By TradeSpan Global | Global Logistics & Trade Compliance
A supplier says, “Freight is included.” Your team assumes the supplier is responsible until the goods arrive. Then the shipment is damaged in transit, and both sides point to the same three letters on the purchase order: CIP.
Under CIP, the seller pays for transport and arranges cargo insurance to the named destination. But the buyer normally takes on the risk much earlier, when the seller hands the goods to the carrier at the agreed delivery point. Both teams read the same quote. They simply answered different questions.
When we review a shipment at TradeSpan Global, we start with three questions:
- Who does the work? Who books the carrier, arranges insurance where required, and handles customs formalities?
- Who pays? Which party pays for collection, freight, clearance, delivery and unloading?
- Where does risk transfer? At which point does the buyer take on the risk of loss or damage?
If you can answer those three questions for every stage, the Incoterm becomes much easier to understand.
Follow the shipment from start to finish
Incoterms® are ICC rules that buyers and sellers can incorporate into a sale contract. They allocate responsibilities, costs and risk between those two parties. They do not determine when ownership passes, when payment is due, or what remedy applies if the contract is breached. Those points belong in the wider sale agreement.
Here’s the shipment map we use to explain them. The order can vary by route, but the questions stay the same.
| Stage | What happens | What we check before booking |
|---|---|---|
| 1. Goods ready | The seller prepares, packs and marks the goods. | Where are the goods available? Is special packing required? |
| 2. Collection and loading | Goods are loaded onto the collecting vehicle or taken to an origin handover point. | Who provides the vehicle and loading equipment? |
| 3. Export clearance | Export documentation, declarations and any applicable licences are handled. | Who is responsible for clearance, and who can legally act in that role? |
| 4. Origin handover and main freight | Goods are handed to a carrier, placed alongside a vessel or loaded on board, depending on the rule. | Who books freight? At which exact handover does risk pass? |
| 5. Arrival and import clearance | Goods arrive, destination charges arise, and import formalities are completed where required. | Who handles import clearance, pays duties and taxes, and authorises cargo release? |
| 6. Final delivery and unloading | Goods move to the agreed delivery point and are unloaded. | Does the quote end at the terminal, the receiving dock, or after unloading? |
One word matters throughout this guide: delivery. In everyday speech, it usually means the goods have arrived. In Incoterms®, it means the seller has completed the handover specified by the rule. That could happen at the seller’s warehouse, at an origin terminal, on board a ship, or at the buyer’s site. Delivery is the point to look for when identifying where risk normally transfers.
All 11 Incoterms® 2020 rules at a glance
Seven rules can be used for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are for sea and inland waterway transport only: FAS, FOB, CFR and CIF. The sea-only rules are built around a handover alongside or on board a vessel.
| Rule | Where risk normally passes to the buyer | Who pays for main carriage? | Export → import clearance | Seller must arrange cargo insurance? |
|---|---|---|---|---|
| EXW | Goods available at the named place, before loading | Buyer | Buyer → Buyer | No |
| FCA | Handover to the buyer’s nominated carrier or person at the named point | Buyer | Seller → Buyer | No |
| FAS | Goods placed alongside the nominated vessel at the shipment port | Buyer | Seller → Buyer | No |
| FOB | Goods placed on board the nominated vessel at the shipment port | Buyer | Seller → Buyer | No |
| CPT | Handover to the seller’s contracted carrier at the agreed delivery point | Seller, to named destination | Seller → Buyer | No |
| CIP | Same as CPT | Seller, to named destination | Seller → Buyer | Yes |
| CFR | Goods placed on board at the shipment port | Seller, to named destination port | Seller → Buyer | No |
| CIF | Goods placed on board at the shipment port | Seller, to named destination port | Seller → Buyer | Yes |
| DAP | Goods available on the arriving vehicle at the named destination, ready to unload | Seller | Seller → Buyer | No |
| DPU | Goods unloaded and available at the named destination | Seller | Seller → Buyer | No |
| DDP | Import-cleared goods available on the arriving vehicle at the named destination, ready to unload | Seller | Seller → Seller | No |
The table shows the normal allocation, assuming both parties meet their obligations. It separates export and import; where transit customs formalities apply, the buyer generally handles them under E, F and C rules, and the seller handles them under D rules. Destination unloading charges can also depend on the freight contract, as explained below.
Group E: The buyer takes over at collection
1. EXW — Ex Works
- Goods ready and loading: The seller makes the goods available at the named place, usually its premises. The seller is not required to load the collecting vehicle. Risk passes when the goods are placed at the buyer’s disposal as agreed, before loading.
- Export and transport: The buyer arranges collection and onward carriage and is responsible for export formalities where applicable. The seller provides assistance with relevant information or documents when required under the rule.
- Import and delivery: The buyer handles import clearance, duties and applicable taxes, final delivery and unloading.
TradeSpan consultant’s check: Before accepting EXW on a cross-border shipment, ask who will physically load the truck and whether the buyer can arrange export clearance in the seller’s country. If the seller will load and clear the goods for export, FCA at the seller’s premises usually reflects that arrangement better.
Group F: The seller delivers at origin; the buyer controls main freight
2. FCA — Free Carrier
- Collection and origin handover: At the seller’s premises, the seller loads the goods onto the buyer’s collecting vehicle. At another named place, such as an airport cargo terminal, the seller brings the goods there on its vehicle and delivers them ready for unloading, at the disposal of the buyer’s nominated carrier or person.
- Export and risk: The seller handles export clearance. Risk passes at the applicable handover above.
- Main freight through final delivery: The buyer normally arranges main carriage and handles import clearance, duties and applicable taxes, onward delivery and unloading.
TradeSpan consultant’s check: Write the exact handover point. FCA Seller’s Warehouse, Loading Bay 2, Birmingham, UK, Incoterms® 2020 and FCA [named airport cargo terminal], Incoterms® 2020 create different responsibilities for the origin move.
3. FAS — Free Alongside Ship
- Origin and export: The seller clears the goods for export and brings them alongside the vessel nominated by the buyer at the named shipment port.
- Loading and risk: Risk passes alongside the vessel. The buyer takes responsibility for loading the goods on board and arranging the voyage.
- Destination: The buyer handles destination costs, import clearance, duties and applicable taxes, and onward delivery.
TradeSpan consultant’s check: Think of bulk or project cargo staged on a quay or barge alongside a vessel. Confirm the actual berth or loading point and who has booked the lift onto the ship. A container dropped at a terminal has not necessarily been delivered alongside a vessel.
4. FOB — Free on Board
- Origin and export: The seller handles export clearance and delivers the goods on board the buyer’s nominated vessel at the named shipment port.
- Risk and main freight: Risk passes once the goods are on board. The buyer arranges and pays for the voyage.
- Destination: The buyer handles import clearance, duties and applicable taxes, and destination arrangements.
TradeSpan consultant’s check: If your supplier hands a sealed container to the carrier at a terminal days before vessel loading, compare FCA with FOB. FCA can match the actual terminal handover; FOB places the risk transfer later, on board the vessel. That gap matters if the container is damaged while waiting at the port.
Group C: The seller pays freight to destination; risk passes at origin
This is where many misunderstandings begin. In a C rule, the named destination tells you how far the seller must contract and pay for carriage. The delivery point tells you where the buyer takes on the risk. Put both points on your shipment plan.
5. CPT — Carriage Paid To
- Origin and export: The seller handles export clearance and delivers the goods to its contracted carrier at the agreed delivery point. Where there are successive carriers and no different delivery point has been agreed, risk normally passes at handover to the first carrier.
- Main freight and insurance: The seller pays for carriage to the named destination. The rule does not require the seller to arrange cargo insurance.
- Destination: The buyer handles import clearance and applicable duties and taxes. The buyer also handles any onward movement beyond the named destination. Check the carriage contract for unloading charges.
TradeSpan consultant’s check: A quote of CPT [named destination terminal], Incoterms® 2020 does not mean the seller bears the transit risk to that terminal. Ask where the carrier first takes delivery and make sure insurance is aligned with that point.
6. CIP — Carriage and Insurance Paid To
- Origin and risk: The seller handles export clearance. Risk transfers at the carrier handover, as under CPT.
- Main freight and insurance: The seller pays for carriage and arranges cargo insurance from the delivery point to at least the named destination. The default cover is Institute Cargo Clauses (A) or equivalent, ordinarily for at least 110% of the contract price, in the contract currency.
- Destination: The buyer handles import clearance, duties and applicable taxes, and any movement beyond the named destination. Confirm unloading charges in the carriage contract.
TradeSpan consultant’s check: Ask for the insurance certificate before dispatch. Check the insured route, exclusions and claims contact. Broader cover still has exclusions, and the seller buying insurance does not move the risk transfer point to destination.
7. CFR — Cost and Freight
- Origin and export: The seller handles export clearance and delivers the goods on board the vessel at the shipment port.
- Risk and sea freight: Risk passes on board at origin. The seller still pays freight to the named destination port. The seller is not required to arrange cargo insurance.
- Destination: The buyer handles import clearance, duties and applicable taxes, and inland transport. Check whether discharge charges are included in the seller’s freight contract.
TradeSpan consultant’s check: If a quote says CFR [destination port], Incoterms® 2020, build your landed cost from that port onward and confirm insurance from the point the goods go on board at origin.
8. CIF — Cost Insurance and Freight
- Origin and risk: The seller clears the goods for export. Risk passes when the goods are on board at the shipment port, just as under CFR.
- Sea freight and insurance: The seller pays freight and arranges insurance to at least the named destination port. The default cover is Institute Cargo Clauses (C) or equivalent, ordinarily for at least 110% of the contract price, in the contract currency. This is narrower than the default CIP cover.
- Destination: The buyer handles import clearance, duties and applicable taxes, and onward movement. Verify which discharge costs are included in the freight rate.
TradeSpan consultant’s check: A CIF price includes insurance, but the insurance may not cover the loss scenario you are most concerned about. If the goods are sensitive or high value, review the policy and agree broader cover where needed.
Group D: The seller carries the risk to the named destination
With the D rules, the seller arranges transport and normally carries the risk up to delivery at the named destination. The choices are then practical: Who unloads? Who handles import clearance?
9. DAP — Delivered at Place
- Origin and transport: The seller handles export and applicable transit formalities and arranges carriage to the named destination.
- Import: The buyer handles import clearance and pays duties and applicable taxes. The parties need to coordinate clearance so the shipment can continue to the delivery point.
- Delivery and unloading: Risk passes when the goods are available to the buyer on the arriving vehicle, ready for unloading. The buyer handles unloading.
TradeSpan consultant’s check: For DAP Buyer’s Receiving Dock, [full site address], Incoterms® 2020, confirm the buyer’s broker, customs instructions, delivery appointment and forklift availability before dispatch. A truck arriving at the dock and equipment being lifted off the truck are two different milestones.
10. DPU — Delivered at Place Unloaded
- Origin and transport: The seller handles export and applicable transit formalities and arranges carriage to the named destination.
- Import: The buyer handles import clearance, duties and applicable taxes.
- Delivery and unloading: The seller arranges and bears the risk of unloading. Risk transfers after the goods are unloaded and made available to the buyer at the named point.
TradeSpan consultant’s check: If a machine needs a crane, forklift or specialist lifting team, DPU puts the unloading obligation on the seller. Check site access, lifting capacity, booking windows and the exact drop point. Do not assume unloading includes unpacking, positioning inside a building or installation; scope those separately.
11. DDP — Delivered Duty Paid
- Origin and transport: The seller arranges carriage and handles export and applicable transit formalities.
- Import: The seller handles import clearance and pays import duties, applicable taxes and clearance costs under the rule.
- Delivery and unloading: The seller delivers the import-cleared goods at the named destination on the arriving vehicle, ready for unloading. Risk then passes to the buyer, who handles unloading.
TradeSpan consultant’s check: Before quoting DDP, confirm with the destination broker that the seller can legally arrange import clearance in that country. Check who can be named as importer, which registrations or authorisations are needed, and how import tax will be handled. A DDP clause does not give a foreign seller the legal ability to act as importer. If the buyer needs to handle import clearance, consider DAP instead.
Unloading responsibility and unloading charges are separate. Under DAP and DDP, the buyer unloads, but some unloading charges may already be for the seller’s account under its carriage contract. Under CPT, CIP, CFR and CIF, also check what the freight contract includes at destination. Review the carrier’s quote before agreeing who will pay a charge or accepting a duplicate invoice.
One shipment, three different quotes
Imagine a crated test machine shipping by air from Birmingham to a buyer’s receiving dock overseas. The buyer can handle import clearance and has a forklift at the dock. The supplier offers three terms:
| Quote | What the supplier arranges | What changes for the buyer |
|---|---|---|
| FCA supplier’s warehouse | Loads the buyer’s collecting vehicle and handles export clearance. | Buyer takes risk once the goods are loaded as agreed and arranges transport from there. |
| CIP named destination airport cargo terminal | Handles export, pays carriage to the terminal, and arranges insurance to at least that point. | Buyer takes risk at the origin carrier handover. Buyer handles import and arranges the move from the terminal to the dock. |
| DAP buyer’s receiving dock | Handles export and applicable transit formalities and arranges carriage to the dock. | Buyer handles import and unloading. Risk normally passes at the dock when the machine is ready to unload. |
The right choice depends on what your team can manage. If you have strong freight rates and want control from origin, FCA is worth comparing. If the supplier has a better air freight arrangement and you can handle the destination move, review CIP and the insurance terms. If you want the supplier to coordinate carriage and retain risk to your dock while you manage import clearance, DAP better matches that handover.
The TradeSpan checklist before you confirm the order
- Match the rule to the actual handover. Draw the route from collection to receipt. Mark the place where the carrier takes the goods and the place where your team receives them.
- Write the named point precisely. Use
[rule] [named place, port or exact point] Incoterms® 2020. A city name alone may leave the warehouse, terminal or dock open to interpretation. - For C rules, record two points. Specify the paid destination and separately agree the origin delivery point where risk passes.
- Confirm customs roles before dispatch. Verify who can act on export and import, who appoints each broker, and who pays duties, taxes and clearance costs.
- Reconcile the supplier and freight quotes. Check collection, handling, discharge, storage exposure, final delivery and unloading. Compare the total landed cost rather than comparing supplier prices on different terms.
- Check insurance and evidence of handover. Confirm who is exposed at each stage, what the policy covers, and which document proves the agreed handover.
- Align the paperwork. Make sure the sale contract, purchase order, commercial invoice and shipping instructions use the same rule, named point and edition. library.iccwbo.org
Frequently asked questions
Which Incoterm is usually better for a container handed over at the origin terminal?
Start with FCA if the buyer books the main freight. If the seller pays for main carriage, compare CPT or CIP. Choose the rule that matches the actual handover and insurance needs.
Does freight prepaid mean the seller carries the risk?
No. Under CPT, CIP, CFR and CIF, the seller pays carriage to the named destination, but risk normally passes at the origin handover specified by the rule.
What’s the difference between DAP, DPU and DDP?
With DAP, the buyer clears import and unloads. With DPU, the buyer clears import and the seller unloads. With DDP, the seller clears import and pays duties and applicable taxes; the buyer unloads.
Can we use FOB for air freight?
No. FOB is a sea and inland waterway rule with an on-board vessel handover. For air freight, consider FCA if the buyer books the main carriage, or CPT/CIP if the seller pays carriage to an agreed destination.
Comparing two supplier quotes with different Incoterms? Send TradeSpan Global the quotes, the route and the intended receiving point. We can map who handles each stage, flag gaps in clearance or insurance, and help you compare the landed costs before you place the order.
Contact: hello@tradespanglobal.com
Incoterms® is a trademark of the International Chamber of Commerce. This article explains how to read the rules in practice. For a transaction, use the full ICC Incoterms® 2020 rules alongside your sale contract and confirm the shipment’s customs requirements with the appointed broker.