Incoterms for LED Importers
FOB, CIF, DAP and DDP compared for buyers.
1. Why it matters
Incoterms (the ICC's International Commercial Terms, current version Incoterms 2020) define exactly where the seller's responsibility ends and yours begins — who pays which leg of transport, who clears customs, and, most importantly, at what point the risk of loss passes to you. Choosing the wrong term is how importers end up paying for freight they thought was included, or owning a loss that occurred before they had any control.
2. The terms LED importers actually use
| Term | Seller pays until | Risk passes at | Note |
|---|---|---|---|
| EXW | Factory door | Factory (you arrange all) | Max buyer effort |
| FCA | Named place / terminal handover | At handover to your carrier | Best for containers |
| FOB | Goods on board vessel | On board at load port | Popular; sea only |
| CIF | Freight + insurance to dest port | On board at load port (risk!) | Cost paid ≠ risk held |
| CIP | Freight + insurance to named place | At handover to first carrier | CIF equivalent for containers |
| DAP / DDP | Destination (DDP: duties too) | At destination | Simplest for buyer |
3. FOB vs FCA: the container trap
FOB is written for goods loaded over a ship's rail — but a container is handed over at a terminal days before it is on board. Under FOB, if the container is damaged or lost at the terminal before loading, the risk allocation is ambiguous. For containerised cargo the ICC recommends FCA, where risk cleanly passes when the container is delivered to your carrier or terminal. Use FOB out of habit only when you understand the gap.
- Containerised (LCL/FCL): prefer FCA (and CIP over CIF).
- Break-bulk / on the vessel directly: FOB/CIF still fit.
- Always append the exact place: "FCA Shenzhen Yantian" not just "FCA".
4. Cost paid is not risk held — and CIF insurance is minimal
The most misunderstood point: under CIF and CIP the seller pays for carriage and insurance to the destination, but the risk still passes to you at origin (on board, or at first carrier). If the goods are lost mid-ocean, it is your loss to claim — against an insurance policy the seller chose. Worse, CIF only obliges the seller to buy minimum cover (Institute Cargo Clauses C), which excludes many common perils. Either specify CIP (which mandates the higher Clauses A all-risks cover) or take control of the transport and insurance yourself with FCA + your own all-risks policy.
5. Checklist
- Name the exact port/place after every Incoterm
- Prefer FCA/CIP over FOB/CIF for containerised cargo
- Know where risk passes, not just who pays freight
- Under CIF, treat the seller's insurance as minimum cover only
- For control, use FCA + your own all-risks policy