Incoterms in international negotiations: price, risk and delivery

Start with the delivery point

A commercial proposal in foreign trade is not complete with just a price quote and a three-letter acronym. Incoterms® define essential responsibilities regarding the physical delivery of cargo, the allocation of costs, and the transfer of operational risks between seller and buyer. To use them effectively and minimize disputes, always specify the chosen rule, the named place or port, and the version used: for example, “FCA, [named terminal], Incoterms® 2020”.

The more precise the physical location, the less room there is to dispute who pays for specific cargo handling. Merely stating the city or a general port often leads to disputes, as major port complexes house multiple terminals and bonded facilities, each with its own fee schedule.

Confirm the full address, the bonded terminal, and the pickup point with the supplier and freight forwarder before finalizing the purchase order. At this early stage, support from strategic partners—such as partner customs brokers with over 25 years of experience and partner warehouses in Santos—ensures that operational bottlenecks and ground handling costs are mapped out in advance.

Step-by-step guide to defining the delivery point:

• Describe the exact location within the facility where the goods will be made available to the carrier.
• Verify that the yard or warehouse has infrastructure compatible with the contracted vehicle.
• Align receiving hours and documentary requirements with the delivery terminal in advance.
• Define in writing who is responsible for loading, unloading, and positioning costs.

Choose based on transport mode and capacity

Not every international rule applies to all modes of transport. FOB, FAS, CFR, and CIF are intended exclusively for sea and inland waterway transport. In contrast, rules such as FCA, CPT, CIP, DAP, DPU, and DDP apply to any mode of transport, including multimodal operations.

For containerized cargo handed over to the carrier prior to vessel loading, consider using FCA instead of defaulting to FOB. In container logistics, goods are almost always delivered to an inland or off-dock container terminal days before being lifted onto the ship. Under FCA, risk transfers upon delivery to the carrier at the terminal, protecting the seller from liability for damages occurring in the yard prior to loading on board.

Choosing the ideal rule also depends on each organization's operational capacity. You must evaluate which party has the structured resources to book international freight, coordinate pickups, obtain licenses, and handle local formalities at both origin and destination.

An EXW quotation may appear to have a lower nominal cost, but it shifts the burden of managing inland transport, loading, and export customs clearance at origin to a buyer who may lack local infrastructure. Conversely, the DDP rule demands close scrutiny of the legal and tax feasibility of a foreign seller assuming customs obligations and import duties at destination. In Brazil, this approach faces severe regulatory hurdles for foreign companies without a formal local establishment.

Decision criteria for executives:

• Supply chain control: Determine whether your business priority is retaining oversight of lead times or outsourcing transit stages to the supplier.
• Logistics efficiency: Assess whether your company or commercial partners, including more than 10 partner trading companies, hold stronger bargaining power with ocean carriers.
• Customs competence: Ensure that the party responsible for clearance works with experienced partner customs brokers in the relevant jurisdiction.
• Inland integration: Combine international transport with multimodal distribution partners to reliably cover road or rail legs up to the final destination.

Common mistakes when selecting a rule:

• Using maritime terms (such as FOB or CIF) for air or road freight.
• Accepting the EXW rule without a licensed freight forwarder in the country of origin.
• Closing purchases under DDP without verifying the customs regulations applicable to clearing and nationalizing the goods.

Separate cost, risk, and insurance

Paying for carriage to a given destination does not mean bearing the operational risk of the cargo to that same point. Under C-rules (CFR, CIF, CPT, and CIP), the point of risk transfer does not coincide with the destination to which the seller pays freight. Freight is paid to the agreed destination, but risk transfers upon shipment or delivery to the first carrier. Map out these two milestones separately during negotiations.

CIF and CIP establish a formal obligation for the seller to procure cargo insurance for the buyer's benefit. However, the required minimum coverage standards are not equivalent:

• Under CIF, the requirement historically calls for restricted coverage clauses, covering basic maritime navigation risks.
• Under CIP, the rule mandates comprehensive "all risks" coverage against loss and damage, subject to standard policy exclusions.

In both cases, carefully review the policy provided: verify insured amounts, exclusions, deductibles, named beneficiaries, and claims adjustment procedures. For other rules where insurance is not mandatory, the lack of a regulatory requirement does not diminish the need for the party bearing the risk to procure adequate coverage on its own.

Request itemized quotes detailing freight, origin charges, destination handling, and ancillary fees. Vague phrasing like “freight included” fails to clarify who is responsible for terminal handling charges (THC), storage, container demurrage, or document release fees at the port of arrival.

The contract must go further

Incoterms do not govern the transfer of legal title or property ownership, nor do they define payment terms. They deal exclusively with delivery logistics, cost allocation, and physical risk. For this reason, the international sales contract must address these matters through dedicated, well-structured clauses.

Essential elements the contract must cover:

• Transfer of title and retention of ownership until full financial settlement.
• Payment settlement methods, such as cash in advance, documentary collection, or letter of credit.
• Pre-shipment technical inspection requirements and product specifications.
• Liability for default, late-payment penalties, and contractual termination.
• Dispute resolution mechanisms and choice of governing law.

Strictly align transport documents with the terms of any documentary credit before finalizing commitments. Any discrepancy between the trade term, commercial invoices, and the bill of lading or transport document can stall bank payment and delay customs release. Close coordination with partner trading companies and partner customs brokers prevents critical documentary discrepancies between logistics operations and the finance department.

The explanations in this article provide practical decision-making guidance and do not replace the official text of the rules. We recommend consulting the official publication for a comprehensive review of the obligations and exceptions applicable to your chosen rule.

Frequently asked questions

Does CIF mean the seller bears the risk until the goods arrive? No; payment of freight to the destination must not be confused with risk transfer. Under CIF, the seller pays for freight and marine insurance up to the named destination port, but the risk of loss or damage transfers to the buyer once the goods are loaded on board the vessel at the port of shipment.

When is it preferable to use FCA instead of EXW? FCA is recommended when the buyer wants the seller to handle initial loading and export customs clearance. Under EXW, all of these obligations fall on the buyer, which often causes practical difficulties if the importer lacks legal representatives or accredited brokers in the country of origin.

Why is FOB not recommended for maritime containers? In containerized transport, goods are typically delivered to a terminal or logistics operator well before the vessel arrives. Under FOB, the seller retains risk until the goods are on board the ship. If the cargo is damaged at the terminal prior to loading, the seller bears the loss despite having surrendered physical custody of the container. Using FCA resolves this mismatch.

How should insurance be handled under rules where it is not mandatory? Under rules where insurance is not a mandatory obligation for the seller (such as FOB, FCA, CFR, or CPT), the party bearing the risk during transit should procure its own cargo insurance policy. This protection safeguards assets against accidents, loss, and damage along the route, preventing financial disputes between contracting parties.

Source: official ICC page on Incoterms.