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Incoterms for equipment buyers

FOB, CFR, CIF and the rest: who pays each cost, where the risk passes to you, and what is still left to pay when the container reaches your port.

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ON THIS PAGE

  • 1. What an Incoterm decides, and what it leaves out
  • 2. The terms you will see most
  • 3. Cost and risk do not move together
  • 4. What is still left to pay at your port
  • 5. Which term to choose
  • 6. Checklist before you sign

    • Key takeaways

  • An Incoterm splits costs and risk between seller and buyer. It does not set the price, the payment terms or the duties in your country.
  • Under CFR and CIF the seller pays the freight, but the risk is yours from the moment the goods are on board in China.
  • Compare quotes on the same term and the same named place, and ask what is left to pay at destination.

    • Two quotes for the same refrigerator can look far apart because one is FOB and the other includes freight. Incoterms are the three-letter terms that explain that difference. The International Chamber of Commerce (ICC) publishes them, and the current version is Incoterms® 2020.

    This guide covers the terms you will see most when you buy equipment from China, and the questions to ask before you sign.

    1. What an Incoterm decides, and what it leaves out

    An Incoterm says which costs each side pays, which tasks each side handles (export clearance, loading, freight, insurance) and where the risk of loss or damage passes from seller to buyer.

    It leaves out the price, the payment terms, when ownership passes and the duties and taxes in your country. Those go in the contract or the purchase order.

    Always write the term with a named place and the version, for example "FOB Qingdao, Incoterms® 2020" or "CFR Puerto Cortés, Incoterms® 2020". A term without a place leaves room for disputes.

    2. The terms you will see most

    There are also DPU and DDP. Under DDP the seller would also clear customs and pay duties in your country, which few foreign suppliers can do for equipment imports in Latin America and the Caribbean.

    FOB, CFR and CIF are for sea and inland waterway transport only. The ICC points out that FOB dates from long before containers, and that FCA fits container shipments, where the seller hands the goods to the carrier at a terminal before they are loaded on board.

    3. Cost and risk do not move together

    This is where most buyers get caught. Under CFR and CIF the seller pays the ocean freight to your port, but the risk passes to you when the goods are loaded on board at the origin port. If the container is damaged at sea, the claim is yours.

  • Under FOB and CFR, buy your own cargo insurance before the goods are loaded.
  • Under CIF, the seller buys insurance, but Incoterms® 2020 only requires minimum cover (Institute Cargo Clauses C). If you want broader cover, ask for clauses A in the contract. Under CIP the default is clauses A.

    • 4. What is still left to pay at your port

    With FOB, CFR or CIF, the following costs are usually yours when the container arrives:

  • destination terminal handling and port charges;
  • shipping line documentation and release fees;
  • customs broker fees, import duties and taxes;
  • transport from the port to your warehouse, and unloading.

    • Ask every supplier and forwarder which of these are included. A CFR quote can look cheaper than another one and end up costing more once destination charges are added. Guide 6 explains how to estimate your landed cost.

    5. Which term to choose

  • FOB or FCA gives you control of the freight. It suits you if you have a forwarder you trust and volume to negotiate rates.
  • CFR or CIF is simpler for a first import: one price up to your port. Ask for the freight to be shown on its own line so you can compare it.
  • Mixed containers may ship from a specific port depending on the lines you combine. Confirm the named port before you compare freight.

    • 6. Checklist before you sign

  • Term, named place and "Incoterms® 2020" written in the quote and the purchase order.
  • Who books the freight, and whether the freight is shown on its own line.
  • Who insures the cargo, from when, and at what level of cover.
  • Which destination charges are included and which are not.
  • Payment terms, written separately from the Incoterm.

    • PGP NOTE

    PGP quotes FOB China port or with freight to your destination port. When PGP arranges the freight, it is billed at cost, and the quote shows what is included and what you pay at destination.

    Sources

  • International Chamber of Commerce – Incoterms® 2020
  • ICC Academy – Incoterms® 2020: FCA or FOB?

    • This guide is general information, not legal advice. For contracts and insurance, confirm the details with your forwarder, customs broker or legal advisor.

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