Every quotation we issue names an Incoterm. It is not decoration. That three-letter code decides who books the vessel, who pays the freight, who insures the cargo, and — the part that causes most disputes — the precise moment risk passes from seller to buyer.
The current edition is Incoterms 2020, published by the International Chamber of Commerce. You will still see contracts referencing Incoterms 2010, and that is legally fine as long as the contract says which edition applies. What you should not do is write "FOB" with no year and no named place, because that phrase alone does not tell anyone where risk transfers.
The eleven rules, split two ways
Seven rules work for any mode of transport, including road, rail, air and multimodal container movements:
- EXW — Ex Works. Buyer collects from the seller's premises and does everything after that.
- FCA — Free Carrier. Seller delivers to a carrier the buyer names.
- CPT — Carriage Paid To. Seller pays carriage to the destination, risk passes earlier.
- CIP — Carriage and Insurance Paid To. As CPT, plus insurance.
- DAP — Delivered at Place. Seller delivers, buyer clears import.
- DPU — Delivered at Place Unloaded. The only rule where the seller unloads.
- DDP — Delivered Duty Paid. Seller does everything, including import duty.
Four rules apply only to sea and inland waterway transport:
- FAS — Free Alongside Ship.
- FOB — Free on Board.
- CFR — Cost and Freight.
- CIF — Cost, Insurance and Freight.
The three you will actually be quoted
| Rule | Seller pays | Risk passes | Insurance |
|---|---|---|---|
| FOB | Inland haulage, export clearance, loading on board | On board the vessel at the named load port | Buyer's problem |
| CFR | All of the above plus ocean freight to destination | Still on board at the load port | Buyer's problem |
| CIF | All of the above plus marine insurance | Still on board at the load port | Seller buys it, buyer claims on it |
Read that risk column again. Under CFR and CIF the seller pays freight all the way to your port, but risk transferred back at the origin port. If the vessel is lost mid-ocean, the goods were legally yours when it happened. That is exactly why CIF exists — the seller buys insurance in the buyer's favour.
What CIF insurance actually covers
Under Incoterms 2020, CIF requires only Institute Cargo Clauses (C) — a restricted, named-perils cover. It is not all-risk. If you want broader protection, either specify Clauses (A) in the contract or arrange your own cover and buy on CFR. CIP, by contrast, was raised to Clauses (A) as the default in the 2020 edition.
Choosing in practice
- Buy FOB if you have a freight forwarder you trust and decent rates. You control the routing and see the real freight cost.
- Buy CFR or CIF if you are new to the lane, shipping smaller volumes, or would rather have one landed number to work with.
- Buy DAP or DDP if you want the goods at your door and are willing to pay for the convenience. Be careful with DDP — the seller becomes responsible for import duties and, in some countries, for tax registrations they cannot legally hold.
- Avoid EXW for international trade. The buyer becomes responsible for export clearance in a country where they usually have no standing to file it.
Write it properly
An Incoterm is incomplete without a named place and an edition. Write:
"CIF Jebel Ali, Incoterms 2020" — not "CIF Dubai" and not "CIF" alone.
For FCA, FOB and FAS, name the origin point. For CFR, CIF, CPT, CIP, DAP, DPU and DDP, name the destination point. Be specific: a port, a terminal, an address. "CIF Germany" is not a delivery term, it is the beginning of a dispute.