Understanding Incoterms — A Complete Guide for Indian Exporters

Every export transaction involves two fundamental questions: who pays for what, and who bears the risk if something goes wrong during transit? Incoterms answer both questions in a single three-letter code. Get them wrong, and you could end up paying for shipping you thought the buyer was covering, or worse, bearing the loss for goods damaged at sea when you believed your responsibility ended at the port.

Incoterms are not optional fine print. They determine your export price, your documentation responsibilities, your insurance obligations, and the exact point where risk transfers from you to your buyer. Every commercial invoice, every Letter of Credit, and every sales contract references an Incoterm. If you are exporting from India, you need to understand these terms as well as you understand your own product.

This guide explains every major Incoterm with practical examples relevant to Indian exporters, including cost and risk transfer tables, pricing impact, and the common mistakes that cost MSMEs money.

What Are Incoterms?

Incoterms — short for International Commercial Terms — are a set of standardised trade rules published by the International Chamber of Commerce (ICC) in Paris. They define the responsibilities of sellers and buyers in international transactions, specifically:

• Who arranges and pays for transport (inland, ocean, air)
• Who arranges and pays for insurance
• Where risk transfers from seller to buyer
• Who handles export clearance and import clearance
• Who pays for loading and unloading

The current version is Incoterms 2020, which took effect on 1 January 2020. While the previous version (Incoterms 2010) is not legally invalid, all new contracts should use Incoterms 2020. The version matters because some terms have changed — notably FCA now allows for on-board bills of lading, which was a major issue under the 2010 rules.

There are 11 Incoterms in the 2020 edition, divided into two categories:

• Rules for any mode of transport (7 terms): EXW, FCA, CPT, CIP, DAP, DPU, DDP
• Rules for sea and inland waterway transport only (4 terms): FAS, FOB, CFR, CIF

For Indian exporters, the most commonly used terms are FOB, CIF, CFR, EXW, and FCA. This guide focuses on the terms you will actually encounter in practice.

The 7 Incoterms Every Indian Exporter Must Know

EXW — Ex Works (Named Place of Delivery)

What it means: You make the goods available at your premises (factory, warehouse). The buyer arranges and pays for everything — pickup from your factory, inland transport, export customs clearance, ocean/air freight, import clearance, and delivery to their location.

Your responsibility as seller:

• Make goods available at your premises, packaged and ready for collection
• Provide commercial invoice and packing list

Buyer's responsibility:

• Everything else — loading at your premises, inland transport, export clearance, freight, insurance, import clearance, delivery

Risk transfer point: At your premises, when goods are made available to the buyer.

When to use EXW:

• When the buyer has their own freight forwarder or buying agent in India
• When you are new to exporting and not comfortable handling logistics
• When the buyer explicitly requests it

Practical reality for Indian exporters: EXW sounds easy because you do the least work. But in practice, it creates problems. The buyer (a foreign entity) must handle Indian export customs clearance, which requires an IEC and Indian customs knowledge. Most Indian customs brokers work on behalf of Indian exporters, not foreign buyers. Many experienced buyers avoid EXW from India for this reason. If a buyer asks for EXW, consider offering FCA instead.

FCA — Free Carrier (Named Place of Delivery)

What it means: You deliver the goods to a carrier nominated by the buyer, at a named place. If delivery is at your premises, you are responsible for loading. If delivery is at any other place (like a container yard or airport), you are responsible for bringing the goods there, but not for unloading from your vehicle.

Your responsibility as seller:

• Deliver goods to the carrier at the named place
• Handle export customs clearance
• Provide commercial invoice, packing list, and export documents

Buyer's responsibility:

• Main carriage (ocean/air freight)
• Insurance (if they choose to arrange it)
• Import clearance and duties
• Delivery from destination port to their premises

Risk transfer point: When goods are delivered to the carrier at the named place.

Key update in Incoterms 2020: Under FCA, the buyer can now instruct their carrier to issue an on-board bill of lading to the seller. This is important for Letter of Credit transactions, where banks require an on-board B/L. This was a major gap in previous versions.

When to use FCA: FCA is increasingly preferred over FOB for containerised cargo. When your goods are packed in containers and delivered to a container freight station (CFS) or inland container depot (ICD), FCA is technically more accurate than FOB because the risk transfer happens at the container yard, not at the ship's rail. Many European buyers now request FCA instead of FOB.

FOB — Free on Board (Named Port of Shipment)

What it means: You deliver the goods on board the vessel at the named port of shipment. Once the goods are on the ship, the risk and cost transfer to the buyer.

Your responsibility as seller:

• Deliver goods to the port of shipment
• Handle export customs clearance
• Load goods onto the vessel
• Provide all export documentation including the bill of lading

Buyer's responsibility:

• Ocean freight from the port of shipment to the destination port
• Insurance during sea transit
• Import clearance and duties
• Inland transport in the destination country

Risk transfer point: When goods pass the ship's rail at the port of shipment (e.g., JNPT Mumbai, Mundra, Chennai).

Why FOB is the most common term for Indian exports: FOB is the default Incoterm for most Indian export transactions. It is what most buyers expect, what most shipping bills reference, and what most banks use for LC transactions. When an Indian buyer asks for your "FOB price," they want to know the total cost of the goods delivered on board the vessel at an Indian port — including your product cost, inland transport, port charges, and export clearance.

FOB pricing example for an Indian exporter:

Cost Component	Amount (per container)
Product cost (ex-factory)	Rs 8,00,000
Packaging for export	Rs 25,000
Inland transport (factory to port)	Rs 35,000
CFS/ICD charges	Rs 15,000
Customs broker fee	Rs 5,000
Port charges (THC, documentation)	Rs 20,000
Total FOB cost	Rs 9,00,000

Convert to USD at the prevailing exchange rate for your FOB price quote.

CFR — Cost and Freight (Named Port of Destination)

What it means: You pay for the ocean freight to deliver goods to the named destination port. However — and this is where exporters get confused — the risk still transfers at the port of shipment, just like FOB. You pay for the freight, but you do not bear the risk during sea transit.

Your responsibility as seller:

• Everything under FOB, plus
• Ocean freight to the destination port

Buyer's responsibility:

• Insurance during sea transit (this is critical — the buyer bears the risk, so they should insure the goods)
• Import clearance and duties
• Inland transport in the destination country

Risk transfer point: Same as FOB — when goods are loaded on board the vessel at the port of shipment.

When to use CFR: When the buyer wants a landed cost at their port but will arrange their own insurance. Common in trade with Middle Eastern and African buyers.

The critical distinction: Under CFR, you pay the freight but the buyer bears the risk from the moment goods are on the ship. If the vessel sinks, the buyer bears the loss — not you. This is why smart buyers insist on CIF instead of CFR, so that insurance is also included.

CIF — Cost, Insurance, and Freight (Named Port of Destination)

What it means: You pay for ocean freight and marine insurance to deliver goods to the named destination port. Like CFR, the risk transfers at the port of shipment, but you have arranged minimum insurance cover for the buyer's benefit.

Your responsibility as seller:

• Everything under FOB, plus
• Ocean freight to the destination port
• Marine insurance (minimum cover under Institute Cargo Clauses C — about 110% of CIF value)

Buyer's responsibility:

• Import clearance and duties
• Inland transport from the destination port
• Any additional insurance beyond the minimum (if they want broader coverage)

Risk transfer point: Same as FOB and CFR — when goods are loaded on the vessel.

CIF pricing example:

Cost Component	Amount
FOB price	Rs 9,00,000
Ocean freight (India to destination)	Rs 1,50,000
Marine insurance (0.5-1.5% of CIF value)	Rs 12,000
Total CIF cost	Rs 10,62,000

Why CIF matters for LC transactions: Many Letters of Credit specify CIF terms because the bank wants to ensure the goods are insured during transit. If your LC says "CIF Rotterdam," you must arrange both freight and insurance, and present the insurance certificate to the bank along with the bill of lading and other documents.

Insurance under CIF — important detail: CIF only requires you to arrange minimum insurance cover (Institute Cargo Clauses C). This is the most basic level — it covers major disasters like fire, sinking, and stranding, but not theft, pilferage, or rough handling. Many buyers arrange additional insurance (Clauses A — all risks) on top of what the seller provides.

DAP — Delivered at Place (Named Place of Destination)

What it means: You deliver the goods to a named place in the buyer's country — their warehouse, factory, or any agreed location. You bear all costs and risks until the goods arrive at that place. The buyer handles import clearance and pays import duties.

Your responsibility as seller:

• All transport costs (inland, ocean/air, destination country inland transport)
• Insurance (not mandatory but highly recommended since you bear the risk)
• Export clearance
• All risks until goods arrive at the named place

Buyer's responsibility:

• Import customs clearance and duties
• Unloading at the final destination

Risk transfer point: When goods arrive at the named destination, ready for unloading.

When to use DAP: DAP is used when you want to offer a door-to-door price but the buyer handles their own import clearance. It is common in trade with buyers who have their own customs broker but want the convenience of delivered pricing. Some e-commerce and D2C export models use DAP.

Caution for Indian MSMEs: DAP requires you to manage logistics in a foreign country. You need a reliable international freight forwarder who can handle the entire chain. If you are new to exporting, start with FOB or CIF before attempting DAP.

DDP — Delivered Duty Paid (Named Place of Destination)

What it means: You deliver the goods to the buyer's doorstep, fully cleared for import, with all duties and taxes paid. This is the maximum obligation for the seller — you handle and pay for everything.

Your responsibility as seller:

• All transport costs (inland, international, destination inland)
• Export clearance
• Import clearance and duties in the buyer's country
• All risks until goods arrive at the named destination

Buyer's responsibility:

• Unloading at the final destination

Risk transfer point: When goods arrive at the named destination, ready for unloading.

When to use DDP:

• When selling to small buyers who lack import experience
• For e-commerce exports and small parcel shipments
• When you want to offer a completely hassle-free price to the buyer

Caution: DDP requires you to register for import purposes in the buyer's country (or use a customs broker who can clear goods on your behalf). You must also understand the import duty structure of the destination country — use the Duty Calculator to estimate duties before quoting a DDP price. Miscalculating duties can wipe out your margin.

Risk and Cost Transfer — Summary Table

This table shows who bears the cost and risk at each stage of the shipment:

Stage	EXW	FCA	FOB	CFR	CIF	DAP	DDP
Packaging	Seller	Seller	Seller	Seller	Seller	Seller	Seller
Loading at origin	Buyer	Seller*	Seller	Seller	Seller	Seller	Seller
Inland transport to port	Buyer	Seller	Seller	Seller	Seller	Seller	Seller
Export customs clearance	Buyer	Seller	Seller	Seller	Seller	Seller	Seller
Loading on vessel	Buyer	Buyer	Seller	Seller	Seller	Seller	Seller
Ocean/air freight	Buyer	Buyer	Buyer	Seller	Seller	Seller	Seller
Marine insurance	Buyer	Buyer	Buyer	Buyer	Seller	Seller**	Seller
Unloading at destination port	Buyer	Buyer	Buyer	Buyer	Buyer	Seller	Seller
Import customs clearance	Buyer	Buyer	Buyer	Buyer	Buyer	Buyer	Seller
Import duties	Buyer	Buyer	Buyer	Buyer	Buyer	Buyer	Seller
Delivery to buyer's premises	Buyer	Buyer	Buyer	Buyer	Buyer	Seller	Seller

*FCA: Seller loads if delivery is at seller's premises; otherwise buyer unloads from seller's vehicle. **DAP: Insurance is not mandatory but seller bears the risk, so insurance is strongly recommended.

Which Incoterm Should You Choose?

The right Incoterm depends on your experience level, product type, and relationship with the buyer. Here is a decision framework:

If you are a first-time exporter:

• Start with FOB. You handle everything up to the Indian port, and the buyer handles international freight and insurance. This is the most balanced term and the one most buyers expect from Indian suppliers.

If the buyer insists on a delivered price:

• Offer CIF for port-to-port delivery with insurance, or CFR if the buyer wants to arrange their own insurance.

If you are an experienced exporter with reliable logistics partners:

• Consider DAP for premium buyers who want door-to-door service. This lets you control the entire supply chain and charge a premium for the convenience.

If you are selling to small buyers or via e-commerce:

• DDP simplifies the process for the buyer but puts maximum responsibility on you. Only use it if you understand the destination country's import procedures and duties.

If the buyer has their own agent in India:

• FCA or EXW may be appropriate, though FCA is preferred because you handle export clearance (which is easier for an Indian entity to do).

Product-specific considerations:

• High-value goods (gems, electronics): Use CIF to ensure goods are insured during transit
• Bulk commodities (rice, minerals): FOB is standard — buyers have their own shipping arrangements
• Perishables (fruits, seafood): CIF or CFR with specific cold chain requirements written into the contract
• Handicrafts and artisanal goods: FOB for established buyers, CIF for new relationships

Impact on Export Documentation

Your choice of Incoterm directly affects what documents you need to prepare. Here is what changes:

Document	EXW	FCA	FOB	CFR	CIF	DAP	DDP
Commercial invoice	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Packing list	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Bill of lading/airway bill	No*	Yes	Yes	Yes	Yes	Yes	Yes
Shipping bill (export declaration)	No*	Yes	Yes	Yes	Yes	Yes	Yes
Certificate of Origin	If required	If required	If required	If required	If required	If required	If required
Marine insurance certificate	No	No	No	No	Yes	Recommended	Yes
Import clearance documents	No	No	No	No	No	No	Yes

*Under EXW, the buyer handles export clearance, so technically you do not file the shipping bill. But in practice, Indian customs expects the Indian entity to file export documents — another reason to avoid EXW.

For a complete guide to export documentation, read the export documentation guide. If you need a Certificate of Origin for preferential tariff rates, see the Certificate of Origin guide.

Impact on Your Export Pricing

Getting Incoterms wrong in your pricing can either cost you the deal (overpricing) or cost you money (underpricing). Here is how to think about pricing under different terms:

Start with your base cost (ex-factory):

• Raw material + manufacturing cost
• Packaging for export
• Your profit margin

Add costs based on the Incoterm:

• FOB = base cost + inland transport + port charges + export clearance
• CFR = FOB + ocean freight
• CIF = CFR + marine insurance
• DAP = CIF + destination port charges + inland delivery in buyer's country
• DDP = DAP + import duties + import clearance fees

Critical pricing rule: Always calculate your costs accurately before quoting. Get freight quotes from at least 2-3 shipping lines or freight forwarders. Get insurance quotes from your marine insurance provider. Check import duties using the Duty Calculator. Add a 3-5% buffer for currency fluctuations and unexpected charges.

Common Mistakes Indian Exporters Make with Incoterms

Confusing cost responsibility with risk responsibility. Under CFR and CIF, you pay for freight, but the risk transfers at the port of shipment (just like FOB). If goods are damaged during sea transit under CFR, it is the buyer's loss — not yours. Many exporters do not understand this distinction.

Using FOB for containerised cargo. Technically, FOB applies when goods cross the ship's rail — which is meaningful for bulk cargo loaded directly onto a vessel. For containerised cargo that is packed at an inland container depot and delivered to the port in a sealed container, FCA is more accurate. However, FOB is so widely used in Indian trade that most buyers and banks accept it regardless.

Not specifying the named place clearly. "FOB India" is incomplete. It should be "FOB JNPT, Mumbai" or "FOB Mundra Port." Similarly, "CIF Europe" means nothing — it should be "CIF Rotterdam, Netherlands" or "CIF Hamburg, Germany." Vague Incoterms create disputes.

Quoting DDP without understanding destination duties. If you quote DDP and the import duty turns out to be 25% instead of the 10% you assumed, that 15% difference comes out of your pocket. Always verify duty rates before quoting DDP.

Using the wrong Incoterm for LCs. Banks are strict about Incoterm compliance in Letter of Credit transactions. If the LC says CIF and you present FOB documents (without an insurance certificate), the bank will reject your documents. Always match your documents exactly to the Incoterm specified in the LC.

Forgetting to specify Incoterms 2020. Your contract should explicitly state "Incoterms 2020" after the term. Write "FOB JNPT Mumbai, Incoterms 2020" — not just "FOB Mumbai." Without specifying the version, disputes can arise about which edition's rules apply.

Key Takeaways

• Incoterms define who pays for what and who bears the risk at each point in an international shipment
• The current version is Incoterms 2020, published by the ICC — always specify this version in contracts
• FOB is the most common Incoterm for Indian exports — you handle everything up to loading goods on the vessel at the Indian port
• CIF adds ocean freight and insurance to your responsibility — commonly required for LC transactions
• Risk and cost do not always transfer at the same point — under CFR and CIF, you pay freight but risk transfers at the port of shipment
• Always specify the exact named place (e.g., "FOB JNPT Mumbai" not "FOB India")
• Your Incoterm directly affects your pricing, documentation, and insurance obligations
• Use the Duty Calculator before quoting DDP or DAP prices to avoid duty miscalculations
• Start with FOB if you are new to exporting, and move to CIF or DAP as you gain experience and build logistics relationships