What Incoterms Actually Decide
An Incoterm answers three questions: where does risk pass from seller to buyer, who pays which leg of the journey, and who arranges and controls the freight. They do not decide when ownership transfers (that is your contract's job) and they do not cover payment terms. Most trade disputes we mediate trace back to parties assuming an Incoterm covered something it doesn't.
The Four That Matter in Practice
EXW (Ex Works) puts nearly everything on the buyer: you collect from the factory gate and carry all risk and cost from there, including export clearance in the origin country — which foreign buyers often cannot legally perform themselves. FOB (Free On Board) is the workhorse of sea trade: the seller delivers loaded onto the vessel, handles export clearance, and risk passes when goods cross the ship's rail. You control the ocean freight and insurance.
CIF adds cost, insurance and freight to the destination port — convenient, but remember risk still passes at origin; the seller is merely paying for transport. DDP (Delivered Duty Paid) is the maximum-service option: the seller delivers to your door with duties settled. It is superb for buyers without import infrastructure, provided the seller genuinely has destination capability — as our DDP programs do in 21 markets.
FCA: The Term FOB Users Should Consider
FOB was written for cargo lifted over a ship's rail; most modern cargo is containerized and handed to the carrier at a terminal days before loading. FCA (Free Carrier) fits that reality: risk passes when goods reach the carrier's custody at the named terminal, which is cleaner legally and often cheaper. If your forwarder insists on FOB for containers, ask why — the honest answer is usually habit.
Choosing Deliberately
Choose EXW never (unless you have a local agent), FOB or FCA when you have freight buying power and want control, CIF when you want simplicity on smaller shipments, and DDP when you want a single landed price and your supplier can truly deliver it. Whatever you choose, write the full term with the named place and version — 'FOB Karachi Port, Incoterms 2020' — because the named place is where half the disputes live.
About the authors: This guide was written by the Zaeem Haziq Co trade desk — the team that runs supplier verifications, inspections and export documentation for 520+ clients. Nothing here is theory; it's Tuesday.
