Incoterms are the three-letter trade rules published by the International Chamber of Commerce that decide one thing above all: at which precise point the seller stops paying and stops carrying the risk. Most disputes we are asked to untangle at MEX Multi Logistics are not freight problems at all — they are the result of a buyer and a seller reading the same three letters differently. This guide walks through the eleven Incoterms 2020 rules the way we explain them to first-time exporters in Chennai, with the cost split, the risk transfer point and the practical traps for each.
The two families of Incoterms 2020
The eleven rules split into two groups. Seven rules work for any mode of transport, including road, rail, air and multimodal container movements. Four rules — FAS, FOB, CFR and CIF — apply only to sea and inland waterway transport, and only to cargo handed over at the ship's rail or alongside the vessel. Using a maritime-only rule for a container that is actually delivered to a CFS or ICD is the single most common drafting error we see on Indian export contracts.
| Rule | Mode | Risk passes to buyer | Main cost burden on seller |
|---|---|---|---|
| EXW | Any | At seller's premises, before loading | Packing only |
| FCA | Any | On handover to buyer's carrier | Origin haulage and export clearance |
| CPT | Any | On handover to first carrier | Main carriage to named destination |
| CIP | Any | On handover to first carrier | Main carriage plus all-risk insurance (110%) |
| DAP | Any | On arrival, ready for unloading | All carriage to destination, no import duty |
| DPU | Any | After unloading at named place | All carriage plus unloading |
| DDP | Any | On arrival, ready for unloading | Everything, including import duty and taxes |
| FAS | Sea only | Alongside the vessel | Delivery alongside plus export clearance |
| FOB | Sea only | Once loaded on board | Loading on board plus export clearance |
| CFR | Sea only | Once loaded on board | Ocean freight to destination port |
| CIF | Sea only | Once loaded on board | Ocean freight plus marine insurance (110%) |
Where each rule actually helps
EXW — use it rarely
Under EXW the buyer is technically responsible for export clearance in India, which a foreign buyer usually cannot do because the shipping bill must be filed against the exporter's IEC. In practice the exporter ends up handling clearance anyway, without being paid for it. If your intention is a factory-gate price, quote FCA (seller's premises) instead — it gives the same commercial effect while keeping export clearance where the law expects it.
FCA — the container-friendly replacement for FOB
For a full container load moving from an inland factory to a port, FCA reflects reality: risk transfers when the loaded container is handed to the carrier at the agreed point (your factory, the CFS or the ICD). Incoterms 2020 added a useful provision — the parties can agree that the carrier issues an on-board bill of lading to the seller, which solves the old problem of FCA sales under a letter of credit that demands an on-board B/L.
CIF and CIP — mind the insurance levels
Incoterms 2020 separated the insurance requirements of the two rules. CIP now requires all-risk cover at Institute Cargo Clauses (A) level; CIF still requires only the minimum Clauses (C) cover. Both require 110% of the contract value in the contract currency. If you sell CIF and your buyer expects all-risk protection, say so in writing and price the difference — an ICC (C) policy will not respond to most handling damage.
DDP — the term that quietly transfers tax risk
DDP makes the seller the importer of record in the destination country, responsible for duty, VAT or GST and for any local registration required to pay it. Several jurisdictions will not let a non-resident act as importer of record at all. Unless you have a customs-registered entity or a fiscal representative in the destination market, quote DAP and let the buyer clear.
A five-step method for choosing the right term
- 1Decide who controls the main carriage. If you want carrier and routing control, quote a C or D term; if the buyer has better freight rates, quote F.
- 2Check the mode. Containerised or multimodal cargo takes FCA/CPT/CIP/DAP/DPU/DDP; only break-bulk and bulk loaded at the ship's rail justify FAS/FOB/CFR/CIF.
- 3Name the place precisely: 'FCA Chennai Port CFS, India' or 'DAP Warehouse 4, Rotterdam' — not just 'FCA India'.
- 4Match the term to the payment instrument. Letters of credit that demand an on-board bill of lading need FOB/CFR/CIF, or an FCA sale with the on-board notation agreed in advance.
- 5State the Incoterms version. Write 'CIP Hamburg, Incoterms 2020' on the proforma, contract and commercial invoice so nobody argues about which edition applies.
What Incoterms do not cover
- Transfer of ownership or title — that is governed by the sale contract, not the Incoterm.
- Payment terms, currency and credit period.
- The consequences of breach, force majeure and dispute jurisdiction.
- Sanctions and export-control compliance, which apply regardless of the term chosen.
Working rule we give our clients: the Incoterm allocates cost and risk during carriage only. Everything else has to be written into the contract.
Frequently asked questions
Can I use FOB for a container shipment?
You can write it, but it does not fit. Under FOB risk passes only when goods are loaded on board, while a container is normally handed over days earlier at a CFS or ICD. That gap leaves the seller carrying risk for cargo it no longer controls. FCA is the correct rule for containers.
Who arranges marine insurance under CFR?
Nobody, by default. CFR obliges the seller to pay ocean freight but not to insure. The buyer bears risk from the moment of loading and should take its own cover. If insurance should sit with the seller, use CIF or CIP.
Does the Incoterm decide who files the shipping bill in India?
Practically, yes for export clearance. Every rule except EXW places export clearance on the seller, and Indian customs requires it to be filed against the exporter's IEC, which is why EXW rarely works for Indian exports.
Need this handled for a live shipment?
Our team in Chennai handles freight, customs and documentation end to end. Send us the details and we will come back with routing and a rate.
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