How to interpret international trade terms? What is the functions of international trade terms?
What are international trade terms?
Trade Terms of International Trade, also known as Trade Terms, International Commercial Terms or Incoterms. In international trade, the obligations of buyers and sellers affect the price of goods. In the long-term practice of international trade, gradually formed some closely related terms of trade and prices directly linked together, formed a number of quotation patterns. Each model defines the obligations of buyers and sellers in certain terms of trade. The term used to describe this obligation is called a trade term.
The terms of trade are mainly divided into two aspects: first, the price composition of the commodity, whether to include the main subordinate costs other than costs, namely freight and insurance; Second, to determine the terms of delivery, that is, to explain the responsibilities, costs and risks borne by both the buyer and the seller in the delivery of goods. DDP for World is a full-service and shipping freight forwarder dedicated to assisting our clients in focusing and growing their businesses.
Trade term is an indispensable part of price expression in international trade. Trade terms are used in the quotation to clarify the responsibilities, costs and risks to be borne by both parties in connection with the delivery of goods and to explain the composition of commodity prices. Thus simplifying the transaction consultation procedures, shortens the transaction time. Because the international practice providing for trade terms gives a complete and precise interpretation of the obligations of the buyer and the seller, some disputes that might arise in the performance of the contract due to different understandings of the terms and conditions of the contract are avoided.
What are the functions of the trade Terms of International Trade?
Incoterms are the indispensable content of price expression in international trade. The use of incoterms in quotation clearly defines the responsibilities, costs and risks borne by both parties in the delivery of goods, and explains the composition of commodity prices. Trade terms play an active role in international trade, mainly in the following aspects:
(1) It is beneficial for both parties to simplify the procedures of negotiating transactions and concluding contracts. As each trade term has its own specific meaning, the buyer and the seller can identify each other’s responsibilities, costs and risks in connection with the delivery of the goods as long as they agree on which trade term to close the transaction. This simplifies transaction procedures and shortens the time to negotiate a transaction, thus facilitating buyers and sellers to quickly conclude a transaction and contract.
(2) It is helpful for buyers and sellers to calculate price and cost. Because trade terms represent price components, when both sides determine the transaction price, they must consider what subordinate costs are included in the trade terms, which is conducive to price comparison and cost accounting.
(3) It is conducive to resolving disputes during contract performance. In the event that the buyer and the seller have not given due consideration to the terms of the contract so that the provisions of certain matters are unclear or incomplete so that the disputes arising from the performance of the contract cannot be settled in accordance with the provisions of the contract, the general interpretation of relevant trade terms may be invoked to settle the disputes. Because the general interpretation of trade terms has become international practice, it is a kind of code of conduct that everyone follows.
(4) To facilitate the business activities of other relevant institutions. Shipping companies, insurance companies, banks and other organizations are indispensable in international trade activities. The emergence of trade terms and international conventions related to the interpretation of trade terms provides the objective basis and favorable conditions for these organizations to carry out business activities and deal with problems in business practice.
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