Incoterms 2020: choosing between FOB, CFR and DAP
Three rules cover most containerised trading operations. What separates them is not price but the point where risk transfers and who bears the burden of arranging carriage.
The SELA International team
The question addressed
Which Incoterm should I choose for a full-container purchase?
Key takeaway
FOB suits a buyer who already controls their ocean freight and wants to negotiate their own rate. CFR shifts the arranging of freight to the seller without shifting risk, which still passes on loading. DAP puts the whole carriage to an agreed destination place on the seller, import clearance excluded. For a first purchase in an unfamiliar market, DAP gives the clearest landed cost; for a steady, high-volume flow, FOB gives the best cost control.
The International Chamber of Commerce’s Incoterms® 2020 allocate three distinct things between seller and buyer: who arranges carriage, who pays for each leg, and the precise moment at which the risk of loss or damage changes hands. Those three allocations do not necessarily coincide — which is the single most common source of error in trading contracts.
FOB — Free On Board
The seller delivers when the goods are placed on board the vessel at the named port of shipment. At that moment risk passes to the buyer, who then bears ocean freight, insurance and the entire downstream journey. FOB therefore assumes the buyer has a freight forwarder and a carriage contract. A caveat: the rule was designed for bulk and conventional cargo. For containers handed over to a terminal several days before loading, FCA at the terminal is technically more accurate, even though commercial practice has settled on FOB.
CFR — Cost and Freight
The seller pays freight to the agreed destination port, but risk still passes to the buyer on loading at origin. In other words, if the vessel suffers a casualty at sea, the goods travel at the buyer’s risk even though the seller paid for their carriage. CFR does not oblige the seller to insure the cargo: it is CIF that adds that obligation, at minimum cover. A buyer trading on CFR must take out their own policy, failing which they carry an uninsured exposure for the whole voyage.
DAP — Delivered At Place
The seller bears carriage and risk to an agreed place at destination — port, warehouse, platform — with the goods still to be unloaded. Import clearance, duties and taxes remain with the buyer: only DDP transfers that obligation as well. DAP produces the figure closest to a true landed cost, which makes it the sensible choice for a buyer opening a new corridor or wanting a single counterparty.
| Rule | Risk transfers | Main carriage paid by | Insurance mandatory |
|---|---|---|---|
| FOB | On board, port of shipment | Buyer | No |
| CFR | On board, port of shipment | Seller | No |
| CIF | On board, port of shipment | Seller | Yes — minimum cover |
| DAP | At the agreed destination place | Seller | No |
How to decide
- Assess your freight access: a buyer with no ocean framework agreement will almost always pay more on FOB than a seller shipping dozens of containers a month.
- Check insurance cover line by line: CFR leaves a gap that many buyers only discover when a claim arises.
- Name the place precisely. “DAP Abidjan” is ambiguous; “DAP Zone 3 warehouse, Abidjan, Incoterms® 2020” is not.
- Always state the rule’s edition in the contract: definitions changed between 2010 and 2020, notably DAT becoming DPU.
SELA INTERNATIONAL LTD contracts equally on FOB, CFR, CIF, DAP or DPU depending on the corridor and on how much logistics capability the buyer has in-house. A typical enquiry is quoted on at least two bases so that the comparison rests on a genuine landed cost rather than an ex-works price.