The 11 types of Incoterms in use are currently divided into two groups. One of which is the Incoterms for maritime and inland waterways transport which include four rules.

FAS: Free Alongside Ship

FAS means that the seller delivers the goods to the buyer:

  • When the goods are placed alongside the vessel
  • Nominated by the buyer
  • At the named port of shipment
  • Or ensures the goods are delivered.

In FAS the risk of loss or damage is transferred when the goods are set alongside the vessel. The buyer bears all costs from this point onwards.

This rule is applicable in transport by sea or inland waterways when both parties agree to delivery as being the placing of the goods alongside a vessel.

It is important to identify precisely the point of loading at the named port of shipment, as the costs and risk up to that point are borne by the seller. In addition, the seller is required to deliver the goods alongside the vessel or to ensure the goods are delivered for shipment.

FOB: Free on Board

FOB means that the seller delivers the goods to the buyer:

  • On board the vessel
  • Nominated by the buyer
  • At the named port of shipment
  • Or ensures the goods are delivered.

In FOB the risk is transferred when the goods are on board the vessel.

This rule applies in transport by sea or inland waterways when the parties intend to deliver the goods by placing them on board a vessel.

The seller is required to deliver the goods on board the vessel or to ensure the goods are delivered for shipment.

In the case of both FAS and FOB, the seller is required to clear the goods for export when applicable; the seller is not obliged to do so for the importing or transit through third countries, to pay any import duties or to carry out any customs import formalities.

CFR: Cost and Freight

CFR means that the seller delivers the goods to the buyer:

  • On board the vessel
  • Or ensures the goods are delivered.

The risk of loss or damage is transferred when the goods are on board the vessel. The buyer is advised to obtain insurance coverage.

This rule applies to transport by sea or inland waterways. If there is more than one mode of transport the rule is CPT (Carriage Paid To).

CIF: Cost, Insurance and Freight

CIF means that the seller delivers the goods to the buyer:

  • On board the vessel
  • Or ensures the goods are delivered (the reference to “ensures” corresponds to the multiple sales in a chain, especially common in the trade of raw materials).

The risk of loss or damage to the goods is transferred when the goods are on board the vessel; the seller fulfils its obligation to deliver the goods whether they reach their destination or not.

This rule applies to transport by sea or inland waterways. If there is more than one mode of transport the appropriate rule is CIP (Carriage and Insurance Paid To).

The seller must arrange insurance coverage against the buyer’s risk of loss of or damage to the goods from the port of shipment to at least the port of destination. This can cause difficulties when the country of destination requires insurance coverage to be contracted locally. In this case, the parties should consider the option of selling and buying under CFR. The buyer should also note that under the CIF Incoterms 2020 rule, the seller is required to obtain limited insurance coverage that complies with the Institute’s Cargo Clauses or a similar clause, and not the broader coverage of the Institute’s Cargo Clauses.

There are common issues in CIF and CFR. They are as follows:

  • Two major ports are established: where the goods are delivered on board the vessel and the agreed port of destination
  • The risk passes from seller to buyer when the goods are delivered to the buyer by loading them on board the vessel at the port of shipment or by ensuring they are delivered. The seller must arrange for carriage of the goods from the point of delivery to the agreed destination.
  • The contract must always specify a port of destination.
  • Both parties are advised to identify precisely the point at the named port of destination, because the costs up to that point are borne by the seller.
  • If transport is carried out by multiple carriers, the contract may specify the place of delivery. If it is not specified, the risk passes when the goods are delivered to the first carrier.
  • If the seller incurs unloading costs the seller is not entitled to recover them separately from the buyer unless the parties agree otherwise.
  • The seller is required to clear the goods