Incoterms in practice: which to use, and the mistakes that cost money
FOB does not work for containers, CIF does not protect the buyer and DDP can be a trap. A direct guide to responsibilities, risk and cost under each term.
Incoterms are the three letters that define who pays for what, who bears the risk on each leg and who handles customs. Choosing the wrong one is the fastest way to lose money on an operation that looked profitable.
The most used terms and when they make sense
| Term | Who books the main carriage | Where risk passes to the buyer | Suited to |
|---|---|---|---|
| EXW | Buyer | At the seller's premises | Buyers with logistics capability at origin |
| FCA | Buyer | On handover to the carrier | Containers and air freight (replaces FOB) |
| FOB | Buyer | On board the vessel | Break bulk or bulk cargo |
| CIF / CFR | Seller | On board the vessel at origin | Sellers with good freight rates |
| DAP / DPU | Seller | At the agreed destination | Sellers who want to control the delivery experience |
| DDP | Seller | At destination, duties paid | Rare; requires the seller to be registered as importer |
The mistakes we see most
- FOB with containers. Risk passes "on board", but the container sits at the terminal for days before that. Use FCA.
- Treating CIF as protection. Under CIF the seller buys minimum cover. If the cargo has value, the buyer should arrange its own insurance.
- DDP without the structure. A foreign seller can rarely act as importer of record in Brazil. The term becomes an impossible promise.
- A term in the contract that differs from the term on the invoice. That creates customs discrepancies and valuation disputes.
Tip: always state the exact place after the term: "FCA Warehouse X, Shanghai" or "DAP Buyer's plant, Joinville". A term without a place is a source of dispute.
At TMLOG we review the Incoterm of each operation together with the client, weighing control, cost and risk. Often, moving from FOB to FCA or from CIF to DAP solves problems that looked logistical and were contractual.
International trade and logistics specialist with experience in import, export, customs clearance and international business development at TMLOG Global Trade & Logistics.
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