If you sell to Colombia or buy from Colombian suppliers, agreeing on a price is only half the deal. The other half is settling three questions: who books and pays for transport, who handles customs on each side, and at what exact point the goods stop being the seller's risk and become the buyer's.
Incoterms® rules answer those questions in three letters. They are published by the International Chamber of Commerce (ICC), and the current reference edition is Incoterms® 2020, in effect since 1 January 2020. Picking the right rule prevents disputes, surprise charges and rejected insurance claims.
What Incoterms do and don't cover
An Incoterm sets out delivery obligations between seller and buyer: where the goods are delivered, who pays for each leg of transport, who clears export and import, and when the risk of loss or damage transfers.
What they don't cover matters just as much:
- Transfer of ownership. When title passes is governed by the sales contract and the applicable law.
- Payment. Terms, deposits, letters of credit and collections belong in the contract, not in the Incoterm.
- The rest of the contract. Breach, force majeure and dispute resolution are outside their scope.
Always state the rule in full on quotes, invoices and contracts: the rule, a precise named place, and the edition. For example: FCA Seller's warehouse, Medellín, Incoterms® 2020. Older editions can still be used if the parties agree, which is why the year should always appear.
Two groups of rules
Incoterms 2020 contains 11 rules in two groups.
Any mode of transport (7)
- EXW (Ex Works): the seller makes the goods available at its premises, not loaded and not cleared for export.
- FCA (Free Carrier): the seller hands the goods to the buyer's carrier, either at its own premises (loaded) or at another agreed place (ready for unloading), cleared for export.
- CPT (Carriage Paid To): the seller pays freight to destination, but risk passes when the goods are handed to the first carrier.
- CIP (Carriage and Insurance Paid To): as CPT, plus insurance the seller buys for the buyer's benefit.
- DAP (Delivered at Place): the seller bears cost and risk to the named destination, goods ready for unloading.
- DPU (Delivered at Place Unloaded): as DAP, but the seller also unloads. It replaced DAT in 2020 and is the only rule where the seller unloads at destination.
- DDP (Delivered Duty Paid): the seller delivers at destination, cleared for import with duties and taxes paid.
Sea and inland waterway only (4)
- FAS (Free Alongside Ship): delivery alongside the vessel at the port of shipment.
- FOB (Free On Board): delivery once the goods are on board the vessel at the port of shipment.
- CFR (Cost and Freight): the seller pays freight to the destination port; risk passes once the goods are on board at origin.
- CIF (Cost, Insurance and Freight): as CFR, plus insurance bought by the seller.
Risk and cost don't always move together
Under the E, F and D rules, the point where risk passes broadly matches the point where the seller stops paying for main carriage.
The C rules (CPT, CIP, CFR, CIF) have two critical points:
- Risk passes to the buyer at origin, on handover to the carrier or once the goods are on board.
- The seller pays freight to destination.
This catches many buyers out. If a Colombian importer buys CIF Cartagena and the container is damaged at sea, the loss was already the buyer's, even though the seller paid the freight. That is why insurance, and what it actually covers, matters so much under these rules.
Insurance under CIF and CIP
Only two rules oblige the seller to insure, and since 2020 they set different minimums:
- CIF: minimum cover under Institute Cargo Clauses (C), which cover a limited list of major events.
- CIP: minimum cover under Institute Cargo Clauses (A), a much broader "all risks" style cover, subject to exclusions.
In both cases the minimum insured amount is 110% of the contract price. The parties can agree higher or lower cover, but it should be written down. Under the other nine rules neither party owes the other insurance; insuring your own leg is a risk-management decision worth making deliberately.
Common mistakes
Using FOB for containerised cargo
FOB was designed for goods loaded straight onto a ship. With containers, the seller usually hands over at a terminal or depot days before loading and loses control from then on, yet under FOB it still carries the risk until the box is on board. FCA fits that reality better. Incoterms 2020 also lets the buyer, under FCA, instruct its carrier to issue the seller an on-board bill of lading, which helps when a letter of credit is involved.
Buying EXW when you can't clear exports
Under EXW the buyer must handle export clearance in the seller's country. A foreign buyer often cannot act as exporter there, or finds it very difficult. If you buy from Colombia, Colombian export formalities are filed with the DIAN, and a local exporter is far better placed to do it. FCA is usually the practical choice: the seller clears export, the buyer controls main carriage.
Selling DDP to Colombia without a plan
DDP makes the seller responsible for import clearance in Colombia and for paying duties and VAT there. For a foreign supplier that means dealing with Colombian customs registrations and representation, which normally requires a local importer of record or representative. If that isn't in place, DAP is a more realistic option: you deliver to the door and the buyer handles import.
Leaving the place vague
"FOB China" or "CIF Colombia" isn't enough. Name the port, terminal or exact address. A vague place leads to disputes over terminal handling, inland haulage and who pays them.
Assuming the Incoterm sets the customs value
In Colombia, import duties and taxes are assessed on a customs value that includes freight and insurance to the place of import. Buying FOB doesn't lower that base; the buyer simply pays those costs separately.
Summary table
| Rule | Mode | Risk passes to buyer | Main freight paid by | Insurance required | Export clearance | Import clearance |
|---|---|---|---|---|---|---|
| EXW | Any | At seller's premises | Buyer | No | Buyer | Buyer |
| FCA | Any | On handover to buyer's carrier | Buyer | No | Seller | Buyer |
| CPT | Any | On handover to first carrier | Seller | No | Seller | Buyer |
| CIP | Any | On handover to first carrier | Seller | Yes, Clauses A | Seller | Buyer |
| DAP | Any | At destination, ready to unload | Seller | No | Seller | Buyer |
| DPU | Any | At destination, unloaded | Seller | No | Seller | Buyer |
| DDP | Any | At destination, ready to unload | Seller | No | Seller | Seller |
| FAS | Sea | Alongside ship at origin | Buyer | No | Seller | Buyer |
| FOB | Sea | On board at origin | Buyer | No | Seller | Buyer |
| CFR | Sea | On board at origin | Seller | No | Seller | Buyer |
| CIF | Sea | On board at origin | Seller | Yes, Clauses C | Seller | Buyer |
Choosing in practice
- Selling to a Colombian buyer who has its own forwarder: FCA at your premises or a named terminal keeps your responsibilities clear and limited.
- Selling with freight included: CPT or CIP for containers and air, CFR or CIF for conventional sea cargo. Make clear that destination charges in Colombia are normally for the buyer.
- Buying from Colombia: FCA lets the supplier clear export with the DIAN while you, or your forwarder, control the main leg.
- Offering a landed price: DAP or DPU give the buyer convenience without making you the importer in Colombia.
If you ship from Asia, our guide to importing from China to Colombia and our comparison of FCL vs LCL may help.
Need a hand?
Speedy Logistics acts as the foreign-trade and logistics department for companies moving goods to and from Colombia. We check that your Incoterm, freight, insurance and customs set-up fit together before anything ships. Get in touch and tell us about your shipment.
