How to Offer the CIF Price to Products with Long Supply Cycle? Leave a comment

International Trade Tips

Case

I do foreign trade in the factory and have always offered FOB prices. Now a new customer wants me to offer CIF price. The delivery time is long, and the final delivery date will be in the second half of next year. Freight forwarders say that sea freight prices often change, and they do not have a fixed price. They can only offer the price of the latest transaction as a reference. Since it is not sure, if I give a customer a price and the validity period is one year, but the shipping price has risen a lot this year, I will be at losses. Do you have any good advice? And what about insurance?

Analysis

If you are not sure about the freight, you can only offer the FOB price and let the customer solve the transportation problem. In this way, the risk of the freight increase is borne by the customer. There is another way. You offer both FOB and CIF, in the case of raising the freight, to force the customer to choose FOB.

If the freight is offered high, the price may not be competitive; or you offer lower, you have no profit. If the customer insists on CIF, it is recommended that you quote, for example, $1000 per container. The current actual freight cost maybe $850, you can offer higher. Then you explain that if the freight adjustment is within 20%, the price will not change. If it is more than 20%, the following product price will be adjusted according to a certain ratio. And both parties will reconfirm the price. In this way, once the freight changes much, both parties have the right to adjust the price. This will not let one side bear too much responsibility.

Having a problem is not terrible. The key is to propose multiple sets of solutions that the other side has a choice, instead of waiting for others to solve the problem.

Insurance premiums are easier to solve. It is not as complicated as the book says. You can add 0.5% to the CFR price to use as CIF. In general, insurance rates are around 0.3%, adding the PLUS, CFR price × 1.005% should be enough.

 

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