Common Incoterms 2020 Mistakes: FOB vs FCA, EXW, DDP, CIF Insurance

Using FOB, CFR or CIF for container cargo

FAS, FOB, CFR and CIF are the four Incoterms 2020 rules for sea and inland waterway transport only. Under FOB, CFR and CIF the seller delivers, and risk passes, when the goods are on board the vessel at the port of shipment. A container is usually handed to the carrier at a terminal or depot before it is loaded, so under FOB the seller still carries the risk while the box sits in a yard it does not control. ICC's introduction advises sellers of containerised goods handed to a carrier before loading to sell FCA rather than FOB; the any-mode rules matching CFR and CIF are CPT and CIP.

These rules also do not fit air, road or rail shipments, or an inland place such as "FOB factory". Export Development Canada calls FOB for an inland point of delivery the most common mistake.

Sellers often keep FOB because a letter of credit asks for an on-board bill of lading, which an FCA seller would not normally receive. Incoterms 2020 added an option in FCA A6/B6: if the parties agree, the buyer must instruct its carrier to issue a transport document with an on-board notation to the seller after loading, and the seller then tenders it to the buyer, for example through the banks. The seller still has no obligation to the buyer about the terms of the contract of carriage, and the carrier is not a party to the sale, so confirm with the buyer's forwarder before shipment that it will issue the document.

EXW and DDP: the two rules sellers most often misuse

EXW is the minimum obligation for the seller: it only places the goods at the buyer's disposal, not loaded. Loading onto the buyer's vehicle is at the buyer's risk and expense, and the buyer must handle export clearance, with the seller only giving assistance. In practice the seller often loads the truck and files the export declaration anyway, so damage during loading can be disputed, and the buyer may not be able to clear the goods for export: ICC's 2025 report on national barriers notes, for example, that in the EU an EXW buyer that wants to export the goods must in principle be established there. If you load or clear for export, sell FCA at your premises instead; delivery then happens when the goods are loaded onto the buyer's vehicle.

DDP is the maximum obligation: the seller delivers at the destination, clears the goods for import and pays all duties and taxes there, so it also bears the risk of tariff increases. That needs the seller, or a party it appoints, to act as importer in the buyer's country, which some countries restrict. ICC lists Brazil, where a foreign seller may not arrange import clearance, and notes that in the EU import clearance in principle cannot be handled by a non-resident, so non-EU sellers need an EU-established representative. ICC advises sellers that cannot meet these obligations to use DAP or DPU.

Import VAT or GST is the hidden cost. In the EU, a non-EU seller liable for import VAT is treated as making its onward sale in the country of import (VAT Directive, Articles 32 and 201), so it usually needs a VAT registration there. In the UK, a non-established taxable person has no registration threshold and must register for VAT once it makes taxable supplies of any value in the UK (VAT Notice 700/1). Changing DDP to exclude VAT is possible, but ICC warns that altering a rule carries risks; DAP is usually cleaner.

Vague named places and a missing "Incoterms 2020"

The named place matters as much as the rule. "FOB China" or "CIF Europe" leaves the port open, so the parties, a judge or an arbitrator cannot tell where delivery happened or who pays which costs. ICC asks for places as geographically specific as possible, such as "CIF Shanghai Incoterms 2020" or a full street address under DAP.

Under FCA, DAP, DPU and DDP, name the exact address, terminal or warehouse; under FAS and FOB, the port of shipment; under CFR, CIF, CPT and CIP, the destination. With the C rules, risk passes in the country of shipment while the named place is at destination, so also agree the port or place of shipment in the contract.

Write the edition too. Incoterms 2020 has applied since 1 January 2020 and is still the current edition; there is no "Incoterms 2025" or "Incoterms 2026", and as of October 2026 we found no official ICC announcement of a next edition. Older editions such as Incoterms 2010 can still be used if the contract names them, so an unmarked "CIF" can be read under different rules: insurance under CIP, the FCA on-board bill of lading and DPU (formerly DAT) all changed in 2020.

Insurance, unloading and charges at destination

Only CIF and CIP oblige the seller to insure, and the minimum differs. CIF requires at least Institute Cargo Clauses (C), a limited cover, while CIP now requires Institute Cargo Clauses (A), all risks. Cover should be at least the contract price plus 10% (110%) in the contract currency, and the parties may agree a different level. A letter of credit also expects at least 110% of the CIF or CIP value unless it states otherwise (UCP 600 Article 28). Some countries do not allow foreign transport insurance on imports: ICC's 2025 report lists, for example, Brazil and Nigeria, so a CIF or CIP sale there needs checking first.

DPU is the only rule under which the seller unloads at destination. Under DAP and DDP the seller delivers on the arriving vehicle, ready for unloading, and the buyer unloads at its own risk; under DPU the seller must make sure it can actually unload at the named place. DPU to a site without a dock or forklift, or DAP when the seller's driver will unload anyway, leaves risk unclear.

Destination terminal handling charges (THC) cause frequent disputes under C and D rules. Incoterms 2020 lists each party's costs in articles A9/B9: the seller pays unloading charges at destination only if they were for its account under its contract of carriage, and the buyer pays the rest. Carriers and terminals often bill destination THC to the consignee, so state in the quote and contract who pays origin and destination THC, and who pays demurrage and detention if the buyer clears or collects late; these charges arise under the contract of carriage, not the sale.

What Incoterms do not decide, and US "FOB" terms

Incoterms allocate delivery, risk, costs and clearance tasks between seller and buyer. They are not a contract of sale and do not deal with the price or payment terms, the specification of the goods, remedies for breach, sanctions or tariffs, force majeure, dispute resolution or governing law. ICC stresses that, perhaps most importantly, they do not deal with the transfer of property, title or ownership. Put payment terms, any retention of title and governing law in the contract, and do not assume the buyer owns the goods because risk has passed.

In the US, "FOB shipping point" and "FOB destination" come from the Uniform Commercial Code (UCC § 2-319), not from Incoterms. A UCC FOB term can name any place and any carrier, such as a truck at the factory, and under UCC § 2-401 title passes, unless otherwise agreed, when the seller completes physical delivery. Incoterms FOB means goods on board a vessel at a named port of shipment. In export contracts, write the full Incoterms form, such as "FOB Long Beach Incoterms 2020" or "FCA [your warehouse address] Incoterms 2020", instead of "FOB origin" or "FOB destination".

Matching the invoice, bill of lading, letter of credit and customs value

Banks check documents against the credit and against each other, and data must not conflict (UCP 600 Article 14(d)). If the credit states a trade term, banks expect the invoice to show it, with the same source, such as "Incoterms 2020", when the credit names one. The bill of lading's freight statement must not conflict either: a CIF or CFR sale normally means a bill marked "freight prepaid", an FOB or FCA sale one marked "freight collect". A CIF invoice with a "freight collect" bill invites a refusal.

The rule also affects the customs value. The WTO Customs Valuation Agreement lets each country include or exclude the cost of transport, loading and insurance up to the place of import. The EU includes transport and insurance up to the place where the goods enter the EU and deducts transport after entry, so its value is CIF-based. The US excludes international freight and insurance (19 U.S.C. 1401a), so its value is FOB-based. Show freight, insurance and other charges separately on the invoice, so customs can add or deduct them instead of taxing the full delivered price.