Importance of International Commercial Terms for Cross Border Ecommerce Sales



INCO TERMS are very important and these are needed to Trade Goods Overseas.Without knowledge of these terms, the sellers or buyers might not be able to communicate in same terms.

For Cross Border eCommerce Shipment Inco terms needed are:
EX WORKS
FOB – Free On Board
CIF or CPT
DDU/ DAP
DDP

Knowledge Series 1

Let us try to understand what is the difference between Ex Works and FOB terms.

It's very simple: What does Ex-works mean?   Ex-Factory.

Ex-factory price means, the selling cost of goods at seller's factory location. Any other expenses from the factory of the seller to buyer's location have to be borne by the buyer. So the responsibility of getting goods from the seller’s factory is with the buyer. Here the buyer appoints a shipping/ logistics and freight forwarding company to collect goods from the seller’s factory and then bring/ship to the buyer's place including insurance of goods.

How Ex-factory terms work.
Let us take a business case and explain Ex-factory terms of delivery, assuming you are a Unstitched Saree seller situated in a place near Delhi, India. The buyer is situated in Sydney,  Australia. Since you are the seller of goods and you have Contracted with the buyer and agreed to sell the goods on the ex-factory price of USD 1000. Hence here the selling cost of goods is USD 1000 ex-factory. As explained, all further cost to reach the goods to the buyer's place has to be borne by the buyer. As per the instructions given by the buyer, his appointed Cargo / Courier/freight forwarder contact his counterpart in Mumbai, India and arranges to pick up goods from seller’s factory location. Seller delivers goods to freight forwarder / Agent after confirming the authenticity of the freight forwarder/ Agent through his buyer. All expenses of freight forwarder/ Agent will be paid by the buyer. Also, Buyer arranges to insure the goods and pay the cost of insurance as well.

Now, let us try to understand, What is FOB price and how FOB terms work in international trade? FOB means Freight on Board or Free On Board. If terms of delivery of a transaction are on FOB, the cost of movement of goods from Seller Factory Location till on boarding of goods on Airlines or on boarding parcel on the ship/vessel is borne by the seller.

It is very important to understand how FOB works.

Let us explain and how to use FOB terms of delivery with a simple example. Assuming You are a Garments seller situated near Mumbai, India. The buyer is situated in a place near Paris, France. You are the seller of goods and you have a contract with the buyer and agreed to sell the goods on FOB, Mumbai price of USD 1300. Please, notice Here, the selling cost of goods is USD 1300 FOB Mumbai. So it is very much important that seller meets all expenses to carry the goods to Mumbai port and meet all expenses including Origin customs clearance in Mumbai to get the goods on board of Airlines or Ship. As I have explained, all further cost up to buyer's place has to be met by the buyer. The buyer select shipping company or airlines and seller ship the goods as per buyer's advice. The buyer pays the cost of freight to the shipping company or airlines. Buyer arranges to insure the goods and pay the cost of insurance.

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