Incoterms 2020 Guide for Ocean Freight from Japan
Incoterms are the international rules that determine who pays for transport and where cargo risk passes from seller to buyer. Here’s what the 11 terms mean, and which ones actually fit container shipping.
01What Incoterms Actually Cover
Incoterms are trade-term rules published by the International Chamber of Commerce (ICC). Each one is a three-letter code that answers two separate questions: who pays for transport, and at what point the risk of loss or damage passes from seller to buyer. Those two things don’t always move together, which is where a lot of confusion in sales contracts comes from.
The current version is Incoterms 2020. The main change from the 2010 edition was replacing DAT with DPU; otherwise the structure carried over. Always state the version year in your contract — “Incoterms 2020” — since older editions are still referenced in some existing contracts and the rules aren’t identical across versions.
02The 11 Rules at a Glance
The eleven rules split into two groups: seven that work for any mode of transport, and four written specifically for sea and inland waterway shipments.
| EXW | Ex Works. The seller’s only obligation is to make the goods available at their own premises. |
|---|---|
| FCA | Free Carrier. The seller delivers to a carrier nominated by the buyer at an agreed point. |
| CPT | Carriage Paid To. The seller pays freight to the named destination. |
| CIP | Carriage and Insurance Paid To. CPT plus insurance arranged by the seller. |
| DAP | Delivered at Place. The seller delivers ready for unloading; the buyer handles unloading. |
| DPU | Delivered at Place Unloaded. The seller delivers and unloads at destination (replaces the old DAT). |
| DDP | Delivered Duty Paid. The seller also covers import duty and clearance — the seller’s maximum obligation. |
| FAS | Free Alongside Ship. Sea freight only; the seller delivers alongside the vessel. |
| FOB | Free on Board. Sea freight only; risk passes once the goods are loaded onto the vessel. |
| CFR | Cost and Freight. Sea freight only; the seller pays ocean freight, but risk still passes at loading. |
| CIF | Cost, Insurance and Freight. CFR plus insurance arranged by the seller. |
03Why FOB Needs Extra Care in Container Shipping
FOB, CFR, and CIF share one feature: risk transfers once cargo is loaded onto the vessel. That rule was written for the era of break-bulk shipping, when the seller physically controlled the cargo right up until it went over the ship’s rail.
Container shipping doesn’t work that way. In practice, the shipper’s direct involvement ends once the container is handed over at the container yard (CY) — often well before it’s actually loaded onto the vessel. Under FOB terms, the seller is technically still carrying the risk for that gap, even though they have no way to influence what happens to the container while it sits in the yard.
That mismatch is exactly why the ICC recommends FCA, CPT, or CIP for containerized cargo instead of FOB, CFR, or CIF — the risk transfer point lines up with where control of the cargo actually changes hands. In practice, FOB and CIF remain the default in a lot of sales contracts out of habit, but it’s worth understanding where the real risk sits before agreeing to one.
FAQFrequently Asked Questions
What’s actually different between CIF and CFR?
Just insurance. Under CFR, the seller pays ocean freight and the buyer arranges their own cargo insurance. Under CIF, the seller also arranges insurance on the buyer’s behalf. The point where risk passes to the buyer — when the cargo is loaded — is identical under both.
Is FOB or CIF better for the buyer?
It depends on who you want controlling the shipment. A seller under FOB hands off responsibility earlier and doesn’t carry freight or insurance costs. A buyer under FOB gets to choose the carrier and negotiate freight directly, which matters if you already have your own forwarding relationships. Which is “better” comes down to who wants to hold that control.
I’ve heard DDP should be avoided — is that right?
DDP puts import duty and customs clearance in the destination country on the seller. In many countries that requires the seller to be a registered importer of record locally, which isn’t always possible for a foreign company. If the seller doesn’t have that standing in the buyer’s country, agreeing to DDP can create an obligation they’re not actually able to fulfill.
About this guide
This guide is written and edited by the OCEAN FREIGHT JAPAN (SK.inc) editorial team, based on hands-on freight-forwarding experience and primary official sources. Content reflects information current as of the publication date — for the latest regulations, please check official sources directly.
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