Incoterms explained

Incoterms Explained for Australian Importers and Exporters

Incoterms decide who pays for what, who carries the risk, and at exactly which point responsibility changes hands. Choosing the wrong one is one of the most expensive mistakes an importer can make — and it is made in the purchasing conversation, not the freight one.

Get a Freight Quote

Call 1300 972 040

Home › Resources › Incoterms

What they are

What an Incoterm actually does

Incoterms are a set of standard three-letter trade terms published by the International Chamber of Commerce and used in sale contracts worldwide. They allocate three things between buyer and seller: who arranges and pays for each leg of transport, where risk of loss or damage transfers, and who handles export and import formalities.

What they do not do is set the price of the goods, determine who owns them, or override your contract. And critically, an Incoterm agreed casually by email — “we’ll do CIF Brisbane” — still has full commercial consequences.

The eleven Incoterms at a glance

Term	Name	Seller arranges	Risk transfers	Typical fit for Australian importers
EXW	Ex Works	Nothing beyond making goods available	At seller’s premises	Rarely ideal — you inherit export clearance in a country you do not operate in.
FCA	Free Carrier	Delivery to a named carrier at origin	On delivery to carrier	Workable, and better than EXW.
FAS	Free Alongside Ship	Delivery alongside the vessel	Alongside the vessel	Mostly bulk commodities.
FOB	Free On Board	Export clearance and loading on board	On board the vessel	Usually the best choice for containerised imports.
CFR	Cost and Freight	Ocean freight to destination port	On board at origin	Common, but destination charges are outside your control.
CIF	Cost, Insurance and Freight	Freight plus minimum insurance	On board at origin	Very common and often the most expensive in practice.
CPT	Carriage Paid To	Carriage to a named place	On handover to first carrier	Used for multimodal moves.
CIP	Carriage and Insurance Paid To	Carriage plus broader insurance	On handover to first carrier	Better insurance cover than CIF.
DAP	Delivered At Place	Everything to your named address, excluding import duty and GST	On arrival at your address	Convenient; verify what is genuinely included.
DPU	Delivered at Place Unloaded	As DAP plus unloading	After unloading	Useful where the seller controls unloading.
DDP	Delivered Duty Paid	Everything including import duty and GST	On arrival at your address	Simple, but you lose visibility of duty, GST and your own compliance position.

General guidance based on the Incoterms 2020 rules. Always state the Incoterm and the named place, and the rule version, in your contract.

The practical view

Why FOB usually beats CIF for Australian importers

This is the single most useful thing on this page. On CIF or CFR terms, your supplier appoints the freight forwarder. That forwarder’s Australian agent then controls every destination charge — terminal handling, documentation, deconsolidation, agency fees — and you have no leverage over any of them. The ocean rate looks cheap because the margin has been moved to the end you cannot see.

On FOB, your supplier delivers the goods on board and stops. You appoint the forwarder, you see every charge, and you can compare quotes properly. In our experience the total landed cost on FOB is usually lower, and the visibility is dramatically better.

Ask your supplier for an FOB price alongside their CIF price. The difference tells you what they are charging for the freight.
Be wary of DDP offers from suppliers or agents. You remain the importer of record in substance, and you inherit the compliance risk of a declaration you never saw.
Understand CIF insurance is minimal. The default cover under CIF is limited; if the goods matter, arrange your own policy.
Always name the place. “FOB” alone is incomplete. “FOB Ningbo, Incoterms 2020” is a term you can enforce.

FAQ

Incoterms questions

Which Incoterm should I use when importing to Australia?

For containerised sea freight, FOB is the default recommendation: your supplier handles export clearance and loading, and you control everything from the vessel onwards. For air freight, FCA is the equivalent. There are exceptions, and we are happy to talk through yours.

Is DDP a good deal?

It is convenient and occasionally sensible for small, low-risk shipments. For anything substantial it hides the duty, GST and clearance detail from you while leaving you exposed to how the declaration was made. If a supplier insists on DDP, ask to see the customs entry.

Does CIF include insurance that protects me?

CIF requires only minimum cover, which typically will not respond to the losses importers actually worry about. If your cargo is valuable, arrange your own marine cargo insurance regardless of the Incoterm.

Who pays import duty and GST under each term?

Under every term except DDP, the buyer is responsible for import duty and GST in Australia. Under DDP the seller is, in theory — but as importer you remain concerned in the correctness of the declaration.

Can I change the Incoterm on an existing supplier relationship?

Yes, and it is usually a straightforward commercial conversation. Ask for an FOB price and compare the total landed cost using our quote form. If it saves you money, the supplier keeps the order and you keep the difference.

What is the difference between Incoterms 2010 and 2020?

The 2020 revision changed DAT to DPU, adjusted insurance cover levels under CIP, and clarified several obligations. Both versions remain valid if specified, so always state which version applies.

Related guides

Choosing well

Choosing an Incoterm: a decision framework

There is no universally correct Incoterm. There is a correct one for your product, your supplier relationship and how much control you want over cost and information. These are the questions we work through with clients.

Who has better freight buying power?

If your supplier genuinely buys freight cheaper than you can, a C-term may save money. If they are simply adding a margin to a rate you could get yourself, an F-term is cheaper and you gain visibility. The test is easy: ask for the freight component separately and compare it.

How much do destination charges worry you?

Under CFR and CIF the supplier pays the ocean freight, but the destination terminal charges, wharfage and the infrastructure surcharge still land on you — often through a nominated agent you did not choose and cannot negotiate with. That is the single most common complaint we hear from importers on C-terms.

Do you need to know where your cargo is?

On an F-term you control the carrier and therefore the information. On a C-term you are asking your supplier for updates about a booking you cannot see. For businesses with production schedules or promised customer dates, that difference matters more than the freight rate.

Are you comfortable with origin-country formalities?

EXW puts export clearance in the buyer’s hands, which in some jurisdictions is genuinely difficult for a foreign party. FCA achieves most of the same control without that problem, and is usually the better choice where you want control but not the origin-country paperwork.

As an exporter, what are you really quoting?

A delivered quotation wins business, but DAP and DDP mean you own destination cost and, under DDP, destination duty and tax. Quote those only where you or your logistics partner have real visibility of the destination market. See export logistics.

Common mismatches we correct

A term used with no named place, so the point of delivery is undefined
An Incoterm on the invoice that contradicts the letter of credit
A sea-only term such as FOB or CIF applied to an air shipment or a container booked door to door
Insurance assumed under a term that does not require it
Assuming an Incoterm decides who owns the goods — it does not; that is your contract of sale

Not sure which Incoterm you are on?

Send us your supplier’s quote or invoice. We will tell you what terms you are actually buying on and whether a change would save you money.