Incoterms 2020for commodity buyers.
A practical field guide to the three terms that matter most in bulk commodity trade: FOB, CIF and FCA. Written from the buyer's side of the deal sheet.
What are Incoterms?
Incoterms — International Commercial Terms — are the ICC's standard definitions for who does what, who pays for what, and where risk transfers in an international sale of goods. The 2020 revision is the current standard for contracts concluded on or after 1 January 2020.
For a commodity buyer, Incoterms answer three questions: Where does my obligation start? Who arranges the freight? and At what exact point do I own the risk? Get the term wrong and you may be paying for ocean freight you never intended to cover, or discovering that damage in transit is your loss despite the seller's cheap-looking CIF quote.
There are eleven Incoterms in total. In practice, most bulk commodity contracts use only a handful. This guide covers the three we see most often on our desk: FOB, CIF and FCA.
Free On Board
- Bulk break-bulk cargo
- Timber, grain, scrap metal
- Buyers with existing freight relationships
- Contracts from major export ports
FOB meaning: The seller clears the goods for export and loads them on board the vessel nominated by the buyer at the named port of shipment. Once the goods pass the ship's rail (or, in practice, are on board), risk and cost transfer to the buyer.
What the buyer pays under FOB
- Ocean freight from port of loading to port of discharge
- Marine cargo insurance (if desired — not mandatory under FOB)
- Unloading costs at destination, import clearance, duties and taxes
- Inland transport from the discharge port to final warehouse or mill
Risk transfer point
Risk moves when the goods are on board the vessel at the port of shipment. If goods are damaged during loading — a crane drops a timber bundle, a hatch cover leaks before sailing — the loss is on the buyer, even though the seller may still hold the bill of lading. This is why pre-shipment survey and quality inspection at the loading port are critical under FOB.
Most of our timber and grain mandates run FOB Baltic or Black Sea ports. Buyers who already have contracted tonnage on regular liner or tramp services prefer FOB because they control the freight rate and can consolidate cargoes. The key risk we watch: delayed vessel arrivals that push demurrage onto the buyer.
Cost, Insurance & Freight
- Buyers who want price certainty
- Crude oil and refined products
- Single-cargo buyers without freight desks
- Letter-of-credit settlements
CIF meaning: The seller pays for the goods, the carriage to the named port of destination, and minimum marine insurance cover. The buyer receives the goods at the destination port and handles unloading, import clearance and onward transport.
What the buyer pays under CIF
- Unloading costs at the destination port (unless the charter party says otherwise)
- Import clearance, customs duties and taxes
- Inland carriage from port to final delivery point
- Any insurance above the minimum cover required by Incoterms 2020
Risk transfer point
Here is the point most buyers miss: under CIF, risk still transfers at the port of loading, exactly as it does under FOB. The seller pays for freight and insurance, but the buyer bears the risk of loss or damage during the voyage. If the vessel sinks, the buyer must claim against the seller's insurance policy — which is why the policy terms matter enormously in a CIF contract.
Incoterms 2020 specifies that the seller must obtain at minimum Institute Cargo Clauses (C) cover or equivalent. Many commodity buyers negotiate up to ICC (A) or a bespoke policy, especially for high-value or sensitive cargoes like tropical hardwoods or aerospace components.
CIF is common in crude and product sales where the seller has a fleet or time-charter relationship and can offer a flat delivered price. We always verify the insurance certificate before recommending a CIF contract to a buyer — a policy with an undisclosed deductible or a war-risk exclusion can turn a "delivered" price into an unexpected loss.
Free Carrier
- Containerised cargo
- Inland or multimodal handovers
- Buyers who want full carriage control
- Origin-mill or warehouse collection
FCA meaning: The seller delivers the goods to the buyer's nominated carrier — or another person nominated by the buyer — at the seller's premises or at another named place (terminal, port, warehouse). Risk transfers at that named place, not on board the vessel.
What the buyer pays under FCA
- The main carriage: ocean, air, rail or road from the named place to destination
- Marine or transit insurance from the handover point
- Import clearance, duties and onward delivery
Risk transfer point
Under FCA, risk transfers when the goods are handed to the carrier at the named place. If the named place is the seller's mill, the buyer assumes risk the moment the truck or rail wagon departs the mill gate. If the named place is a container terminal, risk transfers when the container is handed to the terminal operator. This earlier transfer makes FCA very clean for buyers who want to control the entire logistics chain from a well-defined handover.
Incoterms 2020 made an important change to FCA: the buyer can now instruct the carrier to issue a on-board bill of lading to the seller, which the seller can use to satisfy documentary credit (LC) requirements even though risk has already transferred. This bridges the gap between FCA's practical handover and the banking world's need for an on-board B/L.
We see FCA growing in timber and metal trades where the buyer's forwarder collects containers directly from the sawmill or scrap yard. The buyer controls the entire main carriage, consolidates with other cargo, and often achieves a lower all-in cost than a CIF quote. The key discipline: the handover place must be precise — "FCA mill gate, Riga" is enforceable; "FCA Riga" is a dispute waiting to happen.
CIF vs FOB: which to choose?
The choice between CIF and FOB is usually a trade-off between price certainty and control. Here is how the two terms split the obligations in a typical bulk commodity contract.
| Obligation | FOB | CIF | FCA |
|---|---|---|---|
| Export clearance | Seller | Seller | Seller |
| Pre-carriage to port/terminal | Seller | Seller | Seller |
| Loading on vessel / handover | Seller | Seller | Seller (at named place) |
| Main carriage (ocean freight) | Buyer | Seller | Buyer |
| Marine insurance | Buyer (optional) | Seller (minimum cover) | Buyer |
| Unloading at destination | Buyer | Buyer | Buyer |
| Import clearance & duties | Buyer | Buyer | Buyer |
| Risk transfer point | On board at load port | On board at load port | At named place to carrier |
You have freight contracts, want control over shipping, or the seller's CIF freight rate is inflated. Common in timber, grain and scrap.
You want a single delivered price, lack freight capacity, or need a clean LC structure where the seller presents B/L and insurance cert.
You collect from origin, run containerised cargo, or want risk to transfer before the vessel — at mill, yard or inland terminal.
The full Incoterms 2020 list
Eleven terms, arranged from minimum seller obligation (EXW) to maximum seller obligation (DDP). Any Mode covers road, rail, air and multi-modal. Sea & Inland Waterway is restricted to vessels and barges.
Buyer collects from seller's premises. Maximum buyer obligation.
Seller hands to carrier at named place. Recommended for containers.
Seller loads on board buyer's vessel at named port.
Seller pays freight and insurance to destination port.
Like CIF but seller does not arrange insurance.
Seller delivers to named destination, ready for unloading.
Seller handles everything including import duty. Maximum seller obligation.
EXW, FCA, CPT, CIP, DAP, DPU, DDP
FAS, FOB, CFR, CIF
How Axis uses Incoterms
Every mandate that crosses our desk begins with the same question: Who is best placed to carry the risk at each leg? We do not default to CIF because it is convenient, or to FOB because it is conventional. We match the term to the buyer's capability, the seller's location, the commodity's insurance profile and the financing structure.
For a German mill buying softwood from Riga, FOB is usually optimal: the buyer has Baltic freight contracts, knows the port agents, and can consolidate with other European cargoes. For a Middle East refiner buying West African crude with an LC at sight, CIF is often cleaner: the seller presents the full document set — B/L, insurance certificate, quality cert — and the bank releases payment against documents, not against the physical cargo.
We also see FCA rising in scrap metal and containerised timber trades where the buyer's forwarder collects directly from the yard. In these cases we help buyers define the named place with precision — "FCA seller's warehouse, Klaipeda" rather than "FCA Klaipeda" — to eliminate ambiguity about who loads the truck and who pays the terminal handling charge.
If you are structuring a commodity contract and unsure which term fits, our desk can review the draft Incoterm clause against the freight flow, insurance cover and payment instrument. We do not charge for that review — it is part of the mandate.
Take the guide to your desk.
A printable PDF of this guide — FOB, CIF and FCA explained for buyers and suppliers, with risk-transfer notes and the full Incoterms 2020 quick reference.
- — Printable field guide, formatted for A4 print
- — No marketing list. Used only to record the download and follow up if you request.
- — Free for buyers, suppliers and brokers
Keep reading on Axis.
More on the buying and selling side of physical commodity trade, plus shipping coverage and how a mandate runs end-to-end.
What we source
Timber, LNG, crude oil, scrap metals, grain, aerospace and adjacent flows we mandate for buyers and sellers.
How a mandate runs
From first call to signed contract and post-shipment settlement — the steps we walk every counterparty through.
Where we move cargo
Lanes, load ports and discharge ports across EU, Black Sea, Baltic, West Africa, Middle East and Asia.
Who Axis Sourcing is
A Balkans- and Germany-based desk working international buyers and sellers on physical commodity flows.
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Download this guide (PDF)
The full FOB / CIF / FCA breakdown formatted for print. Quick reference for buying and sales desks.
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