Costing for Export
There are many costs incurred in an export transaction, which are not applicable to domestic sales.
It is recommended that a costing sheet is prepared to ensure that all cost items relevant to the export transaction are itemised and included. This will ensure that a correct quotation can be prepared accurately and quickly.
Generally, export costing should include the manufacturing cost and any additions or modifications to products, special packaging, ingredients, formula or specification modification, quality control, export administration, freight, distribution and marketing.
Also there are special costs applicable to particular industries, which should not be overlooked. In addition, costs of premiums for credit risk insurance, foreign exchange risk, loss of interest when providing credit terms, bank charges, agents commissions, training customers’ or agents’ personnel, bid and performance bonds and other bank guarantees may have to be taken into consideration when preparing a quotation.
Export costing should not be confused with pricing. The following definitions indicate the differences:
• Costs: are the total of all expenses associated with producing and selling a product overseas.
• Price: is the amount for which the exporter sells the product and is determined by the exporter’s marketing strategy.
• Margin: is the difference between the total cost per unit and the export selling price; and is determined by the exporter’s corporate objectives.
Costs associated specifically with export documentation, transport and insurance include the following:
• Customs clearance (EDN): obtaining the Export Declaration Number issued by the Australian Customs Service and any other export permit or license from regulatory authorities.
• Certification/ Legalisation: certification/legalisation of documents and preparation costs (eg.State Chamber of Commerce, embassies, company staff costs; courier satchels, etc.)
• Inspection costs: of arranging and supervising inspection of goods if required. Note: Whether the exporter or importer is responsible for the payment of inspection fees should be established when preparing the quote.
• Cartage: to wharf or airport—delivery by road to the container depot or airport, eg. cost of road haulage by a contractor or cost of exporter’s own transport.
• Packing/labour costs: it is the exporter’s responsibility to include export packaging as part of the export price. However, on some occasions special packing requirements are prescribed by the importer. In this case, the additional costs incurred may be added to the pricing structure.
• THC (Terminal Handling Charge) / Port Service Charge (PSC): these charges are made by port authorities for use of their facilities. They are normally included in the freight rate charged by the shipping company and paid on the shippers’ behalf to the port authorities. Occasionally, for charter vessels, etc. the charges will have to be paid direct to the port authority by the shipper.
• Sea or air freight: cost obtained from shipping company, airline or consolidator. Also an allowance for contingencies is recommended. This is to allow for possible rate increases, adjustments to the Bunker Adjustment Factor (BAF)/Currency Adjustment Factor (CAF) percentages or other unforeseen circumstances.
• Marine insurance premium: cost obtained from insurance company or broker.
• Credit risk insurance premium.
This set of international rules for the interpretation of trade terms was first published by the International Chamber of Commerce (ICC) in 1936, with amendments and additions following in 1953, 1967, 1976, 1980, 1990 and 2000.
The 2010 edition has been prepared to take account of the changes in international trade practices and transportation techniques which occurred in the last two decades. A key point that has been flagged by the ICC is that use of the traditional terms of FOB, CFR and CIF should be limited to bulk and break bulk cargo shipments, and not be used for container shipments.
For a full explanation of these and other terms it is suggested that a copy of Incoterms® 2010 is obtained, this can be bought through the Australian Institute of Export. Further information on Export Pricing can be found in the Australian Export Handbook or by attending one of the Australian Institute of Export training programs.