Incoterms 2020: which term should you use?

Incoterms are the international rules that define how cost and risk are split between seller and buyer. The wrong term can wipe out your margin on a single shipment.

The four most used terms

• EXW (Ex Works): responsibility passes to the buyer as the goods leave your plant. Easiest for the seller, riskiest for the buyer — even export clearance is the buyer's job, which causes problems in practice.
• FCA (Free Carrier): a more balanced version of EXW. The seller handles export clearance and hands the goods to the carrier at an agreed point. For road freight this is usually the soundest choice.
• CIF / CIP: the seller covers freight and insurance. CIF is for sea freight, CIP for other modes. Spell out the level of insurance in the contract; the minimum cover is often inadequate.
• DAP / DDP: the seller brings the goods to the buyer's address. Under DDP, import duties are on the seller too. Do not quote DDP if you do not know the duty rate at destination — an unexpected charge eats the profit.

How to choose

A simple rule: take responsibility as far as you can control it. If you do not know the customs process at destination, do not quote DDP. If you get better rates from your own carrier, offer FCA and manage the freight yourself.

Always state the delivery term when asking for a quote. The same cargo can differ by a factor of two between EXW and DDP — and that gap comes from the responsibility taken on, not the freight itself.