Introduction
Every export contract I have ever signed has two numbers that matter most: the price, and the Incoterm. Most first-time exporters spend all their attention on the price and almost none on the Incoterm — which is a significant mistake, because the Incoterm you agree to determines who pays for freight, who buys insurance, at what point you are no longer responsible if something goes wrong, and ultimately whether the price you quoted is actually profitable.
I have seen exporters lose money on perfectly priced orders because they agreed to the wrong Incoterm and ended up paying for freight they had not budgeted. I have seen buyers reject claims for damaged goods because the Incoterm specified that risk had already transferred to them before the damage occurred. These are expensive, entirely avoidable lessons.
Incoterms — International Commercial Terms — are a set of 11 standardised trade terms published by the International Chamber of Commerce (ICC). The current version, Incoterms 2020, was published in September 2019 and has been the global standard since January 2020. They define, with legal precision, the responsibilities of the exporter and importer in any international sale: who arranges transport, who pays for it, who insures the goods, and at exactly what point the risk of loss or damage transfers from seller to buyer.
This guide will take you through all 11 Incoterms 2020 with plain-language explanations, show you which terms Indian exporters most commonly use and why, explain the important changes in Incoterms 2020 versus the 2010 version, and give you a clear recommendation on which terms protect your interests in different situations.
Why Incoterms Matter So Much in Practice
Before we go through each term, I want to make absolutely clear what is at stake when you choose an Incoterm — because the abstract definitions only become meaningful when you understand the real-world consequences.
Imagine you quote a buyer in Germany at USD 10 per kilogram. The buyer asks "Is that FOB or CIF?" The answer changes the entire economics of the deal.
Under FOB Mumbai: The USD 10 is your price up to the point where the goods are loaded on the vessel at Mumbai port. The buyer pays freight from Mumbai to Hamburg (approximately USD 0.50–1.00/kg equivalent on most goods), marine insurance, port charges at Hamburg, customs clearance, and delivery to their warehouse. The buyer's total landed cost is roughly USD 11.50–12.00/kg.
Under CIF Hamburg: The USD 10 includes your freight and insurance costs to Hamburg. The buyer pays only Hamburg port charges, customs clearance, and inland delivery. Their landed cost is lower — approximately USD 10.50–11.00/kg — but you have absorbed the freight cost, which affects your margin.
The same product, the same factory price — but completely different cost implications depending on which Incoterm you quote. If you carelessly agree to CIF without having negotiated good freight rates, you may discover that the freight cost you now must absorb makes the order unprofitable.
Incoterms also determine risk transfer — the point at which you are no longer responsible if goods are lost or damaged. This is separate from the cost question, and the distinction between the two is where many exporters get confused. Under CFR and CIF, you pay for freight and insurance to the destination, but risk actually transfers to the buyer at the origin port when goods are loaded on the vessel. Conceptually, under CIF you are both paying for the goods' journey and insuring goods that are no longer at your risk — which is an unusual but legally defined arrangement.
The Structure of Incoterms 2020
Incoterms 2020 consists of 11 terms divided into two groups based on the applicable mode of transport.
Group 1 — Rules for Any Mode of Transport (sea, air, road, rail, or multimodal):
- EXW — Ex Works
- FCA — Free Carrier
- CPT — Carriage Paid To
- CIP — Carriage and Insurance Paid To
- DAP — Delivered at Place
- DPU — Delivered at Place Unloaded
- DDP — Delivered Duty Paid
Group 2 — Rules for Sea and Inland Waterway Transport Only:
- FAS — Free Alongside Ship
- FOB — Free On Board
- CFR — Cost and Freight
- CIF — Cost, Insurance and Freight
An important but widely misunderstood rule: the Group 2 terms (FOB, CIF, CFR, FAS) should technically only be used for non-containerised sea freight — bulk cargo, break-bulk cargo, tanker shipments. For containerised cargo, the ICC recommends using FCA instead of FOB, and CIP instead of CIF. In Indian export practice, however, FOB and CIF are routinely used for containerised shipments and this is accepted commercially even if technically imprecise. I will note where this distinction matters practically.
Incoterms 2020: All 11 Terms Explained for Indian Exporters
EXW — Ex Works
What it means: You make the goods available at your premises — your factory gate, your warehouse, wherever your production happens. That is the full extent of your obligation. The buyer is responsible for absolutely everything from that point: loading the goods onto their transport at your facility, all domestic transport to the Indian port, Indian export customs clearance, international freight, insurance, destination customs clearance, and final delivery.
Risk transfers: When goods are made available at your premises, before they are even loaded onto the buyer's vehicle. This is the earliest possible risk transfer point — risk leaves you before the goods leave your gate.
Why Indian exporters should almost never use EXW: The problem with EXW is practical, not just theoretical. For a foreign buyer to handle Indian export customs clearance, they need to be registered in India, have an IEC code or an appointed Indian customs clearing agent, and navigate ICEGATE — which most foreign buyers cannot and will not do. In practice, when an Indian exporter agrees to EXW, either the deal falls apart because the buyer cannot handle Indian export clearance, or the exporter ends up handling it anyway (at extra cost) to save the deal. Additionally, under EXW, you lose all control over how your goods are handled from the moment they leave your gate — if something goes wrong in transit, you have no claim.
The only scenario where EXW makes sense for an Indian exporter: When the buyer has an established freight forwarder in India with a local IEC, knows Indian export procedures well, and specifically requests EXW because they want full control over the logistics chain. Even then, clarify upfront who will handle export customs clearance before signing the contract.
FCA — Free Carrier
What it means: You deliver the goods to a named carrier at a named place — cleared for export. The risk transfers when the carrier takes possession at the named location.
Named place options:
- FCA your premises: You deliver to the carrier at your factory. You handle loading.
- FCA a named ICD or port: You deliver goods to an Inland Container Depot or port terminal. The carrier takes over from there.
The critical Incoterms 2020 update for FCA: This is one of the most practically significant changes in the 2020 version. In Incoterms 2010, FCA was problematic for Letter of Credit transactions because LCs typically require an "on-board" Bill of Lading — but under FCA, the seller hands over to the carrier before loading on the vessel, so getting an on-board B/L was procedurally difficult.
Incoterms 2020 solved this. Under FCA 2020, if the buyer and seller agree, the buyer can instruct their carrier to issue an on-board B/L to the seller after loading on the vessel. This makes FCA a fully viable term for LC transactions — arguably better than FOB for containerised cargo since it is technically correct for container shipments.
When to use FCA: For containerised shipments where you want to handle Indian export clearance (as you should) but hand over responsibility after that. "FCA [your nearest ICD name] Incoterms 2020" is a clean, technically correct option for most Indian containerised exports.
FOB — Free On Board
What it means: You deliver the goods on board the named vessel at the named port of shipment, having completed Indian export customs clearance. Risk transfers when goods pass the ship's rail — or more practically, once loaded on the vessel.
The most commonly used Incoterm in Indian export practice. "FOB Mumbai" or "FOB JNPT" is the default quotation for the majority of Indian export transactions across virtually all sectors.
Under FOB: You handle everything up to and including loading on the vessel at your nominated port. The buyer pays ocean freight, marine insurance, destination port charges, customs clearance, and delivery. Risk is yours until the goods are on the vessel, then transfers to the buyer.
Why FOB is popular for Indian exporters: It gives you control over Indian export procedures — you handle customs clearance, you manage the relationship with your CHA, you ensure the Shipping Bill is filed correctly (which matters for your GST refund and incentive claims). The buyer takes responsibility from the moment the goods are afloat — which is the natural handover point. It is clean, well-understood by both sides, and the focus of virtually all Indian export price quotations.
The technical issue with FOB for containers: Technically, FOB (and CIF, CFR) were designed for traditional port-to-port ocean freight where goods are loaded break-bulk or bulk directly onto a vessel. For containerised cargo, the goods are handed to the carrier at the container terminal, stuffed into a container, and the container is loaded on the vessel — the "ship's rail" concept does not cleanly apply. The ICC recommends FCA for containerised shipments. In practice, the Indian export industry uses FOB for containerised cargo universally, banks and customs accept it, and the practical difference is minimal for most transactions. Use FOB freely for containerised cargo — just be aware of the technical distinction if you are dealing with sophisticated international legal counsel.
CFR — Cost and Freight
What it means: You pay for ocean freight to the named destination port. The buyer handles insurance and everything at the destination end.
Risk transfers: At the origin port when goods are loaded on the vessel — same as FOB. The key distinction from FOB is that under CFR, the seller pays freight, but risk still transfers at origin.
The unusual split in CFR: You pay for the journey (freight) but risk transfers before the journey completes. This means: you pay for freight to Hamburg, but if the ship sinks halfway, the loss is the buyer's problem (since risk transferred when goods were loaded at origin). This split between cost responsibility and risk transfer is a source of genuine confusion and occasional disputes. The buyer is technically responsible for insuring goods they did not pay to transport during a journey whose costs they did not bear.
When CFR makes sense for Indian exporters: When you have negotiated very competitive ocean freight rates and want to offer the buyer an all-in "price to their port" without the complication of insurance. Some commodity trades (chemicals, agricultural products) commonly use CFR. Always make sure the buyer understands they need to arrange their own insurance — do not assume they know.
CIF — Cost, Insurance and Freight
What it means: You pay for ocean freight AND marine insurance to the named destination port. Risk still transfers at the origin port when goods are loaded.
Minimum insurance standard under CIF: Incoterms 2020 requires you to obtain Institute Cargo Clauses (ICC) Clause C — the minimum, basic coverage. This covers major casualties: fire, explosion, vessel sinking, stranding, collision, jettison. It does not cover theft, contamination, or many common damage scenarios. If your buyer wants better coverage, they must specify this in the contract.
Why CIF is popular in certain Indian export segments: CIF is widely used in agricultural commodities, spice exports, chemical exports, and some engineering goods trade — particularly where buyers in developing markets prefer a single "price to their port" figure rather than managing freight and insurance separately. It also allows exporters with strong freight relationships to potentially earn a small margin on the freight component.
The risk-cost paradox to remember: Under CIF, you buy insurance on goods you no longer technically own the risk on (risk transferred at origin), for the benefit of the buyer. This is legally and commercially defined — just understand it. If there is a casualty at sea, the buyer claims on the insurance policy you purchased, not you.
CIP — Carriage and Insurance Paid To
What it means: Like CIF but for any mode of transport, not just sea. You pay freight AND insurance to the named destination. Risk transfers when goods are handed to the first carrier.
The critical Incoterms 2020 upgrade from CIF: While CIF requires only minimum ICC Clause C insurance, CIP requires all-risk insurance under ICC Clause A — the broadest standard coverage. This is a significant difference. CIP offers substantially better insurance protection to the buyer than CIF.
When to use CIP vs CIF: Use CIP for air freight shipments, multimodal transport, or any non-sea transport mode where you want to offer the buyer cost-inclusive pricing with insurance. Use CIF for sea-only shipments. Do not use CIF for air or multimodal — CIF is technically sea only.
CPT — Carriage Paid To
What it means: You pay freight to the named destination. No insurance obligation. Risk transfers when goods are handed to the first carrier at origin.
CPT is the any-mode-of-transport equivalent of CFR — you pay for the journey but the buyer bears risk from the moment goods are with the carrier. Use CPT for air or multimodal shipments where you want to offer freight-inclusive pricing without insurance.
DAP — Delivered at Place
What it means: You deliver the goods to a named place in the buyer's country, ready for unloading, bearing all risks and costs up to that point. The buyer handles import customs clearance and pays import duties. You do not unload.
Under DAP you handle: All export clearance and costs in India, all international freight, all insurance, all transit through intermediate countries, delivery to the buyer's named location (their warehouse, their distribution centre, their port). Everything except import clearance and unloading.
When DAP makes sense for Indian exporters: DAP is increasingly used for e-commerce exports, DTC (direct-to-consumer) cross-border sales, and high-service export relationships where the buyer wants maximum convenience. If you ship to Amazon FBA warehouses or other fulfilment centres in the US or EU, DAP or DDP are typically required.
The real risk of DAP: You bear all transport risk right up to the point of delivery at the buyer's premises. If your freight forwarder in the destination country makes an error, if there is damage in transit, if the vessel is delayed — all of this is your problem until delivery. Ensure your logistics chain is completely reliable before agreeing to DAP for high-value shipments.
DPU — Delivered at Place Unloaded
What it means: Like DAP, but you are also responsible for unloading at the named destination place. This is the only Incoterm where the seller is responsible for unloading at the destination.
DPU replaces DAT (Delivered at Terminal) from Incoterms 2010. The name was changed to clarify that the delivery location can be any place, not just a terminal. Used mainly for bulk cargo deliveries where unloading at a warehouse or storage facility is part of the agreement. Rarely used by typical Indian exporters of manufactured or processed goods.
DDP — Delivered Duty Paid
What it means: The maximum obligation term. You handle absolutely everything: Indian export clearance and costs, international freight, insurance, destination import customs clearance, import duties, and delivery to the buyer's named place. The buyer receives goods at their door and pays nothing beyond the agreed contract price.
Why DDP is the most dangerous Incoterm for Indian exporters: Under DDP, you are responsible for paying the destination country's import duties. This requires you to have a legal presence or a licensed customs broker in the destination country. For most Indian SME exporters, this is not practical — you do not have a subsidiary in Germany or the US, and asking a third-party customs broker to act as importer of record on your behalf is complex and carries liability.
More practically: if you underestimate the destination import duty when you quote DDP, the shortfall comes out of your margin. If a duty rate changes between quotation and shipment, you absorb the difference. If the customs authority in the destination country reclassifies your product to a higher tariff category, you absorb that cost too.
The only viable DDP scenario for most Indian exporters: E-commerce platforms (Amazon, Etsy, and similar) that explicitly require DDP delivery and have managed import programmes that handle the customs complexity. In these cases, the platform's infrastructure makes DDP manageable. For direct B2B trade, avoid DDP unless you have a genuine local presence in the destination market.
FAS — Free Alongside Ship
What it means: You deliver the goods alongside (next to, at the dock) the named vessel at the named port. Risk transfers when goods are placed alongside the vessel — before loading. The buyer handles loading and everything from that point.
Used almost exclusively for: Bulk commodity exports — iron ore, coal, grain, large machinery pieces — where goods are loaded directly onto the vessel by crane rather than in containers. If you are exporting iron ore from Vizag or coal from Paradip, FAS is a relevant term. For containerised exports of manufactured goods, it is not the appropriate choice.
The Incoterms Risk Spectrum — A Visual Framework
Think of the 11 Incoterms as a spectrum from "maximum seller obligation" to "maximum buyer obligation":
Maximum Buyer Obligation (minimum seller obligation):
EXW → FCA / FAS / FOB → CFR / CIF / CPT / CIP → DAP → DPU → DDP
Maximum Seller Obligation (minimum buyer obligation)
As you move from left to right, more of the logistics responsibility, cost, and risk shifts to the seller. The "right" position on this spectrum depends on your product, your freight rates, your logistics capabilities, and your risk tolerance.
Incoterms 2020: What Changed from 2010
If you learned Incoterms before 2020, here are the substantive changes you need to know:
FCA Now Allows On-Board Bill of Lading
As described above, this is the most practically significant change. Under FCA 2020, the buyer can instruct their carrier to issue an on-board B/L to the seller, making FCA viable for LC transactions. This is a major practical improvement that resolves a longstanding friction point in trade finance.
CIP Now Requires All-Risk Insurance (ICC Clause A)
Under Incoterms 2010, both CIF and CIP required only minimum coverage (ICC Clause C). Incoterms 2020 upgraded CIP to require all-risk coverage (ICC Clause A) while leaving CIF at minimum Clause C. This makes CIP a significantly better insurance package for buyers and reflects the higher service standard expected in non-sea multimodal transport.
DAT Renamed to DPU
DAT (Delivered at Terminal) has been replaced by DPU (Delivered at Place Unloaded). The change clarifies that the delivery location can be any agreed place, not just a named terminal. The obligation — delivery with unloading at the named destination — remains the same.
Security Obligations Made More Explicit
Incoterms 2020 dedicates more explicit attention to security-related obligations and costs, reflecting the increased importance of supply chain security requirements (ISPS Code, AEO schemes) in post-9/11 international trade. Both parties' security clearance obligations are more clearly articulated.
Updated Guidance Notes
Each Incoterm in the 2020 edition comes with a guidance note that explains when the term is appropriate to use. These notes explicitly caution against using FOB/CIF/CFR for containerised cargo and recommend FCA/CIP/CPT instead.
Incoterms and Your GST Refund — An Important Connection
There is a direct connection between the Incoterm you use and your GST export treatment that many exporters overlook.
For GST purposes, the FOB value of your export is the basis for RoDTEP and Duty Drawback calculations, and the taxable value for customs purposes. This FOB value is declared on your Shipping Bill.
If you are shipping on CIF terms, your Commercial Invoice shows the CIF price (which includes freight and insurance). But your Shipping Bill will declare the FOB value — freight and insurance are deducted from the CIF invoice value to arrive at FOB for customs purposes. Your CHA will handle this deduction, but you should ensure your invoice separately itemises the FOB value, freight component, and insurance component when quoting CIF — this makes the FOB declaration on the Shipping Bill straightforward and avoids customs queries about value reconciliation.
Similarly, if you are quoting under EXW or DAP and your invoice does not reflect a clean FOB value, your CHA must calculate the FOB equivalent for Shipping Bill purposes. Clear pricing structures prevent complications.
Incoterms and Letters of Credit
If your payment is via Letter of Credit, the Incoterm directly determines which documents the bank requires you to present for payment. This is a critical practical point.
Under CIF or CFR (sea terms), LCs typically require a negotiable marine Bill of Lading showing the seller as shipper. This is straightforward for direct break-bulk or bulk sea shipments. For containerised shipments under FOB, the same B/L requirement applies — and in practice, FOB is used for containerised LC trade without issue.
Under FCA with the 2020 on-board B/L provision: the LC should specifically state "FCA Incoterms 2020" and include the instruction for the carrier to issue an on-board B/L to the seller. Without this specific language in the LC, the FCA on-board B/L provision may not be applicable. When negotiating LC terms, be explicit about the FCA 2020 mechanism if you want to use FCA for a containerised LC transaction.
Under DAP or DDP: LCs for delivered terms typically require a multimodal transport document or courier receipt rather than a traditional B/L — since the seller retains risk through the journey, the traditional sea B/L as proof of shipment is less relevant. LC terms should align with the Incoterm to specify the appropriate transport document.
Which Incoterm Is Best for Indian Exporters? My Recommendation
After years of using different Incoterms across different products and markets, here is my practical guidance:
For standard manufactured goods exports by sea: FOB
FOB remains the best default term for most Indian exporters of manufactured goods by sea. You control your Indian export process, your CHA handles Shipping Bill filing correctly, your RoDTEP and Drawback calculations are clean, and you hand over responsibility cleanly at the vessel. The buyer handles freight and insurance — appropriate since they have the buyer-country relationships and can negotiate better rates from their end in many cases.
Quote as: "FOB [Port Name] Incoterms 2020"
For containerised exports where LC compliance is critical: FCA
With the Incoterms 2020 update enabling on-board B/Ls under FCA, this is the technically correct and practically viable option for containerised LC shipments. It avoids the technical inaccuracy of using FOB for containerised cargo and is fully compliant with modern trade finance requirements when the LC is appropriately structured.
Quote as: "FCA [ICD or Port Name] Incoterms 2020"
For commodity exports where competitive freight rates give you an advantage: CIF
If you ship significant volumes and have negotiated competitive freight rates — better than what your buyer would pay independently — CIF allows you to earn a margin on the freight component. Common for Indian spice, agri commodity, and chemical exporters with established freight forwarder relationships.
Quote as: "CIF [Destination Port] Incoterms 2020"
For e-commerce, DTC, or marketplace-mandated shipments: DAP or DDP
When selling through platforms like Amazon FBA or other fulfilment services that require delivery to their warehouse, DAP or DDP is typically mandated. Build the logistics costs into your unit economics, use a reliable international logistics partner, and factor the additional risk and complexity into your pricing accordingly.
Avoid in most circumstances: EXW and DDP
EXW creates practical problems for Indian export clearance that make it unsuitable for most transactions. DDP creates import duty liability in foreign markets that most Indian exporters are not equipped to manage. Use them only when specifically required and when you fully understand and have mitigated the associated risks.
Frequently Asked Questions
Can I use Incoterms 2010 in a contract today?
Yes. Incoterms are contractual terms — not law. You can specify any version in your contract: "FOB Mumbai Incoterms 2010" or "FOB Mumbai Incoterms 2020" are both valid. The version you specify governs the interpretation. Using Incoterms 2020 is recommended as the current version, but if both parties prefer 2010, that is perfectly acceptable. Never leave the version unspecified — "FOB Mumbai" without a version year creates ambiguity.
Does the Incoterm affect my RoDTEP and Drawback calculations?
Not directly — RoDTEP and Drawback are calculated on the FOB value declared on the Shipping Bill, regardless of what Incoterm you quoted to the buyer. If you quoted CIF, your CHA deducts freight and insurance from the CIF invoice value to arrive at FOB for the Shipping Bill. The incentive calculation is then on that FOB value. Ensure your invoice clearly shows the FOB value component when quoting CIF — this simplifies your CHA's work and avoids customs queries.
My buyer says FOB is old-fashioned and wants to use FCA. Should I agree?
Yes, FCA is technically correct for containerised shipments and is fully supported in Incoterms 2020. If using FCA for an LC transaction, ensure the LC is specifically structured to accommodate the FCA 2020 on-board B/L mechanism. FCA is not "better" or "worse" than FOB for Indian exporters — it is simply more technically precise for containerised cargo. The practical differences in your obligations are minimal.
Does the Incoterm change my GST liability?
For export of goods, the GST treatment (zero-rating under LUT) applies regardless of the Incoterm. Whether you quote EXW, FOB, CIF, or DAP, the export is zero-rated as long as the goods physically leave India and the necessary export documentation is in order. The Incoterm affects the invoice value composition (FOB vs CIF vs delivered) but not the fundamental GST treatment of the export transaction.
My buyer in Africa is asking for DDP. I have never done this. What should I do?
Approach with caution. DDP in an African market requires you to have a licensed customs broker or representative in that specific country who can act as importer of record, pay import duties on your behalf, and handle local customs clearance. The administrative complexity is significant, import duties in many African markets are high (10–40% for many categories), and the risk of duty calculation errors is real.
If the buyer insists on DDP, build the full estimated import duty plus a margin for error into your DDP price. Better still — suggest DAP as a compromise. Under DAP, you deliver to their door, but they handle import customs and duties in their own country. Most professional buyers can manage this, and it removes the import duty risk from your books.
What does "named place" mean in Incoterms?
The "named place" is the specific location that completes the Incoterm — it defines exactly where the delivery obligation or risk transfer occurs. "FOB JNPT" — the named place is JNPT (Jawaharlal Nehru Port Trust). "CIF Rotterdam" — the named place is Rotterdam. "DAP Buyer's Warehouse, Frankfurt" — the named place is the specific warehouse. Always specify the named place precisely, including port name, ICD name, or full address for delivered terms. Leaving the named place vague creates commercial and legal ambiguity.
Conclusion
Incoterms are not bureaucratic fine print — they are the commercial architecture of every export transaction. The Incoterm you select determines your cost exposure, your risk liability, your logistics responsibilities, and ultimately whether the business you do at a given price is actually profitable.
For most Indian exporters, the working answer is straightforward: quote FOB for standard sea freight transactions, understand CIF when you have freight rate advantages worth capturing, use FCA when LC compliance with containerised cargo demands technical precision, and be very cautious about EXW and DDP.
Always specify the Incoterm version (2020) and the named place explicitly in every quote, contract, and invoice. Never leave either ambiguous. That one line — "FOB JNPT Incoterms 2020" — is the difference between a clear commercial agreement and a dispute that costs more to resolve than the order was worth.
