Trade - Selecting Transaction Partner

Review Chapter 1 and 2


“Trade” means the selling and movement of “goods” or “tangible items” and “services” or “intangible items” from one country to another. In trading, “safe transaction” and “insurance” are important because while doing business among the different cultures and communication gap, trade involves many risks. Also if we have to deliver the cargo in a long distance, the cargo can be damage. Therefore, conducting the safe transaction is the primary thing to do in trading matter. In addition, the “economic rationality” is another important thing since trade involves in economic activity because this will help increasing the profits. Therefore, international trade and international transaction is related.

When we are deciding to do international transaction, we have to analyze the international economics and trades. Then the Foreign Direct Investment (FDI) or Export or Import is the one who make the decision method. After that we have to set up the target market by using 4Ps (place, price, product and promotion), then export or import the products to the partnership by two types of distribution; commercial distribution and physical distribution. In the textbook, there are three phrases of international transactions which are contract conclusion, preparations for execution and contract execution.

CHAPTER 1: Selecting Transaction Partner and General Terms and Conditions

1. International Marketing

Then come to the word “Marketing”, it refers to the distribution and sale of products in the market but since it is related to international transaction, it is called “International marketing”. The first important thing to do in marketing is to find out about the general information of the counterpart. Then collect specific detail of the counterpart in order to make the decisions. However, the international marketing is also related to one word, in which Michael Porter invented in 1980, that word is called “Logistic” which means Strategic physical distribution. Another one is a supply chain which means the distribution from the producer to the end of the user or in another meaning it means how to provide the goods just in time in order to minimize the cost and maximize the profit.

2. Selecting the trade partner

Trade partner should be decide after the

In order to do the import and export activities, we have to ask for the license from the government.

3. Credit Inquiry

3.1 The importance of credit inquiry

3.2 The contents of a credit inquiry

3.3 Methods of credit inquiry

CHAPTER 2: Price Quotation and Trade Terms

1. Negotiation of Quality and Price

1.1 Ways of Determining Quality

1.2 Price List

1.3 Price Quotation

2. Trade terms

2.1 Functions of Trade Terms

Trade terms are all about transferring of ownership right (the right to freely use or dispose the cargo) and the risk liability (the responsibility in case the cargo lost or damaged). However, if there is a problem such as USA and Japan used the different FOB, the general term will be the evaluator.

For the delivery, it means the transfer of possession of the goods and there are two types of delivery place; shipment contract and destination contract and two types of delivery method; actual delivery and symbolic delivery. However, one trade term can include cost transfer, delivery place, ownership transfer and risk transfer. These happen in the same place and same time.


In overseas trade, the seller has to consider on what trade term he should use while delivering the goods to the overseas buyer in order to avoid the problem. Consequently, the Incoterms has been invented since 1936 and has been revised many times. However, the “Incoterms” is stand for “International Commercial Terms” and there are 13 incoterms which were newly revised as the contract made from January 1st 2000. Each term are clearly defined the duties and obligations of the seller and buyer as describe below.

2.3 Terms of INCOTERMS 2000

1. EXW (Ex Works)—Named place

In this term, the obligation of the seller ends after he places the goods at the buyer's disposal. The seller does not have to clear the goods for export.

2. FAS (Free Alongside Ship) - Port of Export

The seller is responsible to deliver goods up to the point where the goods are placed alongside the vessel at the designated port of shipment. However, FAS cannot be used in case of container ship.

3. FOB (Free On Board) - Port of Export

This term is used for ocean shipments only which the seller's obligation stops when the goods pass the ship's rail. Buyer has to book the ship until it reaches the destination. Under this term, they can control the ship when the cargo is on board so if in the case of earthquake happens, either importer or exporter cannot be responsible or pay for the damage.

4. FCA (Free Carrier) - Named Place

This term can be used with any mode of transport by the seller has to responsible for the goods after clearing for export to the carrier instruct by the buyer at the named place or person nominated. Cost transfer is the same as FOB but the risk is different.

5. CFR (Cost and Freight) - Port of Import

CFR is similar to FOB but the seller must arrange for and pay for the carriage necessary such as freight charges until the goods reach the destination. This term is cannot be use for container ship.

6. CIF (Cost, Insurance and Freight) - Port of Import

The seller has to pay for the minimum cover insurance and freight cost. Others than this are the responsibility of the buyer. The exporter should delivery the bill of lading and insurance in advance.

7. CPT (Carriage Paid To) - Named place at the Import Place

The seller arranges and pays for the carriage of the goods for delivery to the specific destination and this term can be use with any mode of transportation.

8. CIP (Carriage and Insurance Paid To) - Named place at the Import Place

This term is similar to CPT but the seller has to pay for the insurance coverage for the goods during the carriage. It used for air or ocean containerized or any kinds of shipments.

9. DAF (Delivery at Frontier) - Named place at the Frontier

The seller's obligation end when the goods have reached the designated point and place at the frontier. This term is used for any mode of transportation but must be delivered by land.

10. DES (Delivered Ex Ship) - Port of Import

The seller makes shipping arrangements and bears all the costs up to the disposal point at the port of destination. This term is used for ocean shipments only.

11. DEQ (Delivered Ex Quay) - Port of Import

The seller arranges the shipment of the goods at his own expense and delivers the goods up to the quay at the port of destination. This term is also can be used for ocean shipments only.

12. DDU (Delivered Duty Unpaid) - Named place at the import place

The seller delivers the goods to the buyer but does not have to clear the goods for import. This term can be used for any mode of transportation.

13. DDP (Delivered Duty Paid) - Named place at the import place

The seller has to pay for all the expenses that occur from deliver goods until clear the goods for import.

Even though there are many Incoterms in use but only FOB, C&F and CIF is consider as the frequently used trade term in air and marine transportation.

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