Contracts
Incoterms and risk transfer: four lines that are not the same line
Most disputes that look like Incoterms disputes are not. They happen because four separate things — who bears the risk, who pays the cost, who owns the goods, and who is physically holding them — are assumed to change hands at one moment. The Incoterms rules draw two of those lines. They are explicit that they do not draw the third, and they never mention the fourth.
The four lines
| Line | Decided by |
|---|---|
| Risk — who bears loss or damage from here on | The Incoterms rule |
| Cost — who pays for which leg and charge | The Incoterms rule |
| Title — who owns the goods | The contract of sale and the law governing it. Not the Incoterms rule |
| Custody — who is physically holding them | Nothing in the sale contract. It is a chain of handovers |
ICC is unambiguous about the third: the Incoterms rules do not deal with the transfer of property, title or ownership, which is governed by the contract and the law applying to it. They also do not settle the price, the method or currency of payment, the quality or quantity of the goods, the applicable law, or how a dispute is resolved. And they are not themselves a contract of sale — they become part of one only when incorporated into a contract that already exists.
The fourth line is the one this site is about, and no sale term addresses it at all.
Eleven rules, in two families
Seven rules work for any mode of transport, including multimodal: EXW, FCA, CPT, CIP, DAP, DPU, DDP. Four are for sea and inland waterway transport only: FAS, FOB, CFR, CIF. In the 2020 edition DAT was renamed DPU, to make clear it applies to any place rather than only a terminal.
Where risk passes is often not where cost stops
Four rules split the two lines deliberately, and this is the single most misread feature of the system.
Under CPT, CIP, CFR and CIF, risk passes to the buyer when the goods are handed to the carrier at origin. Cost continues to run to the named destination, because the seller has contracted and paid for the main carriage. So a seller can be paying freight on goods that have been at the buyer's risk since the day they left the factory.
Read a quotation with that in mind. “CIF your port” sounds like the seller is responsible until arrival. On risk, it is not.
The container problem
The maritime rules were written for goods handed over at the ship. Under FOB, CFR and CIF risk passes when the goods are on board. A container is not handed over on board — it is delivered to a terminal, often days before it is loaded, and it leaves the seller's control at that moment.
That gap is a real exposure: the box sits stacked at the port, out of the seller's hands, while risk has not yet moved to the buyer. ICC's own guidance is to use FCA, CPT or CIP for containerized cargo, which place risk transfer at the handover to the carrier where it actually happens, and to reserve FOB, CFR and CIF for bulk and break-bulk loaded directly aboard.
This is one of the most common inherited errors in trade documentation. It persists because FOB and CIF are familiar, the paperwork goes through, and the mismatch only surfaces when something is damaged in the window nobody allocated.
The line nobody writes down
Even a correctly chosen rule leaves custody unaddressed. The Incoterms rule tells you who bears the risk at a given point; it does not tell you, after the fact, who was actually holding the goods when the condition changed. That is a question of records, and it is the question every claim turns on.
A term that places risk on the buyer from handover at origin is only useful if you can establish when handover occurred and in what condition. Where the handover is unattended — a drop trailer, an after-hours delivery, a container spotted at a yard — the contractual line is clear and the evidence is not. See chain of custody in logistics for what to record so the two match.
Practical checks
- Name the rule and the place: “FCA [named place], Incoterms 2020”. A rule without a place is incomplete.
- Cite the edition. Earlier editions remain in use and differ — CIP's insurance level changed in 2020.
- For containers, ask why a maritime rule is being used before accepting FOB, CFR or CIF.
- Check who insures and at what level, since the rule settles that for only two of the eleven — see cargo insurance.
- For delivered terms, confirm who can lawfully act as importer of record — agreeing to pay the duty is not the same as being able to make the entry.
- Settle title separately in the contract of sale. The Incoterms rule will not do it for you.
- Make sure your custody records can evidence the moment the rule relies on.
Where loss does occur, the rule decides who carries it, and separately the carrier's liability limits decide how much of it can be recovered from the carrier. Those are different questions, and the answer to one tells you nothing about the other.
This is a general explanation, not legal advice. The rules are a published ICC text and the contract in front of you governs any real dispute.
Evidence for the moment the rule names
Every Incoterms rule turns on an event: handed to the carrier, on board, arrived, unloaded. Cargovate's platform records those events as checkpoints on one shipment across carriers and borders, so the moment the contract depends on is something you can produce.
Last reviewed 2026-09-20