Incoterms 2020 for Raw Material Buyers

An Incoterm is a three-letter rule, published by the International Chamber of Commerce, that fixes two things in a sale: which costs the seller pays, and the point at which risk of loss passes to the buyer. The price on a quotation means little until you know which Incoterm it is quoted on. A CIF price and an FOB price for the same product are not comparable.

The four terms you will meet most

Term	Seller delivers	Freight paid by	Risk passes to buyer
EXW, Ex Works	At the seller's premises	Buyer	When the goods are made available
FOB, Free On Board	On board the vessel at the port of loading	Buyer	Once the goods are on board
CIF, Cost Insurance and Freight	On board the vessel at the port of loading	Seller, to the destination port	Once the goods are on board, even though the seller pays freight
DDP, Delivered Duty Paid	At the buyer's named place	Seller, including import duty	At the named place of delivery

The CIF trap

Under CIF the seller pays the ocean freight and insurance, but risk passes to you as soon as the goods are loaded in China. If the cargo is damaged at sea, you make the claim on the insurance the seller bought. Incoterms 2020 only obliges the seller to buy minimum cover (Institute Cargo Clauses C) under CIF, so for high-value ingredients ask for Clauses A cover or insure the cargo yourself.

FOB and CIF are for sea freight only

FOB, CFR and CIF apply only to sea and inland-waterway transport. For containerised cargo the ICC recommends FCA and CIP instead, because a container is handed over at a terminal, not loaded "on board" in the traditional sense. In practice FOB and CIF remain common for full-container shipments from Shanghai, Qingdao and Tianjin, and most buyers and forwarders understand them.

Choosing a term

• You have your own forwarder: FOB usually gives you the best control of freight cost and transit time.
• You want one price to your port: CIF, with the insurance level confirmed in writing.
• You are importing for the first time: DDP removes customs work, but check that the seller can legally act as importer in your country.
• Dangerous goods such as formic or acetic acid: agree who arranges the dangerous-goods booking before choosing the term.

Rawplex quotes EXW, FOB, CIF and DDP on request. Tell us your destination port when you ask for a quotation and we will price the term that suits you.