Most export disputes are not about freight rates. They are about the moment responsibility changes hands. Incoterms, published by the International Chamber of Commerce, exist to fix that moment in writing. The current edition is Incoterms 2020, and it contains eleven rules.
Two families of rules
Seven rules work for any mode of transport, including multimodal:
- EXW - Ex Works. The seller makes the goods available at its own premises. The buyer does everything else, including export clearance.
- FCA - Free Carrier. The seller delivers to a carrier nominated by the buyer, cleared for export.
- CPT - Carriage Paid To. The seller pays freight to the named destination, but risk passes earlier, at handover to the first carrier.
- CIP - Carriage and Insurance Paid To. As CPT, plus insurance.
- DAP - Delivered at Place. The seller delivers ready for unloading at the destination, buyer clears import.
- DPU - Delivered at Place Unloaded. The seller also unloads.
- DDP - Delivered Duty Paid. The seller handles import clearance and duties as well.
Four rules are reserved for sea and inland waterway transport, because they refer to a ship's rail or to goods placed alongside a vessel:
- FAS - Free Alongside Ship.
- FOB - Free on Board.
- CFR - Cost and Freight.
- CIF - Cost, Insurance and Freight.
What changed in the 2020 edition
If your contract template still says DAT, it is out of date: DAT was renamed DPU so that the rule clearly covers unloading at the destination. CIP now requires insurance at Institute Cargo Clauses (A) level, the widest cover, while CIF still only requires the minimum, clause (C). FCA gained an optional mechanism for an on-board bill of lading when the parties agree. Costs are now listed in one place per rule, and security-related obligations are allocated explicitly.
The FOB trap
FOB is the most over-used term in container shipping, and usually the wrong one. Under FOB, the seller delivers when the goods are on board the vessel. But a container is handed over at the terminal, days before it is loaded. Between those two moments the seller has lost physical control of the cargo while still carrying the risk, and it may not even receive a bill of lading showing goods on board until the vessel sails.
FCA is the correct rule for containerised cargo. The seller delivers when the container is placed in the custody of the carrier at the named place - typically the terminal or the carrier's yard - and risk transfers there. The same logic applies to air freight, where FOB has no meaning at all.
Choosing a term without guessing
Four questions settle most cases: who is best placed to arrange export clearance (usually the seller), who can arrange import clearance in the destination country (usually the buyer), which party has the better freight rate, and how much risk the seller is willing to carry across the ocean. Sellers who quote EXW often hand the buyer an export declaration they cannot file; sellers who accept DDP often promise a duty payment they cannot legally make in the buyer's country.
Write it down properly
Always state the rule, the named place and the edition - for example "CIF Singapore Port, Incoterms 2020". Then check that the term matches your payment terms and your insurance certificate. A CIF invoice without a matching insurance certificate is a common cause of bank rejection under a letter of credit.
ISL Group quotes both FCA and FOB, and we will tell you which one actually protects your position for a given shipment. Send us the trade lane and the agreed term, and we will confirm where risk changes hands.
