Incoterms for importers bringing goods into Kenya

The price on a proforma invoice is only half the deal. The three letters after it decide who books the freight, who insures the cargo, when the risk of loss moves to you and who deals with customs. For importers bringing goods into Kenya through the Port of Mombasa, they also shape the letter of credit and the cargo cover you need.

What an Incoterm settles

Incoterms are standard trade rules published by the International Chamber of Commerce. The current edition is Incoterms 2020. Each rule sets where the seller delivers, who pays for the main carriage, when risk passes and who handles export and import clearance.

An Incoterm does not set the price, the payment terms or the moment ownership passes. Those belong in the sales contract. A term also needs a named place to work: "FOB [named port of loading] Incoterms 2020" tells everyone where delivery happens and which rules apply.

FAS, FOB, CFR and CIF are for sea and inland waterway transport only. The rest work for any mode. Container cargo is usually handed over at a terminal well before loading, so for containers the ICC's own guidance favours FCA, CPT or CIP over their sea-only equivalents.

The common terms, from the importer's side

Ask two separate questions of every term: who pays the freight, and who carries the risk in transit. Often the answers differ.

• EXW (Ex Works). The seller makes the goods available at its premises. You arrange everything from there, including export formalities in the seller's country, and the risk is yours from that point.
• FOB (Free on Board). The seller clears the goods for export and loads them on your nominated vessel. You pay the ocean freight and insure. Risk passes once the goods are on board.
• CFR (Cost and Freight). The seller pays the freight to Mombasa, but risk passes to you at loading. You carry the risk for the whole voyage.
• CIF (Cost, Insurance and Freight). As CFR, and the seller also buys cargo insurance for your benefit. The minimum is limited cover under Institute Cargo Clauses (C).
• CIP (Carriage and Insurance Paid To). The seller pays carriage to a named place and insures the goods, with a broader minimum at Institute Cargo Clauses (A) level. Risk passes when the goods reach the first carrier.
• DAP (Delivered at Place). The seller carries the cost and risk to a named place in Kenya. You handle import clearance, duties and taxes.
• DDP (Delivered Duty Paid). The seller also clears the goods and pays duties in Kenya. Few foreign suppliers can lawfully act as the importer in Kenya.

FCA (Free Carrier) and CPT (Carriage Paid To) follow the logic of FOB and CFR for any mode of transport.

Marine cargo insurance and the local cover rule

Under CFR and CIF the seller pays the freight while you carry the risk at sea. Under most terms, then, cargo insurance is the importer's decision.

Kenya adds a specific requirement. Cargo imported into Kenya must be insured with an insurer licensed in Kenya, and a valid marine cargo insurance certificate is checked as part of customs clearance. A CIF or CIP price that includes the seller's foreign policy will not, on its own, meet that requirement. Many Kenyan importers therefore buy on FOB, FCA, CFR or CPT terms and arrange cover locally. Confirm the current position with your broker and clearing agent before you agree terms.

When you review the cover, check whether it is all-risks or limited to named perils, and whether it runs beyond Mombasa to your warehouse, an inland depot or a transit destination. Know what the policy requires if goods arrive damaged, such as a survey and prompt notice to the carrier. Cover is placed through licensed insurers and brokers.

How the term shapes a letter of credit

A letter of credit pays against documents, so the Incoterm decides what the seller must present. Under FOB or CFR, the credit will usually call for an on-board bill of lading marked freight collect or prepaid. Under CIF or CIP, it may also call for an insurance document. Asking for documents the term does not produce invites discrepancies. EXW sits badly with a credit because the seller hands over the goods before any transport document exists.

Your bank may also want evidence of cargo cover before it issues the credit. The sales contract, proforma invoice, credit application and insurance should all name the same term and place. Our brief on letters of credit and bank guarantees explains when each instrument fits.

Customs clearance in Kenya

Under every term except DDP, clearing the goods into Kenya is your responsibility. Customs is administered by KRA under the East African Community Customs Management Act, 2004. You will need a KRA PIN and an Import Declaration Form lodged through the national electronic single window. Many products also need a certificate of conformity issued before shipment under the Kenya Bureau of Standards' Pre-Export Verification of Conformity programme, or an inspection on arrival. Check which applies before you order, since a missing certificate can hold goods at the port. A licensed customs agent then lodges the entry, and duties and taxes are paid before release.

Decide early where the goods will be cleared: at Mombasa, or at the inland container depots in Nairobi and Naivasha served by the Standard Gauge Railway. The choice affects your insurance, transport and timing. Goods heading on to Uganda, Rwanda or South Sudan move under transit procedures along the Northern Corridor.

Choosing a term: a short checklist

• Match the term to how the goods move. For containers, consider FCA, CPT or CIP.
• Name the place precisely, and state "Incoterms 2020" in the contract.
• Decide who insures, and confirm the local cover requirement before you sign.
• Ask which charges at Mombasa the seller's freight price includes.
• Avoid EXW and DDP unless you, or the seller, can handle the formalities they demand.
• Appoint your clearing agent and agree the clearance location before the goods ship.

How we help

Epiidosis Africa reviews the supply contract and proposed Incoterm before you order. Our insurance and risk consulting practice maps the cargo risk from the seller's door to yours, checks the cover against the term and the local requirement, and prepares a brief for your broker. Our financing and transaction advisory practice reviews the letter of credit terms and document list so they match the contract. Through the Import & trade readiness programme, we support each shipment from order to collection.

We don't sell or arrange insurance ourselves. Cover is placed through licensed insurers and brokers, and any letter of credit is a decision for your bank.