Understanding delivery terms, risk transfer, and cost allocation in international equipment purchases.
Incoterms define who pays for what, who bears the risk, and where responsibility transfers in international trade. For industrial equipment purchases, choosing the right Incoterm can mean the difference between a smooth delivery and unexpected costs.
Common Incoterms for Equipment
The most frequently used Incoterms in industrial procurement:
EXW (Ex Works): Buyer takes all responsibility from seller's facility. Lowest seller obligation.
FOB (Free on Board): Seller delivers to the vessel. Risk transfers when goods are on board.
CIF (Cost, Insurance, Freight): Seller pays freight and insurance to destination port. Risk transfers at origin.
DAP (Delivered at Place): Seller delivers to named destination, buyer handles import clearance.
For most oil & gas equipment purchases, CIF or DAP provides the best balance of risk management and cost control.
Your logistics expertise: If you have strong freight relationships, EXW or FOB may offer savings
Risk tolerance: DDP puts most risk on the seller but comes at a premium
Import licensing: Some equipment requires special import permits you may need to handle
Insurance requirements: Ensure adequate coverage regardless of Incoterm
Customs brokerage: Consider whether you have reliable customs support at destination
Hidden Costs to Watch
Be aware of costs that may not be included in the quoted Incoterm:
Terminal handling charges at origin and destination ports
Customs examination and inspection fees
Storage charges if clearance is delayed
Inland freight from port to final destination
Special handling for oversized or heavy equipment
Import duties and taxes (unless DDP)
Conclusion
Incoterms are a critical but often overlooked aspect of international procurement. Taking time to understand the implications of each term—and negotiating the right one for your situation—can prevent surprises and protect your project budget.
S
Sigma Team
Industrial Procurement Experts
Share:
Ready to improve your procurement process?
Let's discuss how Sigma can help with your procurement needs.
