UNIVERSITY OF ECONOMICS OF HO CHI

MINH CITY

GROUP
ASSIGMENT EXPORT IMPORT
MANAGEMENT
CHAPTER 2
AND CASE GROUP 6
7.1
LECTURER: Assoc.Prof. Dr. BUI THANH TRANG

GROUP MEMBERS

Phạm Thị Thanh Tuyền

Nguyễn Ngọc Phương Uyên

Văn Hoàng Anh Tuấn

Đặng Thị Anh Thư

Đào Phạm Tuyết Ngân

Đinh Nguyễn Minh Khuê

Nguyễn Thị Thu Thúy

Vương Bảo Trân

SCHOOL OF INTERNATIONAL BUSINESS – MARKETING

 GROUP ASSIGNMENT CHAPTER 2 (PRICING IN INTERNATIONAL TRADE)

Summary of the case:

- The seller:ABC Trading Co, Vietnam

- The buyer:DNZ Trading Co., Japan
- Goods: 1,000 tons of coffee
- FOB Saigon port is 750,000USD;
- CIF Tokyo port is 900,000USD;
- DAP buyer’s warehouse in Tokyo is 1,000,000USD.

Question 1:What the selling price does the buyer choose? Why?

1. When it comes to deciding which selling price to choose, the buyer should take 2 factors into
consideration: cost and risk. Among the 3 options (FOB, CIF, DAP), we will analyze the term that has
the least risk for buyer:

 FOB (Free on Board): Seller is responsible for delivery of the goods loaded on board the ship. Risk
is transferred as soon as the goods have been set down inside the ship

 CIF (Cost, Insurance and Freight): Seller covers cost of insurance and freight, duty paid, to the
named port of destination. Risk is transferred as soon as the goods have been set down inside the
ship

 DAP (Delivered at Place): Seller delivers the goods to the disposal of the buyer on the arriving
means of transport at the agreed place. Seller assumes the risk until the goods are made ready for
unloading from the arriving means of transport.

Thus, the DAP term offers the buyer the least risk (according to INCOTERM 2010) so we convert FOB
into CIF term then we compare which one costs less than the other. Then we convert it to DAP term whether the
orginal DAP selling price (1,000,000 USD) is the cheapest, which makes it the best choice.

𝐹𝑂𝐵+𝐹 750,000+ 150,000

 𝐶𝐼𝐹(𝑏𝑢𝑦𝑒𝑟) = = = 901,803 ($)
1−𝑅 1−0.2%
 𝐶𝐼𝐹(𝑠𝑒𝑙𝑙𝑒𝑟) = 900,000 ($) < 𝐶𝐼𝐹(𝑏𝑢𝑦𝑒𝑟) (901,803 ($))

Thus, we choose 𝐶𝐼𝐹(𝑠𝑒𝑙𝑙𝑒𝑟) = 900,000 ($) so 𝐶𝐼𝐹(𝐵𝑢𝑦𝑒𝑟) = 900,000 ($)

 𝐷𝐴𝑃(𝑏𝑢𝑦𝑒𝑟) = CIF + On carriage + DAP*R – CIF*R

= 900,000 + 80,000 + 1,000,000*0.2% – 900,000*0.2%

= 980,200 ($)

 𝐷𝐴𝑃(𝑠𝑒𝑙𝑙𝑒𝑟) = 1,000,000 ($)

 Because 𝐷𝐴𝑃(𝑏𝑢𝑦𝑒𝑟) ( 980,200$) <𝐷𝐴𝑃(𝑠𝑒𝑙𝑙𝑒𝑟) ( 1,000,000 ($)), we choose CIF Tokyo port 900,000$
Question 2:If the buyer wants to buy under the term of DDP, What must the seller pay costs and bear
risks under the term of DDP at the buyer’s warehouse in Tokyo?

DDP places maximum responsibility for the delivery of goods on the seller. The sellers bear the costs and risks
involved to bring goods, including duties and taxes for import in the country of destination.
● Costs paid:
The seller must arrange all transportation costs (pre-carriage, main-carriage, and on-carriage costs), clearance
fees and taxes. Moreover, the seller is responsible for export and import license, customs documentation
required to reach the destination port, obtaining the appropriate approvals from the authorities in that country.
According to Incoterm 2010, these costs are:
- Exporting packing, marking & labeling, export clearance, FF documentation fees.
- Inland freight to main carrier, original terminal charges, vessel loading charges, norminate export forwarder,
unload main carrier charge. - Destination terminal charges, nominate on-carrier, customs broker clearance
fees, duty, customs fees, taxes, delivery to buyer destination.
Moreover, the sellers may have to pay for block and brace, transport insurance if they are mentioned in the
contract.
● Risks bear:
In a DDP transaction, if the goods are damaged or lostintransit,theselleris liable for the costs. They must bear all
risks of loss of or damage to the goods until goods cleared and duty paid (not unloaded) are placed at the
buyer’s disposal at the agreed destination.
Question 3:
What are the main differences between DAP and DDP at buyer’s warehouse in Tokyo?

DAP DDP

- Import custom clearance must
be made by the importer (buyer).
- As per DAP terms of delivery,
all delivery expenses up to the
place of buyer's warehouse in
Tokyo is born by the seller except
duty or tax of importing country.
- Import custom clearance must be made by the
exporter (seller). All import duties should also be paid
by the exporter. The seller must bear all the risk
involved in bringing the goods to the place of
destination
- In other words, as per DDP terms of delivery, all
delivery expenses up to the door step of buyer’s
warehouse in Tokyo is born by the seller including
duty or tax of importing country. In DDP terms,
insurance has to be arranged by the seller, as DDP
price includes the cost of insurance also.
 CASE 7.1

1. Case summary:

Seller: German scientific equipment manufacturing company "Tola"

Buyer: American company BAT Inc. (Calumet City, Illinois, USA)

Buyer's insurance company: St. Guardian Insurance

Goods: A mobile MRI machine

Condition known before shipment: Good

The goods were found damaged when it reached its final destination, and required extensive repair.

The buyer and its insurer believed that the machine's current condition was caused during transit.

The buyer's insurance firm covered the damage with a total cost of $350,000. Then, they wanted to recover
from the seller. The seller Tola claimed that they held no responsibility for the loss due to the CIF term (transfer
of risk occurs when the goods are loaded on the vessel at the port of shipment). However, BAT and St.
Guardian stated the unavailability of the Incoterm since it wasn't written in the contract.

2. Case analysis:

There are two possibilities drawn from the case:

 CIF is available: Incoterms CIF 2010 specifically indicates the transfer of risk is activated when the
goods are on board the vessel and Tola only has to pay for the transportation insurance. Thus, the
responsibility of reclaiming the loss belongs to BAT Inc. through its insurer St. Guardian, and Tola is
under no constraint to pay for the damage cost.

 CIF is unavailable: If a contract of sale doesn't address the use of Incoterms, then the responsibility of
covering the cost of damage shall be based on the "retention of title" clause in the contract, that is:
transfer of title between two parties only takes place when the seller receives the payment and the buyer
receives the goods successfully. The case doesn't state the completion of payment from BAT Inc. to
Tola, which means the legal ownership still belongs to the seller. Therefore, Tola must be responsible
for paying the damage of their own machine.
3. Suggested solutions:

 CIF is available: If the contract contained CIF term, then BAT Inc. and St. Guardian Insurance were
wrong when demanding the seller Tola to cover the loss. As the goods were truly carried on the vessel's
board and turned damaged during the main carriage, it fitted with the CIF term and thus, the buyer's
insurance company must take responsibility for the damage and pay $350,000.

 CIF is unavailable: If the contract didn't contain CIF term, then BAT Inc. and St. Guardian Insurance
were right when demanding the seller Tola to cover the loss. As the contract of sale now depended
solely on the retention of title clause, the ownership still belonged to the seller since the payment wasn't
fulfilled, and thus, the seller must pay for the damage. We suggest that both parties need to carefully
consider all the possible terms and obligations of risk in order to guarantee each other's benefits before
entering an official sale contract.