Understanding Incoterms for Latin American Trade
Incoterms define responsibilities, costs, and risks in international shipping. Understanding which Incoterm to use when shipping from Canada to Latin America can save you money and prevent disputes with your trading partners.
What Are Incoterms?
Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce. They define who pays for shipping, insurance, customs duties, and at what point risk transfers from seller to buyer.
The current version, Incoterms 2020, includes 11 terms divided into two categories based on mode of transport. Choosing the right one is crucial for cost control and legal protection.
Did you know?
Using the wrong Incoterm can cost you thousands of dollars in unexpected fees. For example, if you agree to DDP (Delivered Duty Paid) to Brazil, you're responsible for paying Brazil's high import taxes, which can be 60-100% of the goods' value!
Most Common Incoterms for Latin America
FOB (Free on Board)
RecommendedSeller's responsibility: Deliver goods on board the vessel at the port of shipment
Buyer's responsibility: Pay for ocean freight, insurance, and all costs from the port of loading
Best for: Experienced importers in Latin America who have their own freight forwarders and customs brokers. Very common for Canada-Mexico trade.
CIF (Cost, Insurance, and Freight)
PopularSeller's responsibility: Pay for goods, ocean freight, and minimum insurance to destination port
Buyer's responsibility: Pay for customs clearance, duties, taxes, and inland transport in destination country
Best for: New importers who want predictable landed costs. Common for shipments to Brazil and Argentina.
EXW (Ex Works)
Use CautionSeller's responsibility: Make goods available at their premises only
Buyer's responsibility: Everything from pickup to final delivery, including export clearance
Best for: Large, sophisticated buyers with extensive logistics networks. Rarely used for Latin America due to complexity.
DDP (Delivered Duty Paid)
RiskySeller's responsibility: Everything including delivery to buyer's door and payment of all duties/taxes
Buyer's responsibility: Only receiving the goods
Warning: Avoid DDP for Latin America unless you fully understand import duties and regulations in the destination country. Unexpected costs can eliminate your profit margin.
💡 Pro Tip
When negotiating with Latin American buyers, start with FOB or CIF. These terms are universally understood and create clear divisions of responsibility. Avoid EXW and DDP unless you have expert support and a complete understanding of costs.
Country-Specific Considerations
🇲🇽 Mexico
FOB is the standard term due to USMCA benefits. Mexican importers typically have established customs brokers and prefer to control clearance.
- Strong customs broker infrastructure
- Low import duties under USMCA
- Fast truck and rail connections from Canada
🇧🇷 Brazil
CIF is most common due to complex import procedures. Brazilian buyers expect sellers to handle international logistics but prefer to manage their own customs clearance.
- High import duties (average 35%)
- Complex customs procedures requiring local expertise
- CIF clearly separates responsibilities
🇨🇱 Chile / 🇦🇷 Argentina
FOB or CIF work well. These countries have relatively efficient customs systems, and buyers are comfortable with either term.
- Modern customs systems
- Reasonable import duties (Chile lower than Argentina)
- Experienced import community
Common Incoterm Mistakes to Avoid
Not Specifying the Location
Always include the specific location: "FOB Vancouver" or "CIF Santos" not just "FOB" or "CIF". This prevents disputes about where responsibility transfers.
Using Outdated Incoterms
Always specify the version: "FOB Vancouver (Incoterms 2020)". Using old terms like "FOB Vessel" creates legal ambiguity.
Choosing DDP Without Research
Never agree to DDP without understanding total import costs. Some Latin American countries have duties exceeding 100% of product value.
Confusing Insurance Requirements
Under CIF, you only need minimum insurance (110% of invoice value). Buyers wanting more coverage should use CIP instead.
Need Help Choosing the Right Incoterm?
Metro Shippers' trade experts can guide you through Incoterm selection and ensure you understand all costs and responsibilities for your Latin America shipments.
Speak with a Trade ExpertConclusion
Incoterms are the foundation of international trade agreements. When shipping from Canada to Latin America, FOB and CIF are your safest choices for most transactions. They're widely understood, create clear responsibilities, and minimize risk for both parties.
Always specify the exact location and Incoterms version in your contracts, and work with experienced freight forwarders who understand the nuances of each Latin American market. The right Incoterm protects your profits and ensures smooth transactions.