Export Costing &

Pricing

A. K. Sengupta
Former Dean IIFT

1
Right Price

• Right price does not always mean low price.

• Right price depends upon factors - nature of the
market, costs, competition, buyers’ purchasing
power etc.
• Tripod-Demand- Competition-Cost
-Elasticity of demand-A reduction of price may not
help exporter to sell more if demand for product not
price elastic.

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• Competition- - foreign supplier-domestic products
• Role of costs-Popular fallacy (mistaken belief)price
depends upon cost-not always true
• -a rise in cost may not justify increase in price
• -Increase in D may increase price without increase in
costs
• -Price may determine cost
• -Cost may differ between two producers
of same product – but sell at same price-
Hence cost may not always determine
price.
• Pricing Approaches
• Cost - based pricing and Market - based
pricing.

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Cost-based pricing
Also known as cost plus pricing- a common method of
pricing.
The price includes a certain percentage of profit margin on the
sum total of the full cost of production + marketing costs.
.Price
= [fixed cost + variable costs + marketing costs] + a
percentage of the total cost.

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Market-based pricing
 Exporters - price followers rather than price setters.
Involves assessment of prevailing prices in International
Markets and a top-down calculation is made.
A flexible policy - allows the prices to be changed in
accordance with the changes in the market conditions.

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Following Competitors
• Follow dominant competitors, particularly the price leader,
in setting the price. The price leader is the firm which
initiates the price trends.
Negotiated Prices
• Deciding price by negotiations between the seller and the
buyer.

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Buyer Determined Price
• Foreign buyer specifies the price at which he is prepared to
buy the product-Exporter has to work out its acceptability
Marginal Cost Pricing

• Under the marginal cost pricing -the relevant cost

considered for pricing is the variable cost- the fixed cost is
excluded from the calculation of the cost of the production.

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• An order which may appear to be unprofitable and,
therefore, unacceptable because of adopting the full cost
approach (ie. ,both fixed and variable costs) may appear to
be profitable if marginal cost approach is adopted.

9
Pricing Decisions for firms in Developing Countries
•Inability to influence prices.
•Lower production and technology base – results in
higher cost of production.
•Marginal suppliers – little bargaining power to negotiate.
•Major proportion of export is commodities (with
marginal value addition) – hence limited scope for
realizing optimal prices.
•Fiercely competitive market – margin is low
Hence essential to formulate appropriate pricing strategies

10
Pricing Objectives
A firm’s pricing policy may be guided by any one or more
of the following objectives:
(i) Market Penetration: Particularly for new exporters.
A firm may attempt to penetrate the market with a low
price.
(ii) Market Share: The price may be manipulated to
increase the market share.

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(iii) Market Skimming: Innovative products- The product
is introduced with a high initial price to skim the cream
of the market. The price may be subsequently reduced
to achieve greater market penetration.
(iv) Fighting Competition: Sometimes price is a tool to
fight competition. A price reduction by the competitor
may have to be countered by price cuts.
(v) Preventing New Entry: A firm may charge a low price
even when there is scope for high price so that the
industry does not look very attractive to new entrants.
(vi) Early Cash Recovery: A firm with liquidity problem -
adopt a pricing that might help it to liquidate the stock
and encourage prompt payment by channel members
or buyers.
(vii) Meeting Export Obligation: A company with
specific export obligation may be compelled to adopt a
pricing policy that enables it to discharge its export
obligation. Sometimes it may even imply a price
lower than the cost.

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(viii) Disposal of Surplus: A company confronted with a
surplus stock may resort to exporting to dispose of the
surplus.
(ix) Optimum Capacity Utilization: Exporting is
sometimes resorted to enable the firm to achieve
optimum capacity utilization so as to minimize the unit
cost of production. In such a case, achieving the
required quantity of exports could be the objective of
export pricing.
(x) Profit Maximization: In many cases, the primary
pricing objective is maximization of profits.
Pricing Strategy
Types of Cost in Export Marketing
Fixed Cost
• Production cost
Variable Cost
• Selling and delivery costs.
Production Costs
Fixed Cost
Fixed costs are costs which remain fixed up to a certain
level of output
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Even if there is no production, some people are paid salary,
minimum fixed expenses etc.
Variable Costs
Variable costs are costs which vary with the variation in
the level of output and include cost of factors of
production like labor, material etc.

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Selling and Delivery Costs
• Include the cost of holding stocks, packaging, transport,
documentation, pre shipment inspection, insurance and
cost of advertising, personal selling etc.
• Commission to agent and traveling & incidental expenses
are variable costs.
Marginal cost Pricing
• Pricing on Marginal cost – direct costs are covered i.e.
the variable costs.
ABC Company – Capacity = 100 Machines
Manufacturing 70 Machines (70% capacity utilization)
Cost of Manufacturing 01 Machine = Rs.54,000
Selling Price = Rs.60,000 ,Profit=Rs 6000 17
Variable Cost Fixed Cost
Labour – Rs.10,000 Supervision (Salary) –
Rs.3,000
Material – Rs.15,000 Factory Overhead – Rs.5,000
Energy – Rs.1,000 Admin. Overhead – Rs.10,000
Total FC– Rs.23,000
Marketing Expenses –
Rs.5,000 TOTAL COST-54,000
Total VC – Rs. 31,000
Export Enquiry – Rs.50,000 per 01 machine
Quoting full cost – loss of Rs.4,000
Marginal Cost pricing – profit of Rs.19,000
(Rs.50,000 – Rs.31,000) = Rs.19,000
Points in support of use of Marginal cost
• Export sales are additional sales – need not be
burdened with overhead costs.

• Situations
• Products less known in foreign markets.
• Markets with low purchasing power.
• Competition is severe.
How to recover the fixed cost
• Domestic market
• Extra loading
Feasibility
• Existence of large domestic market
Limitations
• Importers become used to low price
• Not applicable to industries mainly dependent on
export market.
• Where overheads are insignificant.
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.
Marginal cost sets the lower limit
• The idea is not that direct cost should be charged every
time.
• Marginal cost provides the lower limit up to which a
firm can reduce the prices without in any way affecting
its overall profitability.
Disadvantages
• Countries might be charged of dumping.
• Competition among exporters from developing
countries lead to undercutting each other resulting in
loss of foreign exchange.
• Very often low prices may be quoted in the absence of
adequate information about prevailing prices in foreign
market.

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Elements for Export Price Quotation
The following chart gives the various elements of costs.
(1) For export price based on marginal cost. (2) For export
price based on full cost:

1) Export Price Based on Marginal Cost

Direct cost
(a) Variable costs:
Direct material
Direct labour
Variable production overhead (for example, special dies
and jigs)
Variable administration overheads (for example, salary of
export clerk)
(b) Other costs directly related to exports:
• Selling cost – advertising support to importers abroad
• Special packaging, labeling etc.
• Commission to overseas agent
• Export credit insurance
• Bank charges
• Inland freight
• Forwarding charges
• Inland insurance
• Port charges
• Export duties if any 24
• Warehousing at port, if required
• Documentation and incidental
• Interest on funds involved/cost of deferred credit
• Cost of after-sales including free part supply
• Pre-shipment inspection and loss on rejects
Total Direct Costs
Less: duty drawback
Direct Cost Net
=F.O.B. price at marginal cost
II. Freight (volume or weight whichever is higher)
III. Insurance

C.I.F. price (based on marginal cost)

2. Export Price Based on Full Cost

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 i) Direct cost as in (1)
ii) Fixed cost/ common cost
Production overheads
Administration overheads
Publicity and advertising (general)
F.O.B. price (based on full cost)
iii) Freight (volume or weight whichever is
higher)
iv) Insurance
CIF price( based on full cost)
In the case of export houses purchasing their supplies
from supporting manufacturers, the cost price of supplies
obtained would constitute the lower limit.
Market Oriented Export Pricing
The following chart gives the nature of analysis for
market – oriented pricing

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Analysis for market oriented export pricing
Market price _________
Less retail margin on selling price __________
Cost to the retailer _______
Less whole sellers mark up on his cost ________
Cost of the wholesaler ______
Less importers mark up on his cost ________
Cost of the importer _______
Less import duty ________
C.I.f. price _____
Less freight and insurance charges _______
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F.O.B. realization of the exporter ___________
 Top-down Calculation for International Pricing (US $)
Consumer Price: 1,160 + 16%**
VAT* 160
Market price minus VAT: 1,000
Margin retailer: 250 = 25%**
Price to retailer: 750
Margin wholesaler: 90 + 12%**
Price to wholesaler: 660
Margin to importer 33 + 5%*
Landed-cost price: 627
Import duties: 110 + 20%**
Other costs (storage, banking): 17**
CIF (Port of destination): 500
Transportation costs: 130**
Insurance costs: 6**
FOB (port of shipment) 364
Transportation costs factory to port: 34**
Export price ex-works (EXW): 330
Factory cost price: 300**
Export profit (per unit): 30

*Note that VAT is calculated as a percentage of the price without VAT. Trade margins are usually calculated as a
percentage of the trade selling price. The trade margins for some sectors are calculated as a percentage of trade buying
prices.
**Figures based on assumptions. 30
 Terms of Payment in International Transcations

The export Sales Contract must clearly specify how and when the
payment is to be made.

Options of payments by the buyer:

•Advance Payment
•Open Account
•Consignment Sales
•Documentary bills
•Documents against payment (DP)
•Documents against acceptance (DA)
•Documentary Letter of Credit (LC)
Payment in Advance
• Most advantageous payment term for the seller point of view.
• The importer sends remittance with the confirmation of order or
before the shipment is made.
• The remittance is made by draft, cheque, mail or transfer.
• Advance payment may be insisted upon when goods are
manufactured to order in accordance to the specification of the
importer.
• Buyers are unknown to the seller or his credit worthiness is
doubtful.
Open Account

• Under this method the seller carries the entire financial burden.
• Here the seller ships the goods with no financial documents to
his advantage.
• Because of great risks associated with the open account
method by the seller, it is generally restricted to cases of
transactions between inter-connected companies or where the
exporter and overseas buyers have a long and well established
commercial relationship.
• Indian exporters are allowed to sell abroad on open account
basis only with special permission of the R.B.I. Normally this
permission is given to foreign companies operating in India.
Consignment Sales

• The exporter makes shipment to overseas consignee/ agent,

but retain the title to the goods even though the overseas
agents will have the physical possession of the goods.
• The payment is made only when the goods are ultimately sold
by the overseas consignee to other parties.
• The procedure is costly and risky to exporter.
• His payment will be due on a date which cannot be foreseen –
As a result he may be faced with cash flow problem.
• This type of payment is risky too – if the consignee fails to sell
the goods, he may return the goods any time at the seller’s
expense.
• Moreover the price to be realized is also uncertain and will
depend on market conditions.
• Advantage of such sale is that the buyer gets an opportunity to
examine the goods and the seller may get a higher price if the
buyer is satisfied with the quality etc.
Documentary Bills

Documentary bills act as a bridge between:

a) Exporter’s unwillingness to part with the goods until he is
paid for and b) Importer’s unwillingness to part with
his money unless he is sure of receiving the goods.
Banks provide a via media .

DP and DA Bills

•Two types of payment under Documentation Bills

•Documents against Payment (DP)
•Documents against Acceptance (DA)
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DP

•Exporter ships goods to foreign buyer.

•Exporter’s bank sends documents including bill of exchange
and bill of lading to its importer’s Bank in the buyer’s country.
•Importer’s Bank presents documents to buyer and on
payment of the bill of exchange, delivers the documents to
him so that the can take possession of the goods.
•The importer’s bank sends the money received from the
buyer to the exporter’s bank which is ultimately credited to
exporter’s account.

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DA

•The importer bank will submit the bill of exchange to be

signed by the buyer to indicate his acceptance of the payment
obligation.
•After the buyer accepts the bill, he will get possession of the
documents.
•On the due date of payment, the bank will again present the
bill to the buyer who then makes the payment.
•The money received is remitted through the usual banking
channels to be credited to the exporter’s account.
Commercial Risks of DP & DA
•Both DP and DA are common in export trade- there are
various commercial risks.
DP
•Under DP terms, the importer may fail to accept the
documents by making the payment.
•But in this case the documents remain still in the hands of the
bank and the exporter will at least not lose possession of the
title of goods.
•He may find alternative buyer or bring back the goods.
DA
•In case of DA the risk is greater as the buyer has already
taken possession of the goods, which may or may not be in his
custody on the maturity date.
•If he fails to fulfill his obligation on the due date, the exporter
will have no alternative but to start legal proceedings to receive
his payments.
Facility under ECGC to cover the risk

Documentary Letter of Credit

What is LC?

•Under documentary credits, the importer approaches his

bank, which on the basis of the instructions given by the
importer, gives a written undertaking to the overseas exporter
that if the exporter presents documents the bank will make
payment of the given amount to the exporter.
Parties to the letter of Credit

•The Opener – The opener is the buyer (the importer) - The LC

is opened at the initiative and request of the buyer.
•The Issuer – The issuer also called the opening or Issuing
Bank is the bank in the importer’s country issuing the LC at the
request of the buyer.
•The Beneficiary – The beneficiary is the party in whose favour
the credit is issued – seller or the exporter.
•The confirming Bank – The confirming bank is a bank in the
exporter’s country which guarantees the credit.
 Port of Loading Port of discharge

Shipping company 6a Shipping company

Voyage

Export Contract
Exporter (Beneficiary) Importer (Applicant)
(including draft
Documents

and B/L)

Delivers L/C
Corresponding advising bank 3
Issuing bank
8
Documents (including draft and B/L)

9 42
Draft accepted and funds released
 Dumping
• Dumping is considered an ‘unfair’ trade practice under
the WTO regime
• Frequently used
• Anti-dumping duty can be levied on imports of certain
products under the Agreement on Anti-dumping
practices
• A product is considered to be dumped if its export
price is less than its cost of production or selling price
in the exporting country.
Predatory dumping
• Objective of predatory pricing - to force competitors to
leave the market – predator raise price in the long run.
• Highly detrimental
• Practice is common where the predator firm operates
in numerous markets
• Anti-dumping duty is justified-Suspicion-subsidy
• European countries- dumping agricultural products
with huge farm subsidies and Japan of dumping
consumer electronics
• Agri-India--$6----$8 (France)------$8(other countries)
• France--$10($5 subsidy)---$6------$7 (other countries)
•Forms of dumping
– Sporadic dumping: The practice of occasionally
selling excess goods or surplus stock at lower prices in
overseas markets, as compared to domestic price or the
cost price
– Basic objective of firm to liquidate excessive
inventories
– Least detrimental
Persistent dumping
• A consistent tendency of a firm to sell the goods at
lower prices in foreign markets as compared to the
prices in domestic markets
• Marginal costing approach
• Chinese consumer goods industry is accused of
persistent dumping internationally, primarily to utilize
their large scale production capacities
 Transfer Pricing

• Such practices lower the tax burden of the firm

Unethical - brings about loss to the exchequer
• MNCs - re-invoicing centres at low-tax countries (tax
havens) such as Dubai, Jamaica, Cayman, Islands,
Mauritius, Bahamas, - coordinate transfer pricing around
the world
• Re-invoicing centres are used- carry out intra – corporate
transactions between parent company and its affiliates or
between two affiliates of the same parent company.
• Re invoicing centers take title of the goods sold by the
selling unit and resell to the receiving units
• Actual shipment of goods takes place from the seller to
the buyer, while the two-stage transfer is shown only in
documentation
• Objective - transfer pricing is to siphon profits away
from a high-tax parent company or its affiliates to low
tax affiliates
 No Tax
600 DUBAI

500 INDIA UK

1000
I Profit = 500
Tax on Profit in India = 50% = 250
Profit = 250

II Profit = 100
Tax on Profit = 50% = 50
Profit = 50

III Overall Profit = 450

500---600---100---50
600---1000-400---400
Total 450
Transfer Pricing used to circumvent law with the following
objectives
• Maximizing of overall after tax profit
• Circumventing the quota restrictions on imports
 Grey Marketing
• Goods -imported and distributed through
unauthorized channels
• International brands with high price differentials and
low cost of arbitrage constitute typical grey market
goods
• Low arbitrage costs: transportation, customs tariffs,
taxes, change in language of instruction etc
• Grey marketing channels can also facilitate
distribution of counterfeit products, both knowingly
and unknowingly
• Grey market is called grey - not as bad as black
market (illegal imports), but it is not exactly white
(authorized distribution)
• Grey market item is not covered by manufacturer
warranty – not imported by manufacturer’s
authorized importer - and are not sold to the
identified retailer to sell to customer
 Types of Grey Marketing Channel

• Parallel importing
• Re – importing
• Lateral re - importing
 Levis USA

Country A India
(Production Centre)

Lateral
Country B Dubai Country C UK
Grey – Import US $ 80
After Paying Tax

Price in country B (PB) < Price in country A (PA) < Price in Country C (PC)
Parallel Importing
• A product is sold at a higher price to the authorized
importer in overseas markets than the price at which
available in home market
• This makes parallel importing directly through
unauthorized channel attractive as compared to
buying from authorized importer or market
intermediary
Re-importing
• Re-importing becomes attractive when a product is
priced lower in overseas markets as compared to its
pricing in home market

Lateral re-importing
• Products sold from one export market to another
export market when the price differences exist in
different markets
• Difference between prices of automobile in USA and
Canada is substantial
• Canadian prices cheaper and no customs tariff between
two countries
• Canadian distributors engage in selling to the USA market
for which they are not authorized by the company
• Grey marketing channels adversely affect established
distribution channels of the firm
• Counter Trade

• Counter Trade involves reciprocal commitments other

than cash payment
• In situation wherein the importer is not able to pay in hard
currency
 Various forms of counter trade
 Barter
 Clearing Arrangements
 Switch Trading
 Counter Purchase
 Buy back
• Barter:
 In Barter, the goods and/or services are exchanged with
other goods and/or services of equal value, no money is
paid by the buyer. This is the only trade activity with no
money involved. Barter involves a single contract that
covers both transaction flows.

Goods / Services

seller Buyer
Goods / Services
Previously, this type of trade activity was more popular
among the governments. Now due to the liberalization and
privatization of commodities markets a “pure” barter trade
arrangement is rarely used.

Examples:
· The Malaysian government purchased 20 diesel electric
locomotives from General Electric against the supply of about
200,000 metric tons of palm oil over a period of 30 months.
 Minerals and Metals Trading Corporation of India (MMTC)
imported 50,000 tons of rails value of about $38 million from
a Yugoslavian company against iron ore concentrates and
pellets of the same value.

In 2000 India agreed on an oil for wheat and rice barter deal
with Iraq.
 Ex: - Pepsi Co entered into one of the largest barter with
Russia valued at US $ 3 billion – Pepsi Co had been
engaged in business with Russia since 1974 shipping soft
drinks syrup, bottling it as Pepsi Cola and marketing
within Russia. – In 2010 Pepsi sales volume amounted to
US $ 300 million comprising about 40 million cases from
26 bottling plants in Russia – Pepsi Co found it difficult to
takeover the profit from Russia as the hard currency was
not available – therefore Pepsi entered into an agreement
to export Stolichnaya Vodka from Russia – to the United
States where it was sold through an independent liquor
company -
Clearing Arrangements
This type of trading is between two or more than two
countries in the shape of an agreement, under which agreed
volume of goods are imported and exported over a specific
time period without the payment of foreign currencies. At the
end of the agreed time period, the balance is settled in an
agreed foreign currency for example US Dollars.

Let us take an example of two countries Country A and

Country B in the below diagram.
Exporters Importers of
of Country B
Country A

Government Government
of Country A of Country B

Importers of Exporters of
Country A Country B

Payment in local currency

Shipment
Information
Both the countries sign an agreement for the period of one
year. The exporters of country A will send the shipment to the
importers of Country B, who instead of paying directly to the
exporters of Country A for these shipments will pay to their
government in their local currency. The government of
Country B will just inform the government of Country A that
the payment has been received. On the information of
government of Country B, the government of Country A will
pay to their exporter in their local currency.
The exporters of Country B and the importers of Country
A will also do the same transaction.

Now, if you notice in the above example no payment in

foreign currency has been done by any of the
government to other government. Only the information
of payments has been shared by both the governments
during the period of the agreement.
At the end of the period of the agreement, only the balance
amount (if any) will be paid by one of the government in
agreed foreign currency for example US Dollars. To
understand this point we assume that Country A has
exported the goods of US$ 10 million to Country B and
Country B has exported the goods worth US$ 8 million to
Country A. So, Country A has exported more US$ 2
million (10 – 8) to Country B. The balance of just US$2
million will be paid by Country B to Country A at the end
of the period of the agreement.
Now again, if we notice only the balance amount in
foreign currency has been paid by one of the country at
the end of period of the agreement, instead of paying the
whole value of imports in foreign currency by both the
countries. This saves the foreign exchange, which can be
used somewhere else.
Examples:
·Malaysia has clearing arrangement with twenty-three
countries that is Albania, Algeria, Argentina, Bosnia-
Herzegovina, Botswana, Chile, Fiji, Indonesia, Iran, Kyrgyz,
Mexico, Mozambique, Peru, Philippines, Romania,
Seychelles, Thailand, Tunisia, Turkmenistan, Venezuela,
Vietnam and Zimbabwe. It is called “Bilateral Payment
Arrangement (BPA)”
(Source: Malaysia External Trade Development Corporation –
The National Trade Promotion Agency of Malaysia
Asian Clearing Union (ACU) is another example of
clearing arrangement. The union was establish in
December 1974 and now the central banks or monetary
authorities of nine countries Bangladesh, Bhutan, India,
Iran, Maldives, Myanmar, Nepal, Pakistan and Sri
Lanka are its members.
Switch Trading

Switch Trading involves the role of third party in a

countertrade transaction. If a seller in the countertrade
does not want goods offered by the buyer as payment, it
may bring in third party to dispose of the merchandise
offered by the buyer. For example: An exporter in Poland
exports transport equipments to Greece and in return does
not want processed food from the importer of Greece
as payment. It can sell the processed food to a German
company, which will pay in Euros to the Polish exporter,
which is hard and convertible currency. The following
diagram will make the example clearer.
 First Example of Switch Trading
Polish
Exporte
r

Shipment of
Transport Hard
Equipment Currency
(Euros)

Greece Shipment of Processed Food German

Importer Company
In a typical switch trade transaction a switch dealer or
trader is involved. If we again take the above example,
the switch dealer will pay the Polish exporter in hard
currency less the switch dealer’s fee (disagio). The
switch trader will find a German company, which will
buy processed food from Greece importer and pay the
switch trader in Euros. The following diagram will
make the example clearer
 Second Example of Switch Trading
Hard Currency less Switch Dealers fee
Polish Switch
exporter Dealer

Shipment Hard
of Currency
Transport (Euros)

Greece Shipment of Processed Food German

Importer Company
Switch Trading not only exists between the individual
companies but it also has a role to play in clearing
arrangements between the countries. If we consider the
example already given under the previous head Clearing
Arrangement that Country A has exported the goods
worth US$ 10 million to Country B and Country B has
exported the goods worth US$ 8 million to Country A.
So, Country A has a surplus balance of US$ 2 million (10
– 8) with Country B. At the end of the agreed period, if
country B does not have US$ 2 million to pay to the
country A, it’s another trading partner Country C will pay
US$ 2 million to country A. The following diagram will
make the example clearer.
 Third Example of Switch Trading
Country
A

Goods worth
US$ 10 million Goods worth Hard Currency
US$ 8 million (US$ 2 million)

Country Shipment of Goods Country

B C
It is not necessary that in three of the above examples,

the German company, the switch dealer or the country C

only pay in hard currencies. Sometimes it is part cash

and part goods or even sometimes whole of the payment

is in the shape of goods – No hard cash.

Counter purchase
In counter purchase agreement seller receives the full amount
in cash, but agrees to spend an equal amount of money in that
country within a given time. In contrast to bartering, both
parties pay for their purchases in cash but agree to fulfill their
counter commitments. At the same time, transactions do not
become part of a single contract, but are entered into two
different contracts. Counter purchase is also called “Parallel
Trading” or “Parallel Barter”.
 Counter Purchase Transaction

Goods / Services

Payment in Cash

Seller Buyer
Goods / Services

Payment in Cash
Example:
Pepsi Cola sold concentrates in Russia and got paid in Rubles,
which according to the agreement with Russia, these Rubles
were spent for purchase of Russian products like Vodka and
wine
Buyback
Under the buyback agreement, the seller supplies plant,
equipment or technology and agrees to buy goods produced
with that plant, or equipment as payment.

Typically, the Buyback deals are of much longer term and also
of larger amounts. The seller of equipment can receive a part
of the payment in the shape of products produced by that
equipment and the remaining amount in the shape of cash.
 Buy Back Agreement

Plant, machinery, equipment,

technology etc

Seller Buyer
Payment in Cash

Goods Produced by
this plant
Example:

National Textiles Corporation of India signed a buy back

agreement of Indian Rupee 200 million with the Soviet Union
to buy 200 sophisticated looms. The buyback ratio was 75%
textile produce from these looms and the remaining was in
cash
 INCOTERMS
In international transaction a set of terms used:

To describe the rights and responsibilities of the buyer and

seller with regard to
Sale and transport
•Uniform interpretation of these commercial terms (INCOTERMS)
defining the cost, risks, and obligations of buyers and sellers have
been developed by International Chamber of Commerce (ICC) in
Paris

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 Category Applicable for sea Applicable for all modes of
transport only transport (including water)

E terms: EXW (Ex works)

Departure terms
F terms: FAS (Free alongside ship) FCA (Free carrier)
Shipment terms, main FOB (Free on board)
carriage unpaid

C terms: CFR (Cost and freight) CPT (Carriage paid to)

Shipment terms, main CIF (Cost, insurance, and CIP (Carriage and insurance
carriage paid freight) paid to)

D terms: DAT (Delivered at

Delivery terms Terminal-named terminal
at port place) DDP (Delivered duty paid)
DAP (Delivered at Place)-
named place of
destination

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Incoterms 2010 include a set of 11 terms as under:
EXW – (Ex Works) named place
The seller’s obligation to deliver goods is complete when he places the
goods at the disposal of the buyer at his own premises or another place
such as factory, warehouse etc. Here the goods are not cleared for
exports

FCA – (Free Carrier) named place

Here the seller’s obligation to deliver the goods is complete when he
delivers to the carrier nominated by the buyer at the named place

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FAS – (Free Alongside Ship) named port of shipment
The seller delivers the goods by placing them alongside the vessel at the
named port of shipment. The buyer bears all costs and risks of loss or
damage to the goods from that moment

FOB – (Free on Board) named port of shipment

Under this term, the seller fulfills his obligation of delivery when the
goods pass the ship rail at the named port of shipment. From that point
onwards the buyer bears all costs and risks. The seller clears the goods
for export

CFR (Cost and Freight) named port of destination

In CFR, the obligation of delivery is fulfilled, when the goods pass, just
as in FOB, the ships rail in the port of shipment. The only addition is
that the seller also pays freight necessary to bring the goods to the 90port of
destination
CIF, - (Cost, Insurance and Freight) named port of destination
Here also the delivery point is, the goods passing the ship’s rail in the
port of shipment. The seller, however pays the cost and freight necessary
to bring the goods to the port of destination and also pays the insurance
premium. The seller obtains insurance only for the minimum cover. If
the buyer wishes to have a greater cover he would either need to agree
with the seller or make his own extra insurance arrangements.
CIP (Carriage and insurance paid) named place of destination
Seller delivers the goods to a carrier it nominates and also pays the cost
of bringing the goods to the named destination. The seller also obtains
insurance against the buyer’s risk of loss or damage during carriage and
clears the goods for export

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CPT (Carriage paid) named place of destination
Seller delivers goods to carrier it nominates and pays cost of bringing
the goods to the named destination. The seller also clears the goods
for export
DAT (Delivered at terminal(named terminal at port)- Seller covers
all costs of transport (carriage cost-. unloading from carrier at port,
,port charges and assumes all risks till destination ex ship) named
port of destination

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DDU (Delivered Duty Unpaid) named place of destination
Any mode of transport the seller delivers the goods to the buyer, it is
not cleared for import and not unloaded from the arriving means of
transport at the named destination, but the buyer is responsible for
all import clearance formalities and cost

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DDP (Delivered duty paid) named place of destination
Any mode of transport; the seller delivers goods to the buyer, cleared for
import (including import licence, duties, and taxes) but not unloaded
from the means of transport

Ex-works (EXW) involves lowest obligation while the DDP involves

highest obligation for a seller

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 Allocations of costs to buyer/seller according to Inco terms 2010

Unloading Loading on Carriage Loading on

Export Carriage to Unloading Carriage to Import
Incoterm of truck in vessel in (Sea/Air) to truck in Import
customs port of Insurance in port of place of customs
2010 port of port of port of port of taxes
declaration export import destination clearance
export export import import

EXW Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
FCA Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
FAS Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
FOB Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer
CPT Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer

CFR(CNF) Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer

CIF Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer
Buyer/Selle Buyer/Selle
CIP Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer
r r
DAT Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer
DAP Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer

Seller/Not
DDP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller including
VAT/FAT