Incoterms 2020: complete guide for importers and exporters

S = seller · B = buyer · ◆ = depends on the contract · — = no obligation

When people see a dash under FOB, FCA, CFR or DAP, many assume the shipping line or the haulier covers the goods. It doesn't. What the carrier has is liability limited by convention — CMR by road, the Hague-Visby Rules by sea — which pays out per kilo with very low caps and doesn't apply in cases of force majeure or inadequate packaging.

Cargo insurance is a different thing, and under nine of the eleven rules nobody is required to take it out. If you want the goods covered, you need to insure them separately: how cargo insurance works.

These three cells can't be answered with a single letter, because it depends on how each shipment is contracted:

Under FAS the seller takes the goods alongside the ship, including terminal handling up to that point; loading on board and stowage are for the buyer. In containers this rule is hardly used, because terminals charge origin handling as a single fixed cost, from gate-in to loading on the vessel, which can't be split: FAS mainly appears in bulk, project cargo and breakbulk.

Under FCA the seller delivers by placing the goods on its own vehicle, ready for unloading, so unloading at the terminal is the buyer's. In practice, many local hauliers include it in their rate to keep billing simple; if the terminal invoices it separately, it falls on the buyer. The same applies in air freight, where building the pallet at the consolidator's warehouse is for the buyer's account, and in sea groupage, where consolidation into the shared container is handled by the consolidator.

It depends on the freight the seller has booked. If it's included, the seller bears it; if not, it falls on the buyer. This isn't unusual: it happens every day in sea groupage and in cheap long-haul freight, where the exporter books freight that doesn't cover unloading and the agent at destination invoices it again to the importer before releasing the bill of lading.

There are two ways to avoid it: buy FOB and control the freight from origin, or require the seller to state on the bill of lading that destination handling is prepaid.

Both require the seller to take out insurance, but at different levels since the 2020 revision. CIF only requires minimum cover, designed for major casualties such as sinking, fire or collision. CIP requires all-risks cover.

The difference isn't theoretical: with CIF's minimum cover, if seawater gets into the container, mould appears, something breaks in transit or packages go missing, nothing is paid out.

And watch the dash. A dash in the insurance row doesn't mean the carrier insures the goods: what the shipping line or haulier has is liability limited by convention, which pays per kilo with low caps and falls away in cases of force majeure or inadequate packaging. Cargo insurance is a different thing, and under nine of the eleven rules nobody is required to take it out.

This isn't a “who pays” row: it decides who bears the loss if the goods are damaged.

• EXW: at the seller's premises, when the goods are placed at the buyer's disposal, not loaded.
• FCA: on delivery to the carrier nominated by the buyer, at the agreed place.
• CPT and CIP: on delivery to the first carrier.
• DAP and DDP: at the agreed destination, ready for unloading.
• DPU: at the agreed destination, once unloaded.
• FAS: alongside the ship, at the port of shipment.
• FOB, CFR and CIF: when the goods are on board the vessel.

1. A Spanish buyer imports machinery from China on CFR Valencia terms.
2. The container arrives at its factory in Madrid. When it's opened, the machine is on its side and wrecked by poor lashing.
3. The buyer refuses to pay the supplier: “it arrived broken”.
4. But risk passed in Shanghai, when the container was loaded on board. The buyer must pay for the goods in full and claim against the insurer or the shipping line itself.

It's the most common mistake with the C rules: the seller pays for carriage to destination, but risk changes hands at origin.

Three things negotiated every day that no rule assigns. If they aren't agreed in writing, they end in a dispute:

• Demurrage and storage: who pays if the container is held at the port for a customs inspection or missing documents.
• Inspections and formalities: clearance isn't just the broker's fee; there's issuing a T1, health, plant-health and quality inspections, and positioning for scanning.
• Waiting time: what happens if the truck waits more than two hours to load at origin or unload at destination.