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

A three-letter code at the bottom of an offer decides who pays for freight up front, who fills in the customs declarations and who pays the duties. And it's the only line on the price list the buyer reads before the price.

This piece is part of the guide to export operations for small food producers and answers the practical question: who pays. How to build your price around the term you choose, with minimum orders and validity dates, is covered in the export price list for small producers.

The template, to download

One file, two sheets. The first is this page's table as a matrix: seven terms, five cost items, S (seller) or B (buyer) in every cell, where the risk passes and a note for each term. The second is for filling in: pick the term from the drop-down, enter your forwarder's estimates for each item, and the sheet marks who pays each one and totals what falls to you.

File	Contents	Link
IncotermsExcel, two sheets	The matrix of the seven terms, and the drop-down sheet that, once you pick a term, adds up the items you pay and the ones the buyer pays.	incoterm-chi-paga-cosa-foglio-en.xlsx

The files are free. There's no form in the way, we don't ask for an email address, and we don't get notified when anyone 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 for what, term by term

There are eleven Incoterms® 2020 rules, published by the International Chamber of Commerce. A small food producer comes across seven of them, and those are the ones to have a firm position on before the enquiry arrives, not after.

Term	Who pays and who clears customs	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, the moment the goods are made available. From then on, any damage is the buyer's problem.
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 named next to the term.
FOBsea freight only	Sea freight paid by the buyer. Export clearance handled by you. Import clearance and duties handled by the buyer.	When the goods are on board the ship at the port of loading. Used for cargo that isn't containerised.
CPTcarriage paid to	Main carriage paid by you, to the named place. Export clearance handled by you. Import clearance and duties handled by the buyer.	On handover to the first carrier, so well before arrival. You pay for the journey without carrying its risk.
CIFsea freight only	Sea freight and insurance paid by you. Export clearance handled by you. Import clearance and duties handled by the buyer.	On board at the port of loading, as with FOB, even though you pay as far as the port of arrival.
DAPdelivered at place	Carriage paid by you 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 falls to you: carriage, export clearance, import clearance and duties. It's the most demanding term for the seller.	On arrival at destination, cleared through customs. Until then, any customs hitch is your problem.

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

EXW looks like the easy option

EXW is tempting because it puts everything on the buyer: they come and collect the goods, and from then on it's their business. The problem comes later, when the customs export declaration still has to be filed with your name on it, using information you don't have because the buyer organised the transport.

ICC Academy's position on this 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 comes down to one line: under EXW the export formalities fall to the buyer, under FCA they fall to you. Taking them on costs a few minutes of your forwarder's time and leaves you holding proof that the goods have left, which is a document that matters to you more than it might seem.

DDP: check you can deliver it before you offer it

DDP is the term buyers are keenest to get, because it takes every worry off their hands. Before you agree to it, there's a check almost nobody does: in the destination country, the import declaration is lodged by the declarant, and in many jurisdictions the declarant has to be established there.

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 your offer becomes a promise you can't keep.

The usual way out is DAP: you pay for carriage to destination, and import clearance with its duties stays with the buyer, who has the set-up to handle it in their own country. The buyer gets almost the same service, and you don't take on an obligation you can't control.

Import VAT doesn't follow the term

Incoterms split 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 the importer, and the term you choose changes who ends up being the importer.

No Incoterm specified: what really happens

It's a question people often search for, and the answer is less dramatic and more annoying than you'd think. No law makes a contract void because there's no Incoterm: it's just that, without the agreed rule, the point of delivery and the transfer of risk have to be worked out from the contract, the dealings between the parties and the applicable law.

You see the cost when something goes wrong. If a shipment is damaged and the parties never wrote down where the risk passed, the argument turns to reconstructions and correspondence, in two languages and two legal systems. The term exists to make that argument pointless from the start.

There's 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, in other words a real cost. Always write term, place and version: FCA, the address of your site, Incoterms® 2020.

Where the term meets the duties

The Incoterm tells you who pays the duties. How much duty gets paid depends on the origin of the goods, which is another matter. The European Union has agreements with many countries that cut duties or remove them altogether, 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 go on the invoice without any particular formalities; above it you need a stamped certificate or a registered status. The subject, including the difference between the two documents people mix up most often, is covered in EUR.1 or certificate of origin.

When the terms multiply to five

With one market and two customers, you pick the term by hand each time. It breaks down when you have four markets, every buyer wants their own term, and the same product ships EXW to one and DAP to another: at that point your price list isn't one document any more, it's five documents going out of date separately.

That's when prices need to come out of scattered spreadsheets and into one place that recalculates them from the same source, with sales materials generated from a single set of data. With one rule that matters more than the technology, set out in Ethics: the system prepares and flags, but no offer reaches a buyer until a person has read and approved it. A wrong price sent out automatically is a price you still have to honour.

Questions and answers