The appropriate selection of trade terms that are beneficial to one’s party not only focuses on the responsibilities and obligations of the buyer and seller under the terms, the composition of the costs, etc., but also comprehensively considers various other factors involved in the transaction, such as the commercial reputation of the buyer and seller, the choice of payment methods, commercial risks and political risks, the characteristics of the goods themselves, which mode of transportation is suitable, whether the transaction party is a coastal country or an inland country, and which mode of transportation is suitable for its infrastructure conditions, etc.
After comprehensively considering various factors directly related to the transaction, choosing the right trade terms becomes the key. How to choose? Simply put, you can make a preliminary choice from the following ideas.
1 Selection of trade terms suitable for various modes of transportation
If the seller only wants to limit the responsibility to its location or another designated place, place the goods under the buyer without assuming any other obligations, including not assuming export customs clearance procedures, you can consider using EXW.
If the seller is willing to handle the customs clearance procedures by himself and deliver the goods to the buyer at the place designated by the carrier, you should consider using FCA.
If the seller is willing to bear the transportation costs to the destination in addition to the obligations that must be fulfilled by FCA, CPT may be considered.
If the seller is willing to bear the minimum insurance to the destination in addition to the obligations that must be fulfilled by CPT, CIP may be considered.
If the seller wants to deliver the goods at the designated place of destination and is willing to bear the costs of transporting the goods to the place (except for unloading costs) and risks, DAP may be considered.
If the seller is willing to bear the costs of unloading the goods from the means of transport at the place in addition to the obligations that must be fulfilled by DAP, DAT may be considered.
If the seller is willing to bear the import customs declaration fees and import tariffs in addition to the obligations that must be fulfilled by DAT, DDP may be considered.
2 Selection of trade terms suitable for water transport
If the seller is willing to deliver the goods alongside the ship at the port of shipment, FAS should be considered. If the seller is willing to deliver the goods on board the ship at the port of shipment, FOB may be considered.
If the seller is willing to bear the freight to the destination in addition to the obligations that FOB must fulfill, CFR should be selected. If the seller is willing to bear the minimum insurance premium to the destination port in addition to the obligations that CFR must fulfill, CIF should be selected.
Here, the selection of trade terms is only stated from the seller’s perspective. In fact, in actual business, it is only after mutual negotiation between the two parties that a trade term is determined. This is because trade terms involve the division of costs, risks, responsibilities and obligations covered, and thus involve the interests of each party.