How to Use This Glossary
Terms are grouped into 5 categories: Trade Terms, Payment & Documents, Logistics, Customs & Duties, and Market & Contracts. New to exporting? Start with "Trade Terms."
Trade Terms (Incoterms)
- Incoterms
- A set of standardized trade terms published by the International Chamber of Commerce (ICC). They define who bears costs and risk at each stage of a shipment. The current version is Incoterms® 2020.
- FOB (Free On Board)
- Risk and cost transfer from seller to buyer when goods are loaded on board the vessel at the named port of shipment. One of the most common terms in Korean exports.
- CIF (Cost Insurance Freight)
- The seller pays ocean freight and marine insurance to the named destination port. Risk transfers at the port of shipment. Commonly used in raw material and agricultural commodity trade.
- EXW (Ex Works)
- The seller's obligation ends when goods are made available at their premises (factory or warehouse). The buyer bears all transport costs and risks from that point. The lowest obligation for the seller.
- DDP (Delivered Duty Paid)
- The seller bears all costs and risks, including import duties and customs clearance in the buyer's country, up to the named destination. The highest obligation for the seller.
- CFR (Cost and Freight)
- The seller pays freight to the named destination port but the buyer arranges marine insurance. Unlike CIF, the seller has no obligation to insure the goods.
Payment & Documents
- Letter of Credit (L/C)
- A payment guarantee issued by the buyer's bank to the seller. Once the seller presents compliant shipping documents, the bank guarantees payment. One of the most common settlement methods in international trade.
- Bill of Lading (B/L)
- A document issued by the carrier acknowledging receipt of cargo and committing to deliver it to the destination. It represents title to the goods and is essential in L/C transactions.
- Proforma Invoice
- A preliminary invoice sent by the seller before a transaction is confirmed. It states items, quantity, unit price, payment terms, and validity period, and serves as the basis for the buyer's import license or L/C application.
- Packing List
- A detailed statement of all packages in a shipment, listing items, quantities, net weight, and gross weight per box. Used for customs clearance and cargo verification by the buyer.
- Certificate of Origin
- An official document certifying the country in which the exported goods were produced. Required to claim preferential tariff rates under FTA agreements. In Korea, issued by the Korea Chamber of Commerce or Customs.
- Draft / Bill of Exchange
- A written order by the exporter (drawer) instructing the importer or a bank to pay a specified sum. Presented to the bank along with shipping documents (e.g., B/L) in L/C transactions.
Logistics & Shipping
- HS Code (Harmonized System Code)
- An internationally standardized product classification code maintained by the World Customs Organization (WCO). The first 6 digits are universal; countries add further digits for local classification. Required on all trade documents for customs filing and duty calculation.
- Freight Forwarder
- A logistics agent that arranges sea, air, and land transport on behalf of shippers. Services include booking cargo space, customs brokerage, and document preparation.
- Demurrage
- A charge levied when a container or vessel is held beyond the free time allowed. Typically caused by customs delays or late container return.
- Multimodal Transport
- The movement of goods using two or more modes of transport (e.g., sea + land, sea + air) under a single contract and a single document (multimodal B/L).
- Drayage
- Short-distance land transport of containers between ports or rail terminals and warehouses or final destinations.
Customs & Duties
- Tariff / Customs Duty
- A tax imposed on imported goods. Rates are determined by HS code and country of origin. Goods from FTA partner countries may qualify for preferential (reduced) rates.
- Customs Clearance
- The process by which goods pass through customs authority. For exports: declaration → review → loading. For imports: declaration → review → duty payment → release.
- FTA (Free Trade Agreement)
- An agreement between two or more countries to reduce or eliminate tariffs and trade barriers. Korea has FTAs in force with 59 countries including the EU, US, China, and ASEAN.
- Export Declaration
- A declaration filed with customs before exporting goods. Shipment can proceed after the declaration is accepted. It also serves as the basis for VAT zero-rating on exports.
Market & Contracts
- MOQ (Minimum Order Quantity)
- The minimum number of units a supplier will accept in a single order. Due to mass-production economics, manufacturers often require orders above MOQ — a key negotiation point with buyers.
- OEM (Original Equipment Manufacturer)
- A production arrangement where the supplier manufactures products to the buyer's brand and specifications and delivers them under the buyer's label.
- ODM (Original Design Manufacturer)
- A production arrangement where the manufacturer designs and develops the product and supplies it under the buyer's brand. Unlike OEM, the manufacturer leads the product design.
- Buyer
- An overseas company or individual that purchases goods in an export transaction. Buyers may be wholesalers, importers, distributors, or global brands.
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