Incoterms 2020 explained for Indian exporters

Three letters in your sales contract decide who arranges transport, who pays which charges, who carries the insurance and — most importantly — at exactly which moment the risk of loss passes from you to your buyer. Get them wrong and a profitable order becomes a dispute. Here is what each term actually means for a shipment leaving India.

What Incoterms do and do not cover

Incoterms are published by the International Chamber of Commerce and updated periodically; the current edition is Incoterms 2020. They are a shorthand that allocates three things between seller and buyer: costs, risk and responsibility for formalities such as export and import clearance.

They do not transfer ownership of the goods, do not set payment terms, and do not replace your sales contract. A common and expensive misunderstanding is assuming that because risk has passed under FOB, payment is somehow secured. It is not — that is what your letter of credit or contract terms are for.

Always write the term with a named place and the edition: “FOB Mundra, Incoterms 2020”. A bare “FOB” in a contract is an invitation to argue about which port and which rulebook.

The four terms Indian exporters use most

EXW — Ex Works

You make the goods available at your factory or warehouse. Everything after that — loading, inland transport, export clearance, freight, import duties, delivery — is the buyer’s responsibility and cost.

EXW looks attractive because your quote is simply the goods price. In practice it creates a real problem for Indian exporters: the buyer is formally responsible for export clearance, but a foreign buyer usually cannot file an Indian shipping bill. In reality you end up handling it anyway, without having priced it, and without the export documentation cleanly in your name — which can complicate export incentive claims.

Our view: for Indian export shipments, use FCA instead. It gives the buyer the same control while keeping export clearance properly with you.

FOB — Free On Board

You deliver the goods on board the vessel at the named port of loading, cleared for export. Risk passes when the goods are on board. From that point the buyer pays freight, insurance and everything at destination.

FOB is the workhorse of Indian export trade — buyers like it because they control the ocean freight and can use their own contracted rates. It is genuinely simple when everyone understands where the line sits.

One important caveat: FOB is written for conventional sea freight where goods are physically loaded over the ship’s rail. For containerised cargo handed over at a terminal days before loading, FCA is technically the correct term. The trade uses FOB for containers anyway, almost universally — but if a dispute ever turns on precisely when risk passed, that gap matters.

CIF — Cost, Insurance and Freight

You pay the ocean freight to the named destination port and arrange minimum cargo insurance. But risk still passes when the goods are loaded on board at origin — the same point as FOB.

This split between cost and risk is the single most misunderstood feature of Incoterms. Under CIF you are paying for the voyage but you are not carrying the risk during it. If the cargo is damaged mid-ocean, that is the buyer’s claim, made against the insurance policy you arranged for them.

Note also that CIF requires only minimum cover (Institute Cargo Clauses C). For most manufactured goods that is inadequate — agree all-risk cover (Clauses A) in the contract if the cargo warrants it.

DAP and DDP — Delivered

Under DAP (Delivered At Place) you carry cost and risk all the way to the named destination, but the buyer clears the goods for import and pays duty. Under DDP (Delivered Duty Paid) you also handle import clearance and pay the duty and destination taxes.

DDP offers your buyer the smoothest possible experience and can be a genuine competitive advantage. It is also the riskiest term for a seller: you are taking on liability for a customs regime you may not know, in a country where you may have no registration, and in many jurisdictions a non-resident seller cannot recover import VAT or GST at all. Never quote DDP for a new market without checking that specific country’s rules first.

Quick comparison

Incoterms 2020 also includes FAS, CPT and DPU. FAS applies to bulk and breakbulk alongside the vessel; CPT and DPU are the multimodal equivalents of CFR and delivered terms. Ask us if your contract uses one of these.

Four mistakes that cost real money

1. Using EXW on Indian export shipments

As above — the export clearance obligation sits with a buyer who cannot legally discharge it in India. Switch to FCA and price the inland leg into your offer.

2. Assuming CIF means you are covered

Under CIF the insurance protects the buyer, not you, from the moment of loading. If you want protection for your own exposure — for example when payment is on open account and you have not been paid yet — you need seller’s contingency cover in addition.

3. Quoting DDP into an unfamiliar market

Duty rates change, classifications get challenged, and unrecoverable destination VAT can wipe out the margin on the order. Quote DAP unless you have specifically confirmed you can register and recover in that country.

4. Leaving the term inconsistent across documents

Your proforma invoice, sales contract, letter of credit and commercial invoice must all state the same Incoterm with the same named place. Banks reject documents on exactly this kind of mismatch, and a rejected LC presentation can delay payment for weeks.

Which term should you actually quote?

• New buyer, unknown creditworthiness: FOB or FCA — keep your exposure short
• Buyer with strong freight rates: FOB — they will beat your ocean pricing anyway
• You want to control the routing and margin: CIF or CFR
• Competing on convenience in a market you know: DAP
• Established market, registered locally, margin allows it: DDP

Not sure which applies to your order?

Send us the draft contract or purchase order. We will tell you what the term means in practice on that specific lane, what it will cost you, and whether a different term would leave you better protected — before you sign.

Related reading: FCL vs LCL: which is cheaper? · Why cargo gets stuck at customs · Our ocean freight service