Delivery Terms Explained: Who Pays What in Export Business? (EXW, FOB, CFR, CIF & All Major Incoterms — Clear Guide) - PakistanCustoms.net

If you are an exporter or importer, one of the most critical things you must understand is delivery terms — also known as Incoterms. These terms define exactly who pays for what at every stage of a shipment, from the seller’s warehouse all the way to the buyer’s door. Getting this wrong can cost you thousands of dollars in unexpected charges. This guide breaks down every major delivery term in plain language so you never get confused again.

📋 Table of Contents

1. What Are Delivery Terms (Incoterms)?

Delivery terms, officially known as Incoterms (International Commercial Terms), are a set of standardized international trade rules published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers when it comes to the delivery of goods in cross-border trade.

In simple terms: delivery terms tell you who is responsible for paying each charge — from packing the goods at the factory, to loading them onto a truck, to ocean freight, insurance, customs clearance at the destination, and final delivery to the buyer’s warehouse.

Without clearly agreed delivery terms, exporters and importers often face serious disputes: “Who was supposed to pay the port terminal charges?” or “Who handles customs clearance at the destination?” These terms eliminate all such confusion.

2. Why Delivery Terms Matter in Export Business

When you send a price quotation to a foreign buyer, you must always mention the delivery term. Why? Because the price you quote is only valid in the context of a specific delivery term. For example:

If you quote $10/kg CFR Jebel Ali Port, UAE, it means your price of $10 includes everything up to delivering the goods at Jebel Ali Port — the buyer clears customs and delivers the goods to their warehouse at their own cost.

But if you quote $10/kg EXW, the buyer must pay for everything from your factory door onward — trucking, port charges, freight, insurance, customs, and final delivery. The same $10 quote means very different things under different Incoterms!

Understanding delivery terms properly also helps you:

Price your exports correctly and competitively
Avoid unexpected costs eating into your profit margins
Negotiate confidently with international buyers
Know exactly when your legal responsibility for the goods ends

3. EXW – Ex Works

EXW is the delivery term with the absolute minimum responsibility on the seller. The seller only packs the goods for export at their factory or warehouse. From that point onward, every single cost and responsibility is borne by the buyer.

Task / Charge	Who Pays?
Export packing of goods	Seller
Loading onto truck at seller’s warehouse	Buyer
Inland transportation to the port	Buyer
Origin terminal charges	Buyer
Export customs clearance	Buyer
Ocean / air freight	Buyer
Insurance	Buyer
Destination port charges	Buyer
Import customs clearance & duties	Buyer
Delivery to buyer’s warehouse	Buyer

💡 Important: EXW is almost never used in practice for international trade because it is very difficult for a foreign buyer to handle export customs in another country. It is sometimes used for domestic trade within a country.

4. FCA – Free Carrier

Under FCA, the seller sends the goods to a specific carrier or freight forwarder at a specific location, which is usually the seller’s business or a freight terminal. The seller also takes care of all the export customs paperwork, packing for export, loading at their location, and transporting the goods to the specified location.

Task / Charge	Who Pays?
Export packing	Seller
Loading at seller’s premises	Seller
Inland transport to named place	Seller
Export customs clearance	Seller
Origin terminal charges	Buyer
Ocean / air freight	Buyer
Insurance	Negotiable
Import duties & customs	Buyer
Delivery to buyer’s warehouse	Buyer

5. FAS – Free Alongside Ship

Under FAS, the seller is responsible for bringing the goods to the named port of shipment and putting them next to the ship on the dock or quay. Once the goods are next to the ship, the buyer is responsible for everything else, including loading the goods onto the ship.

Task / Charge	Who Pays?
Export packing	Seller
Inland transport to port	Seller
Export customs clearance	Seller
Origin terminal charges	Seller
Loading onto the vessel	Buyer
Ocean freight	Buyer
Insurance	Buyer
Import duties & customs	Buyer

💡 Note: FAS is mostly used for shipping large amounts of cargo, like when a whole ship is hired to carry thousands of tons of grain, coal, or raw materials. FOB is much more common for standard container shipments.

6. FOB – Free On Board

FOB is a delivery term that is used a lot in international trade. Once the goods are loaded onto the ship at the agreed-upon port of shipment, the seller is no longer responsible. This is the main difference between FAS and FOB: with FAS, the seller only puts the goods next to the ship; with FOB, the seller also puts the goods on the ship.

Task / Charge	Who Pays?
Export packing	Seller
Inland transport to port	Seller
Export customs clearance	Seller
Origin terminal charges	Seller
Loading onto the vessel	Seller
Ocean freight	Buyer
Insurance	Buyer
Destination terminal charges	Buyer
Import customs clearance & duties	Buyer
Delivery to buyer’s warehouse	Buyer

For example, if you say “FOB Karachi Port,” it means that you (the seller/exporter) will take care of everything up to putting the goods on the ship in Karachi. From there, the buyer pays for ocean freight, insurance, import duties, and the final delivery.

7. CFR – Cost and Freight

CFR (which is also known as CNF in trade) is like FOB, but the seller also pays for the ocean freight to get the goods to the buyer’s port of choice. But, just like FOB, the buyer takes on the risk once the goods are loaded onto the ship at the port of origin.

Task / Charge	Who Pays?
Export packing	Seller
Inland transport to port	Seller
Export customs clearance	Seller
Origin terminal charges & loading	Seller
Ocean freight to destination port	Seller
Marine insurance	Buyer
Destination port / terminal charges	Buyer
Import customs clearance & duties	Buyer
Delivery to buyer’s warehouse	Buyer

📝 Example from Real World – When quoting “CFR Jebel Ali Port, UAE” we only provide a price including all costs associated with delivering the product to Jebel Ali Port in Dubai. The remaining costs associated with these goods once at the port will be borne by the UAE buyer including port clearance, import duties, as well as any trucking from the port to the buyer’s warehouse.

8. CIF – Cost, Insurance and Freight

CIF has the same general definition as CFR, except that CIF includes the responsibility of the seller to provide marine cargo insurance covering any damages to the goods while they are in transit. Buyers who wish to ensure that the shipment will be insured before it is shipped will prefer this option because it allows them to know that their shipment will be insured through the seller.

Task / Charge	Who Pays?
Everything covered under CFR	Seller
Marine insurance (minimum cover)	Seller
Destination port charges	Buyer
Import customs clearance & duties	Buyer
Delivery to buyer’s warehouse	Buyer

There are two major differences between CFR and CIF shipping. The only real difference is who arranges for the insurance. With CFR shipping, the buyer is responsible for arranging their own insurance, while with CIF shipping, the seller provides and pays for a minimum of marine insurance on behalf of the buyer. If your customer requests that the shipping cost includes delivery insurance, you should consider your shipping terms to be CIF instead of CFR.

9. CPT – Carriage Paid To

CPT is different than CFR because it applies to every type of transport (land-based, air-based, etc.) instead of just sea shipping, as with CFR. The agreement that the seller has made with the carrier (or transport provider) covers all of the transportation costs up to the buyer’s named destination. However, the seller is NOT responsible for paying for any terminal unloading costs and for delivering the freight to the buyer’s ultimate destination (the buyer is responsible for paying all of these costs).

Task / Charge	Who Pays?
Export packing, inland transport, export customs	Seller
Freight to named destination	Seller
Insurance	Negotiable
Destination terminal charges	Buyer
Import duties & customs	Buyer
Final delivery to buyer’s premises	Buyer

10. CIP – Carriage and Insurance Paid To

CIP includes comprehensive insurance and the cost of shipping; however, when buying under CIP terms, you should note that you will likely need to pay for higher levels of insurance coverage than would be required under a CIF (CIF cargo can be insured with only a minimum amount of coverage based on the Institute Cargo Clauses C).

Task / Charge	Who Pays?
Everything under CPT	Seller
Comprehensive insurance (ICC A)	Seller
Destination terminal charges	Buyer
Import duties & customs	Buyer

11. DAP – Delivered at Place

Under DAP, the seller transports and delivers the goods to the designated recipient location (such as their warehouse or distribution centre). All transportation costs are borne by the seller. However, it is the buyer who is responsible for unloading the goods and paying any import duties or customs clearance associated with the delivery.

Task / Charge	Who Pays?
Export packing, transport, customs, freight	Seller
Delivery to named destination place	Seller
Unloading at destination	Buyer
Import customs clearance & duties	Buyer

12. DPU – Delivered at Place Unloaded

DPU expands upon the terms of DAP as the seller must deliver to the destination but is also responsible for the unloading of the product(s) from the means of transport at the destination. The seller’s responsibility to unload at the destination is the only instance of an Incoterm where the seller is held accountable for this action. The seller may also be tasked with storing the product(s) at the destination.

Task / Charge	Who Pays?
All charges under DAP	Seller
Unloading at named destination	Seller
Import customs clearance & duties	Buyer

13. DDP – Delivered Duty Paid

DDP is the maximum level of service in terms of delivery. The vendor bears all costs associated with delivering the product to the buyer’s location including paying the import duty, the taxes owed on the goods, and completing the customs clearance process.

DDP can be thought of as a seller performing the process of delivering to the buyer, including packing the products at its factory, transporting them to the buyer’s location, and loading them into the buyer’s warehouse in the country of destination.

Task / Charge	Who Pays?
Export packing & loading	Seller
Inland transport, export customs	Seller
Ocean freight & insurance	Seller
Destination port charges	Seller
Import customs clearance & duties	Seller
Delivery to buyer’s warehouse	Seller
Unloading at buyer’s premises	Seller
Nothing — all costs covered	Buyer

⚠️ Important Requirement: To provide DDP terms, the seller must have an established business entity within the destination country (or have incorporated a local agent) in order to import customs clearance legally. Without having a local registered entity it is impossible to legally provide DDP in the majority of countries.

Most Commonly Used Delivery Terms in 2026

Out of all the Incoterms, three dominate international trade in practice — especially for exports from Pakistan and other South Asian countries:

🥇 #1 — CFR (Cost and Freight)

CFR is the most widely used delivery term in Pakistan’s export industry. The exporter handles everything from factory packing to delivering the goods at the destination seaport. The buyer then clears the goods at the destination and arranges final delivery.

🥈 #2 — FOB (Free On Board)

FOB is the second most popular term. Many buyers — especially large importers in Europe and the USA — prefer FOB because they have their own freight contracts and can negotiate better rates with shipping lines directly. The exporter’s responsibility ends at the origin port once goods are loaded onto the vessel.

🥉 #3 — CIF (Cost, Insurance and Freight)

CIF is popular when buyers want the convenience of the exporter arranging both freight and insurance. It is commonly used in trade with buyers in the Middle East, Africa, and Southeast Asia who prefer an all-inclusive price to the destination port.

Pro Tips: How to Quote Delivery Terms Correctly

⚡ Always Name the Port or Place in Your Quote

Never write just “CFR” or “FOB” without specifying the destination port or place. The correct format is: [Incoterm] + [Named Port or Place]. For example: CFR Jebel Ali Port, UAE or FOB Port Qasim, Pakistan. This eliminates all ambiguity about where the seller’s responsibility ends.

Here are some additional best practices every exporter should follow:

Always include the Incoterm year when writing formal contracts or invoices. Write it as “CFR (Incoterms® 2020)” to be specific about which version of the rules applies.

Choose the right term for your capabilities. If you don’t have experience arranging international freight, offering FOB is safer than CFR. If the buyer insists on a delivered price, consider DAP or CIF depending on whether they want import duties included.

Understand the risk transfer point. Under FOB and CFR, the risk (loss or damage) transfers to the buyer once goods are loaded onto the vessel — even though the CFR seller is paying the freight. This is why insurance is especially important under CFR.

Don’t use EXW for international trade if you can avoid it. It creates practical problems because foreign buyers typically cannot handle export customs clearance in your country. FCA is a much better alternative with similar minimal seller obligations.

Frequently Asked Questions (FAQ)

Q1: What is the difference between FOB and CFR?

Under FOB, the buyer pays the ocean freight; under CFR, the seller pays the ocean freight. Everything else at the origin end is the same. The risk transfer point is also the same for both — it moves to the buyer when goods are loaded onto the vessel at the origin port.

Q2: What is the difference between CFR and CIF?

CFR and CIF are identical except for marine insurance. Under CFR, the buyer arranges their own insurance. Under CIF, the seller arranges and pays for minimum marine insurance on the shipment.

Q3: What is the difference between FAS and FOB?

Under FAS, the seller places goods alongside (next to) the ship at the port. The buyer is responsible for loading the goods onto the vessel. Under FOB, the seller is responsible for loading the goods onto the vessel. FAS is mainly used for bulk cargo shipments.

Q4: Can I offer DDP terms if I don't have a company in the buyer's country?

Generally, no. DDP requires the seller to handle import customs clearance in the destination country, which typically requires a registered local entity or a licensed customs agent working on your behalf. Without a local registration, offering DDP terms is legally problematic in most countries.

Q5: Which delivery term is best for a new exporter from Pakistan?

For new exporters, FOB is usually the safest starting point. You handle everything up to loading goods at the port — which is within your control — and the buyer takes care of freight and everything beyond. As you gain experience and freight contacts, you can move to offering CFR or CIF terms.

Q6: What does "CFR Jebel Ali" mean in a price quotation?

It means the price you have quoted includes all costs to deliver the goods to Jebel Ali Port in Dubai, UAE — including export packing, inland transport, export customs, and ocean freight. The buyer is responsible for clearing the goods at Jebel Ali, paying import duties, and trucking the goods to their warehouse.

Q7: What is the difference between CPT and DAP?

Under CPT, the seller pays freight to the named destination but the buyer is responsible for terminal unloading and final delivery to their premises. Under DAP, the seller delivers the goods all the way to the buyer’s named premises (ready for unloading), so the seller covers terminal charges and last-mile delivery costs as well.

Final Thoughts

Understanding delivery terms is not optional for anyone doing business internationally — it is an absolute necessity. Whether you are an exporter quoting prices to overseas buyers or an importer calculating your total landed cost, knowing which charges fall on which party under each Incoterm can make or break your deal.

The three most important terms to master first are FOB, CFR, and CIF — they cover the vast majority of international sea freight shipments. From there, build your knowledge of DAP and DDP as your business grows and buyers start demanding delivered prices to their door.

Always state the delivery term clearly in your quotation, always name the specific port or place, and always ensure your price calculation correctly reflects all the costs you are agreeing to cover. Do that, and you will always be on solid ground in any international trade deal.

Delivery Terms Explained: Who Pays What in Export Business? (EXW, FOB, CFR, CIF & All Major Incoterms — Clear Guide)