Incoterms 2020 for Australian importers: which terms affect your duty calculation?

Every commercial invoice for an international sale includes a three-letter code next to the price. That code is an Incoterm, and it tells you who pays for what between seller and buyer. For Australian customs purposes, Incoterms matter because duty is calculated on the customs value, and the customs value depends on which costs are already baked into the invoice price. Get this wrong and you'll either overpay duty or underdeclare and cop a penalty from ABF.

This guide covers all 11 Incoterms 2020 terms, explains how each one changes your duty calculation, and walks through a worked example so you can see the dollar difference.

The 11 Incoterms in 30 seconds

Incoterms 2020 is published by the International Chamber of Commerce (ICC). There are 11 terms, split into two groups: seven that work for any transport mode, and four that only apply to sea and inland waterway transport.

Any transport mode

Term	Full name	What the seller pays for
EXW	Ex Works	Nothing beyond making goods available at their premises
FCA	Free Carrier	Delivery to a named carrier or place (often the factory gate or local depot)
CPT	Carriage Paid To	Freight to the named destination, but risk transfers at origin
CIP	Carriage and Insurance Paid To	Freight and insurance to destination (insurance must cover 110% CIF value under ICC Clause A)
DAP	Delivered at Place	All transport costs to the destination, not unloaded
DPU	Delivered at Place Unloaded	All costs including unloading at destination
DDP	Delivered Duty Paid	Everything, including import duty, GST, and customs clearance in Australia

Sea and inland waterway only

Term	Full name	What the seller pays for
FAS	Free Alongside Ship	Delivery alongside the vessel at the port of export
FOB	Free on Board	Loading onto the vessel at the port of export
CFR	Cost and Freight	Freight to the destination port (no insurance)
CIF	Cost, Insurance and Freight	Freight and insurance to the destination port

The key thing to notice is the sliding scale. EXW is the bare minimum from the seller. DDP is the maximum. Everything in between shifts progressively more cost and risk from buyer to seller.

How Incoterms affect your duty bill

Australian customs calculates duty on the FOB value of goods. That's the transaction value of the goods at the point of export, including all costs up to and including loading onto the vessel (or aircraft, or truck) at the port of export.

This is stated in Section 159 of the Customs Act 1901 and the Customs Valuation guidelines. The customs value is the transaction value adjusted to a FOB basis.

What that means in practice:

• FOB invoice: Use the invoice value directly. It's already at the right point.
• CIF or CFR invoice: Deduct the international freight and insurance. The invoice includes costs that happen after the FOB point, so you need to strip them out to get the customs value.
• EXW or FCA invoice: Add the inland transport and handling costs from the seller's premises to the port of export. The invoice doesn't include costs that happen before the FOB point, so you need to add them.
• DDP invoice: Deduct freight, insurance, and any duty or taxes the seller has already paid. This one is tricky because the seller's costs are often bundled into a single price.

Worked example: $50,000 of furniture from Vietnam

Same goods, same factory, three different Incoterms on the invoice. Let's say the HS code attracts 5% duty and the AUD/USD rate is 0.65.

Scenario 1: FOB Ho Chi Minh City, USD 50,000

Customs value (AUD): $50,000 / 0.65 = AUD $76,923 Duty at 5%: AUD $3,846

Scenario 2: CIF Melbourne, USD 55,500 (includes USD 5,000 freight + USD 500 insurance)

Deduct freight and insurance: $55,500 - $5,000 - $500 = USD $50,000 Customs value (AUD): $50,000 / 0.65 = AUD $76,923 Duty at 5%: AUD $3,846

Scenario 3: EXW factory, USD 48,000 (inland transport to HCMC port costs USD 2,000)

Add inland transport: $48,000 + $2,000 = USD $50,000 Customs value (AUD): $50,000 / 0.65 = AUD $76,923 Duty at 5%: AUD $3,846

In all three cases, the duty is the same because the underlying FOB value is identical. The Incoterm just determines whether you need to add or subtract costs to arrive at that FOB figure.

But here's where it goes wrong. If you take the CIF invoice value of USD 55,500 and use it as your customs value without deducting the freight and insurance, your duty calculation becomes:

$55,500 / 0.65 = AUD $85,385 × 5% = AUD $4,269

That's $423 more duty than you should be paying. On a single shipment. Multiply that across a year's worth of imports and you're looking at thousands in overpaid duty.

You can run the full calculation for your own shipments with the landed cost calculator, which handles the FOB adjustment automatically based on the Incoterm you select.

Most common Incoterms in Australian imports

In practice, most Australian imports use one of three terms.

FOB is by far the most common for ocean freight from Asia. The buyer (importer) arranges and pays for shipping from the port of export. This is the simplest for customs purposes because the invoice value is already at the FOB point. If your supplier is in China, Vietnam, India, or anywhere in Southeast Asia, chances are your invoices say FOB.

CIF is more common for imports from Europe and for buyers who want the seller to handle shipping logistics. You'll see it on invoices from German machinery suppliers, Italian textile mills, and UK manufacturers who have established freight arrangements. Just remember to deduct the freight and insurance before declaring the customs value.

EXW shows up occasionally, usually when the buyer has their own freight forwarder picking up from the factory. It's less common because it puts all the logistics burden on the buyer, including export customs clearance in the origin country. For customs valuation, you need documentation of the inland transport costs to add them back to the EXW price.

DDP is rare for Australian imports but it does appear, particularly with some European suppliers and increasingly with Chinese sellers on platforms like Alibaba. If your invoice says DDP, the price already includes Australian duty and GST, which means you need to back those out before calculating what to declare. This gets messy and brokers generally prefer to work with FOB or CIF terms.

For a deeper look at how duty rates and GST are calculated once you have the right customs value, see the step-by-step guide to calculating import duty.

Mistakes that cost money

Using the CIF value without deducting freight and insurance. This is the single most common Incoterms mistake on import declarations. The invoice says CIF, so the importer (or their broker) enters the total CIF amount as the customs value. You're now paying duty on the freight and insurance costs, which aren't part of the goods' value. On high-volume imports, this adds up fast.

Confusing FOB origin with FOB destination. FOB in Incoterms always means FOB at the port of export, not the port of import. If your supplier writes "FOB Melbourne" on the invoice, that's not a standard Incoterm, it's a domestic shipping term. Clarify with your supplier what costs are actually included.

DDP invoices where duty is already in the price. If the seller has paid duty and GST on your behalf under DDP terms, those amounts need to be excluded from your customs value declaration. Otherwise you're paying duty on the duty. You need the seller to provide a cost breakdown showing the ex-duty, ex-GST value of the goods.

Not having supporting documents for adjustments. If you're adding inland transport costs to an EXW price or deducting freight from a CIF price, ABF can ask you to prove those numbers. Keep the freight invoices, insurance certificates, and any cost breakdowns from your supplier. Your commercial invoice should ideally itemise these costs separately.

Ignoring the Incoterm on the N10 declaration. The N10 import declaration requires you to declare the customs value on a FOB basis. If your invoice is on CIF terms and you enter the CIF amount into the customs value field, you've overstated it. The Incoterm on your invoice tells you exactly what adjustment to make.

Getting it right every time

The Incoterm on your commercial invoice isn't just a shipping detail. It's the starting point for your entire duty calculation. Know which term you're working with, understand what costs it includes, and adjust to FOB before declaring. That's it. No mystery, just arithmetic and attention to detail.