Most cargo disputes do not start with a lost container. They start with a line on an invoice that nobody read carefully: "FOB Shanghai" on a shipment that travelled in a container, or "DDP" where the buyer assumed the seller had handled import clearance. By the time the cargo is damaged or stuck at customs, the contract already says who pays — and it is rarely the party who thought they were covered.
Incoterms 2020 are eleven three-letter rules published by the International Chamber of Commerce. They do not govern the contract of sale itself, title, or payment. They allocate four things only: cost, risk, insurance, and clearance obligations. That narrow scope is exactly why they are misused — people expect them to do more than they can.
What the eleven rules actually allocate
Every rule answers the same question: at which point does risk pass from seller to buyer, and who pays for what up to that point. The rules split into two families.
Any-mode rules (EXW, FCA, CPT, CIP, DAP, DPU, DDP) work for containers, air, rail and multimodal. Sea and inland waterway rules (FAS, FOB, CFR, CIF) were designed for non-containerised cargo loaded over a ship's rail — a physical moment that no longer exists for a container handed to a terminal.
| Rule | Risk passes | Freight paid by | Insurance | Export / import clearance |
|---|---|---|---|---|
| FCA | On delivery to carrier | Buyer | Optional | Seller / Buyer |
| FOB | On board the vessel | Buyer | Optional | Seller / Buyer |
| CIF | On board the vessel | Seller | Seller, minimum cover | Seller / Buyer |
| DAP | At named place, not unloaded | Seller | Optional | Seller / Buyer |
| DDP | At named place, not unloaded | Seller | Optional | Seller / Seller |
Read the table down the columns, not across the rows. The gap between FOB and FCA is not a wording preference — it is a different risk moment.
A walkthrough: choosing a rule for one container
Imagine a furniture maker in Vietnam shipping a 40-foot container to a distributor in Rotterdam, invoice value USD 120,000. The distributor wants a delivered price and asks for DDP.
Step one: check the mode. The cargo is containerised, so FCA, CPT, CIP or DAP apply — not FOB. Under FOB the seller's risk ends when goods are on board, but the container sits at the terminal for days before loading. If it is damaged in the yard, the seller may still bear risk under a rule that assumed a ship's rail.
Step two: price the risk. If the seller accepts DAP Rotterdam, they carry freight and risk to the door but not import duty. If they accept DDP, they also become importer of record in the EU — which means an EU establishment or a fiscal representative, VAT registration, and liability for compliance failures.
Step three: match documents. The invoice term, the bill of lading and the contract of carriage must tell the same story. If the B/L names the buyer as consignee but the invoice says DDP, the customs declaration and the risk allocation contradict each other — a classic trigger for a dispute.
Where the scheme itself breaks
1. FOB used for containers. Risk passes on board, but control of the goods passes at the terminal. Spot it early by checking whether the rule's delivery point matches where the carrier actually takes over. If it is too late, the bill of lading and terminal receipts are your evidence of when and where damage occurred.
2. CIF insurance assumed to cover full value. Under CIF the seller must insure to at least 110% of the contract value under Institute Cargo Clauses (C). That cover excludes many perils — theft, water damage, handling. Buyers who assumed "insured" meant "fully insured" discover the gap only at claim time.
3. DDP treated as a licence to ignore import compliance. The seller promises delivery duty paid but may lack the registration to be importer of record. Goods are held, storage accrues, and the buyer invokes the delivery deadline.
4. The invoice term and the B/L diverge. Banks under a letter of credit reject documents that do not match; carriers release cargo against the B/L, not the invoice. Reconcile all three before the vessel sails.
Learning paths and their trade-offs
Self-study is cheap and slow: the ICC rules, carrier conditions and convention texts are public, but nobody tells you when your reading of a clause is wrong until a claim arrives. A structured course compresses the mapping and gives feedback on your decisions; the Transport and Logistics Law course works through Incoterms allocation, carrier liability under the Hague-Visby and Montreal regimes, and document matching with sample bills of lading and claims. Practice inside a freight forwarder or legal team remains the fastest teacher — and the most expensive when you err.
This path suits operations staff, in-house counsel, freight forwarders and export managers who sign or check shipping documents. It does not suit someone wanting a quick vocabulary list — the value is in the decision table and the document checklist, not the definitions.
The course builds that table and checklist with worked examples and gives feedback on your answers through its AI chat; start with the Incoterms section and the document-matching exercise.