Incoterms Explained: Guide for Australian Importers | WWCF

Incoterms (International Commercial Terms) are a set of 11 standardised trade rules published by the International Chamber of Commerce (ICC) that define who pays for what, who bears the risk, and at what point responsibility shifts from seller to buyer in international trade. They’re the backbone of every international shipping contract — and if you’re importing goods to Australia or exporting from it, getting them wrong can cost you thousands.

What Are Incoterms and Why Do They Matter in Australia?

The ICC first published Incoterms back in 1936 to cut through the confusion of international trade. Different countries, different languages, different assumptions about who’s paying for freight or insurance — it was a mess. Incoterms fixed that by creating a universal shorthand.

The current version, Incoterms 2020, came into effect on 1 January 2020 and replaced the 2010 edition. There are 11 rules total, each identified by a three-letter code like FOB, CIF, or EXW. These codes tell both parties exactly where their obligations start and stop.

Here’s the thing. For Australian importers, incoterms Australia knowledge isn’t optional — it directly affects your customs duty bill. Australia uses the FOB (Free on Board) value to calculate customs duty, not the CIF value. That single fact can change what you owe the Australian Border Force by hundreds or even thousands of dollars on a large shipment. We’ll get into the detail shortly.

Incoterms 2020: The Complete List of All 11 Rules

Incoterms 2020 splits its 11 rules into two groups based on transport mode. Seven rules work with any form of transport — truck, rail, air, sea, or a combination. Four rules are restricted to sea and inland waterway transport only.

Let’s break down each one.

Rules for Any Mode of Transport (7 Rules)

These seven Incoterms apply regardless of whether you’re shipping by air, road, rail, sea, or multimodal combinations. If your goods travel in a container (and most Australian imports do), these are typically the terms you should be using.

1. EXW — Ex Works (Named Place of Delivery)

EXW meaning: The seller makes the goods available at their premises (factory, warehouse, etc.). That’s it. Everything else — loading, export clearance, freight, insurance, import clearance, duties — falls on the buyer.

Who pays what: The buyer pays for literally everything from the seller’s door onward.

Where risk transfers: At the seller’s premises. The moment goods are made available, risk is yours.

When to use it: Rarely, if we’re honest. EXW looks cheap on paper because the unit price is the lowest. But you’re responsible for export clearance in a foreign country, which can be a nightmare. Most Australian importers are better off with FCA or FOB. EXW is really only practical if you have a freight forwarder with a strong presence at origin who can handle everything for you.

Watch out: Many countries require proof of export for tax purposes. Under EXW, you as the buyer aren’t obligated to provide that to the seller — which can leave your supplier with an unexpected domestic tax bill. It creates friction.

2. FCA — Free Carrier (Named Place of Delivery)

The seller delivers goods, cleared for export, to a carrier nominated by the buyer at a named place. If delivery is at the seller’s premises, the seller loads the goods. If delivery is elsewhere (like a container yard), the seller just needs to get them there.

Who pays what: Seller pays for export clearance and delivery to the carrier. Buyer pays freight, insurance, and import costs.

Where risk transfers: When goods are handed to the carrier at the named place.

When to use it: FCA is the smarter alternative to EXW for most containerised shipments. You still get a competitive purchase price, but the seller handles export formalities. New in 2020: FCA now allows the buyer to instruct the carrier to issue an on-board bill of lading to the seller — solving a common problem with letters of credit.

3. CPT — Carriage Paid To (Named Place of Destination)

The seller pays freight to the named destination, but risk transfers earlier — when goods are handed to the first carrier at origin.

Who pays what: Seller pays freight to destination. Buyer pays insurance (if they want it) and import costs.

Where risk transfers: At the point of handover to the first carrier. This is a two-point term — the cost transfer point and the risk transfer point are different.

When to use it: When you want the seller to arrange freight but you’ll sort your own insurance. Think of CPT as the multimodal equivalent of CFR.

4. CIP — Carriage and Insurance Paid To (Named Place of Destination)

Same as CPT, but the seller must also arrange insurance.

Who pays what: Seller pays freight and insurance to destination. Buyer pays import costs.

Where risk transfers: Same as CPT — when goods are handed to the first carrier.

Incoterms 2020 change: CIP now requires Institute Cargo Clauses (A) coverage — the highest level. This is a step up from CIF, which only requires the lower Clause (C) minimum. If you’re shipping high-value goods by air or multimodal, CIP gives better insurance protection than CIF.

5. DAP — Delivered at Place (Named Place of Destination)

Seller delivers goods to the named destination, ready for unloading, but not yet cleared for import.

Who pays what: Seller pays everything except unloading, import clearance, duties, and taxes.

Where risk transfers: When goods arrive at the named destination, on the arriving vehicle, ready for unloading.

When to use it: When you want the seller to handle nearly everything but you’ll manage Australian customs clearance yourself (or through your customs broker).

6. DPU — Delivered at Place Unloaded (Named Place of Destination)

Seller delivers and unloads goods at the named destination. This was called DAT (Delivered at Terminal) in Incoterms 2010 — the rename in 2020 clarifies that delivery can happen at any place, not just a port terminal.

Who pays what: Seller pays for everything including unloading. Buyer pays import clearance, duties, taxes.

Where risk transfers: Once goods are unloaded at the destination.

When to use it: When the seller has strong logistics capability and you want them to handle unloading. DPU is the only Incoterm where the seller is explicitly responsible for unloading.

7. DDP — Delivered Duty Paid (Named Place of Destination)

Maximum obligation on the seller. The seller delivers goods to the named place in the buyer’s country, cleared for import, with all duties and taxes paid.

Who pays what: Seller pays everything — freight, insurance, export and import clearance, duties, taxes. Buyer just takes delivery.

Where risk transfers: At the named destination in the buyer’s country.

When to use it: When the seller has the capability to clear goods through Australian customs. This is rare for overseas suppliers selling into Australia because they need an Australian customs broker and may need to be registered for GST. DDP makes more sense for Australian exporters selling to overseas buyers where the Australian seller has logistics partners at destination.

Rules for Sea and Inland Waterway Transport Only (4 Rules)

These four Incoterms are meant specifically for goods transported by ship. Technically, the ICC says you shouldn’t use them for containerised cargo (use FCA, CPT, or CIP instead), because container goods are typically handed to the carrier at a terminal before being loaded on board. In practice, FOB and CIF are still used for container shipments constantly — but it’s worth knowing the distinction.

8. FAS — Free Alongside Ship (Named Port of Shipment)

Seller delivers goods alongside the vessel at the named port.

Who pays what: Seller pays to get goods to the port and alongside the ship, plus export clearance. Buyer pays for loading, freight, insurance, and import costs.

Where risk transfers: When goods are placed alongside the ship at the port of shipment.

When to use it: Mostly for bulk cargo like grain, coal, or minerals. Not common for general Australian imports.

9. FOB — Free on Board (Named Port of Shipment)

The seller delivers goods loaded on board the vessel at the named port of shipment. This is one of the most widely used Incoterms for Australian importers — and for good reason.

Who pays what: Seller pays to get goods on board the ship, plus export clearance. Buyer arranges and pays for sea freight, insurance, and all import costs.

Where risk transfers: When goods pass over the ship’s rail at the port of shipment (in practical terms, once they’re loaded on board).

When to use it: FOB is the go-to for Australian importers who want control over their freight costs and carrier selection. Because Australia calculates customs duty on the FOB value, buying FOB means your invoice value matches the customs value — clean and simple. Your freight forwarder handles the ocean leg, giving you full visibility on costs.

10. CFR — Cost and Freight (Named Port of Destination)

Seller pays freight to the destination port, but risk still transfers at the port of shipment when goods are loaded on board.

Who pays what: Seller pays freight to destination. Buyer pays insurance and import costs.

Where risk transfers: When goods are loaded on board at the port of shipment. This is another two-point term — the seller pays for the voyage, but the buyer bears the risk during it.

When to use it: When you want the seller to handle freight but you’ll arrange your own insurance. Be careful though — there’s a gap where you bear risk during transit but haven’t arranged insurance unless you do so separately. Many Australian importers get caught out on CFR terms with unexpected destination charges.

11. CIF — Cost, Insurance and Freight (Named Port of Destination)

Same as CFR, but the seller must also arrange minimum insurance cover.

Who pays what: Seller pays freight and insurance to destination port. Buyer pays import costs, duties, taxes.

Where risk transfers: When goods are loaded on board at the port of shipment — same as CFR and FOB.

Insurance detail: Under Incoterms 2020, CIF only requires minimum coverage at Institute Cargo Clauses (C). That covers major casualties (sinking, fire, stranding) but not things like theft, pilferage, or water damage from rough seas. If you’re buying CIF, you almost certainly want to arrange top-up insurance.

When to use it: CIF works for importers who want a simpler, all-inclusive price from their supplier. But it comes at a cost: you lose control over carrier selection, the insurance may be inadequate, and your customs duty calculation gets more complicated because you need to strip out the freight and insurance components to get back to the FOB value.

FOB vs CIF vs EXW vs DDP: Comparison Table for Australian Importers

These four Incoterms cover the vast majority of Australian import transactions. Here’s how they stack up.

How Incoterms Affect Your Australian Customs Duty

This is where incoterms Australia knowledge really pays off. The Australian Border Force (ABF) uses the FOB value as the customs value for calculating import duty. Not CIF, not EXW — FOB.

So what does this mean for your shipment?

If You Buy FOB

Your invoice value is the FOB value. Clean, simple, direct. The ABF takes your invoice price and applies the duty rate (5% for most general cargo). No adjustments needed.

Example: FOB value of $10,000. Duty at 5% = $500.

If You Buy CIF

Your invoice includes freight and insurance costs. The ABF needs to deduct those to get back to the FOB value. You’ll need to declare the freight and insurance components separately on your import declaration. If you can’t break them out, the ABF will use its own calculations — and they may not be in your favour.

Example: CIF value of $12,500 (goods $10,000 + freight $2,000 + insurance $500). Duty is calculated on the $10,000 FOB component = $500.

If You Buy EXW

Your invoice is the ex-factory price, which is lower than FOB. The ABF will add foreign inland freight and any other costs incurred before the goods are loaded on board at the port of export. You need to provide documentation for these costs.

GST Calculation Is Different

Here’s where people get tripped up. While import duty is calculated on the FOB value, GST (10%) is calculated on the customs value plus freight plus insurance plus duty. So GST is effectively calculated on something close to the CIF value plus duty, regardless of which Incoterm you used.

Use the WWCF customs duty calculator to estimate your total landed costs before you commit to a shipment.

The $1,000 Threshold

Goods with an FOB value of $1,000 or less are generally exempt from customs duty and GST (with exceptions for tobacco and alcohol). This de minimis threshold is based on FOB value, so your Incoterm choice affects whether your shipment falls above or below the line.

Insurance Considerations for Australian Sea Freight

Insurance is one of the most misunderstood parts of Incoterms. Let’s clear it up.

Only two Incoterms require the seller to arrange insurance: CIF and CIP. Under every other term, insurance is optional and the buyer’s responsibility.

Under CIF, the seller only needs to provide Institute Cargo Clauses (C) — the bare minimum. Clause (C) covers:

• Fire or explosion
• Vessel sinking, grounding, capsizing
• Collision
• Discharge of cargo at a port of distress
• General average sacrifice

It does not cover theft, pilferage, water damage, breakage, or short delivery. For an Australian importer shipping goods from Asia across open ocean, that’s a significant gap.

Under CIP (updated in 2020), the seller must provide Institute Cargo Clauses (A) — all-risks cover. That’s a meaningful upgrade.

Our recommendation: regardless of your Incoterm, always arrange your own marine cargo insurance through your sea freight forwarder or insurance broker. You know the replacement value of your goods, you control the policy, and you deal directly with the insurer if something goes wrong. Relying on a supplier’s CIF insurance policy — issued in a foreign country, potentially in a foreign language — adds unnecessary risk.

Common Incoterms Mistakes Australian Importers Make

After 43 years in the freight forwarding and customs brokerage business, we’ve seen every Incoterms mistake in the book. Here are the ones that cost Australian importers the most money.

1. Assuming EXW Is Always the Cheapest Option

The factory price looks great on paper. But add in origin-side freight, export documentation fees, terminal handling charges, and the complexity of arranging export clearance in a foreign country — and your “cheap” EXW price often ends up costing more than FOB. Always compare total landed cost, not just the unit price.

2. Not Specifying Exact Ports and Terminals

Writing “FOB Shanghai” isn’t specific enough. Shanghai has multiple port terminals (Yangshan, Waigaoqiao). If your freight forwarder expects one and your supplier delivers to another, you’ll cop additional trucking charges and delays. Specify the terminal.

3. Ignoring the Insurance Gap on CIF

CIF includes insurance, yes. Minimum insurance. Clause (C). If your container of electronics gets water-damaged in a storm, Clause (C) won’t cover it. Too many importers assume “insured” means “fully covered.” It doesn’t.

4. Using Sea-Only Incoterms for Containerised Cargo

Technically, FOB, CFR, CIF, and FAS are designed for non-containerised cargo loaded directly onto ships. For containers, the ICC recommends FCA, CPT, and CIP. In practice, FOB and CIF are used for containers constantly, but the mismatch can create grey areas around when risk actually transfers — particularly if goods are damaged between the container yard and the vessel.

5. Not Understanding Who’s Responsible for Destination Charges

Under CIF and CFR, the seller pays freight to the destination port. But terminal handling charges (THC), container service charges, documentation fees, and storage at the destination? Those are almost always the buyer’s problem, even if they weren’t mentioned in the quote. Australian importers regularly get blindsided by $500–$1,500 in destination charges they didn’t budget for.

6. Accepting DDP Without Verifying the Seller’s Capability

DDP means the seller handles import clearance and pays Australian duties and taxes. But does your overseas supplier actually have an Australian customs broker? Are they registered for GST? If not, your shipment will sit at the port racking up storage charges while everyone figures out who’s supposed to be doing what.

How to Choose the Right Incoterm: A Decision Framework

There’s no single “best” Incoterm. The right choice depends on your experience level, shipment volume, and how much control you want. Here’s a simple framework.

Ask Yourself These Questions:

1. Do you have a reliable freight forwarder in Australia? If yes, FOB or FCA gives you the most control. Your forwarder manages the freight leg, and you get full cost visibility.
2. Is this a one-off or low-volume shipment? CIF or CIP might be simpler — the seller handles freight and basic insurance. Just budget for destination charges and consider top-up insurance.
3. Are you importing containerised goods? Technically, you should use FCA/CPT/CIP instead of FOB/CFR/CIF. Practically, FOB is still the standard for most Australian container imports.
4. Do you need a letter of credit? FCA (with the new 2020 bill of lading provision) or FOB work well with L/C payment terms.
5. How experienced is your overseas supplier with Australian imports? If they’re experienced, DAP or even DDP might work. If they’re not (and most aren’t), stick with FOB or FCA and let your Australian freight forwarder manage this end.

The Short Answer for Most Australian Importers

FOB (or FCA for containerised cargo) is the safest default. You get cost transparency, you control the freight leg through your Australian forwarder, and your invoice value aligns directly with the customs value for duty calculation. Once you’re shipping regularly and have strong supply chain relationships, you can explore other terms.

Frequently Asked Questions

What does FOB mean in shipping to Australia?

FOB (Free on Board) means the seller delivers goods loaded onto the vessel at the port of shipment. From that point, the buyer is responsible for sea freight, insurance, and all costs to get the goods to Australia. FOB is the most popular Incoterm for Australian imports because Australia uses the FOB value to calculate customs duty, making invoicing and customs declarations straightforward.

What is the difference between CIF and FOB for Australian importers?

Under FOB, you arrange and pay for sea freight and insurance yourself. Under CIF, the seller includes freight and basic insurance in the price. The risk transfer point is the same for both — when goods are loaded on board at the origin port. The key difference for Australian importers: FOB gives you cost control and your invoice matches the customs value directly. CIF is simpler but often includes hidden destination charges, and you may need to arrange additional insurance above the minimum Clause (C) cover.

Are Incoterms 2020 still current in 2026?

Yes. Incoterms 2020, published by the ICC, remain the current version as of 2026. The ICC typically reviews Incoterms every 10 years, so the next update is expected around 2030. Contracts can reference any version of Incoterms, but if no version is specified, Incoterms 2020 is the default standard.

Does Australia use FOB or CIF for customs duty?

Australia uses the FOB value for customs duty calculation. This means freight and insurance costs are excluded from the dutiable value. Most general cargo attracts a 5% duty rate applied to the FOB value. However, GST (10%) is calculated on the customs value plus duty plus freight and insurance — so it’s effectively based on a value closer to CIF. Use the WWCF duty calculator to estimate your costs.

Should I use EXW or FOB when importing from China to Australia?

For most Australian importers, FOB is the better choice. While EXW gives a lower unit price, you take on the complexity and cost of export clearance in China, origin-side transport, and terminal handling. FOB puts export responsibility on the seller (who knows their local requirements) and gives you a clean handover point at the port. The total landed cost is often similar or even lower with FOB once you factor in the hidden costs of EXW.

Get Expert Help With Your Import Shipments

Choosing the right Incoterm is just one piece of the puzzle. Getting goods from overseas to your door in Australia involves customs clearance, duty and tax calculations, quarantine requirements, and logistics coordination.

WWCF has been helping Australian importers and exporters for over 43 years. With six offices across Australia, we offer customs brokerage, freight forwarding (sea and air), and end-to-end supply chain management.

Whether you’re shipping your first container or your thousandth, we’ll help you choose the right Incoterms, negotiate better rates, and get your goods cleared without delays.

Talk to our freight team today or use our free customs duty calculator to estimate your import costs.