Import/Export Trade Terms–Contracts

Import/Export Trade Terms--ContractsThousands of people visit the global market every day searching for their import/export needs.   If you’re a first-time buyer, sometimes the terminology can be difficult to understand.  If you want to join the international market as a seller, there are some important contract terms you need to be aware of when you enter into import/export with China.

Sales/Purchase Contracts
A contract is an agreement that creates a binding, legally enforceable obligation between two or more competent parties.  These contracts can be worked out by the buyer or the seller.  A sales/purchase contract consists of the following items:

  • Commodity name, quality, and quantity
  • Packing information
  • Commercial Invoice
  • Payment
  • Insurance
  • Inspection
  • Cargo claims
  • Force Majesties

Price Method Contract Terms

  • Freight/Free On Board—FOB—Freight or Free on Board means the seller fulfills his obligation to deliver when the goods have been loaded for transport at the named port of shipment. The buyer bears all costs and risk of loss or damage to the goods from that point.  These terms require the seller to clear the goods for export and can only be used for sea or inland waterway transport.   
  • Cost And Freight —CFR or C&F—Cost and Freight means the seller must pay the cost and freight necessary to bring the goods to the named port of destination, but the risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred from the seller to the buyer when the goods are loaded for transport in the port of shipment. The CFR term requires the seller to clear the goods for export.
  • Cost, Insurance And Freight —CIF—Cost, Insurance, and Freight means that the seller has the same obligations as under CFR but he also must purchase marine insurance against the buyer’s risk of loss or damage to the goods during transport.
  • Delivered At Frontier—DAF—Delivered at Frontier, the named place of delivery, means that the seller fulfills his obligation to deliver when the goods have been made available, cleared for export, reach the named the frontier, but before the customs border of the adjoining country. The term is primarily used when goods are to be carried by rail or road, but it may be used for any other mode of transport.

The import/export business can be a very profitable one, but misunderstandings can be costly.  Make sure you thoroughly understand every part of a contract before you sign.


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