Understanding commonly used terms and payment methods in international trade is also a crucial factor in your importing business. The following are some common terms and payment methods:
EXW (Ex Works):
EXW refers to the seller delivering the goods at a location specified by the buyer, such as the customer’s agent warehouse address. The seller’s sole responsibility is to have the goods ready for the buyer to pick up, and the buyer is responsible for all transportation, insurance, and import clearance costs. Under this trade term, the seller has minimal responsibility, and the buyer assumes all transportation and related expenses. In the EXW term, it is advisable for the seller to have agents and warehouses in China to assist with receiving, container booking, customs clearance, and other processes.
FOB (Free On Board):
FOB indicates that the seller is responsible for delivering the produced goods to a specified port in the seller’s country. The seller is responsible for all inland and port-related fees during transportation from the factory to the port and must also pay for loading the goods onto the ship. The buyer, on the other hand, is responsible for sea freight, cargo insurance, and a series of fees after arrival at the port, such as customs clearance. In FOB trade, the freight forwarder is mostly designated by the customer, but in some special cases, it can be designated by the seller.
CIF (Cost, Insurance, and Freight):
CIF includes cost, insurance, and freight. CIF terms mean that the seller is responsible for transportation, insurance, and freight until the goods arrive at the destination port. Once the goods arrive at the destination port, the responsibility transfers to the buyer, who will bear additional expenses such as unloading, customs clearance, and transportation to the final destination. CIF is usually applicable to sea freight, and the buyer needs to pay the costs, including freight, insurance, and the actual cost of the goods.
DDP (Delivered Duty Paid):
DDP is the opposite of EXW and requires the seller to bear almost all costs and risks, including transportation, insurance, duties, and import clearance. The seller delivers the goods to the destination specified by the buyer, completes all import procedures, and the buyer only needs to wait to receive the goods at the destination. This is a very comprehensive trade term, with relatively minimal responsibility for the buyer. However, since DDP means that the seller has to bear more responsibility and costs, including import duties, taxes, and customs procedures in the destination country, this may lead to an increase in product prices, thereby increasing the buyer’s purchasing costs.