The interchange of commodities between two or more persons who extract or produce them and who actually consume directly or indirectly is known as trade. In other words, it includes all those activities which are engaged in transferring title of the goods from the producers to the consumers using any trade or distribution channel.
Trade is a very important part of commerce and it also includes those factors which help to remove personal hindrances in exchange of goods. Another important function of trade is to serve as an intermediary between the consumer and the producer.
As an economic activity TRADE also means carrying the goods from the producers to the place where the goods are in demand. The wholesalers, retailers and different agents play a vital in transporting goods from first place to the second.
The person who is engaged in removing the title of the goods from the producers to the consumers is known as a trader. Exchange of goods from one man to another is taking place under the guidance are supervision of the trader. He collects goods from the producers and transfers them to the consumers.
Classes of Trade
Trade is carried out both within the country and outside the country. Within the country trade (HOME TRADE) has the following two kinds:
- WHOLESALE TRADE
- RETAIL TRADE
Trade with the foreign countries (FOREIGN TRADE) has following three types:
- Import Trade
- Export Trade
- Re-export Trade
Classification of Trade
Home trade is a system in which the function of buying and selling the goods is performed by certain traders within a country. It is also named as domestic trade or internal trade.
Whole Sale Trade
The wholesale trade is concerned with the buying and selling of goods in large quantities. He thus forms a link between producers and retailers.
Retail trade is concerned with the buying of goods in small volume from the wholesaler and selling them to the ultimate consumer. The retail trade includes small shops, stalls, hawkers, departmental store, mail order business and multiple shops. The retailer is the last link in the chain of distribution. He is the middleman between the wholesaler and the consumer.
Foreign trade means trade between countries. The refers to that branch of trade which takes place when goods are exchanged between the buyers and sellers of the two countries.
It consists of bringing foreign goods into the country for home consumption through a legal import procedure.
It refers to the supply of the country’s products to foreign countries using an export procedure.
In this type of trade goods are imported for the purpose of re-exporting them to some other country. This class of trade is also described as Trans-shipment.
Procedure of Importing
The importation of goods from foreign country necessarily involves a certain amount of detailed regulation. Which the individual importer, and the foreign exporter, must consider. The method of procedure of importing from abroad is as follows
All imports of goods into this country must be cover by an Import license issued by the State Govt. This license is generally issued for restricted quantities of goods. Sometimes a trader may obtain permission’ to import unlimited quantities of a commodity. The purpose of the licensing system is to preserve a balance between imports and exports.
Placing of the Order
The trader sends an order or indent to the exporter stating the full particulars about the goods he wants, the price or the rate of the price he is prepared for same and the time when he requires them. Tenders are never invited either from the manufacturers or from the various shipping house in the foreign country because that will give publicity to the order which might be prejudicial to the interests of the importer. Strict secrecy should be maintained with regard to the order.
Opening a Letter of Credit
A letter of credit is the most essential document. It is opened by the foreign buyer (Importer) through his banker in favour of the exporter after the order has been accepted.
Booking of Exchange
After this, the importer has to book the rate of exchange at which he will be required to pay in home currency for the bill drawn upon him by the exporter in order to avoid heavy fluctuation of exchange rate. The exchange brokers are there to help the importer in this connection.
Advice of Shipment
After booking the exchange, the importer has not much to do until the arrival of the goods at the port of his country. In the meantime, the agent, or the branch of the exporter’s bank in the importing country informs him of the arrival of the documents leading to delivery of the goods so that he can arrange for the payment of the bill of exchange in time.
Payment of the Bill
The agent or the branch bank of the country of exporter will present the bill of exchange along with relative shipping documents to the importer. The bill will be paid at the rate of exchange already booked. If the importer cannot meet the amount of the bill, he can arrange for its payment with his banker who will help him on a reasonable rate of charge.
In that case, the banker will ask the importer to give a letter of HYPOTHECATION and the bill of lading in his favour.
Delivery of Goods
Good imported into his country must be cleared through customs and may be subject to duty or taxes. If the goods are duty-free, the importer has not to face any problem for their delivery from the customs people. Delivery will be allowed after the usual examination and the importer will collect and take the articles to his godown. If the importer is not in a position to clear the duty, three courses are open to him.
In that case, he might either elect to warehouse the goods in the customs, or Bonded Warehouses and pay the warehousing charges, or arrange with his banker for payment of the amount in exchange for some security or a LETTER Of HYPOTHECA TION whichever step is convenient to him.
Dispatch of Goods by Clearing Agent
Generally, the goods imported are cleared by the clearing agent of the importer at the port. After duly satisfaction, it will be dispatched to the importer by goods using any transportation mode.
At the same day, receipt and other necessary documents will also be posted to him by clearing agent. After receiving these documents the importer will arrange to handle his goods from the authority concerned.