The freight and insurance costs must be added to determine the CIF value. Freight is calculated at 20% of the FOB value. 1.125 percent x USD 13.00 = 1.125 percent x USD 13.00 = 1.125 percent x USD 13.00 = 1.125 percent (rounded off). The total CIF value comes to USD 1313.00.
How is freight charges calculated FOB and CIF?
Ex-Factory Price + Other Costs = FOB Value (b) Other Costs in the FOB value calculation refer to the costs of loading the products onto the ship for export, such as domestic transportation costs, storage and warehousing, port handling, brokerage fees, service charges, and so on.
What does CIF Cost Insurance and Freight stand for?
CIF (cost, insurance, and freight) is an international shipping agreement that specifies the charges a seller must pay to cover the costs, insurance, and freight of a buyer’s purchase while it is in transit. The items are shipped to the port designated by the customer in the sales contract.
What is CIF price formula?
The formula used to get the following CIF pricing is as follows: Price Formula for CIF. MPN + (MPE + MPE x R) + MO + ENV + EMB + FI + SI + CER + GA + GFB + OG – DWx (1 -IG) + FIn + S. CIF= MPN + (MPE + MPE x R) + MO + ENV + EMB + FI + SI + CER + GA + GFB + OG – DWx (1 -IG) + FIn + S.
How is freight insurance calculated?
Unsurprisingly, one of the most often asked questions is: how much does cargo insurance cost? The computation is straightforward, but you must accurately value the products being covered. The insured value times the policy rate is commonly used to determine the cargo insurance premium for a single shipment.
What is the insured value, exactly? The simplest way to calculate insured value is to multiply the commercial invoice value of the products by the freight cost, then add 10% to account for additional costs. It’s crucial to look over your insurance policy’s provisions, particularly the valuation clause, to make sure you understand how the policy expects the goods to be valued.
When insuring your cargo, it’s critical to choose the suitable insured value. Underinsuring a shipment or choosing a sum that is less than the value of the products might have disastrous financial effects. Coinsurance is a term that you may be familiar with if you have medical insurance. The amount in a claim that the cargo owner has chosen not to insure is referred to as coinsurance; this amount is essentially covered by the cargo owner after the deductible has been paid and before the insurance provider pays.
In most cases, coinsurance is given as a percentage. In a policy with a 20% coinsurance clause, the insurance company will cover 80% of the loss and the insured will cover the remaining 20%. When a shipment is underinsured, coinsurance is used in a cargo coverage.
In the event of a partial loss for underinsured shipments, the insurance company will only pay the fraction of the value that has been insured. Various insurance may respond with different reimbursement amounts in the event of a total loss on an underinsured shipment, but the cargo owner will not be made whole. The coinsurance clause will be removed from the equation if the proper insured value is chosen, ensuring that the cargo owner is made whole in the event of a loss.
What is FOB rate?
Free on board, often known as freight on board, is a term used to describe a shipment that is delivered free of charge. It’s a term for international shipment that’s often used. It’s a transportation word that means the selling price of the items includes just up to a certain point of delivery at the seller’s expense. As soon as the products leave the stated location, the customer assumes responsibility for shipment. These terms are commonly seen in commercial invoicing.
How do you calculate landing cost of imported goods?
Even though determining landed cost can be challenging, there are a few approaches you can use. To assess their overall landed cost, many organizations use spreadsheets or internally built software. Third-party organizations, such as supply chain consultants and other supply chain professionals, can also assist you. Commercial solutions, such as enterprise resource planning systems, transportation management systems, supply chain design programs, and so on, are also available to help you calculate the formula. More tools are including the feature to support calculation as the importance of this equation grows.
There is no common formula for calculating it; it is very dependent on your business and industry.
Begin by gathering as much information as possible so that you may begin developing the equation. This gets you started in the right path for figuring out what’s lacking from the equation. Many people believe that waiting to collect data until they have a larger volume of data will improve their chances of estimating TLC. However, commencing the procedure early in the formula building process will aid you in quickly determining what is missing. Begin with the following metrics:
From there, you can start devising a formula that will work best for your company.
Supplier 1 charges 50 cents per USB cable, with large orders of 1,000 or more receiving a 10% discount. This will set you back $2,250. If each cable costs $5, your profit margin is.91, and you make a $22,750 profit.
Supplier 2 charges 55 cents per USB cable, with no discounts for purchasing in bulk. You’d spend $2,750 on this, and if you sold each cable for $5, your profit margin would be.89, resulting in a profit of $22,250.
Supplier 1 charges a fixed amount of $500 for international shipping, and because they’re based in a firm with which you don’t have any preferential arrangements, you’re subject to a 25% import duty rate.
Supplier 2, on the other hand, charges based on weight, bringing your total to $250. Because they work for a company that has a favorable relationship with yours, the important duty rate is only 10%.
$2,250 + $500 freight + ($2,250 *.25) = $2,250 + 500 + 562.5 = $3,312.50
The cost of Supplier 2 is $2,750 + $250 shipping+ ($2,750*.1) = $2,750 + 250 + 275 = $3275.
In this scenario, supplier 2 does, in fact, turn out to be the superior deal (although by a small margin).
When you look at the profit margin after these costs are taken into account, though, you’ll notice a bigger difference.
Purchasing from Supplier 1 results in a profit of $21,687.50, or an 86.75 percent profit margin.
Purchasing from Supplier 2 yields a profit of $21,725 for an 86.9% profit margin.
Though the difference is minor, when considering huge volume, it’s a significant amount of money to be wasted merely by accepting the bargain that appeared to be better on the surface and based solely on the price of a product. Even if you don’t have to deal with importing and customs agents, or hefty shipping fees, the landed price is more expensive than the purchasing price.
Purchasing from supplier 1 offered us an anticipated profit margin of 91 percent without factoring in landed costs, compared to the more accurate 86.75 percent profit margin. We were given an 89 percent margin by Supplier 2, while the more realistic figure was 86.9%. Your budget would be off if you had used those figures without the landed costs.
If you’d bought from Supplier 1 and calculated your profit margin without factoring in the landing fees, you might have found yourself in this situation:
You projected to sell 500,000 USB cables this year, and with a 91 percent profit margin, you’d expect to make $227,500 in profit – or $250,000 in revenue. As a result, you base your budget on this figure. However, because of the landing fees, you only make $216,875 in profit, leaving you with a $10,625 difference to account for.
To get you started, here’s a simple method for calculating landed costs:
Landed Cost = Item Price + Shipping/Freight Costs + Customs Duties + Risk + Overhead If you’re not trading in your own currency, you’ll also need to factor in currency conversion.
With each product you sell, you’ll need to factor in the landing cost calculation. The cost of the products is substantially higher than the wholesale price especially if you have to pay extra costs due to delays in customs clearance. Exporting product sellers must also contend with fees, which they typically add to the cost of items when determining their pricing.
When setting your safety stock and determining profitability on any goods, don’t forget to add in handling costs, harbor fees, payment processing fees, freight rates, and so on.
Your organization will begin to reap the benefits after you devote the time and money necessary to estimate your landing costs. Spending a little more effort on landed expenses while conducting due diligence on suppliers, especially when dealing with global trade and imported items, will pay dividends in the long term.
Shipping :
The customer is responsible for booking a ship that will transport the products to their final destination in FOB shipping, but the seller is solely responsible for finding a ship in CIF shipping.
Insurance :
One of the most significant differences between FOB and CIF is product insurance; in FOB, the seller is not required to purchase product insurance, whereas in CIF, the seller is required to sign an insurance contract for the products that includes a policy of insurance covering at least 110 percent of the goods’ value.
Costs :
The FOB option for shipment is recommended since the buyer has more control over the shipping process and the prices are lower. The cost of CIF shipping is higher since the seller has control over shipping prices and can arrange a ship with the help of a freight forwarder.
Risk :
When goods are shipped FOB, the buyer typically bears all risk of damage or loss, but when goods are shipped CIF, the seller is responsible for all costs associated with product loss or damage.
There is one important factor to remember while learning about FOB versus CIF shipping: because it is international, there are two currencies involved in the transaction, and there may be hidden charges due to the exchange rate. If you pay for your shipping with a bank, the exchange rate used to convert the payment may be marked up by 3-5 percent, resulting in a hidden cost. So, for hassle-free shipping, use an alternative money transfer service like the one we offer at Boxnbiz.
How do you calculate import value?
- Value of Exports = Total value of foreign countries’ expenditure on the home country’s goods and services.
- Import Value = The total amount of money spent by the home country on goods and services imported from other countries.
Example of the Net Exports
Last year, for example, the United States spent $ 250 billion on goods and services imported from other countries. The overall value of other countries’ spending on US goods and services was $ 160 billion in the same year. Calculate the country’s net exports for the given year.
Does CIF price include duty?
Cost Insurance Freight (CIF) costs are not subject to duty. The value established by US Customs and Border Protection (CBP) is based on the “Price Paid” or “Payable” for the goods, which is commonly listed as the Freight On Board (FOB) price on the bill of sale or invoice and bill of lading.