Trade and customs
Incoterms without the diagram: who pays and where risk changes hands
Eleven terms, two questions. Who arranges the transport, and where does risk transfer.
Quick take
- Cost and risk do not always change hands at the same point.
- FOB and CIF apply only to sea freight, despite constant misuse.
- DDP puts import clearance on the seller, which is often impractical.
Incoterms are usually taught with a diagram that nobody remembers. Two questions get you most of the way.
The two questions
Who arranges and pays for each leg, and at what point does risk of loss pass from seller to buyer. These are separate. Under CIF the seller pays for freight and insurance to the destination port, but risk passes at the origin port. The seller is buying a service for cargo that is already the buyer's risk.
The ones you will actually use
| Term | Seller arranges | Risk passes at |
|---|---|---|
| EXW | Nothing | Seller's premises |
| FCA | Delivery to named place | Named place |
| FOB | Origin port, loaded | On board vessel |
| CIF | Freight and insurance to destination port | On board vessel at origin |
| DAP | Delivery to destination, unloaded not included | Destination |
| DDP | Everything including import duty | Destination |
See it on your own shipment
Paste a container number, bill of lading or booking reference. We detect the carrier across 170+ shipping lines, and when the data does not line up, a person checks it.
Common traps
FOB and CIF are sea terms. Using them for air freight creates ambiguity about when risk passed, which matters exactly once, during a claim.
DDP requires the seller to clear customs in a country where they may have no legal presence. Many sellers agree to it without realising they cannot actually perform it, and the shipment stops at the border.
EXW leaves the buyer responsible for export clearance in the seller's country, which is often equally impractical. FCA usually solves the same commercial intent without the problem.
Questions people ask
Which Incoterm is safest for a buyer?
It depends on control. FOB gives the buyer control of the ocean leg. DAP moves more responsibility to the seller.
Can I use FOB for air freight?
You should not. FCA is the correct term for anything other than sea and inland waterway.
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