Incoterms in plain English
The three letters on your purchase order decide who pays, who arranges and who carries the risk.
What Incoterms do
Incoterms are standard trade terms published by the International Chamber of Commerce. The current edition is Incoterms 2020. Each term sets out which party arranges and pays for each stage of the journey, and the point at which risk passes from seller to buyer.
They do not decide who owns the goods, or when payment is due. Those belong in your sales contract.
A common trap: cost and risk can part ways
Under CIF, the seller pays freight and insurance to the destination port, but risk passes to the buyer once the goods are on board at origin. If cargo is damaged at sea, the buyer is the one who claims.
FOB, CFR and CIF were designed for cargo loaded directly on a ship. For containers handed over at a terminal, FCA, CPT and CIP generally fit better.
Choosing a term
Think about how much of the journey you want to control. Buyers often prefer FOB or FCA because they can appoint their own forwarder and see the real freight cost.
Always name a precise place after the term, such as "FCA Shanghai, container yard". A vague location is a frequent cause of disputes.
