Insight

Incoterms in international supply contracts

Select the appropriate Incoterms clause and ensure that risk, costs, customs and contract law are seamlessly integrated without any inconsistencies.

13 August 2026 | Reading time 5 min. | Author: Martin Neupert

The International Chamber of Commerce’s Incoterms® 2020 comprise eleven standardised clauses covering the organisation of transport, the allocation of costs, the transfer of risk and customs formalities. The safest way to incorporate them into a contract is by specifying the exact clause, the clearly designated place of delivery and adding the phrase ‘Incoterms® 2020’. Transfer of title, the purchase price, warranty, liability and place of jurisdiction, on the other hand, are not governed by these terms; these points must be agreed separately. Under the C clauses, the seller bears the transport costs up to the named destination, but the risk passes to the buyer upon handover to the carrier. For containerised goods, FCA is therefore usually the clearer choice than FOB.

What do Incoterms cover – and what do they not cover?

Incoterms primarily govern who organises the transport, which costs are borne by the seller and the buyer, at what point the risk of accidental loss or damage passes, and who is responsible for certain export or import formalities. Furthermore, they specify which transport documents and information must be provided.

They do not govern the transfer of ownership, the purchase price or when it is due. Quality requirements, obligations to inspect and give notice of defects, warranties, liability, contractual penalties, force majeure, sanctions and the place of jurisdiction must be agreed separately or determined by the applicable law.

Furthermore, the transfer of risk under the Incoterms clause does not automatically imply legal acceptance of the goods. Whilst goods may be transported at the buyer’s risk under transport law, they may nevertheless be delivered defective or late. The contract should make a clear linguistic distinction between these two aspects.

How should a clause be correctly described?

A robust clause specifies the rule, the exact location and the version, for example, ‘FCA Nuremberg plant, Gate 2, Incoterms® 2020’ or ‘DAP buyer’s warehouse in Lyon, Incoterms® 2020’. The more precisely the location is described, the clearer the handover point, costs and practical responsibilities will be.

With regard to port terms, a distinction must also be made between the port of shipment and the port of destination. In the case of FOB or CIF, the named port is not automatically the point of transfer of risk or the end point for all costs. In particular with the ‘C’ clauses, the seller organises and pays for the main transport, whilst the risk usually passes to the buyer at an earlier stage.

The framework agreement, purchase order, order confirmation and logistics manual must all use the same clause. If the clauses ‘DAP’, ‘separate cost clause’ and ‘time of delivery upon receipt of goods’ contradict one another, it will have to be determined at a later stage which rule takes precedence.

Which terms are suitable for which mode of transport?

The seven terms EXW, FCA, CPT, CIP, DAP, DPU and DDP can, in principle, be used for all modes of transport. The terms FAS, FOB, CFR and CIF, on the other hand, are intended for sea and inland waterway transport, where the goods are handed over at the port of shipment or on board the vessel.

For containerised goods, the handover usually takes place at the terminal before the seller can influence the loading onto the vessel. In these cases, FCA is the better choice than FOB. If the seller is also required to organise the main transport, CPT or CIP are generally more suitable than CFR or CIF. Example: If the seller hands over a container at a domestic terminal to the carrier designated by the buyer, ‘FCA Terminal, specified location, Incoterms® 2020’ better reflects the actual point of handover than ‘FOB port of shipment’.

The choice must reflect the actual logistics process. A familiar clause is not automatically suitable if the handover, the documents, the transport chain and the scope for influence are organised differently.

When do risk and costs pass?

The point at which risk passes depends on the chosen clause. Under FCA, risk generally passes to the buyer upon handover to the carrier nominated by the buyer at the agreed place. Under DAP or DDP, however, the seller usually bears the risk until the goods reach the named destination, before they are unloaded. Under DPU, on the other hand, the seller’s obligation also includes unloading at the destination.

The C terms require particular attention. Under CPT and CIP, as well as under CFR and CIF, the seller pays for transport to the named destination. However, risk passes as soon as the goods are handed over to the carrier or loaded on board. Buyers therefore frequently confuse the paid-for destination with the point at which risk passes.

The contract should specify how to deal with partial deliveries, temporary storage, delayed acceptance and missing transport instructions. Without appropriate provisions, it may be unclear who caused a delay and from when additional storage or demurrage costs are to be borne.

What insurance matters need to be sorted out?

Under the Incoterms® system, only the CIP and CIF clauses oblige the seller to arrange transport insurance in favour of the buyer or the insured interest. For all other clauses, whilst insurance may make economic sense or be contractually required, it does not automatically follow from the chosen Incoterms® clause.

Incoterms® 2020 distinguish between the standard levels of cover: CIP generally provides for more extensive cover than CIF. The latter is traditionally geared towards a lower minimum level of cover for sea transport. Nevertheless, the contract should not simply rely on the term designation, but should specify the sum insured, the currency, the insured risks, the excess, the exclusions, the term, the insurer, the supporting documents and the entitlement to claim. For sensitive, high-value or temperature-controlled goods, it may be necessary to supplement the standard CIP cover.

The allocation of costs and risks must be clearly distinguished. Even if the seller pays for transport and insurance under the CIP or CIF clause, the risk may pass to the buyer as early as the point of handover.

Who is responsible for exports, imports and customs?

The chosen clause allocates responsibility for export and import formalities. Although EXW places the onus largely on the buyer, it can prove problematic in practice if the foreign buyer is unable to submit an export declaration in the exporting country or cannot provide the seller with the export documentation required for VAT and export control purposes. FCA is often the better alternative, as the seller handles the export clearance whilst the transfer point can still be agreed at an early stage.

Under DDP, the seller has the most extensive obligations. Before entering into the agreement, it must be clarified whether the seller can act as the importer in the importing country, obtain the necessary registrations, handle customs duties and import VAT, and fulfil obligations under product and sanctions legislation. If the seller lacks this capacity, DAP is often the better choice: the seller organises transport to the named place, whilst import clearance and import duties remain the responsibility of the buyer.

The contract should explicitly address customs tariff codes, proofs of origin, proofs of preferential treatment, export controls, sanctions, the role of the importer of record, costs arising from incorrect declarations and cooperation during audits. The Incoterms® clause does not clarify all public-law responsibilities.

How are Incoterms® aligned with the rest of the contract?

The transfer of risk under Incoterms® is not to be equated with technical acceptance, the transfer of title or the due date for payment. These aspects must be regulated separately in the contract to avoid contradictions. In particular, a subsequent acceptance inspection must not inadvertently delay the previously agreed transfer of risk or shift risks onto the buyer, even though the seller still retains sole control over the goods and documents.

The inspection and notice of defects processes should be adapted to the logistics arrangements. In doing so, the place and time of quantity, packaging and quality checks, the consequences of hidden defects, sampling, partial deliveries and access to transport data must be specified. For container and project deliveries, demurrage and detention costs, as well as the causes and indemnity procedures, must be expressly stipulated in the contract.

Documentation requirements must also be integrated. These include bill of lading, proof of origin and preferential status, insurance certificate, packing list, test certificate, proof of export and import, and electronic data. For all these documents, deadlines and consequences in the event of missing or incorrect documentation must be defined. Only by aligning the contractual clauses, the actual flow of goods, the payment mechanism and the scope of work can a robust delivery arrangement be established.

About the author

Martin Neupert

Partners · Property and Procurement

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Martin Neupert advises companies on procurement matters and on international supply and procurement contracts. In doing so, he combines the drafting of contracts with Incoterms®, transport and delivery terms, and the management of the transfer of risk, costs and performance obligations.

Frequently asked questions about Incoterms® in supply contracts

Do Incoterms govern the transfer of ownership?

No, because the transfer of ownership and retention of title are governed by the relevant contract and the applicable law of property.

Which version of the Incoterms applies?

The parties should explicitly state which version they wish to use. Incoterms® 2020 are currently in widespread use.

Is FOB suitable for containers?

This procedure is often less than ideal, as the container is handed over to the carrier before it is loaded on board. FCA generally reflects this process more accurately.

Does CIF mean that the seller bears the risk up to the port of destination?

No, the seller bears the costs of transport and insurance up to the port of destination. However, the risk generally passes to the buyer as soon as the goods are loaded at the port of shipment.

Who unloads at DAP?

In principle, this is the buyer’s responsibility. If the seller is also to unload the goods, DPU must be checked or an explicit special provision is required.

Is DDP always the most convenient option for the buyer?

In practice, this is often the case, but not always from a legal perspective. The seller must be able to fulfil import, customs and, where applicable, tax obligations in the country of import.

Do Incoterms replace transport insurance?

No. Only the CIP and CIF terms require the seller to take out insurance. Nevertheless, the scope and adequacy of the cover must be checked.