Suppose you have successfully implemented your export marketing plan and received your first acceptable enquiry detailing your potential importer’s requirements. In that case, you will be required to conduct a feasibility study on the potential transaction and produce an accurate quotation. When exporting, a feasibility study will involve several investigations that collectively inform you of possible risks posed by the buyer or foreign market concerned and highlight the costs you need to include in the price you quote for the goods in question. An exporter should only undertake the preparation of an export quotation after completing a feasibility study that includes the accurate costing of the proposed transaction. An accurate quotation is essential in ensuring your export initiative is successful. This article focuses on the role played by Incoterms® in your export quotation.
Incoterms® and your Quotation
As discussed in our various articles on Incoterms®, Incoterms® play a vital role in any international trade transaction. Incoterms® indicate which party to a contract bears the risk, responsibilities and costs at any given time during the delivery of goods in a particular export transaction. The ICC currently promotes eleven Incoterms®, and each Incoterm® has a unique allocation of risk, responsibility and costs for both buyer and seller. Thus, when quoting your international buyer, it is common to quote your price per unit at various points according to a particular Incoterms® progression. For example, you could include a price per unit for FOB, CFR and CIF. Your FOB price per unit will not include insurance and freight, but your CIF price per unit will. Similarly, your CFR price won’t include the insurance costs but will include freight costs, etc.
Why is the Price per Unit given for various Incoterms®?
Including the price per unit at various points along the chosen Incoterm® in your quotation allows the buyer to assess the pricing given to them accurately. For example, a buyer could take your FOB and CIF prices and attempt to source their own insurance and freight. If a potential buyer is able to get a lower price for insurance and freight, the FOB price would be more attractive. Conversely, the CIF price would be more appealing if a potential buyer cannot source insurance and freight at a cheaper rate.
There are numerous considerations to make when preparing a quotation for your international buyer, far too many to summarise in a single article! Thankfully, Trade Forward Southern Africa, in collaboration with the International Trade Institute of Southern Africa, has created a free and comprehensive online training course on various aspects of global trade, including marketing for exports, Incoterms® and producing well-constructed quotations and pro forma invoices. In addition, modules provided include training on developing an export marketing plan, international finance, foreign exchange rates, Letters of Credit, international payment methods, and export credit insurance. Click the links below to sign up for free and get started.
To sign up to the School of Export CLICK HERE.
If you already have a profile, CLICK HERE to login to begin the module.