Company Name:
Lishui Huanqiu Bearing Trading Co., Ltd.
Company Address:
No.11 Shiting Road, Shuige Industrial Zone,Lishui, Zhejiang,China
Contact Person: William
Email: admin@tradebearings.com
Homepage: www.asiabearings.com
Bearing B2B: www.tradebearings.com
Nowadays, individual firms and entire industries are coming to recognize that in today's environment isolation is no longer possible. By going abroad, Chinese firms can learn form their foreign competitors, challenge them on their ground and improve their productivity. International trade has played an important role in the world history as well as in sustaining and modernizing the Chinese economic. Trade terms , also known as price terms or delivery terms, are standardized terms used in sales contracts that describe the place and manner for the transfer of the goods form the seller to the buyer.In the international business, the buyer and seller need to decide where the goods should be send to, which will pay the freight, which will clear the goods and so on. According to different trade terms, they state what the seller must do, what the buyer must do, what costs each party must bear, and at what point in the delivery process the risk of loss passed from seller to buyer. Each of those obligations may be different from different trade terms.
Incoterms 2000 include 13 kinds of trade terms, those trade terms ,such as free on board (FOB) and cost, insurance,and freight (CIF), may also define a variety of other matter, including the price, the cost of fright and insurance, and the time when the risk of loss shift from the seller to the buyer.The use of trade terms greatly simplifies the process of negotiations, and reduce the risks into a low term. 2.1 Different Kinds of Trade Terms of International Trade
Incoterms 2000 include 13 kinds of trade terms that are classified into four groups, group E, group F, group C, and group D, according to relative responsibilities of each party. Those 13 kinds of trade terms have different usage. Some terms only can be used for sea or inland water way and others can be used for road or railway. Table 1 INCOTERMS 2000 2.1.1 The defination of group E trade term
Group E term refers to EXW term (EX Works). Under this term, the seller only needs to make the goods properly at his own factory and present an invoice for payment. And the buyer has to arrange all the transport, and clear the goods for export. If the buyer wants the seller to do more, this should be made clear in the contract of sale. 2.1.2 The definition of group F trade term
Group F terms include FCA (free carrier), FAS (free alongside ship), FOB (free on board). Usually, under F terms the buyer pays the cost of the main carriage. The "F" term requires the seller to deliver the goods for carriage as instructed by the buyer. And the buyer will arrange the transportation and pay all freight cost. 2.1.3 The definition of group C trade term
Group C terms include CFR (cost and freight), CIF (cost, insurance and freight) CPT (carriage paid to) and CIP (carriage and insurance paid to). Under this group, the seller have to pay the freight to the named port of destination. 2.1.4 Thedefinition of group D trade term
D group includes DAF (delivered at frontier), DES (delivered ex ship), DEQ (delivered ex quay), DDU (delivered duty unpaid), and DDP (delivered duty paid). Under this group, especially DDP, the seller bears the risk of clear the goods for importation. 2.2 The Four Functions for International Trade Terms
Trade terms, also known as price terms or delivery terms, are standardized terms used in sales contract that describe the place and manner for the transfer of goods from the seller to the buyer. As the publicity and promotion of the incoterms 2000, more and more business men choose those trade terms as a port of their contract, especially FOB, CIF and CFR. But why they choose those trade terms when they sign a contract?
It is helpful for buyer and seller to negotiate and reach a contract easily. Because each trade term has an exact meaning, the International Chamber of Commerce (ICC) has given unified explanations and regulation to the 13 trade terms. Especially, all those explanation and rules have become the international regulations. Most of countries have accepted that practice of law, so in the practice, the buyer and seller only have to ensure which term they will use, and then they will know what costs each party must bear, and at what point in the delivery process the risk of loss passes from seller to buyer. By this way, we will simplify the procedures and reduces the transaction time. When a contract signed that means lots of details should be considered, especially price terms and obligations. Incoterms is an acronym for international trade terms which provides rules and determines the obligations of both seller and buyer when different trade terms are used. So when the Incroterms introduced into our business, it would be easier to reach a contract and do the business successfully.
Each trade term includes a specific price component. In EXW terms, the sellers only have to prepare the goods as instructed. The buyer would arrange the transportation, clear the goods and buy the insurance. While in F group terms, the buyer have to transport the goods to the place named in the contract and clear the good for export. In theory, the buyer will arrange the transportation and pay all the freight cost. However, if it is convenient and the buyer agree, the seller may pay those fees and add that amount to the invoice price already quoted. In C group terms, cost and carriage are basic price component, but not responsible for additional costs or risk of loss or damages to the goods once they have been shipped. In the D group terms, the seller must not only deliver the goods at the port of destination, but also bear the risk of lose through out the journey, so in the D group terms, the price may be higher than the other terms. When the buyer and seller account the price, they only have to consider which kind of trade term they will use, and what kinds of fee he will pay. By this way, the business men can avoid discussing the complicated situation each time.
If business man did not have a mutual understanding of the trade terms, the dispute will arise. Because they come from different country and may have different business practices, the two sides misunderstand each other on their rights and obligations. When any trade dispute arises, they were able to invoke the appropriate trade practice to cope with different problems and settle the disputes. Arbitration is a most important means of setting a dispute through the medium of a third party that is not partial to either of the parties to the dispute. What most important is that the arbitral award once made, that means the award has the force of law and there is no need to register and keep it in a law court. 2.2.4 It is convenient to cooperate with other agencies
International trade is more complex than inner trade because it must be related to factories, customs, transportation department, tax department etc. Different departments means different troubles we have to face, except we do it accord to a international trade practice, such as incoterms 2000. There are other two trade practices,《Warsaw-oxford rules 1932》and《Revised American rules definition 1941》which has been widely used in pacific ocean trade, but may be replaced by the more recently revised Incotrems 2000. The use of trade terms greatly simplifies the process of negotiation of contract, thus saving time and cost for business men.
Evade the Risks by Trade Terms
International trade is no different from domestic trade in principle, it means change of capital, goods, and services. The main difference are the international trade had to cross the national borders and have to face more risks. For a business man, those risks may decided if the business will worth to do. There are some ways can help us evade the risks by using trade terms.
1 The Choice of Trade Terms
In the international trade, how to choose a rational trade term is very important. Different trade terms mean different obligations to the buyer and seller. And here are three main features we should consider carefully. They are way of transportation, the source of goods and the carriage. As an export-oriented country, the lower part of this article will illustrate the author's point of view from the perspective of the exporter.
Ways of transportation
The buyer and seller should consider the way of transportation firstly, and then decided which kind of trade term they should choose. At present, symbolic delivery trade terms are widely used. If we can manage the transportation properly and economically, we should choose FCA, FAS &FOB as our trade terms in import and choose CFR, CIF &CIP in export.
As we know, in China, the government encourages the domestic businessmen use FOB or FCA in their import deals and CIF or CIP in export deals, in order to promote the development of water transport industry and insurance industry, and also add the foreign exchange reserves or to reduce foreign exchange expenditure.
Since FOB/CFR/CIF are suit for sea or inland waterway transport, it is necessary to adopt FCA/CPT/CIP when the goods are transported by rail or air. Even by ocean transport, when containers are used commonly, it is better to adopt CPT/CIP because the seller would not lose the control of the goods when the goods are delivered to the first carrier.
2 The source of goods
Different kinds of goods have different features, which make some difference on the way of transportation and fees. If the goods can be transported by liner terms or our own country’s ship company (such as. COSCO), we should consider it first. As the container transportation become popular, large sum of goods can be transported by the containers which make the transportation more efficient.
When the import goods is in a large sum, the FOB term should be used in principle. By using this term, the importer can charter a ship by his own, and avoid the risk of the illegal business between the seller and carrier, and get the money according to a false bill of loading illegally.
3 Carriage
Carriage would influence the goods’ final price. When we choose a trade term, we should consider if the carriage is reasonable. If the carriage rising，so we should ask opposite arrange the transportation of the goods. And we can choose F groups when we import and C groups when we export.
4 Evade risks of International Trade when using the trade terms
In the international trade, we mainly use FOB, FCA and CIF as our trade terms. In theory, when we choose E group terms, we are bear the smallest risk, and when we choose D groups, the risk would be biggest. So in the contract, we should use E groups as much as possible. But in the practice，the importer would not accept this trade term or choose this trade term. In this condition, we should consider first the F group and C group trade terms, and avoid using D groups. The lower part of this article will illustrate how to evade the risks when using F and C group trade terms from the perspective of the exporter.
5. How to evade risks when using F groups trade terms
F group trade terms are one of the most widely used trade terms nowadays. Although there are different ways of transportation and different final destinations in those terms, the importer bears all the risks and fees from preparing the goods to sending the goods to the predetermined place.
As an exporter, we should choose F group trade terms cautiously. For a long-term and faithful business partner, F group terms can be used, and the buyer would book the ship and pay the insurance by themselves. As an exporter, all we have to do is to prepare the goods and put those goods on the ship which has been booked by the buyer. And after the shipment, we will take the bills of loading to the bank for the money. In some level, this approach reduces the risk of our trade.
