Terms of trade are the specific terms and conditions agreed upon by the partners involved in a commercial transaction. These terms usually cover important aspects such as pricing, payment, delivery and other legal requirements governing the exchange of goods or services between businesses.
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The four most commonly used trade terms in our long retail display export trade are EXW (Ex Works), FOB (Free on Board), CIF (Cost, Insurance, and Freight), and DDP (Delivered Duty Paid), and this article will describe each of them and the circumstances in which This article will describe each of them and the circumstances in which it is appropriate to use which clause.
EXW (Ex Works Delivery)
The seller provides the goods at his premises and the buyer is responsible for all costs and risks of loading and transportation. In simple terms, this means that you find a freight forwarder to pull the goods directly from our factory. This clause is appropriate in the following cases.
1. you are familiar with China or have an office in China.
2. you need to compare the prices of various factories.
3. you have a long history of working with a good or affordable freight forwarder.
4. multiple shipments need to be transported back to your own warehouse together, saving import costs for each shipment.
5. always know the status of the shipment.
If EXW terms are used, here’s what you need to do.
1. contact a freight forwarder to transport the goods from the factory to your own warehouse and pay for the cost.
2. carry out all import and export procedures, pay the relevant fees and import duties
3. bear the risk of damage to the goods and their loss.
The most problematic part of the process is the need for the supplier to help with the export declaration, which can lead to delays in the delivery of the goods if the information is not filled in correctly.
FOB (Free on Board)
The seller is responsible for loading the goods onto the ship and the buyer is responsible for all costs and risks once the goods are loaded on the ship. FOB is the most widely used trading term for China trade.
FOB terms are well suited to use in the following circumstances
1. you have your own familiar freight forwarder and your own freight forwarder is more affordable.
2. there are factories along the coast of China that produce retail displays and you need to compare the cost of importing from different ports.
3. you do not want to be involved in all the formalities in China and want to understand the dynamics of the shipping process.
If FOB terms are used, here’s what you need to do.
1. arrange for a freight forwarder to help you transport from your local port to your destination and pay the freight.
2. take care of the import license and import clearance procedures and pay the customs duties (usually the forwarder can handle these together)
3. Assume the risk of damage and loss of the goods once on board the ship to their destination.
4. inform the supplier in advance about the vessel, delivery times, and other requirements. It is worth noting that China has a long coastline and it is important to find out which port the goods are being exported from. It is possible to take out cargo insurance and claim compensation from the freight forwarder in the event of the loss of the goods.
CIF (Cost, Insurance, and Freight)
The supplier is responsible for the cost of the goods, the insurance, and the freight to the port of destination. This simply means that we are responsible for all costs and formalities (including insurance) until the shipment reaches the port of arrival specified by you.
CIF is suitable for the following situations:
1. if you are not familiar with the goods you are buying and do not have much experience with l retail display imports.
2. you wish to have us pay for the freight and insurance
3. If you are not familiar with China and wish to receive the goods at your own designated port
4. bulk goods that require sea freight
If CIF terms are used, all you need to do is
1. specify the port of arrival to the seller, if you wish to change the port of arrival at any time, you will need to inform the seller and pay the cost of the change
2. process the import clearance, pay import duties and return the goods from the port to your own warehouse. It is worth noting that in times of fluctuating freight rates, it may be possible to pay the seller’s basic freight rate initially and then be asked to pay another additional freight rate upon arrival of the goods.
DDP (Duty Paid on Delivery)
The seller is responsible for all costs and risks of transporting the goods to the buyer’s location, including customs clearance and duties. This is the most used trade term in our retail display industry and you can use it to save yourself all the hassle of the buying process, devote yourself mainly to your core business and just sign for the goods at the door.
DDP is applicable in the following situations:
1. you do not want to be involved in the process of paying fees and formalities and just want to receive the goods directly.
2. You have high import duties and fees and do not want to pay additional purchase costs.
When using DDP you need to do the following.
1. assist the supplier so that they can obtain an import license or other required official documents.
Of course, the unit price of the goods is also the highest under this clause and the supplier will spread all the costs of the process equally over each unit price.
For other types of trade terms, click here.
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