Incoterms Guide

What are the Incoterms 2020?

The Incoterms 2020 are 11 standard trade terms, published by the ICC, that allocate cost, risk and obligations between a seller and a buyer. In bulk, the chosen term decides who charters the vessel: under the C-terms (CFR, CIF) the seller books and pays for the ship; under FOB the buyer charters.

That single fact is the reason a dry-bulk chartering desk reads the Incoterm before it reads anything else on a sale contract. The trade term is not just an accounting convenience for the cargo traders. It is the instruction that tells the desk which side of the deal is going to be in the market for tonnage, who carries the freight cost, and where in the voyage the cargo stops being the seller’s risk and becomes the buyer’s. A grain house selling FOB at the load port is telling its counterparty: you arrange the voyage charter, you pay the freight rate, you take the cargo from the moment it is loaded on board. The same house selling CIF to a discharge port is saying the opposite: we will charter the ship, we will pay the freight to your port, and we will buy the marine cover.

Incoterms cover the seller-buyer relationship only. They do not govern the carriage contract between the charterer and the shipowner, which is the charter party, nor do they transfer title to the goods. They sit one layer above the fixture and decide which party will be the charterer.

The 11 Incoterms 2020 rules

There are 11 rules in the Incoterms 2020 set. Seven apply to any mode of transport. Four apply only to sea and inland-waterway carriage, and those four are the ones that dominate bulk trades because dry bulk moves almost entirely by ship. The table below enumerates the full set, with the transport mode that distinguishes the four sea terms from the rest, who arranges the main carriage, and the group each rule belongs to.

Code	Rule	Transport mode	Who arranges main carriage	Group
EXW	Ex Works	Any mode	Buyer (collects at seller's premises)	E
FCA	Free Carrier	Any mode	Buyer	F
CPT	Carriage Paid To	Any mode	Seller	C
CIP	Carriage and Insurance Paid To	Any mode	Seller	C
DAP	Delivered at Place	Any mode	Seller	D
DPU	Delivered at Place Unloaded	Any mode	Seller	D
DDP	Delivered Duty Paid	Any mode	Seller	D
FAS	Free Alongside Ship	Sea / inland waterway	Buyer	F
FOB	Free On Board	Sea / inland waterway	Buyer	F
CFR	Cost and Freight	Sea / inland waterway	Seller	C
CIF	Cost, Insurance and Freight	Sea / inland waterway	Seller	C

The four sea terms, FAS, FOB, CFR and CIF, are the traditional bulk-shipping terms. They predate the any-mode rules and were written for goods handed over at or across a ship at a named port, which is exactly how a parcel of coal, grain or iron ore moves. A desk fixing dry bulk will almost always be working from one of these four.

Who charters the vessel under each Incoterm

The allocation matrix below is the spine of the whole concept. Read across the four sea terms, it shows who charters the ship, who pays ocean freight, where the cargo risk passes from seller to buyer, who insures the cargo, and who handles each customs clearance. The freight and chartering rows are what a bulk desk reads first.

The pattern is clean once the groups are visible. The F-terms (FAS and FOB) put chartering and freight on the buyer: the buyer is the one in the market for tonnage and the one who carries demurrage exposure on the charter party. The C-terms (CFR and CIF) put chartering and freight on the seller. The risk line is the part desks most often get wrong: under both C-terms, the seller pays the freight all the way to the discharge port, but the cargo risk has already passed to the buyer the moment it was loaded on board at the origin. The seller pays for carriage it does not own the risk on. CIF differs from CFR by one row only: the seller must also buy a minimum level of marine cargo cover for the buyer’s benefit.

Why the sea terms matter most in bulk

The 11 rules are ordered and grouped on two axes, and that structure explains why only four of them matter on a dry-bulk desk.

• The four lettered groups (E, F, C, D) run by increasing seller obligation. E is a single term, EXW, where the seller does the least and simply makes the goods available at its own premises. The F-terms (FCA, FAS, FOB) hand the goods to a carrier arranged by the buyer, with the main carriage unpaid by the seller. The C-terms (CPT, CIP, CFR, CIF) have the seller pay for the main carriage but pass risk earlier than delivery. The D-terms (DAP, DPU, DDP) make the seller responsible all the way to a named place in the buyer’s country.
• Any-mode against sea and inland-waterway. Seven rules (EXW, FCA, CPT, CIP, DAP, DPU, DDP) are written for any transport mode or a combination of modes, including container and road. The remaining four (FAS, FOB, CFR, CIF) are written only for sea and inland-waterway transport, where the goods are delivered at or over the side of a ship.
• Why bulk lives in the sea terms. A dry-bulk parcel is loaded on board a bulk carrier at a port and discharged at another port. There is no container, no door-to-door leg, no multimodal handoff. That is exactly the scenario the four sea terms were drafted for, which is why FAS, FOB, CFR and CIF carry essentially all dry-bulk volume and the any-mode terms are rare in the segment.

The practical consequence is that a bulk desk only needs to be fluent in the four sea terms, and within those four the live question is almost always FOB against CIF: does the buyer charter, or does the seller.

FOB and CIF in a bulk sale

FOB and CIF are the two poles of the bulk trade. They sit at opposite ends of the chartering question, and almost every bulk sale resolves to one of them or a close variant.

Under FOB (Free On Board), the seller’s job ends when the cargo is loaded on board the vessel at the named load port. From that point the buyer carries the cost and the risk. Critically for a chartering desk, the buyer is the charterer: the buyer fixes the ship, nominates it to the seller, pays the freight rate, and owns the relationship with the shipowner. The seller’s exposure is confined to getting a conforming cargo on board within the agreed window. FOB suits a buyer who wants control of the freight, either because it has its own chartering desk, a contract of affreightment covering the lane, or a view that it can fix tonnage more cheaply than the seller.

Under CIF (Cost, Insurance and Freight), the seller charters the vessel, pays the freight through to the named discharge port, and buys a minimum level of marine cargo insurance for the buyer’s account. But the risk in the goods still passes to the buyer when the cargo is loaded on board at the origin, the same risk-transfer point as FOB and CFR. So under CIF the seller is paying for two things on cargo it no longer carries the risk on: the freight and the insurance. CIF suits a seller that wants to control the freight, often to capture a margin on chartering or to guarantee delivered economics, and a buyer that prefers a single delivered price and does not want to be in the freight market. CFR is CIF without the seller-bought insurance: the seller still charters and pays freight, but the buyer arranges its own cover.

The chartering desk’s read is simple. On an FOB cargo, the buyer is the client for tonnage. On a CIF or CFR cargo, the seller is. The bill of lading and its freight-prepaid or freight-collect marking then has to line up with whichever party is paying the freight under the term.

Incoterms in a real bulk fixture

The fixture above shows the Incoterm doing its real work: it routed the chartering, the freight payment and the insurance to the seller, while the risk transfer stayed at the load port. Change the three letters from CIF to FOB and the entire chartering workstream moves to the other party.

Scope and what this page does not cover

This page explains the Incoterms 2020 rules through the bulk-shipping lens of who charters the vessel: the full 11-rule set, the four sea terms that carry dry-bulk volume, the cost, risk, freight and insurance allocation between seller and buyer, and how the term routes the chartering work in a real fixture. It does not reproduce the ICC rule text, which is copyright to the ICC and must be read in the official publication; it does not give jurisdiction-specific advice on title, payment terms or letters of credit; and it does not cover the any-mode terms in the depth given to the sea terms, because dry bulk rarely uses them. The figures in the worked example are representative and anonymised, not market quotes. For the carriage contract that sits beneath the Incoterm, see voyage charter, the bill of lading, and the cargo-handling cost basis under FIO.