The Nigerian Exporter’s Guide to Incoterms: Simplifying Global Trade

This is where Incoterms come in. Think of them as the international language of shipping — a set of three-letter codes that spell out who pays for what, who handles customs, and who carries the risk at every stage of a cross-border transaction. Mastering Incoterms® isn’t just smart business. It’s essential if you want to avoid disputes, unexpected costs, or delays at the port.

Why Incoterms Matter for Nigerian Exporters

Imagine trying to drive a danfo in Lagos without a valid ticket. That’s what doing international trade without a firm grip on Incoterms® is like. Here’s why every exporter should care:

• Clarity and Consistency

Incoterms® provide a universal set of definitions and rules. Everyone — sellers, buyers, freight forwarders, customs officials — speaks the same language. This avoids costly misunderstandings and streamlines negotiations.

• Clear Division of Responsibilities

Every Incoterm spells out who is in charge of arranging transport, buying insurance, handling customs documentation, paying duties and taxes, and where the risk shifts from seller to buyer. With roles and responsibilities clearly defined, there are fewer surprises.

• Avoiding Hidden Costs

Choose the wrong Incoterm and you could find yourself paying for storage or customs clearance in a country thousands of miles away — costs that should have been borne by your customer.

• Streamlined Shipping

When everyone knows what’s expected, shipments move more smoothly. That means less time spent sorting out paperwork or arguing over who’s responsible for a delay, and more time focusing on growing your business.

Key Incoterm Rules Every Nigerian Business Should Know

There are seven Incoterm rules designed for any mode of transport (sea, air, road, rail), and four more specifically for sea and inland waterway transport. Here’s what you need to know:

For Any Mode of Transport:

• DDP (Delivered Duty Paid): The seller handles everything — transport, import duties, taxes — right up to the buyer’s door, ready for unloading. The buyer just receives the goods, with delivery and arrival happening simultaneously.

• DAP (Delivered at Place): The seller is responsible for bringing the goods to a named destination, ready for unloading. The buyer takes over once the goods arrive.

• DPU (Delivered at Place Unloaded): Unique among Incoterms®, DPU requires the seller to deliver and unload the goods at the destination. If unloading isn’t possible, opt for DAP.

• EXW (Ex Works): The seller’s responsibility ends when the goods are made available at their premises or another named place. The buyer handles everything from there, including loading and export clearance.

• FCA (Free Carrier): The seller delivers the goods to the buyer’s nominated carrier, either at the seller’s premises (loaded) or another agreed location (ready for unloading). Risk transfers to the buyer at this point.

• CPT (Carriage Paid To): The seller pays for carriage to a specified destination but hands over risk when goods are given to the first carrier.

• CIP (Carriage and Insurance Paid To): Like CPT, but the seller also provides insurance coverage for the buyer’s risk during transit.

For Sea and Inland Waterway Transport:

• FAS (Free Alongside Ship): The seller delivers goods alongside the vessel at the port of shipment. The buyer takes it from there, including loading and shipping.

• FOB (Free On Board): The seller loads goods onto the buyer’s chosen vessel. Risk shifts once goods are onboard.

• CFR (Cost and Freight): The seller pays for transport to the destination port, but risk transfers to the buyer once the goods are on the ship. Insurance is the buyer’s responsibility.

• CIF (Cost Insurance and Freight): Like CFR, but the seller also arranges and pays for insurance during carriage to the destination port.

Pitfalls to Avoid

Even experienced exporters can trip up on Incoterms®. Here’s how to stay out of trouble:

• Don’t Assume “FOB” Covers Everything: FOB only covers costs up to loading the goods onboard the ship. Anything after that is the buyer’s responsibility.

• Never Ignore Insurance: If your contract says CIF or CIP, you must provide insurance. Skipping this step could mean huge losses if something happens in transit.

• Use the Right Terms: Incoterms® change over time. Always double-check that you’re using the most current rules for your product and destination.

• Double-Check Every Detail: Misunderstandings can be expensive. Review terms with your trading partners and ensure everyone is on the same page.

 Always review the definitions and agree on the applicable Incoterm® with your international customers before signing the contract.

For up-to-date information, visit the official ICC website to access the “Incoterms® 2020” publication and online training.

Also, to further assist your understanding, DHL has also developed a useful Incoterms® guide, accessible via the link below.

Read More Here

Conclusion

Although they often look like it, Incoterms aren’t just technical jargon. They’re your passwords to financial solidity in global sales. If you're new to the shipping industry, DHL can hold your hands and guide you towards a better understanding of incoterms, even as we provide the shipping solutions you need.