CES CES Export Pricing & Incoterms 2 — Questions and Answers
Question 1: What does CIF stand for in Incoterms 2020, and which mode of transport does it apply to?
- Cost, Insurance and Freight — sea and inland waterway only (Correct answer)
- Carriage, Insurance and Freight — all modes
- Cost, Import and Freight — air only
- Customs, Insurance and Freight — road and rail
Correct answer: Cost, Insurance and Freight — sea and inland waterway only
CIF (Cost, Insurance and Freight) requires the seller to pay freight and minimum insurance to the named port of destination; it applies only to sea and inland waterway transport.
Question 2: A US exporter quotes a price of $5,000 FCA Chicago. What does this mean?
- The price includes freight to Chicago from the factory
- The seller's price covers delivery to the named carrier at Chicago, with risk transferring to the buyer at that point (Correct answer)
- The buyer must collect goods from Chicago at their own cost with no seller obligation
- The price includes US export duties and freight to the foreign port
Correct answer: The seller's price covers delivery to the named carrier at Chicago, with risk transferring to the buyer at that point
FCA Chicago means the seller delivers the goods to the buyer's nominated carrier in Chicago, and risk passes to the buyer from that handover point.
Question 3: What is 'marginal cost pricing' and why might a US exporter use it?
- Pricing based on the highest competitor's price to avoid undercutting
- Setting export price to cover only variable costs, allowing domestic sales to absorb fixed costs (Correct answer)
- Adding the marginal utility of the export market to the base domestic price
- Pricing at the foreign market's prevailing rate regardless of cost
Correct answer: Setting export price to cover only variable costs, allowing domestic sales to absorb fixed costs
Marginal cost pricing sets the export price above variable costs only, since fixed costs are already covered by domestic sales, enabling competitive foreign pricing.
Question 4: Which Incoterms 2020 group (D-terms) requires the seller to bear the risk of transport all the way to the destination?
- E-terms (EXW)
- F-terms (FCA, FAS, FOB)
- C-terms (CFR, CIF, CPT, CIP)
- D-terms (DAP, DPU, DDP) (Correct answer)
Correct answer: D-terms (DAP, DPU, DDP)
D-terms (DAP, DPU, DDP) require the seller to deliver goods to the named destination, bearing all risks during the main carriage to that point.
Question 5: What is the 'arm's-length principle' as applied to US export transfer pricing?
- A rule requiring exporters to maintain physical distance from brokers during negotiations
- The IRS standard that transactions between related parties must be priced as if they were between unrelated parties (Correct answer)
- A USDA regulation on agricultural export subsidies
- A BIS rule preventing technology transfers to restricted entities
Correct answer: The IRS standard that transactions between related parties must be priced as if they were between unrelated parties
The arm's-length principle, enforced by the IRS under Section 482, requires that intercompany prices reflect market-rate prices that unrelated parties would negotiate.
Question 6: Under Incoterms 2020, which rule replaced DAT (Delivered at Terminal) from the 2010 version?
- DAP
- DPU (Correct answer)
- DDP
- CPT
Correct answer: DPU
Incoterms 2020 replaced DAT with DPU (Delivered at Place Unloaded), clarifying that the seller must unload goods at any agreed destination, not just a terminal.
CES CES Export Pricing & Incoterms 2
What does CIF stand for in Incoterms 2020, and which mode of transport does it apply to?