One-line takeaway
Incoterms (International Commercial Terms) is the rulebook published by the International Chamber of Commerce (ICC). The current edition is Incoterms 2020, with 11 rules. Every rule answers the same three questions: when does risk transfer from seller to buyer? Who pays which costs? Who handles which paperwork? There is no "best" rule — only the right one for the deal in front of you. Containerized ocean: FCA first. Traditional break-bulk ocean: FOB / CIF. Door-to-door cross-border ecommerce: DDP. B2B inland delivery: DAP.
1. The Incoterms 2020 lineup
Incoterms was first published in 1936 and revised roughly every ten years. Incoterms 2020 took effect on 1 January 2020 and is the version contracts should reference today.
The 11 rules ranked from least to most seller obligation:
| Group | Rule | Full name | Mode of transport |
|---|---|---|---|
| Any mode (or modes) | EXW | Ex Works | Any |
| FCA | Free Carrier | Any | |
| CPT | Carriage Paid To | Any | |
| CIP | Carriage and Insurance Paid To | Any | |
| DAP | Delivered at Place | Any | |
| DPU | Delivered at Place Unloaded | Any (new in 2020) | |
| DDP | Delivered Duty Paid | Any | |
| Sea/inland waterway only | FAS | Free Alongside Ship | Water only |
| FOB | Free On Board | Water only | |
| CFR | Cost and Freight | Water only | |
| CIF | Cost, Insurance and Freight | Water only |
* For containerized cargo, use the "any mode" group (FCA / CPT / CIP) instead of the water-only group (FOB / CFR / CIF). See section 7.
2. Incoterms answers only three questions
- When does risk transfer? The precise moment risk passes from seller to buyer — at the warehouse, the yard, alongside the ship, on board, or at destination?
- Who pays what? Main freight, loading/unloading, insurance, duties, broker fee, last-mile — who picks up which bucket?
- Who handles what paperwork? Export clearance, pre-arrival manifest, certificate of origin, insurance certificate, import clearance, tax payment.
Incoterms does not govern: payment method (L/C, T/T, collection); title transfer (governed by your contract); breach remedies (governed by your governing law); dispute resolution. Cover those separately in the sales contract.
3. The four most-used rules in China exports
3.1 FOB (Free On Board)
- Seller's role: export clearance, deliver to the loading port, load onto the vessel nominated by the buyer.
- Risk transfer: when goods are loaded on board the vessel at the loading port.
- Costs: seller covers up to the on-board moment; main freight, insurance, destination port charges, import clearance are on the buyer.
- Typical quote: FOB Qingdao USD 50,000 / 20GP.
- When to use: buyer has its own forwarder and wants freight control; the entry-level rule for new export salespeople.
3.2 CFR & CIF (Cost and Freight / Cost, Insurance and Freight)
- CFR: seller pays main freight to the destination port; no insurance.
- CIF: CFR plus minimum ICC(C) insurance at 110% of contract value.
- Risk transfer: still on loading at the origin port (same as FOB).
- Typical quote: CFR Long Beach USD 53,200 / 20GP; CIF Long Beach USD 53,450 / 20GP.
- When to use: seller has good forwarder rates and wants to capture freight/insurance margin; buyer wants quote simplicity.
3.3 DDP (Delivered Duty Paid)
- Seller's role: all costs, duties, clearance, and IOR liability to the buyer's named delivery point.
- Risk transfer: at the named destination.
- Typical quote: DDP Amazon FBA ONT8 (Ontario, CA) USD 65,800 / 20GP.
- When to use: cross-border ecommerce, Amazon FBA inbound, overseas warehouse replenishment, B2B duty-paid to door.
- Deep dive: see DDP Shipping from China complete guide.
3.4 FCA (Free Carrier)
- Seller's role: export clearance, deliver to the carrier nominated by the buyer (CY / ICD / trucking company / forwarder warehouse).
- Risk transfer: when goods are handed over to the carrier, not "loaded on board".
- New in Incoterms 2020: buyer can instruct the carrier to issue an "on-board" bill of lading to the seller, helping with letter-of-credit negotiation.
- When to use: the correct rule for container ocean freight, cross-border rail/truck, and air cargo.
4. All 11 rules at a glance
| Rule | Export clr. | Main freight | Insurance | Import clr. | Import duty | Last mile |
|---|---|---|---|---|---|---|
| EXW | Buyer | Buyer | — | Buyer | Buyer | Buyer |
| FCA | Seller | Buyer | — | Buyer | Buyer | Buyer |
| FAS | Seller | Buyer | — | Buyer | Buyer | Buyer |
| FOB | Seller | Buyer | — | Buyer | Buyer | Buyer |
| CFR | Seller | Seller | — | Buyer | Buyer | Buyer |
| CIF | Seller | Seller | Seller ICC(C) | Buyer | Buyer | Buyer |
| CPT | Seller | Seller | — | Buyer | Buyer | Buyer |
| CIP | Seller | Seller | Seller ICC(A) | Buyer | Buyer | Buyer |
| DAP | Seller | Seller | Optional | Buyer | Buyer | Seller |
| DPU | Seller | Seller | Optional | Buyer | Buyer | Seller + unload |
| DDP | Seller | Seller | Optional | Seller | Seller | Seller |
5. Risk-transfer points
The exact moment risk passes from seller to buyer:
| Rule | Risk transfer point | Who carries in-transit risk |
|---|---|---|
| EXW | Seller's warehouse gate | Buyer |
| FCA | Handover to carrier (CY/ICD/truck) | Buyer |
| FAS | Alongside ship (not yet loaded) | Buyer |
| FOB | On board at loading port | Buyer |
| CFR / CIF | On board at loading port (same as FOB!) | Buyer |
| CPT / CIP | Handover to carrier (same as FCA) | Buyer |
| DAP | At destination (before unloading) | Seller |
| DPU | At destination, after unloading | Seller |
| DDP | At destination | Seller |
Key insight: although the CFR / CIF seller pays main freight, the risk transfer remains at on-board loading — in-transit damage is on the buyer's account. That is why the CIF seller buys insurance: the policy beneficiary is the buyer, and the seller arranges subrogation when a casualty occurs.
6. FOB vs CIF side-by-side (the question salespeople get the most)
| Dimension | FOB | CIF |
|---|---|---|
| Seller's quote scope | On board at origin port | Destination port + insurance |
| Who chooses the forwarder | Buyer | Seller |
| Quote variance | Low (freight is transparent) | Higher (seller has markup room) |
| Risk transfer | On loading | On loading (same as FOB) |
| Insurance | Buyer arranges | Seller arranges at least ICC(C) |
| China VAT refund basis | FOB value | FOB value (freight & insurance excluded) |
| Customs declaration | FOB value | FOB + separately reported freight/insurance |
| Buyer benefit | Freight control, can shop forwarders | Simpler quote, fewer vendors |
| Seller benefit | No ocean ops, clean risk line | Freight/insurance margin, customer lock-in |
7. Why containerized cargo should use FCA / CPT / CIP
The ICC explicitly states in the Incoterms 2020 introduction: for containerized cargo, use FCA / CPT / CIP, not FOB / CFR / CIF. Reasons:
- Operational reality: a container typically sits in the terminal yard for 3-7 days waiting for vessel slot. Under FOB the seller technically remains at risk until "on board" — but in practice cannot control yard conditions. Fire, theft, crush, stack collapse: all sit on the seller's account.
- Documentary fix: FCA in Incoterms 2020 added an on-board B/L provision, solving the legacy issue where FCA shippers could not negotiate L/Cs requiring an on-board bill.
- Insurance match: CIP under Incoterms 2020 defaults to ICC(A) all-risks — more comprehensive than CIF's ICC(C) — and matches container-cargo risk.
Reality check: more than 90% of containers from China still ship FOB / CFR / CIF because of industry habit; buyer banks, insurers, and customs systems run on those rules. The right move: actively introduce FCA / CIP in new contracts; for legacy FOB / CIF, buy a "pre-loading" rider to cover the yard-dwell period.
8. Five common quote-trap scenarios
- Case 1 · FOB quoted "naked": a new salesperson quotes FOB USD 50,000 without THC, documentation fee, telex release. Those local fees are typically $200-500 per shipment — missing them = direct loss.
- Case 2 · CIF insurance wrong tier: buyer verbally says "with insurance"; seller defaults to ICC(C). En route storm causes water damage; insurer denies claim; buyer chases seller. Always specify "CIF + ICC(A) + war + strike" in writing.
- Case 3 · DDP forgets IOR / bond: a US-bound DDP quote leaves out customs continuous bond ($500-700/year) and EIN fronting fee — single shipment loss exceeds $1,000.
- Case 4 · CFR quote too aggressive: a major buyer compares CFR Long Beach quote with separate FOB + ocean rate from another forwarder, finds it $800 cheaper, switches to FOB. Seller loses pricing initiative.
- Case 5 · EXW kills the VAT refund: EXW has the buyer arrange export clearance, so the seller's name is not on the export declaration or FX-receipt voucher — VAT refund is forfeited. If the buyer insists on EXW, switch to FCA or have the contract spell out the seller's role in export formalities.
9. Drafting the Incoterms clause
In a Sales Contract or Proforma Invoice, the Incoterms clause needs three elements, e.g.:
"FOB Qingdao Port, China (Incoterms® 2020)"
- Rule: the three-letter code (FOB / CIF / DDP, etc.)
- Place: the named loading port / destination port / delivery point (city or port-level precision)
- Version: always cite "Incoterms 2020" to prevent confusion with older versions (2010 / 2000)
Best practice: also spell out "insurance scope (ICC(A) + war)", "FX lock", "force majeure definition", "delay liability" — Incoterms is a general framework, not a complete contract.
10. How Mighty International can help
With 26 years of operations at Qingdao port, our trade team handles every Incoterm in real-world conditions:
- FOB / CFR / CIF sea freight — origin-port agency at Qingdao, Shanghai, Ningbo, Shenzhen
- DDP duty-paid to door — US FBA, EU overseas warehouses, Russia door delivery
- FCA / CIP container terms — close the legacy FOB yard-dwell risk gap
- Incoterms clause review — prevent conflicts with the L/C and insurance certificate
- Customs declaration, VAT refund, certificates of origin — single-window service
- Cross-border ecommerce logistics design
Not sure which rule fits your deal?
Send us the commodity, destination, buyer profile, and contract value — we'll recommend the right rule and price it accordingly.
Talk to usFrequently asked questions
Which is better for the seller — FOB or CIF?
FOB has less seller risk (passes to buyer at on-board loading). CIF lets the seller capture freight and insurance margin and lock in the buyer. New exporters start FOB; established sellers prefer CIF.
Should FCA replace FOB for container shipments?
Yes — ICC recommends FCA for containers because it moves the risk transfer to carrier handover. Industry inertia still keeps FOB at 90%+ in China exports; push FCA in new contracts.
What insurance does CIF require?
Minimum ICC(C) at 110% of contract value. ICC(C) only covers catastrophic loss. Always specify ICC(A) all-risks + war + strikes in the contract.
If the L/C and Incoterms conflict, which prevails?
The L/C's documentary requirements override the general Incoterms rule. Keep the contract, L/C, and Incoterms aligned.
What is DPU and how is it different from DAP?
DPU is new in Incoterms 2020 (rename / expansion of DAT). Difference vs DAP: under DPU the seller must also unload. Use DPU when the buyer's site has no unloading equipment.
References & further reading
- Incoterms® 2020, ICC Publication No. 723E (International Chamber of Commerce)
- United Nations Convention on Contracts for the International Sale of Goods (CISG)
- Related guides: DDP Shipping from China complete guide, HS Code Lookup & Classification
Disclaimer: This guide is general informational content. Contract clauses should be drafted with regard to your specific business and applicable law. The authoritative interpretation of Incoterms is the ICC's current edition.