This article is for learning and communication only and has no commercial value
International trade terms, known as Incoterms (International Commercial Terms), are standardized terms established by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international transactions, covering the delivery of goods, transfer of risks, and allocation of costs. These terms help minimize misunderstandings and disputes in global trade.
Commonly Used International Trade Terms
- EXW (Ex Works)
- Definition: The seller delivers the goods at their premises or another agreed location. The buyer assumes all costs and risks from there.
- Use: Ideal for buyers who prefer full control over shipping and logistics.
- FOB (Free On Board)
- Definition: The seller is responsible for delivering the goods on board the ship at the designated port of shipment. The buyer assumes costs and risks from that point onward.
- Use: Common in maritime trade, especially for bulk goods.
- CIF (Cost, Insurance, and Freight)
- Definition: The seller covers the cost of goods, insurance, and freight to the destination port. However, the risk transfers to the buyer once the goods are loaded on the ship.
- Use: Frequently used in sea and inland waterway transport.
- DAP (Delivered at Place)
- Definition: The seller delivers goods to a specific destination. The buyer is responsible for import duties and customs clearance.
- Use: Gaining popularity for flexibility in multimodal transportation.
- DDP (Delivered Duty Paid)
- Definition: The seller assumes all costs and risks, including customs duties and taxes, delivering the goods to the buyer’s specified location.
- Use: Preferred by buyers who want minimal involvement in logistics and customs.
- FCA (Free Carrier)
- Definition: The seller delivers the goods to a carrier or another party nominated by the buyer at the seller’s premises or another agreed place.
- Use: Popular in multimodal transport due to its flexibility.
Most Commonly Used Terms in Practice
- FOB and CIF: Widely used in maritime trade for simplicity in cost-sharing and risk transfer.
- EXW and FCA: Common in trade where the buyer manages the majority of the logistics.
- DAP and DDP: Increasingly preferred in e-commerce and direct-to-consumer models for their buyer-friendly nature.
By understanding and correctly applying these terms, businesses can navigate international trade more effectively, ensuring clarity and reducing risks in global transactions.
