Incoterms: where the cost and the risk change hands
The eleven rules in two groups, the two points a CIF sale splits apart, and why a container shipped FOB leaves you carrying risk you cannot control.
An incoterm is three letters and a place, and it answers two questions the contract would otherwise leave open: who pays to move the goods to each point, and from which point the goods travel at the buyer's risk. The two answers are not always the same point. Most disputes start where an exporter assumed they were.
The eleven rules, in two groups
Seven rules work for any way of shipping: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are for sea and inland waterway only: FAS, FOB, CFR and CIF. The second group assumes the goods are handed over at a ship in port, which is no longer how a container travels.
Always write the rule, the named place and the version together: FCA Busan Incoterms 2020, not FCA alone. Without the place, the rule cannot say where delivery happens. Without the version, it cannot say which edition's duties apply.
Where cost and risk split
Under CFR and CIF you pay the freight to the destination port, but the risk passes to the buyer when the goods are loaded on board at the port of shipment. Goods damaged at sea are the buyer's loss even though you booked and paid for the ship. CPT and CIP split the same way, at the moment you hand the goods to the first carrier.
That is why insurance sits in only two rules. CIF asks you for at least the minimum cover, Institute Cargo Clauses (C). CIP, since the 2020 edition, asks for the broad cover of clauses (A). Both mean 110 percent of the contract price, in the contract's currency, unless you agree otherwise.
The mistakes that cost exporters most
FOB for a container. You hand the container over at the terminal days before it is loaded, but under FOB it stays at your risk until it is on board, while it sits in a yard you cannot watch. The rule written for containers is FCA, where the risk passes when the carrier takes the box.
EXW and DDP, at the two extremes. Under EXW the buyer clears the goods for export, so the export declaration is not in your name and you may lack the proof of export your own books need. Under DDP you clear the goods into the buyer's country and pay its duties and taxes, which can require a local registration you do not have. FCA and DAP leave each side's customs with the side that can do it.
Where Ara helps
Give Ara your quote and the terms the buyer asked for, and ask it to lay out who pays and who carries the risk at each leg under two or three rules side by side. It drafts the quotation with the rule, the named place and the version written in full, and every version stays on your PC.
Quoting FOB? See what that price becomes on a local shelf after freight, duty and margins, free: TradeGraph export price calculator (opens in a new tab)
Turn the guide into your next shipment's documents.
Ara runs on your own PC and drafts the export documents with you: it reads the LC terms, fills the checklist and keeps every version. You stay the one who signs.