Shipping goods by air can be confusing if you’re not sure who’s responsible for what. Maybe you’re expanding your business or ordering products from overseas and keep hearing the term “Incoterms.” What do these mysterious rules mean for your shipment—and your bottom line?
Understanding how air freight Incoterms work is essential for avoiding costly mistakes and ensuring smooth delivery. In this article, we’ll clarify what Incoterms are, how they apply to air freight, and share tips for picking the right terms for your situation.
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Understanding Air Freight Incoterms: What You Need to Know
Air freight is a fast and reliable way to move goods globally. However, navigating the responsibilities, costs, and risks involved can be complex—this is where Incoterms come in. Incoterms (International Commercial Terms) are internationally recognized rules that define the roles of buyers and sellers in international trade, including air freight. They clarify who is responsible for transportation, insurance, customs clearance, and costs at each stage of the shipping journey.
Let’s break down how air freight Incoterms work, which ones are most relevant, and what practical steps you should take to optimize your shipments.
What Are Air Freight Incoterms?
Incoterms are a standardized set of rules published by the International Chamber of Commerce. They are used in contracts for the sale and movement of goods. These terms specify:
- Who arranges and pays for transportation
- Who handles export and import customs clearance
- Who bears the risk at various points during the shipment
For air freight, some Incoterms are used more often than others due to the nature of air cargo (speed, handling, and documentation).
The Main Incoterms for Air Freight
Not all Incoterms are suited to air freight. Here are the most common:
1. EXW (Ex Works)
- The seller makes goods available at their premises.
- The buyer handles all transport, export processes, and bears all the risks from the seller’s door onwards.
- Best for experienced buyers with access to logistics resources.
2. FCA (Free Carrier)
- The seller delivers goods to a named place—often an airport or a forwarder’s warehouse.
- The buyer then arranges the main carriage (the air freight segment) and assumes the risk from that point.
- Suitable for air freight, as it offers a clear handover point.
3. CPT (Carriage Paid To)
- The seller pays for transportation to a named place (often the destination airport).
- However, the risk transfers to the buyer once the cargo is handed over to the first carrier.
- Good for buyers wanting the seller to book and pay for the freight, but still take on the arrival risks.
4. CIP (Carriage and Insurance Paid To)
- Similar to CPT, but the seller also provides insurance against risks up to the named destination.
- This offers extra protection for the buyer while retaining similar responsibilities to CPT.
5. DAP, DPU, and DDP (Delivered At Place, Delivered at Place Unloaded, Delivered Duty Paid)
- The seller is responsible for most or all of the journey, even up to final delivery at the buyer’s site.
- These terms are common when sellers want full control and to offer a seamless door-to-door service.
- Only DPU (where the seller must also unload the cargo) and DDP (where the seller covers import customs and duties) add extra layers of responsibility for the seller.
How Do These Incoterms Affect Air Freight Shipments?
Each Incoterm determines:
- Who arranges pickup and delivery to/from airports
- Who pays for major cost segments: local transportation, air freight, insurance, destination charges
- Who handles export and import customs procedures
- Where risk of loss or damage passes from seller to buyer
For example, under EXW, buyers must take care of everything after pickup, while under DDP, sellers manage the entire process—including destination customs and taxes.
Step-by-Step: How to Use Incoterms in Air Freight
Here’s how to apply Incoterms when arranging an air freight shipment:
- Determine Your Needs
- Decide how much control you want over the logistics chain.
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Assess your experience: Are you comfortable handling customs and logistics, or do you prefer the seller manages more steps?
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Select the Appropriate Incoterm
- Consider which term best matches your capabilities and preferences.
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Discuss options with logistics partners or freight forwarders for advice.
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Include Incoterms in Your Contract
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State clearly in sales contracts (e.g., “CIP Frankfurt Airport, Incoterms 2020”) to avoid misunderstandings.
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Clarify Specific Locations
- Always specify the exact point of delivery/collection, such as “FCA: Los Angeles Airport Terminal 4.”
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Ambiguity can cause disputes over responsibilities and costs.
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Arrange Logistics and Insurance
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Based on your chosen term, ensure you or the seller organize the necessary transportation, insurance, and documentation.
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Prepare for Customs
- Know who is responsible for export and import clearance.
- Prepare correct paperwork; missing documents can cause delays and extra costs.
Benefits of Using Air Freight Incoterms
- Clear Responsibility: Everyone knows who does what and who pays for each segment of the transport.
- Risk Reduction: Define where risk passes from seller to buyer, reducing the chance of disputes.
- Cost Management: Optimize the supply chain by assigning tasks to the party best equipped to handle them.
- Increased Efficiency: Avoid duplicated efforts or gaps by clearly dividing duties.
Challenges and Common Pitfalls
While Incoterms are helpful, mistakes or misunderstandings can lead to problems:
- Vague Contract Terms: Not specifying the exact place can cause confusion.
- Capital or Experience Gaps: Relying on EXW as a buyer without resources can lead to high unexpected costs.
- Customs Surprises: Choosing DDP means the seller must know the import rules in the buyer’s country—get expert advice.
- Assuming All Incoterms Suit Air: Terms like FAS or FOB, for example, are designed for sea freight, not air. Stick to EXW, FCA, CPT, CIP, DAP, DPU, DDP for air cargo.
Best Practices for Managing Air Freight with Incoterms
- Work with an Experienced Freight Forwarder: They can advise on the right Incoterm and handle complex logistics.
- Communicate Early and Clearly: Discuss Incoterm choices at the negotiation stage, not just during contract signing.
- Stay Informed: Incoterms are updated periodically (most recently in 2020)—make sure you are using the latest rules.
- Understand Your Market: Some countries favor certain Incoterms; for instance, FCA is popular for air exports from China.
- Prepare Documentation: Each Incoterm may require different paperwork—stay organized to avoid delays.
Cost-Saving Tips for Air Freight Shipments
Air freight is often the most expensive shipping option, so managing costs through smart use of Incoterms is vital.
- Negotiate Incoterm Terms: Consider taking on more responsibility (like EXW/FCA) if you can arrange cheaper local trucking or get better air freight rates.
- Bundle Services: Ask forwarders about all-in rates that combine pickup, air cargo, and final delivery under a single Incoterm.
- Transit Times: Use DAP or DDP to control timing more reliably if delays could be costly at your end.
- Insurance: If shipping under terms like CIP, make sure the insurance provided meets your needs; sometimes, you can get better rates separately.
Real-World Scenario: Choosing the Right Incoterm
Imagine you’re importing electronic components from China to Germany:
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Option 1: EXW
You handle everything from the Chinese factory onward. This works well if you have established logistics partners in China and want to control costs. -
Option 2: FCA Shanghai Airport
The supplier delivers goods to the airport’s cargo terminal. From there, you arrange air freight and destination delivery.
- Option 3: DAP Munich
The seller takes responsibility for everything up to the delivery at your warehouse in Munich. You only take over after the goods arrive.
The best choice depends on your experience, risk tolerance, and the resources you can deploy.
Common Mistakes to Avoid in Air Freight Incoterms
- Using the Wrong Incoterm for the Transport Mode: Don’t use FOB/FAS in air shipments (they’re for sea freight).
- Overlooking Local Charges: Airport handling and customs fees can be significant. Verify who’s covering these under your chosen term.
- Assuming Insurance is Automatic: Only some terms require the seller to provide insurance—always double-check.
- Not Specifying the Terminal or Place: Be exact about where responsibilities change hands.
Conclusion
Air freight Incoterms are not just legal jargon—they’re essential tools to ensure your international shipments are smooth, efficient, and cost-effective. By understanding what each Incoterm means for air cargo, you can avoid disputes, control costs, reduce risks, and build a logistics chain that works for your business. Be proactive: discuss Incoterms early, include them clearly in your contracts, and work with logistics experts to optimize every shipment.
Frequently Asked Questions (FAQs)
1. What Incoterms are most commonly used for air freight shipments?
The most suitable Incoterms for air freight are EXW, FCA, CPT, CIP, DAP, DPU, and DDP. These terms are designed for multimodal and non-maritime transport, making them ideal for air cargo.
2. What is the difference between FCA and EXW in air freight?
With EXW, the buyer has to handle everything from the seller’s door, including local trucking, export clearance, and air freight. Under FCA, the seller delivers the goods to a named place (like an airport or forwarder’s warehouse), and handles export formalities, making FCA slightly more convenient for the buyer.
3. Does the seller have to buy insurance under CIP?
Yes. Under CIP (Carriage and Insurance Paid To), the seller is required to arrange and pay for insurance covering at least 110% of the value for carriage to the named destination. This provides peace of mind to the buyer during transport.
4. Can I use FOB or FAS for air freight?
No. FOB (Free on Board) and FAS (Free Alongside Ship) are designed for sea freight and are not suitable for air cargo. Use EXW, FCA, or other appropriate Incoterms for air shipments.
5. Who is responsible for customs clearance under DDP when shipping by air?
Under DDP (Delivered Duty Paid), the seller is responsible for all export, transit, and import customs procedures, as well as paying duties and taxes. The buyer only takes over once the goods are delivered at the agreed final destination.
