Every international quotation for chemicals names an Incoterm. That three-letter code determines who arranges and pays for each leg of transport, who insures the goods, who handles customs clearance, and at what point risk of loss or damage passes from seller to buyer. Getting it wrong leads to unexpected costs, uninsured losses and shipments stuck at ports. This guide compares the Incoterms most used for chemical exports.
What Incoterms are, and what they are not
Incoterms are standard trade terms published by the International Chamber of Commerce. The current edition is Incoterms 2020, which contains eleven terms. When a contract says, for example, FOB Nhava Sheva Incoterms 2020, both parties know exactly who does what up to the named place.
Incoterms do not determine when ownership passes, how or when payment is made, or what happens if a contract is breached. Those matters belong in the sales contract or terms of sale. It is good practice always to state the edition, Incoterms 2020, and a precise named place.
The eleven terms at a glance
| Term | Mode | Risk passes | Main carriage paid by |
|---|---|---|---|
| EXW Ex Works | Any | At seller's premises, goods not loaded | Buyer |
| FCA Free Carrier | Any | On handover to buyer's carrier | Buyer |
| CPT Carriage Paid To | Any | On handover to first carrier | Seller |
| CIP Carriage and Insurance Paid To | Any | On handover to first carrier | Seller, plus insurance |
| DAP Delivered at Place | Any | At named destination, ready for unloading | Seller |
| DPU Delivered at Place Unloaded | Any | At destination, after unloading | Seller |
| DDP Delivered Duty Paid | Any | At destination, import cleared | Seller, including duties |
| FAS Free Alongside Ship | Sea | Alongside vessel at port of loading | Buyer |
| FOB Free On Board | Sea | On board vessel at port of loading | Buyer |
| CFR Cost and Freight | Sea | On board vessel at port of loading | Seller |
| CIF Cost, Insurance and Freight | Sea | On board vessel at port of loading | Seller, plus insurance |
EXW: simplest for the seller, hardest for a foreign buyer
Under EXW, the seller makes goods available at its premises and does nothing more. The buyer handles loading, export clearance, transport and import. In practice, foreign buyers often cannot complete Indian export formalities themselves, and a dangerous goods shipment requires a properly trained shipper to declare it. For these reasons, FCA is often a better choice when the buyer wants to control freight: the seller clears the goods for export and hands them to the buyer's nominated carrier.
FOB: the classic sea-freight term
Under FOB, the seller clears goods for export and loads them on board the vessel nominated by the buyer at the named port. Risk passes once the goods are on board. The buyer pays ocean freight and insurance. FOB suits buyers with their own freight contracts. The ICC notes that FOB is intended for goods loaded directly onto a vessel, and for containerised cargo handed over at a container terminal, FCA reflects reality better, although FOB remains widely used.
CFR and CIF: seller pays freight, buyer carries risk at sea
Under CFR and CIF, the seller books and pays ocean freight to the destination port, but risk passes to the buyer when goods are loaded on board at origin. This split surprises many buyers: if goods are damaged at sea under CIF, the buyer bears the loss and claims on the insurance policy the seller arranged. CIF requires only minimum cover, Institute Cargo Clauses (C) or equivalent, for 110% of the contract value. Buyers of high-value chemicals may want to require broader cover, such as Clauses (A), explicitly in the contract. By contrast, CIP under Incoterms 2020 requires the higher Clauses (A) level by default.
DAP: delivered to your door, duties excluded
Under DAP, the seller arranges transport to a named place in the buyer's country and bears the risk until the goods arrive, ready for unloading. The buyer handles import clearance, duties and taxes. DAP is common for courier and air shipments of samples and small orders, because the seller manages the entire journey and the buyer receives a single delivered price, plus local duties.
DDP: use with caution
DDP makes the seller responsible for import clearance and duties in the buyer's country. For chemicals, this is often impractical because import permits, registrations, TSCA certifications or local chemical inventory obligations must be handled by a local entity. We generally do not recommend DDP for regulated chemicals.
Special considerations for chemicals
- Dangerous goods: the party arranging carriage must book DG space, and the shipper must declare the goods correctly under the IMDG Code or IATA DGR. Terms where the seller arranges carriage (CFR, CIF, CPT, CIP, DAP) often simplify this.
- Temperature control: if refrigerated or frozen goods are involved, choose a term under which one party controls the whole cold chain, typically DAP for small shipments.
- Insurance: under FOB, CFR and FCA, the buyer should insure from the moment risk passes.
- Letters of credit: the documents required under the LC, such as an on-board bill of lading, must match the chosen Incoterm.
- Import regulations: whatever the Incoterm, the importer usually remains responsible for local chemical regulations.
Which term should you choose?
| Situation | Commonly suitable terms |
|---|---|
| Samples and small parcels by courier | DAP |
| Air freight, buyer has no forwarder | CPT, CIP or DAP |
| Sea freight, buyer has freight contracts | FOB or FCA |
| Sea freight, buyer wants a landed price at port | CFR or CIF |
| Buyer collects from the seller's premises | FCA (preferred) or EXW |
FAQs
Under CIF, who bears the risk during the sea voyage?
The buyer. Risk passes when goods are loaded on board at the port of shipment, even though the seller pays freight and minimum insurance.
Why is FCA often preferred to EXW?
Under FCA the seller handles export clearance and loading, which foreign buyers usually cannot do themselves, especially for dangerous goods.
Do Incoterms decide when payment is due?
No. Incoterms cover delivery, costs and risk. Payment terms and transfer of ownership must be set out in the sales contract.