Incoterms® 2020 explained for GCC importers: EXW, FOB, CIF, DAP and DDP
Who pays the freight, who carries the risk and who clears customs under the five rules most used on Gulf trade.
An Incoterm is a three-letter rule in a sales contract that says where the seller’s job ends and the buyer’s begins. Incoterms® 2020 is the current edition, published by the International Chamber of Commerce (ICC). For an importer in the Gulf, the rule you agree decides three things: who pays for each part of the transport, at what point the risk of loss or damage passes to you, and who handles customs on each side.
Getting it right before you sign is far cheaper than discovering afterwards that you are paying for freight you thought was included, or that nobody arranged import clearance.
What an Incoterm decides, and what it doesn’t
Every rule answers the same questions:
- Costs: who pays for loading, the main freight, insurance, unloading, and export and import clearance.
- Risk: the point at which the goods become the buyer’s risk. This is not always the same point at which the buyer starts paying.
- Customs: who files the export declaration, and who files the import declaration and pays the duty and taxes.
An Incoterm does not decide when ownership of the goods passes, how or when payment is made, or what happens if one side breaks the contract. Those belong in the rest of the sales contract.
The rules used most on Gulf trade
EXW (Ex Works)
The seller makes the goods available at its own premises. From that moment the buyer pays for and arranges everything: loading, export clearance in the seller’s country, the freight, import clearance and delivery.
| Who | |
|---|---|
| Export clearance | Buyer |
| Main freight | Buyer |
| Insurance | Buyer (if wanted) |
| Import clearance and duty | Buyer |
EXW looks simple, but it asks the buyer to clear goods for export in a country where it may have no presence. For most cross-border shipments, FCA (Free Carrier) is a better fit: the seller clears the goods for export and hands them to the buyer’s carrier.
FOB (Free On Board)
The seller delivers the goods on board the vessel at the named port of shipment and clears them for export. Risk passes to the buyer once the goods are on board. The buyer pays the sea freight and everything after it.
| Who | |
|---|---|
| Export clearance | Seller |
| Main freight | Buyer |
| Insurance | Buyer (if wanted) |
| Import clearance and duty | Buyer |
FOB is a sea rule. It does not suit road freight, and for containers handed over at a terminal rather than loaded on board by the seller, FCA describes the handover more accurately.
CIF (Cost, Insurance and Freight)
The seller pays the sea freight to the destination port and buys insurance for the buyer’s benefit. Risk, however, passes to the buyer when the goods are loaded on board at origin, even though the seller has paid the freight beyond that point.
| Who | |
|---|---|
| Export clearance | Seller |
| Main freight | Seller |
| Insurance | Seller (minimum cover) |
| Import clearance and duty | Buyer |
DAP (Delivered at Place)
The seller delivers the goods to a named place in the buyer’s country, ready for unloading, and carries the risk until they arrive. The buyer handles import clearance and pays the duty and taxes.
| Who | |
|---|---|
| Export clearance | Seller |
| Main freight | Seller |
| Insurance | Seller’s choice (it carries the risk) |
| Import clearance and duty | Buyer |
DDP (Delivered Duty Paid)
The seller delivers the goods to the named place, cleared for import, with duties and taxes paid. It is the most the seller can take on.
| Who | |
|---|---|
| Export clearance | Seller |
| Main freight | Seller |
| Insurance | Seller’s choice (it carries the risk) |
| Import clearance and duty | Seller |
Which rules suit cross-border GCC road freight
For trucks moving between Bahrain and Saudi Arabia, or on to Kuwait, Qatar, the UAE and Oman, the sea rules (FOB, CFR, CIF) don’t fit, because there is no vessel to load. The rules that work for road are the ones written for any mode of transport:
- FCA at the seller’s premises, when the buyer arranges the truck.
- DAP at the consignee’s door, when the seller arranges the truck and the buyer clears the goods on arrival.
- DDP, when the seller can clear the goods in the buyer’s country.
Who pays the import duty in Saudi Arabia follows directly from this choice. Under DAP the buyer usually pays; under DDP the seller does. Whichever you choose, the Saudi consignee’s details have to be ready before the truck leaves. Our guide to the documents for road freight from Bahrain to Saudi Arabia covers the rest of the file.
Writing the rule into your contract
An Incoterm only works if it is written precisely. Name the rule, the place and the edition, for example “DAP consignee’s warehouse, Dammam, Incoterms® 2020” or “FCA seller’s premises, Sitra, Incoterms® 2020”. A rule without a place leaves the most important question open: where exactly the handover happens. Be as specific about the place as you can, because costs and risk change hands there. If your purchase order and the supplier’s invoice show different rules, settle it before the goods move. At the border, the invoice is what customs will read.
Common misunderstandings
“CIF means my cargo is fully insured”
Under Incoterms® 2020, the insurance the seller must buy under CIF is minimum cover, the most limited level of the standard cargo clauses. It may not cover the risks you care about most. If you buy on CIF and want wider cover, agree it in the contract or arrange your own.
“DDP means I don’t have to think about tax”
DDP puts import duty and import taxes such as VAT on the seller. That only works if the seller can actually act as importer in the destination country, and the rules for that vary. If the goods are coming into Bahrain, for example, the import VAT under DDP sits with the seller (Bahrain’s standard VAT rate is 10%). Before agreeing DDP, check that the seller can clear the goods and how the tax will be handled. Requirements vary, so check before shipping.
“The seller pays the freight, so the risk is theirs until delivery”
Not under CFR or CIF. The seller pays the freight to the destination port, but the risk moved to the buyer when the goods went on board at origin. If something happens at sea, it is the buyer’s claim to make.
“EXW is the cheapest price, so it’s the best deal”
An EXW price leaves every cost after the seller’s gate to you, including export clearance in a country where you may not be able to do it. Compare the landed cost, not the invoice price.
Choosing your rule
If you are about to agree terms and aren’t sure which rule fits, ask us first. We can explain what each option means for the route, the duty and the paperwork before you sign. See how we handle customs clearance and road freight across the GCC, or request a quote and tell us the Incoterm you are considering.
Incoterms® is a registered trademark of the International Chamber of Commerce. This article is a general guide; the full rules are published by the ICC.