What Are Incoterms?
Incoterms — short for International Commercial Terms — are a set of 11 standardised trade terms published by the International Chamber of Commerce (ICC). They define exactly where the seller's responsibility ends and the buyer's responsibility begins for a shipment: who books the freight, who pays for insurance, who handles export customs, and who is liable if the cargo is damaged or lost at any point in the journey.
The current version is Incoterms 2020, which applies to all trade contracts from 1 January 2020 onward.
For East African importers and exporters, getting your Incoterm right is not a formality — it directly determines your total landed cost, your exposure to shipping risks, and your ability to control the quality and cost of freight services.
The 11 Incoterms at a Glance
Incoterms are split into two groups:
Rules for any mode of transport (road, air, sea, rail, or multimodal): EXW, FCA, CPT, CIP, DAP, DPU, DDP
Rules for sea and inland waterway only (port to port): FAS, FOB, CFR, CIF
The sea-only terms (FOB, CIF, CFR, FAS) are the ones most commonly used for containerised shipments arriving at Mombasa Port.
The 4 Terms Every Mombasa Importer Should Know
FOB — Free On Board
What it means: The seller is responsible for delivering the goods to the named port of shipment (e.g. Shanghai, Ningbo, Jebel Ali) and loading them onto the vessel. From the moment the goods are on board, risk and cost transfer to the buyer.
Who arranges: Buyer arranges and pays for ocean freight, insurance, and all destination charges.
Mombasa example: You buy 500 cartons of electronics FOB Shenzhen. Your Chinese supplier handles export customs and delivers the goods onto the ship at Yantian Port. You (or your freight forwarder) book the ocean freight from Shenzhen to Mombasa, pay the freight, and arrange insurance.
Best for: Experienced importers who want control over freight costs and their choice of carrier. Most cost-effective option when you have a reliable freight forwarder like NexGen.
Risk: You bear the risk from the moment goods are on the vessel. If the ship sinks, your insurance claim — not the seller's problem.
CIF — Cost, Insurance, and Freight
What it means: The seller arranges and pays for ocean freight and insurance to the named destination port (e.g. Mombasa). Risk transfers to the buyer once the goods are loaded onto the vessel at origin — the same point as FOB — but the seller continues to pay freight and insurance costs to destination.
Who arranges: Seller arranges and pays ocean freight and insurance. Buyer pays all destination charges (customs clearance, port handling, inland transport).
Mombasa example: You buy machinery CIF Mombasa. Your supplier in Germany books the ocean freight and insurance, and the invoice shows a CIF Mombasa value. You receive the goods at Mombasa and pay customs duties (which are now calculated on the higher CIF value — including the freight the seller charged).
Watch out: Under CIF, the seller only needs to arrange minimum insurance cover (110% of the goods value under Institute Cargo Clauses C — the most basic level). You may want to arrange your own supplementary insurance.
Also watch out: Sellers often mark up the freight cost when quoting CIF. You lose visibility into what the actual freight costs, and your duty base is inflated by a freight charge you didn't control.
Best for: New importers who prefer simplicity, or when you are buying from a supplier who insists on CIF terms.
DDP — Delivered Duty Paid
What it means: The seller handles everything — export customs, ocean freight, insurance, import customs at destination, and all duties. The buyer simply receives the goods at the named place.
Mombasa example: You buy equipment DDP your Nairobi warehouse. The seller arranges everything including Kenya import duties and delivers the goods to your door.
Sounds ideal, but: The seller does not know Kenya's duty rates as well as your local agent does. They will price in a significant buffer for uncertainty. DDP quotes are typically 20–40% more expensive than equivalent FOB + duty cost when calculated accurately. You also lose the ability to use your preferred clearing agent and transporter.
Best for: Very high-value one-off purchases where simplicity outweighs cost, or where you have no clearing agent in place.
EXW — Ex Works
What it means: The seller makes the goods available at their premises (factory, warehouse). The buyer is responsible for everything from that point — loading onto the truck, export customs, freight, import customs, and delivery.
Mombasa example: You buy tiles EXW a factory in Guangdong. You (via your freight forwarder in China) must arrange collection from the factory, truck to the port, export clearance, ocean freight, and everything on the Kenya side.
Challenge for East African buyers: Arranging export customs clearance in China as a foreign buyer is complex. Your Chinese supplier must cooperate closely. Without a freight forwarder with China operations, EXW can cause significant complications.
Best for: Buyers with a freight forwarder who has operations in the origin country (like NexGen's partner network in China).
The Full 11 Incoterms — Reference Table
| Term | Full Name | Risk Transfers At | Who Pays Freight | Who Pays Duty | Modes |
|---|---|---|---|---|---|
| EXW | Ex Works | Seller's premises | Buyer | Buyer | Any |
| FCA | Free Carrier | Named place (seller hands to carrier) | Buyer | Buyer | Any |
| FAS | Free Alongside Ship | Alongside vessel at origin port | Buyer | Buyer | Sea only |
| FOB | Free On Board | On board vessel at origin port | Buyer | Buyer | Sea only |
| CFR | Cost and Freight | On board vessel at origin port | Seller (to dest. port) | Buyer | Sea only |
| CIF | Cost, Insurance, Freight | On board vessel at origin port | Seller (to dest. port) | Buyer | Sea only |
| CPT | Carriage Paid To | First carrier at origin | Seller (to named place) | Buyer | Any |
| CIP | Carriage and Insurance Paid To | First carrier at origin | Seller (to named place) | Buyer | Any |
| DAP | Delivered at Place | Named destination (before unloading) | Seller | Buyer | Any |
| DPU | Delivered at Place Unloaded | Named destination (after unloading) | Seller | Buyer | Any |
| DDP | Delivered Duty Paid | Named destination (duties paid) | Seller | Seller | Any |
How Incoterms Affect Your Kenya Import Duty
This is where Incoterms have a direct financial impact that many importers miss.
Kenya calculates import duties on the CIF value — the cost of goods plus freight plus insurance. The Incoterm you agree with your supplier determines the CIF value that appears on your commercial invoice, and therefore the basis on which KRA assesses your duties.
Example with the same $10,000 goods:
- FOB: You book freight at $1,200 and insurance at $80 → CIF = $11,280 → duties calculated on $11,280
- CIF (supplier arranged freight): Supplier charges $1,800 freight (with markup) and $100 insurance → CIF = $11,900 → duties calculated on $11,900
On a 25% import duty rate, that $620 difference in CIF value costs you an extra $155 in import duty plus proportional VAT, IDF, and RDL — purely because the supplier controlled the freight cost.
Across a year of regular shipments, controlling your freight costs under FOB terms saves meaningfully on your total duty bill.
Common Incoterm Mistakes by East African Importers
Using FOB when they mean FCA for containerised cargo. Strictly speaking, FOB is designed for bulk and break-bulk cargo where goods are loaded over the ship's rail. For containerised shipments, the goods are handed to the carrier at the container terminal — before the vessel — making FCA more technically accurate. In practice, most shippers still use FOB for containers and it is widely accepted, but be aware of this distinction if a contract dispute arises.
Agreeing CIF without checking the insurance level. CIF only requires the seller to arrange Clauses C insurance (minimum cover — excludes theft, contamination, and many common risks). If your goods are high value or fragile, arrange your own All-Risk (Clauses A) insurance on top.
Confusing "who pays" with "who bears the risk." Under CIF, the seller pays freight and insurance — but the risk transfers to the buyer at the origin port when goods are loaded. If the vessel sinks mid-ocean, the buyer must claim against the insurance the seller arranged, not against the seller directly.
Accepting DDP without understanding the duty implications. When the seller pays duty under DDP, they base their price on their estimate of Kenya's duty rate — often inflated for safety margin. You have no transparency or ability to optimise.
Which Incoterm Should You Use?
For most East African importers buying containerised goods from China, India, or Dubai:
Use FOB — it is the industry standard for good reason. It gives you control over freight costs, insurance quality, and your choice of clearing agent at Mombasa. It produces the lowest CIF value when your freight forwarder is efficient, which means lower duties.
Use CIF only if your supplier insists, you are new to importing and want simplicity, or you are buying a very small one-off shipment where the freight cost difference is immaterial.
Avoid DDP for regular commercial imports — the cost premium rarely justifies the convenience.
When negotiating with new suppliers, always specify the Incoterm and the named place clearly in your purchase order: FOB Shenzhen, CIF Mombasa Port, DAP Nairobi Warehouse — not just "FOB" or "CIF" without a location.