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1、Chapter Three,Export Price,SEIB OF GDUFS,2,3.1 Expression of export price,Four components in a standard format of a price: A code of currency: USD, CAD,CNY, EUR, GBP A number indicating the price unit A unit for measuring quantity: kg, gr, m/t, yd, set A certain trade term: FOB, CFR, CIF Examples: U
2、SD225.30/piece CIF New York FOB Guangzhou EUR12.80/set,SEIB OF GDUFS,3,3.2 Pricing considerations,Cost Cost of production Direct cost: material costs, labour costs, allocation of fixed costs, packing costs, etc. Administrative costs: overhead Cost of sales Marketing costs: advertising, sales trip ex
3、penses, commissions intermediary services Cost of delivery Warehousing and transporting charge, insurance premium, taxes and tariffs, customs duties,SEIB OF GDUFS,4,3.2 Pricing considerations,Anticipated profit margin in an absolute number in a percentage profit margin Capability of target market Re
4、ferring to the consumption power, income level, supply and demand relationship The higher the capital income of the target market, the higher the price Payment terms The lower the financing charges, the higher the risk of payment Other factors to be considered foreign exchange rates international ma
5、rket price for similar products policies and regulations in a particular market area,SEIB OF GDUFS,5,3.3 Calculation of price,Table 3.1 Costing Worksheet,SEIB OF GDUFS,6,3.3 Calculation of price,SEIB OF GDUFS,7,3.3.1 FOB Price,Table 3.2 FOB Costing Worksheet,FOB in freight currency FOB in freight cu
6、rrency = (Total Cost + Profit)/Exchange Rate,FOB in local currency,SEIB OF GDUFS,8,3.3.2 CFR Price,If FOB price is available CFR = FOB + Ocean Freight Ocean freight Provided by shipping lines Quoted as packaged price Others like “additionals” and “surcharges”,SEIB OF GDUFS,9,3.3.3 CIF Price,If FOB p
7、rice is available CIF = FOB + Ocean Freight + Insurance Premium If CFR price is available CIF = CFR + Insurance Premium Calculation of Insurance Premium (I) Based on contract value/invoice value + A markup (normally 10%) to cover incidental costs Formula: I = CIF x (1+10%) x Premium Rate (R) Therefo
8、re CIF = CFR + CIF x (1+10%) x Premium Rate (R) or CIF = CFR / (1 110% x R),SEIB OF GDUFS,10,Conversion of FOB, CFR & CIF Prices,Conversion of FOB to other prices CFR = FOB + F CIF = (FOB + F) / 1 (1+markup) x R Conversion of CFR to other prices FOB = CFR F CIF = CFR / 1 (1+markup) x R Conversion of
9、 CIF to other prices FOB = CIF x 1 (1+markup) x R F CFR = CIF x 1 (1+markup) x R,SEIB OF GDUFS,11,3.3.4 Price including commission,Net price = basic costs + profit Commission An incentive payment made to the middlepersons for their intermediary services Expressed in a fixed figure or in a percentage
10、 Examples CFR London GBP100 per doz, including 2% commission USD200 per M/T CIFC2% London CIFC3 Hamburg USD100/set CAD150 per M/T FOB Toronto, including CAD8 per M/T commission,SEIB OF GDUFS,12,3.3.4 Price including commission,Two ways of calculating commission based on invoice/contract value C = co
11、ntract value x C rate based on FOB or FCA: Under such terms as CFR, CIF, C is calculated before F and I are deducted Formula: C = price including C (FOB/FCA) x C rate Net price = price including C (FOB/FCA) C = price including C x (1- C rate) Price including C (FOB/FCA) = net price / (1-C rate),SEIB
12、 OF GDUFS,13,3.3.5 Price with discount,Discount a certain percent of price reduction, a special favor given by the exporter to the importer Reasons for discounting: To increase market competitiveness To get rid of stocked goods As a motivator for B to introduce goods into new markets As a compensati
13、on for settling disputes or previous orders,SEIB OF GDUFS,14,3.3.5 Price with discount,Discount expressed in % or fixed number USD200 per M/T CIF New York less 3% discount CIFD3 New York GBP200 per M/T EUR200 per unit CIF London including 1% discount Calculation Based on the contract value Discount
14、= contract price x discount rate Actual price = contract price discount = contract price x ( 1- discount rate ),SEIB OF GDUFS,15,Conversion of Price,SEIB OF GDUFS,16,3.4 Understanding the price,Export profit margin a ratio for measuring profitability of an export transaction Standing for how much pr
15、ofit can be generated for every unit of currency in sales Formula as follows:,Note: Figures calculated in exporters local currency Export revenue and cost excluding overseas transport charges and insurance cost The higher the Export Profit Margin, the more profitable the transaction is.,SEIB OF GDUF
16、S,17,3.4 Understanding the price,Export cost for foreign exchange (ECFFE) Interpreting profitability with currency factor Sanding for how many units of local currency the exporter should pay to make one unit of foreign currency Formula as follows:,Note: The less the ECFFE is, the more profit the exp
17、orter can make See Example on Page 65,SEIB OF GDUFS,18,Wording of Prices in Contract,HKD 100 per doz EXW GUANGZHOU (5 Beijing Road) CAD 200 per gr FCA Toronto (Airport) EUR 150 per pr FOB Shanghai JPY 600 per lb FAS Tokyo AUD 120 per pc CFR Sydney CHF 300 per set Carriage Paid To 5 Maple Rd. Geneva
18、(sea/air shipment: from Guangzhou to Dubai by sea, then by air to Geneva) USD 250 per set Delivered at Sino-Mongolian Frontier (Erlian) EUR 350 per M/T DES Guangzhou GBP 500 per unit DEQ London,SEIB OF GDUFS,19,3.5 Communication of Price,Stages involved Inquiry/Invitation to offer Offer/Quotation Co
19、unter-offer Acceptance,SEIB OF GDUFS,20,3.5.1 Inquiry,Definition: A potential client asks for information from the counterpart to his intention in buying or selling of a certain commodity. Can be initiated by both importers and exporters Can be made from one to one or several Expressing an intention
20、 of transaction only No obligation to progress the transaction (inquirer) & no obligation to answer (inquired party),SEIB OF GDUFS,21,3.5.2 Offer/Quotation,Definition: a sufficiently definite proposal addressed to one or more specific persons for concluding a contract, necessarily indicating the int
21、ention of the offeror to be bound in case of acceptance. Determinants of an offer One addressed to one or more specific persons Sufficiently definite: indicating the goods, expressly or implicitly fixing or making provision for determining quantity and price Indicating the intention of the offeror t
22、o be bound in case of acceptance,SEIB OF GDUFS,22,3.5.2 Offer/Quotation,When it reaches the offeree, it becomes effective Validity period By a fixed date for acceptance By a period of time for acceptance Withdrawal of an offer Before or at the same time of the offer reaching the offeree,SEIB OF GDUF
23、S,23,3.5.2 Offer/Quotation,Revocation of an offer Before offeree dispatches acceptance Exception: When it is irrevocable: eg. having fixed time for acceptance When offeree relies on it and has acted. Termination of an offer Legally revoked by offeror Not accepted by offeree within validity/reasonabl
24、e period Rejected or counter-offered by offeree Other uncontrollable events,SEIB OF GDUFS,24,3.5.3 Counter-offer,Definition: a reply to an offer which contains additions, limitations of other modifications. A refusal or rejection to the original offer original offer terminates automatically Counter-
25、offer can be made for several times before the final acceptance. Possible aspects of modifications : Price, payment Quality, quantity of goods Place & time of delivery Extent of one partys liability to the other Settlement of dispute,SEIB OF GDUFS,25,3.5.4 Acceptance,An acceptance is an unconditiona
26、l statement made formally by or an action conducted by the offeree indicating assent to an offer or counter-offer. Acceptance to be made within the validity period or reasonable time Silence or inactivity does not in itself amount to acceptance. Effective at the moment it reaches the offeror within
27、the fixed/reasonable time A contract is concluded at the moment when an acceptance of an offer becomes effective.,SEIB OF GDUFS,26,Example: Price Communication,E 30/6Your fax dated 29th: we offer until 4/7 here 200M/T CIF USD1950,immediate shipment and payment by sight L/C. I 2/7your fax dated 30th:
28、 client is interested. But discussion takes time and we need offer to be valid for 10 days. Any possibility to increase quantity and to decrease price? E 3/7Your fax dated 2nd: quantity can be increased to 300M/T, offer valid until 15/7 here I 9/7your fax dated 3rd: please airmail 2KG samples and co
29、nsider further increase of quantity and decrease of price. E 10/7your fax dated 9th: samples have been sent. We offer you a special price of 1900. Please reply promptly.,SEIB OF GDUFS,27,I 14/7your fax dated 10th: please further defer the firm offer of 300M/T USD1900 since the samples are not receiv
30、ed yet. Decision will be available one week after the receipt of samples. E 17/7Your fax dated 14th: we agree to extend the validity period to 25/7. I 22/7your fax dated 17th: we accept your offer of 300M/T CIF 1900. Please arrange immediate shipment, payment by L/C. Certificate of Origin and seawor
31、thy packing should be provided. E 24/7your fax dated 22nd: market changed. Goods had been sold before we received your fax.,Example: Price Communication,SEIB OF GDUFS,28,I 25/7your fax dated 24th: difficult to accept your apology. Your fax dated 17th agreed to extend the validity period to 25th. You
32、r withdrawal of firm offer goes against practice. If you want to adjust your price we can negotiate with client with no guarantee of acceptance. E 29/7Your fax dated 25th: we are sorry but the 300M/T have been sold already. The best we can do now is to provide 200M/T2650, shipment during Aug/Sep, su
33、bject to your reply here by 31st. I 30/7your fax dated 29th: we cannot accept your new offer and reserve our right of arbitration.Our 22nd fax already accepted your firm offer of 300M/T. Shipment during Aug/Sep is agreed. Otherwise we will claim compensation of USD232950 (2650-1900) X 300.,Example: Price Communication,SEIB OF GDUFS,29,E 2/8Your fax dated 30th: our fax dated 17th only agreed to defer the offer until 25/7, but with no indication that it was a fi
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