and term for when the ship is chartered. If charterers can choose from multiple vessels with scrubbers from different owners for a particular location and term, some competition will arise. Competition between the shippers will drive down the charter rates of ships with scrubber installation below those of ships without scrubbers. For small ships, we expect that only a small share of the world’s fleet will be fitted with scrubbers. Therefore, competition between scrubber-fitted vessels (from different owners), will remain limited for smaller ships. This means that most of the time the shipowner will profit from the scrubber. However, for the large ship types, competition may drive down prices on some occasions.

Currently, the number of scrubbers on order is somewhere around 600 units and 3,500 scrubbers have already been installed. The view of analysts is that over 4,000 scrubbers will be installed by January 2020, which is approximately 11% of the global fleet by tonnage and 4.5% by vessel count. This is expected to increase to 15% of the global fleet by weight towards the end of 2020 (over 6% by vessel count).

All in all, on scrubbers can be a lucrative investment (also beyond 2020) if they are fitted on large vessels. Smaller vessels may be better off switching to ULSFO. Despite being a lucrative investment compared to having to switch to low sulphur fuels, scrubbers still imply a higher fuel bill, relative to the current situation. All else equal, this would also mean that vessels with scrubbers may sail at lower speeds to limit the rise in fuel costs.

The environmental road ahead – the next big thing

The IMO 2020 sulphur cap is a major step in improving the air quality of exhaust gasses. This has far-reaching implications for the industry as we have seen. From 2020 onwards, however, the focus in shipping will shift towards climate action. In 2018 member countries within the IMO agreed to cut carbon emissions by 50% in 2050 versus 2008. Although shipping lags other sectors in this goal-setting, this will even be much more challenging.

Maersk, one of the leading shipping companies, has the ambition to move even faster to catch up with the Paris climate goals. Currently, no realistic techniques are available yet to meet the IMO 2050 regulations. Improving fuel efficiency and ship design have potential and will be the first focus. Transition fuel blends of biofuel and LNG will probably be the next call. Finally, future replacement options might be: synthetic fuels, methanol and hydrogen. However, these options require a lot of research and innovation before they become technically and economically viable. Depending on the dominant solution, this will also require substantial investments in different ship configurations.  

For the medium term, scrubbers can be a lucrative investment if they are fitted on larger vessels. Smaller vessels (smaller than Panamax) may be better off switching to ULSFO. The increased fuel bill resulting from the transition to scrubbers or ULSFO will drive up transport prices. However, shippers may reduce shipping speed in order to limit the price increase and save fuel costs. If this would happen on a large scale, this potentially restricts the shipping capacity of the world’s fleet.

More information on CAPEX & OPEX Scrubber system available on http://ecaengineering.dk/scrubber-systems/

1.    ECommerce Version for application along with ANF – 7A 

2.    Signature person 1) Resident, 2) Office Address, 3) Address Proof (Aadhar Card Copy) (Company letterhead) 

3.    01 (One) Nos. of Photo Copy of Self Attested Statement of Bank Realisation Certificate 

4.    01 (One) Nos. of Photo Copy of Self Attested Commercial Invoice

5.    01 (One) Nos. of Photo Copy of Self Attested Bill Of Lading 

6.    01 (One) Nos. of Photo Copy of Self Attested Shipping Bill

7.    01 (One) Nos. of Original Annexure (A) to ANF 7(A) A Certificate of Chartered Accountant (CA)

8.    01 (One) Nos. of Original Cancel Cheque

9.    Self Attested Photo Copy of Pan Card 

10. Self Attested Photo Copy of IE Code. 

11. Self Attested Photo Copy of valid RCMC. 

12. Self Attested Photo Copy of Ministry of Micro, Small, & Medium Enterprises / Udhyam Addhar / Udhyog Addhar

13. Self Attested Photo Copy of Form GST REG-06 Registration Certificate

               14 (One) Nos. of Original Company letterhead Pre-Receipt

                    15 (One) Nos. of Original Bank Mandate Form 

Once your documents are ready it has to submit online and manual application with CA certificate drafting and email to you once get confirmation of drafting we submit online application and after submission of online application is send final application to you and send us application with stamp sign by company and CA certificate with stamp sign by CA .

After receiving your all documents, it has to put up file to DGFT office after submission of application at DGFT. 

Application Process  Steps PDF ->http://dgftcom.nic.in/exim/2000/tmahelp/tma-help.pdf

Application Process Link -> http://dgftebrc.nic.in:8090/TMA/jsp/Login.jsp