Foreign trade
Which Incoterm to choose in each case
The Incoterm decides who pays for each leg of the journey and who bears the risk if something goes wrong. Choosing well avoids disputes with the customer and goods held at customs.
This guide does not define each of the eleven Incoterms 2020 rules. It goes straight to the practical side: what to choose in each situation.
Common situations
| Situation | Recommended Incoterm | Why |
|---|---|---|
| The customer has its own freight forwarder and wants to arrange the transport | FCA (your warehouse) | You deliver the goods loaded and cleared for export; the customer pays for the main carriage. |
| You want to control the transport, but not the taxes at destination | DAP (customer’s address) | You pay for transport to the door; the customer clears the import and pays duties and VAT. |
| Sales within the EU with transport at your expense | DAP | There is no customs: the price includes carriage to destination and it is clear to both parties. |
| The customer wants delivery with no surprises and you can import into their country | DDP | You pay for everything, including duties and taxes. Only if you can act as the importer there. |
| Air shipment with insurance included | CIP (destination airport) | You pay the freight and broad-cover insurance; the risk passes to the customer when the goods are handed to the first carrier. |
Why EXW causes problems in exports
With EXW, the buyer arranges everything from your door, including export clearance. But in Spain the export declaration must be lodged by an operator established in the EU, and the seller needs proof of exit to show that the sale is free of VAT. If the foreign buyer does not provide it, the tax problem is the seller’s. In exports, FCA is almost always better than EXW.
The risk of DDP
DDP obliges the seller to import into the destination country: to pay duties and taxes and, in many countries, to be registered there. In the United Kingdom, for example, you need a UK EORI number. If you cannot meet this, the goods stay at customs. Only use DDP when you have this sorted out.
Three details that avoid disputes
- State the exact place: ‘FCA Madrid’ is not enough; write the address or the terminal.
- Cite the version: ‘Incoterms® 2020’, in the offer and on the invoice.
- The Incoterm does not replace insurance: only CIF and CIP include insurance, and CIF insurance is minimum cover.
Sources
Regulations change often. Before every shipment we confirm the requirements in force.