In the intricate game of international trade, shipping terms play a crucial role, determining how responsibilities for goods transportation are divided, who bears the costs, and the overall flow of the process. Understanding common shipping terms and their applicable scenarios is an essential skill for both importers and exporters to succeed.

I. An Overview of Commonly Used Shipping Terms

1. FOB (Free on Board): This means the seller is responsible for loading the goods onto the buyer’s designated vessel. The risk and expenses transfer to the buyer as soon as the goods pass over the ship’s rail. For instance, when a Chinese clothing manufacturer exports a batch of T-shirts to an American retailer, once the goods are loaded onto the ship at the port of Shanghai, the subsequent ocean freight, insurance premiums, and other related costs are borne by the American side. Moreover, the risk of damage to the goods also shifts to the buyer at that moment. In this context, the choice of shipping terms like FOB clearly defines the division of responsibilities between the two parties.
2. CIF (Cost, Insurance and Freight): Under CIF, the seller not only has to pay the freight to transport the goods to the port of destination but also needs to handle the cargo insurance and pay the insurance premium. However, the point of risk transfer is still when the goods pass over the ship’s rail. For example, when a European precision instrument factory supplies goods to an Asian customer and ships the goods from Rotterdam, besides arranging the transportation and purchasing the insurance, the seller also has to provide the insurance documents to the buyer. The responsibility for the risk of the goods changes hands at the ship’s rail in the port of shipment. Shipping terms like CIF add more responsibilities to the seller but also offer more comprehensive service to the buyer.
3. EXW (Ex Works): In the case of EXW, the seller completes the delivery obligation when the goods are placed at the seller’s premises or another named place (such as a factory or warehouse) for the buyer to take possession. All subsequent matters and costs related to transportation, loading and unloading, and export clearance are the buyer’s responsibility. When a small handicraft workshop supplies products directly to foreign e-commerce platforms and the shipping terms are agreed to be EXW, the buyer needs to arrange vehicles to pick up the goods from the workshop by themselves and organize the export process. The seller can simply hand over the goods as long as they are ready for collection, and the choice of EXW simplifies the seller’s role in the transaction.

II. An Analysis of the Applicable Situations of the Terms

1. FOB is applicable in: Situations where the buyer has stable freight forwarder resources, is familiar with the customs clearance procedures at the port of destination, and desires to have full control over the transportation. For large chain supermarkets that make regular and large-scale purchases and have a logistics coordination team in a major shipping hub city, FOB allows them to flexibly select the shipping company, plan the logistics route, and optimize costs. Shipping terms like FOB give the buyer more autonomy in the transportation process.
2. CIF is suitable for: When the seller wants to showcase service advantages in the transportation link, ensure the full safety of the goods throughout the journey, and the buyer is not well-versed in the details of shipping. For small and medium-sized importers in emerging markets who are new to international trade, when the seller quotes a price with CIF terms, it solves the transportation and insurance problems in one go, reducing the buyer’s concerns and facilitating the transaction. Additionally, the seller can lower the insurance cost by purchasing insurance in bulk and enhance their price competitiveness. CIF as one of the shipping terms provides a more convenient solution for the buyer.
3. EXW is used in: Scenarios where the seller focuses on production and has no intention of getting involved in complex foreign trade processes, and the buyer has strong logistics integration capabilities. For example, in some industrial clusters, component processing factories are only good at producing according to orders. They simply hand over the products to an assembly manufacturer with a global logistics network, and the latter takes the lead in the subsequent processes. With a clear division of labor, both parties can play to their strengths, and EXW as a shipping term makes this possible.

III. The Wisdom of Decision-making: How to Select Appropriate Shipping Terms

1. Consider Cost Factors: If the seller is short of working capital and unable to advance a large amount of freight, shipping terms like FOB or EXW can transfer the financial pressure. If the buyer wants to save on insurance premiums and negotiate lower costs through long-term cooperative freight forwarders, they may also prefer FOB. On the contrary, if the seller can purchase insurance in bulk and obtain preferential rates, CIF can present a more attractive landed price. The choice of shipping terms should be based on a careful consideration of cost aspects.
2. Weigh the Risk Tolerance: If the goods are vulnerable and the transportation route is risky, the seller choosing CIF can monitor the insurance coverage throughout the process. If the buyer is likely to encounter obstacles in customs clearance at the port of destination, choosing FOB makes the seller bear the responsibility before loading the goods, reducing the risk at the source. The buyer can then focus on local customs clearance and lower the overall risk exposure. Different shipping terms have different impacts on risk allocation, which needs to be carefully evaluated.
3. Understand Market Conventions: Specific industries and regions have their preferences. In the agricultural products trade, shipping terms like FOB are often used because the production areas are concentrated, and the buyer’s freight forwarders are familiar with the transportation characteristics of agricultural products. In the export of high-end electronic products, CIF is more commonly used as the seller maintains the product quality image through professional logistics. Newcomers to the trade should follow these market conventions to quickly integrate into the business ecosystem and reduce negotiation frictions. The choice of shipping terms should also take into account the industry and regional characteristics.

Shipping terms have a far-reaching impact on every aspect of a trade transaction. Both importers and exporters need to carefully consider based on their own strength, market situation, and cost calculations. By accurately matching the shipping terms, they can escort the goods across the oceans and sail towards the other side of a win-win situation in the international trade wave, making the logistics process of each business clear, smooth, and stable. Shipping terms are indeed the key to a successful international trade operation.