Overview of Common Trade Terms

Overview of Common Trade Terms

Trade terms are an integral part of international trade. They define the rights, obligations, risks, and costs of buyers and sellers at different stages of a transaction. These terms are designed to improve transaction efficiency, reduce costs for parties, and facilitate the smooth conduct of international trade. Here is an overview of some common trade terms.

FOB (Free On Board)

FOB is the abbreviation for delivery on board the ship at the port of shipment, which means that the seller completes delivery after the goods cross the ship's rail, and the buyer is responsible for all subsequent costs and risks of the goods. This term applies to both sea and inland waterway transport, especially for companies in coastal areas.

CFR (Cost and Freight)

CFR means cost plus freight. The seller needs to pay the freight to ship the goods to the designated port of destination, but the risks and additional costs of the goods after they cross the ship's rail at the port of shipment are borne by the buyer. This term is often used in transactions that require clear freight costs.

CIF (Cost Insurance and Freight)

CIF goes a step further. In addition to freight, the seller is also responsible for handling freight insurance and paying the insurance premium. Under the CIF term, the seller bears relatively large responsibilities and risks but provides more protection for the buyer.

FCA (Free Carrier)

FCA means that the seller must deliver the goods to the carrier designated by the buyer at the designated location and bear all costs and risks before delivery. CPT (Carriage Paid to) and CIP (Carriage Insurance Paid to) respectively mean freight paid to and freight and insurance paid to the designated destination, among which CIP also includes insurance for loss or damage of goods during transportation.

Conclusion

Choosing the right trade terms is crucial for both buyers and sellers. It not only clarifies the responsibilities and risks of both parties but also effectively reduces transaction costs and improves transaction efficiency. Therefore, when conducting international trade, buyers and sellers should reasonably select and accurately use these terms according to actual conditions to ensure the smooth progress of transactions.