Incoterms® rules are standardized contract terms published by the International Chamber of Commerce (ICC). They allocate specified delivery responsibilities, costs and risks between buyer and seller. They do not determine every part of a sale contract, the product's tariff classification or the business's inventory accounting policy.
Use the rule, a precise named place or port, and the edition in the agreement. “FOB” alone leaves important location information unstated. The ICC's Incoterms 2020 reference describes eleven rules, with seven usable for any transport mode and four for sea or inland waterway transport.
FOB, CIF and DDP compared
| Rule | Practical distinction |
|---|---|
| FOB — Free On Board | A sea or inland waterway rule. Delivery and risk transfer occur when goods are aboard the vessel at the named shipment port. |
| CIF — Cost, Insurance and Freight | Also a sea or inland waterway rule. The seller arranges freight and required insurance to the named destination port, while delivery and risk transfer occur at shipment. |
| DDP — Delivered Duty Paid | The seller bears the agreed delivery obligations through the named destination, including import clearance. Delivery is on the arriving transport, ready for unloading. |
Cost responsibility and risk transfer can occur at different places. Paying for freight to a destination does not necessarily mean retaining transit risk until arrival. The ICC explains FOB's delivery point and . Review the actual contract and insurance coverage when resolving a loss; an Incoterm label alone does not settle fault, coverage or a claim.