International Pricing

Unit V

International Pricing

5.1 Pricing is the marketing function that involves determination of value of a product or service in monetary terms before it is offered in the market for sale. Price refers to the exchange value in terms of money of products and services which provide a bundle of satisfaction to the consumer.

 

5.2 Difference between price and pricing

The price is the amount of money you want for each product unit.

Pricing is the process you need to go through to figure out what price to attach to each unit. 

Pricing, therefore, is a strategic process that you must learn, and use, for business success.

 

5.3 Important objectives of International Pricing

Pricing strategy begins with the determination of objectives. Pricing objectives reflect the overall goals a firm wants to accomplish through pricing. In international marketing, pricing objectives may vary, depending on a product life cycle stage and the country specific competitive situation. The important pricing objectives are discussed under the following headings:

1.     Market penetration

2.     Market skimming

3.     Market share

4.     Meeting competition

5.     Preventing potential competitors

6.     Early recoupment of the investment

7.     Quick cash recovery

8.     Discharging export obligation

9.     Disposal of surplus

10.  Return on investment; and

11.  Profit maximization

1. Market penetration: In penetration and pricing, price is used as a competitive weapon to gain market position. Penetrative pricing means a product may even be sold at a loss for a certain length of time. So, companies new to exporting cannot absorb such losses. A low price is charged in the initial period or until the product gains acceptance of the buyers. This method of pricing attracts buyers who are sensitive to price, effects large volume of sales, avoids competition and stabilizes the price.

2. Market skimming: In skimming, a high initial price is charged in a market segment which is willing to pay a premium price for a product. In skimming pricing, the product must create a high value for the buyers. This is often used in the introductory phase of the product life cycle when both production capacity and competition are limited. Sony used skimming strategy when it introduced Betamax video cassette recorders in the United States.

3. Market share: The efficiency of the product may be evaluated in terms of market share it holds. Increasing the market share is a sure way to lower costs. A larger market share might increase profitability because of greater economies of scale.

4. Meeting competition: The present market is highly competitive. When a product is introduced in a competitive market, meeting competition can be an important objective. The price must remain competitive in order to gain a competitive edge in the market.

5. Preventing potential competition: The objective of pricing may be to prevent the entry of new competitors into the market. When a low price is set on the product, the marketer may incur loss. This discourages the competitors to gain an entry into the market with similar product.

6. Early recoupment of investment: Some products may have short product life cycle. They may also be affected by swift technological changes. There may also be potential danger of political threats and cut throat competition. In such a situation, the marketer may have the objective of recouping his investment as early as possible. Prices bring revenue to the firm. A high price determined in the initial period may help the manufacturer recoup the investment in the project early.

7. Quick cash recovery: When a firm has liquidity problem, it may prefer to generate quick cash flow. The pricing method adopted by it may liquidate the stock quickly thereby encouraging channel members and buyers to make prompt payment.

8. Discharging export obligation: Having gained a good market share in the domestic market, the firm may be willing to foray into foreign market. Entering foreign market and meeting export obligation may not be easy for all firms. Sometimes, even by charging a price lower than the cost, the firm gains a share in the foreign market.

9. Disposal of surplus: When a firm has surplus stock, it may resort to dumping. Dumping is an important global pricing strategy. It is the sale of an imported product at a price lower than that is normally charged in a domestic market or country of origin. The firm views export sales as passive contribution to sales volume.

10. Return on Investment: Price is the only source of revenue to the firm. The firm has to earn sufficient revenue in order to meet the needs of stakeholders. It may set a target rate of return on its investment. Pricing serves to secure the target rate of return on the investment.

11. Profit maximization: Profit is by far the most important pricing objective. Prices are viewed as active instrument for profit maximization. In general, pricing is a tool of accomplishing marketing objectives. The firm may use price to achieve a specific objective, whether a targeted rate of return on profit, a targeted market share or some other specific goal.

 

5.4 Importance of Pricing

Everything you need to know about the importance of pricing. Pricing decisions can have very significant consequences for the organization

It is one of the first considerations for many customers and it determines the profit margin on products.

Pricing is one of the significant elements of the marketing mix, if late, it has come to occupy the centre stage in marketing wars.Pricing is an important decision making aspect after the product is manufactured. Price determines the future of the product, acceptability of the product to the customers and return and profitability from the product. It is a tool of competition.

Pricing is important due to the following factors:

 

Factor  1 - Flexible Element of Marketing Mix:

Price is the most adjustable aspect of the marketing mix. Prices can be changed rapidly, as compared to other elements like product, place or promotion. Changes in product design or distribution system would take a long time to be implemented.

 

Bringing about changes in advertisements or promotional activities is also a time consuming task. But price is very flexible and can be changed according to the needs of the situation. Therefore it is a very important component of marketing mix.

 

Factor 2 - Right Level Pricing:

The wrong price decision can bring about the downfall of a company. It is extremely significant to fix prices at the right level after sufficient market research and evaluation of factors like competitors’ strategies, market conditions, cost of production, etc.

 

Low prices may attract customers in the initial stages, but it would be very hard for the company to raise prices on a future date. Similarly, a very high price will ensure more profit margins, but lesser sales. So in order to maintain balance between profitability and volume of sales, it is important to fix the right price.

 

Factor  3 - Price Creates First Impression:

Often price is the first factor a customer notices about a product. While the customer may base his final buying decision on the overall benefits offered by the product, he is likely to compare the price with the perceived value of the product to evaluate it. After learning about the price, the customers try to learn more about the product qualities.

 

If a product is priced too high, then the customer may lose interest in knowing more. But if he thinks that a product is affordable, then he would try to get more information about it. Therefore price is a critical factor that influences a buyer’s decision.

 

Factor  4 - Vital Element of Sales Promotion:

Being the most flexible component of marketing mix, price is the most important part of the sales promotion. In order to encourage more sales, the marketing manager may reduce the price. In case of goods whose demand is price sensitive, even a small reduction in price will lead to higher sales volume. However prices should not be fluctuated too frequently to stimulate sales.

 

5.5 The 7 C’s of International Pricing Strategy

Pricing strategy brand depends on three primary factors: your cost to offer the product to consumers, competitors’ products and pricing, and the perceived value that consumers place on your brand and product vis-a-vis the cost. These three factors can be referred to as the 3 C’s of Pricing Strategy and are relevant both domestically and internationally:

1. Costs: Comprehensive understanding of all costs related to offering the product, including development, creative, production, distribution, storage, advertising, manpower, and so on. International transportation and related costs like freight, insurance & handling lead to increase in costs. And then there is TAX.  There could be custom duty and turnover tax like the local GST or VAT which could result in an escalating price

2. Competitors:Comprehensive and up-to-date analysis of your competitors’ in the international marketplace – competing products, brand, and prices as well as where your brand is positioned relative to those competitors.

3. Customers: Customers overseas will have a different perception of the value of the product as compared to domestic markets due to many differential cultural and other factors. It should also be noted that customers today are able to instantly compare their prices with domestic prices on the internet.

Besides the primary factors (3 c’s) that determine international pricing there are a range of secondary factors which are unique to each international market. These make the pricing decision much more complex in international marketing.  When a firm crosses its domestic borders and enters a foreign country it encounters many unique international dimensions. These factors affect the pricing decision and consequently in case of international pricing we have expanded the 3 C’s of pricing to 7 C’s of International Pricing by adding the following additional 4 C’s:

4. Cultural Differences: The international pricing decision requires a comprehensive understanding of the overseas markets culture as well as the wants and needs of its inhabitants, including their perceptions of the value of your brand and products and your competitors’ brands and products.

5. Channels of Distribution: Lengthening channels of distribution means that more people are going to be handling your product including importers and wholesalers which causes not just cost escalation but increases distribution complexities.

6. Currency Rates – The complexities of multiple currencies which are subject to exchange rate fluctuations plus conversion costs.

7. Control by Government: Governmental and bureaucratic controls and regulations can be onerous and complex, like in China and even some European countries. Some countries have price control over some products like pharmaceuticals, fuel and food.

5.6 Factors Affecting Price in International Marketing

1. International Marketing Objectives:

Mostly price is decided with a view to capture international market, e.g., when a company wants to enter in the market the product is sold at lower rates. When it intends to maximise use of its additional production capacity, marginal cost of production is considered. When an export target is to be achieved then in that context price is determined. Other motives like getting entry in market, to get a certain share in market, to get definite return on investment, etc., are also of special importance.

2. Cost of Product:

Price in international marketing cannot be determined without considering the cost of the product. Fixed and variable costs of production, marketing and transport expenses are included in the cost of production. Sometimes a company sells at a price lower than cost and increases its share in market. It aims to recover production cost in long run. Price depends on production cost. Hence, it is necessary to analyse the cost and to consider the fixed and variable costs while fixing the price.

But cost alone cannot fix the price. It is true that the price cannot be fixed below cost for long. Cost determines the floor price below which an exporter may not agree to sell the goods. But this principle does not always hold good. An increase in costs may justify the increase in prices, yet it may not be possible to do so because of the marketing conditions, i.e., demand and supply. On the other hand, it may also be possible that any increase in demand may lead to an increase in price without an increase in costs.

Although the costs-price relationship is important, it does not support the claim that costs determine the price. In some cases, the prevalent price may determine the costs that may be increased. The manufacturer-exporter cuts the cost according to the prices prevailing in the market.

Another factor that proves that the costs do not determine the price is that costs of each producer differ substantially due to different internal and external factors. If cost is the determining factor, the price must also vary substantially. Again, if costs are to determine the price, no firm would suffer a loss. It does not mean that costs should be completely ignored while setting price. Cost is one of the most important factors in setting price.

3. Demand:

Demand is another factor that determines the prices in the international markets. The demand in international markets is also affected by a number of factors which are different from those operating in domestic market. Customs and tastes of foreign customers may differ widely.

Elasticity of demand is another factor which affects the pricing. If the demand of the product is elastic, a reduction in price may increase the sales volume. On the other hand, higher price may be fixed if the demand is inelastic and the supply is limited.

4. Business Competition:

Competition in the foreign market is also an important factor. Competition in foreign market may be so severe that the exporter has no other option except to follow the market leader. In monopoly an exporter can fix high price of its patented product. Greater competition reduces freedom for fixing the price. Price cannot be determined without considering the strategy of competitors.

5. Exchange Rate:

Foreign exchange rate plays a vital role in the price fixing in international marketing. For example, when rupee falls against dollar an importer hesitates in filling tender. An importer has to pay more rupees per dollar. In such circumstances rupee is considered to have become weaker against dollar.

6. Product Differentiation:

This factor plays a vital role in price fixing. When a product has specialities or is totally different compared to those of its competitors, the company is more-free to decide price. Usually prices of such products are quoted higher than that of others up to certain extent.

7. Prestige:

Prestige of the producer and of the country is reflected in the price of the product. Prestigious companies determine higher price for their products. Underdeveloped countries cannot quote high price, even if their product is better than that of the developed country. In foreign markets, as a developing country India finds it difficult to keep prices high though our many items like H.M.T. watches, woollen garments, readymade wear, leather bags and Ayurvedic medicines are of superb quality.

8. Market Characteristics:

In addition to competition the following are some other factors which also affect price:

(i) Trend of demand

(ii) Consumer income levels

(iii) Importance of the product to the consumer, and

(iv) Margins of profit.

9. Government Factors:

Government’s policy and laws affect pricing as under:

(i) Ceiling and Floor Prices:

Some countries fix top and bottom prices of their products. When government regulates the price, one has to keep its price between them. India had fixed minimum export prices of cotton cloth and other products. Normally, such a policy may be applied for national development, industries position, stock of goods, and protection of industries.

(ii) Regulation of Margins:

Sometimes government decides the profit margin or percentage of mark-up for producers or distributors. As a result, marketer loses most of the freedom of pricing.

(iii) Taxes:

While deciding price of an exportable product, custom duties and other taxes have to be considered. When import duties are levied, an exporter has to reduce his price. In foreign markets price has to be kept up because of such taxes.

(iv) Tax Concessions, Exemptions and Subsidies:

To promote exports many countries give tax reliefs or freedom. Products can be exported at lower prices in such cases. For example, under Duty Draw Back Scheme, if raw-materials are imported for production of export goods, the import duty or excise duty paid for this is refundable. To promote export, Govt., gives financial subsidies also. Such subsidies also affect price determination in export market.

(v) Other Incentives:

To promote export the government gives many incentives. Among these, supply of raw-materials, electricity and water supply at lower rates, aid in selling etc. are main incentives. While fixing prices of export goods these factors are kept in view.

(vi) Government Competition:

Sometimes the government enters in market to keep control on international prices. For example, the American Government sells aluminium from its stock at a fixed price to American companies. The companies are unable to increase prices in such circumstances. Hence, while fixing price Government competition should also be considered.

(vii) International Agreement:

Prices of some products are controlled by international agreements about stock, buffer stock agreement, bilateral or multilateral agreements. In view of such agreements companies have to fix prices in international market.

5.7 Important Methods of Pricing in International Marketing:

v  Cost Plus Method.

v  Marginal Cost Pricing.

v  Differential Pricing.

v  Probe Pricing.

v  Penetration Pricing.

v  Skimming Pricing.

v  Competitive Pricing.

Cost Plus Method:

Under cost plus method the price of the product is ascertained by adding the margin of profit, to the total cost of the product. In such a case, the exporter is able to decide the amount of margin he would like to take and can thus accordingly fix the price of the product.

Costs include all the fixed and variable costs including all the special costs incurred in international trade such as special packing, marketing, labeling, transportation, insurance handling, duties, taxes etc. This method may result in high prices for the end-users. This policy is followed in these cases where the exporter has monopoly over the product. This pricing method is quite suitable in case of specialized industrial machines or in the case of project exports. As a result, this method is not very common.

Marginal Cost Pricing:

Marginal cost pricing method is a variation of cost plus method. In case of cost plus method, cost includes all the fixed and variable costs under marginal cost pricing, price is determined by adding a certain percentage of margin to the marginal cost. Marginal cost refers to the amount by which total costs are changed if the volume of output of a product is changed by one unit. It means marginal cost is additional variable cost.

Thus, marginal costing is an accounting technique which determines the marginal cost on the basis of additional variable costs. This technique can be applied in those cases when the fixed costs are already fully recovered on the current volume of output and a decision is to be taken regarding pricing of the additional production.

The firm can increase its profits by selling goods at a price which is at least equal to the additional cost incurred in its production. The advantage is that when the order to supply additional quality is accepted, it would result in increase in the capacity utilization and there would be economies of large scale production.

This would lead to reduction in the variable costs. The benefit of this reduction would be available for the entire production and not just confined to the additional quantity of output.

Differential Pricing:

Differential or discriminatory pricing means charging what the traffic will bear, i.e., charging different prices from different customers according to their ability to pay. The manufacturers generally try to differentiate the product prices for the same product by slightly differentiating the features of the product.

Probe Pricing:

A new entrant to a foreign market, who may not have full knowledge of the market and the nature and strength of competition tries to probe the prospective market by quoting price approximation relating to sales volume and value. Concessions on invoice price may be offered to attract the customer. Cost plus profit and competitor’s prices usually constitute the parameters of probe pricing.

Penetration Pricing:

Under this pricing policy, prices are fixed below the competitive level to obtain a larger share of the market and to develop popularity of the brand. Unlike skimming price policy, it facilitates higher volume of sales even during the initial stages of a product’s life cycles. This policy helps in developing the brand preference and is useful in marketing the products which are expected to have a steady long-term market.

Penetration pricing is an aggressive pricing strategy which results in lower profits or even losses during the initial stages. But once the product is established in the market, profit level goes up because of economies of large sale production.

Skimming Pricing:

Under high pricing policy, higher prices are charged during the initial stage of the introduction of a new product. The manufacturer fixes, higher price of his product in order to recover his initial investment quickly. This type of pricing is resorted to by an exporter who has gained a strong foothold (a near monopoly position), in a foreign market and has acquired a highly competitive position with an image of a dependable supplier of quality product.

With the help of a well thought out promotion program, emphasizing the value derivable from the product, higher price may be charged to maximize gain. Vanity items or items that involve high research development expenditure for manufacturing and marketing or items that are unique to a particular company or country which cannot be easily copied by competitors are amenable to skimming pricing.

Competitive Pricing:

In international marketing a watchful and seasoned marketer always keeps track of the prices quoted by competitors. He tries to adjust and adapt his prices to remain in the market. This type of pricing is known as competitive pricing. This policy is used when the market is highly competitive and the product is not differentiated significantly.

5.8 VARIOUS PRICE STRATEGIES IN INTERNATIONAL MARKETING:

The price of the product for domestic and export purposes shall be calculated in somewhat different manner. There are various methods of pricing the product in international market. Exporter may follow any method to calculate price. But before that he must be able to identify competitor’s price.

There exists following steps in arriving at base price:

(i) Identify price elasticity/ demand elasticity

(ii) Calculation of fixed and variable costs

(iii) Calculation of other costs, other elements of marketing, and

(iv) Select such a price level which will offer best contribution margin.

The price quotation for international markets may not be the same for all the markets. Prices may differ from market to market due to various reasons, i.e., political influences, buying capacity, financial and import facilities, total market turnover and other pricing and non-pricing factors etc.

The profitability will also be affected to a great extent and may be different in different markets. Thus, different strategies may be used in different markets. In some markets, prices may be higher, in some others, they may be around the cost price or in many others, and they may be even less than the cost price.

Ordinarily, the following pricing strategies are used in the export market:

1. Skimming the Price Strategy:

Under this policy, a very high price is fixed by an industrial enterprise for its products at the outset. Thus, this policy involves the setting of a very high initial price of the product that enters the market and then reducing the price gradually as the competitors enter the field. It has been rightly said, “Launching a new product with high price is an efficient device for breaking up the market into segments that differ in price elasticity of demand.”

The basic advantage of this policy is that if the market does not accept the product satisfactorily the price can be lowered. Secondly, an initial high price generates more profits which can be used for further promotion and expansion of the market.

This policy is particularly desirable due to following reasons:

The quality of the product that can be sold is likely to be less affected by price in the early stages than it will be when the product is fully-grown and imitation has had time to take effect. This is the period when pure salesmanship can have the greatest effect on sales. A skimming price policy takes the cream of the market at a high price before attempting to penetrate the more price-sensitive sections of the market. This means that more money can be got from those who don’t care how much they pay. This can be a way to feel out the demand.

It is frequently easier to start out with a high refusal price and reduce it later on when the facts of product demand make themselves known than to set a low price initially and then boost the price to cover unforeseen costs or exploit a popular product. High prices will frequently produce a greater volume of sales in the early stage of market development than a policy of low initial stage prices and due to this firm will be able to collect big funds for future expansion.

2. Market Penetration Price Strategy:

The basic objective of penetration pricing is to help the product penetrate into markets to hold a position. The price of the product is kept at a low level until such time as the product is finally accepted by the customers. Such a policy is adopted to capture a market share from a competing product. The low price allows a small profit margin in the beginning which may go up in the later stages. The price fixed under this policy is also known as ‘Stay out Price’.

3. Probe Pricing Policy:

Fixing low price for its product may have an adverse effect on the image of the firm and of the product. It may raise doubts in the minds of the buyer about the quality of the product if it is lower than the price of competitors or it is reduced subsequently.

When no information is available on the extent of competition or the likely preferences of the buyers, sufficiently higher prices may be quoted on the first few offers. No business is really expected except feedback information. The prices may be adjusted accordingly. This is called probe pricing, i.e., fixing high prices only to probe the export markets.

4. Follow the Leader Pricing Strategy:

In a competitive market or where adequate market information is not available, it may be useful to follow the leader in the market. Comparing its product with that of the leader, the exporter may fix the price for his product. In such cases, the price of the product is lower than the leader’s product. However, this policy has no rational or scientific base for fixing the price.

5. Cheaper Price for Original Equipment and Higher Price for Spare Parts:

Under this method of price strategy lower prices are to be quoted for original equipments and higher prices charged for the spare parts and replacement parts, when required. This strategy is useful where standard spare parts can be supplied only by a supplier of original equipment. This strategy could be used for tractors, telephone equipment and railway equipment etc.

6. Differential Trade Margins Strategy:

Variations in trade margins may be adopted by the exporter as the pricing strategy in the foreign market. This strategy allows various types of discounts on the list price. Quantity discounts encourage to procure huge orders. It may be based on the rupee value or on the quantity purchased or the size of packages purchased. Special discounts may be allowed while introducing the product.

These are given on all purchases. Seasonal discount aims at shifting the storing function in the channel. The approach is ‘buy sooner or more.’ Cash discount attracts prompt payments. Trade discount is a reduction in list price given to channel members in anticipation of a job they are going to perform.

7. Standard Export Pricing Strategy:

In some cases, exporter quotes the standard price or list price, i.e., one price for all. But still, there should be some margins for negotiations as in many markets, especially in underdeveloped countries, bargaining over prices is a part of life. In such cases, fixed prices may serve as starting point for negotiations. Hence, it is desirable to keep a certain margin for negotiations. This strategy is generally adopted in case of export of capital equipment, i.e., plant and machinery.

Thus different pricing strategies may be adopted in different markets taking into account the level of competition, the marketing characteristics and the philosophy of the management. Profitability, anyhow, cannot be ignored completely in the long run. However, exports may be continued in the short run, even below the marginal cost.

 

5.9 STEPS INVOLVED IN PRICING IN INTERNATIONAL MARKETING

Determining pricing objectives: Pricing is a means to achieve certain marketing objectives. An overall goal should aim at contributing to the company’s sales and profit objectives. However, the other pricing objectives may include market penetration, market skimming, market share, preventing entry of competitors, early recoupment of investment, profit maximization, etc.

Generally, consumers do not object to price. Pricing may be based on any objective depending upon the conditions of the marketer. But what they actually object to is the inconsistent relationship between the price charged for the product and its perceived value.

Analyzing market characteristics: The firm’s pricing objective must be consistent with the nature and characteristics of markets. The characteristics, competitive conditions and the paying capacity of different markets differ from each other.

The international marketer should study the market to determine the prices to be charged. He should find out what the market can afford to pay. The upper limit is set by what the market can afford to pay, the marketer should consider other factors related to the price. The margins of various middlemen, import duty, internal taxes, insurance cost and transport cost, etc., should also be covered by the price.

3. Calculating cost: A careful analysis of cost is necessary for determining export prices. There is a variety of costs to exports. Direct production costs include material, labor and other expenses required to manufacture the goods. Materials, labor and the expenses which are indirectly involved in producing the goods constitute production overheads. Market and distribution costs are incurred for getting orders, handling orders, packing the goods and sending them to customers.

Apart from these routine costs, special packaging and handling, credit and collection, documentation for export transactions involve costs. Those costs which are directly incurred for export purposes should necessarily be realized from the price.

4. Estimating the value of incentives: The value of incentives available to the exporter should be deducted from the total cost incurred for the export order. An exporter can claim several incentives in the form of duty drawback, cash compensatory support, replenishment license or exim scrip, premium on the foreign exchange and income tax benefits. These incentives reduce the cost of exporter.

5. Determining export price: The costs as enumerated above give the lower limit for export pricing. The estimates of the cost should be compared against the market price. Then the company should determine whether export at the estimated market price is feasible. The excess of market price over total costs gives profit to the exporter.

5.10 Comparison of National and International Pricing

Ø  The term 'Domestic price ' as it applies to the area of agriculture can be defined as ' The price at which a commodity trades within a country, in contrast to the world price. For those commodities not benefitting from some form of price support, the domestic price is determined by supply and demand.

In the course of expressing the expenditures on basic headings in a common currency, additive aggregation methods value the expenditures at international prices, where an international price for a basic heading is defined as the average of the national prices for the basic heading prevailing in participating countries.

Ø  Basically, pricing of goods and services in domestic market depend upon the govt policies of tax & subsidies and the factors of production

Whereas the pricing in international market is mainly determined through the prevailing foreign exchange rate and the value of own currency in terms of gold & US dollar.

Ø  The risk factor and challenges are comparatively less in the case of fixing domestic price.

Whereas the risk involved and challenges in case of fixing international pricing are very high due to some factors like socio-cultural differences, exchange rates, setting an international price for the product and so on.

FREQUENTLY USED TERMS IN INTERNATIONAL TRADE

§  CIF stands for cost, insurance, and freight to a named overseas port. The seller quotes a price for the goods (including insurance), all transportation, and miscellaneous charges to the point of debarkation from the vessel. (The term is used only for ocean shipments.)

§  CFR applies to cost and freight to a named overseas port. The seller quotes a price for the goods that includes the cost of transportation to the named point of debarkation from the vessel. The buyer covers the cost of insurance. (The term applies only for ocean shipments.)

§  CPT (carriage paid to) and CIP (carriage and insurance paid to) apply to a named destination. These terms are used in place of CFR and CIF, respectively, for all modes of transportation, including intermodal.

§  EXW (ex works) means “from a named point of origin” (e.g., ex factory, ex mill, ex warehouse); the price quoted applies only at the point of origin (i.e., the seller’s premises). The seller agrees to place the goods at the buyer’s disposal at the specified place within a fixed time period. All other obligations, risks, and costs beyond the named point of origin are the buyer’s.

§  FAS, or free alongside ship, refers to the seller’s price quote for the goods, including the charge for delivery of the goods alongside a vessel at the named port of export. The seller handles the cost of wharfage, while the buyer is accountable for the costs of loading, ocean transportation, and insurance. It is the seller’s responsibility to clear the goods for export. FAS, as the term implies, is used only for waterborne shipments.

§  FCA, or free carrier, refers to a named place within the country of origin of the shipment. This term defines the seller’s responsibility for handing over the goods to a named carrier at the named shipping point. According to Incoterms 2000, the named shipping point may be the seller’s premises. In that case, it is the seller’s responsibility to clear the goods for export from the United States. The term may be used for any mode of transport.

§  FOB, or free on board, refers to a named port of export in the country of origin of the shipment. The seller quotes the buyer a price that covers all costs up to and including the loading of goods aboard a vessel. (FOB is used only for ocean shipments.) As with other “F” terms, it is the seller’s responsibility to clear the goods for export.

 

Some of the more common terms used in chartering a vessel are as follows:

§  Free in is a pricing term that indicates that the charterer of a vessel is responsible for the cost of loading goods onto the vessel.

§  Free in and out is a pricing term that indicates that the charterer of the vessel is responsible for the cost of loading and unloading goods from the vessel.

§  Free out is a pricing term that indicates that the charterer is responsible for the cost of unloading goods from the vessel.