Common terms in international trade

Trade terms are specialized terms used in international trade to indicate the composition of transaction prices and delivery conditions, as well as to determine the risks, responsibilities, and cost allocation between buyers and sellers.

 

Trade terms are specialized terms used in international trade to indicate the composition of transaction prices and delivery conditions, as well as to determine the risks, responsibilities, and cost allocation between buyers and sellers. These terms have been formed in long-term trade practices and applied in contracts. Trade terms are contract terms used in contracts to indicate the composition of the transaction price and delivery conditions, as well as to determine the risks, responsibilities, and cost allocation between the buyer and seller.
There have been multiple rules in history that define trade terms, with the most widely used being the Incoterms rules defined by the International Chamber of Commerce, the latest version of which is Incoterms 2020. Common trade terms include:

1 EXW – Ex Works (... named place of delivery)

Factory delivery refers to the completion of delivery when the seller hands over the goods to the buyer for disposal at the seller's location or other designated location (i.e. workshop, factory, warehouse, etc.). The seller does not need to load the goods onto any delivery vehicle, and when customs clearance is required, the seller does not need to handle export clearance procedures. ‌

EXW (Ex Works): Factory delivery price, the seller only needs to deliver the goods to the designated location, and the buyer bears all costs. Applicable to situations where the buyer has the ability to arrange logistics on their own, which can save logistics costs.

2 FCA – Free Carrier(... named place of delivery)

Freight to carrier refers to the seller delivering the goods to the carrier or other person designated by the buyer at the seller's location or other designated place. Due to the transfer of risk from the delivery location to the buyer, it is recommended that both parties clearly specify the delivery point within the designated delivery location.

FCA (Free Carrier): Freight Forwarder (designated location). The seller shall deliver the goods to the carrier designated by the buyer at the designated location, completing the delivery.

3 FOB – Free on Board (... named port of shipment)

On board delivery refers to the seller delivering the goods by loading them onto the vessel designated by the buyer at the designated port of shipment or by obtaining the goods that have already been so delivered. The risk of loss or damage to the goods shall transfer upon delivery, and the buyer shall bear all expenses from then on.

FOB (Free On Board): The seller is responsible for delivering the goods to the designated port and paying the boarding fee. Also refers to delivery on board, which means that the seller delivers the goods by loading them onto the vessel designated by the buyer at the designated loading port or by obtaining the goods that have already been so delivered. The risk of loss or damage to the goods shall transfer upon delivery, and the buyer shall bear all expenses from then on. Applicable to the situation where the buyer arranges transportation, the seller only needs to hand over the goods to the carrier.

FOB (Free On Board): Delivery on board (designated loading port). The seller loads the goods onto the vessel designated by the buyer at the designated loading port, and the risks and costs are transferred accordingly.

4 CPT – Carriage Paid to (... named place of destination)

The meaning is that freight payment refers to the seller delivering the goods to the carrier or other person designated by the seller at the agreed location (if any such location has been agreed upon by both parties), and the seller must arrange or enter into a transportation contract and pay the freight required to transport the goods to the designated destination.

CPT (Carriage Paid To): The freight is paid to the designated destination. The seller shall pay for the transportation of the goods to the designated destination, and the buyer shall bear the risk after delivery.

5 CIP – Carriage and Insurance Paid to (... named place of destination)

The payment of freight and insurance fees refers to the seller delivering the goods to the carrier or other person designated by the seller at the agreed location (if any such location has been agreed upon by both parties), and the seller must arrange or enter into a transportation contract and pay the freight required to transport the goods to the designated destination. The seller also signs an insurance contract for the buyer's risk of loss or damage to the goods during transportation. The buyer should note that according to the CIP rules, the seller must now purchase insurance of a higher amount than in the past, in accordance with the Association Cargo Terms (A) or similar terms. If the buyer wishes to obtain more insurance coverage, they need to reach a clear agreement with the seller or make additional insurance arrangements on their own.

CIP (Carriage and Insurance Paid To): The freight and insurance fees are paid to the designated destination. The seller shall pay the freight and insurance fees for transporting the goods to the designated destination.

6 DAP – Delivered at Place (... named place of destination)

Destination delivery refers to the situation where the seller places the goods that have been prepared for unloading at the designated destination on the arriving transport vehicle for the buyer to dispose of, which is considered delivery. The seller assumes all risks involved in transporting the goods to the designated location.

DAP (Delivered at Place): The seller shall bear all shipping costs and deliver the goods to the buyer's designated location. Applicable to situations where the buyer needs to specify a specific delivery location to ensure accurate delivery of goods.

7 DPU – Delivered at Place Unloaded (... named place of destination)

Delivery after unloading at the destination refers to when the seller unloads the goods from the arriving transportation vehicle at the designated destination and hands them over to the buyer for disposal. The seller assumes all risks involved in transporting the goods to the destination and unloading them.

8 DDP – Delivered Duty Paid (... named place of destination)

Duty paid delivery refers to when the seller places the goods that have completed import customs clearance and are ready for unloading on the arriving transportation vehicle at the designated destination for the buyer's disposal, which is considered delivery. The seller shall bear all costs and risks involved in transporting the goods to the destination, and shall be obliged to complete not only export customs clearance but also import customs clearance, pay all export and import tariffs, and handle all customs procedures. ‌

DDP (Delivered Duty Paid): Delivered Duty Paid, the seller is responsible for paying all fees, including customs duties, and delivering the goods to the buyer's designated location. Applicable to situations where the buyer is unwilling to bear import procedures and tariffs, the seller is responsible for all door-to-door services.

9 FAS – Free Alongside Ship (... named port of shipment)

Ship side delivery refers to when the seller delivers the goods to the buyer's designated ship side (such as a dock or barge) within the designated loading port, which is considered delivery. The risk of loss or damage to the goods shall transfer upon delivery to the ship, and the buyer shall bear all expenses from then on.

1 0 CIF – Cost, Insurance and Freight (... named port of destination)

Cost, insurance and freight refer to the seller delivering the goods on board or obtaining the goods that have already been delivered in this way. The risk of loss or damage to the goods is transferred upon delivery to the ship. The seller must enter into a contract and pay the freight required to transport the goods to the designated destination port. The seller also needs to sign an insurance contract to insure the buyer against the risk of loss or damage to the goods during transportation. The buyer should note that according to the cost, insurance, and freight rules, the seller only needs to purchase the minimum insurance coverage. If the buyer wishes to obtain more insurance coverage, they need to reach a clear agreement with the seller or make additional insurance arrangements on their own.

CIF: Applicable to situations where the seller is responsible for transportation and insurance, allowing the buyer to receive the goods with greater confidence. CIF (Cost, Insurance and Freight): The seller is responsible for paying the freight and insurance fees until the goods arrive at the designated port. ‌

11 CFR – Cost and Freight (... named port of destination)

Cost plus freight "refers to the seller delivering the goods on board the ship or obtaining the goods that have already been so delivered. The risk of loss or damage to the goods is transferred when the goods are loaded onto the ship. The seller must enter into a contract and pay the freight required to transport the goods to the designated destination port.

CFR (Cost and Freight): Cost and Freight. The seller shall pay the cost of transporting the goods to the designated destination port, and the risk shall be transferred upon delivery at the loading port.

These terms not only simplify the transaction process, but also clarify the responsibilities and risks of all parties, helping to reduce trade disputes.

Incoterms rules are customary and coexist in various versions, and parties may choose any version of any term.