Unit 3 Business Contract

Components of Business Contract Introduction to Business Contract Outline Components of Business Contract Introduction to Business Contract

Components of Business Contract Name of Commodity and Specifications, Packing and Shipping Marks Quantity Unit Price Total Amount Time of Shipping Port of Loading Port of Destination Chapter 4

Components of Business Contract Chapter 7 Insurance Terms of Payment Inspection Force Majeure Discrepancy and Claim Arbitration Chapter 5,6,8 Chapter 9 Chapter 10

3.1 Export Price pricing considerations calculation of price price including commission price with discount price adjustment clause understanding the price communication of price

3.1 Export Price pricing considerations calculation of price price including commission price with discount price adjustment clause understanding the price communication of price

3.1.1 pricing considerations How is price expressed? Examples: USD225.30/piece CIF New York FOB Guangzhou EUR12.80/set 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

常用的计价货币 美元（US＄或USD）； 英镑（£或GBP）； 欧元（€ 或EUR）； 加拿大元（CAN＄或CAD）； 港元（HK＄或HKD）； 日元（J￥或JPY）； 瑞士法郎（SF或CHF）

单价表示练习 判断下列我方出口单价的写法是否正确，如有误，请更正并说明理由。 （1）3.5 yuan per yard CIFC HONG KONG （2）￡500 per carton CFR Britain net （3）USD1000 per ton FOB London （4）每打100法国法郎FOB净价减1%折扣 （5）2000日元CIF大连包含佣金2%

单价表示练习 （6）每斤4.5美元 （7）每公吨200美元FOB新港 （8）每箱50元CIF伦敦 （9）每台300德国马克CIF上海 （10）每辆40美元CFR新加坡

3.1.1 pricing considerations What factores you will consider when you are pricing? cost anticipated profits capability of the target market payment terms others

3.1.1 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, company websites cost, commission for sale

3.1.1 pricing considerations Cost Cost of delivery Warehousing and transporting charge, insurance premium, taxes and tariffs, customs duties, documentation Cost of financing interest paid to the bank, banking charges on payment

3.1.1 pricing considerations Anticipated profit margin Capability of target market Referring to the consumption power, income level, supply and demand relationship Payment terms Other factors to be considered foreign exchange rates international market price for similar products policies and regulations in a particular market area

3.1.2 Export Price pricing considerations calculation of price price including commission price with discount price adjustment clause understanding the price communication of price

FOB Pricing FOB in local currency FOB in foreign currency FOB in foreign currency = (Total Cost + Profit)/Exchange Rate

CFR Price If FOB price is available Ocean freight CFR = FOB + Ocean Freight Ocean freight Provided by shipping lines or shipping forwarders

CIF Price If FOB price is available If CFR price is available CIF = FOB + Ocean Freight + Insurance Premium If CFR price is available CIF = CFR + Insurance Premium

CIF Price 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) Solution to the loop in calculation CIF = CFR + CIF x (1+10%) x Premium Rate (R) or CIF = CFR / (1 – 110% x R)

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 CIF to other prices FOB = CIF x [1 – (1+markup) x R] – F CFR = CIF x [1 – (1+markup) x R]

Illustration Suppose your company made an offer at USD1200 per metric ton FOB Xiamen. Your customer counter-offered and asked you to offer CIF Xiamen price. Suppose freight per metric ton is USD 130, markup 10% and insurance rate 1%, what would CIF Xiamen be?

Reference CIF = FOB + F +I FOB = 1200 F = 130 I = CIF x (1+markup)x insurance rate=CIFx1.1x1% Thus, CIF=1200+130+CIFx0.011 the CIF Xiamen price is 1344.79USD.

Illustration Supposing… Question: will you accept the counter offer? Your offer: USD3000 per metric ton CIF Singapore Counter-offer: USD2880 per metric ton FOB Shenzhen port Freight from Shenzhen port to Singapore: USD89 Insurance premium rate: 0.95%, markup: 10% Question: will you accept the counter offer?

Reference your offer is CIF Singapore 3000USD the counter offer in FOB Shenzhen can be calculated as follows: FOB=CIF-F-I = CIF-F-CIFx(1+markup)x Insurance Rate = 3000-89-3000x(1+10%)x0.95% =2879.65 Since the counter-offer is 2800, which is even higher than the original price, thus the counter-offer price is accetptable.

3.1 Export Price pricing considerations calculation of price price including commission price with discount price adjustment clause understanding the price communication of price

3.1.3 Price including commission Net price = basic costs + profit Adjustment to the net price for promotion purposes (commission and discount) 如净价成交，可在价格条款中明确表明“净价”字样。 例：US$300 per metric ton FOB Shanghai net

3.1.3 Price including commission An incentive payment made to the middlepersons for their intermediary services Expressed in a fixed figure or in a percentage 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

3.1.3 Price including commission Two ways of calculating commission based on invoice/contract value C = contract value x C rate based on FOB or FCA: Under such terms as CFR, CIF, C is calculated after 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)

Illustration 1. USD100 per m/t CFRC5%, C? 2. USD100 per m/t CFRC5%, CFR net? 3. USD 100 per m/t Net CFR, CFRC5%? 4. USD200 per case FOB Xiamen, freight USD22 per case, CFRC5? 5. USD50 per m/t CIF Washington, I rate 1.05%, markup 10%, CFRC5? 6. USD 150 per barrel FOB Xiamen, I rate 1%, markup 10%, freight 15, CIFC3?