Incoterms for sales: what they mean and how to choose the right one

A shipment arrives damaged at your customer’s warehouse. Who files the insurance claim? A customs broker bills unexpected duties to your buyer, who insists you promised to pay them. Incoterms determine the answer to these questions—yet many manufacturing sales teams treat these three-letter codes as boilerplate fine print.

Understanding Incoterms isn’t just about avoiding arguments with buyers. It’s about protecting your margins, reducing liability, and making your quotes crystal clear so deals close faster.

What are Incoterms?

Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce that define the responsibilities, costs, and risks between buyers and sellers in international and domestic transactions. Think of them as a universal language for shipping. When you quote “FOB Liverpool,” both you and your buyer immediately understand who arranges transport, who pays freight, where risk transfers, and who clears customs.

The current version is Incoterms 2020, which introduced several updates to reflect modern trade practices. These rules are updated roughly every decade to keep pace with changes in logistics, security requirements, and commercial practices. The 2020 revision consolidated all cost allocations into a single article for each term, making it easier to see who pays what at a glance.

Why Incoterms matter for your sales quotes

Every time you send a quote, you’re implicitly making promises about delivery, insurance, and customs clearance. The wrong Incoterm can create expensive misunderstandings. Your buyer might expect you to deliver goods to their warehouse door when you thought you only needed to get them to the port. Or you might inadvertently agree to pay import duties in a country where you’re not even VAT-registered.

Here’s what’s at stake. Cost allocation determines who pays for freight, insurance, unloading, and duties. Risk transfer defines when responsibility for loss or damage shifts from seller to buyer. Documentation requirements specify who arranges export and import clearance and provides shipping documents. Dispute prevention means clear terms reduce arguments about unexpected costs.

Getting this right in your initial quote prevents margin erosion and protects you from liability claims down the line. In post-Brexit trade particularly, precise Incoterm selection determines who completes UK import declarations and pays VAT and duties.

How Incoterms allocate risk and costs

Every Incoterm splits responsibilities into two columns: what you do as the seller, and what your buyer does. The terms exist on a spectrum from minimal seller responsibility (EXW) to maximum seller responsibility (DDP).

Risk doesn’t necessarily transfer at the same place as costs. For example, with CIF (Cost, Insurance & Freight), you pay to ship goods all the way to the destination port—but risk transfers to the buyer much earlier, when goods pass the ship’s rail at the origin port. This distinction matters enormously if goods are damaged in transit. Even though you paid for shipping, once risk has transferred, your buyer deals with the insurance claim.

Each Incoterm specifies exactly which party pays for loading at origin, main carriage (trucking, rail, sea freight), insurance during transit, unloading at destination, export customs clearance, and import customs clearance, duties, and VAT. Understanding this allocation prevents the common scenario where both parties assume the other is handling a critical step—or worse, where neither party budgets for a necessary cost.

The most common Incoterms for manufacturing sales

Not all 11 Incoterms make sense for every business. Here are the ones you’ll use most often in manufacturing sales.

For any transport mode

These seven terms work whether you’re shipping by truck, rail, air, or sea.

EXW (Ex Works) means your buyer collects goods from your factory or warehouse. You make them available at your premises, and that’s where risk transfers. EXW gives you minimal responsibility, but don’t assume it’s risk-free. You may still face export compliance requirements even though your buyer arranges transport. Many buyers also dislike EXW because it forces them to organize collection in your country, where they have no local knowledge. Use EXW for domestic sales or when your buyer has their own logistics network and insists on complete control.

FCA (Free Carrier) means you deliver goods to a carrier (trucking company, rail terminal, or freight forwarder) at a named place. Risk transfers when the carrier takes possession. FCA is increasingly preferred over EXW for exports because it clarifies the handover point and keeps export clearance responsibilities with you—which makes sense since you understand UK export procedures better than a foreign buyer. Be precise about the delivery location. “FCA Birmingham” is too vague. Specify “FCA Acme Manufacturing, 123 Industrial Estate, Birmingham B12 3XY” or “FCA Birmingham Airport cargo terminal.” Vague location specifications cause disputes over who pays loading and unloading costs.

The 2020 update to FCA now allows you to request an on-board bill of lading notation when goods are sold for sea carriage, giving buyers proof that goods are loaded—useful for letters of credit.

CPT (Carriage Paid To) means you pay to ship goods to a named destination, but risk transfers earlier—when you hand goods to the first carrier. Your buyer bears risk during transit even though you paid for shipping. CPT works well when you want to include freight in your quote for price certainty, but don’t want liability for goods in transit.

CIP (Carriage and Insurance Paid To) is like CPT, but you also pay for insurance. The 2020 version requires you to provide comprehensive Clause A insurance coverage—not just minimum coverage—making it suitable for manufactured goods with higher value. Risk still transfers when goods are handed to the first carrier, but you’ve insured them for the buyer’s benefit. Use CIP when quoting delivered prices to buyers who want comprehensive protection but don’t want to arrange insurance themselves.

DAP (Delivered at Place) means you bear all costs and risk until goods arrive at the named destination, ready for unloading. Your buyer unloads and clears imports. DAP is popular for door-to-door quotes where you control the entire journey but want the buyer to handle their own customs clearance and unloading.

DPU (Delivered at Place Unloaded) requires you to unload goods at the named destination. Risk and cost transfer after unloading. Previously called DAT (Delivered at Terminal), the 2020 update removed the “terminal” requirement, so you can now deliver to any agreed location—a customer’s warehouse, a roadside location, or a distribution center. Only use DPU when you have the equipment and personnel to safely unload at the destination. Don’t accidentally agree to unload a container at a buyer’s facility if you don’t have a forklift.

DDP (Delivered Duty Paid) means you pay everything: freight, insurance, import clearance, duties, and VAT. Goods are delivered ready to use at the buyer’s location. DDP sounds customer-friendly, but it’s often misunderstood and creates complications. If you’re not registered for VAT in the buyer’s country, you can’t legally fulfill DDP obligations. You might inadvertently make your buyer the legal importer while promising to pay their duties—an impossible situation. Some UK institutions prefer DDP, but use it cautiously. Only quote DDP if you’re genuinely set up to handle import formalities in the destination country.

For sea and inland waterway transport only

These four terms apply exclusively when goods move by ship or barge.

FOB (Free On Board) means you deliver goods on board the vessel at the named port of shipment. Risk transfers when goods pass the ship’s rail. You clear exports; the buyer arranges and pays for sea freight. FOB is popular for container shipments and bulk commodities. It’s straightforward: you get goods onto the ship, and your buyer takes it from there.

CFR (Cost and Freight) means you pay for sea freight to the destination port, but risk transfers when goods are loaded on the vessel at origin. The buyer bears risk during the sea voyage even though you paid for shipping.

CIF (Cost, Insurance & Freight) is like CFR, but you also provide insurance. However, CIF only requires minimum Clause C coverage—basic protection suitable for bulk commodities but often insufficient for manufactured goods. If you’re selling engineered products or machinery, CIF may leave your buyer underinsured. Consider CIP instead, which requires comprehensive Clause A coverage. Use CIF for bulk materials; use CIP for manufactured goods that need better insurance coverage.

How to choose the right Incoterm for your quotes

Start by asking yourself three questions.

First, how much control do you want over the shipping process? If you have reliable freight forwarders and want to ensure goods arrive on time, choose terms where you arrange transport (CPT, CIP, DAP, DPU, DDP). If you prefer to hand off responsibility early, use EXW, FCA, or FOB.

Second, what does your buyer expect? Some industries have standard practices. Large retailers often demand DDP. Export buyers in developing markets might prefer FOB so they control freight costs. Ask your buyer what terms they’re comfortable with.

Third, what risks can you manage? Only quote terms where you can fulfill every obligation. Don’t offer DDP if you’re not VAT-registered in the destination country. Don’t promise DPU unless you can unload safely.

Here’s practical guidance by scenario. For exporting by container ship, use FCA (port of loading) or FOB if the buyer arranges shipping. Use CIF or CIP if you’re quoting a delivered price. For trucking within Europe, use FCA (your factory) for collection, or DAP (buyer’s warehouse) for delivered quotes. For air freight exports, use FCA (airport cargo terminal) or CIP (destination airport) depending on who arranges the flight. When selling to experienced importers, they’ll likely prefer FOB or FCA so they control freight costs and consolidate shipments. When selling to small buyers without import experience, offer DAP or CIP so they don’t need to navigate customs clearance and freight forwarding.

Common Incoterm mistakes to avoid

Writing “FCA Birmingham” causes disputes because it’s unclear whether you deliver to the buyer’s carrier at your premises or to a specific terminal. Always specify the exact address or terminal.

Non-UK sellers often quote DDP without realizing they need UK VAT registration to legally import goods. This creates an impossible situation where you’ve promised to pay duties but can’t complete customs formalities.

CIF only requires minimum Clause C insurance coverage, which won’t cover the full value of sophisticated manufactured goods. Your buyer might be underinsured without realizing it.

Even with EXW, you may still face export compliance obligations depending on your country’s regulations. You can’t simply wash your hands of the transaction.

Since Brexit, precise Incoterm selection determines who completes UK import declarations and pays VAT and duties. If you’re shipping between the UK and EU, choose terms that clearly allocate customs responsibilities.

Making Incoterms work in your sales process

Once you’ve chosen the right Incoterm, write it clearly in your quotes and contracts. Include the specific delivery location, not just the city name. Train your sales team on what each term means so they don’t accidentally promise responsibilities you can’t fulfill. A salesperson who offers DDP to close a deal might create a logistics nightmare if your company isn’t set up for it.

Review your standard terms regularly. As your logistics capabilities improve—or as you enter new markets—the Incoterms that made sense five years ago might not fit your business today.

Finally, automate what you can. When your sales team spends less time on manual research and admin tasks, they have more energy to get Incoterm selection right and explain it clearly to buyers. Sera handles the time-consuming work of finding qualified leads, researching prospects, and personalizing outreach, so your team can focus on the strategic conversations that close deals—including making sure every quote has the right Incoterm for the situation.

Get Incoterms right from the start, and you’ll avoid disputes, protect your margins, and build a reputation for clarity in international sales. That’s the kind of operational excellence that wins repeat business. Ready to spend less time on sales admin and more time closing the right deals with the right terms? Book a demo with Sera and see how AI-driven automation can transform your manufacturing sales process.