What Incoterms cover, and what they do not
Incoterms are published by the International Chamber of Commerce (ICC). The edition in force when this page was written is Incoterms 2020, with 11 rules. The ICC revises the rules periodically, so confirm the current edition and name it in quotes, contracts and purchase orders together with a precise place, for example “FOB Yantian, Shenzhen, Incoterms 2020”. For FCA, the named place should be the exact handover address, such as the factory or the forwarder’s warehouse.
Each rule sets:
- The delivery point, where the seller’s obligation to deliver ends
- When risk of loss or damage passes to the buyer
- Who arranges and pays for the main carriage and, under CIF and CIP, insurance
- Who handles export and import clearance
They do not cover ownership, payment terms, remedies for breach or product quality. Those belong in the purchase or supply agreement.
The 11 rules at a glance
Four rules are for sea and inland waterway transport only: FAS, FOB, CFR and CIF. The other seven work for any mode, including containers, air and multimodal shipments. The seller clears the goods for export under every rule except EXW.
| Rule | Mode | Risk passes to buyer | Main carriage paid by | Import clearance and duty |
|---|---|---|---|---|
| EXW Ex Works | Any | At seller’s premises, not loaded | Buyer | Buyer |
| FCA Free Carrier | Any | Handed to buyer’s carrier at named place | Buyer | Buyer |
| FAS Free Alongside Ship | Sea | Alongside the vessel at port of shipment | Buyer | Buyer |
| FOB Free On Board | Sea | On board the vessel at port of shipment | Buyer | Buyer |
| CFR Cost and Freight | Sea | On board at port of shipment | Seller, to destination port | Buyer |
| CIF Cost, Insurance and Freight | Sea | On board at port of shipment | Seller, plus minimum insurance | Buyer |
| CPT Carriage Paid To | Any | Handed to first carrier | Seller, to named destination | Buyer |
| CIP Carriage and Insurance Paid To | Any | Handed to first carrier | Seller, plus broader insurance | Buyer |
| DAP Delivered at Place | Any | At named destination, ready for unloading | Seller | Buyer |
| DPU Delivered at Place Unloaded | Any | At named destination, unloaded | Seller | Buyer |
| DDP Delivered Duty Paid | Any | At named destination, ready for unloading | Seller | Seller |
The C rules split cost and risk
Under CFR, CIF, CPT and CIP, the seller pays freight to the destination, but risk passes to the buyer at origin, when the goods are loaded or handed to the first carrier. If cargo is damaged at sea under CIF, the buyer carries the loss and claims on the insurance. CIF requires only minimum cover, Institute Cargo Clauses (C); CIP in the 2020 edition requires broader cover, Institute Cargo Clauses (A). Both require cover of at least 110% of the contract price. Check whether that is enough for your goods.
Common choices for factory orders in Asia
- EXW looks simple but leaves export clearance in the supplier’s country to the buyer, which a foreign buyer usually cannot handle directly. FCA at the factory is often the better version of the same idea.
- FOB is what most factories in China quote by default for ocean shipments. They often write “FOB Shenzhen”; naming the actual port, such as Yantian or Shekou, removes any doubt. Your forwarder books the freight.
- FCA is what the ICC recommends instead of FOB for containerized goods. The seller hands the container over at the terminal before it is loaded, so under FOB the seller would still carry risk for goods it no longer controls. Many factories quote FOB out of habit.
- DAP and DDP are common for samples, small shipments and express couriers. DDP makes the seller the importer in your country, which can be impractical for the seller and can leave you with less visibility over how the goods were declared and whether import VAT can be recovered.
Incoterms and price comparison
Each rule moves different costs into or out of the unit price. A $14 DDP quote and a $12 FOB quote cannot be compared until both are taken to the same point, usually your warehouse. See landed cost for the formula and use the supplier quote comparison calculator for the arithmetic. Asking every supplier to quote on the same rule in the RFQ saves most of the conversion work.
Where Zefinity helps
Setting the quote basis for an RFQ, and converting quotes that arrive on a different rule, falls under RFQ management and quotation analysis in Zefinity’s Connect service.
Frequently asked questions
Which Incoterm is best for importing from China?
There is no single best rule. For full containers with your own freight forwarder, FOB with a named port is the most common quote basis, and FCA is the rule the ICC recommends for containerized goods. For samples and small shipments, DAP or DDP is often simpler. EXW is usually a poor fit for foreign buyers, because it leaves export clearance in China to the buyer.
Does FOB mean the supplier pays for shipping?
Only part of it. Under FOB, the supplier pays to get the goods cleared for export and loaded on board the vessel at the named port of shipment. Ocean freight, insurance, import clearance, duty and delivery to your warehouse are the buyer's costs, and risk passes to the buyer once the goods are on board.
Do Incoterms decide when ownership of the goods passes?
No. Incoterms deal with delivery, risk, costs and clearance. Transfer of ownership, payment terms and remedies for breach are set by the sales contract and the law that governs it. If ownership matters, for example because you pay before shipment, state it in the purchase or supply agreement.