A Few Tips To Save Cost On Import

A few tips to save cost on import
1 of 6
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Introduction
In the current scenario of globalization, many organizations take recourse to import of equipments and spares for their day to day operations and further
diversification, expansion etc. Generally, the equipment is purchased on a competitive basis whereas the spares are purchased on Single Tender basis from the
Original Equipment Manufacturers. At the time of processing the purchase, reasonableness of the price of the spares is examined with reference to available data
and orders are placed on FOB basis. By placing import order on FOB basis the organization can save foreign currency involved by way of freight and insurance.
Hence, always the import orders will be on FOB basis and the export orders will be on CIF basis. While importing the consignments, apart from the basic cost of
the item, the other components like freight, insurance and customs duty are also involved. I have come across certain important points that impact the savings on
freight, insurance and customs duty for the imported consignments. The following paragraphs highlight my practical experience.
Insurance Charges
For imported consignments, the insurance premium should cover the value of the order including the customs duty. It is important to include the customs duty also
in the insurance premium since in the event of any damage noticed in the imported consignment after clearance, we will be in a position to claim full value of the
consignment including the element of customs duty paid. For this purpose there are two ways of arranging insurance:
1) In the first method, we can go in for single premium i.e. immediately after the placement of order, the insurance premium is paid for the FOB value, freight
charges, insurance and assessed customs duty. Here the personnel in charge of these responsibilities must have a clear exposure to and understanding of the
customs tariff rates and procedures so that the assessed customs duty in most cases is very near to the actual customs duty.
2) In the alternate method, the premium is arranged with the insurance company in three stages. As soon as orders are released, the insurance premium can be
arranged for the FOB value of the consignment only at the initial stage. When the materials are dispatched the second cover has to be arranged for freight charges
and insurance charges at actuals and the customs duty (Authors Query). The customs duty will be for the assessed value. So insurance for an initial agreed value
of to be customs duty can be paid. Finally after clearance of the consignment, the actual value of customs duty to be paid can be declared to the insurance
company and the difference if any, over and above the amount already paid has to be paid to the insurance company. If the premium paid is in excess, action is to
be taken for getting necessary refund from the insurance company. However, insurance companies do not generally entertain claims for refund of any excess
premium received by them. This working requires an understanding and agreement from the insurance company.
In case the insurance premium is not paid and insurance bill is not produced along with the bill of entry, the Customs will take the insurance charges as 1.125% of
FOB value as per Section 14 of Customs Valuation Rules, 1988, of the Customs Act. It is therefore, imperative that consignments are invariably insured before the
shipment of the materials, to reduce costs.
It is better to have a single insurance company, preferably on a regular basis due to inherent advantages and convenience. It should also be a permanent
arrangement, as far as possible. Financial managers may insist that insurance companies should be selected on the basis of competitive quotations. This is,
however, not advisable since by selecting the single source of insurance company they may offer discount in the premium rate based on the earlier claim rate
(Authors Query). For example, Chennai Port Trust was paying the premium rate of 0.4% less 5% earlier but it has been reduced in various stages as detailed
below:
Before After After

May 1996 May 1996 15.2 2000 Sea 0.40% less 5% 0.25% less 5% 0.21% less 5%
(0.449152%) (0.28072%) (0.23416%)
Air 0.30% less 5% 0.20% less 5% 0.16%less 5% (0.229175%) (0.21945%) (0.17955%)
Hence it is advantageous, if insurance is arranged continuously with the same insurance company, by way of obtaining insurance premium as stated above, which
will bring in a considerable amount of savings in the long run, which may be in the range of a few lakhs of rupees.
Freight Charges
There is a general perception that airfreight charges are higher than the freight charges by sea. However, in actual practice this is not always true since freight is
determined in relation to the weight, volume and value of the consignment to be carried. For instance, if the weight of the consignment is less than 500 kgs but the
volume of the consignment is not considerable, the freight charges by air will be more economical. By airlifting the consignment, the delivery is faster apart from
minimizing breakage, loss of consignment etc. Even in airfreight, if we utilize the services of a consolidated freight forwarder, the airfreight charges will be
21-07-2014 13:06
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considerably less. One such airfreight consolidator in India is M/s. Balmer Lawrie & Co. Ltd., a Government of India undertaking. A statement showing the airfreight
charges of M/s. Air India and M/s. Balmer Lawrie & Co. Ltd. is enclosed (Annexure-I). From the statement, it may be seen that by utilizing the services of the
consolidated freight forwarder, the airfreight charges will be more economical.
Further, if the consignment value is more than US $17,000, the shipping companies will charge freight charges as 3% advalorem on the consignments arriving from
European countries. Hence if the weight and volume of the consignment are comparatively less, but the value of the consignment is considerably high, it will be
more advantageous to book the consignment by air. A few such cases are illustrated in the statement at Annexure-II. From the statement, it may be observed that
booking the consignment through air instead of sea and vice versa can save a considerable amount of freight charges. The saving in the freight charges will also
enable corresponding saving in the customs duty as well.
In view of the above, whenever quotations are invited from the foreign suppliers, we should obtain from them the details of approximate weight and volume of the
consignment for determining the right and advantageous mode of dispatch of the consignment.
It is possible that sometimes, consolidated freight forwarders and shipping companies may charge higher freight charges than actuals (Authors Query). Therefore,
the freight charges claimed by the airlines/ consolidated freight forwarder and the shipping lines are to be examined critically and the freight charges are to be paid
only after comparing the tariff for freight charges. The details of such efforts taken by Chennai Port Trust are available in the enclosed statement (Annexure-III).
It is important that freight charges should be paid and documentary proof enclosed along with the bill of entry, failing which, the freight charges will be taken as 20%
on FOB value as per the Customs Act Section 14 of Customs Valuation Rules 1988 (7.1.8) (Authors Query). Usually, freight charges are lesser than 20% of the
FOB value, hence we should ensure that the freight charges are paid immediately on receipt of the freight bill and such documentary evidence should be attached
to the bill of entry. Even in cases where the actual freight charges are more than 20% of the FOB value, the freight charges will be taken as 20% of the FOB value
by the Customs for assessment purpose. We may also follow the same principle while declaring the freight charges to the Customs at the time of filing the bill of
entry.
Customs Duty
Customs duty is levied based on the customs tariff. However, by interpreting the material classification with reference to the heading of the customs tariff,
considerable amount of customs duty can be saved for which, the personnel dealing with the clearance of consignment should have a thorough knowledge of
customs tariff and procedures etc. A statement of such savings effected in Chennai Port Trust is detailed in Annexure-IV.
In this connection, it is informed that the work of clearance of imported consignments is entrusted to the authorized customs clearing agents. Even though the
agents will file the bill of entry and indicate the customs tariff heading, pay the customs duty and clear the consignments, it is the prime responsibility of the
Materials Management or Commercial Department of the organizations to check whether the customs duty levied is based on the relevant customs tariff heading.
Even if it is noticed that any excess customs duty is paid, the claim can be preferred with Customs for the refund of the excess customs duty paid, within six months
from the date of bill of entry.
Conclusion
From the above, it is concluded that there is wide scope for minimizing the charges on insurance, freight and customs duty on imported consignments by adopting
the methods mentioned above.
ANNEXURE I
AIR INDIA TARIFF (CONSOLIDATION RATES)
Minimum - 45 +45
1. Singapore to Sing. $ 75 8.5/Kg 6.3/Kg
Chennai
Minimum Less than More than More than
2. Berlin to 100 Kgs +100 Kgs + 300Kgs
Chennai EURO 76.6 4.35/Kg 2.81/Kg 2.56/Kg
3. Frankfurt to EURO 76.6 4.35/Kg 2.81/Kg 2.56/Kg
Chennai
4. Malmo (Sweden) SW.KR.600 59.46/Kg 24.00/Kg 21.80/Kg
to Chennai
5. London UK 50 6.01/Kg 3.53/Kg 3.07/Kg
to Chennai
6. Tokyo (Japan) J.YEN
to Chennai 11500 1610/Kg 1200/Kg 1046/Kg
Air India does not undertake consolidation from individual parties/ organisations.
BALMER LAWRIE TARIFF TO CHENNAI
21-07-2014 13:06
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100
S.NO
Country
Currency
Min.
-100
+300
Singapore
SGD
30
3.00
2.50
Berlin/Frankfurt
DM
30
4.25
3.25
2.75
Malmo/Sweden
SEK
550
40.00
24.00
18.00(+500)
London
UK
40
1.20
1.00
0.95
Tokyo
JP
11000
325.00
310.00
300.00(+500)
-300
2.25(+500)
ANNEXURE II
SHIPPING CONSIGNMENTS FROM JANUARY - 1997 TO DECEMBER - 1999
S.No
Place of Dispatch
Weight of
Consignment
No. of P/Kg.
F.O.B. Value
Rs.
Freight Amount Rs.
Remarks
If the consignment is airlifted the freight
charges payable will be Rs.55, 000/- approx.
Hamburg/ Germany
890 Kgs.
1 Case
21,51,561/-
62,383/-
as revised rate, detailed: 890Kg x 2.5DM(per

Kg) = DM2225 x Rs.20.80 = Rs.46, 280/plus Rs.8720/- (approximate). For other
charges (Authors Query).
f airlifted (approx.) Freight Rs.40, 000/-. 650
Kgs x 2.5 Dm X Rs.20.80=Rs.33, 800/-+
Hamburg/ Germany
650 Kgs.
1 Case
15,54,659/-
45,317/-
Rs.7200/- (approx.) other charges (Authors

Query).
If airlifted, the (approx.) freight charges will
Hamburg/ Germany
11 Kgs.
1 Pkg.
86,809/-
4,006/-
be
Rs.2, 000/-
5 FCL (40'
4
Hamburg/ Germany
58,500 Kgs.
Hamburg/ Germany
3,800 Kgs.
Vodolignse/ Italy
490 Kgs
2,06,17,821/-
13,02,997/-
1 Case
37,79,348/-
1,08,929/-
1 Case
35,20,266/-
1,11,856/-
Container)
Not advisable to airlift since volume is huge.

reight paid on 3% advalorem and cannot be
air-lifted being huge volume
reight paid on 3% adv. It is advantageous if
airlifted. Approx freight Rs.30, 000/-.
Freight paid on 3% adv. It is advantageous if
Geona/ Italy
180 Kgs.
1 Case
24,96,000/-
72,356/-
airlifted. Approx. freight.

Rs.11, 000/-.
Freight paid on 3% advalorem and cannot
Rotterdam/Nederlands
16,330 Kgs.
1 40FCL
1,32,68,000/-
3,73,979/-
be airlifted since the consign-ment is of huge

volume.
Savona/ Italy
34 Kgs.
1 Case
47,50,395/-
1,31,839/-
Freight paid on 3% adv. If air lifted freight

charges will be around Rs.7000/-.
NB: Air Airfreight charges based on volume/weight whichever is higher. FCL Cargo cannot be airlifted in view of huge volume of consignment. Ship If value of
cargo exceeds USD 17,000/- (FOB value) 3% advalorem is charged for freight for European based consignments.

Introduction
In the current scenario of globalization, many organizations take recourse to import of equipments and spares for their day to day operations and further
diversification, expansion etc. Generally, the equipment is purchased on a competitive basis whereas the spares are purchased on Single Tender basis
from the Original Equipment Manufacturers. At the time of processing the purchase, reasonableness of the price of the spares is examined with reference
to available data and orders are placed on FOB basis. By placing import order on FOB basis the organization can save foreign currency involved by way of
freight and insurance. Hence, always the import orders will be on FOB basis and the export orders will be on CIF basis. While importing the consignments,
apart from the basic cost of the item, the other components like freight, insurance and customs duty are also involved. I have come across certain
important points that impact the savings on freight, insurance and customs duty for the imported consignments. The following paragraphs highlight my
practical experience.
Insurance Charges
For imported consignments, the insurance premium should cover the value of the order including the customs duty. It is important to include the customs
21-07-2014 13:06
4 of 6
duty also in the insurance premium since in the event of any damage noticed in the imported consignment after clearance, we will be in a position to claim
full value of the consignment including the element of customs duty paid. For this purpose there are two ways of arranging insurance:
1) In the first method, we can go in for single premium i.e. immediately after the placement of order, the insurance premium is paid for the FOB value,
freight charges, insurance and assessed customs duty. Here the personnel in charge of these responsibilities must have a clear exposure to and
understanding of the customs tariff rates and procedures so that the assessed customs duty in most cases is very near to the actual customs duty.
2) In the alternate method, the premium is arranged with the insurance company in three stages. As soon as orders are released, the insurance premium
can be arranged for the FOB value of the consignment only at the initial stage. When the materials are dispatched the second cover has to be arranged for
freight charges and insurance charges at actuals and the customs duty (Authors Query). The customs duty will be for the assessed value. So insurance for
an initial agreed value of to be customs duty can be paid. Finally after clearance of the consignment, the actual value of customs duty to be paid can be
declared to the insurance company and the difference if any, over and above the amount already paid has to be paid to the insurance company. If the
premium paid is in excess, action is to be taken for getting necessary refund from the insurance company. However, insurance companies do not generally
entertain claims for refund of any excess premium received by them. This working requires an understanding and agreement from the insurance company.
In case the insurance premium is not paid and insurance bill is not produced along with the bill of entry, the Customs will take the insurance charges as
1.125% of FOB value as per Section 14 of Customs Valuation Rules, 1988, of the Customs Act. It is therefore, imperative that consignments are invariably
insured before the shipment of the materials, to reduce costs.
It is better to have a single insurance company, preferably on a regular basis due to inherent advantages and convenience. It should also be a permanent
arrangement, as far as possible. Financial managers may insist that insurance companies should be selected on the basis of competitive quotations. This
is, however, not advisable since by selecting the single source of insurance company they may offer discount in the premium rate based on the earlier
claim rate (Authors Query). For example, Chennai Port Trust was paying the premium rate of 0.4% less 5% earlier but it has been reduced in various
stages as detailed below:
Before After After

May 1996 May 1996 15.2 2000 Sea 0.40% less 5% 0.25% less 5% 0.21% less 5%
(0.449152%) (0.28072%) (0.23416%)
Air 0.30% less 5% 0.20% less 5% 0.16%less 5% (0.229175%) (0.21945%) (0.17955%)
Hence it is advantageous, if insurance is arranged continuously with the same insurance company, by way of obtaining insurance premium as stated
above, which will bring in a considerable amount of savings in the long run, which may be in the range of a few lakhs of rupees.
Freight Charges
There is a general perception that airfreight charges are higher than the freight charges by sea. However, in actual practice this is not always true since
freight is determined in relation to the weight, volume and value of the consignment to be carried. For instance, if the weight of the consignment is less than
500 kgs but the volume of the consignment is not considerable, the freight charges by air will be more economical. By airlifting the consignment, the
delivery is faster apart from minimizing breakage, loss of consignment etc. Even in airfreight, if we utilize the services of a consolidated freight forwarder,
the airfreight charges will be considerably less. One such airfreight consolidator in India is M/s. Balmer Lawrie & Co. Ltd., a Government of India
undertaking. A statement showing the airfreight charges of M/s. Air India and M/s. Balmer Lawrie & Co. Ltd. is enclosed (Annexure-I). From the statement,
it may be seen that by utilizing the services of the consolidated freight forwarder, the airfreight charges will be more economical.
Further, if the consignment value is more than US $17,000, the shipping companies will charge freight charges as 3% advalorem on the consignments
arriving from European countries. Hence if the weight and volume of the consignment are comparatively less, but the value of the consignment is
considerably high, it will be more advantageous to book the consignment by air. A few such cases are illustrated in the statement at Annexure-II. From the
statement, it may be observed that booking the consignment through air instead of sea and vice versa can save a considerable amount of freight charges.
The saving in the freight charges will also enable corresponding saving in the customs duty as well.
In view of the above, whenever quotations are invited from the foreign suppliers, we should obtain from them the details of approximate weight and volume
of the consignment for determining the right and advantageous mode of dispatch of the consignment.
It is possible that sometimes, consolidated freight forwarders and shipping companies may charge higher freight charges than actuals (Authors Query).
Therefore, the freight charges claimed by the airlines/ consolidated freight forwarder and the shipping lines are to be examined critically and the freight
charges are to be paid only after comparing the tariff for freight charges. The details of such efforts taken by Chennai Port Trust are available in the
enclosed statement (Annexure-III).
It is important that freight charges should be paid and documentary proof enclosed along with the bill of entry, failing which, the freight charges will be taken
as 20% on FOB value as per the Customs Act Section 14 of Customs Valuation Rules 1988 (7.1.8) (Authors Query). Usually, freight charges are lesser
than 20% of the FOB value, hence we should ensure that the freight charges are paid immediately on receipt of the freight bill and such documentary
evidence should be attached to the bill of entry. Even in cases where the actual freight charges are more than 20% of the FOB value, the freight charges
21-07-2014 13:06
5 of 6
will be taken as 20% of the FOB value by the Customs for assessment purpose. We may also follow the same principle while declaring the freight charges
to the Customs at the time of filing the bill of entry.
Customs Duty
Customs duty is levied based on the customs tariff. However, by interpreting the material classification with reference to the heading of the customs tariff,
considerable amount of customs duty can be saved for which, the personnel dealing with the clearance of consignment should have a thorough knowledge
of customs tariff and procedures etc. A statement of such savings effected in Chennai Port Trust is detailed in Annexure-IV.
In this connection, it is informed that the work of clearance of imported consignments is entrusted to the authorized customs clearing agents. Even though
the agents will file the bill of entry and indicate the customs tariff heading, pay the customs duty and clear the consignments, it is the prime responsibility of
the Materials Management or Commercial Department of the organizations to check whether the customs duty levied is based on the relevant customs
tariff heading. Even if it is noticed that any excess customs duty is paid, the claim can be preferred with Customs for the refund of the excess customs duty
paid, within six months from the date of bill of entry.
Conclusion
From the above, it is concluded that there is wide scope for minimizing the charges on insurance, freight and customs duty on imported consignments by
adopting the methods mentioned above.
ANNEXURE I
AIR INDIA TARIFF (CONSOLIDATION RATES)
Minimum - 45 +45
1. Singapore to Sing. $ 75 8.5/Kg 6.3/Kg
Chennai
Minimum Less than More than More than
2. Berlin to 100 Kgs +100 Kgs + 300Kgs
Chennai EURO 76.6 4.35/Kg 2.81/Kg 2.56/Kg
3. Frankfurt to EURO 76.6 4.35/Kg 2.81/Kg 2.56/Kg
Chennai
4. Malmo (Sweden) SW.KR.600 59.46/Kg 24.00/Kg 21.80/Kg
to Chennai
5. London UK 50 6.01/Kg 3.53/Kg 3.07/Kg
to Chennai
6. Tokyo (Japan) J.YEN
to Chennai 11500 1610/Kg 1200/Kg 1046/Kg
Air India does not undertake consolidation from individual parties/ organisations.
BALMER LAWRIE TARIFF TO CHENNAI
S.NO
Country
Currency
Min.
-100
100
+300
-300
1
Singapore
SGD
30
3.00
2.50
Berlin/Frankfurt
DM
30
4.25
3.25
2.25(+500)
2.75
Malmo/Sweden
SEK
550
40.00
24.00
18.00(+500)
London
UK
40
1.20
1.00
0.95
Tokyo
JP
11000
325.00
310.00
300.00(+500)
ANNEXURE II
SHIPPING CONSIGNMENTS FROM JANUARY - 1997 TO DECEMBER - 1999
S.No
Place of Dispatch
Weight of
No. of P/Kg.
Consignment
F.O.B. Value
Freight Amount Rs.
Remarks
Rs.
If the consignment is airlifted the freight
charges payable will be Rs.55, 000/approx. as revised rate, detailed: 890Kg x
Hamburg/ Germany
890 Kgs.
1 Case
21,51,561/-
62,383/-
2.5DM(per Kg) = DM2225 x Rs.20.80 =

Rs.46, 280/- plus Rs.8720/(approximate). For other charges
(Authors Query).
f airlifted (approx.) Freight Rs.40, 000/-.
Hamburg/ Germany
650 Kgs.
1 Case
15,54,659/-
45,317/-
650 Kgs x 2.5 Dm X Rs.20.80=Rs.33,
21-07-2014 13:06
6 of 6
800/-+ Rs.7200/- (approx.) other charges

(Authors Query).
If airlifted, the (approx.) freight charges will
3
Hamburg/ Germany
11 Kgs.
1 Pkg.
86,809/-
4,006/-
be
Rs.2, 000/-
Hamburg/ Germany
5 FCL (40'
58,500 Kgs.
2,06,17,821/- 13,02,997/-
Container)
Not advisable to airlift since volume is

huge.
Hamburg/ Germany
3,800 Kgs.
1 Case
37,79,348/-
1,08,929/-
Vodolignse/ Italy
490 Kgs
1 Case
35,20,266/-
1,11,856/-
Geona/ Italy
180 Kgs.
1 Case
24,96,000/-
72,356/-
reight paid on 3% advalorem and cannot

be air-lifted being huge volume
reight paid on 3% adv. It is advantageous
if airlifted. Approx freight Rs.30, 000/-.
Freight paid on 3% adv. It is
advantageous if airlifted. Approx. freight.
Rs.11, 000/-.
Freight paid on 3% advalorem and cannot
Rotterdam/Nederlands
16,330 Kgs.
1 40FCL
1,32,68,000/- 3,73,979/-
be airlifted since the consign-ment is of

huge volume.
Freight paid on 3% adv. If air lifted freight
Savona/ Italy
34 Kgs.
1 Case
47,50,395/-
1,31,839/-
charges will be around Rs.7000/-.
NB: Air Airfreight charges based on volume/weight whichever is higher. FCL Cargo cannot be airlifted in view of huge volume of consignment. Ship If
value of cargo exceeds USD 17,000/- (FOB value) 3% advalorem is charged for freight for European based consignments.
Contact Us
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Plot Nos. 102 & 104, Sector - 15,
Institutional Area
CBD Belapur,
Navi Mumbai - 400614
Branch Websites
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Management
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Management
Phone
(022) 27571022
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:
(022) 27565592
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: (022) 27565741
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: iimmedu@mtnl.net.in
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A003 - International Business
All reserved Indian Institute of Materials Management
21-07-2014 13:06

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