Which Incoterm® should I choose for exporting?
Incoterms® are rules used in national and international trade to facilitate global commerce. Knowing and understanding your Incoterms® is the key to making the right choice, and avoiding potentially costly misunderstandings for both seller and buyer. A good knowledge of market practices and the competition can also help. This guide will help you if you need more information.
What are Incoterms® and how do they determine customs clearance obligations?
Incoterms® are a contraction of the words "International commercial terms". These are trade terms defined by the International Chamber of Commerce and designed to facilitate international trade. A 3-letter acronym summarizes the regulations for transporting goods and dictates the terms of transactions between sellers and buyers, including transport, insurance, licenses, documents, customs procedures, and liability shift. To prevent any misinterpretations and potential conflicts, it is crucial to clearly communicate your selection in the sales terms and have a comprehensive understanding of the rights, obligations, responsibilities, and risks for each party.
There are currently 11 Incoterms®, divided into two groups depending on the mode of transport used to move the goods:
Multimodal Incoterms®
EXW (Ex-Works)
| Transfer of risks | When made available to buyers |
| Responsibility and payment of costs | The seller is responsible for export packaging |
| The buyer is responsible for loading charges, delivery to destination/port, export duties, taxes and customs clearance, handling at originating terminal, transport costs, handling at the arrival terminal, unloading at destination, delivery to destination and import duties, taxes and customs clearance. | |
| Insurance is negotiable. |
FCA (Free-Carrier)
| Transfer of risks | During transport to the buyer |
| Responsibility and payment of costs | The seller is responsible for export packaging, loading charges, delivery to destination/port, export duties, taxes and customs clearance. |
| The buyer is responsible for handling at originating terminal, transport costs, handling at the arrival terminal, unloading at destination, delivery to destination and import duties, taxes and customs clearance. | |
| Insurance is negotiable. |
CPT (Carriage Paid To)
| Transfer of risks | At the transport operator |
| Responsibility and payment of costs | The seller is responsible for export packaging, loading costs, delivery to the destination/port, export duties, taxes and customs clearance, handling at originating terminal, loading on the wagon, transport costs, handling at the arrival terminal |
| The buyer is responsible for unloading at destination, delivery to destination and import duties, taxes and customs clearance. | |
| Insurance is negotiable |
CIP (Carriage Insurance Paid To)
| Transfer of risks | At the transport operator |
| Responsibility and payment of costs | The seller is responsible for export packaging, loading costs, delivery to the destination/port, export duties, taxes and customs clearance, handling at originating terminal, loading on the wagon, transport costs, handling at the arrival terminal |
| The buyer is responsible for unloading at destination, delivery to destination and import duties, taxes and customs clearance. | |
| The seller is responsible for insurance. |
DAP (Delivered At Place)
| Transfer of risks | At the agreed location |
| Responsibility and payment of costs | The seller is responsible for export packaging, loading costs, delivery to the destination/port, export duties, taxes and customs clearance, handling at originating terminal, loading on the wagon, transport costs, handling at the arrival terminal, unloading at destination |
| The buyer is responsible for delivery to destination and import duties, taxes and customs clearance. | |
| Insurance is negotiable |
DPU (Delivered At Place Unloaded)
| Transfer of risks | At the agreed location |
| Responsibility and payment of costs | The seller is responsible for export packaging, loading costs, delivery to the destination/port, export duties, taxes and customs clearance, handling at originating terminal, loading on the wagon, transport costs, handling at the arrival terminal, unloading at destination, delivery to destination and import duties |
| The buyer is only responsible for taxes and customs clearance. | |
| Insurance is negotiable |
DDP (Delivered Duty Paid)
| Transfer of risks | At the agreed location |
| Responsibility and payment of costs | The seller is responsible for export packaging, loading costs, delivery to the destination/port, export duties, taxes and customs clearance, handling at originating terminal, loading on the wagon, transport costs, handling at the arrival terminal, unloading at destination, import duties, taxes and customs clearance |
| The buyer is only responsible for delivery to destination. | |
| Insurance is negotiable |
Incoterms® for sea and inland waterway transport
FAS (Free Alongside Ship)
| Transfer of risks | During transport to the buyer |
| Responsibility and payment of costs | The seller is responsible for export packaging, loading costs, delivery to the destination/port, export duties, taxes and customs clearance, handling at originating terminal, |
| The buyer is responsible for transport costs, handling at the arrival terminal, unloading at destination, delivery to destination and import duties, taxes and customs clearance. | |
| Insurance is negotiable |
FOB (Free On Board)
| Transfer of risks | On board the ship |
| Responsibility and payment of costs | The seller is responsible for export packaging, loading costs, delivery to the destination/port, export duties, taxes and customs clearance, handling at originating terminal, loading on the wagon |
| The buyer is responsible for transport costs, handling at the arrival terminal, unloading at destination, delivery to destination and import duties, taxes and customs clearance. | |
| Insurance is negotiable |
CFR (Cost and Freight)
| Transfer of risks | On board the ship |
| Responsibility and payment of costs | The seller is responsible for export packaging, loading costs, delivery to the destination/port, export duties, taxes and customs clearance, handling at originating terminal, loading on the wagon, transport costs |
| The buyer is responsible for handling at the arrival terminal, unloading at destination, delivery to destination and import duties, taxes and customs clearance. | |
| Insurance is negotiable |
CIF (Cost, Insurance and Freight)
| Transfer of risks | On board the ship |
| Responsibility and payment of costs | The seller is responsible for export packaging, loading costs, delivery to the destination/port, export duties, taxes and customs clearance, handling at originating terminal, loading on the wagon, transport costs |
| The buyer is responsible for handling at the arrival terminal, unloading at destination, delivery to destination and import duties, taxes and customs clearance. |
How should you choose your Incoterm®?
In order to choose the best Incoterm® to be used in the contract, it is important to consider the following factors:
- cost: the choice of Incoterm® naturally has an impact on transport costs, which will be reflected in the selling price. Check competitors' and market practices before positioning yourself. Ask yourself what service you want to offer your customers.
- control: both buyers and sellers prefer to have control over the transportation of their goods. This can be reassuring as it gives the impression of having the power to reduce the risks incurred during transport and increase the chances of goods being delivered in good condition. If you are used to delivering fragile items, it may be worth investing in a reliable supply chain. If you're in charge of transportation based on the Incoterm® you selected, you should hire a transport company or shipping agent to handle logistics and customs procedures for you.
- characteristics of the destination country and the country of origin: if you are not familiar with customs procedures in the destination country, it will be easier to facilitate the export process by assigning responsibilities to the other party.
Some points to note
- The International Chamber of Commerce regularly revises its Incoterms® every decade to ensure they accurately reflect changes in global trade practices.The last update dates back to 2020.
- Incoterms® are used for both international and national sales contracts.
- Incoterms® do not define insurance requirements, except for CIF and CIP.
Where can I find out more information?
Here are some useful links:
- For more information on the Incoterms® available and the responsibilities they entail, please consult the International Chamber of Commerce (ICC) Incoterms® 2020.
- You will find a simplified guide on Incoterms® 2020 from the International Chamber of Commerce (ICC) - Transport Obligations Costs and Risks
- Choose the right Incoterm® for your transaction with the Belgian Foreign Trade Agency.
Who can help me ?
Below are some organisations that can help you with this issue.
