Why Incoterms matter more than the freight rate
An Incoterm decides three things: who pays for each leg, who carries the risk if the cargo is damaged, and who handles customs formalities at each end. Get it wrong and a rate that looked competitive turns into an invoice full of charges you did not expect.
Indian exporters most often work on FOB, and Indian importers most often buy on CIF or FOB. Both of those are reasonable defaults. The problems start when someone agrees to EXW or DDP without thinking through what they have accepted.
The eleven terms, grouped
Incoterms 2020 contains eleven terms. Seven apply to any mode of transport — EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four apply only to sea and inland waterway — FAS, FOB, CFR and CIF.
That last point catches people out constantly. FOB and CIF are sea terms. Using them for an air shipment or a containerised door-to-door movement is technically wrong and creates genuine ambiguity about where risk transfers.
EXW: more risk than buyers expect
Under EXW the seller simply makes the goods available at their premises. The buyer arranges everything, including export clearance in the seller’s own country — which a foreign buyer often cannot legally do without a local agent.
If you are buying EXW from an Indian supplier, you need a forwarder with an Indian presence who can file the shipping bill. If you are selling EXW, understand you have no control over how the cargo is handled once it leaves your gate, and no proof of export unless you insist on documentation.
DDP: more risk than sellers expect
DDP is the mirror image. The seller delivers to the buyer’s door with import duty and taxes paid. Buyers love it because it is a single clean price.
The seller is accepting liability for a customs regime they may not operate in, may not be registered for, and cannot control. In several countries a non-resident cannot act as importer of record at all. Before quoting DDP, check the duty exposure and whether you can legally clear the goods.
The practical advice
Agree the Incoterm in writing before the contract is signed, not when the cargo is ready. Write it as the term plus the named place — “FOB Nhava Sheva” rather than just “FOB”. And state which Incoterms revision applies, since 2010 and 2020 differ.
If you are unsure which term serves you best on a particular lane, ask before you commit. Changing an Incoterm after the purchase order is agreed is a commercial negotiation, not an administrative correction.
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