1. The fee that is not the whole cost
Comparing quotation models by adding up the visible charges produces a misleading total, because it omits several cost items that affect duty and margin.
2. The four bases in commercial use
FOB
The exporter’s cost plus local charges plus profit.
CFR
FOB plus ocean freight.
CIF
CFR plus insurance.
DDP
CIF plus destination duty and clearance.
3. Where the models diverge
FOB versus CIF
The difference is exactly freight and insurance.
A model that computes CIF by adding a percentage to FOB will be wrong whenever the freight intensity of the product differs from the assumption.
CIF versus DDP
DDP requires knowledge of the destination duty.
That depends on the HS code of the goods in the destination, which is not always the same as the Chinese code.
4. The items usually omitted
Inland haulage to the port of loading.
Port handling and documentation charges.
Certification and authentication cost, where the destination requires it.
Bank charges, particularly under a letter of credit.
Currency exposure between quotation and settlement.
5. A scenario
A quotation prepared on a percentage uplift for freight.
The route changed from a direct sailing to a transhipment service, and the freight rose by more than the uplift.
The margin disappeared on three shipments before the model was revised.
6. What a workable model contains
Actual weight and volume per unit from the packing record.
A current freight rate, per route, updated regularly.
Duty rates by destination code.
Documentation cost per shipment, allocated.
A margin that reflects the payment terms.
7. Closing view
Quotation models fail quietly. Each shipment looks profitable in the system, and the bank balance says otherwise.
*This article is based on Incoterms 2020 and standard export costing practice.*