Incoterms, for the person who actually pays the bill

Which version is in force

Incoterms 2020, published by the International Chamber of Commerce, in force since 1 January 2020. That is the current edition.

The two families

Eleven rules, split into two groups, and the split is not cosmetic.

Seven rules work for any mode of transport, including containers: EXW, FCA, CPT, CIP, DAP, DPU, DDP.

Four rules are for sea and inland waterway only: FAS, FOB, CFR, CIF. These were written for goods that are physically loaded over a ship's rail — bulk cargo, break-bulk, project cargo.

Two structural points explain nearly every expensive mistake:

• Risk and cost do not always transfer at the same place. In the four C-terms — CFR, CIF, CPT, CIP — they deliberately diverge. The seller pays carriage all the way to destination, but risk passed to you back at origin. If the vessel sinks mid-voyage, the seller has met its obligation and the loss is yours.
• Risk does not transfer at the destination port in any term except the D-terms.

The terms you will actually meet

DPU is worth a note: it is the only Incoterm that obliges the seller to unload. It was renamed from DAT in 2020 and broadened so the destination can be any place, not just a terminal. Do not agree DPU at a location where the seller has no realistic control over unloading equipment.

Four traps

1 · FOB for containers is the wrong term, and everyone uses it anyway

FOB places risk transfer at the moment the goods are on board the vessel. With containerised cargo you hand your container to a terminal days before loading, and you have no visibility of when it actually crosses the rail. In that gap — sitting in a container yard — nobody has clearly defined risk.

FCA is the correct term for containers. Risk transfers when the container is handed to the carrier, which is a moment you can actually observe and document.

The historical reason traders defaulted to FOB is that banks wanted an on-board bill of lading for letters of credit, and FCA did not obviously produce one. Incoterms 2020 fixed this: it added an optional mechanism where the parties agree that the buyer instructs its carrier to issue a bill of lading with an on-board notation to the seller. If your bank is the reason you are using FOB, this is the clause that solves it.

2 · EXW puts export clearance on you

Under EXW the buyer handles export clearance — in the seller's own country, where you have no legal presence and cannot file. In practice the seller usually helps, but "usually" is not a contract term. EXW also means risk passes before the goods are loaded onto your collecting truck, so damage during loading is yours.

EXW makes sense when you have a competent agent in China acting for you. Otherwise FCA gives you almost the same commercial position with the export paperwork handled by the party who can actually do it.

3 · CIF insurance is the minimum, not "insured"

CIF obliges the seller to insure — at Institute Cargo Clauses (C). Clauses C is a named-perils cover. It is not all-risks. It will typically not respond to theft, non-delivery of an individual package, or ordinary handling damage.

CIP is the term that requires all-risks — Institute Cargo Clauses (A), at 110% of contract value. That difference between CIF and CIP was introduced deliberately in the 2020 edition.

So "we bought CIF, we're covered" is a sentence worth interrogating. If you want real cover on a CIF purchase, buy your own policy on top, or specify a higher level in the contract.

4 · DDP is usually a bad idea into Ethiopia

Under DDP the seller handles import clearance and pays the duty and taxes. That sounds convenient until you consider that your Chinese supplier must then deal with Ethiopian customs, needs standing to act as importer of record, and has to price a duty bill it cannot calculate accurately.

What actually happens is that the supplier pads the price generously to cover an unknown, or gets stuck at Modjo, or discovers it cannot legally clear the goods at all. You end up paying more and having less control. Two other things worth knowing: DDP does not oblige the seller to unload, and it does not include VAT unless you say so explicitly.

How your Incoterm changes your Ethiopian duty

This is the part specific to importing into Ethiopia, and it surprises people.

Ethiopian customs duty is assessed on the CIF value — cost, insurance and freight. That is the dutiable base regardless of what Incoterm you actually bought on.

So if you buy FOB Shanghai at USD 40,000 and pay USD 4,000 freight and USD 300 insurance separately, customs does not assess USD 40,000. It assesses USD 44,300, and every tax in the cascade compounds from there.

One uncertainty worth flagging: some descriptions of Ethiopia's dutiable value suggest inland transport charges to the border may also be included. We have not been able to confirm this against the Customs Proclamation. If your shipment routes overland from Djibouti with significant inland cost, ask your clearing agent whether it enters the dutiable value.

Which to use, and why

For a first-time or occasional importer bringing containers from China into Ethiopia, the honest general answer is CIF or CIP, and the reasoning matters more than the answer.

• You get one number to compare. Quotes on a delivered-to-port basis are directly comparable across suppliers, and directly usable as your duty base.
• The seller arranges carriage in a market they know. Chinese exporters get better freight rates than an occasional Ethiopian buyer, because they book constantly.
• Insurance is obliged. Prefer CIP if you can get it, for the all-risks cover.
• The paperwork lands in the right places. Export clearance with the exporter, import clearance with you.

You should move away from CIF once you have volume, a forwarder you trust, and the ability to negotiate your own freight — at which point FCA gives you control over routing, carrier and schedule, and stops you paying the supplier's margin on freight. That is the natural progression: start with CIF for simplicity, move to FCA for control.

What to avoid as a beginner: EXW, unless you have an agent in China; DDP, for the reasons above; and FOB on containerised cargo, which works in practice mostly because everyone ignores the gap it creates.