Incoterms for pharmaceutical exports

Incoterms are the three-letter trade terms published by the International Chamber of Commerce (ICC) that divide tasks, costs and risks between seller and buyer. A proforma invoice for a medicine shipment from India will almost always name one, for example "CIP Nairobi Jomo Kenyatta International Airport, Incoterms 2020". That short phrase decides who books the flight, who buys insurance, who clears customs at each end and where a loss in transit falls.

Incoterms 2020 remains the current edition in November 2026. ICC's 2026 workplan includes beginning work on a revision that lays the groundwork for Incoterms 2030, so contracts should keep naming the edition they use. The rule texts are ICC copyright, and this guide summarises them for medicine shipments rather than quoting them.

What an Incoterm decides, and what it does not

An Incoterm decides:

• where the seller delivers the goods and where risk passes to the buyer
• who pays for the main carriage
• who clears the goods for export and for import
• whether the seller must insure the goods, and to what level

An Incoterm does not decide when or how payment is made, when ownership passes, inspection rights, or remedies for late or defective delivery. The International Trade Administration and Pillsbury's summary of Incoterms 2020 both make this point. For medicines, the Incoterm is also silent on temperature control, so responsibility for packaging, monitoring and excursion decisions has to be agreed separately.

The rules that fit air shipments

Incoterms 2020 has eleven rules. Seven can be used for any mode of transport, including air: EXW, FCA, CPT, CIP, DAP, DPU and DDP. The other four, FAS, FOB, CFR and CIF, are meant for sea and inland waterway transport, and Pillsbury's summary advises using FCA, CPT or CIP instead even for containerised sea freight.

The country import guides on this site list CIP, DAP and FCA as usual terms for most markets, with CPT added for some, including Kenya, Ethiopia, Russia and the United Kingdom.

How each rule works for medicines

EXW

Under EXW the buyer collects from the seller's premises and handles export clearance. This rarely fits medicine exports from India, because the shipping bill, any CDSCO export NOC and the export declaration form are tied to the Indian exporter. Pillsbury's summary notes that EXW and DDP are increasingly rare in international trade, where both parties must provide or sign documents. FCA is the usual alternative when a buyer wants to control freight.

FCA

Under FCA the seller clears the goods for export and hands them to the buyer's nominated carrier or forwarder at a named place in India, such as the forwarder's facility or the airport cargo terminal. Risk passes at that handover. FCA suits larger importers and procurement agencies that have their own forwarder, insurance and cold-chain contracts.

CPT and CIP

Under CPT and CIP the seller books and pays for carriage to the named destination, but risk passes to the buyer when the goods are handed to the first carrier in India. These rules therefore have two critical points: one for risk and one for cost. CIP adds the seller's duty to insure. Under Incoterms 2020, ICC states that CIP requires cover meeting Institute Cargo Clauses (A), the all-risk level, while CIF kept the narrower Clauses (C). Pillsbury's summary adds that the insurance must be in the contract currency for at least 110 percent of the contract price. CIP is common for named-patient and hospital air shipments because the buyer gets a seller-arranged lane plus a policy to claim on.

DAP and DPU

Under DAP the seller carries the goods, and the risk, to the named destination, and the buyer handles import clearance and pays duties and taxes. DPU is the same except that the seller also unloads. DAP fits regulated medicines well, because the licensed importer stays the party that declares the goods to customs and the regulator. Courier parcels are often sold DAP.

DDP

Under DDP the seller also clears the goods for import and pays duties and taxes. For medicines this is often impractical. Most destinations require a locally licensed importer to hold the permit and make the import declaration. In the UK, for example, the unlicensed import notification is made by the UK importer. DDP can work only where the seller, or an agent acting for it, can lawfully do this.

Insurance and temperature risk

Insurance deserves a careful read for cold-chain goods. Standard cargo clauses list exclusions, and delay and inherent vice are common examples, so a temperature loss caused by a missed connection may not be covered by default. Ask the insurer in writing whether temperature deviation is covered, what evidence is needed, such as the logger file, and how quickly a claim must be notified.

Carrier liability has its own time limits. Where the Montreal Convention 1999 applies, a complaint about damage to cargo must be made in writing within 14 days of receipt, and a complaint about delay within 21 days. Temperature excursions in transit explains what the receiver should do on arrival.

Matching the Incoterm with payment and documents

The Incoterm also shapes the document set. Under CIP the seller provides an insurance document, and under C and D rules the seller arranges the transport document. Where payment is by letter of credit, the documents the bank asks for should match the chosen rule. How to pay for an international medicine order covers payment terms, and Pharma export documents explained lists the documents.

Common mistakes

• Writing "FOB Mumbai" or "CIF Lagos" for an air shipment, which uses sea rules for an air movement.
• Naming only a city, such as "CIP Nairobi", when the airport or the importer's warehouse would remove doubt about where carriage ends.
• Leaving out the edition, so an older version of the rules, or local trade usage, may be argued to apply.
• Assuming the seller's insurance under CIP covers temperature deviation without checking the policy wording.
• Choosing DDP to make the buyer's life easier, then finding the seller cannot lawfully be the importer.
• Expecting the Incoterm to settle who decides whether goods with an excursion can be used. It does not, so the quality agreement should.

Choosing an Incoterm step by step

1. Decide who must be importer of record. If a licensed local party must clear the goods, rule out DDP.
2. Decide who has the better freight arrangements. If the buyer has its own forwarder and insurance, consider FCA. If not, consider CPT, CIP or DAP.
3. Decide who controls the cold chain. When the seller packs, books and monitors the shipment, seller-arranged carriage such as CIP or DAP keeps responsibility in one place.
4. Settle insurance. Choose CIP, or confirm that the buyer's own policy covers the lane and temperature deviation.
5. Name the place precisely. Write the airport or address and the edition, for example "DAP Riyadh King Khalid International Airport, Incoterms 2020".
6. Write the rest down. Put payment terms, ownership, temperature responsibilities and excursion handling in the contract and quality agreement.

The landed-cost calculator shows how freight, insurance, duty and tax add up under different terms for a given country.