Incoterms are the three-letter terms published by the International Chamber of Commerce (ICC) that say who does what in a sale: who books and pays the freight, who insures the goods, who clears customs, and at what point the risk of loss moves from you to your buyer. The current version is Incoterms 2020. Write the term and the named place on every proforma and commercial invoice — for example FOB Nhava Sheva or CIF Jebel Ali.
The two groups
Incoterms 2020 has 11 rules. Four are for sea and inland waterway only; seven work for any mode, including air and multimodal container shipments.
Rules for any mode of transport
- EXW (Ex Works) — The buyer collects from your factory and handles everything, even Indian export clearance. Simple on paper, but awkward in India because the shipping bill and export proof must still be in the exporter's name for GST and incentives.
- FCA (Free Carrier) — You clear the goods for export and hand them to the buyer's carrier at a named place, such as your factory or the forwarder's CFS. Often the better choice than FOB for containers.
- CPT (Carriage Paid To) — You pay freight to the destination, but risk passes to the buyer when you hand the goods to the first carrier.
- CIP (Carriage and Insurance Paid To) — As CPT, plus you insure the goods. Under Incoterms 2020 the insurance must be all-risks cover (Institute Cargo Clauses A).
- DAP (Delivered at Place) — You deliver to the buyer's named place, ready for unloading. The buyer clears import customs and pays import duties.
- DPU (Delivered at Place Unloaded) — As DAP, but you also unload. Replaced DAT in 2020.
- DDP (Delivered Duty Paid) — You deliver to the buyer's door and pay the destination's import duty and taxes. The highest risk and cost for the exporter, and you need a way to clear customs in the buyer's country.
Rules for sea and inland waterway only
- FAS (Free Alongside Ship) — You place the goods alongside the vessel at the port of loading. Used for bulk and break-bulk cargo.
- FOB (Free on Board) — You clear for export and load the goods on board the vessel the buyer has booked. Risk passes once the goods are on board.
- CFR (Cost and Freight) — You pay ocean freight to the destination port; risk still passes when the goods are on board in India.
- CIF (Cost, Insurance and Freight) — As CFR, plus you insure the cargo. Under Incoterms 2020 CIF needs only minimum cover (Institute Cargo Clauses C) unless the contract says more.
FOB vs CIF: which should an Indian exporter quote?
FOB keeps your price simple and leaves freight to the buyer. CIF lets you control the shipping line and earn a margin on freight, but freight rates move and you carry that risk between quoting and shipping. Many exporters quote both. Whatever you quote, the customs value on the shipping bill is FOB, so keep freight and insurance as separate figures on the invoice.
Common mistakes
- Using FOB or CIF for air shipments. They are sea-only rules. Use FCA, CPT or CIP for air.
- Using FOB for containers handed over at an ICD or CFS. Your risk continues until the box is on the ship. FCA matches what actually happens.
- Leaving out the named place. "FOB" alone is incomplete; write "FOB Chennai Port, Incoterms 2020".
- Quoting CIF but not adding freight and insurance to the invoice. Banks check LC documents against the term.
How Eximly helps
In Eximly the Incoterm is set on the export order and carried onto the proforma, commercial invoice and shipping documents. When you save, Eximly warns you if the term and the charges disagree — for example CIF with no insurance, FOB on an air shipment, or freight entered on an FOB invoice. Start a 30-day free trial or see pricing.
Related topics