Corporate and Business Law (Global) · Introduction to the UN Convention on Contracts for the International Sale of Goods and ICC Incoterms

Key Incoterms: Cost, Risk and Delivery Compared

Updated 11 October 2026 · Fact-checked

Incoterms are ICC rules that say where the seller delivers goods, when risk passes to the buyer, who pays for carriage and insurance, and who clears customs. To answer a question, find the delivery point named after the term, then read off risk, cost and customs duties from that point.

Understand Key Incoterms: Allocation of Cost, Risk and Delivery

An international sale needs answers to four questions. Where does the seller hand over the goods? When does the risk of loss or damage move to the buyer? Who pays for transport and insurance? Who handles export and import clearance and pays duties? Incoterms (ICC Incoterms 2020) give a short three-letter code that answers all four. They apply only if the parties include them in the contract. They cover delivery, risk and costs. They do not deal with the transfer of ownership or the price.

The key idea is the delivery point. In the 2020 rules, risk passes from seller to buyer at delivery. Costs also change hands around that point, though the seller may pay for the main carriage in some terms. So the carriage cost and the risk can be split. This is the most tested idea.

The terms fall into two groups. Terms for any mode of transport include EXW, FCA, CPT, CIP, DAP, DPU and DDP. Terms for sea and inland waterway only include FAS, FOB, CFR and CIF. Use FOB and CIF only for goods that go on a ship and are not containerised in a way that delivers earlier. For containers, FCA or CPT are usually more suitable.

Think of a line from the seller's door to the buyer's door. EXW puts the delivery point at the seller's door, so the buyer does almost everything. DDP puts it at the buyer's door, so the seller does almost everything. The other terms sit between them. The further the delivery point is from the seller, the more cost and risk the seller carries.

Two terms involve insurance duties for the seller: CIF (minimum cover) and CIP (higher cover, broadly all-risks level). In CIF and CPT, the seller pays for carriage to the named destination, but risk has already passed earlier, when the goods are loaded on the ship (CIF) or handed to the first carrier (CPT).

Key formulas to remember

EXW (Ex Works): Delivery: goods placed at buyer's disposal at seller's premises. Risk passes there. Buyer pays carriage, insurance, export and import clearance.; Minimum duty for the seller. The buyer loads the goods unless the contract says otherwise.
FCA (Free Carrier): Delivery: goods handed to the buyer's carrier at the named place. Risk passes there. Seller clears export. Buyer pays main carriage and import clearance.; If the named place is the seller's premises, the seller loads. At any other place, the seller does not unload.
CPT (Carriage Paid To): Delivery: handed to the first carrier. Risk passes there. Seller pays carriage to the named destination and clears export. No insurance duty.; Cost goes to the destination but risk passes early. Buyer clears import.
CIF (Cost, Insurance and Freight): Delivery: goods on board the ship at the port of shipment. Risk passes on loading. Seller pays freight to the destination port, buys minimum-cover insurance and clears export.; Sea and inland waterway only. Buyer pays import duties.
FOB (Free On Board): Delivery: goods on board the ship at the port of shipment. Risk passes on loading. Seller clears export. Buyer pays sea freight, insurance and import clearance.; Sea and inland waterway only. The difference from CIF is who pays freight and insurance.
DAP (Delivered at Place): Delivery: goods ready for unloading on the arriving vehicle at the named destination. Risk passes there. Seller pays carriage and clears export. Buyer unloads and clears import.; Seller bears risk throughout the journey.
DDP (Delivered Duty Paid): Delivery: goods ready for unloading at the named destination, cleared for import. Risk passes there. Seller pays all costs including import clearance and duties.; Maximum obligation for the seller.
Risk rule: Risk passes at delivery. Compare the delivery point with the place of loss.; Loss before the delivery point falls on the seller. Loss after it falls on the buyer.

How to solve Key Incoterms: Allocation of Cost, Risk and Delivery questions

Use this method for any question on Incoterms, whether it is a comparison, a loss scenario or a duty question.

1Identify the term and the named place. For example, 'CIF Mumbai' means the term is CIF and the named place is the destination port.
2Place the term on the line from seller to buyer. Decide if it is a seller-light term (EXW, FCA), a middle term (CPT, CIF, FOB) or a seller-heavy term (DAP, DDP).
3Find the delivery point and so the point where risk passes. For FOB and CIF it is on board the ship at the port of shipment. For CPT it is handover to the first carrier.
4Locate where the loss or event happened. Compare it with the delivery point to decide who bears the risk.
5Decide who pays carriage and insurance. Remember that CPT and CIF cost goes to the destination while risk does not. Only CIF and CIP oblige the seller to insure.
6Decide who clears export and import and pays duties. Only DDP puts import duty on the seller. The seller handles export clearance in every term except EXW.
7Check the mode of transport. Do not accept FOB or CIF for non-sea transport as the proper choice.
8State your conclusion in one line, with the reason tied to the delivery point.

Quickest way: The delivery-point ladder

When to use it: Use it for multiple-choice questions where you have under a minute per question.

Write the order: EXW, FCA, CPT, CIF/FOB, DAP, DDP. Seller's duty grows from left to right.
Fix risk first: EXW at seller's premises, FCA/CPT at first carrier, FOB/CIF on board at the origin port, DAP/DDP at the destination.
Then ask about cost: C-terms (CPT, CIF) the seller pays carriage to the destination. D-terms (DAP, DDP) the seller pays everything to the destination.
Insurance: only CIF and CIP require the seller to insure. Duties: only DDP puts import duty on the seller.
Eliminate options that break these four rules. One option will remain.

Common mistakes in Key Incoterms: Allocation of Cost, Risk and Delivery

Thinking risk passes at the destination in CIF or CPT because the seller pays freight.
Students link who pays with who bears risk.
Fix: Treat cost and risk separately. In CIF and CPT the seller pays carriage to the destination, but risk passes at the origin loading or first carrier handover.
Saying the seller in FOB arranges and pays insurance.
FOB and CIF look alike and are often taught together.
Fix: Remember that CIF adds Insurance and Freight to FOB. In FOB the buyer pays sea freight and decides on insurance.
Assuming the seller clears export in EXW.
Students assume the seller always handles its own country's customs.
Fix: In EXW the buyer handles export clearance as well. From FCA onwards the seller clears export.
Treating DAP as if the seller pays import duty.
DAP and DDP have similar names and both deliver at the destination.
Fix: Only DDP includes import clearance and duty for the seller. In DAP the buyer clears import and pays duties.
Using FOB or CIF for container or air shipments.
These are the best-known terms so students pick them by habit.
Fix: FOB, CFR, CIF and FAS are for sea and inland waterway only. For other modes, choose FCA, CPT or CIP.
Believing Incoterms decide when ownership passes or cover breach remedies.
Students overstate what the rules do.
Fix: Incoterms deal with delivery, risk, costs and documents. Ownership and remedies come from the contract and the governing law.

Worked examples

Example 1

A seller in Singapore sells machinery to a buyer in Kenya on CIF Mombasa terms. The goods are loaded on board the ship at Singapore. During the voyage a storm damages them. Who bears the loss, and who paid for the insurance and the freight?

Show the solution

The term is CIF and the named place is Mombasa, the destination port.
Under CIF, delivery occurs when the goods are on board the ship at the port of shipment, here Singapore.
Risk passes to the buyer at that point. The storm happened after loading, so the loss falls on the buyer.
Under CIF the seller must arrange and pay freight to Mombasa and buy minimum-cover insurance for the buyer's benefit.
So the buyer bears the risk but can claim on the insurance the seller bought, within the cover provided.

Answer: The buyer bears the risk of the storm damage because risk passed on loading at Singapore. The seller paid the freight and bought the insurance, so the buyer claims against the insurer.

Example 2

Compare EXW and DDP for a sale of furniture from a seller in Vietnam to a buyer in Germany. State where delivery occurs and who handles export clearance, carriage and import duty under each.

Show the solution

EXW: delivery occurs at the seller's premises in Vietnam when the goods are placed at the buyer's disposal. Risk passes there.
Under EXW the buyer arranges and pays carriage, insurance, export clearance and import clearance, and pays import duty.
DDP: delivery occurs at the named place of destination in Germany, with the goods ready for unloading.
Under DDP the seller arranges and pays carriage, export clearance, import clearance and import duty, and bears risk until delivery.
So the two terms are at opposite ends: EXW is the least burdensome for the seller, DDP the most.

Answer: EXW: delivery at the seller's premises, buyer does everything else including export and import clearance and duty. DDP: delivery at the German destination, seller bears all costs and risk including import duty.

Exam tips

Always read the named place after the term. 'FOB Shanghai' and 'FOB Rotterdam' mean different things for risk.
In objective questions, test each option against four facts: delivery point, risk, insurance and import duty. Wrong options usually fail on one.
Watch for mode-of-transport clues such as 'container by road' or 'air freight'. They signal that FOB or CIF is not appropriate.
In a written task, give the term, the delivery point, then the consequence for risk and cost. Link each statement to the delivery point.
Remember that Incoterms apply only if the parties incorporate them. If a scenario says nothing about them, do not assume they apply.

Practice questions from Introduction to the UN Convention on Contracts for the International Sale of Goods and ICC Incoterms

Key Incoterms: Allocation of Cost, Risk and Delivery: frequently asked questions

What is the difference between FOB and CIF?

Both pass risk when the goods are on board the ship at the port of shipment, and both are for sea transport. Under FOB the buyer pays the sea freight and arranges insurance. Under CIF the seller pays freight to the destination port and buys minimum-cover insurance.

What are the buyer and seller responsibilities in EXW versus DDP?

In EXW the seller only makes the goods available at its premises. The buyer handles loading, carriage, insurance, export and import clearance and duty. In DDP the seller delivers to the buyer's named destination and pays for all of this, including import duty.

How do I remember Incoterms for the ACCA exam?

Use the ladder EXW, FCA, CPT, CIF/FOB, DAP, DDP and learn that seller's duty grows along it. Then memorise three fixed points: risk passes at the origin in the C and F terms, only CIF and CIP need seller insurance, and only DDP puts import duty on the seller.

Do Incoterms say when ownership of goods passes?

No. They deal with delivery, risk, costs and documents. Ownership and the remedies for breach depend on the contract and the governing law.