Incoterms do not only decide who pays for transport. They fix the moment risk transfers, who must clear customs and, in some cases, tax obligations in a foreign jurisdiction. A mistake in three letters can cost more than the entire shipment.
1. EXW with a supplier who will not load
Under EXW the seller only has to make the goods available at their premises. There is no obligation to load them or to clear them for export. In practice the buyer must arrange an export declaration in a foreign country — often without the legal standing to do so.
2. FOB for an air shipment
FOB, CFR and CIF apply only to sea and inland waterway transport. Using FOB for air creates legal ambiguity: the “ship’s rail” moment simply does not exist. The correct equivalents are FCA, CPT and CIP.
3. DDP without a tax registration
DDP puts all duties and taxes in the destination country on the seller. In most jurisdictions only a resident or registered taxpayer can pay import VAT. A non-resident seller frequently cannot fulfil the term they signed.
4. CIF and a false sense of insurance
CIF obliges the seller to insure at minimum cover — Institute Cargo Clauses (C). That cover excludes theft, wetting and handling damage. The buyer assumes the cargo is insured and learns otherwise only when making a claim.
5. A missing named place
A term without a precise place is half a term. “FCA Shanghai” and “FCA the seller’s warehouse in Suzhou” mean different costs and different risk transfer points. Always name the address, not the city.