All 11 terms explained — risk transfer points, seller vs buyer obligations, exam tips, drag-and-drop challenges and a quiz. Built for CIPS students and procurement professionals alike.
Risk transfer point — select a term to see where risk flips
← Max seller risk (EXW)Max buyer risk (DDP) →
Click any term below to see its risk transfer point on the scale above.
Any mode of transport
Sea & inland waterway only
Test your knowledge with three drag-and-drop challenges. Drag each Incoterm into the correct category.
Challenge 1 — Any mode vs sea & inland waterway only
Any mode
Sea / inland waterway only
Challenge 2 — Who arranges main carriage?
Seller arranges
Buyer arranges
Scenario 01
The cautious importer
A UK buyer is importing pharmaceutical components from a supplier in Germany. They have no logistics team and no relationships with freight forwarders. They want everything handled by the supplier — delivery to their warehouse door with all customs cleared. Which term best fits?
EXW Ex Works — buyer collects from seller's premises
DDP Delivered Duty Paid — seller delivers to named destination, duty paid
FCA Free Carrier — seller delivers to named carrier
DDP is correct. Delivered Duty Paid places maximum obligation on the seller — they handle all carriage, insurance, customs clearance and import duty. The buyer simply receives goods at their door. It's the highest-obligation term for the seller and lowest-risk for the buyer. Note: sellers often dislike DDP because they bear import duty risk in a country they don't know well.
Scenario 02
The experienced exporter
A small UK manufacturer is selling components to a buyer in the US for the first time. They have no experience with US customs or import procedures. They want to hand over responsibility as early as possible — ideally as soon as goods leave their factory. Which term is most appropriate?
EXW Ex Works — buyer responsible from seller's premises
DAP Delivered At Place — seller delivers to named destination uncleared
CPT Carriage Paid To — seller arranges carriage to named place
FCA Free Carrier — seller delivers to named carrier/location
EXW is correct — but with an important caveat. Ex Works transfers risk at the seller's premises, so the buyer is responsible for everything including loading, export clearance and all freight. It minimises the seller's obligations. However, note that in practice FCA is often preferable for the seller because under EXW the seller can't obtain a bill of lading to satisfy letter of credit requirements. EXW is the extreme position — fine for domestic or when the buyer has strong logistics.
Scenario 03
The bulk grain shipment
A commodity buyer is purchasing 5,000 tonnes of wheat from a supplier in Ukraine, shipped by bulk carrier. The buyer has their own freight forwarder and wants to arrange their own insurance at a higher level than standard. The seller should load the goods onto the vessel. Which term fits?
FAS Free Alongside Ship — risk transfers when goods are alongside vessel
FOB is correct. Free On Board is a sea-only term where risk transfers once goods are on board the named vessel. The buyer arranges their own freight and insurance — which is exactly what this buyer wants. FOB is one of the most commonly used terms in bulk commodity trading. CIF would make the seller arrange both freight and (minimum) insurance — not what the buyer wants here. FAS transfers risk earlier, alongside the ship, before loading.
Scenario 04
The construction project
A UK contractor is importing steel beams from Spain for a construction project. The seller will arrange the transport to the UK site but the buyer will handle all import formalities and duties. Delivery is to the construction site, not a port. Which Incoterm is most appropriate?
CPT Carriage Paid To — risk transfers at first carrier, seller pays freight
DAP Delivered At Place — seller delivers to named place, buyer handles import
CIP Carriage and Insurance Paid — seller pays freight and insurance to named place
DAP is correct. Delivered At Place means the seller is responsible for all carriage to the named destination (the construction site) but the buyer handles import clearance and pays any import duties. This is a good middle-ground term — the seller manages logistics, the buyer handles their own customs. Note DDP would put import duty on the seller, which they don't want. CPT and CIP transfer risk earlier (at the first carrier) not at destination.
Scenario 05
The letter of credit buyer
A buyer in Singapore is purchasing electronics from a UK exporter and needs a negotiable bill of lading to satisfy their letter of credit bank requirements. The goods will be containerised. The seller will hand the goods to a freight forwarder at a container terminal before loading. Which term is recommended?
FOB Free On Board — commonly used but problematic for containerised goods
FCA Free Carrier — 2020 update allows on-board bill of lading to be issued
EXW Ex Works — buyer responsible for everything including export clearance
FCA is correct — and this is specifically a 2020 update scenario. Prior to Incoterms 2020, FOB was commonly (but incorrectly) used for containerised goods. The 2020 revision added a new option to FCA: the buyer can instruct their carrier to issue an on-board bill of lading to the seller once goods are loaded. This satisfies letter of credit requirements while using the correct term for containerised shipments. This change is frequently tested in CIPS examinations.
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