Transparent mechanism set up for export freight payment, related charges in foreign exchange

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Stake holders in India’s export trade have set up a mechanism for payment of freight and its related charges to shipping lines and other logistics intermediaries. This was aimed to curb “profiteering” in the exchange rate when the payments are made in Indian rupees. The Standard Operating Procedure (SOP), a first-of-its-kind mechanism for payment of freight and freight related charges for exports, was chalked out at the behest of N Sivasailam, special secretary (logistics) in the Department of commerce.

“The issue was dealt with by the State Bank of India, shipping lines, exporters and other industry associations, after which a circular has been issued on February 18 and converted into a trade notice. It deals with how exchange of foreign exchange (FE) rate needs to be determined and this has now been agreed transparently amongst all of us. You may find a paisa up or down, but you will now not find profiteering on foreign exchange,” Anil Devli, CEO, Indian National Shipowners’ Association (INSA), said.

The SOP will ensure that the country’s liability for payment in FE is limited to freight cost and the outgo should be limited to what’s actually payable to shipping lines. All other incidental charges for services rendered are to be invoiced and payable in rupees only.

The SOP mandates the shipping line or freight forwarders / intermediaries to issue an invoice in freely convertible foreign currency as per the contract entered between them, for freight and freight related payments like basic freight, BAF (Bunker Adjustment Factor) and CAF (Currency Adjustment Factor).

Exporters also have the option for paying freight and freight related surcharges in foreign currency through their Exchange Earners Foreign Currency (EEFC) account to the foreign currency account of shipping lines in accordance with FEMA rules.

Exporters also have the option for paying freight and freight related surcharges in foreign currency through their Exchange Earners Foreign Currency (EEFC) account to the foreign currency account of shipping lines in accordance with FEMA rules.

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