Incoterms in commodity contracts: who carries what.
The three letters at the end of a price are not a formality. They decide who pays for what, who bears the risk from which moment, and who must produce which document.
Incoterms are rules published by the International Chamber of Commerce that define the obligations of seller and buyer in a sale of goods: who arranges carriage, who insures, where risk transfers and who handles export and import formalities. They do not determine ownership, payment terms or the consequences of breach — those come from the contract itself.
Three questions each rule answers
- Cost: up to which point does the seller pay carriage and related charges?
- Risk: at which precise moment does the risk of loss or damage pass to the buyer?
- Formalities: which party is responsible for export clearance, and which for import clearance?
The frequent error is to assume that cost and risk transfer at the same point. They often do not. Under CIF, for example, the seller pays freight and insurance to the destination port, but risk passes much earlier — on shipment at the port of loading.
Rules most often used in agricultural commodity trade
FOB — Free On Board
The seller delivers on board the vessel at the named port of shipment and clears the goods for export. Risk passes on board. The buyer arranges and pays for the main carriage. Common where the buyer has its own freight arrangements and wants control of the shipping.
CFR and CIF — Cost and Freight / Cost, Insurance and Freight
The seller contracts and pays for carriage to the named destination port, and under CIF also provides insurance. In both, risk still passes when the goods are on board at origin. A buyer reading ‘to Rotterdam’ as ‘the seller carries the risk to Rotterdam’ has misread the rule.
FCA — Free Carrier
The seller delivers to a carrier nominated by the buyer at a named place, export-cleared. Increasingly used for containerised cargo, where delivery realistically happens at a terminal or inland point rather than across a ship’s rail.
DAP and DDP — Delivered At Place / Delivered Duty Paid
The seller carries cost and risk to the named destination. Under DAP the buyer handles import clearance and pays duties and import VAT; under DDP the seller does. DDP places a significant burden on a seller established outside the import country and should be agreed with care.
What the rule does not cover
- Transfer of title and ownership
- Payment terms and instruments such as letters of credit
- Quality specification, tolerances and sampling
- Consequences of default, force majeure and arbitration
- Which party bears demurrage and detention beyond the delivery point
These belong in the sale contract. An Incoterms rule is a shorthand for delivery, not a substitute for the contract around it.
How Nevermore uses them
We state the rule, the named place and the Incoterms version in every quotation, and we set out separately the documentation each side must produce. Where a buyer is unfamiliar with the implications of a proposed rule, we would rather explain it before signature than argue about it after a claim.
Tell us what you need to buy — or what you have to sell.
Send us the commodity, specification, volume and destination. We reply to qualified enquiries with an indication of feasibility, timing and commercial terms, or tell you plainly if we are not the right counterparty.