Pricing is undoubtedly a very important part of any business. It determines the profitability of the transaction and consequently the continuity of the business concerns. It is a variable that is depended on three factors namely the cost, the demand and the competition. The first variable which is cost is mainly a local factor while the second and the third variables are international factors which must the studied and well understood before an exporter set the the pricing for his product in the export market.
In order to be able to address the pricing issues in an export transaction, an exporter must be able to answer the following seven important questions namely: What are the cost elements to be incurred in a typical export transaction? Where do I get the amount involved in each of the cost elements? Who are the people to be paid in executing the export projects? When am I supposed to pay the freight forwarding agents? Why do we need to pay the bank and government? Which of the cost elements can be avoided? How does International commercial terms (Incoterms) contribute to the cost elements? I will try to address these questions in general in this article, however an exporter needs to do more research in order to know other likely costs that are peculiar to the selected product.
The first question states that, what the cost elements are? The cost elements in a typical export project include the following: Product Cost, Transport cost to the warehouse, Warehousing cost, Transport cost to the port, Freight forwarder fee, Shipping Line local charges, Freight Charges, NXP processing fees, Nigeria Export Supervision Scheme (NESS) Fee, Port Logistics fee. Other fees include SON or NAFDAC fee, Marine and good in transit insurance (GIT) Insurance fee, Quality and quantity Inspection fee, Certificate of origin fee, Fumigation certificate fee, Phytosanitary Certificate fee, Bank commission on Export Proceeds and Interest Rate.
The next question that needs to be addressed is, where can I get the amount involved in each of the of the cost elements? It is important for the exporter to know that some of these fees are fixed while others are determined by the nature and the selling of the item being shipped. The amount involved in each of these fees can be obtained from banks, shipping line, haulage firms, government agencies, freight forwarder and inspection agent. For example, NXP processing fee is N5,000 irrespective of the value of the product stated on the form. On the other hand, some fees are fixed as a percentage of the selling price, for example the NESS fee is 0.5% of the FOB value ( products cost plus profit), while marine and GIT ranges from 0.3-0.5% of the product cost. Some other charges are paid per container and this include the freight forwarder’s fee, shipping line local charge, the freight charge and the inspection fee. The other fees like Certificate of origin fee, Fumigation certificate fee, Phytosanitary Certificate fee, SON or NAFDAC fee are charged based on a number of other variables like quantity, amount etc.
The third question to be answered by the exporter is, who are the people to be paid in the export project? The Product Cost is paid to the supplier, Transport cost to the warehouse and Transport cost to the port will go to the haulage firm. Warehousing cost will go to the warehousing company, the Freight forwarder and Port Logistics fees will go to the freight forwarder, Shipping Line local charges and Freight Charges go to the shipping line, NXP processing fees, Commission on Export Proceeds and Interest Rate (if any) go to the bank. The other fees like Quality and quantity Inspection fee goes to the inspection agent, the Marine and GIT Insurance fee go to the insurance company and lastly, the Nigeria Export Supervision Scheme (NESS) Fee, SON or NAFDAC fee, Certificate of origin fee, Fumigation certificate fee and Phytosanitary Certificate feeble to the respective government agencies.
The fourth question that needs to be answered by the exporter in the planning stage is, when am I supposed to pay the freight forwarding agent’s fee? First of all, we need to define the job of the freight forwarder. This is a custom licensed agent that arranges the shipment of goods to international destination. He is engaged to clear the goods for export and process the post export documentations.