What they decide, and what they do not
An Incoterm answers four questions: how far you pay for transport, where your risk ends, who contracts insurance and who handles each customs clearance. That is all. It does not say when title passes, when payment happens or which law governs the contract: that goes in the contract.
The rule always travels with a place, and the place is half the meaning. “FCA” says nothing; “FCA Seville, Spain (Incoterms 2020)” does. In the C rules — CPT, CIP, CFR, CIF — the place named is the destination, but risk transfers at origin: that is the trap that costs the most money, because the seller believes they are covered all the way and they are not.
And only four of the eleven suit containerised sea freight alongside the rest: FAS, FOB, CFR and CIF were designed for bulk cargo crossing the ship’s rail. Using them with a container leaves a gap of responsibility between the terminal and the vessel that nobody has agreed on.
All eleven, from least to most obligation on you
| Rule | You pay until | Risk until | Clearances |
|---|---|---|---|
| EXW | Your own door | Your own door | None: the buyer does both |
| FCA | Handover to the buyer’s carrier | That same point | Export |
| FAS | Alongside the vessel (bulk only) | Alongside the vessel | Export |
| FOB | On board (bulk only) | On board | Export |
| CPT | Agreed destination | Handover to the first carrier | Export |
| CIP | Destination, with broad insurance | Handover to the first carrier | Export |
| CFR | Port of destination (bulk) | On board at origin | Export |
| CIF | Port of destination with insurance (bulk) | On board at origin | Export |
| DAP | Destination, not unloaded | Destination | Export |
| DPU | Destination, unloaded | Destination unloaded | Export |
| DDP | Destination, duties paid | Destination | Export and import |
In the rules shown in bold, risk passes to the buyer long before the place that gives the term its name.
How to decide, in four questions
- Can you handle export clearance?If yes — and it almost always is, because it is your own country — rule out EXW. It leaves the buyer doing a formality in your territory that belongs to an established exporter, and it usually ends in an export you cannot evidence to your tax authority.
- Who gets the better freight rate?If you have volume and rates, selling CPT or DAP gives you control and margin. If your customer moves far more than you, FCA with their carrier is usually cheaper for both and takes the admin off your desk.
- Do you know that country’s import rules?If not, rule out DDP. It makes you responsible for the import in a country whose tax regime you do not know, and there are destinations where a non-resident cannot even be the importer of record.
- Is it containerised sea freight?Then FCA, CPT, CIP, DAP, DPU or DDP. Leave FOB, CFR, CIF and FAS for bulk, which is what they were written for.
The four expensive mistakes
- Selling EXW “to keep it simple”It does not keep anything simple: it hands your buyer a formality they have to complete in your country, and it leaves you without the exit proof that justifies invoicing without VAT.
- Using FOB for a containerA container is handed over at the terminal days before it sails. Between that handover and the moment it is on board there is a stretch whose risk neither party has been assigned.
- Believing CIF covers you to destinationYou pay to destination, but risk passed at origin. If the goods are damaged at sea, the problem — and the insurance claim — is your customer’s.
- Accepting DDP without checking you can be the importerIn several countries the importer must be locally registered. If you cannot be, the goods arrive and there is nobody to clear them.