28

Regulatory Compliance

“The growing need for companies to comply with a wide varieties of regulatory requirements creates new and difficult challenges that can distract an organization from adding value to its products, (and) yet achieving compliance is essential to protecting the value of its innovations

 

—-Jim Brown”

INTRODUCTON

The purpose of the regulation is to ensure equality and justice in society by framing laws, acts and regulations. As the labour laws of various nations differ, an authority is required to regulate matters relating to employment and labour at the international level. The International Labour Organization has laid down many laws and guidelines to regulate labour matters in the international trade.

India has a number of laws dealing with labour matters. These laws aim at providing legal and corporate status to workers, protecting their health, safety and welfare, giving them proper benefits in case of sickness, maternity or any injury, to ensuring that they receive regular and prompt wages and other benefits. All those countries (including India) which have strict laws are now liberalizing the norms to suit the changing market conditions.

Intellectual property rights are given to those who have invented a new method or technology useful to the entire society or to those who have created an original artistic or literary work. Trade-related intellectual property rights (TRIPS) are framed by the WTO to regulate issues relating to intellectual property at the international level. Intellectual property rights cover: trademarks (marks which help customers identify a genuine product from a fake one), copyrights (the rights given to any original literary or artistic work in tangible form) and patents (given for any new invention or innovation which is beneficial to society).

License is an official sanction given by the government to import certain goods which are under the trade block. The regulations related to product promotion differ from country to country and from commodity to commodity. International marketers should thoroughly understand the norms and regulations of the foreign country before entering its market. The culture, beliefs, and language of the people should also be taken into consideration apart from the laws of the country.

The Competition Act looks into the anti-competitive policies in India. It is framed to ensure fair competition and prevent monopolistic abuses in the market. In the United Kingdom and United States, the business environment is regulated by the European Union and U.S. antitrust law.

The objective of legislation is to streamline business growth, protect the firms from unfair business practices, protect the consumers and check malpractices. Today, groups like environment protection groups and consumer forums are putting more pressure on government to restrain businesses organizations. The deregulation of transportation, privatization of ports, rationalization duties and tax structure, and enforcement of environmental protection laws are a few measures that have had an effect on this industry. The new policies and regulations are being evolved and enforced, keeping in view the objectives of globalization, privatization and liberalization with an additional regulatory dimension for environmental protection. The regulatory environment has an impact on the operation of logistics and supply chain operations too.

MULTIMODAL TRANSPORT OF GOODS ACT, 1993

The multimodal transport covers the door-to-door movement of goods by a single transport operator. The origin of the concept was developed with the container revolution initiated in late 1951 by Malcom McLean in the United States and his trucking operations. The driver for multimodal transportation was the emerging container technology and growing international trade. In fact, the basic premises for successful trading very much depend on efficient transport services.

In cross-border trade, the movement of goods is done by using various transport links. These may be air, water, surface and rail. The storage and handling conditions also vary from country to country. This situation created many problems over the years. Hence, to avoid the involvement of multiple agencies, a concept of handling transportation by a single agency emerged. The variations in cultures, languages and commercial practices at buyer and seller ends result in complexity. It becomes very difficult to align the various members of the chain. The solution is to let one qualified operator be responsible and accountable for the entire transport chain.

To take advantage of the potential offered by the new technologies such as the internet and EDI, the international trading community updated its uniform commercial practices. These are regarding trading terms, letters of credit and multimodal transport documents. Multimodal transport implies the safe and efficient movement of goods, where the MTO accepts the corresponding responsibility from door-to-door. The purpose of the Multimodal Transport of Goods (MMTG) Act, 1993, is to streamline multimodal transportation in India. The regulating authority for MTG is directorate general of shipping, which will regulate the unorganized MTOs also. This act came into force in April 1993. As per this act, registration of multimodal transport operator is mandatory. The MTO registration is valid for a period of 1 year and needs to be renewed for a further period of 1 year from time to time.

The MMTG Act gives exporters a sense of security in transporting their goods. The basic concept of the act is a door-to-door delivery using multimodal transportation. The cost competitiveness (logistics) is one of the important aspects of multimodal transportation.

Under the MMTG Act, three types of companies are eligible to be registered as MTOs, and shipping companies, freight forwarding companies, and companies which do not fall in either of the above two categories, but are related to transportation.

FREE TRADE AND WAREHOUSING ZONES ACT 2005

Under the foreign trade policy 2004–09, the Government of India had announced to set up FTWZ (free trade and warehousing zones). FTWZ is a trade-related infrastructure to carry out the transactions related to import and export of goods and services in free currency. On 23 June 2005, the Parliament of India passed the Special Economic Zones Act, 2005, and on 10 February 2006, the same was notified by the Government of India.

In essence, FTWZ is a ‘deemed’ foreign territory for carrying on business. FTWZ's are created to act as ‘international trading hubs’ and are designed to provide ‘world class’ infrastructure for warehousing handling and transportation equipment, commercial office space. All related utilities such as telecom, power and water are made available to the companies to facilitate imports and exports of goods. It provides a single window clearance of import and export of goods. FTWZ is a key facility linking global supply chains with logistics. The customized facilities will be available for chemicals, food, electronics and oil products. FTWZ will have both dry and refrigerated storage facilities, transportation facilities, information system for cargo tracking and office space support facilities with medical, canteen and business services.

For development of FTWZ, 100 per cent foreign direct investment is permitted. Minimum size of the warehousing stipulated at 1 lakh sq mtrs (0.1 mn sq mt). The FTWZ is under the administrative control of the development commissioner (DC). For the key benefits of FTWZ in supply chain operations, refer to Table 28.1.

 

Exhibit 28.1 FTWZ Benefits

Areas	Benefits
Fiscal and Regulatory	Custom duty deferment Income tax and service tax exemptions Excise duty exemptions
Infrastructure	Warehouses (for single product or shared with other products and equipments)
Administration	Reduction in custom formalities Improved delivery period Effective support services Availability of banking and insurance facilities
Region	Flow of foreign investments Creation of employment potential Boosting up ancillary industries Enhanced economic activity

For companies with global supply chain operation, by availing of FTZ facility and by proper planning, the international freight cost can be reduced considerably with enhancement in response.

GOODS AND SERVICES TAX (GST)

Goods and services tax (GST) is a part of the proposed tax reforms aimed at an efficient and harmonized consumption tax system in the country. In the union budget for the year 2006–07, the finance minister proposed that India should move towards national level GST that should be shared between the centre and the states. He proposed to set 1 April 2010 as the date for introducing GST.

The introduction of GST to abolish taxes such as octroi, central sales tax, state level sales tax, entry tax, stamp duty, telecom license fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, and to eliminate the cascading effects of multiple layers of taxation. GST has facilitated seamless credit across the entire supply chain and across all states under a common tax base. It has offered significant benefits to industries, the government and the consumers. They are as follows:

• Logistics re-arrangement: With GST implementation, sales tax differentials across the different states have been eliminated. This has helped the marketers in reducing the number of warehouses to store the goods and distribute the goods with no state boundaries. With the reduction in number of warehouses, most of distribution are going through the hub and spoke distribution model operating on economies of scale leading to substantial cost reduction.
• Tax credits: Under GST, manufacturers are entitled to input tax credit of all inputs and capital goods purchased from within the state as well as inter-state. With GST, there is no cascading effect of taxes and has resulted in a reduction in the cost of doing business.
• Inventory costs reduction: With GST implementation, tax paid on inventory is fully recoverable immediately against input tax credit. This has resulted in reducing the inventory financing costs.
• Cash flow benefits to middlemen: Dealers and distributors have started to collect GST from customer but are required to remit it to the government only at the time of filing their returns. This will help them to avail of extra cash.

The GST rate is around 14–16 per cent. After GST rate is arrived at, the states and the centre will decide on the central GST and state GST rates. Before GST, services are taxed at 10 per cent and the combined indirect taxes on most goods are around 20 per cent.

VAT AND CENVAT

CENVAT is the new name for MODVAT. Basically they are the same. These are related to central excise. CENVAT means, tax on value addition on the goods manufactured according to the central excise and customs act definition.

VAT is an excise duty collected by the government (of the state in which the final consumer is located)—which is the government of destination state on consumer expenditure. CENVAT stands for central value added tax. These are a component of the tax structure employed by many countries across the countries in the world. The key objective of designing ‘CENVAT’ and ‘VAT’ is to minimizing a cascading effect of tax incidences on goods and services at various transaction points.

India already has a system of sales tax collection, wherein the tax is collected at one point (first/last) from the transactions involving the sale of goods. VAT would, however, be collected in stages from one stage to another. The mechanism of VAT is such that, for goods that are imported and consumed in a particular state, the first seller pays the first point tax, and the next seller pays tax only on the value-addition done—leading to a total tax burden exactly equal to the last point tax.

VAT which was earlier introduced was replaced by MODVAT (modified value-added tax) and now being replaced with CENVAT to remove some limits on the type of taxation that could occur on goods used in the manufacturing process of finished consumer products. CENVAT encourages the production of goods within the country, rather than outsourcing the production to countries where the economic and tax climate is more favourable. CENVAT would reduce the tax burden for the end user of the materials.

WAREHOUSING (DEVELOPMENT AND REGULATION) ACT, 2007

This act proposes to regulate the warehousing business. However, till the government issues a notification, the existing law will be operative. Currently, the business of warehousing is governed by the law of contracts and it is left to the contracting parties to decide the terms and conditions of the warehousing arrangements.

One significant aspect of the business of warehousing is the status accorded to the warehouse receipt and whether such receipt is transferable by endorsement and delivery along with the property in the goods represented by such receipt. Under section 2(4) of the Sales of Goods Acts, 1930, a warehouse receipt is also included in the definition of the documents of the title of goods. But law does not provide sanctity to such receipt as negotiable document and provide for rights and obligations of warehouseman and holder of warehouse receipt. Since it is not a negotiable instrument or document, it is not possible to deal in the document title for trading in commodities. And raise finance against the security of warehouse receipts. The new law fills these gaps and provides a new regulatory regime for warehouse business. It facilitates the issue of negotiable warehouse receipts by any person carrying on business of warehousing. The salient features of this act are:

• The object of the act is to make provision for the development and regulation of warehouse, negotiability of warehouse receipts and establishment of a warehouse development and regulatory authority.
• A person who delivers goods to the warehouse men for storage is defined as a depositor and the goods are defined as all tangible goods excluding actionable claims, money and securities whether fungible or not.
• Definition of negotiable warehouse receipt recognizes negotiability of such receipt and provides for effect of transfer of goods represented thereby when the receipt is endorsed and delivered (negotiated).
• The law applies to any person who is registered as a warehouseman with the authority for carrying on the business of warehouse, that is, maintaining warehouses for storage of goods and issuing negotiable warehouse receipts.
• The law recognizes a warehouse receipt in electronic form issued by warehouseman or by his duly authorized representative.
• Any person desirous of undertaking business of maintaining warehouse issuing negotiable warehouse receipt has to obtain registration. Any person, firm, cooperative society or any association of persons, whether incorporated or not can be warehouseman.
• Existing warehouse business has to apply for registration within 30 days from the date of commencement of the act.
• The law makes detailed provisions about particulars to be included in the warehouse receipts, their negotiability by endorsement and delivery, warranties on negotiation of warehouse receipt and issue of duplicate receipts.
• The law provides for registration of accreditation agencies for issue of certificate of accreditation to warehouse issuing negotiable warehouse receipts.
• Any existing or future warehousemen not intending to issue negotiable warehouse receipts will not be governed by this law. Such a person can continue his business activity without obtaining registration.

This law has distinct advantages for agriculturist as well as commodity traders. Negotiable warehouse receipts will facilitate trade in commodities without physical handling of the stocks of commodities and other goods. Warehouse receipts being documents of title to goods can be easily offered as security for any loan. Development of modern warehouse would also facilitate storage of surplus crops and sale at a future date when there is demand for goods/commodities.

TRANSFER PRICING

The Indian TP regulations have been enacted with a view to provide a regulatory framework which is capable of computing reasonable, fair and equitable profit after tax in India so that the profits chargeable to tax in India do not get diverted elsewhere by altering the prices charged. The Indian transfer pricing regulations which became applicable on 1 April 2001 is largely based on the OECD guidelines.

A contract manufacturing arrangement is similar to outsourcing of manufacturing operation. Under a contract manufacturing arrangement, the firm enters into a contract with the other manufacturing company, to manufacture products according to the specifications under a buy–sell arrangement. By manipulating a few book entries in the accounts books, multinational corporations are able to transfer huge profits with practically no actual change in the business process. For instance, a company may manufacture goods in one country and buy it in other country at different price and sell it at quite different price. Taking into account the differential tax rates, the company may raise or lower the purchase price and thus avoid the real tax incidence by hiding the real transaction price that would have been otherwise.

Thus, multinational corporations derive several benefits from transfer pricing. Since each country has different tax rates, they can increase their profits with the help of transfer pricing. By lowering prices in countries where tax rates are high and raising them in countries with a lower tax rate, such organizations can reduce their overall tax burden, thereby boosting their overall profits. Indeed, one often finds that corporations located in high tax countries, in fact, pay very little corporate taxes. Hence, the transfer pricing regulation and its compliance is a must on the part of enterprises in buying-selling transaction.

Indian transfer pricing regulations are drawn from OECD guidelines. Indian transfer pricing regulations list the methods that may be used in the determination of the arm's length price, and requires the use of the most appropriate methodology from among the available and commonly practised ones.

The Finance Act, 2001, introduced the detailed transfer pricing regulations (TPR) in India with effect from 1 April 2001 corresponding to the assessment year 2002–03. The rules for transfer pricing have been notified on 21 August 2001. The sections and rules under the Income Tax Act, which deals with TP regulations are sections 92 to 92F and rules 10A to 10E and sections 271(1)(c), 271AA, 271BA and 271G. According to Section 92, the transfer pricing is defined as:

• Any income arising from an international transaction shall be computed having regard to arm's length price. [Section 92(1)].
• The allowance for any expense or interest shall be determined having regard to the arm's length price while determining income under sub-section (1) above. [Section 92(2)].
• The cost or expense allocated or apportioned between two or more associated enterprises shall be at arm's length price. [Section 92(3)]. This is a case of cost contribution arrangement or cost sharing arrangement between intra group entities.

Similarly, any transaction between two permanent establishments in India would be covered as both will be non-residents of India. These regulations cover transactions of borrowing and lending. There are various methods for computing arm's length price or transfer pricing:

• Comparable uncontrolled price method (CUP)
• Resale price method (RPM)
• Cost plus method (CPM)
• Profit split method (PSM)
• Transactional net margin method (TNM)
• Such other method as may be prescribed by the board.

Sub-section (2) provides that where more than one price may be determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices. This is a unique concept in India.

The relevant rules envisage determination of ALP by applying margins of each comparable company to the appropriate base of the enterprise. The regulations further provide that, where more than one price is determined by the most appropriate method, the ALP shall be taken to be the arithmetical mean of such prices. An alternative practical approach to arrive at such ALP is to compute the arithmetic mean of margins of comparable companies and apply the same to the appropriate base of the tested party to determine the ALP.

In India, the provisions in computation of arm's length price are in line with the international guidelines and laws of various countries. In view of the fact that initial burden of maintaining records is with the tax-payer and this would be justified in selecting the most appropriate method and maintaining the records for the same. Rule 10C provides that the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction.

Arm's length price (ALP) is the internationally accepted transfer pricing standard which must be applied for tax purposes by MNE's and tax administration. Even, Indian TP regulation recognizes determination of pricing between associated enterprises on an arm's length price basis. The term “arm's length price” is defined to mean a price applied in uncontrolled conditions. In other words, it refers to the market value of a particular transaction ignoring the impact on pricing due to existence of special relationship between associated enterprises.

Penalty for concealment of income or furnishing inaccurate particulars thereof is 100–300 per cent of the tax sought to be evaded. Penalty for failure to keep and maintain information and documents in respect of international transaction is 2 per cent of the value of each international transaction and Penalty for failure to furnish report under section 92E is Rs 100,000.

IATA GUIDELINES FOR CARGO MOVEMENTS

For transportation of dangerous goods by air The International Air Transport Association (IATA) establishes and maintains a set of regulations. This regulation is used as a standard to harmonize the transportation of dangerous goods by air.

The purpose of this regulation is to ‘promoting safe, reliable, secure and economical’ air services. Its provisions cover the classification, marking, packing, labelling and documentation of dangerous goods shipped by air. The dangerous goods are defined as:

According to the 42nd edition of the IATA DGR, as reported by EMO Trans (a company specializing in international freight forwarding), dangerous goods are “articles or substances which are capable of posing a significant risk to health, safety or to property when transported by air and which are classified according to Section 3”. Section 3 of the DGR provides a set of criteria used to determine if the term “Dangerous Goods” applies.

As per the rule, the goods meeting the definition of dangerous goods, while being transported, in order to ensure the safety of the shipment, the shipper should provide an adequate level of protection for workers exposed to the shipment, and enable the best practices in preventing events, which may harm the environment.

The explosives, toxic gases, substances that may spontaneously combust, water-reactive substances, oxidizing substances and organic peroxides, poisonous infectious substances, and radioactive materials are banned from shipping by air by The IATA DGR. As per rules, the transport company should impart proper training to individuals involved in preparing goods for shipment by air._

In 2009, IATA DGR, (50th edn), IATA incorporated several changes to the DGR, including revisions of the list of dangerous goods in order to harmonize the list with the UN transport numbers. The new list includes fuel cell cartridges and lithium-ion batteries, etc.

‘TIR CARNET’ FOR TRANS-BORDER LOGISTICS

To overcome the problems of cross-border shipments through road transportation, UN (United Nations) road transport protocol called ‘TIR 1(transport internationaux outier) convention’ can be adopted for business trading. A lot of trade potential that exits between India and countries like China, Afghanistan, Iran, Pakistan, Bangladesh and CSI countries is not being exploited to mutual advantages because of high logistics cost. In the land route trade, there is always double handling of goods at border (due to customs formalities) causing damages and delays. The utilization of land route was made possible in Europe for cross-border logistics using TIR Carnet (transport internationaux routier) System, which is administered by International Road Transport Union (IRU). This organization is partnered by all inter-governmental organizations under UN fold, having its head office at Geneva. TIR carnet is a customs transit document used for international transit operation of goods. TIR carnet is a guarantee for safety of revenue given by IRU to customs organizations of nations through which freight transit takes place across border. This guarantee is executed by Apex national transport organisation, which becomes the general member of IRU. It also sets standards of road and vehicles safety. As many as 40 conventions have been adopted by UN on road movement in the last 60 years. With this convention and TIR carnet instrument, the truck can move/transit through the nations eliminating the border clearance by customs by way of opening packets or offloading of goods. This system eliminates the necessity of an army of customs officers at the border and also the need of necessary infrastructure of warehouses. Ghana and Pakistan have taken steps for adopting TIR carnet for increasing cross-border trade. In this system, IRU issues a guarantee of $6 bn for a day to the customs. With the adoption of this system, countries can save huge cost due to transit damages and delays in cross-border logistics. Is is also applicable to buses and passenger traffic. It can be also applied to multimodal transport including rail transport. This could be a great process tool when Asian railway materializes.

CERTIFIED CARGO SCREENING PROGRAMME

For exporter to the United States, the 9/11 Commission Act of 2007 requires that all cargo carried on passenger aircraft in the United States had to go through a security screening. To ensure the movement of cargo, TSA (Transportation Safety Administration) developed the Certified Cargo Screening Program (CCSP). This is a voluntary programme designed to move some of the screening process to shippers, third-party logistics providers (3PLs), air forwarders, and independent screening services. Cargo screened at a CCS facility and then transported through a secure chain of custody will not need to be inspected at the airport. This is for avoiding the delays in transportation to the customer.

In CCSP system, there is a rigorous tracking of the chain of goods custody. It uses tamper-evident technology to assure that after the cargo has been screened, the cargo remains secured in transit to the aircraft. Under CCSP, airlines have the ultimate responsibility to ensure that cargo has been screened prior to flight. As per CCSP, certified cargo screening facilities must adhere to a set of rules set by the TSA. This includes security requirements mandated by the TSA's security programme such as to maintain the integrity of cargo through chain of custody, permit onsite validations and periodic inspections and screening of cargo at the piece (not each pallet) level.

INCOTERMS

International commercial terms, known as ‘Incoterms’, are internationally accepted terms defining the responsibilities of exporters and importers. ‘Incoterms’ are reviewed and published by the International Chamber of Commerce and are used by businesses throughout the world. ‘Incoterms’ are used to make international trade easier. ‘Incoterms’ were introduced in 1936 and they have been updated six times to reflect the developments in international trade. The latest revision was in 2000. There are thirteen ‘Incoterm's that are used by businesses and are used in four different areas.

‘Incoterms’ define the transfer of liability involved in their international sales and the arrangement of shipments. Under these terms the ownership or the transfer of title of goods is not covered. The type of term used will have an impact on the costs and responsibilities involved in shipping, insurance and tariffs.

Exporters, while negotiating with importer should determine the ‘Incoterm’ that works best for their company and be prepared to quote on those terms. For example, in ‘Ex Works’ term an exporter's responsibility ends at their facility's loading dock. This means that importer should pick up goods from exporter's facility for forward delivery to the destination. In this, cost of transportation and insurance will be deducted from the importer's account. The term negotiated needs to be incorporated in all the documents related to that transaction.

The most burdensome Incoterm for the exporter is delivered duty paid (DDP). Under this term, all arrangements and costs are borne by the exporter. ‘Incoterms’ are categorized into four groups (E, F, C, D) and are listed below in order of increasing risk/liability to the exporter. Some Incoterms are applicable to ocean/inland transport only. There are 13 Incoterms as discussed as follows.

GROUP E—Departure

It covers only one Incoterm, that is, E×W.

Ex works (E×W)   It is followed by a name of a place. For example, E×W, Mumbai; under this term seller's responsibility is to make the goods available at the seller's premises. The seller is not responsible for loading the goods on the vehicle provided by the buyer, who then bears the full cost involved in bringing the goods from there to the desired destination. E×W represents the minimum liability to the seller. Risk and expenses are borne by the buyer, including payment of all transportation and insurance costs from the seller's door. E×W is used for any mode of transportation.

GROUP F—Main Carriage Not Paid by Seller

It covers three terms such as FCA, FAS and FOB. Here seller pays for pre-carriage at origin but does not pay for main carriage.

Free carrier alongside (FCA)   It means free carrier alongside and is followed by a name of a place. For example, FCA Mumbai: The seller fulfils its obligation to deliver when it has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at Mumbai. Here, risk passes to buyer, including transportation and insurance costs on the buyer's collecting vehicle, it is the buyer's obligation to receive the seller's arriving vehicle unloaded.

Free alongside ship (FAS)   It means free alongside ship and is followed by a named port of shipment. For example, FAS Mumbai; this means the seller is responsible for the cost of transporting and delivering goods alongside a vessel in a port in his country. FAS should be used only for ocean shipments. In this, the risk and responsibility of shifting goods rest on seller till the goods reaches of the ship's crane. Buyer makes payment of onward transportation and insurance costs, once delivered alongside ship by the seller. FAS is used for sea or inland waterway transportation, wherein the obligation of export clearance rests with the seller.

Free on board (FOB)   This term is most commonly used in this group. It means free on board and is followed by the named port of shipment—for example, FOB Mumbai. Under FOB terms, the goods are placed on board of the ship by the seller at a port of shipment indicated. Here, the buyer bears the risk of loss or damage to the goods when the goods pass the ship's rail. The seller pays the cost of loading the goods.

GROUP C—Main Carriage Paid by Seller

This group covers four terms. Here, the seller arranges and pays for the main carriage but does not assume risk.

Cost and freight (CFR) Cost and freight is followed by a named port of destination, for example, CFR, New York. Under this the seller has to pay the costs of goods and freight necessary to bring the goods to the named destination. The risk of loss or damage to the goods, as well as any cost increases, is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. Insurance is the buyer's responsibility. Under CFR the risk and insurance cost pass to buyer when delivered on board the ship by seller, who pays the transportation costs to the destination port. This term is used for sea or inland waterway transportation.

Cost, insurance and freight (CIF)   Cost, insurance and freight and is followed by a named port of destination. For example, CIF, Sydney. Here seller purchases insurance against the risk of loss or damage to goods. Seller pays for all transportation charges till the ship reaches the destination port. Here, risk passes to buyer when delivered on board the ship by seller, who pays transportation and insurance costs to destination port. Used for sea or inland waterway transportation.

Carried paid to (CPT)    Carried paid to is followed by a named place of destination. For example, CPT, Dubai. Under this, the seller must pay the freight for the carriage of the goods to the named destination. The risk of loss or damage to the goods and any cost increases transfers from the seller to the buyer when the goods have been delivered to the custody of the first carrier, and not at the ship's rail. Here, risk and insurance costs pass to buyer when delivered to carrier by seller, who pays transportation costs to destination. Used for any mode of transportation.

Carriage and insurance paid to (CIP)   Carriage and insurance paid to is followed by a named place of destination, for example, CIP, Damascus. CIP has the same ‘Incoterm’ meaning as CPT, but in addition, the seller pays for the insurance against loss of damage. Here, risk passes to buyer when delivered to carrier by seller, who pays transportation and insurance costs to destination. Used for any mode of transportation.

GROUP D—Arrival

The seller assumes the most cost/risk because goods must be made available upon arrival at agreed destination.

Delivered at frontier (DAF)   Delivered at frontier is followed by a named place. For example, DAF, Nairobi. Here, the seller's responsibility is complete when the goods have arrived at the frontier but before the customs border of the country named in the sales contract. The buyer is responsible for the cost of the goods to clear customs. Here, the risk and responsibility for import clearance passes to buyer when delivered to named border point by seller. Used for any mode of transportation.

Delivered ex ship (DES)    Delivered ex ship is followed by a named port of destination, for example, DES, Madagascar. Here, the seller shall make the goods available to the buyer on board the ship at the place named in the sales contract. The cost of unloading the goods and associated customs duties are paid by the buyer. The risk and responsibility for vessel discharge and import clearance pass to buyer when seller delivers goods on board the ship to destination port. Used for sea or inland waterway transportation.

Delivered ex quay (DEQ)    Delivered ex quay is followed by a named port of destination. For example, DEQ, Johannesburg. DEQ means the seller has agreed to make the goods available to the buyer on the quay at the place named in the sales contract. Here, risk passes to buyer when delivered on board the ship at the destination point by the seller, who delivers goods on dock at destination point cleared for import. This term is used for sea or inland waterway transportation.

Delivered duty unpaid (DDU)   Delivered duty unpaid is followed by a named place of destination. For example, DDU, Moscow. The seller has to bear the costs involved in shipping the goods as well as the costs and risks of carrying out customs formalities. The buyer pays the duty and has to pay any additional costs caused by its failure to clear the goods for import in time. Here, risk and responsibility of import clearance pass to buyer when seller delivers goods to named destination point. Buyer is obligated to import clearance. Seller fulfills their obligation when goods have been made available at the named place in the country of importation. This is used for any mode of transportation.

Delivered duty paid (DDP)   Delivered duty paid is followed by a named place of destination, for example, DDP, Bakersfield. The seller has to pay the costs involved in shipping the goods as well as the costs and risks of carrying out customs formalities. The seller pays the duty and the buyer has to pay any additional costs caused by its failure to clear the goods for import in time. DDP should not be used if the seller is unable to obtain an import license. Here, risk passes to buyer when seller delivers goods to named destination point cleared for import. Used for any mode of transportation.

SHIPPING TRADE PRACTICES BILL

The Shipping Trade Practices Bill is being introduced to bring uniformity in maritime logistical trade practices in India. The bill aims at bringing transparency in maritime logistics practices in the industry. As per the bill, the registration of service providers with the government is a must. The service providers will now have to publish their rates, mode and manner of fixing tariff. They are required to display all the above information on their website.

Currently only containerized shipments through maritime logistical service providers are covered under the scope of the bill. With this bill the exporters and importers, who are exploited by unregistered service providers, would benefit with the new enactment. They will (consigners/exporters) now be able to estimate their logistics cost before they take any decisions. This legislation will be regulated by a separate authority which will govern and have dispute redressal power.

With growth in world trade, the maritime industry in India would be charting new waters, with lines introducing e-commerce, electronic bills of lading, etc. Hence, it necessitates formation of a strong independent body with sufficient authority to handle complex maritime legal issues and deliver quick judgments.

REVIEW QUESTIONS

1. Explain the implications of regulations on logistics operations in cross-border supply chain.
2. What is ‘transfer pricing’? How does TP regulation impact contract manufacturing in SC operation?
3. Discuss how the GST regulation helps in reducing the number of warehouses.
4. Explain the various ‘INCOTERMS’ and their importance in international trade.
5. What is the ‘TIR Carnet System’ and its role in cross-border goods transportation?

INTERNET EXERCISES

1. Read more on; IATA's Dangerous Goods Regulations; visit http://www.ehow.com
2. chart of responsibility; visit http://www.i-b-t.net/incoterms.html

VIDEO LINKS

1. Shipper compliance with 10+2 security regulations http://www.joc.com/maritime/di-nucci-shipper-compliance-102-security-regulations-video
2. International tariffs http://www.export.gov/logistics/eg_main_018130.asP≫

PROJECT ASSIGNMENTS

1. Prepare a comparative study report on the regulations in countries like the United Kingdom, United States and other European countries, impacting the operations of cross-border supply chains of exporting Indian companies.
2. Take up a manufacturing company having multiple warehouses in various Indian states due to differential sales tax system and find out how the number of warehouses (without compromising on service level) can be reduced if GST is enforced in future.