Export Is Not Just Selling – It Is Cross-Border Risk Management
One word in a contract can decide the profit of an entire year. Export is not luck. It is a system.
1. Opening – A Practical Business Story
I once saw a company lose nearly USD 40,000 simply because it used one wrong word: FOB.
They thought FOB meant “the buyer bears everything after the goods are loaded on board”. But when the container seal was broken during loading, the carrier issued a report, the buyer refused to receive the goods, the insurance terms were unclear, and the dispute lasted for months.
Another case involved signing DDP just to “please the customer”. When the goods arrived at the import country’s port, environmental tax and additional inspection fees arose. The Vietnamese exporter had no legal entity in that country and could not complete import customs clearance. Container detention costs became higher than the profit.
2. What Is Incoterms® 2020?
Incoterms® 2020, issued by the International Chamber of Commerce, is a set of rules defining the obligations of sellers and buyers in international trade transactions.
Incoterms defines
- Delivery obligations
- Risk transfer point
- Allocation of transport costs
- Insurance and customs clearance responsibilities
Incoterms does not replace
- Ownership of goods
- Payment terms
- Contract penalties
- Governing law and dispute resolution
3. Risk Transfer Point Is Different from Cost Responsibility
This is the part many Vietnamese businesses do not fully understand. In some terms, the seller pays freight to the destination port, but the risk has already transferred at the port of loading.
| Term | Risk Transfer Point | Who Pays Main Freight? | Who Buys Insurance? |
|---|---|---|---|
| FOB | When the goods are on board at the port of loading | Buyer | Buyer |
| CIF | When the goods are on board at the port of loading | Seller | Seller, usually at minimum coverage |
| CPT | When the goods are handed over to the first carrier | Seller | Buyer |
| DDP | When the goods are delivered at the destination place | Seller | As agreed |
4. Common Traps for Vietnamese Exporters
FOB
Many companies think FOB is absolutely safe. But without a correct understanding of the “on board” point, risk can still return as a claim.
CIF
The seller pays freight and buys insurance, but the insurance may only be minimum coverage if the contract does not clearly define the scope.
DDP
DDP can be very dangerous if the seller has no legal entity, representative or import customs capability in the destination country.
Local Charges
THC, D/O, handling, demurrage, detention… if the contract does not clearly state who pays, disputes are almost certain.
5. CEO Perspective – Do Not Choose Delivery Terms by Habit
If it were me, I would not choose delivery terms out of habit. I would choose based on logistics capability, control over documents, legal capability in the destination market and the reliability of the partner.
- FCA/CPT: suitable when you want to control the carrier.
- FOB: suitable when the buyer is strong and has a good logistics system.
- CIF: requires clear control of insurance, port of loading, port of destination and documents.
- DDP: should only be used when you have real capability in the import country.
6. Checklist Before Signing an Export Contract
Contract
- Has Incoterms® 2020 been stated correctly?
- Are the port of loading, port of destination and delivery place clearly stated?
- Has the risk transfer point been clearly defined?
Costs
- Who bears freight?
- Who bears local charges?
- Who bears demurrage/detention if they arise?
Insurance
- Who buys insurance?
- Under which insurance conditions?
- Is the coverage sufficient for the type of goods and transport route?
Payment
- L/C or T/T?
- What documents are required?
- Are claim terms and claim deadlines clearly defined?
7. Five Things to Remember
- Incoterms does not replace the contract.
- Risk transfer point is different from cost responsibility.
- DDP is not always a good choice.
- Local charges must be clearly stated.
- One word in a contract can decide the profit of an entire year.
8. INDUSVINA Philosophy
Discipline
Do not sign what you do not understand. Do not use a delivery term just because “everyone uses it”.
Responsibility
Once you choose a delivery term, you must understand and accept the risks of that term. Do not blame the partner when you did not read the contract carefully.
Connection
Understand the market, understand the legal system of the importing country, and understand the partner before signing.
9. Conclusion
Export is not simply selling goods and waiting for money to come in. Export is the management of legal, transport, cash flow, documentation, insurance, payment and cultural risks.
Everything begins with one truth: One word in a contract can decide the profit of an entire year.
Next article: Incoterms® 2020 – Misunderstand one word, lose real money.
FAQ – Frequently Asked Questions About Export Risk Management
Does Incoterms® 2020 replace the contract?
No. Incoterms only allocates delivery obligations, costs and risks. The contract must still define payment, ownership, penalties, governing law and dispute resolution.
Is FOB the safest term for the seller?
Not always. FOB transfers risk when the goods are on board at the port of loading. If the company misunderstands the risk transfer point, claims can still arise.
Does CIF mean the seller bears all risks until the destination port?
No. Under CIF, the seller pays freight and buys insurance, but the risk normally transfers when the goods are on board at the port of loading.
When should a business avoid DDP?
A business should avoid DDP if it has no legal entity, representative or capability to handle import clearance, taxes and legal procedures in the destination country.
What are local charges?
Local charges may include THC, D/O, handling, demurrage, detention and other destination or origin charges. The contract must clearly state which party bears them.
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