Incoterms are not a transport contract but a common language that indicates where responsibility transfers. We examine the five most frequent misunderstandings in the field and how they affect invoicing.
In foreign trade, the delivery term is the item that is covered most quickly in a sales discussion but later becomes the most costly. The purpose of Incoterms rules is simple: to define, without leaving room for debate between the parties, the point at which costs and risk pass to the buyer. Nevertheless, the same mistakes are repeated in practice.
1. Assuming Risk and Cost Transfer at the Same Point
Under rules such as CIF and CFR, the seller pays the freight, but the risk passes to the buyer the moment the goods are loaded onto the vessel. Thus, even if the seller has paid the cost of a damage that occurs in transit, the loss is borne by the buyer. Companies unaware of this distinction cannot find a basis to claim against the other party when damage occurs to an uninsured cargo.
2. Applying Ship Rules to Container Cargo
FOB, CFR and CIF are based on the principle that the goods pass the ship’s rail; these rules are designed for bulk cargo. In container shipping, the goods are delivered to the carrier at the terminal days before they leave the port. The correct rule is FCA, CPT or CIP. Using FOB for container cargo leaves the responsibility unclear during the time the goods are at the terminal.
3. Assuming EXW Is the "Easiest" Delivery Term
EXW is the rule with the fewest obligations for the seller, but export customs procedures are also left to the buyer. If the buyer has no representative in the exporting country to file the declaration, the process stalls. In most cases, FCA establishes the same commercial balance with far less friction.
4. Not Considering Delivery Terms Together with Letter of Credit Requirements
The documents required by a letter of credit must be consistent with the chosen delivery term. While a CIF requires an insurance policy, FOB does not expect such a document. A mismatch between the delivery term and the document list appears as a reservation at the bank and delays payment.
5. Writing the Rule Without Specifying the Place of Delivery
"FCA" alone is incomplete information. The rule must always be written together with a location: e.g., FCA Istanbul Airport, DAP Rotterdam. When the delivery place is not specified, the point at which risk transfers is only discussed after a dispute arises.
A delivery term is not an abbreviation but a clause of risk allocation in the contract. A correctly chosen rule eliminates the need for dozens of subsequent correspondences.
All Incoterms rules are covered as a separate module in the ITSL curriculum, together with case analyses.