FCL vs LCL: How to Choose Sea Freight
How to choose between a full container and shared space when the cargo is leaving Pakistan by sea.
Incoterms explained for Pakistani traders are a way to stop a freight argument after the cargo has sailed. An Incoterm is three letters, published by the International Chamber of Commerce, that say where delivery happens, when risk passes, and which party pays which leg. It does not say the price of the goods. It does not file your customs entry. It tells the forwarder which bookings are yours.
The five terms below are the ones exporters ask about. The version in wide use is Incoterms 2020. Name the version in the contract so both sides are reading the same rules.
EXW, FOB, and CIF
EXW means ex works. The seller makes the goods available at their own premises, for example a mill in Faisalabad. Risk and most of the transport sit with the buyer from that point. The buyer arranges the truck, the port, the freight, and the import. EXW looks simple for the seller and is often a poor fit for an overseas buyer who does not know how to collect from a Pakistani factory. Loading at the seller’s door is a detail to agree in the contract, because the bare term is easy to misunderstand on the day.
FOB means free on board. It is a sea term. The seller delivers when the goods are on board the vessel at the named port, which for most Pakistani exports is Karachi. The seller handles export clearance and the costs to get the cargo on the ship. The buyer owns the ocean freight, the insurance they choose to buy, and the import. FOB is a common textile and commodity term. It is the wrong label for an air shipment. Do not write “FOB Lahore airport” and expect the sea definition to apply.
CIF means cost, insurance, and freight. It is also a sea term. The seller pays the ocean freight and a minimum insurance cover to the named destination port. Risk still passes to the buyer once the goods are on board at origin, which surprises people who think CIF means the seller carries the risk until the destination. The buyer usually handles import clearance and duty. CIF is not a promise that the seller will pay the destination terminal charges unless the contract adds that.
DAP and DDP
DAP means delivered at place. The seller delivers when the goods are ready for unloading at the named place, which might be the buyer’s warehouse rather than a port. The seller arranges and pays the freight to that place. The buyer handles import clearance and duty. DAP works for sea or air because it is not limited to a ship. Name the place precisely. “DAP buyer” is not a place.
DDP means delivered duty paid. The seller delivers cleared for import, duties paid, at the named place. Who pays freight and duty is, in this term, the seller. It is the heaviest Incoterm for an exporter. You are promising charges in a country whose tariff you may not know. Many Pakistani traders should not accept DDP on a first order. If you do, get a destination calculation before you price the goods.
| Term | Typical mode | Seller usually pays up to | Import duty |
|---|---|---|---|
| EXW | Any | Making goods available at the seller’s door | Buyer |
| FOB | Sea or inland waterway | Loading on the vessel at the origin port | Buyer |
| CIF | Sea or inland waterway | Freight and minimum insurance to the destination port | Buyer |
| DAP | Any | Arrival at the named place, not cleared | Buyer |
| DDP | Any | Arrival, cleared, duties paid | Seller |
How to write the term so it can be booked
Put the three letters, the named place, and the version in the contract and on the invoice. “CIF Karachi” is incomplete if Karachi is your origin. CIF names the destination port. “FOB Karachi, Incoterms 2020” tells a forwarder the seller’s job ends once the goods are on the ship at Karachi, export cleared.
Export documentation still has to match that term. Sea freight is booked only for the leg the term assigns to you. Freight forwarding should ask which Incoterm is on the sale before quoting a door that the buyer was supposed to pay for. Shipping terms for traders fail when the invoice says CIF and the operations team ships EXW, or the reverse. Align them before the truck is ordered.
Risk and cost do not always pass at the same moment. CIF is the example to remember. The seller pays freight to the destination port, and the buyer already carries the risk from the origin loading. Insure, or require insurance, with that split in mind.
Questions about Incoterms
No. It is a shorthand for delivery, risk, and which costs transfer. Price, quality, and payment terms still belong in the contract.
CIF and FOB are written for sea and inland waterway. For air, traders usually look at a term that is not limited to a ship, such as FCA, CPT, or CIP. This page stays with the five terms people ask about most.
Under DDP the seller agrees to deliver cleared for import, duties paid. That is a heavy promise. Do not accept it unless you know the destination charges.
[ Related ]
