Shipping terms in export

Introduction: Why Incoterms Matter More Than You Think

• The Challenge: In international trade, simply agreeing on a price is not enough. Disputes often arise over when the seller’s responsibility ends and the buyer’s responsibility begins.

• The Solution: Incoterms (International Commercial Terms) are a globally recognized set of rules published by the International Chamber of Commerce (ICC). They define exactly who pays for the cost and when the risk transfers between the buyer and seller.

• Globax Solutions’ Role: We use Incoterms to accurately quote freight, manage insurance, and handle customs clearance, ensuring zero confusion for our clients.

Section 1: The Incoterms Structure – Groups and Risk

The 11 current Incoterms are divided into four main groups, based on the fundamental letter:

Section 2: The Most Common Incoterms Explained

For exporters, understanding these four terms is vital:

1. Ex Works (EXW)

• Seller’s Responsibility: Minimal. The seller simply makes the goods available at their premises (warehouse/factory).

• Risk Transfer: The buyer assumes ALL risks and costs from that point, including loading the goods onto the first truck.

• Best For: Experienced buyers or when the seller is new to exporting.

2. Free On Board (FOB)

• Seller’s Responsibility: The seller pays all costs and assumes risk until the goods are loaded onto the vessel at the Port of Shipment.

• Risk Transfer: Risk transfers to the buyer immediately after the goods cross the ship’s rail.

• Best For: Traditional sea freight where the buyer prefers to control the main ocean carrier.

3. Cost, Insurance and Freight (CIF)

• Seller’s Responsibility: The seller pays for the cost of the goods, the insurance, and the freight to the named Port of Destination.

• Risk Transfer: Crucially, the risk transfers to the buyer when the goods are loaded onto the vessel at the Port of Shipment (just like FOB).

• Best For: Buyers who want the seller to handle and pay for the main voyage, but are willing to take the risk during transit. (Note: CIP is the equivalent for all modes of transport).

4. Delivered Duty Paid (DDP)

• Seller’s Responsibility: Maximum. The seller is responsible for all costs and risks, including customs clearance (both export and import), duties, and taxes, until the goods reach the buyer’s specified location.

• Risk Transfer: Risk transfers to the buyer only when the goods are ready for unloading at the destination.

• Best For: E-commerce or when the seller wants to offer a complete “door-to-door” price to the buyer.

Section 3: The Globax Solutions Incoterms Checklist

Choosing the wrong Incoterm can lead to disputes and unexpected costs. Before finalizing a sale, ask yourself:

• Who Controls the Supply Chain? (EXW is buyer control, DDP is seller control).

• What is the Buyer’s Expertise? (Less experienced buyers usually prefer DDP/CIF).

• When Does the Insurance Need to Start? (If the buyer manages insurance, choose FOB/EXW).

• Is it Containerized Cargo? (For containerized cargo like FCL/LCL, FCA and CPT/CIP are generally safer choices than FOB/CFR/CIF).