Incoterms for FMCG Buyers

What an Incoterm settles

An Incoterm is shorthand for a division of labour. It answers three questions at once: who arranges transport, who pays for which leg, and at what point risk in the goods passes from seller to buyer. It does not settle when payment is due, who owns the goods, or what happens if something goes wrong — those live in the sales contract.

The terms most often requested

Choosing one in practice

The right term usually follows from who is better placed to arrange the freight. A buyer with an established forwarder and negotiated rates often prefers FOB or FCA and controls the main carriage. A buyer without that will generally find CFR, CIF or DAP simpler, because the seller arranges more.

• EXW puts export formalities on the buyer, which is awkward from a country where the buyer has no presence
• FOB is long-established for sea freight and widely understood on both sides
• CIF includes insurance, but at a minimum level unless more is agreed explicitly
• DAP looks convenient but still leaves import clearance and duties with the buyer

Why the Incoterm changes the quotation

Two quotations for an identical assortment can differ substantially purely because of the term. An EXW price contains no freight at all; a CIF price to a distant port contains a great deal. Comparing suppliers only makes sense when the quotations are on the same term.

When requesting a quotation, naming the term — or saying which costs you want included — avoids a round of clarification.

Risk and cost do not always pass at the same point

This is the part of Incoterms that most often surprises buyers. For several terms, the point where the seller stops paying and the point where the buyer starts carrying risk are not the same place.

Under CFR and CIF, the seller pays freight to the destination port — but risk in the goods passes to the buyer when they are loaded at origin. If cargo is damaged mid-voyage, it is the buyer’s loss even though the seller paid for that leg. Under CIF the seller also arranges insurance, which is why the two terms are not interchangeable despite quoting to the same place.

The named place is part of the term

An Incoterm without a place is incomplete. "FOB" does not say which port; "DAP" does not say which address. The place is where the term takes effect, so leaving it out leaves the most consequential detail undefined.

• "FOB Le Havre" — loaded on board at that specific port
• "CIF Jebel Ali" — freight and insurance paid to that discharge port
• "DAP Warsaw, buyer warehouse" — delivered to that address, import clearance still the buyer’s

Vague places cause real disputes. "DAP Poland" gives no delivery address, and the cost difference between a port and an inland warehouse is not small.

Common mistakes

• Comparing an EXW quotation against a CIF one and concluding the first supplier is cheaper
• Assuming DAP means duty paid — it does not; that is a different term entirely
• Using FOB for containerised cargo handed over at a terminal rather than loaded on board, where FCA usually fits the reality better
• Treating CIF insurance as comprehensive cover
• Naming a term without a place, then discovering the two sides assumed different ones

The first is the most expensive in practice, because it is invisible until the freight invoice arrives.