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What are the main categories of mainstream import and export trade terms in the current international trade market?
or complex compliance issues.
clearance and fund security.
I am the head of foreign trade of a factory based in Shanghai specializing in the export of precision hardware accessories. I have recently received 3 overseas orders from different regions, which are LCL cargo to the EU, FCL cargo to Southeast Asia and LCL cargo to North America respectively.
Last week when confirming transportation details with the freight forwarder, due to my limited understanding of trade terms, I almost confused the liability boundaries between FOB and CIF, and would have had to bear the pre-shipment storage fee for the Southeast Asia order. Fortunately, the freight forwarder reminded me in time so I avoided losses.
Now I am very unconfident, as the profit margin of these orders is only around 5%, which cannot afford any unexpected expenses. I want to learn in detail about the current import and export trade terms, as well as the applicable scenarios, risk allocation and cost impact of different terms, to avoid making mistakes again.
Andy GuoYears of service：3Customer Rating：5.0
Supply Chain Management ExpertStart a Chat
Many foreign trade enterprises have cognitive misunderstandings，believing that import and export trade terms only refer to a few types such as FOB and CIF，ignoring the complete classification under the INCOTERMS 2020 framework. Random selection of terms may trigger a chain of negative reactions: for example，blindly choosing EXW terms may lead to the seller bearing all port demurrage charges and storage fees after the customer abandons the goods due to early transfer of title，choosing DDP terms without applying for destination customs clearance qualification in advance will lead to customs detention of goods，resulting in high port demurrage charges or even auction of goods.
Physical risk isolation measures need to first sort out the terms according to the four groups of E，F，C and D under INCOTERMS 2020: Group E (such as EXW) refers to ex works，with the earliest risk transfer，Group F (such as FCA，FOB) means the buyer is responsible for main transportation，Group C (such as CIF，CIP) means the seller is responsible for main transportation but risk is transferred at an earlier stage，Group D (such as DAP，DDP) means the seller is responsible for delivering goods to the destination. Corresponding terms should be matched according to transportation methods and destination compliance requirements.
Exclusive loss prevention tips: attach a contingency plan for term deviation when signing the contract，which stipulates the sharing ratio of both parties for additional expenses incurred due to wrong term selection，meanwhile，entrust a professional foreign trade agency to conduct term pre-review to ensure terms fully match the transaction scenario.
Kevin LinYears of service：4Customer Rating：5.0
Trade Solutions ManagerStart a Chat
From the perspective of customs valuation and customs clearance compliance, different import and export trade terms directly affect the declaration elements and tax calculation basis of customs declaration forms. For example, under FOB terms, the transaction price on the customs declaration form shall include the ex-factory price of goods, domestic transportation fee and loading fee.
If ocean freight is included by mistake, it will lead to valuation disputes and trigger the secondary customs valuation process, which may delay customs clearance in mild cases, or result in port demurrage charges or customs detention risks in severe cases. In addition, under DDP terms, it is necessary to confirm the tariff calculation rules of the destination customs in advance.
If the dutiable value corresponding to the terms is not declared truthfully, it may be deemed as false declaration, facing fines or even credit rating downgrade. Enterprises shall submit the detailed expenses corresponding to the trade terms to the customs declaration team for review 1-2 working days before customs declaration, to ensure that the declaration elements fully match the terms and avoid abnormal customs clearance caused by deviation in term understanding.
Michael ZhangYears of service：6Customer Rating：5.0
Customs Declaration & Compliance ExpertStart a Chat
From the perspective of international logistics route and title control, different import and export trade terms directly determine the division node of logistics liability. For example, under EXW terms, the buyer shall be responsible for the whole chain logistics of goods from the factory to the destination. If the freight forwarder selected by the buyer lacks domestic transportation qualification, the goods may be detained during domestic transshipment; under FCA terms, the seller only needs to deliver the goods to the carrier designated by the buyer, and the title is transferred immediately.
If the title transfer node corresponding to the terms is not specified on the bill of lading, it may lead to disputes over the buyer's refusal to pay for the goods. In addition, in LCL transportation scenarios, it is recommended to give priority to FCA or CIP terms to avoid the seller bearing the container detention fee for LCL cargo due to vague liability division of FCL terms. Enterprises shall clarify the logistics liability boundary corresponding to the terms before booking, and mark it clearly in the remark column of the bill of lading.
Daniel XuYears of service：10Customer Rating：5.0
Director of Import & Export OperationsStart a Chat
From the perspective of cross-border tax planning, different import and export trade terms directly affect the calculation base of value-added tax, tariff and income tax. For example, under CIF terms, ocean freight and insurance premium shall be included in the dutiable value for the calculation of import tariff, while under FOB terms, these two expenses are not required. Enterprises can optimize import costs by reasonably selecting terms. In addition, the VAT deferral policy in the EU market only applies to specific trade terms.
For example, under DAP or DDP terms, if the tax registration requirements corresponding to the terms are not met, VAT deferral cannot be enjoyed, and import value-added tax needs to be paid in advance, which occupies the enterprise's cash flow. Enterprises shall match corresponding trade terms in combination with the tax policies of the target market. For example, for EU orders, choosing FCA terms and cooperating with VAT deferral declaration can effectively reduce the cost of capital occupation.
Jason WuYears of service：10Customer Rating：5.0
International Logistics & Supply Chain ManagerStart a Chat
From the perspective of cross-border receipt and payment compliance, different import and export trade terms directly affect the voucher requirements for foreign exchange receipt and payment. For example, under FOB terms, bill of lading, commercial invoice and shipping notice shall be provided for foreign exchange receipt. If the shipping certificate corresponding to the terms is not provided, the bank may determine that the foreign exchange receipt and payment vouchers are inconsistent, resulting in fund retention; under DDP terms, the foreign exchange payment shall include details such as tariff and value-added tax.
If the expense composition corresponding to the terms is not specified in the foreign exchange payment application, it may trigger the compliance inspection of the foreign exchange administration. In addition, when using RMB Cross-border Interbank Payment System (CIPS), it is necessary to ensure the consistency between trade terms and payment vouchers, so as to avoid payment rejection due to mismatch between terms and payment scenarios. Enterprises shall submit the vouchers corresponding to the trade terms to the compliance team for review before foreign exchange receipt and payment, so as to ensure the smooth process of foreign exchange receipt and payment.
Grace WangYears of service：10Customer Rating：5.0
Senior Foreign Trade ConsultantStart a Chat
From the perspective of international trade legal risk, different import and export trade terms directly affect the liability definition and dispute resolution of the contract. For example, under FOB terms, the risk is transferred to the buyer after the goods pass the ship's rail. If the specific definition of "ship's rail" is not specified in the contract, it may lead to liability disputes when the goods fall into water; under DAP terms, the seller shall be responsible for delivering the goods to the destination designated by the buyer.
If the specific unloading place at the destination is not agreed, the buyer may require the seller to bear additional unloading expenses. In addition, under the letter of credit payment scenario, the trade terms shall be completely consistent with the terms of the letter of credit. If there is any deviation from the terms, the bank may determine it as a discrepancy and refuse to pay for the goods. Enterprises shall explicitly write the liability boundary corresponding to the trade terms into the contract before signing the contract, so as to avoid legal disputes caused by vague terms.
Lucas LiuYears of service：8Customer Rating：5.0
Senior Operations ConsultantStart a Chat
From the perspective of supply chain structure optimization, different import and export trade terms directly affect inventory management and cost control. For example, under EXW terms, the buyer needs to prepare goods in advance and bear the inventory cost.
If the market demand declines, it may lead to inventory overstock; under CIF terms, the seller is responsible for transportation and insurance, and can reduce the unit cost through centralized procurement of logistics services. In addition, under the background of global supply chain fluctuation, choosing FCA terms can flexibly switch carriers, so as to avoid cargo delay caused by container rollover or space overload of a single freight forwarder.
Enterprises shall match corresponding trade terms in combination with the elastic demand of the supply chain. For example, for small multi-batch orders, choosing FCA terms can reduce inventory occupation and logistics costs; for large orders, choosing CIF terms can optimize logistics expenses through centralized negotiation.