In international trade, a transaction of goods, which involves sending goods from one country to another, can be a risky business and incurs various other costs. So the pricing problem an exporter and an importer deal with is far more complicated than that in domestic trade. In addition to the cost covered in the calculation of export price, the price quotation of export trade should also indicate who is to bear the expenses of freightage, insurance and other relevant charges, and who is to bear the risks of the goods at a particular time? Who is ,responsible for customs clearance or bear the relevant charges? In international contracts, the seller and buyer had better to make clear their respective obligations at the very beginning of each deal. This also adds to both parties' time and expense if they have to go over this ground every time they set an order price.
Module 1 International Trade Terms
International trade terms are a universally recognized set of definitions of some international conventions in trade practices. They define trade contract responsibilities and liabilities between the buyer and the seller. They are an invaluable and cost saving tool. The exporter and the importer need not undergo lengthy negotiations about the conditions of each transaction. Once they have agreed on using a commercial term like FOB, they can sell and buy at FOB without needing to discuss who will be responsible for the freight, cargo insurance, and other costs and risks.
Definition of International Trade Terms
When quoting prices to his overseas buyer, an exporter will naturally take into account payment of the various expenses involved in getting the goods from the factory or warehouse in his own country to the buyer's premises. In a sale of goods contract, apart from discussing the goods being sold, it is important that the seller and the buyer discuss the issues regarding time, place and manner of transfer of such goods. Such issues are so-called trade terms. Thus simply defined, trade terms are the sets of responsibilities of the buyer and seller in a sale relating to delivery of goods i.e. the method of delivery, the payment of costs such as shipping,insurance and customs as well as the arranging of the performance of these activities. ……