Two quotes for the same goods can differ by thousands simply because one supplier priced delivery to your warehouse and the other priced loading at their port. Incoterms® rules, published by the International Chamber of Commerce (ICC), exist to remove that ambiguity. The current edition is Incoterms® 2020, which took effect on 1 January 2020.
What Incoterms do — and what they do not
Incoterms define three things between seller and buyer: who arranges and pays for each leg of transport, who handles export and import clearance, and the exact point where risk of loss or damage passes from seller to buyer.
They do not decide when ownership (title) transfers, the payment terms, or what happens if the contract is breached. Those must be written into the contract itself.
The eleven rules in two groups
Incoterms® 2020 contains eleven rules:
- Any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP.
- Sea and inland waterway only: FAS, FOB, CFR and CIF.
- Using FOB or CIF for containerised cargo handed over at an inland terminal is a common mistake; the ICC recommends FCA or CIP in that situation.
The four rules buyers meet most often
- FOB (Free On Board): the seller clears the goods for export and loads them on the vessel you nominate. Risk passes once the goods are on board. You pay ocean freight, insurance and import costs.
- CIF (Cost, Insurance and Freight): the seller pays freight and minimum insurance to the destination port, but risk still passes to you when goods are loaded at origin. CIF only requires minimum cover (Institute Cargo Clauses C).
- DAP (Delivered at Place): the seller delivers to your named place, ready for unloading. You handle import clearance, duties and unloading.
- DDP (Delivered Duty Paid): the seller carries every cost and risk to your door, including import duties and taxes. It is the most convenient for buyers and the hardest for foreign sellers, who must be able to clear goods in your country.
CIP versus CIF: the insurance difference
One of the main changes in the 2020 edition: under CIP the seller must now buy higher cover (Institute Cargo Clauses A, all risks), while CIF stayed at the minimum Clauses C. If you rely on the seller's insurance for high-value goods, CIP gives you much stronger protection.
How to write the rule in your RFQ
Always write the rule, the named place and the edition, for example: "FCA Shenzhen Yantian container terminal, Incoterms® 2020" or "DAP Apapa, Lagos, Incoterms® 2020". A rule without a precise place is the main source of disputes.
Ask every supplier to quote on the same rule. If one supplier can only offer a different rule, ask for that price separately so your comparison stays like-for-like. On Quotendra, put the rule and place in the request scope so every supplier sees the same terms.
Buyer guides
Short, field-tested guides for procurement teams: how to write a request suppliers can price accurately, and how to compare the quotes that come back.