Understanding FOB Price and UCR Value

Customer Question:

When exporting, what is the difference between my “FOB” price and my UCR value?

answer:

The UCR (Unique Consignment Reference) value is more correctly called a “transactional” value.

This is the sales price of the tangible export, including insurance and transportation costs (if applicable), but excluding certain other intangible items such as royalties, design fees, or installation charges in the destination country.

The transaction value is indicated in the customs export declaration in box 28 (or field) SAD500. This is the amount the seller expects to receive, or has received for the goods, when dealing with the bank on receipt of payment (balance of payments or balance of payments report), and the resident must quote the exporter’s UCR (also taken from field 28) if the goods have been exported, or the UCR the exporter intends to use if the transaction is partly or fully prepaid.

However, customs also require a statistical value, informally known as “free on board” or “free on board”. There is no official abbreviation for customs valuation expressions, which should actually be expressed in full as “free on board”. The use of abbreviations is an unregulated but widespread custom. SARS often uses capital letters to represent the symbol, randomly “FOB” or “FOB”, which further adds to the confusion.

The question asked also uses capital letters, but generally the capitalized expression FOB (or FOB) is a common expression that has nothing to do with sales or commercial contract terms.

Be careful not to confuse the two as this is a common mistake. The informal but common customs valuation symbol “fob” indicates price, while the capitalized symbol “FOB” is most likely intended to express the commercial terms of the contract relating to the proposed division of risk between the seller and the buyer.

The FOB statistical value is expressed in local currency and is given in box 22 of the SAD500. If the transaction is priced in a foreign currency, the party submitting the customs declaration will calculate this local value using the exchange rate* specified by the customs office. (*Sales price announced by the Commissioner of Customs on the last day before the submission of the export declaration.)

The statistical value is the transaction value of goods adjusted to a specific point in the transport chain. Broadly speaking, this place is –

Ocean freight: Loading at the export port (such as Durban), or
Air Freight: Loading onto aircraft at the export departure airport (e.g. OR Tambo), or,
Road: Loaded on vehicles that carry goods across the border.

Note that road freight rates are variable, as the line truck can arrive at the exporter’s door (so the FOB price is at that point), or the cargo can be collected and taken to a local location for consolidation before the cargo is loaded onto the line truck. In the second model, the FOB price is now the price at the point of loading consolidation.

For example (using an exchange rate of 20 USD to 1 ZAR) – if the transaction value of a sale of goods shipped abroad until arrival at the destination airport (including insurance) is USD 1,000.00, the UCR value, i.e. the transaction value in field 28, will be 1,000.00, while the currency displayed elsewhere will be USD.

Determining the statistical customs value requires deducting all charges incurred after the FOB valuation point. Therefore, freight and insurance charges for the international leg will be deducted from the commercial invoice to work back to the statistical FOB point (e.g. departure aircraft at OR Tambo International Airport in Johannesburg), and the result will then be converted into South African Rand.

If the international freight costs (say) $300.00 and the insurance costs $15.00, then the FOB customs value is $685.00 (i.e. the sales price of $1000.00 less the combined freight and insurance costs of $315.00), converted to ZAR at an exchange rate of 20 to 1. This indicates a FOB customs value of ZAR13,700.00.

For exports, this figure is a statistical number, but for imports, generally speaking, the FOB price is the basis for calculating duties and taxes.

The UCR value is the transaction value extracted from the sales price. The customs value is the statistical value calculated at the time of export.

Source: Freight Training