Apparel Exports

Export
After a detailed evaluation of the difference
between export costing and pricing, Vasant Kothari
gives an insight into the export price calculation
methods. These nuances are likely to benefit apparel

Costing
manufacturers/exporters in the long run.

n the apparel industry, the most

popular method to calculate the
export price of any product is the
Cost-Plus Method.

The Cost-Plus Method of calculation

requires a costing sheet so that it
enables the exporter or manufacturer
to check that every expense has been
covered while arriving at the selling
price. It also enables him to provide a
detailed record of the terms that have
been quoted to the foreign buyer.

32 APPAREL April 2011


The items covered by the
export costing sheet are:
• Unit cost of product – The starting
point in export pricing is the
production cost per unit of the
product. This would be the variable
cost plus fixed cost or overhead.
In case of a garment, normally it
is done for 1.03 to 1.05 pieces by
considering 3-5% wastages.
• Profit – Once the product cost is
calculated, the exporter needs
to include profit margin into the
calculation. Margin will depend
on costs, export objectives, the
circumstances prevailing in the
target market and intended pricing
strategy. However, an exporter
can also add extra allowance for
profit, in order to cover the risk
involved in selling abroad. In today’s
• Labels – These may have to be
competitive world, the garment
industry takes a profit of 6-10%.
• Agent's commission abroad –
This is usually calculated on a
percentage basis. In case of a
garment, this could be the Buying
House commission.
• Marking – A small cost is involved in
• Pre-Shipment Inspection – In the
• Loading Charges – Once the goods
• Packing – The cost of packing
for overseas shipment will
vary according to the product,
destination and means of
transportation. The manufacturer
must include reasonable
provision for this.
printed in a foreign language,
perhaps containing information not
included in the labels used within
the exporter's country. Also, from
the sales point of view, they must
be suitable to the foreign consumer.
The selling price of the product must
include sufficient allowance for
these extra labeling costs.
Margin will
depend on costs,
export objectives,
the circumstances
prevailing in the
target market and
intended pricing
strategy.
stenciling an identification mark on
each package for export and should
be considered while calculating the
costing for export.
garment industry, it is mandatory
that the goods must be inspected
before they leave the exporter's
premises. Buyers could ask for an
independent third-party inspection
too. In certain cases, the exporter
needs to include these inspection
fees as part of export costs.
are packed and inspected for export,
the next step is to load the goods
onto the means of transportation
that is to be used to move the
goods to the airport or harbour.
In the case of Ex Works, the seller
is only responsible for placing the
cargo at the buyer's disposal at a
convenient point in the factory or
warehouse. If the seller is loading
APPAREL April 2011 33
 Apparel Exports
the goods, then he needs to cost the
loading of the goods onto the truck
to be supplied by the buyer as part of
the Ex Works cost.
• Freight to seaboard – The cost of
transporting the goods from the
inland town or city to the seaport for
shipment abroad.
• Unloading charge – There is a
charge for unloading goods from
railway cars or trucks. This cost
will be incurred when the goods
arrive at the seaport. There may
also be unloading and loading costs
incurred if goods are moved from
one transport medium (e.g. truck) to
another (e.g. rail) somewhere along
the inland freight component and
such costs must also be taken into
consideration.
34 APPAREL April 2011
documents to the foreign buyer. If not,
he must make adequate provision in
the price to cover their cost.
• Other charges – Here space is left
for the inclusion of unexpected
additional expenses such as the cost
of overseas telegrams or telephone
calls or extra storage charges.
• Ocean freight – This involves the cost
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of shipping the goods by sea to the
foreign port. The cost may be quoted
by the ocean carrier in local currency
or US dollars.
• Freight forwarder's fee - If the
exporter uses the services of ‘Freight
Forwarder’ for documentation and
book the shipping space required, an
allowance must be made for the fee
involved. The amount of these fees
can be obtained in advance from the
forwarder or shipping agent.
• Financing charges – Until payment
is received, the export firm will have
part of its working capital tied up in
export merchandise. Even if no credit
is given, it will have to wait until the
goods are shipped or delivered before
payment is made. If credit is given to
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the foreign customer, it may have to
wait an additional 60, 90 or 180 days
for payment. The selling price should
include an amount to cover the cost
of this working capital.
• Terminals – These are handling,
wharfage and harbour dues that
must be paid by the exporter to the
wharfage company. The exporter
needs to account for his fees in
the costing exercise. Similar costs
are incurred at airports but these
services are provided by the airline
in question and are included in the
air freight costs and are usually not
accounted separately.
• Long or heavy load charge – If the
shipment is exceptionally long or
heavy, extra charge may be incurred.
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• Consular documents – These
documents can be quite expensive,
particularly in the case of exports to
Latin American countries. Initially, the
exporter may wish to quote a price
in dollars plus the cost of consular
 cost of working capital tied up in
the shipment.
• Foreign exchange conversion – The
foreign buyer will usually ask for
a price quotation in US dollars or
even in Euros, Yen or some other
currency. Therefore, the price in
the exporter's local currency must
be converted to a price into the
required foreign currency.
Care must be taken to use the correct
exchange rate. The exporter may wish
to eliminate the risk of an exchange
loss by selling the foreign currency to a
bank on a forward basis,
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in exchange for local currency. The cost
of this bank service, which provides
the exporter with a pre-determined,
fixed rate of exchange for its foreign
currency, should be included in
the export price quoted to the
foreign importer.
Destination-wise costing
Each costing stage identifies the
different delivery terms, which will
affect exporter’s responsibilities and
risks in the transaction. At each stage
of pricing, costs and quoted price for
buyer will increase. Below is a summary
of the export costing process by the
four most common Incoterms.

Fig 1 shows export costing process by the four most common

If the exporter intends to discount

at its bank a time draft that has been
accepted by the foreign importer,
so that the exporter can obtain his
money sooner, then allowance must
be made in the export price for bank
discount charges.

• Export credits insurance – The

exporter may buy insurance or
‘factoring’ on its credit sales abroad.
Therefore, allowance should be made
for it.

• Marine insurance – The exporter

will want to insure against financial
loss from all possible risks, including
damage to the goods or theft, while
they are being shipped abroad.
Usually, ocean ships are insured
for 110% of their total cost to cover
anticipated profit and the interest Fig 2 shows the 14 major costing points during the cargo movement

APPAREL April 2011 35

Cost factors of
export-import goods
In order to calculate export costing, it
is important to understand the major
costing points during the movement of
the cargo from the seller to the buyer.

Here, it necessary to consider all the

costing points e.g. for FOB summation
all cost till point 7 should be done in
the costing sheet at the same time,
while for DDP costing all 14 points
should be taken into consideration.
Fig 3 shows the 14 major cost factors for the shipment from seller to buyer

Fig 4 shows Incoterms 2010 as per costing points

Costing Head
1 • Materials, labour and overhead • Handling charges 11 • Theft and pilferages
• Custom packaging • Demurrage • Quarantine charges
• Inspection fees • Overtime charges
• Licensing fees 5 • Brokerage fees • Handling charges
• Royalties • Export levies • Unloading fees
• Warehousing
2 • Buying agent’s commissions 6 • Insurance
• Demurrage
• Trader’s markups • Air freight
• Wharfage
3 • Bank charges and commissions 7 • Theft and pilferages
12 • Import duties and taxes
• Overseas agent’s commissions • Overtime charges
• Bank charges and commissions
• Freight forwarder’s charges • Handling charges
• Import license fees
• Documentation charges • Warehousing
• Brokerage fees
• Insurance premiums • Loading fees
• Export license fees • Demurrage 13 • Road freight and/or rail
• Certification fees • Wharfage • freight Routing costs
• Consular fees • Theft and pilferages
8 • Insurance
• Uninsured damages
4 • Road freight (cartage, drayage) • Ocean freight
• Handling charges
and/or rail freight • Lighterage
• Demurrage
• Routing costs (canal and inland 9 • Uninsured damages
waterway links) 14 • Unloading charges
• Pilferages
• Uninsured damages • Warehousing
• Theft and pilferages 10 • Lighterage • Interest charges

36 APPAREL April 2011