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Trade Notice No.1/2019-20


Federation of Indian Export Organisations

(Set up by Ministry of Commerce, Govt. of India)

Niryat Bhawan, Rao Tula Ram Marg

Opp. Army Hospital Research & Referral, New Delhi-110057

 

Trade Notice No 1/2019-20

November 18, 2019

 

To: All Members

 

 

Subject: Standard Operating Procedure (SOP) for payment of Freight & Freight related Charges for Exports

 

Exporters, in their representation through FIEO, to the Logistics Department under Ministry of Commerce, have brought to notice the following issues in respect of container freight payment:

 

(i)   The exchange rate quoted by the Shipping Line or their agent or Trade intermediaries for the payment, towards freight & freight related charges, in their invoice, if the exporter chooses to pay in INR, is much higher (200-300 paise more) than the prevailing market exchange rate;

 

(ii)   Where the invoice is raised in FE (Foreign Exchange), by the Trade Intermediaries towards freight, the amount of FE demand (or equivalent INR) exceeds the amount payable in FE (or equivalent INR) to the Shipping Line invoice towards container freight;

 

(iii)  Certain services provided within the Trade eco-system, are being billed as freight charges in FE by trade intermediaries, is in contravention of extant regulations.


II.
To sort out the issues, having implications for logistics costs of export trade, the Ministry has convened several meetings at New Delhi with all the stakeholders, i.e. Exporters, FIEO, Shipping Lines, Freight Forwarders and also engaged SBI with an objective to find an acceptable solution that addresses the issues highlighted by FIEO on behalf of the Exporters fraternity. The last such meeting was held on 30th September 2019 and on 7th October, 2019 at New Delhi, where extensive discussions were held on the solutions provided by SBI through a SOP.

 

The main underlying principle during discussions was that the country’s liability for payment in FE is limited to freight cost and the outgo should be limited to what’s actually payable to Shipping Lines. All other incidental charges for services rendered to be invoiced and payable in INR only

 

III. However, it was decided that the initial SOP prepared by SBI, needs further revision incorporating issues highlighted by Freight Forwarders Associations and other stakeholders.

 

IV. Accordingly, further discussions were held with representatives from FFFAI, FIEO, Shipping Line (CSLA, INSA), Port Authorities (IPA, Portall), AMTOI, CAI on 15th October 2019 at SBI Bhavan, Corporate Centre, Mumbai. Basing upon the discussions, the SOP submitted earlier stands revised as under:

 

1. The Exporter (Shipper / Consignee) and the Shipping Line or their agents or Freight Forwarders or Trade Intermediaries enter into a contract with terms and conditions mutually agreed upon.

 

2. Shipping Line or Freight Forwarders / Intermediaries issue an invoice in freely convertible Foreign Currency as per the contract entered, for freight and freight related payment, like, Basic FRT, BAF (Bunker Adjustment Factor), CAF (Currency Adjustment Factor), etc.

 

3. Upon receipt of invoice, the Exporter can have the following two options (Option A & Option B):

 

Payment Option A

Payment Option B

Payment using INR Operating A/c

Payment using EEFC A/c

Exporters approach their AD Bank and negotiate and finalize the conversion rate for foreign currency payment to Shipping Lines or their agents or Freight Forwarders or Trade Intermediaries

Exporters pays the freight charges and other freight related surcharges as per the industry norms in foreign currency through their EEFC account to the Foreign Currency account of Shipping Lines.

 

Payment through EEFC account and receipt in FE is as per notification FEMA 10 (R)/2015-RB of January 21,2016.

 

 

4. Exporters perform the A2 remittance on the basis of the freely convertible foreign currency invoice received from Shipping Lines / others and submitting required documents with AD (Form A2, Form 15CA/CB). The SWIFT copy of remittance to be shared with the Shipping Line on the same day by AD Bank / Exporter.

 

5. Upon receipt of acknowledged copy of SWIFT, the Shipping Lines to issue Bill of Lading (B/L) to the Exporters.

 

6. For payments through Freight Forwarders (FFs), the invoice amount raised by them on the exporters in FE or INR, for freight & freight related charges, would be equivalent to that received by them from the Shipping Lines. For covering their operational expenses / booking margins, the same to be raised in INR denominated invoice separately. In essence, the exporters to pay only the Freight and freight related charges like BAF, CAF, etc. in FE. The FFs to raise separate invoice in INR for the services rendered over and above the Shipping Line charges.

 

FFs, as agent of Exporter, facilitate payment through their AD’s. FFs recover the amount or adjust amount on account of Exporter through an invoice supported by the original invoice of the Shipping Line (recovery amount may depend on credit terms if any offered by FFs).

 

7. Other operational expenses, like D&D (Demurrage Detention), THC (Terminal Handling Charge), IHC (Inland Haulage Charges), other local charges, to be invoiced in INR.

 

V. The above payment mechanism is fully implementable in respect of Full-Container-Load (FCL) cargo, arranged by the Exporter or facilitated by FF’s, on origin to final destination basis.

 

VI. For Less-than-Container-Load (LCL) cargo, including transhipment in foreign locations too,  the Exporter to be charged only in INR since there is no liability of Exporter directly attributable or apportionable or accurately or exactly determinable in FE (in various currencies) at the stage of booking the cargo (Freight Forwarder will factor the risk of FE rate fluctuations in his service charge and discharge the FE liability wherever arising as the agent of the exporter to carry the cargo to destination).

 

FFs can levy an all-encompassing charge only in INR since the charge includes the payments in FE including freight and Transhipment service charges at foreign ports etc. based on Shipping Line / port or service provider invoices wherever arising.

 

VII: For recommended payment option “B”, as per notification FEMA 10 (R) /2015-RB of January 21,2016, all Exporters are eligible to open and maintain Exchange Earners Foreign Currency Account (EEFC). Similarly, all Indian agent of Shipping companies incorporated outside India are eligible to open and maintain Foreign Currency accounts.

 

VIII. The permitted Credits and Debits in EEFC accounts are mentioned as under:

 

Credits

Debits

1) 100% of foreign exchange received

on account of export transactions.

1) Any permissible current or capital account transaction

2) Payments received for the purpose of counter trade

2) Cost of goods purchased

3) Advance remittance received by an exporter towards export of goods or services

3) Customs duty

4) Repayment of loans given to foreign importers

4) Trade related loans and advances

5) Disinvestment proceeds on conversion of ADR/GDR

5) To a person resident in India for supply of goods/services

6) Professional earnings like director’s/

consultancy/ lecture fees, honorarium and similar other earnings received by a professional by rendering services in his individual capacity

 

7) Interest earned on the funds held in the account

 

8) Re-credit of unutilized foreign currency earlier withdrawn from the account

 

9) Payments received in foreign exchange by an Indian startup arising out of sales/ export made by the startup or its Overseas subsidiaries

 

 

IX. The permitted Credits and permitted debits in Foreign Currency accounts of Ship Liners are:

 

Permitted Credits:

Freight or passage fare collections in India or from the principal outside India.

 

Permitted Debits:

Local expenses of the overseas company.

 

Exporters, while booking freight through shipping lines/Freight Forwarders, are advised to take note of the above SOP, for availing the option of making payment in USD towards freight & freight related charges, to avoid the exorbitant exchange rate difference for such payment when made in INR.

 

Any difficulty in this regard may be brought to the notice of Federation at prashantseth@fieo.org

 

 

Ajay Sahai

Director General & CEO

 

 

(F.No FIEO/Study/Infra-I/2019-20)

 

 

 

 
 
Trade Notice No.1/2019-20