Allocation of costs
Division of transport, insurance, and customs clearance costs between seller and buyer, as determined by the Incoterm chosen in the sales contract.
Definition and principle
Allocation of costs is one of the three main functions of Incoterms, along with risk transfer and delivery obligations. Each Incoterm precisely determines which costs are borne by the seller and which fall on the buyer: main carriage, local transport, insurance, loading/unloading charges, export and import customs formalities.
Legal framework
Incoterms 2020 from the ICC detail in section A9/B9 (allocation of costs) of each term the respective financial obligations of seller and buyer. This section is one of the most detailed in each Incoterm rule. Customs clearance costs are covered by sections A7/B7 (export and import formalities).
Allocation by Incoterms groups
- Group E (EXW): minimal costs for the seller — the buyer bears all costs from the seller's premises
- Group F (FCA, FAS, FOB): the seller delivers to the carrier — they pay costs to the delivery point, the buyer pays main carriage
- Group C (CPT, CIP, CFR, CIF): the seller pays main carriage to destination and, for CIP/CIF, insurance — but risk transfers at departure
- Group D (DAP, DPU, DDP): the seller bears all costs to destination — for DDP, they even pay import duties
Key considerations
- Loading and unloading costs at transition points must be clearly allocated in the contract — Incoterms 2020 clarified these points but grey areas remain
- Cost allocation and risk transfer do not always coincide (particularly with C terms where the seller pays carriage but no longer bears risk)
- Ancillary costs (demurrage, storage charges, inspections) must be contractually allocated as Incoterms do not cover all possible costs