What an Incoterm does and does not do
ICC Incoterms 2020 allocate three things between seller and buyer: cost, risk transfer point, and who handles export/import formalities. They do not transfer title, set the payment method, or govern breach remedies — your contract does that.
EXW — Ex Works
The buyer collects from the seller's premises and handles everything, including export clearance. Cheapest headline price, heaviest buyer workload. Awkward in practice because in many countries only a resident exporter can file the export declaration. Prefer FCA if you want the same commercial effect with fewer problems.
FOB — Free On Board (sea freight only)
Seller delivers on board the vessel at the named port of shipment; risk passes when the goods are on board. The buyer books the ocean leg.
- Best when the buyer has good freight rates or a nominated forwarder.
- Only valid for sea and inland waterway. For containers handed over at a terminal, FCA is technically the correct rule, though FOB remains the market habit.
CIF — Cost, Insurance and Freight (sea freight only)
Seller pays freight and minimum insurance to the destination port, but risk still passes at the origin port. This asymmetry is the single most misunderstood point in trade: if the cargo is damaged mid-ocean under CIF, it is the buyer's loss to claim, even though the seller bought the cover.
- Under Incoterms 2020, CIF requires only Institute Cargo Clauses (C) — narrow cover. Ask for (A) if the cargo warrants it.
DAP — Delivered At Place
Seller delivers to a named place in the buyer's country, ready for unloading; the buyer clears imports and pays duty and VAT. Good for buyers who want a landed-style service without taking on the freight, while keeping duty in their own name.
- DDP goes one step further and puts import duty and tax on the seller — only accept it if you can actually register and file in the destination country.
Choosing quickly
Situation Sensible rule
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You have strong freight rates FCA / FOB
You want a single delivered price DAP
Supplier insists on arranging shipping CIF (upgrade the insurance)
Buyer cannot handle import formalities DDP, only if the seller is registered there
Three mistakes that cost money
- Writing "FOB Cairo" — an inland city is not a port. Name a real port or use FCA with the exact address.
- Assuming CIF insurance protects the seller after loading. It does not; the risk sat with the buyer from the moment of loading.
- Omitting the Incoterms version. Always write the rule, the named place, and the year: `CIF Jeddah, Incoterms 2020`.
*Reference: ICC Incoterms 2020 rules.*