EXW, FOB, CIF, DAP, DDP — who pays shipping, insurance, and duties, and where the risk passes. The full Incoterms 2020 reference with pitfalls for new importers.
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International Commercial Terms (Incoterms) are the three-letter codes that decide who pays for shipping, insurance, and import duties — and who carries the risk if something goes wrong in transit. Getting the term right can save or cost thousands of euros per shipment.
Risk passes: At the seller's premises
Good for: Experienced buyers with a freight forwarder who want the lowest headline price
Watch out: Buyer handles export clearance — not always practical in every country
Risk passes: When goods are handed to the named carrier
Good for: Container shipments where a forwarder collects at origin
Watch out: The named place matters — 'FCA Shanghai port' is very different from 'FCA seller warehouse'
Risk passes: When goods cross the ship's rail at the named port
Good for: Full-container sea shipments — the classic wholesale import term
Watch out: Not technically correct for containerised cargo (use FCA), but still the industry default
Risk passes: When goods cross the ship's rail at origin — risk passes before freight is paid
Good for: Sellers who want to control freight booking
Watch out: Buyer bears risk for a journey they didn't arrange — always insure separately
Risk passes: When goods cross the ship's rail at origin
Good for: First-time importers who want a single origin-side price
Watch out: Seller's insurance is Clause C only — often not enough. Buyers should top up with their own policy
Risk passes: When goods are handed to the first carrier
Good for: Air, road, or multimodal shipments
Watch out: Same risk/cost asymmetry as CFR — buyer carries risk over paid-for transport
Risk passes: When goods are handed to the first carrier
Good for: Cargo that needs proper insurance, sold with minimal buyer admin
Watch out: Confirm the insurance is Clause A — some suppliers quote CIP but only carry minimum cover
Risk passes: At the named destination, not yet unloaded
Good for: Pallet-level B2B trades inside the same customs union
Watch out: Buyer is still responsible for import clearance — DAP ≠ DDP
Risk passes: When goods are unloaded at the named destination
Good for: Terminal deliveries where the seller has unloading equipment
Watch out: The only Incoterm where the seller unloads — useful for heavy machinery, rare in consumer wholesale
Risk passes: At the named destination
Good for: Dropshipping and e-commerce fulfilment, where the buyer wants a door-to-door price
Watch out: Most sellers quote DDP without accounting for destination VAT — always clarify whether import VAT is truly included
Under CIF, the seller only has to buy Clause C (Institute Cargo Clauses) — this covers total loss and major casualties, not theft or breakage. For valuable cargo, arrange your own top-up policy.
Many suppliers quote DDP meaning 'duties paid' but leave VAT to the importer. Before accepting a DDP quote, ask in writing: 'Does this price include import VAT/GST at my destination?'
FOB was written for break-bulk cargo that crosses a ship's rail. For containerised trades, the correct Incoterm is FCA — but FOB remains so entrenched in wholesale that most buyers and sellers still use it.
'EXW' is meaningless without a named location. 'EXW Shenzhen factory' vs 'EXW Hong Kong port' can differ by thousands of dollars. Always include the full Incoterm plus the place, e.g. 'FOB Shanghai, Incoterms 2020'.
If a supplier quotes a term that puts too much risk on you, counter with a specific alternative. A clean counter-offer looks like:
"Thanks for the EXW quote. Given we’re shipping to Hamburg via sea freight, we’d prefer FOB Ningbo, Incoterms 2020. Please requote including export clearance and onboard-vessel delivery."
Specify the Incoterm, the named place, and the rules edition (always "Incoterms 2020" today). Suppliers who resist clear terms are often the same ones who cause disputes later.
An EXW price can look 20% cheaper than a DDP quote and still end up more expensive once freight, insurance, and duties are added. Always translate quotes to the same landed-cost basis before comparing.
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