Under the whole structure of economic globalization, international trade has become the core component of economic globalization. International trade is closely related to trade terms. In the process of international trade, importers and exporters have different choices of trade terms. The different trade terms make the round turns undertake the different duty. Choosing what kind of trade terms is not only related to the interests of both buyers and sellers, but also related to whether continue an agreement smoothly. Therefore, both sides should carefully and thoroughly understand and analyze the risks of each trade term, combine with reality, and make rational choices to avoid the risks. This article first introduces the definition and classification of trade terms, and then analyses what trade terms should be chosen by importers and exporters.

 

 

The trade terms refer to using a brief English concept or abbreviation of English letters to indicate the formation of the unit price and determine the responsibilities, expenses and risks borne by two parties as well as the time of the passing of the property in the goods.[1] There are thirteen trade terms in total. Six main International trade terms are FOB, CFR, CIF, FCA, CPT and CIP. Other seven trade terms are EXW, FAS, DAF, DES, DEQ, DDU, and DDP. FOB, CIF and CFR are the mostly widely use in international trade.

 

 

 

In import trade, importers have better choose FOB（Free On Board ）or FCA（Free Carrier) to finalize a deal. There are two reasons why importers choose FOB（Free On Board ）or FCA（Free Carrier). The first reason is that when importers choose FOB, at the time and port of shipment stipulated in the contract, Sellers should deliver the goods in conformity with the contract to the vessel designated by buyers and notify the buyers in time. Later freight and insurance are not related to sellers. Buyers bear all costs and risks arising from the passage of goods over the ship's rail. When importers choose FCA, seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place.[2] To put it another way, compared with CIF and CFR, buyers can take over the part of the cost which should be borne by sellers. Buyers hold all the links in their own hands, so that they can master the cost and maximize the profits. The second reason is that in import trade, Buyers are often unable to keep abreast of the true information of the goods. Sellers often fabricate information in order to cover up their mistakes. If importers choose FOB or FCA, the transport operator will be designated by you. Therefore, you can verify the information provided by suppliers and keep abreast of the information dynamics of the goods through your designated transport operator. With complete control, importers can avoid the deception of suppliers. One important thing to note is that when buyers choose FOB, they must dispatch the ship on time, otherwise sellers have the right to refuse delivery, and buyers will bear all losses.[3]

 

 

 

In export trade, exporters should choose CIF (Cost, Insurance and Freight) or CIP (carriage and insurance paid to) to finalize a deal. The contract that finalized a deal by CIF price is the typical contract of “sale based on documents” or "symbolic delivery". Under the CIF price exports’ condition, as long as exporters guarantee that the goods to be delivered conform to the contract and the documents are complete and correct, importers must pay for them. After the goods have crossed the ship's rail, even if the goods are damaged or lost at the time of payment by importers, importers can not refuse to pay for the loss of the goods, which makes exporters have more flexibility. By the same token, when exporters choose CIP, buyers must bear all risks and additional costs after delivery by sellers. If exporters choose FOB to finalize a deal, they have many passive aspects. For example, if importers are late for dispatching a shipment, or other reasons lead to late for dispatching a shipment, etc, exporters must bear the increased warehousing charges or the loss of interest due to delay making collections. Once goods are loaded on board, exporters will have some difficulties in resale the goods in transit or at destination, or in taking remedial measures if the goods go wrong. So I suggest exporters choose CIF or CIP to finalize a deal.

 

 

 

The choice of trade terms is directly related to the economic interests of buyers and sellers. In order to execute the contract smoothly and improve economic benefits, I suggest importers choose FOB or FCA to finalize a deal and exporters choose CIF or CIP to finalize a deal. However, we should proceed from reality, consider comprehensively, choose trade terms flexibly, and make some concessions where appropriate .

                                          

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Reference：
1. 李露-国际贸易实务-第三章-贸易术语.PPT

2. 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）第 59页

3. 李露-国际贸易实务-第三章-贸易术语.PPT