Incoterms® rules, published by the International Chamber of Commerce, allocate costs, risks and tasks between seller and buyer in the delivery of goods. They do not decide when title passes or the price, and they do not replace the sale contract, but choosing the wrong rule is a common source of disputes.
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Match the rule to the mode of transport
Four rules (FAS, FOB, CFR and CIF) are designed for sea and inland waterway transport, where goods are delivered at or on board a vessel. For containerised cargo handed over at an inland depot or terminal, FCA, CPT or CIP are usually the better fit.
Know where risk passes
Under the ‘C’ rules, the seller arranges and pays for main carriage, but risk passes to the buyer much earlier, on delivery to the carrier. Parties often assume the opposite.
Check insurance obligations
Under Incoterms 2020, CIP requires the seller to obtain broader cover (Institute Cargo Clauses (A)), while CIF retains the minimum cover of Clauses (C) unless the parties agree otherwise.
Align with the letter of credit
Where payment is by documentary credit, the chosen rule should match the documents the credit calls for, such as an on-board bill of lading for FOB or CIF.
- Name the rule and its edition, e.g. “FCA Mumbai Port, Incoterms® 2020”.
- Specify the named place as precisely as possible.
- Confirm who clears export and import formalities.
- Check consistency with your LC and insurance arrangements.
This note is for general information only and does not constitute legal advice. For advice on a specific matter, please contact us.
