CONSIGNMENT EXPORTS POLICY

 

 

1) What was the need for introduction of Consignment Policy?

 

Economic liberalization and gradual removal of international barriers for trade and commerce are opening up various new avenues of export opportunities to Indian exporters of quality goods.  One of the methods being increasingly adopted by Indian exporters is consignment exports where the goods are shipped and held in stock overseas ready for sale to overseas buyers, as and when orders are received. To protect the Indian Exporters from possible losses when selling goods to ultimate buyers, it was decided to introduce Consignment Policy Cover.

 

2) What are the types of Consignment Policy covers available with ECGC?

 

There are two policies available for covering consignment export viz;

(1)  Consignment Exports (Stock-holding Agent)

(2)  Consignment Exports (Global Entity Policy)

 

3) Under what circumstances, Consignment Exports (Stock Holding Agent) Policy cover can be availed of?

 

A consignment Exports (Stock-holding Agent) Policy will be appropriate for each exporter – stock holding agent combination provided the following criteria are satisfied.

 

(a)      Merchandise are shipped to an overseas entity in pursuance of an agency agreement;

 

(b)     The overseas agent would be an independent and separate legal entity with no associate/sister concern relationship with the exporter;

 

(c)      The agent’s responsibilities could be any or all of the following, viz., receiving the shipment, holding the goods in stock, identifying ultimate buyers     and selling the goods to them  in accordance with the directions, if any, of his principal (exporter); and

 

(d)     The sales being made by the agent would be at the risk and on behalf of the exporter (whether or not such sales are in the agent’s own name or otherwise) in consideration of a commission or some similar reward or compensation on sales completed.

 

4) In the aforesaid situation, what are the various combination of risks that can be covered under the policy?

 

The various combination of risks that can be covered under the consignment Exports (Stock-holding Agent) Policy at the option of the exporters are:

 

(i)      Commercial risks on both stock-holding agent and ultimate buyers with political risks for the entire period;

 

(ii)      Commerical risks on the ultimate buyers only with political risks for the entire period;

 

(iii)     Commercial risks on the stock-holding agent only with political risks for the entire period; and

 

(iv)     Only political risks for the entire period.

 

5) Under what circumstances Consignment Exports (Global Entity) Policy cover can be availed of?

 

A Consignment Exports (Global Entity) Policy can be availed for each exporter-global entity combination provided the following criteria are satisfied:

 

(a)      The merchandise are shipped for stockholding to an overseas party who receives and holds the goods whether or not under written agreement;

 

(b)     The overseas party could be the exporter’s own branch office/ authorized representative/warehousing agent/associate or sister concern/subsidiary company;

 

(c)      The overseas party’s responsibilities could, depending upon its legal status, be any or all of the following, viz., receiving the shipment, holding the goods in stock, identifying ultimate buyers and selling the goods to them  in accordance with the directions, if any, of his principal (exporter); and

 

(d)     The sales made by the overseas party need not necessarily be at the risk or on behalf of the exporter.

 

6) What the combination of risks which can be covered under Consignment Exports (Global Entity) Policy?

 

The combinations of risks which can be covered under the Consignment Exports (Global Entity) Policy are:

 

(i)      Commerical risks on the ultimate buyers only with political risks for the entire period;

 

(ii)      Only political risks for the entire period.

 

However, in those cases where the intermediary is an associate of the exporter and both the exporter and the associate are joint stock companies with the exporter’s share in the capital of the associate not exceeding 49%, the following combinations of risks can also be covered:

 

(iii)     Insolvency of the global entity and commercial risks on ultimate buyers with political risks for the entire period.

 

(iv)     Insolvency of the global entity with political risks for the entire period.

 

7) What are the premium rates applicable for a Consignment Exports Policy?

 

For premium rates applicable for both types of policy, please click here. Separate rates are given for covering different sets of risks. The basic rates indicated will apply as long as the payments for the shipments made are received in India within 360 days of the shipment. In case it is not possible to realise the payment for a shipment within 360 days, the exporter has to apply for extension, which can be granted for another 180 days, for which additional premium as advised by the Corporation is payable. The premium rate applicable in each case will be as per the classification of the country of the intermediary provided sales to all the ultimate buyers are to be effected in the same country or countries of same or better classification. But if some of the ultimate sales take place in countries of riskier classification, the premium rate will be quoted taking into account the proportion of projected sales in different country groups; but in such cases the premium rates will not be higher than those applicable for the country group one step lower than the intermediary’s country.

 

Illustration: In the case of a Consignment Exports (Stock-holding Agent) Policy, the stock holding agent and all ultimate buyers are in A1 group of countries. The premium rate for covering commercial risks on both the agent and the ultimate buyers with political risks for the entire period will be 90 paise per Rs. 100/-.  But if the agent is located in A1 country and the ultimate buyers are in A1, A2, B1 etc. countries, the premium rate for covering above risks will be fixed between 90 paise and 140 paise, the exact rate depending on the proportion of projected sales in different country groups.

 

8) What is the procedure for payment of premium and submission of shipment declaration?

 

Payment of premium determined would be by way of advance deposit premium on a quarterly or monthly basis (as opted by the exporter) worked out on the basis of projected turnover and to be appropriated subsequently on the basis of actual reported. The premium for the first quarter (or month) has to be paid within 15 days from the date the premium is called for.  Premium for the subsequent quarters (months) has to be remitted based on the projected turnover and also after adjusting any shortfall or excess in the premium paid for the earlier quarter (month), within 15 days from the beginning of the respective quarter (month).  During every quarter (month) the exporter has to ensure that sufficient premium is available to cover the shipments being made. When the actual shipments are likely to exceed the projection, the exporter has to deposit sufficient amount forthwith in his premium account with the Corporation to cover the shipments.  Irrespective of the periodicity opted for by the exporter to pay the premium; the policyholders are required to submit shipment declarations monthly in the prescribed format.

 

9) How credit limits and discretionary credit limits will be fixed under Consignment Exports Policy?

 

Credit limit on the stock-holding agent would be fixed at the time of issue of Consignment Exports (Stock-holding Agent) Policy.   For covering commercial risks on the ultimate buyers in respect of both types of policies, the exporter will have the benefit of discretionary limits on all of them up to a predetermined limit; for requirements beyond this limit, the exporter will have to get a credit limit approved by the Corporation.  Discretionary limit would be fixed at the time of issue of the Policy.  Such a limit to be fixed separately in each case will be below 5% of the projected annual sales through the stock-holding agent/global entity subject to a minimum of Rs.10 lacs and a maximum of Rs.100 lacs.   Discretionary limits would be applicable only for ultimate buyers in open cover countries and not in restricted cover countries (groups I and II).  Discretionary limit will not be available in respect of buyers who have come to the adverse notice of ECGC.  This information is available on the website of the Corporation and can be therefore obtained by the policyholder by accessing the website.  If, however, any policyholder finds any difficulty to have access to this, he can approach the ECGC branch office for this information.  The branch will furnish the required information promptly to the policyholder. 

 

10) What is the percentage of cover provided under Consignment Exports Policy?

 

The percentage of loss covered would generally be at 90 percent for those who hold the Corporation’s SCR Policy/Exports (Turnover) Policy and at 80 percent for others. However, if mutually agreed between the Corporation and the policyholder, the Policy could provide for a higher share of loss to be retained by the insured with proportionate reduction of premium.

 

11) What is the time limit for realisation of export proceeds?

 

The basic premium rates are applicable if the payment for the shipment effected from India is received within 360 days of the date of shipment and are independent of the credit periods allowed to the agent/intermediary and/or the ultimate buyers. Premium at these rates becomes payable as soon as the shipment is made from India. For the purpose of deciding whether payment for a particular shipment is received in India within 360 days or not, the principle ‘first in first out’ (FIFO) will be followed. This is important because the exporter will be making a series of shipments and receiving payments in India on different occasions, some or all of the payments not necessarily being specifically related to particular shipments.

 

12) When can the exporter file claim under Consignment Export Policy?

 

Claims against losses arising out of any risks covered by the policies will have to be filed within a period of two years from the due date (or extended due date) for realisation of the sale proceeds in India. Unit price mentioned in the invoice raised by the exporter to the intermediary (stock-holding agent or global entity) shall be taken into account while processing claim, if any for determining the loss.  If unit price was reduced in the international market due to market fluctuations, the reduced price will be taken into account.  However, if the international price has increased, the Corporation’s liability will be restricted to the value worked out on the basis of the unit price mentioned in the invoice or the declared value whichever is less.