EXW, FOB, CIF, FCA, DDP... What do these trade terms mean? After reading this article, you won't forget.

My friend who clicked on this article, I guess you were thrown a foreign trade contract by your boss and looked confused. FOB, CIF, EXW... a bunch of English words I don't know what they mean, I used AI to check and found that I forgot who it was after a while? Let's briefly introduce this article, and I believe you will never forget it again. 1、 Why do we have these terms to put it simply? These terms are a set of globally accepted "jargon" in the foreign trade industry, used to clearly state in contracts: where to deliver the goods, how to pay, and who will be held responsible if lost on the way. Only by understanding them can you comprehend the quotation and avoid pitfalls. Think about it, when you order fried noodles at the small shop downstairs, you have to shout to the boss, 'Boss, one portion of fried noodles, pack it up, I'll pick it up later!' This completes the division of responsibilities: the boss is responsible for making and packing it, and you are responsible for picking it up and paying. International trade is a principle, but the distance has become half the world, and the value of goods can vary from tens to millions. Therefore, there must be a set of universally applicable rules, which is international trade terminology. It essentially solves two things: first, does the price include free shipping and insurance? Secondly, where does the goods count as delivered to you?

There are no pre established rules, and every time a business is done, both the buyer and seller have to start arguing about "how to ship the goods and who will buy insurance", which is too inefficient. With it, an abbreviation such as "FOB Shanghai", both parties tacitly agree: Oh, once the goods are loaded onto the ship at Shanghai Port, the seller's task ends, and the risks and shipping costs of crossing the ocean afterwards are all the buyer's responsibility. 2、 There are about ten technical terms to break down, and it would be too long to explain them all. Below is a schematic diagram of trade terms, and you will understand it at a glance. In this article, we will introduce the five most typical examples.

1. EXW (Ex Works factory delivery) is the most popular sales model for sellers, but it is also a financial nightmare. Because under EXW, the seller plays a ruthless warehouse manager. Prepare the goods and open the door: 'Sir, your goods are in the third row of Zone A. Please load them yourself.'. Export license? Customs declaration form? Looking for a freight forwarder? That's your business, my obligation ends here, and so does the risk. Walk slowly without delivery. And the foreign buyer needs to transform into a China expert. They have to handle everything from your factory to their country's warehouse themselves or find an agent: handling transportation within China, handling China export customs clearance, booking cabins, buying insurance, paying sea freight... It's like when you shop online, the seller says, 'Hey, the goods are ready. They're in my backyard in a village in Hebei, and I sent you WeChat. You can drive a tractor to take them away yourself. Once they're taken away, I don't care anymore. If they're checked on the way, it's your responsibility.'. It sounds like this business is very easy to do, right? But why do many finance professionals want to cry when they hear EXW? Because all the pitfalls of subsequent tax refunds are buried here, we will explain them in detail later.

2. FOB (Free On Board) is one of the oldest trade terms, with its origins dating back to late 18th and early 19th century Europe. The trading model at that time was very primitive: the buyer rented a ship at the loading port in advance and supervised the entire process on board; The seller delivers the goods to the ship rented by the buyer; The buyer inspects the goods on site and if they match the sample, pays the purchase price on site. The term 'free' here does not mean 'free', but rather refers to the seller's exemption from all subsequent responsibilities and risks after safely delivering the goods onto the ship (On Board). Although modern FOB has evolved into delivery based on documents, the core principle of 'risk is transferred when the goods are loaded onto the ship at the port of shipment' continues to this day. At present, this is also the most commonly used and classic clause, which can be regarded as the standard breakup ceremony in international trade. In FOB mode, the seller is responsible for all domestic matters and expenses (trailer, port cargo, export customs clearance), and safely delivers the goods across the ship's rail (now commonly understood as loading onto the ship). Afterwards, if the ship sank or was hijacked by pirates, it has nothing to do with you. Overseas buyers are responsible for chartering and booking cargo, paying ocean freight and insurance fees from the port of origin, as well as any matters related to the destination port. Just like sending your child to the airport. You are responsible for taking him to the security checkpoint (ship's side), processing the boarding pass (export customs declaration), and watching him walk in. Afterwards, when the plane was delayed and his luggage was lost, he found his own solution. Clear responsibility, happy breakup. In e-commerce jargon,This is called free shipping.

3. CIF (Cost, Insurance and Freight) emerged in the mid-19th century with the maturity of transportation, insurance and finance industries. The biggest difference between it and FOB is that it marks the transition of international trade from "physical transactions" to the era of "document buying and selling". The seller is responsible for arranging transportation and insurance, and will send the bill of lading (B/L), insurance policy, and other documents representing the ownership of the goods to the buyer for payment. In this way, while the goods are still at sea, the efficient turnover of documents and funds has greatly promoted trade development. Therefore, the CIF price is composed of "cost+freight+insurance", but the risk still transfers to the buyer when the goods are loaded onto the ship at the port of shipment, which is a "symbolic delivery". Many people mistakenly refer to it as' landed price ', but this is actually inaccurate. In CIF mode, as a seller, in addition to being responsible for FOB matters, you also have to pay to help the buyer purchase sea freight and insurance, and escort them all the way to the other party's doorstep (port). However, please note that if the goods are damaged on the way, although you purchased the insurance, the right to claim compensation belongs to the buyer, and you need to cooperate. The buyer only needs to wait for the receipt of the goods and be responsible for the customs clearance, delivery, and other follow-up at the destination port. I say that calling CIF "landed price" is not accurate because it only covers the basic insurance of the package, and does not guarantee the safe arrival of the goods. When the seller completes the delivery at the port of shipment (such as a Chinese port), even if the contractual obligation is fulfilled, this is called "symbolic delivery". If the ship sinks halfway, it is a matter between the buyer and the insurance company, and the seller does not need to resend the goods unless there is a problem with the goods themselves. So, in e-commerce jargon, this is called "package shipping insurance", but if the package is lost, the seller will not resend it, and you have to find a courier (insurance company) to claim compensation yourself.

After discussing FOB and CIF, let's get to know their upgraded version - FCA. I predict that this model will be the mainstream model in the future, so I will explain it in more detail. The core rules of FCA are similar to FOB, both belonging to the F-group term of "main freight unpaid": the seller delivers the goods that have completed export customs clearance to the carrier designated by the buyer (such as a courier company or logistics fleet) at the designated location, and even if the delivery is completed, the risk is transferred at the same time. Some friends here don't understand: if the seller has completed the export customs clearance, it means that the goods have been shipped to the customs. How can it be said that delivery will be made at any designated location? The confusion lies in the confusion between "completing export customs clearance procedures" and "actual export of goods". Handling export customs clearance procedures "is an administrative and legal procedure that refers to the process in which the seller declares to customs and ultimately obtains customs clearance permission. Once released, the goods qualify for legal export. But this does not mean that the goods must have been loaded onto an airplane, ship, or departed from the country at this time. The goods can still be stored in their original location within the country, such as the seller's factory warehouse. After customs clearance, the goods are in a state of "cleared and awaiting shipment". A friend asked: Does the customs not inspect the goods? Why was it released to you from your warehouse? What if there are prohibited items hidden inside? According to the Measures for the Administration of Customs Inspection of Import and Export Goods of the People's Republic of China, inspection is generally carried out within the customs supervision area. But the law also clearly stipulates that due to special reasons, upon written application by the consignee or their agent of import and export goods, the customs may send personnel to conduct inspections outside the customs supervision area. This means that for goods delivered in factories or warehouses using FCA mode, if they are subject to control inspection, companies can apply for customs officers to directly inspect them at the production factory or storage location. After passing the inspection, the goods can be released at the place of origin and then directly delivered to the carrier for transportation out of the country. What is the difference between FCA and FOB? The key point is that FOB only recognizes "ship", while FCA recognizes all modes of transportation. FOB: The delivery location can only be the port of shipment, and the delivery action is "loading onto the ship", which is only applicable to sea or inland waterway transportation. FCA: The delivery location can be the seller's location, railway station, freight station, container yard, airport, or any other designated location. It is applicable to any mode of transportation, including sea, air, land, rail, and multimodal transport. It can be said that FCA is an important model developed in response to the rise of container transportation and multimodal transport. Why do I say FCA will be the mainstream of the future? Because there are a lot of goods nowadays that no longer use traditional bulk carriers. When you send a container, it is usually handed over to the shipping company at the container yard; You sent it by air freight and it was delivered from the airport freight forwarding warehouse. In these scenarios, hard FOB (emphasizing 'loading onto the ship') is not appropriate.

5. DDP (Delivered Duty Paid) With the deepening of globalization, some buyers (especially small and medium-sized enterprises or enterprises lacking import experience) hope to further simplify the process, and even want to receive goods in a "hands off" manner. For this reason, the International Chamber of Commerce (ICC) added DDP in INCOTERMS 1990, which is a model that almost puts all the responsibility on the seller. In other words, you are responsible for transporting the goods across the sea to the buyer's doorstep, which is called a "turnkey project" in the jargon. As a seller, you need to cover all transportation, insurance, export taxes, import taxes, customs clearance procedures from the Chinese factory to the foreign warehouse. You have almost become a logistics provider for buyers in their home country. And the buyer only needs to lie at the warehouse door and sign for it. Just like placing an order on JD.com and waiting for the courier to knock on the door. If there is any problem with the intermediate product, you should directly question the merchant to solve it. Due to the heavy responsibility of the seller, either the buyer is a "strong purchaser" such as the government or large enterprises (such as Apple), requiring the seller to provide "all inclusive services", or the buyer is unwilling to bear the customs clearance risk for high-value, small batch goods (such as precision instruments and luxury goods). So understanding the origin of DDP essentially means understanding that the core of trade is not only the exchange of goods, but also an extension of trust and service capabilities.

3、 How to choose? Choosing an export mode is not about who is more convenient, but about finding a balance between risk, cost, and control. If you want absolute convenience and are not afraid of future troubles, choose EXW. But the prerequisite is that your finances can handle the trouble of subsequent tax refunds. Want clear responsibility and control over the domestic segment? Choose FOB or FCA. This is the most balanced and universal choice, firmly grasping the right of export customs declaration.