chaptr 3.Export Price.ppt

SEIB OF GDUFS Chapter Three Export Price 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: USD225.30/piece CIF New York FOB Guangzhou EUR12.80/set 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 expenses, commissions intermediary services Cost of delivery Warehousing and transporting charge, insurance premium, taxes and tariffs, customs duties 3.2 Pricing considerations Anticipated profit margin in an absolute number in a percentage → profit margin Capability of target market Referring 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 market price for similar products policies and regulations in a particular market area 3.3 Calculation of price 3.3 Calculation of price 3.3.1 FOB Price FOB in freight currency FOB in freight currency = (Total Cost + Profit)/Exchange Rate 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” 3.3.3 CIF Price If FOB price 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) Therefore CIF = CFR + CIF x (1+10%) x Premium Rate (R) or CIF = CFR / (1 – 110% x R)