Supply Chain Management for exports

With the advent of time, as the obstacles of international trade are gradually dissipating and new opportunities are making their way into the global markets, import-export companies are beginning to grow rapidly. These companies are intricately into the transit of goods from one country to another, yet their lucrativeness often suffers setbacks in the form of:

Time taken to transport the goods

Import-export companies often face challenges and problems at the destination port in the form of unnecessary delay or high charges by agents thereby resulting in more than stipulated time for the goods to reach the importers.

Mode of logistics

The mode of transport is one of the most critical aspects of international trade. Several contingencies affect logistics such as delays at the loading port, delay while transiting, or sometimes cancellation of the shipment vessel that cause problems for the importers and exporters.

These hindrances have spurred on the need for an effective and compliant supply chain management that monitors and deals with issues related to norms, procedures, documentation, customs, trade compliance, HTS classifications, freight and many more to minimize the obstructions in the transit of export orders. This specialized strategy is helping to enhance the margin of profits by increased customer satisfaction.

How does it work?

Supply chain management involves the skillful dispensation of strategies and leverages operations in the supply chain in order for an exporter to be successful in delivering the merchandise to the importer hassle-free.

Supply chain management is all about what an exporter requires, where an exporter requires when an exporter requires and how does the exporter utilize the human resources to process his order. Thus, it involves successful completion of the following systemic approach:

1. Managing the products

The exporter may be a manufacturer exporter or a merchant exporter or an export management company on behalf of the manufacturer. It is essential that any kind of exporter who enters the market have an infrastructure to make a regular and timely supply of the products he is looking to export. The exporter must meet the regulatory norms strictly for the products. It is also beneficial for the exporter to know well about government offerings on the incentives and the tax exemptions.

It is essential that an exporter work on the export cost to enhance profits and also on the export price at which the goods shall be offered to the international buyers or the domestic buyers in the form of merchant exporters.

2. Sample production and acceptance

The exporter may be required to send a sample to the importer for approval before the final order. It is essential that an exporter is well versed with the government regulations and procedures for sending an export sample.

The sample produced should meet all quality requirements as stipulated, and when being sent for approval, they should be marked as ‘sample-not for sale.’ The samples can only be shipped by airfreight or post parcel.

Export samples fall under three categories. First are the samples, which are within a value of rupees 10,000. They do not involve any foreign exchange, and the exporter must declare this.

Samples which are more than 10,000 but less than 25,000 require a value certificate from the bank stating that no foreign exchange is involved and the value of the sample exported does not exceed rupees 25,000.

Lastly, when the value of the sample is more than rupees 25,000 the exporter should obtain a GR/PP waiver from the RBI.
In case the samples are sent against payment then they are deemed as normal exports and require all formalities to be complied with.

3. Quality and certification requirements

It is mandatory that export products must meet the quality control and certification requirements both of the exporting country as well as the importing country.

The exporter may have to fulfill sanitary, phyto-sanitary requirements if the export product belongs to the food category-comprising animal or plant ingredients. When exporters export agricultural products from India, they should hold AGMARK certification and ISI 9000 mark of approval. ISI 9000:2000 is the present international norm of high-quality goods that has worldwide acceptance. Products belonging to the pharmaceutical sector must qualify under USFDA or EMA.

Without necessary quality certification, the goods to be exported may be rejected, and the exporter may incur heavy financial losses.

4. Managing documentation challenges

When exporters send goods internationally, they require precise and relevant documentation. It is of utmost importance that paperwork is in due compliance. The order as an error in them could delay the shipment. Managing documentation challenges methodically ensures timely delivery of goods.

  • The documents for payment {bank draft}, contact address and packing should have clear and precise information.
  • Classify the product under the correct system code.
  • Mention the units of measure and quantity authentically.
  • The commercial invoice should be true and with the correct value.
  • The product description should be in accordance with the letter of credit.
  • In the case of exporting any dangerous goods, the consignment should have a proper label.

The documents involved in international trade are:

  • Air Waybill
  • Bill of Lading
  • Combined Transport Document
  • Draft (or bill of exchange)
  • Insurance Policy
  • Packing List/Specification
  • Inspection Certificate

5. Financing

While engaged in exports, long payment terms can be challenging and cause problems in the working capital. Export finance through banks or financial institutions helps to release this working capital contingency and helps a business to grow.

The exporter can procure pre-shipment finance to carry on the manufacturing process without any glitch. It is available against an expected export order or a letter of credit. The two types of pre-shipment finance are:

Packing credit 

Packing credit is available in both Indian currencies as well as foreign currency. The maximum time a bank provides a packing credit is 180 days. It can further extend it to another 90 days at its discretion. The rate of interest is according to the amount of finance against the order. In case the exporter fails to liquidate the packing credit at the due date owing to any contingency the bank considers it as an overdue and initiates necessary steps to recover the said amount.

When the packing credit is in foreign currency the rate of interest is according to the London Interbank Offered Rate (LIBOR). According to the stipulated guidelines, the final cost of exporter must not exceed 0.75% over six months LIBOR, excluding the tax.

Advance against cheque or draft representing advance payments

The exporter can procure finance at a concessional rate from the bank. They can present an advance cheque or draft from the importer, till the time the proceeds of the advance payment get realized.

The exporter can also procure post-shipment finance from a bank or a financial institution. An exporter takes this finance after the export shipment has already been made. It is only taken for the period until the export proceeds get realized. It is more or less taken to fund oneself in advance against secured payments to be realized later.

6. Insurance Production management

With an insurance policy, the exporters become safe against the unforeseen risks that they may encounter during the course of exporting goods. Insurance coverage can come for the merchandise from the airline, logistics specialist or from the freight forwarder. They may also come from an insurance company that extends insurance coverage for the goods by an ocean or air cargo.

The insurance coverage is available under three forms, i.e., perils, broad-named perils, and all-risks. The most prevalent plan is the all-risk plan which all insurance companies or transport companies offer. This insurance coverage ensures goods against any loss arising out of external circumstances excluding loss out of natural calamities. The insurance coverage on aggregate costs 1 to 2% of the value of total goods.

7. Shipping costs and time

Selecting the most appropriate mode of transport is an essential aspect of the export procedure. The exporter must contemplate that the transit mode is in accordance with the merchandise they are exporting. The exporter should work around strategies that enable them to reduce the shipping time and costs.

To speed the shipments through delays in customs, the most effective strategy is to partner with an efficient freight forwarder. It could also be a customs broker or any other agent who can manage shipment documents in less time.

One must complete the documentation and formalities accurately. It will avoid any delay at the customs. Also, the mode of transport should be as per the transit time and value of goods.

Some other aspects that could help reduce shipping cost are-

Consolidate the shipping order such that a 40 feet container could be in use once a month, rather than shipping in small quantities a multiple times. This will help to reduce transportation costs and custom clearance fees.

Try and set the small boxes in one palette. This will help to reduce the weight and volume of the shipment saving costs.
Also, provide correct and factual information on the packing to avoid any delay of shipment.

An EndNote

Thus, there is a multitude of norms and regulations, which require compliance by the exporter. The supply chain management enables the exporter to meet all the requirements with precision so that high-quality goods can reach the importers without any delays and compromise, as efficiently as they can.