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Honey export terms of trade questions

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Hi. Sorry new to this forum so I apologise if I am posting in wrong place. I am 3rd year Massey student and am currently working on international business plan based on exporting manuka honey to the UK. I am wondering what the most common term of trade used by exporting companies are. FOB or CIF/CIP? Why? Any advice and info would be greatly appreciated. Thank you.

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Hi. Sorry new to this forum so I apologise if I am posting in wrong place. I am 3rd year Massey student and am currently working on international business plan based on exporting manuka honey to the UK. I am wondering what the most common term of trade used by exporting companies are. FOB or CIF/CIP? Why? Any advice and info would be greatly appreciateQ

@Jezza

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Have you considered what each of these trading terms is used for, and how they affect the business?

 

FOB is commonly used where there is a letter of credit in place, allowing the shipper to claim payment upon supply of Bill of Lading to the bank. Most banks won't deal with less than $5 million on an L/C.

 

Most customers don't get to this level, so FOB is less common than you would think.

 

EXW is a common use in the industry, for reasons to do with trust. There is not a lot of it. By trading on a cash basis, companies reduce their credit risk and exposure here.

 

As a business case, you should also consider the risks and benefits of each trading system. Where is the capital cost, who is left holding the bag in event of a cancellation or non-payment, what are the financing requirements for the company w.r.t inventory (10-20 million dollar stock pile). Then also consider forex requirements and duty.

 

Is the customer skilled in overseas purchase? Is the supplier a skilled exporter familiar with entry requirements for your target market? Does the customer want to pay for shipping, or do they want an all inclusive price delivered to their door, and to pay you in Pounds Sterling via their HSBC account in Savile Row?

 

Are you willing to take the Forex risk?

 

Many questions. It comes down to how you manage upside and downside.

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CFR and Occasionally CIF for us. Always a deposit of atleast 30% down. The odd international Supermarket gets payment terms but only if they are a known global brand. Those terms are normally something like 60 day terms. Not ideal.

 

Good luck with your project and happy to answer any more questions you have through our egmont honey website.

 

Cheers

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