Incoterms allocate three things between buyer and seller: who pays for carriage, who carries the risk of loss, and who handles the customs formalities. Most disputes arise because a buyer assumed those three moved together. They do not.
The trap in CIF
Under CIF the seller pays for carriage and insurance to the named destination port. It reads as the protective option. But risk transfers to the buyer when the goods are loaded on board at origin — not on arrival. If the cargo is damaged mid-voyage, the buyer owns the loss and must claim on a policy the seller arranged, at the minimum cover level the term requires, with a counterparty the buyer never selected.
For a first transaction with an unfamiliar supplier, that is a poor position. You are relying on the quality of an insurance arrangement you did not negotiate.
Where each term places you
| Term | Risk transfers | Suits |
|---|---|---|
| EXW | At the seller’s premises | Experienced buyers with their own freight arrangements |
| FCA | On delivery to the buyer’s carrier at origin | Buyers with a trusted forwarder — the most balanced container term |
| FOB | On board the vessel at load port | Bulk and break-bulk buyers with shipping capability |
| CFR | On board at load port — seller pays freight only | Buyers who want carriage handled but insure themselves |
| CIF | On board at load port — seller pays freight and minimum insurance | Repeat buyers with an established supplier relationship |
| DAP | On arrival at the named destination | First-time importers who want the risk to sit with the seller |
What we recommend for a first shipment
DAP, or CFR with the buyer arranging their own insurance. DAP keeps the risk with the seller until the goods reach the agreed destination point, which aligns the seller’s interest with the cargo actually arriving intact. CFR with buyer-arranged cover gives you a policy you chose, at a level you set, with an insurer you can reach.
Choose the term that puts the risk on whoever is best placed to prevent the loss. Until you know a supplier, that is not you.
Three clauses worth more than the Incoterm
- A stated offer validity period. Without it, a quotation is a conversation, not a commitment.
- A pre-shipment inspection clause naming the surveyor and who pays. Ambiguity here becomes a dispute at discharge.
- A documentation schedule listing every certificate required and the deadline for issue. Most customs delays are missing paperwork, not missing cargo.
We write all three into our offers as standard, because a contract that only survives when nothing goes wrong is not a contract worth signing.