Incoterms 2020 for FMCG Buyers: Cost, Risk and Where They Part
Three letters decide who pays each carrier, who carries the loss while the goods are moving, and how much of your landed cost is already inside the figure you were quoted. This is a reference to the rules we quote on, written for buyers who have to act on them.
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Two handovers, and they are rarely in the same place
An export contract contains two separate handovers. One is the cost line: the point beyond which the buyer starts paying carriers, terminals, brokers and hauliers directly instead of through the seller's figure. The other is the risk line: the point beyond which loss of or damage to the goods belongs to the buyer, and the invoice still has to be paid. An Incoterms rule fixes both. On several rules they sit a long way apart.
CIF is the clearest example. The seller pays ocean freight to a discharge port on the far side of the world, so the cost line runs the whole voyage. The risk line does not: it was crossed weeks earlier, the moment the container was loaded on board in Spain. A buyer who reads CIF as “the seller is responsible until it arrives” has misread the single most consequential term in the contract.
The International Chamber of Commerce publishes them; the edition now in force is Incoterms 2020. They allocate tasks, costs and risks between seller and buyer, and they do that job well. It is worth being equally clear about what they do not do. They are not a sale contract. Ownership does not move under them. Price, currency, payment mechanism and credit period are all outside their scope. They do not deal with defective goods, late delivery, inspection rights, remedies or the law governing the contract. And with the exception of CIF and CIP, they place no obligation on anybody to insure the cargo.
The Incoterms® name is a registered trademark belonging to the International Chamber of Commerce. What follows is how the rules behave on real consumer-goods shipments out of Spain. It is neither the rule text nor an ICC publication; where an obligation carries commercial weight, work from the ICC edition and take advice.
Eleven rules, split by transport mode
Seven of the eleven rules work for any mode of transport, containerised and multimodal movements included: EXW, FCA, CPT, CIP, DPU, DAP and DDP. The remaining four were drafted for carriage by sea and inland waterway alone: FAS, FOB, CIF and CFR.
That split is not pedantry, and it matters directly to anyone shipping containers. FOB, CFR and CIF all describe delivery happening when goods are placed on board a named vessel. A container leaving our Madrid warehouse is not placed on board anything by us; it is handed to a haulier, trucked to Valencia or Barcelona, gated in at a terminal and stuffed onto a ship days later by parties the seller does not control. Applied literally, the sea rules leave the seller carrying risk through a road leg and a terminal stay that neither party intended.
The trade has lived with that mismatch for decades, and in practice FOB Valencia or CIF a named discharge port works because everyone understands what is meant. The ICC's own answer, though, is FCA, which is written for exactly this handover. Incoterms 2020 added a mechanism to the FCA rule allowing the parties to agree that the buyer will instruct the carrier to issue a transport document with an on-board notation, which was the practical reason many exporters clung to FOB in the first place. Two other 2020 changes are worth knowing: DAT was renamed DPU, and CIP's insurance requirement was raised while CIF's was left alone.
Earlier editions of the rules remain perfectly usable if the parties choose them, which is precisely why the edition belongs in the contract line.
The allocation table
Read this as a summary of the default position under each rule, not as contract wording. Anything the parties expressly agree overrides it.
| Rule | Delivery point | Risk passes | Export clearance | Main carriage paid by | Seller must insure | Import clearance and duty |
|---|---|---|---|---|---|---|
| EXW | Seller's premises, goods placed at the buyer's disposal — not loaded | At that moment | Buyer | Buyer | No | Buyer |
| FCA | Named place; at the seller's premises, when loaded on the buyer's collecting vehicle | On delivery to the carrier | Seller | Buyer | No | Buyer |
| FOB | On board the vessel at the named port of shipment | Once on board | Seller | Buyer | No | Buyer |
| CFR | On board the vessel at the port of shipment | Once on board | Seller | Seller, to the named destination port | No | Buyer |
| CIF | On board the vessel at the port of shipment | Once on board | Seller | Seller, to the named destination port | Yes — minimum Institute Cargo Clauses (C) | Buyer |
| DAP | Named destination, on the arriving vehicle, ready for unloading | At the named destination | Seller | Seller | No | Buyer |
| DPU | Named destination, unloaded | Once unloaded | Seller | Seller | No | Buyer |
| DDP | Named destination, on the arriving vehicle, ready for unloading | At the named destination | Seller | Seller | No | Seller |
Two rows deserve a second look. DPU is the only rule of the eleven that obliges the seller to unload at destination — under DAP and DDP the goods arrive ready for unloading and the unloading itself is the buyer's. And DDP is the only rule under which the seller clears the goods for import and bears the duty, which is why the gap between DAP and DDP is the most expensive misreading available on a delivered quotation.
We quote EXW Madrid, FOB, CFR, CIF and DAP as standard. DDP is not part of our standard offer, for reasons set out below. Our delivery terms and payment conditions record the position formally.
Each rule as it works from a Madrid warehouse
EXW Madrid
Ex Works is the shortest obligation in the rulebook: the seller makes the goods available, packed and identified, at its own premises, and stops. It does not oblige the seller to load your vehicle, and export formalities sit on the buyer's side. Risk moves to you at the moment the goods are at your disposal, which is before they are on a truck.
Read the named place carefully. Our EXW quotations are EXW Madrid and Madrid means the warehouse, roughly 355 km inland from Valencia and 620 km from Barcelona. It is not a port. An EXW figure therefore contains no road haulage, no terminal handling and no export declaration, and the road leg to a Spanish gateway is a real cost you will be paying separately. EXW suits one buyer well: someone already consolidating from several European suppliers, who has a forwarder standing by to collect and somebody in place who can act as exporter of record out of the Union. For a first-time importer taking mixed pallets it is usually a false economy, because the costs stripped out of the number reappear one by one and each arrives from a different invoice.
FOB Valencia or FOB Barcelona
Under Free On Board the seller has to get the goods aboard the ship at whichever loading port is named, and to clear them for export; risk passes once they are on board, and the ocean contract of carriage is the buyer's. It is the natural structure once a buyer has negotiated carrier rates worth using, because it applies your freight tariff to cargo somebody else has cleared and delivered to the quay.
The friction under FOB is scheduling rather than money. You hold the booking, so you own the cut-off: the terminal delivery window decides which sailing the consignment catches, not the speed of picking. Send the booking reference, the empty release and the terminal cut-off early. Which of the two gateways suits your service is a separate question, and the comparison of Valencia and Barcelona works through it.
CFR
Cost and Freight is CIF without the policy. The seller contracts and pays the ocean carriage to a named discharge port; the buyer takes the risk from the moment the goods are on board at the loading port and arranges any insurance it wants. It is the honest term for a buyer who wants the seller's freight rate but places cargo cover on its own open policy, which most established importers do. It is also, quietly, the right term for a buyer whose market requires marine insurance to be placed with a domestic insurer — a requirement in several jurisdictions that makes CIF unusable.
CIF
Cost, Insurance and Freight adds a marine cargo policy to CFR. It is the easiest term for comparing an offer from Europe against a landed cost you already know, because one figure reaches your port and you add only the domestic side: clearance, duty, port charges and inland haulage. What it does not do is move the risk line. Risk still passes on board at the port of shipment. Lose a box mid-ocean and those were your goods at the moment it went over; the seller's remaining obligation is the policy itself, not a replacement consignment.
DAP
Delivered At Place puts the seller's obligation at a named destination — a warehouse address, an inland depot, a border point — the goods being put at the buyer's disposal on the vehicle that brought them, ready to be taken off, with risk moving at that moment. It is the closest thing to a turnkey number we quote and a sensible shape for a first order into a market you are still testing, or for a distributor building a price list from a single delivered figure.
DAP is not duty paid. Import clearance, duty, import taxes, any licence and any product registration remain yours, and a consignment stopped at the frontier for want of a licence sits at your cost. Two points belong in writing before the pro-forma is issued. Who performs the physical unloading at the named place? And how will the customs value be built, given that a DAP figure already has carriage to destination inside it?
DDP, and why we do not quote it as standard
Delivered Duty Paid requires the seller to clear the goods for import in the buyer's country and bear duty and, unless expressly agreed otherwise, import taxes. That means acting inside a tax and customs system where the seller has no establishment, no local registration and no standing with the authority. In many markets a non-resident cannot be importer of record at all, and in most of the rest it is achievable only through arrangements that cost more than they save. We would rather quote DAP with an honest description of what is left to do than a DDP figure padded against a duty exposure nobody can price accurately in advance.
What CIF insurance actually covers
The insurance obligation under CIF is narrower than the letter I suggests, and the ICC drew the distinction deliberately in the 2020 edition. CIF still defaults to Institute Cargo Clauses (C), leaving anything better to be negotiated between the parties. CIP was lifted to require cover meeting Institute Cargo Clauses (A) or an equivalent form. Same publisher, same edition, two different answers.
Clauses (C) is a named-perils form. It responds to the large casualty events — sinking, stranding, fire, collision, overturning of a land conveyance, general average sacrifice, jettison. It is not written for the losses that actually befall consumer goods: pilferage from a cut seal, water ingress, condensation dripping onto cartonboard from a cold container roof, crushing from a bad stow, short-landed part consignments. Clauses (A) is an all-risks form and picks up most of those, subject to its own exclusions.
The sum insured is the other half of the question. The rule requires cover of at least 110 per cent of the contract value, in the currency of the contract — the ten per cent standing in for lost margin and incidental expense. That is a floor, not a valuation of your exposure. On dense, valuable or easily pilfered cargo the gap between a named-perils policy at 110 per cent and an all-risks policy at a value you have actually calculated is not a technicality.
There are two clean fixes and one bad habit. Write into the sale contract that cover under CIF will sit at Institute Cargo Clauses (A) for an insured value you have specified — or move to CFR and buy the policy yourself on terms you dictate. The bad habit is assuming that the presence of insurance in the acronym means the cargo is comprehensively covered for your benefit.
Why the same pallets produce wildly different numbers
Call the goods value G, the pre-carriage and export costs in Spain E, the ocean freight F, the marine premium I, and destination handling and inland haulage D. Then, in outline: EXW is G. FOB is G plus E. CFR is G plus E plus F. CIF is G plus E plus F plus I. DAP is G plus E plus F plus D.
No cost is created or destroyed anywhere in that sequence. The same money is spent either way; the term decides which invoice it appears on and who negotiates it. Comparing an EXW figure from one supplier against a CIF figure from another and concluding that the first is cheaper is the commonest arithmetic error in the trade. Ask every supplier to quote on the same term, and where you cannot, rebuild both offers to the same point yourself before you compare.
One consequence is not cosmetic. Many customs regimes assess duty on a value that includes cost, insurance and freight to the frontier, so the base your duty is calculated on can change with the structure of the transaction. Whether a different term genuinely produces a lower dutiable value in your market is a question for your broker and your national valuation rules, not for a supplier's summary — but it is a question worth asking before the terms are fixed rather than after.
The other consequence is physical. Freight for a full container is charged for the box, not for what is inside it, so the freight component of your unit cost is the box rate divided by the saleable units it holds. Dense lines reach the payload ceiling with space overhead; light bulky lines fill the volume with mass to spare. Where freight accounts for a large share of delivered value, deciding who makes the booking stops being an administrative question. The pallet and container loading reference sets out how that arithmetic works, and our export and freight process describes how loads are built and routed.
Write the term so nobody can argue about it later
Most Incoterm disputes are drafting failures rather than disagreements about the rules. Three lines of hygiene prevent nearly all of them.
- Name the place. “FOB Spain” is not a contract term. It is the named port or place that pins down where delivery happens, and with it the instant at which risk moves. Write FOB Valencia, CIF Jebel Ali, DAP followed by the actual delivery address.
- Name the edition. Write Incoterms 2020. Earlier editions remain in force wherever the parties choose them, and terminology has moved: DAT no longer exists as a 2020 rule, having been renamed DPU.
- Check the rule against the movement. If the goods will be handed over at an inland depot, or moved by road under a CMR consignment note, or flown, then FOB, CFR and CIF describe a moment that never happens. FCA, CPT, CIP, DAP and DPU exist for those movements.
Then remember what the rule leaves to the rest of the contract: payment mechanism and timing, title, inspection, remedies, governing law, and the document set that has to travel. The last of those is the one that most often stops a consignment, and it is covered separately in the document-by-document export reference. Vocabulary that appears on a pro-forma but not in this page is defined in the FMCG export glossary.
If you are unsure which term fits, tell us what you already have in place at your end — forwarder, customs broker, import licence, insurance policy, delivery point — and ask for the same load on two terms. Seeing the same pallets priced EXW Madrid and CIF your port is the quickest way to find out what the European end of your supply chain actually costs. Send the destination, the lines and the term through a quotation request and the export desk will come back within one business day on listed brands.