Trade terms are defined to be the division of responsibilities for two parties to a contract, used to indicate the formation of the unit price and determine the responsibilities, expenses and risks borne by two parties, playing an important role in international trade. And since they are related to the benefits of both contract parties, they need to be decided depending on international transaction, which involves buyers and sellers from different nations or regions, to avoid a series of problems.

 

 

 

Deciding a trade term when drawing up a trade contract is to decide the delivery terms and the price terms, which are closely tied to the responsibilities, obligations and risks taken by both side. As we all know, according to INCOTERMS, there are 13 trade terms, dividing into four parts. Therefore, it will be different to exporters or the importers to choose a suitable one. By the way, we need to grasp two critical points, including point for division of risk and point for division of cost. No matter we are exporters or the importers, the price and the risk are need to be carefully paid attention to before choosing a trade terms. Among these 13 trade terms, CIF, FOB are realized to be two of the most commonly used trade terms in trade. And these two are what I am going to talk about.

 

 

 

In my opinion, if I am an exporter, trading by water transport, CIF may probably be suitable for us. CIF means Cost, Insurance And Freight, mostly appropriate for water transport. The risks borne by two parties are loaded on board the vessel. It means that the seller completes delivery when the goods pass the ship’s rail at the port of shipment and the seller must pay the costs and freight necessary to bring the goods to the named port of destination and he also has to procure marine insurance. However, the buyer should be borne the risk of loss of or damage of the goods, as well as any additional costs occurring after the time of delivery. And CIF is not for companies in inland area. The reason is that they will lose control of the goods when the carrier or the actual carrier takes the goods in his charge, which may raise the pressure on them to shoulder more risks.

 

 

 

If I am an importer, I will be likely to choose FOB, since I can transfer most of risks and responsibilities to the other party.FOB means Free On Board. The seller can transfer his risk when the goods are completely delivered when the goods pass the ship’s rail at the named port of shipment and the buyer has to bear all costs and risks of loss of or damage to the goods from the point of delivery. And clearly, for many exporters, far away from the harbour, they will be likely to face some problems like delaying in delivery, increasing in cost and so on.

 

 

 

Different trade terms will maintain different interests for importers and exporters. In addition to what I previously mentioned, CIP is reported to mostly used for exporting and FCA is preferred for exporting. Furthermore, though traditional trade terms like FOB, CFR and CIF play an important role in the areas and countries with advanced transportation condition of sea and land, FCA, CPT, CIF meet great demand for the companies in the countries with poor transport conditions. In general, the selection of trade terms should follow the principle of consistent with the means of transport, and prevention of risks.

 

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1. 黄锡光、吴宝康. 国际贸易实务[M]. 复旦大学出版社，2011.9（2018.7 重印）