Incoterms Guide for Agricultural Exporters

Incoterms (International Commercial Terms) are standardized trade definitions published by the International Chamber of Commerce (ICC). They clearly define the responsibilities, costs, and risks between buyers and sellers in international transactions.

Incoterms 2020 Overview

What Are Incoterms?

Incoterms are three-letter trade terms that:

• Define responsibilities: Who does what in the transaction
• Allocate costs: Who pays for shipping, insurance, duties
• Transfer risk: When risk transfers from seller to buyer
• Are contractual: Part of the sales contract

Importance for Agricultural Exports

For agricultural exporters, Incoterms are critical because:

• Perishable goods: Timing and temperature control are critical
• Quality preservation: Proper handling affects product quality
• Cost allocation: Shipping costs can significantly impact margins
• Risk management: Clear risk allocation prevents disputes

Incoterms Categories

EXW – Ex Works (Named Place)

Seller’s Responsibilities:

• Make goods available at their premises
• Provide commercial invoice and packing list
• Assist with export documentation (at buyer’s risk and expense)

Buyer’s Responsibilities:

• Load goods at seller’s premises
• Arrange export clearance and documentation
• Arrange all transportation and insurance
• Pay all costs from seller’s premises

Risk Transfer: When goods are made available at seller’s premises

Best For: When buyer has local presence and export expertise

FOB – Free On Board (Named Port of Shipment)

Seller’s Responsibilities:

• Deliver goods on board the vessel
• Arrange export clearance
• Provide commercial invoice and transport document

Buyer’s Responsibilities:

• Arrange ocean freight and insurance
• Pay freight costs from port of shipment
• Arrange import clearance
• Pay import duties and taxes

Risk Transfer: When goods are placed on board the vessel

Best For: Traditional ocean freight exports

CIF – Cost, Insurance and Freight (Named Port of Destination)

Seller’s Responsibilities:

• Deliver goods on board the vessel
• Arrange export clearance
• Pay freight costs to named port of destination
• Obtain minimum insurance coverage

Buyer’s Responsibilities:

• Arrange import clearance
• Pay import duties and taxes
• Unload goods at port of destination
• Bear risk after goods are loaded on vessel

Risk Transfer: When goods are placed on board the vessel

Best For: When seller wants to control freight but buyer handles import

DDP – Delivered Duty Paid (Named Place of Destination)

Seller’s Responsibilities:

• Deliver goods to named place in buyer’s country
• Arrange export and import clearance
• Pay all transportation costs
• Pay import duties and taxes
• Obtain insurance (optional but recommended)

Buyer’s Responsibilities:

• Take delivery at named place
• Unload goods if required

Risk Transfer: When goods are delivered to named place

Best For: When buyer wants complete door-to-door service

Incoterms for Agricultural Products

Recommended Incoterms by Product Type

Fresh Fruits and Vegetables

Recommended: DAP or DDP

Reasoning:

• Temperature control required throughout
• Minimize handling transfers
• Seller can ensure proper cold chain management
• Reduce risk of quality loss

Bulk Grains

Recommended: FOB or CIF

Reasoning:

• Large volumes, standard shipping practices
• Buyer often has established freight arrangements
• Clear risk transfer at port
• Well-understood in commodity markets

Wine and Beverages

Recommended: EXW or FOB

Reasoning:

• Products are less perishable
• Buyer often has specialized shipping knowledge
• Seller maintains control until loaded
• Common practice in wine trade

Processed Foods

Recommended: Depends on shelf life and buyer preference

Reasoning:

• Longer shelf life allows more flexibility
• Buyer may have established logistics
• Consider product value and complexity

Cost Allocation

Typical Cost Breakdown by Incoterm

Cost	EXW	FOB	CIF	DDP
Export clearance	Buyer	Seller	Seller	Seller
Loading at origin	Buyer	Seller	Seller	Seller
Inland transport to port	Buyer	Seller	Seller	Seller
Ocean freight	Buyer	Buyer	Seller	Seller
Insurance	Buyer	Buyer	Seller	Seller
Import clearance	Buyer	Buyer	Buyer	Seller
Import duties	Buyer	Buyer	Buyer	Seller
Inland transport to destination	Buyer	Buyer	Buyer	Seller

Risk Considerations

Risk Transfer Points

Understanding when risk transfers is crucial:

• EXW: Risk transfers at seller’s premises (before loading)
• FCA/FAS/FOB: Risk transfers when delivered to carrier/port
• CPT/CIP/CFR/CIF: Risk transfers when delivered to carrier in origin country
• DAP/DPU/DDP: Risk transfers when delivered at destination

Agricultural Product Risks

Special considerations for agricultural exports:

• Temperature excursions: Who bears risk of cold chain failure?
• Spoilage: Who bears risk if product spoils in transit?
• Pest infestation: Who bears risk if pests are found?
• Quality degradation: Who bears risk of quality loss?

Insurance Considerations

Cargo Insurance

Insurance requirements vary by Incoterm:

• EXW/FCA/FAS/FOB: Buyer typically arranges insurance
• CIP/CIF: Seller must obtain minimum insurance cover
• DAP/DPU/DDP: Seller may arrange insurance (not required)

Insurance Coverage for Agricultural Products

Considerations for agricultural cargo insurance:

• Temperature coverage: Include temperature monitoring
• Spoilage coverage: Cover for perishable goods
• Rejection coverage: Cover for regulatory rejection
• Delay coverage: Cover for delay-related losses

Documentation

Required Documents by Incoterm

Common to All:

• Commercial invoice
• Packing list
• Certificate of origin (if applicable)

Seller Provides:

• Transport document (bill of lading, air waybill)
• Insurance certificate (if seller arranges insurance)
• Phytosanitary certificate
• Export documentation

Buyer Provides:

• Import documentation (if buyer handles import)
• Import permits (if required)

Choosing the Right Incoterm

Decision Factors

Consider these factors when selecting Incoterms:

1. Product characteristics: Perishability, value, handling requirements
2. Market knowledge: Your knowledge of the destination market
3. Logistics capability: Your ability to arrange international shipping
4. Risk tolerance: How much risk you’re willing to bear
5. Customer requirements: Buyer’s preferences and requirements
6. Competitive factors: What competitors are offering
7. Cost implications: Total cost implications of different terms

Common Mistakes

Avoid these common errors:

• Choosing wrong Incoterm for product: Using EXW for perishable goods
• Not understanding risk transfer: Assuming insurance covers all risks
• Ignoring customs requirements: Not understanding import clearance obligations
• Underestimating costs: Not calculating total landed cost
• Poor documentation: Incomplete or incorrect documentation

Best Practices

For Sellers

1. Understand your capabilities: Only agree to terms you can fulfill
2. Calculate total costs: Include all costs in pricing
3. Get insurance: Always arrange adequate cargo insurance
4. Document everything: Maintain complete documentation
5. Communicate clearly: Ensure buyer understands responsibilities

For Buyers

1. Understand Incoterms: Know what you’re agreeing to
2. Check total landed cost: Compare total costs, not just product price
3. Arrange insurance: Ensure adequate coverage
4. Plan for import clearance: Have import processes in place
5. Monitor shipments: Track shipments to ensure timely delivery

Regional Considerations

EU Market

EU market considerations:

• Customs union: Single market for EU member states
• Sanitary and phytosanitary (SPS) requirements: Strict requirements
• Preferential access: EPA preferences for South Africa
• Documentation: Comprehensive documentation required

US Market

US market considerations:

• FDA and USDA requirements: Multiple agency requirements
• Prior notice: FDA prior notice required
• Perishable handling: Strict handling requirements
• AGOA benefits: Duty-free access for eligible products

Getting Help

Professional Support

Consider engaging:

• Freight forwarders: For logistics and documentation
• Customs brokers: For customs clearance
• Insurance brokers: For cargo insurance
• Trade consultants: For Incoterm advice

Resources

• ICC Incoterms 2020: Official ICC publication
• Trade associations: Industry-specific guidance
• Chambers of commerce: Local trade support
• Export councils: Government export support

This guide provides general information only. Exporters should consult with trade professionals and legal advisors for specific guidance.