The pricing objectives would determine the pricing strategy on the exporter. The pricing strategy is a part of the market entry strategy and should therefore not be taken casually. The export price should be fixed taking into consideration all the marketing factors that influence this decision. Some of the possible pricing strategies are as follows:
1. High price strategy
2. Moderate price strategy
3. Low price strategy
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A high-price strategy should be used if the export firm is selling a unique or a new product. It may also be used in case the exporter intends to establish a high-quality image for the product. The advantage of this strategy is that the exporter can earn higher profit margins but it can also limit the product’s marketability. This may also attract more competition for the product in that market.
A low-price strategy is best suited when the exporter plans to clear its stock of the goods. This strategy can at best be used as a short term strategy only. The danger of this strategy is that it may invite anti-dumping charges from foreign competitors apart from yielding low profits for the exporter.
A moderate price strategy is the right strategy for a small and medium export firm as it would enable it to be competitive and earn reasonable profits. Moderate pricing would also help an exporter increase its market share in the long run. This strategy requires the exporter should have prior knowledge of the competitor’s market entry prices.
Export Price Quotations
1. EX WORKS (….named place) EXW
ADVERTISEMENTS:
“Ex Works” means that the exporter undertakes to deliver the goods to the importer at gate of his factory or works. Thus, the obligation of the exporter is only up to the point of delivery of the goods at the works or the factory gate. That is to say he undertakes to pay for all the expenses to make the goods available at his premises. He is not responsible for loading the goods on the vehicle provided by the importer or for clearing the goods for export, unless otherwise agreed. The importer bears all costs and risks involved in taking the goods from the exporter’s premises to the desired destination. This term thus, represents the minimum obligation on the part of the exporter.
2. FREE CARRIER (…named port) FCA
“Free Carrier” means that the exporter fulfills his obligation to deliver when he has handed over the goods, cleared for export, into the charge of the carrier named by the importer at the named place or point. If no precise point is indicated by the importer, the exporter may choose within the place or range stipulated where the carrier shall take the goods into his charge. When, according to commercial practice, the exporter’s assistance is required in making the contract with the carrier (such as in rail or air transport) the exporter may act at the importer’s risk and expense.
ADVERTISEMENTS:
This term may be used for any mode of transport, including multimodal transport.
“Carrier” means any person who, in a contract of carriage, undertakes to perform or to procure the performance of carriage by rail, rode, sea, air, inland waterway or by a combination of such modes. If the importer instructs the exporter to deliver the cargo to a person, e.g. a freight forwarder who is not a “carrier”, the exporter is deemed to have fulfilled his obligation to deliver the goods when they are in the custody of that person.
“Transport terminal” means a railway terminal, a freight station, a container terminal or yard, a multi-purpose cargo terminal or any similar receiving point.
“Container” includes any equipment used to pack the cargo, e.g. all types of containers and/or flats, whether ISO accepted or not, trailers swap bodies, ro-ro equipment, igloos, and applies to all modes of transport.
ADVERTISEMENTS:
3. FREE ALONGSIDE SHIP (….named port of shipment) FAS
“Free Alongside ship” means that the exporter fulfils his obligation to deliver when the goods have been placed alongside the vessel at the named port of shipment. This means that the importer has to bear all costs and risks of loss of or damage to the goods from that moment.
The FAS term requires the exporter to clear the goods for export.
The term can only be used for sea or inland waterway transport.
4. FREE ON BOARD (….named port of shipment) FOB
“Free on Board” means the exporter fulfills his obligation to deliver when the goods have passed over the ship’ rail at the named port of shipment. This means that importer has to bear all costs and risk of loss of or damage to the goods from that that point i.e. after the goods have been loaded.
The FOB terms require the exporter the clear the good for export and ensure their loading on the plane or the ship or any other carrier in case of road transportation.
This term can only be used for see or inland water way transport. When the ship’s rail serves on practical purpose, such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use. However, in practice this term is being used in case of shipment by air transport as well.
5. COST AND FREIGHT (…NAMED PORT OF DESTINATION) CFR
“cost and freight” means that the exporter must play the cost and freight necessary to bring the goods to the named port destination but the risk of loss or damage the good, as well as any additional cost due to event occurring after the time the goods have been delivered on board the vessel, is transferred from the exporter to the importer when the goods pass the ship’s rail in the port in the shipment.
The CFR term require the exporter to clear the goods for exporter.
The term can only be used for sea and inland water way transport. When the ship’s rail serves on practical purpose, such as in case of roll-on/roll-off or container traffic, the CPT term is more appropriate to use.
6. COST INSURANCE AND FREIGHT (…named port destination) CIF
“Cost, insurance and freight” means that the exporter ha the same obligations as under CFR with the addition that he has to procure marine insurance against the importer’s risk of loss of or damage to the goods during the carriage. The exporter contract for insurance and pays the insurance premium.
The importer should note that under the CIF term the exporter is only required to the obtain insurance on minimum coverage.
The CIF term requires the exporter to clear the exporter.
The term can only be used for sea an inland water way transport. When the ship’s rail serves on practical purpose such as in the case of roll-on/roll-off or container traffic, the CIP term is more appropriate to use.
7 CARRIAGE PAID TO (…. Named place of destination) CPT
“Carriage paid to…” means that the exporter pays the freight for the carriage of the goods to the named destination. The risk of loss of or of damage to the goods, as well as any additional costs due to event occurring after the times the goods have been delivered to the carrier, is transferred from the exporter to the importer when the goods have been delivered in to the custody of the carrier.
“Carrier” means any person who, in a contact of carriage, undertakes to perform or to procure the performance of the carriage, by rail, road, sea, air, inland waterway or by a combination of such mod.
If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier.
The CPT term required the exporter to clear the goods for export.
This term may be used for any mode transport including multi model transport.
8. CARRIAGE AND INSURANCE PAID TO (…named place of destination) CIP
“Carriage and insurance paid to….” means that the exporter has the same obligation as under CPT but with the addition that the exporter has to procure cargo insurance against the importer’s risk of loss of damage to the good during the carriage. The exporter contacts for insurance and pays the insurance premium.
The importer should not that under the CIP term the exporter is only required to the obtain insurance on minimum coverage.
The CIP the term requires for the exporter to clear the goods for exporter. This term may be used for any mode of transport including multi modal transport.
9. DELIVERED AT FRONTIER (…NAMED PLACE) DAF
“Delivered at Frontier” means that the exporter fulfils his obligation to deliver when the goods have been made available cleared for exporter, at the named point and place at the frontier, but before the customer border at the adjoining country. The term “frontier” may be used for any frontier including that the country of exporter. Therefore, it is vital importance that the frontier in question be defined precisely by always naming the point and name in the place in the term. The term is primarily intended to be used when the goods are to be carried by rail or road, but it may be used for any mode of transport.
10 DELIVERED EX SHIP (…named port of destination) DES
“Delivered Ex Ship” means that the exporter fulfils his obligation to deliver when the goods have been made available to the importer on board the ship unclear for import at the named port of destination. The exporter has to bear all the costs and risks involved in bringing the goods to the named port of destination.
This term can only be used for sea or inland waterway transport.
11. DELERED EX QUAY (….named port of destination) DEQ
“Delivered Ex Quay” means that the exporter fulfils his obligation to deliver when he has made the goods available to the importer on the Quay (Wharf) at the named port of destination, unclear for importation. The exporter has to bear the costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the Quay (Warf). The responsibility of the importer is to clear the goods for import and to pay for all custom clearance formalities, duties, taxes and other charges upon import. Thus, the exporter shall bear the cost of discharging the goods, at the quay (Wharf) in addition to the cost and risk involved as per the term DES.
12. DELIVERED DUTY UNPAID (…named place of destination) DDU
“Delivered duty unpaid” means that the exporter fulfils his obligation to deliver when the goods have been made available at the named place in the country of importation. The exporter has to bear the costs and risks involved in bringing the goods there to (excluding duties, taxes and other official charges pay is upon importation as well as the costs and risks of carrying out customs formalities). The importer has to pay any additional costs and to bear any risks caused by his failure to clear the goods for import in time.
If the parties wish the exporter to carry out customs formalities and bear the costs and risks resulting there from, this has to be made clear by adding words to this effect.
If the parties wish to include in the exporter’s obligations some of the costs payable upon importation of the goods (such as value added tax (VAT), this should be made clear by adding words to this effect: “Delivered duty unpaid, VAT paid (…named place of destination)”
This term may be used irrespective of the mode of transport.