What Are Incoterms?
Incoterms® are a set of internationally recognized trade terms published by the International Chamber of Commerce (ICC) that standardize delivery, cost allocation, and risk transfer between a seller (exporter) and a buyer (importer). The current edition, Incoterms® 2020, defines 11 terms ranging from EXW to DDP. To carry legal weight in a dispute, a contract should cite both the term and the edition together — e.g. 'FOB Busan Incoterms® 2020'.
Choosing the right Incoterm is, in practice, a risk-management decision. The same shipment can carry a completely different cost and liability split — who pays freight, insurance, and customs clearance, and who bears responsibility if something goes wrong in transit — depending on which term is used. FOB is still commonly used for container cargo out of habit, but because containers are typically handed to the carrier at a CY/CFS well before loading on board, the point of risk transfer can become ambiguous. The ICC therefore recommends FCA for container and multimodal shipments instead.
Frequently Asked Questions
Q. Are Incoterms legally binding?
A. Incoterms themselves are not law — they codify international trade custom. They only apply to a transaction when explicitly incorporated into the sales contract, and they do not govern matters like governing law or customs valuation.
Q. What's the key difference between FOB and CIF?
A. Risk transfers at the same point under both terms — once goods are loaded on board at the named port of shipment. The difference is that under CIF, the seller must also pay freight to the destination port and arrange minimum insurance coverage (ICC Clause C).
Q. Why is FCA recommended over FOB for container cargo?
A. FOB ties risk transfer to loading on board the vessel, but container cargo is usually handed to the carrier at a CY or CFS well before that point. That gap can leave liability for any loss unclear. The ICC officially recommends FCA for container and multimodal shipments because it pins down the delivery — and risk transfer — point explicitly.