All posts by : Vicky Babhaniya

CIF Incoterm 2020 Introduction: Convenience Meets Security on the Ocean

CIF (Cost, Insurance, and Freight) is one of the most recognizable and widely used Incoterms in global sea trade. Like its sister rule, CFR, CIF requires the seller (exporter) to pay the freight cost up to the named port of destination. However, the critical difference—and what makes CIF so popular with buyers—is the added, mandatory obligation for the seller to procure marine insurance on the buyer’s behalf.

CIF is used strictly for sea and inland waterway transport and is a reliable choice for importers on TheExporterHub.com who want a fixed cost that includes shipping and insurance up to the destination port, while the exporter handles the often-complex logistics and documentation from origin.

1. What is CIF (Cost, Insurance, and Freight) Incoterm 2020?

Under the CIF Incoterm, the seller fulfills their delivery obligation when the goods are:

1. Placed on board the vessel at the port of shipment.
2. Cleared for export in the country of origin.
3. The seller has secured and paid for marine insurance covering the main voyage.

Transfer of Cost and Risk

• Risk Transfer: The risk of loss or damage transfers from the seller to the buyer when the goods are placed on board the vessel at the port of shipment (same as FOB and CFR).
• Cost Transfer: The seller pays for the freight and insurance up to the named port of destination.

The buyer assumes the risk of the voyage, but is compensated because the seller has purchased insurance on their behalf.

2. The Insurance Obligation: Clause C (Minimum Cover)

The insurance requirement under CIF is mandatory, but the level of coverage is standardized by the Incoterms® 2020 rule:

• Minimum Coverage: The seller must obtain insurance that complies with the Institute Cargo Clauses (C) or similar clauses.
• Clause C provides the lowest level of coverage (e.g., covering major incidents like sinking, fire, or grounding of the vessel).
• Coverage Value: The insurance must be for at least 110% of the contract price (including the cost of the freight) in the currency of the contract.

CIF vs. CIP: Insurance Level Matters

Importers of high-value goods should be aware of the difference between CIF and the multimodal rule CIP:

• CIF (Sea Only): Seller must procure Clause C (minimum coverage).
• CIP (Multimodal): Seller must procure Clause A (all-risks coverage).

If an importer requires comprehensive (‘all-risks’) insurance for goods shipped by sea, they must explicitly agree with the seller in the contract to upgrade the CIF insurance from Clause C to Clause A.

3. Exporter and Importer Responsibilities

CIF requires the exporter to manage and pay for almost everything up to the destination port, except for the risk management itself, which is handled via insurance.

4. Conclusion: When to Use CIF

CIF is the definitive choice for sea-only trade when the seller has better access to freight and insurance rates, and the buyer wants the convenience of an inclusive price up to the destination port.

• Use CIF when:
  1. Shipping non-containerized goods, bulk commodities, or vehicles (as it is a sea-only rule).
  2. The buyer requires the seller to provide mandatory insurance coverage.
  3. The seller can secure competitive freight and insurance deals and wishes to offer a simple, comprehensive quote.

As with FOB and CFR, CIF should be avoided for containerized cargo. For goods shipped in containers, CIP is the recommended multimodal alternative, as it aligns the risk transfer point correctly and mandates higher insurance coverage (Clause A).

CFR Incoterm 2020 Introduction: Balancing Service and Liability

The CFR (Cost and Freight) Incoterm is a traditional sea-only rule that offers the importer (buyer) the convenience of prepaid freight up to the port of destination, while simultaneously placing the responsibility for transit risk squarely on the buyer much earlier in the journey.

CFR is widely used, particularly for non-containerized cargo, bulk commodities, and heavy industrial goods shipped via conventional ocean freight. It is a natural step up from FOB for exporters on platforms like TheExporterHub.com who want to offer a more inclusive, competitive price that covers the cost of international shipping.

1. What is CFR (Cost and Freight) Incoterm 2020?

Under the CFR Incoterm, the seller (exporter) has two main responsibilities regarding the shipment:

1. Cost Responsibility: The seller must contract and pay for the main carriage (freight) required to bring the goods to the named port of destination.
2. Delivery/Risk Responsibility: The seller delivers the goods when they are placed on board the vessel at the port of shipment.

The Defining Feature: The Split

The core principle of CFR is the two-point transfer, similar to CPT:

• Risk Transfer: The risk of loss or damage transfers from the seller to the buyer when the goods are placed on board the vessel at the port of shipment (same as FOB).
• Cost Transfer: The seller pays for the freight up to the named port of destination.

This means that while the seller pays the hefty international shipping bill, the buyer owns the risk for the entire voyage and must purchase insurance to protect their cargo.

2. CFR vs. FOB: The Cost Distinction

The relationship between CFR and FOB is simple: CFR = FOB + Freight.

• FOB: The seller’s obligation ends when the goods are on board. The buyer pays the main freight.
• CFR: The seller’s obligation still ends when the goods are on board (for risk transfer), but the seller also pays the main freight to the destination port.

For the importer, the CFR price is simply a higher, more inclusive price than the FOB price, giving them a clear view of the total cost up to the destination port.

3. CFR vs. CIF: The Insurance Distinction

CFR and CIF (Cost, Insurance and Freight) are also closely related. The only difference is insurance:

• CFR: The seller pays for cost and freight, but insurance is not mandatory (the buyer must arrange it).
• CIF: The seller pays for cost and freight AND must procure mandatory minimum insurance cover for the buyer.

For buyers, if transit risk is a major concern, choosing CIF over CFR is generally advisable, as it ensures the cargo is protected.

4. Exporter and Importer Responsibilities

CFR places significant logistical responsibility on the seller, but requires the buyer to manage risk and terminal costs.

5. Conclusion: When to Use CFR

CFR is an excellent choice when the exporter (seller) has superior access to competitive freight rates and wants to offer the importer a single, comprehensive price up to the port of arrival.

• Use CFR when:
  1. Shipping bulk cargo or non-containerized goods (as it is a sea-only rule).
  2. The seller has better bulk freight contracts and can pass the savings to the buyer.
  3. The buyer wants to control the insurance contract (perhaps they have a floating policy) but prefers the convenience of prepaid shipping.

However, like FOB, CFR should not be used for containerized cargo; the multimodal rule CPT should be used instead, as the risk transfer point (to the first carrier) better reflects container logistics.

FOB Incoterm 2020 Introduction: The Most Recognized Incoterm

FOB (Free On Board) is the most famous Incoterm in international trade. It is the gold standard for many traditional commodity trades and is highly favored by importers because it gives them full control over the main carriage freight and insurance—the most expensive parts of the journey.

Like FAS, FOB is strictly restricted to sea and inland waterway transport. The rule is clear: the seller (exporter) bears the cost and risk of the goods until they are physically loaded on board the vessel at the named port of shipment. This guide explains this defining moment and why it’s crucial to use FOB correctly on platforms like TheExporterHub.com.

1. What is FOB (Free On Board) Incoterm 2020?

Under the FOB Incoterm, the seller fulfills their delivery obligation when the goods are:

1. On board the vessel.
2. At the named port of shipment.
3. Cleared for export from the origin country.

Transfer of Cost and Risk

• Risk Transfer (The Defining Moment): Both the risk of loss or damage and the transfer of costs shift from the seller to the buyer when the goods are placed on board the vessel.
• Exporter’s Responsibility: The seller handles all costs and risks until the goods pass over the ship’s rail and are successfully loaded. This includes local transport, delivery to the port, export clearance, and the loading costs.
• Importer’s Responsibility: The buyer assumes all risk and costs from the moment the goods are on board. This includes main carriage, insurance, and all costs from the port of destination onwards (unloading, import clearance, local delivery).

2. The Shift in Risk: On Board the Vessel

The key responsibility shift under FOB is the physical act of loading.

• Under FAS: The buyer handles the cost and risk of loading.
• Under FOB: The seller handles and pays for the cost and risk of loading the goods onto the ship.

Once the goods are secured on the ship, the seller’s obligation ends, and the buyer assumes responsibility for everything, including contracting the main carrier (the ship itself) and acquiring insurance to cover the long voyage.

3. Why FOB is Often Misused for Containers

As with FAS, FOB is often misused for containerized cargo, which is typically transported via multimodal means.

• The Problem: For containers, the goods are delivered to the port terminal days before the ship arrives. The seller loses control when the container is dropped off at the yard, not when it’s loaded onto the ship (the risk transfer point).
• The Risk Gap: If the container is damaged while sitting in the port terminal yard, the risk—according to the strict definition of FOB—still technically lies with the seller, even though the seller cannot control the goods once they are gated in.

Industry Advice: Because FOB defines risk transfer by the physical act of loading onto the vessel, it should only be used for bulk cargo, loose cargo, or heavy machinery where the seller can directly observe and control the goods until they are loaded. For all containerized goods, use FCA.

4. Exporter and Importer Responsibilities

FOB is a traditional “F-Term,” emphasizing the buyer’s control over the main, international part of the journey.

5. Conclusion: When to Use FOB

FOB remains an excellent and clear Incoterm for importers who have strong control over their ocean carrier contracts and can secure highly competitive freight rates. It is the preferred method for purchasing large quantities of commodities, minerals, or other non-containerized goods from Indian ports.

However, if you are an Indian exporter shipping manufactured goods in containers, offering FCA provides a clearer and more legally sound boundary for risk transfer, aligning responsibility with the actual logistics process.

FAS Incoterm Introduction: The Term for Traditional Shipping

The FAS (Free Alongside Ship) Incoterm is a traditional rule primarily used for large, non-containerized goods, such as heavy machinery, grain (bulk commodities), timber, or large industrial equipment. It is one of the four rules strictly restricted to sea and inland waterway transport.

FAS is highly convenient for importers on TheExporterHub.com who specialize in purchasing raw materials or break-bulk cargo (goods shipped individually rather than in containers). Under FAS, the seller (exporter) takes on the cost and risk of getting the goods right up to the vessel, making it a natural choice when the buyer wants to control the main carriage contract.

1. What is FAS (Free Alongside Ship) Incoterm 2020?

Under the FAS Incoterm, the seller fulfills their delivery obligation when the goods are:

1. Placed alongside the vessel (e.g., on the quay or a barge).
2. At the named port of shipment.
3. In the manner customary at that port.

Transfer of Cost and Risk

• Risk Transfer: Both the risk of loss or damage and the transfer of costs shift from the seller to the buyer when the goods are placed alongside the vessel.
• Exporter’s Responsibility: The seller handles all costs and risks until the goods are physically positioned next to the ship’s loading tackle. The seller is also responsible for Export Customs Clearance (a key difference from EXW).
• Importer’s Responsibility: The buyer takes on the cost and risk from the moment the goods are alongside the ship, including the critical and often expensive step of loading the goods onto the vessel.

2. FAS is for Bulk, Not Containers

The FAS Incoterm should not be used for containerized cargo, and here’s why:

• Container Logistics Reality: Containers are typically dropped off by the seller’s truck days before the ship arrives at a large, designated container terminal yard. They are not usually placed “alongside” a specific vessel. Once in the terminal stack, the seller loses all control.
• Risk Misalignment: Since the goods are handed over early in the terminal, using FAS would incorrectly delay the transfer of risk until the theoretical point “alongside the ship,” long after the seller has lost control.

Industry Advice: For containerized goods, FCA (Free Carrier) is the appropriate rule to use, as the risk transfers much earlier at the container yard or forwarder’s warehouse, aligning with the modern logistics process.

3. Exporter and Importer Responsibilities

FAS is a traditional “F-Term,” meaning the seller delivers the goods, and the buyer pays the main freight.

4. FAS vs. FOB: The Loading Point Distinction

FAS and FOB are closely related and are the two Incoterms most relevant to the point of loading at the origin port:

• FAS: Seller’s responsibility ends alongside the vessel. Buyer loads.
• FOB: Seller’s responsibility ends on board the vessel. Seller loads.

When importing large, heavy cargo where the cost and risk of loading are substantial (e.g., using a specialized crane), FAS allows the buyer to retain control over that specific operation and its associated costs.

Conclusion: When to Use FAS

FAS is the essential Incoterm for the trade of non-containerized goods and bulk commodities where the loading operation is complex and often handled by the terminal or carrier contracted by the buyer. It allows the importer to centralize control over the main shipping logistics while ensuring the Indian exporter handles all necessary local transport and export clearance.

If you are shipping general merchandise in a container, stick to FCA. If you are shipping bulk grain, coal, or large pieces of equipment, FAS is the appropriate traditional rule.

DDP Incoterm 2020 Introduction: The ‘Zero-Hassle’ Incoterm

In the world of international trade, DDP (Delivered Duty Paid) represents the maximum service a seller (exporter) can offer. It is the exact opposite of EXW (Ex Works).

Under DDP, the exporter bears virtually all costs and risks required to bring the goods to the final named destination, including paying for the import duties, taxes, and customs clearance fees in the buyer’s country. For importers on TheExporterHub.com, DDP is the simplest rule, offering a true ‘landed cost’ without any hidden or unexpected charges. This is particularly common in B2C e-commerce, but also used in B2B trade when the buyer demands absolute predictability or is new to importing.

1. What is DDP (Delivered Duty Paid) Incoterm 2020?

Under the DDP Incoterm, the seller fulfills their delivery obligation when the goods are:

1. Placed at the buyer’s disposal, ready for unloading.
2. At the named place of destination.
3. Cleared for import (all duties, taxes, and fees paid).

Transfer of Cost and Risk

• Exporter’s Responsibility (Maximum): The seller is responsible for every cost and risk associated with the entire journey, including pre-carriage, export clearance, main carriage, insurance (though not mandatory, it’s necessary for the seller’s protection), and, most uniquely, Import Clearance, Duties, and Taxes (VAT/GST).
• Transfer Point: Both cost and risk transfer from the seller to the buyer at the named destination, precisely when the goods are ready for unloading and cleared for import.

The only obligation left to the buyer is usually the physical unloading of the cargo at their receiving point.

2. The Defining Factor: Import Duties and Taxes

The defining factor that separates DDP from DAP is the seller’s responsibility for import clearance:

• DAP: The buyer handles and pays all import duties, taxes, and clearance fees.
• DDP: The seller handles and pays all import duties, taxes (including VAT/GST), and clearance fees.

This places an enormous burden on the exporter, who must be fully aware of the customs regulations, duty rates, tax laws, and required licenses in the buyer’s country—a foreign jurisdiction. Failure to calculate these costs accurately can result in significant financial losses for the seller.

DDP and VAT/GST

A significant risk for the seller under DDP is the payment of Value Added Tax (VAT) or Goods and Services Tax (GST) in the buyer’s country.

• In many countries, VAT/GST paid at import can later be claimed back by the importing entity.
• Under DDP, the seller pays the VAT/GST. If the seller does not have a legal entity registered in the buyer’s country, they cannot claim this tax back, turning it into a straight cost.
• This VAT/GST cost can often be 15-25% of the goods’ value, making it a crucial calculation.

3. Exporter and Importer Responsibilities

DDP represents the pinnacle of service for the buyer and the maximum complexity for the seller.

4. Conclusion: When to Use DDP

DDP is a powerful sales tool, especially for Indian exporters targeting new, small, or e-commerce buyers who demand a predictable, fixed price, or who are simply unwilling to deal with import customs complexity.

• Use DDP when:
  1. The seller has an expert international logistics network and deep knowledge of the destination country’s customs rules and tax laws.
  2. The buyer requires a truly fixed, ‘landed cost’ quotation upfront.
  3. The seller is targeting a market where competition dictates offering maximum convenience (e.g., e-commerce fulfillment).

However, DDP should only be undertaken by exporters with high confidence in their ability to manage foreign tax and duty regulations. For most transactions, DAP is the safer choice, as it passes the variable and unpredictable import tax burden back to the local entity best positioned to handle it—the buyer.

DAP Incoterm 2020 Introduction: The Convenience of DAP

DAP (Delivered at Place) is arguably the most common Incoterm for modern multimodal trade, especially for those importers who want the convenience of having their goods delivered nearly all the way to their door but prefer to handle the final steps of customs clearance and unloading themselves.

Under DAP, the seller (exporter) handles the entire logistics chain—from their factory through international transit, right up to the agreed-upon receiving point in the buyer’s country. This makes DAP highly attractive for both importers on TheExporterHub.com seeking simplicity and exporters who have strong, reliable international freight forwarder contracts. DAP clearly defines that the seller pays for carriage and bears all risk up to the named final location, providing immense clarity and transparency in pricing.

1. What is DAP (Delivered at Place) Incoterm 2020?

Under the DAP Incoterm, the seller fulfills their delivery obligation when:

1. The goods are placed at the buyer’s disposal.
2. On the arriving means of transport (e.g., the delivery truck).
3. Ready for unloading.
4. At the named place of destination (which can be a warehouse, factory, port terminal, or even a specific address).

Transfer of Cost and Risk

• Exporter’s Responsibility (Cost & Risk): The seller is responsible for all costs and risks associated with bringing the goods to the named final destination. This includes local transport, export clearance, main carriage, and any transport within the destination country up to the delivery point.
• Transfer Point: Both cost and risk transfer from the seller to the buyer at the named destination, precisely when the goods are ready for unloading.

Crucially, Import Customs Clearance (including duties and taxes) is explicitly the buyer’s responsibility under DAP.

2. The Defining Moment: Ready for Unloading

The primary point of distinction for DAP is the moment of risk transfer, which occurs just before the goods are unloaded.

• Risk Transfer: Once the goods have safely arrived at the buyer’s named location and are available on the delivery vehicle, the seller’s responsibility for the goods ends.
• Unloading Responsibility: The buyer is responsible for both arranging and paying for the physical unloading of the cargo at the receiving point.
• Why this matters: If the delivery truck arrives safely but is damaged during the buyer’s unloading process, the buyer bears the risk and the cost of the damage.

This feature makes DAP ideal when the buyer is certain they possess the necessary cranes, forklifts, or labor to safely unload the goods at their specific facility.

3. Exporter and Importer Responsibilities

DAP places heavy logistical responsibility on the seller, but final regulatory and physical handling on the buyer.

4. DAP vs. DPU: The Unloading Distinction

As noted in the DPU article, the difference between the two terms comes down to a single physical step:

• DAP: Seller delivers to the place, ready for unloading. Buyer unloads.
• DPU: Seller delivers and unloads at the place. Seller unloads.

If you are an importer and are unsure if your receiving facility can safely handle the unloading of a heavy product like a large piece of machinery or a container of AAC blocks, it is safer to negotiate for the seller to use DPU.

5. Conclusion: When to Use DAP

DAP is the workhorse of modern Incoterms, providing a perfect blend of high service and clear responsibility separation.

• Use DAP when:
  1. The buyer wants the seller to manage the entire complex, international logistics chain.
  2. The buyer is happy to handle the simpler, last-mile steps: unloading and import clearance (duties/taxes).
  3. The buyer wants to maintain control over the payment of local customs duties, as this is often complex to calculate accurately beforehand.

For professional trade between an Indian exporter and a global importer, DAP ensures the exporter delivers their goods with guaranteed freight and risk management, while the importer retains control over their local costs and regulatory obligations.