“In Brief”
The choice of an incoterm directly influences costs, risks and logistics control in a commercial transaction. For trade flows to Africa, incoterms such as FCA or DAP often offer a better operational balance, while DDP can expose both exporters and importers to hard-to-manage fiscal costs.
Choosing the right incoterm is not simply a matter of splitting transport costs between buyer and seller. These international trade rules also govern the transfer of risks, customs obligations, logistics lead time management and, in some cases, the very competitiveness of a commercial transaction. Understanding the specifics of each incoterm is therefore an essential lever for securing and optimising your supply chain.
What Is an Incoterm?
A contraction of the term “International Commercial Terms”, an incoterm refers to a standardised set of codified contractual rules governing the international transport of goods. Originally created in 1936 by the International Chamber of Commerce (ICC), these rules are revised every 10 years to reflect the evolving practices of international trade.
In practice, incoterms define the delivery conditions in an international sales contract between a buyer and a seller. They primarily govern three key elements:
- the respective obligations of the seller and the buyer;
- the allocation of costs related to the carriage of goods;
- and the place of delivery, which represents the point at which risk transfers from seller to buyer.
To fully grasp these mechanisms, it is important to clearly distinguish between risk and cost. Risk refers to liability in the event of loss, damage or deterioration of the goods. It transfers at a specific point agreed in the contract, which does not necessarily correspond to the final delivery location. Costs, on the other hand, cover all expenses related to carriage: transport, handling, insurance, customs formalities, duties and taxes.
The Different Types of Incoterms
Also referred to as Incoterms 2020 and in force since 1 January 2020, the latest version of the ICC rules provides for 11 incoterms divided into two main categories: multimodal incoterms and maritime transport incoterms.
Multimodal Incoterms
These incoterms can be used regardless of the mode of transport, including operations combining several means of carriage:
- EXW – Ex Works: minimum commitment from the seller; the buyer assumes all responsibilities from the seller’s premises.
- FCA – Free Carrier: the seller delivers to the buyer’s nominated carrier and handles export customs clearance.
- CPT – Carriage Paid To: the seller arranges and pays for transport to destination, but risk transfers upon handover to the first carrier.
- CIP – Carriage and Insurance Paid To: same as CPT, but with an additional insurance obligation at the seller’s expense.
- DAP – Delivered at Place: the seller bears all costs and risks to the agreed destination, excluding import customs clearance.
- DPU – Delivered at Place Unloaded: the only incoterm requiring the seller to unload the goods at destination.
- DDP – Delivered Duty Paid: maximum commitment from the seller, including customs clearance and payment of all duties and taxes at destination.
Maritime Transport Incoterms
These incoterms are exclusively used in maritime and inland waterway transport, particularly for conventional cargo and raw materials shipped by vessel:
- FAS – Free Alongside Ship: the seller delivers the goods alongside the vessel at the port of shipment; the buyer takes charge of loading and sea freight.
- FOB – Free On Board: one of the most widely used incoterms; risk transfers once the goods are loaded on board the vessel.
- CFR – Cost and Freight: the seller pays freight to the port of destination, but risk transfers upon shipment.
- CIF – Cost, Insurance and Freight: same as CFR, but the seller also takes out insurance covering the sea leg to destination.
Understanding Incoterms 2020: The E, F, C and D Families
Although based on a standardised framework, Incoterms 2020 present varying levels of commitment and operational implications. To make them easier to navigate, the different incoterms are generally grouped into four main families: E, F, C and D, based on one central criterion: the seller’s level of involvement in the carriage of goods.
Family E: Incoterms with Minimal Seller Responsibility
Family E (EXW) grants the buyer a high degree of autonomy, but assumes they are already familiar with the formalities, carriers and risks associated with the country of dispatch. The seller simply makes the goods available at their premises. This incoterm is best suited to experienced buyers capable of efficiently managing international transport operations.
Family F: Incoterms with Shared Responsibility
Family F (FCA, FAS, FOB) is aimed at buyers who want to retain control over the main carriage leg, while leaving certain departure formalities to the seller. Risk transfers early in the chain, before or upon shipment, meaning the buyer assumes responsibility for the main transport leg from that point onwards.
Family C: Incoterms Where the Seller Bears the Costs
Family C (CFR, CIF, CPT, CIP) gives the seller a more active role in organising transport, as they pay for the main carriage leg. It is important to note, however, that risk transfers to the buyer upon shipment, well before arrival at destination. This decoupling of cost responsibility and risk transfer is a critical point to understand.
Family D: Incoterms with Maximum Seller Responsibility
Family D incoterms (DAP, DPU, DDP) offer greater convenience to the buyer, but expose the seller to greater logistics responsibility. They should be used with caution when the destination country presents complex customs or fiscal constraints.
How to Choose an Incoterm Based on the Country You Are Trading With?
While the nature of the goods and the mode of transport are important parameters, they are not sufficient on their own to determine the right incoterm. Whether you are an exporter or an importer, your choice must also account for the regulatory environment of the partner country, the logistics maturity of both parties and their respective capacity to assume certain responsibilities throughout the chain.
The International Chamber of Commerce highlights that certain national regulatory barriers can affect the practical application of the rules, without calling into question their overall legal validity. These constraints may relate to customs clearance requirements, obligations imposed on transport insurers, or specific import procedures in certain countries.
This is why the choice of an incoterm should be approached as an operational decision, not merely a contractual clause. A buyer who already has reliable freight forwarders, logistics partners and good knowledge of the country of dispatch may be comfortable accepting an early transfer of responsibility. Conversely, a less structured buyer would be better advised to avoid taking on a transport chain they do not yet fully master.
The same reasoning applies to the exporter. The further along the delivery chain the chosen incoterm commits them, the more they must be able to anticipate the formalities, costs and constraints of the destination country. DDP, for instance, may face practical limitations in jurisdictions where a foreign operator cannot easily fulfil import customs formalities.
Which Incoterms to Favour for Trade Flows to Africa?
In Africa, the choice of Incoterms 2020 is strongly influenced by the diversity of customs regimes, the still-evolving level of regulatory harmonisation and the performance of logistics infrastructure and transport operators. Despite the progress driven by the African Continental Free Trade Area (AfCFTA), intra and extra-African flows remain subject to constraints that make certain contractual arrangements more suitable than others, depending on the country.
In this context, a pragmatic reading of incoterms leads to favouring arrangements where responsibilities are clearly distributed and genuinely manageable by both parties. The key question is not simply who pays for transport, but who is best placed to handle formalities, select carriers, monitor costs and anticipate potential hold-ups at destination.
For an exporter with limited experience of African markets, assuming broad logistics or fiscal responsibilities in the destination country can be risky. Using an incoterm such as FCA represents a sensible operational baseline, as it limits the exporter’s involvement to export customs formalities, while providing a clear and traceable fiscal framework.
On the importer’s side, the same incoterm may also be preferred when the buyer has solid knowledge of the local market and reliable logistics partners. In that case, FCA allows the importer to retain control over carrier selection, cost monitoring, main transport organisation and destination operations, making it a supply chain management tool rather than a simple contractual transfer point.
In the context of industrial projects, deliveries to construction sites or complex shipments to a final destination, some exporters may opt for DAP. This incoterm allows the seller to retain broader control over the carriage up to the agreed point, without taking on import duties and taxes.
Conversely, DDP should be approached with caution for trade flows to Africa. On paper, it may appear attractive to the buyer, who receives goods on a “turnkey” basis. In practice, however, this arrangement can expose the seller to foreign tax or customs regimes they are unfamiliar with, creating risks of unanticipated costs, additional delays, or the inability to recover certain taxes such as local VAT on services.
For the importer, DDP can also reduce transparency over the actual structure of logistics and fiscal costs. By entrusting the seller with all operations through to destination, the buyer may lose visibility over transport decisions, fees applied and margins built into the final price.
Conclusion
Beyond their contractual dimension, incoterms are today genuine tools for driving logistics performance. Their selection takes on particular importance in African markets, still marked by heterogeneous regulations, infrastructure and logistics performance levels.
In this environment, working with operators who understand local operational constraints can be a significant advantagehelping to structure logistics choices more effectively, anticipate friction points and secure the movement of goods.
This is precisely the positioning of Africa Global Logistics (AGL). Present in 51 countries and with a longstanding presence on the African continent, the group draws on its in-depth knowledge of local regulatory frameworks to support companies in organising their supply chains.
Through its logistics solutions, AGL offers comprehensive support covering transport flow management, warehousing infrastructure and regulatory compliance, backed by dedicated tools for logistics management and tracking.