A Practical Guide to Incoterms 2020 for Factory Exporters
Practical guidance from HS Code Toolbox
Incoterms are the world's standard trade terms, telling you exactly who bears the cost and the risk at each stage of a shipment. For a factory exporter, choosing the right one is a daily decision that shapes your price and your liability.
What Incoterms do
Incoterms define the seller's and buyer's obligations for delivery, risk transfer, and which costs each party pays — like the main carriage, insurance and export/import formalities. They do not cover ownership or payment terms.
There are 11 rules in Incoterms 2020, but only a few dominate everyday factory trade.
The EXW and FOB favorites
EXW (Ex Works) puts maximum responsibility on the buyer — they collect the goods at your factory. Simple for you, but it can surprise buyers with hidden costs.
FOB (Free On Board) is a workhorse for ocean trade: you deliver the goods on board the vessel named by the buyer, and from that point the risk and cost pass to the buyer. Clear and widely understood.
When the seller arranges more: CIF and DDP
CIF (Cost, Insurance and Freight) means you pay freight and insurance to the destination port, but risk transfers when the goods are loaded on board. It is common but easy to misunderstand — insurance here is only minimum cover.
DDP (Delivered Duty Paid) puts the most on you: you deliver goods cleared for import, duty paid, to the buyer's door. It is seller-dominant and demands accurate knowledge of the destination's duties and clearance requirements.
Pick the term that matches your control and risk appetite
If you want simplicity and a clean cut of risk, FOB is a solid default for factory exporters. If you want to control the whole delivery and offer a door-to-door price, consider DDP but price it carefully.
Whichever you choose, be explicit in the contract about the port or place, and about who pays for what. Ambiguity in Incoterms costs real money.