Division of Costs is a term in international trade that defines which costs each party (buyer and seller) bears during the delivery of goods. It is often used in conjunction with trade terms such as FOB, CIF, EXW, etc. Its core purpose is to clarify who pays for transportation, insurance, loading/unloading, customs duties, warehousing, etc. Usage scenarios include contract negotiations, letter of credit terms, quotation calculations, and dispute resolution. Note: Different trade terms correspond to different cost division rules. For example, under FOB, the buyer bears the main freight and insurance, while the seller bears pre-shipment costs; under CIF, the seller bears freight and insurance to the destination port. Unlike 'division of risk,' division of costs focuses on monetary responsibility, while division of risk focuses on bearing loss or damage to goods. In practice, cost division details must be clearly stated in the contract to avoid disputes arising from differences in interpretation of terms. Additionally, cost division is affected by the version of Incoterms, and it is recommended to reference the latest version.
📝 Examples
1. This transaction uses CIF terms, and the division of costs is as follows: the seller is responsible for ocean freight and insurance to New York Port, and the buyer bears destination port unloading charges and import duties. (This illustrates that under CIF, the seller bears main freight and insurance, and the buyer bears unloading and duties.)
2. According to Article 5 of the contract, the division of costs is based on FOB Shanghai: the seller pays all costs before loading, and the buyer pays freight and insurance after loading. (This illustrates that under FOB, costs are divided at the ship's rail.)
💡 Foreign Trade Tips
Foreign trade terms are the foundation of international business communication
Trade practices may vary slightly by country; pay attention when using them
When using terms in contracts, specify the applicable version (e.g., Incoterms 2020)
For unfamiliar terms, use GlobalSync's multilingual email helper to confirm with your partner