How To Use Trade Terms Correctly

Trade terms, also known as price terms.

It is an important component of the unit price clause in international trade.

In the external quotation and contract signing, when it comes to the price, it is indispensable content.

It is further divided into three groups of trade terms delivered by the exporting country：

1. Group E: E.W.X., ex works;
2. Group F: F.C.A., delivery carrier; F.A.S., free alongside vessel at port of shipment; F.O.B., free on board.

Group C :C.F.R., cost and Freight; C.I.F. cost, insurance and freight C.P.T., carriage paid to (named destination); C.I.P., freight and insurance paid to (named place of destination)。

There are five trade terms for delivery in the importing country：

1. A.F., delivered at frontier;
2. E.S., fob port of destination;
3. E.Q., ex quay, port of destination;
4. D.V., delivered duty unpaid;
5. D.P., delivered duty paid;

Here are the trade terms F.O.B and C.I.F, which are most commonly used in international trade:

I. Free on board price (FOB)

Free on Board (FOB) is one of the terms commonly used in international trade.

The seller’s basic obligation is to load the goods on board the vessel designated by the buyer at the port of shipment and within the time specified in the contract and to inform the buyer in time.

When the goods cross the ship’s rail while being loaded, the risk passes from the seller to the buyer.

The buyer shall be responsible for chartering the vessel, booking the shipping space, paying the freight and notifying the seller of the date and name of the vessel in time.

Other responsibilities and expenses after the goods have passed the ship’s rail at the port of shipment shall also be borne by the buyer, including obtaining the import license or other official documents, as well as the formalities and fees for the entry of the goods.

Should the Buyer appoint a vessel and fail to inform the Seller in time of its name, loading berth and date of shipment, or should the vessel appointed by the buyer fail to arrive in time or carry the cargo, or should the vessel fail to load the cargo before the expiry of the prescribed period, the Buyer shall be liable for all risks and losses arising therefrom.

Provided that the goods have been clearly separated or fixed for the supply of this contract.

Under F.O.B. terms, the seller shall obtain the export license or other official documents at his own risk and expense and handle the export formalities.

The seller shall provide proof that he has fulfilled his obligation to deliver the goods as stipulated at his own expense.

The Seller may give all assistance in obtaining bills of lading or other transport documents at the buyer’s request and at the Buyer’s risk and expense.

In case of liner transportation, the shipping charges will be included in the liner freight, and the shipping related expenses will be borne by the buyer who is responsible for handling shipping matters.

And if the use of charter ship transport, according to the shipping practice, usually in the charter party does not bear the shipping costs.

In this case, the buyer and the seller shall specify in the contract the expenses for loading, stowing and trimming. In order to avoid disputes between the buyer and the seller on the issue of the burden of shipping expenses, we usually choose F.O.B.

Then various additional conditions are added, which produces the distortion of F.O.B. They take the following forms:

1. O.B.Liner terms, means that the costs associated with loading are handled according to liner practice, that is, they are not borne by the seller but are borne by the ship, in effect, by the buyer.
2. O.B.Under Tackle, the definition is that the seller is only responsible for delivering the goods to the point where the hooks of the vessel designated by the buyer can reach, and the subsequent loading costs shall be borne by the buyer.
3. O.B.Stowed, this condition means that the seller shall deliver the goods into the hold of the ship and bear the loading charges including stowing charges.
4. O.B.Trimmed, this means that the seller shall be responsible for loading the cargo into the hold of the ship and for filling up the bulk cargo in the hold for the purpose of keeping the ship smooth, all expenses mentioned above shall be borne by the Seller.

Ⅱ、Freight and insurance (CIF)

C.I.F. is also the price of the commonly used term in international trade. 

Using this trade term, is the basic obligation of the seller is responsible for charter booking under normal terms to pay the freight to the port of destination, and within the time limit prescribed by the provisions of the port of shipment and shipped the goods after shipment promptly notify the buyer the seller is responsible for conduction from the port of shipment to the destination of Marine cargo insurance, pay insurance premium In business, they call it C.I.F. Cif. In fact, in the case of C.I.F. terms, the seller still delivers the goods at the port of shipment, and the seller’s risks are also borne at the port of shipment.

Risks before the voyage of the goods passes the ship’s rail and after the voyage is carried by the buyer are borne by the buyer, besides freight and insurance charges from the port of shipment to the port of destination In addition, the buyer shall obtain import license or other official certificates at his own risk and expense, go through import formalities and pay the goods as stipulated in the contract.

The documents that the seller needs to provide mainly include: commercial invoice or corresponding electronic data;

It is necessary to provide documents proving that the goods delivered are in conformity with the provisions of the contract: usual transport documents to enable the buyer to take delivery of the goods at destination or to sell the goods in transit by means of transfer documents;

In addition, the seller shall obtain export license or other official documents at its own risk and expense and handle export formalities.

C.I.F. price terms Symtolie Delivery. The so-called symbolic delivery refers to the seller loading the goods at the port of shipment in accordance with the contract and presenting a full set of qualified documents, even if the delivery obligation has been fulfilled, without guaranteeing the arrival of goods.

On the contrary, if the documents submitted by the seller do not meet the requirements, even if the qualified goods arrive safely, the transaction will not be completed.

The names and copies of the documents to be submitted by the seller should be consistent with the agreed, otherwise, the buyer has the right to reject the documents and refuse to pay.

Ⅲ、Group D trade terms

In five kinds of trade terms included in group D, in addition to the DAF is the place of delivery specified in the border between the two countries, the other four terms are importer or destination delivery of the port of destination, it’s from the previous each term has a significant difference between the two According to the group D terms clinch a deal the contract according to the arrival of the goods, the arrival of the contract is a contract with the loading relative, according to the group F C Group called shipping contract terms clinch a deal the contract, under the contract of shipment, the seller must pay the goods in accordance with the usual route and shipped to the prescribed destination habit way is usually required for transportation costs, and risks of loss of or damage to the goods and the goods in the right way after delivery transportation accidents caused by the additional costs, shall be borne by the buyer In terms of group D, the seller is responsible for the safe and timely delivery of the goods to the designated place, including the border point, the port of destination and the mainland of the importing country, and the actual disposal of the goods to the buyer.

The seller shall bear all the risks and expenses before the goods are delivered to the place.

It can be seen that under the terms of group D, the risks borne by the seller are greater than those borne by the previous groups.

In particular, when the transaction is made in accordance with the terms of DDP, the seller shall be responsible for delivering the goods to the designated place in the importing country and bear all the risks and costs before this, including handling the procedures of export and import of the goods and related costs.

Therefore, in foreign trading, as the seller must seriously consider might encounter various risks in the business and can take preventive measures In addition, foreign clinch a deal the condition of going to DDP, the seller handle import formalities should also be considered any difficulties, if the seller fails to obtain import license, directly or indirectly, should not be DDP terms clinch a deal.

Based on the above characteristics, we can know that from group E, Group F, group C, group D, the general trend is that the obligation burden of the seller is gradually increasing, while the obligation burden of the buyer is gradually decreasing.

EXW seller’s obligation is the least, while DDP seller’s obligation is the most.