10 common terms used in international trade

In the realm of international trade, understanding and utilizing common trade terms is paramount for successful transactions. These terms, often abbreviated and standardized, serve as the foundation for agreements between buyers and sellers across borders. In this article, we will delve into the significance and functions of various commonly used trade terms.

EXW (Ex Works):
Ex Works represents the minimal obligation for the seller. Under this term, the seller makes the goods available at their premises. The buyer bears all costs and risks from that point onwards. EXW is advantageous for sellers as it minimizes their responsibility and liability, while buyers have control over transportation and associated costs.

FOB (Free on Board):
FOB signifies that the seller fulfills their obligation by delivering the goods on board the vessel nominated by the buyer at the named port of shipment. The risk of loss or damage transfers from the seller to the buyer once the goods pass the ship's rail. FOB is beneficial for buyers as they have control over the shipping process and costs.

CIF (Cost, Insurance, and Freight):
CIF requires the seller to arrange for the carriage of goods by sea to a port of destination, provide insurance against the buyer's risk of loss or damage, and pay the freight charges. Once the goods pass the ship's rail, risk transfers from the seller to the buyer. CIF provides added security for the buyer as insurance is included, albeit at a higher cost.

DAP (Delivered at Place):
DAP stipulates that the seller delivers the goods when they are placed at the disposal of the buyer on the arriving means of transport, ready for unloading at the named place of destination. The seller bears all risks and costs until the goods are delivered. DAP is advantageous for buyers as they have greater control and reduced risk during the transportation process.

DAT (Delivered at Terminal):
DAT requires the seller to deliver the goods, unloaded from the arriving means of transport, at a named terminal at the named port or place of destination. The seller bears all risks and costs until the goods are unloaded at the terminal. DAT provides clarity regarding the delivery location, benefiting both parties in terms of risk allocation.

DDP (Delivered Duty Paid):
DDP obligates the seller to deliver the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller bears all risks and costs, including duties, taxes, and customs clearance. DDP provides maximum convenience for the buyer, as they receive the goods at their premises without additional logistical burdens.

CFR (Cost and Freight):
CFR requires the seller to deliver the goods to the buyer on board the vessel at the port of shipment, clearing the goods for export. The seller bears the costs and risks of transporting the goods to the named port of destination. Once the goods pass the ship's rail, risk transfers from the seller to the buyer. CFR is advantageous for buyers as it includes the cost of freight to the destination port.

CIP (Carriage and Insurance Paid To):
CIP obligates the seller to deliver the goods to the carrier nominated by the seller at an agreed-upon place of shipment, covering the cost of carriage to the named place of destination and providing insurance against the buyer's risk of loss or damage during carriage. The risk transfers from the seller to the buyer once the goods are handed over to the carrier. CIP offers added security for the buyer as insurance is included in the transportation cost.

DDU (Delivered Duty Unpaid):
DDU requires the seller to deliver the goods to the buyer, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller bears all risks and costs up to the named place of destination, excluding duties, taxes, and customs clearance. DDU places the burden of import-related expenses on the buyer, offering flexibility in customs clearance procedures.

FCA (Free Carrier):
FCA stipulates that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the seller's premises or another named place. The risk transfers from the seller to the buyer once the goods are handed over to the carrier. FCA allows for flexibility in determining the delivery point, benefiting both parties in terms of risk allocation and logistical control.

These additional trade terms further enrich the spectrum of options available to buyers and sellers in international trade, providing tailored solutions for different logistical and commercial scenarios. Understanding these terms empowers businesses to make informed decisions and effectively manage risks in global transactions.