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How to go from FOB quotes to Group D Incoterms

RGX - Containers - international Trade Process

Based on our study “UPS Business Monitor Export Index Latin America” it is recommended that entrepreneurs consider advancing even further in the international distribution chain to make contact with importers, since, as a result of the interviews conducted with 2,170 small and medium-sized importing companies in the American continent, 78% of importers indicated that shipping and logistics solutions are the most important attribute when choosing a supplier, after product quality and price; This means that exporters are willing to sell with incoming Incoterms (Group C and D) over the outgoing ones (Group E and F), it will clearly make their exportable offer much more attractive for an international buyer. .

In this making contact context with potential customers, the exporter may find himself with two marked scenarios:

  • Quotation request sending by the importer.
  • The exporter will draw up a standard price list for a given quantity of merchandise and send a quote.

Under this these situations begins the negotiation process. The exporter (seller) is forced to generate a price list that can accompany a product catalog, company brochure, explanatory videos, technical specifications of the products, certifications, and commercial samples that demonstrate the suitability and quality of the merchandise offered. Then, there are two instances that the exporting entrepreneur can avoid:

  • Negotiate with large importers: Generally these companies have a Purchase Order where they establish their procurement policies and the exporter must adapt to the imposed conditions; so much so that aspects inherent to prices, payments, qualities, packaging and Incoterms, are difficult to negotiate.
  • Negotiate with small importers: The scenario changes, and there is a greater margin for negotiation, and it is even possible to impose conditions.

Regardless of the situation, reality indicates that the sale clause, the Incoterms, not only determines the obligations and rights of each of the parties in the operation, but also the level of commitment and risk that the exporter wants to assume in the operation of export. In this sense, the FOB value is one of the most used in international operations and it is also the tax base used by various regimes that participate in exports, although it is clearly not the most valued by importers who expect a higher level of commitment for your suppliers.

To improve this proposal, contact should be made with shipping companies and freight forwarders that offer competitive charter prices and that allow the exporting company to begin negotiating under the terms of group D of the Incoterms.

To move from the FOB value to other Incoterms, the value of international freight and insurance must be added, obtaining the CIF.

If, in addition to shipping, you want to offer a “delivery solution”, that is, for the importer to receive the product directly in their warehouses, the following costs must be added to the CIF value:

  1. Port or airport terminal costs
  2. Storage and prior import deposit at destination
  3. Customs broker fees at destination
  4. Import duty and other import taxes at destination
  5. Value Added Tax if applicable (calculated on the CIF tax base)
  6. Other import taxes, if applicable
  7. Internal transport to the importer warehouse

In this case, the operation will be quoted under the Incoterms DPU that if it contemplates the unloading of the merchandise at destination (in this case it should not include the concepts of paragraphs 3, 4, 5 and 6) or DDP (all the concepts ), although the seller does not have the obligation to unload the merchandise.

Of course, as you “advance” in the use of Incoterms of greater responsibility and risk, the greater the financial immobilization, so you must either negotiate in advance of the operation or find export financing mechanisms that allow you to leverage the sales under those Incoterms. In our latest ICE 2020 study (www.rgxonline.com/ice2020) we found that 14 of the 15 most competitive companies among the 1200 interviewed, offer their products with group D Incoterms.

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