How to Control the Risk of Export Quotes? Leave a comment

Case

I have just entered a factory to work in foreign trade. Everything is in its infancy. Now I have learned the basic calculation method of export quotes. But I have no idea how to control the risks in the quotation. I hope you can tell us how to control the risk of export quotes.

Analysis

To understand the factors that affect the export quotes, you must first know its composition. When we quote, we need to know several variables: domestic delivery price, export tariff rate(tax refund rate), export goods port miscellaneous charges, sea freight, profit margin, and exchange rate.

Exchange Rate

The RMB has a process of expected appreciation, and you must figure it out when you quote. For example, on April 29th, 2011, the exchange rate is about 6.5 yuan for the dollar. So, when you quote on April 29th, you should estimate the payment cycle. If the period of quotation, transaction, production, shipment, and collection is expected to be about half a year, quotes must not be calculated using the exchange rate of 6.5. You need to estimate an RMB exchange rate, such as 6.35 or 6.25. Although not necessarily accurate, it can roughly reflect its trend. After signing the contract, if the contract amount is large, you will roughly determine the collection time, and then sign a forward foreign exchange agreement with the bank to fix the cost of collection.

Export Tariff Rate/Tax Refund Rate

Export refund or tariff rates are also an important factor affecting quotes. Every year, China adjusts the export refund rate or tariff rate of part of HS. Sometimes the adjustment range is large. There may be an immediate adjustment of the tax rate from 13% to 0, which has a great impact on the cost of the product. There are some trends. Resources-related products (such as mineral resources) not only have no refund but is required for export tax. For some products with high energy consumption, the tax refund rate has a downward trend. And some mechanical and electrical products, export tax refund rate is still relatively high.

Products such as pig iron and steel ingots are subject to the export tax. Some hot-rolled products are subject to export tax, while some cold-rolled products have tax refunds. This shows the country’s industrial policy orientation: the higher the degree of processing, the more the country supports it. Sometimes, the impact of export tax refund or tariff adjustment on products is more direct than exchange rate changes. Exchange rate adjustments are gradual and predictable. But, export tax refund or tariff adjustments sometimes are sudden according to the needs of import and export. Therefore, you should pay attention to these adjustments. Otherwise, when the policy changes, you will be very passive. If you execute a contract go beyond the year, you should be more careful.

Port Miscellaneous Charges

Port miscellaneous charges are not so much, and its ratio of goods prices is not high. However, if there are some products with low value and low added-value, the port charges will change slightly. It may directly offset the meager profit, such as steel structure products. It is not profitable, but generally bulky. Before shipment, it needs to be kept at the wharf or warehouse, and the cost is high. Sometimes it will be 150 yuan to 200 yuan per ton (one cubic meter). You should have a rough idea of these expenses.

Sea Freight

The proportion of sea freight in the total price is not high, especially for some close routes, such as Shanghai to Japan. But sometimes freight fluctuates a lot. For example, Shanghai to the basic port of Europe, the difference between high freight and low freight can exceed 50%. If it is a container transport, I always overstate 10%~20% on the basis of the current freight rate. This is to avoid the increase in freight to squeeze the profit space when you schedule transportation.

For large, overweight, container-free goods, you must learn more about the feasibility and price of bulk shipping on this route. Lest the goods are ready by then, no suitable ship can be found to ship them or the freight soars. In some remote regions or ports, the liner is few, and there may be no container transport. The bulk carrier is less. So you have to know the price and the situation in advance before you ship bulk cargo.

Seven years ago, a company exported a batch of equipment to Brazil for a large contract amount. When they quoted, they estimated the freight rate wrong. By the time of shipment, the freight had skyrocketed. This is not the worst. Because of the large size of the equipment, the average ship could not carry it at all. They have to find special ships for transportation. Then, the freight suddenly increased, and there is no choice. Finally, the freight cost was almost $700,000 more than expected, and the contract was badly lost. At that time, as far as we know, exporters lost more than 4 million yuan.

Price of Goods

One of the most important factors is the price of the goods. Generally speaking, if the price is already competitive, the transaction feasibility is greater. If the price is not competitive, the possibility of obtaining an order is slight. In case it is a short cycle of contracts, the general price or cost will not change very much. However, if it is a long-term supply contract, the purchase price of the goods will also change.

Profit Margins

The last thing to consider is profit margins. If the previous factors are calculated strictly, the recommended profit margin should not be too low, such as 1% to 2%, which is dangerous. Because as long as other factors change a little, the profit will go. Similarly, if profit margins are high, like 15%, you do not need to leave much room when considering other factors. Even if some factors change, it will not affect the overall situation.

Conclusion

The art of quotation is to strike a balance between profit margins and trading rates. We want high profits to reduce risk, but the price is too high to get an order. We want to make a deal, so sometimes we will lower the price and make the price competitive. However, if the price is too low, the risk may be great, and there may be no profit. Once a factor changes, such as freight increases, we may be at losses. How to grasp the sense of propriety? You can only use your heart to understand, explore, and improve in practice.

 

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