Incoterms Responsibilities: Who Pays, Who's at Risk

Incoterms define who pays for what, who carries the risk, and who handles customs in every international shipment. But the 11 rules in Incoterms 2020 are not equally used. According to the International Chamber of Commerce (ICC), five terms cover the vast majority of global trade: EXW, FCA, FOB, CIF, and DDP. Each one draws the line between buyer and seller responsibilities at a different point — and each one has a common misunderstanding that costs money.

This guide walks through the five most-used Incoterms, explains where responsibilities split, and highlights the specific assumption that trips up exporters and importers most often.

What Does an Incoterms Responsibilities Chart Actually Show?

An Incoterms responsibilities chart shows which party — buyer or seller — handles each task and cost at every stage of a shipment. Tasks include export clearance, loading, freight, insurance, import clearance, and final delivery. The chart also shows where risk transfers from seller to buyer, which is often a different point from where costs transfer.

According to the ICC, the Incoterms 2020 rules define obligations across 10 categories labeled A1–A10 (seller) and B1–B10 (buyer). These cover delivery, risk, carriage, insurance, documentation, and customs formalities. The critical detail most people miss: cost responsibility and risk responsibility do not always transfer at the same point. Under CIF, for example, the seller pays freight to the destination port, but risk transfers the moment goods are loaded onto the vessel at the origin port.

What Is the Seller Responsible for Under EXW?

Under EXW (Ex Works), the seller's only obligation is to make the goods available at their premises — a warehouse, factory, or named place. Everything else falls on the buyer: export clearance, loading, freight, insurance, import clearance, and delivery.

This is the minimum seller responsibility among all 11 Incoterms. But the part that catches buyers off guard is export customs. Under EXW, the buyer must handle export formalities in the seller's country. According to Trade.gov, this can create complications when the foreign buyer is unfamiliar with export clearance requirements in the origin country. If the buyer cannot obtain an export license or file the required declarations, the shipment does not move.

When EXW Creates Problems

EXW works when the buyer has a local agent or freight forwarder in the seller's country who can handle export formalities. It becomes risky when the buyer has no presence in the origin country and no experience with its export regulations. For U.S. exports, the exporter of record is generally responsible for Electronic Export Information (EEI) filing, regardless of the Incoterm — which means EXW does not fully transfer compliance responsibility even when it transfers cost.

How Does FCA Differ from FOB for Container Shipments?

Under FCA (Free Carrier), the seller delivers goods to a carrier or named place designated by the buyer, clears export customs, and transfers risk at the point of delivery to that first carrier. This makes FCA suitable for any mode of transport — ocean, air, road, or rail. According to the ICC, FCA is the recommended term for containerized shipments.

The key difference from FOB: under FCA, the seller's risk ends the moment goods are handed to the carrier. Under FOB, risk transfers only when goods are loaded on board the vessel. For containers, this creates a problem. Containers are typically delivered to a port terminal days before they are loaded onto a ship. Under FOB, who carries the risk during that gap at the terminal?

The FCA Bill of Lading Update in Incoterms 2020

A practical issue with FCA was that banks required an on-board bill of lading for letter of credit transactions, but under FCA the seller's obligation ends before loading. The ICC addressed this in Incoterms 2020 by adding a provision in article A6/B6. The buyer and seller can now agree that the buyer will instruct the carrier to issue an on-board bill of lading to the seller after loading. This change made FCA more practical for financed container shipments.

Why Should FOB Only Be Used for Ocean Freight?

FOB (Free On Board) is designed exclusively for sea and inland waterway transport. The seller delivers goods by loading them on board the vessel at the named port of shipment, clears export customs, and transfers both cost and risk at the point of loading. The buyer arranges and pays for freight from that point forward.

The problem is that FOB is one of the most commonly misused Incoterms. According to the ICC, sellers and buyers frequently apply FOB to containerized shipments and even to air freight — neither of which it was designed for. For air freight, there is no "on board" moment in the FOB sense. For containers, the goods are delivered to a terminal, not directly loaded onto a vessel by the seller.

What to Use Instead of FOB

For containerized cargo, the ICC recommends FCA. For air freight, CPT (Carriage Paid To) or CIP (Carriage and Insurance Paid To) are the appropriate alternatives. Both are multimodal terms that work regardless of transport mode. The risk transfer point under FCA and CPT is clearer for non-ocean shipments because it occurs at the handoff to the carrier, not at vessel loading.

What Does CIF Insurance Actually Cover?

Under CIF (Cost, Insurance and Freight), the seller arranges and pays for freight to the destination port and is required to purchase cargo insurance for the buyer. But the minimum coverage required is Institute Cargo Clauses (C) — the most limited tier of marine cargo insurance available. According to the ICC's Incoterms 2020 rules, "the Institute Cargo Clauses (C) remains the default level of coverage."

Institute Cargo Clauses (C) only covers losses from a short list of named perils: fire, explosion, vessel stranding or sinking, collision, discharge at a port of distress, general average sacrifice, and jettison. According to the original clause text (CL384), Clause C does not cover theft, pilferage, water damage, rough handling, earthquakes, or storms.

CIF vs CIP: The Insurance Difference

In Incoterms 2020, the ICC changed the insurance requirement for CIP (Carriage and Insurance Paid To) from Clause C to Clause A — the broadest "all risks" coverage. CIF was left at Clause C. This means two Incoterms that sound similar have fundamentally different insurance obligations. Under both CIF and CIP, the minimum insured amount is 110% of the invoice value in the contract currency. But the scope of coverage is vastly different.

If you are buying CIF and want broader coverage, you have two options. You can negotiate with the seller to upgrade to Clause A or B at additional cost. Or you can purchase your own supplementary insurance policy to cover the gaps left by Clause C.

What Makes DDP the Highest-Risk Incoterm for Sellers?

Under DDP (Delivered Duty Paid), the seller is responsible for everything: export clearance, freight, insurance, import clearance, import duties, taxes (including VAT), and delivery to the buyer's named place. The buyer's only obligation is to receive the goods and pay the agreed purchase price.

DDP is the maximum seller obligation among all 11 Incoterms — the opposite end of the spectrum from EXW. The risk that sellers underestimate is import clearance. To clear goods through import customs in a foreign country, the seller typically needs to register as an importer of record or appoint a fiscal representative. In many countries, a foreign entity cannot act as importer of record without a local legal presence.

When DDP Becomes a Trap

If a seller agrees to DDP without understanding the import tax regime in the destination country, they may face unexpected VAT or consumption tax obligations. Some countries apply VAT rates above 20%. The seller cannot pass these costs to the buyer after the fact — the Incoterm allocates them to the seller. Before agreeing to DDP, sellers should verify whether they can legally act as importer of record, calculate the full landed cost including all duties and taxes, and confirm whether VAT is recoverable.

Quick Reference: 5 Incoterms Responsibilities Compared

• EXW — Seller: make goods available. Buyer: everything else, including export clearance.

• FCA — Seller: deliver to carrier, clear export. Buyer: freight from carrier, import. Risk transfers at first carrier.

• FOB — Seller: load on vessel, clear export. Buyer: freight from port, import. Ocean and inland waterway only.

• CIF — Seller: freight to port, insurance (Clause C minimum). Buyer: import clearance, unloading. Risk transfers at loading, not arrival.

• DDP — Seller: everything including import duty and taxes. Buyer: receive goods only.

FAQ

Which Incoterm places the most responsibility on the seller?

DDP (Delivered Duty Paid) places maximum responsibility on the seller, covering freight, insurance, export and import clearance, duties, and taxes all the way to the buyer's door.

Does CIF insurance cover theft?

No. CIF requires Institute Cargo Clauses (C) as the minimum, which does not cover theft, pilferage, water damage, or natural disasters. Only Clause A provides "all risks" coverage including theft.

Can FOB be used for air freight?

No. According to the ICC, FOB is designed exclusively for sea and inland waterway transport. For air freight, use CPT or CIP instead.

What changed between CIF and CIP in Incoterms 2020?

The ICC raised the insurance requirement for CIP from Clause C to Clause A (all risks) in Incoterms 2020. CIF remained at Clause C. Both require coverage of at least 110% of invoice value.