Incoterms are standard three-letter trade terms that define who pays for, and who is responsible for, each stage of a shipment, from the seller’s factory to the buyer’s door. The four you meet most when importing from India are EXW, FOB, CIF, and DDP. They decide who arranges freight, who insures the goods, and who clears customs and pays import duty.

As a manufacturer and exporter, the incoterm is one of the first things I agree with a buyer, because it sets who does what and where the cost and risk pass from us to you. Getting it right saves you from nasty surprises on the final bill. Here is a plain explanation of the main terms and how to choose between them.

What incoterms are and why they matter

Incoterms (International Commercial Terms) are published by the International Chamber of Commerce and updated every few years; the current set is Incoterms 2020. They are a shared language, so a buyer in Los Angeles and a supplier in India mean the same thing by ‘FOB Chennai.’ Each term draws a line on the shipping journey: up to that line the seller pays and carries the risk, and past it the buyer does. The term does not change the total cost of getting goods to your door; it only changes who arranges and pays for each part, and therefore how much sits inside the price you are quoted.

The four main terms at a glance

Read left to right, each term hands more of the job to the seller. EXW puts everything on the buyer; DDP puts everything on the seller.

EXW (Ex Works)

Under EXW, the seller simply makes the goods available at their factory or warehouse. From that point, you the buyer arrange and pay for everything: loading, export clearance in India, transport to the port, sea freight, insurance, import customs, duty, and final delivery. EXW gives you the most control and visibility on cost, but it also means you need a freight forwarder and a customs process in place on both ends. It is rarely the easiest choice for a first import.

FOB (Free On Board)

With FOB, the seller handles export clearance and delivers the goods loaded onto the vessel at the Indian port. From there, the sea freight, insurance, import duty, and delivery are yours. FOB is the term most experienced importers use for sea shipments, because you keep control of the main freight (often your biggest single cost) and can shop it with your own forwarder, while the supplier handles the origin-side paperwork. If you ship regularly, FOB usually works out cheaper overall.

CIF (Cost, Insurance and Freight)

Under CIF, the seller pays the sea freight and a minimum level of marine insurance to the destination port, and the risk still passes to you once the goods are on board. You then handle import customs, duty, and delivery from the destination port. CIF is convenient because the supplier arranges the freight, but the insurance cover is usually the minimum required, so many buyers top it up. Check what the freight and insurance actually include before you agree.

DDP (Delivered Duty Paid), and DDU/DAP

DDP is the all-inclusive term: the seller delivers the goods to your door and pays for everything along the way, including import duty and customs clearance in your country. It is the simplest to buy because you get one price and the goods arrive; there is nothing for you to arrange. The trade-off is that the seller prices in the freight, duty, and the effort, and it can be harder to see each cost line. A related term, DDU or its modern equivalent DAP (Delivered At Place), is the same idea but with import duty left for you to pay.

Which incoterm should you choose?

Here is the honest, practical advice I give buyers:

• If you are a first-time importer, lean toward DDP (or DDU/DAP). You avoid setting up freight and customs yourself, and the goods simply arrive. Suppliers usually charge a modest premium, often in the range of three to five percent, for taking on that work and risk. For a first order, that premium buys you simplicity and is worth it.
• If you import regularly, move to FOB. Controlling the main freight with your own forwarder almost always saves money over time, and you gain visibility on every cost line.
• Whichever term you pick, confirm exactly what is included and excluded in writing. Ask what the quote covers: origin charges, freight, insurance level, destination port fees, duty. This one habit prevents the great majority of billing surprises.

There is no single best incoterm. The right one depends on how much of the logistics you want to run yourself versus hand to the supplier, and on how often you ship.

A note on risk and insurance

Incoterms set both who pays and where risk transfers, and the two are not always the same point. Under FOB and CIF, for example, risk passes to you once the goods are loaded on the vessel, even if the seller arranged the freight. Because goods spend weeks at sea, it is worth insuring the shipment door to door regardless of the term, so a damaged or lost container does not become your loss. Treat insurance as essential, not optional.

Frequently asked questions

What is the difference between FOB and CIF?

Under FOB the seller loads the goods onto the vessel and you arrange and pay the sea freight and insurance from there. Under CIF the seller pays the freight and minimum insurance to the destination port, but you still handle import customs and duty, and risk still passes to you at loading.

Which incoterm is best for a first-time importer?

DDP, or DDU/DAP, is usually easiest for a first order because the supplier arranges freight and customs and the goods arrive at your door. Expect a small premium, often three to five percent, for that convenience.

Does the incoterm change the total cost of my import?

Not really. It changes who arranges and pays for each stage, and therefore how much is bundled into the price you are quoted. The underlying cost of moving the goods is similar; the term decides who manages it.

Do I still need insurance if I buy CIF?

Often yes. CIF includes only a minimum level of insurance, and risk passes to you once the goods are loaded. Many buyers top up to full door-to-door cover so a loss at sea is protected.

Written by Gulshan Iyer, Arbhu Enterprises, a manufacturer and exporter of compostable tableware in India. We quote EXW, FOB, CIF, and DDP: request a quote. See also our guide to MOQ and all our import guides.