What Are INCOTERMS? A Complete Guide for Australian Importers & Exporters
Global trade hinges on clarity, and INCOTERMS (International Commercial Terms) are the backbone of smooth international transactions. Defined by the International Chamber of Commerce (ICC), these 11 standardized terms allocate costs, risks, and responsibilities between buyers and sellers. For Australian businesses, choosing the right INCOTERM is critical to avoiding disputes, minimizing costs, and ensuring compliance.
At Kenter, we simplify complex shipping terms. Here’s your actionable guide to INCOTERMS 2020.
Key INCOTERMS 2020: Rules & Transport Modes
INCOTERMS 2020 are categorized by transportation mode:
- Terms for Any Transport Mode
- EXW (Ex Works): Buyer handles all costs/risks from the seller’s premises.
- FCA (Free Carrier): Seller delivers goods to a named carrier (e.g., Kenter Logistics).
- CPT (Carriage Paid To): Seller pays freight to a destination; risk transfers upon delivery to the carrier.
- CIP (Carriage & Insurance Paid To): Like CPT, but seller also insures goods.
- DAP (Delivered at Place): Seller delivers goods to a specified location; buyer handles import clearance.
- DPU (Delivered at Place Unloaded): Seller delivers and unloads goods at the destination.
- DDP (Delivered Duty Paid): Seller covers all costs, including import duties (highest seller obligation).
- Terms for Sea/Inland Waterway Transport
- FAS (Free Alongside Ship): Seller places goods beside the vessel; buyer handles loading.
- FOB (Free on Board): Seller loads goods onto the ship; risk transfers at that point.
- CFR (Cost & Freight): Seller pays freight, but risk transfers once goods are onboard.
- CIF (Cost, Insurance & Freight): Like CFR, but seller also insures goods.
5 Critical INCOTERMS Rules Every Australian Business Must Know
- Risk Transfer Points
- Risk shifts from seller to buyer at specific stages (e.g., FOB = when goods cross the ship’s rail). Misunderstanding this can lead to costly disputes.
- Insurance Obligations
- Only CIP and CIF require sellers to insure goods. For other terms (e.g., FOB), buyers often arrange insurance.
- Customs Clearance
- EXW, FCA, FAS: Buyer handles export/import clearance.
- DDP: Seller manages all customs processes.
- Delivery Responsibilities
- DPU/DAP: Sellers must coordinate final-mile delivery.
- FCA: Seller’s responsibility ends at carrier handover.
- Australian Considerations
- Port Congestion: Terms like FOB (Sydney/Melbourne ports) require precise timing.
- GST Compliance: DDP terms must include Australian GST in total costs.
Common INCOTERMS Mistakes to Avoid
- Assuming INCOTERMS Cover Everything: They don’t address ownership transfer, payment terms, or penalties.
- Misapplying Transport Modes: Using FOB for air freight (it’s only for waterways).
- Ignoring Insurance: Under CIF, seller’s insurance may not cover full value.
Why Partner with Kenter Logistics?
As a leading Australian freight forwarder, Kenter Logistics ensures your INCOTERMS align with your business goals. We help you:
- Negotiate favourable terms with overseas partners.
- Navigate customs clearance and GST requirements.
- Optimize costs for sea, air, or road freight.
INCOTERMS FAQs
Q: Which INCOTERM is best for Australian importers?
A: DAP or DDP if you want suppliers to handle most logistics.
Q: Do INCOTERMS apply to domestic Australian shipments?
A: No—they’re strictly for international trade.
Q: Who pays for demurrage charges?
A: Determined by the INCOTERM. For example, under FOB, the buyer covers port delays.
Optimize Your Global Trade Strategy Today
INCOTERMS 2020 streamline global trade, but their complexity demands expertise. At Kenter Logistics, we empower Australian businesses to ship smarter.
Contact us for a free consultation—let’s decode your INCOTERMS and sharpen your supply chain.
