Incoterms for PNG Shipments: FOB, CIF, DAP and Who Pays for What
Incoterms decide who pays for each part of a shipment and when the risk passes from seller to buyer. Here’s how the most common terms work on shipments to PNG, the traps to avoid, and how to choose the right one.
In this guide
- Incoterms 2020 is the current edition, with 11 rules; the next revision is expected in 2030.
- Incoterms set out costs, risk and responsibilities, but not price, payment or ownership.
- Under FOB and CIF, risk passes to the buyer when goods are loaded at origin, even though the seller pays the freight under CIF.
- DDP is rarely practical for PNG, because import clearance depends on the importer’s own registration.
What Incoterms do, and don’t do
Incoterms are standard trade terms published by the International Chamber of Commerce. The current edition, Incoterms 2020, came into force on 1 January 2020 and contains 11 rules, with the next revision expected in 2030.
Each rule sets out who arranges and pays for transport, insurance and clearance, and the point at which risk of loss or damage passes from seller to buyer. Incoterms don’t cover the price, payment terms or when ownership transfers. Those belong in the sales contract.
The two groups of rules
| Group | Rules | Use for |
|---|---|---|
| Any mode of transport | EXW, FCA, CPT, CIP, DAP, DPU, DDP | Containers, air freight and multimodal shipments |
| Sea and inland waterway only | FAS, FOB, CFR, CIF | Bulk and non-containerised sea cargo |
In practice, FOB and CIF are still widely used for container shipments to PNG. They work, but for containers the seller usually hands the goods to a terminal days before they’re loaded, while still carrying the risk until loading. FCA, CPT and CIP were designed with containers in mind.
The terms you’ll see most often
FOB (Free On Board)
The seller delivers the goods on board the vessel at the origin port and clears them for export. The buyer arranges and pays for the main freight, insurance and everything after it. Risk passes when the goods are on board. FOB suits PNG buyers who want to control the freight and use their own forwarder.
CIF (Cost, Insurance and Freight)
The seller pays freight and insurance to the named PNG port, for example CIF Lae. But risk still passes to the buyer when the goods are loaded at origin, and the seller only needs to buy minimum insurance cover. Incoterms 2020 kept the lower level of cover for CIF while raising it for CIP. Most destination charges also remain with the buyer.
DAP (Delivered at Place)
The seller delivers the goods to a named place in PNG, ready for unloading, and carries the risk until then. The buyer handles unloading, import clearance, duties and GST. DAP can work well for site deliveries when the seller has a capable forwarder in PNG.
DDP (Delivered Duty Paid)
The seller handles everything, including import clearance and duties. For PNG, this is rarely practical: import entries are lodged by a licensed broker on behalf of a registered importer, and foreign sellers usually can’t meet those requirements themselves.
Common traps on PNG shipments
- Naming the wrong port: CIF Port Moresby when the cargo is needed in Lae adds a second leg at the buyer’s cost.
- Assuming CIF covers destination charges: terminal handling and port charges in PNG often fall to the buyer.
- Relying on minimum insurance: CIF only requires basic cover, which may not suit valuable cargo.
- Vague place names: “DAP PNG” isn’t enough; name the exact delivery address or terminal.
- Not stating the edition: write “Incoterms 2020” in the contract to avoid ambiguity.
Choosing the right term
If you’re a PNG buyer with a reliable forwarder, FOB or FCA gives you control of the freight, the routing and the choice of port. If you’d rather the seller handled shipping, CIF or CIP to the right PNG port is common, but check the insurance and destination charges. For deliveries to site, DAP to a named place can simplify things, provided both parties are clear about who clears the goods and pays duties.
Frequently asked questions
What is the current version of Incoterms?
Incoterms 2020, which came into force on 1 January 2020. The next revision is expected in 2030.
Who pays destination charges under CIF?
The seller pays freight to the PNG port, but many destination charges, such as terminal handling and port charges, usually fall to the buyer unless the contract of carriage says otherwise.
When does risk pass under CIF?
When the goods are loaded on board at the origin port, not when they arrive in PNG.
Can I use DDP for shipments to PNG?
It’s rarely practical, because import clearance is handled by a licensed broker for a registered importer in PNG.
More on shipping modes, transit times and costs
Sources
Philip Thomas
Philip is the lead author and editor at Phantom8. He writes practical guides to shipping freight into Papua New Guinea, with a focus on choosing the right port, clearing customs and planning the inland leg.
General information only. This guide is general in nature and isn’t legal, customs or logistics advice for your specific shipment. Port operations, road conditions, schedules and charges change, so confirm the details with your freight forwarder, transport operator or the relevant authority before you ship.