For an entrepreneur engaged in export, knowing the rules of Incoterms (International Commercial Terms) means not only understanding the international language but also protecting one's interests and avoiding unexpected losses.
Incoterms 2020: A Complete Guide for Exporters
The Incoterms rules define three main aspects in an export contract: until when the seller bears the costs, at what point the risk (liability) passes to the buyer, and who handles the documentation.
Rules for Any Mode of Transport (Multimodal)
These terms apply when exporting via truck, train, or airplane.
EXW (Ex Works) — Ex Works
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Exporter's obligations: Minimal. You prepare the goods at your warehouse or factory.
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Costs and Risk: All costs for loading, customs clearance, and transportation are fully borne by the buyer.
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Advice: If you have little export experience, this is the safest way. However, if the buyer damages the goods during loading, disputes may arise.
FCA (Free Carrier) — Free Carrier
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Exporter's obligations: You pass the goods through export customs and deliver them to the carrier designated by the buyer (e.g., a truck).
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Costs and Risk: All responsibility passes to the buyer after the goods are handed over to the carrier.
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Advantage: The most favorable terms for container shipments.
CPT (Carriage Paid To) — Carriage Paid To
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Exporter's obligations: You pay the main transport costs (freight) to the specified destination.
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Risk transfer point: Attention! Although you pay for it, the risk passes to the buyer as soon as the goods are handed over to the first carrier.
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Benefit for the exporter: You choose the transport company yourself, allowing you to control logistics.
CIP (Carriage and Insurance Paid To) — Carriage and Insurance Paid To
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Exporter's obligations: As in CPT, but you are also required to insure the goods in favor of the buyer.
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New rule: According to Incoterms 2020, CIP terms require maximum insurance coverage (All Risks).
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DAP (Delivered at Place) — Delivered at Place
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Exporter's obligations: You deliver the goods to the buyer's door (or to the specified point).
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Risk: All responsibilities lie with you until the goods arrive at the destination and are ready for unloading. Unloading is the buyer's responsibility.
DPU (Delivered at Place Unloaded) — Delivered at Place Unloaded
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Exporter's obligations: Like DAP, but you must also unload the goods from the vehicle.
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Risk: The risk passes to the buyer after the goods are unloaded.
DDP (Delivered Duty Paid) — Delivered Duty Paid
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Exporter's obligations: Maximum responsibility. You not only deliver but also pay the import customs duties and taxes in the buyer's country.
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Advice: If you are not well-versed in the customs laws of the buyer's country, it is better to avoid these terms.
| Term | Export Customs | Main Transport (Freight) | Insurance | Import Customs and Taxes | When does Risk (Liability) Transfer? |
|---|---|---|---|---|---|
| EXW | Buyer | Buyer | Buyer | Buyer | At the seller's warehouse (before loading) |
| FCA | Seller | Buyer | Buyer | Buyer | When handed over to the carrier (terminal or truck) |
| CPT | Seller | Seller | Buyer | Buyer | When the goods are handed over to the first carrier |
| CIP | Seller | Seller | Seller | Buyer | When the goods are handed over to the first carrier |
| DAP | Seller | Seller | Optional | Buyer | At the specified place (before unloading) |
| DPU | Seller | Seller | Optional | Buyer | At the specified place (after unloading) |
| DDP | Seller | Seller | Optional | Seller | At the specified place (before unloading) |
Which one to choose as an exporter?
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If you want to make the price competitive: choose FCA or FOB. Then logistics will be the buyer's responsibility, and you won't face extra pressure.
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If you want to provide service to the customer: offer DAP. Buyers appreciate "door-to-door delivery" services.
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If you have good connections with transport companies: you can gain additional benefits (margins) through CPT or CFR.
Golden Rules for Exporters:
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GTD Control: By choosing FCA terms, arrange the export customs declaration in your name. This is the only legal way to reclaim VAT from tax authorities later.
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Insurance Issue: Under CIP terms, the insurance policy is issued in the buyer's name. If something happens on the way, the buyer will claim the damage from their insurance company.
Reduce Logistics Risks to "Zero"!
In international trade, Incoterms are not just abbreviations; they are the safety belt of your business. One incorrectly chosen letter (e.g., FCA instead of EXW) can lead not only to customs issues but also to unexpected financial losses.
For Safe Export Execution:
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Review the contract: Do the terms of your existing contracts match your real capabilities?
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Define the risk boundaries: Clearly specify where your goods pass to the buyer.
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Consult with an expert: Use professional logistics assistance in complex supply chains.
Remember: Correctly chosen Incoterms mean preserved profit and guaranteed peace of mind!
Trust Risks to Specialists!
Don't let uncertainties in your export contract cost you dearly. Our team will provide you with optimal logistics solutions based on Incoterms 2020.
Have questions? We are always in touch! Call us, let's discuss the situation and determine the best path for your business.
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