International Trade and Incoterms
What Incoterms do and do not do
Incoterms rules allocate costs, risks, and delivery obligations between seller and buyer. They do not govern title, payment, or remedies, and they do not by themselves determine customs value. The 2020 rules include rules for any mode (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and sea and inland waterway rules (FAS, FOB, CFR, CIF).
Concepts to master
Identify the point where risk passes for each rule. Under FCA, risk passes when goods are handed to the carrier; under FOB, when goods are on board the vessel. CIF and CIP require the seller to arrange insurance, with different minimum coverage levels. DDP places import clearance and duty on the seller, which is often impractical for a foreign seller without local registration. DPU requires the seller to unload at destination; DAP does not.
Traps
Confusing CPT with CIP on insurance, or CFR with FOB on risk point. A common exam trap is choosing DDP for a seller with no presence in the import country. Another is assuming Incoterms decide when title passes - they do not.
Rule of thumb
Match the rule to the transport mode and to who can realistically perform customs clearance. For containerized cargo, FCA is generally preferred over FOB because goods are handed over before loading.
Worked example
A seller agrees to deliver containers to a terminal and load them on a vessel, bearing cost to destination but not risk after loading. That is CFR: cost to destination, risk passing on board.