Eleven three-letter terms decide who arranges carriage, who pays for it, and the exact point at which a shipment stops being your problem.
An Incoterm is not a price and it is not a contract. It is a shorthand for two questions: who organises and pays for each leg of the journey, and at which physical point the risk of loss passes from seller to buyer. Almost every dispute about a damaged consignment comes down to a disagreement about the second question.
| Group | Terms | In one line |
|---|---|---|
| E — departure | EXW | Buyer collects from the seller's premises and does everything after |
| F — main carriage unpaid | FCA, FAS, FOB | Seller delivers to the carrier; buyer pays the main freight |
| C — main carriage paid | CFR, CIF, CPT, CIP | Seller pays freight to destination, but risk still passes early |
| D — arrival | DAP, DPU, DDP | Seller carries cost and risk through to the named destination |
Under CIF and CFR the seller pays the freight to the destination port, which reads like the seller carries the shipment all the way. It does not. Risk passes when the goods are on board at the port of loading. If the vessel is lost mid-ocean, the buyer owns the loss even though the seller booked and paid for the voyage. This single asymmetry is the most expensive misunderstanding in international trade.
| Term | Seller arranges | Risk passes at | Typical use |
|---|---|---|---|
| EXW | Nothing beyond making goods available | Seller's premises | Rare in practice; awkward for export clearance |
| FCA | Export clearance, delivery to carrier | Named delivery point | The modern default for containers |
| FOB | Export clearance, loading on board | On board at load port | Bulk and breakbulk; misused for containers |
| CFR | Above plus main freight | On board at load port | Where the seller has better freight rates |
| CIF | Above plus minimum insurance | On board at load port | Common in commodity trade and LC transactions |
| DAP | Everything to the named place | Named destination, before unloading | Buyer handles import duty |
| DDP | Everything, including import duty | Named destination | Seller must be able to act as importer of record |
An Incoterm without a named place is incomplete. 'FOB' is not a term; 'FOB Nhava Sheva' is. Most Incoterm disputes start with a contract that named the rule but not the point.
Declared values are assessable values, and what they include depends on the term. A CIF value carries freight and insurance inside it; an FOB value does not. Comparing a CIF-declared consignment against an FOB-declared one and concluding that one supplier is more expensive is a mistake that a surprising number of sourcing decisions are built on. Read the
unit value benchmarking method before you treat two declared values as comparable, and check the port pair to understand how much freight is buried in the number.
Whoever ships more volume on the lane usually buys carriage cheaper. That party should arrange it.
DDP requires the seller to be able to act as importer of record in the destination country. Many cannot.
Match the policy to the term, not to the invoice.
Trade finance documents often assume a specific term. Agree it before the credit is opened, not after.
Ex works looks attractive to a seller because it appears to remove every obligation beyond making the goods available. In practice it creates two problems that regularly cost more than the freight it avoided. The first is export clearance: under a strict reading, the buyer is responsible for it, and a foreign buyer frequently cannot file an export declaration in the seller’s country. The second is evidence of export — sellers who need proof that goods left the country to support a tax position often find that proof sits with a buyer who has no reason to hand it over.
FCA solves both. The seller handles export clearance and delivers to a named carrier or place, at which point risk transfers cleanly and the seller has the documentation it needs. For containerised trade, FCA is what FOB was intended to be before containerisation made the ship’s rail an odd place to transfer risk.
FOB was designed for cargo loaded over a ship’s side, where the moment of loading is observable and meaningful. A container is handed to a terminal days before the vessel arrives, and sits in a stack in between. Under FOB the seller technically bears risk throughout that period while having no control over the container, and the buyer bears nothing despite the goods being effectively in the shipping system. Everyone continues to use it because everyone always has, which is a reason but not a good one.
Insurance failures cluster at the transfer point. Under CIF the seller must insure, but only to a minimum level, and that minimum is frequently below what a buyer would choose. Under FCA and FOB neither party is obliged to insure at all, which produces consignments travelling uninsured because each side assumed the other had arranged cover. The fix is unglamorous: write down who insures, for how much, and from which point, in the contract rather than in the Incoterm.
| Situation | Sensible term | Reason |
|---|---|---|
| Container export, seller has freight rates | CIF or CIP | Seller's rates are better and it can insure properly |
| Container export, buyer has freight rates | FCA | Clean risk transfer with seller-handled export clearance |
| Bulk or breakbulk commodity | FOB or CFR | The loading moment is genuine and observable |
| Seller can act as importer of record | DDP | Simplest possible experience for the buyer |
| Seller cannot clear at destination | DAP | Everything except import duty and clearance |
| First transaction, unfamiliar counterparty | CIF or CIP | Documented, insured, and familiar to trade finance |
An Incoterm allocates cost and risk. It does not allocate delay, it does not set delivery dates, it does not decide who pays demurrage when a consignment is held for inspection, and it does not say what happens if the named vessel is cancelled. Those belong in the contract, and the absence of them is where most commercial disputes actually originate — not in the three letters themselves.
Everything above is a framework, and a framework is only worth what it survives contact with. The useful discipline is to test each assumption against what consignments actually did, because customs data is one of the few commercial sources where the underlying event — goods crossing a border — physically happened and was documented under legal obligation at the time.
Fix the tariff line before anything else. Every filter, every duty figure and every comparison downstream depends on it.
Learn more ›A single period is a snapshot. Three years separate a trend from seasonality, and let you discount the incomplete recent periods.
Learn more ›Frequency and consistency beat size. A steady mid-scale counterparty is usually a better prospect than an occasional large one.
Learn more ›Declared unit values tell you the range you are entering before you quote into it.
Learn more ›Two failure modes account for most wrong conclusions drawn from trade data, and both are easy to avoid once named. The first is reading the incomplete tail of a series as a decline — authorities publish on a lag and revise afterwards, so the last one or two periods will fill in after you look. The second is reading a value movement as a demand movement, when declared value can move because volume moved, because unit price moved, or because the product mix inside a tariff line changed.
Customs data covers goods that crossed a border. It does not cover services, domestic trade, margin, contract terms or intent. Treat it as a dated, quantified observation to corroborate — not as a conclusion that arrives finished.
The difference between teams that get value out of trade data and teams that ran one interesting project is almost never analytical sophistication. It is whether the work became a routine. A saved query reviewed weekly, a short written note against each counterparty you assessed, and a standing habit of checking the period stamp before quoting a figure will out-perform an elaborate one-off study within a quarter, because markets move and a study does not.
The second habit worth building is writing down not just what you concluded but why and when. Records get revised, prices move, and counterparties change behaviour. Six months later nobody remembers whether a supplier was rejected on volume, on price band or on timing, and without that note the assessment simply gets repeated from scratch. A one-line rationale is what converts a list into institutional knowledge, and it costs seconds at the point where the thinking has already been done.
Finally, be explicit with colleagues about the confidence attached to any figure you circulate. A declared value from a complete period, controlled for origin and unit, is strong evidence. The same figure pulled from an incomplete recent period, averaged across a whole chapter, is barely evidence at all — and the two look identical once they are in a slide. Saying which one you have is what keeps trade data credible inside an organisation over time.
CIF or CIP is usually the least fragile choice. The seller controls carriage and insurance, the documents are familiar to banks and trade finance, and the buyer's obligations start at the destination port rather than in a country they do not operate in.
Only at the extremes. Under DDP the seller pays import duty; under every other term the buyer does. Export duty and clearance sit with the seller under all terms except EXW.
No. FOB, FAS, CFR and CIF are sea and inland waterway terms only. For air, road or rail, use FCA, CPT, CIP, DAP, DPU or DDP, which are mode-neutral.
When the goods are on board at the port of loading — not at the destination. The seller pays freight to destination but stops bearing risk at origin, and this asymmetry is the single most misunderstood point in the whole framework.
Markets refresh on their customs authority's own release cycle — monthly for most, 45 to 60 days for a few. The most recent one or two periods are always still filling in, so exclude them when you are reading a trend rather than treating the gap as a decline.
Yes. Give us the HS code or a product description and the market you care about, and we will return a sample of live customs records filed against it.
Keep reading
The next questions this one usually raises are covered in FOB, CIF and the declared value, How to price for export and How to read a bill of lading. Each picks up where this article stops, and together they cover the sequence a consignment actually goes through — classification and duty before anything moves, documentation and payment while it moves, and verification of the counterparty before any of it is committed to. Reading them in that order is usually more useful than reading them by topic.
Two consignments at the same declared value can represent very different prices.
Learn more ›Build the price from landed cost backwards, then check it against what comparable consignments actually declared.
Learn more ›A bill of lading is three documents at once: a receipt, a contract of carriage and a document of title.
Learn more ›