1. Unit 3 Business Contract

2. Components of Business Contract Introduction to Business Contract
Outline
Components of Business Contract
Introduction to Business Contract

3. Components of Business Contract
Name of Commodity and Specifications, Packing and Shipping Marks
Quantity
Unit Price
Total Amount
Time of Shipping
Port of Loading
Port of Destination
Chapter 4

4. Components of Business Contract
Chapter 7
Insurance
Terms of Payment
Inspection
Force Majeure
Discrepancy and Claim
Arbitration
Chapter 5,6,8
Chapter 9
Chapter 10

5. 3.1 Export Price pricing considerations calculation of price
price including commission
price with discount
price adjustment clause
understanding the price
communication of price

6. 3.1 Export Price pricing considerations calculation of price
price including commission
price with discount
price adjustment clause
understanding the price
communication of price

7. 3.1.1 pricing considerations
How is price expressed?
Examples:
USD225.30/piece CIF New York
FOB Guangzhou EUR12.80/set
Four components in a standard format of a price:
A code of currency: USD, CAD,CNY, EUR, GBP
A number indicating the price unit
A unit for measuring quantity: kg, gr, m/t, yd, set
A certain trade term: FOB, CFR, CIF

8. 常用的计价货币 美元（US＄或USD）； 英镑（£或GBP）； 欧元（€ 或EUR）； 加拿大元（CAN＄或CAD）；
港元（HK＄或HKD）；
日元（J￥或JPY）；
瑞士法郎（SF或CHF）

9. 单价表示练习 判断下列我方出口单价的写法是否正确，如有误，请更正并说明理由。
（1）3.5 yuan per yard CIFC HONG KONG
（2）￡500 per carton CFR Britain net
（3）USD1000 per ton FOB London
（4）每打100法国法郎FOB净价减1%折扣
（5）2000日元CIF大连包含佣金2%

10. 单价表示练习 （6）每斤4.5美元 （7）每公吨200美元FOB新港 （8）每箱50元CIF伦敦 （9）每台300德国马克CIF上海
（10）每辆40美元CFR新加坡

11. 3.1.1 pricing considerations
What factores you will consider when you are pricing?
cost
anticipated profits
capability of the target market
payment terms
others

12. 3.1.1 pricing considerations
Cost
Cost of production
Direct cost: material costs, labour costs, allocation of fixed costs, packing costs, etc.
Administrative costs: overhead
Cost of sales
Marketing costs: advertising, sales trip expenses, company websites cost, commission for sale

13. 3.1.1 pricing considerations
Cost
Cost of delivery
Warehousing and transporting charge, insurance premium, taxes and tariffs, customs duties, documentation
Cost of financing
interest paid to the bank, banking charges on payment

14. 3.1.1 pricing considerations
Anticipated profit margin
Capability of target market
Referring to the consumption power, income level, supply and demand relationship
Payment terms
Other factors to be considered
foreign exchange rates
international market price for similar products
policies and regulations in a particular market area

15. 3.1.2 Export Price pricing considerations calculation of price
price including commission
price with discount
price adjustment clause
understanding the price
communication of price

16. FOB Pricing FOB in local currency FOB in foreign currency
FOB in foreign currency = (Total Cost + Profit)/Exchange Rate

17. CFR Price If FOB price is available Ocean freight
CFR = FOB + Ocean Freight
Ocean freight
Provided by shipping lines or shipping forwarders

18. CIF Price If FOB price is available If CFR price is available
CIF = FOB + Ocean Freight + Insurance Premium
If CFR price is available
CIF = CFR + Insurance Premium

19. CIF Price Calculation of Insurance Premium (I)
Based on contract value/invoice value +
A markup (normally 10%) to cover incidental costs
Formula: I = CIF x (1+10%) x Premium Rate (R)
Solution to the loop in calculation
CIF = CFR + CIF x (1+10%) x Premium Rate (R) or
CIF = CFR / (1 – 110% x R)

20. Conversion of FOB, CFR & CIF Prices
Conversion of FOB to other prices
CFR = FOB + F
CIF = (FOB + F) / [1 – (1+markup) x R]
Conversion of CFR to other prices
FOB = CFR – F
CIF = CFR / [1 – (1+markup) x R]
Conversion of CIF to other prices
FOB = CIF x [1 – (1+markup) x R] – F
CFR = CIF x [1 – (1+markup) x R]

21. Illustration
Suppose your company made an offer at USD1200 per metric ton FOB Xiamen. Your customer counter-offered and asked you to offer CIF Xiamen price. Suppose freight per metric ton is USD 130, markup 10% and insurance rate 1%, what would CIF Xiamen be?

22. Reference CIF = FOB + F +I FOB = 1200 F = 130
I = CIF x (1+markup)x insurance rate=CIFx1.1x1%
Thus,
CIF= CIFx0.011
the CIF Xiamen price is USD.

23. Illustration Supposing… Question: will you accept the counter offer?
Your offer: USD3000 per metric ton CIF Singapore
Counter-offer: USD2880 per metric ton FOB Shenzhen port
Freight from Shenzhen port to Singapore: USD89
Insurance premium rate: 0.95%, markup: 10%
Question: will you accept the counter offer?

24. Reference your offer is CIF Singapore 3000USD
the counter offer in FOB Shenzhen can be calculated as follows:
FOB=CIF-F-I
= CIF-F-CIFx(1+markup)x Insurance Rate
= x(1+10%)x0.95% =
Since the counter-offer is 2800, which is even higher than the original price, thus the counter-offer price is accetptable.

25. 3.1 Export Price pricing considerations calculation of price
price including commission
price with discount
price adjustment clause
understanding the price
communication of price

26. 3.1.3 Price including commission
Net price = basic costs + profit
Adjustment to the net price for promotion purposes (commission and discount)
如净价成交，可在价格条款中明确表明“净价”字样。
例：US$300 per metric ton FOB Shanghai net

27. 3.1.3 Price including commission
An incentive payment made to the middlepersons for their intermediary services
Expressed in a fixed figure or in a percentage
Examples
CFR London GBP100 per doz, including 2% commission
USD200 per M/T CIFC2% London
CIFC3 Hamburg USD100/set
CAD150 per M/T FOB Toronto, including CAD8 per M/T commission

28. 3.1.3 Price including commission
Two ways of calculating commission
based on invoice/contract value
C = contract value x C rate
based on FOB or FCA:
Under such terms as CFR, CIF, C is calculated after F and I are deducted
Formula:
C = price including C (FOB/FCA) x C rate
Net price = price including C (FOB/FCA) – C
= price including C x (1- C rate)
Price including C (FOB/FCA) = net price / (1-C rate)

29. Illustration 1. USD100 per m/t CFRC5%, C?
2. USD100 per m/t CFRC5%, CFR net?
3. USD 100 per m/t Net CFR, CFRC5%?
4. USD200 per case FOB Xiamen, freight USD22 per case, CFRC5?
5. USD50 per m/t CIF Washington, I rate 1.05%, markup 10%, CFRC5?
6. USD 150 per barrel FOB Xiamen, I rate 1%, markup 10%, freight 15, CIFC3?