FAQ | What Are Trade Terms?

When customers plan to purchase CNC engraving machines, laser cutting machines, or plasma cutting equipment from overseas, understanding trade terms is crucial. These internationally recognized trade rules define the division of responsibilities, cost sharing, risk transfer, and logistics arrangements between buyers and sellers in cross-border transactions. When purchasing equipment from UTECH, customers often ask: What do FOB, CIF, and EXW mean? If customers purchase equipment without understanding these terms, they may experience misunderstandings and even incur extra costs related to shipping, customs clearance, or fees. UTECH has compiled this article to explain the most common trade terms, their respective responsibilities, and cost structures, helping customers make informed decisions when purchasing our equipment and avoid unnecessary confusion and risk.

1. What are Incoterms? Why are they so important?

2. EXW (Ex Works): The buyer assumes all shipping responsibilities.

3. FOB (Free on Board): Risk transfers upon loading.

4. CIF (Cost, Insurance, Freight): The seller bears more costs, but the risk transfers earlier.

5. DAP (Delivered at Place): The seller delivers the goods to the buyer's door, and the buyer is responsible for customs clearance.

6. DDP (Delivered Duty Paid): The seller is fully responsible and the most worry-free option.

7. The Impact of Various Terms on Total Cost and Delivery Time

1. What are Incoterms? Why are they so important?

Incoterms (International Commercial Terms) are international standards established by the International Chamber of Commerce (ICC) to define the responsibilities of buyers and sellers in international trade. These terms help clarify the following:

• Who is responsible for arranging transportation?

• Who bears freight, insurance, taxes, and other logistics costs?

• At what point does risk transfer from the seller to the buyer?

Common trade terms are represented by three-letter abbreviations, such as EXW, FOB, CIF, and DDP. Each term corresponds to a specific method of delivery and division of responsibilities. Choosing the right trade term will help you plan your logistics and budget accordingly, especially when purchasing large CNC equipment.

2. EXW (Ex Works): The buyer assumes all shipping responsibilities. 

EXW (Ex Works) means the seller delivers the goods to the buyer's designated person at their factory or warehouse. The buyer is responsible for all subsequent steps and costs, including pickup, export customs clearance, international transportation, import customs clearance, tax payment, and final delivery.

• Suitable for: Experienced buyers or customers with a fixed freight forwarder.

• Risk Warning: A seemingly low price may result in high subsequent logistics costs.

• Example: If you purchase a CNC engraving machine on EXW terms, you will need to arrange pickup from our factory, handle Chinese export procedures, contact a shipping company, perform customs clearance, and transport the machine to your factory.

3. FOB (Free on Board): Risk transfers upon loading.

FOB (Free on Board) is one of the most commonly used shipping trade terms. The seller is responsible for transporting the goods to the port of loading and loading them on board. From the moment the goods are loaded on board, the buyer bears all costs and risks.

• Suitable for: Customers who have their own shipping agent and prefer to manage subsequent transportation.

• Risk Warning: The buyer must purchase their own marine insurance and assume all risks associated with shipping.

• Example: If you purchase a laser machine on FOB Qingdao Port terms, we will deliver the machine to Qingdao Port and load it on board. You will be responsible for all subsequent transportation and customs clearance.

4. CIF (Cost, Insurance, Freight): The seller bears more costs, but the risk transfers earlier.

CIF (Cost, Insurance, Freight) means the seller covers the costs of transportation and marine insurance to the port of destination, but the risk transfers to the buyer upon loading.

• Suitable for: Customers who prefer the seller to arrange transportation but are willing to handle customs clearance themselves.

• Risk Warning: The included insurance may only be basic coverage; subsequent customs clearance and delivery still require the buyer's responsibility.

• Example: You purchase equipment using CIF Hamburg. We will ship the equipment to the Port of Hamburg, Germany, and cover basic insurance costs. Upon arrival, you will be responsible for customs clearance and transportation to your factory.

5. DAP (Delivered at Place): The seller delivers the goods to the buyer's door, and the buyer is responsible for customs clearance.

DAP (Delivered at Place) means the seller delivers the goods to the buyer's designated location (e.g., factory or warehouse) in the buyer's country, but customs clearance and import duties are the buyer's responsibility.

• Suitable for: Customers who prefer the seller to handle all shipping but are familiar with their country's customs clearance procedures.

• Risk Warning: Uninformation about local tax policies may result in additional expenses.

• Example: You purchase a plasma system using DAP Frankfurt terms. We deliver the equipment to your doorstep, but you are responsible for German customs clearance, duties, and VAT.

6. DDP (Delivered Duty Paid): The seller is fully responsible and the most worry-free option.

DDP (Delivered Duty Paid) is the most worry-free option. The seller is responsible for all aspects and costs from the factory to the buyer's factory, including export, transportation, customs clearance, duties, and delivery.

• Suitable for: Customers who are importing equipment for the first time or lack international purchasing experience.

• Risk Warning: The price is higher than other terms, but the service is the most comprehensive.

• Example: You purchase a CNC engraving machine using DDP terms. We deliver the equipment directly to your company, including customs clearance and tax processing. You only need to sign for it and arrange installation.

7. The Impact of Various Terms on Total Cost and Delivery Time 

Each trade term affects the final price and delivery time of the equipment. For example:

• EXW may seem cheap, but subsequent logistics costs are high and the process is complex;

• FOB gives you greater control over shipping, but requires more coordination;

• DDP, while more expensive, eliminates the hassle and is suitable for most customers.

By understanding these terms correctly, you can:

• Build a more accurate budget;

• Avoid delays caused by unclear responsibilities;

• Choose the shipping method that best suits your situation.

Finally, please inquire about the trade terms before placing an order. Before making a purchase, be sure to ask the equipment supplier the following:

• Which trade terms are included in the quote?

• Who is responsible for export and import customs clearance?

• Is shipping insurance included? Are taxes and fees charged separately?

• Can other trade terms be selected based on your specific needs?

Looking to buy equipment but worried about the complexity of international shipping?At UTECH CNC, we support a variety of trade terms, including EXW, FOB, CIF, DAP, and DDP, allowing you to flexibly choose based on your experience and needs. Whether you're a first-time buyer or an established importer, we'll provide you with professional logistics advice and after-sales support to ensure the equipment arrives safely and smoothly at your facility. Contact us for more information on our products.