Incoterms for Ocean Freight (2025): Costs, Risks & Who Pays

Introduction: Why Incoterms Matter in Ocean Freight

When you ship goods internationally, Incoterms (International Commercial Terms) define who pays what, who bears the risk, and where the responsibility shifts between buyer and seller.

For ocean freight, understanding these terms isn’t just about legal compliance — it directly affects your total shipping cost, transit time, and risk exposure.

Whether you are buying machinery, exporting vehicles, or consolidating LCL cargo, choosing the right Incoterm (like FOB, CIF, or DDP) can prevent unexpected port charges and customs delays.

It also ensures both parties clearly understand their obligations for loading, insurance, and delivery.

At Winsail Logistics, we help global importers and exporters apply the right Incoterms in real-world sea freight operations — optimizing cost control and minimizing disputes.

👉 Learn more about our end-to-end shipping solutions on the Ocean Freight hub page.

Incoterms 2020 at a Glance: Quick Comparison Table

The Incoterms 2020 rules define 11 standard trade terms used globally to clarify costs, risks, and delivery responsibilities between buyers and sellers.

Not all of them apply to ocean freight — some are exclusive to sea shipments (like FAS, FOB, CFR, CIF), while others can be used for any mode of transport, including multimodal sea–air or truck–sea combinations.

Here’s a simplified overview of all 11 terms and how they affect your ocean freight operations from China.

Understanding these terms ensures transparent cost allocation and risk management between partners.

For most ocean freight shipments from China, FCA, FOB, CIF, and DDP are the most frequently used — each serving different needs depending on who arranges shipping and who manages customs clearance.

Ocean-Only Terms Explained (FAS, FOB, CFR, CIF)

The four sea-only Incoterms — FAS, FOB, CFR, and CIF — apply exclusively to non-containerized or ocean vessel shipments.

They are widely used in bulk cargo, project shipments, and traditional FCL exports from China.

FAS – Free Alongside Ship

Under FAS, the seller delivers the goods alongside the vessel at the named port of shipment.

Once the cargo is placed next to the ship (not loaded), the risk transfers to the buyer.

This term is rarely used for containerized shipments because container terminals usually don’t allow direct access to the vessel.

✅ Best for: Bulk cargo or oversized machinery loaded by crane.
⚠️ Avoid for: LCL or FCL containers handled at modern ports.

FOB – Free On Board

With FOB, the seller is responsible until the cargo is loaded on board the vessel.

Risk passes to the buyer once loading is complete, and the buyer handles freight, insurance, and destination charges.

FOB remains the most familiar term for sea freight from China — but for containerized or LCL cargo, FCA is usually safer and more accurate because cargo is handed over before vessel loading.

✅ Best for: FCL shipments managed by experienced buyers.
⚠️ Note: Risk transfer happens after loading, but many disputes arise when containers are damaged before boarding.

CFR – Cost and Freight

CFR means the seller pays the main ocean freight to the destination port but does not cover insurance.

Risk transfers when the goods are loaded on the vessel.

Buyers must arrange their own insurance coverage.

✅ Best for: Buyers who prefer the seller to book freight but manage their own insurance.
⚠️ Watch out: Port congestion or D&D at destination are still the buyer’s responsibility.

CIF – Cost, Insurance and Freight

CIF is similar to CFR but includes mandatory marine insurance provided by the seller (at least minimum “Clause C” coverage).

The seller pays for sea freight and insurance up to the destination port, while the buyer handles import customs and delivery.

✅ Best for: Beginners or buyers wanting predictable door-to-port cost.
⚠️ Tip: Seller’s insurance may only cover basic risks; for high-value goods, ask for extended coverage (“Clause A”).

These four sea-only Incoterms define how traditional ocean trade works — from loading responsibility to risk transfer on vessel departure.
Understanding their limits helps avoid disputes and hidden costs.

Multimodal Terms in Ocean Freight (EXW, FCA, CPT, CIP, DAP, DPU, DDP)

While some Incoterms are exclusive to sea freight, many others — known as multimodal terms — apply to shipments involving more than one mode of transport (for example, truck + sea, or air + sea).

For shipments from China, these terms are widely used in containerized and door-to-door operations.

EXW – Ex Works

Under EXW, the seller simply makes the goods available at their premises.

The buyer handles export clearance, transport, and insurance from China all the way to destination.

However, in China this term is often impractical — only companies with an export license can legally clear customs, so most foreign buyers cannot perform this step.

✅ Best for: Domestic Chinese trade, or if the buyer’s forwarder can legally handle export.
⚠️ Avoid for: International shipments where the buyer lacks a Chinese export agent.

FCA – Free Carrier

FCA is one of the most flexible and realistic terms for containerized shipments.

The seller delivers the goods to a carrier or logistics provider at an agreed location, after completing export clearance.

Risk transfers once the cargo is handed over — not when it’s loaded onto a ship.

This makes it safer than FOB for LCL and container freight.

✅ Best for: LCL and FCL exports; buyers using their own freight forwarder.
⚠️ Tip: Specify the exact delivery point (factory, warehouse, port depot, etc.).

CPT – Carriage Paid To

Under CPT, the seller arranges and pays for transport to the destination but risk transfers at origin, when goods are handed to the first carrier.
The buyer covers insurance if desired.

Common for sea + land multimodal routes.

✅ Best for: Buyers wanting the seller to organize freight but manage insurance themselves.
⚠️ Note: Destination port and inland charges remain buyer’s responsibility.

CIP – Carriage and Insurance Paid To

CIP is similar to CPT but includes mandatory insurance.

According to Incoterms 2020, sellers must provide insurance with Institute Cargo Clauses (A) — higher coverage than CIF.

Ideal for high-value containerized goods.

✅ Best for: High-value or fragile shipments needing full insurance.
⚠️ Note: Seller still bears risk only until handover to the first carrier.

DAP – Delivered at Place

Seller arranges all transport up to the named destination (port, warehouse, or consignee’s site), but import clearance and taxes are handled by the buyer.

Risk transfers upon delivery before unloading.

✅ Best for: Door-to-door ocean shipments where the buyer clears customs.
⚠️ Avoid if: Buyer cannot manage import duties or clearance.

DPU – Delivered at Place Unloaded

Same as DAP, except the seller is also responsible for unloading the goods at destination.

This term is often used when delivery is made directly to a warehouse or distribution center.

✅ Best for: FBA or warehouse deliveries.
⚠️ Tip: Ensure unloading capability and safety on-site.

DDP – Delivered Duty Paid

DDP gives maximum responsibility to the seller — including import clearance, duties, and taxes.

For buyers, it’s the most convenient “all-in” solution; for sellers, it’s the riskiest if local compliance isn’t well managed.

✅ Best for: E-commerce or door-to-door shipments where the seller manages every step.
⚠️ Caution: Check restricted goods, VAT registration, and local tax obligations before using.

When used correctly, these multimodal terms simplify international shipping and improve cost control — but misuse (especially EXW and DDP in China) can cause compliance and cost issues.

Who Pays What: Cost Responsibilities by Term

Every Incoterm defines who pays for which part of the journey — from pickup at origin to delivery at destination.

Understanding this breakdown is essential to avoid hidden costs such as origin terminal fees, destination handling charges (THC), and D&D (demurrage and detention).

Below is a simplified cost responsibility matrix for ocean freight shipments.

✅ = Paid by Seller  ❌ = Paid by Buyer

Key Takeaways:

• For FOB / CFR / CIF, costs are shared — seller covers export + sea freight, buyer handles insurance (except CIF) and import.
• DAP / DPU / DDP shift most costs to the seller — convenient but riskier for compliance.
• EXW gives buyers full control but often causes customs challenges in China.

Understanding these distinctions helps you estimate true landed cost before committing to any trade deal.

Risk & Insurance: Transfer Points and Coverage

Many importers assume that once the seller pays for freight, they also bear the risk — but that’s not always true.

In Incoterms, cost transfer and risk transfer are two different concepts.

• Risk transfer: the moment responsibility for loss or damage passes from seller to buyer.
• Cost transfer: who pays for transport, insurance, and handling charges.

For example:

• Under CFR, the seller pays for ocean freight but risk transfers once the goods are loaded on the vessel.
• Under CIF, the seller pays both freight and insurance, yet the risk still transfers at loading, not at arrival.

This means even when your supplier books and insures the shipment, you may still bear financial loss if the insurance coverage is minimal or claim handling is poor.

CIF vs CIP: The Insurance Difference

• CIF (Cost, Insurance & Freight) — Seller provides minimum insurance (“Institute Cargo Clauses C”), covering only basic perils like fire, explosion, or sinking.
• CIP (Carriage & Insurance Paid To) — Seller must provide higher coverage (“Institute Cargo Clauses A”), protecting against a wider range of risks.

For high-value or fragile cargo (electronics, machinery, artworks, etc.), CIP or private full-coverage insurance is strongly recommended.

Key Takeaways

• Always check where risk transfers, not just who pays freight.
• Ask your supplier for a copy of the insurance policy before shipment.
• For FCL/LCL shipments from China, consider additional insurance for DDP/DAP deliveries.

Proper understanding of risk and insurance ensures that both parties stay protected throughout the entire ocean freight process.

Common Pitfalls Importers Face

Even experienced importers can fall into costly mistakes when applying Incoterms to real-world ocean freight.

Here are the most frequent issues we see when shipping from China — and how to avoid them.

1. Using EXW in China (Export Clearance Problem)

EXW makes the buyer responsible for export customs, but foreign buyers cannot legally file export declarations in China.

This leads to delays, fines, or rejection at customs.

👉 Better alternative: FCA, where the seller completes export clearance.

2. Applying FOB for LCL or Containerized Cargo

FOB transfers risk only after loading on the vessel, but in containerized shipping, the seller delivers the goods long before that — at a warehouse or terminal.

Disputes often arise when damage occurs before loading.

👉 Better alternative: FCA, which reflects the actual delivery point.

3. Ignoring Hidden Destination Charges

Under terms like FOB, CFR, or CIF, buyers pay for destination port handling (THC, D/O, local delivery).

These can add hundreds of dollars and are not always quoted upfront.

👉 Always ask your forwarder for a full “landed cost breakdown.”

4. Misunderstanding DDP Tax Liabilities

DDP looks convenient (“door-to-door, all-inclusive”) but can be risky:

The seller must handle import duties, VAT, and local regulations — which may require a tax registration or local agent.

👉 If you’re a seller, use DAP or DPU unless you fully understand the destination country’s compliance rules.

5. Assuming Insurance Equals Full Protection

Many CIF shipments only include minimal insurance coverage.

If cargo is lost or damaged, compensation may be far below the real value.

👉 Request a copy of the insurance certificate and upgrade to “Clause A” coverage when possible.

6. Overlooking Demurrage & Detention (D&D)

Importers often forget that container delays after arrival incur daily charges.

Under most terms (except DDP if agreed), the buyer bears these costs.

👉 Track your arrival schedule and coordinate customs clearance early.

Being aware of these pitfalls can save both money and headaches in global trade.

Winsail Logistics helps importers choose Incoterms that align with their shipping strategy and compliance needs.

How to Choose the Right Incoterm for Ocean Freight

Selecting the right Incoterm can determine whether your shipment is smooth, delayed, or unexpectedly expensive.

The best term depends on three key factors: your experience level, control preference, and risk tolerance.

1. By Experience Level

2. By Cargo Type and Value

3. By Control and Responsibility

• If you want more control over the carrier, route, and timing → choose FCA / FOB.
• If you prefer less operational involvement → choose CFR / CIF / DAP.
• If you want a fully managed, all-inclusive delivery → choose DDP, but only with verified compliance.

Quick Tips

• Avoid EXW unless your forwarder can handle export clearance in China.
• For container shipments, FCA reflects reality better than FOB.
• For high-value goods, ensure insurance under “Clause A”.
• When in doubt, consult your freight forwarder before signing the contract.

Choosing the correct Incoterm keeps your costs transparent and protects you from legal or logistical risks.

Documentation by Term: Key Shipping Documents in Ocean Freight

Each Incoterm defines not only who pays and who bears the risk — but also who prepares and provides the essential shipping documents.

Having complete and accurate documentation ensures smooth customs clearance and payment under trade contracts or letters of credit.

Key Documents in Ocean Freight

Document Flow by Term

Best Practices

• Double-check that Incoterm and delivery address match across all documents.
• Use consistent consignee and notify party details on B/L to avoid release issues.
• For DDP, confirm VAT / EORI registration at destination before shipping.
• Keep digital copies for traceability and claim purposes.

Accurate documentation is the backbone of every successful ocean freight shipment.

Real-World Incoterm Scenarios (Use Cases)

Let’s look at three real examples of how Incoterms work in practice for shipments from China.

Each case highlights how cost, risk, and control change under different terms.

1. FOB – Furniture Shipment from Foshan to Hamburg

A European buyer purchases 1×40HQ container of wooden furniture from a factory in Foshan.

The seller books export clearance and delivers the goods on board the vessel at Shenzhen port.

After loading, the risk transfers to the buyer, who arranges ocean freight and destination charges in Hamburg.

✅ Why it works: FOB suits FCL shipments where the buyer manages freight and insurance.
⚠️ Tip: Ensure the supplier handles export customs properly.

2. CIP – High-Value Electronics from Shenzhen to Dubai

A Middle Eastern distributor buys fragile, high-value electronics.

They agree on CIP Dubai so the seller books the main carriage and provides full insurance (Clause A).

Risk transfers when the goods are handed to the first carrier in China.

✅ Why it works: CIP ensures insurance coverage and seller-managed shipping.
⚠️ Tip: Verify insurance details and consignee information on the policy.

3. DAP – Amazon FBA Delivery from Ningbo to Los Angeles

An e-commerce seller ships goods directly to Amazon’s fulfillment center.

Under DAP Los Angeles, the Chinese seller arranges door-to-door shipping, including sea freight and local delivery, but the buyer handles import clearance and duties.

✅ Why it works: Ideal for FBA or B2C delivery, providing cost predictability and time efficiency.
⚠️ Tip: Confirm customs broker details in advance to avoid delays at destination.

Each Incoterm fits different trade realities — understanding these distinctions helps importers and exporters minimize disputes and optimize total landed cost.

Compliance & Liabilities in Ocean Freight Incoterms

Using Incoterms correctly is not just about price and delivery — it’s also about legal compliance.

Both exporters and importers must understand their liabilities for customs, taxes, restricted goods, and documentation.

1. Export Compliance from China

• Only companies with valid export licenses can file export customs declarations in China.
• Under EXW, this becomes an issue — foreign buyers cannot legally export on their own.
• Always ensure your Chinese supplier or freight forwarder has MOFCOM registration and customs code.

2. Import Compliance at Destination

• The importer of record (IOR) is legally responsible for declaring goods, paying duties, and complying with local laws.
• Under DDP, the seller must act as or appoint a local IOR.
• Misreporting HS codes, undervaluing invoices, or shipping restricted items can lead to penalties or cargo seizure.

3. Sanctioned or Restricted Destinations

Some countries and entities are under trade sanctions (e.g., North Korea, Iran, Syria, Crimea, Sudan).

Shipping under DDP or even CIF to these areas without prior authorization can violate international law.

👉 Always check OFAC / EU / UN sanction lists before booking shipments.

4. Dangerous Goods & Dual-Use Items

• Items like lithium batteries, chemicals, and high-tech electronics require special handling and export permits.
• Misdeclaring them under normal HS codes can lead to fines or criminal liability.
• Coordinate with your freight forwarder for DG certification and MSDS documentation.

5. Contractual Liability

If Incoterms are not correctly stated in the sales contract, invoice, and B/L, disputes may arise over who bears loss or delay.
Always specify:

“Incoterms 2020 – [Term + Place]”
e.g., “FOB Shenzhen Port, Incoterms 2020”.

Proper compliance protects both sides from delays, penalties, and reputation loss.

Winsail Logistics helps clients manage export documentation, HS code validation, and risk checks for global destinations.

Conclusion

Understanding Incoterms is essential for anyone involved in international ocean freight.

These trade rules define who pays what, who bears the risk, and who handles which documents — all of which directly affect cost, timing, and compliance.

By choosing the right term for your shipment, you can:

• Prevent customs or insurance disputes
• Optimize logistics efficiency
• Protect your profit margins and reputation

Whether you’re shipping containers, bulk cargo, or door-to-door deliveries, mastering Incoterms turns complexity into clarity — helping both buyers and sellers build smoother, more transparent global trade relationships.