What if Tax Rebate Policy Cause Prices Lower Than Costs? Leave a comment

Case

We have signed a long-term supply contract with our American customers, shipping 200 tons per month for 12 months in a row. When the contract was executed until the fifth month, the cost rose for the adjustment of the export tax rebate by the state. And the final cost was higher than the FOB price of the sale. So the company hopes to stop this contract. How should we talk to our customers to minimize our losses?

Analysis

From a commercial point of view, the seller should abide by the contract to supply product through the requirements of the contract. Otherwise, it will be a breach of contract. But it is obviously inappropriate to do loss-making business for a long time. Therefore, communicate with customers as soon as possible, strive for no delivery or less delivery to reduce the loss.

For long-term supply contracts, the customer may have more than one supplier. So, if possible, ask him to reduce the demand for your goods and increase the demand for other suppliers. This will allow you to reduce losses. For customers, it is possible to maintain a stable supply of this product without additional costs.

If buyers insist on executing the contract and the contract amount is relatively large, there may be some other problems. In general, the cost of exporting goods should be less than the selling price of the export. If the tax refund cancels but the price does not rise, there will be a loss. If the amount of loss is not large, the tax bureau will at most ask for a description. Or the loss is continuous or even huge, the tax bureau generally will stop. However, loss-making sales involve a very sensitive issue: dumping.

Tips

Dumping refers to the act of a producer or exporter selling its goods to another country (region) at a price lower than its domestic market price or lower than the cost price. Dumping is regarded as an unfair means of competition and is prohibited by WTO. Therefore, anti-dumping has also become a strong excuse and reason for countries to protect their markets and support domestic enterprises. If you follow that price in a large quantity, a US company can complain about your dumping. And you are indeed selling at a price lower than the domestic market price or cost. The Chinese government has never supported the dumping of Chinese companies in overseas markets. It is easy to cause trade disputes between countries.

If the customer has no other suppliers, he may have a big problem without your products. Then you are in an active position when negotiating. He can only rely on you. At this time, you can say that you can make no profit, but the price must be adjusted because the government does not let us sell at a loss. Then negotiate the new price with the customer before executing the contract.

If the order cannot be executed, discuss with the customer. After all, it is long-term cooperation, and both sides hope to continue. It is not easy for customers to find other suppliers right away because their quality and delivery time are not necessarily reliable. So, talk to your customers and strive for every possibility.

 

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