If you import from China and buy from Alibaba, you should have a rough idea of Alibaba. if you Import frequently from China through Alibaba, I think you may know this platform very well.
While if you are new to importing from China, a new buyer, and don’t know Alibaba at all. Then it doesn’t matter, as we have listed very well there:
What is Alibaba, and how does it work?
Is Alibaba Legit-How to Buy from Alibaba Safely?
This article we will talk about is everything about Alibaba Trade Terms.
Alibaba trade terms, also known as incoterms, are a set of rules describing the business relationship between the buyers and sellers on the Alibaba platform. These terms are very important for buyers and sellers, especially in international trade cases.
They cover all the basics of the trade, such as pricing, payment method, shipping costs, and delivery methods, thus facilitating a smoother transaction between sellers and their customers. If you are a seller that would like to learn more about Alibaba trade terms, this article will help you understand what trade terms are and why they’re essential, as well as some of the Incoterms you should know.
Definition of Incoterm.
Incoterm stands for “International Commercial Terms” and are internationally recognized contracts used when making business transactions. They are also known as trade terms. They are widely used in international trade. The MOQ, the shipping conditions, and the price of each unit are typically included in a quote from the supplier. Incoterms are the shipping terms provided in three block letters at the end of the quote.
The most common incoterms are EXW and FOB, and sellers mostly give either of these in their RFQs.An EXW quote represents the price of the products alone, while a FOB quote covers the transportation to the port.
Every trade contract has a buyer and a seller. On Alibaba, the seller is usually a manufacturer or a trading company, i.e., the supplier of the goods, while the buyer is the receiver of the shipment of the goods. Incoterms are created to protect sellers and buyers, clearly defining their roles in order to facilitate business. Incoterms are published and copyrighted by the International Chamber of Commerce and are updated every ten years.
What is the Newest Incoterm?
Incoterms® 2020 is the newest Incoterm currently in use. It was released in 2019 and legalized in 2020 as an update on Incoterms 2010. The terms were reduced from 13 to 11 in the newest Incoterm.
The current terms being used according to incoterms newest are:
EXW (EX Works),
FCA (Free Carrier),
FAS (Free Alongside Ship),
FOB (Free on Board),
CFR (Cost and Freight) and CIF (Cost, Insurance, and Freight),
CPT (Carriage paid To) and CIP (Carriage and Insurance Paid to),
DAP (Delivered at Place), DPU (Delivered at Place Unloaded),
DDP (Delivered Duty Paid)
Understanding the Alibaba Incoterms 2020 helps you to know how your goods can be shipped and what you include in your shipping plan. It helps in your international trade.
What changes are made on the newest Incoterm?
Compared to the 2000 and earlier versions, the Trade Terms Alibaba Incoterms 2020 and incoterms 2010 revisions are not significant. The few changes made are:
DPU( Delivery at Place Unloaded) replaces DAT (Delivery at Terminal).
Different levels of Insurance paid cover are available in CIP and CIF.
Cost allocations are more clearly defined.
Greater security of freight through stricter screening of containers and increased security obligations.
Increased room for buyers and sellers to employ their various means of transport.
Ships can issue a bill of lading to the seller based on the buyer’s recommendations.
What are trade terms? Why is choosing the correct trade terms so important?
Trade terms are the rules of a transaction between two parties. They are the financial and legal arrangements that govern a business’s relationship with its suppliers and customers. Simply put, a trade term is an obligation between buyer and seller in international trade.
Trade terms define the rights, obligations and responsibilities of both parties in the transaction and often include information about how you will make payments (e.g., how much and when) as well as the rules for the relationship between you and your partner.
Choosing the right trade term is very important to help you avoid costly mistakes and ensure that your business runs smoothly. With a trade term in place, you get to know what your buyers want and need so that you can give them the best price and delivery time for your product.
Trade terms set by buyers may include:
Depending on how much flexibility you want, this can be fixed or variable. For example, if you have a high quantity of a product in stock and know how much demand is out there, you might be able to ask for a higher price than if you were selling a product that was in short supply.
These can be either through various payment methods like wire transfer or PayPal.
How quickly do they need your goods delivered? Who bears responsibility for the goods during transport? What shipping company to be used? Do they want regular shipments at regular intervals? Will they accept partial shipments instead of full ones? What type of packaging do they prefer—bulk bags or cardboard boxes?
When choosing trade terms for your business, consider what makes sense for your industry and whether or not your customers will be comfortable with those particular terms.
Alibaba trade terms that you should understand before you start your international trading
Before you start your international trade on Alibaba, it is essential to understand specific terms. This would help facilitate your business, improve logistics, and ensure you get goods in the right way.
If you’ve decided to start trading internationally, it’s time to get familiar with Alibaba Trade Terms. Alibaba trade terms would mainly cover the following:
1. Payment terms: This is the term of payment for your products and the payment method employed.
2. Shipping costs: The costs of shipping your products from your warehouse to the port, where they will be shipped out by sea or air freight.
3. Duty fees are any taxes or customs duties required on imported goods into the destination country. Getting the proper clearance on goods before shipping is important to avoid delays in receiving goods.
What are Alibaba’s trade terms?
Alibaba trade terms are the rules that govern how you buy and sell on Alibaba.com. In simple terms, Alibaba trade terms are the agreements a seller makes with a buyer to ensure proper identification of all details of the transaction and ensure that the ordered products are delivered as when due.
When buying on Alibaba, it is vital to have an Incoterm in place so that all parties involved communicate clearly and efficiently and have a good idea of what to expect from the transaction.
These terms should be made clear from the beginning of your relationship with the buyer. You’ll need to know how Alibaba Trade Terms work to ensure your order is handled properly and use them to ensure that you’re getting a fair price. The best way to do this is by using an Alibaba Trade Terms template before making a purchase order.
Most common Alibaba trade terms
Below are the most common trade terms you’ll likely come about on Alibaba during your international trade.
The EXW, which stands for “Ex Works,” is an international trade term representing the most basic logistics level. With this trade term, the seller is only responsible for packaging the buyer’s order and delivering it to an agreed-upon location. Upon the buyer’s request, the seller can also decide to help process all necessary paperwork, such as export clearance and licenses, all of which the buyer pays for.
Therefore, you should ask your supplier for a quote on the EXW price if you want to know the product’s original price.
Once the buyer gets their order, all expenses and risks are immediately the buyer’s responsibility. This trade term is especially great for sellers, as it absolves them of all risks and costs and is not exactly suitable for buyers, as it makes them responsible for all shipping costs and risks involved.
FOB – Free on Board
FOB price on Alibaba is an abbreviation for “Free on Board.” and is one of the most popular international trade terms seen on Alibaba. The FOB price usually includes the cost of transporting goods from the supplier’s warehouse to the port you designated for departure. Once the products are loaded onto the buyer’s ship at that port, the seller has completed delivery. This means that as soon as the goods are “on board” the ship, the seller is “free” from responsibility for whatever damages or loss that occurs after that is borne by the buyer.
FOB might not be a great choice for small businesses and new sellers on Alibaba as it might bring about higher prices.
The term FOB is often used together with a port name to specify the port your goods would be shipped from, e.g., FOB Shanghai. FOB Shenzhen, FOB Guangzhou, etc.
When buying goods under FOB terms, buyers are typically responsible for organizing the vessel, managing import customs clearance, paying for ocean freight, and any expenses incurred at the destination port. However, in actual transactions, buyers can also request that suppliers arrange ships even on FOB terms.
DDP-Delivery duty paid
DDP shipping is a shipping trade term available on Alibaba and means “Delivered Duty Paid.” It implies that the seller is responsible for paying all the import taxes and customs fees required to deliver the product directly to the buyer’s address.
It allows the buyer to avoid paying duties and tariffs on their products and any additional charges associated with importing a product into another country.
DDP -delivered duty paid- as a shipping method has several advantages for buyers and sellers. For sellers, the advantages include the following:
The seller can choose how much insurance to include in the price of their product.
The seller can provide more detailed information about their products, like what’s included in the box and how it was made.
For buyers, the advantages include the following:
The buyer can transfer risk to the seller and avoid any worries about delivery or customs issues.
The buyer can receive their product faster than other shipping methods because DDP does not require customs clearance or processing.
With a DDP Incoterm, the seller offers delivery that goes door to door, taking into account customs clearance in both the port of export and the port of destination. As a result, up until the goods are delivered to the buyer’s premises, the seller is entirely responsible for any losses. DDP is a great option for importers who lack access to shipping companies or don’t want to stress about logistics or import and export concerns.
DDU-Delivery Duty Unpaid
Delivered duty unpaid is a trade term that states that the seller is responsible for safely delivering purchased goods to a named destination. The seller bears all the costs of transportation, as well as the risks involved.
Once the goods are delivered to the designated location, the buyer immediately takes over all responsibilities, risks, and costs, including import duties and transportation costs.
Although this trade term was canceled in Incoterm 2010, it is still widely used today.
CIF (Cost, Insurance, and Freight)
CIF means Cost, Insurance, and Freight, and it is a shipping trade term that refers to the shipping costs, insurance costs, and freight costs that are covered by a seller while exporting a buyer’s order to the destination port.
Until the goods are delivered to the buyer’s destination port, the seller is responsible for handling customs clearance, customs duties, inspections, or rerouting. The seller also bears the cost of any damaged goods while in transit.
Once the goods reach the buyer’s destination port, the buyer pays for all costs incurred, such as unloading costs and moving the order to its final destination.
It is important to note that while CIF -cost, insurance, and freight- is very similar to CIP -carriage and insurance paid to, it is only applicable to ocean shipping or sea freight, while the latter can apply to other modes of transportation.
While the trade terms all vary in the degree of seller or buyer’s responsibility, the EXW (Ex Works) is the one with the lowest responsible for the seller. At the same time, the DDP is the highest responsibility of the seller.
Alibaba Shipping Process
The whole Alibaba shipping process can be quite easy if you know what you’re doing. Here are the basic steps involved from the supplier to the use of a shipping company.
Choose products on Alibaba.
After deciding on the particular product you want to order, use the search tool to find the required product categories. There are numerous products offered on Alibaba, you can simply browse through and search for the products you need. You can also use the search filters available to streamline your search results.
Place orders with Alibaba suppliers
When choosing a supplier, It is good to check with different sellers to ascertain the best price for your product in the market. Doing this would ensure you get the right vendors to buy from. Negotiate with each supplier on pricing methods, samples, and MOQs.
Contact Alibaba Freight Forwarders to handle shipments.
Select a freight forwarder to deliver your goods to the desired location. One of the most reputable freight forwarders in China is DFH. We can assist you in getting your products verified from the suppliers, repackage and organize them, and ship them to you for a very reasonable price. We will also handle customs clearance in the receiving country to receive your goods without stress.
DFH carries out quality control on your products to ensure they’re of great quality before delivery. We also offer advice to clients on the best shipping routes available.
With DFH, there’s also room for stockpiling products in our warehouse for free till you’re ready to ship. DFH is a one-stop shop for everything shipping from China, and you will have your goods delivered safely and in no time.
Tracking online for shipping status
DFH will help keep tabs on your goods’ progress during transit until they arrive at your destination. This is to ensure no damages or losses during the transportation and to communicate potential delays with clients.
After shipping, all you need to do is receive your products right where you want them. DFH will handle all the logistics until the products arrive at your doorstep!
Does DDP shipping include customs clearance? What are DDP shipping terms?
Yes, “duty-paid delivery” refers to the seller completing the import customs clearance processes before delivering the unloaded goods to the buyer’s premises to complete the delivery.
According to the delivered Duty Paid (DDP) shipping agreement, the seller has the biggest responsibility, and the buyer has the smallest responsibility. The seller bears responsibility for all the risks and expenses associated with transporting the goods to the specified location, including customs duties, handling charges, and taxes that must be paid.
DDP stipulates that the supplier will handle every aspect of delivery, leaving the buyer to wait for the goods to arrive simply. Thus, the seller completes the import customs clearance.
What is the best trade term for an Alibaba Buyer?
Knowing the right trade term to use depends on the product being ordered, the quantity of the orders, the shipping route, and the shipping method. There’s no one-size-fits-all when it comes to shipping on Alibaba.
Most times, the buyer’s knowledge and level of experience determine the trade term used.
Suppose you are a more seasoned importer who desires complete control over the transportation process and associated costs and is prepared to assume greater risks and obligations. In that case, you may need to select EXW (Ex Works).
If you simply want the seller to bear responsibility for the products in their country, and then once it’s in transit, you’ll take it from there, then FOB is the way to go. The seller’s risk is eliminated once the goods are on the ship, but the buyer can still manage all costs and plan the delivery of the goods to their destination.
If you have little knowledge about the shipping process and want no stress involved, then it’s best to use DDP. Although not recommended, DDP is the only trade term that stipulates the seller to be responsible for payment of taxes, duties, and customs clearance. It is the highest obligation on a seller amongst the trade terms.
Some buyers also prefer to negotiate different trade terms that involve a combination of one or more values from different trade terms. Whatever the case, knowing and understanding these terms is one of the first steps in selecting the right one to use.
FAQs about Alibaba trade terms：
What are the advantages of working with freight forwarders?
A Chinese freight forwarder can offer you quick delivery and ease. They can closely monitor the situation and address any problems right away.
A China freight forwarder also has the knowledge and skills to handle customs clearance, negotiate volume advantage, and better freight rates. One Freight forwarder you must consider is DFH.
What are the best trade terms on Alibaba?
Alibaba has some different trade terms that are used in different situations. The most common ones are:
FOB (Free On Board)
When you pay for your order, it’s shipped by ocean freight and arrives at your door free of charge. You then pay for transportation from your door to wherever it needs to go next.
With this trade term, the seller is only responsible for packaging the buyer’s order and delivering it to an agreed-upon location.
DDP-Delivery duty paid
This means the seller is responsible for paying all the import taxes and customs fees required to deliver the product directly to the buyer’s address.
There’s also the CIF which is the Cost of insurance and freight.
What does DAP mean for Alibaba?
DAP simply means Delivered at Place. It means the seller should deliver the goods to a place designated by the buyer.
What is EXW on Alibaba?
EXW stands for “ex-works.” It is a term used in the import/export industry to describe the point of delivery.
When you buy something from Alibaba and see the phrase “EXW” on your invoice, you will have to arrange for your transportation and handling when you receive the goods. You are responsible for arranging to ship, ensuring they are cleared through customs and paying any associated duties or taxes.
The seller doesn’t need to provide a shipping service or insurance coverage when using EXW. The buyer is responsible for all these things.
This is different from FOB (free on board), which means that Alibaba will ship the goods to a port near you, and then you are responsible for paying any associated duties or taxes at that time.
What is DDP shipping on Alibaba?
DDP stands for “Delivery Duty Paid.” It’s the most common form of shipping on Alibaba, and it’s a great way to get your product shipped.
The reason it’s called DDP is because the seller pays all of the duties and taxes associated with getting your product to its destination. This means that you don’t have to worry about additional fees when your product arrives at its destination, making it much easier for you as a buyer.
What does EXW price mean for Alibaba? Alibaba EXW Shipping
EXW stands for “Ex Works.” It’s a pricing term used in Alibaba, meaning that the seller is responsible for preparing the product to be available at a designated location for the buyer. It is the most common method sellers use when shipping internationally, and it’s also used for domestic shipments in some cases. It is not the buyer’s responsibility.
With EXW, the seller has to ensure the buyer can pick up their cargo at a designated point. Once this is done, the buyer takes over all charges and costs. When you use EXW shipping, the seller will be responsible for delivering your goods to the designated location, but not for any other step in the process. This means you’ll need to ensure that your products are packaged appropriately and ready to go before they’re sent out through international or domestic shipping methods.
What does FOB price mean on Alibaba?
The FOB price is the price that the seller pays to transport a product from their location to the buyer’s. This price includes transportation, freight, and insurance costs to get the goods to the buyer’s country but does not include any other fees, such as import duties, shipping costs, or any other taxes that might be imposed on the buyer’s end.
So if you see “FOB” in an Alibaba listing, it means that you’ll be paying all of those costs yourself (and probably making some profit).
Which shipping method is the best on Alibaba?
When choosing the best shipping method on Alibaba, various factors have to be considered, such as costs incurred, time and speed, and, most importantly, reliability. While sea freight, also known as ocean freight, is a way cheaper method to ship internationally than air freight. However, it is not the best option if you want to deliver your goods on time.
However, if your orders are not time-sensitive and bulky, then sea freight might be a better, less expensive option than air freight. Above all, ensure that you work with a reliable freight company to prevent problems such as delays or lost goods.
Finally, using an Alibaba freight forwarder is the ultimate shipping experience. A good freight forwarder handles your products, shipping routes, and trade terms and delivers your goods to your premises with no hassles.
With Freight Forwarding companies like DFH, you also get great shipping costs, storage of your goods in the warehouse, and quality assurance of every product before shipping. Great, huh? DFH handles every bit of the shipping for you, so you don’t have to sweat the small stuff. Even better, it’s very cheap to use our services.
Contact DFH today for all your shipments going out from mainland China.