Lecture 6.

Forms, methods of international trade and

pricing policy in the world market
Apalkova Viktoriia
PhD, Associate Professor, Department of International Economics
 Content
1. International Commodity Exchanges.
1.1. Functions of international commodity exchanges.
1.2. Classification of international commodity exchanges.
1.3. Main operations on international commodity
exchanges.
1.4. Types of exchange transactions.
1.5. Network of trading exchanges.
2. International auctions.
2.1. Auction Centers.
2.2. Types of auctions.
2.3. Methods of auctions and their types of auctions.
3. International Tenders.
3.1. Classification of international tenders.
3.2. Functions of international tenders.
3.3. Stages of bidding.
3.4. Trends in bidding.
4. Exhibitions. Fairs.
4.1. Classification of exhibitions and fairs.
4.2. Functions of exhibitions and fairs.
5. Marketplaces
5.1. Types of marketplaces.
5.2. The main trends
6. Pricing in the global market.
6.1. Classification of prices in international trade.
6.3. Basic terms of supply (INCOTERMS) and their role in
pricing foreign trade agreements

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1. International Commodity Exchanges

 The market comprises a number of international commodity

exchanges.
 Each exchange regulates transactions. They ensure that the
commodities traded meet minimum quality and quantity
standards.
 The exchanges themselves are regulated by national
regulatory bodies.

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1. International Commodity Exchanges
Dying tendency of pits

 Starting in the late 19th century, commodities traders and brokers crammed
each day into New York City’s trading pits, shouting, and signaling their
way to a deal. They bought and sold contracts for raw materials and
agricultural products like butter, sugar, cotton, cocoa beans, copper, and oil.

 But this method of trading has been dying out for the past decade. It’s
eclipsed almost entirely now by electronic trading, which the exchanges and
trading firms alike tout as cheaper, more efficient, and of course, faster.
These days, a click of a button—or, increasingly likely, a programmed
algorithm—dictates when a trade will be executed, instead of open outcry,
which was famously dramatized in the 1983 film.

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1. International Commodity Exchanges

 Some notable commodity exchanges

Chicago New York London

Mercantile Mercantile Metal
Exchange Exchange Exchange.

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1. International Commodity Exchanges

Chicago Mercantile Exchange

 Today, CME is the largest options and futures contracts
open interest (number of contracts outstanding) exchange
of any futures exchange in the world. The Merc trades
several types of financial instruments: interest rates,
equities, currencies, and commodities.
 It was introduced in 1992 as the first global electronic
trading platform for futures contracts. This fully electronic
trading system allows market participants to trade from
booths at the exchange or while sitting in a home or office
thousands of miles away. On 19 October 2004, the one
billionth (1,000,000,000) transaction was recorded.

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1. International Commodity Exchanges
 Chicago Mercantile Exchange

Agricultural Commodity Contracts include:

Since December 2017
bitcoin futures are traded

Live Cattle, Feeder Lean Hogs, Class IV Milk, Class III Dry Whey,
Cattle Milk, Nonfat Dry Milk
Powder,

Cheese, Butter, Random Length

Lumber.

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1. International Commodity Exchanges

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2. International auctions
An auction is a process of buying and selling goods or services by
offering them up for bid, taking bids, and then selling the item to
the highest bidder.

The open ascending price auction (English) is arguably the most

common form of auction in use today. Participants bid openly
against one another, with each subsequent bid required to be
higher than the previous bid. An auctioneer may announce prices,
bidders may call out their bids themselves (or have a proxy call out
a bid on their behalf), or bids may be submitted electronically
with the highest current bid publicly displayed.

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2. International auctions
Key types of auction that are used for the allocation of a single item

English auction
•open ascending price auction

Dutch auction
•open descending price auction.
•The auctioneer begins with a high asking price for some quantity of like items; the price is lowered until a participant is willing to accept
the auctioneer's price for some quantity of the goods in the lot or until the seller's reserve price is met.
Sealed first-price auction
•blind auction, also known as a first-price sealed-bid auction (FPSB).
•In this type of auction all bidders simultaneously submit sealed bids so that no bidder knows the bid of any other participant. The
highest bidder pays the price they submitted.[1][2] This type of auction is distinct from the English auction, in that bidders can only
submit one bid each.

Vickrey auction
•sealed-bid second-price auction.
•This is identical to the sealed first-price auction except that the winning bidder pays the second-highest bid rather than his or her own.
Vickrey auctions are extremely important in auction theory, and commonly used in automated contexts such as real-time bidding for
online advertising, but rarely in non-automated contexts.[

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2. International auctions
While auctions are most associated in the public imagination with the sale of
antiques, paintings, rare collectibles and expensive wines, auctions are also used for
commodities, livestock, radio spectrum and used cars.
In economic theory, an auction may refer to any mechanism or set of trading rules for
exchange.
The top players Global Auction Services Market 2019 are:
Property
KAR Auction
Sotheby's Auction Christie's Nagel
Services
Services

Zhongzheng
PHILLIPS Poly Auction
Auction

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2. International auctions
Sotheby's is a British-founded American multinational corporation headquartered in
New York City. One of the world's largest brokers of fine and decorative art, jewelry,
real estate, and collectibles, Sotheby's operation is divided into three segments:
auction, finance, and dealer.

Revenue:
805.4 million
USD (2016)
Number of
employees:
1,617 (Dec
2016)

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2. International auctions
Internet auctions – With a potential audience of millions the
Internet is the most exciting part of the auction world at the
moment. Led by sites in the United States but closely followed by
UK auction houses, specialist Internet auctions are springing up all
over the place, selling everything from antiques and collectibles to
holidays, air travel, brand new computers, and household
equipment.

The Global Online Auction Market to grow at a

CAGR of 7.2% during the period 2018-2022.

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2. International auctions
Internet auctions

 Online auction offers flexibility to bidders in terms of place and time.

Moreover, this process helps shrink the profit made by brokers, agents
or middlemen. Thus making the bidding process cost-efficient which
becomes one the effective factor for driving the online auction market.
 Users can access their site and be a part of the auction which is a savior
to users, in terms of both money and time.
 Online auctions remain online for a fixed period and most of the times
takes 21 days for open-house viewings and marketing.
 Companies are required to upload videos and images of their products
and stock on their websites. Through this way, bidders get the
opportunity to compare price and quality of the product, before they
begin to participate in the bidding process.

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2. International auctions
Internet auctions

 Another major trend witnessed in the online auction is the immense

impact of artificial intelligence (AI).
 AI’s main role in an online auction is to perform different tasks such as
processing internal operations, customer-service inquiries, delivery and
product packaging. In the last years, AI has instigated a gradual shift,
from conventional auction from to online auction.
 Therefore, different vendors have increased AI’s adoption so that they
can preserve market shares will become one of the factor that will scale
up global online auction market.

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2. International auctions
Internet auctions

 Key vendors operating in this market

Bonanza eBay eBid OnlineAuction.com Webstore.com

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2. International auctions
Internet auctions

Market driver Market challenge Market trend

• Increase in sales • Threat of online • Increase in

of art-based piracy popularity of
goods through • For a full, detailed online auction ads
online auctions list, view our • For a full, detailed
• For a full, detailed report list, view our
list, view our report
report

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3. International Tenders

 To tender is to invite bids for a project or accept a formal

offer such as a takeover bid.
 Tendering usually refers to the process whereby governments
and financial institutions invite bids for large projects that
must be submitted within a finite deadline.
 The term also refers to the process whereby shareholders
submit their shares or securities in response to a takeover
offer.

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3. International Tenders

 For projects or procurement, most institutions have a well-defined

tender process, as well as processes to govern the opening, evaluation,
and final selection of the vendors. This ensures that the selection process
is fair and transparent. Regarding tender offers related to takeover
attempts, the conditions of the offer are clearly listed and include the
purchase price, the number of shares requested, and a deadline for a
response.

 A request for tender (RFT) is a formal and structured invitation to

suppliers to submit competitive bids to supply raw materials, products,
or services. Because this is a public and open process, laws were created
to govern the process to ensure fair competition among bidders.

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3. International Tenders

Tender Procurement Process

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3. International Tenders
 https://www.globaltenders.com/

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4. Exhibitions. Fairs
• Commercial exhibitions, generally called trade fairs, trade shows or expos,
are usually organized so that organizations in a specific interest or industry
can showcase and demonstrate their latest products, service, study activities
of rivals and examine recent trends and opportunities.

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4. Exhibitions. Fairs

• Trade shows can be

categorized into three
major groups:
1) industry trade shows,
2) consumer trade
shows,
3) trade shows that
cater to both
industries and
consumers.

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4. Exhibitions. Fairs
Fair trade participation

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5. Marketplaces
 An online marketplace (or online e-commerce marketplace) is a type of e-
commerce site where product or service information is provided by multiple
third parties, whereas transactions are processed by the marketplace
operator. Online marketplaces are the primary type of multichannel
ecommerce and can be a way to streamline the production process.

The top online marketplaces in the world sold $1.66 trillion in 2018. Sales on
marketplace sites, like those operated by Alibaba, Amazon, eBay and others,
accounted for more than 50% of global web sales in 2018, according to
Internet Retailer’s analysis.
The growth of these sites in ecommerce is a reason many large retailers,
including sportswear e-retailer Fanatics Inc., recently began selling on
marketplaces.

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5. Marketplaces
 An online marketplace (or online e-commerce marketplace) is a type of e-
commerce site where product or service information is provided by multiple
third parties, whereas transactions are processed by the marketplace
operator. Online marketplaces are the primary type of multichannel
ecommerce and can be a way to streamline the production process.

The top online marketplaces in the world sold $1.66 trillion in 2018. Sales on
marketplace sites, like those operated by Alibaba, Amazon, eBay and others,
accounted for more than 50% of global web sales in 2018, according to
Internet Retailer’s analysis.
The growth of these sites in ecommerce is a reason many large retailers,
including sportswear e-retailer Fanatics Inc., recently began selling on
marketplaces.

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5. Marketplaces
 Key takeaways from infographic:.

$1.66 trillion spent globally on the top 100 online marketplaces in

2018

Gross merchandise sales grew 20% last year compared with

2017

59 are based in the U.S., and they grew sales 17% in 2017

39 of the 100 top marketplaces launched between 2010-2015

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5. Marketplaces
 Key takeaways from infographic:.

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6. Pricing in the global market
6.1. Classification of prices in international trade.

• The following aspects influence pricing:

packaging

shipping and insurance costs

customer service and servicing costs

current pricing calculations

terms and conditions of payment

discounts on payment, for bulk orders and special discounts

shipping conditions and take-back conditions

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6. Pricing in the global market
6.3. Basic terms of supply (INCOTERMS) and their role in pricing foreign trade agreements

Incoterms 2010
• Incoterms stands for international commercial terms.
• Incoterms 2010 is, in fact, a set of rules recognized by state
entities, suppliers and lawyers worldwide as a comprehensive
description of different terms in the international trade.
• Incoterms 2010 definitions cover the duties and rights of the
trading parties in the case of goods supply.
• Incoterms represent a variety of trade rules, which are gathered in
categories (named in the first three letters).

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6. Pricing in the global market
6.3. Basic terms of supply (INCOTERMS) and their role in pricing foreign trade agreements

Who created Incoterms 2010?

• The development of Incoterms was first conceived by the
International Chamber of Commerce (ICC) in 1921, and this
idea was realized in 1936 when the first edition of Incoterms
rules appeared.

• In 1923, the ICC Trade Terms Committee, with the support of

national committees, developed the first six rules: FOB, FAS,
FOT, FOR, CIF, and C&F, which were the forerunners of future
Incoterms rules.

• This was the beginning of a long and eventful history of

Incoterms rules, which continues in our time.

• On January 1, 2011, a current version of the rules, Incoterms

2010, was introduced.

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6. Pricing in the global market
6.3. Basic terms of supply (INCOTERMS) and their role in pricing foreign trade agreements

Each of these
categories displays
business practices in
international sale
contracts.

In general, Incoterms
2010 describe the
costs, risks and main
responsibilities which
are connected with the
delivery of goods from
the supplier to buyer.

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6. Pricing in the global market
6.3. Basic terms of supply (INCOTERMS) and their role in pricing foreign trade agreements

Incoterms 2010
• The most common sets listed below:

DDP (Delivery Duty Paid).

EXW (Ex-Works).

DAP (Delivered At Place).

DDP (Delivery Duty Paid).

FOB (Free on Board).

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Thank you for your attention!

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