One shipping contract, three different Incoterms — completely different logistics scenarios.
For importers and exporters, the beginning of the freight negotiation begins with the agreement on the terms of delivery. This choice is not a small matter but sets the future logistics processes legally. EXW, FCA, or CPT terms are not a formality in a contract but three different plans for how your delivery will take place and under what conditions.
Let's analyze the meaning of these logistics terms and learn how to choose the right terms for a profitable supply chain.
What do the terms EXW, FCA, and CPT mean?
Shippers and consignees need to agree on the following for smooth cooperation:
- Who is responsible for logistics and customs
- Who pays for transportation
- When and to whom the risks of damage or loss of cargo are transferred
By choosing between EXW, FCA, or CPT, you not only choose a geographical delivery route but also a legally and financially responsible one.
What is EXW (Ex Works)?
The seller's liability is minimal, while the buyer of the cargo is liable for the maximum:
- Seller's obligations: to provide the goods in their warehouse or elsewhere in their entirety
- Buyer's obligations: loading, organization of transportation, insurance, customs clearance, payment for transportation, unloading
Challenge: With EXW, even the export declaration must be made by the buyer, but not all countries allow this, which limits the freedom to choose delivery routes under such conditions.
When to use: It is worth choosing EXW delivery if the buyer has their own logistics broker or organizes transportation on their own (the country also allows export clearance by the buyer). In addition, real-time cargo tracking by various delivery methods allows you to keep abreast of the situation regarding the movement of goods and reduce risks at all stages.
What is FCA (Free Carrier)?
A fairly flexible option, a balanced compromise between the obligations of the seller and the buyer:
- Seller's obligations: delivery of cargo to the terminal or carrier (pre-agreed upon), liability, and payment for exports
- Buyer's obligations: organization of imports and transportation costs
There are no liability issues, the most popular option among exporters. It is important to simplify supply chain management with digital logistics solutions and, for example, to calculate freight costs, compare offers, and agree on payment.
When to use: If you are a local manufacturer or do not have much experience in exporting. Thus, thanks to FCA, you are not responsible for the entire delivery and retain control until the final point of receipt of the cargo.
What is CPT (Carriage Paid To)?
- Seller's obligations: full payment for delivery to the destination
- Buyer's obligations: full responsibility for any risks of transportation from the very beginning
For the buyer, this condition has the advantage of full control, which, however, does not reduce the material and legal liability for unforeseen events during transportation.
The CPT condition is often used in contracts with new logistics markets or suppliers.
When to use: If the buyer has favorable transportation terms with the carrier, CPT is a good option for logistics control.
| Parameter | EXW | FCA | CPT |
| Place of transfer of goods | Seller's place (warehouse, factory) | Agreed place (warehouse, port) | Agreed place (seller pays for delivery) |
| Responsibility for transportation | Buyer organizes | Seller organizes to a specific place | Seller organizes and pays for transportation |
| Customs clearance for export | Buyer is responsible | Seller is responsible | Seller is responsible |
| Customs clearance for import | Buyer is responsible | Buyer is responsible | Buyer is responsible |
| Transportation costs | Buyer covers | Seller covers the costs before the goods are transferred | Seller covers the costs to the final delivery location |
| Risks during transportation | Buyer takes all risks | Buyer after delivery | Buyer after delivery |
| Insurance | Not provided | Not provided | Not provided |
| When does the liability pass? | After the goods are handed over at the seller's warehouse | After the goods are handed over to the carrier | After the goods are handed over to the carrier |
Common mistakes and how to avoid them
Troubles with EXW
- Export restrictions: Some countries prohibit the buyer from making export clearance, requiring it exclusively from the seller of the cargo, and some restrict exports altogether. In such cases, customs refusals, violations of regulations, and delays are additional costs that fall on the seller's shoulders. So, make sure that you have chosen the right delivery condition for the right country.
- Uncertain place of receipt of goods: This causes delays until the seller agrees on a warehouse or other location.
- Unspecified costs: Without discussing additional costs such as shipping from the warehouse/manufacturing facility to the port/terminal, etc., the buyer will experience delays.
Troubles with FCA
- No exact moment and location of the transfer of goods is specified: This leads to non-transparency and uncertainty about the party responsible for the delay.
- The responsibility of the parties for export and customs is not defined: Additional logistics costs due to delays at customs until the responsible party is identified.
- Transportation through several countries: The more countries in the transportation route, the more likely it is that both parties may experience problems with customs and delays.
Troubles with CPT
- Lack of insurance: The buyer must make sure that he has insurance against damage to the goods, which is a risk for which the seller is no longer responsible. Otherwise, the buyer is not protected.
- Bad labeling: Especially when transporting dangerous goods, the buyer must provide documentation and relevant certificates to avoid fines.
- Failure to consider the political or economic risks of the region: Especially when working in a new region, the buyer of goods must take into account the external risks of unstable conditions.
Bonus: How to specify the Incoterm in your shipping contract
What must be noted:
- place and time of transfer of goods
- types of costs and risks included in the price
Example of EXW (Ex Works):
"The seller undertakes to deliver the goods to the buyer at the warehouse/factory [address] in [city], country [country]. All costs, risks, and customs clearance for export shall be borne by the buyer from the moment of transfer of the goods.
Example of FCA (Free Carrier):
"The seller undertakes to deliver the goods to the carrier at [agreed place], [city], [country]. The seller bears the costs and risks until the goods are handed over to the carrier, after which all costs, risks, and responsibilities for transportation are borne by the buyer."
Example of CPT (Carriage Paid To):
"The seller undertakes to deliver the goods to [specify the destination] and to cover all costs of transportation to that place. All risks and liability for the goods shall pass to the buyer upon delivery of the goods to the carrier."
To sum up
By taking about half an hour to familiarize yourself with the terms of delivery and choose the right one, you protect yourself from unfavorable distribution of responsibility between the buyer and seller of the cargo in different cases.
By choosing EXW, FCA, or CPT, you determine both your further logistics and the transparency of responsibility, export safety, and the security of guarantees for both parties. Plan your transportation carefully, minimizing delays and conserving resources.
You are always welcome to contact the SeaRates team at [email protected] — get visibility into every step of your supply chain.
