Incoterms are the shorthand that decides who pays for what, and — far more expensively — who is holding the risk when something goes wrong. They are published by the International Chamber of Commerce, and the current edition is Incoterms 2020.
Most disputes we see between African buyers and overseas suppliers are not really disputes about price. They are disputes about a three-letter code that neither side examined closely when the proforma invoice was signed.
The one distinction that matters most
Every Incoterm answers two separate questions, and people routinely assume the answers are the same:
- Who pays for carriage, insurance, and duties?
- Where does risk transfer from seller to buyer?
These are not the same point in the journey. Under CFR, for example, the seller pays freight all the way to Mombasa — but risk passes to you the moment the goods are loaded in Ningbo. If the vessel is damaged mid-ocean, the seller has met their obligation, the freight is already paid, and the loss is yours.
If you remember nothing else: paying for the freight is not the same as owning the risk during the freight.
The 11 rules
Seven rules work for any mode of transport, including air and road. Four are for sea and inland waterway only.
Any mode of transport
- EXW — Ex Works. The seller makes goods available at their own premises. You arrange everything, including export clearance in the seller's country. Maximum buyer obligation.
- FCA — Free Carrier. The seller clears goods for export and hands them to a carrier you nominate. Risk passes at handover.
- CPT — Carriage Paid To. The seller pays carriage to a named destination, but risk passes when goods reach the first carrier.
- CIP — Carriage and Insurance Paid To. As CPT, plus the seller must insure. Under Incoterms 2020 the required cover was raised to Institute Cargo Clauses (A) — all-risks.
- DAP — Delivered at Place. Seller delivers to the named place, ready for unloading. You handle import clearance and duties.
- DPU — Delivered at Place Unloaded. The only rule where the seller must unload. This replaced the old DAT in the 2020 edition.
- DDP — Delivered Duty Paid. Seller bears everything, including import duty. Maximum seller obligation.
Sea and inland waterway only
- FAS — Free Alongside Ship. Risk passes when goods are placed alongside the vessel.
- FOB — Free on Board. Risk passes when goods are loaded on board.
- CFR — Cost and Freight. Seller pays freight to the destination port; risk passes at loading.
- CIF — Cost, Insurance and Freight. As CFR, plus insurance — but only at the minimum Institute Cargo Clauses (C) level unless you negotiate more.
The container trap
FOB, CFR, and CIF were written for goods lifted over a ship's rail. They do not fit containerised cargo, which you hand over at a container yard days before it is loaded.
If you buy FOB Shanghai for a container, there is a gap: from the moment the container leaves your supplier to the moment it is loaded on the vessel, the risk position is genuinely ambiguous. The ICC's own guidance is to use FCA for containers instead.
In practice, almost every African importer we work with buys FOB out of habit. It usually causes no harm — until there is a yard fire or a terminal handling accident, and then it matters enormously.
What this means at each corridor
Nigeria
Nigerian imports require a Form M filed through an authorised dealer bank before shipment, and Customs issues a PAAR (Pre-Arrival Assessment Report) against it. Both are keyed to the declared value and Incoterm.
This has a practical consequence people miss: if you declare CIF but your paperwork shows FOB pricing, the Form M and PAAR will disagree with your invoice, and your container sits at Apapa or Tin Can Island while it is reconciled. Demurrage in Lagos accrues daily and is one of the largest avoidable costs in the whole corridor.
Nigeria assesses duty on the CIF value. Buying FOB does not reduce your duty — Customs will add freight and insurance back in to reach a CIF basis.
Ghana
Clearance runs through the Ghana Revenue Authority's ICUMS platform. Duty is likewise assessed on a CIF basis, with VAT and the associated levies (NHIL, GETFund, and the COVID-19 levy) layered on top of the duty-inclusive value.
Because those levies compound on a value that already includes freight, an inflated freight figure under CIF costs you more than the freight itself. Getting a competitive FOB price and arranging your own carriage to Tema is frequently cheaper — provided you actually have a freight forwarder you trust.
Kenya
KRA's iCMS handles declarations at Mombasa. On top of duty you will meet the Import Declaration Fee and the Railway Development Levy, both calculated on customs value. Again, CIF is the basis.
Kenya is also where the difference between CIP and CIF bites hardest, because a large share of higher-value imports arrive by air. CIF is a sea-only term. If your supplier quotes you "CIF Nairobi" for an air shipment, they have used the wrong rule, and your insurance position may not be what you assume. The correct term is CIP Nairobi.
South Africa
SARS assesses on an FOB basis rather than CIF — a genuine difference from the other three corridors, and one that changes the arithmetic of which Incoterm is cheapest. Freight and insurance are not automatically added into the dutiable value in the same way.
If you import into several of these markets, do not assume a single purchasing policy is optimal across all of them. It usually is not.
What changed in the 2020 edition
If you are working from older paperwork or an old template, four changes matter.
DAT became DPU. Delivered at Terminal was renamed Delivered at Place Unloaded, because the old name implied delivery had to happen at a terminal. DPU can name any place, and remains the only rule requiring the seller to unload.
CIP insurance was raised to ICC (A). Under Incoterms 2010, both CIF and CIP required only minimum cover. In 2020 CIP was lifted to all-risks. CIF was deliberately left at ICC (C), because it is used mainly for commodity trades where buyers arrange their own cover. This asymmetry is intentional and routinely misread.
FCA gained an on-board bill of lading option. Sellers on FCA terms can now require the carrier to issue an on-board bill of lading after loading — which matters because letters of credit usually demand one. This removed the main practical reason buyers stayed on FOB for containers.
Security requirements were made explicit throughout, reflecting the reality that export and import security screening is now a real cost with a real owner.
Reading a term correctly
Every Incoterm has the same three parts, and all three are required:
[RULE] [named place], Incoterms 2020
"CIP Nairobi, Incoterms 2020" is complete. "CIP" is not. The named place is what fixes the delivery point, and the edition matters because the same three letters mean different things across editions — as CIP's insurance level demonstrates.
Be precise about which place you are naming, too. Under CPT and CIP, the named place is the destination the seller pays carriage to, but risk transferred long before, at the first carrier. Under FCA, the named place is the risk transfer point. Same field, different meaning, depending on the rule.
Practical guidance
Avoid EXW unless you have a forwarder in the supplier's country. EXW leaves export clearance to you, and you generally cannot file an export declaration in a country where you have no legal presence. Suppliers offering EXW are often quietly offloading a task neither of you can do.
Be cautious with DDP. It looks attractive — one price, everything handled. But the seller must pay import duty in your country, which means they need to handle your local clearance. Many overseas suppliers under-declare to keep their DDP quote competitive, and the liability for a false declaration lands on the importer of record. That is you.
If you buy CIF, read the insurance certificate. ICC (C) covers a short named-perils list. It does not cover theft, non-delivery, or water damage from most causes. Buyers routinely discover this after a claim is denied. Either negotiate ICC (A) cover explicitly, or buy CFR and arrange your own policy.
Always write the named place in full. "FOB" alone is meaningless. "FOB Shanghai, Incoterms 2020" is a term. The named place is what fixes the risk-transfer point, and an unnamed term is exactly the ambiguity a supplier will rely on in a dispute.
A working default
For a first-time importer buying containerised goods from Asia into West or East Africa, a reasonable default is:
FCA at the supplier's port, Incoterms 2020, with your own freight forwarder appointed and your own all-risks marine insurance.
It costs slightly more effort at the start. It gives you a clear risk-transfer point, a carrier accountable to you rather than to your supplier, insurance you have actually read, and a freight cost you can benchmark instead of accepting as a line item buried in the unit price.
Once you have run a few shipments and know your true landed cost, you are in a far stronger position to evaluate whether a supplier's CIF or DDP quote is genuinely competitive — or simply opaque.