The benefits of offering customers a delivered price

Incoterms allows an importer or exporter to decide how much or how little responsibility they wish to take when it comes to shipping. Many exporters view “ex-works” as their easiest solution, but what message is this sending?

It is important to remember that under what is generally thought of as “Ex-works” terms (often, when you load the vehicle, it is more correctly FCA UK factory - Incoterms 2010); delivery takes place as soon as you load the goods onto the customer’s collecting vehicle, not when it arrives at their facility at the journey's end. Provided you have supplied to the carrier on time, if the goods arrive late at the final destination; that is the customer’s responsibility.

But by providing a “delivered price” you are actually offering a perfect example of customer service; going the extra mile for the customer to bring a benefit and remove a potential problem area. If you could use your distribution know-how as a Unique Selling Point (USP) and actually charge for it, it would also give you the potential to increase your profits.

Example 1

Imagine you are a customer, based in Costa Rica, wanting to buy products from a British company in Manchester but this is your fist time buying goods from an overseas supplier. You ask the UK company to give you a price to supply the items you require.

They respond with their price:

  1. £5,743.00 Ex-Works Salford.

What exactly is the exporter saying (or more importantly, what is the customer hearing)?

“This is our price, in our local currency, at our factory gate with the least possible effort on our part. If you want anything else you’ll have to arrange it yourselves or ask for it… We don’t really care about you”. (Customer thinks, “Where is Salford? We thought we were buying from a company in Manchester. How do I get the goods shipped from there?”).

Or instead, perhaps the supplier responds with:

  1. US$ 9,616.75 CIP Juan Santamaria airport (Incoterms 2010)

What is the customer hearing this time?

“As well as supplying the goods you have ordered from us and quoting in an appropriate currency for you, we will also arrange the shipment of the goods to your local airport on your behalf, do all the export paperwork and take out insurance as specified under the terms of shipment. You don’t need to worry about anything until the goods arrive in your country.”

Which response gives the more positive message to the customer in Costa Rica and takes away a potential headache?

Benefits to the customer:

  • Quoted in the currency in which they usually trade.
  • Customer doesn’t need to start phoning around for freight quotes unless he wants to.
  • If the customer does decide to check prices he already has a ball park figure to work with.
     

Example 2

Overseas customers buying ex-works often have to accept a less than reliable service as they will sometimes only be able to get space on a “return load” basis. This basically means that, for example, a customer in Turkey would contact a local (to him) transport company and book their order for collection. The Turkish haulier will offer what looks like an attractive price for the job, but they aren’t going to send in a truck especially to collect this order, they are going to use a vehicle that is already in the UK, delivering goods. Once they have “tipped” their load, they’ll run around the country trying to fill the trailer to pay for the return journey. They are not fussy whether the truck is clean, how the cargo is stacked or what is mixed with what. I have seen with my own eyes, drivers climbing over the cargo, kicking boxes around the trailer to make space for a load which is never going to fit. By crushing things together, damage is inevitable, and your goods, non-palletisedand vulnerable, are the most liable to sustain that damage. Plus, the vehicle might make ten more collections after yours in order to fill it… which might take another week. And when your customer in Turkey finally get their goods they are damaged, parts are missing, and they’re late. Although the transportation has been nothing to do with you, you can bet your boots there will be a claim, arguments, replacements required (urgently and therefore expensively), bad feelings and disappointment in their dealings with your company.

Example 3 – a domestic example

You decide to buy a new kitchen from B&Q. The kitchen costs £4,000 and for another £80, B&Q will deliver it to your door within 3 days. The cost for you to hire a van for a day is £60, plus your time, fuel, and you have to do all the paperwork, load and unload the van, which won’t be available until a week on Thursday and then you’ll probably need someone to pick you up from the hire company when you take the van back… So which is the best option for you, the customer?

Summary

  • What you are doing by proposing a delivered price is showing yourselves to be a professional, confident and well-informed exporter, offering a good customer service. You are taking away the burden of arranging the transportation and dealing with the (sometimes complex) shipping formalities and documentation. Yes, the customer may pay a small premium, but there is also a definite value to them and many of the potential problems can be avoided.
  • By supplying the freight as a service to the customer you can also control the shipment more effectively, use a quality forwarder providing a reliable and regular service at a price which you can negotiate and agree before shipment. No nasty surprises later…
  • Never assume your customer is as informed about international shipping as they should be. By offering them this extra service, and keeping any mark-up realistic, you may score some serious brownie-points with your customer and be seen as a helpful partner rather than just another supplier. 

 

Written 27th September 2012 by Dave Heaver MIEx

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