The global supply chain landscape has changed dramatically since 2020. The COVID-19 pandemic, geopolitical tensions, and rising climate-related disruptions have reshaped the way paper, pulp, and packaging distributors manage international shipments. In this new environment, traditional trade terms—particularly Incoterms—require careful review and updating to better reflect current risk realities.
Incoterms (International Commercial Terms) define the responsibilities of buyers and sellers regarding shipping, insurance, customs clearance, and risk transfer. Choosing the right Incoterms contract is critical for mitigating risks, managing costs, and ensuring smooth delivery of paper and packaging products worldwide.
This blog explores how distributors can update their use of Incoterms to navigate post-2020 complexities, protect their interests, and maintain supply chain resilience.
Why Incoterms Matter More Than Ever
Incoterms have long served as the standardized language of international trade, clarifying who is responsible for transportation costs, insurance, and risk at various points during the shipping process. However, the unprecedented disruptions since 2020 have exposed vulnerabilities and cost pressures that many traditional contracts fail to address adequately.
For paper, pulp, and packaging distributors dealing with bulky, fragile, or high-value shipments, the choice of Incoterms can significantly impact:
Financial risk exposure (damage, loss, or delay)
Customs clearance responsibility and timing
Insurance coverage scope
Carrier and freight forwarder accountability
Flexibility to adapt to port congestions or route changes
Key Post-2020 Supply Chain Risks Influencing Incoterms Decisions
Unpredictable Port Congestion and Delays
Ports worldwide have faced chronic congestion and labor shortages. This prolongs transit times, increases demurrage charges, and heightens the risk of product damage—especially for delicate packaging materials.
Heightened Customs Scrutiny and Documentation Requirements
Trade policies have become more complex and dynamic, with varying tariffs, environmental regulations, and anti-dumping measures impacting paper and pulp products.
Supply Chain Interruptions and Carrier Insolvencies
Carriers and freight forwarders have experienced financial strain, increasing the risk of service cancellations or bankruptcies during transit.
Insurance Limitations and Increased Premiums
Due to rising claims and uncertainty, insurance providers have tightened coverage terms and increased costs, especially for ocean freight.
Updating Incoterms for the Paper, Pulp & Packaging Industry: Practical Guidelines
1. Reassess the Risk Transfer Point
Traditionally, many paper and packaging distributors preferred Incoterms such as FOB (Free On Board) or EXW (Ex Works), where the buyer assumes risk early in the shipping process. However, in a volatile environment, shifting risk transfer closer to delivery can reduce unexpected liabilities.
Consider adopting Incoterms like CIP (Carriage and Insurance Paid to) or DAP (Delivered At Place), which place greater responsibility on the seller for freight, insurance, and customs clearance, reducing buyer exposure.
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2. Incorporate Comprehensive Insurance Requirements
Given insurance constraints, it’s essential to clearly define who is responsible for cargo insurance and the coverage minimums. Under CIP, the seller must procure insurance, but buyers should verify that coverage meets the value and risk profile of paper and packaging shipments.
Using Incoterms that mandate insurance can protect against damages or losses during extended transit times or in congested ports.
3. Clarify Customs Clearance Responsibilities
Disruptions in customs clearance have caused costly delays. Specify whether the buyer or seller manages import/export formalities and associated duties.
Using Delivered Duty Paid (DDP) terms places full responsibility on the seller, ensuring buyers avoid unexpected customs hurdles. This can be advantageous for distributors importing into complex regulatory environments.
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4. Negotiate Flexibility in Delivery Locations
With shifting port access and warehouse availability, flexible delivery terms reduce bottlenecks. Incoterms that allow delivery to alternative sites or permit interim storage without immediate risk transfer provide operational agility.
5. Align Incoterms with Digital Supply Chain Visibility
Choose terms compatible with technology-enabled tracking and documentation. Digital proof of delivery, real-time shipment monitoring, and automated customs filings can enhance compliance and risk management under all Incoterms.
Case Example: Shifting From FOB to CIP to Manage Freight Risk
A paper packaging distributor traditionally used FOB terms, taking possession and risk as soon as goods loaded on the vessel. However, repeated port congestion and carrier delays exposed them to unforeseen demurrage costs and damage claims.
By shifting to CIP Incoterms, the seller assumed responsibility for freight and insurance up to the buyer’s warehouse. This shift reduced financial exposure and improved transparency, as the seller coordinated closely with carriers and insurance providers.
Conclusion: Proactive Incoterms Management Enhances Supply Chain Resilience
In the post-2020 landscape, paper, pulp, and packaging distributors must rethink their Incoterms strategies to address evolving risks. Updating contracts to shift risk more appropriately, clarify insurance and customs duties, and enable flexibility supports smoother international trade and protects business continuity.
As global logistics complexity grows, partnering with experienced freight forwarders, legal advisors, and insurance brokers is essential for tailoring Incoterms to your unique supply chain needs.
