How to choose appropriate trade terms: detailed explanation and application

Trade Terms, also known as trade terms and price terms, are terms agreed by both parties in the international purchase and sale of goods. They are used to indicate the responsibilities, risks and obligations of both parties. Trade terms are mainly divided into two aspects: first, the composition of the commodity price, including major ancillary expenses other than cost, such as freight and insurance; second, delivery conditions, which refers to the division of responsibilities, costs and risks between the buyer and seller in handing over the goods. .

The importance of trade terms

Trade terms play an important role in promoting the development of international trade, specifically in the following aspects:

• Simplified transaction procedures: By agreeing on specific trade terms, buyers and sellers can clearly understand their respective responsibilities, costs and risks in the process of handing over goods, thus simplifying transaction procedures and shortening transaction time.
• Facilitate price and cost accounting: Trade terms include factors that constitute the price of goods, helping buyers and sellers to compare prices and enhance cost accounting.
• Contract Performance and Dispute Resolution: When the terms of the contract are not clear enough and cause disputes, the general interpretation of relevant trade terms can be cited as the basis for processing, which will help the smooth performance of the contract and the resolution of disputes.

Classification and quantity of trade terms

According to the “2010 General Regulations”, trade terms are divided into two categories, and there are seven terms applicable to various modes of transportation: EXW, FCA, CPT, CIP, DAT, DAP, DDP; terms applicable to water transportation methods There are four types: FAS, FOB, CFR, and CIF. Compared with the previous version, the 2010 General Principles revised the original 13 terms to 11, canceled the four terms DAF, DES, DEQ, and DDU, and added two new terms, DAT and DAP. In addition, the “2010 General Principles” also stipulates the full applicability of electronic documents and changes the risk transfer point from “ship’s rail” to “loading on board”.

Consideration factors in choosing trade terms

Selecting appropriate trade terms requires consideration of many factors, including but not limited to the business reputation of the buyer and seller, payment methods, goods characteristics, transportation methods, etc. The following are suggestions for choosing trade terms based on different shipping methods:

Trade terms suitable for various modes of transportation

• EXW: The seller has minimal responsibility and only places the goods under the buyer.
• FCA: The seller is responsible for clearing export customs and delivering the goods to the carrier.
• CPT: On the basis of FCA, the seller also needs to bear the transportation costs to the destination.
• CIP: On the basis of CPT, the seller also needs to bear the minimum insurance cost.
• DAP: Delivery at the designated location of destination, but not responsible for unloading.
• DAT: On the basis of DAP, the seller also needs to bear the unloading costs.
• DDP: On the basis of DAT, the seller is also responsible for import customs declaration and duties.

Trade terms suitable for water transportation

• FAS: The seller delivers the goods alongside the ship at the port of shipment.
• FOB: The seller delivers the goods on board at the port of shipment.
• CFR: On the basis of FOB, the seller also needs to bear the freight to the destination port.
• CIF: On top of the CFR, the seller also needs to bear minimum insurance costs.

Cross-border logistics trade terms and cargo value determination

Cross-border logistics refers to the process of transporting goods across national borders, with the purpose of safely and timely transporting goods from the exporting country to the destination country or region. In cross-border logistics, the correct use of trade terms is crucial, not only to ensure the safe delivery of goods, but also to ensure accurate customs declaration.

How to determine the value of goods

Determining the value of goods is an important step in cross-border logistics, affecting transportation costs, security, customs declarations and tax returns. Common methods include:

• Based on the market price of the product’s origin: Consider the price of the product in the country of origin and destination market.
• Trade Agreement: Including purchase price, freight, insurance, customs declaration fees and other expenses.
• Official website price list: Refer to product price information released by major countries and regions.
• Direct negotiation or public bidding: Negotiate with the consignee to determine various costs.

To sum up, choosing an appropriate trade term must not only consider the transportation method and cost bearing issues, but also combine various factors such as business reputation, payment method, and cargo characteristics. Proper use of trade terms can help simplify transaction processes, reduce transaction risks, and improve transaction efficiency.