Six trade terms worth understanding

Interactive explainer

From supplier to recipient

01 Collect
Match products and parcel references before suppliers hand over the goods.
02 Prepare
Check, measure and pack the shipment. Keep each carton linked to its contents.
03 Transport
Send the prepared shipment through the booked international service.
04 Deliver
Complete destination procedures and confirm the final delivery record.

EXW and FCA

Under EXW, the buyer normally handles collection, loading and export formalities. Under FCA, the seller clears export and delivers at the agreed point; loading duties depend on that point. Confirm the handover precisely before booking. At the seller’s premises, FCA includes loading onto collection transport; at another agreed point, delivery is ready for unloading.

FOB and CIF

FOB and CIF apply to sea or inland waterway transport; risk passes when goods are aboard at shipment. With CIF, the seller also pays freight and minimum insurance to the destination port. Paying those costs does not retain transit risk. For containers handed over before vessel loading, examine FCA instead of defaulting to FOB.

DAP and DDP

Both deliver at destination ready for unloading. Under DAP the buyer handles import clearance; under DDP the seller does, including import duties and taxes. Confirm the seller can perform those obligations. Cost allocation and risk transfer can differ; ownership and payment need separate agreement. The DDP label does not create importer eligibility, tax registration or a local customs representative.

Example: freight paid, risk transferred

Consider CIF Rotterdam with loading in Shenzhen. The seller pays the agreed freight to Rotterdam, but transit risk normally transfers when the goods are aboard in Shenzhen. Damage during the voyage is therefore not automatically the seller’s loss. Record both places and check who can claim under the insurance.

Check what insurance actually covers

CIF normally requires the seller to obtain minimum cover equivalent to Institute Cargo Clauses (C), unless otherwise agreed. This is limited cover, not protection against every loss. Ask for the certificate, insured value, route and exclusions. The other five terms discussed here do not themselves require seller-arranged cargo insurance.

Make the contract workable

Write the rule, exact place and edition, plus separate payment and ownership clauses. Before DDP, identify the eligible importer and necessary tax arrangements; appointing a broker alone may not solve them. If the seller cannot lawfully complete import, discuss DAP with the buyer before shipment rather than quietly changing responsibilities.

Before you ship

Write the term, named place and “Incoterms® 2020”.
Confirm who can complete export and import formalities.
Identify the risk-transfer point and insurance needs.

Official references

General planning guidance. Requirements and charges depend on the goods, destination and service; confirm the applicable rules before shipping.