What Are Incoterms?
Incoterms® (International Commercial Terms) are a set of 11 globally recognized rules published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers for the delivery of goods under sales contracts. The current version, Incoterms® 2020, has been in effect since January 1, 2020.
For importers sourcing from India, choosing the right Incoterm directly impacts your costs, risk exposure, and control over the supply chain. Here's what each term means in practice.
The 4 Groups of Incoterms
EXW
Minimum seller obligation. Buyer does everything.
FCA, FAS, FOB
Seller delivers to carrier. Buyer arranges main transport.
CFR, CIF, CPT, CIP
Seller pays transport but risk transfers at origin.
DAP, DPU, DDP
Seller bears all costs/risks to destination.
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The Most Important Incoterms for India Trade
FOB (Free On Board) — The India Standard
FOB is by far the most common Incoterm used in India exports. Under FOB, the Indian supplier delivers goods on board the vessel at the port of shipment (e.g., Nhava Sheva, Chennai Port). The buyer arranges freight, insurance, and import clearance.
Why FOB is popular: It gives importers control over freight costs and carrier selection. You can negotiate better rates with your own freight forwarder, consolidate shipments, and choose your preferred shipping line.
CIF (Cost, Insurance & Freight) — The Simpler Option
Under CIF, the Indian supplier handles freight booking and provides minimum insurance cover (110% of invoice value under ICC C terms). Risk still transfers at the origin port — the seller just pays for the logistics.
When to use CIF: First-time importers, small orders where you don't have freight relationships, or when your supplier has better shipping rates.
EXW (Ex Works) — Maximum Buyer Control
Under EXW, the supplier makes goods available at their factory. The buyer arranges everything — local pickup, export clearance, shipping, import clearance. Rarely recommended for India trade because export clearance requires an Indian GST-registered entity.
Common Pitfall: EXW from India
Avoid EXW when importing from India unless you have a local entity. Indian export clearance requires an IEC (Import Export Code) and GST registration. Most foreign buyers cannot handle export formalities directly. Use FCA (seller's premises) instead — the seller handles export clearance.
Incoterms and Duty Calculation
Customs authorities in most countries assess import duties on the CIF value(transaction value + freight + insurance), regardless of your actual Incoterm:
- Buying FOB? Customs adds freight and insurance to calculate assessable value
- Buying CIF? The invoice value is typically the assessable value
- Buying EXW? Customs adds local transport, freight, and insurance
- Buying DDP? Customs may deduct import duties from the DDP price to find CIF value
How to Choose the Right Incoterm
First order from a new Indian supplier
CIF or CFR — Let the supplier handle logistics while you evaluate the relationship.
Regular large orders (FCL)
FOB — You'll get better freight rates with your own forwarder.
Supplier in a remote location
FCA (factory) — Supplier handles local transport and export clearance.
You want zero hassle
DDP — Supplier handles everything — but verify they can manage import clearance in your country.
Air freight orders
FCA (airport) or CPT — FOB is technically for sea freight only.
Frequently Asked Questions
What are Incoterms and why are they important?
Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers for the delivery of goods, including who pays for transport, insurance, and customs clearance. Using the correct Incoterm prevents disputes and unexpected costs.
What is the difference between FOB and CIF?
Under FOB (Free On Board), the seller delivers goods on board the vessel at the origin port. The buyer arranges and pays for freight and insurance. Under CIF (Cost, Insurance & Freight), the seller pays freight and minimum insurance to the destination port. In both cases, risk transfers at the origin port — the key difference is who arranges the shipping.
Which Incoterm is most common for India exports?
FOB is the most widely used Incoterm for exports from India, especially for sea shipments. It gives buyers more control over freight costs and carrier selection. CIF is the second most common, preferred by first-time importers or those who want the supplier to handle shipping logistics.
What is the difference between DAP and DDP?
Under DAP (Delivered at Place), the seller delivers goods to the destination but the buyer handles import clearance and pays duties. Under DDP (Delivered Duty Paid), the seller handles everything including import clearance and duty payment. DDP is the maximum obligation for the seller.
Are Incoterms 2020 mandatory?
Incoterms are not law — they're voluntary contractual terms. However, they're recognized by courts and customs authorities worldwide. Always specify 'Incoterms® 2020' in your purchase orders and contracts to avoid ambiguity. The 2020 version replaced Incoterms 2010.
How do Incoterms affect import duty calculation?
Most customs authorities calculate import duties based on the CIF value (Cost + Insurance + Freight). If you buy on FOB terms, customs will add the freight and insurance costs to determine the assessable value. Understanding this helps you accurately estimate landed costs.
Compare All 11 Incoterms Interactively
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