International trade can be a complex process, and shipping goods across borders requires careful consideration of various factors. One crucial aspect that importers and exporters need to think about is choosing the best trade terms on Alibaba. In this article, we will provide an overview of what trade terms are, the responsibilities related to Incoterms, basic trade terms on Alibaba, and the best trade terms to use on the platform.
We will also explore who can help manage shipping from Alibaba and whether it’s better to do it yourself or hire an agent. Finally, we will conclude with a summary of the key takeaways from our discussion.
What are Trade Terms?
Definition of Incoterms Newest
Trade Terms, also known as Incoterms, are a set of international contractual terms used in sales transactions across borders. They were developed by the International Chamber of Commerce (ICC) to help standardize trade practices and facilitate communication between buyers and sellers from different countries. The latest version of Incoterms is the Incoterms 2020, which replaced the Incoterms 2010. The Incoterms 2020 includes 11 terms, which are used to specify the responsibilities of buyers and sellers in international transactions.
The following table shows the recognized terms as outlined in the Incoterms newest:
| Incoterms Newest | Meaning |
|---|---|
| EXW (Ex Works) | The seller delivers when they make the goods available at their premises. |
| FCA (Free Carrier) | The seller delivers when they hand over the goods to the carrier. |
| CPT (Carriage Paid To) | The seller delivers when they hand over the goods to the carrier, and the carrier is responsible for the carriage to the named place of destination. |
| CIP (Carriage and Insurance Paid To) | The seller delivers when they hand over the goods to the carrier, and the carrier is responsible for the carriage to the named place of destination. The seller also has to procure insurance against the buyer’s risk of loss or damage to the goods. |
| DAP (Delivered at Place) | The seller delivers when they place the goods at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. |
| DPU (Delivered at Place Unloaded) | The seller delivers when they place the goods at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller is responsible for unloading the goods. |
| DDP (Delivered Duty Paid) | The seller delivers when they place the goods at the disposal of the buyer, cleared for import, and not unloaded from the arriving means of transport, at the named place of destination. |
| FAS (Free Alongside Ship) | The seller delivers when they place the goods alongside the vessel nominated by the buyer at the named port of shipment. |
| FOB (Free on Board) | The seller delivers when the goods pass the ship’s rail at the named port of shipment. |
| CFR (Cost and Freight) | The seller delivers when they place the goods on board the vessel nominated by the buyer at the named port of shipment. The seller is responsible for the cost and freight of the goods to the named port of destination. |
| CIF (Cost, Insurance and Freight) | The seller delivers when they place the goods on board the vessel nominated by the buyer at the named port of shipment. The seller is responsible for the cost, insurance, and freight of the goods to the named port of destination. |
Responsibilities Related to Incoterms
Incoterms Groups
Incoterms define the rules for the shipment process, including transportation and freight, delivery point, import and export regulations, and insurance coverage. They can be divided into four groups based on the level of responsibility and cost borne by the buyer and seller.
Type E (EXW) places little responsibility on the seller, while Type F (FOB, FCA, FAS) requires the seller to transport the goods to the buyer’s predetermined shipping medium, after which the buyer assumes all responsibility. Type C (CFR, CIF, CPT, CIP) requires the seller to assume all costs and responsibilities to the port of destination, after which the risk is transferred to the buyer. Type D (DDP, DAP) places maximum responsibility for cost and risk on the seller.
Incoterms Application
Not all Incoterms are suitable for all kinds of international shipments. Depending on the mode of transport, certain Incoterms may be more appropriate than others. Incoterms that can be applied to any mode of transportation include EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAT (Delivered at Terminal), DAP (Delivered at Place), and DDP (Delivered Duty Paid). Incoterms that are only suitable for sea and inland waterway transport include FAS (Free Alongside Ship), FOB (Free on Board), CFR (Cost and Freight), and CIF (Cost, Insurance, and Freight).
Alibaba Trade Terms Example
When receiving a quote from a supplier on Alibaba, the trade terms will be provided as three letters at the end of the quote. For example, the abbreviation “EXW” means “Ex-Works” and defines the shipping terms alongside the parties’ obligations before it reaches the buyer. It is important to note that Alibaba prices do not include the shipping fee, and buyers should be aware of which trade terms include shipping fees.
Basic Trade Terms Alibaba Incoterms
Alibaba, one of the world’s leading e-commerce companies, offers a range of shipping terms to facilitate international trade. These terms are commonly referred to as Incoterms, which are standardized trade terms established by the International Chamber of Commerce (ICC) to clarify the responsibilities of buyers and sellers in international transactions. In this section, we will discuss some of the most basic trade terms used by Alibaba.
EXW – Ex-Works
EXW is the most common trade term used by suppliers on Alibaba. In this term, the supplier provides the unit price of the product, and the buyer is responsible for picking up the product at the supplier’s factory. Once the product leaves the factory, the supplier is exempted from any responsibility for the product. The buyer is responsible for all forms of insurance or customs incurred. This is the lowest price the buyer can get for the product since it does not include any additional expenses.
FOB – Free on Board
FOB is another trade term used by Alibaba. In this term, the supplier’s responsibility extends up to the point where the supplier takes the product to the nearest port and clears it for export. The buyer can choose to work with freight forwarders stationed at or near the port or pick up the product themselves. Third-party inspectors can assess the goods at the port once the seller presents them. Once the goods leave the country, the responsibility shifts to the buyer.
FCA – Free Carrier
FCA is a trade term that is similar to EXW. The term dictates that the seller is responsible for clearing goods and taking them to the port or other destination that the 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. To avoid confusion with FOB, the buyer should confirm the extent of each term 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 responsible for the insurance cost and unloading costs of the goods at the export port.
CIP – Carriage and Insurance Paid To
CIP is similar to CPT, except that 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. This term 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. To compare the quoted prices for DDP from the supplier with a FOB from the freight forwarders is suggested.
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
CIF is similar to 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.
What are the Best Trade Terms on Alibaba?
When it comes to choosing the best trade terms on Alibaba, it is important to understand the different options available and how they can meet your needs. While most buyers tend to go for FOB, there are other options to consider.
The 2020 International Trade Term Interpretation General Rules provide a list of trade term options to choose from. To make it easier to understand, a flow chart has been prepared to help buyers choose the best option for their needs.
It is worth noting that the General Principles of Interpretation of International Trade Terms are pre-packaged transport terms that simplify the process for buyers. However, they are not mandatory and buyers can define their own trade incoterms if they know exactly what they are doing.
One of the biggest factors to consider when choosing trade terms is the import experience level. Buyers do not need to be strictly restricted by any international trade term.
For instance, if buyers want to receive goods in their own warehouses and let the seller pay import duties, but they want to control the transportation, they can opt for DDU. This is similar to FOB, but with more control over transportation.
It is possible to write customized shipping conditions into the contract, and professional logistics agents can help buyers see opportunities and ensure that their contracts contain all the essential terms.
While small suppliers may not accept customized shipping conditions, larger businesses can usually negotiate for more flexibility.
In summary, buyers should not limit themselves to just one trade term option without exploring alternatives. By understanding the different trade term options available and their specific needs, buyers can choose the best trade terms on Alibaba that meet their requirements.
Who Can Help You Manage to Ship from Alibaba, by Yourself, or by an Agent?
When it comes to shipping from Alibaba, there are four different ways to consider. Each option has its pros and cons, and it’s up to you to decide which one is the best for your business needs.
The first option is letting the supplier manage the shipping. This is a simple and easy option for inexperienced importers, as all they need to do is tell the supplier that they want them to ship the cargo as CIF “Port of destination” or DAP “Your facility address,” and the supplier will take care of the rest. However, the downside of this option is that it can be more expensive than necessary.
The second option is to do it all internally for full control. While this option allows for complete control over the shipping process, it may not be a viable option for small or medium enterprises, as it requires specialized departments with professional crews.
The third option is to work with a freight forwarder in your country. This option is convenient for some importers, but it can be expensive and not always efficient. Most forwarders work with local agents and add their margin on top of that agent’s fee.
The fourth option is to work with a freight forwarder based in China. This option has become increasingly popular among importers due to its speed and efficiency. The forwarder can keep in close contact with the supplier and keep the importer informed of everything. When trouble happens, the local partner will solve it as soon as possible.
Ultimately, the decision of who can help you manage to ship from Alibaba depends on your business needs and budget. It’s important to weigh the pros and cons of each option and choose the one that best fits your needs.
Incoterms on Alibaba Conclusion
The newly introduced DPP term in the Trade Terms Alibaba Incoterms 2020 is the most significant change compared to the previous versions. The purpose of these incoterms is to define the responsibilities of both the buyer and seller to make business transactions smoother. The Trade Terms Alibaba Incoterms 2020 and incoterms 2010 have minor differences, and it is essential to understand them to incorporate them into your manufacturing and shipping plan. In case of any confusion, there is a helpline available, and the China Sourcing Kit can be checked for further assistance. Overall, the Trade Terms Alibaba Incoterms 2020 aim to provide clarity and ease in international business transactions.