📌 Key Takeaways
Mixed Incoterms quotes hide true costs until you normalize every offer to your facility door.
- The Named Place Determines Your Total Cost: The geography string after the Incoterms term (FOB Mumbai vs FOB Shanghai) directly controls which transport legs, insurance, and local charges each party pays—not just the three-letter term itself.
- CIF and CIP Provide Different Insurance Protection: CIF requires only basic coverage (ICC C) for limited perils, while CIP mandates comprehensive all-risk protection (ICC A), creating a significant gap in your financial exposure when cargo damage occurs.
- To-Door Normalization Eliminates Quote Confusion: Converting every supplier quote—regardless of original term—to the same delivered basis using documented freight, duty, and insurance assumptions creates the only fair comparison for award decisions.
- Template Geography Language Prevents Post-Award Disputes: Standardizing the named place format across RFQs, quotes, and contracts (including UN/LOCODE for ports and complete addresses for inland destinations) eliminates the finger-pointing that delays shipments and inflates costs.
- The Impact Table Turns Terms Into Decisions: A single reference table showing who pays freight, who insures, and where risk transfers for all eleven terms transforms Incoterms from contract jargon into a procurement tool that accelerates internal approvals.
Standardize the named place, normalize to one basis, document assumptions—this sequence cuts sourcing cycle time and builds supplier trust.
Procurement managers evaluating international paper suppliers and logistics coordinators managing cross-border shipments will find the framework here, preparing them for the detailed term-by-term breakdown and normalization workflow that follows.
Two procurement managers receive CIF quotes for kraft linerboard from different mills. Both quotes list the same per-tonne price. Both cite “CIF” as the delivery term. Yet when the shipments arrive, one buyer pays 15% more in total landed costs than the other. The difference? The named place listed after “CIF” and which party nominated the freight forwarder.
Incoterms® 2020 are the international rules published by the International Chamber of Commerce that define who pays for what, who insures what, and where risk transfers from seller to buyer in a cross-border transaction. Think of Incoterms as a relay race where the baton passes hands at a specific point—that point is the “named place.” The term itself (EXW, FOB, CIF, DDP, etc.) defines the handoff location, but the specific geography you write after the term determines the exact costs each party bears.
Here’s where quotes become incomparable. A supplier quotes “CIF Shanghai” while another quotes “CIF Nhava Sheva.” Both are CIF terms, but the first quote includes ocean freight only to Shanghai; if your facility is in Mumbai, you now face additional costs for transshipment and inland transport that the second quote already covers. Without normalizing both quotes to your actual delivery door, you cannot compare them fairly. The action step that prevents this confusion: standardize every quote you evaluate to the same delivered basis—your facility door—before making any award decision.
Incoterms Shift Risk, Cost, and Control at the Named Place — That Is What Moves Your Total
Incoterms determine the delivered price by allocating six specific responsibilities between buyer and seller. Understanding which party owns each responsibility is essential for accurate cost comparison and risk management. According to the U.S. International Trade Administration, these allocations pivot on both the specific rule and the named place, making precision in geography critical for preventing disputes.
The Six Clauses That Commonly Move Delivered Price
The primary cost drivers are:
Named Place Geography — The specific port, terminal, or facility listed after the term determines how much transport each party funds. A seller quoting “FOB Mumbai” covers costs only to the Mumbai port; a seller quoting “DDP your warehouse” covers every transport leg to your facility.
Main Carriage — Who pays for the international freight (ocean, air, or land transport)? Under EXW and FCA, the buyer arranges and pays for the main carriage. Under CIF, CFR, CIP, CPT, DAP, DPU, and DDP, the seller pays—but the cost is embedded in the quoted unit price.
Insurance — Only two terms (CIF and CIP) mandate insurance, and even then, the coverage level differs. All other terms leave insurance to the party bearing the risk during that leg.
Export Clearance — The seller handles export formalities and pays export duties under all terms except EXW. Under EXW, the buyer manages the export process.
Import Clearance — The buyer handles import clearance and pays import duties under all terms except DDP. Under DDP, the seller assumes these costs and risks.
Delivery Confirmation — The term defines where the seller’s obligation ends. For FOB, it’s when goods cross the ship’s rail at the named port. For DAP, it’s when goods are ready for unloading at the named destination. For DDP, it’s when goods are placed at the buyer’s disposal, cleared for import. Note that DPU replaced the earlier DAT term in the 2020 revision and is the only term requiring the seller to unload goods at the named place.
Each shift in responsibility changes who pays, who bears risk, and ultimately, what total cost appears on your invoice or what margin remains for the supplier.
How “Forwarder Control” Affects Visibility and Fees
Beyond the standard Incoterms allocation, the choice of who nominates the freight forwarder introduces practical cost and visibility differences.
| Forwarder Model | Pros | Cons |
| Supplier-Managed | Seller has established carrier relationships; often smoother for containerized LCL; fewer coordination steps for buyer. | Buyer has limited real-time shipment visibility; difficult to audit freight costs or compare rates; documentation delays if supplier’s forwarder is unresponsive. |
| Buyer-Nominated | Buyer controls freight negotiation and gets direct visibility; easier to consolidate multiple suppliers under one carrier contract; documentation flows directly to buyer. | Supplier may add handling fees; potential coordination gaps if seller’s facility is unfamiliar with buyer’s forwarder; can slow bookings if the seller resists the nomination. |
The decision often hinges on trade lane maturity and volume. High-volume buyers with established freight contracts typically benefit from nominating their own forwarder under FCA terms, while smaller buyers purchasing sporadically may prefer supplier-managed CFR or CIF to avoid the complexity of booking ocean freight themselves.
The Incoterms Impact Table — Use It to Normalize Any Quote
Use this table to decode any quote and identify which costs are included versus which you must add separately to reach a true to-door total.
| Term | Who Pays Freight | Who Insures | Risk Transfer Point | What Usually Shows on Invoice | Notes for Containerized Paper |
| EXW | Buyer pays all transport | Buyer arranges insurance | At seller’s facility | Ex-works price only | Rarely used internationally; buyers must handle export clearance. |
| FCA | Buyer pays main carriage | Buyer arranges insurance | When goods handed to buyer’s carrier at named place | Price + inland to FCA point | Preferred for containerized shipments; cleaner than FOB. |
| FOB | Buyer pays ocean freight | Buyer arranges insurance | When goods cross ship’s rail at named port | Price + costs to load on vessel | Maritime-only term; FCA now recommended for containers per ICC Academy guidance. |
| CFR | Seller pays ocean freight | Buyer arranges insurance | When goods cross ship’s rail at named port | Price + ocean freight to named destination port | Seller pays freight, but buyer bears risk during sea voyage; maritime-only. |
| CIF | Seller pays ocean freight | Seller provides minimum insurance (ICC C) | When goods cross ship’s rail at named port | Price + freight + basic insurance | Insurance is minimal; buyers should consider additional cover; maritime-only. |
| CPT | Seller pays main carriage | Buyer arranges insurance | When goods handed to first carrier | Price + carriage to named destination | Multimodal term; better than CFR/CIF for containers. |
| CIP | Seller pays main carriage | Seller provides enhanced insurance (ICC A) | When goods handed to first carrier | Price + carriage + comprehensive insurance | Higher coverage than CIF; suitable for high-value paper grades; multimodal. |
| DAP | Seller pays all transport to named destination | Buyer arranges insurance | When goods ready for unloading at destination | Price + all freight to named place | Buyer handles import clearance and duties. |
| DPU | Seller pays all transport and unloading | Buyer arranges insurance | When goods unloaded at named place | Price + freight + unloading | Only term requiring seller to unload; replaced DAT in 2020; import clearance still on buyer. |
| DDP | Seller pays all costs including duties | Seller typically covers during transit | When goods placed at buyer’s disposal, import cleared | Fully landed price | Seller assumes maximum responsibility; rare in paper trade due to import duty complexity. |
For containerized paper shipments, FCA, CPT, and CIP typically reduce ambiguity compared with the maritime-only FOB, CFR, and CIF terms because delivery and risk transfer points align better with multimodal container handoffs.
Paste this table into your RFQ template and require suppliers to specify both the Incoterms® 2020 term and the exact named place. This single step eliminates the most common source of quote confusion.
CIF vs CIP Insurance Isn’t the Same — Coverage Level Changes Your Risk Budget
Many procurement teams assume that CIF and CIP provide equivalent insurance simply because both terms include the letter “I” for insurance. In practice, the coverage levels differ significantly, affecting your financial exposure in the event of cargo damage or loss.
Why CIP’s Default Insurance Level Typically Exceeds CIF’s and What That Means for Damage Claims
Under Incoterms® 2020, CIF requires the seller to provide insurance coverage under Institute Cargo Clauses (C)—often written as ICC(C)—which is the minimum level of cover. ICC(C) covers only major perils like fire, vessel sinking, or collision. It excludes common risks such as rough handling, water damage from rain, or contamination from other cargo.
CIP, by contrast, mandates Institute Cargo Clauses (A)—written as ICC(A)—which is comprehensive all-risk coverage. As Kuehne+Nagel’s Incoterms guidance explains, ICC(A) covers all risks of loss or damage except those explicitly excluded (such as inherent vice or war in certain zones). For high-value paper grades or specialty packaging materials, this difference can determine whether your insurer pays a claim or denies it based on the specific cause of damage.
Buyers accepting CIF terms should budget for supplementary insurance or explicitly negotiate with the supplier to upgrade the coverage to ICC(A) terms. Suppliers quoting CIP gain a competitive advantage by offering broader default protection, reducing the buyer’s post-shipment risk management burden.
Named Place Precision Prevents Disputes — Quote and Contract the Same Geography String
Ambiguity in the named place is one of the leading causes of post-award disputes. A supplier quotes “FOB China” without specifying whether that means Ningbo, Shanghai, Qingdao, or another port. The buyer assumes Ningbo; the supplier books from Shanghai. The resulting inland haulage cost difference and potential rollover delays trigger finger-pointing and rework.
Template Language to Standardize the “Named Place”
Adopt this format in both your RFQ documents and supplier contracts:
“[Incoterms® 2020 Term] — [Complete Address or UNLOCODE], [City, Country], Incoterms® 2020. Seller to [book/not book] main carriage; buyer to [book/not book] insurance if not required by rule. Local charges at origin/destination allocated per rule.”
Examples:
- FCA Shanghai Yangshan Port (CNSHG), China, Incoterms® 2020. Seller to deliver to FCA point; buyer to book main carriage.
- CIP Nhava Sheva (INNSA), India, Incoterms® 2020. Seller to book main carriage and provide ICC(A) insurance to the named place.
- DAP 123 Industrial Park Road, Chennai 600001, India, Incoterms® 2020. Seller to deliver to named place; buyer to handle import clearance and unloading.
Using UN/LOCODE identifiers for ports (the five-character codes assigned by the United Nations) eliminates geographic ambiguity. For inland destinations under DAP or DDP, specify the full street address to avoid disputes about final-mile delivery responsibility.
Make Mixed-Term Quotes Comparable — A Simple To-Door Normalization Workflow
When you receive quotes under different Incoterms, direct comparison is impossible until you normalize them to a common delivery basis. Follow this three-step process to convert every quote to your facility door.
Map Responsibilities → Add Missing Costs → Convert to One Basis
Step 1: Map Responsibilities Using the Incoterms Impact Table, identify which costs the supplier has already included in their quote and which costs you must add. For example, if a supplier quotes “FOB Mumbai,” they have included costs only up to loading the vessel at Mumbai port. You must add ocean freight, marine insurance, destination port charges, import duties, and inland transport to your door.
Step 2: Add Missing Costs For each missing cost element, obtain a current rate or estimate:
- Ocean freight: Request quotes from your freight forwarder or use recent booking rates for the same trade lane.
- Insurance: Apply a standard percentage (typically 0.3% to 0.5% of cargo value for ICC(C) cover, higher for ICC(A) all-risk).
- Destination port charges: Terminal handling, customs processing, and documentation fees.
- Import duties: Apply the HS code-specific duty rate for your country.
- Inland transport: Request quotes for the final leg from destination port to your facility.
Sum these additions to the supplier’s quoted unit price to arrive at a delivered-to-door unit cost.
Step 3: Convert All Quotes to One Basis Perform this calculation for every supplier quote, regardless of the original term. Now you have a true apples-to-apples comparison. Document your assumptions (freight rates, duty rates, insurance percentages) and the date you obtained them. This audit trail prevents disputes if freight surcharges or duty rates change between quote evaluation and contract signing.
For a detailed breakdown of this process, see comparing quotes across incoterms: a practical normalization method and the landed-cost framework for kraft paper.
Consensus Kit for Internal Champions — Comparison Table & Risk Checklist
Cross-functional alignment between procurement, finance, and logistics teams prevents post-award execution problems. Use these two tools to build consensus before finalizing supplier selection.
Forwarder Nomination Comparison (Finance + Logistics Alignment)
| Factor | Supplier-Managed Forwarder | Buyer-Nominated Forwarder |
| Cost Transparency | Limited; freight cost is bundled into unit price. | High; buyer sees actual freight invoices and can audit rates. |
| Shipment Visibility | Depends on the supplier’s willingness to share tracking. | Direct access to the carrier’s tracking systems. |
| Freight Negotiation | Supplier’s negotiated rates apply; buyer has no control. | Buyer can negotiate volume discounts across multiple suppliers. |
Three-Point Risk-Mitigation Checklist
Before awarding a contract, verify:
- Named Place String Match — The named place in the commercial invoice, bill of lading, and contract must be identical. Mismatches cause customs delays and potential penalty charges.
- Insurance Scope Confirmation — If the term is CIF or CIP, request a copy of the insurance certificate during the quote phase to confirm coverage level (ICC(A) vs. ICC(C)) and verify that the insured value matches your cargo’s declared value.
- Pre-Carriage Responsibility — For FCA and FOB terms, clarify in writing who arranges inland transport from the mill to the port of export. Ambiguity here leads to missed vessel bookings and rollover charges.
Share this checklist with your finance and logistics stakeholders during the supplier evaluation phase. Finance teams care about cost predictability and audit trails; logistics teams care about shipment visibility and on-time delivery. Addressing both perspectives upfront prevents internal friction after the PO is issued.
For additional guidance on managing freight volatility and its impact on supplier rankings, review freight scenarios that flip supplier rankings.
Frequently Asked Questions
Which Incoterms include insurance, and how much?
Only CIF and CIP obligate the seller to provide insurance. Under Incoterms® 2020, CIP’s default coverage is Institute Cargo Clauses (A)—comprehensive all-risk protection—while CIF requires only Institute Cargo Clauses (C), which covers limited named perils. Parties can agree to different coverage levels in writing, but the default standards differ significantly between these two terms.
Is FOB wrong for container freight?
FOB is a maritime-only term that defines risk transfer as “on board” the vessel. For containerized shipments, where the handoff typically occurs earlier at the container yard or freight station, FCA, CPT, and CIP usually fit better and reduce ambiguity about the exact point of risk transfer. The ICC Academy recommends using multimodal terms for container movements.
What’s the difference between DAP and DPU for paper deliveries?
Under DAP (Delivered at Place), the seller delivers when goods are placed at the buyer’s disposal at the named destination, ready for unloading but not yet unloaded. Under DPU (Delivered at Place Unloaded), the seller must unload the goods at the named place. DPU replaced the earlier DAT (Delivered at Terminal) term in the 2020 revision. In both cases, the buyer handles import clearance and pays import duties.
How do I make EXW vs CIF quotes comparable?
To normalize an EXW quote to match a CIF quote, add all missing cost elements: pickup from the seller’s facility, export clearance, main carriage to the destination port, basic insurance, and any destination charges. Use the Incoterms Impact Table as your checklist to ensure you capture every leg. Once both quotes reflect costs to the same delivery point, you can compare them fairly.
Does the named place change who pays local charges?
Yes. The named place determines exactly where the seller’s cost and risk obligations end. The closer the named place is to your final facility, the more local charges the seller typically absorbs. For example, “CIF Mumbai Port” means the buyer pays all charges from the port to their warehouse, while “DAP Buyer’s Warehouse, Mumbai” means the seller covers transport all the way to the warehouse door. Always specify the complete geography string to avoid disputes.
Fewer Surprises, Faster Awards — Standardize Terms + Use the Impact Table
The Incoterms Impact Table standardizes how your organization evaluates supplier quotes. Incoterms® 2020 provides the terminology, but it is your internal process—requiring the named place, demanding to-door normalization, and using a documented conversion workflow—that transforms those terms into faster, more accurate sourcing decisions.
Buyers gain cost predictability and eliminate invoice disputes. Suppliers benefit from clearer RFQ specifications, fewer post-quote clarification rounds, and stronger relationships with buyers who understand the cost structure behind each term. Standardizing on a single to-door comparison basis reduces sourcing cycle time and builds mutual trust between trading partners.
Download the Incoterms Impact Table (PDF) to use in your RFQs and quarterly business reviews. Follow PaperIndex Academy for additional guides on landed-cost frameworks, freight scenario planning, and supplier evaluation. When you’re ready to connect with verified paper suppliers globally, create a free buyer account to submit RFQs and receive quotes directly.
For a comprehensive view of integrating driver-based benchmarks with landed-cost frameworks, explore the price-to-door playbook and incoterms for kraft paper buyers: EXW vs FOB vs CIF vs DDP.
Disclaimer: This article provides general information about Incoterms® 2020 for paper supply. Individual circumstances vary based on factors like named place, transport mode, insurance coverage, and local charges. For guidance tailored to your company’s delivered-price and risk-allocation needs, consult a qualified trade compliance professional or freight forwarder.
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