Incoterms determine who pays for shipping, insurance, and customs — and getting them wrong can cost you thousands. Here's what every Australian importer needs to know about Incoterms 2020.
Incoterms (International Commercial Terms) are a set of globally recognised trade rules published by the International Chamber of Commerce (ICC). They define exactly where the seller's responsibility ends and the buyer's begins in any international shipment.
In plain English: Incoterms decide who pays for freight, who arranges insurance, who handles customs, and who bears the risk if something goes wrong in transit. Get them right and your landed cost calculations are accurate. Get them wrong and you could be hit with unexpected freight bills, customs delays, or absorb losses from damaged goods that should have been covered by your supplier.
The current version, Incoterms 2020, was published by the ICC in January 2020 and replaced Incoterms 2010. If your supplier quotes you on "Incoterms 2010" terms, they're using outdated rules — worth flagging.
Incoterms 2020 contains 11 rules, divided into two groups: rules for any mode of transport, and rules for sea and inland waterway transport only.
EXW — Ex Works
The seller makes goods available at their premises. The buyer handles absolutely everything from that point: export clearance, loading, freight, insurance, and import clearance. Maximum responsibility for the buyer. Rarely recommended for new importers.
FCA — Free Carrier
The seller delivers goods to a named carrier or location (e.g. their factory or a freight terminal). Risk transfers to the buyer at that point. A new FCA provision in 2020 allows sellers to issue an on-board bill of lading if the buyer requests it — useful for letter of credit transactions.
CPT — Carriage Paid To
The seller pays freight to the named destination, but risk transfers to the buyer once goods are handed to the first carrier. The buyer is responsible for insurance and import costs.
CIP — Carriage and Insurance Paid To
Like CPT, but the seller must also arrange insurance. Incoterms 2020 upgraded CIP to require all-risk insurance coverage (Institute Cargo Clauses A) — a significant improvement over the minimum coverage required under 2010 rules.
DAP — Delivered at Place
The seller delivers goods to the named destination, ready for unloading. The buyer handles import duties and clearance. Risk transfers on arrival.
DPU — Delivered at Place Unloaded
New in 2020, replacing DAT (Delivered at Terminal). The seller delivers and unloads goods at the named destination. The only Incoterm where the seller is responsible for unloading.
DDP — Delivered Duty Paid
Maximum responsibility for the seller. They deliver goods to the buyer's door, cleared through customs, with all duties paid. Sounds great for buyers, but be cautious — DDP can be more expensive than it appears if the seller adds a large margin on duties and freight.
FAS — Free Alongside Ship
The seller delivers goods alongside the vessel at the named port. Risk transfers at that point. Mainly used for bulk cargo or project cargo.
FOB — Free on Board
One of the most commonly used Incoterms in Australian importing. The seller loads goods onto the vessel at the named port of shipment. Risk and cost transfer to the buyer once goods are on board. Most suitable for full container loads (FCL).
CFR — Cost and Freight
The seller pays freight to the named destination port, but risk transfers once goods are on board at the origin port. The buyer arranges insurance for the sea leg.
CIF — Cost, Insurance and Freight
Like CFR, but the seller also arranges minimum insurance (Institute Cargo Clauses C). Risk still transfers at the origin port. Popular for suppliers quoting into Australia, but note the minimum insurance coverage may not be sufficient for high-value goods.
In practice, most Australian businesses importing from China or Vietnam will encounter a handful of Incoterms regularly.
FOB (Free on Board) is the most common starting point for experienced importers. You take control of freight from the origin port, which means you choose your own freight forwarder, negotiate your own rates, and have full visibility over logistics costs. This is generally the recommended approach once you have a trusted freight partner.
CIF (Cost, Insurance and Freight) is often quoted by Chinese suppliers because it's simple for the buyer. The supplier handles freight and basic insurance to the Australian port. However, you lose control over freight costs (suppliers often mark these up) and the insurance cover is minimum only. We'd generally recommend negotiating to FOB instead.
EXW (Ex Works) is sometimes quoted by smaller factories. In theory it gives you maximum control, but it also means you're responsible for export clearance in China — which requires a licensed Chinese freight forwarder. Not ideal for most Australian buyers unless you have strong local logistics partners in China.
DDP (Delivered Duty Paid) sounds convenient but comes with risks. If the supplier is arranging customs clearance in Australia, they may not be using a licensed Australian customs broker, which can create compliance issues. Better to handle Australian customs yourself through your own broker.
If you've been operating on Incoterms 2010 knowledge, here's what changed in 2020:
DAT replaced by DPU. Delivered at Terminal became Delivered at Place Unloaded — a broader term that applies to any named place, not just a terminal.
FCA now allows on-board bills of lading. This resolves a long-standing issue for letter of credit transactions where buyers needed an on-board B/L but goods were travelling FCA.
CIP now requires higher insurance cover. CIP now mandates Institute Cargo Clauses A (all-risk) rather than the minimum Clauses C. A meaningful upgrade for buyers.
Security-related obligations clarified. Both FCA and DAP now have clearer language around security requirements and associated costs — increasingly relevant in today's trade environment.
One of the most practical implications of Incoterms is their impact on your landed cost. The same product can have a very different total cost depending on which Incoterm applies.
For example, if your supplier quotes EXW A$10,000, you'll need to add: export clearance and local transport in China, international sea freight, marine insurance, Australian port charges and terminal handling, customs broker fees, import duty and GST, and local delivery in Australia. Your landed cost might end up at A$14,000–$15,000.
If the same product is quoted CIF A$11,500, the supplier has bundled freight and basic insurance in — but you still need to add Australian port charges, customs broker fees, import duty and GST, and local delivery. Your landed cost might be A$14,500–$15,500 — actually more expensive despite the higher quoted price, because the supplier has marked up the freight.
This is why understanding Incoterms isn't just about legal technicalities — it directly affects whether you're getting a good deal.
Negotiate to FOB wherever possible. It gives you control over freight costs and carrier selection, and it's the cleanest risk transfer point for sea freight.
Always confirm which Incoterms version applies. Specify "Incoterms 2020" in your purchase order and contract. Without this, disputes can arise over which version's rules apply.
Name the specific location. Incoterms only work properly when you name the exact port or place. "FOB China" is vague and problematic. "FOB Shanghai" is correct.
Don't rely on supplier-arranged insurance for high-value goods. If you're buying CIF or CIP, check the actual policy. Minimum cover may not be adequate for your cargo type or value.
Work with a licensed customs broker. For Australian import clearance, always use your own licensed broker — regardless of what Incoterm applies. They know the ABF requirements and will make sure you're meeting compliance obligations.
Choosing the right Incoterm is just one piece of the import puzzle. At Epic Sourcing, we help Australian businesses navigate the full process — from supplier negotiation (including Incoterm selection) through to quality control, freight coordination, and customs clearance.
If you're not sure whether your supplier's quoted Incoterm is working in your favour, or you want a second opinion on your landed cost calculations, get in touch with our team. We're happy to have a straight conversation about it.
FOB (Free on Board) is the most commonly used Incoterm for Australian importers buying from China or Vietnam. It gives the buyer control over freight from the origin port, which typically results in better freight rates and clearer cost visibility.
Under CIF, the seller pays for freight and arranges minimum insurance to the destination port. Under FOB, the buyer takes responsibility from the moment goods are loaded onto the vessel at the origin port. FOB generally gives buyers more control and transparency over total costs.
Incoterms 2010 are technically still valid if both parties agree to use them and specify it in their contract. However, Incoterms 2020 introduced meaningful improvements and is now the current standard. Always specify "Incoterms 2020" in your agreements.
Import duty in Australia is calculated on the FOB value of goods, not CIF. So if your supplier quotes CIF, your customs broker will need to strip out the freight and insurance component to calculate the correct duty base. This is standard practice — your broker will handle it.
Yes. An experienced sourcing agent can negotiate Incoterms on your behalf as part of the overall supplier agreement. At Epic Sourcing, we typically recommend FOB for our clients and negotiate accordingly during the purchase order process.
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