In export contracts, the delivery term is one of the most fundamental elements determining the parties’ obligations and the allocation of risks. Nevertheless, in practice, the concept of Incoterms is often perceived as being limited solely to the FOB and CIF terms, and cases of incorrect use of these terms are frequently encountered. In Türkiye, CIF or FOB is still selected without specifying critical details such as insurance, freight, or the place of delivery; moreover, it is even observed that the FOB term is used in road transportation.
It is widely known that Incoterms rules vary depending on the mode of transport. While FOB, CFR, and CIF may be used exclusively for maritime transport, terms such as CPT, CIP, DAP, and DPU should be preferred for transport carried out by road, air, or rail. Selecting the correct Incoterms term is of critical importance, both in demonstrating the seller’s command of the subject and in creating a professional commercial image in the eyes of the buyer.
The most critical point is the following: the correct determination of the delivery term not only clarifies which costs are borne by the buyer and the seller but also determines the point at which risk is transferred and which party will be responsible for any potential damage. An incorrect choice of delivery term may lead to disputes over cost allocation and cause the parties to assume unnecessary legal risks. For this reason, the selection of Incoterms constitutes one of the most strategic elements of an export contract.
Legal and Commercial Consequences of the Delivery Term
By way of illustration, let us consider a shipment to be transported by truck from Gaziantep to Iraq, where the contract states “FOB Iraq.” This wording is both incorrect and exposes the exporter to serious risks, as the FOB term may be used only for maritime transport. In a scenario where the goods are transported to Iraq by road and the freight costs are borne by the seller, the correct delivery term should be CPT or DAP/DPU.
Where the place of delivery is the buyer’s depot in Erbil, the correct usage should be as follows:
- CPT Erbil, Buyer’s Depot (full address to be specified)
or - DAP Buyer’s Warehouse, Erbil (full address to be specified).
Accordingly, stating “CPT Iraq” alone would not be sufficient. Otherwise, the carrier may argue that its obligation is limited to delivering the goods to any point at the Iraqi border, which could result in the cargo being delivered to an incorrect location. Such a situation may give rise to both additional costs and legal liability.
Similarly, the place of delivery must be stated in full and with a complete address in the CMR consignment note. A clear wording such as “CPT Erbil – Buyer’s Depot (Full Address)” will help prevent any potential disputes regarding delivery at a later stage.
Buyer-Arranged Transport: EXW vs. FCA
On the other hand, where the transport is to be arranged by the buyer, the correct delivery term should be determined based on the point at which the goods will be taken over by the buyer. For instance, if the buyer collects the goods from the seller’s premises, EXW (Ex Works) may be an appropriate option. However, the critical issue in this context is which party is responsible for export customs clearance.
Under the EXW delivery term, export customs clearance and the related costs are, as a rule, borne by the buyer. However, in many countries—including Türkiye—it is not legally possible for a foreign buyer to carry out export customs procedures in its own name. As a result, this delivery term is not always practicable in practice.
For this reason, in cases where the buyer will not be responsible for export customs clearance, the correct delivery term will be FCA (Free Carrier). Under FCA, the seller is required only to deliver the goods to the carrier at the agreed place (for example, at the seller’s premises or at a logistics provider’s facility), while transport and subsequent costs are borne by the buyer.
As can be seen, even a change solely in which party bears the customs clearance costs may result in the delivery term being determined under an entirely different Incoterms rule. For this reason, the correct selection of the delivery term is of critical importance from both a commercial and legal certainty perspective.
The Link Between Delivery Terms and Pricing
Another important issue is that, in export contracts, the selection of delivery terms such as FOB, CIF, or CPT affects not only the allocation of risks and responsibilities but also pricing directly. A frequently encountered problem in practice is that sellers sign contracts without fully understanding how the chosen delivery term alters the scope of the price, thereby exposing themselves to significant cost risks. This situation creates particularly serious financial risks in delivery terms such as CIF or CPT, where certain costs are borne by the seller.
By way of illustration, assume that the ex-works price of a product is GBP 20,000. A seller who does not fully appreciate the scope of delivery terms may quote the price as CIF Southampton – GBP 20,000. Under the CIF delivery term, however, both freight and insurance costs are borne by the seller, and these costs must be incorporated into the contract price.
In such a case, the seller will be required to bear, at its own expense:
- the vessel’s freight charges,
- the insurance premium for the goods, and
- port and loading costs,
and, pursuant to the executed contract, will no longer be able to pass these costs on to the buyer.
Accordingly, a price quoted by the seller at GBP 20,000 would, in reality, be wholly insufficient for a CIF sale, and the additional costs arising after the execution of the contract could rapidly erode the seller’s profit margin and may even result in a loss.
For this reason, it should not be overlooked that the delivery term determines not only the transfer of risk but also the scope of pricing. If the seller fails to accurately calculate all costs included under the selected Incoterms term, it may inevitably face unexpected post-contract costs and significant commercial losses.
Why Is It Critically Important?
The delivery term is a critical contractual element that determines:
- the point at which the goods are transferred to the buyer,
- which party bears the costs (including freight, customs clearance, insurance, loading, unloading, and similar expenses), and
- the point at which the risk passes from the seller to the buyer.
An incorrect choice of delivery terms—such as EXW, FOB, CIF, CFR, DAP, DPU, or CPT—may result in exporters inadvertently bearing substantial legal and financial risks.
Mandatory Elements of the Contract
When determining the delivery term, the following points must be clearly and explicitly stated in the contract:
- that the delivery term is determined in accordance with Incoterms 2020,
- the place of delivery, specified with its full and exact address,
- which party is responsible for insurance,
- whether the insurance will be effected for the full value of the goods or on an underinsurance basis, and
- which party bears the transportation costs as well as the loading and unloading responsibilities.
Although this section focuses on the correct determination of Incoterms delivery terms, it is equally important that the above-mentioned matters are expressly regulated in order to properly reflect the chosen delivery term in the contract. Incoterms establish only a general framework; however, how this framework is implemented in practice is shaped by the content of the contract itself. Unless these elements are clearly defined, exporters may face unforeseeable costs, disputes over liability, and unnecessary risks from both a commercial and legal perspective. For this reason, provisions relating to the delivery term constitute one of the sections of an export contract that must be drafted with the utmost care.