Incoterms Explained: What Every Exporter Must Know
Incoterms are the foundation of international trade negotiations. These terms define where your responsibility ends and the buyer's begins, who pays for freight and insurance, and who handles customs clearance. Getting Incoterms wrong costs money and creates disputes.
What Are Incoterms?
Incoterms are three-letter codes that represent standardized international commercial terms. "FOB" (Free on Board) is probably the term you've heard most often. These terms are published by the International Chamber of Commerce and updated every 10 years to reflect international trade realities.
Currently, we use Incoterms 2020, which superseded Incoterms 2010.
The Four Categories of Incoterms
Group E: Ex Works (EXW)
The exporter's responsibility ends at their warehouse. The buyer arranges and pays for all transportation, insurance, and customs clearance.
Group F: Main Carriage Unpaid
FOB (Free on Board): The exporter arranges transportation to the port and loads goods on the vessel. Costs and risks transfer to the buyer once goods are on the ship.
FCA (Free Carrier): Similar to FOB but used for any transport mode, not just ocean shipping.
Group C: Main Carriage Paid
CIF (Cost, Insurance, and Freight): The exporter pays for ocean freight and marine insurance and delivers goods to the destination port.
CFR (Cost and Freight): Similar to CIF but without insurance.
Group D: Arrival Contracts
DDP (Delivered Duty Paid): The exporter handles everything—transportation, insurance, customs clearance, and duties.
DAP (Delivered at Place): The exporter delivers goods to a specific location in the buyer's country, but the buyer handles final customs clearance.
Key Takeaway
Incoterms are the language of international trade. Understanding them precisely prevents disputes, manages costs effectively, and protects your interests. Choose Incoterms strategically based on your capabilities, market position, and buyer relationships.
Orgaluv works with buyers across FOB, CIF, and DDP terms for agricultural exports from India. Contact our export team to discuss trade terms for your requirements.
