International trade terms are the shared vocabulary that international trade runs on. When a buyer in one country and a factory in another agree a price, both need to know exactly where the goods change hands, who pays freight, who carries the risk, and who clears customs. Trade manufacturing terms exist to settle those questions in three letters, and the most important set is the Incoterms, published by the International Chamber of Commerce and revised roughly every decade.
The most important international trade terms come from the International Chamber of Commerce. The current edition is Incoterms 2020, in force since 1 January 2020. If you have seen a contract citing Incoterms 2010, it is out of date, and one term changed outright: DAT (Delivered at Terminal) was replaced by DPU (Delivered at Place Unloaded), which works the same way but is not limited to a terminal. Any quotation or contract still using DAT is written against a superseded edition.
These international trade terms should always be written with the named place and the edition: “FOB Shenzhen, Incoterms 2020” rather than just “FOB”. Without the place the term means nothing, and without the edition the parties may be reading different rules.
Incoterms settle where goods change hands, who pays, and who bears the risk.
International Trade Terms for Any Mode of Transport
Seven of the eleven Incoterms, the core international trade terms, apply to any mode of transport, including multimodal shipments, and these are the ones most commonly used for containerised goods.
EXW: The Simplest of the International Trade Terms
The seller makes the goods available at their own premises. The buyer takes on everything from that moment: loading, inland transport, export clearance, freight, insurance, import duty, and delivery. EXW places the maximum obligation on the buyer and is the term to avoid unless you have a freight forwarder in the country of origin, because export clearance in the seller’s country is legally the buyer’s problem under EXW and is difficult for a foreign party to handle.
FCA — Free Carrier
The seller delivers the goods, cleared for export, to a carrier nominated by the buyer at a named place. Risk passes at that point. FCA is the term the ICC recommends for containerised cargo instead of FOB, because containers are handed to a carrier at a terminal rather than loaded over a ship’s rail, and Incoterms 2020 added a provision allowing the buyer to instruct the carrier to issue an on-board bill of lading to the seller, which was the main practical obstacle to using it.
CPT — Carriage Paid To
The seller pays carriage to the named destination but risk passes to the buyer when the goods are handed to the first carrier. That split between cost and risk catches buyers out: the seller is paying for the journey, but if the goods are damaged in transit it is the buyer’s loss.
CIP — Carriage and Insurance Paid To
As CPT, with the seller also obliged to insure. Incoterms 2020 raised the required cover under CIP to Institute Cargo Clauses (A), all-risks, which is a meaningful improvement on the minimum cover required under the 2010 edition.
DAP — Delivered at Place
The seller delivers to the named place, ready for unloading, and bears cost and risk to that point. Import clearance and duty remain the buyer’s responsibility.
DPU — Delivered at Place Unloaded
The seller delivers and unloads at the named place. This replaced DAT in Incoterms 2020 and is the only term that obliges the seller to unload. Import clearance and duty remain with the buyer.
DDP — Delivered Duty Paid
The seller bears everything, including import clearance and duty, to the named destination. DDP places the maximum obligation on the seller. It is convenient for a buyer, and it means the seller controls the customs declaration, which for a buyer who wants visibility of the duty being paid is not always a good thing.
International Trade Terms for Sea and Inland Waterway Transport
Four of these international trade terms apply only to sea and inland waterway transport, and are intended for bulk and break-bulk cargo rather than containers, although FOB and CIF are used for containers constantly in practice.
FAS — Free Alongside Ship
The seller delivers the goods alongside the vessel at the named port, cleared for export. Risk passes there.
FOB: The Most Used of All International Trade Terms
The seller delivers the goods on board the vessel and clears them for export; risk and cost pass to the buyer at that point. FOB is the most commonly quoted term in trade with China and is what most factory quotations mean when they say a price. Strictly, FOB is not appropriate for containerised cargo, and FCA is the correct term, but FOB is so entrenched that both sides usually understand it to mean “seller handles everything to the port of loading.”
CFR — Cost and Freight
The seller pays freight to the named destination port, but risk passes when the goods are on board at origin. Cost and risk again separate.
CIF — Cost, Insurance and Freight
As CFR, with the seller also insuring. The required cover under CIF remains the minimum, Institute Cargo Clauses (C), which is one reason a buyer may prefer to arrange their own insurance.
FOB and CIF are the terms most Chinese factory quotations are written in.
Other International Trade Terms Worth Knowing
Beyond Incoterms, a handful of international trade terms come up in nearly every sourcing conversation.
- MOQ — minimum order quantity, the smallest order a factory will accept for a given product, usually per style and colour.
- OEM — original equipment manufacturer, production to the buyer’s own design and specification.
- ODM — original design manufacturer, the factory’s existing design, branded for the buyer.
- AQL — acceptable quality limit, the statistical standard (ISO 2859-1) that defines how many defects a sampled batch may contain before it is rejected.
- Tech pack — the specification document a factory quotes and produces against: drawings, measurements, materials, trims, and construction.
- Golden sample — the approved reference sample against which production is inspected.
- Lead time — the elapsed time from order to shipment, which is not the same as production time.
- HS code — the Harmonized System classification that determines the duty rate on a product in every country.
- L/C — letter of credit, a bank instrument that pays the seller on presentation of documents, used for larger orders where neither party will accept the other’s credit risk.
- T/T — telegraphic transfer, the bank transfer that most China orders are paid by, typically 30% deposit and 70% against shipping documents.
Why These International Trade Terms Matter
International trade terms are not vocabulary for their own sake. The difference between FOB and DDP on the same order can be 20% of the landed cost, and the difference between CIF and CIP is whether your goods are insured against all risks or only against a short list. A quotation without an Incoterm and a named place is not a comparable quotation, and two quotations on different terms cannot be compared at all until they are put on the same basis.
The practical advice on international trade terms is to specify the Incoterm, the named place, and the edition in every quotation request and every contract, to prefer FCA over FOB for containerised goods where the factory will accept it, and to understand that under CPT, CFR, CIF, and CIP the seller pays for carriage but you carry the risk. Putting quotations on a common basis, and structuring the terms so the risk sits where it should, is part of what our product sourcing service does on every order.
