Two quotations for the same product cannot be compared if their delivery terms differ. The delivery term decides who pays freight, insurance and customs, and who carries the risk if the cargo is damaged. This guide summarises the delivery terms most often used when buying chemicals.
What are Incoterms?
Incoterms® are rules published by the International Chamber of Commerce (ICC) that define the responsibilities of seller and buyer in international sales. The current version is Incoterms® 2020. Each rule clarifies two things: where costs change hands and where risk passes. Quotations and contracts should state the rule, the version and the place together, for example "CFR Jebel Ali, Incoterms® 2020".
Delivery terms at a glance
| Rule | What the seller does | When risk passes to the buyer | Transport |
|---|---|---|---|
| EXW Ex Works | Makes the goods available at its premises; loading and export clearance not included | When the goods are placed at the buyer's disposal at the seller's premises | Any mode |
| FCA Free Carrier | Hands the goods to the buyer's carrier; clears them for export | On delivery to the carrier | Any mode |
| FOB Free On Board | Loads the goods on board the vessel at the port of shipment; clears them for export | When the goods are on board | Sea |
| CFR Cost and Freight | As FOB, plus pays freight to the port of destination | When the goods are on board at the port of shipment | Sea |
| CIF Cost, Insurance and Freight | As CFR, plus takes out minimum-cover insurance for the buyer | When the goods are on board at the port of shipment | Sea |
| DAP Delivered at Place | Brings the goods to the named destination; unloading and import clearance are for the buyer | At destination, ready for unloading | Any mode |
| DDP Delivered Duty Paid | As DAP, plus clears the goods for import and pays duties | At destination, ready for unloading | Any mode |
Points to watch
- Under CFR and CIF, the seller pays freight but the buyer carries the risk. The seller pays freight to the destination port, but risk passes to the buyer when the goods are loaded on board at the port of shipment. Damage during the voyage is at the buyer's risk, which is why insurance matters.
- CIF insurance is minimum cover. Under Incoterms® 2020, the seller under CIF only has to obtain the most limited cover (Institute Cargo Clauses C). If wider cover is needed, it must be agreed in the contract.
- Under EXW, export clearance is the buyer's job. It is often difficult for a foreign buyer to handle export formalities in the seller's country. In that case FCA is the more practical choice.
- For container cargo, use FCA rather than FOB. Containers are usually handed over at the terminal before loading on board; the ICC recommends FCA in this case.
- DDP puts the destination country's duties on the seller. In export trade it is rarely practical for the seller to handle customs in the importing country, so DDP is seldom used.
Extra points for chemicals
Hazardous chemicals are subject to separate rules depending on the mode of transport: IMDG by sea, IATA DGR by air and ADR by road. The UN number, hazard class and packing group are in section 14 of the SDS and are the first details a carrier asks for (see the SDS, CoA and TDS guide). Dangerous goods may carry surcharges and longer lead times on some routes; take this into account when comparing quotations.
Which one to choose?
- If you have your own forwarder: FCA (containers) or FOB (bulk/break-bulk cargo).
- If you want a price to your own port: CFR; CIF if the seller should also arrange insurance.
- If you want door delivery: DAP; import clearance and duties remain with you.
- When comparing quotations: convert all of them to the same delivery term and the same place.
Incoterms® rules do not cover transfer of ownership, payment terms or dispute resolution; these must be set out separately in the sales contract.
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