Incoterms 2020 Case Studies
Follow the risk, not the freight bill. Worked cases on where loss falls and which documents the bank will see.
An Incoterms rule answers three questions in a sale contract: where the seller delivers, when risk of loss passes to the buyer, and who pays for and arranges carriage, insurance and customs clearance. Incoterms 2020, in force since 1 January 2020, has 11 rules. It says nothing about when ownership passes, how or when the buyer pays, or what happens on breach of contract.
For a banker the rule matters because it predicts the documents. A CIF sale means the exporter will present an insurance document; an FCA sale for sea freight may need a special instruction before an on board bill of lading can exist.
You save ₹300
- Full 120-question mocks
- ICC rules coverage
- Topic-wise practice
One payment, no subscription · Valid for 2 months
The 11 Rules at a Glance
EXW
Mode
Any
Delivery and risk pass when goods are
Made available at the seller's premises
Seller must insure?
No
FCA
Mode
Any
Delivery and risk pass when goods are
Handed to the buyer's carrier at the named place
Seller must insure?
No
CPT
Mode
Any
Delivery and risk pass when goods are
Handed to the carrier the seller contracted
Seller must insure?
No
CIP
Mode
Any
Delivery and risk pass when goods are
Handed to the carrier the seller contracted
Seller must insure?
Yes, Institute Cargo Clauses (A) level
DAP
Mode
Any
Delivery and risk pass when goods are
Placed at the buyer's disposal at destination, ready for unloading
Seller must insure?
No
DPU
Mode
Any
Delivery and risk pass when goods are
Unloaded at the named place of destination
Seller must insure?
No
DDP
Mode
Any
Delivery and risk pass when goods are
Placed at the buyer's disposal at destination, cleared for import
Seller must insure?
No
FAS
Mode
Sea and inland waterway
Delivery and risk pass when goods are
Alongside the vessel at the port of shipment
Seller must insure?
No
FOB
Mode
Sea and inland waterway
Delivery and risk pass when goods are
On board the vessel at the port of shipment
Seller must insure?
No
CFR
Mode
Sea and inland waterway
Delivery and risk pass when goods are
On board the vessel at the port of shipment
Seller must insure?
No
CIF
Mode
Sea and inland waterway
Delivery and risk pass when goods are
On board the vessel at the port of shipment
Seller must insure?
Yes, Institute Cargo Clauses (C) by default
| Rule | Mode | Delivery and risk pass when goods are | Seller must insure? |
|---|---|---|---|
| EXW | Any | Made available at the seller's premises | No |
| FCA | Any | Handed to the buyer's carrier at the named place | No |
| CPT | Any | Handed to the carrier the seller contracted | No |
| CIP | Any | Handed to the carrier the seller contracted | Yes, Institute Cargo Clauses (A) level |
| DAP | Any | Placed at the buyer's disposal at destination, ready for unloading | No |
| DPU | Any | Unloaded at the named place of destination | No |
| DDP | Any | Placed at the buyer's disposal at destination, cleared for import | No |
| FAS | Sea and inland waterway | Alongside the vessel at the port of shipment | No |
| FOB | Sea and inland waterway | On board the vessel at the port of shipment | No |
| CFR | Sea and inland waterway | On board the vessel at the port of shipment | No |
| CIF | Sea and inland waterway | On board the vessel at the port of shipment | Yes, Institute Cargo Clauses (C) by default |
Case 1: CIF Rotterdam, Container Damaged Before Loading
A Tiruppur garment exporter sells CIF Rotterdam, Incoterms 2020. The sealed container is handed to the shipping line at an inland container depot near Coimbatore. A forklift damages it at the Chennai port terminal before it is loaded on the vessel.
- 1
Where does risk pass under CIF?
When the goods are placed on board the vessel at the port of shipment. Until then, the exporter bears the risk.
- 2
Apply it
The damage happened before loading, so it is the exporter's loss, even though it had already lost physical control of the container days earlier at the depot.
- 3
What should the parties have used?
ICC advises against FOB, CFR and CIF for containerised goods and recommends FCA, CPT or CIP, under which risk passes when the goods are handed to the carrier. Under CIP, risk would have passed at the depot, and the seller would have had to insure at the higher Institute Cargo Clauses (A) level.
- 4
If the damage had happened at sea
The risk would be the buyer's. The buyer claims on the insurance the seller bought under CIF.
Case 2: FCA Seller Needs an On Board Bill of Lading
A Gujarat chemicals exporter sells FCA Mundra port to a buyer who books the freight. The buyer's bank issues an LC calling for an on board bill of lading. Under plain FCA, the seller's delivery is complete when it hands the goods to the buyer's carrier, before loading, and it has no contract with the shipping line to demand an on board bill.
Incoterms 2020 fixed this: the parties can agree that the buyer will instruct its carrier to issue an on board bill of lading to the seller, which the seller then tenders through the banks. Answer: the exporter should get this option written into the sale contract before it accepts an LC calling for an on board bill of lading.
Quick practice on banking operations. No signup.
Case 3: EXW, DDP and an Old DAT Clause
A Pune pump maker is asked to quote EXW by a foreign buyer with no presence in India. Under EXW the buyer must handle everything, including export clearance, which a foreign buyer usually cannot do from abroad. FCA, where the seller clears the goods for export, is the practical choice. The mirror image is a German supplier selling DDP to a Pune importer: the seller must obtain import clearance in India, which ICC itself notes is often impractical for a foreign seller.
A contract arrives reading "DAT Jebel Ali, Incoterms 2020". DAT does not exist in Incoterms 2020; it was replaced by DPU, which allows delivery at any place, not only a terminal. The contract needs correcting before shipment. If it said "DAT, Incoterms 2010", it would be valid, because parties may still choose the earlier edition. That is why the version should always be named.
Incoterms Do Not Bind the Bank
The LC is separate from the sale contract (UCP 600 Article 4), so the bank checks documents against the credit, not against the Incoterms rule. If a CIF sale is financed by an LC that does not call for an insurance document, the bank does not ask for one. If it does call for one, UCP 600 Article 28 governs it, including the minimum of 110% of the CIF or CIP value when the credit is silent.
How the IIBF Exam Tests This
IIBF's syllabus says Incoterms 2020 is case-study based and adds the differences between the 2010 and 2020 editions. Expect a short story about where goods were lost and a question on who bears it, or on which document the bank will see. The common trap is to follow the money instead of the risk: under CFR and CIF the seller pays freight to the destination, but risk passes at loading.
FAQs
When does risk pass under CIF Incoterms 2020?expand_more
When the goods are placed on board the vessel at the port of shipment, even though the seller pays freight and insurance to the destination port.
What is the difference between CIF and CIP insurance in Incoterms 2020?expand_more
Under CIF the seller's default cover is Institute Cargo Clauses (C), the more limited level. Under CIP it must be Institute Cargo Clauses (A), the wider level. Under CIF the parties can agree higher cover.
Why does ICC say not to use FOB or CIF for containers?expand_more
Container cargo is handed over at a depot or terminal before loading, so the seller loses control of it while still carrying the risk. FCA, CPT and CIP pass risk at handover to the carrier instead.
Next steps
- Marine Insurancearrow_forward
- Incoterms 2010 vs 2020arrow_forward
- Trade Documentsarrow_forward
- Syllabusarrow_forward
120 questions, 2 hours, scored instantly.