When an Indian supplier quotes a price, the number alone tells you very little. A price “FOB Nhava Sheva” and a price “CIF Rotterdam” for the same product represent very different responsibilities and costs. The trade term attached to a quotation decides who pays for transport, who insures the goods, who clears customs and at what point risk passes from seller to buyer.
These trade terms are called Incoterms. This guide explains Incoterms 2020 for importers, with practical guidance for buyers sourcing from India.
What Are Incoterms?
Incoterms are standard trade rules published by the International Chamber of Commerce (ICC). They define the tasks, costs and risks shared between seller and buyer in the delivery of goods. The current edition, Incoterms 2020, contains eleven rules. Each rule is a three-letter code followed by a named place, for example “FOB Mundra” or “DAP Dubai”.
Incoterms do not cover everything in a sales contract. They do not decide the price, the payment method, when ownership of the goods transfers or what happens if the contract is breached. Those points must be agreed separately in the purchase order or contract.
The Two Groups of Incoterms 2020
Rules for Any Mode of Transport
- EXW (Ex Works)
- FCA (Free Carrier)
- CPT (Carriage Paid To)
- CIP (Carriage and Insurance Paid To)
- DAP (Delivered at Place)
- DPU (Delivered at Place Unloaded)
- DDP (Delivered Duty Paid)
Rules for Sea and Inland Waterway Transport
- FAS (Free Alongside Ship)
- FOB (Free on Board)
- CFR (Cost and Freight)
- CIF (Cost, Insurance and Freight)
The Incoterms Buyers Use Most When Importing from India
EXW – Ex Works
The seller makes goods available at their own premises. The buyer handles everything else: loading, export clearance in India, freight, insurance, import clearance and delivery. EXW looks cheap but is often impractical for foreign buyers because export customs formalities in India are normally handled by the exporter. Many buyers who think they want EXW actually need FCA.
FCA – Free Carrier
The seller clears goods for export and delivers them to a carrier nominated by the buyer at a named place, such as the seller’s warehouse or a container freight station. FCA works well for containerised cargo and air freight and gives the buyer control over the main freight.
FOB – Free on Board
The seller clears goods for export and loads them on board the vessel nominated by the buyer at the named Indian port. Risk passes once goods are on board. FOB is widely used for bulk and break-bulk sea cargo and remains very familiar to Indian exporters. For containers handed over at a terminal before loading, the ICC suggests FCA is often the more accurate choice.
CFR and CIF
Under CFR, the seller pays for freight to the destination port. Under CIF, the seller also buys minimum insurance cover for the buyer’s benefit. An important point: with CFR and CIF, risk still passes to the buyer when goods are loaded on the vessel in India, even though the seller pays freight to destination. If you want broader insurance than the minimum, agree it explicitly or arrange your own.
CPT and CIP
These are the multimodal equivalents of CFR and CIF. Under Incoterms 2020, CIP requires a higher level of insurance cover than CIF, which makes it attractive for manufactured goods sent by air or multimodal transport.
DAP, DPU and DDP
These “delivered” terms place most responsibility on the seller. Under DAP, the seller delivers goods ready for unloading at the named destination; the buyer handles import clearance and duties. DPU requires the seller to unload at destination. DDP puts import clearance and duties on the seller too, which is convenient for buyers but can be difficult for an Indian exporter to manage in another country.
How to Choose the Right Incoterm
Consider these questions:
- Do you have a freight forwarder with good rates from India? If yes, FCA or FOB gives you control over freight cost and routing.
- Are you a small or first-time importer? CIF, CIP or DAP can simplify logistics because the seller arranges main transport.
- Is the cargo containerised? FCA usually matches the real handover point better than FOB.
- Who can clear customs most efficiently? Export clearance is easiest for the Indian seller; import clearance is easiest for the buyer or their broker.
- How much insurance do you need? Check cover levels under CIF and CIP, or arrange your own cargo insurance.
Common Incoterm Mistakes
- Omitting the named place: “FOB” alone is incomplete. Always state the port or place, such as “FOB Chennai”.
- Not stating the edition: Write “Incoterms 2020” in contracts to avoid confusion with older editions.
- Assuming CIF means the seller carries risk during the voyage: Risk transfers at loading in India.
- Using sea-only terms for air freight: FOB and CIF are designed for sea and inland waterway transport.
- Mismatched payment terms: Letters of credit require documents consistent with the chosen Incoterm.
Practical Example
A buyer in Europe orders home textiles from a supplier in North India. The supplier quotes FCA at an inland container depot near Delhi and CIF at a European port. Under FCA, the buyer’s forwarder collects the container from the depot and the buyer pays rail and sea freight and insurance. Under CIF, the supplier books freight to the destination port and buys minimum insurance, but risk still passes when the container is loaded on the vessel in India. Comparing the two quotes requires adding the buyer’s own freight and insurance costs to the FCA price.
Frequently Asked Questions
Is FOB or CIF better for importers?
Neither is universally better. FOB gives the buyer more control over freight and often better transparency on cost; CIF is simpler for buyers without a forwarder.
Do Incoterms decide when I must pay?
No. Payment timing and method are agreed separately in the contract.
Can an Incoterm be changed after the order is placed?
Yes, if both parties agree in writing, but freight and insurance arrangements must be updated accordingly.
Get Clear Quotations from Indian Suppliers
Choosing the right trade term is part of a well-planned import. If you are new to sourcing from India, read our guide on how to import products from India. Sunil Global Trade can quote on the Incoterm that suits your logistics setup and coordinate export documentation and shipping. Request a quotation with your product, quantity and destination.
