Q. Which Incoterms are mostly used in Trade?
A. In Export Import business for 90% of the transaction, people opt for FOB, CFR or CIF nature of a contract.
As per ICC (International Chamber of Commerce) Incoterms are to be followed by Exporter i.e Exporter is the follower of these terms
So, FOB = FREE ON BOARD
Board is base of Vessel (Ship), under FOB exporter has to make the goods available On Board of Vessel
CFR = COST (FOB) + FREIGHT = CFR
Exporter has to make the goods available at foreign port as he needs to pay freight
CIF = COST + INSURANCE + FREIGHT
Exporter has to make the goods available at foreign port + exporter needs to bare the insurance cost.
Kindly Note: Responsibility of Exporter will end when he safely loads the goods into vessel under FOB, CFR or CIF, so in case of FOB / CFR deal importer must make sure that he buys marine insurance cover from his end for his safety.
Kindly Note: All government incentives like MEIS & DBK are provided up to FOB value only.
Q. How to Calculate the FOB, CFR, and CIF Costing for FCL Cargo?
To calculate the costing, you must get the latest price of products from supplier &CHA
Costing for FCL Cargo 20FT /40FT Container
Product Procurement Cost …………………. (From Supplier/Manufacturing Unit)
Export Packaging Cost………………………… (From Supplier/Manufacturing Unit)
Profit………………………………………………… (You need to add)
Documentation Cost………………………… (From CHA/ Inspection Agencies/Chamber of Commerce)
Local Transportation to Port……………. (From CHA / Transportation Company)
Port Terminal Handling Charges………… (From CHA)
On Board Bill of Lading………………………. (From CHA/Shipping Company)
Miscellaneous Charges……………………… (Cost of ECGC, Bill Discounting, Bank Cost, etc.)
FOB = Cost up to loading goods
Freight (Port to Port) ……………………… (From CHA/Shipping Company)
CFR = Cost up to Foreign Port
Marine Insurance…………………………… (From CHA/Marine Insurance Company)
CIF = Cost up to Foreign Port + Insurance
Sample Calculation for Basmati Rice.(Costing for FCL Cargo 20FT Container)
Product Procurement Cost = (33.5 INR Per KG x 25,000 KG) = 8,37,500 INR
Export Packaging Cost = (PP Bags are provided by supplier in our brand name on above price)
Profit = (7%) = 58625 INR
Documentation Cost = 5000 INR (From CHA/ Inspection Agencies/Chamber of Commerce)
Local Transportation to Port = 10,000 INR (From CHA / Transportation Company)
Port Terminal Handling Charges = 10,000 INR (From CHA)
On Board Bill of Lading = 3500 INR (From CHA/Shipping Company)
Miscellaneous Charges = 20,000 INR (Cost of ECGC, Bill Discounting, Bank Cost, etc.)
FOB = 9,44,625 INR, Mundra Port
Freight (Mundra to Port Klang) = 22,500 INR (From CHA/Shipping Company)
CFR = 9,67,125 INR, Port Klang, Malaysia
Marine Insurance = 7971 INR (From CHA/Marine Insurance Company)
CIF = 9,75,096 INR, Port Klang, Malaysia
Q. So if buyer ask for CIF, then do I need to give them 9,75,096 INR on above case?
A. Generally Buyer will ask for rates in USD as their currency to USD conversation cost is low as compared to direct INR deal, so we need to check the latest forex rates of USD, suppose forex rate for export is 1$ = 65 INR then we should take 1 INR less i.e 64 INR so if suddenly rates go down we will not incur loss, however facilities like Forward cover could be obtained from Bank to fix the rates.
So, 9,75,096 / 64 = 15235.88 USD
Q. How to calculate the costing for goods needed to be send via Air, Packed House via IATA Agents.
To calculate the costing, you must get the latest price of products from Supplier, APEDA Packed House near your area of products, IATA Agents.
Sample Calculation for Mangoes.(Costing for 1200 KG / 1 ULD via Air)
Procurement Cost (Incl. Profit) = 100 INR per KG x 1500 KG = 1,50,000 INR
(We need to source more when goods needed to be sent to APEDA Packed House for Exporting because they will reject approx. 20% of stock & provide back to you which you could use for domestic sales or provide that back to the supplier)
Box Packaging Cost (400 Box to equip each of 3KG) = 400 x 25 INR Per box = 10,000 INR
APEDA Hot Water Treatment Cost = 9 INR PER KG INWARD x 1500 KG = 13,500 INR
APEDA Irradiation Treatment Cost = 100 INR Per Box = 100 x 400 = 40,000 INR
(Irradiation Treatment only required for countries like Australia, USA, Iran, etc., else HWT will do, you can approach APEDA authority for latest information on this)
APEDA to Airport transportation = APEDA VAN for 1200 KG = 10,000 INR
IATA Charges for clearing and documentation including. phytosanitary certificate = 5000 INR
Miscellaneous Charges = 20,000 INR (Cost of ECGC, Bill Discounting, Bank Cost, etc.)
Total FOB = 2,48,000 INR
Air freight cost to Australia, Perth = 114 Per Kg x 1200 Kg = 1,36,800 INR
Total CFR = 3,84,800 INR
Kindly note: We generally don’t buy Insurance from insurance company as we get the benefit of SDR: Special Drawing Rights from airline itself which is approx. 20 USD per kg at max. Generally, we export such products which are bellow 20 USD per KG, so no worries if goods reached in damaged conditions then airline will pay.
Q. Can I send the goods of less quantity like 100 KG or 1000 KG? which would be better mode sea or air?
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KG
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Preferred Shipment Mode
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Company & IEC Required
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Formalities done by
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|
01 to 50 KG
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Air - Courier Mode
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NO
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Courier Company
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51 to 999 KG
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Air - IATA Cargo Agent
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YES
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Exporter & IATA
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1000 KG+
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Sea - CHA (FCL/LCL)
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YES
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Exporter & CHA
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Q. How to calculate the costing for LCL if we don’t have bulk order of FCL 20FT /40 FT Containers?
In LCL shipments we need to check first that one what the freight is charged? Freight is charged on Gross weight or Cubic Meter which ever is higher.
Now let us assume you have got a product of weight 2000 KG & its box size is 2 Meter (Height), 2 Meter (Length) & 1 Meter (Breadth).
So CBM = L x B x H = 4 CBM
Now if you ask CHA they will give rates based on 1000 KG or 1 CBM, rates of 1000 KG & 1 CBM would always be similar.
So, if CHA provides LCL rates for 1000 KG = 25 $ then 1 CBM Rates = 25$
Now we need to calculate and see which one is higher.
Calculation based on Weight
2000 KG = 50$ (Will not be taken into consideration as it is smaller than volume)
Calculation based on Volume
4 CBM Box = 100$
So final bill amount is 100$, so the concept is simple for heavy goods they will charge on weight & for products like teddy bear they will charge based on its size.