Conventional Practice in Setting Export-Import Prices

Abstract

How to set prices is an extremely important issue in international trade. In theory, the price of a commodity is simply the value of the commodity in terms of money, but in reality, the setting of prices in international trade is considerably more complex. In addition to the value of the commodity itself, the price should also, in general, include such expenses as transportation, loading and unloading, storage, insurance and customs duties, as well as the costs of risk-bearing. Sometimes the price should include the commission or discounts to middlemen. Through a time-honored practice of international trade, a body of terminology has gradually emerged in international business. Different prices reflect different terms, so prices are quoted according to the terms of a transaction. At present, in international trade, prices vary with the conditions or the terms. In general, based on the destination of delivery there are primarily three categories of price formation. The first refers to the prices for inland delivery, as for instance when a delivery takes place at a factory, warehouse, mine site, farm, or railroad station. Such terms are seldom used in international trade except for adjacent countries. The second category refers to prices of delivery at the destination, either on board a ship, at the berth, or at the port. Most times, the price refers to delivery on board at the destination. The third category refers to deliveries at the port of loading, such as free along ship (FAS), free on board (FOB), cost and freight (C&F) or Cost, Insurance, and Freight (CIF). In international trade, FOB, CIF, and C&F are the most commonly quoted prices.