Understanding Incoterms for First-Time Importers
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Understanding Incoterms for First-Time Importers

Incoterms® clarify which party arranges and pays for transport, insurance, export or import clearance and where the risk of loss or damage transfers between seller and buyer.

09 INCOTERMS GUIDE
KNOW YOUR TRADE TERMS

Understand costs, responsibilities and risk before you order.

Incoterms® are 11 internationally recognised trade rules published by the International Chamber of Commerce. They allocate transport tasks, costs and risk between buyer and seller.

01
THE BASIC PURPOSE

What Incoterms Do

  • Allocate transport tasks, costs and risk between buyer and seller.
  • Clarify responsibilities for transport, insurance, export and import clearance.
  • Define where the risk of loss or damage transfers from seller to buyer.
02
IMPORTANT LIMITATION

What Incoterms Do Not Do

  • They do not decide ownership of the goods.
  • They do not determine payment terms, product quality, warranties or remedies for breach.
  • The sales contract and purchase order must address those matters separately.
COMMON TERMS FOR HANDICRAFT ORDERS

Compare the responsibility before choosing a term.

TERM
SELLER'S MAIN RESPONSIBILITY
WHAT THE BUYER SHOULD UNDERSTAND
EXW Ex Works
Makes goods available at the named premises.
Buyer handles collection, export clearance, main transport and import. It may be difficult for a foreign buyer to manage Indian export formalities.
FCA Free Carrier
Clears goods for export and delivers them to the buyer's nominated carrier at the named place.
Often practical for courier, air, road, multimodal and containerised shipments. State the exact delivery point.
FOB Free On Board
Clears goods for export and loads them on the buyer-nominated vessel.
For sea or inland-waterway transport only. Risk transfers when goods are on board at the port of shipment.
CIF Cost, Insurance & Freight
Pays sea freight and specified insurance to the named destination port.
For sea transport only. Risk still transfers when goods are loaded on board at origin, not when they arrive.
DAP Delivered At Place
Arranges transport to the named destination, ready for unloading.
Buyer completes import clearance and normally pays import duty and taxes.
DDP Delivered Duty Paid
Arranges delivery and handles export and import formalities, including duties and taxes.
Convenient in appearance, but may be impractical if the seller cannot legally act as importer or pay local taxes.
BEFORE AGREEING

Ask the right questions before issuing the purchase order.

01
EXACT DELIVERY POINT

Where Is the Named Place?

  • Is the named point the supplier's premises, Indian port, destination port or buyer's address?
  • Write the exact location after the Incoterm.
02
COST RESPONSIBILITY

Who Pays for Each Stage?

  • Confirm who books and pays for pickup, export handling, main freight, insurance and destination charges.
  • Clarify responsibility for final delivery.
03
RISK & INSURANCE

When Does Risk Transfer?

  • Confirm the point where risk transfers from seller to buyer.
  • Determine who should arrange adequate cargo insurance.
04
CUSTOMS & TAXES

Who Handles Clearance?

  • Confirm who completes export and import customs clearance.
  • Clarify who pays duties, taxes and local charges.
05
TRANSPORT MODE

Is the Term Suitable?

  • Confirm that the selected term matches the transport method.
  • Make sure both parties have the actual capability to perform their responsibilities.
IMPORTANT BUYER RULES

Put the Incoterm and named place clearly in writing.

01 Term + Named Place
02 Incoterms® 2020
03 Risk Transfer
04 Insurance
05 Customs & Taxes
06 Origin & Destination Costs
✓
KEY BUYER RULES

Write the term, exact named place and version, for example “FCA Jaipur, India - Incoterms® 2020.” Do not assume that the party paying freight carries the risk throughout the journey. Under C terms, cost and risk transfer at different points.

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FIRST-IMPORT PRINCIPLE

For a first import, the best Incoterm is not automatically the cheapest or the one giving the seller the most responsibility. It should match the transport method, customs capabilities and experience of both parties. Confirm the term in writing before issuing the purchase order.

AUTHORITATIVE REFERENCE

International Chamber of Commerce, Incoterms® 2020 rules.

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