Trade and Logistics

Common Incoterms Mistakes That Cost New Zealand Businesses Money

Incoterms are precise, but only inside a narrow scope. The expensive errors come from assuming a term does more than it does. Here are eight that catch New Zealand importers and exporters, and the fix for each.

By Gordon Findlay, Findlay and Co · Reading time about 9 minutes

An Incoterm is one clause in your contract. It tells you where delivery happens, when risk passes from seller to buyer, and who pays for each leg of the journey. That is all it does.

Most disputes do not come from people misreading the rule. They come from people expecting the rule to settle ownership, insurance, payment or product quality, none of which it touches. The cost shows up later: a damaged container nobody insured, duty and GST you cannot reclaim, a letter of credit the bank rejects, a shipment stuck at a freight station while two parties argue.

The eight mistakes below are the ones we see most often in New Zealand trade. Each one has a clear fix, and the fix is usually a different term or a tighter contract clause, not a more expensive freight bill.

A commercial invoice, bill of lading and marine insurance certificate laid out on a desk, with a New Zealand container port visible through the window
The contract, the invoice, the bill of lading and the insurance certificate all have to agree. Most disputes start when they do not.

The eight mistakes

01

Choosing EXW because the quote looks cheapest

The mistake

A New Zealand importer agrees EXW at the seller's factory because it reads as the lowest price on the table. Under EXW the seller only has to make the goods available on their own floor. Everything after that is yours: loading, inland haulage at origin, export clearance, main carriage, insurance, import clearance and final delivery.

Why it costs money

In most countries only a locally registered entity can make the export customs declaration. A New Zealand buyer cannot usually be the exporter in China, Vietnam or Germany without a local agent, so you carry the compliance exposure for a declaration made on your behalf. The seller is also not obliged to load the goods, and if they help, the loading happens at your risk. By the time you add origin clearance, loading risk and the cost of running logistics in a country you are not based in, EXW is rarely the cheapest option it appeared to be.

The fix

For most New Zealand imports, use FCA at the seller's premises. You still control the main carriage, but export clearance stays with the seller, where the law expects it to sit.

02

Accepting DDP from a seller who cannot clear customs here

The mistake

A small business orders from an overseas supplier who quotes DDP. It sounds ideal: fully delivered, duty paid, nothing for you to handle. Under DDP the seller is responsible for delivering the goods cleared for import in New Zealand, with all duty and GST paid.

Why it costs money

To pay GST and duty, someone must be the importer of record: a New Zealand registered entity or a party legally able to make an import declaration to Customs. A foreign seller who is not registered here cannot simply pay New Zealand GST. If they have not appointed a compliant agent, the goods sit at the freight station and demurrage builds while both sides argue about who pays. There is a second cost even when DDP works. The GST input credit belongs to the importer of record, so under DDP it goes to the seller, not to you. A GST registered New Zealand buyer who would otherwise have claimed that GST back loses the credit.

The fix

For most business to business trade, use DAP. The seller delivers to your door, you act as importer of record through your own customs broker, and you keep the GST input credit. DDP suits low value consumer e commerce, not most New Zealand B2B imports.

03

Using FOB, CFR or CIF for containerised cargo

The mistake

FOB, CFR and CIF are still written into contract templates for container shipments out of habit. These are sea only rules designed for the era of loose and break bulk cargo, when goods were lifted straight from the quay onto the vessel and loading on board was a single visible event.

Why it costs money

With a container, the seller's job ends at the terminal gate. The container is then received by the terminal and can sit in the yard for several days before it is loaded. Under FOB, risk does not transfer until the goods are on board, so if the container is damaged in the terminal, the seller still bears the risk but no longer controls the goods. That mismatch is the terminal risk gap, and it produces disputes about who pays for damage that happened in a yard neither party was watching.

The fix

Use the any mode rules built for containers: FCA instead of FOB, CPT instead of CFR, and CIP instead of CIF. Risk transfers when the container is handed to the carrier at the terminal, which matches how the cargo actually moves. Since 2020, FCA can also produce an on board bill of lading for letter of credit work, which removes the last reason to cling to FOB for containers.

04

Assuming the seller's freight payment includes insurance

The mistake

Under CFR and CPT the seller pays the freight to the destination, so buyers assume the cargo is protected during the voyage. It is not. CFR and CPT impose no insurance obligation on either party.

Why it costs money

Risk transfers to you at loading at origin, long before the goods arrive. If they are damaged or lost in transit and you have not arranged cover, your only remedy is a limited claim against the carrier. The same trap hides inside CIF and CIP at a different level. CIF only requires the minimum Institute Cargo Clauses (C), a named perils policy that covers events like fire and sinking but not ordinary handling damage. For electronics, machinery or anything fragile, Clauses (C) can leave you exposed on a claim you assumed was covered.

The fix

Treat insurance as a separate decision, not a by product of who pays the freight. Confirm with your broker that your marine cargo cover is active from the point of risk transfer at origin. If you need all risks cover as a seller obligation, require CIP, which carries the Clauses (A) minimum under the 2020 rules, rather than CIF.

05

Leaving the named place vague

The mistake

A contract or invoice states a term with no specific location: FOB on its own, or FCA China, or CIF with just a country. The named place is treated as a detail rather than part of the term.

Why it costs money

The named place is what converts an abstract rule into an enforceable one. It defines where risk transfers and where the seller's cost obligation ends. FOB with no port means the risk transfer point is undefined, and courts in different countries may read it differently. A vague named place is a loose thread that the other side's lawyer can pull when something goes wrong.

The fix

Always name a specific place: a port, terminal, warehouse or address. Write it in full, for example FOB Yantian Container Terminal Shenzhen, INCOTERMS 2020, or FCA 12 Industrial Road Hamilton, INCOTERMS 2020. The more specific the named place, the clearer the risk transfer point.

06

Assuming the Incoterm covers title, payment or the whole contract

The mistake

Parties treat the Incoterm as if it settles ownership, payment and quality. A buyer says they agreed CIF, so the seller must be liable if the goods turn out to be defective.

Why it costs money

Incoterms govern three things only: delivery, risk transfer and cost allocation. They say nothing about when title passes, when and how you pay, what happens on breach, whether the goods conform, or force majeure. CIF insurance covers loss or damage in transit, not defective product. If you rely on the Incoterm to do work it was never designed to do, you discover the gap at the worst possible moment, when a shipment is defective, a payment is disputed or an event stops performance.

The fix

Treat the Incoterm as one clause in a complete contract. In New Zealand, the passing of property and implied terms about quality sit under the Contracts and Commercial Law Act 2017, not the Incoterm. Make sure your contract separately covers title, payment terms, breach remedies, product conformity, force majeure, and governing law.

07

Letting the contract, invoice and documents disagree

The mistake

The Incoterm in the contract does not match the term on the commercial invoice, the bill of lading, the insurance certificate or the letter of credit. The set looks complete, but the documents quietly contradict each other: the contract says CIF, the invoice says CFR, or the bill of lading and the insurance certificate name different ports of loading.

Why it costs money

When a bank reviews a documentary credit presentation, it checks every document for consistency. One discrepancy and the presentation is rejected under UCP 600, and the seller does not get paid until it is corrected and resubmitted. That means delay, banking fees, and the real risk that a time sensitive letter of credit expires before the fix is in. Most of these contradictions are administrative errors, not fraud, which is exactly why they slip through.

The fix

Run a four step consistency check before the documents go anywhere. Does the Incoterm on the invoice match the contract? Does the bill of lading port of loading match the invoice and contract? Does the insurance certificate voyage match the bill of lading? Are the insurance clauses consistent with the contracted term? The check takes five minutes and removes most rejections.

08

Not stating the Incoterms version year

The mistake

A contract cites a term and a place but no edition: CIF Auckland, with no year. The version is left to assumption.

Why it costs money

Incoterms 2020 and Incoterms 2010 differ in material ways. CIP now requires Clauses (A) all risks insurance as the minimum, FCA can now generate an on board bill of lading, and DPU replaced the old DAT. If the year is missing, a court or arbitrator may have to decide which version applies, and different countries may default differently. A contract dated in 2024 that still references INCOTERMS 2010 is not automatically wrong, but it is a problem if both sides assumed they were on the current rules.

The fix

State the term, the named place and the year every time: CIF Auckland, INCOTERMS 2020. If you are reviewing older contracts that reference 2010, decide deliberately whether to renegotiate to the current edition rather than letting it ride by accident.

The pattern behind all eight

Seven of these mistakes share one root: someone assumed the Incoterm covered something it does not. It does not insure your cargo, it does not pass title, it does not pay your GST, and it does not write your whole contract.

Run two questions before you agree any term. What exactly does this Incoterm transfer, and at what point? And what does the rest of my contract need to cover that the Incoterm leaves out? Get those right and most of the expensive surprises disappear.

An Incoterms course for New Zealand businesses is coming

Findlay and Co runs its training through Capability Solutions, our workplace training arm. We are building a practical Incoterms 2020 course written for New Zealand importers, exporters and freight and operations teams, with the cost and risk transfer points, the documents, and the New Zealand customs and GST detail worked through in plain language. Register your interest and we will let you know the moment it opens. New to freight and logistics? Read our guide on how to start a career in freight forwarding in New Zealand.

Register your interest See Capability Solutions Capability Solutions is the Findlay and Co training business. Existing courses are at train.capabilitysolutions.co.nz.

Frequently asked questions

Does CIF mean my goods are insured to my door in New Zealand?

No. Under CIF, risk passes to you when the goods are loaded on board the vessel at the origin port, not on arrival in New Zealand. The seller arranges insurance, but only to the minimum Institute Cargo Clauses (C) standard, which is a named perils policy. CIF also stops at the destination port, so you still arrange unloading, terminal handling, import clearance and inland delivery. CIF is not a delivered to your door term.

Why is EXW a problem for a New Zealand importer?

Under EXW the buyer is responsible for export clearance in the seller's country. In most countries only a locally registered entity can make the export customs declaration, and a New Zealand buyer usually cannot do that without a local agent. The seller also has no obligation to load the goods, and any loading happens at your risk. For most New Zealand imports, FCA at the seller's premises gives you the same control of main carriage without the EXW traps.

Should I use FOB or CIF for a container shipment?

Neither was designed for containers. FOB, CFR and CIF are sea only rules built for bulk and break bulk cargo loaded directly onto the vessel from the quay. For containers, use the any mode equivalents: FCA instead of FOB, CPT instead of CFR, and CIP instead of CIF. These transfer risk when the container is handed to the carrier at the terminal, which matches how container logistics actually work and closes the terminal risk gap.

Who pays GST on an import, and does DDP change that?

GST on imported goods is payable by the importer of record. Under DAP, the New Zealand buyer is the importer of record, pays the GST and, if GST registered, claims it back as an input credit. Under DDP, the foreign seller or their appointed agent is the importer of record, so the GST input credit goes to them, not to you. For most business to business imports, DAP is the cleaner structure because you keep the GST credit.

Do Incoterms decide when ownership of the goods passes to me?

No. Incoterms govern delivery, risk transfer and cost allocation only. They say nothing about when title or ownership passes, payment terms, breach remedies, product quality or force majeure. In New Zealand, the passing of property is governed by the contract and the Contracts and Commercial Law Act 2017. Your Incoterm is one clause in your contract, not the whole agreement.

Why does the named place matter in an Incoterm?

The named place is what turns an abstract rule into an enforceable term. FOB with no port is ambiguous: which port defines the risk transfer point? A vague named place creates disputes that a lawyer on the other side can exploit. State the term, a specific named place, and the version year, for example FCA Yantian Container Terminal Shenzhen, INCOTERMS 2020.

Does Incoterms 2020 differ from Incoterms 2010?

Yes, in material ways. CIP now requires Institute Cargo Clauses (A) all risks insurance as the minimum, FCA can now generate an on board bill of lading for letter of credit transactions, and DPU replaced the old DAT. If you leave the year off your contract, a court or arbitrator may have to decide which version applies. Always cite the year, for example CIF Auckland, INCOTERMS 2020.

What goes wrong when the contract, invoice and shipping documents disagree?

A bank reviewing a documentary credit checks every document for consistency. If the contract says CIF but the invoice says CFR, or the bill of lading and the insurance certificate name different ports of loading, the bank can reject the presentation under UCP 600. You do not get paid until the documents are corrected and resubmitted, which means delay, banking fees and the risk that a time sensitive letter of credit expires.

Gordon Findlay

Gordon Findlay is the principal of Findlay and Co, a New Zealand consultancy working in strategic planning, forecasting and business growth, with workplace training delivered through Capability Solutions. Reach him at gordon@findlayandco.co.nz.