11 Basic Trade Terms Alibaba Incoterms【Incoterms Explained】
What are International Trade Terms on Alibaba? Shipping goods across borders can be tricky. Both importers and exporters need to consider many factors. Choosing the best trade terms on Alibaba, it’s a process into which you need to put much though. Next, we will explain more about it.
What are Trade Terms?
Incoterms, also known as Trade Terms, are essentially international contractual terms applied when making sales. In international trade, Incoterms are a set of three-letter acronyms created by the International Chamber of Commerce (ICC) to communicate different aspects of cross-border trade. The most common incoterms are EXW and FOB.
Definition of Incoterms Newest
The incoterms 2020 is the updated version of the incoterms 2010, which are now reduced from 13 to 11 terms. The International Chamber of Commerce publishes the incoterms and holds the copyright.
Let us look at the recognizable terms as outlined in the incoterms newest.
Responsibilities Related to Incoterms
First, Incoterms defines the following rules for the shipment process.
- Transportation and freight: Incoterms define which party is responsible for transportation and freight.
- Delivery point: Incoterms indicates the point at which responsibility passes from the seller to the buyer (delivery point).
- Import and export regulations: Incoterms specify which party organizes the import and export process.
- Insurance Coverage: Incoterms outlines who is responsible for the cost of insurance.
Incoterms can also be divided into 4 groups.
- Type E (EXW): The seller bears little cost and responsibility.
- Type F (FOB, FCA, FAS): The seller is responsible for transporting the goods to the buyer’s predetermined shipping medium, and then the buyer assumes all responsibility from that point forward.
- Type C (CFR, CIF, CPT, CIP): The seller assumes all costs and responsibilities to the port of destination. Once the goods are loaded on the carrier, the risk is transferred to the buyer.
- Type D (DDP, DAP): The seller assumes maximum responsibility for cost and risk.
When you change from Type E to Type D, the buyer’s risk and liability decreases and the seller’s risk, liability and control increases.
Not all Incoterms are suitable for all kinds of international shipments. Depending on your mode of transport (maritime, air, road, rail, etc.), you may have to choose for one over another.
Incoterms that can be applied to any mode of transportation:
- EXW (Ex Works)
- FCA (Free Carrier)
- CPT (Carriage Paid To)
- CIP (Carriage and Insurance Paid To)
- DAT (Delivered at Terminal)
- DAP (Delivered at Place)
- DDP (Delivered Duty Paid)
Incoterms that are only suitable for sea and inland waterway transport:
- FAS (Free Alongside Ship)
- FOB (Free on Board)
- CFR (Cost and Freight)
- CIF (Cost, Insurance, and Freight)
Alibaba Trade Terms Example
A quote from the supplier will normally have 3 sets of information, namely the MOQ, trade terms, and each unit’s cost. Incoterms are the so-called shipping terms and are provided at the end of the quote as 3 letters.
For clarity purposes, let us take a look at this quote. ”Thanks, Mark, kindly see below 1000-1.75pc, 2000-1.65/pc, 10000-1.5/pc, EXW.’
The abbreviation EXW on Alibaba means for Ex-Works and defines the shipping terms alongside the parties’ obligations before it reaches the buyer. Most people ask whether Alibaba prices are inclusive of the shipping fee, which is not the case. What you need to know is which trade term include shipping fee.
Basic Trade Terms Alibaba Incoterms
Below we list out some of the most Alibaba Shipping Terms:
- EXW- Ex-Works
EXW Price on Alibaba is the most common term provided by suppliers. In this particular term, the supplier gives the item’s unit price for the buyer to pick up at the industry; therefore, it exempts the supplier from any responsibilities over the product once it leaves the factory.
At this point, it is the buyer’s responsibility for all forms of insurance or customs incurred. Unless you request to purchase on different terms, most factories will provide the EXW on request. It is the lowest price you will get the product for since it is less the other expenses involved.
- FOB- Free on Board
Unlike EXW, Alibaba trade terms fob takes the supplier’s responsibility further up to the point where the supplier takes the item to the nearest port and clears them for export. The buyer can choose to work with freight forwarders who are mostly stationed at or near the port or pick the item by themselves. Third-party inspectors can assess the goods at the port once the seller presents them. Once goods leave a country, the responsibility shifts to the buyer.
- FCA- Free Carrier
Further to EXW, the free carrier term dictates that a seller is responsible for clearing goods and taking them to the port or other destination that a buyer specifies. The buyer arranges for the carrier and for offloading the goods at the port. The responsibility of loading the goods is the supplier’s until they reach the port, where offloading is the buyer’s responsibility.
For clarity purposes and to avoid confusing FCA with FOB, the buyer should confirm each term’s extent with their supplier.
- CPT- Carriage paid to
Under this term, the seller pays for goods that are being shipped to the import port that the buyer chooses. The cost from the import to the export port is the supplier’s responsibility. The supplier also covers freight costs as well as export clearance costs. The buyer, though, is the party responsible for the insurance cost and unloading costs of the goods at the export port.
- CIP- Carriage and Insurance paid to
This term is similar to the CPT only difference because the supplier covers insurance costs for goods in transit. CIP applies to all modes of transport, unlike CIF, which only covers sea transport. CIP and CIF are the two terms that define risk and insurance separately.
Once at the import port and unloaded, the goods’ insurance is no longer the supplier’s responsibility, but the risk is.
- DPU – Delivery Place Unloaded
Under this term, the supplier is responsible for the risk and cost associated with the goods until they are unloaded at the import port—the responsibility from that point shifts to the buyer. The buyer clears custom fees as well as import fees.
- DAP – Delivery at Place
In this term, all risks associated with the goods until they are delivered to the buyer’s destination are assumed by the seller/supplier. The seller can choose to pay a third party to cater for the shipment. The buyer’s responsibility, in this case, is to pay for goods clearance and the customs fees as well as the costs of unloading goods at their destination.
- DDP – Delivery Duty Paid
Under this term, the buyer is only responsible for the costs incurred to unload the goods at their destination. The seller assumes risks as well as insurances associated with the goods until they reach the buyer. It is the term in which the buyer has very minimal responsibility.
Most people will be tempted to ask why not adopt the DPP terms for all purchases. It is all dependent on the buyer. The method means the buyer pays more to the seller since they assume zero risks, but this doesn’t mean it is more reliable. It also implies that the buyer fully trusts and depends on the shipping company.
I would suggest comparing the quoted prices for DPP from the supplier with a FOB from the freight forwarders.
It is important to note that CIF, CFR, FAS, and FOB apply to both inland waterways and ocean-based shipments. The terms mentioned above apply to all transportation forms, including road, rail, or air cargo transportation.
- FAS- Free Alongside Ship
In this case, the seller covers costs and assumes risks for the goods until they reach the port and also clears goods for export. The buyer covers the costs from this point, including loading the ship. The difference from the FOB is that the buyer is responsible for the costs of loading the ship.
- CFR- Cost and Freight
The buyer is responsible for the goods after loading at the export port and delivery to their final destination. The seller’s responsibility extends from shipping up to when the goods reach the import port. This is similar to CPT except that CFR is restricted to water transport.
- CIF – Cost Insurance and Freight
This is the last but not the least term. It is similar to the CFR, except that the goods’ insurance up to the destination port is the seller’s responsibility. The seller also clears the customs. The buyer’s responsibility is to pay for the duty. This term is also similar to the CIP, except the CIF is restricted for water-based shipments.
What are the Best Trade Terms on Alibaba?
Customers often ask us what international trade term options should they choose or what is the best trade terms on Alibaba. Our typical answer is, “Most buyers choose FOB, so this may be what you want.” But this is a bit short.
Let us understand in more detail how to choose the best Alibaba trade terms option that meets your needs from the list of the 2020 International Trade Term Interpretation General Rules.
To have a deeper understanding of the general principles of interpretation of major Alibaba trade terms, we have prepared the following flow chart:
If you know exactly what you are doing, you can certainly define your own Alibaba trade incoterms. The General Principles of Interpretation of International Trade Terms in 2020 are just terms “pre-packaged” to simplify people’s lives, but in fact there are countless variants of them.
The biggest factor is the import experience level. You do not need to be strictly restricted by any international trade term.
Please know that the general rules for interpreting Alibaba trade terms listed on this page are all pre-packaged transport terms. They are advisory and not mandatory. If you are buying a large number of goods, these terms should not limit your creativity.
Below is an example.
Customers want to receive the goods in their own warehouses and let the seller pay import duties, but the customers want to control the transportation (because they know they are more efficient than the supplier in terms of transportation). So they want DDU, which should be similar to FOB except for transportation.
It is not complicated to write these into the contract. professional logistics agent can help you see the opportunities and ensure that your contract contains all the essential terms.
If you buy in small quantities from Chinese or Indian suppliers, they may not accept customized shipping conditions. But if you represent a certain size of your business, they will usually listen to you and show a certain degree of flexibility.
My point is to avoid thinking, “So, which international trade term should I choose?” without looking at alternatives.
Who Can Help You Manage to Ship from Alibaba, by Yourself, or by an Agent?
There are four different ways that you can consider shipping from Alibaba.
1. Letting the supplier manage the shipping
Letting the supplier manage the shipping is common among inexperienced importers. It’s very simple and all you need to do is to tell the supplier that you want them to ship the cargo as CIF “Port of destination” or DAP “Your facility address” and they’ll do the rest.
The downside of this way is that you’ll probably end up paying a bit more than really needed.
2. Do it all internally, for full control
Your time is the most valuable. When you work directly with a carrier, you cannot save that time, unless there’s a specialized department with professional crews in your company.
We don’t think this is a viable option for small and medium enterprises.
3. Work with a freight forwarder in your country.
This is perhaps the most convenient option for some of the importers.
So what happens is this: small and medium companies try to work with a freight forwarder of the right size. But most of the forwarders don’t always have their own office in China. They usually work with local agents and add their margin on top of that agent’s fee.
Though it may be the most convenient way, this is not a cheap option, and not so efficient.
4. Work with a freight forwarder based in China
More and more importers have chosen this option.
The advantage is speed. The forwarder can keep close touch with your supplier, and keep you informed of everything. When trouble happens, your local partner will solve that asap.
Incoterms on Alibaba Conclusion
The revised changes between the Trade Terms Alibaba Incoterms 2020 and incoterms 2010 are not major compared to the incoterms 2000 and the earlier versions. The interesting DPP term is newly introduced to the incoterms 2020. It helps a lot better understand the Trade Terms Alibaba Incoterms 2020 to be fully aware of what you incorporate into your manufacturing and shipping plan.
Putting these terms in place was to cushion the seller and buyer and define their responsibilities to make business easier. As always, there is a helpline in case you are stuck. Check out the China Sourcing Kit for any assistance.