Incoterms 2020 for Colombian Companies: Which One to Choose Based on Your Type of Cargo

When a Colombian company imports inputs from China, exports manufactured products to Europe, or purchases machinery in the United States, one of the first decisions it must make during negotiations with the foreign supplier or customer is the Incoterm. However, many purchasing managers and business owners make this decision without fully understanding what it implies, accepting the Incoterm proposed by the counterparty without evaluating whether it is the most convenient for their interests.

Choosing the wrong Incoterm can mean paying more than necessary for freight, assuming risks you are not prepared to manage, or ending up in a disadvantaged position when something goes wrong during transportation. This guide explains each of the eleven Incoterms 2020 with a practical approach for the reality of Colombian foreign trade, and helps you identify which one is most convenient according to your type of operation.

What Are Incoterms and What Are They Used For?

Incoterms (International Commercial Terms) are a set of eleven standard terms published by the International Chamber of Commerce (ICC) that define the responsibilities of the seller and the buyer in an international trade transaction. Their latest version is Incoterms 2020, in force since January 1, 2020.

Each Incoterm precisely establishes three fundamental aspects of the operation:

• Transfer of risk: at what point in the route the responsibility for loss or damage to the goods passes from the seller to the buyer.
• Transportation obligations: who contracts and pays for transportation in each stage: international freight, cargo insurance, inland transport at origin and destination.
• Documentary and customs obligations: who manages export procedures in the country of origin and import procedures in the destination country.

Incoterms do not define the price of the goods, payment terms, or the legislation applicable to the contract. Other contractual clauses are required for those matters. They are also not mandatory: they are a voluntary standard that the parties adopt by including them in the sales contract.

The Eleven Incoterms 2020 at a Glance

Understanding the Logic of Incoterms: From Buyer to Seller

A simple way to understand Incoterms is to imagine a spectrum of responsibility. At one end is EXW, where the seller does the minimum possible: they make the goods available at their factory and the buyer handles absolutely everything. At the other end is DDP, where the seller does the maximum possible: they deliver the goods to the buyer’s premises with all duties already paid.

Between these two extremes, the other Incoterms distribute responsibilities gradually. The more responsibility the Incoterm places on the seller, the higher the price they will charge for the goods to cover those additional costs and risks. The more responsibility it places on the buyer, the more control the buyer has over the logistics process.

The Most Commonly Used Incoterms in Colombia and When They Are Convenient

FOB — Free On Board: The Most Recommended for Colombian Importers

FOB is the most widely used Incoterm in international trade of general cargo and the most recommended for most Colombian importers with experience in foreign trade.

Under FOB, the seller delivers the goods on board the vessel at the port of origin. From that moment, the risk and costs pass to the Colombian buyer, who directly contracts the international freight, cargo insurance, and inland transportation to their facility.

The advantages of FOB for Colombian importers are clear:

• Total control over the selection of the shipping line and freight negotiation, allowing market rates to be obtained without the margin added by the supplier in a CIF price.
• Freedom to choose the most convenient cargo insurance with the appropriate coverage for the type of goods.
• Direct visibility over all freight costs from origin, without hidden costs included in the supplier’s CIF price.
• For frequent imports, the possibility of negotiating long-term contracts with shipping lines through the freight forwarder, obtaining preferential rates that accumulate over time.

FOB is not ideal for companies that are just starting in importing and do not yet have an established freight forwarder, nor for very small shipments where the cost of managing freight individually may exceed the savings compared to CIF.

CIF — Cost, Insurance and Freight: Convenient to Start, Expensive in the Long Term

Under CIF, the seller pays for international freight and insurance up to the Colombian port of destination (Buenaventura, Barranquilla, or Cartagena). The risk transfers to the buyer when the goods are on board the vessel at origin, even though the seller continues paying for the freight.

CIF is convenient for companies starting in importing because it simplifies the operation: the supplier manages the freight and the buyer only needs to hire a customs broker in Colombia and inland transportation to the final destination.

However, CIF has an important hidden cost: the supplier includes their margin in the freight and insurance. You do not have real visibility into how much the supplier actually pays for freight and how much profit they add on that service. Over time, companies that continue buying under CIF once they already have a freight forwarder end up systematically paying more on every import.

Additionally, and especially important for Colombia: under CIF, the value of freight and insurance paid by the supplier is included in the CIF value of the goods, which is the basis used to calculate import duties and VAT. This means that if the supplier inflated the freight in the CIF price, you are also paying more duties and VAT than necessary.

EXW — Ex Works: Maximum Control for the Buyer, Maximum Complexity

Under EXW, the seller makes the goods available to the buyer at their own premises (factory or warehouse). The buyer assumes all responsibility from that moment: inland transport in the country of origin, export procedures in that country, international freight, insurance, import procedures in Colombia, and inland transportation to the final destination.

EXW is the Incoterm that provides the greatest control for the Colombian buyer, but it is also the most complex to manage because it requires coordination capacity in the country of origin, including handling export procedures there. For most Colombian importers without established partner agents abroad, EXW is difficult to execute correctly.

EXW can be convenient when the importer has a freight forwarder with real operational capacity in the country of origin and wants to control the entire chain from the supplier’s factory.

FCA — Free Carrier: The Modern Alternative to FOB

FCA is technically more precise than FOB in the context of container transport, since the risk transfers when the seller delivers the goods to the first carrier designated by the buyer at the agreed place, which may be the supplier’s factory, a cargo terminal, or the port of origin.

Incoterms 2020 introduced an important variation of FCA: if the buyer and seller agree, the bill of lading (BL) can be issued with an "on board" notation even when the risk transferred before loading. This is especially useful for operations using a letter of credit, where the buyer’s bank may require an "on board" BL to release payment.

For Colombian companies with experience in imports, FCA is a good alternative to FOB because it offers similar control over international freight but with a technically more appropriate risk transfer for container transport.

DAP — Delivered at Place: For Colombian Exporters Who Want to Offer Full Service

Under DAP, the seller delivers the goods at the agreed destination in the buyer’s country, ready to be unloaded but without paying import duties in the destination country. The seller assumes all costs and risks up to that point.

DAP can be convenient for experienced Colombian exporters who want to offer their international clients a more complete delivery service, differentiating themselves from competitors who only sell under FOB. However, it requires that the Colombian exporter have the capacity to coordinate transportation in the destination country, which is usually done through the exporter’s freight forwarder that has partner agents in that country.

DDP — Delivered Duty Paid: The Most Complete for the Buyer, the Riskiest for the Seller

Under DDP, the seller delivers the goods at the buyer’s premises with all import procedures completed and all customs duties paid. It is the Incoterm that places the greatest responsibility on the seller.

For Colombian importers, DDP may seem attractive because it completely simplifies their management: the supplier does everything. However, it has an important legal implication: under DDP, the foreign supplier would be responsible for import procedures in Colombia, which in practice is difficult to execute because procedures before the DIAN require an authorized agent in Colombia. In practice, when a supplier offers DDP, they usually subcontract the Colombian part to a local agent and include that cost (plus their margin) in the price. The Colombian importer loses control and pays more.

DDP can be convenient for occasional low-value purchases where operational simplification justifies the extra cost, or when the seller truly has a global logistics structure capable of operating in Colombia.

Decision Guide: Which Incoterm to Choose Based on Your Situation

The Incoterm and the Tax Base for Calculating Import Duties in Colombia

An aspect that many Colombian importers do not take into account is that the chosen Incoterm directly affects the tax base used to calculate import duties and VAT in Colombia.

The DIAN calculates import taxes based on the CIF value of the goods (Cost + Insurance + Freight up to the Colombian port), regardless of the Incoterm agreed with the supplier. This means that:

• If you buy under FOB, you must add the real freight and insurance to calculate the CIF customs value.
• If you buy under CIF, the CIF value is already included by the supplier in the invoice, but if that freight was inflated, you will also pay more duties and VAT.
• If you buy under EXW, you must add inland transport in the country of origin, export costs, freight, and insurance to reach the CIF value in Colombia.

In practical terms, buying under FOB with real freight negotiated by your freight forwarder usually results in a lower taxable base — and therefore lower import duties and VAT — than buying under CIF with inflated freight from the supplier. This is a silent saving that accumulates with each import.

Important Differences in Incoterms 2020 Compared to the Previous Version

Incoterms 2020 introduced some relevant changes compared to Incoterms 2010 that Colombian importers and exporters should know:

• DAT was replaced by DPU: the former Delivered at Terminal was renamed Delivered at Place Unloaded, expanding its scope so that the unloaded delivery location can now be any agreed place, not only a transport terminal.
• FCA with BL on board: as mentioned earlier, Incoterms 2020 allow a bill of lading with an on-board notation to be issued under FCA, facilitating operations using letters of credit.
• CIP with higher insurance coverage: under CIP, the seller is now obligated to contract cargo insurance with coverage equivalent to Institute Cargo Clauses A, which is the broadest coverage. Under CIF, the minimum insurance requirement (Clause C) remains, which is basic coverage. This difference is important for high-value cargo.
• Clarity regarding own transport: Incoterms 2020 explicitly recognize that both the seller and the buyer may transport the goods using their own vehicles without needing to contract a third party, which is relevant for companies with their own fleets.

Common Mistakes with Incoterms in Colombian Foreign Trade

• Using FOB for air transport: FOB (and other maritime Incoterms such as CIF, CFR, FAS) only apply to sea or inland waterway transport. For air freight or multimodal transport, the correct Incoterms are FCA, CPT, or CIP. Using FOB in an air import creates ambiguity about the point of risk transfer.
• Not specifying the exact place next to the Incoterm: writing only "FOB" in the contract without specifying the port of origin (for example, "FOB Shanghai") creates ambiguity about where delivery actually occurs. Incoterms must always be accompanied by the specific place or port.
• Confusing risk transfer with cost transfer in CIF: under CIF, risk transfers to the buyer when the goods are on board the vessel at origin, even though the seller continues paying the freight. Many buyers mistakenly believe that under CIF the seller remains responsible if the goods are damaged during maritime transit, which is incorrect.
• Not verifying that the insurance contracted is adequate: under CIF, the seller contracts minimum insurance (basic coverage). If the cargo is high value or fragile, this insurance may be insufficient. The buyer should evaluate whether to complement it with their own insurance policy.
• Accepting DDP without understanding the implications: as explained, under DDP the foreign supplier assumes import procedures in Colombia, which in practice usually results in higher costs and less control for the Colombian importer.

Practical Case: Metalworking Company Saves by Switching from CIF to FOB

A metalworking company in Bogotá imported stainless steel sheets from China under Incoterm CIF Buenaventura. The supplier included in its CIF price a freight cost of USD 3,200 per 20-foot container, which the importer accepted without questioning because they did not know the real market shipping rates.

After partnering with Nextstop Group and negotiating freight directly under Incoterm FOB, it was determined that the actual market freight rate for the same route was USD 2,400 per container. The difference of USD 800 per shipment, multiplied by the company’s eight annual imports, represented savings of USD 6,400 per year in freight alone.

Additionally, since the real freight was lower, the CIF value (taxable base) decreased by USD 800 per operation, generating additional savings in import duties and VAT of approximately USD 240 per shipment (USD 1,920 per year), for a combined total savings of more than USD 8,300 annually simply by changing the Incoterm and negotiating freight directly.

Frequently Asked Questions About Incoterms for Colombian Companies

Are Incoterms mandatory in Colombia?

No. Incoterms are voluntary standard terms that the parties adopt by mutual agreement by including them in the international sales contract. However, their use is practically universal in Colombian foreign trade and they are the standard language for defining the distribution of responsibilities between seller and buyer. DIAN recognizes Incoterms as a reference for determining the customs value of imports.

Can I change the Incoterm in the middle of a negotiation?

Yes, as long as both parties agree. The Incoterm is an element of the sales contract and can be modified before the contract becomes binding. In practice, many Colombian importers who started buying under CIF move to FOB once they establish a freight forwarder, simply informing the supplier of the change and adjusting the invoice price to exclude freight and insurance.

Does the Incoterm determine who pays customs duties in Colombia?

In practice, the Colombian importer always pays customs duties (tariffs and VAT) in Colombia, regardless of the Incoterm, because they are the importer of record before the DIAN. The only theoretical exception would be DDP, where the seller would assume the duties, but as explained earlier, this is difficult to execute correctly for foreign suppliers without legal presence in Colombia and generally results in a higher price.

Does FOB mean the seller delivers the goods on the ship?

Yes, but precisely: under FOB, the seller delivers the goods on board the vessel designated by the buyer at the agreed port of shipment. From that moment, the risk passes to the buyer. The seller is also responsible for export procedures in their country. It is important to remember that FOB only applies to sea or inland waterway transport, not to air freight or container transport where technically delivery occurs before the goods are on board.

What is the most recommended Incoterm for a first export from Colombia?

For a Colombian company exporting for the first time, the most recommended Incoterm is FOB or EXW. FOB limits the exporter’s responsibility to export procedures in Colombia and delivery at the Colombian port, while the buyer assumes international freight. EXW is even simpler but requires the buyer to manage export procedures in Colombia as well, which can create complications. As the exporting company gains experience, it may offer CIF or DAP to make its proposal more attractive to buyers who prefer not to manage international logistics.

Conclusion

Choosing the correct Incoterm is not a minor legal technicality: it is a commercial and financial decision that directly impacts the cost of each foreign trade operation, the level of control over international logistics, and the distribution of risk in the event of any unforeseen issues during transport.

For most experienced Colombian importers, FOB is the end goal: maximum control, better freight rates, and a lower taxable base for customs duties. For exporters who are just starting, FOB or EXW minimize operational complexity. And for experienced exporters who want to differentiate themselves, CIF or DAP can be powerful commercial tools.

The key is understanding what each term implies before signing it. If you have questions about which Incoterm is best for your next import or export operation, contact us and our team will advise you with no obligation.