A Comprehensive Guide to Incoterms and Trade-Related Terms for International Buyers

CIF (Cost, Insurance, and Freight)

• Seller’s Responsibility: Includes cost, insurance, and freight to the destination port.

• Buyer’s Responsibility: Takes over risks at the destination port, including import customs clearance and duties.

• Best For: Buyers who want the seller to manage freight and insurance for sea shipments.

CFR (Cost and Freight)

• Seller’s Responsibility: Covers freight to the destination port but excludes insurance.

• Buyer’s Responsibility: Takes on risks and insurance after goods are loaded onto the vessel.

• Best For: Buyers arranging their own insurance for sea shipments.

DDU (Delivered Duty Unpaid)

• Seller’s Responsibility: Delivers goods to the buyer’s location, excluding import duties and taxes.

• Buyer’s Responsibility: Handles import costs and taxes.

• Best For: Road or multimodal transport with flexible import handling.

DDP (Delivered Duty Paid)

• Seller’s Responsibility: Takes full responsibility, including import and export clearance, taxes, and duties.

• Buyer’s Responsibility: Only unloading goods at the final location.

• Best For: Buyers preferring seamless delivery with all costs included.

Additional Incoterms in Chinese Trade

EXW (Ex Works)

• Seller’s Responsibility: Makes goods available at their facility; no loading or transportation.

• Buyer’s Responsibility: Handles transport, export clearance, and delivery.

• Best For: Buyers seeking full logistics control.

FCA (Free Carrier)

• Seller’s Responsibility: Delivers goods to a carrier or specified location.

• Buyer’s Responsibility: Covers transport from the carrier onwards.

• Best For: Multimodal transport with buyer-arranged logistics.

DAP (Delivered At Place)

• Seller’s Responsibility: Manages transport to a specified location, excluding import duties.

• Buyer’s Responsibility: Pays duties and taxes after delivery.

• Best For: Sellers managing most logistics except import.

Key Trade-Related Terms

MOQ (Minimum Order Quantity)

The smallest quantity a supplier accepts. Buyers must meet MOQs to ensure cost-effective production.

Payment Terms

• T/T (Telegraphic Transfer): Commonly 30% upfront, 70% before shipment.

• L/C (Letter of Credit): Bank-guaranteed payment.

• DP (Documents Against Payment): Buyer pays upon receiving shipping documents.

Lead Time

Time for production and shipment. Crucial for inventory planning.

HS Code (Harmonized System Code)

A global classification system for products, used to calculate import duties.

CO (Certificate of Origin)

Confirms the origin of goods, required for preferential trade agreements.

QC (Quality Control)

Inspection during or after production, often outsourced to third-party services.

OEM vs. ODM

• OEM: Supplier manufactures per buyer’s design.

• ODM: Supplier provides pre-designed products customizable for the buyer.

Shipping Documents

• Bill of Lading (B/L): Confirms receipt of goods by the carrier and serves as a title.

• ETD (Estimated Time of Departure) / ETA (Estimated Time of Arrival): Key dates for shipping schedules.

Third-Party Logistics (3PL)

Outsourced services for warehousing, distribution, and logistics.

Key Differences Between Incoterms

• FOB: Buyer assumes control at the origin port.

• CIF vs. CFR: CIF includes insurance; CFR does not.

• DDU vs. DDP: DDU excludes import duties, while DDP is all-inclusive.

Conclusion

Understanding Incoterms and trade-related terms is essential for buyers and sellers to allocate costs, reduce risks, and streamline international trade. Whether dealing with FOB, CIF, DDP, or EXW, or negotiating MOQs and payment terms, clarity ensures smoother operations. By mastering these terms, businesses can make informed decisions and foster reliable partnerships in global markets.