Trade Terms (Incoterms) in Sourcemaster
Overview
Trade Terms (also known as Incoterms) define how responsibilities, costs, and risks are divided between the seller and buyer during shipment.
In Sourcemaster, setting the right trade term helps ensure that all orders, purchase plans, and logistics flows align with your real-world agreements.
When you create a Sales Order, Purchase Order, or Transfer Pricing record, you can select the applicable trade term (e.g., EXW, FOB, CIF, DDP) and link it to a specific location.
This selection automatically affects shipment expectations, cost calculation, and internal allocation.
Why Trade Terms Matter
Each trade term defines three key factors in your transaction:
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Who arranges and pays for shipping.
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Where the risk transfers from seller to buyer.
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Who handles import/export procedures and insurance.
Correct setup ensures that:
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Your cost and selling prices reflect the actual responsibility.
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Your logistics team knows where the delivery obligation ends.
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Your finance team aligns invoices, duties, and insurance correctly.
Common Trade Terms Explained
| Term | Meaning | Seller’s Responsibility Ends At | Buyer’s Responsibility Starts At |
|---|---|---|---|
| EXW (Ex Works) | Buyer picks up goods at seller’s premises. | Seller’s warehouse/factory. | From the moment goods are collected. |
| FCA (Free Carrier) | Seller delivers to carrier nominated by buyer. | At agreed delivery point or port. | After handover to carrier. |
| FOB (Free On Board) | Seller loads goods on vessel at origin port. | When goods are on board. | Once vessel departs origin port. |
| CFR (Cost and Freight) | Seller pays freight to destination port, buyer handles insurance and import. | Destination port (risk transfers on loading). | During ocean transit and import clearance. |
| CIF (Cost, Insurance & Freight) | Same as CFR but seller also provides insurance. | Destination port (risk transfers on loading). | After goods reach destination port. |
| CPT (Carriage Paid To) | Seller pays for transport to destination. | When goods are handed to first carrier. | After carrier receives goods. |
| CIP (Carriage & Insurance Paid) | Same as CPT but seller also covers insurance. | When goods handed to first carrier. | After shipment. |
| DAP (Delivered At Place) | Seller delivers to buyer’s premises or named place. | Destination (ready for unloading). | When goods arrive for unloading. |
| DPU (Delivered at Place Unloaded) | Seller delivers and unloads at destination. | After unloading. | After goods are placed at buyer’s disposal. |
| DDP (Delivered Duty Paid) | Seller handles all costs, insurance, duties, and delivery to buyer. | After customs cleared and delivered to buyer. | After receipt of goods. |
Most Practical Use Cases
Below are the most common and realistic scenarios for Sourcemaster users, based on how cross-border SMBs actually trade:
1️⃣ Exporter (China Supplier → U.S. Buyer)
Term: FOB or CIF
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FOB (Free On Board):
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Supplier delivers goods to port (e.g., Shanghai).
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Buyer arranges vessel, freight, and insurance.
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Common when the buyer already has a forwarder or handles import logistics.
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CIF (Cost, Insurance & Freight):
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Supplier manages ocean freight and insurance to destination port (e.g., Los Angeles).
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Buyer only handles import clearance and inland transport.
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Common for international trading companies that want more control over end-to-end delivery.
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📦 Used when: You’re sourcing from multiple suppliers and shipping to overseas customers via sea freight.
2️⃣ Domestic Consolidation (Chiang Mai Supplier + China Supplier → Bangkok Warehouse → Thai Customer)
Term: EXW or FCA (supplier side), DAP or DDP (customer side)
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From Suppliers:
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Set EXW (each supplier ships to your warehouse).
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Or FCA if you use your own freight forwarder to collect goods.
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To Customer:
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Use DAP if you deliver to the customer’s address but they handle unloading.
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Use DDP if your price already includes delivery and taxes.
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📦 Used when: You consolidate materials at your own warehouse before reselling or redistributing domestically.
3️⃣ Dropship (Supplier → Direct to Customer)
Term: FOB or DAP
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FOB: Common when you coordinate international dropship and buyer arranges freight.
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DAP: Common in eCommerce-style exports where supplier handles all logistics up to delivery destination.
📦 Used when: You never handle the goods physically — supplier ships directly to your end customer.
4️⃣ Inter-Entity Transfer (e.g., China Office → Thailand Office)
Term: CIF or DDP (Internal Transfer)
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Set the term that matches the internal pricing logic for cost allocation (e.g., CIF Bangkok or DDP Bangkok).
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Used together with Transfer Pricing in Sourcemaster to ensure correct margin calculation between entities.
📦 Used when: You move goods between your own entities for accounting or tax purposes.
Legacy Terms (For Reference Only)
💡 Practical Tip
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Use FOB for standard export deals.
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Use CIF when you want to include freight + insurance in your quote.
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Use DAP or DDP when selling directly to customers in their country.
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Avoid mixing old terms (DDU, DES) unless your customer specifically requests them.
📘 Trusted Educational Summaries
These are free and accurate summaries aligned with ICC’s 2020 revision:
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Trade.gov (U.S. Department of Commerce)
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Provides simplified explanations and practical guidance for exporters/importers.
⚙️ Key Updates in Incoterms® 2020
For context when explaining inside your sourcemaster Help Center:
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DAT (Delivered at Terminal) was renamed to DPU (Delivered at Place Unloaded).
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FCA now allows for on-board notation for marine shipments.
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CIP requires higher insurance coverage (Institute Cargo Clauses A), while CIF remains at the traditional level (Clauses C).
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Clearer separation between costs and risk responsibilities.
💡 If this doesn’t solve your issue or you have more questions, feel free to reach out through our [contact form]. We’ll get back to you within 2–3 business days.
