On April 1, India was to unveil the Foreign Trade Policy 2021-2026. The existing policy was extended by a year due to Covid-19, which was to end on March 31. And the government decided to further extend it for 6 more months. The current policy will now be valid upto September 30. The foreign trade policy (FTP) outlines government strategies and steps to promote domestic production and exports with the objective of driving economic growth.
It remains to see how the new policy gets affected after India battles the second wave of the pandemic. The new policy is eagerly awaited as the economy continues to reel from the effects of the pandemic and disruptions to international trade caused by lockdowns and restrictions worldwide. The UN <a href="https://scroll.in/latest/985144/indias-gdp-estimated-to-contract-by-9-6-in-2020-may-grow-by-7-3-in-2021-un-report" target="_blank" rel="noopener noreferrer">World Economic Situation and Prospects 2021</a> report says India&rsquo;s economy shrank 9.6% in 2020 against a global average of 4.3%. It projects a 7.3% growth for India in 2021. Hopes for a turnaround rest largely on exports picking up. Exporters expect the new policy to include initiatives aimed at improving India&rsquo;s standing in global merchandise and services exports and to correct the deficiencies of Foreign Trade Policy 2015-2020.
<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank" rel="noopener"><img style="width: auto; height: auto;" src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 3.png" width="auto"></a>
In this blog, we will discuss:
<ul>
<li>What is India&rsquo;s foreign trade policy?</li>
<li>What are the highs and lows of the current foreign trade policy?</li>
<li>What are the expectations from Foreign Trade Policy 2021-2026?&nbsp;&nbsp;&nbsp;</li>
</ul>
<h2>What is India&rsquo;s Foreign Trade Policy?</h2>
The foreign trade policy is essentially a set of guidelines for the import and export of goods and services. These are established by the<a href="https://www.dgft.gov.in/CP/?opt=dgft-organization" target="_blank" rel="noopener noreferrer"> Directorate General of Foreign Trade</a> (DGFT), the governing body for the promotion and facilitation of exports and imports under the Ministry of Commerce and Industry. The policy is notified for a period of five years. It is updated every year on March 31, and the changes come into effect from April 1.
While the trade policy covers both imports and exports, its primary objective is to<a href="https://content.dgft.gov.in/Website/FTP%20Chapter%201%20as%20on%20June%2030%202019.pdf" target="_blank" rel="noopener noreferrer"> facilitate trade</a> by reducing transaction cost and time, thereby making Indian exports more globally competitive. It aims to:
<ul>
<li>Accelerate economic activity and make the most of global market opportunities</li>
<li>Encourage sustained economic growth by providing access to raw materials, components, intermediates (goods used as inputs for the production of other goods), consumables and capital goods required for production</li>
<li>Strengthen Indian agriculture, industry and services&nbsp;</li>
<li>Generate employment</li>
<li>Encourage stakeholders to strive for international standards of quality</li>
<li>Provide quality consumer products at reasonable prices</li>
</ul>
<a href="https://app.cogoport.com/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank" rel="noopener"><img style="width: auto; height: auto;" src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-2.png" width="auto"></a>
<h2>FTP 2015-2020 &ndash; Highs and Lows</h2>
The current trade policy &ndash; which focused on improving India&rsquo;s performance in existing markets/products and exploring new markets/products &ndash; has been praised as &ldquo;progressive&rdquo; for the following reasons:&nbsp;&nbsp;
<ul>
<li>It consolidated a range of export incentives with different eligibility criteria into two schemes &ndash; the Merchandise Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS).</li>
<li>It offered export incentives under these two schemes in the form of duty credit scrips, which can be used by exporters to pay import duties. The scrips are fully transferable, which means that if an exporter has no need for them, they can pass it on to another.</li>
<li>It reduced export obligation from 90% to 75% for capital goods sourced from local manufacturers under the Export Promotion Capital Goods Scheme (EPCG).</li>
<li>It allowed manufacturers who are &ldquo;status holders&rdquo; (entrepreneurs certified by the DGFT as having helped India become a major export player) to self-certify their manufactured goods as originating from India. This helps them qualify for preferential treatment under various bilateral and regional trade agreements.&nbsp;</li>
<li>It identified 108 micro, small and medium enterprise (MSME) clusters for focused interventions with a view to boost exports.</li>
<li>It promoted paperless processing of various DGFT licences and applications.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
</ul>
However, the policy has also had its fair share of criticism. Some of its provisions have been challenged at the World Trade Organisation (WTO) by the United States. Some sticking points:
<ul>
<li>In 2019, a WTO dispute settlement panel, acting on Washington&rsquo;s complaint, said India&rsquo;s export subsidy provisions<a href="https://www.livemint.com/news/world/wto-upholds-us-s-claims-rules-against-india-s-export-subsidies-11572549484806.html" target="_blank" rel="noopener noreferrer"> violate WTO rules</a> and must be withdrawn. These included tax incentives under the popular MEIS and SEIS. As India&rsquo;s per capita gross national product is over $1,000 per annum, it can no longer offer subsidies based on export performance, the panel ruled. This controversy reinforces the growing view in India that the country needs to move away from subsidies and think of other ways to help its exporters.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
<li>There is a strong belief in India (bolstered by its trade policy) that free trade agreements (FTAs) haven&rsquo;t worked for it. One indication of this came in November 2020 when India decided to not be a part of the<a href="https://www.cogoport.com/blogs/how-does-indias-rcep-decision-impact-indian-exporters-importers" target="_blank" rel="noopener noreferrer"> Regional Comprehensive Economic Partnership</a> (RCEP), the world&rsquo;s largest FTA. Experts and economists believe this cost India a golden chance to be a major player in exports.&nbsp;</li>
</ul>
&zwj;<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank" rel="noopener"><img style="width: auto; height: auto;" src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 2.png" width="auto"></a>
<h2>What are the expectations from FTP 2021-2026?</h2>
Covid-19 was catastrophic for international trade. Indian<a href="https://economictimes.indiatimes.com/news/economy/foreign-trade/covid-19-impact-exports-plunge-60-28-pc-in-april/articleshow/75760239.cms?from=mdr" target="_blank" rel="noopener noreferrer"> exports fell by a record 60% and imports by 59%</a> in April 2020. Though the situation has improved, the road to recovery is long and hard. That is why the new trade policy must deliver the goods. Based on inputs from traders, trade associations, members of Parliament and a government-appointed high-level advisory group, some key expectations are:
<ul>
<li>WTO-compliant tax incentives: With incentives under MEIS and SEIS under a cloud, the need of the hour is WTO-compliant tax benefits. To this end, the government has announced the Remission of Duties or Taxes on Export Products (RoDTEP) scheme, effective January 1, 2021. It replaces MEIS. Rates and conditions for the new scheme are yet to be announced.&nbsp;</li>
<li>Easy credit access: A long-standing demand of exporters, especially MSMEs, is credit access. Formal financial institutions such as banks are reluctant to lend to MSMEs due to their lack of adequate collateral. The policy can help open up alternate credit avenues, such as finance technology start-ups. The advisory group <a href="https://wtocentre.iift.ac.in/FA/Report%20of%20the%20HLAG_301019.pdf" target="_blank" rel="noopener noreferrer">suggests</a> raising borrowing limits at the Export Import Bank of India.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
<li>Infrastructure upgrade: One reason why China is a manufacturing and export powerhouse is its network of ports, highways and high-speed trains, which are among the best in the world. India needs to learn from its neighbour and improve its flagging infrastructure by upgrading existing ports, warehouses, quality testing and certification centres and building new ones. The Trade Infrastructure for Export Sector, a scheme for developing infrastructure to promote exports, was launched in 2017 for a period of three years. Many in the industry hope it will be extended.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
<li>Less subsidy, more support: In 2020, Commerce Minister Piyush Goyal said<a href="https://www.business-standard.com/article/economic-revival/quality-scale-to-help-take-exports-to-1-trn-not-subsidies-piyush-goyal-120100301012_1.html" target="_blank" rel="noopener noreferrer"> quality, technology and scale of production</a> were the answers to India&rsquo;s global ambitions, not subsidies. Many in the industry agree, saying government support in the form of skill development programmes and technological upgradation rather than subsidies would help them become more competitive. Pharmaceuticals, biotechnology and medical devices are some sectors that could do with upskilling. Similarly, the trade policy could include incentives with a focus on research and development, something the<a href="https://www.thehindubusinessline.com/economy/exporters-may-get-incentives-based-on-rd-specific-clusters-under-new-ftp/article26061215.ece" target="_blank" rel="noopener noreferrer"> government has spoken of</a> in the past. On the technology front, the Amended Technology Upgradation Fund Scheme &ndash; which facilitates improvements in investment, productivity, quality and exports in the textile industry through technology upgrades &ndash; can be replicated for other sectors.</li>
<li>Tax breaks: If India were to do away with subsidies, exporters would still need some form of government support. Easier and lower taxes are a way of filling this gap. The reduction of corporate tax rates and simplification of duty structures are long-standing demands. The<a href="https://www.business-standard.com/article/economy-policy/cii-wants-end-to-inverted-duty-structure-to-make-india-an-exporting-nation-120081100854_1.html" target="_blank" rel="noopener noreferrer"> Confederation of Indian Industry</a> suggests simplifying the import duty structure by following &ldquo;the general principle of higher duties on finished goods and lower/minimal duties on intermediates and raw material&rdquo;. There are also demands for an overhaul/improvement of existing schemes such as the EPCG and Duty Drawback Scheme.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
<li>Digitisation and e-commerce: With Covid-19 disrupting traditional supply chains, India needs modern trade practices. Digitisation and e-commerce are two ways to go about this. Digitisation can start with making common import-export processes paperless. Trade body<a href="https://community.nasscom.in/communities/policy-advocacy/nasscom-inputs-on-foreign-trade-policy-2015-2020-review-2.html" target="_blank" rel="noopener noreferrer"> Nasscom</a>, for example, recommends an online mechanism for Importer Exporter Code (IEC) holders to change their particulars (mobile numbers, e-mail IDs, etc). It also makes a case for encouraging e-commerce exports by a) including e-commerce export platforms under Niryat Bandhu (a scheme for mentoring entrepreneurs in international trade), b) establishing e-commerce export promotion cells within export promotion councils, and c) establishing e-Commerce Export Zones to promote MSMEs.</li>
<li>Export awareness: At times, Indian exporters are defeated not by a lack of trade opportunities but by lack of awareness of the same. The trade policy can make a provision for government workshops and awareness programmes that educate and inform traders about international laws and standards, global markets, intellectual property rights, patents and geographical indication (GI).&nbsp;</li>
<li>Import wishlist: While most of the expectations might be geared towards exports, India&rsquo;s import community has its wishlist too, which includes permission to import capital goods on self-certification basis and to import prohibited items with the approval of the Central government-approved Board of Approval or Inter-Ministerial Standing Committee.&nbsp;</li>
</ul>
<a href="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/603b7f2c6fe7c8d6ab3d9af9_info-graphic.jpg" target="_blank" rel="noopener noreferrer"><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/603b7f2c6fe7c8d6ab3d9af9_info-graphic.jpg" alt="major expectation"></a>
&nbsp;
&nbsp;
&nbsp;
<h2>Road to $5 trillion by 2025</h2>
India aspires to be a $5-trillion economy by 2025. To achieve this dream, it needs to:
<ul>
<li>Register a GDP growth rate of 8% or more in the next few years</li>
<li>Triple its exports to $1 trillion by 2025</li>
</ul>
This a tough ask, considering Indian exports have hovered around the<a href="https://www.financialexpress.com/economy/after-pandemic-blows-in-2020-exports-may-rebound-in-new-year/2161449/" target="_blank" rel="noopener noreferrer"> $300-billion</a> mark since 2011-2012. Battered by the pandemic, exports for the April-November 2020 period stood at $304.25 billion. The country&rsquo;s GDP reached $ 2.88 trillion in 2019&ndash;2020.
In its 2019 report on what India must do for exports to reach $1 trillion by 2025, the <a href="https://wtocentre.iift.ac.in/FA/Report%20of%20the%20HLAG_301019.pdf" target="_blank" rel="noopener noreferrer">high-level advisory group</a> suggested:
<ul>
<li>Urgent reform of labour laws</li>
<li>Easing of regulatory controls</li>
<li>Lowering the cost of capital</li>
<li>Selection of right trading partners (given India&rsquo;s <a href="https://www.business-standard.com/article/pti-stories/india-registers-trade-deficit-with-11-rcep-members-in-2018-19-119051900265_1.html" target="_blank" rel="noopener noreferrer">unhappy experience with FTAs</a>)</li>
<li>Sector-specific strategies to drive exports, especially in pharmaceuticals, biotechnology, textiles and electronics</li>
<li>The formation of a special committee to take quick decisions on foreign direct investment (FDI), including identifying and attracting potential investors</li>
</ul>
The government, on its part, seems committed to seriously working towards its $5-trillion dream. Briefing MPs about FTP 2021-2026 on January 12, the Ministry of Commerce announced some of its plans for the new policy. These include:
<ul>
<li><a href="https://www.livemint.com/news/india/foreign-trade-policy-to-focus-on-districts-11611707544366.html" target="_blank" rel="noopener noreferrer">District Export Hubs</a>: The government will identify potential products and services in each district, identify agricultural and toy clusters, map GI products, set up district export promotion panels and district export action plans as part of this initiative targeted at small businesses and farmers.</li>
<li>Correcting imbalances: A persistent demand of exporters/importers is correcting the imbalances in India&rsquo;s international trade processes. At the meeting, the ministry committed to reducing &ldquo;domestic and overseas constraints related to the policy, regulatory and operational framework for lowering transaction costs and enhancing ease of doing business&rdquo;. It also spoke of creating &ldquo;efficient, cost-effective and adequate logistical and utilities infrastructure&rdquo;.&nbsp;&nbsp;&nbsp;</li>
</ul>
If FTP 2021-2026 delivers on the government&rsquo;s commitments and lives up to industry&rsquo;s expectations, India as a $5-trillion economy is not a dream too far.

Stay informed about India's dynamic foreign trade policy and leverage the lucrative opportunities it offers for international trade.

Foreign Trade Policy 2021-2026: Expectations

Unlock growth opportunities with India's export incentives and benefit from expert guidance to expand your business globally.

Export Incentives in India: Benefits for International Traders

Maritime disasters aren’t as rare as you might think. A major containership fire breaks out every 60 days on average,<a href="https://www.seatrade-maritime.com/americas/major-containership-fire-occurs-every-60-days" target="_blank"> reports say</a>. In such a life-threatening event, the ship’s master might take certain drastic steps to safeguard the vessel, its cargo and crew. These measures might result in losses to some or all of the parties to the voyage. When the master takes such emergency action, they do so under a provision of maritime law called general average. When a general average is declared, it means the carrier and each cargo owner is responsible, in part, for damage to or loss of cargo or the ship itself. Here, the cargo owner might be the exporter or importer, depending on who holds ownership of the goods at the time of the incident.&nbsp;&nbsp;&nbsp;As an importer or exporter, you might find yourself in a situation where general average is declared. This blog aims to help you understand how such a situation arises and what you can do to safeguard your interests. Read on to know:<ul><li>What is general average and when is it declared?</li><li>What is its purpose?</li><li>How is general average calculated?</li><li>How does general average affect you?</li><li>How can you stay protected?</li><li>Some case studies</li></ul>‍<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 2.png" width="auto" style="width: auto; height: auto;"></a><h2>What is general average and when is it declared?</h2>The York-Antwerp Rules, a set of maritime guidelines, defines a general average act as one “when, and only when, any extraordinary sacrifice or expenditure is intentionally made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure”.Let’s put this in perspective with an example: A container ship is caught in a storm and runs aground in shallow water. The only way to get it unstuck is to lighten its load. So, the ship’s master decides to jettison (throw overboard) some cargo into the water. And the ship reaches its destination with a lighter load. Now, due to the master’s actions, all cargo owners must come together to compensate for the losses and expenses incurred. Each one’s contribution depends on the net landed value of their cargo at destination. Remember, the liability to pay rests on the cargo owner and not on any intermediary, even if they might have made the booking with the carrier.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It must also be noted that general average covers only direct losses linked to the material value of the cargo carried or of the ship. It doesn’t cover indirect losses arising from the delayed voyage, including loss of market.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common mishaps where a general average can be declared include:<ul><li>Ship fire</li><li>Storm at sea</li><li>Mechanical breakdown</li><li>Vessel running aground</li></ul>Common general average acts resulting in loss of property and additional expenses include:<ul><li>Jettison, discharge, storage and re-loading of cargo</li><li>Loss of/damage to cargo due to the use of water/fire extinguishers</li><li>Towing of a ship that has had a mechanical breakdown</li><li>Use of salvage services (any assistance received by a vessel or any other property in danger)</li><li>Calling at a port of refuge&nbsp;&nbsp;&nbsp;</li></ul><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/60475b8fa856a1ca2d7879bb_090321_Cogoport_Infographic_general%20average_4.jpg" loading="lazy" alt="Conditions For General Average" width="auto" height="auto"></div></figure><h2>What is the purpose of general average?</h2>The provision of a general average clause in maritime law is primarily to allow carriers to take immediate action at a time of real danger in order to save lives and property. They do this safe in the knowledge that the losses and expenses incurred as a result of their actions will be evaluated and compensated by all those who were a part of the voyage. Furthermore, they will not face accusations of taking faulty decisions because the York-Antwerp Rules treat general average contribution and the consequences of fault separately. This is not only beneficial to the carrier but also to cargo owners whose goods might have been damaged, lost or sacrificed for the greater good. They will, thus, be compensated by the other parties.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="https://app.cogoport.com/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-1.png" width="auto" style="width: auto; height: auto;"></a><h2>How is general average calculated?‍</h2>After the initial emergency action is over, the carrier typically consults an average adjuster (usually a firm) who specialises in the law and practice of marine insurance and general average. Acting independently and impartially, the adjuster calculates and determines the contribution each party must pay. One of their first jobs is to decide if an incident qualifies as a general average act or if there are alternative ways for the parties to make up for their losses. They do this by going through the case details, especially the sacrifices made and expenses incurred. If a general average is declared, this is the process that follows:1. The adjuster asks each cargo owner to provide an/a:<ul><li>Average bond, which is an undertaking signed by the cargo owner that they will pay the contribution upon its finalisation</li><li>Average guarantee to back up the bond, issued by the insurance company</li><li>Cash deposit, in the case of uninsured cargo. This is calculated as a percentage of the value of the cargo owner’s goods&nbsp;</li><li>Commercial invoice</li></ul>2. If third-party salvage services were required, the adjuster collects a salvage security from cargo owners, which is used to pay the salvors. A salvage security is signed by the insurer3. Once all bonds/securities have been collected, the cargo is released4. The adjuster then starts calculating the general average contribution for each party, making allowances for sacrifices and expenses5. After final calculations, they collect and distribute this amount among the parties involved, thereby completing the general average process&nbsp;&nbsp;The entire process can take months, sometimes even years, to complete.&nbsp; <figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/60475c753eb4bd55b60e5ded_Screenshot%202021-03-09%20at%204.48.12%20PM.png" loading="lazy" width="auto" height="auto" alt="General Average conditions for cargo release"></div></figure><h2>‍How does general average affect you as cargo owner?</h2>As cargo owners, importers and exporters are affected by general average in various ways:<ul><li>They might end up with damaged cargo or no cargo at all</li><li>Even if their cargo is safe, they have to deal with extreme delays</li><li>Delays affect businesses in many ways. They can result in the imposition of fines/penalties or lead to a chargeback (reversal of funds) from final customers&nbsp;&nbsp;</li><li>Cargo owners are obliged to post an average bond, without which cargo won’t be released. If the average bond is calculated as a percentage of the CIF (cost, insurance and freight) value of thecargo, then the deposit required for a large consignment can be significant</li><li>In an LCL (less than container load) consignment, if just one cargo owner fails to cough up the average bond and security, the entire consignment is held back&nbsp;&nbsp;</li><li>Cargo owners must also ultimately pay their general average contribution, which is based on the total value of the ship and all the cargo it held. So, even if their cargo’s CIF value is low, they&nbsp; might end up paying a high price&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul>‍<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 3.png" width="auto" style="width: auto; height: auto;"></a><h2>What to do to stay protected</h2>Getting marine cargo insurance is the surest way of protecting yourself. Just make sure it covers a general average situation. How does insurance help?<ul><li>It saves money. With insurance, your contribution is taken care of by the insurance firm</li><li>It saves time and effort. You can just hand over your documents to the insurer and they will take care of all aspects of the general average process&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul>Unfortunately, 10%-15% of cargo on a vessel is uninsured on average, according to latest estimates. This is an improvement from previous years though. In 2007, for example, 40% of the cargo on board the MSC Napoli, which went down in a storm, was reportedly uninsured.&nbsp;&nbsp;<h2>General average case studies</h2>While general average incidents are considered rare, a recent surge in maritime mishaps and container losses at sea shows that shippers cannot be too careful. Five mishaps between November 30, 2020, and January 31, 2021, resulted in the loss of<a href="https://www.hellenicshippingnews.com/ocean-container-losses-topple-annual-average-in-2-months/" target="_blank"> 2,675 containers</a>. This included the 1,816 containers lost by the <a href="https://www.maritime-executive.com/article/one-apus-containership-returns-to-sea-after-three-month-recovery" target="_blank">ONE Apus</a> off Hawaii on November 30 and the 750 lost by the<a href="https://www.maritime-executive.com/article/maersk-essen-diverting-to-mexico-after-container-loss-in-pacific" target="_blank"> Maersk Essen</a> in a storm, also off Hawaii, on January 16. Less than a month later, the <a href="https://theloadstar.com/maersk-confirms-eindhoven-container-loss-at-260-as-vessel-heads-for-port/" target="_blank">Maersk Eindhoven</a> lost 260 boxes in bad weather near Japan. General average wasn’t declared in any of these three cases. But here are some instances from the last five years where the general average clause was invoked:<ul><li>Ever Given: One of the most recent disruptions to global trade was the six-day <a href="https://www.cogoport.com/blogs/shipping-challenges-persist-in-2021-from-covid-19-to-suez-canal-blockage" target="_blank">blockage of the Suez Canal by the megaship Ever Given</a> in March. The ship’s Japanese owner, Shoei Kisen Kaisha, <a href="https://www.lloydsloadinglist.com/freight-directory/news/%E2%80%98Ever-Given%E2%80%99-vessel-owner-declares-%E2%80%98general-average%E2%80%99/78806.htm#.YJAk9S0Ro1I" target="_blank">declared a general average</a> on April 1. With 18,300 containers of cargo involved, this is expected to be one of the most complicated general average claims. The ship owner is facing a $900-million compensation claim from Egyptian authorities over loss of income from transit fees, damage to the canal caused by salvage efforts, and equipment and labour costs. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Maersk Honam: On March 6, 2018, a blaze on board the Maersk Honam off the coast of Oman killed five crew members. The fire raged for months and the ship could only be towed to a port of refuge (Jebel Ali in Dubai) in mid-May. A Maersk statement said an investigation inconclusively pointed to “the decomposition of dangerous cargo generating intense heat”. The general average deposit was fixed at<a href="https://theloadstar.com/shippers-cargo-maersk-honam-must-pay-get-released/" target="_blank"> 11.5% of the cargo value</a> and salvage security at a high<a href="https://theloadstar.com/shippers-cargo-maersk-honam-must-pay-get-released/" target="_blank"> 42.5%</a>. Additionally, cargo owners with undamaged goods were expected to pay an additional<a href="https://theloadstar.com/shippers-cargo-maersk-honam-must-pay-get-released/" target="_blank"> $750 per 20-foot container or $1,250 per 40-foot container</a> towards transporting and berthing costs at Jebel Ali. The International Union of Marine Insurance considers this to be the<a href="https://www.maritime-executive.com/article/rebuilt-maersk-honam-enters-service-as-maersk-halifax" target="_blank"> largest general average loss in history</a>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Yantian Express: Another major container ship fire that led to a general average being declared was the January 3, 2019, blaze on the<a href="https://www.maritime-executive.com/article/report-misdeclared-charcoal-likely-caused-yantian-express-fire" target="_blank"> Yantian Express</a> in the North Atlantic. With strong winds, rain and cold temperatures hampering firefighting operations, it took 23 days to put out the fire. The ship was towed to Freeport in the Bahamas, where it remained for months. The damage included 202 containers that were a complete loss. Five months after the fire, carrier Hapag-Lloyd reported that a third of cargo owners had yet to make their<a href="https://theloadstar.com/yantian-express-progress-delayed-as-some-cargo-owners-refuse-to-pay-general-average/" target="_blank"> general average and salvage security contributions</a>, which meant that the ship was stuck in Freeport. A<a href="https://www.maritime-executive.com/article/report-misdeclared-charcoal-likely-caused-yantian-express-fire" target="_blank"> misdeclared consignment of charcoal</a> is said to have caused the fire.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Hanjin Aqua: On December 4, 2015, the<a href="https://theloadstar.com/general-average-declared-refloated-hanjin-aqua-shippers-uninsured/" target="_blank"> Hanjin Aqua</a> ran aground in shallow waters off Indonesia while trying to avoid colliding with a passenger vessel. A salvage team managed to refloat the ship a month later by discharging some of the containers. Carrier Hapag-Lloyd said salvage security had been fixed at 27% of the cargo value and general average deposit at 5%.</li><li>‍Northern Jupiter: Ocean Network Express (ONE) declared a general average after a main engine fire on board the<a href="https://www.seatrade-maritime.com/casualty/general-average-declared-containership-northern-jupiter-after-engine-fire" target="_blank"> Northern Jupiter</a> on January 4, 2020, which was en route from Singapore to Malaysia.</li><li>NYK Delphinus: On May 14, 2021, <a href="https://theloadstar.com/one-partner-declares-general-average-after-nyk-delphinus-engine-room-fire/" target="_blank">NYK Delphinus</a> experienced a fire in engine room prior her arrival in Oakland, CA. Salvage services were requested by the Owners, and the fire was swiftly brought under control and has been extinguished. Now, General Average is formally declared by the Owners of the vessel NYK Delphinus 0086W/E in the AL5 service string on May 27, 2021. In conjunction with the declaration of General Average, the Owners have appointed OCEANA Marine Claims &amp; Adjusting and Marine Adjusting Solutions Inc as the Average Adjusters. The appointed Average Adjusters will be responsible for coordinating the collection of General Average securities and all documentation required from parties with interest in cargo onboard.</li></ul>

At Sea Disasters: General Average Safety

The Goods and Services Tax (GST) was introduced in India on July 1, 2017. It subsumed multiple central and state levies (central excise duty, service tax, state VAT, etc) into a single tax and was thus hailed as “one nation, one tax”. The rollout of GST was considered a major economic reform as it aimed to simplify the tax structure and widen the tax base. The tax itself has two components, a Central GST (CGST) and a State GST (SGST).As an importer or exporter of goods and services, you would be familiar with GST. Under the GST regime, imports and exports are treated as the inter-state supply of goods and services. They attract an Integrated GST (IGST), which is the sum total of CGST and SGST. Furthermore, exports are treated as zero-rated supplies under GST. A zero-rated supply is one where the entire value chain and not just the final product is exempt from tax. This means any tax paid on the raw material or inputs used to make the final product is eligible for a refund. This provision is in line with the Indian government’s efforts to promote exports.&nbsp;&nbsp;&nbsp;&nbsp;There are two ways to export under GST – a) through a bond or Letter of Undertaking (LUT) and without payment of IGST, and b) with payment of IGST, refundable at a later date. In the first of this two-part series on GST refunds for exports, we will discuss the process for exports made without payment of IGST. <figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center" data-rt-max-width=""><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/6050a219905f4a153c6d199b_160321_Cogoport_Zero%20rating_Facebook_v1.jpg" loading="lazy" alt="Methods of GST Refund on Exports" width="auto" height="auto"></div></figure><h2>Export through LUT/bond (without paying IGST)</h2>To export goods/services without paying IGST, you must file a Letter of Undertaking (LUT) or an export bond. Exporting under LUT/bond is beneficial because it a) saves you the time and effort of seeking a tax refund, b) prevents the blocking of funds, which can be critical for small businesses.An LUT is valid for one financial year. You can apply for one:<ul><li>If you are an exporter of goods/services and have a GST registration</li><li>If you have not been prosecuted for tax evasion for an amount exceeding Rs 2.5 crore, or for any other offence under the CGST Act, IGST Act or any other law&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul>If you don’t meet the conditions for an LUT, you can still export without paying IGST – by furnishing a bond on non-judicial stamp paper. The bond must cover the tax liability on the export as assessed by you (the exporter). If it falls short, you can furnish a fresh bond to cover the additional liability. A bond must be accompanied by a bank guarantee, which must not exceed 15% of the bond amount. Unlike an LUT, a bond does not have a fixed validity. Rather, it is a running bond with debit and credit facilities, so that it need not be furnished afresh for each export.&nbsp;<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 3.png" width="auto" style="width: auto; height: auto;"></a><h2>How to apply for LUT/bond</h2>Applying for an LUT is fairly simple and entirely online:<ol><li>Log in to<a href="https://www.gst.gov.in" target="_blank"> the GST portal www.gst.gov.in</a></li><li>Under “Services”, click on “User Services”, then select “Furnish Letter of Undertaking (LUT)”</li><li>Select the financial year</li></ol><ul><li>If you have previous LUTs issued manually, upload these by clicking on “Choose File” (in PDF/JPEG format, maximum file size 2MB)</li></ul><ol start="4"><li>In the LUT form (GST RFD-11) that appears, fill in the self-declaration, with which you undertake to:</li></ol><ul><li>Complete the export transaction within three months of the date of issue of export invoice, or a further period as allowed</li><li>Comply with GST law on exports</li><li>Pay IGST with 18% annual interest on failure to export within the specified period</li></ul><ol start="5"><li>Next, fill in the names and details of two witnesses</li><li>Enter “Place of Filing”, click “Save”, then “Preview” to check the form before submission</li><li>Sign the form using one of two options given – Digital Signature Certificate (DSC) or Electronic Verification Code (EVC)</li><li>Once signed, the form cannot be reviewed/edited</li><li>Once the process is done, you will receive an acknowledgement&nbsp;</li></ol>Unlike an LUT, which you can file online, a bond must be submitted in person to the GST officer (deputy/assistant commissioner) of the concerned jurisdiction. The steps to furnishing a bond:<ol><li>Prepare the documents, which include:</li></ol><ul><li>Form RFD-11 on exporter’s letterhead&nbsp;</li><li>Bond on non-judicial stamp paper</li><li>Bank guarantee</li><li>Authority letter (authorising an employee/partner/other authorised person to sign the bond on behalf of the exporter)</li><li>Any supporting documents</li></ul><ol start="2"><li>Submit the bond with the required documents</li><li>The officer will verify the documents</li><li>On successful verification, the officer will issue a signed acknowledgement letter, usually within three days of submission</li></ol><h2>How to claim refund of ITC‍</h2>When you export under LUT/bond, you are entitled to claim a refund on Input Tax Credit (ITC) under Section 54 of the CGST Act, 2017, and Rule 89(4) the CGST Rules, 2017. What is ITC? Simply put, when you produce or purchase a product for export, you pay taxes on the inputs (goods and services) that go into making it. When you export the product, you can claim a refund of taxes paid on inputs. The process to apply for a refund on ITC for exports made under LUT/bond is online:<ol><li>Log in to the GST website</li><li>Fill form GST RFD-01. You will need to:</li></ol><ul><li>Furnish the following details – GSTIN (a 15-digit GST identification number issued to each registered member), name and address, tax period for which refund is sought, refund amount, grounds for refund claim (export of goods/services without payment of tax), bank account details</li><li>File statements/declarations/undertaking relevant to your refund claim</li><li>Upload corresponding documents/invoices, as listed in Annexure-A of GST RFD-01. You can upload four documents of up to 5MB each&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul><ol start="3"><li>Affix your digital signature and submit the form</li><li>Once the form is submitted, an Application Reference Number (ARN) is generated. This means your application has been electronically forwarded to the jurisdictional officer</li><li>If an application is forwarded to the wrong officer, that officer must assign it to the right officer electronically within three days of ARN generation</li><li>You can use the ARN to track the status of your claim on the website at Services &gt; Refunds &gt; Track Application Status&nbsp;</li></ol>‍<a href="https://app.cogoport.com/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-2.png" width="auto" style="width: auto; height: auto;"></a><h2>Important timelines in the GST&nbsp;refund process</h2><ul><li>An exporter receives acknowledgement of their refund application usually within 15 days of filing it</li><li>If approved, the refund is credited to the exporter’s bank account within 60 days of the date of receipt of the application in its complete form</li><li>If the refund takes more than 60 days, interest @ 6% is payable from the end of the 60-day period till the date of the refund (interest @ 9% if refund is ordered by an appellate tribunal, court or adjudicating authority)&nbsp;&nbsp;</li><li>GST law allows the payment of a provisional refund of 90% of the total refund claim amount within seven days of the date of acknowledgement (exporters who faced prosecution in the five years prior to the refund period are not eligible)</li></ul><h2>Conditions for filing GST&nbsp;refund claim</h2><ul><li>An exporter can file a refund claim only if they have filed all GST returns due on or before the date of refund application via forms GSTR-1 and GSTR-3B. GSTR-1 contains details of sales (export details go in Table 6A) and can be filed monthly or quarterly, depending on the exporter’s turnover. GSTR-3B is a monthly summary of sales (exports) made during the month along with GST to be paid, input tax credit claimed, and so on. The details contained in GSTR-1 and GSTR-3B must match.</li><li>A refund application via GST RFD-01 cannot be filed if a) export duty was paid on the goods, b) goods were exported with payment of IGST, c) duty drawback was availed on CGST/SGST/IGST paid on the goods.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Under GST law, a refund claim must be filed within two years of the relevant date (where relevant date is the date the ship/aircraft leaves the country or the date the truck crosses a land border).&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul><h2>How to calculate the GST&nbsp;refund amount</h2>The formula used to calculate the refund amount is:Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷ Adjusted total turnoverWhere,&nbsp;<ul><li>Refund Amount – Maximum refund admissible</li><li>Turnover of zero-rated supply of goods – value of goods made during relevant period under bond/LUT and without payment of tax&nbsp;</li><li>Turnover of zero-rated supply of services – value of services made during relevant period under bond/LUT and without payment of tax&nbsp;</li><li>Net ITC – ITC availed on inputs/input services during relevant period</li><li>Adjusted total turnover – total value of exports in a state/Union territory, as defined under Section 2 (112) of the CGST Act, excluding value of exempt supplies other than zero-rated supplies, during relevant period</li><li>Relevant period – period for which claim is filed</li></ul>&nbsp;<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 1.png" width="auto" style="width: auto; height: auto;"></a><h2>Heads up! Recent updates in GST law</h2>Since GST was introduced in 2017, there have been many tweaks and updates to the rules, including those governing refund of ITC for exports made under bond/LUT and without payment of IGST. Here are some key updates, which have led to some confusion among exporters:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<ul><li>Amendment of Clause C of Rule 89(4) of CGST Rules: This amendment, made via notification dated March 23, 2020, is related to the definition of “turnover of zero-rated supply of goods” and, by extension, to the formula for calculating the refund amount. You can check the old definition here and the new one here. Under the old definition, refund amount was calculated on the basis of the actual value of the exported goods. Under the updated definition, a limit has been placed on this value.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>New Rule 96B: The same notification announced the introduction of a new rule, Rule 96B, in the CGST Rules. It states that in a situation where an exporter has received a tax refund (of ITC or IGST paid on exports) but where money from the sale has not been realised (in full or in part) within the period allowed by the Foreign Exchange Management Act, the exporter must deposit the refunded amount with applicable interest within 30 days of the expiry of the said period. However, such a recovery need not be made if the RBI “writes off the requirement of realisation of sale proceeds”. This rule has created doubt over the definition of “export of goods”, which the IGST Act defines simply as “taking goods out of India to a place outside India”, without mentioning a time limit for the sales proceeds to be received.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Change of forms under new GST returns system: Under the new GST returns system, which is currently running on a trial basis, form GSTR-1 will be replaced by GST Anx-1 and GSTR-3B by GST RET-1 (Normal). In GST Anx-1, you can provide invoice details for exports made without payment of tax in Table 3D. Information contained in this form will auto-populate GST RET-1, which is the main returns form. The auto-population feature is one of the ways in which the new system aims to<a href="https://economictimes.indiatimes.com/small-biz/gst/gst-return-filing-these-are-the-major-changes-in-the-process-from-july/articleshow/69820211.cms?from=mdr" target="_blank"> simplify the process of filing returns</a>. Another is by reducing the number of returns required to be filed for a tax period from two to one.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul>Filing GST returns and claiming a refund can be challenging for the most astute exporter. We hope the information in this piece helped clear some, if not all, of your doubts regarding refund claims for exports made under a bond or LUT and without payment of IGST. Watch out for Part 2.&nbsp;&nbsp;&nbsp;&nbsp;Next: <a href="https://www.cogoport.com/blogs/gst-refunds-part-2-exports-with-payment-of-igst" target="_blank">GST Refunds Part 2 – Export With Payment Of IGST&nbsp;</a>&nbsp;

Export of Goods Without Payment Of IGST: Refund

In the <a href="https://www.cogoport.com/blogs/gst-refunds-part-1-export-without-payment-of-igst" rel="noopener noreferrer" target="_blank">first</a> of this two-part series about GST refunds on exports, we discussed the process for claiming a refund on exports made via a Letter of Undertaking (LUT) or bond without the payment of Integrated GST (IGST). In this piece, we will discuss the refund process for exports made with payment of IGST. As you might have read in our earlier blog, these are the two ways of exporting goods and services under the GST regime.&nbsp;To recap, GST (Goods and Services Tax) was rolled out in India on July 1, 2017, as a single indirect tax replacing multiple Central and state taxes such as excise duty, service tax and Value-Added Tax (VAT). It is made up of two components, Central GST (CGST) and State GST (SGST). Integrated IGST, which is the sum total of CGST and SGST, is what exporters pay to send their goods and services out of the country (or to supply to a special economic zone within the country). Once paid, this tax can be claimed as a refund at a later date. This is because exports are treated as “zero-rated supplies” under GST, which means the rate of tax they attract is zero. This tax exemption applies not only to the final product or the final provision of service but to the inputs/input services that go into making this final product or service. Zero-rating exports makes them more competitive in the global market.&nbsp;In this piece, you can read about:<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 2.png" width="auto" style="width: auto; height: auto;"></a><ul><li>How to claim a refund of IGST</li><li>Conditions for claiming a refund</li><li>Important timelines in the refund process</li><li>Common problems in IGST refund process</li><li>Proposed amendments in law affecting IGST refunds</li></ul><h2>Export with IGST payment: How to apply for a refund</h2>When an exporter sends goods and services out of the country on payment of IGST at the applicable rate, they can claim a refund of the tax under Rule 96 of the CGST Rules, 2017. The refund process is different for goods and services.1. For export of goodsThe exporter need not file a refund application because the shipping bill (or bill of export) is considered one. A shipping bill is an application for customs clearance and one of<a href="https://www.cogoport.com/blogs/mandatory-documents-for-import-export" rel="noopener noreferrer" target="_blank"> three mandatory export documents</a>. It is filed on Icegate, Indian Customs’ website. A shipping bill is considered to have been filed as an application for IGST refund when:<ul><li>The carrier files an Export General Manifest (EGM) or export report with the number and date of the shipping bill. (An EGM is filed when goods are transported by sea or air while an export report is filed for transportation by land. Both documents are considered proof of shipment and export.)</li><li>The exporter furnishes a valid GST return in form GSTR-3B, where valid return means self-assessed tax has been paid in full for the tax period for which refund is sought. (GSTR-3B is a monthly summary of exports made along with details of GST to be paid, input tax credit claimed, etc. How much tax you pay is decided on the basis of GSTR-3B.)</li></ul>While these are the two conditions for a refund application, remember that refunds are granted on the basis of two returns – GSTR-3B and GSTR-1. The latter is a monthly or quarterly return with invoice-wise details of exports made.2. For export of servicesThe exporter must file a refund application in form GST RFD-01, which is the same form prescribed for making a refund claim for input tax credit on exports made under LUT/bond without payment of IGST. The application takes the same route as one for exports made without payment of tax. Read about it <a href="https://www.cogoport.com/blogs/gst-refunds-part-1-export-without-payment-of-igst" rel="noopener noreferrer" target="_blank">here</a>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="https://app.cogoport.com/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-3.png" width="auto" style="width: auto; height: auto;"></a><h2>IGST refund process for export of goods</h2>For the export of goods, once a refund application (in the form of a shipping bill) is deemed to have been filed, here’s what happens next:Step 1: The GST Network (GSTN), as the GST website is called, transmits invoice details contained in GSTR-1 to Icegate electronically. It does so only if:<ul><li>Export invoices are submitted in GSTR-1/Table 6A and they have the correct shipping bill number and date and port code</li><li>The return for the corresponding period has been filed in form GSTR-3B</li><li>The IGST liability stated in GSTR-3B is equal to or more than the IGST claimed to have been paid in GSTR-1</li></ul>Step 2: Icegate matches the GSTR-1 data with the shipping bill details. A mismatch can lead to the refund application being rejected (more on that later)Step 3: If the details match, Icegate sends an electronic confirmation to GSTN that the goods covered in the invoices have been exportedStep 4: Icegate then processes the refund claim. The exporter will receive an Application Reference Number (ARN) with which they can track the status of their application<h2>Key timelines in the GST refund process</h2>Refund timelines for exports made with payment of IGST are the same as those for exports under LUT/bond without payment of tax: &nbsp;<ul><li>The refund must be credited to the exporter’s bank account within 60 days of the date of receipt of the complete application</li><li>If it takes longer than 60 days, interest @ 6% is payable from the end of the 60-day period till the date of refund&nbsp;&nbsp;</li><li>A provisional refund amounting to 90% of the total refund claim might be made within seven days of the date of acknowledgement of the application (exporters who faced prosecution in the five years prior to the refund period are not eligible)</li></ul>A refund claim must be filed within two years of the relevant date (where relevant date is the date the ship/aircraft leaves the country or the truck crosses a land border; for services export, it is the date payment is received or when invoice is generated, as the case may be) <img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/6050b3618e2e2a45364b20de_150321_Cogoport_IGST%20Infographic-01.jpg" alt="IGST Refund Process" style="width: 966px; height: 604px;"> <h2>Who is ineligible for IGST refund?</h2>As per CGST Rules, refund of IGST is not available to an exporter if:<ul><li>They have availed of duty drawback on CGST, SGST or IGST. However, they may claim a refund of IGST if they have availed of drawback on basic customs duty&nbsp;</li><li>They obtained Inputs at a concessional rate of 0.1%. In such a case, export cannot be with payment of IGST but must be executed through LUT/bond</li><li>They imported inputs under the Advance Authorisation scheme. Here too, the final product must be exported under LUT/bond and not with payment of IGST. (<a href="https://www.cogoport.com/blogs/export-incentives-types-benefits-and-everything-else-you-need-to-know" rel="noopener noreferrer" target="_blank">Advance Authorisation</a> is an export incentive that allows duty-free import of inputs required in making products for export)&nbsp;</li></ul>‍<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 1.png" width="auto" style="width: auto; height: auto;"></a><h2>Reasons why your IGST refund claim might be stuck</h2>1. Non-transmission of data: As mentioned above, GSTN won’t transmit data to Icegate if the details in forms GSTR-1 and GSTR-3B don’t match. In 2018,<a href="https://cfo.economictimes.indiatimes.com/news/70-igst-refund-stuck-due-to-flawed-claims-filed-by-exporters-cbec/63071342" rel="noopener noreferrer" target="_blank"> Rs 10,000 crore worth of GST refund claims</a> (70% of the total filed) were stuck due to discrepancies in returns data. This issue of problematic refund claims persists till today. Solution: To correct errors in GSTR-1/6A, file Table 9A, an amendment table, in the same form. Form GSTR-3B, once submitted, cannot be amended. But corrections made in form GSTR-1 will auto-populate GSTR-3B in GSTN.2. Data mismatch on Icegate: If Icegate finds a mismatch between the returns data transmitted by GSTN and the shipping bill details, you will receive one of the following error codes in response to your application:<ul><li>SB001 – Invalid SB (shipping bill) details.The shipping bill number in GSTR-1 and in the shipping bill don’t match, probably due to a data entry error in GSTR-1. Solution: Amend GSTR-1 Table 9A.&nbsp;&nbsp;</li><li>SB002 – EGM not filed. Solution: Ask your carrier to file the export manifest/export report immediately.&nbsp;&nbsp;</li><li>SB003 – GSTIN mismatch. Your GSTIN (unique GST identification number) in the shipping bill and returns don’t match. Solution: Amend your shipping bill. But remember, shipping bills cannot be amended after the EGM has been filed.&nbsp;&nbsp;&nbsp;&nbsp;</li><li>SB004 – Record already received. This error code pops up when the GSTN transmits the shipping bill invoice record for a second time and the previously transmitted record has already been validated for IGST refund.&nbsp;</li><li>SB005 – Invalid Invoice Number. The invoice number declared in GSTR-1 and the shipping bill don’t match, due to a data entry error or because the exporter has used two sets of invoices (one for GST and one for exports). Solutions: For a typo, amend GSTR-1 or the shipping bill, wherever the mistake might lie. As mentioned earlier, shipping bills can’t be edited after EGM generation. When two sets of invoices have been used, there is no fix. An SB005 error code is one of the most common mistakes made while claiming a refund.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>SB006 – Gateway EGM not available. If goods are exported from an inland container depot (ICD), the gateway EGM might have been filed manually and not electronically on Icegate as required. Solution: Approach the carrier to have a supplementary EGM filed immediately and ensure it mentions the ICD shipping bill.</li></ul>When all data points match, Icegate returns an SB000 (Successfully Validated) response code and assigns an IGST scroll number to the eligible shipping bill. You can use this number to check the status of your claim on Icegate on IGST Scroll Sanctioned Status.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Scroll generation problems: An eligible shipping bill receives a temporary scroll number first, followed by a final one. The final scroll number is automatically transmitted to the exporter’s bank, after which the refund is credited in their bank account. But problems can arise at the scroll generation stage:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<ul><li>Shipping bill appears in temporary scroll but not final scroll: There might be two reasons for this – a) the exporter’s bank account details haven’t been validated by the Public Financial Management System (PFMS), the government’s financial management platform for direct benefit transfers, and b) the exporter’s Importer-Exporter Code (IEC) has been suspended by customs. Solutions: Update your bank account details on Icegate by furnishing the proper documents, or wait for your IEC suspension to be lifted, as the case may be.&nbsp;&nbsp;</li><li>Scroll generated is for an amount lower than IGST paid at export: This could be due to a) a data entry error in the shipping bill by the exporter, b) the exporter’s failure to enter the amount of compensation cess paid in the shipping bill along with IGST paid, c) GSTN failure to transmit compensation cess data to Icegate, d) an error by the custom officer while sanctioning the refund. Solution: Submit a Revised Refund Request (RRR) seeking the differential refund amount on Icegate.&nbsp;</li></ul>4. Short payment of taxSometimes, the self-assessed IGST paid by an exporter is less than what is actually due. This might lead to their refund claim getting stuck. A short payment is usually a genuine mistake by the exporter and sometimes a deliberate attempt at tax evasion. There is a provision under GST law for recovery of tax that is short paid whereby the exporter can voluntarily pay the amount due with applicable interest by a specified date, with or without a nominal penalty.Here is what happens in a genuine case of short payment:<ul><li>The exporter receives a show cause notice from a GST officer asking them to pay the tax due with interest. If the exporter pays up within 30 days of the date of notice, no penalty will apply</li><li>If the exporter receives an order of payment along with a show cause notice, they must pay a penalty of 10% of the tax amount or Rs 10,000, whichever is higher (Note: The show cause notice is issued three months before the time limit for order of payment, which is three years from the due date for filing of the annual GST return for the relevant financial year)</li><li>The exporter must pay the amount of tax short paid in form GSTR-3B of the subsequent months, thereby ensuring that the total IGST refund being claimed in the shipping bill and GSTR-1 is fully paid&nbsp;&nbsp;&nbsp;</li><li>For refund amounts up to Rs 10 lakh, the exporter must submit self-certified copies of challans (receipts) as proof of payment to the concerned customs officer at the port of export. For refund amounts above Rs 10 lakh, the exporter must also submit a certificate from a chartered account stating that the short payment has been resolved</li></ul>Note: The CA certificate facility was introduced by the government in 2018 as an interim measure to prevent blockage of refunds for 2017-2018. It has since been extended and is now valid for all shipping bills filed/to be filed till March 31, 2021. For such bills, CA certificates may be submitted at the port of export till October 30, 2021. Furthermore, this facility is also extended to exporters whose refund claims are stuck not due to short payment of tax but as a result of non-transmission of returns data by GSTN.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<a href="https://app.cogoport.com/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-2.png" width="auto" style="width: auto; height: auto;"></a><h2>Heads up! Proposed Finance Bill amendments</h2>Recently, exporters are worried about two proposed changes in the Finance Bill, which they believe will affect their refunds and business. The proposals are:<ul><li>Amendment of Section 16 of the IGST Act withdrawing the facility of export on payment of IGST</li><li>Insertion of a sub-section in Section 113 of the Customs Act, which allows customs to confiscate an exporter’s goods if they make a “wrongful claim” for refund</li></ul>The Federation of Indian Export Organisations (FIEO) has sought a review of these “harsh” changes. According to<a href="https://www.newindianexpress.com/business/2021/feb/11/exporters-ask-finmin-to-take-a-relook-at-budget-proposals-2262509.html" rel="noopener noreferrer" target="_blank"> FIEO president Sharad Kumar Saraf</a>, most exporters prefer to export with payment of IGST because “IGST refund is without any application because shipping bill itself is treated as application. It can be claimed for each shipment and 100% reimbursement is available in one go. The entire process is dealt [with] by customs smoothly”. In comparison, the refund process for exports under LUT/bond has procedural challenges (filing of application, uploading of documents, delayed payments) and transactional costs, he<a href="https://www.livemint.com" rel="noopener noreferrer" target="_blank"> added</a>.&nbsp;Regarding the proposed change in the Customs Act, Saraf<a href="https://www.livemint.com" rel="noopener noreferrer" target="_blank"> said</a> the term “wrongful claim” can be interpreted in many ways, which would put exporters at a disadvantage and affect India’s exports.The amendments need to be passed by Parliament and notified by the Finance Ministry in order to come into effect.<h2>Final words</h2>‍As you might have realised by now, most glitches that result in your IGST refund claim getting stuck are due to the entry of incorrect information in shipping bills and GST returns. This underscores the importance of being extra careful while filling these details so that your refund can be processed smoothly without loss of time, effort and money.

Export With Payment Of IGST: GST Refunds Part 2

Exporting comes with as many risks as it does rewards. One of the biggest risks is getting paid. It isn’t uncommon for an importer to delay or even refuse payment because a) they don’t have the funds, b) they have gone bankrupt, c) they are in a dispute with the exporter, d) there is a sudden drop in demand for the product in their country, e) they are unable to sell the goods, and so on. What makes the risk of non-payment for an exporter that much greater is the physical distance between them and their foreign buyer and the differences in the legal structures of their countries.&nbsp;Keeping these risks in mind, this blog aims to arm you, the reader, with the information you need to make sure you get paid in full and on time. Read on to know about:<ul><li>Common export payment methods</li><li>How to ensure you get paid&nbsp;</li><li>What to do if buyer refuses to pay</li></ul>‍<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 2.png" width="auto" style="width: auto; height: auto;"></a><h2>Export payment terms</h2>While there’s no foolproof way to make your buyer pay up, you can minimise the risk of non-payment by picking the right payment method. There are numerous ways to get paid. The one that’s right for you depends on:<ul><li>How well you know the buyer</li><li>Whether this is your first time exporting to this buyer</li><li>Transaction volume and value</li><li>The amount of risk involved</li><li>The payment terms demanded by the buyer (because they will surely have a say in the matter)</li></ul>Let’s take a look at the six most common export payment terms:&nbsp;<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605b7b24c85995395862d3fc_230321_Cogoport_Infographic-Risk_04.jpg" loading="lazy" alt="Most common payment terms / methods in exports" width="auto" height="auto"></div></figure><ol><li>Payment in Advance / Cash in Advance: This is the least risky method for exporters because they get paid before they transfer ownership of the goods/services to the buyer. Payment can be full or partial, and is usually via bank transfer or credit card. An exporter might opt for this method if the buyer is new, has a shaky credit history or is based in a high-risk country (where trade is impacted by government controls on international fund transfers, war, natural disasters, etc). For an importer, however, this is a high-risk option because they cannot check the quality of the goods or ensure on-time shipment. So, if the exporter insists on payment in advance, they risk losing out to a competitor offering more attractive payment terms.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Open Account: Here, the buyer receives the goods before payment is due, making it a high-risk option for exporters. The buyer agrees on a payment due date – 30, 60 or 90 days from the date of invoice or delivery. An exporter should go with this option only if they have implicit trust in the buyer, their ability to pay and the potential they hold for more business. However, an open account can help you get new buyers in a competitive market. One way of offsetting the risk of non-payment is by using export credit insurance or factoring (more on this later).&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Consignment: A variation of open account, consignment means the exporter gets paid only after the goods have been sold to the end customer. Because it is the riskiest of the six options listed here, the exporter is advised to partner with a reputed foreign distributor/third-party logistics provider and get the necessary insurance cover to minimise non-payment risk.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Documentary Collection: This is a method where banks act as intermediaries. The exporter hands over the required documents (invoices, shipping documents, etc) to their bank (the remitting bank), which sends the documents along with instructions for payment to the importer’s bank (the collecting bank). These are then passed on to the importer, who makes the payment in exchange for the documents via the banking system. Documentary collection works in two ways – a) the importer makes the payment at sight, which is called “Cash Against Document” or “Document Against Payment”, or b) the importer makes the payment on a specified later date, which is called “Cash Against Acceptance” or “Document Against Acceptance”. This payment term works well for both the exporter (who retains physical control of the goods till payment) and importer (who pays for the goods only after they are shipped).&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Letter of Credit: A letter of credit (L/C) is a written commitment by a bank (the issuing bank) on behalf of the importer to pay the exporter an agreed upon sum, provided the exporter submits the documents and complies with the timelines set out in the contract. Under an L/C, payment is routed from the issuing bank to the exporter’s bank (the negotiating bank). It is considered one of the safest modes of payment. It ensures the exporter receives their payment in full and on time. Furthermore, buyer verification is built into the process as the issuing bank will open an L/C account only after doing a credit adequacy test of the buyer. As for the importer, they will receive the goods they agreed to buy. An L/C can, however, be costly because the banks will charge a fee. This can be split by the two parties. In some importing countries, a letter of credit is mandatory for high-value transactions. An L/C transaction can be made more secure by picking the right type of L/C from the following:</li></ol><ul><li>Irrevocable L/C – Can’t be changed/cancelled without the consent of the exporter and importer. Safe for exporters.</li><li>Confirmed L/C – Payment guarantee is backed by a second bank. So, if the issuing bank defaults on payment, the confirming bank will cover it. Safe for exporters.</li><li>Revocable L/C – The issuing bank can cancel/amend the L/C at any time without seeking the exporter’s consent or giving them prior notice. Unsafe for exporters.</li><li>Sight L/C – The exporter gets paid immediately (within days) after submission of the right documents. Recommended for exporters.&nbsp;</li><li>Deferred Payment L/C – The exporter gets paid only after an agreed upon time has passed after submission of documents. Not the best bet for exporters.&nbsp;&nbsp;&nbsp;</li><li>Red Clause L/C&nbsp; – Contains a clause (traditionally printed in red) under which an exporter can avail of an advance before shipment of goods.&nbsp;&nbsp;</li><li>Green Clause L/C – An extension of the red clause L/C, it offers exporters an advance to pay for raw material, processing, packing, warehousing and insurance charges. Advance is granted only after the goods have been warehoused at the port.</li><li>Standby L/C – This guarantees that the bank will pay the exporter “if something fails to happen” (such as the importer refusing to pay). It acts as a back-up plan rather than a standard L/C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul><ol start="6"><li>Escrow Account: Under this method, a neutral third party receives payment from the importer, holds it until the export transaction is complete and then releases payment to the exporter. It is beneficial to both buyer and seller. An escrow account is usually used in moderate-value transactions or in dealings with a new buyer. Escrow services are now used widely in payment in advance transactions. Just be sure to verify the escrow service provider you plan to hire. &nbsp;&nbsp;&nbsp;&nbsp;</li></ol><figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605b7c974b594db8265ec331_230321_Cogoport_Infographic_Pros%20and%20Cons-01.jpg" loading="lazy" alt="Pros and cons of different export payment terms" width="auto" height="auto"></div></figure>‍<a href="https://app.cogoport.com/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-3.png" width="auto" style="width: auto; height: auto;"></a><h2>Three ways to ensure payment from your foreign buyer</h2>Even if you pick the right payment method after careful scrutiny, there is still a chance you might not get paid. Here’s what you can do to secure your payment:<ol><li>Avoid discrepant L/C: A letter of credit is one of the surest ways to get paid and highly suited for high-volume, high-value, high-risk exports. But every once in a while, an exporter might fail to meet one or more of the stipulated conditions. They might miss the shipment date or enter incorrect information on a document, for example. This leads to a “discrepancy” and the L/C becomes “discrepant”. When this happens, payment is no longer guaranteed. A discrepant L/C is usually not a deal-breaker and not all that uncommon. But it causes delays and invites additional costs, including extra bank fees. To avoid a discrepant L/C or if you are stuck with one, here’s what you, as an exporter, must do:</li></ol><ul><li>Comply with agreed upon timelines</li><li>Ensure documents are correctly filled and submitted</li><li>If you discover an error, fix it immediately and have your bank send the amended document to the issuing bank&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Negotiate with the importer for a favourable outcome. Remember, the banks are not negotiators but merely intermediaries. And a discrepant LC is as much an importer’s problem (they risk hefty demurrage/storage charges at the port of destination) as it is an exporter’s headache&nbsp;&nbsp;&nbsp;</li></ul><ol start="2"><li>Get export credit insurance: An export credit insurance (ECI) plan provides coverage of up to 95% of your invoice value and covers non-payment as a result of:</li></ol><ul><li>Commercial risks – Buyer bankruptcy/insolvency, payment default, slow payment&nbsp;&nbsp;</li><li>Political risks – War, terrorism, riots</li><li>Other risks – Changes in import-export regulations, expropriation (when the government takes away privately owned property for public use), currency inconvertibility (the inability to convert and transfer funds out of a country)</li></ul>Both private insurance companies and government institutions – such as the Exim Bank in the US and the ECGC (Export Credit Guarantee Corporation of India) in India – offer ECI plans. The ECGC offers a variety of short, medium and long-term plans with 80%-90% coverage. The Small Exporter’s Policy (SEP), for example, is targeted at exporters with a turnover of Rs 5 crore or less while the Micro Exporter Policy(MEP) provides 90% coverage to exporters with a turnover of less than Rs 100 lakh. However, ECGC plans don’t cover a) losses arising from quality disputes, b) exchange losses due to exchange rate fluctuations, c) buyer’s failure to obtain import authorisation, d) risk inherent in the nature of goods being exported.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<ol start="3"><li>Try export factoring: When an exporter sells their invoices to a financier (factor) at a discount, it is called export factoring or invoice factoring. How does it work? After the invoice sale, the factor pays the exporter 80%-90% of the invoice amount. On receiving payment from the importer, the factor passes on the balance amount to the exporter after deducting the factoring fee and interest. Factoring is a fast-growing business in the import-export community and an alternative to export credit insurance. It not only lowers non-payment risk, it also eases the exporter’s cash flow and allows them to attract new buyers by offering open account terms. Factoring fees can vary depending on the buyer’s financial standing, the type of goods, the political and economic stability of the market and even on the type of factoring service offered. When it comes to exports, the most common factoring services on offer are:</li></ol><ul><li>Recourse factoring – The exporter must buy back the invoice if the factor fails to collect payment from the importer. Hence, risk of non-payment lies with the exporter and not the factor.&nbsp;&nbsp;</li><li>Non-recourse factoring – The factor takes on the risk of non-payment. But this doesn’t mean the exporter is free of all risk. It means the exporter is free of only those risks specifically stated in the factoring contract. This service costs more than recourse factoring.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>Limited factoring – The factor buys a portion of the exporter’s total invoices and remits payment collected against those invoices. The factor makes the selection on the basis of certain criteria (such as cost considerations, processing capacity, etc).</li></ul>A financial tool similar to factoring and beneficial to exporters seeking to secure their payments is forfaiting, where the exporter sells their claim to trade receivables to a third party (forfaiter) for an immediate cash advance. What differentiates forfaiting from factoring is that it a) offers a cash advance that is 100% of the value of the receivables, b) is an export finance tool specific to international trade, c) deals with medium-to-long-term receivables (due in&nbsp; months or even years), d) involves letters of credit, and e) has the forfaiter assuming all risk of non-payment.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;‍<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 3.png" width="auto" style="width: auto; height: auto;"></a><h2>What to do if your foreign buyer refuses to pay</h2><ul><li>Negotiate directly with the importer to come to an amicable solution&nbsp;</li><li>Reach out to the embassy/consulate or any other diplomatic presence of the importer’s country in your country</li><li>Take the help of the concerned export promotion council in your country</li><li>Claim payment from the ECGC if you have an export credit insurance plan with them&nbsp;&nbsp;</li><li>Hire an international debt collection agency. Collection agencies work mostly through negotiation and rarely legal action, which means you have a chance of solving your payment problem without permanently ruining your relationship with the buyer&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li>If all else fails, go in for arbitration, where a neutral third party resolves the dispute between you and your buyer. Arbitration is fast, cheap, private and a better alternative to legal action through the court system, where cases can crawl and your reputation could suffer. However, it requires the consent of both the exporter and importer. An arbitration clause can be included in your contract. Arbitration cases in international trade are handled by institutions such as the <a href="https://iccwbo.org/" target="_blank">International Chamber of Commerce</a> and the <web-highlight class="webhighlights-highlight" data-highlight-id="5570017b-8b02-4170-8003-669ea868003c" data-highlight-split-type="head" data-highlight-id-extra="" markid="6448b933043a0b18e86d07dd" style="background-color: rgb(146, 255, 170); cursor: pointer;"></web-highlight><web-highlight class="webhighlights-highlight" data-highlight-id="5570017b-8b02-4170-8003-669ea868003c" data-highlight-split-type="tail" data-highlight-id-extra="" markid="6448b933043a0b18e86d07dd" style="background-color: rgb(146, 255, 170); cursor: pointer;">Indian</web-highlight> Council of Arbitration.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul><h2>Parting words&nbsp;</h2>Picking the right payment term for your export might seem difficult but with a little due diligence, your chances of getting paid are that much higher. Remember to not only consider the risk factor but to pay attention to your buyer’s interests as well. The idea is to strike a balance.&nbsp;&nbsp;

3 Ways To Ensure Payment From Your Foreign Buyer

The ongoing trade dynamics between India and China continue to startle the world. On the one hand, there has been a lot of chest thumping about banning Chinese products and reducing reliance on China as a supply chain hub. On the other hand, China resurfaced as India’s leading trading partner in the first half of 2020-21. The bilateral trade volume between the two countries stands at USD 38 billion, a decline of 15% as per the report. With the Galwan Valley incident in June’20 and the countermeasures taken against the same, this emerging trade relation is addling. Moreover, the ongoing pandemic has left India’s trade condition in bits and pieces, but China suffered the least as a trade partner.&nbsp;This article focuses on the perplexing chain of events, the outcomes of which will affect the trade relationship between these countries going forward. Read on to understand India’s confusing trade relationship with China. In this article, we will discuss:&nbsp;<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 2.png" width="auto" style="width: auto; height: auto;"></a><ul><li>The impact of India-China skirmishes on the trade relationship</li><li>Anti-dumping duties on Chinese products&nbsp;</li><li>Revised FDI policy by India&nbsp;</li><li>Claims of trade pact violations and illegal trade practices</li><li>Measures adopted by India to withdraw trade dependency from China&nbsp;</li><li>Australia’s initiative to replace China with India&nbsp;</li></ul><h2>Impact of India-China Conflicts In 2020</h2>The conflict across the Sino-Indian border left a sour taste and spoiled diplomatic relations between India and China. Responding to public sentiment, and rising media pressure, the Indian government decided to implement short term policy decisions that went into effect immediately. Some of these decisions are briefly covered below:‍<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605cdfa7c4d7daa3aae00d01_2.jpg" loading="lazy" alt="Impact of India-China Conflicts in 2020" width="auto" height="auto"></div></figure> <ul><li>Withdrawal and Cancellation of Investments: The Indian Railways called off an <a href="https://economictimes.indiatimes.com/news/economy/foreign-trade/the-death-of-indian-soldiers-in-skirmish-with-china-raises-questions-on-trade-geopolitics-security/articleshow/76486116.cms?from=mdr" target="_blank">INR 471 Crores</a> contract with a Beijing firm. The government also instructed BSNL to do away with the Chinese firm Huawei and not use any of its gear for a network upgrade.&nbsp;&nbsp;</li><li>Import Screening System: All the Indian companies and manufacturers received official orders stating they need to specify the Country of Origin for their products. This step was done to identify Chinese products easily. E-commerce sites also became a part of this regulation.&nbsp;</li><li>Restricted Power and Networks Import: The Indian Ministry of Power restricted networks and power supply imports from China in July’20. The government cited security threats and cybercrime possibilities as the main concern behind this action since <a href="https://www.financialexpress.com/economy/biggest-economic-retaliation-step-india-puts-complete-ban-on-import-of-power-equipment-from-china/2012952/" target="_blank">China accounted for 30% of the network imports</a>.&nbsp;</li><li>Banned Chinese Applications: The government also banned as many as 267 Chinese apps in India by the end of November’20. As justification for this act, it claimed that these apps were prejudicial to the integrity, security and sovereignty of the nation.&nbsp;</li><li>Imposed Anti-Dumping Duties: The <a href="https://www.dgtr.gov.in/anti-dumping-cases" target="_blank">Directorate General of Trade Remedies</a> (DGTR) imposed anti-dumping duties on 90 Chinese products. The government also encouraged Indian manufacturers to provide substitute home products under the “Atmanirbhar Bharat” campaign.&nbsp;</li></ul>All these retaliatory measures became a starting point to the way the trade relationship developed over the last few months. But before getting to the current state of the relationship, it is important to understand how we got here.<h2>India-China Trade Statistics: 2015-2020‍</h2>Bilateral trade relations between India and China have been a bit all over the place for the last 5 years. Exports from the Indian side have fluctuated and been inconsistent. While imports have steadily risen since 2015. Of course the COVID pandemic changed the macro situation last year. One of the results of this change was China occupying the position of India’s largest trading partner in 2020-21. This isn’t particularly surprising. When cities went to work post lockdown, it was China’s economy that showed a V-shaped recovery curve, at a time when American &amp; European economies were reeling under the effects on the pandemic. Not only did China deal with the pandemic better, it also went back to work sooner and accelerated its economic recovery.Here’s how trade has looked between the 2 countries over the last 5 years:<ul><li>In 2015, India’s exports to China amounted to USD 13.4 billion, marking a reduction of 18.39%. The imports summed a total of USD 58.26 billion with a hike of 1.742%. The bilateral trade difference was positive at an increase of 1.42%.&nbsp;</li><li>In 2016, India exported USD 11.75 billion worth of goods against an import worth of USD 59.43 billion. The bilateral trade showed a reduction of 0.67%.&nbsp;</li><li>In 2017, India’s imports were worth USD 68.1 billion, while the exports touched USD 16.34% only. The two-way trade difference reflected a huge hike of 18.63%.&nbsp;</li><li>In 2018, the bilateral trade fell to 13.34%, with USD 18.83 billion worth of exports and USD 76.87 billion worth of imports.&nbsp;</li><li>In 2019, the imports amounted to USD 17.97 billion and the exports valued at USD 74.92 billion, leading to a decline of 2.93% in the bilateral trade.&nbsp;</li><li>In 2020 (January-September), India exported just USD 15.32 billion and imported 45.18 billion worth of goods even after the announcement of the ban of the Chinese product. The bilateral trade registered a fall of 13.1%.&nbsp;</li></ul>‍ <figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605cdff82fac081ce2efeca5_250321_Cogoport_Infographic_Indo-China_Statistics-01.jpg" loading="lazy" alt="India-China Trade Statistics : 2015-2020" width="auto" height="auto"></div></figure>The statistics prove that the countries have, over the last 5 years, maintained a fairly healthy trading relationship. It might seem like India is the more reliant partner, and that may be true too. While bilateral trade between India and China suffered a 15% decline, India’s trade with other nations registered a 32.5% decline in 2020. I would personally take this stat with a grain of salt. India might have China as its largest trading partner, but that’s also because of the decline in trade with other countries affected by the covid pandemic.And while the Atmanirbhar Bharat initiative has its heart in the right place, there’s still some time to go before <a href="https://commerce.gov.in/publications-reports/" target="_blank">India reverse its trade balance</a> with the Chinese.&nbsp;‍<a href="https://app.cogoport.com/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-1.png" width="auto" style="width: auto; height: auto;"></a><h2>India-China Trade: The Present Picture</h2>China exports large quantities of raw materials that act as input for India’s manufacturing and pharmaceuticals industries. There has been some indication that India plans to source these raw materials from other countries, but so far there has been very little action. India has however raised its voice against <a href="https://www.hindustantimes.com/india-news/india-wary-of-china-investing-trading-through-a-third-party/story-lSot0pUfeLNMCd50FHtOmJ.html" target="_blank">China investing or trading in Indian companies via third parties</a>. Let us understand where things go from here.<h2>Revised Anti-Dumping Duties - Highs and Lows&nbsp;‍</h2>India imposed anti-dumping duties on 90 Chinese products in February 2020, as announced by Piyush Goyal, Minister of Commerce and Industry. The government also put 24 products under investigation to check for loopholes created by China through third parties. The key highlights go as follow:<ul><li>The measure is taken to ensure fair and transparent trade practices and assuage the injury caused to the domestic market due to dumping.&nbsp;</li><li>The list of products includes petrochemicals, pharmaceuticals, chemicals, steel and rubber items, fibre and yarns, electronics, and machinery items.&nbsp;</li><li>The government shortlisted these products out of the list of 1000 Made-in-China products brought out by the <a href="https://en.wikipedia.org/wiki/Department_for_Promotion_of_Industry_and_Internal_Trade_(DPIIT)" target="_blank">Department for Promotion of Industry and Internal Trade</a>.&nbsp;</li><li>Float gas, steel products and petrochemicals are the most in-demand products with this high import rate and tariff.&nbsp;</li><li>The reliance of Indian consumers and producers on Chinese made telecom equipment, heavy machinery and home appliances has become a challenge to tackle get them in accordance with the revised anti-dumping duties lists. While manufacturers and dealers are getting the products through the sources of third parties, consumers are also buying the products if found available.&nbsp;</li><li>India is failing to beat China in substituting these listed products because of the cost. Chinese products are highly cheap, which allows the producers to increase their profit margin.&nbsp;</li></ul>Traders were then expected to do their bit and try to respond to these government initiatives and policies to decrease imports from China. The rules weren’t just aimed at traders though. They also appealed to populist general sentiment prevailing in the country at the time.‍<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 3.png" width="auto" style="width: auto; height: auto;"></a><h2>Ideology Behind the FDI Policy Revision</h2>After China’s infiltration into the Galwan Valley area belonging to India, the Indian Prime Minister made a decisive move by revising the FDI policy. The decision also took into account reports that China was circumventing trading bans by working with entities based out of Hong Kong and Singapore.&nbsp;Consolidated Foreign Direct Investment Policy: The revised policy incorporates restrictions on FDI investments from individuals and firms from neighboring countries. The notice also clarifies the direct application of this rule on the countries sharing borders with India, including China. The government intends to repel any opportunistic takeover of Indian lands or properties by countries haring borders with India.&nbsp;26% Investment Cap On FDI/Equity Covering Digital News: The government has imposed an investment cap of 26% on FDI or equity investments in the digital news segments, says the officially documented statement. The concerned parties must also seek government approval before proceeding with the investments.&nbsp;Obligations on the E-Commerce Industry: The latest revision also demands the e-commerce associations with foreign investments to obtain a statutory audit report every year by 30 September. The government or automatic route is mandatory in the case of 100% FDI.&nbsp;Withdrawal From RCEP Free Trade Deal: India pulled out of the free trade deal of the RCEP (<a href="https://www.dw.com/en/rcep-free-trade-deal-is-no-substitute-for-the-tpp/a-36621736" target="_blank">Regional Comprehensive Economic Partnership</a>) to protect the vulnerable and critical sections of the economy. The idea was to persuade China and make it grant reciprocal market access without any rift. With the market flooded by Chinese goods, this free trade deal would have made the situation worse.&nbsp;<h2>Government Measures To Subside Trade Dependence On China&nbsp;</h2>Apart from the initiatives taken on the foreign policy front, there were quite a few initiatives launched within India too. Some of them are mentioned below:<ul><li>The government launched the “Atmanirbhar Bharat” scheme to encourage domestic production of goods and technology imported from China. A couple of financial schemes were also a part of this initiative to provide funds to start-ups and growing businesses. With the Cabinet’s approval, the Atmanirbhar Bharat Rozgar yojana is active in the country.&nbsp;</li><li>The imposition of anti-dumping duties on 90 Chinese products was also a part of this action plan. These products are a significant part of the Indian supply cycle, and traders should know their worth and cost.&nbsp;</li><li>The permanent ban on more than 237 Chinese apps created a stir in the market too. Many Indian firms and programmers then came up with substitutes for these apps. However, the dark side of this was that many people lost their livelihood or atleast a major share of their income owing to the ban of popular shopping and social media apps like TikTok, PUBG, Shein, Club Factory, etc.&nbsp;</li></ul>All these measures were taken from the pov of reducing dependence on Chinese imports. It’s difficult to ascertain how these changes might play out in the long run, but it is obvious that India doesn’t foresee the strongest of trade relations with China going forward.<h2>Downfalls of The “Boycott Chinese Products” Plan&nbsp;</h2>“One step forward and two steps backward”. As is the case with short term policy decisions driven by populist appeasement, the policy changes did not bring about the desired change. On the contrary, many small businesses reliant on Chinese imports suffered enormously.&nbsp;<ul><li>Businesses, shopkeepers, seasonal workers, etc., who sold Chinese products or provided any of its services have suffered a lot. With no immediate substitute or backup option available in the market, there was no alternative left with these people to get their livelihood back on track.&nbsp;</li><li>New Indian importers who had their business chains with the Chinese firms had to put their foot down with the souring trade relations between the two countries. With the long <a href="https://www.jagranjosh.com/general-knowledge/list-of-products-india-imports-from-china-1593509838-1" target="_blank">list of imported products from China</a>, there is a little window for these budding entrepreneurs to get substitutes quickly.&nbsp;</li><li>Even after repetitive requests from PM Narendra Modi, people tend to buy Chinese products because of the cheap price tags! Restraining consumers from using the dumping duty products is a difficult task.&nbsp;</li></ul>The import ban caused a Rs.40,000 crores loss to the country. There’s some investigation required into why these losses, and what can be done to assuage them in the future.‍<a href="https://app.cogoport.com/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-2.png" width="auto" style="width: auto; height: auto;"></a><h2>Australia’s Trade Rift With China: India Gains&nbsp;</h2>The political and trade tensions between China and India led to some other, second order effects. Trying to reduce its dependence on Chinese imports, Australia may now consider India as a stronger trade partner. The offer is to:<ul><li>Invest in the mining sector of Australia and fill in the void created by the absence of China as a potential investor.&nbsp;</li><li>Engage in trade relations and help increase sales.&nbsp;</li><li>As a result of the persuasion, <a href="https://en.wikipedia.org/wiki/Coal_India" target="_blank">Coal India Ltd</a> is engaging in trade relations for mining.&nbsp;</li><li>Scott Morison, Prime Minister of Australia, also proposed discussions to conclude and finalise a free trade agreement.</li></ul>What’s more, The US, Australia and Japan now consider themselves part of the Quad – a political and military partnership meant to establish a stronghold in the Indian Ocean and South China Sea areas, as a counter to the threat posed by China in the region.These are positive signs.&nbsp;

China tops as India's 2020 trade partner 

On the 23rd of March 2021, the shipping world was presented with a rather absorbing image of the Evergreen megaship “<a href="https://en.wikipedia.org/wiki/Ever_Given" target="_blank">Ever Given</a>” stranded in the middle of the Suez Canal. It’s not every day that you come across a 220,000 tonne ship lose course and get beached. At first it seemed like an episode of Fast &amp; Furious gone bad, a captain not particularly great at drifting their gear. But there’s more at play here. It seems like a number of different factors came together to bring us where we are today. Murphy’s Law and reverse serendipity!<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605dac5f5de02876e6ee31bb_210325111828-01-satellite-image-suez-canal-container-ship-exlarge-169.jpeg" loading="lazy" width="auto" height="auto" alt="Satellite Images of the Evergiven blocking the Suez Canal" style="width: auto; height: auto;"></div><figcaption>Satellite Images of the Evergiven blocking the Suez Canal</figcaption></figure>‍ The ship has now been blocking two-way traffic on the Suez for the last 3 days, with reports that it <a href="https://edition.cnn.com/2021/03/25/middleeast/suez-canal-ship-blockage-intl-hnk/index.html" target="_blank">may take weeks</a> for the ship to be un-beached. Reportedly there are <a href="https://www.theguardian.com/world/2021/mar/25/suez-canal-blocked-ship-ever-given-stuck" target="_blank">206 ships</a> waiting for traffic to resume, on what is one of the busiest trade routes in the world. Excavating ships out a canal, I presume, is a fairly challenging endeavour. Especially when you have a lone excavator and some puny Egyptian tugboats. David vs Goliath doesn’t always play out in David’s favour.<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 3.png" width="auto" style="width: auto; height: auto;"></a>There’s also clearly a lack of ideas as to how to deal with this situation. As discussed, one doesn't come across a beached megaship on a daily basis. Here are some other ships that have run <a href="https://dictionary.cambridge.org/dictionary/english/aground" target="_blank">aground</a> in the past: <ul><li>In 2016 the 19,000 TEU ultra-large container vessel <a href="https://en.wikipedia.org/wiki/CSCL_Indian_Ocean" target="_blank">CSCL Indian Ocean</a> ran aground in the Elbe river while approaching Hamburg in Germany. At that point in time, it took about 6 days to get the vessel refloated. </li></ul><ul><li>In 2016, the 12,500 TEU container ship <a href="https://en.wikipedia.org/wiki/MSC_Fabiola" target="_blank">MSC Fabiola</a> ran aground at Great Bitter Lake after experiencing engine problems, forcing canal officials to temporarily suspend all northbound convoys and stop all southbound convoys in the canal. It took about 2 days to get the vessel refloated and continued through the canal. </li></ul><ul><li>In 2017 the 13,000 TEU ultra-large container vessel CSCL Jupiter ran aground near Bath, Netherlands shortly after departing from the port of Antwerp and it took less than a day to refloat.</li></ul><h2>Importance of Suez canal </h2>Built in 1869, the <a href="https://en.wikipedia.org/wiki/Suez_Canal" target="_blank">Suez canal </a>is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea to the Red Sea. It is one of the <a href="https://www.suezcanal.gov.eg/English/Navigation/Pages/NavigationStatistics.aspx" target="_blank">World’s busiest waterways</a>. It allows for the shortest trade route possible by water between Europe and Asia and thus, saves billions of dollars for the industry. The Egyptian government is said to have spent about <a href="https://www.businessinsider.in/defense/egypts-authoritarian-president-is-celebrating-the-completion-of-an-8-billion-suez-canal-expansion-that-nobody-asked-for/articleshow/48367705.cms" target="_blank">$8 billion in 2015</a> for the renovation of the canal to attract more business. Large volumes of goods from China and South Asia to Europe, India to Europe, Europe to Asia, Persian Gulf to US Gulf etc cross the canal.<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605dab196141bfbb1faa04ed_1024.jpeg" loading="lazy" width="auto" height="auto" alt="605dab196141bfbb1faa04ed_1024.jpeg" style="width: auto; height: auto;"></div><figcaption>An earth mover trying to dislodge the beached ship. Source: Reuters</figcaption></figure>‍ Under the routine setup, an average of 52 vessels of all types and 13 container vessels pass through the Suez canal per day. The World Shipping Council report shows the maximum throughput of the Suez canal as 106 vessels each day. Which means that if the canal is closed for 1 day, the resultant queue can be cleared within the 1st opening day using the daily surplus capacity. If it is closed for 2 days, it will take 2 additional days after re-opening to clear the queue; given that more vessels will arrive for normal transits every day. The canal has thus far been closed for 3 consecutive days and we are therefore now in the phase where the queue continues to stretch further into the future.<a href="https://app.cogoport.com/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-2.png" width="auto" style="width: auto; height: auto;"></a><h2>What does this blockage mean for trade? </h2>The impact on movement of goods would be enormous since both north and south bound convoys are stuck. The longer this situation continues, the longer the queue. There have been some reports that some carriers may divert traffic around Africa to avoid delays. But most are expected to wait it out in the hope that this issue will be resolved in a couple of days. Regardless, it will take at least a few more days to clear the canal. While the 1st order effects of such a situation are visible to all, the second order effects are going to be huge too. There are cascading repercussions for trade between more than half the world’s population, affecting millions of commodities and billions of people.<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605dacaf15704a4cc90aecab_210325101923-02-suez-canal-container-ship-0325-exlarge-169.jpeg" loading="lazy" width="auto" height="auto" alt="605dacaf15704a4cc90aecab_210325101923-02-suez-canal-container-ship-0325-exlarge-169.jpeg" style="width: auto; height: auto;"></div><figcaption>The ships bulb trapped in the earth. Source: Reuters</figcaption></figure>‍ “If you delay this vessel at Suez anchorage, it means you are making the ship owner lose <a href="https://www.theguardian.com/world/2021/mar/24/suez-canal-traffic-jam-builds-as-work-to-move-megaship-continues" target="_blank">$60,000</a> [£44,000] per day or $3-4000 per hour of delay,” said Sayegh, the Beirut agent for the shipping journal Lloyd’s. From an Asia-Europe perspective alone, the canal sees approximately 30 <a href="https://dictionary.university/Headhaul" target="_blank">head haul</a> passages per week with a capacity around 380,000 TEU. The exact data may fluctuate from week to week due to the blank sailings and inconsistencies in the vessel sizes. If the vessels are at their full capacity, they carry <a href="https://www.maritimegateway.com/suez-canal-blockade-could-cause-european-port-congestion-crisis/" target="_blank">55,000 TEU</a> of cargo from Asia to Europe daily. And as per current expectation it will take <a href="https://www.bqprime.com/business/suez-canal-blockage-closer-to-resolution-on-efforts-to-move-ship" target="_blank">5-6 days</a> to clear the canal. This will result in a delayed delivery for nearly 2,75,000 TEUs of cargo, causing a spike of cargo into the main ports in Europe once the Suez is opened again. We fully expect increased congestion on European ports in the very near future, similar to the one seen on the <a href="https://www.porttechnology.org/news/ports-must-improve-visibility-to-end-vicious-congestion-cycle/" target="_blank">US West Coast</a> once COVID-19 restrictions were lifted. At the same time this incident will delay the movement of 55,000 TEUs worth of containers coming back to Asia per day, further adding to the container shortage issues faced by shippers in this part of the world. This may force carriers to blank a raft of Asia - Europe sailings for late April and early May, creating temporary capacity shortages for the shippers. Hopefully this does not come to pass, but shippers ought to consider the potential risk now. Ofcourse, other trade lanes and services plying on the Suez Canal will also be affected. We are expecting trade from MEA to Europe and Asia to the US East Coast to be affected severely over the coming weeks.<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605dabadee9e8d70920fd8b4_260321_Cogoport_Infographic_Container_Economic%20Impact-05.jpg" loading="lazy" width="auto" height="auto" alt="Suez canal closure's economic impact on container shipping" style="width: auto; height: auto;"></div></figure> <h2>Will the container freight charges increase or Stay constant </h2>A delay of 3 days, in the current market scenario is not a big deal. For the Asia-Europe trade lane, data points from Ocean insights shows that 2 out of 3 vessels arrive late, and the variance is 4 days. If the canal is re-opened soon, operational delays caused by Evergiven will not be as significant. However, If this drags out for a couple of weeks, the situation changes. It effectively removes vessel capacity from the market and also delays the process of replenishing empty containers in Asia. Normally this would cause an upwards pressure on freight rates. But (and sigh!), the circumstances are far from normal. Freight rates are already at their peak. The freight market fundamentals are under such severe stress due to ripple-effects of the pandemic that the added impact of the Suez blockage is very hard to isolate and attribute.<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 1.png" width="auto" style="width: auto; height: auto;"></a></figure>&nbsp; <h2>Update at the Suez Canal </h2>There were 3 vessels sitting behind Evergiven out of which 2 vessels have already been reversed by tugboats to the southern end of the Suez canal. Movement through the canal is temporarily suspended so that Evergiven can be refloated. 26th March: Shipping companies are now contemplating diverting their vessels to take the long route south around Africa on Asia-North Europe and Asia-USEC services. This will take approximately one week to 10 days more than using the Suez, resulting in increased fuel consumption, and higher subsequent costs.&nbsp;The carriers started to issue <a href="https://www.one-line.com/sites/g/files/lnzjqr776/files/2021-03/SUEZ%20CANAL%20INCIDENT%20STATUS%20UPDATE%20-%2026%20MARCH%202021%20AM.pdf" target="_blank">advisories</a> related to the Suez Canal blockage. In essence they are stating the obvious i.e; they don’t know how long it would take for the situation to normalise and therefore cannot advice the customers "when their cargo will be delivered."27th March: Several specific vessels were seen to have been diverted round Africa in the past 36 hours. It is now becoming a structured trend across the carriers. <figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605dfa6ef7a57126cae90d1e_260321_Cogoport_SuezCanal_Infography.jpg" loading="lazy" width="auto" height="auto" alt="Alternate shipping route to Suez Canal" style="width: auto; height: auto;"></div><figcaption>Ships stuck at the Suez Canal have started a detour thousands of miles around Africa. </figcaption></figure>‍<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605f65285c49e754c1f8bf6d_Ever%20given.jpeg" loading="lazy" width="auto" height="auto" alt="Operation to free Evergiven stuck in the Suez Canal"></div><figcaption>An operation to free Evergiven stuck in the Suez Canal. Source: BBC</figcaption></figure>‍Early 29th March: Preliminary indications this morning is that the Evergreen vessel has been refloated.*Preliminary indications as there is no official statement yet.Late 29th March: Ever Given has been <a href="https://edition.cnn.com/2021/03/29/africa/suez-canal-refloating-intl-hnk/index.html" target="_blank">dislodged</a> in the Suez Canal and is now fully floating. It is expected that the vessel will be moved to the Great Bitter Lake. Once the vessel is safe at anchorage, the vessels currently at anchorage in the lake will sail out of the canal in a convoy. The canal could be opened within the next 12-24 hours, but the current situation remains that the canal is not yet free for passage.<h2>End Notes </h2>The Suez Canal has been supposedly freed after a closure of 6 days due to the grounding of Evergiven. After continuous efforts to float the vessel it has finally moved. There is no news on the traffic resumption yet.&nbsp;The vessels which have already been diverted to go around Africa are likely to proceed on their journey as it will take a while before the queues are cleared and the canal is back to normal flow of operations.The metaphorical dominoes have already been toppled and we will continue to see the unfolding of congestion issues in Europe as the cargo arrives, blank sailings resulting from the severe delay of many vessels as well as a deterioration of the equipment situation. These ripple effects will take several months to be fully worked through.

Learn and Discover with Cogoport

Latest posts