Basic Trade Terms Alibaba Incoterms: Detailed Explanation

Estimated reading time: 14 minutes

In this article, we will provide you with a detailed explanation of Basic Trade Terms Alibaba Incoterms, and based on the latest 2020 International Commercial Terms Interpretation, we will specifically analyze these 11 basic trade terms for you. Let’s get started.

What are Basic Trade Terms and Alibaba Incoterms?

Basic trade terms and Alibaba incoterms are concepts in international trade that help clarify the roles, responsibilities, and costs associated with transactions between buyers and sellers across borders.

Definition of Basic Trade Terms

Basic trade terms are a set of standardized terms commonly used in international commerce to clarify the costs, risks, and obligations of buyers and sellers in international trade transactions.

Some of the most widely recognized trade terms are defined under the International Chamber of Commerce’s Incoterms (International Commercial Terms).

Definition of Alibaba Incoterms

Alibaba, a major global e-commerce platform, Alibaba has adopted its own set of incoterms to streamline international transactions.

These Alibaba-specific incoterms align with the established international standards but may have slight variations tailored to the platform’s requirements.

What are the essential trade terms and Alibaba Incoterms you need to know?

“The Incoterms® rules define important responsibilities of buyers and sellers for the transport and delivery of goods under B2B sales contracts and serve as authoritative rules for determining how certain key costs and risks are allocated between buyer and seller.”

From: ICC

The following rules apply to any mode of transport,

1. EXW: Ex Works

Under EXW, the seller is only required to make the goods available at their premises (such as a factory, warehouse, etc.) for the buyer to collect. The seller does not need to load the goods on any collecting vehicle, nor is there an obligation to clear the goods for export.

Key points of EXW:

1. Responsibility and Risk: The buyer assumes all risks and costs associated with transporting the goods from the seller’s premises to the destination. This includes loading the goods onto a vehicle, all transportation costs, and any export and import duties.
2. Seller’s Role: The seller only makes the goods available at their premises, without loading them onto the buyer’s transport.
3. Buyer’s Role: The buyer arranges all transportation, covers all costs, and handles the export and import formalities. The buyer also arranges for the goods’ loading onto the transport vehicle.

Tip: If you wish to have full control over shipping and logistics, you might consider EXW.

2. FCA: Free Carrier

Under FCA, the seller delivers the goods, cleared for export, to the carrier selected by the buyer at a named location. This term is flexible as the named place of delivery can be at the seller’s premises or another location.

Key Aspects of FCA:

1. Seller’s Responsibilities: The seller is responsible for loading the goods if the delivery location is their premises. If the location is elsewhere, the seller is not required to unload the goods.
2. Buyer’s Responsibilities: The buyer arranges and pays for transportation from the named place. They also handle all export and import formalities.
3. Risk Transfer: Risk transfers from the seller to the buyer when the goods are handed over to the carrier at the named place.

3. CPT: Carriage Paid To

Under CPT, the seller pays for the carriage of the goods up to a named destination, but the risk is transferred to the buyer once the goods are handed over to the first carrier.

Key Aspects of CPT:

1. Seller’s Responsibilities: The seller is responsible for arranging and paying for the transportation of goods to the specified destination. This includes loading the goods onto the initial carrier and covering the freight costs.
2. Risk Transfer: The risk passes from the seller to the buyer as soon as the goods are handed over to the first carrier, even though the seller pays for the transportation.
3. Buyer’s Responsibilities: The buyer assumes all risks for loss or damage to the goods from the time they are handed over to the first carrier. The buyer is also responsible for any additional transportation costs and for arranging import clearance.

4. CIP: Carriage and Insurance Paid To

Under this term, the seller is responsible for arranging and paying for the carriage of the goods to a named destination and also must provide cargo insurance against the buyer’s risk of loss or damage to the goods during the carriage.

Key Aspects of CIP:

1. Seller’s Responsibilities: The seller must pay the freight and the cost of cargo insurance to transport the goods to the specified destination. The insurance cover must be at least 110% of the contract value, in the currency of the contract.
2. Risk Transfer: The risk passes from the seller to the buyer as soon as the goods are handed over to the first carrier, despite the seller paying for transportation and insurance.
3. Buyer’s Responsibilities: The buyer assumes all risks for loss or damage to the goods from the time they are handed over to the first carrier. They are also responsible for any additional transportation costs from the named place of destination and for arranging import clearance.

Tip: CIP is similar to CPT, with the addition that the seller must also procure and pay for the insurance.

5. DAP: Delivered at Place

Under DAP, the seller delivers the goods, ready for unloading from the arriving means of transportation, at a named destination. The seller assumes all risks and costs associated with bringing the goods to the specified location, excluding any duties, taxes, or official charges payable upon importation.

Key Aspects of DAP:

1. Seller’s Responsibilities: The seller is responsible for arranging carriage and for delivering the goods, ready for unloading, at the named place, assuming all risks and costs in bringing the goods to the destination.
2. Risk Transfer: The risk transfers from the seller to the buyer when the goods are made available for unloading at the named destination.
3. Buyer’s Responsibilities: The buyer is responsible for unloading the goods and for any customs clearance necessary for importing the goods, including paying any import duties, taxes, and other official charges.

6. DPU: Delivered at Place Unloaded

This DPU, previously known as DAT (Delivered at Terminal), involves the seller delivering the goods, once unloaded from the arriving means of transportation, at a named place of destination. DPU is unique among Incoterms as it requires the seller to unload the goods at the destination.

Key Aspects of DPU:

1. Seller’s Responsibilities: The seller is responsible for arranging transport and delivering the goods, not just to a named destination, but also for unloading them from the transport vehicle at this destination.
2. Risk Transfer: Risk transfers from the seller to the buyer after the goods have been unloaded at the named destination.
3. Buyer’s Responsibilities: After unloading, the buyer is responsible for any additional transportation and import clearance, including paying import duties, taxes, and other charges.

7. DDP: Delivered Duty Paid

Under DDP, the seller assumes most of the responsibility and risk, as they are required to deliver the goods to a named place in the buyer’s country, taking care of all the costs and risks involved in bringing the goods to the destination, including the payment of import duties and taxes.

Key Aspects of DDP:

1. Seller’s Responsibilities: The seller is responsible for arranging transport and delivery of the goods to the named place in the buyer’s country. This includes all costs and risks, as well as handling all customs formalities and paying duties, taxes, and other charges related to importation.
2. Risk Transfer: The risk transfers from the seller to the buyer once the goods have been made available to the buyer at the named place in the destination country.
3. Buyer’s Responsibilities: Under DDP, the buyer has minimal responsibilities. They only need to receive the goods upon arrival and manage any further transportation or distribution within their country.

The following rules apply to sea and inland waterway transport,

8. FAS: Free Alongside Ship

Under FAS, the seller is responsible for delivering the goods alongside the ship at the specified port of shipment. This means that the seller bears all risks and costs up to the point where the goods are placed alongside the vessel.

Key Aspects of FAS:

1. Seller’s Responsibilities: The seller must deliver the goods alongside the ship at the named port of shipment. They are responsible for all costs and risks in bringing the goods to this point, including export clearance.
2. Risk Transfer: The risk transfers from the seller to the buyer as soon as the goods are placed alongside the ship at the specified port.
3. Buyer’s Responsibilities: The buyer is responsible for the cost and risk involved in loading the goods onto the ship and all subsequent transportation costs, including import clearance, duties, taxes, and other charges.

9. FOB: Free on Board

Under FOB, the seller is responsible for delivering the goods on board a ship chosen by the buyer at the specified port of shipment. The seller bears all risks and costs associated with getting the goods to the ship, including export clearance.

Key Aspects of FOB:

1. Seller’s Responsibilities: The seller must deliver the goods on board the vessel at the named port of shipment. They are responsible for all costs and risks to bring the goods to this point, including loading the goods on the ship.
2. Risk Transfer: The risk transfers from the seller to the buyer as soon as the goods are loaded onto the ship at the specified port.
3. Buyer’s Responsibilities: The buyer takes over responsibility for the goods once they are on board. This includes all costs and risks for the sea transport, including insurance, and the costs for import clearance, duties, taxes, and other charges.

10. CFR: Cost and Freight

Under CFR, the seller is responsible for the cost of transporting goods to the designated port of destination. However, the risk of loss or damage to the goods, as well as any additional costs due to events occurring after the goods have been delivered on board the vessel, transfers from the seller to the buyer.

Key Aspects of CFR:

1. Seller’s Responsibilities: The seller must arrange and pay for the costs of transporting the goods to the specified port of destination. This includes loading the goods onto the vessel and covering the freight charges.
2. Risk Transfer: The risk transfers from the seller to the buyer as soon as the goods are loaded onto the ship at the port of shipment. The seller is not responsible for insuring the goods during transit.
3. Buyer’s Responsibilities: The buyer assumes the risk for the goods once they are loaded onto the ship. They are also responsible for arranging and paying for insurance, and for handling the goods upon arrival at the destination port, including unloading and import clearance.

11. CIF: Cost Insurance and Freight

Under CIF, the seller is responsible for the cost of transporting goods to the designated port of destination and must also provide insurance for the goods during the transit. The seller bears the cost of freight and insurance, but the risk of loss or damage to the goods, as well as any additional costs due to events after the goods have been loaded onto the vessel, transfers from the seller to the buyer.

Key Aspects of CIF:

1. Seller’s Responsibilities: The seller arranges and pays for the transportation of the goods to the specified destination port. They also must provide insurance coverage for the goods during the sea transport up to the destination port.
2. Risk Transfer: The risk transfers from the seller to the buyer as soon as the goods are loaded onto the ship at the port of shipment. Despite the seller paying for insurance, the risk is with the buyer.
3. Buyer’s Responsibilities: The buyer assumes the risk for the goods once they are loaded onto the ship. They are responsible for handling the goods upon arrival at the destination port, including unloading, import clearance, and any additional transport.

What are the primary trade terms used on Alibaba?

When conducting business on Alibaba, you’ll come across specific trade terms commonly used by sellers. Understanding these terms will help you make informed decisions during your transactions:

1. MOQ (Minimum Order Quantity)

MOQ refers to the minimum number of units a supplier requires you to purchase in a single order. It serves as a threshold set by suppliers to ensure efficient production processes or meet economies of scale.

For further information, read this article: How to Find Low MOQ Alibaba Supplier

2. OEM (Original Equipment Manufacturer) and ODM (Original Design Manufacturer)

3. FOB (Free on Board)

The seller is responsible for delivering the goods on board the vessel at the specified port of shipment. The seller bears all costs and risks up to this point, including export duties and taxes. Once the goods are on board, the buyer assumes responsibility for the sea freight, insurance, and further transportation costs.

4. DDP (Delivered Duty Paid)

The seller assumes all responsibility and costs for transporting the goods right up to the buyer-designated warehouse, including shipping, insurance, import duties, and taxes. The seller is responsible for the entire shipping process and customs clearance in the buyer’s country.

Tip: Pitfalls to avoid when using trade terms on Alibaba

• Misunderstanding Terms: Ensure you have a clear understanding of the specific Incoterms being used. Each term (like FOB, CIF, DDP, etc.) has specific implications for cost, risk, and responsibility. Misunderstanding these can lead to unexpected expenses or logistical challenges.
• Assuming Insurance Coverage: Under terms like CIF, while the seller is responsible for insurance, the coverage might be minimal. The buyer needs to understand what is covered and consider additional insurance if necessary.
• Neglecting Risk Transfer Points: Know precisely when the risk transfers from the seller to the buyer. For example, under FOB, the risk transfers once goods are on board the ship, so any damage during shipment is the buyer’s responsibility.
• Underestimating Logistics Complexity: Some terms may require the buyer to arrange complex logistics, like in EXW where the buyer is responsible for the entire journey of the goods from the seller’s location.
• Neglecting Contract Specifics: Ensure that all specifics are clearly outlined in your contract or purchase agreement, including the agreed Incoterm, exact delivery location, and responsibilities for each party.
• Not Consulting with a Trade Expert: If uncertain, it’s always advisable to consult with a trade expert or legal advisor, especially for complex transactions or when dealing with new markets.

If you have any questions regarding trade, Owlsourcing is more than happy to assist you. You can contact us or directly send an email to [email protected].

How to Ship from Alibaba

Once you’ve finalized your purchase on Alibaba, arranging shipping is the next crucial step. Here’s a general overview of the process:

1. Choose a Shipping Method: Evaluate different shipping methods such as express couriers (DHL, FedEx), air freight, or sea freight. Consider factors like speed, cost, and product characteristics when making your selection.

2. Request Quotes: Reach out to multiple shipping providers for quotes based on your specific requirements. Provide details such as package weight, dimensions, origin, destination, and incoterms to receive accurate quotations.
3. Arrange Pickup or Delivery: Coordinate with the supplier or shipping provider for package pickup from the supplier’s location or delivery to your designated address.
4. Track Shipment: Once the shipment is en route, utilize tracking services provided by the shipping provider to monitor its progress until it reaches its destination.
5. Select a Shipping agent: Compare quotes from different providers based on price, reputation, experience in handling similar shipments, and customer reviews. For more information on this topic, you can refer to this article: Find China Shipping Agents

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• Low MOQ Alibaba Supplier
• Best Items to Flip on Alibaba
• Where to Buy Products to Sell on Amazon
• Buy from China and Sell on amazon
• Find China Shipping Agents

Summing Up Basic Trade Terms and Alibaba Incoterms

Regarding the update of Basic Trade Terms Alibaba Incoterms, provides a basis of reference for both buyers and sellers. Through these terms, the respective responsibilities are clarified, making transactions more convenient for both parties.

Of course, if you have any questions or are interested in collaborating with Owlsourcing, you can email us to contact us. We look forward to communicating with you 🙂