Trade Terms

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Trade Terms Defined
Before we get into the incoterms, there are a few words that need to be defined:
Seller: Typically, the manufacturer, trading company, or wholesaler supplying the goods for sale.
Buyer: The person purchasing the goods will receive them upon final delivery.
Delivery: The point at which the risk is transferred from seller to buyer.
Arrival: The point when the delivery has been paid. The seller should name the place.
Carrier: The company that is obligated to transport the goods. This can be done by any means necessary, for instance, by ship, rail, or truck.
Freight Forwarder: A firm that is commonly contracted to make shipping arrangements.
To Clear for export: When export permission is granted.
Terminal: The shipment's final destination, such as a port termincal or warehouse.

What Are Incoterms?

Incoterms (short for International Commercial Trade Terms) are a set of globally recognized terms established by the International Chamber of Commerce (ICC) that define the responsibilities, costs, and risks between buyers and sellers in international trade.

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What Does EX Works (EXW) Mean in Shipping Terms?

EXW- Ex-Works

EXWORK is the most basic shipping Incoterm that a supplier can provide. The seller makes the item available to pick up at the factory and is not responsible for the product once it leaves the factory doors. Instead, the buyer is responsible for transporting it from the factory, covering all export and import clearances and insurance costs.

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FOB - Free on Board

FOB means that the seller ships the goods to the nearest port, and the seller is responsible for everything after that. The seller will drop this off at the port of shipment, and the buyer will either pick it up themselves or, more commonly, work with a freight forwarder to ship it for them. The seller is the one to clear the goods for export, and the buyer is responsible for the goods from the port onwards. So it’s essential when getting FOB quotes to ensure you get the port’s name where they drop the goods off.

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LCL - Less than Container Load

LCL is a shipping method for smaller shipments that don't require a full container. Instead, goods are combined with other shipments to share container space, making it cost-effective for businesses with lower volumes. Carriers handle consolidation at the origin and deconsolidation at the destination. While LCL is cheaper than FCL (Full Container Load), it often takes longer due to added logistics and handling. It's ideal for small-scale shipments but requires careful planning to account for potential delays. Businesses should weigh costs and transit times to decide if LCL suits their needs.

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FCL - Full Container Load

An entire container is reserved for one shipper's cargo. Ideal for larger shipments, FCL ensures exclusive use of the container, reducing the risk of damage or delays compared to LCL (Less than Container Load). It's faster and more secure since the cargo isn't mixed with others. FCL is cost-effective for businesses shipping high volumes and provides greater control over logistics. However, it’s less flexible for smaller shipments. When choosing FCL, consider container sizes, transit times, and shipping costs to optimize efficiency and meet your business needs.

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CIP - Carriage and Insurance Paid To

The seller delivers the goods to the buyer’s final destination. The seller assumes all risks with the shipping and either loads or pays a third party to load the goods for shipment. The buyer is only responsible for paying the customs fee and clearing the goods for import. The buyer also pays to unload the goods at the final destination.

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FCA - Free Carrier

FCA is just one step up from EXW, in which the seller clears the goods for export and delivers the goods to the port of export. Next, the buyer has to unload the goods in the port and is responsible for them once they reach the port. Next, the buyer arranges the carrier. The most significant difference between EXW and EXW is that the seller must load the goods on the buyer’s carrier. It should be noted that this is often confused for FOB–feel free to ask your supplier to elaborate and give details.

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DDP - Delivered Duty Paid

The seller pays all costs and assumes all risks to the final destination. The buyer is only responsible for unloading the goods once they arrive at the final destination chosen by the buyer.
While DDP (Delivered Duty Paid) is the easiest option for buyers, it’s often not the cheapest. The seller selects the shipping company, which may not prioritize cost or reliability. To ensure the best deal, we recommend comparing quotes: one for DDP from your supplier, another for DDP from GOWIN Logistics, and one for FOB, then evaluating the total costs.

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CPT - Carriage Paid To

The seller pays for the goods shipped to the buyer’s chosen import port. The risk is transferred to the buyer once the goods arrive at the port. The buyer is responsible for unloading the vessel and arranging further transportation. Even though the seller is responsible for the export port’s cost, the buyer assumes the risk and insurance cost once the goods are unloaded at the export port. The seller is responsible for export clearance and freight costs.

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CIF - Cost Insurance and Freight

CIF (Cost, Insurance, and Freight) is similar to FOB, but the seller is responsible for covering the freight and insurance costs to transport the goods to the destination port. The seller also bears the risk until the goods are loaded onto the vessel at the port of shipment and is responsible for handling export customs clearance. However, the buyer assumes the risk once the goods are loaded onto the vessel and is responsible for import customs clearance and paying duties at the destination port. It’s important to note that risk transfers to the buyer at the point of loading onto the vessel, not at the destination port.

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DAT - Delivered at Terminal

The seller delivers the goods (unloaded) to the import port, and the buyer is responsible for the cost and risk of the goods from that point on. The seller takes on all risks or costs associated with the goods until they reach the import port. Then, the buyer pays for imports and customs.

DAP - Delivered at Place

The seller delivers the goods to the buyer's final destination. The seller assumes all risks with the shipping and either loads or pays a third party to load the goods for shipment. The buyer is only responsible for paying the customs fee and clearing the goods for import. The buyer also pays to unload the goods at the final destination.

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