Incoterms: who pays what, and who answers to customs.

A three-letter term at the bottom of an offer decides who advances the transport cost, who fills in the customs declarations and who pays the duties. And it is the only line in the price list the buyer reads before the price.

This piece is part of the guide to export operations for the small food producer and answers the operational question, namely who pays. How to build the price around the chosen term, with minimum orders and validity, is in the export price list for the small producer.

The template, to download

One file, two sheets. The first is this page's table in matrix form: seven terms, five items, V (seller) or C (buyer) in every cell, as in the Italian file, the transfer of risk and a note per term. The second is filled in: choose the term from the drop-down, write the freight forwarder's estimates for each item, and the sheet marks item by item who pays it and adds up how much remains on you.

File	What it contains	Link
IncotermsExcel, two sheets	The matrix of the seven terms and the drop-down sheet that, once the term is chosen, adds up the items on you and those on the buyer.	incoterm-chi-paga-cosa-foglio.xlsx

The files are free. There is no form in front of them, we don't ask for an address and we receive no notification when someone downloads them. The Incoterms® rules belong to the International Chamber of Commerce and the sheet doesn't reproduce their text: the descriptions are our own, as on this page. Import VAT is left out, because it doesn't follow the term.

The table: who pays what, term by term

The Incoterms® 2020 rules published by the International Chamber of Commerce are eleven. A small food producer meets seven of them, and it is on these that it pays to have a firm position before receiving the enquiry, not after.

Term	Who pays and who clears	Where the risk passes
EXWex works	Main carriage paid by the buyer. Export and import clearance handled by the buyer. Duties paid by the buyer.	In your warehouse, at the moment the goods are made available. From then on any damage is theirs.
FCAfree carrier	Main carriage paid by the buyer. Export clearance handled by you. Import clearance and duties handled by the buyer.	On delivery to the carrier nominated by the buyer, at the place stated next to the term.
FOBsea only	Sea carriage paid by the buyer. Export clearance handled by you. Import clearance and duties handled by the buyer.	When the goods are on board the vessel at the port of shipment. Used for non-containerised cargo.
CPTcarriage paid to	Main carriage paid by you, to the stated place. Export clearance handled by you. Import clearance and duties handled by the buyer.	On delivery to the first carrier, so long before arrival. You pay for the journey without bearing its risk.
CIFsea only	Sea carriage and insurance paid by you. Export clearance handled by you. Import clearance and duties handled by the buyer.	On board at the port of shipment, like FOB, even though you pay up to the port of arrival.
DAPdelivered at place	Transport paid by you up to the agreed place. Export clearance handled by you. Import clearance and duties handled by the buyer.	On arrival at the agreed place, with the goods still on the vehicle and ready for unloading.
DDPdelivered duty paid	Everything on you: transport, export clearance, import clearance and duties. It is the most onerous term for the seller.	On arrival at destination, cleared. Until that point every customs hitch is your problem.

The two columns that matter most aren't the transport ones. Who clears import, and who pays the duties, are the items that shift the sums unpredictably, because they depend on a country that isn't yours and on rules that change without warning you.

EXW looks like the convenient choice

EXW is attractive because it shifts everything onto the buyer: they come to collect the goods and from that moment it is their business. The problem comes later, when the export customs declaration still has to be lodged and your name goes into it, with data you don't have because the buyer organised the transport.

ICC Academy's position on this point is explicit, and it reads: EXW «is most suitable for domestic trade, as the seller’s responsibilities are very limited», and traders are «strongly encouraged to consider using FCA instead of EXW where the goods are crossing a border».

The difference between the two terms lies in a single line: under EXW the export formalities fall to the buyer, under FCA they fall to you. Taking them on costs a few minutes of the freight forwarder's time and leaves you holding the proof that the goods have left, which is a document you care about more than it seems.

DDP: before offering it, check you can do it

DDP is the term buyers most readily ask for, because it frees them from every worry. Before granting it there is a check almost nobody does: in the destination country the import customs declaration is lodged by the declarant, and in many legal systems the declarant must be established in that territory.

The Union Customs Code, in Article 5, defines the declarant as «the person lodging a customs declaration … in his or her own name or the person in whose name such a declaration … is lodged». If you can't take on that role in the country of arrival, a DDP promised in an offer becomes a promise you can't keep.

The ordinary way out is DAP: you pay the transport to destination, and import clearance with the related duties remains with the buyer, who has the set-up to do it in their own country. The buyer perceives almost the same service, and you don't take on an obligation you don't control.

Import VAT doesn't follow the term

Incoterms allocate costs and risks between two businesses. They don't decide who is liable for a tax, which is a matter for the law of the destination country. In practice import VAT is paid by whoever imports, and the term chosen changes who ends up being that person.

Incoterm not specified: what really happens

It is a frequently searched question, and the answer is less dramatic and more annoying than it seems. No rule declares a contract without an Incoterm void: simply, without the agreed rule, the point of delivery and the transfer of risk are worked out from the contract, from the dealings between the parties and from the applicable law.

The cost shows when something goes wrong. If a shipment is damaged and the parties never wrote down where the risk passed, the discussion moves on to reconstructions and correspondence, in two languages and two different legal systems. The term exists to make that discussion unnecessary from the outset.

There is also a more common version of the problem: the term is there but the place is missing. «FCA» on its own doesn't say whether delivery happens in your yard or at the terminal, and that detail is the local haulage, that is, a real cost item. Always write term, place and version: FCA, address of the plant, Incoterms® 2020.

Where the term meets the duties

Who pays the duties is stated by the Incoterm. How much duty is paid is stated by the origin of the goods, which is another matter. With many countries the European Union has agreements that remove or reduce the duty, but only if the shipment travels with the right proof of origin.

The practical threshold to remember is €6,000: below that value the origin declaration can be made on the invoice without special formalities, above it you need an endorsed certificate or a registered status. The subject, with the differences between the two documents most often confused, is in EUR.1 or certificate of origin.

When the terms become five

With one market and two customers, the term is chosen by hand each time. The point where it breaks is when the markets become four, each buyer asks for their own term, and the same product goes out EXW to one and DAP to another: at that point the price list is no longer one document, it is five documents ageing separately.

That is when prices should be taken out of scattered spreadsheets and put in a place that recalculates them from the same base, with sales materials generated from single data. With a constraint that matters more than the technology, written in Ethics: the system prepares and flags, but no offer reaches a buyer without a person having read and approved it. A wrong price sent automatically is a price you still have to honour.

Questions and answers