International Trade Guide：Knowledge that newcomers to foreign trade must know
In international trade, there are some basic knowledge that must be mastered, especially for those who are new to international trade. This knowledge can help you understand all aspects of the transaction, improve efficiency and reduce risks.
The following are the key basics in international trade:
1. Trade Terms (Incoterms)
Definition: The standard for dividing the responsibilities, costs and risks between buyers and sellers in international trade.
Common terms:
EXW (Ex Works): Ex works, the buyer bears all transportation costs and risks.
FOB (Free On Board): Delivery on board, the seller is responsible for delivering the goods to the ship.
CIF (Cost, Insurance, and Freight): Cost, insurance and freight, the seller is responsible for freight and insurance, and the buyer bears the post-unloading costs.
DDP (Delivered Duty Paid): Delivery after duty paid, the seller bears all costs and risks.
Terms such as EXW, FOB, CIF, DDP and their impact on cost and responsibility allocation.
Incoterms
Seller's responsibilities
Buyer's responsibilities
Cost Impact (Seller/Buyer)
EXW
Goods available at the seller’s location
All transportation, duties, and risks from seller’s location
Lowest for seller; highest for buyer
FOB
Transport to the port and loading onto the ship
Ocean freight, import duties, and transportation after port
Moderate for seller; moderate for buyer
CIF
Goods, insurance, and freight to destination port
Import duties and final delivery to the destination
Higher for seller; moderate for buyer
DDP
Delivery to buyer’s location, including all costs
Only receiving the goods at the final destination
Highest for seller; lowest for buyer
2. Payment methods
Common methods:
T/T (telegraphic transfer): a common payment method, pay a deposit first, and the balance before shipment.
L/C (letter of credit): payment through bank guarantee, suitable for large transactions.
PayPal or Western Union: suitable for small sample purchases.
Different payment methods are suitable for different transaction scenarios: letters of credit are suitable for high value or first cooperation; telegraphic transfers are suitable for small and medium-sized transactions; PayPal and Western Union are suitable for fast and small payments.
Avoiding payment risks requires combining the characteristics of payment methods, strictly controlling the transaction process, and avoiding losses due to negligence.
3. Logistics and transportation knowledge
Transportation methods: In conventional international trade, the transportation methods you can choose include: sea transportation, air transportation, rail transportation and express delivery. Their characteristics and usage scenarios are as follows:
Transport Mode
Speed
Cost
Capacity
Best For
Sea Freight
Slow
Low (economical)
Large, bulky items
Bulk goods, heavy shipments, long-distance trade
Air Freight
Very Fast
High (expensive)
Small, high-value items
Time-sensitive, small-volume, high-value goods
Rail Transport
Moderate Speed
Moderate
Large volume
Medium-distance, heavy items, landlocked regions
Courier Services
Very Fast
High (expensive)
Small packages
Small, urgent shipments, time-sensitive items
Recommendations for choosing a mode of transport
1. According to the nature of the goods: choose sea transport for bulk commodities, and choose air transport or express delivery for light or high-value goods.
2. According to the destination: railway transport can be given priority in the European and Central Asian markets.
3. According to timeliness requirements: choose air transport or express delivery for urgent orders, and choose sea transport for planned orders.
4. According to the budget: choose sea transport when the budget is low, and choose railway when focusing on cost-effectiveness.
Choosing the right mode of transport can not only reduce costs, but also optimize supply chain efficiency and meet customer needs.
4. Customs clearance process
Customs clearance documents:
Understand the documents you need, such as:
Commercial Invoice.
Packing List.
Bill of Lading.
Certificate of Origin.
Freight forwarding company:
Choose a professional freight forwarding company to assist you with transportation and customs clearance.
Import taxes and fees:
Understand the tariff rates, value-added tax (VAT) or other additional taxes in your country.
5. Foreign exchange rate
The impact of exchange rate depreciation on import prices
Increased costs: If the local currency you use (such as the US dollar, euro or other) depreciates, it means that you need to pay more local currency to buy the same amount of RMB goods. For example, if 1 US dollar is originally exchanged for 6.5 RMB, you only need to pay 153.85 US dollars to buy 1,000 RMB products, but if the exchange rate changes to 1 US dollar to 7 RMB, you need to pay 142.86 US dollars to buy the same value of goods. In this way, the depreciation of the RMB will cause you to pay more local currency and increase the purchase cost.
The impact of exchange rate appreciation on import prices
Cost reduction: When the local currency appreciates, it means that you need to pay less local currency when purchasing RMB goods. For example, if 1 US dollar is exchanged for 6.5 RMB, you need to pay 153.85 US dollars to buy 1,000 RMB products, and if the exchange rate appreciates to 1 US dollar to 6 RMB, you only need to pay 166.67 US dollars to buy the same value of products. Appreciation reduces your procurement costs and may make greater profits from it.
The impact of exchange rate fluctuations on your purchase of goods from China is significant. A depreciation of the exchange rate will lead to an increase in procurement costs, while an appreciation of the exchange rate will reduce procurement costs. However, exchange rate fluctuations also bring uncertainty, which may affect your financial plans and market pricing. Through flexible procurement strategies, exchange rate hedging tools and supplier pricing negotiations, you can better manage the risks brought by exchange rate fluctuations, ensure the controllability of procurement costs and maximize profit margins.