Guides · Incoterms
The Incoterm on your invoice decides what customs charges duty on.
Shafiq Traders · Updated 14 September 2026
The Incoterm on a sale contract decides who arranges and pays for freight, who carries the risk of loss in transit, and the exact point where that risk passes from seller to buyer. It also decides, indirectly, what we declare as the customs value. Pakistan assesses duty on a value built up to include the cost of transport and insurance to the port of importation. If your invoice price already carries those costs — a CFR or CIF sale — they are already in the number we declare. If it does not — an EXW or FOB sale — we add them before we file.
Eleven terms, and about four that turn up in most files here
The Incoterms are published by the International Chamber of Commerce, currently the Incoterms 2020 edition, in force since January 2020. There are eleven of them. Most of what we see in a Karachi or Lahore import sits inside four: EXW, FOB, CFR and CIF, with DAP and DDP appearing on machinery and project cargo bought on a delivered basis.
Every term does two jobs. It fixes the point where risk passes from seller to buyer, and it fixes who pays for the carriage — the freight, and often the insurance — up to that point. Those are contract questions between you and your supplier. What we declare at the terminal is not, and that is where the term stops being paperwork and starts being consequential.
What the common terms actually decide
| Term | Who pays the main freight | Where risk transfers | Insurance |
|---|---|---|---|
| EXW — Ex Works | Buyer, from the seller's premises | At the seller's door, before the goods are even loaded | Buyer's arrangement, if any |
| FOB — Free on Board | Buyer, from the port of loading | Once the goods are on board the vessel | Buyer's arrangement, if any |
| CFR — Cost and Freight | Seller, to the port of discharge | Once the goods are on board the vessel, same as FOB | Buyer's arrangement, if any |
| CIF — Cost, Insurance and Freight | Seller, to the port of discharge | Once the goods are on board the vessel, same as FOB | Seller, minimum cover |
| DAP — Delivered at Place | Seller, to the named destination | On arrival at the named place, before unloading | Seller's arrangement, if any |
| DDP — Delivered Duty Paid | Seller, to the named destination | On arrival at the named place, before unloading | Seller's arrangement, if any |
Why the term on the invoice decides what we declare as value
Section 25 of the Customs Act sets out the transaction value: the price actually paid or payable for the goods, adjusted to add certain costs where they are not already in that price. Two of the additions are the cost of transport to the port or airport of importation and the cost of insurance. That is the mechanism that ties an Incoterm to the number that lands on the Goods Declaration.
A CIF invoice already carries both costs inside the unit price, so the figure on it is close to the assessable value already. An FOB or EXW invoice does not, and freight and insurance have to be added on top of the invoice price before we can file. Get the term wrong on the invoice, or leave the freight figure off it entirely, and the value we build is not the number your supplier quoted you — and that gap is what a query gets raised on.
Where this catches an importer who did not expect it
An EXW invoice with no freight figure anywhere in the file is the version we see most. We then build the CIF-equivalent value from the freight shown on the bill of lading or airway bill, and if that is not there either, from whatever supporting proof of freight you can get us — a carrier invoice, a forwarder's debit note. Silence on freight does not lower the assessed value. It just slows down how we arrive at it.
DDP creates a different problem. The term makes your supplier responsible for delivery and duty at the far end, but the declaration still has to be filed in the name of the actual importer, against your NTN. A DDP contract with your supplier does not change whose name goes on the Goods Declaration here, and it should not be read as if it does.
Choosing the Incoterm is a negotiation between you and your supplier, and we are not a party to it. What we will say plainly: an EXW or FOB invoice with no freight figure on it takes us longer to value than a CIF one, because we have to establish that freight from something other than the invoice. That is real extra work, not a formality, and knowing the terminal well does not make it disappear.
Questions
What importers ask about Incoterms
Contact
Tell us what is coming.
Give us the product, the port and roughly when the vessel is due, and we will tell you what the clearance involves and what it will cost.
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