Why this matters before the price, not after
Two quotes cannot be compared until both carry the same Incoterm and the same named place. A FOB price and a CIF price for the same goods can differ by a third, and neither seller is wrong. The buyer who treats them as the same number is.
The whole set on one page
Eleven rules in the 2020 edition. Each one answers three questions: how far the seller pays, where the risk transfers, and who handles clearance. Read the risk column before the cost column.
| Rule | Seller pays to | Risk passes | Export / import clearance | Mode |
|---|---|---|---|---|
| EXW | Nothing. Goods available at the works | At the seller's premises | Buyer does both | Any |
| FCA | Delivery to the carrier at the named place | On handover to the carrier | Seller exports, buyer imports | Any |
| FOB | Loading on board at the port of shipment | When goods are on board | Seller exports, buyer imports | Sea only |
| CFR | Freight to the destination port | On board at origin, not on arrival | Seller exports, buyer imports | Sea only |
| CIF | Freight plus minimum insurance to destination port | On board at origin, not on arrival | Seller exports, buyer imports | Sea only |
| CPT | Carriage to the named destination | On handover to the first carrier | Seller exports, buyer imports | Any |
| CIP | Carriage plus all-risks insurance to destination | On handover to the first carrier | Seller exports, buyer imports | Any |
| DAP | Arrival at the named place, ready for unloading | At the named place | Seller exports, buyer imports | Any |
| DPU | Arrival and unloading at the named place | After unloading | Seller exports, buyer imports | Any |
| DDP | Arrival, cleared for import, duty paid | At the named place | Seller does both | Any |
Every rule has to be written with a named place after it. “CIF” means nothing; “CIF Lomé, Incoterms 2020” means something. The named place is where the seller's obligation ends, and on the C rules it is not where the risk ends.
The mistake that costs the most: CFR and CIF
On CFR and CIF the seller pays the freight all the way to the destination port, but the risk passes to the buyer when the goods are on board at the origin port. The two columns are deliberately in different places, and it is the only family of rules where that is true.
In practice: if the vessel is lost mid-voyage on a CFR shipment, the goods were already the buyer's, and the buyer still owes the seller for them. The freight being prepaid changes nothing about that. This is why CIF exists, and why the insurance clause in a CIF contract deserves more attention than the price.
Under Incoterms 2020, CIF requires only minimum cover, Institute Cargo Clauses (C), while CIP requires all-risks cover, Institute Cargo Clauses (A). A buyer who assumes CIF means fully insured is assuming something the rule does not say.
FOB is being used for containers, and it should not be
FOB, CFR and CIF are sea and inland waterway rules written for cargo handed over the ship's side. For a container the seller loses physical control days earlier, at the container terminal, and has no practical way to affect anything between the gate and the vessel.
The correct container equivalents are FCA, CPT and CIP, where the risk passes on handover to the carrier. The trade has used FOB for containers for decades out of habit, and most of the time nothing goes wrong. When something does go wrong in the terminal, the contract does not say who owns it.
Which rule to ask for, by situation
- You have your own forwarder and good rates. Ask for FCA at the named terminal, or FOB if the seller will not move off it. You control the main carriage.
- You want one number and no logistics. Ask for CIF or CFR at your port, and read the insurance clause. You still clear the import.
- You want it at your own gate. Ask for DAP. The seller carries the inland leg and its risk; you still clear the import and pay the duty.
- You want nothing to do with customs. DDP, and expect to pay for it. The seller is taking on an import clearance in a country where it may not be established, and prices that risk accordingly.
- You are collecting from the factory yourself. EXW, and understand that export clearance is now yours, which in some countries a foreign buyer cannot do.
What we quote and why
We quote FOB, CFR, CIF, FCA and DAP, and we prefer to show at least two bases side by side. The gap between a FOB number and a DAP number is the honest cost of the logistics portion, and a buyer who can see it is in a far better position than one looking at a single landed figure.
On corridors where the inland leg carries most of the risk, such as Durban into landlocked SADC, we lead with DAP. On reefer programmes into West Africa we lead with CIF or CFR per port, because the ports price differently. On China we usually show FOB and CIF together.
Incoterms questions we get
The four that come up on almost every first contract.
Does CIF mean my goods are insured for their full value?
Not automatically. Under Incoterms 2020 the seller's obligation on CIF is minimum cover, Institute Cargo Clauses (C), which is a restricted named-perils cover. CIP requires Institute Cargo Clauses (A), which is all risks. If you want full cover on a CIF shipment, it has to be written into the contract.
Who pays the duty on DAP?
The buyer. DAP means delivered at the named place ready for unloading, with import clearance and duty still on the buyer. Only DDP puts the import clearance and duty on the seller.
Is FOB wrong for containers?
Technically yes. FOB is written for goods placed on board a vessel, and with a container the seller hands over at the terminal days earlier. FCA is the correct rule. In practice FOB is used constantly for containers, and the problem only surfaces when something happens between the terminal gate and the ship.
Can I compare a FOB price with a CIF price?
Not directly. You have to add freight, insurance and origin charges to the FOB number first, and those depend on the route, the season and the carrier. We quote two bases side by side precisely so the difference is visible rather than assumed.
Keep reading
The guides that follow from this one.
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