4/12 : Incoterms 2020 Decoded for Indian Exporters
- Mar 24
- 25 min read
Updated: Mar 25
How to Use This Part This part covers all eleven Incoterms 2020 rules in their four groups, each with a dedicated card showing what the seller pays, when risk transfers, and the practical India-specific usage context. The second half of this part focuses on the most commercially important decisions: the FOB vs. CIF debate, the FCA vs. FOB misuse problem, the Incoterms-and-LC interaction, and the selection guide by product type, market, and buyer relationship. Read the individual term cards as reference. Read the decision sections as operational guidance. |
Part | Title (LINKS) |
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Part 2 | |
Part 3 | |
Part 4 | |
Part 5 | |
Part 6 | |
Part 7 | |
Part 8 | |
Part 9 | |
Part 10 | |
Part 11 | |
Part 12 |
Why Incoterms Are Not Optional Knowledge — They Are Commercial Infrastructure
An Indian exporter who does not understand Incoterms is not exporting, they are guessing. Every export contract, every commercial invoice, every letter of credit, and every insurance policy is built on an Incoterm. The three-letter code that appears on your Proforma Invoice, FOB, CIF, DAP, EXW, is not a shipping preference. It is a legally binding allocation of cost, risk, and responsibility between you and your buyer, from the moment goods leave your factory gate to the moment they are cleared at the destination. Get it wrong and you will either pay for logistics costs the buyer should have borne, or bear risks you should have transferred, or both simultaneously.
Incoterms, an abbreviation for International Commercial Terms, are a set of eleven standardised trade rules published and maintained by the International Chamber of Commerce (ICC). First published in 1936 and updated nine times since, the current version is Incoterms 2020, which came into effect on January 1, 2020. As of 2026, no new revision has been published. The next update is generally anticipated around 2030. Any contract that references Incoterms without specifying the year is ambiguous, always write the full reference: 'FOB Nhava Sheva, Incoterms 2020.'
Incoterms do not govern everything in an export transaction. They specifically address four things: delivery, where and when the seller delivers the goods to the buyer; risk transfer, the precise point at which the risk of loss or damage passes from seller to buyer; cost allocation, who pays for each element of the logistics chain; and documentation and security obligations, who is responsible for obtaining export and import licences, customs clearance, and security-related documentation. They do not govern payment terms, title transfer, product quality, or dispute resolution, those are matters for the sales contract.
THE MANDATORY WRITING CONVENTION | Every time you use an Incoterm in any document, invoice, contract, LC, packing list — write it in full: [Incoterm Code] [Named Place], Incoterms 2020. For example: CIF Jebel Ali Port, Dubai, UAE, Incoterms 2020. Or: FOB Nhava Sheva (JNPT), Mumbai, India, Incoterms 2020. The named place is not optional, it defines the specific geographical point where cost and risk transfer. Without it, the Incoterm is legally incomplete and the contract is ambiguous. A contract that says only 'FOB' without a named port is not an Incoterm contract, it is a source of dispute. |
The Four Groups — The Architecture Behind the Eleven Terms
The eleven Incoterms 2020 rules are organised into four logical groups, each representing a progressively higher level of seller responsibility. Understanding the group architecture makes the individual terms immediately intuitive, rather than memorising eleven separate definitions, you understand four principles and derive the terms from them.
Grp | Code | Seller's Responsibility | Indian Exporter Implication |
E | EXW | Minimum. Seller makes goods available at their own premises only. Buyer arranges everything from factory gate onward. | Maximum buyer control. Useful for buyers with India-side freight operations. Risk for exporter: no proof of export for GST purposes. |
F | FCA / FAS / FOB | Seller delivers goods to a named point in India — carrier terminal, port alongside ship, or on board vessel. Buyer arranges and pays main carriage. | Seller handles Indian export clearance. Buyer handles international freight and insurance. Most balanced allocation for mid-range export relationships. |
C | CPT / CIP / CFR / CIF | Seller contracts and pays for main carriage to destination. Risk still transfers at origin (on loading / handover to carrier). Seller bears freight cost but not destination risk. | Seller pays freight but risk transfers at origin. Creates a counterintuitive situation: seller pays for a journey they no longer own the risk on. Understand this carefully. |
D | DAP / DPU / DDP | Maximum. Seller bears all costs and risks until goods arrive at named destination. DDP is the absolute maximum — seller pays import duties and clears customs in buyer's country. | Highest seller obligation. Rarely used by first-time Indian exporters. Appropriate only when you have deep market knowledge and established logistics in the destination country. |
Source: ICC Incoterms 2020, SpheraLink Ventures 360 Group Framework
Two Important Distinctions: Seven of the eleven terms (EXW, FCA, CPT, CIP, DAP, DPU, DDP) can be used for any mode of transport, sea, air, road, rail, or multimodal. Four terms (FAS, FOB, CFR, CIF) are exclusively for sea and inland waterway transport. Using FOB, CFR, or CIF for air shipments is a technical error under Incoterms 2020, the correct air equivalents are FCA, CPT, and CIP respectively. |
Group E — The Departure Term
EXW Ex Works | Group E — Departure Transport: Any mode of transport — sea, air, road, rail, multimodal |
Seller Pays Up To: Packaging only. Nothing else. Risk Transfers When: Buyer collects goods at seller's premises Indian Exporter Usage: Rare — GST and EXW conflict |
EXW represents the absolute minimum obligation for the seller. Under EXW, the seller makes the goods available at their own named premises, factory, warehouse, or office. The buyer is responsible for literally everything from that point: loading the goods onto their collection vehicle, arranging export customs clearance, booking freight, organising insurance, clearing import customs, and delivering to their final destination.
EXW sounds attractive to sellers because the price quoted is the lowest possible, it excludes every logistics cost. However, EXW carries a significant and frequently overlooked problem for Indian exporters: under EXW, the buyer is responsible for export customs clearance. This means the exporter cannot control the Shipping Bill filing and may not be able to obtain proof of export, specifically the LEO endorsement and the Shipping Bill exchange control copy, that is required to claim IGST refunds and to satisfy FEMA realisation requirements. An Indian exporter who agrees EXW and then cannot obtain proof of export may face a GST refund rejection and an EDPMS compliance issue for the same shipment.
When EXW Works for Indian Exporters: EXW is genuinely appropriate only when the foreign buyer has a well-established India-side logistics operation, their own freight forwarder or customs house agent in India who will manage the Shipping Bill filing and will provide the Indian seller with a copy of the LEO-endorsed Shipping Bill for record purposes. In that specific situation, EXW is administratively efficient. Without that assurance in writing, prefer FCA seller's premises over EXW.
EXW AND GST EXPORT COMPLIANCE — THE HIDDEN TRAP | Under EXW, the buyer arranges export clearance. But the IGST zero-rated supply benefit and the LUT-based export claim under GST apply to the Indian seller, who must be able to demonstrate the goods actually left India. If the buyer does not share the Shipping Bill details with the seller, the seller has no proof of export, cannot generate an e-BRC, and is technically in breach of their LUT undertaking. Always include a clause in EXW contracts requiring the buyer to provide the Indian seller with the LEO-endorsed Shipping Bill within 10 days of export. |
Group F — Main Carriage Unpaid (The Seller Exports, The Buyer Ships)
FCA Free Carrier | Group F — Main Carriage Unpaid Transport: Any mode — sea, air, road, rail, multimodal |
Seller Pays Up To: Export clearance + delivery to named carrier/terminal Risk Transfers When: Buyer nominates carrier and takes risk at that point Indian Exporter Usage: Growing rapidly — ideal for containers + air freight |
FCA — The Most Important Incoterms 2020 Change You Need to Know
FCA (Free Carrier) is the term that received the most significant structural change in the 2020 revision, a change specifically designed to fix a problem that had been causing commercial difficulty for Indian and global exporters for years. Understanding this change is not optional for any exporter who ships containerised goods or uses letters of credit.
Under FCA, the seller delivers the goods to the buyer's nominated carrier at a named place, either the seller's own premises (FCA Seller's Premises) or another agreed location such as a container freight station or port terminal (FCA Named Terminal). Once delivered, risk transfers to the buyer. The seller has already obtained export clearance and loaded the goods onto the carrier's vehicle.
The Pre-2020 FCA Problem: Under Incoterms 2010, when an Indian exporter sold FCA and the goods were handed to a container freight station or carrier terminal, the shipping line would issue a Received for Shipment B/L, not an On Board B/L. Most Letters of Credit specifically require an On Board B/L (confirming goods are physically on the vessel). Since the seller had already delivered under FCA and had no control over the vessel loading, they could not get the On Board B/L their bank needed. This forced exporters to use FOB instead of FCA for container shipments, even though FCA is technically more appropriate for containers.
The 2020 Solution: Incoterms 2020 added a specific provision to FCA, Article A6/B6, allowing the parties to agree that the buyer will instruct the carrier to issue an On Board B/L to the seller once the goods are loaded on the vessel. This resolves the LC payment problem entirely. The seller gets their On Board B/L for LC negotiation; the buyer's carrier issues it as instructed; and the appropriate Incoterm (FCA) is used for the shipment. This is the single most practically important change in Incoterms 2020.
FCA IS THE CORRECT INCOTERM FOR CONTAINER SHIPMENTS | The ICC has explicitly recommended FCA (not FOB) for all containerised sea freight since Incoterms 2010 and the 2020 FCA On Board B/L provision removes the last practical barrier to using it. Under FOB, the seller's risk ends when goods cross the ship's rail, but in container shipping, the seller loses physical control of the container at the container freight station (CFS), often days before the vessel loads. Using FOB for containers means bearing risk for a period you cannot monitor or control. Indian exporters shipping containers should use FCA Named Terminal, Incoterms 2020, with an explicit agreement in the contract for the buyer's carrier to issue an On Board B/L. |
FAS Free Alongside Ship | Group F — Main Carriage Unpaid Transport: Sea and inland waterway ONLY |
Seller Pays Up To: Export clearance + delivery alongside vessel at named port Risk Transfers When:Buyer takes risk when goods placed alongside ship Indian Exporter Usage: Niche — bulk cargo, project cargo, breakbulk vessels |
Under FAS, the seller delivers the goods alongside the named vessel at the port of shipment, on the quay or barge, cleared for export. From that point, the buyer bears all costs and risks, including loading onto the vessel. FAS is used primarily for bulk cargo, heavy machinery, and project cargo where the buyer controls the loading process and has specific vessel requirements. It is rarely used in standard FMCG, engineering goods, or garment exports. Most Indian exporters will use FAS only when a buyer specifically requires it for breakbulk or specialised cargo shipments.
FOB Free on Board | Group F — Main Carriage Unpaid Transport: Sea and inland waterway ONLY — NOT for containers |
Seller Pays Up To: Export clearance + loading goods on board vessel Risk Transfers When: Buyer takes risk once goods are on board the vessel Indian Exporter Usage: Most common term in Indian export — but often misused |
FOB — The Most Used and Most Misused Incoterm in Indian Trade
FOB is the most widely used Incoterm in Indian export trade, and simultaneously the most frequently misapplied one. Understanding both why it is popular and where it is being used incorrectly is essential for any Indian exporter.
Under FOB, the seller is responsible for delivering the goods on board the vessel at the named port of loading, cleared for export, loaded, stowed. Risk transfers the moment the goods cross the ship's rail and are on board. The buyer then bears freight, insurance, destination charges, and import clearance.
Why FOB is Popular: FOB gives the Indian exporter a clear, identifiable endpoint, the vessel loading. It is well-understood by banks for LC purposes (they require an On Board B/L, which is naturally generated under FOB since the seller controls the loading). It is widely quoted in buyer RFQs and is the default starting point for most export price negotiations.
Why FOB is Misused: FOB is explicitly a sea and inland waterway term only. Using FOB for air freight is technically incorrect under Incoterms 2020, the correct air equivalent is FCA. More critically, using FOB for containerised sea freight means bearing risk until the container is physically loaded on the vessel, but the seller has typically already handed the container to the CFS or port terminal days earlier and has no physical control over it. If the container is damaged in the terminal before loading, the seller is still liable under FOB.
Dimension | FOB — Free on Board | FCA — Free Carrier |
Risk Transfer Point | When goods are on board the vessel at named port. | When goods delivered to carrier's custody at named place (CFS, port terminal, or seller's premises). |
Container Suitability | Technically incorrect for containers. Seller bears risk in terminal before loading — without control. | Correct for containers. Risk transfers at CFS/terminal handover — the moment seller loses control. |
Air Freight | NOT suitable for air freight. FOB is sea only. | Correct for air freight. Use FCA Airport of Departure. |
LC Compatibility | Strong — carriers naturally issue On Board B/L under FOB. Banks are comfortable. | Now strong under Incoterms 2020 — buyer instructs carrier to issue On Board B/L to seller. |
Export Incentive Claims | All Indian incentive claims (RoDTEP, drawback) calculated on FOB value — straightforward. | Same. FCA price = FOB price for most practical purposes at India ports. |
Recommendation | Use for bulk cargo, breakbulk, and non-containerised sea shipments where loading is seller-controlled. | Use for ALL container shipments, air shipments, and multimodal transport — with On Board B/L agreement in contract. |
Source: ICC Incoterms 2020, SpheraLink Ventures 360 Incoterm Selection Framework
Group C — Main Carriage Paid (Seller Ships, Buyer Takes Risk at Origin)
Group C is the most counterintuitive group in Incoterms 2020, and the source of the most common misunderstandings. The defining characteristic of all Group C terms is this: the seller pays for main carriage, but risk transfers to the buyer at the point of origin (when goods are loaded onto the vessel or handed to the carrier in India). This means the seller pays for a journey they no longer own the financial risk of. This is not an error in the system, it is a deliberate allocation that makes commercial sense in certain situations, but it must be explicitly understood before you agree any Group C term.
CPT Carriage Paid To | Group C — Main Carriage Paid Transport: Any mode — sea, air, road, rail, multimodal |
Seller Pays Up To: Export clearance + main carriage to named destination Risk Transfers When: Buyer takes risk when goods handed to first carrier in India Indian Exporter Usage: Used for air and multimodal — growing in electronics exports |
Under CPT, the seller contracts and pays for carriage to the named destination. However and this is the Group C counterintuition, risk transfers when the goods are handed to the first carrier at the origin, not when they arrive at the destination. This means the seller pays the freight to Dubai but if the goods are damaged in the Indian Ocean, that is the buyer's risk. The buyer should take out insurance even though CPT does not require the seller to provide it. Indian exporters using CPT for air freight should confirm with buyers that they understand this risk allocation and have arranged their own insurance from the origin point.
CIP Carriage and Insurance Paid To | Group C — Main Carriage Paid Transport: Any mode — sea, air, road, rail, multimodal |
Seller Pays Up To: Export clearance + main carriage + Institute Cargo Clause A insurance Risk Transfers When: Buyer takes risk when goods handed to first carrier in India Indian Exporter Usage: Preferred for high-value manufactured goods, electronics, pharma |
CIP is CPT plus insurance, the seller pays for both freight and insurance to the named destination. The 2020 revision significantly upgraded the insurance requirement for CIP: previously, both CIF and CIP required only Institute Cargo Clauses (C), the minimum cover. Under Incoterms 2020, CIP now requires the more comprehensive Institute Cargo Clauses (A), which covers all risks of loss or damage except those specifically excluded. This change was made because CIP is predominantly used for manufactured goods, electronics, pharmaceuticals, machinery, which warrant comprehensive cover. CIF, by contrast, retains the Clause C minimum because CIF is predominantly used for commodity trading where Clause C is the market convention.
CIP vs CIF — The Practical Difference: For Indian exporters of manufactured goods, electronics, pharmaceuticals, and processed food, CIP (multimodal, any transport, ICC Clause A) is now often preferable to CIF (sea only, ICC Clause C). If your buyer wants you to arrange insurance, and your goods are manufactured goods being shipped multimodally, use CIP not CIF.
CFR Cost and Freight | Group C — Main Carriage Paid Transport: Sea and inland waterway ONLY |
Seller Pays Up To: Export clearance + loading + ocean freight to destination port Risk Transfers When: Buyer takes risk when goods are on board vessel at Indian port Indian Exporter Usage: Commodity exports — rice, spices, cotton, sugar |
CFR is CIF without insurance, the seller pays for loading and ocean freight to the destination port, but does not arrange insurance. Risk transfers when goods are on board the vessel at the origin port. The buyer bears risk during the ocean voyage and arranges their own insurance. CFR is commonly used in commodity trades where buyers have existing marine insurance programmes covering all inbound shipments, and where the Incoterm is primarily a cost-allocation tool rather than a risk management one.
CIF Cost, Insurance and Freight | Group C — Main Carriage Paid Transport: Sea and inland waterway ONLY — NOT for air or containers |
Seller Pays Up To: Export clearance + loading + ocean freight + ICC Clause C insurance Risk Transfers When: Buyer takes risk when goods are on board vessel at Indian port Indian Exporter Usage: Most common Indian export term for sea freight — wide usage |
CIF — The Most Commercially Important Incoterm for Indian Exporters
CIF is the single most widely used Incoterm in Indian sea freight exports and for good reason. It gives the Indian exporter control over freight booking (enabling better rate negotiation on volumes), provides the buyer with insurance arranged by the seller (simplifying the buyer's procurement process), and generates the full document set that banks require under most LCs. Approximately 40% of global trade is conducted under CIF terms and a significantly higher proportion of Indian FMCG, commodity, and agri-export contracts.
Under CIF, the seller pays ocean freight and arranges marine insurance for the goods' sea transit. Critically, risk transfers when the goods are on board the vessel at the Indian port, not when they arrive at the destination port. This means the seller pays for insurance on a journey for which the buyer already bears the risk. The insurance policy is in the buyer's name, the seller buys it, but the buyer benefits from it. This arrangement makes commercial sense because: the seller has the relationship with the insurer; the seller can consolidate insurance across multiple shipments for better rates; and the buyer receives a clean document set (invoice, B/L, insurance certificate) enabling straightforward destination customs clearance.
Dimension | FOB — Free on Board | CIF — Cost, Insurance, Freight |
What Seller Pays | Loading onto vessel at Indian port. Export clearance. | Loading + ocean freight to destination port + ICC Clause C marine insurance. |
Risk Transfer | On board vessel at Indian port. | On board vessel at Indian port. SAME as FOB. |
Who Arranges Freight | Buyer arranges and pays ocean freight. | Seller arranges and pays ocean freight. |
Who Arranges Insurance | Buyer arranges own insurance from Indian port. | Seller arranges insurance in buyer's name (ICC Clause C minimum under Incoterms 2020). |
Impact on Export Price | Lower FOB price. Buyer adds freight and insurance. | Higher CIF price. Freight and insurance already included. |
LC Document Set | Invoice, Packing List, B/L, CoO — no insurance certificate required. | Invoice, Packing List, B/L, CoO + Insurance Certificate/Policy (110% CIF value, blank endorsed, Clause C). |
DGFT Incentive Calculation | RoDTEP and drawback calculated on FOB value. Simple. | Incentives calculated on FOB component only — strip out freight and insurance from CIF to get FOB base. Know your split. |
Buyer Preference | Buyers with own freight contracts prefer FOB — they control routing and rate. | Buyers who want simplicity and a single price prefer CIF. UAE, GCC, and first-time importers strongly prefer CIF. |
Global Usage | ~60% of global trade contracts. Dominant in high-value manufactured goods, machinery, electronics. | ~40% of global trade contracts. Dominant in commodities, FMCG, agri exports, bulk goods. |
SpheraLink Recommendation | Use FOB when buyer has existing freight programme or wants carrier control. Ideal for GCC-based buyers with Dubai freight contracts. | Use CIF for first-time relationships, UAE/GCC commodity exports, buyers who want complete document sets. Most practical default for Indian FMCG and agri exporters. |
Sources: HiWiPay CIF Guide for Indian Exporters 2025, Tata AIG CIF vs FOB Guide, SpheraLink Analysis
Group D — Arrival Terms (The Seller Delivers to the Destination)
Group D terms represent the maximum seller obligation in Incoterms 2020. Under all three Group D terms, the seller is responsible not just for shipping the goods but for delivering them to a named place in the buyer's country, bearing all costs and risks throughout the international journey. These terms should be used by Indian exporters only when they have established logistics infrastructure, legal entities, or reliable partner networks in the destination country.
DAP Delivered at Place | Group D — Arrival Transport: Any mode — sea, air, road, rail, multimodal |
Seller Pays Up To: All costs and risks to named destination — NOT including unloading or import duties Risk Transfers When: Buyer takes risk when goods arrive at destination ready for unloading Indian Exporter Usage: Used by experienced exporters with destination-country logistics partners |
Under DAP, the seller delivers the goods at the named destination, on the arriving means of transport, ready for unloading, but does not unload them. The buyer is responsible for unloading and for import customs clearance. DAP is appropriate when the Indian exporter has a freight forwarder, 3PL partner, or subsidiary in the destination country that can manage the last-mile delivery. For exports to the UAE under DAP, for example, the Indian exporter would typically engage a UAE-based clearing and forwarding agent to receive the shipment and hold it until the buyer takes delivery.
DPU Delivered at Place Unloaded | Group D — Arrival Transport: Any mode — sea, air, road, rail, multimodal |
Seller Pays Up To: All costs and risks to destination INCLUDING unloading at named place Risk Transfers When: Buyer takes risk after goods are unloaded at the named destination Indian Exporter Usage: Specialist use — project cargo, exhibition goods, heavy machinery |
DPU replaced DAT (Delivered at Terminal) in Incoterms 2020, the name change was made to clarify that delivery can occur at any place, not just a formal port terminal. DPU is the only Incoterm under which the seller is obligated to unload the goods at the destination. This makes it logistically complex for sellers and is generally used only for project cargo, construction equipment, or specialised goods where the seller has specific unloading equipment or expertise that the buyer does not possess. Most Indian exporters will not use DPU in standard trade.
DDP Delivered Duty Paid | Group D — Arrival Transport: Any mode — sea, air, road, rail, multimodal |
Seller Pays Up To: Everything — freight + insurance + destination customs + import duties Risk Transfers When: Buyer takes risk only when goods delivered at named destination Indian Exporter Usage: E-commerce exports, premium D2C — use with great caution |
DDP is the polar opposite of EXW. Under DDP, the seller bears maximum responsibility, paying for everything from factory gate through to the buyer's door, including destination import duties and taxes. The seller must clear goods for import in the buyer's country and pay all applicable customs duties, VAT, and taxes.
DDP sounds attractive to buyers because they receive goods at their door with no customs complications. But for Indian exporters, DDP carries extraordinary risks and obligations: you must be legally registered as an importer in the destination country, or appoint a fiscal representative who is; you must navigate import customs in a foreign jurisdiction where regulations change regularly; and if import duties increase, the cost falls entirely on you. For most Indian exporters, DDP is either commercially impractical or financially dangerous unless you are dealing with a market where you have a subsidiary or a deeply established logistics partner.
Exception — E-commerce Exports: DDP has found significant traction in the rapidly growing D2C e-commerce export segment. Indian brands selling premium products directly to consumers in the EU, UK, or USA through platforms like Shopify or their own websites often offer DDP pricing, where the customer sees a fully landed price including duties and taxes. This requires either the platform (Amazon, Shopify Markets) to collect and remit duties as an IOSS-registered entity, or the Indian exporter to partner with a cross-border logistics specialist who handles customs registration and duty payment in the destination market.
Incoterms and Letters of Credit — The Interaction That Decides Payment
Every time a buyer opens a Letter of Credit, the LC contains an Incoterm and that Incoterm determines which documents the seller must present to the bank. Banks do not care which Incoterm makes operational sense. They care only about document compliance with LC terms. Getting the Incoterm right in the sales contract and mirroring it exactly in the LC is not optional, it is the difference between payment and a discrepancy.
Incoterm | LC Must Specify | Documents Bank Requires | Critical Risk |
FOB | Port of loading named. 'On Board' B/L required. | Invoice, Packing List, On Board Clean B/L, CoO, (no insurance certificate) | No insurance certificate — buyer must arrange separately. |
CIF | Port of loading and destination named. Insurance for 110% CIF value, Clause C, blank endorsed. | Invoice, Packing List, On Board Clean B/L, CoO, Insurance Certificate/Policy | Insurance document errors are the most common CIF LC discrepancy. |
FCA | Named place and agreement for buyer-instructed On Board B/L (2020 FCA provision). | Invoice, Packing List, On Board B/L (issued per buyer's carrier instruction), CoO | Carrier must issue On Board B/L — confirm in contract before LC is opened. |
CPT / CIP | Named destination. CIP requires Clause A insurance (2020 upgrade). | Invoice, Packing List, Multimodal Transport Document or AWB, CoO, Insurance Certificate (CIP only — Clause A) | Banks may be unfamiliar with multimodal documents. Ensure LC explicitly accepts multimodal BL/AWB. |
DAP / DDP | Named destination. DDP must specify that seller pays import duties. | Invoice, Packing List, transport document, CoO. No standard LC document set — negotiated case by case. | LCs under DAP/DDP are complex. Most experienced exporters use DA/DP payment terms instead. |
Source: ICC UCP 600, SpheraLink Ventures 360 LC-Incoterm Interaction Framework
INCOTERM IN LC MUST MATCH CONTRACT EXACTLY | If your sales contract says 'CIF Jebel Ali, Incoterms 2020' and your buyer opens an LC saying 'CFR Dubai Port', these are two different obligations. CIF requires you to provide an insurance certificate. CFR does not. The bank will apply the LC terms and if you present an insurance document under a CFR LC, the bank may raise a discrepancy for an unsolicited document. Always review the LC the moment you receive it and verify that the Incoterm, the named place, and the Incoterms year all exactly match what was agreed in your sales contract. |
The Incoterm Selection Guide — What to Choose and When
There is no universally correct Incoterm. The right choice depends on four factors: your operational capability, your buyer's preferences and logistics infrastructure, the mode of transport, and the market relationship you are in. The following guide maps common Indian export scenarios to the most appropriate Incoterm selection.
Scenario | Product / Mode | Recommended Term | Reasoning |
First export shipment, new buyer relationship | Any product, sea freight | CIF — Destination Port | Gives seller control over freight and insurance. Simplifies buyer's process. Most acceptable to UAE, GCC, and new importers. |
Established buyer with own freight contract | FMCG, engineering goods, sea freight | FOB — Indian Port | Buyer controls carrier selection and rate. Cleaner risk transfer. Most common term for repeat relationships. |
Container shipment with LC payment | Any containerised goods, sea freight | FCA — CFS or Port Terminal | Technically correct for containers. Use Incoterms 2020 On Board B/L provision to satisfy LC. |
Air freight — urgent, high-value goods | Pharmaceuticals, electronics, perishables | FCA — Airport of Departure | FOB/CIF are sea-only terms. FCA is the correct air equivalent. Use CIP if seller also arranges insurance. |
High-value manufactured goods, all risk coverage needed | Electronics, machinery, medical devices — sea or air | CIP — Named Destination | CIP now requires ICC Clause A (all risks) insurance — appropriate for manufactured goods. Use over CIF for non-bulk manufactured products. |
Buyer wants absolute minimum price, manages own logistics | Any goods, buyer has India-side freight agent | FCA — Seller Premises | Safer than EXW — seller retains control of export customs clearance. Avoids GST proof-of-export complications. |
D2C e-commerce export, consumer in EU or UK | Premium consumer goods, courier / airfreight | DDP — Buyer Address | Consumer expects landed price including duties. Requires IOSS/tax registration or specialist cross-border logistics partner. |
Commodity bulk export — rice, sugar, cotton, chemicals | Bulk cargo, breakbulk, non-containerised | CIF or FOB — Named Port | Both are standard in commodity trade. CIF dominant for agri commodities; FOB dominant for petrochemicals and industrial goods. |
First-time exporter, uncertain about freight rates | Any product, any mode | CIF for sea; CIP for air | Selling at CIF/CIP gives the exporter control over freight booking and rate management — and includes freight in the invoiced value, simplifying comparison with domestic pricing. |
Export to Africa through re-export hub (Dubai) | FMCG, food products, packaged goods | CIF Jebel Ali, Incoterms 2020 | Sell CIF to Dubai distributor who handles onward re-export. Maximises your control over the primary journey while the distributor manages African corridors. |
SpheraLink Ventures 360 Incoterm Selection Guide, 2026
Incoterms and Insurance — Who Buys It, What It Covers, What Happens Without It
Only two of the eleven Incoterms 2020 rules require the seller to purchase insurance: CIF and CIP. Under all other terms, insurance is optional but commercially sensible in almost every situation regardless of whether it is contractually required.
Incoterm | Insurance Obligation | Required Cover Level | Practical Guidance |
CIF | Seller MUST provide | Institute Cargo Clauses (C) — minimum cover for total loss and specified major risks. Unchanged from 2010. | For commodities and bulk goods where Clause C is market convention. Ensure policy is for 110% of CIF value, in LC currency, blank endorsed. |
CIP | Seller MUST provide | Institute Cargo Clauses (A) — all risks cover. UPGRADED from Clause C in Incoterms 2020. | For manufactured goods, electronics, pharmaceuticals. Clause A covers theft, contamination, breakage — risks Clause C excludes. The 2020 upgrade is significant — older CIP contracts may use outdated cover. |
FOB / CFR / FCA / CPT | Not required by Incoterms | N/A — buyer should arrange own insurance | Even though insurance is not required by the Incoterm, the seller should maintain a Marine Open Policy for their own protection against transit claims. And advise buyer to arrange insurance. |
EXW / DAP / DPU / DDP | Not specified — negotiated | N/A — contractually negotiated | Under DAP/DDP, seller bears risk to destination and should self-insure for the full journey duration. A Marine Open Policy covering all shipments is essential. |
Sources: ICC Incoterms 2020, Institute of London Underwriters ICC Cargo Clauses, TradeFinanceGlobal CIF Insurance Guide 2025
The Clause A vs Clause C Distinction — Why It Matters More Than Most Exporters Realise
Institute Cargo Clause A (ICC-A) and Institute Cargo Clause C (ICC-C) represent fundamentally different levels of insurance protection — and the Incoterms 2020 decision to upgrade CIP from Clause C to Clause A was made precisely because the difference is commercially significant for manufactured goods.
ICC Clause C (Minimum Cover): Covers total loss; stranding, grounding, sinking, capsizing; collision or contact of vessel with external object; earthquake, volcanic eruption, or lightning; general average sacrifice; and jettison. It does not cover theft, pilferage, leakage, contamination, denting, scratching, wet damage, or breakage, all of which are common risks for manufactured goods in transit.
ICC Clause A (All Risks): Covers all risks of loss or damage to goods during transit, subject only to specific named exclusions (war, nuclear, inherent vice, improper packing). Clause A includes everything Clause C covers — plus theft, pilferage, fresh water damage, breakage, contamination, and handling damage. For a container of electronics, pharmaceuticals, or processed food, the additional premium for Clause A over Clause C is typically 0.05-0.15% of insured value, a small cost relative to the protection it provides.
The Eight Most Common Incoterm Mistakes Indian Exporters Make
# | Mistake | Consequence | Correct Practice |
1 | Using FOB for containerised shipments | Seller bears risk in container terminal before loading — without physical control of the goods. | Use FCA Named Terminal with Incoterms 2020 On Board B/L provision for all containerised sea shipments. |
2 | Using FOB or CIF for air freight | FOB and CIF are sea-only terms. Technically incorrect application. Creates ambiguity in document compliance. | Use FCA for air freight (equivalent to FOB). Use CIP for air freight with insurance (equivalent to CIF). |
3 | Writing Incoterm without a named place or without specifying year | Legally incomplete contract. Dispute over where cost and risk transfer. Bank may reject LC documents. | Always write: [Incoterm] [Named Place], Incoterms 2020. Example: CIF Jebel Ali Port, Dubai, UAE, Incoterms 2020. |
4 | Agreeing EXW without securing proof of export mechanism | No Shipping Bill copy for GST proof of export. IGST refund claim fails. LUT violation. EDPMS entry stays open. | Use FCA Seller Premises instead of EXW. Or contractually require buyer to provide LEO-endorsed Shipping Bill copy within 10 days. |
5 | Using CIP with ICC Clause C insurance instead of Clause A (2020 upgrade) | Policy provides inferior cover. Manufactured goods theft, breakage, and wet damage not covered. LC discrepancy if LC specifies Clause A. | CIP under Incoterms 2020 requires ICC Clause A. Update insurance policy and LC terms accordingly. |
6 | Incoterm in invoice does not match Incoterm in LC | LC discrepancy. Bank refuses payment or raises query. Payment delayed by days to weeks. | Check LC terms the moment it is received. Verify Incoterm, named place, and year. Request amendment immediately if mismatch found. |
7 | Agreeing DDP without legal entity or customs registration in destination | Cannot legally clear goods for import in buyer's country. Shipment detained. Buyer cancels contract. | Use DAP instead of DDP unless you have a registered entity or IOSS registration in the destination country. |
8 | Not updating legacy contracts still referencing DAT (replaced by DPU in 2020) | DAT is no longer a valid Incoterm under the 2020 edition. Contracts using DAT are technically referencing a discontinued term. | Replace all DAT references with DPU in contracts, templates, and standard trading terms. Add year specification: DPU [Named Place], Incoterms 2020. |
SpheraLink Ventures 360 Incoterms Error Analysis, 2026
The Complete Incoterms 2020 Quick Reference — All Eleven Terms
Grp | Code | Full Name | Transport | Seller Pays To | Risk Transfers | India Export Usage |
E | EXW | Ex Works | Any mode | Factory gate only | Buyer collects at premises | Rare — use FCA instead |
F | FCA | Free Carrier | Any mode | Named carrier handover + export clearance | Carrier takes custody in India | Recommended — containers, air, multimodal |
F | FAS | Free Alongside Ship | Sea/waterway only | Alongside vessel at Indian port | Goods placed alongside ship | Bulk/breakbulk/project cargo |
F | FOB | Free on Board | Sea/waterway only | On board vessel at Indian port | Goods on board vessel | Most common — bulk, non-container sea freight |
C | CFR | Cost and Freight | Sea/waterway only | Loading + freight to destination port | On board vessel at Indian port | Commodity exports — rice, cotton, chemicals |
C | CIF | Cost Insurance Freight | Sea/waterway only | Freight + Clause C insurance to destination | On board vessel at Indian port | Most used — FMCG, agri, commodity sea exports |
C | CPT | Carriage Paid To | Any mode | Freight to named destination | First carrier takes custody in India | Air and multimodal — no insurance obligation |
C | CIP | Carriage Insurance Paid | Any mode | Freight + Clause A insurance to destination | First carrier takes custody in India | Manufactured goods, pharma, electronics — air/sea |
D | DAP | Delivered at Place | Any mode | All costs to named destination (no unloading, no duty) | Goods available at destination for unloading | Experienced exporters with destination logistics |
D | DPU | Delivered at Place Unloaded | Any mode | All costs including unloading at destination | After unloading at named destination | Specialist use — project/heavy cargo only |
D | DDP | Delivered Duty Paid | Any mode | Everything including import duty and clearance | Goods delivered at buyer's named destination | D2C e-commerce with IOSS/fiscal representative |
Source: ICC Incoterms 2020 Official Publication, SpheraLink Ventures 360
Choose Your Incoterm Before You Print Your Invoice — Not After
The Incoterm is not a field to fill in at the end of your invoice preparation. It is a commercial decision that must be made before any price is quoted, before any LC is opened, and before any insurance policy is arranged. Every number on your export invoice, the unit price, the freight component, the insurance component, is directly shaped by the Incoterm you choose. A price quoted FOB and a price quoted CIF for the same goods are not the same number, and treating them as interchangeable is one of the most expensive assumptions a new exporter can make.
The practical summary for 2026: most Indian sea freight exporters should default to CIF for new relationships and commodity shipments, and FOB or FCA for established relationships with buyers who have their own freight programmes. All container shipments should use FCA with an explicit On Board B/L agreement under the Incoterms 2020 provision. All air freight should use FCA or CIP, never FOB or CIF. And every single Incoterm reference in every single document should include the named place and the year: Incoterms 2020.
Part 5 of this series moves to Export Promotion Councils, the government-backed institutions that most exporters register with and never fully utilise, and that represent one of the largest sources of untapped export support available to any Indian business.
HOW SPHERALINK CAN HELP | SpheraLink Ventures 360 provides Incoterm structuring support as part of its export contract review service, ensuring that the Incoterm selected is appropriate for your product, mode of transport, destination market, and payment terms; that it is correctly reflected across your commercial invoice, LC, and insurance policy; and that your pricing model accurately accounts for all costs under the chosen term. Visit www.spheralink.com to book a free consultation. |
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