Every international quotation comes with a short code such as FOB or CIF, and that code quietly decides who pays for freight, who arranges insurance and at what point the risk of loss passes from seller to buyer. This guide offers Incoterms explained in plain language, focusing on four terms Pakistani importers meet most often. It is general information only: the official Incoterms rules are published by the International Chamber of Commerce, and contracts should be checked by a qualified professional.
What Incoterms do, and what they do not
Incoterms define the delivery obligations between buyer and seller: who handles transport, export and import formalities, and when risk transfers. They do not set the price, transfer ownership of the goods, or decide payment terms. Those belong in the sales contract. Always state the version of the rules (for example Incoterms 2020) and a precise named place, such as a specific port or address.
EXW: Ex Works
Under EXW the seller simply makes the goods available at their premises. The buyer does almost everything else.
- Seller: prepares the goods and makes them available.
- Buyer: loading, export clearance, main freight, insurance, import clearance and delivery.
- Risk: passes to the buyer when the goods are made available.
EXW can look cheap, but the buyer may struggle to handle export formalities in the seller’s country. Many importers prefer FCA or FOB for that reason.
FOB: Free On Board
FOB is used for sea and inland waterway transport. The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment.
- Seller: transport to the port, export clearance and loading on board.
- Buyer: ocean freight, insurance, import clearance and onward delivery.
- Risk: passes once the goods are on board.
FOB gives the buyer control over the shipping line and freight cost, which suits importers who work with their own forwarder. Note that the ICC suggests FCA rather than FOB for containerised cargo handed over at a terminal.
CIF: Cost, Insurance and Freight
CIF is also a sea term. The seller arranges and pays for freight and minimum insurance to the named destination port.
- Seller: export clearance, ocean freight and minimum cargo insurance to the destination port.
- Buyer: destination charges, import clearance and onward delivery.
- Risk: passes once the goods are on board at the port of shipment, even though the seller pays freight to destination.
This split between cost and risk surprises many buyers. The minimum insurance cover may also be narrower than you want, so consider extra cover.
DAP: Delivered At Place
Under DAP the seller delivers the goods, ready for unloading, at a named place in the buyer’s country.
- Seller: all transport to the named place, and the risk until arrival.
- Buyer: unloading, import clearance, and duties and taxes.
- Risk: passes on arrival at the named place.
DAP is convenient, but the buyer still handles import clearance. If the seller’s transport arrives before the paperwork is ready, storage costs can fall on the buyer.
Incoterms explained for Pakistani importers: practical checks
- Know what is left for you. Under FOB and CIF, destination charges, clearance and inland transport to cities such as Lahore or Islamabad are usually for the buyer.
- Check insurance. Decide who insures each leg and for how much.
- Be precise with the named place. “FOB Shanghai” and “CIF Karachi” are clear; “FOB Greece” is not.
- Match the term to the payment method. Letters of credit and bank documents often specify required terms and documents.
- Consider customs valuation. How freight and insurance are treated in the customs value depends on current rules; ask a clearing professional.
Our import and export team can help you compare quotations on different terms, and our customs clearance service handles the import side.
We can price the freight and clearance you would be responsible for, so you compare like with like. See our freight services, contact us or email info@prosvogue.com.
Frequently asked questions
Which Incoterm is best for importers?
There is no single best term. FOB or FCA gives you control of freight; CIF or DAP shifts arrangements to the seller. The right choice depends on your experience, forwarder relationships and risk appetite.
Do Incoterms decide who pays customs duty?
Most terms leave import duties and taxes with the buyer; DDP is the main exception. Duty amounts themselves are set by national rules, which change, so check the current position.
Are older versions of Incoterms still valid?
Parties can agree to use an older version, but they should say so clearly in the contract. Many businesses use the latest edition to avoid confusion.
Key topics: Incoterms explained · EXW · FOB · CIF · DAP · trade terms
