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International Trade Terms Explained
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You do not need to master international trade law. You do need to know what these dozen words mean before you sign something that uses them.
Classification and duty
HS code is the classification number that decides what duty you pay. Every product traded internationally has one, the first six digits are the same worldwide, and importing countries add further digits. Get this wrong and every downstream number is wrong.
Tariff is the duty rate applied to your goods, based on that code and where they come from. See our guide on import duty from Japan to the USA for how the layers stack.
Certificate of origin is the document stating where goods were actually produced. It matters because duty depends on origin, and preferential rates under trade agreements usually require it.
Terms of sale
Incoterms are the standard three-letter rules that define where the seller's responsibility ends and yours begins, who pays freight and insurance, and where risk transfers. They are the single biggest source of unpleasant surprises in a first import.
Ex Works (EXW) is the term where the seller does the least: the goods are available at their premises and everything after that is yours. It looks like the cheapest quote and frequently is not.
FOB, CIF and DDP are the other terms you will meet most often, each moving more of the cost and risk to the seller. Our Incoterms guide compares them.
Shipping documents
Bill of lading is the core shipping document: receipt for the goods, evidence of the contract of carriage, and, in its original negotiable form, a document of title. Whoever holds it controls the cargo.
Commercial invoice is the seller's bill, and the document customs uses to assess value. It needs an accurate description and value, not a vague one.
Packing list details what is physically in each carton or container, which is what customs checks against if they open the shipment.
Costs that surprise people
Demurrage and detention are the charges that accrue when containers sit too long, at the terminal or at your premises. They are the most common unexpected cost in a first import, and they accumulate daily.
Merchandise processing fee and harbor maintenance fee are US import fees charged alongside duty.
Payment
Letter of credit is a bank undertaking to pay the seller once they present the specified documents. It gives both sides protection, at the cost of paperwork and bank fees, and it is common in Japanese trade.
T/T, or telegraphic transfer, is a plain bank wire, the most common method and the one with the least protection once sent. Our guide on paying Japanese suppliers covers the trade-offs.
People in the chain
Freight forwarder arranges the transport: booking, documentation, and coordination across carriers. Not the same as a customs broker, though many firms do both.
Customs broker is licensed to file your entry with customs and get the classification right. For anything of value, worth having.
Importer of record is the party legally responsible for the entry and for paying duty, which is normally you, not your Japanese supplier.
Frequently asked questions
What trade terms do I need to know as a first-time importer?
At minimum: your HS code, your Incoterms, what a bill of lading is, and what demurrage and detention will cost you if the container sits. Those four cover most first-import surprises.
What is the difference between a freight forwarder and a customs broker?
A forwarder arranges the transport and documentation; a customs broker is licensed to file your customs entry and handle classification and duty. Many companies offer both, but they are distinct functions.
Who pays the import duty, me or the supplier?
The importer of record, normally you, unless you have agreed DDP terms where the seller delivers duty paid. Your Incoterms decide this, which is why they matter.
Why does my HS code matter so much?
It determines your duty rate, whether any additional measures apply, and what documentation you need. An incorrect code can mean underpaid duty and penalties, or overpaid duty you never get back.
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This guide is general information for overseas buyers, not customs, legal or financial advice. Definitions here are practical summaries, not legal definitions.
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