Incoterms 2020 Explained: Which Trade Term Should Indian Handicraft Exporters Use?

What Are Incoterms?

Incoterms (International Commercial Terms) are a set of 11 internationally recognised trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international trade transactions — specifically, who arranges transport, who pays freight, who arranges insurance, and at what exact point the risk of loss or damage transfers from the seller to the buyer.

Incoterms 2020 (the current version) must be stated on the commercial invoice along with the named place, e.g., "FOB Nhava Sheva Port, India, Incoterms 2020." Using the wrong Incoterm — or failing to specify one — creates ambiguity that can lead to disputes, double-charging for freight, and uninsured losses.

The 11 Incoterms 2020 — Overview

Incoterms are divided into two groups:

Group 1: Rules for Any Mode of Transport

• EXW — Ex Works: Seller makes goods available at their premises. Buyer arranges and pays for everything from that point — loading, domestic transport, export clearance, ocean freight, import clearance, and last mile. Lowest price for buyer, highest responsibility for buyer.
• FCA — Free Carrier: Seller delivers goods to a named carrier at a named place (e.g., seller's warehouse, inland container depot). Export customs cleared by seller. Risk transfers when carrier takes possession. Incoterms 2020 added a new option: the buyer can ask the seller to obtain an on-board B/L for LC purposes.
• CPT — Carriage Paid To: Seller pays freight to destination, but risk transfers when goods are handed to the first carrier. Seller does not arrange insurance.
• CIP — Carriage and Insurance Paid To: Same as CPT but seller must arrange insurance to destination. Incoterms 2020 increased the required insurance level to Institute Cargo Clauses (A) — all risks. Recommended for high-value handicraft shipments.
• DAP — Delivered at Place: Seller delivers goods to the named destination ready for unloading, but import customs and duties are buyer's responsibility.
• DPU — Delivered at Place Unloaded: Seller delivers and unloads goods at named destination. Only Incoterm where seller is responsible for unloading.
• DDP — Delivered Duty Paid: Seller takes maximum responsibility — pays all costs including import duty at destination. Highest price, zero effort for buyer at destination.

Group 2: Rules for Sea and Inland Waterway Transport Only

• FAS — Free Alongside Ship: Seller delivers goods alongside the vessel at the named port. Used for bulk cargo — rarely applicable to handicraft exports.
• FOB — Free on Board: Seller delivers goods on board the vessel at the named port. Export customs cleared by seller. Risk transfers when goods are on board the ship. The most commonly used Incoterm for Indian handicraft exports.
• CFR — Cost and Freight: Seller pays ocean freight to destination port, but risk transfers when goods are on board in India. Buyer arranges insurance.
• CIF — Cost, Insurance, and Freight: Same as CFR but seller must arrange minimum insurance (Institute Cargo Clauses C). Risk transfers on loading — note that seller controls insurance but risk transfers to buyer before destination. Commonly used for smaller handicraft orders.

Which Incoterm Is Best for Handicraft Exports?

For New Export Relationships — FOB

FOB (Free on Board) is the recommended starting point for most Indian handicraft exports. The Indian vendor handles export clearance, domestic transport, and loading — which they know how to do. The international buyer handles ocean freight and insurance — which their freight forwarder knows how to do in their country. Both parties do what they know best.

For Buyers Who Want Simplicity — CIF

CIF (Cost, Insurance, Freight) is popular with smaller-scale international buyers who do not have established freight forwarder relationships. The Indian exporter quotes a single all-in price to the destination port. Particularly common for buyers in the Middle East, Africa, and Southeast Asia.

For Large B2B Buyers with Their Own Freight Contracts — FCA or EXW

Large retail chains and importers who have contracted better freight rates than the Indian vendor can offer typically prefer FCA or EXW, allowing them to use their own carriers and insurance arrangements.

For End-to-End Online Sales — DDP

For direct-to-consumer e-commerce or corporate gifting where the buyer wants a simple landed price with no customs involvement on their side, DDP is increasingly offered by Indian exporters who have established import processes in key markets.

Risk Transfer Points — Visual Summary

• EXW: At seller's factory gate
• FCA: When carrier takes possession
• FOB: When goods are on board vessel in India
• CFR / CIF: When goods are on board vessel in India (despite seller paying freight/insurance)
• CPT / CIP: When first carrier takes possession
• DAP / DPU / DDP: At named destination

Incoterms and Customs Valuation

Indian customs uses CIF value for import valuation. Destination countries vary — EU and most countries use CIF, USA uses FOB. This affects import duty calculation. Always confirm which Incoterm creates the right customs value for your buyer's country.

Conclusion

Incoterms are not just shipping jargon — they define legal and financial responsibility in your export transaction. Misuse of Incoterms is one of the most common causes of disputes in international trade. For Indian handicraft exporters, FOB is the safest default. For buyers who want a hassle-free experience, CIF or DDP offers more convenience. Always state the Incoterm and named place clearly on every commercial invoice.