(Determination of Price... Most Important)
The common question raised by the majority of the participants in the training is how much should be invested for any export trade in the beginning. And the common answer to this question is always that it depends on the nature and type of commodity that one wants to export. For instance, if one wants to export tonne cashew, he will have to invest around Rs.6 lakhs and at the same time, if he wants to export a tonne of brinjal, he will have to shell out a sum of Rs.1 L only.
It must be noted that the term, ‘costing’ is the one which is most important for determining the price of the commodity. If anyone slips on this, he will have to incur a loss in the export business. The element of costing has several ramifications. Supposing we buy a kilo of brinjal from the farmer, the basic cost would be Rs.10/-. We will have to spend Rs.10/- more for securely packing which includes labour for packing also. Assuming that the airport is at a distance of 130 km for booking the commodity as air cargo, the transportation cost would come to Rs.7.50. We have to pay the Customs House Agent (CHA) a sum of Rs.4.50 per kg.
The transportation cost by air would be around Rs.60/- to Rs.90/- per kg. On average, if we pay Rs.75/- per kg.the overall cost would touch Rs.107/-. If we add our gain @ Rs.8/- per kg.its selling price would be Rs.115/- In terms of $, it will be 1.66 $, assuming that the dollar value is Rs.69/- against $1/-. We can round it off to 1.6 $ to be quoted to the importer. Then only we will be able to get the order to our favour. This is how the costing is to be done for any commodity to be exported.
Some importers will confirm that they will pay the air cargo charges in which case we must deduct the cost of transportation from the total amount and quote. In this process, we may be able to meet three orders a week. Normally, it will be possible for us to keep a margin of profit from 8% to 12%. For instance, if we keep 8% margin, we will be able to get an earning of Rs.24,000/- per week and Rs.96,000/- per month. Giving a due allowance of Rs.40,000/- towards rent for the office, salary for the workers and maintenance expenses, we will be able to get a net profit of Rs.56,000/-. This calculation is based on the export of one ton of brinjal. Besides this, the Government will give 5% subsidy for export of vegetables which is also part of our profit.
We must make a note of some more important tips in the export of vegetables. Since the prices of vegetables are flexible, our quote should be valid only for one month. We must ensure that the vegetables intended for export should reach the airport at least 10 hours before the scheduled departure of the flight. Another golden rule is that we should not send the vegetables without 100% bill amount in advance and that too, we must accept payment only through the bank that has the IU code as dealing through their men direct is a violation of legal means as per Government Act in force. All such transactions are being monitored by the Foreign Exchange Department.
In general, different commodities are being exported from India to as many as 256 nations. But at the same time, the Federation of Exporters recommends 25 nations only as ideal for exports. According to the knowledge and experience of Mr Kamaludeen, the original author of this article, only 10 nations are the most ideal such as Middle East, Hong Kong, Singapore, Saudi Arabia, Bangladesh, Nepal, Malaysia, Thailand, Vietnam and Sri Lanka. In case of loss in export trade, it should be only because of our mistake somewhere. Obviously, the gain in export is due to our bold investment and the type of commodity that we export to a foreign country.
It is hence imperative on our part to understand that while exporting we must ensure our commitments and responsibilities, Customs House Agent’s responsibilities and Bank’s role besides proper documentation and preparation of accounts. If we are aware of these different tasks, the export will become easy to handle.
Mr Kamaludeen’s personal experience is worth noting. He established his export company in 1997. He received the first order from Singapore for a container load of rice. He experienced a lot of practical difficulties in determining the price. He honestly feels that the new exporters or first-time exporters should not undergo similar hardships and keeping this in mind and also the fact that our farmers’ interests should always be protected, he has developed customized software for export. Above all, he has been giving practical training sessions for the new entrepreneurs and also for college students from time to time.
The author has taken a lot of initiative and efforts in imparting his knowledge to the aspiring exporters through ‘Pasumai Vikatan’ magazine. He is happy that he is continuously getting a lot of enquiries and feedback from the people. He suggests to the interested persons to go through his book,’ How to become an enterprising entrepreneur in the export business’, published and released by ‘Vikatan Publications’ after its series of publications through ‘Nanayam Vikatan’.
Tel: 044 28211811
The author asserts that there has not been any major change in the export documentation work relating to the mother documents and hence one-time learning of this will suffice in terms of basic formalities to be observed. However, there will definitely be some differences in the requirements of documents from country to country. Moreover, there are some changes to be noted based on technological improvements from time to time. For instance, earlier, it was all manual but nowadays these documents are to be used online. We must always be aware of these changes being introduced by the Government.
As regards exports, there are basically two types of documents such as pre-shipment and post-shipment documents. The exporter is required to prepare both these documents in addition to CHA’s two documents and one bank document in relation to the shipment.
Shipping Bill – EP copy:
We must ensure that we collect the checklist (original shipping bill) and a bill of lading from the CHA.
Bill of Lading or Air Way Bills:
The bill of lading represents the document covering despatch of goods by ship while the airway bill represents the document covering despatch of goods by air. This is classified into five categories such as a) Master Bill, b) House Bill. c) Switch Bill, d) Surrender Bill and e) Express Bill. We must procure the particular Bill which is sought for by the importer. If we receive full money in advance, we can give Surrender Bill and Express Bill. These two bills are not supposed to be delivered without getting full money. However, the remaining three bills can be parted with. Care must be taken to understand the importer’s specific requirements.
Bill of Exchange:
The concerned Bills pertaining to the export should be handed over to the bank after physical despatch. When we receive the money in $, it will get converted in INR and credited to our account. The importer will have to pay the money only in $.
Bank Covering Letter:
This must be prepared only by us. It is nothing but a covering note concerning the despatch of goods along with the money received or to be received by us for the export made by us. This document needs to be given to the bank.
Bank Realization Certificate – BRC:
This document will be prepared and handed over to us by the bank upon the realization of money from the importer. We have to collect this from the bank and take a printout of the same from the website, dgft.gov.in.
There are different kinds of transportation of export goods. One is called ‘Free on Board’ wherein we will be responsible for taking the goods up to our airport or shipyard for loading. The second one is sending the goods with responsibility up to the airport or shipyard of the importer which is known as ‘Cost and Freight’. This is preferred by the majority of the traders. The last one refers to despatch and delivery at the preferred place of the importer direct, known as ‘Delivered at Place’. It would be better to avoid accepting the third type for all practical purposes. It is necessary for the exporter to get it confirmed from the importer as to his specific preference of the mode of despatch as mentioned above before finalising the sale value. This will ensure that there is perfect clarity and both the interests of the exporter and the importer will thus be safeguarded.
(This article was written in Tamil by K S Kamaludeen for Pasumai Vikatan magazine dated 10/03/19 has been transcreated in English by P.S.Ramamurthy)