Free course · Trade terms + risk transfer
Incoterms 2020
All 11 Incoterms 2020 rules (EXW to DDP), who pays freight and insurance, where risk passes, and how to choose the right term in a PO.
What you must take away
- Incoterms (ICC) define who pays costs, who carries risk and who does the paperwork.
- Any mode: EXW, FCA, CPT, CIP, DAP, DPU, DDP. Sea only: FAS, FOB, CFR, CIF.
- Under CPT/CIP/CFR/CIF the seller pays freight but risk passes early, at handover to the carrier.
- Always write the term plus a named place, e.g. 'FCA Chennai Port, Incoterms 2020'.
In the SAP process
- Maintain Incoterms in the vendor/customer master.
- Check Incoterms and named place on the PO header (ME21N).
- Confirm freight conditions match the term.
- Use the term to decide who books insurance.
Case study
The damaged shipment nobody insured
Setting. An importer buying machine parts under CFR from an overseas supplier.
Problem. Cargo was damaged at sea. The buyer assumed the seller had insured it.
How it was investigated
- Under CFR the seller pays freight but not insurance.
- Risk had passed to the buyer when goods were loaded on board.
- The buyer had no cargo policy.
What was changed
- Switched future orders to CIP with the named destination.
- Added an Incoterms checklist to every PO approval.
- Took an annual open cargo policy.
Outcome. The next claim was recovered from insurance and PO disputes on freight dropped.
Lesson: Who pays freight is not the same as who carries the risk.
Illustrative composite of common shop-floor situations — no client names or confidential figures.
Practical template
Incoterms checklist
Confirm costs, risk and documents before issuing a PO.
| Incoterm | Named place | Freight paid by | Insurance by | Risk passes at | Export clearance | Import clearance |
|---|---|---|---|---|---|---|
| FCA | Chennai ICD | Buyer | Buyer | Handover to buyer's carrier | Seller | Buyer |
How to use it
- Fill one row per supplier or lane.
- Check the PO term matches the row.
- Arrange insurance where your side carries risk.
Quick quiz — check your understanding
The quiz questions stay hidden until you have spent at least one minute reading this lesson — answer from what you learned, not from clues in the options.